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https://www.courtlistener.com/api/rest/v3/opinions/8491899/ | *357ORDER ON MOTION TO DISMISS COMPLAINT, TO STAY DISCOVERY AND FOR SANCTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matter under consideration is a Motion to Dismiss Complaint, to Stay Discovery and for Sanctions, filed by Mobil Mining and Minerals Company (Mobil). In its Motion, Mobil seeks dismissal of the complaint, or in the alternative a stay of the discovery of this proceeding. The Motion to Dismiss is based on the principles of res judicata, or in the alternative, collateral estoppel or laches. The facts relevant to resolution of this controversy are as follows:
Prior to the commencement of this case, Mobil and Bulman Construction Company, Inc. (Debtor) entered into a Job Contract, Contract Number 05898C (Contract) in which the Debtor agreed to recover, haul and unload debris and Mobil agreed to pay for these services.
On October 4, 1991, the Debtor filed its Petition for Relief under Chapter 11 of the Bankruptcy Code. In December 1991, the Debtor filed an adversary proceeding. In Count I the Debtor sought a money judgment for money claimed to be due by Mobil to the Debtor under the contract. In Count II of the Complaint, the Debtor requested a determination that the subcontractors did not have a valid lien claim against the Debtor. On February 2, 1992, this Court entered an Order and granted Mobil’s Motion staying any further proceeding on Count I pending a determination by this Court of the merits of the claims set forth in Count II.
On July 27,1992 the case was converted to Chapter 7 and Larry S. Hyman was appointed as trustee (Trustee). On July 31, 1992, this Court entered an Order directing the Trustee to seek substitution as Plaintiff in the adversary proceeding commenced by the Debtor in Possession. The Order granted the Trustee fourteen (14) days in which to file a Notice of Substitution. The Order further provided that if the Trustee failed to file a timely notice indicating his intention to be substituted as Plaintiff in the adversary proceeding, the adversary would be dismissed without further notice.
On August 5, 1993 the Trustee filed a Motion for Order Substituting Trustee as Party Plaintiff Nunc Pro Tunc. It is undisputed that this Motion was not timely. On August 23, 1993 this Court entered an Order and denied the Trustee’s Motion, and the adversary proceeding was dismissed.
On November 5,1993, the Trustee filed the instant adversary proceeding. His complaint contains two counts. In Count I the Trustee seeks a money judgment for damages and moneys claimed to be due under the Contract, the very same contract which was the subject of the original complaint filed by the Debtor in possession during the pendency of the Chapter 11 case. In Count II the Trustee seeks a determination of the extent and validity of liens claimed by subcontractors against property of the estate. On December 3,1993, Mobil filed its Motion to Dismiss Complaint, to Stay Discovery and For Sanctions, which is currently before the Court.
Based upon the foregoing, Mobil contends that the Complaint filed by the Trustee should be dismissed because the Complaint filed by the Trustee is nothing more than repetition of the Complaint filed by the Debt- or during the pendency of the Chapter 11 and which was dismissed for the Trustee’s failure to timely substituted as party plaintiff. According to Mobil, the Trustee is barred by res judicata to proceed with the second Complaint or in the alternative, bound by the doctrine of collateral estoppel. Mobil also contends that in any event the Trustee is barred by the doctrine of laches from proceeding with the second complaint; and because the amount of time which has elapsed between the dismissal of the first Complaint and the filing of the present one. Furthermore, so contended Mobil that the complaint should be dismissed upon equitable grounds based upon the circumstances surrounding the previous dismissal and the amount of time which has elapsed since that dismissal.
There is hardly any doubt that neither the doctrine of res judicata nor the doctrine of collateral estoppel have an appli*358cation to the undisputed facts before this Court. First, the parties are not the same, the issues in the original and in the subsequent adversary proceeding before this Court are not the same. In re St. Laurent, II, et al., 991 F.2d 672 (11th Cir.1993); In re Daily, 125 B.R. 816 (Bankr.D.Haw.1991). Second, none of the issues involved in the first adversary proceeding, albeit they are basically identical, were ever actually tried. Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980). See also, Spilman v. Harley, 656 F.2d 224 (6th Cir.1981); Matter of Ross, 602 F.2d 604 (3d Cir.1979).
Considering the Motion to Dismiss based on laches, it is well-established that the elements of laches are (1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense. EEOC v. Great Atlantic & Pacific Tea Co., 735 F.2d 69 (3d Cir.1984) (quoting Costello v. United States, 365 U.S. 265, 81 S.Ct. 534, 5 L.Ed.2d 551 (1961)). In the present instance, there is no doubt that the Trustee failed to timely substitute in as party-plaintiff, and took no action to pursue the claims set forth in the complaint for over a year and a half after the first dismissal. However, this Court is satisfied that the delay caused by the Trustee in the pursuit of this action, although unreasonable, is not prejudicial to Mobil.
However the result is slightly different as to Count II, which seeks to a determination of the extent or validity of a lien. § 546 limits the time during which a Trustee may begin an action under § 544 or § 545 of the Bankruptcy Code. § 546 provides, in pertinent part, as follows:
§ 546. Limitations on avoiding powers
(a) An action or proceeding under section 544, 545, 547, 548 or 553 of this title may not be commenced after the earlier of—
(1) two years after the appointment of a trustee under section 702, 1104, 1163, 1302 or 1202 of this title; or
(2) the time the case is closed or dismissed.
In the present case, the Chapter 7 trustee was appointed on July 30, 1992, and the Complaint was filed on November 5, 1993. Although this is within the two years set forth in § 546, it now appears that the time for commencement of an action under § 546 begins to run from the date of the Chapter 11 case. In re Coastal Group, Inc., 13 F.3d 81 (3d Cir.1994); In re Softwaire Centre Int'l, Inc., 994 F.2d 682 (9th Cir.1993); Zil-kha Energy Co. v. Leighton, 920 F.2d 1520 (10th Cir.1990); In re Luria Steel and Trading Corporation, 164 B.R. 293 (Bankr. N.D.Ill.1994). That being the case, Count II of the Complaint is clearly outside of the two year period and is time-barred.
This leaves for consideration the request by Mobil that the proceeding on Count I be stayed. Inasmuch as this request seeks the stay pending resolution of Count II, and this Court has already determined that Count II is time-barred, this Court is satisfied that the request to stay is not well taken.
Finally, Mobil seeks the imposition of sanctions, upon the Trustee, and counsel for the Trustee for the filing of this Complaint which was identical to the previously filed Complaint. The sanctions sought are based upon alleged violations of Federal Rule of Bankruptcy Procedure 9011. The document complained of is the Complaint, signed by James E. Foster, attorney for the Trustee. F.R.B.P. 9011, provides in pertinent part as follows:
Rule 9011. Signing and Verification of Papers
(a) Every petition, pleading, motion and other paper served or filed in a case ... shall be signed by at least one attorney of record ... The signature of an attorney ... constitutes a certificate that the attorney ... has read the document; that to the best of the attorney's ... knowledge, information, and belief formed after 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 to cause delay, or to increase the cost of litigation....
*359This Rule provides that the signature of an attorney constitutes a certification that the attorney has read the document; that to the best of the attorney’s knowledge, information and belief formed after reasonable inquiry, the document is well grounded in fact; that it is warranted by existing law, or a good faith argument exists for the extension, modification or reversal of the existing law; and that it is not interposed for any improper purpose such as to harass, cause unnecessary delay or increase the cost of litigation.
Upon a review of the Complaint, there is no question that the Trustee pled a viable claim against Mobil in his Complaint. Although it is clear that this Complaint is the identical complaint to that filed by the Debt- or-in-Possession during the Chapter 11, there is nothing to say that the Complaint is no longer grounded in fact or supposedly by existing law simply because it had previously been asserted. Based upon this Court’s findings above vis-a-vis res judicata and collateral estoppel, this Court is satisfied that there was no violation of F.R.B.P. 9011 by counsel for the Trustee.
Accordingly, it is
ORDERED, ADJUDGED AND DE- ’ CREED that the Motion to Dismiss Complaint, to Stay Discovery and for Sanctions is hereby denied. A pretrial conference shall be scheduled before the undersigned in Courtroom C of the United States Bankruptcy Court, 4921 Memorial Highway, Tampa, Florida, on July 27, 1994 at 10:15 a.m. It is further
ORDERED, ADJUDGED AND DECREED that Count II is hereby dismissed with prejudice.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491900/ | ORDER ON MOTION TO DISQUALIFY COUNSEL
ALEXANDER L. PASKAY, Chief Judge.
THIS is a yet-to-be confirmed Chapter 11 case and the matter under consideration is a Motion to Disqualify James Fetterman (Fet-terman) from representing Presidential Realty, Inc. (Debtor) as counsel of record in this Chapter 11 case. The Motion is filed by Moors & Cabot (Moors & Cabot), a creditor of the Debtor. In its Motion, Moors & Cabot contends that Fetterman should be disquali-*360fled from representing the Debtor because Fetterman represents adverse interests to the Debtor. Specifically, Moors & Cabot alleges that Fetterman also represents Edmund Danzig, the principal of the Debtor, and Terra Ceia Ventures, Inc., (Terra Ceia), a related entity of the Debtor. According to Moors & Cabot, the Debtor made payments to Danzig within one year of the filing, and Danzig is a guarantor on obligations of the Debtor to third parties. In addition, Terra Ceia is a party to an Agreement with the Debtor, which, according to Moors & Cabot, Terra Ceia has breached. Based upon these allegations, Moors & Cabot contend that Danzig and Terra Ceia hold adverse interests to the Debtor, and by representing Danzig and Terra Ceia, Fetterman represents conflicting interests to the Debtor.
In opposition, Fetterman claims that he never represented Danzig or Terra Ceia, with the exception of appearing at a deposition on behalf of Danzig and Terra Ceia. In addition, Fetterman asserts that no actual conflict exists at this time, a point not conceded, and there will be no conflict if the claim of Moors & Cabot is disallowed.
§ 327 governs the employment of professional persons by a trustee or debtor-in-possession, and provides, in pertinent part, as follows:
§ 327. Employment of professional persons.
(a) Except as otherwise provided in this section, the trustee, with the court’s approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.
(c) In a case under chapter 7, 12, or 11 of this title, a person is not disqualified for employment under this section solely because of such person’s employment by or representation of a creditor, unless there is objection by another creditor or the United States trustee, in which case the court shall disapprove such employment if there is an actual conflict of interest.
In the instant case, there is no doubt that the interests of the principal, Danzig, and a related entity, Terra Ceia, controlled by Dan-zig, are adverse to the interest of the Debtor. Certainly both Danzig and Terra Ceia could be named as defendants in an adversary proceeding of which the Debtor would have standing to pursue. The Debtor, if it chose could pursue a preference action, or fraudulent transfer action against Danzig for the recovery of payments made to him within the year preceding bankruptcy. Likewise, the Debtor could pursue an action for breach of contract against Terra Ceia. This alone establishes the adverse interests of Danzig and Terra Ceia as related to the Debtor. Moreover, Fetterman’s stated opposition to the Motion misses the mark completely. Whether or not the claim of Moors & Cabot is allowed or disallowed has no relevance to the claimed conflict. If there is a conflict, in fact which appears to be the case, the Motion must be granted.
However, the only showing that Fetterman represents Danzig and Terra Ceia is a Motion for Protective Order filed on behalf of Danzig and Terra Ceia. Unfortunately, the Motion is unsigned, with the exception of the certificate of service, which is signed by Fet-terman, and which certifies only that the Motion was served by mail on a certain list of parties. Based upon the foregoing, this Court is satisfied that this showing is insufficient to warrant the conclusion that Fetter-man represents Danzig and Terra Ceia, and therefore, the Motion should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Disqualification of Debtor’s Counsel is hereby denied, and the Order approving employment of Fetter-man as counsel for the debtor is hereby affirmed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491901/ | ORDER ON MOTION FOR RELIEF FROM STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a yet to be confirmed Chapter 11 case and the matters under consideration are two Motions both of which seek relief from the automatic stay imposed by § 362 of the Bankruptcy Code. The Motions are filed by Billy Ray Ary (Mr. Ary) and Emmanuel McClain (Mr. McClain), both citizens of Alabama and former employees of Jim Walter Resources (Debtor), an affiliate of Hillsbor-ough Holdings Corporation/Walter Industries, Inc., the parent of the Debtor. Both Motions seek relief for “cause” in order to be permitted to continue their civil actions filed before the commencement of this Chapter 11 case, actions which are still pending in the Circuit Court in Jefferson County, Alabama. The law suit of Mr. Ary was filed on August 3, 1988 in which he seeks, in a two count Complaint, compensatory and punitive damages. In Count I Ary contends that he was employed by the Debtor and in the course of his employment he received injuries and, therefore, that the Debtor is liable to him under the Workers’ Compensation Act of the State of Alabama. In Count II, Ary contends that he settled his claim with the Debt- or, his settlement was approved by the Court and after the settlement he returned to work but on February 17th he was discharged. In addition, Ary contends that due to the outrageous conduct of the Debtor he was harassed and intimidated and, as a result, suffered injuries and damages. In this Count Ary seeks to collect punitive damages.
The Complaint by Mr. McClain was also filed in the same court on May 7, 1989, and sets forth two claims. The claim in Count I *382is based on the contention of McClain that in the course of his employment he received injuries to his back, he is entitled to benefits under the Workers’ Compensation Act, that he made a demand for the benefits but was refused. In Count II McClain claims that after he received the benefits under the Workers’ Compensation Act of the State of Alabama, he made claim against the Debtor and the Debtor wrongfully discharged him in violation of the Workers’ Compensation Act of the State of Alabama.
Both Movants filed their Proofs of Claim in the Debtors’ case, Mr. Ary for $250,000 compensatory damages and $1,500,000 punitive damages and Mr. McClain for $750,000 as compensatory and punitive damages. In due course the Debtor filed an Objection to both claims and sought a disallowance of both on the ground that both claims are clearly unliq-uidated and thus by virtue of § 502(c) cannot be allowed unless liquidated or estimated. This Court deferred ruling on the Debtors Objections pending resolution of the two motions under consideration. Both Movants agree the claims are unliquidated but contend that they are entitled to relief from the automatic stay in order to liquidate their claims in the state court in Alabama by completing their respective lawsuits.
As noted earlier, the Motions under consideration although seeking relief for “cause” pursuant § 362(d)(1) also indirectly rely on 28 U.S.C. § 1334 and state that “if this were a request made under 28 U.S.C. § 1334 there would be sufficient factors that would cause the Court to abstain.” There is no indication in the Motion that the indirect request to abstain is based on either subclause (c)(1) (optional) or on subclause (c)(2) (mandatory abstention).
The Debtor in its Response to both Motions, in addition to some admissions and some denials, contends that both Movants, by filing their respective proofs of claim submitted to the jurisdiction of this court and the issues raised by the claims involve substantive bankruptcy issues, including but not limited to the allowance of punitive damages and, therefore, both Motions should be denied.
Counsel for the Movants urged at the oral argument on the Motions that this Court has no jurisdiction to consider the claims of the Movants because the wrongful termination claim is part and parcel of the Worker’s Compensation Statute of the State of Alabama, citing Twilley v. Daubert Coated Products, 536 So.2d 1364 (Ala.1988). In this case, the Supreme Court of Alabama held that in a suit by an employee for wrongful termination, the employee is entitled trial by jury although the action may have arisen out of a worker’s compensation setting. Relying on Twilley, supra, counsel by a quantum leap moves to the next case of Kilpatrick v. Martin K. Eby Const. Co., Inc., 708 F.Supp. 1241 (N.D.Ala.1989) and contends that this Court is without jurisdiction. In Kilpatrick, the District Court held that civil actions based on Alabama worker’s compensation laws brought in the state court cannot be removed to the district court and action for wrongful termination of employment arose out of state worker’s compensation laws of the State.
The reliance by the Movants on the cases cited are based on an oversimplification of the issues raised by the Motions under consideration and completely overlooks the fact that both claims filed by the Movants are challenged and there is no question that the allowance or disallowance of claims filed in a case under Title 11 is uniquely and exclusively within the competence of the bankruptcy court where the case is pending and the fact that the claims under consideration are based on state law is of no consequence. 28 U.S.C. § 157(b)(3).
The matter is further complicated by the fact that the complaint filed by Mr. McClain really does not seek damages for wrongful termination but in Count I seeks compensation for his injuries under the Workers’ Compensation Act of the State of Alabama and only in Count II asserts that he was discharged wrongfully because he made a workers’ compensation claim. The complaint filed by Mr. Ary sets forth a claim in Count I for personal injuries but claiming damages under the Workers’ Compensation Act of the State of Alabama but in Count II states that he received a settlement of his claim but because of his claim he was harassed and *383intimidated thus causing psychic (sic) injury. It is impossible to tell from this Count whether or not this is a pure personal injury claim or a common law tort claim.
The resolution of the presence of a valid “cause” would depend on the legal affect that both Movants filed a proof of claim in this.case thus submitted to the jurisdiction of this Court and in turn waived their right to a jury for the simple reason that there is no authority to support the proposition that in a contested matter which deals with the allowability of a claim actually filed there is a right to trial by jury. While it is true that the right to a jury trial is kept in high esteem and the waiver of the right is not easily inferred, it is well established in the bankruptcy context that there is no right to trial by jury in a “core” matter even if the suit in question is commenced by the estate against a third party who filed a proof of claim against the Debtor. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). In Granfmanciera the Supreme Court reiterated the principle announced in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) that if the party files a proof of claim in the bankruptcy court and the same issue arose as part of the process of allowance and disal-lowance of claims, it is triable in equity and there is no right to trial by jury. Id. Clearly the two claims which the Movants seek to assert form the very subject of their proof of claim filed in the Bankruptcy Court which is challenged by the Debtor and since there is no right to trial by jury in a claim allowing process it is evident that the Motion to Lift Automatic Stay to permit the Movants to complete their litigation in the state court with a jury is not permissible. The difficulty remains, however, because as noted earlier both proofs of claim are unliquidated and require either a liquidation or estimation before they can be allowed (See § 502(c) of the Code). The claimants are citizens of Alabama, all relevant events occurred in Alabama, the underlying legal rights asserted are based on the law of Alabama, the parent of the Debtor is a multi-state corporation and has legal counsel in Alabama. In fairness it appears that the best possible solution is to transfer the two objections to claims to the Bankruptcy Court in the Northern District of Alabama for the purpose of either liquidating the same or even possibly estimating the claims.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Lift Automatic Stay filed by Billy Ray Ary and Emmanuel McClain be, and the same hereby, are denied. It is further
ORDERED, ADJUDGED AND DECREED that the contested matter involving the Debtor’s objection to claim # 377 of Billy Ray Ary and claim #379 of Emmanuel McClain be, and the same is hereby, transferred to the Northern District of Alabama for further proceedings in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491902/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Debtor’s Motion to Avoid Lien pursuant to 11 U.S.C. § 522(f). The Court has reviewed the documents submitted and the relevant case law, as well as the entire record in this matter. Based upon that review, and for the following reasons, the Court finds that the Debtor’s Motion should be DENIED.
FACTS
In December of 1979, the Debtor entered into a mortgage agreement with Chemical Mortgage Co. (hereafter “Chemical”). Subsequently, Chemical assigned this mortgage to the State Teachers Retirement Board of Ohio (hereafter “STRB”). According to STRB, the Debtor has made no payments toward this mortgage since September 27, 1993, and the Debtor is in arrears for the amount of Six Thousand Six Hundred Eighty Two and 54/100 Dollars ($6,682.54). On April 20, 1994, the Debtor filed for bankruptcy under chapter seven of the bankruptcy code. Now the Debtor claims that the lien of STRB impairs an exemption he is entitled to under 11 U.S.C. § 522.
LAW
The relevant law reads in part as follows:
11 U.S.C. § 101
(36) “judicial lien” means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding
11 U.S.C. § 522
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debt- or would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien
(2) a nonpossessory, nonpurchase-mon-ey security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor.
DISCUSSION
Determinations of the validity, extent, or priority of liens is a core proceeding pur*570suant to 28 U.S.C. § 157(b)(2)(k). The case at bar is a core proceeding.
The threshold issue in any Motion to Avoid Lien under 11 U.S.C. § 522 is to determine if the lien in question is a type of lien that the code allows a Debtor to avoid. Only two kinds of liens are covered by section 522(f) and avoidable by a debtor: a judicial lien, and a nonpossessory, nonpurchase-mon-ey security interest in certain goods.
The mortgage that the Debtor has with STRB is not one of the specified goods listed in 11 U.S.C. § 522(f)(2). Thus, the Debtor in this case can only avoid the lien of STRB if it can be defined as a judicial lien in accordance with 11 U.S.C. § 522(f)(1).
Conveniently, 11 U.S.C. § 101(36) provides the definition of a judicial lien. This section of the code defines a judicial lien as a lien obtained by judgment or other legal proceeding.
In the case at bar, the Debtor failed to demonstrate that the lien of STRB qualifies as a judicial lien. Therefore, the option of lien avoidance under 11 U.S.C. § 522(f) is not available to the Debtor under the circumstances of this case.
Accordingly, it is
ORDERED that the Debtor’s Motion to Avoid Lien be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491903/ | *571OPINION AND ORDER DENYING MOTION FOR RELIEF FROM JUDGMENT AND SCHEDULING PRETRIAL HEARING UPON AMENDMENT TO BANKRUPTCY SCHEDULES
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon William and Kathleen Long’s (the “Longs”) motion for relief from judgment (the “Motion for Relief’) from this Court’s order compromising claim dated June 23, 1994 (the “Order”). The Longs have also filed an amendment to their bankruptcy schedules (the “Amendment”). Bruce French, trustee in the Longs’ bankruptcy case, (“Trustee”) opposes the Motion for Relief. The Trustee has further moved to strike both the Motion for Relief and the Amendment. The Court finds that the Motion for Relief is not well taken and should be denied. The Court further finds that a pretrial conference should be held on the Amendment and the Trustee’s motion to strike the Amendment.
FACTS
The Longs filed a petition under chapter 7 of title 11 on August 5, 1993 (the “Case”).
The Trustee filed a motion to compromise a prepetition personal injury claim held by the Longs on June 2, 1994 (the “Motion to Compromise”). The Trustee provided notice of the Motion to Compromise to Athena J. Nyers (“Nyers”), the Longs’ counsel of record in the Case. No objections were filed to the Motion to Compromise.
On June 23, 1994, the Court entered the Order which granted the Motion to Compromise. The Longs did not appeal the Order.
Attorney Benjamin Yale (‘Yale”) has acted as attorney for the Longs in filing the instant Motion for Relief. Yale did not appear on behalf of the Longs in the Case at any time prior to filing this Motion for Relief. The Court further notes that Yale has not been employed as a professional person by the Trustee pursuant to § 327.
Significantly, Nyers has not withdrawn as attorney of record for the Longs.
Although acknowledging that Nyers received the Motion to Compromise, the Longs seek relief from judgment based upon the fact that they did not personally receive a copy of the Motion to Compromise. The Longs further assert as grounds for relief from judgment the fact that Yale was not permitted to participate in the resolution of the issues underlying the Trustee’s Motion to Compromise.
DISCUSSION
The Sixth Circuit has noted that:
‘[i]t is well settled that the right to pursue causes of action formerly belonging to the debtor — a form of property ... vests in the trustee for the benefit of the estate.’ Jefferson v. Mississippi Gulf Coast YMCA, 73 B.R. 179, 181-82 (S.D.Miss.1986). The debtor has no standing to pursue such causes of action. Matter of Tvorik, 83 B.R. 450, 456 (Bankr.W.D.Mich.1988).
Bauer v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir.1988), cert. denied, 489 U.S. 1079, 109 S.Ct. 1531, 103 L.Ed.2d 836 (1989); see also Cottrell v. Schilling (In re Cottrell), 876 F.2d 540, 542-43 (6th Cir.1989) (debtors’ personal injury action was an asset of the bankruptcy estate notwithstanding the fact that such cause of action was nontransferable to a third person under state law). Thus, the Trustee clearly controls the prosecution of the Longs’ prepetition legal claims.
The fact that the Longs were not personally provided with a copy of the Motion to Compromise does not entitle them to relief from judgment. The Longs chose to appear in the Case by attorney Nyers. See Fed.R.Bankr.P. 9010(a)(1) (permitting a party to appear “by an attorney authorized to practice in the [bankruptcy] court”). They acknowledge that the Motion to Compromise was properly served upon Nyers. Therefore, the Longs can properly be charged with notice of the Motion to Compromise. C.f. Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 92-93, 111 S.Ct. 453, 455-56, 112 L.Ed.2d 435 (1991) (finding that receipt of notice by attorney was the equivalent of receipt by that attorney’s client in the context of employment discrimination action) (citation omitted). *572“Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of [that party’s] lawyer-agent and is considered to have ‘notice of all facts, notice of which can be charged upon the attorney.’ ” Link v. Wabash, 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390, 8 L.Ed.2d 734 (1962) (quoting Smith v. Ayer, 101 U.S. 320, 326, 25 L.Ed. 955 (1879)) (footnote omitted); c.f. Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, — U.S. -, -, 113 S.Ct. 1489, 123 L.Ed.2d 74 1499 (1993) (finding that movant should be held responsible for acts of chosen counsel in determining whether movant’s conduct constituted “excusable neglect” under Fed.R.Bankr.P. 9006(b)); Coleman v. Thompson, 501 U.S. 722, 111 S.Ct. 2546, 115 L.Ed.2d 640 (1991) (alleged procedural default of attorney for defendant convicted of capital murder in state court proceeding chargeable to client in federal habeas corpus action).
The level of Yale’s participation in the Trustee’s efforts to settle the litigation which culminated in the Motion to Compromise is of no moment to the Court’s determination of the Longs’ entitlement to relief from judgment. Again, Yale was not the Longs’ attorney of record in the Case at the time that the Motion to Compromise was filed. See French v. Tull (In re Tull), Case No. 92CV7299, at p. 6 (N.D.Ohio April 7, 1993) (finding that counsel who purported to act on behalf of debtors in bankruptcy case but who was not counsel of record in bankruptcy case did not have the right to receive notice of hearing upon application of trustee’s attorney for compensation or to present evidence at such hearing). Nor did he appear on behalf of the Longs at any time prior to filing the instant Motion for Relief.
Moreover, Yale did not have standing to be heard on the Motion to Compromise in his personal capacity. C.f. O’Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears v. Perlin (In re Perlin), 30 F.3d 39 (6th Cir.1994) (attorneys who represented debtor’s former spouse in divorce proceeding lacked standing to seek determination that debt owed to debtor’s former spouse was nondischargeable pursuant to 11 U.S.C. § 523(a)(5)).
Lastly, the Longs have not set forth any newly discovered evidence or legal authority which would entitle them to relief from the Order.
In light of the foregoing, it is therefore
ORDERED that the Longs’ motion for relief from judgment be, and it hereby is, denied. It is further
ORDERED that a pretrial conference be held on the Amendment on September 22, 1994 at 2:15 PM before the Honorable Walter J. Rrasniewski, United States Bankruptcy Judge, Courtroom No. 1, Room 103, United States Courthouse, 1716 Spielbusch Avenue, Toledo, Ohio. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491904/ | MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
At Orlando, in said district on the 21st day of June, 1994 before Arthur B. Briskman, Bankruptcy Judge.
This matter came on for hearing on the Debtor’s Objection to Proofs of Claim 5 and 6 of the United States of America, Internal Revenue Service. Appearing was the Debt- or, Johnny L. Crockett, his attorney, Andrea A. Ruff, and Richard Palmer, Chapter 13 Trustee. After review of the testimony, exhibits and arguments of counsel, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
The Internal Revenue Service filed Proofs of Claim 5 and 6 alleging the Debtor owed federal income taxes for the years 1990 and 1992. The Debtor had no taxable income for the years 1990 and 1992. However, his wife earned income in 1990 and 1992. Joint tax returns were prepared by the wife and were signed by the Debtor. The Debtor was mentally incompetent at the time the income tax returns were signed. He did not understand nor could he comprehend the significance of his actions. Due to his mental incapacity, his signature was without legal effect and is not binding.
CONCLUSIONS OF LAW
As the Debtor had no income for the years 1990 and 1992, he had no income tax liability. The Debtor, could not have understood the. contents or significance of the income tax returns which he signed as he lacked competency and legal capacity at the time he signed them. Reliable Finance Co. v. Axon, 336 So.2d 1271 (2nd D.C.A.Fla.1976).
Accordingly, the Debtor’s objection to Proofs of Claim 5 and 6 filed by the United States of America, Internal Revenue Service is due to be SUSTAINED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491905/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
This is a battle between the debtor, a garnishing creditor and the Chapter 7 trustee over unpaid alimony owed to the debtor. Because garnishment of unpaid alimony is not prohibited by Tennessee law and because a Tennessee debtor’s exemption in unpaid alimony is effective only with respect to alimony that becomes due more than 30 days after assertion of the exemption, the garnishing creditor defeats both the debtor and the trustee to the extent of its claim. The respective rights of the debtor and the Chapter 7 trustee in the balance of the alimony payable to the debtor turn on questions of first impression under Tennessee law which are most appropriately addressed through certification to the Supreme Court of Tennessee. The following are findings of fact and conclusions of law. Fed.R.BankrP. 7052.
I
This debtor, Lenore Storey, was divorced in February 1991. Her former husband, Carl Storey, was ordered to pay alimony of $2,500 a month for 36 months.
Prior to the divorce, the debtor bought furniture from Bradford Furniture Company on installment sales contracts. The debtor defaulted on those contracts. On November 1991, Bradford obtained a judgment against the debtor for $33,117.83.
On November 20, 1992, Bradford served a garnishment on Carl Storey, who was in arrears on his alimony payments, to collect its judgment against the debtor. On January 8, 1993, the debtor filed a claim of exemption pursuant to Tenn.Code Ann. § 26-2-lll(l)(E)1 with the Chancery Court of Davidson County, Tennessee, to halt Bradford’s garnishment.
On November 17, 1993, the debtor filed a Chapter 7 petition. Two days later, Carl Storey paid $10,000 to resolve a state court contempt proceeding for nonpayment of alimony. That $10,000 is in an escrow account maintained by the debtor’s divorce attorney.
On January 24, 1994, the debtor filed bankruptcy schedules, again claiming an ex*874emption in alimony—past, prospective and escrowed—pursuant to Tenn.Code ANN. § 26-2-lll(l)(E). The trustee and Bradford objected to the debtor’s exemption. Bradford brought this adversary proceeding against the debtor and the Chapter 7 trustee to determine the validity and extent of its prepetition garnishment lien on the alimony owed the debtor. The trustee counterclaimed to avoid Bradford’s lien pursuant to 11 U.S.C. § 544.
II
The trustee contests Bradford’s garnishment lien on the theory that unpaid alimony is not subject to garnishment to satisfy pre-divorce debts. There is authority from other jurisdictions recognizing a “public policy” exception to the execution rights of judgment creditors with respect to alimony. See, e.g., Waters v. Albanese, 547 So.2d 197 (Fla.Dist.Ct.App.1989); Columbus Personnel Sucs. v. Gachette, 158 Ga.App. 298, 279 S.E.2d 746 (1981); Joel Bailey Davis, Inc. v. Poole, 194 Ga. 824, 22 S.E.2d 795 (1942); Davis v. Davis, 15 Wash.2d 297, 130 P.2d 355, 359 (1942); Fickel v. Granger, 83 Ohio St. 101, 93 N.E. 527 (1910); Kingman v. Carter, 8 Kan.App. 46, 54 P. 13 (1898); Romaine v. Chauncey, 129 N.Y. 566, 29 N.E. 826 (1892); Malone v. Moore, 204 Iowa 625, 215 N.W. 625 (1927); Scott v. Lamb, 152 Old. 145, 3 P.2d 1045 (1931); Brenger v. Brenger, 142 Wis. 26, 125 N.W. 109 (1910).. See also 24 AM.JuR.2d Divorce and Separation § 536 (1983).
No Tennessee decision has been found approving a public policy exemption from garnishment for alimony. More importantly, in 1980 the Tennessee legislature enacted a limited statutory exemption from execution for alimony. See Personal Property Owner’s Rights and Garnishment Act, 1980 Tenn.Pub. Acts, Ch. 919 § 4 (codified at Tenn.Code Ann. § 26-2-111, reproduced above).
The Tennessee legislature has stated the “public policy” of Tennessee with respect to the garnishment of alimony: alimony can be garnished except “to the extent that payment becomes due more than 30 days after the debtor asserts [a claim of exemption] in any judicial proceeding.” Tenn.Code Ann. § 26-2-lll(l)(E). The “public policy” exception argued by the trustee would be greater than and inconsistent with Tennessee law.
Bradford served a garnishment on Carl Storey on November 20, 1992. Service of the garnishment fixed a lien upon the unpaid alimony in the hands of the garnishee. Perry v. General Motors Acceptance Corp. (In re Perry), 48 B.R. 591, 594-95 (Bankr.M.D.Tenn.1985); Eggleston v. Third Nat'l Bank (In re Eggleston), 19 B.R. 280, 284 (Bankr.M.D.Tenn.1982) (quoting Beaumont v. Eaton, 59 Tenn. (12 Heisk.) 417, 418-21(1873)). Bradford’s lien attached to all alimony due the debtor through February 7, 1993, 30 days after she asserted a claim to exemption in the Chancery Court. See Tenn.Code Ann. § 26-2-lll(l)(E).
III
The debtor’s divorce counsel holds $10,000 in escrow, paid by Carl Storey on account of alimony arrearages. Because more than $10,000 of alimony was due and unpaid before February 7, 1993, Bradford’s lien attached to those funds and they first must be applied to satisfy Bradford’s lien. See English v. King, 57 Tenn. (10 Heisk.) 666, 673-74 (1873); Stone v. Abbott, 62 Tenn. (3 Baxt.) 319, 320 (1874); Gilliland v. Cullum, 74 Tenn. (6 Lea.) 521 (1880); Arledge v. White, 38 Tenn. (1 Head) 241, 242 (1858); see generally First State Bank v. SouthTrust Bank, 519 So.2d 496, 497 (Ala.1987) (“[I]t is generally true that a garnishment lien attaches on the date of the service and that priorities are determined as of that date_”); 38 C.J.S. Garnishment § 184 (1943 & Supp.1994) (“A prior garnishing creditor is ... entitled to have the property or effects in the hands of the garnishee applied to the satisfaction of his claim to the exclusion of subsequent garnishing creditors.”).
IV
The debtor had a legally enforceable right to unpaid alimony at the filing of this *875Chapter 7 case. See Tenn.Code ANN. § 36-5-101(a)(2) (Miehie 1991 & Supp.1994). The filing created a bankruptcy estate comprised of all property in which the debtor held a legal or equitable interest. 11 U.S.C. § 541(a)(1). The debtor’s interest at the petition in unpaid alimony became property of this Chapter 7 estate. See In re Anders, 151 B.R. 543, 547 (Bankr.D.Nev.1993); In re Ross, 128 B.R. 785, 787 (Bankr.C.D.Cal.1991).
The debtor argues that unpaid alimony due after February 7,1993 is exempt property in this bankruptcy ease because the debtor claimed an exemption pursuant to Tenn. Code Ann. § 26-2- 111(1)(E) on January 8, 1993 in the Chancery Court litigation with Bradford. The trustee responds that the debtor’s exemption in alimony under Tenn. Code Ann. § 26-2-lll(l)(E) was not effective until February 23, 1994 — 30 days after the debtor claimed an exemption in alimony in this bankruptcy case.
The extent of this debtor’s exemption in unpaid alimony under Tenn.Code Ann. § 26-2-lll(l)(E) is determined by Tennessee law. See, e.g., Forbes v. Lucas (In re Lucas), 924 F.2d 597, 599 n. 4 (6th Cir.1991) (“If an individual state has opted-out of the federal scheme, the only exemptions available to the debtor are those created by the state. Tennessee is one of a substantial number of states which has opted-out of the federal scheme.”). Tenn.Code Ann. § 26-2-111(1)(E) is ambiguous: it could be read that the first claim of exemption in alimony “in any judicial proceeding” is good against the world, forever — it precludes all subsequent efforts at execution, seizure or attachment; or, it could be read that a claim of exemption in alimony precludes only the execution, seizure or attachment with respect to which the exemption is asserted.
This Chapter 7 trustee’s rights in the alimony that became due the debtor before February 23, 1994 depend upon resolution of the ambiguity in Tenn.Code Ann. § 26-2-lll(l)(E). No reported Tennessee decision has been found addressing the issue. The legislative history of the 1980 enactment is not instructive.2
Because the answer to this question arguably will affect the exemption rights of all citizens who permanently reside in Tennessee and receive alimony, the courts of Tennessee should first be given the opportunity to interpret § 26-2-lll(l)(E). Pursuant to Rule 23 of the Rules of the Supreme Court of Tennessee,3 this court will certify the following question of state law to the Supreme Court of Tennessee:
Which of the following is the correct interpretation of Tenn.Code Ann. § 26-2-11K1XE):
(1) Once asserted in any judicial proceeding, the exemption in alimony described in Tenn.Code Ann. § 26-2-111(1)(E) is effective with respect to all subsequent executions, seizures or attachments of alimony; or
(2) The exemption in alimony described in Tenn.Code Ann. § 26-2-lll(l)(E) is effective only if claimed in each judicial proceeding in which execution, seizure or attachment of alimony is sought.
y
Bradford holds an unavoidable lien up to the amount of its claim against all unpaid *876alimony due the debtor through February 7, 1993. This lien attached to the money held in escrow by the debtor’s divorce counsel. Any excess, and all alimony arrearages accruing through February 23, 1994 are property of this Chapter 7 estate. The extent of the debtor’s exemption right, if any, in the balance of the unpaid alimony (after satisfaction of Bradford’s lien) will be determined after resolution of the question certified to the Tennessee Supreme Court.
An appropriate order and Certification of Questions will be entered.
ORDER
For the- reasons stated in the memorandum filed contemporaneously herewith, IT IS ORDERED, ADJUDGED and DECREED that Bradford Furniture Company, Inc. holds an unavoidable lien up to the amount of its claim against all unpaid alimony due the debtor through February 7, 1993. Bradford’s lien attaches to the $10,000 held in escrow by the debtor’s divorce counsel. The extent of the debtor’s exemption right, if any, in the balance of the unpaid alimony (after satisfaction of Bradford’s lien) will be determined after resolution of the question certified to the Tennessee Supreme Court.
IT IS SO ORDERED.
ORDER CERTIFYING QUESTION TO THE SUPREME COURT OF TENNESSEE
(A) Style of the Case: Bradford Furniture Co. v. Storey (In re Storey), Adversary No. 394-0055A (Bankr.M.D.Tenn. Sept. 26,1994).
(B) Facts:
(1)Nature of the Case:
This is a dispute between a Chapter 7 debtor, Lenore Berry Ross Storey, the Chapter 7 trustee appointed in the debt- or’s case, Robert A. Waldschmidt, and a creditor, Bradford Furniture Company, Inc., over unpaid alimony owed to the debtor. The certifying court has resolved the dispute as it relates to Bradford. The dispute remaining between the trustee and •the debtor concerns exemption rights in unpaid alimony under Tennessee law. The question certified asks the Supreme Court of Tennessee to interpret Tenn.Code Ann. § 26-2-lll(l)(E) (Michie 1980 & Supp. 1994).
(2) Circumstances Out of Which the Question of Law Arises:
The facts are summarized in the memorandum of the certifying court, attached to this order.
(3) Question of Law:
Which of the following is the correct interpretation of Tenn.Code Ann. § 26-2-111(1)(E):
(1) Once asserted in any judicial proceeding, the exemption in alimony described in Tenn.Code Ann. § 26-2-111(1)(E) is effective with respect to all subsequent executions, seizures or attachments of alimony; or
(2) The exemption in alimony described in Tenn.Code Ann. § 26-2-lll(l)(E) is effective only if claimed in each judicial proceeding in which execution, seizure or attachment of alimony is sought.
(C) Names of Parties:
Lenore Berry Ross Storey, Debtor
Robert H. Waldschmidt, Chapter 7 Trustee
Bradford Furniture Company, Inc.
(D) Names, Addresses and Telephone Numbers of Counsel for Parties:
(1) Counsel for Lenore Berry Ross Storey, Debtor:
Steve Lefkovitz, Esq.
530 Church Street
Suite 202
Nashville, Tennessee 37219
(615) 256-8300
(2) Counsel for Robert H. Waldschmidt, Trustee:
*877Robert H. Waldschmidt, Esq.
Howell & Fisher
Court Square Building
300 James Robertson Parkway
Nashville, Tennessee 37201
(615) 244-3370
(3) Counsel for Bradford Furniture Company, Inc.:
Steve Jordan, Esq.
First Union Bank Building, 2d Floor
198 East Main Street
Franklin, Tennessee 37064
(615) 790-9678
(E) Designation of One of the Parties as the Moving Party:
Moving Party: Robert H. Wald-
schmidt, Trustee
Adverse Party: Lenore Berry Ross
Storey, Debtor
. IT IS ORDERED that the question be certified to the Supreme Court of Tennessee and forwarded to the Clerk of the Supreme Court of Tennessee under Rule 23 of the Rules of the Supreme Court of Tennessee, as amended effective July 25, 1994.
. Section 26-2-111(1)(E) provides:
[T]he following shall be exempt from execution, seizure or attachment in the hands or possession of any person who is a bona fide citizen permanently residing in Tennessee:
(1) The debtor’s right to receive:
******
(E) Alimony to the extent that payment becomes due more than thirty (30) days after the debtor asserts a claim to such exemption in any judicial proceeding....
Tenn.Code Ann. § 26-2-111(1)(E) (Michie 1980 & Supp.1994).
. The statute, as originally enacted, did not provide any exemption for alimony. After this omission was brought to the attention of the bills’ sponsors, consideration was reopened. The alimony exemption was added to the statute without significant explanation or debate. Tenn.Senate Bill 1346, S-112 (April 17, 1980); Tenn. House Bill 1232, H-145 (April 17, 1980).
. Rule 23 of the Rules of the Supreme Court of Tennessee, as amended on July 25, 1994, provides:
The Supreme Court may, at its discretion, answer questions of law certified to it by the Supreme Court of the United States, a Court of Appeals of the United States, or a District Court of the United States in Tennessee. This rule may be invoked when the certifying court determines that, in a proceeding before it, there are questions of law of this state which will be determinative of the cause and as to which it appears to the certifying court there is no controlling precedent in the decisions of the Supreme Court of Tennessee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491906/ | *137
MEMORANDUM ON PRIORITY OF LIEN OF DEFENDANTS UNITED STATES OF AMERICA AND UNION PLANTERS NATIONAL BANK
RICHARD S. STAIR, Jr., Bankruptcy Judge.
An involuntary case was commenced against the debtor, Dorrough, Parks & Company, on April 27, 1992, and an order for relief was granted under Chapter 7 on June 18,1992. This adversary proceeding was the subject of a previous memorandum opinion and order filed on November 4, 1993, resolving summary judgment motions filed by two defendants, Union Planters National Bank (Union Planters) and First American National Bank (First American). Although the only issue remaining before the court is the relative priority of the Internal Revenue Service (IRS) and Union Planters to certain funds originally held in the debtor’s bank account or presently owing the trustee, a review of the prior history of this proceeding is necessary.
The trustee brought this adversary proceeding alleging that between the filing of the involuntary petition and the entry of the order for relief, Steven Dorrough, then the managing partner of the debtor, on behalf of the debtor, settled a $285,000 account receivable for professional fees owed to the debtor by the defendant, Aspen Marine Group (Aspen Marine).1 Specifically, the trustee alleged that Mr. Dorrough collected only $250,-000 of the receivable and forgave the balance. Of the amount collected, a significant portion, approximately $235,603, remains subject to resolution of the Union Planters-IRS lien priority issue raised by the trustee’s Complaint.
The trustee alleged that the entire $285,-000 receivable was a matured debt owed to the debtor, payable on demand. By her Complaint, she sought a turnover pursuant to Bankruptcy Code § 542 of the unpaid $35,-000. Alternatively, she contended that the fee reduction was a postpetition transfer avoidable under Bankruptcy Code § 549. The trustee further sought avoidance of the IRS’s statutory lien pursuant to Bankruptcy Code § 545, and a determination of the nature, extent, and priority of the liens asserted by the defendants, excluding Aspen Marine, pursuant to Fed.R.Bankr.P. 7001(2).2
Originally, the defendants, First American and Union Planters, both asserted competing security interests in all or a portion of the funds.3 The IRS also asserted a statutory tax lien against the same funds.
The trustee obtained a judgment against Aspen Marine on her turnover and avoidance cause of action on July 29, 1994. Aspen Marine did not appear at the trial and a judgment was entered against it in the amount of $50,045.86.4 Further, the issues regarding First American’s priority have been resolved. The only remaining issue is the relative priority between the IRS and Union Planters over the disputed funds. The parties have submitted this issue for judgment on stipulations and exhibits.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(E) (West 1993).
*138I
Union Planters filed a proof of claim on October 14, 1992, which indicates a total indebtedness of $1,061,323.96. The indebtedness relates to three notes executed by the debtor: one in the original principal amount of $135,000 executed on December 5, 1988, one in the original principal amount of $300,-000 executed on February 17, 1989, and one in the original principal amount of $250,000 executed on April 26, 1991. These notes are all secured according to a security agreement entered into contemporaneously with the December 5,1988 note. Pursuant to the security agreement, the debt is secured by, among other things, contract rights and accounts receivable, both existing and after acquired, and also proceeds of contract rights and accounts receivable. It is undisputed that the security interest was properly perfected.
On February 14, 1992, the IRS filed a Notice of Federal Tax Lien asserting a hen in the amount of $64,704.32 plus interest on all property of the debtor. Union Planters seeks a determination that the IRS’s hen on the funds held in the bank account is inferior to its perfected security interest.
The nature of Union Planters’ security interest has been characterized as a floating hen. See generally Barkley Clark, The Law of Secured Transactions Under the Uniform Commercial Code ¶ 10.01 (rev. ed. 1993 & Supp.1994). It allows a lender to maintain a security interest in property of a revolving nature, such as inventory, accounts, and cash collected on accounts.
Federal tax hens are created and operate under a framework provided by Internal Revenue Code (IRC) §§ 6321 to 6327. IRC § 6323(c) provides in material part:
(c) Protection for certain commercial transactions financing agreements, etc.—
(1) In general. — To the extent provided in this subsection, even though notice of a hen imposed by section 6321 has been filed, such hen shah not be valid with respect to a security interest which came into existence after tax hen filing but which—
(A) is in qualified property covered by the terms of a written agreement entered into before tax hen filing and constituting—
(i) a commercial transactions financing agreement, [and]
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(B) is protected under local law against a judgment hen arising, as of the time of tax hen filing, out of an unsecured obligation.[5]
(2) Commercial transactions financing agreement. — For purposes of this subsection—
(A) Definition. — The term “commercial transactions financing agreement” means an agreement (entered into by a person in the course of his trade or business)—
(i) to make loans to the taxpayer to be secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade or business, or
(ii) to purchase commercial financing security (other than inventory) acquired by the taxpayer in the ordinary course of his trade or business;
but such an agreement shall be treated as coming within the term only to the extent that such loan or purchase is made before the 46th day after the date of tax hen filing or (if earlier) before the lender or purchaser had actual notice or knowledge of such tax hen filing.
(B) Limitation on qualified property. — The term “qualified property”, when used with respect to a commercial transactions financing agreement, includes only commercial financing security acquired by the taxpayer before the 46th day after the date of tax lien filing.
(C) Commercial financing security defined. — The term “commercial financing security” means (i) paper of a kind *139ordinarily arising in commercial transactions, (ii) accounts receivable....
26 U.S.C.A. § 6323(c) (West Supp.1994).
In sum, collateral that constitutes qualified property acquired by a borrower within forty-five days after the filing of a federal tax lien is protected from the tax lien. See State Bank of Fraser v. United States, 861 F.2d 954, 963-65 (6th Cir.1988). Although IRC § 6323(c) does not expressly indicate whether security interests in contract rights or proceeds of qualified property are protected, the federal regulations make it clear that both contract rights and proceeds fit within the definition of qualified property. 26 C.F.R. § 301.6323(c)-l(c)(l) & (d) (1994); see In re National Fin. Alternatives, Inc., 96 B.R. 844, 851 (Bankr.N.D.Ill.1989). The party asserting priority over a federal tax lien has the burden of proving that its security interest is protected under IRC § 6323(c). See Resolution Trust Corp. v. Gill, 960 F.2d 336 (3d Cir.1992).
Union Planters acknowledges that the funds held in the debtor’s bank account were received by the debtor outside the forty-five day period after the tax lien was filed. It contends, however, that Aspen Marine made the payment in return for services performed by the debtor pursuant to an oral contract. Therefore, the payment was a proceed of the debtor’s contract rights in which it held a perfected security interest. Union Planters further contends that because the contract rights were qualified properties, the proceeds are also exempt from the federal tax lien pursuant to IRC § 6323(c).
The IRS acknowledges that if the disputed funds were received by the debtor as payment for work performed under a pre-exist-ing contract, Union Planters’ security interest will prevail over its tax lien. However, the IRS contends that the work performed by the debtor, for which it received the disputed funds, was not performed pursuant to a contract.6 It argues that if no pre-existing enforceable contract exists, the secured creditor’s interest attached when the work was performed. It contends, therefore, that Union Planters’ security interest prevails over its tax lien only as to payment received for work performed within forty-five days after the tax lien was filed.
Union Planters’ previous summary judgment motion was denied because it was impossible to discern from the record whether the debtor was performing services pursuant to a pre-existing contract. Union Planters and the IRS have submitted stipulations, exhibits, and deposition transcripts to supplement the record and to allow the court to address the remaining issues of: (1) whether the payment received by the debtor was for work performed under a pre-existing contract; and (2) if not, then what portion of the payment was for work performed within forty-five days of the filing of the tax lien?
II
Aspen Marine hired the debtor accounting firm to conduct transactional work for its proposed public offering of stock. Pri- or to this engagement, the debtor had performed routine accounting services for Marine Sports, a subsidiary of Aspen Marine. Steven Dorrough, a principal in the debtor firm, held the initial discussions that led to the subject engagement. Ella Boutwell Chesnutt ultimately negotiated the final price for the public offering work, but was not involved in the hiring of the debtor.7
When Aspen Marine hired the debtor in February or March 1991, the debtor merely agreed to perform the transactional work *140required for the public offering. The parties never agreed to a specific hourly or monthly rate, and left the final price open in accordance with the customary practice of determining the price at the close of the transaction. However, Steven Dorrough eventually agreed to cap his rate at $15,000 per month.
In Tennessee, “ ‘[a] contract is simply an agreement between two parties, based on adequate consideration, to do or not to do a particular thing.’ ” Newton v. Gibalski (In re Gatlinburg Motel Enters.), 127 B.R. 814, 817 (Bankr.E.D.Tenn.1991) (quoting Bill Walker & Assocs., Inc. v. Parrish, 770 S.W.2d 764, 771 (Tenn.Ct.App.), perm, to appeal denied, id. at 764 (Tenn.1989)). The contract “may be either expressed or implied, or written or oral”; however, “it must result from a meeting of the minds of the parties in mutual assent to the terms,” and it must be “sufficiently definite to be enforced.” Johnson v. Central Nat’l Ins. Co., 210 Tenn. 24, 356 S.W.2d 277, 281 (1962); see Bill Walker & Assocs., 770 S.W.2d at 770-71. In determining whether a meeting of the minds occurred and a contract exists, Tennessee courts consider the words used by the parties, and in cases of doubt, “‘the situation, acts, and the conduct of the parties, and the attendant circumstances.’ ” APCO Amusement Co. v. Wilkins Family Restaurants of Am., Inc., 673 S.W.2d 523, 527 (Tenn.Ct.App.) (quoting 17 Am.Jur.2d Contracts § 1 (1964)), perm, to appeal denied, id. at 523 (Tenn.1984). Courts also consider whether the parties acted “in such a way as to suggest that they believed a binding agreement had been reached.” Id. at 527; see Bailey v. Brister, 49 Tenn.App. 191, 353 S.W.2d 564, 568 (1961), cert. denied, id. at 564 (Tenn.1962).
The parties have presented the depositions of Steven Dorrough and Ella Boutwell Ches-nutt as evidence of the debtor’s oral agreement with Aspen Marine, the debtor’s and Aspen Marine’s conduct throughout the engagement, and the attendant circumstances. Steven Dorrough testified that he and Aspen Marine discussed fees when the debtor was hired to perform the public offering work. (Dorrough Dep. at 26-27.) Although he did not “recall the specific conversation” with Aspen Marine, he “[tjypically ... would charge on a per diem basis, and at such time that the transaction closed there would be an evaluation as to ... the benefit derived to the client, the time that was spent, because in dealing with the SEC, you never know— they are always unknown.” (Id. at 27.) He further testified that for transactional work, he would always “sit down with the client, go through the work-in-process billing, [ie., an itemized bill,] come upon a figure that was reasonable and come upon a price that was fair for the services rendered.” (Id. at 20.)
As to the customary practices between Aspen Marine and the debtor, Mr. Dorrough testified,
[T]his relationship with Supra Marine Sports [now Aspen Marine] goes back to 1984, and the way that the relationship was with the client, it was very much an open and candid relationship. If I felt like the bill was too small and the benefits they derived were great, then I wasn’t shy about sharing that request with them.
And in the alternative, if we had had some people working on the job that were perhaps not ... as experienced in the process, then ... that needed to be taken into consideration- [T]hese things ... really are [a] normal course of business....
(Id. at 27-28.)
Based on Mr. Dofrough’s testimony, there was a meeting of the minds when Aspen Marine hired the debtor: the debtor would provide accounting services to Aspen Marine and Aspen Marine would pay a reasonable fee, determinable at the end of the project, to the debtor. This was the customary practice between the parties.
Ultimately Mr. Dorrough capped the bill at $15,000 per month because “it got to the point that it was such a difficult transaction,” and the bill was getting “a little stout for a small cap public company,” especially when the accounting services needed to complete the public offering were compared to the proceeds to be received from the offering.8 *141(Id. at 19, 21.) Mr. Dorrough further testified that the cap “was more of an adjustment that [he] made to be reasonable.” (Id. at 45.) Thus, the parties’ actions during the project were in accordance with the existence of an agreement that Aspen Marine would only pay a reasonable fee, ie., a fee commensurate with the work performed and the benefit received.
The court rejects the IRS’s contention that Ella Chesnutt’s testimony is inconsistent with Mr. Dorrough’s testimony. Ms. Ches-nutt was not involved in the hiring of the debtor and could only speculate as to the parties’ oral agreement; however, she was able to testify as to the parties’ conduct after the debtor was hired and the parties’ customary practices. She clarified Steven Dor-rough’s testimony when she stated during her deposition that a fee “of some amount” would have been paid to the debtor if the public offering had failed. (Chesnutt Dep. at 26.) Thus, Aspen Marine agreed to pay a reasonable fee, ie., a fee commensurate with the work performed and the benefit received, not a contingency fee.
She further testified that the customary practice in public offering transactions is for the accountant’s fee to be negotiated after the work is completed “because no one can envision the amount of work or the extensiveness ... involved in” the project when it begins. (Id. at, 28.) She characterized the debtor’s work-in-process bill “[a]s an estimation of what he believed to be a fee that he would like to receive for the transaction,” (id. at 37), and she testified that she “looked at what the amount was” to help her determine what constituted “a reasonable fee for the work that was rendered,” (id. at 35). The final price was then negotiated because “that’s the way the transactions are done.” (Id. at 37-38.) Obviously, there was a meeting of the minds when Aspen Marine hired the debtor: the debtor would provide accounting services to Aspen Marine and Aspen Marine would pay a reasonable fee, determinable at the end of the project, to the debtor.
Nonetheless, the IRS asserts that the public offering work was not performed pursuant to a contract because the relationship between the debtor and Aspen Marine was at will and the debtor would not have had a breach of contract action against Aspen Marine. Tennessee courts hold that a contract need not specify a duration, and in such case, a court can construe the contract as either “ ‘perpetual or terminable at will.’ ”9 APCO Amusement Co., 673 S.W.2d at 528 (quoting 17 Am. Jur.2d Contracts § 80 (1964)); see First Flight Assocs. v. Professional Golf Co., 527 F.2d 931, 935 (6th Cir.1975). However, the court is not required to determine the duration of the contract between the debtor and Aspen Marine. The parties entered a contract with a finite duration: the debtor was to perform the public offering work, and once the public offering was completed, the contract ended. If the debtor had delayed its performance of the transactional work or discontinued performing the work before the project was complete, Aspen Marine could have asserted a breach of contract claim against the debtor for damages caused by its failure to fully and timely perform the contract. Conversely, if Aspen Marine had attempted to terminate the relationship, it could have been required to pay damages to the debtor.
The IRS also asserts that according to In re May Reporting Services, Inc., 115 B.R. *142652 (Bankr.D.S.D.1990), no contract existed between the debtor and Aspen Marine. The In re May court was required to decide whether the debtor performed court reporting services pursuant to contracts in determining whether a tax lien took priority over a consensual lien granted by the debtor in assets such as accounts receivable. Id. at 654. The court held that “[n]o evidence admitted established May entered into any definite contracts” to provide court reporting services. Id. at 660. Instead, clients called May on a sporadic basis and its “lengthy relationship with several clients is insufficient to prove binding enforceable contracts,” especially because “[a]ny amounts under such informal agreements would be mere speculation, insufficient to set a specific dollar amount upon.” Id.
Union Planters has presented evidence of the lengthy relationship between the debtor and Aspen Marine as well as evidence that the debtor agreed to perform extensive, technical, and specialized work for Aspen Marine’s public offering in return for a reasonable fee. This contract was for one specific, difficult project,10 as opposed to the alleged contracts in In re May that appeared to be blanket contracts for the life of the debtor’s relationship with its clients. Furthermore, Steven Dorrough’s and Ella Chesnutt’s testimony of the parties’ conduct and attendant circumstances support the existence of an oral contract. Similar evidence was apparently not provided to the In re May court.
Accordingly, the court concludes that the disputed funds were received by the debtor for work performed pursuant to an oral contract that was entered into in 1991 when the debtor agreed to perform the transactional work for Aspen Marine’s public offering. Union Planters acquired a security interest in 1991 in the contract rights and subsequent proceeds arising from the debtor’s oral contract; and thus, Union Planters’ lien takes priority over the IRS’s lien. A discussion of the second issue as to what portion of work was performed within forty-five days of the filing of the tax lien is unnecessary.
For the reasons set forth herein, a judgment will be entered that Union Planters’ lien in the funds received by the debtor from Aspen Marine and in any funds recovered by the trustee from Aspen Marine is superior to the interest of the IRS and to the interest of the trustee.
JUDGMENT
For the reasons set forth in the Memorandum on Priority of Liens of Defendants United States of America and Union Planters National Bank filed this date containing findings of fact and conclusions of law as required by Fed.R.Bankr.P. 7052, it is ORDERED, ADJUDGED, and DECREED that the lien of the defendant Union Planters National Bank is superior to the hen of the defendant, the United States of America, and to the interest of the plaintiff as trustee in bankruptcy for the debtor Dorrough, Parks & Company in: (1) those funds received by the debtor from the defendant Aspen Marine Group between April 27,1992, the date of the commencement of the involuntary case against the debtor, and June 18, 1992, the date the order for relief was entered against the debtor under Chapter 7; and (2) any funds that may be recovered by the plaintiff from the defendant Aspen Marine Group pursuant to this adversary proeéeding.
. Aspen Marine was formally known as Aspen Wind, Inc., until its name was legally changed in March 1992. Marine Sports, Inc. was a subsidiary of what is currently known as Aspen Marine until the two entities merged through a reverse acquisition. The disputed funds were received by the debtor for its work on a public offering associated with the reverse acquisition. For purposes of this Memorandum, the court makes no distinction between Aspen Wind, Inc. and Aspen Marine and will refer to the entities exclusively as Aspen Marine.
. The trustee has apparently abandoned her § 545 avoidance action against the IRS as this issue was not identified in the Pretrial Order entered on May 6, 1994. At any rate, it is ren- ■ dered moot by the court’s resolution in this Memorandum of the priority dispute between the IRS and Union Planters.
. An Order of Substitution entered on July 19, 1993, substituted Union Planters in place of Bank of East Tennessee, an original defendant against whom the trustee filed her Complaint. All references in this Memorandum to transactions involving Union Planters, in fact, were transactions with Bank of East Tennessee.
. In presenting her proof, the trustee established that the actual amount owed the debtor by Aspen Marine was $50,045.86 rather than $35,000. She was permitted to amend her Complaint pursuant to Fed.R.Civ.P. 15(b) to conform to the evidence.
. The applicable local law is Tennessee’s version of Article 9 of the Uniform Commercial Code. Union Planters’ secured interest would be protected from a judgment lien pursuant to Tenn. Code Ann. §§ 47-9-201, -301, -306 (1992). See also Clark, supra, ¶ 10.06.
. Although the statute of frauds under Tenn.Code Ann. § 29-2-101 (Supp.1994) is arguably a defense in this case, the IRS has never asserted it; and therefore, the court deems the defense waived. See Fed.R.Civ.P. 8(c); TCP Indus., Inc. v. Uniroyal, Inc., 661 F.2d 542, 547 (6th Cir.1981) (Statute of frauds "is waived if not raised as a defense in the pleadings.”). Therefore, the IRS’s only defense is that the debtor's performance of the public offering work for Aspen Marine was not pursuant to a contract.
. Ms. Chesnutt joined Aspen Marine as the Director of Legal Affairs after the debtor was hired to work on the public offering. Prior to joining Aspen Marine, she was employed by Marine Sports. She could not testify about the routine accounting work that the debtor performed for Marine Sports and could only speculate about the substance of the parties’ initial discussions that occurred when the debtor was hired for the public offering work.
. The parties were unable to determine exactly when the bill was capped; however, according to Mr. Dorrough's testimony the bill was capped "in the last several months” of the public offer*141ing project that was ultimately completed in May 1992. (Dorrough Dep. at 47.)
. The contract is also enforceable despite the lack of a price term, although Tennessee courts generally hold that an enforceable contract must contain certain essential terms, including a price. See, e.g., Jamestowne on Signal, Inc. v. First Fed. Sav. & Loan Ass'n, 807 S.W.2d 559, 565 (Tenn.Ct.App.1990) (lack of essential term might make contract unenforceable due to indefiniteness), perm, to appeal denied, id. at 559 (Tenn.1991). Here, the parties specified a price in their contract when they agreed that a reasonable fee would be paid. See Miller v. Washington County, 143 Tenn. 488, 226 S.W. 199, 203 (1920) (enforcing contract containing a “reasonable fee” price provision); Fulton v. Tennessee Walking Horse Breeders’ Ass’n of Am., 63 Tenn.App. 569, 476 S.W.2d 644, 652 (1971) (enforcing employment contract lacking a price provision and recognizing rebuttable presumption that where no compensation amount is specified, the employer must pay for the employee's services at the rate being paid when the contract was executed), cert, denied, id. 476 S.W.2d at 644 (1972).
. Mr. Dorrough testified that the public offering was “a very difficult transaction," and “the hardest deal [he had] ever worked on.” (Dorrough Dep. at 18, 41.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491907/ | 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 the Automatic Stay filed by Farm Credit Bank of Omaha and Debtor’s response to the Motion. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). This Memorandum and corresponding interlocutory Order shall constitute findings and conclusions under F.R.Bankr.P. 7052.
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 failing 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 no longer married then) 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 schedules filed November 2, 1993, Debtor stated FCBO has a 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 contends the state court foreclosure judgment terminated Debtor’s interest in the property, except Debtor’s statutory right to redeem as provided by state law. FCBO asks for relief from the automatic stay for cause.
*173Debtor filed a response on December 9, 1993. He argues FCBO’s interest is adequately protected and that the property is necessary for an effective reorganization.
A hearing was held December 16, 1993. Appearances included Robert M. Ronayne for FCBO and Randall B. Turner for Debtor. The parties stated that facts are not disputed and they agreed that Debtor has equity in the property in excess of FCBO’s claim. The parties said the legal issue presented is whether the automatic stay that arose from Debtor’s Chapter 12 petition stayed the county sheriff from conducting the foreclosure sale. The Court received arguments from counsel and set a deadline for filing briefs. Upon receipt of the briefs, the matter was taken under advisement.
In its brief, FCBO argues state law controls when a mortgage relationship ends. It states South Dakota law provides that a debtor’s interest in property ends when a foreclosure judgment by action is obtained under S.D.C.L. § 21-47-17 (1987). FCBO relies on In re Feimer, 131 B.R. 857 (Bankr.D.S.D.1991) (Ecker, J.), and In re Berg, 152 B.R. 289 (Bankr.D.S.D.1993) (Ecker, J.).
In his brief, Debtor argues that the Court in Feimer and Berg misconstrued S.D.C.L. § 21-47-17. He says the intent of § 21-47-17 is not that a judgment of foreclosure extinguishes the mortgage contract but that a judgment of foreclosure extinguishes the right of the mortgagee to collect a deficiency unless the court determines the value of the property before the sale. Debtor argues that S.D.C.L. § 21-47-10 implies that the mortgage is not extinguished upon entry of the foreclosure judgment because that statute says that until the foreclosure sale is held the debtor may redeem the property by curing the default under the terms of the original contract. Finally, Debtor argues that S.D.C.L. § 21-52-11 does not support the proposition that the foreclosure judgment extinguishes the mortgagor’s rights because the redemption period does not begin to run until after the foreclose sale.
II.
State Foreclosure by Action.
. In South Dakota, a mortgagee may foreclose by action. S.D.C.L. Ch. 21 — 47.1 If the mortgagor pays costs and all interest and principal installments due at the time the foreclosure action was commenced but before the judgment is entered and there are still other installment payments to be made, the foreclosure complaint will be dismissed. S.D.C.L. § 21-47-8. If the default is not cured, the court may render a judgment against the mortgagor for the debt due at the time of the judgment plus costs and order a sale of the mortgaged property to pay the amount due. S.D.C.L. § 21 — 47-13. A judgment for the full amount due on a note accelerated upon default is permissible. Russell v. Wright, 23 S.D. 338, 121 N.W. 842, 844 (1909). The court may not give possession of the property to the purchaser until the redemption period has expired. S.D.C.L. § 21 — 47-13.
After a judgment is entered but before the mortgaged property is sold, the mortgagor may obtain a stay of the sale by paying the principal and interest due plus costs. S..D.C.L. § 21-47-10. The stay of the sale ■roll remain in effect unless another default occurs. Id. The court may enforce the collection of subsequent defaults by ordering sales of portions of the mortgaged property in sufficient quantities to pay the amount due. S.D.C.L. § 21 — 47-11. The judgment “shall remain as security for any subsequent default.” Id.
A foreclosure by action completely extinguishes the debt secured by the mortgage unless the mortgagee follows a mandatory procedure proscribed by S.D.C.L. §§ 21 — 47-15, 21-47-16, and 21-47-17 for obtaining a deficiency judgment:
1. The mortgage holder must inform the court of his intention to claim a deficiency;
2. The court must determine the fair and reasonable value of the mortgaged premises;
*1743. The mortgage holder may bid not less than the fair and reasonable value of the mortgaged premises as determined by the court;
4. The allowable deficiency after a foreclosure sale cannot exceed the difference between the judgment debt and the fair and reasonable value of the mortgaged premises regardless of who bids in the property at the foreclosure sale or regardless of the actual sale price.
Perpetual National Life Ins. Co. v. Brown, 85 S.D. 330, 182 N.W.2d 216, 218 (1970). The legislative intent of § 21-47-17 is to prevent unjust enrichment and gain by a mortgagee through foreclosure by action.2 Id.; Wolken v. Bunn, 422 N.W.2d 417, * (S.D.1988).
Once a creditor obtains a judgment, he has twenty years to enforce the judgment by seeking a writ of execution. S.D.C.L. §§ 15-18-1 and 15-18-4. Upon receipt of the writ, the sheriff must execute it according to its terms “with diligence.” S.D.C.L. §§ 15-18-14 and 15-18-15.
The sheriff of the county where the court rendered the judgment conducts the foreclosure sale pursuant to the judgment and execution. S.D.C.L. §§ 15-18-13, 15-18-18, and 21-47-14. A levy is not required. S.D.C.L. §§ 15-18-18 and 21 — 47-14. The sheriff must give published notice in the county’s designated newspaper once each week for four consecutive weeks prior to the date of sale. S.D.C.L. § 15-19-8. The sale is by public auction sale to the highest bidder for cash. S.D.C.L. § 15-19-13. Upon completion of the sale, the sheriff issues the purchaser a certificate. S.D.C.L. § 21-47-21. The certificate remains a form of lien on the land; title does not pass until the sheriffs deed is issued. In re Nelson, 9 F.Supp. 657, 660 (D.S.D.1935); Farr v. Semmler, 24 S.D. 290, 123 N.W. 835, 837-38 (1909). The purchaser of the real property acquires “all the right, title, interest, and claim of the judgment debtor thereto” subject to the debtor’s redemption right. S.D.C.L. § 15-19-17; Nelson, 9 F.Supp. at 661.
If no exceptions to the sale have been filed and if the court is satisfied that the sale was made in compliance with applicable law, the court shall approve the sale and direct the sheriff to make a deed to the purchaser at the expiration of the redemption period. S.D.C.L. §§ 15-19-21 and 15-19-22. The court’s act of confirming the sale only goes to the regularity of the proceedings and determines nothing as to the validity of the title. Langeberg v. Perry, 62 S.D. 286, 252 N.W. 882, 883 (1934). It is a ministerial act only. Id. at 884.
Absent any extensions, the debtor generally has one year from the date of the sale to redeem the property. S.D.C.L. § 21-52-11. Unless exceptional circumstances exist, a Bankruptcy Court may not equitably extend the redemption period. Otoe County National Bank v. Easton (In re Easton), 882 F.2d 312, 315-16 (8th Cir.1989); Johnson v. First National Bank of Montevideo, 719 F.2d 270, 274 (8th Cir.1983). If there is a redemption by the mortgagor, the effect of the sale is terminated and the mortgagor gets the property back subject to junior liens. S.D.C.L. § 21-52-24; Rist v. Andersen, 70 S.D. 579, 19 N.W.2d 833, 835 (1945); Donovan v. United States, 807 F.Supp. 560, 567-69 (D.S.D.1992). If the debtor does not redeem, he then holds only bare legal title, In re Donaldson, 43 B.R. 506, 508 (Bankr.D.S.D.1984), and the sheriff must issue a deed to the certificate holder. S.D.C.L. § 21-47-24. The sheriff’s deed divests the debtor of title and vests that same title in the certificate holder. Bechard v. Union County, 71 S.D. 558, 27 N.W.2d 591, 595 (1947) (foreclosure by advertisement); Rist, 19 N.W.2d at 835.
The Automatic Stay
The automatic stay imposed by 11 U.S.C. § 362(a) arises when a petition is filed. It is applicable to “all entities.” The stay affects:
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced *175before the commencement of the ease under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any hen against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any hen to the extent that such hen secures a claim that arose before the commencement of the ease under this title; [and]
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the ease under this title....
11 U.S.C. § 362(a) (in pertinent part). “The automatic stay is fundamental to the reorganization process, and its scope is intended to be broad.” S.B.A. v. Rinehart, 887 F.2d 165, 168 (8th Cir.1989) (cites therein). The stay protects creditors by averting a scramble for the debtor’s assets. Farley v. Henson (In re Farley), 2 F.3d 273, 274 (8th Cir.1993). In a reorganization case, the stay allows the debt- or an opportunity to continue his business with his available assets. Rinehart, 887 F.2d at 168.
Section 362(a) does not operate to suspend the running of a statutory time period. Johnson, 719 F.2d at 275-79; Maanum v. Rieffer (In re Maanum), 828 F.2d 459, 460 (8th Cir.1987); Heikkila v. Carver (In re Carver), 828 F.2d 463, 464-65 (8th Cir.1987). The stay also does not enlarge the rights of individuals under a contract. Hazen First State Bank v. Speight, 888 F.2d 574, 576 (8th Cir.1989).
III.
Based upon the applicable statutes and case law, this Court concludes 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. The sale is stayed because it is a proceeding “against the debtor that was or could have been commenced before the commencement of the ease under this title” or as 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, FCBO must seek relief from the automatic stay for cause3 before the sheriff may conduct a foreclosure sale.
After the foreclosure judgment is entered but before the foreclosure sale is held, the mortgagor may still cure the default and obtain a stay of the sale. S.D.C.L. § 21-47-10. Therefore, this Court disagrees with the conclusion in Feimer and Berg that a debt- or’s right to cure a default on a mortgage always ends when the foreclosure judgment is entered. Under § 21^47-10, the right to cure the mortgage default does not end until the foreclosure sale has taken place and the debtor retains only possession and the right to redeem. Rist v. Hartvigsen, 70 S.D. 571, 19 N.W.2d 830, 832 (1945) (cite omitted). Thus, the foreclosure judgment alone does not divest the debtor of any equity in the mortgaged property so as to remove it from the estate or to justify perfunctory relief from the automatic stay under § 362(d)(1). See United States v. Whiting Pools, Inc., 462 U.S. 198, 207, 103 S.Ct. 2309, 2315, 76 L.Ed.2d 515 (1983) (reorganization estate includes property seized by a creditor but not sold prior to the petition) (cited in Knaus v. Concordia Lumber Co. (In re Knaus), 889 F.2d 773, 775 (8th Cir.1989)). While the foreclosure judgment may subsume the mortgage as the security for the debt, title has not been transferred and the debtor retains certain interests in the mortgaged property that are protected under § 362(a). The debtor’s post-judgment, pre-sale interest, whatever it is ultimately defined to be, is *176brought into the bankruptcy estate and protected by the automatic stay.
The right to cure a default under S.D.C.L. § 21-47-10 is distinguishable from the one-year redemption rights discussed in Johnson, 719 F.2d at 274, and Justice v. Valley National Bank, 849 F.2d 1078 (8th Cir.1988). See also DeMers v. Federal Land Bank of Omaha (In re DeMers), 853 F.2d 605 (8th Cir.1988). In Johnson, the issues were whether a Bankruptcy Court could equitably toll a state foreclosure period under 11 U.S.C. § 105(a) after a foreclosure sale had taken place and whether the automatic stay under § 362 tolled or suspended the state redemption period. The Court of Appeals for the Eighth Circuit concluded a Bankruptcy Court could not exercise its § 105(a) powers to extend the redemption period. Johnson, 719 F.2d at 274. The Court also concluded that application of the automatic stay under § 362 did not suspend the recdemption period. Id. at 275. In Justice, the same questions were answered in the Chapter 12 context. Here, Debtors’ redemption period has not begun. Further, state law does not set a time within which a debtor must cure a default under S.D.C.L. § 21-47-10. Instead, that right to cure the default exists until there has been, a foreclosure sale. When the automatic stay is applied, an act — the foreclosure sale — is stayed; a statutory time is not extended.
The right to cure a default under § 21-47-11 is distinguishable from statutory redemption rights in one other manner. An extension of a statutory redemption period by the automatic stay impairs the right of the certificate holder to get title at the expiration of the original redemption period. See Johnson, 719 F.2d at 277. Application of the automatic stay prior to the foreclosure sale, however, only freezes the rights of the judgment creditor and debtor4 as they exist under state law prior to the sale “pending an orderly examination of the debtor’s and creditor’s rights.” Rinehart, 887 F.2d at 169. These parties may then litigate whether cause exists to lift the stay to allow the sheriff to proceed with a sale or what constitutes adequate protection of FCBO’s interest under § 1205.
The courts in Justice and Feimer relied on American Federal Savings & Loan Association v. Kass, 320 N.W.2d 800 (S.D.1982), for the proposition that a real estate mortgage is extinguished after both the foreclosure of the mortgage and the sale of the mortgaged property. Justice, 849 F.2d at 1084; Feimer, 131 B.R. at 858. In turn, the court in Kass quoted from Duke v. Utica State Bank, 52 S.D. 33, 216 N.W. 580, 581 (1927). In Duke, however, the quoted phrase, “a real estate mortgage is extinguished after the foreclosure of the mortgage and the sale of the mortgaged property” was only a part of the respondent’s argument and it did not contain the word “both.” “[Bjoth” was apparently added in Kass. However, the theory that a mortgage is extinguished by a foreclosure judgment and/or by a foreclosure sale does not find support in state statute or earlier ease law. See Nelson, 9 F.Supp. at 661. Whether the foreclosure is by action or advertisement, it is the foreclosure sale that transforms the debtor’s interest in the mortgaged property and creates the debtor’s right to redeem. S.D.C.L. §§ 21 — 47-21, 21-47-24, 21 — 48-19, 21-48-21, 21-48-23, and 21-48-25; Bechard, 27 N.W.2d at 595; Nelson, 9 F.Supp. at 661.
The court in Feimer also concluded that the court in Justice intended “and” in the quoted phrase to be read in the disjunctive, that is, a mortgage can be extinguished when a foreclosure judgment is entered or when there has been a foreclosure sale.5 Feimer, *177131 B.R. at 858. A thorough reading of Justice, however, does not support that interpretation. Throughout the decision, the Court of Appeals for the Eighth Circuit refers to the foreclosure sale as extinguishing the mortgagor’s rights in the mortgaged property. Justice, 849 F.2d at 1080, 1083, 1084, and 1086.
Finally, section 21 — 17-17 does not state that a foreclosure “judgment” extinguishes a mortgage; it says that a “foreclosure by action” — the entire process, not a particular step in the process — extinguishes the mortgage. Section 21-47-17 essentially governs the determination of a deficiency, not when the mortgage relationship ends. Section 21-47-11, which states that the judgment incorporates the mortgage and becomes the security for the creditor upon entry of the judgment, better describes the relationship between the debtor and creditor after the foreclosure judgment but before the foreclosure sale.
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.
An order will be entered setting an eviden-tiary hearing on FCBO’s motion for relief from the automatic stay. The scheduling clerk will consult with counsel to obtain the dates they are available for a continued hearing on FCBO’s Motion for Relief From the Automatic Stay.
. South Dakota's laws on foreclosures by action have not changed appreciably since they were first adopted in 1877 by the Dakota Territory.
. Similar restrictions apply to foreclosures by advertisement and foreclosures on purchase money mortgages. S.D.C.L. §§ 21-48-14 and 44-8-20.
. 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).
. Section 44-8-17 of the South Dakota Code, by giving the purchaser at a foreclosure sale certain rights regarding payment of taxes and insurance, also recognizes that a foreclosure sale alters the rights of the mortgagor.
. The court in Feimer relied on In re Eynetich, 98 B.R. 966 (Bankr.D.Neb.1988), aff'd, U.S. v. Eynetich, 845 F.2d 1028 (8th Cir.1988), for the proposition that the Court of Appeals for the Eighth Circuit intended "and” in the quoted phrase in Justice to be read in the disjunctive. The bankruptcy court in Eynetich, however, merely relied on the quoted phrase in Justice to conclude that South Dakota foreclosure law differed from Nebraska’s, where the mortgage is not extinguished prior to the foreclosure sale. Eynetich, 98 B.R. at 869. The bankruptcy court did not present any statutory basis for distinguishing between South Dakota’s and Nebraska's foreclosure laws. *177The appellate court’s decision in Eynetich was not published. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491908/ | MEMORANDUM OPINION
JACK CADDELL, Bankruptcy Judge.
This matter is before the Court on a complaint filed by the plaintiff, Angela Beshears, seeking the Court to determine that a certain debt owed by the defendant, Murphy L. Beshears, III, is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The trial in this matter was held on the 23rd day of August, 1994.
From the evidence presented, the Court makes the following findings of fact. The plaintiff and defendant were married on May 23, 1986. On February 20, 1991, the parties were divorced by a decree issued from the Circuit Court of Madison County, Alabama (Plaintiffs exhibit # 1). Incorporated into the divorce decree was a separation agreement dated February 13, 1991.
Paragraphs nine and ten of the agreement provide as follows:
9. The 1.0 acre of commercial property located in Richland Park, Madison, Alabama, shall be the sole and separate property of the husband [Murphy L. Beshears, III]. For and in consideration of the wife [Angela Beshears] signing a Warranty Deed thereto, the husband shall execute a mortgage secured by said property to the wife for the sum of $30,000.00, said mortgage shall be payable as set out in paragraph number 10.
10. The wife shall receive a property settlement of Thirty Thousand and no/ 100 dollars ($30,000.00) payable as follows: one-half of monthly payment from the sale of the Boswell Drive property (according to the terms of the land sale contract) paid monthly to the wife and to be deducted from the total of $30,000.00, the balance of which is to be paid in full upon the sale of the 1.0 acre of commercial property presently listed for sale.
Contemporaneously with the execution of the separation agreement, the husband executed a note (Plaintiffs exhibit #2) to the plaintiff, which was secured by a mortgage (Defendant’s exhibit # 1) covering the 1.0 acre of commercial property referred to in paragraph nine of the separation agreement. The defendant made the monthly payments under said note of $166.00 to the plaintiff until December, 1993. The defendant paid the plaintiff a total amount of $5,000.00.
On January 8, 1993, the defendant borrowed $40,000.00 from First Alabama Bank and secured said loan with a mortgage on the 1.0 acre of commercial property. In connection with this loan, First Alabama Bank conducted a title search on the commercial property and found no prior recorded mortgages, including the one executed in favor of the plaintiff, Angela Beshears.
The defendant defaulted on his monthly payments to First Alabama Bank and to the plaintiff. On March 23, 1994, the defendant and his present wife, Marian L. Beshears, filed for relief under Chapter 7 of the Bankruptcy Code. The bankruptcy petition listed the debt of Angela Beshears as unsecured. Subsequently, First Alabama Bank obtained relief from the automatic stay on April 28, 1994, and their mortgage has been foreclosed.
On May 20, 1994, the plaintiff filed this adversary proceeding alleging that the defendant failed to record the mortgage ($30,-000.00) executed in her favor. The plaintiff *234asserts that the defendant’s failure to record the mortgage constitutes fraud. The plaintiff also alleges that the defendant committed fraud by granting First Alabama Bank a mortgage and by failing to disclose her mortgage. The plaintiff claims that the obligation owed to her is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
In order to prevail on the question of dischargeability under Section 523(a)(2)(A), the creditor must prove that: the debtor made a false representation with the purpose and intention of deceiving the creditor; the creditor relied on such representation; his reliance was reasonably founded; and the creditor sustained a loss as a result of the representation. In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). The creditor has the burden of proving each element by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). A lack of proof as to any one of the stated elements will be fatal to the party’s claim of fraud. Hunter, at 1579.
The evidence shows that at the time of the divorce, there were no encumbrances on the 1.0 acre of commercial property, and the mortgage executed by the defendant to the plaintiff was to be a first mortgage. The divorce was “uncontested” so one attorney prepared the divorce papers.
The defendant, Murphy L. Beshears, III, testified at the trial that the divorce papers, the note and mortgage, warranty deed and two quit claim deeds were executed in the attorney’s office. The plaintiff then took all the documents with her so she could record them.
The plaintiff stated that she did in fact take some of the documents to be recorded, but does not remember receiving the mortgage. The plaintiff further stated that she now realizes that it was her responsibility to record the mortgage. The evidence shows that the mortgage was never recorded, and neither party knows what happened to the original document.
There is no evidence that shows that the task of recording the mortgage was delegated to defendant Murphy L. Beshears. The Court finds that the failure of the mortgage to be recorded was not due to any intentional, reckless, or fraudulent act by the defendant, Murphy L. Beshears, III.
The plaintiffs second theory is that the defendant is guilty of fraud in giving a mortgage on the subject property to First Alabama Bank when he already knew she had a mortgage on said property. The defendant testified that when he granted First Alabama Bank a first mortgage on the 1.0 acres of commercial property that “he forgot that he had given Angela [plaintiff] a mortgage on the property”. He further testified that he did not think about the mortgage to the plaintiff at the time he gave First Alabama Bank a mortgage, or else he would have disclosed this information. He concluded his testimony by stating that his failure to disclose the plaintiffs mortgage on the property was not intentional.
It is the opinion of this Court that the plaintiff cannot prevail on her second theory of fraud because the plaintiff did not rely on any representations made by the defendant to First Alabama Bank. The defendant’s dealings with the bank did not induce her to rely upon said actions, to part with anything of value or to surrender any legal right. The proximate cause of the plaintiffs damage was her own failure to properly record the mortgage.
The Court is of the opinion that the plaintiff has failed to prove each of the necessary elements of § 523(a)(2)(A). The debt/obligation, which is owed to the plaintiff by the defendant, is dischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491909/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
This adversary proceeding is before the Court on the debtor’s motion to dismiss for failure to timely file a complaint seeking a nondisehargeability determination pursuant to 11 U.S.G. § 523(c) within the deadline specified by Bankruptcy Rule 4007(c). The deadline for filing complaints was set for July 25, 1994. Eckel Industries, Inc. filed their complaint on July 26, 1994 1 There is no *252question that the complaint was actually filed one day beyond the deadline date.
Plaintiffs first argument is that the complaint should be deemed timely filed where evidence of proper mailing would presume delivery within the usual time. Specifically, since the complaint was properly executed, addressed, stamped and mailed three days prior to the deadline and the usual time for delivery from the originating town to the town where the Bankruptcy Court is located is one day, the complaint should be deemed timely filed notwithstanding the fact that it actually arrived at the Court one day after the filing deadline. E.g. Matter of Kero-Sun, Inc., 63 B.R. 50 (Bankr.D.Conn.1986) (proof of claim properly executed and mailed to bankruptcy court ten months before the claims bar date is presumed to have been timely filed); In re Smith, 42 B.R. 927 (Bankr.D.Mass.1984) (complaint which was intended to be filed with the bankruptcy court but misdelivered to the district court is deemed to have been filed on the date of its original delivery pursuant to Bankruptcy Rule 5005(b)). While recognizing some courts have sustained this proposition under certain factual scenarios, this Court expressly rejects this contention.
The efficient administration of the bankruptcy estate depends on the imposition of deadlines. Both the debtor and the creditors benefit from the prompt resolution of the creditor’s claims and determination of the debtor’s proposed repayment terms.
The purpose of the bankruptcy laws is quickly and effectively to settle bankrupt estates. Katchen v. Landy, 382 U.S. 323, 328, 86 S.Ct. 467, 471-72, 15 L.Ed.2d 391 (1966). Under the Bankruptcy Code and [r]ules, creditors play a zero-sum game in which the failure to navigate effectively through various intricate procedures can mean total defeat. Moreover, because such procedures are thought to be necessary to protect the bankrupt and the creditors, exceptions cannot be made every time a creditor claims hardship.
In re Robintech, Inc., 863 F.2d 393, 397-98 (5th Cir.), cert. denied by 493 U.S. 811, 110 S.Ct. 55, 107 L.Ed.2d 24 (1989). Although as a general matter, complaints to bar discharge or to determine dischargeability may be filed any time before or after the conclusion of the bankruptcy case, complaints to bar discharge or to determine dischargeability under § 523(a)(2) (fraud or false financial statement); § 523(a)(4) (fraud or defalcation acting as a fiduciary, embezzlement or larceny); or § 523(a)(6) (willful and malicious injury) are subject to a 60 day deadline for the filing of a complaint2. Bankruptcy Rule 4007(c). As previously stated, the policy behind the Rule is to promote the prompt administration of the bankruptcy estate and to facilitate the debtor’s “fresh start.”
“The result [of the 60 day deadline] is automatic and sometimes leads to harsh results. However, Congress intended to establish a system whereby certain types of nondischargeability claims would be automatically cut off after a relatively short period of limitations in order to prevent debtors from being harassed by creditors after their claims had been discharged in bankruptcy. Congress meant to cure the abuse whereby debtors were routinely sued by creditors long after bankruptcy creditors claiming that their claims were *253not discharged because of fraud or a false financial statement.”
In re Kirsch, 65 B.R. 297, 299-300 (Bankr. N.D.Ill.1986); See also Neeley v. Murchison, 815 F.2d 345, 346 (5th Cir.1987); In re Hill, 811 F.2d 484, 486-87 (9th Cir.1987); Byrd v. Alton, 837 F.2d 457 (11th Cir.1988). In light of the language of the Rule and the policy behind the words, this Court will not “deem” a complaint which was actually received beyond the deadline date to be timely filed.
Plaintiffs second argument centers around the creditors’ ability to file a motion to extend time to file a complaint as allowed by the rule3. The bankruptcy court cannot sua sponte extend the deadline to file dis-chargeability complaints under Rule 4007(c). The only way to extend the fixed date is upon motion filed before the deadline expires. In re Kennerley, 995 F.2d 145, 147 (9th Cir.1993). Although Eckel Industries did not file a motion to extend before the deadline lapsed, they did file a Motion to Modify Stay requesting the Court to lift the automatic stay in order to proceed with a lawsuit pending in District Court. Citing the ease of In re Lambert, 76 B.R. 131 (E.D.Wis.1985), Eckel Industries argues that the motion put the parties and the Court on notice of an intent to file a nondischargeability complaint and therefore the Court should construe the Motion to Modify Stay as a motion for extension of time for fifing the dischargeability complaint.
In Lambert, on November 2, 1984, two days before the deadline for filing discharge-ability determinations, the creditors filed a motion for termination of stay and attached a copy of the complaint they intended to file in the state court alleging misrepresentation and fraud in a home sale that involved the debtor. A hearing was held on December 21, at which time the Bankruptcy Court granted the motion stating that if the creditor prevailed in the state court litigation, a hearing on dischargeability would be required prior to the enforcement of the state court judgment. On January 15, the debtor filed a motion for leave to appeal and an appeal of the December 21 Order. The District Court denied the motion for leave to appeal finding that the Bankruptcy Court acted within its discretion by construing the motion for termination of stay as a motion for extension of time to determine dischargeability in that this action did not prejudice the debtor’s right to a “fresh start” but merely maintained the status quo.
The effect of the ruling in Lambert is clearly to allow a nondischargeabifity determination based on fraud grounds to be pursued in state court litigation post-bankruptcy even though no complaint to determine non-dischargeabifity had been filed with the Bankruptcy Court within the deadline. That decision does support the creditors’ argument to some extent but Lambert must be distinguished from the present situation because in Lambert the motion for termination of stay actually referred to a complaint to be filed with the state court and the complaint to be filed was attached. Moreover, unlike this case, the question of the dischargeability of the debt was addressed by the Court in the Order issued on the motion to terminate stay.
In the present case, the complaint in the civil court action was not attached to the Motion to Modify Stay that was presented to this Court within the deadline. Moreover, although the Motion to Modify Stay did generally refer to the nature of the District Court action, it did not allege the elements of § 523(a)(6) or even mention § 523(c) or otherwise explicitly indicate that any judgment rendered in the state court action would be have to be deemed nondischargeable against the debtors’ assets in the bankruptcy court. Accordingly, the Court need not even reach the question of whether or not there is a notice-based exception to Bankruptcy Rule 4007, because the facts of this ease are insufficient to raise that issue. See Matter of McGuirt, 879 F.2d 182 (5th Cir.1989) (general allegations of fraud in creditor’s motion for relief from stay were insufficient to put debt- or on notice of creditor’s intention to contest dischargeability of any debt established in *254state court lawsuit). If the Court were to recognize the noticed-based exception on the facts involved here, every motion for stay relief involving state court litigation would render uncertain the tolling of the 60 day deadline and undermine the fresh start policy behind the Rule.
In making its decision, the Court recognizes that under extraordinary circumstances, some courts, including this one, have used their equitable powers to extend the 60 day limitation absent a motion by the parties. In re Anwiler, 958 F.2d 925 (9th Cir.), cert. denied, — U.S. -, 113 S.Ct. 236, 121 L.Ed.2d 171 (1992) (court allowed untimely filing of complaint when mistake was caused by clerk’s office erroneous notice of deadline for filing); In re Themy, 6 F.3d 688 (10th Cir.1993) (bankruptcy court could use equitable power to accept complaint by creditors filed beyond 60 day deadline but before deadline noticed by bankruptcy court); In re Isaacman, 26 F.3d 629 (6th Cir.1994) (court can use equitable power to permit nondis-chargeability complaint if creditor reasonably relied on court’s erroneous statement of bar date); In re Riso, 48 B.R. 244 (Bankr.D.N.H.1985), aff'd 57 B.R. 789 (D.N.H.1986) (bankruptcy court may use equitable powers to extend deadline for dischargeability complaints to date erroneously noticed by clerk’s office). However, the cases to date are eases where the court notice itself misled the creditor by giving an incorrect date and are not based on grounds analogous to the ones presented here. Cf. In re Williamson, 15 F.3d 1037 (11th Cir.1994) (fact that notice from court state that deadline to file dischargeability complaints was “to be set” but then never was did not relieve creditor from 60 day time period prescribed by Rule 4007); Neeley v. Murchison, 815 F.2d 345 (5th Cir.1987) (clerk’s office failure to provide notice of discharge deadline did not suspend running of time period under Rule 4007); In re Diberto, 136 B.R. 24 (Bankr.D.N.H.1992) (dis-chargeability deadline date is established as a matter of law regardless of clerk’s office failure to notice creditors of bar date). Although this Court has exercised its power to recognize an equitable exception in situations in which the Court itself deflected timely action by an erroneous notice, the Court will not recognize exceptions that would in effect eat up the Rule. The bankruptcy system simply could not operate if every deadline, which by its nature can cut off someone’s lawful rights, could be contested on equitable grounds.
For all these reasons, the Court finds that the complaint was not timely filed and is not within any recognizable exception. The debtor’s motion to dismiss will be granted by separate order.
. Eckel Industries was listed in the debtor's schedules as an unsecured creditor holding a disputed claim of undetermined value. The claim arises pursuant to a lawsuit pending before *252the United States District Court for the District of Massachusetts, Civil Action No. 92-100991 by Eckel Industries, Inc. against the debtor for numerous allegations relating to the misappropriation of trade secrets, breach of contract, unfair acts and practices, intentional interference with contractual and business relations, breach of corporate fiduciary duty and civil conspiracy. In a bench ruling at the hearing on August 23, 1994, formalized by written order entered contemporaneously this date, the Court granted Eckel Industries, Inc. "Motion to Modify Stay” requesting permission to recommence the lawsuit in order that the amount of the claim against this estate may be liquidated and determined.
. The purpose of the divergent treatment for complaints filed under section 523(a)(2), (4) and (6) is primarily due to a history of abuse by creditors bringing suits against the debtors on these particular grounds. See "The New Dis-chargeability Law,” 45 Am.Bankr.LJ. 1, Vem C. Countryman. For this reason, Congress granted the Bankruptcy Court exclusive jurisdiction over these types of claims and consequently imposed a short deadline for filing such a complaint to ensure the prompt resolution of the bankruptcy estate.
. "... On motion of any party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be made before the time has expired.” Bankruptcy Rule 4007(c). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491910/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Plaintiff’s Verified Complaint For Temporary And Permanent Mandatory Injunction, Motion For Preliminary (Affirmative) Injunction, Motion For Emergency Hearing, Supplemental Brief In Support of Plaintiffs Motion For Preliminary Injunction, and Reply Brief, and Defendant’s Memorandum in Opposition to Plaintiffs Motion for Preliminary Injunction, Supplemental Memorandum, and Second Supplemental Memorandum. 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, exhibits presented as well as the entire record in the case. Based upon that review, and for the following reasons, the Court finds that the Plaintiffs Motion for Preliminary Injunction should be Denied.
FACTS
PlaintiffiDebtor AA All Star Enterprises, Inc. (hereafter “All Star”) is an Ohio corporation engaged in the' business of, among other things, appliance repair. On August 10, 1994, Plaintiff filed a voluntary Chapter 11 petition with this Court. On August 18, 1994, Plaintiff filed a Verified Complaint For Temporary and Permanent Injunction, initiating the present case. On that same day, Plaintiff filed a Motion For Emergency *344Hearing, along with a Motion For Preliminary Injunction, asking this Court to direct Defendant Ameritech Publishing Inc. (hereafter “Ameritech”) to publish All Star’s advertisement in its commercial telephone advertising directory, commonly known as the “Yellow Pages”. The basis for Plaintiffs claim is that Ameritech’s refusal to publish its advertisement will cause irreparable harm to All Star, which obtains almost all of its business from yellow pages advertising, according to the affidavit of Patrick Mayberry, the President of All Star.
An Emergency Hearing was held on August 19, 1994. At that Hearing it was revealed by Ameritech that the basis for its refusal to publish All Star’s advertisement is that All Star has not paid approximately One Hundred Seventy-seven Thousand Nine Hundred Thirty-three Dollars ($177,933.00) for previous Yellow Page advertisements. Of this amount, approximately Eighty-three Thousand Four Hundred Sixty-seven Dollars ($83,467.00) related to advertisements displayed in the 1992-93 Yellow Pages editions for Toledo, Akron, and Indianapolis. The amounts relating to the 1992-93 can be broken down further, into approximately Forty-nine Thousand Three Hundred Ninety-two Dollars ($49,392.00) for the Toledo advertisement, Eighteen Thousand Five Hundred Eighty-five Dollars ($18,585.00) for Akron, and Fifteen Thousand Four Hundred Ninety Dollars ($15,490.00) for Indianapolis. The 1993-94 unpaid advertisements which were run in Toledo and Indianapolis only, totaled approximately Ninety-four Thousand Four Hundred Sixty-six Dollars ($94,466.00). These figures were not disputed by All Star.
All Star’s justification for not paying these claims relates back to two lawsuits presently pending in state court between itself and Ameritech. The first action appears to be for breach of contact. It appears that All Star expected Ameritech to display its ad first in the 1992-93 Toledo Yellow Pages titled listing. Instead they were placed second. This was the only advertisement alleged to be misplaced. All Star’s only explanation for not paying for any of the other ads is that they expect a judgment against Amer-itech from these lawsuits, and the moneys owed could simply be subtracted from the judgments.
The second action is an antitrust lawsuit against Ameritech under Section 2 of the Sherman Act for Ameritech’s refusal to publish any further advertisements without payment on the previous ones. In that action, All Star alleges that the operation of the Yellow Pages was in effect a monopoly for Ameritech, and as such Ameritech must provide equal access to services for all. It is on the basis of this suit that All Star seeks a Preliminary Injunction.
DISCUSSION
The issue presented in this case is whether this Court should grant a Preliminary Injunction as requested by All Star on the basis of All Star’s pending Antitrust action. For the reasons discussed below, the Court will deny All Star’s request for Preliminary Injunction.
As stated by the 6th Circuit Court of Appeals, there are four factors particularly important in determining whether a preliminary injunction is proper:
(1) the likelihood of success on the merits;
(2) whether injunction will save the plaintiff from irreparable injury;
(3) whether the injunction would harm others; and
(4) whether the public interest would be served by the injunction.
In re DeLorean Motor Company, 755 F.2d 1223 (1985).
For the reasons discussed below, this Court finds that All Star has failed to show a likelihood of success on the merits, and will thus deny its Motion. The other factors listed above need not be discussed in detail. However, it should be noted that Plaintiff has also made no showing that the injunction would harm others or society, other than the bare allegation that All Star may be forced out of business, and the result would harm competition in the appliance repair market. There has been no showing that this market would be non-competitive without the presence of All Star, or that any type of monopoly would result.
*345The law in the area of antitrust under Sherman Act has been summarized by the United States Supreme Court in United States v. Grinnell Corp., 384 U.S. 563, 570, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). In that- ease the Supreme Court noted that illegal monopolization under Section 2 of the Sherman Act has two distinct elements: 1) possession of monopoly power in the relevant market and 2) “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.” 384 U.S. at 570-71, 86 S.Ct. at 1704.
In the case at bar, All Star must make a reasonable showing that Ameritech’s control of the Yellow Pages is a monopoly in the “relevant market” in order to prevail in its antitrust action. Though this Court does not hereby hold that All Star has made this showing, there are several eases wherein the Yellow Pages has been inferred to possess monopoly power in certain instances. See Directory Sales Management v. Ohio Bell Telephone Company, 833 F.2d 606 (6th Cir.1987); Ad-Vantage Telephone Directory Consultants, Inc. v. GTE Directories Corporation, 849 F.2d 1336 (11th Cir.1987); Yellow Pages Consultants, Inc. v. GTE Directories Corporation, 951 F.2d 1158 (9th Cir.1991). The Court will assume, arguendo, that monopoly power exists as a basis for the analysis of the value of All Star’s claim.
The “refusal to deal” area of antitrust law under Section 2 of the Sherman Act, has been succinctly stated by the 6th Circuit in Byers v. Bluff City News Company, 609 F.2d 843 (1979). In Byers, the Court explained:
There exist two conceptually similar lines of cases which impose a duty to deal upon a monopolist. The first is a straightforward ‘intent’ test which originated from Dicta in United States v. Colgate & Co., supra, 250 U.S. [300] at 307, 39 S.Ct. [465] at 468 [63 L.Ed. 992 (1919) ] where the Court stated that a business is free to deal with whomever it pleases so long as it has no ‘purpose to create or maintain a monopoly’.
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There also exists a second, related line of cases which has been styled as promulgating the “bottleneck theory of antitrust law.’ Under this approach, a business or group of businesses which controls a scarce facility has an obligation to give competitors reasonable access to it.
* * * * *
In theory, the distinction between the ‘intent’ theory and the ‘bottleneck’ theory is that the former focuses on the monopolist’s state of mind while the latter examines the detrimental effect on competitors. Id. at 855-856.
In the case at bar, neither the “intent” theory nor the “bottleneck theory” apply to Ameritech’s refusal to deal. For the intent theory to apply, All Star would need to show Ameritech’s intent was to capture or maintain a monopoly. All Star only alleges that the actions of Ameritech would harm competition in the appliance repair market because they will be forced out of business. Ameri-tech does not compete, nor to this Court’s knowledge seek to compete, in the Appliance repair market. Thus, their goal, or “intent”, is not to monopolize. Rather, they appear only to wish to refrain from doing business with a client who has not paid its bills. This constitutes a valid business justification.
All Star also claims that Ameriteeh’s purposes for their refusal to deal are improper. All Star argues that Ameritech is simply refusing to deal with a client that has instituted a lawsuit against them, and who has not paid them on the basis of the disputed claim. While this argument could have merit to the extent of the disputed claim of the first lawsuit concerning the amount owed for an allegedly misplaced ad in Toledo in 1992-93, it does not have merit concerning the other late payments. The disputed claim amounts to only Forty-nine Thousand Three Hundred Ninety-two Dollars ($49,392.00) of the total One Hundred Seventy-seven Thousand Nine Hundred Thirty-three Dollars ($177,933.00) which is currently due. Further, Ameritech has not flatly refused to deal. They have offered to publish All Star’s add if One Hundred Thousand Dollars ($100,000.00) of the total past due amount were paid, and the current advertisement were paid for in ad-*346vanee. All Star’s only counter argument is that it intends to offset any balances due from the judgment it will receive from its two lawsuits. From these facts, this Court determines that All Star has not demonstrated that Ameritech could have an intent to monopolize.
A similar result is reached under the “bottleneck” theory, where the emphasis is upon the detrimental effect on competition. Again, there is no basis to believe that the appliance repair market will in any way suffer absent All Star. Further, because Amer-itech has not been shown to engage in the appliance repair market, or stand to gain in any other way from All Star’s failing, there is no basis to show any abuse of monopoly power. Thus, All Star has failed to show that it has a significant likelihood of success on the merits of its antitrust claim against Ameritech.
A similar holding was reached by the court in Langenderfer, et al. v. S.E. Johnson Co., et al., 917 F.2d 1413 (6th Cir.1990). Of the many issues presented in that case, one dealt with a small paving and excavating business that claimed the defendants, who were large road construction companies, violated antitrust laws for refusing to sell them stone, sand and asphalt which they depended upon in certain locations. Id. at 1423. The plaintiffs claimed that the reason they were cut off was for assisting another party in another antitrust action against the defendant. Id. at 1424. This is similar to the case herein, where the Plaintiff claims that Ameritech’s refusal to deal is motivated by other litigation. Also similar to the case at bar, the plaintiff in Langenderfer was “consistently overdue” in payments, and had shown credit difficulties. Id. at 1425. The court held, “Essentially, it seems clear that defendants and [plaintiff] were engaged in a series of commercial disputes ... The claim for refusal to deal is inextricably bound with the commercial and contract disputes between the parties, and was not proven to be a practice related to antitrust conduct.” Id. at 1426.
For the reasons stated above, this Court likewise holds that All Star’s antitrust claim is inextricably bound with commercial disputes and does not have sufficient likelihood of success to enable or persuade this Court to grant its preliminary injunction and force Ameritech to deal with a client that has consistently not paid for the services it was rendered. Such a holding would allow clients of monopolies the right to subvert their payments by simply bringing tenuous claims against the monopoly, and demanding injunctions to force the continuation of services pending lengthy litigation. Such a holding would be contrary to public policy and belie common sense.
For all the foregoing reasons the Court decides to deny the All Star’s Motion for Preliminary Injunction. 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 Plaintiff’s Motion for Preliminary Injunction be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491966/ | MEMORANDUM OPINION AND ORDER
MARK W. VAUGHN, Bankruptcy Judge.
The Court has before it the motion of Bombardier Capital, Inc. (“BCI”) for relief from the automatic stay to exercise its rights with respect to certain recreational motor vehicles and trailers in which it claims a security interest. The debtor assented to the motion. A creditor, CFX Bank (“CFX”), objected to the motion with respect to used recreational vehicles only, claiming it had a first priority security interest on the used recreational vehicles. A hearing was held on February 10, 1995, at which hearing the Court granted the motion for relief with respect to the new recreational motor vehicles and trailers and took the matter with respect to the used motor vehicles and trailers under advisement.
The Court refers to the recent First Circuit opinion Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26 (1st Cir.1994), in which the First Circuit, after an extensive discussion on the proper scope of a hearing on a motion for relief from the automatic stay held, “[f]or all these reasons, we find that a hearing on a motion for relief from stay is merely a summary proceeding of limited effect, and adopt the Vitreous Steel court’s holding that a court hearing a motion for relief from stay should seek only to determine whether the party seeking relief has a colorable claim to property of the estate.”
In the instant case, the Court has reviewed the financing security documents of BCI, including:
1. Revolving Credit and Security Agreement dated on or about September 22, 1992;
2. Inventory Security Agreement dated on or about July 26, 1990; and
3. UCC-l’s filed on September 29, 1992, at the Office of the New Hampshire Secretary of State and the Town Clerk for the Town of Hillsborough, New Hampshire.
The language of the September 22, 1992, Security Agreement granting a security in*755terest, which same language is also found on BCI’s UCC-l’s, is as follows: “[a]ll debtors’ right, title and interest in all present and future machinery, equipment, chattels, goods, and other articles of personal property, replacements and additions_” It is also clear that the security agreement upon which CFX relies, which is attached to its objection, and the UCC-l’s it filed were subsequent to the above-referenced financing documents of BCI.
In accordance with Grella, this Court finds that BCI has a colorable claim to the debtor’s used recreational motor vehicles and trailers and grants the motion for relief with respect to the used recreational motor vehicles and trailers. In making this decision, the Court finds that the instant dispute is between two creditors and not the debtor-in-possession, leaving the parties free to litigate the priority issue in the state court. This decision will have no preclusive effect thereon.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491967/ | DECISION AND ORDER ON MOTION PURSUANT TO LOCAL RULE ¡22, BANKRUPTCY RULES 1001(c), 90U AND 11 U.S.C § 361(c)(2) OR 361(d)(1) APPROVING A CERTAIN REFINANCING AND MODIFICATION AGREEMENT
EDWARD J. RYAN, Bankruptcy Judge.
By application, the debtors request:
the Court sign an Order granting debtors’ Motion to approve obtaining credit under the proposed Modification Agreement which, inter alia, (a) requires individual debtors’ to grant a first priority mortgage on 40 Neptune Avenue, Woodmere, New York, (b) modifies the Stipulation of Compromise and Settlement between debtors and the Federal Deposit Insurance Corporation, as Receiver of Dollar Dry Dock Bank, dated November 30, 1993, the Note and Mortgage Modification Agreement, dated December 17,1993, and (c) grants to the debtors such other and further relief as the court deems just and proper.
The application is brought on by “Notice Of Motion Pursuant To Local Rule 22, Bankruptcy Rules 4001(c), 9014 and 11 U.S.C. § 364(c)(2) or 364(d)(1) Approving A Certain Refinancing And Modification Agreement.”
The matter came on for hearing on the 15th day of February 1995. At that time the debtors appeared and parties in interest were identified. Nobody took a position in opposition to the application.
The United States Trustee had no comment on the application.
After hearing, the court confessed that it was uncertain just what was before it to “approve.” For lack of information, the court declines to sign an order approving the transaction, none being required by the statute. Cf. Protective Committee For Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968).
The court “authorizes” the performance sought to be approved.
If an objective party in interest were active in this case, the court might be presented with the necessity of deciding whether this somewhat convoluted proposition is not in effect a “sub-rosa plan” looked upon with disfavor and condemned in some courts under the theory expressed by the court in Braniff:
The debtor and the Bankruptcy Court should not be able to short circuit the requirements of Chapter 11 for confirmation of a reorganization by establishing the terms of the plan sub rosa in connection with a sale of assets.
*785Pension Benefit Guaranty Corporation v. Braniff Airways, Inc. (In re Braniff Airways, Inc.), 700 F.2d 935 (5th Cir.1983).
The Fifth Circuit held that the district court was not authorized by § 363(b) to approve the PSA transaction and states, “[i]n any future attempts to specify the terms whereby a reorganization plan is to be adopted, the parties and the district court must scale the hurdles erected in chapter 11.” (citing as examples §§ 1125 (disclosure requirements), 1126 (voting), 1129(a)(7) (best interest of creditors test), and 1129(b)(2)(B) (absolute priority rule)).
This Braniff principle has been followed.
In the absence of any opposition, the court is not required, at this time, to rule upon the question. It is not necessary for the court to “approve” the conduct sought to be sanctioned. Pursuant to the statute the court “authorizes” the proposed transaction.
The motion is granted to the extent that it finds the contemplated actions are authorized.
It is so ordered. Let judgment enter accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491968/ | DECISION AND ORDER
ROSS W. KRUMM, Chief Judge.
By decision and order dated November 30, 1994, this Court deferred a ruling on the debtor’s entitlement to claim an exemption under Code of Virginia § 34-4 in the proceeds from the sale of the debtor’s property which is subject to the judgment lien of Rockingham Mutual Insurance Company. Pi’ior to the entry of the November 30, 1994 order, counsel for Rockingham Mutual Insurance Company submitted its written memorandum of authority in support of its position objecting to the claimed exemption on grounds of the public policy of Virginia. Debtor’s counsel was given thirty (30) days to file his written memorandum of authority in support of the claimed exemption and the Court set oral argument for January 6, 1995, in Harrisonburg. Debtor’s counsel complied with the Court’s order to submit written authority and hearing was held in Harrison-burg, Virginia, on January 6, 1995, on the objection to the claimed exemption. The Court took the matter under advisement. The Court has reviewed the relevant pleadings and memoranda of authority in this case.
Rockingham Mutual Insurance Company is not able to cite any authority, either statutory or decisional, which supports its position that the exemption should be denied. Instead, it argues that the public policy in Virginia is to deter arson. However, none of the case law cited by Rockingham Mutual Insurance Company indicates that it is the state’s intent to use denial of the homestead exemption as a means for deterring arson.
The debtor, on the other hand, cites the Court to In re Hayes, 119 B.R. 86 (Bankr.E.D.Va.1990). In Hayes, the trustee in bankruptcy objected to the debtor’s claim of homestead exemption because of the debtor’s fraudulent conduct in preparing and filing his Chapter 7 schedules and statement of affairs. The Hayes court set forth the legislature’s intent in section 34-4 of the Code by quoting In re Snellings, 10 B.R. 949, 952 (Bankr.W.D.Va.1981):
With reference to homestead exemptions, courts employ the most liberal and humane rules of interpretation to insure the unfortunate debtor and his equally unfortunate but more helpless family, the shelter and influence of the object which the exemption provides.
The basis for the decision in Hayes to deny the trustee’s objection to the homestead exemption was as follows:
Egregious as the debtors’ conduct may be, the Court is unable to cite any Virginia authority squarely holding that a debtor forfeits his right to claim his homestead exemption as a consequence for fraudulent conduct. In the absence of relevant Virginia authority bearing on the question, the Court will not deprive the debtor of his entitlement to his homestead exemption ... [Wjhere as here, state law does not provide for the denial of homestead exemption for fraudulent conduct, the proper *841course of conduct for the trustee to follow is to object to discharge.
Id. at 88-89.
The question in this case is whether there should be a distinction between fraudulent conduct and arson such that a finding of arson would dictate a denial of the homestead exemption. Rockingham Mutual cites the court to the Virginia Supreme Court decision in Rockingham Mutual Insurance Company v. Hummel, 219 Va. 803, 250 S.E.2d 774 (1979). In that case the question presented on appeal was whether under a fire insurance policy an innocent spouse was entitled to a share of the fire insurance proceeds payable as a result of arson by the husband where the property destroyed was held by husbánd and wife as tenants by the entirety and insured jointly. The Supreme Court of Virginia declined to let the innocent spouse receive a share of the insurance proceeds as a result of the husband’s arson holding that the innocent insured may not recover under the policy following a fraudulent act on the part of the other co-insured. The theory underlying the holding is that:
[Ujnder the policy and as the ‘insured’, each spouse had the joint obligation to use all reasonable means to save and preserve the property. Likewise, each spouse had the joint duty to refrain from defrauding the insurer. If either spouse violated any one of these duties, the breach was chargeable to the ‘Named Insured’ preventing either spouse from recovering any amount under the policy.
Id. 250 S.E.2d at 776.
It appears that the underpinnings of the Hummel decision lie in contract law. Because of the joint and several obligation imposed by the contract and the breach of that obligation by the innocent spouse, she was prevented from recovering any amount under the policy. Thus, the holding and the result in Hummel has nothing to do with the state’s public policy interest in deterring arson. Hummel does not support the position advocated by Rockingham Mutual in this case.
Hummel is also distinguishable from the case at bar because the real property which is the subject of the claimed exemption in this case is not the property which Rocking-ham Mutual insured or the property which was the subject of arson by the debtor. The only connection between Rockingham Mutual and the subject real property is a judgment hen which it obtained pre-petition.1
This Court will follow the decision in Hayes and hold that where state law does not provide for the denial of the homestead exemption for fraudulent conduct, including arson, the appropriate sanction is denial of discharge. Under this Court’s order dated November 30, 1994, the discharge of Wayne Allen Beahm for the indebtedness owed to Rockingham Mutual Insurance Company was denied.
For the reasons set forth in this decision and order, it is
ORDERED:
' That the complaint of Rockingham Mutual Insurance Company to deny the claimed exemption of the debtor in the above-captioned case in the amount of $5,000.00 in real estate or proceeds therefrom as scheduled in Schedule C of the debtor’s schedules filed in this Chapter 7 proceeding be, and it hereby is DENIED, and the debtor is allowed an exemption in the parcel of land located in Page County, Virginia, in Deed Book 457, at page 261, or the proceeds from the sale thereof in the amount of $5,000.00.
. It appears that under 11 U.S.C. § 522(f)(1) the judicial lien of Rockingham Mutual impairs an exemption to which the debtor would have been entitled under section 522(b) of the Code. With lien avoidance under U.S.C. § 522(f)(1), Rock-ingham Mutual has no direct connection to the subject real estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491969/ | MEMORANDUM OPINION
KAREN KENNEDY BROWN, Bankruptcy Judge.
Before the Court is the Complaint to Determine Dischargeability of Debt filed by Marion James Novark against Kenneth R. Sehelsteder. This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(I). This is a core proceeding.
Novark holds a judgment against debtor dated May 10, 1993, in a ease styled Marion James Novark v. Dick Moore, Ted R. Tiller, James R. Jones, Denise Campbell, Kenneth R. Schelsteder, and Preston Ray Van Shoubrouek, case no. 86-36007, in the 151st Judicial Distiict Court of Harris County, Texas. The judgment was entered in accordance with the jury verdict based either on a preponderance of the evidence or the more burdensome standard of clear and convincing evidence. The jury found:
1. From clear and convincing evidence that debtor maliciously prosecuted Novark;
2. From a preponderance of the evidence that debtor conspired to wrongfully or falsely accuse Novark of violating an individual’s civil rights;
3. From a preponderance of the evidence that debtor intentionally inflicted emotional distress on Novark;
4. From a preponderance of the evidence that debtor acted with malice.
The jury was instructed, “A party acts with malice if he is actuated by wrongful motives in the institution and/or continuance of a prosecution. Wrongful motive, coupled with a wrongful act willfully done to the injury of another, constitutes legal malice.” (Malice, Jury Question No. 6, Jury Charge, Novark v. Moore, et al., Case No. 86-36007, in the 151st Judicial District Court of Harris County, Texas.)
The jury awarded compensatory and exemplary damages which were adopted in the judgment which provides for Novark to recover from debtor and others jointly and severally, the sum of $110,000.00 with prejudgment interest from October 8, 1993, in the amount of $175,159.27, and post-judgment interest on the total sum of $285,159.27 from April 20, 1993, until paid. The judgment further provides for Novark to recover punitive damages from debtor in the amount of $5,000.00 with post-judgment interest, plus costs of court in the amount of $3,916.19, and attorney fees in the amount of $151,104.00.
*843Debtor filed his chapter 7 bankruptcy on April 22, 1992. Although judgment was rendered subsequent to the filing of debtor’s bankruptcy, it is undisputed that Novark’s claim against debtor arose before the filing of debtor’s bankruptcy; thus, Novark was a creditor of debtor at the time of filing. Debtor failed to list Novark as a creditor in his original schedules.
The Notice of Commencement of Case Under Chapter 7 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates served on creditors on May 21, 1992, in this case provides, “AT THIS TIME THERE APPEAR TO BE NO ASSETS AVAILABLE FROM WHICH PAYMENT MAY BE MADE TO UNSECURED CREDITORS. DO NOT FILE A PROOF OF CLAIM UNTIL YOU RECEIVE NOTICE TO DO SO.” The meeting of creditors was first set for June 15, 1992. The trustee of the case filed a no asset report on July 2, 1992, no claims docket was opened, debtor received his discharge on August 27, 1992, and the case was closed on August 27, 1992.
Debtor moved to reopen the case on September 9, 1993, to add Novark as a creditor. Novark filed an objection to the motion on September 29, 1993, and a hearing was held at which this Court allowed debtor to reopen the ease and add Novark as a creditor. On February 22, 1994, Novark filed this complaint to determine the dischargeability of the debt. At a hearing on the complaint, Novark testified that he did not learn of the filing of debtor’s bankruptcy until January 1, 1994.
Debtor urges that Novark should have filed his dischargeability complaint within 60 days of the reopening of the case and that his failure to do so renders his debt dischargea-ble.
Bankruptcy Code section 523(a)(3) provides:
(a) A discharge ... does not discharge an individual from any debt— ...
(3) neither listed nor scheduled' under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit— ...
(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 discharge-ability 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; ...
The Court concludes that the debt at issue is one for willful and malicious injury by the debtor to another, and is non-dischargeable under 11 U.S.C. § 523(a)(6). There is no evidence that Novark knew of debtor’s bankruptcy until at least September 1993, when he objected to the reopening of debtor’s case. Since no notice for filing claims was served on creditors by the clerk’s office, the time for filing claims never commenced to run. The time for filing a dischargeability case under 11 U.S.C. § 523(a)(2), (4), or (6), however, ran 60 days from the date first set for the meeting of creditors. See Fed.R.Bankr.P. Rule 4004. That time expired on August 14, 1992. Since the time for timely filing a dischargeability case expired prior to No-vark’s actual knowledge of the case or notice of the case, the debt is not discharged under 11 U.S.C. § 523(a)(3)(B).
The parties shall submit a final judgment in accordance with this memorandum opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491970/ | ORDER REGARDING RENEWED MOTION FOR SANCTIONS
RICHARD T. FORD, Bankruptcy Judge.
INTRODUCTION
This matter involves a renewed motion for sanctions brought by the Chapter 7 Trustee, *950James M. Ford, against the United States Trustee and Mark St. Angelo. The United States Trustee and Mark St. Angelo appealed the sanctions order originally issued by this court. On appeal the District Court reversed and remanded the sole issue of monetary sanctions in light of the District Court’s opinion.
APPEARANCES
Michael Hertz appeared for the Chapter 7 Trustee. Paul Michael Brown appeared for the United States Trustee and Mark St. Angelo.
JURISDICTION
This matter arises from imposition of sanctions under Federal Rule of Bankruptcy Procedure 7037. Local Bankruptcy Rules 820 and 914 are also applicable in this proceeding. Jurisdiction exists pursuant to 28 U.S.C. § 1334. Venue is proper under 28 U.S.C. 1409(a). The District Court has generally referred these matters to the Bankruptcy Court for hearing pursuant to 28 U.S.C. § 157(a) and United States District Court, Eastern District of California, General Orders 182 and 223. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A). This renewed motion for sanctions has been properly brought before this court after remand under Local Bankruptcy Rules 820 and 914.
DECISION
This Court has now been asked by the Chapter 7 Trustee to revisit its decision on monetary sanctions imposed on the United States Trustee and Mark St. Angelo. This renewed motion is based upon the remand order of the District Court. The District Court has instructed this Court to make a determination of the propriety of the amount of sanctions awarded in light of the 40 page opinion issued on appeal. After a careful consideration of the District Court’s decision, this court finds that an award of sanctions would be improper.
Originally, this court had found the behavior of the United States Trustee’s Office and Mark St. Angelo, Regional Assistant United States Trustee, to have been obstructive to this court’s order of a Rule 2004 examination of Mr. Gary Dyer. On appeal the District Court found that these monetary sanctions should be revisited in light of the District Court opinion. This opinion referenced much of the behavior this court found offensive. In each of these references the District Court found that the behavior of the United States Trustee Office, and that of Mark St. Angelo, to be appropriate under the circumstances.
On page 27, 28, 30 and 36, the District Court found that each objection to the questions posed by counsel for the Chapter 7 Trustee was reasonable. Specifically, the District Court found that the objections were “properly framing discovery issues.” On page 35 of the opinion, the District Court found that “OUST’s attorneys were deferential and respectful to [this bankruptcy court].” Page 36 states that the “OUST’s objections were consistent with its legal interpretation of the role of a 2004 examination.” Finally, page 26 states that the United States Trustee followed “the procedure prescribed by [this bankruptcy] court.”
In light of the findings made by the District Court this court finds that monetary sanctions are improper.1
Even if the District Court did not intend these findings to restrict the award of sanctions by this court, an award of monetary sanctions, under the circumstances of this case, would be “unjust.” Under Federal Rule of Civil Procedure 37(d), a court may make “such orders ... as are just.” Additionally, expenses may be imposed in lieu of or in addition to other sanctions allowed un*951der that rule “unless other circumstances make an award of expenses unjust.”2
The circumstances in this case show this court that the renewed sanctions motion should be denied. The Chapter 7 Trustee no longer faces a removal motion in this case and the final fees for Trustee’s counsel have been approved by this court in the amount of $31,262.3 The debtor has long ago received his discharge and the ease is ready to be closed.
Moreover, this remand motion was brought some 17 months after the District Court issued its order remanding the case for further inquiry into monetary sanctions. Though a shorter time period is not required by the local rules, this court questions why such a significant lapse of time occurred before the renewed motion for sanctions was brought. At this point any award of sanctions would be unjust.
In the interests of judicial economy and justice, this bankruptcy proceeding must come to an immediate end. To continue this motion for sanctions is both a waste of attorney time and judicial calendar space. No purpose can be served by awarding sanctions at this late stage in the proceeding.
It is this court’s finding that an award of sanctions would be both improper and unjust. The Chapter 7 Trustee’s motion for sanctions is denied.
. This court fails to understand the purpose of the remand. The District Court has found the actions of the United States Trustee and Mark St. Angelo to be wholly proper, foreclosing this court from awarding any monetary sanctions.
. Federal Rule of Civil Procedure 37(d) provides in pertinent part that;
In lieu of any order or in addition thereto, the court shall require that party failing to act or the attorney advising that the party or both to pay the reasonable expenses, including attorney's fees, caused by the failure unless that court finds that the failure was substantially justified or that the award of expenses unjust.
. This court recognizes that due to a shortage of funds counsel will most likely receive substantially less than the amount awárded. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491971/ | ORDER DENYING DEFENDANT’S EX-PARTE MOTION TO VACATE JUDGMENT
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before the Court on Debtor-Defendant’s Ex-Parte Motion to Vacate Judgment filed with this Court on December 23, 1994. Judgment was entered against Defendant in the above-styled adversary proceeding on July 8, 1991. Defendant satisfied the Judgment on November *102130, 1994 and now asks the Court to vacate the Judgment.1 This Court declines to vacate an unfavorable judgment merely because Defendant has now satisfied the judgment. Court rulings are not “the property of private litigants and should stand unless a court concludes that the public interest would be served by a vacatur.” U.S. Bancorp Mortgage Company v. Bonner Mall Partnership, — U.S. -, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994), citing, Izumi Seimitsu Kogyo Kabushiki Kaisha v. U.S. Phillips Corp., — U.S. -, 114 S.Ct. 425, 126 L.Ed.2d 396 (1993).
In Bancorp, the issue before the U.S. Supreme Court was whether appellate courts in the federal system should vacate civil judgments of subordinate courts in cases that are settled after appeal is filed or certiorari is sought. Justice Scalia, writing for a unanimous Court, determined that mootness by reason of settlement does not justify vacatur of a federal civil judgment under review by an appellate court. While the matter before this Court does not involve a bankruptcy judgment under review by an appellate court which has become moot, the principles and policy discussed in the Bancorp ease regarding the treatment of motions to vacate judgments are applicable here.
A party who seeks review of the merits of an adverse ruling, but is frustrated by the vagaries of circumstance, ought not in fairness be forced to acquiesce in the judgment. For instance, in Fleming v. Musingwear, Inc., 162 F.2d 125, 127 (C.A.8 1947), the suit for injunctive relief became moot on appeal because the regulations sought to be enforced were annulled by Executive Order. However, where mootness results from settlement, the losing party has voluntarily forfeited his legal remedy by the ordinary processes of appeal, thereby surrendering his claim to the equitable remedy of vacatur.
Similarly, in the case at hand Defendant never appealed the judgment which he now seeks the Court to vacate. Rather, he voluntarily satisfied the judgment. The judgment was not unreviewable, but was simply unreviewed by his own choice. Congress has prescribed a primary route, by appeal as of right, through which parties may seek relief from the legal consequences of judicial judgments. “To allow a party who steps off the statutory path to employ the secondary remedy of vacatur as a refined form of collateral attack of the judgment would — quite apart from any considerations of fairness to the parties — disturb the orderly operation of the federal judicial system.” Bancorp, supra, — U.S. at -, 115 S.Ct. at 392.
When a federal court contemplates equitable relief, the court’s holding must also take into account the public interest. “Judicial precedents are presumptively correct and valuable to the legal community as a whole. They are not merely the property of private litigants and should stand unless a court concludes that the public interest would be served by a vacatur.” Izumi Seimitsu Kogyo Kabushiki Kaisha v. U.S. Phillips Corp., — U.S. -, 114 S.Ct. 425, 126 L.Ed.2d 396 (1993). It is irrelevant that Plaintiff does not oppose Defendant’s motion to vacate judgment, since it is the losing party who has the burden of demonstrating equitable entitlement to vacatur. U.S. Bancorp Mortgage Company v. Bonner Mall Partnership, — U.S. -, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994).
Although exceptional circumstances may conceivably justify vacatur, such circumstances do not include the mere fact that a party has satisfied an unfavorable judgment and now wishes it to go away. Accordingly, it is
ORDERED: that Defendant’s Ex-Parte Motion to Vacate Judgment is DENIED.
DONE and ORDERED.
. Plaintiff does not oppose Defendant’s Motion to Vacate Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491973/ | DECISION AND ORDER
ROSS W. KRUMM, Chief Judge.
The matter before the Court for decision arises as a result of the objection of the trustee in bankruptcy to the debtor’s claim of exemption in two promissory notes which are payable to the debtor and his wife,- or the survivor. The debtor takes the position that the use of the words “or survivor” after the names of the husband and wife is sufficient to create a tenants by the entirety form of ownership in the notes which is exempt from the claims of creditors under Virginia law. The trustee on the other hand, takes the position that the usage of the words “or the survivor” creates a joint tenancy with rights of survivorship between the parties leaving the debtor’s interest in each of the notes subject to the trustee’s administration for the benefit of debtor’s individual creditors.
Facts
The parties have stipulated all of the facts necessary for a decision in this case. There are two promissory notes. The first one is dated September 11, 1986, in the original principal unpaid face amount of $56,000.00 and an unpaid balance as of the petition date of $38,612.49. The payees on this note are “Austin B. Sprouse and Mary R. Sprouse, or the survivor of them.” A second note is dated July 31, 1981, in the original principal unpaid face amount of $38,000.00 and an unpaid balance as of the petition date of $24,299.84. The payees on this note are “Austin B. Sprouse and Mary R. Sprouse, or the survivor.”
At the time of Mr. Sprouse’s filing of his Chapter 7 petition, he and Mary R. Sprouse were husband and wife. All of the debts listed on Mr. Sprouse’s Chapter 7 schedules are his individual debts.
Law
All of the parties agree that the law in Virginia is well settled on the following points:
1. An estate by the entirety is liable for the joint debts of both spouses but is immune *100from the claims of creditors of either the husband or the wife alone. Vasilion v. Vasilion, 192 Va. 735, 66 S.E.2d 599 (1951).
2. An estate by the entirety may exist in personal property. Moore v. Glotzbach, 188 F.Supp. 267 (E.D.Va.1960). Oliver v. Givens, 204 Va. 123, 129 S.E.2d 661 (1963).
. 3. Under Code of Virginia, § 55-20, sur-vivorship between joint tenants is abolished. However, pursuant to section 55-21, section 55-20 is not applicable “to an estate conveyed ... to persons in their own right when it manifestly appears from the tenor of the instrument that it was intended the part of the one dying should then belong to the others.”
Discussion
It is clear from the facts set forth above that the payees of the notes, the Sprouses, intended that the part of the one dying should belong to the survivor.. The trustee takes the position that the only effect of the language in the note when applied to the Virginia Code provisions referenced above is that there is a joint tenancy with rights of survivorship. The trustee believes that the effect of the enactment of section 55-20 was to abolish tenants by the entirety and that the only way it can be resurrected is for parties to use specific tenants by the entirety language in their instruments, thereby bringing themselves within the saving language of section 55-21. A necessary corollary to the trustee’s argument is that somehow section 55-20 established, contrary to common law, that husband and wife can take title to property as joint tenants with rights of survivor-ship if they use language of survivorship in their documents but not the magic words “tenants by the entirety.” He cites Jones v. Conwell, 227 Va. 176, 314 S.E.2d 61 (1984), for the proposition that a joint tenancy with right of survivorship is subject to partition by a judgment lien creditor of one of the several joint tenants. Thus, the trustee argues that he may proceed to liquidate Mr. Sprouse’s portion of the notes for the benefit of Mr. Sprouse’s creditors.
The debtor takes the position that the language in the notes brings this case within section 55-21 of the Code of Virginia. In response to the trustee’s argument that the notes are held in joint tenancy, the debtor argues that a husband and wife could only take title to property at common law as tenants by the entireties and that the statute did not change the common law in this respect. ■ The debtor relies on Allen v. Parkey, 154 Va. 739, 149 S.E. 615 (1929), aff'd, 154 Va. 739, 154 S.E. 919 (1930). In the Allen case, Mr. Allen and his wife took title to property after Virginia enacted the predecessors to sections 55-20 and 55-21 of the Code of Virginia. The conveyance to the Allens was to W.P. Allen and Mary Ely Allen and contained the following proviso: “Now should the said W.P. Allen survive his wife, Mary Ely Allen, the said tract of land to be his property to dispose of as he sees proper and the same applies to the said Mary Ely Allen.” 154 Va. at 743, 149 S.E. at 617. In reaching its decision, the Virginia Supreme Court reviewed the status of conveyance of property to a man and woman jointly after marriage: “The seisin is per tout et non per mie, and there is survivorship upon the death either of husband or wife and neither can dispose of any part of the estate without the consent of the other.” Id. In reaching its decision, the Supreme Court stated:
Section 5279 of the Code of 1919 provides that ‘tenants in common, joint tenants, and co-parceners shall be compellable to make partition.’ It will be observed that partition is not compellable by statute between tenants by entirety, but that end is reached through section 5159 which makes tenants by entirety tenants in common, in turn modified by section 5160 where it is declared that this conversion shall not take place when it is manifestly not intended.
154 Va. at 746, 149 S.E. at 618 (citing Drake v. Blythe, 108 Va. 38, 60 S.E. 632).
We think such intention is manifest by the deed and judgment. The interest of Mr. Allen and of his wife cannot be partitioned. The right of survivorship exists and this interest is at this time beyond the reach of his creditors.
Id.
In the Allen ease, the deed conveys a clear intention on the part of the parties that *101the survivor of the husband and wife would receive the decedent’s interest in the property. There is no use of the words “tenants by the entirety” in the deed. Nevertheless, the Supreme Court found the language of the deed sufficient to establish the tenancy by the entirety. There is no decided case law in Virginia which changes or questions the holding in Allen v. Parkey. Like the Allen case, the wording of the promissory notes in the ease at bar is sufficient to establish a tenancy by the entirety.
The trustee attempts to rely on In re Manicure, 29 B.R. 248 (Bankr.W.D.Va.1983), for the proposition that the deed must specify that a tenancy by the entirety is intended. However, Manicure is distinguishable because there is no language in the deed evidencing an intent to create a tenancy by the entirety. The granting clause in the Manicure deed simply conveyed title to “the said parties of the second part” and there is no language in the deed which would indicate how the parties intended to take title to the property. Id. at 250.
Conclusion
In the case at bar, section 55-20 of the Code of Virginia does not apply because the parties manifested an intention that the notes should go to the survivor. Since the statute does not operate to create a tenancy in common in this case, section 55-21 of the Code of Virginia and common law dictate that the language operates to create an estate by the entirety. Accordingly, it is
ORDERED:
That the trustee’s objection to the claimed exemptions of the debtor in the two promissory notes be, and it hereby is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491975/ | ORDER GRANTING FRIEDELL MOTION TO TERMINATE AUTOMATIC STAY, DENYING DEBTORS’ MOTION FOR ADVANCE OF FUNDS, AND DENYING CONFIRMATION OF PLAN
KAREN M. SEE, Bankruptcy Judge.
On December 19, 1994 in Kansas City, Missouri, the Court took up various matters, including the hearing on confirmation of debtors’ plan, the motion of Morris Friedell for relief from stay or in the alternative to dismiss the debtors’ Chapter 13 petition, the Chapter 13 Trustee’s motion to dismiss the case if a plan is not confirmed, and debtors’ motion to use part of the funds in which creditor Friedell claims a security interest. Appearances were: debtors Carolyn Ennis and Michael Ennis, who appeared in person and represented themselves; Richard Fink, Chapter 13 Trustee; attorneys Thomas J. Carlson and James Tichenor for secured creditor Morris Friedell; and attorney Thomas J. O’Neal for Norwest Bank and Paul Ahlers, executor of the probate estate of Rose Kubby.
J. INTRODUCTION
The court has carefully reviewed the evidence, arguments, the parties and witnesses, and the file (including post-hearing correspondence submitted by the parties). Creditor Morris Friedell presented testimony and documentary evidence. The parties stipulated to the admission of additional documents. The only testimony presented by debtors was the testimony offered by debtor Michael Ennis which was objected to on the basis that it was both hearsay and irrelevant. Debtor Carolyn Ennis did not testify. For the reasons set forth below, the court sustains the creditor’s motion for relief from stay, denies debtors’ motion to obtain an advance of funds from an inheritance, denies confirmation of debtors’ plan, and orders that debtors file an amended plan within 15 days of the hearing date, as directed on the record at the conclusion of the hearing.
The issue central to all the pending motions and the debtor’s plan is whether creditor Morris Friedell has a duly perfected security interest in funds totalling $107,488.33 in the probate estate of Carolyn Ennis’s deceased mother, Rose Kubby. The funds are part of Carolyn Ennis’s share of the estate as an heir of Rose Kubby. Creditor Morris Friedell claims a perfected security interest and judicial lien in the funds. The ruling on the motion to lift stay will resolve the debtors’ objection to the claim of Morris Friedell and debtors’ turnover action against Mr. Ah-lers, the executor, both of which are set for trial on January 9, 1995. The ruling on the motion to lift stay will also determine whether debtors’ request for advances from the inheritance should be allowed and whether the pending plan should be confirmed.
II. FACTS
This case has a long history. In 1971 Morris and Carolyn Friedell (now Carolyn Ennis) were divorced in California. In 1981 a stipulation was filed in the divorce case, the pertinent terms of which provided that when Mrs. Friedell sold the marital home in which she was living, the net profit would be divided evenly between her and Morris Friedell. In recent years, after the divorce and stipulation between Morris and Carolyn Friedell, Carolyn Friedell and Michael Ennis, debtors herein, were married.
At the bankruptcy court hearing on December 19,1994, debtors alleged in argument that either she did not sign the stipulation in 1981 and that it was a forgery, or that if she did sign it, she was on SSI and therefore was not competent to sign the document. Caro*180lyn Ennis did not testify, and the testimony of Michael Ennis was inadmissible as hearsay. There is no competent evidence in the record of the alleged incompetence or disability at any time, either in 1981 or at present time. However, it is not necessary to reach these issues in making a determination that the automatic stay should be terminated.1
Debtors also contended a quitclaim deed from Morris Friedell to Carolyn Frie-dell superseded or invalidated the stipulation. The court rejects the contention that the quitclaim deed evidenced cancellation of the stipulation. Rather, the quitclaim deed is consistent with the stipulation which contemplates that Carolyn Friedell would receive the home, that she would eventually sell it, and the net proceeds would then be equally divided.
In August, 1987, Carolyn Friedell sold the house but, contrary to the terms of the stipulation, did not pay Morris Friedell his half of the net proceeds. On November 19, 1991, debtors Carolyn and Michael Ennis filed a Chapter 7 bankruptcy case in Seattle, Washington, but they failed to list Morris Friedell as a creditor. On June 24, 1992 debtors received a Chapter 7 discharge.
On December 21, 1992, in California state court, Mr. Friedell obtained a judgment finding that his former wife was indebted to him in the sum of $73,575, plus interest at the rate of 10 per cent per annum from August 5, 1987 based on her failure to pay him one half the net proceeds of sale pursuant to the stipulation. With accrued interest through August 31, 1994, the date debtors filed this Chapter 13 proceeding, the judgment now totals $125,641.91.2 Carolyn Friedell Ennis was aware of the proceeding, had been in contact with Mr. Friedell’s counsel, and had the opportunity to appear and defend on the merits of the case, but she did not appear at trial and by default allowed the matter to proceed to judgment. She did try to appeal the judgment years later, after her inheritance was in peril when the proceedings discussed below were commenced in Iowa courts, but the California appellate court dismissed the appeal.
On July 26, 1993, Mr. Friedell registered the California judgment in Polk County, Iowa, where a probate estate had been opened for Rose Kubby, the deceased mother of Carolyn Friedell. Carolyn Friedell Ennis received an interim distribution in October, *1811993, and she was due to receive a final distribution of $107,488.33.
On January 5, 1994 Mr. Friedell garnished the estate to satisfy his judgment, which had grown to about $120,850 by that time. The amount of money still due Carolyn Friedell Ennis from her mother’s estate was $107,-488.33. Carolyn Ennis moved to quash the garnishment in February, 1994, alleging lack of proper notice. This motion was overruled by the Iowa District Court for Polk County on May 17, 1994. On June 18, 1994, Mr. Friedell filed an application to condemn funds in the garnishment action.
On June 22, 1994, Carolyn Ennis filed a motion to reopen her Chapter 7 bankruptcy case in Washington in order to schedule and then discharge the debt to her former husband in order to defeat the registration of judgment and garnishment in Iowa. On July 1, 1994, the Iowa District Court for Polk County issued an order condemning funds in the Polk County garnishment. On July 22, 1994, after a hearing, the motion to reopen the Washington bankruptcy ease was denied by Bankruptcy Judge Thomas T. Glover. The Judge specifically held that the debt to Mr. Friedell had not been discharged.
Carolyn Ennis next filed a motion with the Iowa District Court alleging newly discovered evidence. This evidence consisted mainly of her legal research in the bankruptcy area. She argued that In re Beezley, 994 F.2d 1433 (9th Cir.1993) and In re Miller, 159 B.R. 849 (Bkrtcy.E.D.Ark.1993) held that the debt to her former husband was discharged even though he had not been scheduled as a creditor. That matter should have been brought before the Washington bankruptcy court, and as stated above, was in fact addressed by Bankruptcy Judge Glover in Washington. The Iowa District Court denied the motion alleging newly discovered evidence on August 25, 1994.
On August 31, 1994, debtors then filed a Chapter 13 bankruptcy proceeding in the Western District of Missouri, Southern Division. Mr. and Mrs. Ennis proceeded pro se in this case. For a short period, they retained an attorney, Norman Rouse, but they discharged him and again proceeded pro se. It should be noted at this time that the only proceeding in which debtors have appeared pro se is the current Missouri bankruptcy proceeding. Debtors have been represented by counsel in the other proceedings, including the Washington bankruptcy proceedings, the Iowa probate and district court proceedings and, it appears from the evidence, at least part if not all of the time in the California litigation which resulted in the judgment on violation of the stipulation (including post-trial and appellate stages) according to references in documents and testimony in evidence at the December 19, 1994 bankruptcy court hearing.
Creditor Morris Friedell filed a motion for relief from the stay on September 30, 1994. Two answers were filed on debtors’ behalf: one by counsel Norman Rouse, who represented debtors for a brief period, and one by debtors pro se. The motion was set for an initial, non-evidentiary hearing on November 8, 1994. At that hearing, the matter was set over to November 22, 1994. During the hearing on November 22, 1994, debtor Carolyn Friedell Ennis requested that the matter be continued. The Court rescheduled the matter for a final, evidentiary hearing on December 19, 1994 in Kansas City.3
*182
III. THE HEARING
Counsel for Morris Friedell argued that the stay should be lifted because he had a secured claim in an amount in excess of the $107,488.33 on deposit in the probate estate, so the debtors had no equity in the money in the Iowa probate court and the debtors also could not demonstrate that the funds were necessary for an effective reorganization (or, in this case, Chapter 13 plan). Mr. Friedell also argued that if the Court found that Mr. Friedell had no lien on these funds, then the court must grant his alternative motion to dismiss case because if he had only an unsecured claim, then the debtors were disqualified from being Chapter 13 debtors because of the debt limitations of 11 U.S.C. § 109(e). On August 31, 1994, when this bankruptcy case was filed, § 109(e) provided that a debt- or was eligible for Chapter 13 only if non-contingent, liquidated, unsecured debts were less than $100,000. Therefore, if the Court were to find that Mr. Friedell did not have a valid lien, the debtors would not be eligible for Chapter 13 because Mr. Friedell’s debt alone exceeded $100,000.
At the hearing, the debtors wanted to relit-igate whether the 1981 stipulation was valid and whether it was executed while Carolyn Ennis was disabled or whether it was possibly a forgery. Validity of the stipulation, forgery and incompetency at the time of execution were not raised in either of the two detailed answers filed on debtors’ behalf by counsel Norman Rouse and by debtors pro se. Instead, the answers raised defenses such as the assertion that the debt was discharged in the Washington bankruptcy case, that the inheritance should be exempt and therefore could not be subject to Mr. Frie-dell’s lien, and that Mr. Friedell could not be suffer irreparable harm from the stay because Mr. Friedell was allegedly going to give the inheritance funds to the parties’ children and not use them himself.
Although the allegations concerning forgery or incompetency at the time of execution of the stipulation were made in opening statements, Carolyn Ennis never took the stand and testified on this point or any other issue. The only testimony presented by debtors was that of Michael Ennis, who read a prepared statement under oath. His testimony, relating to events concerning the marriage, divorce and stipulation between Morris and Carolyn Friedell (which events were in the 1970’s and 1980’s before he knew Carolyn Friedell), was excluded as hearsay because Michael Friedell did not possess personal knowledge of the events. The debtors did not present any evidence concerning equity or lack of equity in the funds, over and above Morris Friedell’s claim, or any other automatic stay issue such any ability or willingness to provide adequate protection for use of the funds, or why the money was necessary for an effective reorganization (Chapter 13 plan in this instance) as required by § 362(d) (which also contemplates a showing that it is possible to file a confirmable plan).
IV. DISCUSSION
A Motion to Terminate Stay or in the Alternative to Dismiss
The court finds that Morris Friedell has established a non-contingent, liquidated claim of $125,641.91 as a result of the California state court judgment and the registration of the California judgement in Iowa. The court further finds that as a result of the registration of judgment and garnishment proceedings in Iowa, Mr. Friedell has a perfected hen under Iowa law on the $107,488.33 *183which Carolyn Ennis would receive from her mother’s estate in Iowa. Because the lien secures an indebtedness to him in the amount of $125,641.91 as of the date this Chapter 13 case was filed, he is an underse-eured creditor.
Having established that he is an undersecured creditor and that there is no equity in the property, Mr. Friedell has proven all that he required to prove and the burden shifts to the debtors on all other issues. 11 U.S.C. § 362(g). As noted, however, the debtors presented no admissible evidence regarding adequate protection for the creditor’s lien on the money or whether the money was necessary for a reorganization (or whether it was possible to file a confirmable plan). Therefore, the stay must be terminated pursuant to § 362(d)(2) because a) the debtor has no equity in the property and b) presented no evidence on whether it was necessary for an effective reorganization or whether an effective reorganization is possible, and pursuant to § 362(d)(1) for cause, including the lack of adequate protection of the creditor’s interest in the funds which debtors proposed to expend in their proposed plan.
Even if Mr. Friedell’s lien were not valid, this case would have to be dismissed on a jurisdictional basis. At the time this case was filed, 11 U.S.C. § 109(e) limited Chapter 13 to debtors whose non-contingent, liquidated, unsecured debts are less than $100,-000. If Morris Friedell’s lien were invalid, he would still have an non-contingent, liquidated, unsecured claim of $125,641.91, which would also make him the primary unsecured creditor in the case. The amount owed to him as an unsecured creditor would prevent debtors from qualifying for Chapter 13.4
As to the issue advanced by the debtors that the 1981 stipulation was not valid, either because it was not signed by Carolyn Friedell Ennis or because she was incompetent at the time, the Court finds that based upon principles of collateral estoppel, the Court should follow the -final orders and judgments of the courts in California and Iowa and not relitigate those issues.
As noted above, Carolyn Ennis had notice of the original suit against her in California in 1987. She did not appear in court to contest it and a judgment was entered. Subsequently, she appealed it and that appeal has been dismissed. The elements necessary for collateral estoppel have been met and this court should not relitigate this issue. Under Swapshire v. Baer, 865 F.2d 948 (8th Cir.1989), which cited Oates v. Safeco Insurance Company of America, 583 S.W.2d 713 (Mo.1979), the elements for collateral estoppel are as follows: 1) the issue decided in a prior adjudication is identical to the issue presented in the later case; 2) the prior adjudication must have resulted in a judgment on the merits; 3) the parties against whom collateral estoppel is asserted must have been a party or in privity with a party to the prior adjudication; 4) the parties against whom collateral estoppel is asserted must have a full and fair opportunity to litigate the issue in the prior suit.
In the present case, the elements are fulfilled as follows: First, the issue of the validity and construction of the 1981 stipulation for sale of the marital home and splitting of the proceeds was adjudicated in the California court. The California judgment is final and unappealable. Furthermore, the Washington bankruptcy court ruled the underlying debt on the stipulation was not discharged and the Iowa District Court has held the California judgment is valid and effective to support the registration of foreign judgment and subsequent garnishment in the Iowa District Court in Polk County, Iowa. Second, the prior adjudication resulted in a judgment on the merits. The fact that Carolyn Ennis chose to default and chose not to appear for trial does not prevent the California trial from constituting a judgment on the merits (see transcript of California trial admitted into evidence at the bankruptcy court hearing on December 19, 1994). Third, the parties, Morris Friedell and Carolyn Friedell Ennis, were the same in the California pro*184ceeding and this bankruptcy court proceeding (as well as in the proceedings in courts in Iowa and Washington). Fourth, Carolyn Friedell Ennis has had a full and fair opportunity to litigate the issue in the prior suit. The fact that a party chooses to default does not mean there was not a full and fair opportunity to litigate the issue. The California judgment has since been considered by the following courts: the California appellate court which dismissed an appeal; the Washington bankruptcy court which denied the motion to reopen to add the Friedell debt and which ruled the debt was not discharged; the Iowa District Court which ruled against Carolyn Ennis on motions to challenge the registration of foreign judgment and to quash the garnishment. Carolyn Friedell Ennis has had a full and fair opportunity to litigate the issue in the original California proceeding and has since challenged the judgment in three other courts before coming to this bankruptcy court.
The debtors tried to reopen their Chapter 7 in Washington, but their motion was denied, with the Washington bankruptcy judge specifically holding that the debt to Mr. Frie-dell had not been discharged. That decision was not appealed and is now final. While this Court need not reach the issue, the authorities cited by debtors, In re Beezley, 994 F.2d 1433 (9th Cir.1993) and In re Miller, 159 B.R. 849 (Bkrtcy.E.D.Ark.1993), are not on point. Beezley and Miller involved situations where the Chapter 7 cases were no-asset cases where no bar date was noticed to creditors, and the debt which debtors sought to discharge after reopening would have been dischargeable in any event. In the present case, if the Washington bankruptcy court had reopened the case to permit addition of the Friedell claim in the scheduled debts, Morris Friedell could have filed an action to object to discharge of the debt pursuant to 11 U.S.C. § 523(a)(4) or (a)(6) for defalcation, embezzlement or larceny, or willful and malicious injury by conversion of the funds. In addition, it does not appear that the evidence at the hearing showed that the Chapter 7 case in Washington was a no-asset case with no bar date.
Debtors have litigated these issues in multiple proceedings in courts in California, Washington, Iowa and Missouri. Debtors have exhausted every avenue for contesting the lien on funds in custody of the probate executor in Iowa.
Finally, Carolyn Ennis has alleged that she is not competent and is therefore incapable of representing herself in this matter. Debtors also alleged that if Carolyn Friedell Ennis signed the stipulation in 1981, she was incompetent at that time so the stipulation is not valid. Because of the application of the principles of collateral estoppel discussed above in regard to the judgment on the stipulation and subsequent court proceedings in Washington and Iowa, it does not appear the court would be required to reach this issue. However, under the circumstances, the court will take up the issue.
There was no admissible evidence of incompetency or disability at any time, whether in 1981 when the stipulation was executed, or in 1994 when this Chapter 13 case was filed and these disputes have been taken up at hearings. Carolyn Ennis did not testify and did not offer any other admissible evidence of a disability. As noted earlier, the court declined at a hearing on November 22, 1994 to allow a person identified as Carolyn Ennis’s doctor to testify by telephone. No other attempt was made to secure the testimony as a witness in court or at a deposition.
Based upon the Court’s observations, Carolyn Ennis does not appear to be incompetent or disabled. She instead appears to be an angry and emotional person. The court has had the opportunity to observe Carolyn Ennis for approximately five hours during the hearing on December 19, 1994 and has also listened to her during previous teleconferences. Although she appeared upset and angry at times during the hearing on December 19, 1994, such emotions would not be unusual for a person in circumstances where proceedings involving the right to $107,488.33 are not going the way that party desires. Review of the record reveals that Carolyn Ennis was attuned to every detail at the hearing, such as, by way of example, questioning whether counsel for Morris Friedell had complied with all pre-trial directions in *185the court’s original order setting the hearing on the motion to terminate stay. There was no appearance of incompetency or disability. To the contrary, she appeared to be very competent, although it is not an easy task to proceed pro se. Many of the pleadings she has filed, the research she offered at the hearing, such as the Beezley and Miller cases, and the research that is attached to her brief in opposition to the motion to lift stay indicate that she is intelligent and competent and performs at a level of skill and knowledge above that of the typical pro se debtor. The court finds no indication during the hearing that she is or was incompetent, whether in applying her signature to any of these documents which she has chosen to file with the court since August, 1994 or in appearing in court on December 19, 1994 or at any of the previous hearings. In summary, an angry or emotional person is not necessarily a disabled or incompetent person.
B. Debtors’ Motion for Advance of Funds
The issue of debtors’ motion to obtain an advance of funds for the purpose of paying an attorney or other expenses is ready to rule now that the motion to terminate automatic stay has been ruled. Previously, including at the preliminary hearing on November 22, 1994, the court has advised debtors that a final order could not be entered on the motion to release funds to debtors until the creditor’s motion to lift stay was ruled because the funds could not be distributed to and spent by debtors if the funds were subject to a valid lien of movant Morris Friedell.5 In this order, the court has ruled that creditor Morris Friedell has a secured claim in the amount of $125,641.91 and has a valid, perfected lien on the $107,488.33 in the custody of probate executor Paul Ahlers. The creditor is undersecured and consumption of the funds or cash collateral by debtors would deprive the secured creditor of his security. Thus, debtors’ motion for an advance or release of the funds must be denied.
As noted in footnote 5, the issue of retaining or appointing counsel has been a difficult issue in this case. Nevertheless, there is no provision to appoint or pay counsel for debtors who do not wish to proceed pro se and who cannot afford to pay counsel. As explained in In re Fitzgerald, 167 B.R. 689, 692 (Bkrtcy.N.D.Ga.1994):
Debtor’s statement that he is not able to afford counsel and that he has been unsuccessful in retaining counsel unfortunately applies to many Chapter 7 debtors. Similarly, debtor’s statement that he has a limited knowledge of bankruptcy law also applies to many, if not most, debtors.... If financial inability to hire a lawyer and lack of expertise in bankruptcy law justified court-appointed counsel, a great many Chapter 7 debtors would qualify for in forma pauperis relief.
*186
C. Hearing on Confirmation of Debtors’ Plan
The last issue to be addressed in this order is the debtors’ plan which was set for a hearing on confirmation on December 19, 1994. As a result of the ruling on the automatic stay, confirmation must be denied. As stated on the record at the conclusion of the hearing, debtors are directed to file an amended plan with 15 days after the hearing date. If an amended plan is not filed within 15 days after the hearing, the Chapter 13 Trustee’s motion to dismiss, based on failure to obtain confirmation of a plan, will be granted.6
V. CONCLUSION AND ORDER
After careful review of the evidence, arguments, the parties and witnesses, and the file (including post-hearing correspondence submitted by the parties), the court finds that creditor Morris Friedell has a valid, duly perfected, non-contingent, liquidated secured claim in the amount of $125,641.91 and that his claim is secured by a perfected lien on the funds in the custody of probate executor Paul Ahlers. The court further finds that creditor Friedell’s motion to terminate stay to permit him to enforce his rights under state law should be granted and debtors’ motion to receive an advance of the cash collateral to pay an attorney or other expenses should be denied. Due to granting of the motion to lift stay, confirmation of debtors’ plan must also be denied and debtors are directed to file an amended plan within 15 days of the hearing date of December 19, 1994. If Morris Friedell’s motion to terminate stay had been denied on the basis that he did not have a secured claim, he would still have an unsecured claim in the amount of $125,690.12 and therefore, the alternative motion to dismiss under 11 U.S.C. § 109(e) would be granted because the unsecured debt in excess of $100,000 would render debtors ineligible for Chapter 13 relief in this case filed August 31, 1994. Additional findings and conclusions stated on the record at the conclusion of trial are incorporated herein.
Accordingly, for the foregoing reasons, it is ORDERED, ADJUDGED AND DECREED as follows:
1. Morris Friedell has a non-contingent, liquidated, claim in the amount of $125,641.91 and the claim is secured by a valid security interest and duly perfected hen on the funds totalling $107,488.33 in the custody of probate executor Paul Ahlers and on deposit at Norwest Bank.
2. Morris Friedell’s motion for relief from stay is granted and the automatic stay is hereby terminated so Morris Friedell may proceed to enforce his rights under state law in the funds currently in custody of probate executor Paul Ahlers and on deposit at Nor-west Bank.
3. Confirmation of debtors’ plan which was pending on December 19, 1994 is denied as a result of the order herein terminating the automatic stay as to Morris Friedell. Debtors are ordered to file an amended plan within 15 days after the hearing.
4. Debtors’ motion to obtain an advance of the funds which are subject to the secured claim of Morris Friedell, for the purpose of paying counsel or paying other expenses, is denied.
. At this hearing and at the preliminary hearing on the motion to lift stay, on November 22, 1994, debtors have suggested but never presented evidence that Carolyn Ennis is disabled or incompetent. At the hearing on December 19, 1994, the only evidence presented was Mr. Ennis's hearsay testimony of events in 1981 which he did not personally observe. Carolyn Ennis did not testify and no other evidence of disability or incompetency was offered. At the preliminary hearing on November 22, 1994, Carolyn Ennis requested that the court allow her doctor to appear and testify by telephone. The court declined to permit testimony by telephone. Debtors have never offered the testimony of the doctor as a witness appearing in person in court or at a deposition. In observing Carolyn Ennis during the hearing on December 19, 1994, the court concludes that while Carolyn Ennis may be somewhat emotional and angry, she does not appear to be either incompetent or disabled. In fact, the court concludes that from review of her research for the hearing and her pleadings, she appears to be extremely intelligent, competent, and persistent. The fact that one engages in outbursts or displays anger or frustration does not require the conclusion that the person is disabled.
. The amount of the secured claim allowed for purposes of this hearing on the motion to terminate automatic stay is slightly different than the amount offered by the creditor at the hearing. Creditor Friedell calculated the claim at $132,-820, as set forth in an amended proof of claim filed on or about September 30, 1994. However, that figure appears to include compounded interest, so the court recalculated the interest without compounding, resulting in the amount of $125,-641.91 (comprised of the principal of $73,575, plus interest of $52,066.91, calculated at 10% per annum for 2,583 days, from August 5, 1987 through August 31, 1994). For purposes of this hearing, the court finds sufficient evidence was submitted to allow the claim as non-contingent, liquidated and secured in the amount of $125,-641.91.
Debtors' objection to the Morris Friedell claim and debtors' adversary action against executor Paul Ahlers, seeking turnover of the funds, are set for trial on January 9, 1995. It appears that the rulings made herein as a result of the December 19, 1994 hearing will be applicable at that hearing because the objection to the claim appears to be the same as the objections to the motion to lift stay, and it also appears that the issues relating to the request for turnover and the parties’ claims to the funds have been ruled in this order ruling the motion to terminate automatic stay.
. The preliminary hearing on November 22 was conducted telephonically because it was anticipated to be argument only and did not involve the presentation of evidence. Attorneys Carlson and O'Neal (counsel for Morris Friedell and executor Paul Ahlers) and debtor Carolyn Ennis appeared in the courtroom in Springfield, where they were connected by telephone to the courtroom in Kansas City. The judge, debtor Michael Ennis and Chapter 13 Trustee Richard Fink appeared in the courtroom in Kansas City. Attorney Tichenor (who was not the lead attorney for creditor Friedell) was permitted to appear by telephone from Iowa.
At the November 22 hearing the court scheduled the final hearing for December 19 in Kansas City. All interested parties were required to appear in person in Kansas Ci1y since the hearing would be evidentiary. Shortly before December 19, Carolyn Ennis objected to setting of the hearing in Kansas City instead of Springfield and also requested that she be permitted to appear by telephone from her home. A similar request to appear by telephone at the evidentiary hearing had been denied previously in a written order, both because parties and witnesses must be present in the courtroom for presentation of evidence and because telephonic conferences with Carolyn Ennis proved unsatisfactory and extremely diffi*182cult to monitor (see, for example, the transcript of the November 22, 1994 hearing). Reasons for setting the hearing in Kansas City included the following: debtor Michael Ennis was living in Kansas City and also needed to remain as close as possible to his employment in the Kansas City area, and at the hearing on November 22, 1994 he was agreeable to setting the final hearing in Kansas City; debtors’ residence at Areola, Missouri is approximately 55 miles from the court in Springfield and 140 miles from the court in Kansas City, so debtor Carolyn Ennis was located at some distance from either courthouse and would have to travel regardless of the court site; attorneys for movant Morris Friedell would not consent to waive the statutory 30-day period in which the final hearing must be commenced after the initial hearing on November 22, 1994, so the hearing could not be continued to the next Springfield docket in January, 1995; and one of the Friedell attorneys, Mr. Tichenor, resides in Iowa and thus was located much closer to Kansas City than to Springfield.
. The Bankruptcy Reform Act of 1994 increased the limit on unsecured debt to $250,000 for cases filed after October 22, 1994.
. The issue of counsel for debtor has been a difficult problem in this case. The court understands debtors' desire to be represented by counsel if possible, but the court cannot appoint counsel in a bankruptcy case or otherwise insure that every debtor will be able to proceed with counsel and not pro se. Before debtors’ recent motion to advance funds in order to pay counsel, on October 5, 1994, debtor Carolyn Ennis filed a motion requesting the court to appoint counsel to represent her, as the district court might do in a criminal case. Debtor asserted that she had been unable to locate an attorney who would voluntarily represent her, so she wanted an attorney to be appointed. Debtor attached to the motion a list of 27 attorneys who had declined to represent her because 90% said they were too busy and the other 10% had reasons such as they were too busy or did not wish to travel to Springfield. At that time, debtor’s primary assertion was that attorneys would not represent her due to the complexity of the case. Only a passing reference to payment was made in this motion. At a subsequent hearing or teleconference, the court advised debtor that counsel could not be appointed for debtors in bankruptcy cases. See, e.g. United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973) (in forma pauperis statute, 28 U.S.C. § 1915(a), does not apply in bankruptcy and it is constitutional to require a debtor to pay the entire filing fee); In re Perroton, 958 F.2d 889 (9th Cir.1992) (bankruptcy courts are not courts of the United States and therefore cannot act under 28 U.S.C. § 1915); In re Broady, 96 B.R. 221, 222-23 (Bkrtcy.W.D.Mo.1988) (bankruptcy courts not courts of the United States under § 1915); In re Fitzgerald, 167 B.R. 689, 691 (Bkrtcy.N.D.Ga.1994) (no provision for appointment of counsel or payment of appointed counsel, and 28 U.S.C. § 1915(d) is probably inapplicable since § 1915(a) is inapplicable); In re Gherman, 105 B.R. 712, 713 (Bkrtcy.S.D.Fla.1989) (citing Kras for proposition that Supreme Court has held that the 28 U.S.C. § 1915 is not applicable to bankruptcy proceedings).
. By the time this written order is entered, the 15 day period for filing an amended plan will have passed, so if an amended plan is not on file, the Chapter 13 case could be dismissed, as directed on the record at the conclusion of trial on December 19, 1994. It has come to my attention that on January 5, 1995, debtor may have filed an amended plan, in the form of a document titled "K*A*N*G*A*R*0*0 PAPERS (INCLUDES PLAN).” I have not had the opportunity to review the document to determine whether it is a plan, so I will reserve ruling at this time on dismissal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491976/ | ORDER DENYING MOTIONS FOR STAY OF ORDER OF BANKRUPTCY JUDGE
KAREN M. SEE, Bankruptcy Judge.
On January 17, 1995, debtor filed two motions for stay of order of bankruptcy judge. Both bear the caption of the main file. The motions seek a stay of various matters during appeal, including the order terminating the automatic stay, payment of filing fees, and payment of utility deposits.
A. Order Terminating Automatic Stay
The order terminating automatic stay in regard to creditor Friedell, to allow him to enforce his lien rights under state law in funds which would otherwise be distributed to debtor Carolyn Ennis as an inheritance, is similar to a money judgment. Ordi*188narily, execution on a money judgment is stayed upon filing of a supersedeas bond. FRCP 62(d). The judgment denying turnover of the funds to debtor, entered January 17, 1995 in the adversary action, is closely related to the order terminating stay. Although a notice of appeal has not been received in that action, if one is filed, then FRCP 62(d), which requires a supersedeas bond, will apply by the express language in Bankruptcy Rule 7062. Inability to obtain a supersedeas bond is not a ground to stay execution, especially in this case where debt- or plans to use the funds. If the order were stayed and the funds expended, the creditor would be deprived of the protection which is to be afforded by a supersedeas bond. If the order were stayed without a bond, it is likely that a substantial amount of the funds on deposit with the probate executor would be consumed by probate administrative expenses, because in the adversary action debt- or sued the executor and Norwest Bank, and the executor’s continuing expenses regarding that action would deplete the funds and injure creditor Friedell.
A stay of the order terminating the automatic stay would be issued only if debtor files a supersedeas bond issued by a court-approved surety (pursuant to a list maintained in the Clerk’s Office), in the amount of $134,-360.00, as required by Bankruptcy Local Rule 8.005 (125% of $107,488.33, the amount at issue). However, in this case it would be futile to order that a stay will be entered if the bond is posted because, as stated below, the other matters will not be stayed so the Chapter 13 bankruptcy proceeding will be dismissed.
Another reason it would be inappropriate to enter a stay without a bond was explained in the order terminating the stay entered January 6, 1995 and the order finding that Morris Friedell has an allowed, secured claim, entered January 17, 1995. Even if it had been determined that Morris Friedell did not have a secured claim, he would still have an allowed, unsecured claim in the amount of $125,641.91. The Chapter 13 case would have to be dismissed because under 11 U.S.C. 109(e), as of the date this case was filed on August 31,1994, the unsecured debts in a Chapter 13 case had to be less than $100,000. Looking only at Morris Friedell’s claim, without consideration of other unsecured claims, the unsecured debt would exceed the jurisdictional limit.1 The case would not be converted to Chapter 7 because as noted in the order terminating the automatic stay, debtors received a discharge in a Chapter 7 case in Seattle, Washington on June 24, 1992. Thus, if Carolyn Ennis prevailed on appeal the bankruptcy case would have to be dismissed and creditor Friedell would be free to proceed against the funds. Thus, in the end the result would be in Morris Friedell’s favor whether Carolyn En-nis won or lost the appeal. If the order were stayed without a bond, debtors’ plan indicates Carolyn Ennis would consume the funds before completion of the appeal, after which the Chapter 13 case must be dismissed if Carolyn Ennis prevails.
B. Other Matters
No good cause has been presented for stay of the numerous other items, including the payment of utility deposits and dismissal of the Chapter 13 proceeding for debtors’ continued refusal to pay the filing fee. Such a stay would, in essence, allow debtor to stay in this bankruptcy proceeding indefinitely, receiving protection from creditors, but without having to comply with requirements of the Bankruptcy Code or Rules, confirm a plan or pay creditors.
In addition, it should be noted that many of the items in the order debtor has appealed are interlocutory in nature and debtor has failed to seek leave to file an interlocutory appeal, as required by Bankruptcy Rules 8001(b) and 8003(a). Dismissal of the ease for failure to pay the filing fee will also be taken up in a separate order.
Accordingly, it is ordered, for lack of good cause shown:
*1891. The two motions for stay of order of bankruptcy judge, filed January 17,1995, are denied.
2. If the Chapter 13 case is not dismissed, the order terminating automatic stay as to creditor Morris Friedell will be stayed upon filing of a supersedeas bond by an approved surety in the amount of $134,-360.00.
. The Bankruptcy Reform Act of 1994 increased the limit on unsecured debt to $250,000 for cases hied after October 22, 1994. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491977/ | ORDER GRANTING TRUSTEE’S MOTION TO DISMISS CHAPTER 13 CASE AND DISMISSING CASE FOR FAILURE TO COMPLY WITH ORDER OF JANUARY 6, 1995 TO PAY FILING FEE
KAREN M. SEE, Bankruptcy Judge.
After review of the file and debtors’ “3rd Revised Plan” filed January 17, 1995, the court finds that the Trustee’s motion to dismiss for failure to file a confirmable plan should be granted, and that the case should be dismissed for the additional reason of debtors’ failure to comply with an order entered January 6, 1995 to pay the $70.00 balance of the filing fee and a $25.00 returned check charge previously billed by the Clerk’s Office. This matter is a core proceeding under 28 U.S.C. § 157(b)(2).
A. Failure to File Confirmable Plan
At this time the court will enter an order granting the Trustee’s motion to dismiss for failure to file a confirmable plan, which was heard on December 19, 1994. In the order entered January 6, 1995, the court reserved ruling on this motion to a later date, which date has now arrived.
At the hearing on December 19, 1994, one of the matters taken up was the Trustee’s motion to dismiss the case for failure to file a confirmable plan. After the ruling at that hearing, it was also ruled that debtors must *190file an amended plan within 15 days after the hearing date or the Chapter 13 case would be dismissed. After 15 days, an amended plan was not on file, but shortly thereafter, on January 5, 1995 the court received from debtor Carolyn Ennis a copy of a letter, titled “K*A*N*G*A*R*0*0 PAPERS (INCLUDES PLAN)” which debtor Carolyn Ennis sent to all creditors. It had attached as exhibits two plans, neither of which was filed. However, at the time the letter arrived in the Clerk’s Office on January 5, 1995, the court was in the midst of preparing the order on the December 19, 1994 hearing, titled Order Granting Friedell Motion to Terminate Automatic Stay, Denying Debtors’ Motion for Advance of Funds, and Denying confirmation of Plan. In that order, entered January 6, 1995, it was noted (see page 17 and note 6) that the letter had just been received and the court had not had the opportunity to review either of the attached plans, so the ruling on the motion to dismiss would be reserved.
Thereafter, the two plans attached as exhibits to the letter to creditors were reviewed although the plans were not formally filed. Neither plan was filed with the court as a plan to be considered for confirmation. Rather, the letter to creditors and the plans included as exhibits appeared to be written as sarcastic or angry missives in response to the court’s rulings on December 19,1994. It appeared that neither plan would have been confirmable if either had been filed, especially in light of the January 6,1995 order ruling the issues at the December 19, 1994 hearing. The case could have been dismissed at that point for failure to comply with the direction to file a confirmable plan within 15 days after the hearing. However, debtors were given another opportunity to correct the situation. The courtroom deputy for the undersigned judge verbally advised debtor Carolyn Ennis that the plans sent as exhibits with the letter to creditors did not constitute a plan filed with the court and that an amended plan should be filed.
Thereafter, on January 17, 1995, debtor Carolyn Ennis filed a document titled “3rd Revised Plan and Plan Summary per Court Ruling on December 19, 1994.” On its face, the plan is not confirmable. On January 25, 1995, the Chapter 13 Trustee filed an analysis indicating that the January 17th plan is not confirmable. The court adopts and incorporates the Trustee’s analyses and concludes, for the reasons stated in the Trustee’s analysis, that the plan is not confirmable. The court also makes the following additional conclusions about the January 17th plan.
The court concludes the plan is not con-firmable based on review of provisions including but not limited to paragraphs 1, 2 and 9. All three paragraphs are contrary to rulings made in hearings on December 19, 1994 and January 9,1995, two orders entered January 6, 1995, an order allowing the Frie-dell claim entered January 17, 1995, and a judgment entered in Adversary No. 94-6055 on January 17, 1995.
Despite the order to pay the filing fee within 10 days, entered January 6, 1995, the “3rd Revised Plan” filed January 17, 1995 provides in paragraph 2 that the $70 balance of the filing fee will be paid only “at such time as indicated by a higher court.” The plan cannot be confirmed because it violates 28 U.S.C. § 1930 which requires the fee, 11 U.S.C. § 1325(a)(2), which requires the filing fee to be paid before confirmation, and Bankruptcy Rule 1006, which requires the filing fee to accompany the petition at the commencement of the case unless payment in installments is permitted, in which ease all installments must be paid within 120 days after filing of the petition. Debtors must pay the filing fee or the case must be dismissed. In re Richards, 92 B.R. 258 (Bankr.S.D.Ohio 1988). Debtors have refused to pay the required fee. Thus, the plan also violates § 1325(a)(3) because the refusal to pay indicates the plan has not been proposed in good faith and not by any means forbidden by law.
Paragraph 9 is based on uncertain future events and contingencies. A confirmable plan must be certain and capable of present performance. There must be a regular source of income from which to make payments. Here, as indicated in paragraphs 1 and 9, the plan is based on debtors’ proposed retention and expenditure of the inheritance. That issue has been previously decided in favor of creditor Morris Friedell in an order *191entered January 6, 1995 and by the order allowing claim and the judgment in the adversary action, both entered January 17, 1995.
Among numerous other problems, debtors do not have a regular source of income from which to make payments under a plan. A Chapter 13 debtor must have a regular income. 11 U.S.C. § 109(e). See also 11 U.S.C. § 1322(a)(1). Thus, the chapter is commonly called the “wage-earner” chapter because plan proponents generally make plan payments from wages or earnings. Here, it appears from the plans, affidavits of financial status filed January 17, 1995 in support of a request for in forma pauperis status, and the file in the ease that debtors have no regular source of income. At previous times, debtor Carolyn Ennis has indicated that neither debtor was employed. At the time of the November 22, 1994 hearing, Mr. Ennis had just been released from the Jackson County jail in Kansas City, Missouri and was working for board. Since that time, correspondence from Mrs. Ennis indicates that she has separated from Mr. Ennis and does not wish for him to participate in the Chapter 13 proceeding. Mrs. Ennis is not employed and has not been during the Chapter 13 proceeding, and has no source of income except a government SSI payment of $458 per month.
The plans filed by Mrs. Ennis, including the most recent one filed January 17, 1995, propose to fund the plan from inheritance funds. However, it has been previously determined that Morris Friedell has a perfected security interest in the funds, that the automatic stay should be terminated for him to enforce his rights in the funds (order entered January 6, 1995), and he has an allowed, secured claim (order entered January 17,1995). By an judgment entered January 17, 1995, it was also ruled that the probate executor and Norwest Bank will not be required to turn over the funds to Mrs. Ennis.
As held in the order terminating the automatic stay and denying confirmation, even if Morris Friedell did not have a secured claim, he would still have an allowed, unsecured claim in the amount of $125,641.91. The January 17th plan and the previous plans would still not be confirmable and the Chapter 13 case would have to be dismissed because under 11 U.S.C. § 109(e), as of the date this case was filed on August 31, 1994, the unsecured debts in a Chapter 13 case had to be less than $100,000.00 1. Looking only at Morris Friedell’s claim, without considering other unsecured claims, the unsecured debt would exceed the jurisdictional limit.
On its face, the “3rd Revised Plan” is not confirmable and it would not benefit any party to set a futile confirmation hearing. Debtors have been given more than an ample opportunity to file a confirmable plan. The deficiencies which prohibit confirmation of the most recent plan are major. From review of the multiple plans filed, the two additional plans circulated to creditors as exhibits to a letter, and the file in this case, the court concludes that debtors cannot propose a confirmable plan so it would be futile to prolong this Chapter 13 proceeding. At this time the court will grant the Trustee’s motion to dismiss for failure to file a confirm-able plan, as was taken up at the hearing on December 19,1994 and reserved in the order entered January 6, 1995.
B. Failure to Pay Filing Fee
This Chapter 13 case was filed August 31, 1994. Debtor was permitted to pay the filing fee in installments. Only part of the filing fee has been paid and $70.00 remains unpaid. In addition, debtors have not paid to the Clerk’s Office a previously-billed $25.00 charge for a returned cheek. In a motion filed November 7,1994, debtors requested an extension of time until after a plan was confirmed to pay the balance of the filing fee. An order entered January 6, 1995 denied debtor’s motion to extend payment of filing fee. It was further ordered that unless debt- or paid the $70.00 balance of the filing fee and the returned check charge within 10 days, the Chapter 13 case would be dis*192missed. The 10 day period expired on January 17, 1995. As of this date, January 27, debtor has not paid the filing fee. In the amended plan filed January 17, 1995, debtors declined to pay the fee and stated it would not be paid until ordered by a higher court.
The filing fee must accompany the petition at the commencement of the case unless payment in installments is permitted, in which case all installments must be paid within 120 days after filing of the petition. Bankruptcy Rule 1006. Debtors are obligated to pay the full filing fee in order to remain in a bankruptcy proceeding. There is no provision for waiver of the filing fee (see January 6, 1995 orders regarding denial of requests for in forma pauperis status, and separate order to be entered this date also denying application to proceed informa pau-peris ).2 In this case, debtor was permitted to pay the fee in installments, but debtor has now refused to pay the fee and instead has indicated it will be paid only at some uncertain date after confirmation of a plan, when required by a higher court. There is no provision for payment of filing fees only after confirmation or at any other time other than the commencement of a case (which includes installment payments, as were permitted here). The plan cannot be confirmed because it violates 11 U.S.C. § 1325(a)(2), which requires that all fees be paid before confirmation. Debtors must pay the filing fee or the ease must be dismissed. In re Richards, 92 B.R. 258 (Bankr.S.D.Ohio 1988). Debtors have refused to pay the fee so there is no recourse except to dismiss the case.
C. Conclusion
In conclusion, debtor has had more than a reasonable time to pay the balance of the filing fee, but has failed and refused to comply with the January 6, 1995 order to pay it. In addition, none of the various plans debtor has filed or informally submitted to the court (as attachments to the letter to creditors) has been confirmable, including the “3rd Revised Plan” filed January 17, 1995. Accordingly, the court will now enter its ruling on the Trustee’s motion to dismiss for failure to file a confirmable plan, as taken up at the hearing on December 19,1994, and as reserved in an order entered January 6, 1995.
Accordingly, it is hereby ordered, adjudged and decreed as follows:
1. The Chapter 13 Trustee’s motion to dismiss for failure to file a confirmable plan, heard on December 19, 1994, is granted and debtors’ Chapter 13 case is dismissed.
2. The case is dismissed for the additional reason that debtor has failed and refused to pay the balance of the filing fee in the amount of $70.00 and a returned check charge previously billed by the Clerk’s Office in the amount of $25.00, as ordered in an order entered January 6, 1995.
. The Bankruptcy Reform Act of 1994 increased the limit on unsecured debt to $250,000 for cases filed after October 22, 1994.
. Congress has authorized a three-year pilot project for waiver of fees for in forma pauperis debtors in Chapter 7 cases in six selected districts. The Western District of Missouri is not one of the six pilot districts. The three-year project commenced October 1, 1994 and is to be supervised by the Judicial Conference of the United States. See Pub.L. 103-121, § 111(d)(3); 28 U.S.C.A. § 1930, Statutory Notes, Report on Bankruptcy Fees. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491978/ | MEMORANDUM DECISION
ROBIN L. RIBLET, Bankruptcy Judge.
Leonard Gumport, chapter 7 trustee of the estate of Transcon Lines, has brought a motion under the Equal Access to Justice Act, 28 U.S.C. § 2412(d), seeking to recover attorney’s fees and costs incurred in litigating the legality of certain regulations issued by the Interstate Commerce Commission. Based upon the following discussion, the court finds the award of fees appropriate under the circumstances of this case.
I. FACTS
Prior to bankruptcy Transcon Lines (“Transcon”) operated a large interstate trucking business. On May 1,1990, an involuntary petition was filed against Transcon by certain of its pension funds. On May 21, 1990, Transcon consented to the entry of an order for relief under chapter 11. Leonard Gumport was appointed chapter 11 trustee in June, 1990, and upon his request the case was converted to chapter 7 on July 10, 1990. Gumport was appointed chapter 7 trustee on July 17, 1990.
Gumport promptly set about collecting what he perceived to be the primary assets of the Transcon estate, i.e., claims for unpaid freight charges and claims for undercharges allowed by Transcon in violation of the filed rate doctrine which requires that regulated carriers charge only those rates contained in filed tariffs. The ICC responded by seeking to enjoin the Trustee’s collection actions. Gumport prevailed on a summary judgment motion before the district court, which was affirmed in part and reversed in part by the Ninth Circuit Court of Appeals. Interstate Commerce Commission v. Transcon Lines, 990 F.2d 1503 (9th Cir.1992), vacated in part and remanded, — U.S. -, 113 S.Ct. 2955, 125 L.Ed.2d 657 (1993), on remand, 9 F.3d 64 (9th Cir.1993), cert. granted, — U.S. -, 114 S.Ct. 1536, 128 L.Ed.2d 189 (1994), judgment reversed, — U.S. --, 115 S.Ct. 689, 130 L.Ed.2d 562 (1995). As a result of the appeals, the action of the Supreme Court *231and reconsideration by the Ninth Circuit in light of intervening precedent, the Trustee was left, subject to the Supreme Court’s second grant of certiorari, with the ability to collect on unpaid bills and “loss of discount” claims.1
Undaunted by its setback at the Ninth Circuit, the ICC took collateral action to thwart the Trustee’s collection efforts. On August 26, 1992, the Commission adopted regulations restricting the ability of nonoper-ating carriers to enforce certain claims against shippers for undercharges. Ex Parte No. MC-208: Nonoperating Motor Carriers — Collection of Undercharges, 8 I.C.C.2d 742 (1992) (the “MC-208 Rules”).2 The MC-208 Rules required the Commission’s review and consent before a claim could be made against a shipper, including loss of discount claims. The Rules contained no deadline for the Commission’s prescreen-ing of claims, allowing collection actions to remain in limbo indefinitely. In addition, both personal and criminal liability could be imposed upon bankruptcy trustees for violations of the MC-208 Rules.
The Trustee responded by initiating an adversary proceeding against the Commission, seeking to enjoin enforcement of the Rules on a number of bases. On October 9, 1992, this court granted a preliminary injunction in favor of the Trustee on the grounds that the MC-208 Rules violated the automatic stay of 11 U.S.C. § 862(a). See In re Transcon Lines (Gumport v. Interstate Commerce Commission), 147 B.R. 770, 774-77 (Bankr.C.D.Cal.1992) (“Gumport v. ICC’). Specifically, this court found that the Commission’s enactment of the MC-208 Rules prevented the Trustee from pursuing the Loss of Discount Claims, which constituted an attempt to control property of the estate, in violation of section 362(a)(3).
On December 18, 1992, an order was entered permanently enjoining the Commission from enforcing the MC-208 Rules. The Commission then appealed this court’s decision to the Bankruptcy Appellate Panel of the Ninth Circuit. On March 19, 1993, during the pendency of the appeal, the Third Circuit Court of Appeals, in an action challenging the MC-208 Rules on behalf of various bankruptcy estates (including Transcon) and nonoperating carriers, held that the ICC had exceeded its statutory authority under the Interstate Commerce Act (“ICA”) in enacting the Rules and set them aside. White v. United States, 989 F.2d 643 (3rd Cir.1993). The Commission did not appeal the White decision.
The Commission next filed a request with the Bankruptcy Appellate Panel to dismiss the appeal of this court’s decision and a motion to vacate the order which had been entered earlier. The Trustee joined the Commission’s request for dismissal but opposed the motion to vacate the order. On August 11, 1993, the Bankruptcy Appellate Panel entered an order dismissing the appeal but denying the Commission’s motion to vacate the order. As a result, this court’s earlier judgment is now final.
The Trustee now seeks to invoke the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412(d), in order to recover $42,-844.04 in attorney’s fees and $4323.80 of costs incurred in litigating the validity of the MC-208 Rules in Gumport v. ICC.
II. DISCUSSION
The main issues presented by the Trustee’s motion and the Commission’s response include: (1) whether the bankruptcy court has jurisdiction to make an award under the EAJA; (2) whether the Trustee qualifies as a party entitled to recover fees and costs under the EAJA; and (3) whether an otherwise lawful award is inappropriate based upon the existence of special circumstances or substantial justification for the Commission’s actions.
*232A. Jurisdiction of the Bankruptcy Court
The EAJA provides, in pertinent part:
A court shall award to a prevailing party other than the United States fees and other expenses ... incurred by that party in any civil action ... brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.
28 U.S.C. § 2412(d)(1)(A) (emphasis added).
It is the initial position of the Commission that this court has no jurisdiction even to consider the Trustee’s motion. Relying upon decisions of the Eleventh Circuit, the Commission argues that the phrase “any court” does not include a bankruptcy court. In Bowen v. Commissioner of Internal Revenue, 706 F.2d 1087 (11th Cir.1983), and In re Davis, 899 F.2d 1136 (11th Cir.), cert. denied sub nom., Gower v. Farmers Home Admin., 498 U.S. 981, 111 S.Ct. 510, 112 L.Ed.2d 522 (1990), the Eleventh Circuit found that since bankruptcy courts are not Article III courts or a “court of the United States” as defined in 28 U.S.C. § 451,3 they do not have jurisdiction to make an award under the EAJA.
Although the Ninth Circuit has not addressed this issue directly,4 a majority of courts have found that a bankruptcy court has jurisdiction to award fees under § 2412(d)(1)(A). In O’Connor v. United States Department of Energy, 942 F.2d 771 (10th Cir.1991), the Tenth Circuit Court of Appeals recognized the decisions of the Eleventh Circuit and met them head on. The Court recognized the overall purpose of the EAJA “is to place the private litigant and the United States on equal footing as regards the award of costs to the prevailing party in litigation involving the government.” Id. at 773. It found that the statutory purpose would be furthered by allowing the court most familiar with the underlying dispute to determine whether fees are warranted. The Court also found the language of the statute to be “plain, simple and unambiguous,” rendering unnecessary a judicial inquiry into the legislative history. Id. at 773. Quite simply, had Congress intended to limit jurisdiction under the EAJA to “any court of the United States,” it could have done so. Id. Accordingly, a bankruptcy court is included as “any court” and has the power to make a fee award. Id.
The O’Connor decision has been followed in In re Shafer, 146 B.R. 477, 481 (D.Kan.1992), modified 148 B.R. 617 (D.Kan.1992), and In re Tom Carter Enterprises, Inc., 159 B.R. 557, 561 (Bankr.C.D.Cal.1993). See also In re Esmond, 752 F.2d 1106 (5th Cir.1985), In re Newlin, 29 B.R. 781 (E.D.Pa.1983) and In re Hagan, 44 B.R. 59 (Bankr.D.R.I.1984), all of which predate O’Connor and in all of which the bankruptcy court’s jurisdiction to award fees under the EAJA was implicit.
The fact that § 2412(d)(2)(F) specifically includes the United States Court of Federal Claims and the United States Court of Veterans Appeals within the definition of “court” does not militate in favor of a narrow definition of “court.” That provision, at least with respect to the United States Court of Federal Claims, has been present in the statute since 1985, and has not caused the majority of courts any hesitation in also including bankruptcy courts within the definition.5 Moreover, under general rules of construction the terms “include” and “including” are not limiting. American Surety Co. v. Marotta, 287 U.S. 513, 517, 53 S.Ct. 260, 262, 77 L.Ed. 466 (1933) (use of “include” generally indicates extension or enlargement rather than exclusion or limitation).
*233Based upon the foregoing, I join those courts adopting the reasoning of O’Connor and find that this bankruptcy court does have jurisdiction to consider the Trustee’s motion.
B. Qualifications for Recovery Under the EAJA
In order to recover under the EAJA, the Trustee must establish that: (1) he is a “prevailing party” in the action for which the fees are sought, § 2412(d)(1)(A); (2) his request is timely as having been filed within 30 days of final judgment in the action, § 2412(d)(1)(B); and (3) he meets certain eligibility requirements, § 2412(d)(2)(B). The Trustee has satisfied all of those requirements.
He is indisputably a “prevailing party,” as he obtained summary judgment and a permanent injunction against the ICC barring enforcement of the MC-208 Rules. The Commission does not argue otherwise.
Nor does the Commission contest that the Trustee’s motion is timely. “The trustee has now filed a timely application for attorney’s fees and expenses under EAJA, 28 U.S.C. § 2412(d).” See Memorandum of Points and Authorities of the Interstate Commerce Commission in Opposition to Application for Costs and Attorneys’ Fees Under the Equal Access to Justice Act at 5, Gumport v. ICC (Adv. No. 92-04510).
A genuine dispute does arise between the parties, however, as to whether the estate qualifies under § 2412(d)(2)(B) as an organization, “the net worth of which did not exceed $7,000,000 at the time the civil action was filed and which had not more than 500 employees.” The Trustee’s Declaration filed in conjunction with his motion establishes that at all times since the commencement of this case and at the commencement of his injunctive action against the Commission, the net worth of the estate of Transcon Lines was below $7,000,000 and the number of employees was fewer than 500. The Commission does not contest these facts.
The Commission takes issue with the Trustee’s contention that the estate is an “organization” within the meaning of § 2412(d)(2)(B). Both sides concur that only one court has addressed the issue of whether a trustee in bankruptcy can qualify as a party entitled to recover fees, In re Davis, 899 F.2d 1136 (11th Cir.1990), which holds that a trustee in bankruptcy may not so qualify. The Court of Appeals in Davis rejected the argument raised by the trustee there, and again argued by the Trustee herein, that the bankruptcy estate fits within the meaning of the term “organization.” Rejecting the broad definition of that term as found in Black’s Law Dictionary, the Court preferred to limit the definition to “a group of people that has a more or less constant membership, a body of officers, [and] a purpose.” Id. at 1144 (quoting Webster’s Third New International Dictionary 1590 (1976)). It reasoned that this narrow reading of “organization” is more consistent with its previously announced principle that “waivers of sovereign immunity, as EAJA is, are to be construed narrowly and in favor of the sovereign.” City of Brunswick v. United States, 849 F.2d 501, 503, n. 4 (11th Cir.1988), cert. denied, 489 U.S. 1053, 109 S.Ct. 1313, 103 L.Ed.2d 582 (1989). It further reasoned that the real parties-in-interest were the individual creditors, not the estate, and if fees were not awarded against the government they would pay those fees. Davis, 899 F.2d at 1144. Thus, if the individual creditors could not qualify as parties entitled to recover fees under § 2412(d)(2)(B), neither could the trustee in bankruptcy as their representative. Id.
Under this rationale, in In re Brickell Inv. Corp., 922 F.2d 696, 703 (11th Cir.1991), the Eleventh Circuit has held a debtor-in-possession qualifies as a party, as he/she/it retains its pre-bankruptcy status as a corporation, partnership or individual and- continues as such.
This view of bankruptcy assumes that chapter 11 eases always contemplate a reorganization and entities entering chapter 7 are always defunct. Reality is not so simple, however. Bankruptcy Code § 1123(b)(4) provides that a plan may “provide for the sale of all or substantially all of the property of the estate, and the distribution of the proceeds of such sale among holders of claims or interests.” This device is known as *234a liquidating plan and was specifically contemplated by Congress in enacting the Bankruptcy Reform Act of 1978. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 407 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 119-120 (1978).
The chapter 7 trustee is charged by statute with marshaling and liquidating the assets of the estate. 11 U.S.C. § 704(1). This is to be done “as expeditiously as is compatible with the best interests of parties in interest.” Id. The Code authorizes that under appropriate circumstances the trustee may even operate the debtor’s business for a limited period, see § 721, thereby allowing for the possibility of a sale of the business as a going concern. See In re Heissinger Resources Ltd., 67 B.R. 378, 384 (C.D.Ill.1986). Thus, it is permissible and even contemplated by the Bankruptcy Code that a debtor-in-possession may liquidate itself piecemeal and distribute its assets to creditors and equity holders according to their statutory priority while a chapter 7 trustee may preserve the debtor’s business enterprise as a going concern. Are courts to allow debtors-in-possession standing under § 2412(d)(2)(B) only when they “reorganize”? If so, when is that determination to be made, only after a plan has been filed and the debtor-in-possession has committed to reorganization? In that case the debtor-in-possession may lose standing because it is unable to qualify within the statute’s thirty-day limitation for filing requests for fee awards.
Similarly, a reorganization may contemplate a merger with or sale of the debtor’s business to another entity. This type of reorganization is authorized, 11 U.S.C. § 1123(a)(5)(B), (C), while the same result is authorized to the chapter 7 trustee by 11 U.S.C. § 721. This court can find no rational basis for allowing standing in the first instance but not in the second.
The Eleventh Circuit’s analysis also loses sight of the fact that the commencement of a bankruptcy case under any chapter creates an estate consisting of all legal and equitable interests of the debtor as of the commencement of the case. 11 U.S.C. § 541(a). In a chapter 7 case that estate is administered by a trustee, while a chapter 11 estate may be administered by a debtor-in-possession or trustee. In either case the administering entity is the representative of the estate and the estate is subject to the conflicting claims of the creditors and equity holders. The distinction described by the Eleventh Circuit in its Davis and Brickell decisions is illusory.
Finally, the purpose of the EAJA will be furthered by including the Trustee, on behalf of the estate, within the meaning of “party.” That purpose, as articulated in O’Connor, is “to encourage individuals and small businesses to challenge adverse government action notwithstanding the high cost of civil litigation.” O’Connor, 942 F.2d at 774; see also H.R.Rep. No. 99-120, 99th Cong., 1st Sess. 4 (1985). Without access to the EAJA, a trustee in bankruptcy faced with unjustified governmental action is placed in the dilemma of having to choose between opposing that action, and thereby draining the limited assets of the estate, or allowing the government to assert its unjustified position without opposition. Either way, he could be criticized for breaching his fiduciary duties. Who more than the representative of an insolvent estate seeking to maximize the recovery for creditors needs access to the courts to challenge unjustified governmental action without the attendant intimidating specter of overwhelming attorney’s fees? The Trustee is eligible to recover under the EAJA.
C. Does Substantial Justification Render an Award Unjust?
The EAJA provides that a court may award attorney’s fees and costs to a prevailing party in an action involving the government unless the court finds that the government’s position was “substantially justified or that special circumstances make an award unjust.” 28 U.S.C. § 2412(d)(1)(A). The government has the burden of demonstrating that its position was substantially justified or the existence of any special circumstances. See Kali v. Bowen, 854 F.2d 329, 332 (9th Cir.1988); Petition of Hill, 775 F.2d 1037, 1042 (9th Cir.1985). In analyzing whether the government’s position is substantially justified, the court must consider the “totality of the circumstances,” examin*235ing both the government’s litigating position as well as the underlying action or conduct upon which the litigation is based. See Wilderness Soc’y v. Babbitt, 5 F.3d 383, 388 (9th Cir.1993); Abela v. Gustafson, 888 F.2d 1258, 1264 (9th Cir.1989); League of Women Voters v. FCC, 798 F.2d 1255, 1258 (9th Cir.1986).
The government’s position is substantially justified when both the nature of the underlying government action at issue and the validity of the position asserted by the government in court have a reasonable basis in law and fact. Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 2549-51, 101 L.Ed.2d 490, 503 (1988); Wilderness Soc’y, 5 F.3d at 388; League of Women Voters, 798 F.2d at 1257; Foster v. Tourtellotte, 704 F.2d 1109, 1112 (9th Cir.1983) (per curiam). In evaluating the Commission’s actions, the court must examine the totality of the circumstances, including both the Commission’s litigation position and the underlying action that led to the litigation being instigated. Rawlings v. Heckler, 725 F.2d 1192, 1195-96 (9th Cir.1984).
Notwithstanding the fact that all courts that have considered the MC-208 Rules have found them to be invalid, the Commission argues that its action in promulgating those Rules was substantially justified on the basis that it addressed issues of first impression in creating a review procedure which it reasonably believed to be lawful under then existing legal precedents. The two grounds on which the Rules have been discredited are: 1) their promulgation and intended enforcement constituted a pervasive and immediate exercise of control over property of the estate, blatantly violating 11 U.S.C. § 362(a)(3), Gumport v. ICC, 147 B.R. 770, 775 (Bankr.C.D.Cal.1992); In re Bulldog Trucking, Inc., 150 B.R. 912, 915 (W.D.N.C.1992); and 2) by the promulgation of the MC-208 Rules the Commission sought to divest the courts of original jurisdiction to adjudicate undercharge claims, thereby violating the clear language of § 11706(a) of the Interstate Commerce Act, White v. United States, 989 F.2d 643 (3d Cir.1993).
(1) Violation of the Automatic Stay
While not conceding that its proposed Rules violated the automatic stay, the Commission contends that it reasonably relied on Board of Governors of the Federal Reserve System of the United States v. MCorp Financial, Inc., 502 U.S. 32, 112 S.Ct. 459, 116 L.Ed.2d 358 (1991), in believing that administrative proceedings such as its contemplated review procedure do not violate the automatic stay. It is clear, however, that MCorp does not support the Commission’s position and its reliance on the capacious reading given to the Supreme Court’s decision was unreasonable. The holding there was that the Federal Reserve Board’s ongoing administrative proceedings against the debtor did not violate Bankruptcy Code § 362(a)(1) (prohibiting the commencement or continuation of a judicial administrative or other proceeding against the debtor which was or could have been commenced before the bankruptcy case) as they were excepted by section 362(b)(4) as a proceeding by a governmental unit to enforce its police or regulatory power. At issue here is section 362(a)(3) which is not the subject of limitation under section 362(b). In fact, the Supreme Court in MCorp observed that “(i)f and when the Board’s proceedings culminate in a final order, and if and when judicial proceedings are commenced to enforce such an order, then it may well be proper for the Bankruptcy Court to exercise its concurrent jurisdiction under 28 U.S.C. § 1334(b).” 502 U.S. at 41, 112 S.Ct. at 464. The Supreme Court merely noted in MCorp that any contemplation of section 362(a)(3) was premature. Furthermore, Congress had provided exclusive jurisdiction to the Board with references to the proceedings undertaken in MCorp, divesting the courts of any ability to affect the proceeding other than through the statue’s specific procedure for judicial review. See 12 U.S.C. §§ 1818(a)-®. The ICC lacks any analogous statutory vesting of original and exclusive adjudicative jurisdiction in the Commission.
(2) Statutory Authority Exceeded
The MC-208 Rules, by purporting to confer upon the Commission the power to *236determine the validity of undercharge claims, represented a blatant attempt to usurp to itself the original jurisdiction of the courts. The ICC knew from the outset that it was without legal authority to do so. Indeed, the ICC has long conceded that it is without power to decide overcharge or undercharge claims, or decree reparations for operating carriers. See e.g., Reiter v. Cooper, 507 U.S. -, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993); Ex Parte No. 24-9: Informal Procedure for Determining Motor Carrier and Freight Forwarder Reparations, 335 I.C.C. 403 (1969); Ex Parte No. MC-177: National Industrial Transportation League, Petition to Institute Rulemaking on Negotiated Motor Common Carrier Rates, 3 I.C.C.2d 99 (1986). In White v. United States, the Third Circuit held that the MC-208 Rules were adopted in excess of the Commission’s statutory authority and set the Rules aside. The Third Circuit observed that it did “not find any statutory authority to warrant the adoption of the MC-208 Rules,” see 989 F.2d at 649, that the Commission had attempted to arrange “a detour around both the courts’ original jurisdiction and the applicable de novo standard of review,” see id. at 648, and that the Commission’s own arguments “only underseore[] the inappropriateness of the process, which gives the Commission both the role of judge and the role of adversary.” Id. at 649.
(3) Special Circumstances
When the Commission first proposed the MC-208 Rules, the Trustee filed comments dated July 16, 1992, with the Commission clearly stating that the adoption and application of the Rules to carriers in bankruptcy would violate the automatic stay of 11 U.S.C. § 362, and that the Rules were further flawed by statutory and constitutional deficiencies. The Commission failed to give the Trustee’s comments serious consideration, although it had no reasonable basis to question the Trustee’s arguments given the plain language of § 362(a)(3), the inapplicability of §§ 362(b)(4) — (5) to violations of § 362(a)(3), and the Commission’s prior decisions acknowledging its lack of statutory authority to exercise primary jurisdiction over reparations claims. The Commission had every reason to know that its actions violated both the Interstate Commerce Act and the Bankruptcy Code and could never withstand judicial review.
Even if another might consider the Commission’s improper reliance on MCorp to be a good faith credible extension of law, that affirmative defense is unavailable with respect to its violation of the ICA. Faced with a series of defeats in the courts, the Commission undertook to engage in self-help in attempting to usurp original jurisdiction from the courts. Such imperious behavior cannot be condoned.
This court concludes there existed no substantial justification for either the underlying actions taken by the Commission in promulgating the MC-208 Rules or their untenable defense of those Rules in court. Further, the special circumstances present militate entirely against the Commission. Accordingly, the Trustee is entitled to recover attorneys’ fees and costs under 28 U.S.C. § 2412(d).
D. Attorneys’ Fees
Under the EAJA, fees are recoverable at a rate of $75 per hour, adjusted for inflation since 1981. Ramon-Sepulveda v. INS, 863 F.2d 1458, 1463-64 (9th Cir.1988). Under the formula for calculating the adjusted rate set forth in Ramon-Sepulveda, the Trustee and his counsel are entitled to recover fees at a rate of $115.92 per hour. Based upon the rate cap, adjusted for inflation, the Trustee is entitled to an award of attorneys’ fees of $42,844.04 (37.3 hours of actual time expended by the Trustee x $115.92 + 369.60 hours of actual time expended by Tuttle & Taylor x $115.92 = $42,844.04).
. Although the Interstate Commerce Commission ultimately prevailed on the merits in Interstate Commerce Commission v. Transcon Lines, that decision does not affect the Trustee's rights to contest “temporary rules” and to seek fees for related legal services to the bankruptcy estate, issues which are addressed by the remainder of this opinion.
. The MC-208 Rules were adopted under the authority of the Interstate Commerce Act, 49 U.S.C. §§ 10101-11917.
. 28 U.S.C. § 451 defines a "court of the United States” as "the Supreme Court of the United States, courts of appeals, district courts constituted by chapter 5 of this title, including the Court of International Trade and any court created by Act of Congress, the judges of which are entitled to hold office during good behavior.”
. See In re Cascade Roads, Inc., 34 F.3d 756, 767-68, n. 12 (9th Cir.1994), wherein the Ninth Circuit recognized the issue but specifically declined to express an opinion because under the facts presented the district court rather than the bankruptcy court had invoked EAJA to sanction the United States.
.Section 2412(d)(2)(F) was amended in 1992 to add the United States Court of Veterans Affairs. Pub.L. No. 102-572, § 506(a) (1992). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491979/ | MEMORANDUM OPINION AND ORDER
ROLAND J. BRUMBAUGH, Bankruptcy Judge.
THIS MATTER comes before the Court upon the MOTION TO STRIKE JURY DEMAND AND TO DENY MOTION FOR WITHDRAWAL OF THE REFERENCE, filed by the Plaintiff on January 4, 1995.
This adversary proceeding was filed by the Trustee on December 18, 1992. On April 8, 1993, Robert C. Arnot filed his answer which contained, inter alia, affirmative defenses for recoupment and setoff. He also filed with his answer a demand for jury trial and a motion for withdrawal of the reference. The Trustee filed her response on April 12, 1993, indicating that she did not oppose the motion for withdrawal and the jury demand.
L.D. Arnot and the Esther Philleo Arnot Trust, L.D. Arnot, Trustee filed their answer on December 14, 1993, asserting the same *272affirmative defenses, motion for withdrawal of the reference and jury demand. Again, the Trustee did not oppose the jury demand and motion for withdrawal.
The case was transferred to the District Court on April 15, 1993, and subsequently returned to the Bankruptcy Court for pretrial proceedings. The Bankruptcy Court issued its Rule 7016 scheduling order on August 19, 1993, which included a deadline for filing dispositive motions of March 16, 1994. Finally, on January 4,1995, over a year after the second defendant’s answer was filed, and almost ten months after the dispositive motions deadline had passed, the Trustee changes her mind and files her motion to strike jury demand and to deny motion for withdrawal of the reference.
The Trustee’s sole excuse for the long delay in filing this motion is that the case law which prompted the motion only recently “came to her attention.” The Court notes that much of this case law existed as early as 1991 (see cases cited infra), and the fact that it just recently came to her attention is unquestionably not sufficient cause to find excusable neglect for the tardy filing. The defendants should not be deprived of their Seventh Amendment right to a jury trial just because the Trustee’s legal research is deficient. The Trustee could have objected to the jury demands and motions for withdrawal of the reference at the time she filed her response of no opposition, because the case law upon which she now bases her objection existed at that time. Because she could have objected in April of 1993 and failed to do so, this Court finds that the Trustee has waived her right to object to the jury demands and the motions to withdraw the reference filed by the defendants.
Even if this Court found that the Trustee’s motion passed procedural muster, it would fail on substantive grounds. The premise on which the Trustee’s motion stands or falls is that the assertion of the affirmative defenses of setoff and recoupment should be construed as a counterclaim; and, as a number of recent cases have held, the filing of a counterclaim in an adversary proceeding will stand as a proof of claim against the bankruptcy estate, causing the defendant to lose his Seventh Amendment right to a jury trial. Peachtree Lane Associates, Ltd. v. Granader, 175 B.R. 232 (N.D.Ill.); In re Hudson, 170 B.R. 868 (E.D.N.C.1994); In re Americana Expressways, Inc., 161 B.R. 707 (D.C.Utah 1993); In re Lloyd Securities, Inc., 156 B.R. 750 (E.D.Penn.Bankr.1993); In re Allied Cos., Inc., 137 B.R. 919 (S.D.Ind.1991).
Setoff and recoupment can be raised as either an affirmative defense or a counterclaim. A counterclaim seeks affirmative relief against the bankruptcy estate and will trigger the allowance and disallowance of claims process, subjecting the defendant to the equity jurisdiction of the Bankruptcy Court. The assertion of setoff and recoupment as an affirmative defense will not. Raised as an affirmative defense, setoff and recoupment will serve only to reduce the amount of the Trustee’s claim against the defendants. In re Concept Clubs, Inc., 154 B.R. 581 (D.Utah 1993). The Trustee makes much of the fact that the defendants, as part of their affirmative defenses, sought “damages suffered by defendants as a result of the acts and omissions of Debtor.” (Answer of Robert C. Arnot dated April 12, 1993, and Answer of L.D. Arnot, et al., dated December 14, 1993). If the defendants are indeed asking for monetary damages in addition to a reduction in the Trustee’s claim, this would amount to a claim against the estate. However, defendants at the hearing held before the Court on February 6, 1995, emphasized that they are seeking no affirmative relief and no actual damages against the bankruptcy estate. Their only goal is to simply reduce the amount of any judgment that the Trustee may obtain against them.
This Court finds that setoff and recoupment raised as affirmative defenses in the case at bar are not counterclaims and do not deprive the defendants of their Seventh Amendment right to a jury trial.
ORDERED that for the reasons set forth above, the Trustee’s Motion to Strike Jury Demand and to Deny Motion for Withdrawal of the Reference be and the same is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491980/ | MEMORANDUM OPINION
JACK CADDELL, Bankruptcy Judge.
This matter is before the Court on a motion filed by the plaintiffs, Judith Thompson, trustee, and Young Min Yu, requesting permission to amend their complaint and add SouthTrust Bank, John Edward Dodd and Iris Janet Dodd as party-defendants. South-Trust Bank, John Edward Dodd and Iris *274Janet Dodd filed objections to the motion. The hearing in this matter was held on the 20th day of December, 1994.
The evidence shows that on or about September 10, 1989, real property located at 103 Oddo Lane, Huntsville, Alabama (subject property), was purchased by Mona Yuan from her husband, Jackson Yuan (debtor), for the sum of $10.00. This transaction is evidenced by a deed dated September 10, 1989, and recorded on February 2, 1990, in the Probate Office of Madison County, Alabama.
In November, 1993, plaintiff Young Min Yu obtained a judgment against the defendant/debtor in the approximate amount of $30,000.00, and shortly thereafter filed a certificate of judgment evidencing same in the probate records for Madison County, Alabama. On April 1, 1994, Yu filed, in the same civil action in which his judgment was obtained, a motion for execution on his judgment against the subject property. The motion to execute alleges that the subject property was fraudulently conveyed by the defendant/debtor to his wife in 1989.1 On or about April 1,1994, the attorney for Yu filed a copy of this motion in the probate records of Madison County, Alabama (plaintiffs exhibit # 3). A copy of this motion and its attachment as filed in the probate court is attached to this opinion. Said filing was not indexed under the name of Mona Yuan, the titled owner of the real estate in question.
On April 7, 1994, Mona Yuan sold the subject property to Mr. and Mrs. Dodd. SouthTrust Bank financed the purchase. On June 8,1994, the debtor filed for relief under Chapter 7 of the Bankruptcy Code.
The plaintiffs contend that the filing of a copy of the motion to execute on judgment in the probate records on April 1, 1994, constitutes a notice of a lis pendens; and thus, precludes the Dodds and SouthTrust Bank from being bona fide purchasers of the property for value without notice of Yu’s claim. In the alternative, the plaintiffs contend that the Dodds and SouthTrust Bank had actual notice of Yu’s claim.
A. Constructive Notice
Section 35-4-131 of the Code of Alabama 1975 requires a notice of lis pen-dens to be filed with the judge of probate in the county where the real property lies. The notice shall contain the names of all parties to the action or proceeding, or the persons named as those having an interest in the land, a description of the real estate and a brief statement of the nature of the lien, writ, and application or action sought to be enforced. The purpose of this section is to provide a means whereby one wanting to purchase land can ascertain if there is any pending litigation which affects the title by examining the lis pendens record. Federal Land Bank v. Ozark City Bank, 225 Ala. 52, 142 So. 405 (1931). If the notice is not entered in the lis pendens record, the action, proceeding, or application shall not affect the rights of a bona fide purchaser or mortgagee of any interest in such land unless he or they have actual notice of the action, proceeding, levy, or application, section 35-4-135.
These lis pendens statutes are in derogation of the common law. Alabama law has long held that statutes that are in derogation of the common law must be strictly construed. Holland v. City of Alabaster, 624 So.2d 1376 (Ala.1993). Consequently, these statutes detail exactly “the procedure that must be followed for filing notice of lis pen-dens when any civil action has been brought in any court to enforce any right to, or interest in land” and they must be followed to the letter. First Alabama Bank of Tuscaloosa, N.A v. Brooker, 418 So.2d 851, 854 (Ala.1982).
The purpose of the lis pendens record is to afford purchasers a method of protecting themselves against existing claims. Batson v. Etheridge, 239 Ala. 535, 195 So. 873 (1940). Therefore, when a party does not follow the requirements of the statute and have his claim recorded in the lis pendens record, he must be the one to bear the onus of his failure. An innocent third party should not be forced to suffer because a potential claimant did not follow Alabama law.
*275The evidence shows that no notice of a lis pendens was filed in the office of the Probate Judge for Madison County, Alabama. The only document recorded in the Probate Office was the motion for execution on judgment against property alleged to have been fraudulently conveyed. This document was indexed under the name of Jackson Yuan only and recorded in Judgment Book 108, Page 1079. It was not recorded in the Lis Pen-dens record as required by section 35-4-130 or indexed under the name of Mona Yuan, the titled owner.
Apparently, no request was made of the probate clerk to index the instrument under the name of Mona Yuan. The caption of the document does not contain the name of Mona Yuan even though her name appears one time in the body of the document in paragraph number 2 thereof. The document is neither captioned nor entitled as a notice of lis pendens, or a notice of pending action against real estate, and apparently the probate clerk was not instructed or requested to record same as a notice of lis pendens.
The Court finds that the filing of a copy of the motion, which was recorded in the judgment record book in the name of Jackson Yuan, is not sufficient as a notice of a pending action to recover property titled in the name of Mona Yuan as required by section 35-4-131. It should be noted that there was no action pending against Mona Yuan to set aside the conveyance of the property to her as a fraudulent transfer. The only action pending was the original civil action against the debtor, and in which his wife, Mona Yuan, was not a party.
B. Actual Notice
Section 35-4-135 provides that if the notice required by section 35-4-131 is not entered into the Lis Pendens record, the action, proceeding, or application shall not effect the rights of a bona fide purchaser or mortgagee unless he or they have actual knowledge of the action, proceeding, levy or application. However, this exception does not apply in this case.
John Edward Dodd, Iris Janet Dodd and SouthTrust Bank had no actual notice that there was any pending action concerning or involving the subject property. Mr. Paul Seeley, a local attorney, representing South-Trust Bank in the transaction that closed on or about April 7,1994, testified under oath in open court that he had at least one conversation with Mr. Allison (counsel for Yu) prior to that closing concerning Yu’s judgment against Jackson Yuan. Mr. Seeley stated that Allison never indicated in this or any other conversation prior to the closing that he intended to attempt to execute on his existing judgment against the subject property. In fact, Mr. Seely stated that if he had had any indication that the plaintiff had a claim against the subject property, he would not have closed the transaction.
Yu argues that SouthTrust Bank had notice of his claim against the property because his attorney sent a copy of the certificate of judgment against Jackson Yuan to Mr. See-ley by facsimile transmission on March 31, 1994 (plaintiffs exhibit #2). However, this transmittal was not notice of any encumbrance or action pending against the subject property.
The transmitted document only reflected that Yu had a judgment against Jackson Yuan. Mr. Seeley never denied having knowledge of the judgment, he only denied having knowledge that Yu intended to execute on the subject property; property that was owned by Mrs. Yuan for more than four years prior to the sale to the Dodds. The correspondence between Paul Seeley and James C. Allison on March 31, 1994, did nothing to reveal Mr. Allison’s intentions or thought processes concerning the subject property or a fraudulent conveyance action. The facsimile transmission of the certificate of judgment was not sufficient notice to Paul Seeley of a pending claim against property owned by Mona Yuan as required by section 35-4^135.
The Court finds that the Dodds and South-Trust Bank are bona fide purchasers and mortgagee without notice. The motion to add them to the above entitled action as party defendants is hereby denied and an order in accordance with this opinion will be entered.
*276ATTACHMENT
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*277[[Image here]]
*278[[Image here]]
. The wife, Mona Yuan, was not a party defendant to this civil action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491981/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
THOMAS E. BAYNES, Jr., Bankruptcy Judge.
THIS MATTER came on for consideration upon Motion for Summary Judgment filed by Lenard J. Miller on Motion for Allowance of Administrative Expense, and Motion for *288Summary Judgment of Debtor on Objection to Administrative Claim of Lenard Miller in the above captioned case. This Court has considered all arguments and evidence consistent with a ruling on a motion for summary judgment. See Celotex v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The Court having considered the Motion, together with the record, finds as follows:
Debtor filed its petition on December 18, 1992. A Motion for Administrative Expense has been filed by the former President and Chief Executive Officer, Lenard J. Miller (Movant). Movant was employed by Debtor pre-petition, and continued in his capacity until June 4, 1993. On June 4, 1993, Movant was discharged from employment with Debt- or. Movant was not provided with notice, and his termination letter did not set out reason or cause for termination other than job performance was unsatisfactory. Before this Court is the question of wrongful termination and resulting damages under an assumed employment contract.
Debtor made motion to assume existing employment agreements on December 24, 1992.1 This Court’s February 24, 1993, Order assumed the existing employment agreement with respect to Miller, and excepted severance and portions of the agreements not common to all employees.2 This Court later held:
“to the extent, any provisions of the Employment Agreements of the Officers were not assumed by the February 24, 1994, including but not limited to, the severance provisions of said Employment Agreements, such provisions shall and hereby are deemed REJECTED....3
Of a matter of course, Debtor contends the employment agreement was never expressly accepted and therefore deemed rejected. Movant contends Debtor breached the Employment Agreement as approved by Order of this Court, and Movant is entitled to damages.
EMPLOYEE CONTRACT
The employment contract with Movant, with exception to severance pay and all other benefits not provided to other employees, was approved by this Court’s Order of February 24, 1994. Under the employment agreement, Movant was to be employed for a period of three years commencing July 1,1992, and complete the employment agreement period June 30, 1995. Where Employer/Debtor terminated employment, Movant was entitled to compensation for the remaining terms of the agreement. However, Debt- or was permitted under the agreement to terminate the agreement upon:
(i) any material breach of any of the terms of this contract by Employee which is not cured to Employer’s reasonable satisfaction within 30 days after Employer’s written warning to Employee, or (ii) conduct by Employee that constitutes good cause for termination of employment “for cause” *289under applicable law. In the event of termination for breach of the agreement or for cause, Employer shall immediately pay to Employee an amount equal to the minimum compensation as set forth in Section IV of this agreement for 60 days plus all accrued vacation time as set forth in Section IV(c), and any bonus and other benefits earned as of the date of notice of termination, which amount(s) shall be considered full compensation to the date of termination....
Section IV, of the Employment Agreement, sets out Movant’s compensation package. The assumed contract provides for basic salary requirements, vacation and other employee benefits that are customarily provided Debtor’s employees. Therefore, there is no question Movant is entitled to accrued vacation and wages due to him upon his termination of June 4, 1992. Any other damages flowing from the termination of Movant’s employment are dependant upon an allegation of wrongful termination.
MOVANT’S MOTION FOR SUMMARY JUDGMENT
Under the Employment Agreement, Debt- or was entitled to terminate the Employment Agreement upon 30 days written notice with an opportunity to correct any action deemed unsatisfactory by the Board of Directors, or “for cause.” First is the issue of Movant’s termination for cause. Movant contends he was fired without cause. To support this contention, Movant offers the Unemployment Compensation Board’s record which states Debtor’s response to Movant’s complaint for unemployment compensation, and that Mov-ant was terminated without cause.4 The period for Debtor to appeal the Unemployment Compensation Board’s decision has passed. To this administrative holding, Movant asserts Debtor is collaterally estopped from arguing Movant was discharged- without cause.
The doctrine of collateral estoppel requires a judicial proceeding be given full faith and credit. 28 U.S.C. § 1738; Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). The Supreme Court in Marrese, requires federal courts, when considering the application of collateral estoppel to state court judgments, to initially determine whether state law would allow the judgment to have a preclusive effect. In the instant case, Movant maintains a quasi-judicial administrative pronouncement requires full faith and credit.
To overcome the threshold inquiry, Florida law must be considered to determine the state’s application of collateral estoppel in quasi-judicial administrative pronouncements. Under Florida law, “collateral estop-pel has been used to bar relitigation of issues in a civil proceeding after they have once been adjudicated in an administrative proceeding.” Florida Dept. of Transportation v. Gary, 513 So.2d 1338, 1339-40 (Fla. 1st DCA 1987); see also Mike Smith Pontiac v. Mercedes-Benz of North America, 32 F.3d 528 (11th Cir.1994); DeBusk v. Smith, 390 So.2d 327 (Fla.1980); United States Fidelity and Guaranty Co. v. Odoms, 444 So.2d 78 (Fla. 5th DCA 1984); Jet Air Freight v. Jet Air Freight Delivery, Inc., 264 So.2d 35 (Fla. 3d DCA), cert. denied, 267 So.2d 833 (Fla.1972); Carol City Utilities v. Miami Gardens Shopping Plaza, 165 So.2d 199 (Fla. 3d DCA 1964). “The adjudication and award of compensation boards or commissions, as well as the judgments of courts are generally held to be conclusive on the parties as to matters and issues involved within their jurisdiction.” Yovan v. Burdines’s, 81 So.2d 555, 557 (Fla.1955); United States Fidelity and Guaranty Co. v. Odoms, 444 So.2d 78, 79-80 (5th DCA 1984); School Board of Seminole County v. Unemployment Appeals Commission, 225 So.2d 556, 557 (5th DCA 1988); Florida v. Short, 513 So.2d 679 (2nd DCA 1987).
Often the Board’s determination has a pivotal basis on issues of breach of contract to make such a determination. Vasquez v. GFC Builders Corporation, 431 So.2d 739, *290741 (4th DCA Fla.1983); Williams v. Florida Dept. of Commerce, Industrial Relations Commission, 326 So.2d 237, 238-39 (3rd DCA Fla.1976); Fredericks v. Florida Dept. of Commerce, Industrial Relations Commission, 323 So.2d 286, 287 (2nd DCA Fla.1975). Therefore, it appears the Unemployment Compensation Board may make adjudication on employment contract issues which would be susceptible to collateral estoppel. Full faith and credit may be given an administrative proceeding adjudicated before the Florida Unemployment Compensation Board.
This Court may now consider the Unemployment Compensation Board’s Determination and whether it has a preclusive effect on litigation of an issue in the instant case. In order to determine whether this Court may apply collateral estoppel in the instant case, the following criteria must be met under Marrese:
1. the issue at stake must be identical to the one involved in the prior litigation;
2. the issue must have been actually litigated in the prior litigation;
3. the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in the earlier action; and
4. the standard of proof in the prior litigation must have been at least as stringent as the standard of proof in the later litigation.
See Hoskins v. Yanks (In re Yanks), 931 F.2d 42, 43 n. 1 (11th Cir.1991); Halpern v. First Georgia Bank (In re Halpern), 810 F.2d 1061, 1064 (11th Cir.1987); Miller v. Held (In re Held), 734 F.2d 628, 629 (11th Cir.1984); Chang v. Daniels (In re Daniels), 91 B.R. 981 (Bankr.M.D.Fla.1988).
Upon application of the first Marrese element, the issues of the Unemployment Compensation Board are arguably consistent with an alleged breach of contract action in the instant case. Movant’s theory of his case is flawed when applied to the second element, which requires actual litigation of the issue in the prior proceeding. The determination of the Unemployment Compensation Board does not suggest there was actual litigation. The Board’s findings go only as far as stating Movant was discharged from employment “for reason other than misconduct connected with the work.”
Under Scarfone v. Arabian Am. Oil Co. (In re Scarfone), 132 B.R. 470 (Bankr.M.D.Fla.1991), this Court may look to the record and evidence of the parties to a motion for summary judgment to determine whether the issues were actually litigated. See also Arabian American Oil Co. v. Scarfone, 939 F.2d 1472 (11th Cir.1991). The only evidence of record is the Determination letter of the Unemployment Compensation Board. As stated above, the determination letter does not go beyond the mere conclusion Movant was discharged for reason other than misconduct connected with the work. There is no evidence to support a finding the issue of “cause” was actually litigated.
In addition, the June 4, 1993, letter Debtor relies upon to suggest Movant was discharged “for cause,” was not before the Unemployment Compensation Board. The Board simply did not make a pronouncement based upon the actual events of Movant’s employment termination. It only decided Movant was eligible for unemployment compensation benefits. It is reasonable to suspect Debtor decided not to comment on what could cause potential embarrassment for so little gain. There has been no factual determination on the issue of cause. For this reason it is unnecessary to apply the third and fourth elements.
CONCLUSION
The determination of the Unemployment Compensation Board does not collaterally estop Debtor from litigating the reason for Movant’s termination. In addition, Debt- or asserts it had warned Movant of his unsatisfactory work performance, and his termination was a result of no meaningful corrective measures taken by Movant. In analysis of the Employment Agreement, there is a provision requiring reasonable satisfaction by Debtor of Movant’s performance.
There remains a genuine issue of material fact with respect cause for termination. For this reason, summary judgment would be inappropriate at this time.
*291Accordingly, it is
ORDERED, ADJUDGED AND DECREED the Motion for Summary Judgment filed by the Lenard J. Miller on Motion for Allowance of Administrative Expense, and cross Motion for Summary Judgment of Debtor be, and the same is hereby, granted for the sole purposes of allowing accrued vacation and wages due to and including June 4, 1993. Motion for Summary Judgment with respect to all other matters be, and the same are hereby, denied as there remains a genuine issue of material fact.
DONE AND ORDERED.
. Debtor's Motion for Authority to Pay Officers’ Salaries and to Assume Existing Employment Agreements.
. ORDERED, ADJUDGED, AND DECREED that, commencing with the filing of its voluntary petition, the Debtor is authorized to pay and/or provide the above-named officers the customer benefits made available to all other employees of the Debtor. It is further
ORDERED, ADJUDGED, AND DECREED that a ruling on the Debtor's request to approve the severance payment arrangements for the above-named officers described in the Motion is hereby deferred pending further order of the Court. It is further
ORDERED, ADJUDGED AND DECREED that the objection filed by the Office of the United States Trustee is hereby overruled except with respect to the Debtor's request for approval of severance payment arrangements for the above-named officers, and this ruling shall be without prejudice for the United States Trustee to raise objection to such severance payment arrangements at a later date. It is further
ORDERED, ADJUDGED AND DECREED that the objection of the Creditor’s Committee in its Response as to such severance payment arrangements is hereby overruled, without prejudice to the Creditor's Committee to raise such objection at a later date....
.July 21, 1994, Findings of Fact and Order Granting Debtor's Motion to Reject Employment Agreements in Whole or in Part.
. Movant alleges the Unemployment Compensation Board’s records reflect a written response from Debtor stating “[w]e wish not to respond to his separation.” This allegation is supported by records as exhibit A to Movant's Memorandum of Law in Support of His Motion for Summaiy Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491982/ | ORDER ON TRUSTEE’S COMPLAINT SEEKING AVOIDANCE OF PREFERENCES
ARTHUR N. YOTOLATO, Bankruptcy Judge.
Heard on February 22, 1995, on the Trustee’s Complaint to recover certain payments by the Debtor to Employee Staffing of America (“ESA”), made within the ninety days prior to the date of the petition.1
Pre-petition, Hyperion and ESA had entered into a contract for ESA to provide employees for Hyperion’s operations. ESA employees working at Hyperion were paid weekly, one pay period in arrears, after ESA issued payroll checks to Hyperion for disbursement to the employees on Fridays. As of the filing date, it had become the ordinary course of business of the parties that Hyperion would pay ESA one week in arrears, and that prior to releasing the current payroll checks to Hyperion, ESA would require Hyperion to reimburse ESA for the payroll it had advanced the previous week.
In dispute are the following three payments made by the Debtor to ESA, which the Trustee contends are preferences: (1) $20,011.75 on August 22, 1991; (2) $2,636.16 on September 9, 1991; and (3) $4,753.95 on October 11,1995. The Trustee concedes that his other preference arguments fail because, as to each of those payments ESA provided new value to the Debtor in exchange for the payments. See 11 U.S.C. § 547(c)(4). He also contends that if it is determined that the Debtor in fact did make a (disputed) $42,000 payment to ESA on August 29, 1991, then the Defendant’s new value defense fails as to the above three payments.
Upon consideration of the evidence presented, the pleadings filed and the arguments of counsel, we make the following findings of fact and conclusions of law:2
(1) As a threshold matter, the Trustee has not established that an alleged $42,000 payment was made to ESA on or about August 29, 1991. To the contrary we find, without difficulty, that no such payment was ever made. In support of the contention that such a payment was made, the Trustee introduced Exhibit 2, a check from the personal account of David G. Halmi, the former principal of the Debtor corporation, in the amount of $52,561.75 made out to “Cash.” A memo on the check reads “Esa + Modum.” Mr. Halmi testified that at the time he negotiated the check, he “was making payments of $10,-000 to Modum whenever he got the cash,” and “assumes that he made such a payment” in this instance. Then he makes the considerable leap to conclude that the balance of the proceeds of that cheek must have been paid to ESA,3 because ESA released the payroll cheeks for the week of August 30, 1991. Gloria Stevens, the Secretary of ESA, testified that the Defendant’s records do not reflect the receipt of a $42,000 payment at or about that time. The Trustee has the burden of proof herein, he has come up quite short,4 and in resolving this issue we determine all issues of credibility in favor of the Defendant.
(2) In light of the finding that $42,000 was not paid as alleged, the $20,011.75 payment on August 22, 1991 is not preferential, as ESA provided new value to the Debtor in the form of the release of payroll checks for that week, plus the advance of the following *328weeks’ payroll on August 28, 1991, in the amount of $89,699.63. Those funds remained due to ESA as of the petition date.
(3) As for the September 9, 1991 payment in the amount of $2,636.16 and the October 11, 1991 payment for $4,753.95, we find that these payments were: (a) transfers of an interest of the Debtor to a creditor;5 (b) on account of an antecedent debt owed by the Debtor; (c) made while the Debtor was insolvent; (d) within the 90 day period preceding the filing of the bankruptcy petition; (e) that enabled ESA to receive more than it would have received in this Chapter 7 proceeding if the payments had not been made. See 11 U.S.C. § 547(b). The defenses raised by ESA as to these two transfers are invalid because the Debtor had already ceased operations and ESA was no longer providing employees or services of any kind to the Debtor. See 11 U.S.C. § 547(c)(1). Neither may it be argued that these payments were in the ordinary course of business, again because they were untimely. See 11 U.S.C. § 547(c)(2). Finally, ESA could not have provided any new value to or for the benefit of the Debtor after such transfers, as it had ceased providing any services to the Debtor prior to the time these transfers were made. See 11 U.S.C. § 547(c)(4).6 Accordingly, we conclude that the September 9, and October 11, 1991 payments to ESA are avoidable as preferences, and that the Trustee should recover from ESA the amount of $7,390.11.7 See 11 U.S.C. § 550(a).
Enter Judgment consistent with this opinion.
. This case was commenced as an involuntary Chapter 7 on October 11, 1991, and the Order for Relief was entered on October 18, 1991.
. This Order sets forth findings of fact and conclusions of law in accordance with Fed. R.Bankr.P. 7052.
. This is the only support for the Trustee’s contention that a payment was made. Halmi doesn’t even have an independent recollection of such an event.
. The documentary evidence in this case was virtually nonexistent.
. The Defendant also argues that because the payments were made from Halmi’s personal account, they were not transfers of an interest of the Debtor. That argument is rejected, as it is completely at odds with the evidence. According to Halmi's direct testimony, the funds in his personal account at that time were property of the Debtor. As Halmi carefully explained, he was conducting the Debtor's business affairs through his personal account because deposited funds were available quicker there, than they would have been using the Debtor’s business account.
. The Defendant also contends that these payments constituted wages paid to employees of the Debtor, and as such should not be held to be preferences. The evidence is clear that the individuals in question were employees of ESA, which in turn was providing a service to the Debtor.
. $2,636.16 plus $4,753.95 = $7,390.11. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491984/ | OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
On October 25, 1994 Plaintiff presented their case against the Defendants relative to a Complaint objecting to the dischargeability of certain debt incurred by the Debtor/Defendants. That Complaint was filed under 523(a)(2)(A) and alleged that various charges made by the Debtors within days of their bankruptcy filing were debts that should not be discharged because of “false pretenses, false representation, or actual fraud”.
Although the Defendant answered, neither Defendant appeared nor did counsel on their behalf. Original counsel, Jerry Raff, Esquire, died due to a tragic accident during the pendency of the bankruptcy. Scott Bennett, Esquire succeeded as counsel to the Debtors.
The Plaintiff called an employee to the stand and also argued that various Requests for Admissions were “deemed admitted” since they were not responded to.
The evidence indicated that within 20 days of the bankruptcy and from October 21,1993 to October 31, 1993 the Debtors, on four separate charges incurred a debt to Sears of One Thousand Three Hundred Ninety-Six Dollars and Eleven Cents ($1,396.11). Those charges were incurred after consultation with bankruptcy counsel. All of the charges were to a joint account with both Debtors’ names on it, but all purchases were signed only by the male Debtor. The witness from Sears testified that notes taken by another representative for Sears who attended the first meeting of creditors indicated that the Debt- or said these charges were for “Christmas gifts”.
Although there was no evidence in the record as to the relationship between the two Debtors, there was some indication that the female Debtor now utilized a different name than Lorraine Schoelier, i.e. Lorraine Ma-tem.
Upon conclusion of the hearing the Court entered an Order granting judgment in favor of the Plaintiff and against the male Debtor denying the dischargeability of the debt as to Henry Schoelier.
*397The only remaining issue was whether the debt of Lorraine Schoelier should be discharged.
The Plaintiff alleges that, under Pennsylvania law, “... either spouse has the power to act for both without any specific authority, so long as the acting spouse’s action benefits both”. Citing In re Paolino, 89 B.R. 453, 459 (Bankr.E.D.Pa.1988). Our review of Pennsylvania law indeed supports this conclusion. J.R. Christ Construction, Inc. v. Olvesky, 426 Pa. 343, 232 A.2d 196 (1967). That presumption is helpful with regard to property held by either husband or wife.
Although both Debtors, presumably under the charge card agreement, agreed to be bound by the credit charges of one, it does not necessarily follow that one spouse’s intent to defraud a creditor raises a presumption that the other spouse intended to defraud that creditor.
This Court is mindful that the provisions of 523(a)(2)(C) allows for a presumption that a debt to a single creditor is presumed nondis-ehargeable if “luxury goods or services” in excess of Five Hundred Dollars ($500.00) are incurred within forty (40) days of bankruptcy. That is the very basis upon which we concluded Mr. Schoelier continued to be obligated to the Plaintiff. Whether we shall impute Mr. Schoelier’s actions to Mrs. Sehoe-lier depends upon whether we will interpret this portion of the Bankruptcy Code strictly or otherwise.
Exceptions to discharge are interpreted strictly in favor of the debtor and against the creditor. In re Pelkowski, 990 F.2d 737 (3rd Cir.1993) at 744. The burden of proving an exception to dischargeability is on the Plaintiff by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
We have no evidence on this record that Mrs. Schoelier knew of these purchases before they were incurred. Even though there is some unobjected hearsay on hearsay evidence that these charges represented “Christmas presents” we have no evidence as to whether these items were purchased with Mrs. Schoelier’s knowledge or intention to use them as such at any time.
Even though the Plaintiffs case was not defended, the evidence is consistent with Mrs. Schoelier not having any advance knowledge of the credit charges. Neither is there any evidence that she utilized these charged items as Christmas presents. We simply cannot find that these specific charges benefitted the female Debtor in any way. Therefore, we cannot utilize the presumption that Mr. Schoelier’s actions in charging these items were either explicitly or implicitly authorized by the female Debtor. We conclude that Mrs. Schoelier should be discharged of this indebtedness. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491985/ | ORDER DETERMINING REASONABLE COMPENSATION FOR THE ATTORNEY FOR THE TRUSTEE
A. JAY CRISTOL, Chief Justice.
THIS CAUSE came before the undersigned Bankruptcy Judge on Wednesday, November 30, 1994, for hearing on the pending application for compensation for the Attorney for the Chapter 7 Trustee, and the objections filed by the United States Trustee and a creditor, Lucia Flowers. The Court having received and reviewed the objections and comments on behalf of the United States Trustee and Lucia Flowers, and having further considered the argument of Trustee’s counsel which is presented through this order, and the comments of another creditor, Brian Hersh, Esq., who is familiar with the legal problems confronting the estate, the Court makes the following findings of fact:
THE CASE
The Debtor filed proceedings under Chapter 7 on September 5, 1990, and Jeanette E. Tavormina was appointed the Chapter 7 Trustee. By Order dated October 3, 1990, the Court authorized the employment of Arthur S. Weitzner of Weitzner & Co., P.A. as counsel for the Trustee on a general retainer.
Lucia Flowers is the principal creditor of this estate and is the former wife of the Debtor. Many of the problems confronting the Debtor and his former spouse were actively litigated before this Court.
The notice of the Trustee’s Final Report was served on October 18, 1994. The Trustee’s accounting discloses total receipts for this estate in the amount of $161,297.83, and total disbursements made in the amount of $60,316.38. The balance of funds in the possession of the Trustee is $100,981.45. The sizeable disbursements made in this case resulted from the payment to Lucia Flowers of property that was collected by the Trustee in which said creditor had a direct proprietary interest. This property consisted of certain former marital property and was realized through the administration of this estate.
The Debtor’s schedules reflect total property in the amount of $415,159.19, however, the property claimed as exempt by the Debt- or totalled $397,612.00. The scheduled nonexempt property was of minimal value and consisted of miscellaneous personal effects, such as clothing and jewelry, including a Superbowl ring scheduled in the amount of $7,000.00. (Formerly, the Debtor was a professional football player.)
The large recovery in this estate resulted from the disallowance of numerous exemptions, the largest of which was the interest in the Flowers Trading Company Pension Plan *554and Trust which was scheduled in the amount of $109,000.00, and of which one-half of the recovery was paid to Lucia Flowers as her separate property.
The Trustee’s accounting further indicates that most of the significant receipts from the non-exempt property were realized in December 1991. Subsequent to that date, additional property in the approximate amount of $20,000.00, excluding earned interest, was realized. These receipts resulted from litigation over a tax refund due the Debtor, and an adversary proceeding commenced against a former insider. Collection of these receipts were concluded in September 1993.
The Trustee was handicapped in finalizing the administration of this estate due to the failure of a tax attorney, who had been retained for the purpose of advising the Trustee of the tax consequences of administering the non-exempt property of the estate and to prepare appropriate tax returns, to perform any valuable services. Ultimately, the tax attorney was removed and a certified public accountant was employed. The accountant promptly prepared the estate tax returns thus enabling the Trustee to pay the taxes due. Other than the award of professional compensation, this estate has been fully administered.
THE APPLICANT
Arthur S. Weitzner of Weitzner & Co., P.A. is an attorney at law who has been admitted to practice in the State of Florida since 1971. The attorney is a specialist in the area of insolvency and the attorney’s practice is specialized in the area of insolvency. The attorney is admitted to practice before the United States District Court for the Southern District of Florida as a trial attorney, the United States Court of Appeal Eleventh Circuit, and the Supreme Court of the United States. Applicant is a certified business bankruptcy specialist. He holds the highest ratings available from the Martin-dale-Hubbell rating service and is generally regarded in the community as an expert in the field of insolvency.
FEE REQUEST AND OBJECTIONS
Trustee’s counsel is seeking total compensation in the amount of $25,000, plus reimbursement of costs in the amount of $782.56. The cost request is not in dispute and will be allowed in full. Counsel has not received any interim compensation. The applicant’s request includes an enhancement to the lodestar of $4,420.00. The United States Trustee has recommended total compensation of no more than $18,080.00. The principal objections raised by the United States Trustee and the other creditor involve the following issues:
A. Whether the lodestar ought to be enhanced due to the delay in payment and contingency factors encountered at the inception of this proceeding.
B. Whether any Trustee’s duties were included in the application.
C. Whether certain assets available for liquidation were not actively pursued by the attorney.
SUMMARY OF THE ARGUMENTS
The applicant’s arguments in support of his compensation request is summarized as follows:
The applicant is a specialist in Bankruptcy. The aggregate fee request in the amount of $25,000 equals less than 25% of the amount available for distribution, however said request equals only approximately 16% of the total recovery, all of which recovery benefited the objecting creditor Lucia Flowers. In light of the extensive time necessary to properly administer this ease, the definite contingent factors involved in the early portion of the representation, and the delay in payment, Applicant’s fee request is reasonable.
Concerning professional compensation 11 U.S.C. § 330 provides as follows:
(a) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor’s attorney—
*555(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney as the case may be, 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; and
(2) reimbursement for actual, necessary expenses.
Counsel further points out that the United States Trustee’s basis for objection is misplaced. The overall intent of Congress as is specifically enumerated in the legislative history to § 330 is to promote specialists in this field. Succinctly, the legislative history provides as follows:
“... Bankruptcy specialists, ■ who enable the'system to operate smoothly, efficiently, and expeditiously, would be driven elsewhere, and the bankruptcy field would be occupied by those who could not find other work ...”
Counsel argues that the current approach of the United States Trustee is driving established specialists from the field, and is virtually assuring that lay trustees will not be able to obtain competent representation.
At the hearing, the United States Trustee questioned why certain recent applications for compensation from this attorney have requested enhancements to the lodestar. Counsel responds that Local Administrative Rule 92-7, which went into effect in January 1993, and which is mandatory in regards to all applications for compensation, provides certain formal criteria for the filing of applications for compensation. This rule requires a cover sheet, a certification, itemized time records, and discussion of the twelve factors for consideration when awarding fees as enumerated in Johnson v. Georgia Highway Express, Inc. (and made applicable to bankruptcy proceedings in In re First Colonial Corp. of America).
A portion of the required certification includes the following statement:
“The fees and disbursements sought are billed at the rates in accordance with practices customarily employed by the applicant and generally accepted by the applicant’s clients.”
The applicant has recited his normal hourly rate of $200 per hour. This rate is somewhat lower than the rates charged by similarly qualified and experienced attorneys practicing in larger lawfirms where the going rate in the Miami area is apparently between $250 and $300 per hour. Applicant points out that his rate and the rates charged for the associate and legal assistant are representative of the rates charged in smaller lawfirms practicing commercial law. This hourly rate however, presumes monthly billing and payment from credit worthy clientele. This case presents a far different situation.
The initial stages of a Trustee representation in a'Chapter 7 filing are generally somewhat of a blind item. Usually the cases are filed without any liquid assets, and as in this case, virtually all property is claimed as exempt. In this case, close examination of the property of the estate and the exemptions, analysis of the pre-petition transfers, resolution of these issues with the Debtor and his former spouse, thereafter, obtaining the property from third parties, and advising the Trustee of the appropriate method of distribution, required the expertise of a highly experienced and sophisticate attorney-at-law. The attorney-creditor who appeared at the hearing, Brian Hersh, corroborated that a lesser experienced attorney would have required far greater time in rendering these services if they could have been performed by a lesser experienced attorney at all. Applicant points out that in the Miami area matrimonial type litigation, which this case resembles, is normally handled on hourly rates with sizeable advance retainers.
The Eleventh Circuit recognizes that certain factors are necessary for the enhancement of the lodestar. See In re Grant v. George Schumann Tire & Battery Co., 908 F.2d 874 (11th Cir.1990). This circuit recognizes that lodestar rates may be enhanced based upon risk of non-recovery, excellent or exceptional results or delay in receipt of payment. The Grant case specifically provides *556that the applicant must demonstrate that enhancement is necessary to secure competent counsel. Applicant submits that in this case, the full showing has been made to support the requested enhancement. Applicant further submits that the enhancement is directed only at the first year’s work that was rendered in a highly contingent type situation in which the skill and expertise of a competent attorney was most necessary. For these services, counsel has not been compensated to date. Meanwhile, the estate has received the benefit of the services, and has generated substantial interest receipts. As indicated by Mr. Hersh’s comments, the services performed in this case required the services of highly competent counsel, and the results obtained are exceptional.
The alleged duplication of services with the associate attorney is either minimal or nonexistent. Applicant points out that many services where both counsel were involved have been eliminated from the application, and any remaining services that indicate both attorneys’ time, necessarily were rendered by both attorneys. The notable time entry showing both attorney’s time is for the Rule 2004 examination of the Debtor in which the myriad financial transactions of this Debtor were analyzed. For this entire case, the lower priced associate’s time totalled (59.2 hours) $5,920, and resulted in a considerable economy generated for this estate. If any ministerial duties were performed, they were performed by a legal assistant at a yet lower rate of hourly compensation. Certain additional arguments by the United States Trustee are not in point. His contention that a contingency fee agreement was not approved is irrelevant. This matter deals with enhancement of the lodestar. His suggestion that this particular application for compensation should not have been processed through normal procedures and should have been specially noticed by the applicant, is without foundation in law or procedural rule.
Concerning the assertion by Lucia Flowers that certain property was not actively pursued by the Trustee, reference is drawn to the Brantley Kemp litigation. Counsel advised the Trustee that he had been informed by the Debtor that Brantely Kemp was un-collectable. Nonetheless, due to repeated insistence of Lucia Flowers, an adversary proceeding was filed to avoid the transactions between the Debtor and Kemp. Concerning this adversary proceeding, services were kept to a bare minimum, a settlement for $5,000, including the issuance of a $4,500 promissory note to the estate, was approved. Only $500 of the settlement was actually received from Kemp who defaulted on the note, and upon demand served by Trustee’s counsel, filed Chapter 7 Bankruptcy proceedings. Lucia Flower’s contention that the Kemp litigation should have been more actively pursued through a greater expenditure of estate’s resources is without merit. Applicant farther points out that numerous telephone calls received from Lucia Flowers and the Debtor are not reflected in counsel’s time records because they did not create any benefit to this estate and only served to render the administration of this estate more difficult and time consuming.
The United States Trustee’s arguments are set forth as follows:
The United States Trustee filed an Objection Of United States Trustee On Fee Application By Weitzner & Co., P.A., Attorney For Chapter 7 Trustee, dated November 7, 1994 and a Supplement To Objection Of United States Trustee On Fee Application By Weitzner & Co., P.A., Attorneys For Trustee, dated November 28, 1994 (collectively, the “Objection”) pursuant to the authority and responsibility of 28 U.S.C. § 586(a)(3)(A), 11 U.S.C. § 307, 11 U.S.C. § 330, and FRBP 2016.
One of the important responsibilities conferred upon the United States Trustee by Congress is “monitoring applications for compensation and reimbursement filed under section 330 of title 11 ...”. 28 U.S.C. § 586(a)(3)(A). One of the purposes of enacting the United States Trustee Program was to supervise the administration of cases and to independently comment to the Court on fee applications and other matters before the Court.
The applicant seeks a “bonus” or “fee enhancement” of 50% on a portion of his hourly time, due to the results achieved and the delay and contingent nature of receiving pay*557ment. The applicant calculates this bonus or fee enhancement on the time expended up until settlements were received by the estate. With the bonus or fee enhancement, the applicant seeks compensation of $25,000.00. The requested bonus or fee enhancement is $4,420.00. Without the bonus/fee enhancement, the applicant seeks $20,580.00.
Section 880 of the Code does not specifically authorize fee bonuses, although the United States Trustee recognizes that in proper and rare circumstances the Court may award a bonus if the applicant has met his high evi-dentiary burden demonstrating that a bonus is appropriate. The United States Trustee notes that his experience in reviewing and monitoring fee applications indicates that they are rarely sought or awarded. The counsel for the United States Trustee is aware of only one instance in the past three and one-half years he has been actively before this Court and before the former Chief Judge that a bonus was awarded after notice and hearing. In fact, during the counsel for the United States Trustee’s three and one-half years with the United States Trustee Program, he is aware of only two “bonuses” or “enhancements” having been discussed in open Court. One such bonus or fee enhancement was sought by the applicant in the chapter 7 case of In re Aquasport, Inc., case number 88-02184-BKC-PGH. The United States Trustee filed an objection and set the objection and fee application for hearing. Judge Hyman denied the applicant a bonus. The applicant is presently appealing Judge Hyman’s decision. A bonus was sought and awarded in a chapter 11 case in which the attorney for the unsecured creditors’ committee achieved a 100% dividend for unsecured creditors and the Court determined that there were extraordinary results achieved which benefited the unsecured creditors.
The United States Trustee was not aware until recently of any other bonuses or fee enhancements having been sought by professionals in this District, however the applicant filed a response to the United States Trustee’s objection to the applicant’s bonus in the Aquasport case and cited two cases in which the Court had awarded him bonuses or fee enhancements — the cases In re Eric Fernandez, case # 87-00365-BKC-PGH and In re Cooper Oldsmobile, Inc., case #90-11594-BKC-AJC. Both fee applications were considered and an award made without a hearing (notice was given of the total amount sought in the fee applications in the notice of final accounts, but no notation was made that a fee enhancement was sought). Apparently Judge Hyman, who was informed at the hearing on the objection to the Aquasport fee application that a bonus or fee enhancement had been awarded in the Fernandez case, sua sponte vacated the award of the bonus or fee enhancement, stating that “Hidden within the Application under Section ‘F’ is a request that the Applicant’s fees be enhanced by 50% of the Applicant’s normal hourly rates. Quite candidly, the court overlooked the request for enhancement and did not intend to award an enhanced fee to the Applicant.” In the Cooper Oldsmobile case, the United States Trustee is considering whether he will file a motion with the Court to vacate the award of a bonus, enhancement, or contingency fee.
The United States Trustee opposes award of any bonus, fee enhancement or contingency award to the applicant. The United States Trustee believes the applicant has failed to meet the criteria established by the United States Supreme Court and the Eleventh Circuit Court of Appeals for awarding a “fee enhancement” or “bonus”, and that the applicant has failed to meet his burden of proof that an enhancement is warranted or authorized in this ease. See, Pennsylvania v. Delaware Valley Citizens’ Council For Clean Air, 478 U.S. 546, 106 S.Ct. 3088, 92 L.Ed.2d 439 (1986) (hereinafter, “Delaware I ”); Pennsylvania v. Delaware Valley Citizens’ Council For Clean Air, 483 U.S. 711, 107 S.Ct. 3078, 97 L.Ed.2d 585 (1987) (hereinafter, “Delaware II”); Grant v. George Schumann Tire & Battery Company, 908 F.2d 874 (11th Cir.1990) (hereinafter “Grant’). The applicant alleges that the “contingency factors” he believes are present in this ease warrant an enhancement over the lodestar amount. The applicant never obtained Court approval to handle the litigation on a contingent-fee arrangement. Almost all attorney representations before this Court have some contingencies built into them. *558The argument of the applicant is not persuasive.
The applicant also alleges that the “delay in payment” of compensation to his firm is further justification for awarding him a fee enhancement. In the chapter 7 context, there is almost universally a delay in receiving payment, but the Courts have recognized that applicants are not entitled to interest and this is a risk they bear. On February 27, 1991 the trustee received $7,200 and on August 7, 1991 the trustee received $13,600. Thus, within % months of the employment of the applicant, the estate had liquid funds on hand, and within 10 months of his employment there was sufficient funds to pay his entire fee without the bonus. Three years ago (December 9, 1991) the Trustee received the proceeds of the REFCO settlement in the amount of $109,252.19. The applicant could have applied for interim compensation pursuant to 11 U.S.C. § -331, but apparently the applicant choose not to exercise this right. As a result, any argument by the applicant that there was a delay in payment must be discounted because there were funds available in the estate within 4}/¿ months of the applicant’s employment (which is the earliest the applicant could have applied for compensation under § 331 of the Code), and there was a method for the applicant to receive compensation for services rendered through the date of such interim application. Because assets were received by the estate in a relatively short period of time, and the applicant could have applied for interim compensation immediately upon assets having been received by the estate, the arguments of the applicant that the “contingency nature” of the representation and the “delay factor” in receiving payment entitle him to a fee enhancement should be dismissed.
A review of the Trustee’s Final Report Of Estate And Proposed Dividends (the “TFR”) indicates the last funds received by the trustee (other than interest) was $1,500 over one year ago (November 8, 1993) and that it was over 9]£ months until the TFR was filed. Thus, part of the delay in the applicant’s receipt of compensation is a result of the delay in closing this estate caused by the inaction of the trustee or the applicant, or both.
There is nothing unusual in this case to warrant awarding a bonus. The United States Trustee submits that an attorney for a trustee is expected to fully represent his client and to attempt to achieve results, namely bring money into the estate for payment to general creditors. The applicant did nothing more than would be expected from competent counsel for a trustee. See, e.g., Delaware I, 478 U.S. at 566-68, 106 S.Ct. at 3099, 92 L.Ed.2d at 457. The applicant has not demonstrated that third party clients would have agreed or would pay an enhancement or bonus when the retention was made on a general retainer.
The Supreme Court has consistently held that bonuses and fee enhancements should only be awarded in exceptional eases where the results are exceptional and not adequately compensated by the applicant's hourly rate. The results in this case, although beneficial, do not rise to the high standard necessary to consider awarding a bonus, enhancement, or contingency fee. The applicant was merely performing his professional duty to the estate and trustee, which is what he was hired and expected to do. The results achieved in this case are what would be expected from a professional with the qualifications of the applicant.
The United States Court of Appeals for the Ninth Circuit, in the case of In re Manoa Finance Co., Inc., 853 F.2d 687 (9th Cir.1988), held that “compensation awards under § 330 may be enhanced only in exceptional circumstances where the applicant produces specific evidence that an award based on his standard hourly rate and actual hours worked does not fairly compensate for the work done”. 853 F.2d at 688. The Court continued:
“We also emphasize that under these general principals, enhancements based on results achieved, which is what the appellant requested, will rarely be available. A compensation award based on a reasonable hourly rate multiplied by the number of hours actually and reasonably expended is presumptively a reasonable fee.... In addition, the following four Kerr factors *559are now considered subsumed within the lodestar and cannot serve as independent bases for an upward adjustment: (1) the novelty and complexity of the issues, (2) the special skill and experience of counsel, (3) the quality of representation, and (4) the results obtained. Delaware I, 478 U.S. at 565, 106 S.Ct. at 3098; Miller v. Los Angeles County Bd. of Educ., 827 F.2d 617, 620-21 n. 4 (9th Cir.1987). Because these factors ordinarily are accounted for in either the hourly rate or the number of hours expended, they can support an upward adjustment only when it is shown by specific evidence that they are not fully reflected in the lodestar. See Delaware I, 478 U.S. at 564-69,106 S.Ct. at 3098-3100; Blum v. Stetson, 465 U.S. 886, 898-900, 104 S.Ct. 1541, 1548-49, 79 L.Ed.2d 891.”1
The Ninth Circuit notes that a Court, in evaluating any evidence presented by ah applicant for a fee enhancement, must consider the United States Supreme Court admonition that:
“[W]hen an attorney first accepts a ease and agrees to represent the client, he obligates himself to perform to the best of his ability and to produce the best possible results commensurate with his skill and his client’s interests. Calculating the fee award in a manner that accounts for these factors, either in determining the reasonable number of hours expended on the litigation or in setting the reasonable hourly rate, thus adequately compensates the attorney, and leaves very little room for enhancing the award based on his post-engagement performance.”2
The United States Trustee does not believe the applicant has met his burden of proof that a fee enhancement or bonus is permitted or appropriate in this case. See, Delaware II, 483 U.S. at 728 and 730-31, 107 S.Ct. at 3088 and 3089, 97 L.Ed.2d at 599 and 601; Delaware I, 478 U.S. at 564-65, 106 S.Ct. at 3098, 92 L.Ed.2d at 456; and Grant, 908 F.2d at 880.
The United States Trustee also directed the Court’s attention to the cases cited in Manoa: In re Terex Corp., 70 B.R. 996, 1003 (Bkrtcy.N.D.Ohio 1987) which denied a bonus and noted that attorneys in private practice do not bill their clients for a lump sum bonus based upon good results achieved; In re Schaeffer, 71 B.R. 559, 562-63 (Bkrtcy.S.D.Ohio 1987) which held that although the results of litigation were both commendable and hard-won, there was no evidence to justify a premium; In re Kero-Sun, Inc., 59 B.R. 630, 634 (Bkrtcy.D.Conn.1986) which denied an upward adjustment which was requested on the basis of several factors, including results achieved, because all were included in the lodestar.
The applicant cites the ease of Grant for the proposition that a bonus is appropriate in this case. Although the Court stated that “lodestar rates may be enhanced based on risk of non-recovery, excellent or exceptional results, or delay in receipt of payment” {Id. at 880), the Court in that case denied the applicant a bonus, finding that it was not appropriate in that ease. A review of the opinion indicates that the 11th Circuit recognizes that it is only in exceptional cases that a fee enhancement would be awarded and that the claimant has the duty to provide specific evidence that “the quality of representation was superior to that which one would reasonably expect in light of the rules claimed.” Id. The 11th Circuit appears to have been focusing on not only the risk of non-recovery, but proof by the applicant that “such enhancement is necessary to assure the availability of counsel.” Id., quoting Norman v. Housing Authority of City of Montgomery, 836 F.2d 1292, 1302 (11th Cir.1988). The applicant in this ease has not demonstrated that a fee enhancement was necessary in order for the trustee to engage counsel to handle this case or the litigation which resulted in the settlement. The 11th *560Circuit in the Grant case refused to award the fee enhancement, in part, based upon the attorney’s failure to demonstrate the requested fee enhancement was necessary in order to insure availability of counsel. Finally, with respect to a delay in payment, the 11th Circuit noted that the estate in Grant, although having no funds at the time counsel was employed by the estate, received funds within seven months and the priority scheme of 11 U.S.C. § 507 guaranteed some payment to the counsel upon receipt of estate funds (from whatever source). Id. In this ease funds were received by the estate within 4$ months of the applicant’s employment, and within 10 months there were sufficient funds to fully pay his fee.
Even if a bonus were appropriate in this ease, the United States Trustee suggests the requested 50% enhancement of a portion of the billed time would be excessive and exceeds the reasonable “cap”/general rule suggested by the United States Supreme Court. Delaware II, 483 U.S. at 730-31, 107 S.Ct. at 3089, 97 L.Ed.2d at 601.
The applicant argues that the “current approach of the United States Trustee is driving established specialists from the [bankruptcy] field, and is virtually assuring that lay trustees will not be able to obtain competent representation.” The United States Trustee suggests the applicant has failed to demonstrate by any evidence that specialists are abandoning the bankruptcy field, and in fact suggests that the bankruptcy specialists are increasing. The applicant has failed to demonstrate that it is becoming difficult or impossible for panel trustees to employ competent counsel to represent them in proceedings before this Court. The United States Trustee, who is charged by Congress with reviewing each fee application filed in a chapter 7 and 11 case, is aware of numerous counsel willing to represent chapter 7 trustees and who are willing to assume the risk that no funds will be available for payment of fees if the attorney is unsuccessful. These professionals are employed on a lodestar basis and apply only for the lodestar amount, even when they are extremely successful in recovering funds for the estate which result in significant dividends to unsecured creditors.
The United States Trustee, in filing the Objection, was fulfilling its statutory duty set forth in 28 U.S.C. § 586 in reviewing applications for compensation and objecting where it deems necessary. In this case, the United States Trustee could ascertain no “special” factors or a satisfaction of the Supreme Court or Eleventh Circuit criteria for awarding a fee enhancement. Quite the contrary, this case resembles other chapter 7 cases where counsel has assisted the chapter 7 trustee in recovering assets for the benefit of creditors and no bonus or fee enhancement was sought. Counsel for the United States Trustee indicates that the applicant is the only chapter 7 professional he is aware of which has sought a bonus or fee enhancement. The applicant has represented the chapter 7 trustee in this case for several years in other chapter 7 proceedings, on a lodestar basis only, and yet it appears that the applicant has only recently decided that fee enhancements are proper or appropriate. In the past eleven months, the applicant has requested fee enhancements in at least four chapter 7 cases and appears to believe that the routine enhancement of fees is justified.
The hourly rate charged by the applicant ($200.00 per hour) is what the applicant charges on all chapter 7 trustee representations, even in cases where the applicant served as trustee. This hourly rate is generally in line (in some instances higher) with what counsel charge chapter 7 trustees in cases of this size and complexity. The applicant established this rate and if he believes his hourly rate is lower than what the “market” will accept for someone with his experience, he should consider whether it would be appropriate to prospectively adjust such rate for future representations. At the time the applicant accepted the employment by the trustee, the applicant had the opportunity to review the debtor’s petition and should have been aware of the contingent nature of payment of any fee, if any, due to the then lack of liquidated funds in the estate. However, in this case the applicant agreed that $200 an hour was his normal hourly rate and the applicant should be bound by such rate. If *561the bonus were awarded to the applicant for the requested time up to the settlement, the applicant would effectively be receiving an hourly rate of $300.00 for such time. The United States Trustee suggests this is excessive for a chapter 7 case similar to this case. The $250 to $300 hour rates cited by the applicant are at the higher end of billing rates in the Southern District of Florida and are generally charged by larger law firms in extremely large chapter 7 cases and chapter 11 cases. A fee in such range is not standard or appropriate in this case.
The United States Trustee also believes that the fee sought by the applicant, without the fee enhancement, is excessive. More specifically, the United States Trustee notes the time entries for 10/26/90 in which the applicant’s associate bills 4.0 hours for assisting in a Rule 2004 examination ($400.00), when the lead attorney bills 3.5 hours for the same 2004 exam ($700.00), thus resulting in duplication of services; the associate bills 2.0 hours on 6/12/91 for the ministerial task of organizing bankruptcy files and debtor’s records and assisted the lead attorney in preparation of a demand letter ($200.00); the applicant’s paralegal bills 2.0 hours on 3/17/92 for the ministerial tasks of preparing 2 subpoenas and setting up a Rule 2004 examination ($120.00); the applicant’s paralegal bills 2.0 hours on 7/9/91 for a trustee duty of attending a sale and preparing 2 bills of sale and drafting the report of sale ($120.00); the applicant’s paralegal bills 1.25 hours on 6/5/92 for a trustee duty of drafting a motion to employ an auctioneer and notice of sale ($75.00); the applicant’s paralegal bills 1.20 hours on 7/21/92 in part for drafting a report of sale and a telephone call to the auctioneer (the trustee duty, $72.00); the applicant’s paralegal charges 1.35 hours on 7/14/92 for organizing records for transmittal to special counsel ($81.00) and on 3/15/94 bills the estate 1.10 hours for organizing the estate records for transmittal to the accountant ($66.00); the lead counsel charging 2.5 hours on 2/17/94 to prepare a motion to employ a CPA and review of the entire matter and court file — this is a trustee duty and utilizes standard forms promulgated by the Court ($500.00); the applicant’s paralegal charging 1 hour on 9/28/90 for the trustee duty or ministerial task of drafting a motion and order to retain the applicant and set up the file for further administration ($60.00); and on 9/11/91 expending 1 hour by the applicant’s paralegal for the trustee duty of drafting a motion to employ special counsel ($60.00).
The United States Trustee has suggested to the Court that the fee enhancement in the amount of $4,420.00 be denied, and the fee be further reduced by $2,500.00 for trustee duties or ministerial duties performed by the applicant, for a total award not to exceed $18,080.00.
Lucia Flowers arguments are set forth as follows:
Lucia Flowers’ Objection to Fee Application
by Attorney for Trustee
Creditor, LUCIA FLOWERS, adopts the Objection of United States Trustee on Fee Application by Weitzner & Co., P.A., Attorneys for Trustee and the Supplement thereto as well as the Objections by the United States Trustee set forth within this Order and incorporates same within this Creditor’s objections.
In addition to the Objections set forth by the United States Trustee, this Creditor would cite several instances and factors as mitigating against the fee requested by Trustee’s attorneys and, more specifically, any enhancement, bonus or contingency in connection with said fee. The factors include, without limitation, the following:
a. Excessive Delay. This Chapter 7 proceeding commenced in 1990. As evidenced by the Cash Receipts and Disbursement Records prepared by or on behalf of the Trustee in this action, nearly 97% of the funds available for distribution in this Estate ($95,829.52 out of $101,702.19) were deposited on or before July 27,1993. Subsequent to that date, excluding interest on the aforementioned account balance, the Trustee only secured an additional $4,500.00 which is now available for distribution. Neither the Trustee nor her attorney, the Applicant herein, have offered a suitable explanation or justification for the delay in the final administration of the case.
*562Likewise, Trustee’s counsel has failed to offer an explanation for the failure to request an earlier termination of this matter and disbursement to creditors. In fact, the Cash Receipt Record reflects the Preliminary Final Report (filed for the period ending September 30, 1993) was prepared for filing on or about February 1, 1994. No explanation has been offered or tendered by the Trustee or her counsel to justify a nine-month delay from the filing of the Preliminary Final Report to the closing of this matter.
One likely explanation for this unwarranted delay appears to involve this Applicant’s failure to monitor and pursue prompt tax return preparation by Perry Itkin, Esquire, Special Counsel for the Trustee. According to the records in the possession of this Creditor, Mr. Itkin was retained as Special Counsel on October 1, 1991. On February 10, 1994, (nearly two and one-half years later) Trustee’s Counsel filed a Motion to Terminate Mr. Itkin’s relationship as Special Counsel and sought to retain the services of an accounting firm to prepare necessary tax forms. No suitable explanation was proffered by Trustee or her counsel to explain Mr. Itkin’s non-performance or the delay in seeking the removal of Mr. Itkin. During the interim period, this Creditor and the remaining creditors were required to wait for this Applicant to take the necessary steps to finish this case. This level of conduct does not warrant any enhanced legal fee. To the contrary, if this Court is to consider an enhancement for “good results,” than by the same standard, a penalty ought to be applied for unjustified “bad results.”
b. Brantley Kemp. This aspect of the case involves an Adversary Proceeding filed by this Applicant on the Trustee’s behalf against Brantley Kemp. Stated briefly, on the day prior to Debtor’s initial filing, the Debtor fraudulently conveyed and transferred $2,500.00, in the form of a loan, to permit Mr. Kemp to purchase certain assets previously owned or controlled by the Debt- or, Richmond Flowers. Within two weeks following the transfer, Mr. Kemp sold 10% of the subject assets for $25,000.00. Simple computation supports an overall value for the subject assets of $250,000.
According to this Creditor, the Trustee and this Applicant failed to adequately pursue this fraudulent conveyance since: a) this Applicant never determined or confirmed that the Debtor did not retain any interest in the conveyed assets; b) Debtor never received any further consideration as a result of the subsequent sale of the 10% interest in the conveyed goods; c) never determined, raced or pursued a return of the remaining assets which were the subject of the fraudulent conveyance; d) agreed to settle all claims against Mr. Kemp in exchange for the execution of an unsecured $5,000.00 promissory note; e) failed to pursue Mr. Kemp upon the filing of a Chapter 7 case on his behalf in order to obtain a non-dischargeability judgmenVorder; f) allowed nearly one year to pass following the delivery of the note by Mr. Kemp prior to commencing collection activities; and, g) received a grand total of $500.00 on a claim whose potential value exceeded $250,000.00, in the opinion of Lucia Flowers. Additionally, this Applicant seeks $1,289.00 as compensation for this particular aspect of this ease.
c. Excessive Hours in Light of Case Administration. Lucia Flowers has suggested since the inception of this case that this matter represented a “bad faith” filing by the Debtor to avoid or delay his payment of debt to her as his former wife. Lucia Flowers personally incurred in excess of $40,000 in attorneys’ fees regarding the Debtor and this action. Lucia Flowers and her attorneys cooperated with this Applicant and provided information which facilitated this Applicant’s efforts.
The applicant, through its several categories of billing personnel, has billed excessive amounts based upon the results obtained and reasonable time requirements (regardless of results):
2004 exam of Debtor 7.5 hours
Objection to exemptions 3.7 hours
Organize file 2.0 hours
Prepare fee application 9.0 hours.
Due to time constraints and for the sake of brevity, this Creditor is limiting the nature and volume of her objections to this fee application. This Applicant never disclosed his intention to seek a contingency fee or fee *563enhancement in his original Motion for Appointment. Such disclosure, at that time, may have led to an objection by this Creditor and others prior to the rendition of services by this Applicant. This Applicant has not proffered a Fee Agreement with the Trustee containing a fee enhancement provision or other bonus incentive. No extraordinary results were present in this matter to warrant a fee enhancement in this action.
In consideration of the foregoing arguments and factors for determination of compensation, it is
ORDERED that:
Arthur S. Weitzner, Weitzner & Co., P.A., Attorney for the Trustee, is allowed a fee of $24,480.00 and $ 782.56 for expenses.
In allowing the foregoing fees, the Court has considered each of the factors that govern the reasonableness of fees as set forth in Matter of First Colonial Corp. of America, 544 F.2d 1291 (5 Cir.1977).
. The reference to Kerr is to the case of Kerr v. Screen Extras Guild, 526 F.2d 67 (9th Cir.1975), cert. denied, 425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195 (1976). The factors set forth in Kerr appear to be identical or similar to the factors set forth in In re First Colonial Corp. of America, 544 F.2d 1291 (5th Cir.1977). The reference to the Supreme Court case of Delaware I is to the case of Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546, 564-66, 106 S.Ct. 3088, 3098, 92 L.Ed.2d 439 (1986).
. In re Manoa Finance Co., Inc., 853 F.2d at 692, citing Delaware I, 478 U.S. at 564-66, 106 S.Ct. at 3098. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491986/ | DECISION AND ORDER DENYING MOTION AND CROSS-MOTION FOR SUMMARY JUDGMENT
ROBERT JOHN HALL, Bankruptcy Judge.
PRELIMINARY STATEMENT
Before the Court1 is a motion (“Motion”) by Martin Lemer, the debtor-defendant (“Lemer”) for summary judgment and dismissal of the complaint on the grounds that there are no triable issues of fact to be determined. Plaintiff Midlantic National Bank (“Midlantic”) opposed the Motion by filing a cross-motion for summary judgment (“Cross-Motion”). Both motions were made pursuant to Rule 56 of the Federal Rules of Civil Procedure, made applicable herein by Rule 7056 of the Federal Rules of Bankruptcy Procedure.
For the reasons set forth below, Lemer’s Motion for summary judgment is DENIED and Midiantic’s Cross-Motion for summary judgment is DENIED.
RELEVANT FACTS
On or about July 23, 1986, the defendant Martin Lemer and his wife, Diane Lemer (“Lerners”) applied for and received a home equity line of credit from Midlantic in the maximum principal sum of $200,000.00 (“Mid-lantie Equity Mortgage”). A security interest by way of a mortgage that would encumber their residence at 2 Timber Road, Mont-ville, New Jersey was given (“Residence”). The mortgage was recorded on or about August 18, 1986 in the Morris County Clerk’s office.
Interested in refinancing their existing mortgage debt, the Lerners applied to First Morris Bank (“First Morris”) for a mortgage loan in the principal sum of $200,000.00 (“First Morris Mortgage”). Additionally, the Lerners applied for a home equity line of credit in the maximum principal amount of $200,000.00 (“First Morris Equity”). The application process commenced on or about July, 1987 and culminated with a closing of both loans on August 21, 1987.
Both loans were to be secured with the Lerners execution of mortgages against their Residence. The First Morris Mortgage was to be secured by a first mortgage and the First Morris Equity was to be secured by a second mortgage. The Midlantic Equity Mortgage, already an existing lien on the Residence was to be paid off and satisfied of record at the First Morris closing. First Morris was to obtain and maintain its first and second priority positions as agreed to. First Morris did not agree to be subordinated to any other liens.
For purposes of the impending First Morris closing, Morris Handler (“Handler”), the Lerners’ attorney, requested and received a *616pay-off letter from Midlantic. Approximately $201,144.35 was necessary to satisfy the Midlantic Equity Mortgage. If the monies were received in person the day of closing, rather than by overnight courier or over the weekend, the per diem rate of interest could be saved and the pay-off figure would be lower.
The scenario that was to follow leaves this Court with serious questions about the credibility of the parties involved, and the conduct and quiescence of the borrowers, the attorneys, and lending institutions.
On August 21,1987, the closing took place. The allegation is that Morris Handler represented the Lerners for the dosing (emphasis added to denote singular) of the First Morris Mortgage and the Lerners represented themselves for the First Morris Equity closing. Pursuant to the pay-off letter, Mr. Handler prepared a transmittal letter dated August 21, 1987 to be delivered to Midlantic National Bank and had two (2) checks drawn in a sum sufficient to pay the mortgage in full. The letter is attached to Plaintiffs Opposition to Defendant’s Motion for Summary Judgment as Exhibit “C” which also contains an Affidavit of Morris Handler, sworn to January 18, 1995.
The August 21, 1987 letter provides:
August 21, 1987
Midlantic National Bank North
Capital Line Center
P.O. Box mo
Paterson, New Jersey 07509
Attention: Equity Line Mortgage
Re: Mortgagor: Martin Lemer and Diane Lemer
Mortgage No.: 11100-01375-9
Premises: 2 Timber Road, Montville, New Jersey
To Whom It May Concern:
Pursuant to my telephone conversation with your office, please find a check in the sum of $201,111.85 which represents payment in full of the above mortgage.
Kindly send me the mortgage duly endorsed for cancellation, the current tax bill, and any other relevant documents as soon as possible.
If you should have any questions, please contact the undersigned.
Very truly yours, -
MORRIS HANDLER
MH:SH
Enclosure
Mr. Handler’s Affidavit states:
It was agreed at closing that my client, Martin Lemer, would hand deliver the payoff checks to Midlantic in order to save three days interest. I placed the transmittal letter and checks in an envelope at the conclusion of the closings and handed the same to Mr. Lemer for delivery that day to Midlantic.
Affidavit of Morris Handler, Esq., sworn to on January 18 1995 at ¶ 12.
The Application of Debtor-Defendant Martin Lerner, by his attorney Gary Ettelman, dated December 16, 1994 in support of his Motion narrates the following:
(g) Shortly after the closing of the First Morris Loans, Midlantic received a payment or payments in the sum of Two Hundred One Thousand Thirty Three Dollars and Twenty One Cents ($200,133.21) which was applied to the Lemer’s account, and as a result thereof, the balance on the Midlantic Home Equity Line was reduced to zero, however, the account was not closed, nor was a satisfaction of mortgage given. Accordingly, the Midlantic Home Equity Line remained open, and the mortgage securing it remained of record.
(h) Subsequent to the pay-down of the Midlantic Home Equity Line, and subsequent to the closing of the First Morris Loans, the Lerners continued to borrow against the Midlantic Home Equity Line, and as a result thereof in or about November, 1991 there was an outstanding principal balance on the Midlantic Home Equity Line in the sum of approximately Two Hundred Thousand Dollars ($200,000.00).
Application of Gary Ettelman, Esq., dated December 16, 1994 at Mg, h.
On or about November, 1991, the Lerners defaulted in their payments to First Morris and foreclosure proceedings were commenced on or about March 27, 1992 in the *617Superior Court of New Jersey. It was at this time that the parties learned that the Midlantic Mortgage was still a lien of record. Midlantic filed a cross-claim and counterclaim to foreclose its mortgage. At the time Midiantic’s debt had risen from “$0” to $188,-298.90.
A Stipulation of Settlement between First Morris Bank and Midlantic National Bank was entered December 29, 1993 2 in the Superior Court of New Jersey.
DISCUSSION
11 U.S.C. section 523(a) provides:
(a) A discharge ... does not discharge an individual debtor from any debt— ...
(2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;....
11 U.S.C. § 523(a)(2)(A) (1995).
Under Fed.R.Civ.P. 56(c) summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The fact that both parties have moved for summary judgment does not in and of itself say that there are no genuine issues of material fact. In this instance, both parties have failed to meet their burden as to their entitlement to judgment as a matter of law. Reasonable minds could differ in this case with respect to the evidence that has been presented by way of affidavits and supporting exhibits that will not allow this Court to rule on the pleadings. Anderson, 477 U.S. at 250-51, 106 S.Ct. at 2511-12.
This Court must question Mr. Lemer’s intent, motives, and representations when he:
(1) applied for the refinancing with First Morris;
(2) agreed to allow those mortgages to take a first and second priority;
(3) retained Morris Handler to represent him with respect to one loan when there was a simultaneous transaction involving the exact same people;
(4) volunteered (emphasis added) to personally deliver the envelope from the August 21,1987 closing so that he could save approximately $110-$150 in per diem interest; and
(5) continued to draw on the line of credit previously given by Midlantic that was to be satisfied and closed after the August 21,1987 closing.
With respect to Mr. Handler’s actions:
(1) why allow a client to personally deliver a transmittal letter with pay-off checks in full satisfaction for an outstanding indebtedness to a banking institution;
(2) why not follow up with either Mr. Lerner to ensure he delivered the entire envelope or follow up with the bank to determine how much time would be needed for the bank to negotiate those checks and then forward a satisfaction?
The Court further asks: what happened to the contents of the envelope? A bank officer from Midlantic acknowledges that the checks were received but cannot find the August 21, 1987 letter. Perhaps it was removed. The bank’s records do reflect a credit of $201,-033.21 on August 24, 1987.
10. I have reviewed the file for this account, and that file does not contain a copy of the letter dated August 21, 1987, allegedly given by Morris Handler to Martin Lemer for delivery to Midlantic.
11. In addition, I cannot find any notation in that file that this letter was ever received by Midlantic.
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*618
16. The payment history indicates that Midlantic processed a payment of $201,-0SS.21 on August 2k, 1987.
Affidavit of Zorian Lasowsky, an officer and Vice President of Midlantic National Bank, sworn to on January 11, 1995, ¶¶ 10, 11, 16.
This raises questions as to Midiantic’s banking policies and administrative procedures. Mr. Handler’s affidavit states that Midlantic provided him with a pay-off letter on August 18, 1987 (Handler Affidavit, ¶ 6). However, this letter has not been produced and Mr. Lasowsky’s affidavit does not even reference it even though he states that bank files contain various writings inclusive of workpapers, memoranda, and correspondence sent and received by Midlantic (Za-kowsky Affidavit, ¶ 6).
This Court’s attention is drawn to “correspondence sent.” Query? A pay-off letter is requested and received by the mortgagor’s attorney from a bank. A bank receives a lump sum payment equivalent to the balance of an account and credits it to the account which now reflects a “$0” balance. Time goes by and this account is accessed again for thousands of dollars.
At oral argument, Mr. Ettelman suggested to this Court that Mr. Lerner did not possess sufficient knowledge concerning Midiantic’s policies to have been able to form the requisite intent to deceive knowing that Midlantic would rely on his representations (February 9, 1995 Transcript, p. 7). This Court has serious questions that cannot be answered from the pleadings provided.3 Did Mr. Lerner possess just enough knowledge and manifest just enough wide-eyed innocence that would allow him to maneuver through the refinancing transaction, further allowing him unfettered access to thousands of dollars? Mr. Lerner did knowingly continue to draw on the account.
For all of the questions that have arisen from the pleadings, and the answers that cannot be provided, summary judgment is DENIED. In light of the errors in judgment that this Court perceives the parties to have exercised, it is suggested that settlement negotiations be explored;
All parties and their counsel are directed to appear at a final pre-trial conference on May 16, 1995, at 9:30 a.m., at which time a trial date will be given if necessary.
SO ORDERED.
. The Court has jurisdiction over this case pursuant to sections 1334, 157(a) and 157(b)(1) of title 28, United States Code (“title 28”) and the order of referral of matters to the bankruptcy judges by the United States District Court for the Eastern District of New York (Weinstein, C.J., 1986). This is a core proceeding pursuant to section 157(b)(2)(A), (K) of title 28.
. By filing a complaint on December 10, 1993, Midlantic commenced the instant adversary proceeding. By filing a complaint on July 26, 1993, First Morris commenced an adversary proceeding and was assigned case number 893-8340-20. First Morris withdrew the adversary proceeding on October 14, 1994.
. The Court is unable to find an affidavit from Martin Lerner. The application in support of the motion for summary judgment was graciously provided by Gary Ettelman, debtor's attorney. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491987/ | HELEN S. BALICK, Chief Judge.
Trans World Airlines, Inc. (TWA) moved for summary judgment on its objection to two claims, numbers 8124 and 15042, filed by Aprille Schelhammer. Ms. Schelhammer responded to the objection but did not file any response to the motion for summary judgment nor did she appear at the time scheduled for argument. This is a core proceeding. 28 U.S.C. § 157(b)(2)(A) and (B).
The basis for claim no. 8124 filed May 12, 1992 in the amount of $491,984.00 is TWA’s failure to produce documents and testify in a lawsuit Ms. Schelhammer filed in the Circuit Court of Jackson County Missouri on October 19, 1989 against Pearl Gregg. That lawsuit arose out of an automobile accident on December 4,1988. TWA was not involved in the accident. TWA filed and the trial court granted its motion to quash three improperly issued subpoenas on TWA personnel. On May 14, 1992 following a trial before a jury, judgment was entered against Ms. Schelham-mer.
On appeal Ms. Schelhammer argued that the trial court erred in quashing the three issued subpoenas on TWA. The Missouri Court of Appeals rejected this argument and affirmed, 871 S.W.2d 17. Her subsequent application to transfer her appellate case to the Missouri Supreme Court was denied on March 22, 1994. These facts are supported by certified copies of the appropriate court dockets attached to TWA’s combined motion and brief for summary judgment.
Claim no. 15042 filed December 2, 1993 in the amount of $30,632.12 seeks administrative status for her time and expenses in pursuing claim no. 8124.
There is no genuine issue of material fact. Ms. Schelhammer cannot relitigate in this court the issue of whether the subpoenas attempted to be served on TWA should have been quashed by the trial court. Two courts of competent jurisdiction have decided the matter and the issue is res judicata.
*626TWA’s objection to claims no. 8124 and 15042 filed by Aprille Schelhammer must be sustained and the claims disallowed.
Therefore, TWA’s motion for summary judgment is GRANTED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491988/ | OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
Pending for resolution are various objections filed to the Debtors’ Third Amended Plan. For the reasons provided herein, the objections are sustained. The court, however, will continue the automatic stay or injunction, as the case may be, for an additional forty-five (45) days from the date of this Opinion and Order.1 Within this forty-five (45) day period, the Debtors must file a Fourth Amended Plan in conformity with this opinion. On the Debtors’ failure to do so, then upon certification of a party, the automatic stay or injunction will be terminated.
Objections were filed by the Chapter Twelve Trustee, Charles A. Szybist, Esquire, (hereinafter “Trustee”), in addition to the following creditors: C.H. Waltz Sons, Inc., John Deere & Company, Jersey Shore State Bank, Commonwealth Bank, and Richard B. and Margaret J. Kemp. A common thread runs through each objection namely that the Debtors have failed to submit evidence, either testimonial or written, to show this court and the Debtors’ creditors that these Debtors can, in fact, put forth a feasible Plan of Reorganization. All of the creditors voiced a concern that the Plan did not provide them, in accordance with GMAC v. Jones, 999 F.2d 63 (3rd Cir.1993), the present value of their secured interest. In short, they argue that the Plan reduced the contracted interest rate for all of the creditors, except C.H. Waltz Sons, Inc., and that reduction does not meet the “cram down” provisions found in Chapter Twelve of the Bankruptcy Code and, in particular, at Section 1225(a)(5)(B)(ii).
In an Opinion and Order filed contemporaneously with this Opinion and Order, (In re McKean, 178 B.R. 637 (Bkrtcy.M.D.Pa.1991) ), this court found that the reasoning of the Third Circuit case of GMAC v. Jones, supra, which held that the rate of interest under Section 1325(a)(5)(B)(ii) is “that which the secured creditor would charge, at the effective date of the plan, for a loan similar in character, amount and duration to the credit which the creditor will be required to extend under the plan” that was equally applicable to Chapter Eleven cases. Because the cram down provisions of Chapter Twelve are very similar to the cram down provisions embodied in Chapter Eleven (Section 1129(b)(1), (b)(2)(A)(i)(II)) and in Chapter Thirteen (Section 1325(a)(5)(B)(ii)), this court, for the same reasoning as enunciated in McKean, supra, adopts the Third Circuit’s coerced loan approach to determining the applicable interest rate in a cram down situation in Chapter Twelve cases. See also Jack *636Friedman, What Courts Do To Secured Creditors In Chapter 11 Cram Down, 14 Cardozo L.Rev. 1495, 1515 (1993).
Turning to the facts elicited at the hearing on this matter, the court notes that there is a marked difference between the evidence presented to this court during the trial in the McKean ease, supra, and the instant case held on November 4, 1993. In McKean there was absolutely no testimony presented as to a creditor’s current rate for a loan of a similar character, amount and duration. In the instant case, however, we have considerable testimony from a Mr. Ronald A. Walko, senior vice president and senior loan officer for Jersey Shore State Bank. Mr. Walko testified in great detail concerning the applicable interest rates of a kind similar to all of those represented by the above-captioned Debtors. These loans range from commercial mortgages to residential mortgages and equipment loans. In each case, Mr. Walko testified that the current market rate of the creditors of a similar nature represented in this proceeding were in each case substantially higher than those proposed by the Debtors. In one instance, Debtors’ proposal varied a full 4.5 percent from the actual contract rate and the current interest rate.
The Third Circuit in GMAC v. Jones indicates that it would be appropriate for a bankruptcy court to “accept a plan utilizing the ‘contract rate’ if the creditor fails to come forward with persuasive evidence that its current rate is in excess of the contract rate. Conversely, utilizing the same rebuttable presumption approach, if a debtor proposes a plan with a rate less than the contract rate, it would be appropriate, in the absence of a stipulation, for a bankruptcy court to require the debtor to come forward with some evidence that the creditor’s current rate is less than the contract rate.” GMAC v. Jones, supra at pages 70, 71.
As indicated, the creditors, mainly through the testimony of Mr. Walko, did present this court with very persuasive evidence that the current rates, if not in excess of the contract rates actually presented, were very close to the contract rates. This is true for most of the mortgages and the equipment loans. The court notes that the plan proposes a reduction of interest rate in the Kemp mortgage from ten percent (10%) as provided by the contract to seven and one-half percent (7J/¿%). Additionally, the percentage rate offered by the plan matches that in the contract with C.H. Waltz Sons, Inc. Of equal importance, however, was the testimony that in each case, a creditor’s current rate for a loan of a similar character, amount and duration was in excess of that proposed by the plan.
In contrast to the testimony submitted by the creditors, the Debtor’s own testimony concerning his income and ability to fund a plan meeting all of the Code requirements of Chapter Twelve was, at best, confused and sketchy. Absolutely no evidence was presented by the Debtor that the plan and interest rates proposed by that plan would meet the cram down provisions of Chapter Twelve.
We therefore conclude that in order for this Plan to be approved, it must offer at least the contract rate provided in the Debtors’ original obligations to the creditors.
The court does not render its decision based upon the Debtor’s ability to generate income sufficient to render the instant Chapter Twelve plan feasible. The court, at this point, only determines that the plan as proposed does not meet the “cram down” provisions of Chapter Twelve particularly Section 1225(a)(5)(B)(ii).
While the court sustains the objections to the plan, it will also continue the automatic stay or the injunction whichever is applicable to the specific creditor. Such continuation is conditioned on the Debtors continuing to make the payments to the Trustee as proposed by the Third Amended Plan. It is further conditioned on the Debtors, within forty-five (45) days of the date of this Opinion and Order, filing a Fourth Amended Plan in conformity with this Opinion. Otherwise, on Certification, the stay or injunction will be automatically terminated without further notice or hearing with this court.
. Although the creditors are stayed by 11 U.S.C. § 362, the stay has been terminated with regard to some equipment, but an injunction was issued at the request of the Debtors pending this determination. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491989/ | OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
Before the court is an objection by Richard Simpson, (hereinafter “Objector”), to the Debtor’s proposed Chapter 11 Plan and also, a Motion filed by Richard Simpson and Phyllis Simpson, (hereinafter “Movants”) request*638ing the lifting of the automatic stay so that the Movants can proceed to enforce their state law remedies against certain real estate owned by the above-captioned Debtor. For the reasons provided herein, the court will sustain the objection to the Chapter 11 Plan and will further deny the request to lift the automatic stay but this denial is conditioned upon the Debtor fulfilling certain requirements set forth in detail later in this opinion.
The facts are as follows. On or about July 1, 1993, Ronald J. McKean trading as Futuristic Sounds, (hereinafter “Debtor), filed a voluntary Chapter Eleven petition in this court. Following approval of the Debtor’s disclosure statement by an Order November 5, 1993, the Debtor filed a Plan of Reorganization. That Plan is the subject of the instant objection filed by the Objector.
Prior to the bankruptcy, Movants and Debtor entered into a mortgage agreement on or about July 5, 1990 recorded in Pike County, Pennsylvania at Record book 280 at page 86. That mortgage secures a note also dated July 5, 1990 in the principal sum of One Hundred Eleven Thousand Dollars ($111,000.00). The note provides for interest at a yearly rate of eleven percent (11%) with a monthly payment in the amount of One Thousand One Hundred Forty-Five and 74/100 Dollars ($1,145.74). Payments were to commence on the fifth day of each month beginning on August 5, 1990 and were to continue until all principal and interest and other charges under the note were paid in full. The note, however, called for a balloon payment to be made by the Debtor on any amounts due under the note on July 5, 1993.
The Plan restructures the terms of the note and the mortgage by extending the payment period to twenty (20) years with a yearly interest rate of eight percent (8%).
At the time of the consolidated hearing on the Objection and the Motion, the parties agreed that the approximate amount of the debt was One Hundred Six Thousand Seven Hundred Dollars ($106,700.00). The only un-eontested valuation of the real estate presented to the court was the opinion propounded by the Objector that the property had a value of One Hundred Six Thousand Seven Hundred Dollars ($106,700.00). No objections were raised as to the feasibility of the Plan as a whole. The main argument made by the Objector is that the recasting of the mortgage does not put him in the same position as if this was a chapter seven case or he was permitted to immediately foreclose on the property. The Objector indicates that he has obligations to his creditors based upon the Debtor’s original mortgage and by restructuring the mortgage as provided for in the Plan, the Objector cannot meet his obligations. Consequently, the Objector argues that the Plan is not fair or equitable.
The arguments made by the Movants in the Motion to lift the stay are summarized by the Movant’s allegation that because of a failure to make post-petition mortgage payments combined with the Debtor’s failure to provide adequate protection, cause exists pursuant to Section 362(d)(1) of the Code to lift the stay so that the Movants can proceed to enforce their contractual and state law rights and remedies against the real estate.
The Debtor’s response is that the Plan meets all of the Code requirements for confirmation of a Plan contemplated by 11 U.S.C. § 1129 and, in particular, the “cram down” provisions found in Section 1129(b)(2)(A)(i)(II). He further argues that because the Plan meets the “cram down” provisions of the Code, it necessarily provides the creditor with adequate protection and, therefore, the Motion to lift the stay should be denied.
The court consolidated the Objection and the Motion into a single hearing because it determined that the conclusive issue for resolution is whether or not the restructuring of the mortgage meets the “cram down” requirements of the Bankruptcy Code as well as providing adequate protection under Section 362.
The “cram down” provisions for Chapter Eleven are embodied in a number of sections but, primarily, in Section 1129(b)(2)(A)(i)(II) which reads as follows:
11 U.S.C. § 1129(b)(2)(A)(i)(II)
(2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:
*639(A) With respect to a class of secured claims, the plan provides—
(i)(II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder’s interest in the estate’s interest in such property;
There are several other Bankruptcy Code Sections dealing with “cram downs” by deferred payments and those sections are as follows: § 1129(a)(9)(C), § 1225(a)(5)(B)(ii), § 1325(a)(5)(B)(ii). See Jack Friedman, What Courts Do To Secured Creditors In Chapter 11 Cram Down, 14 Cardozo L.Rev. 1495, 1515 (1993). The Cardozo Law Review, supra, indicated that at the time of the article every one of the nine court of appeals decisions to consider the “cram down” interest rate found it to be the market rate of commercial loans. Id. at page 1515, footnote 75.
A few months later in July of 1993, the Third Circuit decided the case of General Motors Acceptance Corp. v. Jones, 999 F.2d 63 (3rd Cir.1993), which case held that the rate of interest under Section 1325(a)(5)(B)(ii) is “that which the secured creditor would charge, at the effective date of the plan, for a loan similar in character, amount and duration to the credit which the creditor will be required to extend under the plan”. While this case was a Chapter 13 case, we find that it is applicable to the instant Chapter 11 case.
The Eastern District of Pennsylvania in the case of In re River Village Associates, 161 B.R. 127 (Bankr.E.D.Pa.1993) addressed, inter alia, the issue as to the proper interest rate to be used in calculating present value analysis in Chapter 11 plans. The Eastern District, through the Honorable David Scholl, U.S. Bankruptcy Judge, found that in a Chapter 11 plan and, particularly, the cram down context, the proper interest rate was a risk-free rate (based on the treasury obligations or the prime rate) plus an additional premium for risk.
The In re River Village Associates case supra provides an excellent compilation of the court decisions concerning the calculation of the present value analysis in Chapter 11, 12 and 13 of the Bankruptcy Code. See In re River Village Associates, supra at page 135 and 136. That court recognizes the ease of GMAC v. Jones, supra and its reasoning determining that the coerced loan approach should be applied in Chapter Thirteen cases. That court, however, determined that the rationale of the GMAC v. Jones case, as well as Memphis Bank and Trust Co. v. Whitman, 692 F.2d 427 (6th Cir.1982) and In re Hardzog, 901 F.2d 858 (10th Cir.1990), both cited with approval by the Third Circuit in GMAC v. Jones, did not apply in the In re River Village Associates case. The court explained why it felt GMAC v. Jones did not apply as follows:
As explained above, Jones relied on the fact that the interest rate on similar loans was easily ascertainable and, therefore, its ascertainment would reduce the transactional and litigational costs in Chapter 13 cases. This is often true in cases, like Jones, involving consumer loans, because there is an existing market where such loans are continuously being made and the interest rates on such loans are often published or advertised.
However, the opposite is true in the situation at issue in the instant proceeding. This case involves a commercial loan on an apartment complex in an economically depressed area. The secured creditor readily admits, and several other courts have recognized, that there are no loans similar to these loans being made at this time. [Citations omitted.] Thus, the interest rate on loans similar to that at issue to the Debtor’s treatment of GECC in its Plan is extremely difficult, and arguably impossible, to ascertain. At a minimum, it could not be determined without the court’s adducing substantial testimony regarding what interest rate the creditor would charge on such a loan if it were to make such a loan. Thus, the Jones court’s goal of reducing transactional and litigation costs is not achieved by applying the coerced loan approach to the commercial real estate loan situation at issue in this ease. In re River Village Associates, supra at page 138.
The court further writes at page 138 that application of the coerced loan theory in *640eases where there is no market for similar loans effectively eliminates the court’s cram down powers. In support it cites In re Eastland Partners Ltd. Partnership, 149 B.R. 105 (Bankr.E.D.Mch.1992).
We are unpersuaded by the In re River Village Associates analysis as to the inapplicability of the coerced loan scenario established by the Third Circuit in GMAC v. Jones. On the other hand, this court is persuaded to accept the reasoning of the GMAC v. Jones case and we hereby apply the coerced loan approach to cases under Chapter 11 of the United States Bankruptcy Code. Also of applicability to the instant case is the Third Circuit’s “rule of practice” concerning those situations where there is an absence of proof concerning a creditor’s current rate for a loan of a similar character, amount and duration. The Third Circuit indicated that it would be appropriate for a bankruptcy court to “accept a plan utilizing the contract rate if the creditor fails to come forward with persuasive evidence that its current rate is in excess of the contract rate. Conversely, utilizing the same rebuttable presumption approach, if a debtor proposes a plan with a rate less than the contract rate, it would be appropriate, in the absence of a stipulation, for a bankruptcy court to require the debtor to come forward with some evidence that the creditor’s current rate is less than the contract rate.” GMAC v. Jones, supra at pages 70, 71. Because of a lack of evidence, testimonial or written, presented to this court at the time of the hearing, the court is left in a position where it has no indication as to what rate this particular creditor should anticipate for a loan of similar character, amount and duration. The court, in rendering its decision, will heed the guidance of the Third Circuit and look to the contract rate. The contract between the Debtor and the Movants provided for an interest rate of eleven percent (11%). The offer of interest as embodied in the Plan of Reorganization is at a rate of eight percent (8%). Based upon the reasoning of GMAC v. Jones, the court hereby determines that the plan must fail because it does not satisfy the cram down requirements embodied in the Bankruptcy Code at Section 1129(b)(2)(A)(i)(II). The court sustains the objection to the Plan.
The Motion to Lift the Automatic Stay will be disposed of by continuing the stay on the condition that a monthly payment shall be paid to the Movant of One Thousand One Hundred One and 36/100 Dollars ($1,101.36), which this court calculates would be the monthly payment if the value of the real estate of One Hundred Six Thousand Seven Hundred Dollars ($106,700.00) was amortized at eleven percent (11%) over twenty (20) years. This amount shall be paid to the Movant within thirty (30) days and every thirty (30) days thereafter.
Also, the Debtor shall keep the premises insured and shall pay all postpetition property taxes within thirty (30) days and continue to pay same as that tax accrues and before penalty. These shall be further conditions of the continuance of the stay.
Upon failure of the Debtor to comply with these conditions, the stay shall terminate upon the filing of a Certification from Mov-ant of such failure.
These conditions shall continue until such time as confirmation is ordered by the court or the case is converted or dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491991/ | OPINION
MEYERS, Bankruptcy Judge:
I
The issue here is whether, in calculating the percentage rent it must pay under a lease agreement, The Circle K Corporation (“Circle K”) should include two percent of the commissions received from the sale of lottery tickets or two percent of the gross receipts from the lottery tickets.
We hold that the lease agreement provides for the latter calculation. Therefore, we REVERSE.
II
FACTS
On August 4, 1975, Circle K, as lessee, entered into a twenty-year lease agreement with Frank Collins (“Collins”), as lessor, of a store in Phoenix, Arizona. The lease pro*804vides that rent would be a minimum of $750 per month for the first five years, with the monthly rent to increase $50 every five years. Paragraph A of the lease provides:
In addition to the minimum rent, Lessee shall pay annually as hereinafter provided as additional rent, the amount, if by which two percent (2%) of Lessee’s “gross sales” (as hereinafter defined) exceeds the guaranteed minimum annual rent plus the sum of the real estate taxes and insurance premiums on the leased premises for such year. Said additional rent is hereinafter referred to as “percentage rent”.
Paragraph C states:
The term “gross sales” as used in this Lease shall include gross receipts of every kind and nature originating from sales and services on the demised premises, whether on credit or for cash, in every department operating on the demised premises, whether operated by the Lessee, or by a Subles-see, or concessionaire excepting therefrom any rebates and/or refunds to customers, refundable deposits on beverage bottles, telephone tolls, gasoline sales, money order transactions, the transfer or exchange of merchandise between the stores of Lessee if any, where such transfers or exchanges are made solely for the convenient operation of the business of Lessee and not for the purpose of consummating a sale which has theretofore been made on the demised premises or for the purpose of depriving Lessor of the benefit of a sale, and the amount of any sales, privilege license, excise or other taxes on transactions collected and/or paid either directly or indirectly by Lessee to any government or governmental agency.
In July 1981, lottery ticket sales by the State of Arizona became legal and the State began selling lottery tickets, mostly through retail stores.
On August 7, 1981, Circle K sent a letter to Collins. The letter stated that Circle K wished to sell Arizona State lottery tickets in Collins’ store, provided that Collins would agree to exempt any commissions and computations of sales of lottery tickets from the calculation of his percentage rent due under the lease agreement. The letter left a space indicating where Collins was to sign and date his waiver to the additional percentage rents. The letter further stated that Circle K’s decision to sell lottery tickets in Collins’ store would depend on his response thereto. Collins did not sign or return the letter. Circle K started selling lottery tickets from the store within a few weeks of the date the letter was sent.
Collins allegedly called Tom Cosgrove (“Cosgrove”), Property Management Department Supervisor for Circle K. Collins had dealt with Cosgrove in the past concerning his lease, property taxes, annual accounting statements and other issues. Cosgrove purportedly told Collins that if Arizona lottery tickets were being sold in Collins’ store and Collins had not waived his right to the percentage rents under the lease, Collins “would be taken care of.”
The annual accounting statements of percentage rents due Collins, which were provided to him by Circle K, showed only the calculation of two percent of “gross sales” and did not reflect a separate categorization for the sale of lottery tickets.
Circle K filed a Chapter 11 bankruptcy petition in 1990.
In 1992, Collins allegedly learned for the first time that he was not receiving two percent of the price of the lottery tickets, and tried to resolve the matter with Circle K. After settlement negotiations failed, on March 19, 1993, Circle K filed a motion to assume the lease with Collins. Collins objected to the motion and the bankruptcy court conducted an evidentiary hearing concerning the amount Circle K owed under the lease agreement.
The court issued an order on February 17, 1994, determining that Collins was entitled to only two percent of the commissions received by Circle K from the State of Arizona. Collins appealed from this order.
Ill
STANDARD OF REVIEW
Although interpretation of a contract involves mixed questions of fact and law, the application of contractual principles *805is a matter of law subject to de novo review. In re Dominguez, 995 F.2d 883, 885 (9th Cir.1993); In re Growers-Ranchers, Ltd., 110 B.R. 915, 916 (9th Cir. BAP 1990), aff'd 945 F.2d 1145 (9th Cir.1991). The interpretation of state law also is subject to de novo review. In re Dominguez, supra, 995 F.2d at 885.
IV
DISCUSSION
Collins points out that the lease provides that he is entitled to two percent of the gross sales, broadly defined to “include gross receipts of every kind and nature originating from sales and services on the demised premises,” excepting specific transactions such as gasoline sales and money order transactions. The lease does not exclude from the calculation of gross sales the receipts originating from sales of lottery tickets, so it seems clear that lottery tickets are included in the broadly defined calculation of gross sales.
Circle K contends that the absence of any reference to lottery sales in the lease, combined with the itemization of many types of transactions excluded from percentage rent and the fact that the lease was executed six years before legalization of lottery tickets sales in Arizona, all support a conclusion that Circle K and Collins did not have a common understanding as to the treatment of lottery ticket sales for purposes of percentage rent.
The circumstances show otherwise. First, it is true that the lease did not refer to lottery sales in the lease. However, it also did not refer to sales of magazines, milk, soft drinks and many other items which Circle K likely sells. The fact that certain items were specifically excluded from the calculation of gross sales, and lottery tickets were not so excluded, indicates that the parties knew how to except certain items and did not choose to exclude lottery tickets. Second, although the lottery was not legal in Arizona until years after the lease was executed, when it did become legal Circle K informed Collins in writing that it would sell lottery tickets if Collins agreed to exclude the receipts from the gross sales calculation. Collins declined to do so. Therefore, it seems that the parties did have a common understanding about the treatment of lottery ticket sales, but Circle K violated that understanding. Also, Cosgrove allegedly told Collins that he “would be taken care of’ by Circle K. Although an accountant for Circle K testified that in most of the stores leased by Circle K, only the commissions received from the sale of lottery tickets were included in the determination of gross sales, this evidence sheds little light on the specific agreement with Collins.
The court stated in its oral findings: “Obviously, the majority of the money raised by lottery sales is property of the State of Arizona. The seller of lottery tickets has no right and clearly holds the proceeds under a trust.” The court reasoned that Circle K sold its services to the State of Arizona in return for a commission, and therefore only that amount would be considered in calculating gross sales. The bankruptcy court followed the analysis in Cloverland Farms Dairy, Inc. v. Fry, 322 Md. 367, 587 A.2d 527 (1991) and Anest v. Bellino, 151 Ill.App.3d 818, 104 Ill.Dec. 861, 503 N.E.2d 576 (1987). It rejected the decision of McComb v. McComb, 9 Mich.App. 70, 155 N.W.2d 860 (1967).
The lease provisions in the Cloverland Farms case were similar to those in the instant one. The lease provided for percentage rent based on “gross sales made in the store” and provided: “In computing sales for the purpose of this provision, Lessee shall take the total amount of sales of every kind made in the store on the leased premises and deduct therefrom the following ...: (1) refunds made to customers, (2) sales, excise and gross receipts taxes, and (3) proceeds from sale of money orders (fee received for issuance of money orders shall not be deducted).” Cloverland Farms Dairy, supra, 587 A.2d at 528. Like the instant case, when the Cloverland Farms lease was executed, the sale of lottery tickets was illegal in Maryland. Three years later, the State authorized the sale of lottery tickets and allowed the selling agents to retain a commission from the sales. Id.
*806The court in Cloverland Farms viewed the percentage rental provision of the lease as applying to the amounts which the tenant was entitled to retain as its own property. 587 A.2d at 530. It noted that monies produced from the tenant’s sale of lottery tickets, other than sales commissions, did not belong to the tenant, but were held only temporarily by it. Id. The court held that in effect, the tenant sold its services to the State in return for the sales commissions and only that amount was subject to the percentage rental clause of the lease. Id. The court stated that this interpretation was reasonable, given the treatment afforded by the lease to money order sales by the tenant, which included only commissions as a part of gross sales. Id.
The court in Anest v. Bellino, supra, used similar reasoning. It stated that although the tenant actually handled the lottery ticket receipts, that portion of the money belonging to the lottery system was not intended by the parties to be included in gross sales. 104 Ill.Dec. at 864, 503 N.E.2d at 579. The court concluded that only the commission paid to the tenant should be applied in calculating gross sales. Id.
In McComb v. McComb, supra, 155 N.W.2d at 861, the term “gross sales” was defined in the lease agreement as: “The entire amount of the actual sales price, whether for cash or otherwise, of all sales of merchandise, service and other receipts whatsoever, of all business conducted in or from the premises ... and sales by any sublessee, concessionaire or licensee on the premises,” but excluding a pastry shop on the premises which was a sublessee. In that case, the dispute over what constituted gross sales involved that portion of the money paid for traveler’s checks sold in the store which could be considered “gross sales.” 155 N.W.2d at 862. The court noted that the lease was “quite expansive,” as it included in gross sales “other receipts whatsoever.” Id. The court recognized that sales conducted at a pastry shop which subleased a portion of the premises were specifically excluded from gross sales. Id. It held that the entire traveler’s check receipts were includible in “gross sales” under the lease agreement. 155 N.W.2d at 863.
We believe the court erred in following Cloverland Farms and Anest and rejecting McComb. If the lease meant to exempt receipts from those items “held in trust” by Circle K, then there would have been no need to specifically exempt money order receipts from the determination of gross sales. Furthermore, we have uncovered no authority providing that receipts from Arizona lottery ticket sales are deemed trust funds.1
The Dissent would except lottery ticket receipts from the calculation of gross sales on the ground that the receipts are property of the State. We find this fact immaterial to our analysis, because the lease between Collins and Circle K did not differentiate between merchandise sold by Circle K as owner and merchandise sold by Circle K as agent for the owner.2 Instead, the lease broadly defined “gross sales” to include “gross receipts of every kind and nature originating from sales and services on the demised premises.... ”
Although Circle K’s ultimate returns on the lottery ticket sales are only a percentage of the price of the lottery tickets, this is true for all items it sells. Whether the lottery ticket receipts are viewed as originating from Circle K’s sales or from Circle K’s services, they should be included in the lease agreement’s broad definition of gross sales.
Y
CONCLUSION
We interpret the lease agreement to provide that in calculating percentage rents, Collins is entitled to include two percent of the receipts from lottery ticket sales.
REVERSED.
. Neither the Arizona statutes concerning the State lottery, A.R.S. § 5-501 et seq., nor the rules and regulations of the Arizona State Lottery Commission, A.C.R.R. R4-37-101 et seq., specifically provide as such, although A.C.R.R. R4-37-206 and 207 require retailers to pay over lottery sales receipts, net of commissions and prize winnings paid out, to the lottery commission.
. We note also that Circle K chose to sell the lottery tickets. Our analysis might be different if, for example, a governmental entity had required Circle K to sell lottery tickets in order to be licensed to conduct business. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491992/ | JONES, Bankruptcy Judge,
dissenting:
I respectfully dissent because I disagree with the majority’s choice to reject the logic of Cloverland Farms and Bellino, two recent cases which specifically addressed facts similar to the instant appeal, while following the reasoning of McComb, a 27 year old case concerning the sale of traveler’s checks in which the appellate court did not “fully agree” with the trial court’s finding, but affirmed it as “not clearly erroneous.” McComb, 155 N.W.2d at 863.
Cloverland Farms and Bellino held that only the commissions received by lottery ticket sellers are included in “gross receipts.” The determinative factor for both courts was ownership of the lottery receipts. Because lottery ticket sellers were merely agents of the State, Cloverland Farms, 587 A.2d at 528, the lottery receipts were never the property of the seller. Id. at 530; Bellino, 104 Ill.Dec. at 865, 503 N.E.2d at 580. The same is true of the Arizona lottery scheme. See Ariz.Rev.Stat.Ann. § 5-512 (1994) (lottery ticket sellers are licensed agents of the state); Ariz.Rev.Stat.Ann. § 42-1310.01 (1994) (exempting lottery receipts from a retail store’s gross sales for tax purposes); Ariz.Comp.Admin.R. & Regs. R4-37-206 and R4-37-207 (1994) (requiring turnover of lottery receipts to the State).
The majority is sidetracked by the bankruptcy court’s conclusion that the lottery ticket revenue was “held in trust” by Circle K. Whether or not the Arizona statutory scheme refers to lottery revenue in the hands of ticket sellers as trust funds is not disposi-tive of the issue. The reality is that lottery receipts are at all times property of the State in the hands of its agent.
For the foregoing reasons, I respectfully dissent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491993/ | OPINION
MARILYN MORGAN, Bankruptcy Judge.
INTRODUCTION
On October 21, 1994, the Court confirmed the Chapter 11 plan of Capital West Inves*826tors, a California Limited Partnership, over the objections of Reilly Mortgage Group, Inc., the servicing agent on the first deed of trust, and The Mortgage Bankers Association of America (MBAA), as amicus curiae. Reilly sought reconsideration of the Court’s order confirming the plan and was joined by the United States Department of Housing and Urban Development (HUD) as a party-in-interest. With respect to the arguments raised by Reilly and MBAA, the Court concludes that the plan satisfies the requirements governing plan confirmation in that it is fair and equitable and it is not proposed by any means forbidden by law. With respect to the arguments raised by HUD, the Court concludes that the plan is consistent with the fundamental goals of both the Bankruptcy Code and the National Housing Act.
FACTS
Capital West owns and operates The Woods, an apartment complex in Fremont, California, which has been appraised at $7 to $9 million. Capital West acquired the property from Lincoln Park & Associates, Ltd. in 1985, assuming a note and first deed of trust held by Transamerican Investors Service Company. Transamerican’s loan is now held by The Riggs National Bank of Washington, D.C. Riggs holds the note as part of a Federal Housing Act Project Loan Certificates Series Pool in which private individuals own and trade interests. Reilly is the servicing agent. The balance remaining on the loan is approximately $2,630,000.
The loan is insured by HUD. HUD operates the Federal Housing Act Home Loan Mortgage Insurance Program which insures against lender loss in the event of default by a borrower. This program enables lenders to provide loans with low down payments and interest rates lower than the conventional mortgage market. The terms of the mortgage insurance program require HUD to pay 99% of the loan balance and to take an assignment of the note in the event of default. When the loan originated in 1978, Lincoln Park & Associates Ltd. executed HUD’s Regulatory Agreement which contains requirements conditioning the loan. A mortgagor that elects to participate in the mortgage insurance program agrees to be regulated by HUD through the loan documents and the Regulatory Agreement. See 12 U.S.C. § 1715Z (d)(4)(iv) and 24 C.F.R. § 221.529 (1994). Capital West became bound by this agreement when it assumed the loan.
Relevant to the issues at confirmation, the agreement required payment of monthly mortgage insurance premiums to HUD. The payment for June 1994 was $1,070.13; payments were to continue to decline each month for the term of the loan. The agreement also contained “surplus cash” provisions. Surplus cash are those funds remaining after and every obligation of the project, including maintenance, has been satisfied. Surplus cash may only be disbursed on an annual or semi-annual basis after submission of an audited financial statement. The Regulatory Agreement also provided that no junior financing could be placed without HUD’s approval.
HUD approved placement of a second deed of trust held by Trilex Financial Services. The Trilex deed of trust has a balance of $3,435,315 and becomes due in 1997. HUD also approved a third deed of trust held by Jim Woodson and Denny McLarry. The Woodson and McLarry deed of trust has a balance of $1,334,871 and is due upon demand. Before Capital West filed this case, Woodson and McLarry paid $351,610 to Trilex to cure outstanding defaults.
The plan modified Reilly’s promissory note by eliminating both the mortgage insurance requirement and the surplus cash provisions in the Regulatory Agreement. Reilly claimed that the modifications were unfair because the new note deprived Reilly of the value of its claim.
At the confirmation hearing, Reilly and The Mortgage Bankers Association of America objected to the plan on the ground that the proposed plan undermined the federal housing insurance program because it eliminated the payment of mortgage insurance premiums. HUD deposits all mortgage insurance premiums into a general insurance fund out of which all lenders’ claims are paid. Reilly and MBAA argued that the ramifications of this plan would be to frustrate the *827National Housing Act, to increase the amount of down payments required to obtain home loans, to deplete the funds HUD reserves to pay lenders, and to debilitate the secondary mortgage market.
On reconsideration, the Assistant Secretary for Housing — Federal Housing Commissioner of the United States Department of Housing and Urban Development, Nicolas Retsinas, echoed these concerns in his declaration filed with the Court and asserted that the proposed modifications are contrary to the purposes of The National Housing Act. He states that the Regulatory Agreement between the borrower and the Secretary is an independent contract, and that “low and moderate income and displaced families ... are the incidental beneficiaries of the National Housing Act.” (emphasis added).
With respect to elimination of the mortgage insurance provision, Mr. Retsinas declares that the result will be a lack of confidence within the investment community which will reduce the flow of private investment capital which, in turn, will lead to a decrease in the availability of low and moderate income housing. Mr. Retsinas also states that elimination of the mortgage insurance requirement will adversely affect the Government National Mortgage Association (GNMA), which will face higher expenditures in covering the costs of retiring mortgage-backed securities. With respect to elimination of the surplus cash provisions, Mr. Retsi-nas declares that HUD will be unable to ensure the suitable maintenance of the housing project.
Capital West’s response is that Reilly is not entitled to the insurance payments under any provision of 11 U.S.C. § 11291 and that the plan actually promotes the purposes of the National' Housing Act. Additionally, Capital West argues that allowing it to eliminate the payment of mortgage insurance would not impair Reilly or the home loan market generally because the provisions of the Bankruptcy Code include provisions which adequately protect lenders. Finally, Capital West asserts that predictions of chaos in the secondary mortgage market are unjustified.
ISSUES
1. Whether the plan provides Reilly with the full value of its secured claim as required by § 506(b).
2. Whether the plan provides “at least the allowed amount of [Reilly’s] claim” defined as “at least the value of [Reilly’s] interest in the estate’s interest” in the real property as required by § 1129(b)(2)(A)(i), or alternatively, the indubitable equivalent of Reilly’s claim as required by § 1129 (b)(2) (A) (iii).
3. Whether the modifications to Reilly’s note conflict with the requirements of the National Housing Act in violation of § 1129(a)(3).
DISCUSSION
1. Capital West’s Plan Is Confirmable Since It Provides Reilly With The Full Value Of Its Claim.
The first issue the Court must resolve is whether the value of Reilly’s secured claim includes the cost of insurance required by the original note. Reilly contends that it is entitled to “any reasonable fees, costs, or charges provided for- under the agreement under which such claim arose.” 11 U.S.C. § 506(b). Reilly argues that since the insurance payments are charges described in the loan documents themselves, the payments are part of Reilly’s secured claim. Reilly and MBAA complain that if the note does not maintain the benefit of mortgage insurance, the note becomes less valuable in the secondary mortgage market.
Capital West concedes that any charge for mortgage insurance accrued to the date of confirmation is a valid claim but asserts that thereafter the plan modifies the note to eliminate the requirement for mortgage insurance. There is no disagreement that for purposes of the reorganization plan, the value of the collateral is determined at the time the plan is confirmed. In re Ahlers, 794 F.2d 388, 398, rev’d on other grounds, Norwest *828Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 968, 99 L.Ed.2d 169 (1988).
The Ninth Circuit has held that the value of an undersecured creditor’s claim does not include mortgage insurance. Lomas Mortg. USA v. Wiese, 980 F.2d 1279, 1283 (9th Cir.1992), overruled on other grounds, Nobelman v. American Sav. Bank, — U.S. -, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). In Lomas, the debtor obtained a loan from Federal National Mortgage Association (FNMA) secured by both a deed of trust and private mortgage insurance. In confirming the debt- or’s Chapter 13 plan, the court held that the value of FNMA’s claim under § 506(a) did not include mortgage insurance payments. Although Lomas considered the value of the claim of an underseeured creditor, the court specifically noted that it “is not required to afford protection with respect to the creditor’s contractual rights against third parties.” Lomas, 980 F.2d at 1283; In re Fischer, 136 B.R. 819, 828 (Bankr.D.Alaska 1992) (“[Ajgreements between the creditor and third parties should not affect the valuation of the subject property.”); In re Lopez, 75 B.R. 961 (Bankr.E.D.Pa.1987), aff'd, 82 B.R. 712 (Bankr.E.D.Pa.1988) (proper valuation did not include consideration of mortgage insurance); Grubbs v. Nat’l Bank of South Carolina, 114 B.R. 450, 452 (D.S.C.1990) (“The availability ... of recourse against third parties with respect to the claim should not affect the value attributed to the property.”).
The reasoning of Lomas remains equally viable vis a vis the claim of an oversecured creditor. Reilly’s contractual rights as a third party beneficiary of HUD’s agreement with Capital West are not protected by the Bankruptcy Code. The result is that the value of Reilly’s claim is determined as of the date of confirmation without taking into account any enhancement to value provided by the mortgage insurance.
2. The Plan Is Confirmable Under Fair And Equitable Standards Since It Provides Reilly The Value of Its Interest In The Estate’s Interest As Well As The Indubitable Equivalent Of Its Claim.
A reorganization plan may not be confirmed over the objection of an impaired class unless the plan is “fair and equitable.” 11 U.S.C. § 1129(b). For this plan to be “fair and equitable,” the secured creditor must either retain its lien and receive deferred cash payments equal to the value of its claim, or collect the “indubitable equivalent” of its claim. See 11 U.S.C. § 1129(b)(2)(A)(i) and (in). In either instance, § 1129 requires that the creditor be both completely compensated for the present value of its claim and also assured that its claim is secured. See In re American Mariner Industries, 734 F.2d 426, 433 (9th Cir.1984) (explaining that the “indubitable equivalent” of a claim must provide the claim’s present value and insure the safety of the principal).
A case comparable to the matter sub judi-ce is In re Roberts Rocky Mountain Equipment Co., Inc., 76 B.R. 784, 791 (Bankr.D.Mont.1987). There, the court confirmed a plan which eliminated corporate life insurance payments pledged to the United States Small Business Administration (SBA). The SBA objected to confirmation on the ground that elimination of the monthly insurance payments would substantially erode its security. The court found that the SBA was fully secured, even without the insurance policy, because the assets securing the SBA lien exceeded the balance of the loan. Consequently, the court reasoned that the plan met the requirements of § 1129(b)(2)(A)© and, therefore, could be confirmed. The court noted that elimination of the policy had the positive effect of reducing the debtor’s expenses by $4,000 each month which increased the likelihood of a successful reorganization.
The plan in the case at bar, similarly, meets the requirements for confirmation under § 1129(b)(2)(A)®. First, under the plan Reilly retains a lien securing the amount of its allowed claim. Reilly’s loan remains fully secured without mortgage insurance. In fact, Reilly is overseeured given that the fair market value of the property securing Reilly’s lien is $7 to $9 million and the value of the lien is approximately $2.63 million. Second, the plan provides that Reilly will receive *829deferred cash payments having a present value, as of the effective date of the plan, equal to the present value of the collateral. Accordingly, Reilly retains under the plan not less than it would receive if Capital West’s collateral were liquidated under Chapter 7.
In the alternative, the plan also meets the requirement for confirmation under § 1129(b)(2)(A)(iii) where “indubitable equivalence” is the standard. In applying § 1129(b)(2)(A)(iii), the Bankruptcy Appellate Panel for the Ninth Circuit has held that the indubitable equivalent exists where it is unlikely that a claim would ever become even partially unsecured, where the plan was not speculative and provided safeguards and fair interest rates. In re Pine Mountain, Ltd., 80 B.R. 171, 174-75 (9th Cir. BAP 1987).
The plan in the case at hand satisfies the requirements set forth in Pine Mountain for confirmation under § 1129(b) (2) (A)(iii). First, it is unlikely that Reilly’s claim would ever become partially unsecured. Capital West’s assets support Reilly’s loan with substantial equity; the present value of the property exceeds the balance of Reilly’s note by approximately $4 to $6 million. Second, the plan is not speculative and provides safeguards. The plan is feasible as demonstrated by Capital West’s forecasts. Further, Reilly enjoys a senior position followed by junior financing determined to safeguard their own positions. Third, the evidence at confirmation supported the appropriateness of maintaining interest to Reilly at the original contract rate.
The protections provided the secured creditors’ interests, including those of Reilly, lead the Court to conclude that Capital West’s plan of reorganization as a going concern “satisfies the letter and spirit of the Bankruptcy Code.” See In re Roberts Rocky Mountain Equipment Co., Inc., 76 B.R. at 791. With respect to Reilly, the plan is fair and equitable because it satisfies both the value requirement of § 1129(b)(2)(A)(i) and the indubitable equivalence requirement of § 1129 (b) (2) (A.) (iii).
3. Plan Confirmation Is In Accord With The Goals Of Both Chapter 11 And The Federal Housing Act.
Finally, the plan must not be proposed by any means forbidden by law. Confronted with two governing statutes, the Court must attempt to reconcile the policies and goals of each statute. National Labor Relations Board v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). Specifically, the Court must determine whether the plan conflicts with the National Housing Act because of the provisions eliminating mortgage insurance payments and surplus cash requirements. In order to assess whether Chapter 11 of the Bankruptcy Code conflicts with the National Housing Act under the circumstances of this case, the Court reviews the goals and objectives of each statute.
A. The Goal Of Chapter 11 Of The Bankruptcy Code Is To Increase Return To Creditors By Enabling Debtors To Reorganize.
The Supreme Court has recognized that Chapter 11 has two major objectives. First, it permits the successful rehabilitation of the debtor. Bildisco, 465 U.S. at 527, 104 S.Ct. at 1196. By preventing a Chapter 7 liquidation, Chapter 11 allows the debtor to “continue to provide jobs, to satisfy creditors’ claims, and to produce a return for its owners,” all of which are beneficial to the economy as a whole. United States v. Whiting Pools, Inc., 462 U.S. 198, 203, 103 S.Ct. 2309, 2312, 76 L.Ed.2d 515 (1983). Secondly, “Chapter 11 ... embodies the general Code policy of maximizing the value of the bankruptcy estate.” Toibb v. Radloff, 501 U.S. 157, 163, 111 S.Ct. 2197, 2201, 115 L.Ed.2d 145 (1991).
In pursuit of the goals of Chapter 11, the Bankruptcy Code alters the rules governing the non-bankruptcy relationships between a debtor and its creditors. In re Medicar Ambulance Co., Inc., 166 B.R. 918, 924 (Bankr.N.D.Cal.1994); Thomas H. Jackson, Logic and Limits of Bankruptcy Law (1986). Courts have held that government interests are accorded the same status as private creditors under the Bankruptcy Code. See In re *830Davenport, 153 B.R. 551 (9th Cir. BAP 1993) (chapter 12 plan may provide for forced redemption of debtor’s land bank stock contrary to provision of Farm Credit Act), opinion vacated, 40 F.3d 298 (9th Cir.1994) (vacating opinion of Bankruptcy Appellate Panel based on mootness of appeal resulting from voluntary dismissal of underlying bankruptcy case); In re Buttonwood Partners, Ltd., 111 B.R. 57 (Bankr.S.D.N.Y.1990) (confirming the debtor’s plan despite the possible violation of the Financial Institutions Reform, Recovery and Enforcement Act); In re Water Gap Village, 59 B.R. 23 (Bankr.D.N.J.1985) (HUD was subject to “cram down”).
B. The Goal Of The National Housing Act, To Provide Affordable Housing, Is Accomplished Not Only By Insuring Lenders But Also By Finding Alternate Methods Of Financing To Prevent Foreclosure.
Congress’ goal in enacting the National Housing Act was to provide a “decent home and suitable living environment for every American family.” Beck Park Apartments v. U.S. Department of Housing, 695 F.2d 366, 368 (9th Cir.1982). To accomplish this goal, Congress provides programs designed “to assist private industry in providing housing for low and moderate income families and displaced families.” Id. However, HUD is under a duty to act in a manner consistent with the objectives and priorities of the Act. 42 U.S.C. § 1441; Portela v. Pierce, 650 F.2d 210, 211 (9th Cir.1981).
One way in which HUD accomplishes Congress’ goal is by motivating lenders to loan money. HUD motivates lenders by both insuring that the loan will be repaid if the borrower defaults and by restricting the borrower’s activities in ways that protect the lender. See 12 U.S.C. § 1715z-l; Little Earth of the United Tribes, Inc. v. United States Department of Housing and Urban Development, 807 F.2d 1433, 1435 n. 2 (8th Cir.1986). Congress also furthers its goal of providing affordable housing by requiring HUD to assist private industry in efforts to avoid foreclosure.
In furtherance of the goal of providing decent homes, HUD is under a statutory obligation to consider alternate methods of financing in cases where insisting on the original payment plan increases the borrower’s risk of foreclosure. United States v. American Nat’l Bank, 443 F.Supp. 167 (N.D.Ill.1977). HUD “has a statutory obligation to take action to prevent foreclosures by applying alternative methods of financing in appropriate cases.” Id. at 175; Russell v. Landrieu, 621 F.2d 1037, 1041-42 (1980) (in foreclosing on property HUD could not act only to obtain maximum financial return but had to consider and implement alternatives to foreclosure which would effectuate the policy objectives of the National Housing Act); Kent Farms Co. v. Hills, 417 F.Supp. 297, 301 (D.D.C.1976) (before HUD forecloses on a project “it must consider national housing policy and decide what further steps authorized by Congress it will take to assure continuity of the decent, safe, sanitary, low-cost housing then being provided.”). Alternatives authorized by HUD regulations include modification, extension, or refinancing of a mortgage. American Nat’l Bank, 443 F.Supp. at 175; see also 24 C.F.R. §§ 203.340, 203.342 and 207.256(b) (1994).
C. Plan Confirmation Preserves The Concerns Of Both Chapter 11 And The Federal Housing Act.
Chapter 11 of the Bankruptcy Code is fundamentally concerned with enabling debtors to reorganize; the Federal Housing Act is fundamentally concerned with providing affordable housing. When attempting to harmonize the policies and goals of two competing statutes, the Court must respect the fundamental concerns of each.
In confirming Capital West’s plan, the Court preserves the goals and concerns of both Chapter 11 and the Federal Housing Act. Chapter 11 goals are satisfied because elimination of the mortgage insurance payment provides additional capital for maintaining the property. Elimination of the surplus cash restrictions enables Capital West to structure repayment as contemplated by its plan. The elimination of these provisions *831affords Capital West the best possible chance to successfully reorganize.
The plan is also consistent with the Federal Housing Act. The arguments made in opposition of the plan regarding the negative effect on HUD’s programs and the secondary mortgage market ignore the fact that the fundamental goal of the Act is to provide affordable housing. Low and moderate income and displaced families are not the “incidental beneficiaries of the National Housing Act” as declared by Mr. Retsinas, but the primary beneficiaries. Any negative effect on the secondary mortgage market is outweighed by the benefit of providing affordable housing. To deny affordable housing on the basis that insurance premiums are not paid where the lender’s interests are otherwise adequately protected is not reasonable. To deny affordable housing on the basis that surplus cash be reserved for maintenance is also not reasonable under the circumstances of this case.
Congress, in enacting the Federal Housing Act, did not compromise the provisions of Chapter 11 of the Bankruptcy Code. Although Congress has carved out exceptions to the Bankruptcy Code in order to protect various national policies, it has not done so here. There is no indication that Congress intended to deny the full range of possibilities Chapter 11 provides to debtors with HUD loans. If Capital West were to suffer foreclosure, the purposes of both Chapter 11 and the Federal Housing Act would be frustrated, while confirmation of Capital West’s plan promotes the fundamental goals and objectives of each statute.
CONCLUSION
The plan before the Court satisfies the requirements for confirmation in that it is fair and equitable and is not proposed by any means forbidden by law, but rather promotes the fundamental concerns of both the National Housing Act and the Bankruptcy Code.
. All further references are to the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., unless otherwise noted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491994/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is the dis-chargeability vel non of the debt admittedly due and owing by Gregory E. Berhow and his wife, Mary Ann Berhow (Debtors) in the amount of $5,767.82. The claim of nondis-ehargeability is asserted by First Deposit National Bank (Bank) who contends that the obligation should be excepted from the overall protective provisions of the general bankruptcy discharge because the Debtors obtained credit when they had no intent to repay the same or they knew they lacked the ability to repay the obligation. Thus, according to the bank, this debt is nondischargeable by virtue of § 523(a)(2)(A) of the Bankruptcy Code. In addition, the bank also seeks the award of reasonable fees and costs based on Transouth Financial Corp. of Florida v. Johnson, 931 F.2d 1505 (11th Cir.1991). The facts established at the final evidentiary hearing relevant to the matter under consideration are as follows:
*866The Debtor, Mary Ann Berhow (Mrs. Ber-how), was at the time relevant employed by the Hillsborough County Sheriffs Department as a customer service officer. She earned $11,573.00 in wages from her employment in 1993. Mrs. Berhow also received, and continues to receive, $800.00 per month in child support for her three children. This is the only non-employment income reported for either of the debtors. Her husband, Gregory E. Berhow (Mr. Berhow), is employed by Hillsborough County Animal Services as an Animal Control Coordinator and earned $20,259.82 in wages in 1993.
In June or July of 1993, Mrs. Berhow received an invitation to apply for a Visa Gold card issued by the Bank which also required that she also request a cash advance upon issuance. She returned the application with a request for a cash advance in the amount $4,000, and in July, 1993, she received from the bank a Visa Gold card in the joint names of both the debtors with a limit of $5,000 along with a cash advance check for the requested $4,000. This cash advance was deposited in the debtors household'account. It is undisputed that the debtors continued to use the credit card, and during the first statement period ending in August, 1993, the debtors charged an additional $967.19 for household expenses. The first minimum payment of $140.61 was due on September 3, 1993 and was timely made. During the next statement period ended September 9, 1993, the debtors charged $33.14 and cash advanced an additional $70.00, which brought the account over its $5,000 credit limit and required a new minimum payment of $200.75 due by October 4, 1993. This payment was also made, and was received by the bank on October 7. The final charge to the account was a $30 cash advance on October 12, 1993. No further charges or payments were made to the account, and the balance as of May, 1994, was $5,767.82.
According to Schedule I, the Debtors have combined monthly disposable income of $3,348.01 with which to pay $3,250.00 in fixed monthly expenses. This left the debtors a cash flow surplus of almost $100. However, this expense figure does not include the minimum payments on the $29,508.08 balance that the debtors were carrying on eight credit cards. The bulk of this debt was incurred by the Debtors prior to the time they incurred the debt owed to the Bank. Thus, it is without dispute that the debtors had significant negative cash flow both before and after the debt was incurred to the Bank.
In November of 1993, the debtors sought the advice of an attorney and discontinued all credit card payment although they did not file their Petition for Relief under Chapter 7 of the Bankruptcy Code until April 14, 1994.
Based on these facts, it is the contention of the Bank that the balance owed by these debtors should be excepted from the overall provision of the general bankruptcy discharge based on § 523(a)(2)(A) of the Bankruptcy Code which provides in pertinent part as follows:
§ 523. Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
The burden of establishing a claim of nondischargeability is on the party who seeks such a determination. The burden of proof is no longer the clear and convincing standard, but merely the preponderance of evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). To establish a viable claim under § 523(a)(2)(A) for abuse of the privilege granted to a credit card holder, there must be competent proof that either the card holder used the credit card knowing that he had no intention to ever repay the debt, or knowing that he will not be capable to meet the obligations incurred through the use of the card. In re Stokes, 155 B.R. 785 (Bankr.M.D.Fla.1993).
The classic example of the first proposition is when the debtor consults an attorney for the purpose of filing bankruptcy and then makes charges on the credit card before *867filing bankruptcy. In the second scenario, the debtor’s income is either nonexistent or insufficient to meet his other fixed monthly obligations and he has no realistic basis to anticipate a substantial increase in his income in the near future.
The Bank contends that the Debtors were hopelessly insolvent at the time when they used the card issued by the Bank and that they either had no intention to repay the Bank, or that they knew they were incapable of meeting the obligations including the debt owed to the Bank.
The debtors concede, as they must, that their combined income at the time the Bank’s debt was incurred was insufficient to cover their monthly fixed expenses and to meet the minimum monthly payments required by the card agreement. However, in their defense the debtors contend that they intended to repay these obligations from increased income from their raises and promotions. Unfortunately, the anticipated increase of their income did not occur because Mr. Berhow was delayed by 11 months in receiving a $8.00 per hour raise which he had been promised, and Mrs. Berhow did not receive the position and raise for which she applied.
The defense asserted does not bear close analysis. Even assuming that Mr. Berhow received his raise when originally promised, a realistic assessment of the debtor’s entire financial picture should have left them with a realization that they could not live up to the new credit card obligation from the Bank. This is so because the debtors still would have negative cash flow based on minimum credit card payments required under the several credit card obligations. Mr. Berhow’s $3.00 per hour raise would only supply roughly $480.00 per month, before taxes, in additional funds to service debt. Based on the debtor’s $29,508.08 in total credit card debt, the typical minimum payments on these cards plus the debtor’s other fixed expenses would far exceed even the anticipated elevated earnings. Based on the foregoing, this Court is satisfied that the record warrants the conclusion that the debtors obtained monies and property through the use of the credit card by fraud and, therefore, the outstanding liability to the Bank shall be excepted from the general bankruptcy discharge.
There was nothing presented in support of the claim of nondischargeability against Mr. Berhow and at the conclusion of the presentation of the claim, this Court announced that the claim of nondischargeability will be dismissed against the husband, Mr. Berhow. A separate final judgement will be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491996/ | ORDER ON OBJECTION TO CLAIM OF YORK INTERNATIONAL CORPORATION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 ease and the matter under consideration is the reorganized Debtor’s Objection to Claim Number 3278 filed by York International Corporation (York). The claim was filed in the amount of $619,564.57 and states that it is based upon “Indemnity for York’s liability to Limbach Company arising from sale by York to Lim-bach of defective Singer products.” The Debtor, which was formerly known as the Singer Company (Singer), asserts that York has no contractual right to indemnification and also that Singer’s products were not defective at the time that they left the Singer facility.
During the course of the proceedings, York filed a Motion for Summary Judgment contending that there were no genuine issues of material fact, and that the Debtor’s Objection should be overruled and its claim should be allowed as a matter of law. On April 16, 1993, this Court entered an Order and denied York’s Motion. In this Order, the Court determined that' there are genuine issues of material facts concerning both issues raised by the Debtor’s Objection to York’s Claim. *876At the outset of the final evidentiary hearing, this Court severed the issue of damages from the issue of liability and ruled that the trial would deal only with the issue of liability. In the event that liability is found, the Court reserved the question of whether York would then be required to establish its damages, or whether the Michigan state court’s determination of damages would be accepted.
The facts as developed at the final eviden-tiary hearing and relevant to the issues specified above can be summarized as follows:
This controversy initially stems from the development in the mid-1970’s of a project known as the Renaissance Center in Detroit, Michigan. The Renaissance Center consisted of a large complex which included a restaurant and shopping area, a hotel and four office towers. Limbach Company (Limbach) was the chief mechanical contractor for the project and subcontracted the heating, ventilating and air-conditioning (HVAC) work to York. The S-3 system, which constituted one portion of this HVAC work, was designed to heat the four office towers. In August of 1974, York purchased 32 steam distribution coils from Singer for placement in the S-3 system. Singer manufactured the 32 coils at its facility in Wilmington, North Carolina, and delivered them to the project site, but did not install the coils and had nothing to do with the design of the S-3 system. In any event, it appears that the coils were installed in approximately 1976 or 1977, and that leaks began to develop in the coils by the winter of 1977-1978. According to the stipulated testimony of William Maines, all of the coils in the S-3 system leaked from the joints as well as from very small holes on the face of the coils. Nevertheless, the S-3 system was operated for approximately four years with the Singer coils, and the coils were then removed in 1980 or 1981.
In 1979, Limbach sued the Renaissance Center Partnership, the owner of the project, in the state court in Michigan for breach of contract. The Partnership then filed a counterclaim against Limbach alleging various deficiencies in the construction of the project, including the heating and air-conditioning systems. Limbach filed a third-party action against York claiming that certain deficiencies were actually caused by defective equipment used in the system. York subsequently filed fourth party actions against the Debtor and other suppliers claiming that the parts furnished by them were defective. The Debtor answered the fourth-party complaint and demanded a jury trial. The state court thereafter bifurcated the proceeding and ruled that it would first try the original claim against the Partnership, the counterclaim against Limbach, and the third party claim against York, and that after these proceedings were concluded it would then try the fourth party claims against Singer and the other suppliers. Singer accordingly did not participate in the first stage of the litigation which ended on February 8, 1990, when the state court in Michigan entered a Corrected Partial Final Judgment in favor of the Partnership and against Limbach pertaining to the steam coils in the S-3 systems. This award was in the principal amount of $209,-744.28. The Corrected Partial Final Judgment also included a determination that Lim-baeh is entitled to recover this same amount from York. The state court previously had ruled on April 7, 1988, that its findings of liability from the first stage of the proceedings were binding on Singer and that Singer was estopped from relitigating the issues surrounding the alleged defects in the S-3 coils. On April 4, 1991, however, the Michigan Court of Appeals reversed this order and ruled that “Singer should not be bound to the trial court’s finding” regarding the existence of any manufacturing defect. Consequently, based on this decision of the appellate court, it appears undisputed that the findings of the Michigan state court concerning the manufacture of the coils have no binding effect in this proceeding.
York’s proof of claim states only that it is based upon “Indemnity for York’s liability to Limbach.” (sic) The Orders entered by the trial court in Michigan are attached to the Proof of Claim as exhibits. The claim was filed on May 14, 1990, prior to the entry of the order by the Michigan Court of Appeals which reversed the trial court’s 1988 order and determined that the trial court’s findings were not binding on Singer. The Proof of *877Claim was never amended. Having realized that it no longer can rely on the trial court’s order, York now appears to assert that its claim is actually based on two alternative theories: (1) contractual indemnity; and (2) breach of the implied warranties of merchantability and fitness. In. opposition, the Debtor contends that (1) York never had a contractual right to indemnity; (2) that the coils were not defectively manufactured; and (3) and that the manufacturing process of the coils was not the proximate cause of any leakage.
I. CONTRACTUAL INDEMNITY
According to York, its contractual right to indemnity arises from the purchase order or orders under which York requested the 32 steam coils from Singer in August of 1974. York contends that this purchase order contained language which obligated Singer to indemnify York against any liability which it incurred as a result of the coils supplied under the purchase order.
It should be noted at the outset that Rule 3001(c) of the Federal Rules of Bankruptcy Procedure provides that “[whenever] ... a claim is based upon a writing, the original or a duplicate of the writing shall be filed with the proof of claim.” In addition, Rule 1002 of the Federal Rules of Evidence states that, in order to prove the content of a writing, the original writing is required. Rule 1002 and Rule 1004 of the Rules of Evidence set forth the circumstances under which a duplicate is permitted or other evidence of the contents may be admissible, none of which is applicable here.
It is clear in this case that neither the original purchase order nor a copy of the purchase order was produced. The only evidence offered by York to establish its contractual right to indemnity was submitted through the testimony of Valentine T. Karto-rie. Mr. Kartorie, who has been associated with York for 60 years, testified that he had been unable to locate the actual purchase order for the 32 coils after diligent search, and no copy of the executed or completed purchase order was presented. Instead, Mr. Kartorie was only able to testify that York generally used a form of purchase order in 1974 which included certain conditions on the back of each page. Mr. Kartorie did not testify that he had any personal knowledge of the content of those conditions or whether he was even familiar with the specific terms set forth as conditions to the purchase order. At no point in his testimony did Mr. Kartorie mention an indemnification clause, whether he had ever read such a clause, or York’s demand for such a clause.
Under these circumstances, this Court is satisfied that York failed to prove its contractual right to indemnification from the Debtor. York not only failed to produce either the original or a copy of the document upon which it relies for this right, but it also failed to present sufficient indirect evidence upon which the existence of an indemnification clause may be inferred. Thus, its claim based on this theory cannot be recognized.
II. CLAIM BASED ON DEFECTIVE MANUFACTURE
It is undisputed that the S-3 steam coils leaked at some point after the S-3 system commenced operating. According to the stipulated testimony of William Maines, who has been involved in the property management of the Renaissance Center since 1976, all of the coils in the S-3 system leaked, and this leakage was first detected in the winter of 1977-1978. York contends that the leaks resulted from a manufacturing defect for which Singer is responsible, and that this manufacturing defect was the proximate cause of the damage which ensued.
The expert testimony presented indicated several possible causes for the leaks:
A. Thomas Wolowicz is presently the engineering manager of large equipment for York and has been employed by York since 1977, Mr. Wolowicz testified that, in his opinion, the coils leaked as a result of a manufacturing defect, and that the major defect was the improper insertion and brazing or mechanical joining of the tubes in the coils. According to Mr. Wolowicz, this was necessarily a manufacturing defect because the brazed joints were constructed at Singer’s facility. It also appears, however, that Mr. Wolowicz did not become involved with *878the particular S-3 coils until 1981, and that he never viewed the coils while they were in operation. Consequently, he has no personal knowledge of either the installation or the operation of the coils. It is also significant that Mr. Wolowicz had testified in the state court litigation in Michigan that a cause of the leaking coils could have been a phenomenon known as water hammer, which results from a flaw in the design of the system as a whole that leads to improper drainage and the accumulation of water within the coils. Mr. Wolowicz explained that his objective in the Michigan trial had been to demonstrate that the leakage may have been caused by the installation of the equipment.
B. William Coad is a mechanical engineer and the president of a consulting engineering firm in Missouri. Mr. Coad testified that his investigation revealed strong evidence of water hammer, and that water hammer caused the damage to the coils. Mr. Coad further testified that water hammer is the result of an inadequate or poor system design, and that this system design is independent and not part of the manufacturing process. According to him, it is not the standard in the industry to manufacture coils to withstand the force of water hammer, since the proper solution would be to design the system so that water hammer does not occur. Mr. Coad, of course, was not approached about the Renaissance Center until approximately 1982 or 1983, and did not actually view the S-3 coils until 1994.
C. Joseph Reitblatt was employed as a Chief Engineer at Singer’s Wilmington facility during the mid-1970’s. Mr. Reitblatt testified that, in his opinion, the leaks arose from three possible sources. First, he stated that the system was missing a mechanism or device that would have enabled it to drain properly and that without this cooling leg or trap leg, water hammer would have occurred and resulted in damage to the coils. Second, the manner in which the coil was installed would not have allowed for any movement as the coil was heated by the steam, which ultimately would cause the coil to crack and leak. Third, Mr. Reitblatt testified that improper handling either during or after installation would have caused the coils to leak. It should be noted, however, that Mr. Reit-blatt’s testimony was based primarily on pictures of the equipment presented to him by counsel rather than any personal examination of the coils.
It is clear that none of the three witnesses directly observed the eoils at the time when the leaks and damage were developing. Instead, each witness simply has offered his own theory or theories of how the leaks may have been caused based on a review of second-hand information obtained after-the-fact. After reviewing the testimony and evidence, the Court can conclude only that the leaks could have been caused by the improper brazing of the joints in the coils at Singer’s plant; that the leaks could have been caused by a defect in the design of the S-3 system as a whole which resulted in the phenomenon described as water hammer and the eventual damage to the coils; or that the leaks could have been caused by the improper installation of the coils. The Court can find no basis in the record to afford greater weight to any one of the theories over any of the others. Indeed, even the testimony of William Maines, to which both parties stipulated, acknowledged that water hammer did in fact occur in the S-3 system and that the water hammer would have contributed to the leakage.
This uncertainty surrounding the cause of the leaks is further demonstrated by the witnesses’ treatment of the weaknesses in the coils which were described as “pinholes.” William Maines first identified these pinhole leaks throughout the face of the coils. In response, Mr. Wolowicz testified that he did not know the cause of the pinhole leaks, but supposed that they could have resulted either from the manufacturing process, or from the unrelated factors of erosion or corrosion. Mr. Coad conceded that he had not viewed the inside of the coils to know what caused the pinholes, but suggested that erosion induced by water hammer would have caused the leaks in the weak areas. Mr. Reitblatt stated that the pinholes would have resulted from impurities in the system which lead to the erosion of the coils, but that he had no actual knowledge of any such impurities. The only point that can be distilled with *879certainty from this testimony is that the cause of the pinhole leaks is simply not known, although various theories have been proposed to explain it.
As stated above, the evidence in this ease concerning the cause of the leaks consists only of alternative theories developed by the witnesses based on their retrospective investigation of the equipment. This Court can find no basis to determine that any particular theory is more credible than any of the others, or that it is more likely than not that the leaks resulted from one of the specific causes described rather than any other cause.
In conclusion, the evidence regarding the cause of the leakage is at best in equilibrium. Under these circumstances, the Court finds that York failed to satisfy its burden of proof regarding the alleged breach of warranty and failed to establish that any manufacturing defect was the proximate cause of the damage. Accordingly, its claim should be disallowed.
In view of the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Objection to Claim Number 3278 be, and the same is hereby, sustained and Claim Number 3278 filed by York International Corporation be, and the same is hereby, disallowed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491998/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 7 liquidation case filed by Jerry Katzman (Debtor) and Helain Katz-man, his wife, originally under Chapter 13 of the Bankruptcy Code on February 12, 1993. The case was voluntarily converted on March 23, 1993 to a Chapter 7 case. The matter presently before the Court is a two-count complaint filed by Southern Commerce Bank (Bank) seeking a determination that the debt owed by Dr. Katzman to the Bank shall be excepted from the protection of the general discharge otherwise granted to the Debtors. The Complaint, contrary to the mandate of F.R.C.P. 8 as adopted by F.B.R.P. 7008 is not a short concise statement for which relief can be granted. The fact of the matter is, the General Allegations contains sixteen paragraphs, Count I eight and Count II thirty-eight additional paragraphs.
The Claim of nondischargeability in Count I is based on § 523(a)(2)(B) of the Code. The debt sought to be excepted from the discharge is represented by a partial Final Summary Judgment entered in favor of the Bank and against Jerry Katzman, M.D. Ophthalmic Associates, P.A. in the amount of $463,079.78. The judgment is based on a certain Renewal Promissory Note which was guaranteed by Dr. Katzman and his wife. In support of the claim set forth in this Count, the Plaintiff alleges that the financial statement submitted by the Debtor dated July 31, 1987 was false in the following respects. First, it stated that the real property described was owned solely by the Debtor, the Debtor’s equity was $150,000.00 and the liability encumbering the property was $25,-000.00. In fact, the property was owned by a partnership composed of 13 individuals and *885the property was encumbered by a mortgage in the amount of $2 million. Based upon these allegations the Bank seeks to except the amount of $463,970.78 plus interest, costs and fees. It should be noted, however, that the amount sought is now $370,528.18 plus interest at the legal rate and attorneys fees based on a final judgment entered against the Debtor dated December 3, 1992 in the Circuit Court for Hillsborough County reducing the personal liability of the Debtor on the note.
The claim in Count II of the Complaint is also based on § 523(a)(2)(B) and the alleged false representation relates to an overstatement by the Debtor on the financial statements of the Professional Association provided by the Professional Association in connection with the same loans referred above and the renewals of those notes. The financial statements which allegedly contained misstatements are those dated December 31, 1986, December 31,1987, December 31,1988, December 31, 1989 and December 31, 1990. According to the Bank, these financial statements overstate the fair market value of medical equipment, machinery and equipment, and furniture and office equipment as a total of $264,069.70. In addition, it is charged that the Debtor also falsely stated amounts under the category of revenue, when in fact these were not collectible accounts, nor were the accounts revenues scheduled at the value of $24,000.00. It is alleged by the Bank based on the foregoing that the Bank did rely on these financial statement in renewing several loans, all of which were ultimately rolled into one note dated January 9, 1990, and assigned loan no. 2001071-105. Based on the alleged false representation, the Bank contends it realized this detriment and suffered damages amounting to the claim set forth in Count II in the amount of $463,970.78.
The facts relevant to the resolution of the two claims of nondischargeability as established at the final evidentiary hearing are as follows:
At the time relevant, the Debtor, a physician, was the principal and sole stockholder of a professional association known as Jerry Katzman, M.D. Ophthalmic Associates, P.A. (Professional Association). The Debtor, as principal of the Professional Association, had extensive banking relations with the predecessor-in-interest of the Plaintiff, Parkway Commerce Bank beginning in 1987, including several loans made by Parkway to the Professional Association. The first of these several loans was evidenced by a promissory note dated October 9, 1987 in principal amount of $350,000.00. As part of this transaction, the Debtor and his wife submitted their Personal Financial Statements on July 31, 1987 (Plfs Exh. No. 5) and October 5, 1987 (Plfs Exh. No. 10).
The Personal Financial Statement dated July 31,1987 (Plfs Exh. No. 5) was prepared by the Debtor on a printed form of Barnett Bank and it was submitted to the Bank in connection with the loan application by the P.A. The loan was granted by the Bank and was personally guaranteed by the Debtor and his wife. The July Financial Statement which was signed only by the Debtor contained answers to two questions in the negative. The first required a disclosure of any previous bankruptcy, composition settlement or whether the Debtor is a defendant in any legal actions. The second called for the disclosure of any contingent liability as a comaker on leases or contracts, or Federal Income Tax Liability.
It is without dispute that on January 28, 1987, the Fort Brooke Savings and Loan Association (Fort Brooke) filed a complaint in the Thirteenth Judicial Circuit in and for Hillsborough County Florida (Case No. 87-11718) and named as a defendant, among others, the Debtor and his wife (Plfs Exh. No. 11). This suit arose from a loan made by Fort Brooke to a partnership known as Building Block Associates. This loan, was secured by a mortgage in real property owned by the partnership. The partners of Building Block signed personal guarantees of the Fort Brooke obligation. The defendants named in the Fort Brooke suit included the Debtor as well as the other partners in the partnership and Building Block. In this suit, Fort Brooke sought a money judgment against the defendants in the amount of $1,742,679.39 plus interest, attorney fees and costs. In fairness, it should be noted howev*886er that Fort Brooke only sought recovery from the real property of this partnership, and did not seek recovery from the defendants personally. It is also without dispute that although the Debtor was served with the Summons and the copy of the Complaint prior to the execution of the July Personal Financial Statement, the suit filed in January was settled in June or prior to the execution of the July Personal Financial Statement although it was not formally dismissed until November 10, 1987 (Pi’s Exh. No. 14).
In addition, the Debtor in his Personal Financial Statement in the asset column under the title “real estate” furnished the following information: “Schedule Five, $175,000 and Mortgages payable on real estate $25,-000.” There is no question that this information pertained to an office bxnlding owned by Building Block Associates, a partnership, and not by the Debtor himself and it was encumbered by a mortgage securing a principal obligation in excess of $1,750,000 which obligation was personally guaranteed by the Debtor and for which he was also personally liable as the general partner of Building Block. In explanation, the Debtor stated that the $25,000 liability was his portion of the total obligation encumbering the property based by his 7.41% partnership interest is obviously incorrect as pointed out below.
In connection with this loan the Bank also received a second Personal Financial Statement of the Debtor, this one prepared by the Debtor’s Accountant. The Statement purportedly to represent the financial condition of the Debtor and his wife as of October 5, 1987 and it was prepared by Ligori & Vail-lant C.P.A. firm (Plfs Exh. No. 10). Although the accountant was present when the Debtor had a detailed discussion with the president of the Bank when his liability on the Building Block obligation was discussed and the accountant knew about it, nevertheless, it was not scheduled on the Financial Statement dated October 5,1987, as a liability.
The Professional Association defaulted on its obligation under the Renewal Note. Thereafter, the Bank filed an action against the Professional Association and against both the Debtor and his wife on their guaranty in the Hillsborough County Circuit Court. On June 25,1991, the Bank obtained partial final summary judgment against the Professional Association and against Dr. Katzman on his guaranty. The final judgment was entered against the Professional Association in the amount of $463,970.78 but denied vis-a-vis the Debtor, and his wife on the basis that there were genuine issues of material fact which precluded the disposition of the Bank’s claims against the Debtors as a matter of law. On October 1, 1992, the Bank obtained an Order of Replevin of the personal properties owned by the Professional Association and pledged for the loan. On December 3, 1992, the Circuit Court for Hillsborough County entered a final judgment against the Debtors based on this guaranty in the amount of $370,528.18 plus interest at the legal rate plus attorneys fees to be determined.
These are basically the relevant facts based on which it is contended by the bank that the debt owed by the Debtor to the Bank in the amount of $370,528.18 should be excepted from the overall protection of the general bankruptcy discharge.
The claim of nondischargeability asserted in both Counts I and II are based on § 523(a)(2)(B). This Section provides that a debt incurred by a debtor who obtained money, property or services or an extension renewal or financing of credit by submitting a statement in writing which was materially false respecting the Debtor’s financial condition on which the lender reasonably relied would be outside the protection of the general bankruptcy discharge provided that it was submitted with the intent to deceive. § 523(a)(2)(B)(i), (ii), (iii) and (iv). It has been established in a long line of cases that an exception to discharge must be construed narrowly against the creditor and liberally in favor of the debtor. In re Specialty Plastics, Inc., 113 B.R. 915 (Bankr.W.D.Pa.1990), aff'd 952 F.2d 1391 (1991). It no longer can be gainsaid that the standard of proof required to establish a claim of nondisehargeability is no longer clear and convincing but merely preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Obviously, the omission *887of the false statement which is an indispensable element of this claim must be material. Thus, omission of assets of little or no value would not suffice to establish a claim under § 523(a)(2)(B). However, a misstatement of the true nature of the ownership of an asset of some substance and the extent of the encumbrances relating to that property is clearly material.
It should be noted at the outset that the evidence presented by the Bank vis-a-vis Mrs. Katzman is woefully insufficient to carry the burden imposed by law on the Bank. It is clear that Mrs. Katzman, although a signatory on the personal guarantees of the Professional Association, did not ever sign the financial statements relied upon by the Bank. In addition, there is no evidence that she provided the information on the financial statements or that she completed the financial statements. Therefore, this Court is satisfied that the Complaint against Mrs. Katz-man should be dismissed with prejudice. This leaves for consideration the allegations vis-a-vis Dr. Katzman.
Taking the Bank’s allegations in seri-atim, the Court first considered the personal financial statements submitted by the Debtors to the Bank on which the Debtor stated that he owned the property and, he valued the same at $1,125,000 and indicated mortgages encumbering the property of $25,000. There is no question that the real estate listed on the financial statement was an office building owned by Building Block Associates, a partnership, and not by the Debtor himself and the mortgage encumbering the property was securing a principal obligation in excess of $1,750,000, an obligation which the Debtor personally guaranteed and for which he was also personally liable as the general partner of Building Block.
Although this action was not tried by the Plaintiff as effectively as some, this Court is constrained to reject the Debtor’s explanation of this clearly incorrect fact statement that the $25,000 liability represented his portion of the total encumbrance which he measured by his partnership interest in the office building. While the Debtor is not a sophisticated business man, he is a well-educated physician who actually knew or should have known the difference between outright ownership of real estate and a fractional ownership in a partnership which owns the real estate in question. The explanation that the encumbrance on the office building stated by him to be $25,000 was based on his understanding that it is proper to measure his liability on the mortgage by determining it with respect to the percentage interest he had in the partnership is rejected as unfounded. Based upon the foregoing, this Court is satisfied that the Bank has carried its burden and the debt represented by the Final Judgment dated December 3, 1992 is determined to be nondischargeable.
In view of this conclusion, it is unnecessary for the Court to consider the allegations made by the Bank with regard to the representations made in response to the questions on the financial statement regarding pending lawsuits or liability arising as a co-maker of a lease or contract.
However, in order to have a complete record, this Court shall address the remaining allegations. As to the negative response to the question of pending litigation, it is clear that the Debtor was a defendant in the litigation initiated by Ft. Brooke against the Building Block partnership. However, it is equally clear that the Debtor understood the litigation had been settled prior to the completion of the July 1987 financial statement and was in fact dismissed later. His response that he was not a defendant in pending litigation was, although technically incorrect, as to his understanding as a layman was correct which is borne out by the ultimate dismissal of the litigation. The fact that later Ft. Brooke initiated a subsequent litigation against a different partnership, TriAmerican, who owned the same building as Building Block is of no moment. The Debtor could not have possibly known this lawsuit would be filed and it is not a renewal of the old litigation because it seeks relief against a different entity, the Tri-American partnership. Therefore, as to the representations of pending lawsuits, there was no fraudulent misrepresentations.
As to the representations regarding his liabilities as a co-maker, this Court is *888satisfied that although there are differences between the term co-maker, guaranty, etc. and that each of these terms represents a form of contingent liability, a layman may not be familiar with the technical definitions of these terms. For that reason, this Court is satisfied that the Debtors negative response to this question, while factually incorrect, was not a misrepresentation made with the intent to mislead the Bank.
This leaves for consideration the allegations relating to the collateral. These misrepresentations were contained in the financial statements of the P.A. which were submitted in connection with the renewals of the original $350,000.00 note and the ultimate consolidation note of $438,721.74 dated January 9,1990. These Statements included misstatements of value of accounts receivables and equipment.
It should be noted at the outset that the judgment entered by the state court with regard to the loan and the renewals, for which these financial statements were supplied, was entered only against the Professional Association and not against the individual Debtor. In addition, a subsequent judgment specifically finds that the Debtor did not guarantee the renewals of the loan. This being the case, the $463,970.78 judgment against the professional association is not a debt of this Debtor and therefore, whether the financial statements of the professional association were materially false is not relevant.
In sum, this Court is satisfied that the Bank did establish with the requisite degree of proof that the Debtor did in fact obtain money with a statement in writing concerning his financial condition which was materially false and was submitted to the Bank with the requisite intent to deceive and mislead the Bank on which statement the Bank reasonably relied when granting the loan and this loan, represented by the final judgment dated December 3, 1992 is determined to be nondischargeable. 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/8492000/ | ORDER
SIDNEY B. BROOKS, Bankruptcy Judge.
THIS MATTER comes before the Court on the Debtor/Defendant’s Motion to Alter or Amend Memorandum Opinion and Judgment of November 23, 1994, 179 B.R. 253, and Extend Time for Appeal filed on December 5, 1994. The Court, having reviewed the file and being advised in the premises,
DOES FIND as follows:
1. The Debtor/Defendant filed his Motion to Alter or Amend Memorandum Opinion and Judgment of November 23, 1994 and Extend Time for Appeal (“Motion”) for purposes, inter alia, of having this Bankruptcy Court alter or amend its November 23, 1994 Memorandum Opinion (“Vacatur Opinion”), which was issued subsequent to a U.S. District Court remand Order issued September 21, 1994, 179 B.R. 253 (“Order of Remand”).
2. The Order of Remand had instructed the Bankruptcy Court to vacate its Decem*263ber 10, 1992 Memorandum Opinion and Order in this case, In re Hiller, 148 B.R. 606 (Bankr.D.Colo.1992).
3. In re Hiller had earlier had been affirmed, on appeal, pursuant to Judge Nottingham’s July 25,1994 Order and Memorandum of Decision, 179 B.R. 246.
4. A basis on which the Debtor/Defendant requests this Bankruptcy Court alter or amend its November 23, 1994 Vacatur Opinion is that this Court held a hearing on the Order of Remand, October 18, 1994, but that counsel for the Debtor/Defendant, Rubner & Kutner, P.C., did not receive notice of the hearing and, consequently, did not attend the hearing.
5. Rubner & Kutner, P.C. did not receive notice of the hearing, evidently, because they withdrew as Debtor’s counsel of record on February 15, 1991, almost one year prior to the commencement of the within adversary proceeding, January 21, 1992.
6. Defendant Hiller filed his Answer in this adversary proceeding on February 20, 1992, through his then counsel of record, Steve Seifert and Tom Pierce of Fairfield & Woods. This Court denied Fairfield & Woods’ Notice of Withdrawal in the within adversary proceeding on July 30, 1992.
7. At all times pertinent hereto, the Bankruptcy Court file indicates Fairfield & Woods was counsel of record for the Defendant. Rubner & Kutner, P.C. never entered an appearance as counsel of record.
8. Debtor/Defendant filed, pro se, a document with the Court on December 28, 1992, showing a return address of P.O. Box 3863, Vail, Colorado 81658. All documents filed on behalf of the Defendant in this adversary proceeding, prior to that date, had been signed by Fairfield & Woods.
9. This Court’s Order and Notice of Hearing setting a hearing on the within matter for October 18, 1994, was mailed to Robert Padjen, Fred Hiller, Tom Pierce, H. Christopher Clark, David Solomon, and the U.S. Trustee’s Office. Thus, the record re-fleets that Debtor/Defendant’s counsel, Fairfield & Woods, and the Debtor were served notice of the hearing.1
10. With regard to the merits of Debt- or/Defendant’s Motion to Alter or Amend, Debtor/Defendant’s Motion does not provide any additional facts, reasoning, case law, or other legally sufficient grounds on which this Court should alter or amend its Vacatur Opinion of November 23, 1994. Indeed, the Debtor/Defendant does not contest or question the applicable Tenth Circuit and U.S. Supreme Court case law on which this Court relied or the controlling opinions and principles expressed in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, - U.S. -, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994), and Oklahoma Radio Associates v. Federal Deposit Insurance Corp., 3 F.3d 1436 (10th Cir.1993).
11. The Debtor/Defendant suggests that this Court’s Vacatur Opinion automatically be altered, or amended — effectively vacated, itself, or voided — without thought or consideration, and in contravention, perhaps defiance, of the controlling case law in this District and the recent case law released by the U.S. Supreme Court.
12. This Court respectfully submits that for this Bankruptcy Court to do as the Debt- or suggests, it would be improper, contrary to law, and inappropriate judicial conduct.
For the reasons set forth hereinabove,
IT IS ORDERED that Debtor/Defendant’s Motion to Alter or Amend Memorandum Opinion and Judgment of November 23,1994 is DENIED.
IT IS FURTHER ORDERED that Debt- or/Defendant’s Motion to Extend Time for Appeal is GRANTED and the Debtor/Defendant is hereby given an extension of time, through and including, December 22, 1994, within which to file with this Court a Notice of Appeal.
. First reference to Rubner & Kutner on a certificate of mailing in this Court's adversaiy proceeding file comes by way of a U.S. District Court certificate of service with respect to Judge Nottingham’s July 25, 1994 Order and Judgment. Rubner & Kutner is not, however, identified as to whom the firm represents. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492001/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is the dis-chargeability vel non of the debt admittedly due and owing to United States National Bank (Bank) by Frank J. Morettini (Debtor) and his wife, Grace R. Morettini in the amount of $5,000. The Bank orally dismissed Grace R. Morettini from this adversary proceeding. This left for consideration the claim of nondischargeability against Frank J. Morettini. It is the Bank’s contention that the obligation owed by the Debtor should be excepted from the overall protective provisions of the general bankruptcy discharge because the Debtor obtained credit when he had no intent to repay the same or knew that he lacked the ability to repay the obligation. Thus, according to the Bank, this debt is nondischargeable by virtue of § 523(a)(2)(A) of the Bankruptcy Code. In addition, the Bank also seeks the award of reasonable fees and costs based on Tran-South Financial Corp. of Florida v. Johnson, 931 F.2d 1505 (11th Cir.1991). The facts established at the final evidentiary hearing relevant to the matter under consideration are as follows:
At the time relevant, the Debtor was employed as a manager of both CBS Liquors, Inc. and NBC Liquors, Inc., owners and operators of two cocktail lounges. In 1993 the gross total which he earned was $15,896 in wages from this employment, although the Debtor testified that he did not receive regular paychecks from either CBS or NBC because he was a 50% owner of CBS and 100% owner of NBC. In addition to employment income, the Debtor received $500 per month in social security, $1,500 per month in rental income, and $1,150 per month from a mort*311gage receivable. The Debtor’s wife also received social security benefits, rental income, and payments from a mortgage receivable. Their total combined monthly income according to the Schedule I was $7,424.67 per month. It should be noted at this point that the debtor also engaged in a check cashing service at both CBS and NBC, in which he cashed local paychecks from customers for a fee. It is not clear what amount of income was received from this activity, however, this practice is of particular importance to this case because the debtor financed the activity through the use of credit cards.
The Debtor’s Schedule J lists the couple’s monthly expenses on Schedule I at $18,822. Nearly half of these expenses are “business expenses,” related to rental and business property. At this point, it is abundantly clear that the Debtor had a serious cash flow deficiency before even considering any credit card debt.
In December of 1993, the Debtor and his wife received an invitation to apply for a Visa Gold card issued by the Bank. He returned the application, and in February of 1994 received a joint Visa Gold card with a $5,000 credit limit. The Debtor immediately obtained a cash advanced by using the Visa card and exhausted its $5,000 limit on February 15. This cash advance was used by the Debtor to cash the payroll checks at his check cashing service for the employees of a nearby trucking company. The first minimum payment of $96.00 was due on April 8, 1994, and the Debtor made a payment in the amount of $200 on April 11. The Debtor also made another timely payment of $200 on May 4. No further charges or payments were made on this account. In addition to the credit card issued by the Bank, the Debt- or and his wife had 32 other credit cards. In May of 1994, the balances carried on these cards amounted to $168,422.79. The corresponding minimum payment on these cards is $2,017. In May of 1994 the debtors sought the advice of an attorney and discontinued all credit card payments although they did not file their Petition for Relief under Chapter 7 of the Bankruptcy Code until June 2, 1994.
Based on these facts, it is the contention of the Bank that the balance owed by this debt- or should be excepted from the overall provision of the general bankruptcy discharge based on § 523(a)(2)(A) of the Bankruptcy Code which provides in pertinent part as follows:
§ 523. Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
The burden of establishing a claim of nondischargeability is on the party who seeks such a determination. The burden of proof is no longer the clear and convincing standard, but merely the preponderance of evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). To establish a viable claim under § 523(a)(2)(A) for abuse of the privilege granted to a credit card holder, there must be competent proof that either the card holder used the credit card knowing that he had no intention to ever repay the debt, or knowing that he will not be capable to meet the obligations incurred through the use of the card. In re Stokes, 155 B.R. 785 (Bankr.M.D.Fla.1993).
The classic example of the first proposition is when the debtor consults an attorney for the purpose of filing bankruptcy and then makes charges on the credit card before filing bankruptcy. In the second scenario, the debtor’s income is either nonexistent or insufficient to meet his other fixed monthly obligations and he has no realistic basis to anticipate a substantial increase in his income in the near future.
The Bank contends that it has met the burden of proving nondischargeability. First, the Bank points out that the Debtor admitted at trial that he was “robbing Peter to pay Paul” in that he was taking cash advances from all of his credit cards to meet the payments on these same cards, and thus was not able to meet his monthly financial *312obligations at the time he took the cash advance from the Bank. Next, the Bank contends that the Debtor’s average monthly non-business income, as reflected on either his 1993 tax return or Schedule I (excluding “business income”), is barely equal to his minimum credit card payments, and not even close to meeting his substantial living expenses. Finally, the Bank argues that the debtor’s monthly income, including business income, falls short of his monthly living expenses without even considering credit card payments.
In his defense, the Debtor contends that he intended to repay the Bank with income from the sources listed on Schedule I. However, various unexpected events occurred which hindered his ability to repay. First, the Debtor had a decline in health. It should be noted that the Debtor is 75 years old. Second, the Debtor had a judgement entered against him in March of 1994 concerning a promissory note in the amount of $140,-126.72. Finally, the Debtor had ■ a large amount of NSF checks returned in connection with his check cashing business. As noted earlier, the Debtor engaged in cashing local payroll cheeks for customers of his liquor stores. Apparently, employees of a local trucking company routinely used the Debtor’s services to cash their checks. According to the Debtor’s answers to interrogatories, he received $98,000 in returned checks from this one source in May of 1994. The debtor argues that he used his credit cards to finance this check cashing business, and that the $98,000 in NSF cheeks would have been available to pay down the credit cards.
Although the Debtor certainly experienced numerous financial setbacks over a short period of time, the defenses asserted do not bear close analysis. Even without the rash of misfortune, a realistic assessment of the debtor’s entire financial picture should have left him with a realization that he could not live up to the new credit card obligation from the Bank.
In a best case scenario, one might assume that the debtor would have applied the entire $98,000 in NSF checks, of collected, to his credit card balances. However, this would have only reduced the outstanding balances to just over $70,000. Recall that the Debtor already had substantial negative cash flow without any credit card payments. Additionally, the assumption that the debtor would have paid down the cards is optimistic in light of the fact that he had carried a balance of at least $150,000 on these cards for the six months before filing under Chapter 7. Surely it did not take six months for the NSF checks to come back.
Probably the most relevant reason for finding that the debt is nondischargeable is contained in the Debtor’s own testimony at trial. The debtor admitted that he was unable to meet his monthly financial obligations without the use of credit card cash advances at the time he obtained the $5,000 cash advance from the Bank. Furthermore, in the Debtor’s own words he was “robbing Peter to pay Paul” with all 33 of his active credit cards. This court has no choice but to find that the Debtor, at the time of the cash advance from the Bank, knew that he would be unable to pay the obligation from regular income or a realistic anticipation of increased income.
Based on the foregoing, this Court is satisfied that the record warrants the conclusion that the debtor obtained monies and property through the use of the credit card by fraud and, therefore, the outstanding liability to the Bank shall be excepted from the general bankruptcy discharge.
A separate final judgement will be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492003/ | ORDER DENYING APPLICATION OF LABOR FORCE, INC. FOR PAYMENT OF ADMINISTRATIVE EXPENSE
STEVEN H. FRIEDMAN, Bankruptcy Judge.
This matter came before the Court November 22, 1994, on the application of Labor Force, Inc. (“Labor Force”), Ackerman, Bakst & Cloyd, P.A. (“Ackerman”) and Bracewell & Patterson, L.L.P. (“Bracewell”) (collectively the “Applicants”) for payment of administrative expenses pursuant to 11 U.S.C. § 503(b)(3)(D) and (b)(4). The Debt- or, Labor Finders International, Inc. (the “Debtor”), objects to the Applicants’ request. Having considered the application, the supporting and opposing memoranda of law, and for the reasons set forth below, the Court denies the application for payment of administrative fees.
After 16 months in bankruptcy, the Court confirmed the Debtor’s consensual plan of reorganization. The Applicants, after becoming involved in this bankruptcy 14 months after the petition was filed, take the credit for transforming the Debtor’s controverted plan into a consensual. The Applicants contend that by questioning the propriety of certain settlements, objecting to inequitable treatment of insider creditors and questioning the value of the contribution by shareholders, they caused the distribution to unsecured creditors to be increased from 16%, to be paid out in six years, to 47.59%, to be paid in one year. The Applicants assert that these services constitute a substantial contribution to the bankruptcy case, entitled them to administrative expenses. Although these services did benefit other unsecured creditors, the Court finds that these efforts were taken on behalf of Labor Force and incidentally benefitted the remaining unsecured creditors.
The parties agree that when considering-whether a party is entitled to administrative expenses courts look to three factors: (1) whether the services were rendered solely to benefit the client or to benefit all parties to the case; (2) whether the services provided direct, significant and demonstrable benefits to the estate; and (3) whether the services were duplicative of services provided by attorneys for committees, the committees, the debtor, or debtor’s counsel. See, In re Baldwin-United Corp., 79 B.R. 321, 338 (Bankr.S.D.Ohio 1987); In re Buttes Gas & Oil Co., 112 B.R. 191, 194 (Bankr.S.D.Tex.1989). The parties dispute the significance of the Applicants’ contribution to the estate. The Debtor contends that the Applicants’ services were rendered solely for the benefit of Labor Force and incidentally benefitted the other unsecured creditors. Thus, they should not be awarded administrative expenses. The *342Applicants refute this argument and cite to In re Richton Int’l Corp., 15 B.R. 854 (Bankr.S.D.N.Y.1981) for support of their assertion that a party can serve its clients interests and still be entitled to administrative expenses.
There is a significant difference between the Applicants here and the applicants in Richton. In Richton, Weil, Gotshal & Mang-es (“Weil”) excluded from its application those services which served only its client’s interest and sought compensation for those services which facilitated the progress of the ease and which substantially aided the formulation and adoption of the plan of reorganization. The services for which Weil was compensated included aiding the debtors in securing inter-company cash advances; reconciling the debtors and creditors; and, negotiating and consummating the reorganization. In this ease, the Applicants seek compensation for all time spent on the case. After reviewing the Applicants’ time entries, the Court concludes that the efforts expended by the Applicants were intended predominantly to protect and advance the interests of Labor Force, and not the interests of the other unsecured creditors. Further, the Applicants efforts did not provide direct, significant nor demonstrable benefit to the estate. Therefore, the Applicants are not entitled to administrative expenses. Accordingly, it is
ORDERED that the Applicants’ application for administrative expenses is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492004/ | MEMORANDUM OPINION AND ORDER
H. CLYDE PEARSON, Bankruptcy Judge.
Before the Court is a Motion filed by Ronald E. Payne (“Debtor”) to Avoid a Judi*482cial Lien which was filed against Debtor’s real property in Carroll County, Virginia by Crossroads of Hillsville (“Creditor”). Debtor has also filed a Motion to hold Creditor in contempt, alleging a violation of the injunction under 11 U.S.C. § 524. In addition, Creditor has filed a Motion for Sanctions against Debtor’s attorney. At the Court’s direction, the parties filed their respective authorities, after which the Court took the matter under advisement. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(b)(2)(E) and § 1334. For the reasons hereafter stated, Creditor’s and Debtor’s Motions for Sanctions and Contempt are denied; and Debtor’s Motion to Avoid Creditor’s judicial lien on Debtor’s real property in Carroll County, Virginia is granted.
On February 16,1990, Creditor obtained in state court a judgment against Debtor in the amount of $9,290.84 with costs and attorney fees. This judgment was docketed on February 23, 1990 in the Clerk’s Office of the Circuit Court of Carroll County, Virginia. At the time of docketing, Debtor owned a residence and property in Carroll County, Virginia which was subject to various prior liens.
On October 21, 1991, Debtor filed a Chapter 7 petition for relief under 11 U.S.C. § 701, et seq. In his original schedules, Debtor did not list his residence and property as exempt. However, Debtor did file a homestead deed on November 23, 1993 and, on January 13, 1994, he amended his schedules to claim exempt “any future equity in the house that would exceed $1.00.”1 Upon Debtor’s Motion, this Court avoided Creditor’s judicial lien on December 11, 1992. Creditor then moved this Court to reconsider and vacate the December 11,1992 Order and reopen the Motion to avoid Creditor’s lien, alleging lack of notice. On October 5, 1993, Creditor filed a lis pendens in the Circuit Court of Carroll County. This Court granted Creditor’s Motion, rescinding the December 11,1992 Order and reopening the Motion on November 24, 1993. Subsequently, Debt- or filed the present Motion to Avoid Creditor’s Judicial Lien on January 11, 1994.
Upon hearing, it appeared from the evidence that, at the time of filing the petition, local tax appraisals valued Debtor’s property at $147,500.00. The evidence also showed Creditor’s judicial lien is subordinate to numerous prior liens, namely: a first Deed of Trust to the Bank of Floyd in the amount of $88,362.34; a second Deed of Trust to North Carolina National Bank in the amount of $52,000.00; a judgment lien in favor of Terry’s, Incorporated, in the amount of $2,513.16;2 and a judgment lien in favor of General Parts, Inc., in the amount of $115,-473.31.3 Also at the time of filing, this property was subject to past-due taxes in the amount of $4,500.00. The total amount of liens, including taxes, senior to that of Creditor’s is $262,848.81, thus rendering no equity in Debtor’s property to support Creditor’s lien. In January 1994, Debtor sold this real estate for $185,000.00.4 Despite the automatic stay, the lis pendens caused approximately $10,000.00 of the proceeds from the sale to be held by the buyer’s attorney pending resolution of this matter.
As an initial matter, the Court notes that the Bankruptcy Code generally is to be liberally construed in favor of the debtor. See Williams v. USF & G, 236 U.S. 549, 35 S.Ct. 289, 59 L.Ed. 713 (1915); Roberts v. W.P. Ford & Son Inc., 169 F.2d 151, 152 (4th Cir.1948) (citing Johnston v. Johnston, 63 F.2d 24, 26 (4th Cir.1933) and Lockhard v. Edel, 23 F.2d 912, 913 (4th Cir.1928)). This universally recognized principle serves to *483“relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh.” Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934) (citations omitted). This same “honest but unfortunate debtor” is thus provided with “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 286, 287, 111 S.Ct. 654, 659, 112 L.Ed.2d 755, 764, 765 (1991); Perez v. Campbell, 402 U.S. 637, 648, 91 S.Ct. 1704, 1710-11, 29 L.Ed.2d 233, 241 (1971); Local Loan Co. v. Hunt, 292 U.S., at 244, 54 S.Ct., at 699; Johnston v. Johnston, 63 F.2d, at 26; Royal Indemnity Co. v. Cooper, 26 F.2d 585, 587 (4th Cir.1928).
This Court, upon trial of this matter, heard the evidence including the testimony of the witnesses. It observed the candor, demean- or, truthfulness, and forthright testimony of witnesses as well as their credibility and makes the findings and conclusions herein.
To aid the debtor in his “fresh start,” the Bankruptcy Code provides that a debtor may avoid the fixing of a judicial hen on an interest of the debtor in property to the extent that the hen impairs an exemption to which the debtor would otherwise have been entitled. 11 U.S.C. § 522(f)(1); see also Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). Thus, a judicial hen must be avoided if it impairs a debtor’s exemption. In re Opperman, 943 F.2d 441 (4th Cir.1991).
Although § 522(d) lists exemptions available to a debtor under federal law, Virginia has enacted its own exemption scheme pursuant to 11 U.S.C. § 522(b)(2)(A). See Virginia Code Ann. § 34-1, et seq. Under Virginia’s homestead exemption, “every householder, shah be entitled ... to hold from creditor process arising out of a debt, real and personal property, or either, to be selected by the householder, including money and debts due the householder not exceeding $5,000.00 in value.” Id. at § 34-4. In order to secure the benefit of Virginia’s homestead exemption, the householder must file a homestead deed. Id. at § 34r-6.
In determining which hens impair an exemption under § 522(f), the Court notes the order of priority of the hens on the property. In re Braddon, 57 B.R. 677, 679 (Bankr.W.D.N.Y.1986). Subtracting the available exemption from the value of the property, the Court then subtracts the hens, by order of their priority, from the value of the property. Id. After this process is completed, any hens that exceed the value of the property must be avoided.5 Id.; see also In re Kruger, 77 B.R. 785, 788 (Bankr.C.D.Cal.1987). This process under § 522(f) is significant in assuring that debtors gain a “fresh start” in their financial hves. In re Galvan, 110 B.R. 446 (9th Cir. BAP 1990). This concept of a “fresh start” includes reaping the fruits of post-petition appreciation of the debtor’s real estate. Id. As one court has said:
“The debtors’ ‘fresh start’ as provided by the Bankruptcy Code would be undermined by allowing the (creditor’s) hen to subtly he in ambush until after bankruptcy and suddenly, when the debtors accumulate equity, the (creditor) goes on the attack.”
In re Gunter, 100 B.R. 311, 314 (Bankr.E.D.Va.1989).
In the present case, Creditor’s judgment hen was not supported by any equity in Debtor’s property at the time of the filing of Debtor’s petition in this Court. To allow such a hen to remain in place would not only impair any exemptions to which Debtor would have been entitled, thus violative of § 522(f), but would also undermine the “fresh start” secured to Debtor by the provisions of the Bankruptcy Code. To the extent Creditor’s judicial hen impairs Debtor’s exemption, it must be avoided, for, if not, the intended benefit of the homestead exemption itself would be lost. Any remaining portion of Creditor’s hen must also be avoided as lack*484ing the supportive equity needed at the time of the filing of Debtor’s petition and Debtor’s opportunity for a “fresh start” will be frustrated unless he is entitled to avoid Creditor’s judicial hen in its entirety. See 11 U.S.C. §§ 105, 506, 552, 727, 545 and Rules 3012, 4003, 4004, 6010 and 7001, et seq.
Debtor has also filed a Motion for Contempt and Creditor has filed a Cross Motion for Sanctions against Debtor’s attorney. This Court recognizes the adversarial nature of these proceedings and believes that good faith predominates. As such, both motions are denied.
This Court finds it appropriate to note that an alleged hen upon property of a debtor without equity supporting same as of the date the petition is filed is a general unsecured claim discharged by the debtor’s discharge order under section 727 and enjoined therein from collection. The discharge order (Form 18) provides that any judgment obtained heretofore or hereafter is void as a determination of personal liability of a debtor. A judgment docketed as a hen, not supported by equity, is a judgment only of personal liability and the order specifically enjoins all creditors whose claims are such from seeking cohection.
Sections 105 and 506, as well as Rules 4004 and 7001, implement the procedure which was the basic pre-Code law in 1978. See Seaboard Small Loan, etc. v. Ottinger, 50 F.2d 856 (4th Cir.1931).
In the Seaboard case, creditor sought to subject post-petition wages of a debtor to the hen of assignment. The late distinguished Judge Parker, in holding that such acts were enjoinable as no hen existed, wrote:
Coming to the question of jurisdiction, we entertain no doubt as to the power of the court below to grant the rehef prayed. The Bankruptcy Act § 17 expressly provides that, with certain specified exceptions, a discharge in bankruptcy shah release a bankrupt from ah of his provable debts. 11 U.S.C.A. § 35. And as said by the Supreme Court in Chicago, B. & Q. R.R. v. Hall, 229 U.S. 511, 515, 33 S.Ct. 885, 886, 57 L.Ed. 1306, it was “intended not only to secure equahty among creditors, but for the benefit of the debtor in discharging him from his liabilities and enabling him to start afresh with the property set apart to him as exempt.” “The determination of the status of the honest and unfortunate debtor by his liberation from encumbrance on future exertion is matter of pubhc concern,” said Chief Justice Fuller in Hanover Nat. Bank v. Moyses, 186 U.S. 181, 192, 22 S.Ct. 857, 862, 46 L.Ed. 1113.
In view of this purpose of the act and of the express provision that the bankrupt shall be released from all provable debts, it would be indeed a strange situation if the court vested with jurisdiction to enforce the act were without power to stay the hand of a creditor whose debt has been discharged by bankruptcy, but who nevertheless persists in harassing the bankrupt with efforts to collect it. It will not do to say that the bankrupt has an adequate remedy at law by pleading the discharge in case of suit, or by suing an employer if the latter withholds wages under an order such as that here. Such remedy is not adequate, because its assertion involves trouble, embarrassment, expense, and possible loss of employment. A laboring man who had availed himself of the benefits of the act would in many cases prefer to pay a debt discharged by bankruptcy rather than hazard his employment by bringing suit for wages withheld under notice like that with which we are dealing. And an employer in many cases would prefer to discharge an employee against whom a claim had been filed rather than engage in litigation with the claimant. The demand under an assignment order, in an effort to collect a debt discharged by bankruptcy, is nothing less than an attempt to circumvent the order discharging same and to deprive the bankrupt of the benefit of that order. It was to meet situations such as this that the bankruptcy court was vested with the general power under section 2, subsection 15 of the Bankruptcy Act (11 USCA § 11(15) to “make such orders, issue such process, and enter such judgments in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this title.” As said by *485Judge Van Valkenburgh in the Swofford Bros. Dry Goods Co., Case (D.C.) 180 F. 549, 553: “.... This section may be availed of to compel anything which ought to be done for, or to prevent anything which ought not to be done against the enforcement of the law; provided the court of bankruptcy otherwise has jurisdiction of the person or the subject-matter. For such purposes the court has the plenary powers of a court of equity and can exercise the powers of such a court for the ascertainment and enforcement of the rights and equities of the various parties interested in the estate of the bankruptcy company.”
In the case of the [In re] Home Discount Company, [ (D.C.Ala.1906) 147 F. 538] supra, it was held directly that the court had the power exercised by the court below, and the discount company was fined for contempt of court because it failed to withdraw a notice of assignment filed with the employer of bankrupt. What was said by Judge Jones in that connection is pertinent here. Said he: “The filing of the assignment of the wages with the bankrupt’s employer the day after the adjudication was an effort to embarrass the administration of the estate, and to force the bankrupt by the sore pressure caused by withholding the wages to pay an illegal demand, from which a discharge would free him. It was nothing more than an effort to starve him into abandonment of his right under the law, in defiance of the orders made to enforce those rights. If a court of bankruptcy has no power to prevent creditors from making such use of assignments of wages, it had as well shut its doors, and abandon all effort to vindicate the rights which the statutes commit to its protection. The law does not make such weaklings of courts of bankruptcy. They have ample power to protect the bankrupt in the enjoyment of all his rights, and to frustrate the efforts of those who seek to defeat the practical enjoyment of them.” 50 F.2d at 859-860. (emphasis added)
The foregoing text is recited fully because it points out the pre-Code law and nowhere did the Congress demonstrate an intent or effort to dilute the debtor’s rights and benefits under the new Bankruptcy Code. The legislative history clearly shows that Congress intended to strengthen and broaden debtor’s rights to a fresh start. This is clear from the section 362 automatic stay and the injunctive provisions in the discharge order which eliminated any need of the debtor having to proceed in state or other court to obtain relief. See Va.Code § 8.01-455.
Accordingly, under present Rules and Code provisions, it is unnecessary for debtors to litigate equity injunction proceedings as in Seaboard to effect their rightful remedies. Congress provided that the discharge order shall enjoin unsecured, discharged creditors from so proceeding. Also, it gives this Court the power referred to in Seaboard to adjudicate whether or not a creditor’s claim is unsecured and, hence, discharged under the discharge order.
Therefore, the issue of exemptions or exempt property is not the only remedy available to debtors in the area of lien avoidance and nullification. If a judgment or lien on debtors’ property has no property or equity support, it is unsecured and discharged by the order of discharge.
Therefore, based on the evidence before this Court, and for the foregoing reasons, IT IS ORDERED that Debtor’s Motion to Avoid Creditor’s Lien is granted; Debtor’s Motion for Contempt is denied; and Creditor’s Motion for Sanctions is denied.
Service of a copy of this Memorandum Opinion and Order shall be made by mail to the Debtor; counsel for Debtor; counsel for Crossroads of Hillsville/Creditor; Trustee; and U.S. Trustee.
. Creditor has not filed any objections to the claimed exemption.
. This Court avoided this judicial lien by order dated December 11, 1992.
. This judgment was subsequently assigned to Debtor on April 19, 1990. 3R Partners, Inc., a partnership in which two members of Debtor's family are involved, gave Debtor the funds to payoff General Parts, Inc. Debtor then assigned his rights in the judgment to 3R Partners, Inc., which, in turn, has never released the judgment. This judgment lien was avoided by order of this Court dated December 11, 1992.
.Debtor testified that between the time of filing his petition and the sale of the property, he had made numerous improvements to the property, thus accounting for the increase in value.
. Under 11 U.S.C. § 506(a), a claim is secured only to the extent of the value of the property on which the lien is fixed; the remainder of that claim is considered unsecured. U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). 11 U.S.C. § 506(d) allows a bankruptcy court to avoid liens that exceed the value of the collateral. See In re Galvan, 110 B.R. 446 (9th Cir. BAP 1990). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492006/ | MEMORANDUM ON DEFENDANT CITY OF KNOXVILLE’S MOTION TO DISMISS AND ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
RICHARD S. STAIR, Jr., Chief Judge.
John F. Weaver, the Chapter 7 Trustee, commenced this adversary proceeding on November 17,1994, asserting that the Defendants violated the automatic stay provisions of 11 U.S.C.A. § 362(a)(3) (West 1993 & Supp.1995). The alleged violations occurred when the Defendants seized a 1981 Mack Truck1 from the debtor, Ernest Eugene Thomas, initiated postpetition forfeiture proceedings to obtain title to the truck, and, pursuant to a Civil Settlement of Seized Property and Order of Compromise and Settlement issued by the Tennessee Department of Safety, subsequently “collected”2 the truck. The Trustee seeks to avoid this post-petition transfer under 11 U.S.C.A. § 549(a) (West 1993) and, pursuant to 11 U.S.C.A. § 550(a)(1) (West 1993), seeks to recover possession of the Mack Truck or its value, plus interest and costs.3 The City of Knoxville *525filed a Motion to Dismiss on December 20, 1994, and the Plaintiff filed a Motion for Summary Judgment on January 19, 1995.4
The court dismissed the Knoxville Police Department as a Defendant by an agreed Order entered January 24, 1995, on the ground that the City of Knoxville is the proper party Defendant rather than the Police Department, which is only an agency of the City, having no separate legal existence. Robert D. Lawson, Commissioner, and the Tennessee Department of Safety were also dismissed by an agreed Order entered January 26,1995, based on the parties’ agreement that they were not transferees subject to the Trustee’s avoidance powers under the Bankruptcy Code. The Plaintiff and remaining Defendant, City of Knoxville, filed joint Stipulations on January 19, 1995, and have submitted briefs on the Defendant’s Motion to Dismiss and the Plaintiffs Motion for Summary Judgment. Pursuant to an Order entered January 9, 1995, the court will rule on the dismissal and summary judgment motions without oral argument, relying on the facts set forth in the parties’ Stipulations.
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).
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(A), (E) (West 1993).
I
When Ernest Eugene Thomas commenced his bankruptcy case under Chapter 7 on February 10, 1993, he owned a 1981 Mack Truck.5 Thereafter, on May 12, 1993, the Defendant,6 through its agent, the Knoxville Police Department, seized7 the truck pursuant to Tenn.Code Ann. §§ 53-11-201 to - 204, -451 (1991 & Supp.1994).8 Upon the issuance of a Notice of Property Seizure and Forfeiture of Conveyances on or about June 2, 1993, and the debtor’s request for a hearing, forfeiture proceedings were commenced. See Tenn.Code Ann. §§ 40-33-101 to -111 (1990 & Supp.1994) (current version at Tenn. *526Code Ann. §§ 40-33-101 to -214 (1990 & Supp.1994)).9 These forfeiture proceedings resulted in the issuance of a Civil Settlement of Seized Property dated July 1, 1993, which recites that the debtor agrees to release the 1981 Mack Truck, among other things, to the Knoxville Police Department. The Tennessee Department of Safety issued a forfeiture order on July 7, 1993, entitled “Order of Compromise and Settlement,” requiring, inter alia, that the truck “be forfeited to” the Knoxville Police Department.10 The City of Knoxville, acting through the Knoxville Police Department, thereafter collected the 1981 Mack Truck, which is presently in its possession or under its control.
During the forfeiture proceedings, the Knoxville Police Department and the Tennessee Department of Safety were without notice of the debtor’s bankruptcy case. The debtor did not disclose his bankruptcy case to the City of Knoxville or the Tennessee Department of Safety and failed to notify the Trustee of the seizure and forfeiture.11 Rather, the debtor falsely claimed that he, instead of his bankruptcy estate, was the owner of the Mack Truck when it was seized by the Knoxville Police Department and throughout the forfeiture proceedings. Consequently, the Trustee was not a party to the forfeiture proceedings, and the Defendant did not obtain a modification of the automatic stay at any time before the Knoxville Police Department collected the 1981 Mack Truck pursuant to the Order of Compromise and Settlement.
The Plaintiff and the City of Knoxville have stipulated that they “make no allegations of bad faith except against the debtor and agree that the bankruptcy estate, the City of Knoxville, and the State of Tennessee are all the targets of fraudulent acts of the debtor.” In addition, the Trustee “does not allege that there were any deficiencies in the state law proceedings. Rather, the [T]rustee solely alleges that such proceeding^] violated the automatic stay imposed by 11 U.S.C. § 362[ (a)(3) ].”12
II
Section 362 provides, in part:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301 ... of this title ... operates as a stay, applicable to all entities[13] of—
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(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
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(b) The filing of a petition under section 301 ... of this title ... does not operate as a stay—
(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor[.]
11 U.S.C.A. § 362 (West 1993 & Supp. 1995).14
*527The Defendant argues that the court lacks subject matter jurisdiction to set aside the Order of the Tennessee Department of Safety effectuating the forfeiture of the Mack Truck. To support its argument, the Defendant relies on James v. Draper (In re James), 940 F.2d 46, 51-53 (3d Cir.1991), in which the court held that bankruptcy courts may not examine the merits of state court forfeiture proceedings when the proceedings are excepted from the automatic stay under § 862(b)(4) of the Bankruptcy Code. The James case is distinguished because it involved prepetition actions against a debtor’s property and the proceedings were excepted from the stay under § 362(b)(4). Section 362(b)(4) is only applicable if the action was or could have been commenced prepetition.15 See 11 U.S.C.A. § 362(a)(1) (West 1993 & Supp.1995). In the present case, the debtor’s arrest, and the seizure, forfeiture, and collection of the truck occurred postpetition,, thereby making the § 362(b)(4) exception inapplicable.
The Trustee asserts that the Defendant’s postpetition actions violated the automatic stay. The court clearly has jurisdiction to determine whether a violation of the automatic stay, a core proceeding, occurred which is not excepted under § 362(b). See 28 U.S.C.A. § 157(b)(2)(G) (West 1993). Under the authority of the Sixth Circuit, if the Order of the Tennessee Department of Safety was entered in violation of the automatic stay, the Order will be “invalid and voidable and shall be voided absent limited equitable circumstances.” Easley v. Pettibone Mich. Corp., 990 F.2d 905, 911 (6th Cir.1993).
Limited equitable circumstances are not present in this case. The Sixth Circuit has stated
that only where the debtor unreasonably withholds notice of the stay and the creditor would be prejudiced if the debtor is able to raise the stay as a defense, or where the debtor is attempting to use the stay unfairly as a shield to avoid an unfavorable result, will the protections of section 362(a) be unavailable to the debtor.
Id. In the present case, the debtor withheld notice of the stay from the City of Knoxville and the State of Tennessee. However, the debtor is not attempting to use the stay as a shield; rather, the Trustee is using the stay to ensure that the debtor’s creditors are not prejudiced by the postpetition seizure, forfeiture, and collection of property of the estate. Cf. Job v. Calder (In re Calder), 907 F.2d 953, 956 (10th Cir.1990); In re Smith Corset Shops, Inc., 696 F.2d 971, 977 (1st Cir.1982). Moreover, the parties have stipulated that they “make no allegations of bad faith except against the debtor and agree that the bankruptcy estate, the City of Knoxville, and the State of Tennessee are all the targets of fraudulent acts of the debtor.” While the penalties for violating the automatic stay are minimized when a creditor is unaware of the debtor’s bankruptcy, the protections of the automatic stay to the debtor, creditors, and property of the estate are no less applicable. See 11 U.S.C.A. § 362(h) (West 1993) (Actual damages shall be recoverable when there has been a “willful violation of a stay.”); 11 U.S.C.A. § 542(c) (West 1993) (Turnover not required when a party, who might otherwise *528be compelled to turnover property of the estate, made a good faith transfer of that property to a third party with “neither actual notice nor actual knowledge of the commencement of the [debtor’s bankruptcy] ease.”); Smith v. First Am. Bank (In re Smith), 876 F.2d 524, 526-27 (6th Cir.1989) (“[Njotice is ordinarily irrelevant under section 362(a),” and “any equitable exception to the stay must be applied sparingly.”). Therefore, if the court finds that the Defendant violated the automatic stay, the forfeiture Order issued by the Tennessee Department of Safety on July 7, 1993, will, to the extent it purports to declare a forfeiture of the 1981 Mack Truck, be deemed “invalid and voidable and shall be voided” to ensure that the Defendant does not profit from its violation of the automatic stay or from the fraudulent acts of the debtor at the expense of the bankruptcy estate and the debtor’s creditors. Easley, 990 F.2d at 911.
The court agrees with the Trustee’s assertion that the Defendant’s postpetition seizure of the 1981 Mack Truck and subsequent actions to obtain title to the truck violated the automatic stay provisions as set forth in § 362(a)(3) of the Bankruptcy Code. The Defendant does not dispute that at the commencement of the debtor’s bankruptcy case the debtor’s 1981 Mack Truck became property of the estate, as defined by § 541 of the Bankruptcy Code, which provides that the “estate is comprised of ... all legal or equitable interests of the debtor in property as of the commencement of the ease.”16 11 U.S.C.A. § 541(a)(1) (West 1993).17 Therefore, the forfeiture proceedings and the Defendant’s efforts related thereto were actions “to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” § 362(a)(3). See Smith, 876 F.2d at 525-27, for a general discussion of the automatic stay.
The court concludes that the forfeiture proceedings and the Defendant’s seizure and collection efforts can only be excepted from the automatic stay if it is determined that § 362(b)(1) is applicable. The Defendant argues in its Motion to Dismiss and supporting Memorandum that the Trustee’s Complaint fails to state a claim upon which relief may be granted because the seizure, administrative proceedings, and forfeiture of the debt- or’s assets are excepted from the automatic stay as an exercise of police and regulatory power under 11 U.S.C.A. § 362(b)(4) (West 1993 & Supp.1995). In its response to the Trustee’s summary judgment motion, the Defendant also argues that the exception of § 362(b)(1) is applicable to this case. The Trustee argues that neither § 362(b)(1) or (4) apply, relying on the argument that state forfeiture proceedings do not constitute criminal actions or proceedings against the debtor as required by § 362(b)(1) and that § 362(b)(4) does not except violations of the stay provisions set forth in § 362(a)(3). As previously discussed, the issue in this proceeding does not center on § 362(b)(4), and the court finds that § 362(b)(4) is inapplicable to determining whether the Defendant violated the automatic stay.18
The only issue left to resolve is whether the postpetition forfeiture proceedings and the related actions of the. Defendant, primarily through its agent, the Knoxville Police Department, are excepted from the stay under § 362(b)(1). Section 362(b)(1) will only except the forfeiture proceedings and the Defendant’s actions from the automatic stay if they constitute “a criminal action or proceeding against the debtor.” The court finds that the postpetition forfeiture proceedings were not actions or proceedings against the debtor. Rather, they were actions against property of the estate19 that resulted in a decrease of the property of the *529estate which will ultimately punish the creditors by enriching the seizing agency at the expense of the creditors. See Goff v. Oklahoma (In re Goff), 159 B.R. 33, 39, 42 (Bankr.N.D.Okla.1993); see also Word v. Commerce Oil Co. (In re Commerce Oil Co.), 847 F.2d 291, 296 (6th Cir.1988). Congress explicitly limited the § 362(b)(1) exception to “criminal aetion[s] or proceeding^] against the debtor”; therefore, the court can not' infer that Congress intended for § 362(b)(1) to except postpetition state forfeiture proceedings initiated against property of the estate because the proceedings are only related to the criminal acts of the debtor. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989) (“[W]here ... the statute’s language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ”) (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917)).
The Supreme Court has stated that under rare circumstances, the court need not apply a literal interpretation of the Code if it “ ‘will produce a result demonstrably at odds with the intentions of its drafters.’” Id. at 242, 109 S.Ct. at 1031 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)). Congress enacted § 362(b)(1) with the intent that the bankruptcy laws not become “a haven for criminal offenders.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 342 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6299. In this case, the restriction of postpetition forfeiture proceedings against property of the estate where the arrest and seizure occurred postpetition does not create “a haven for criminal offenders.” Rather, during the time that the automatic stay is in place, such a restriction protects the property of the estate and prohibits the Defendant from profiting from its violation of the automatic stay and from the postpetition fraudulent acts of the debtor at the expense of the estate and the debtor’s creditors. If, for some reason, the truck were to be removed from the property of the estate and returned to the debtor, the restriction under § 362(a)(3) would no longer apply.20
Under the authority of the Sixth Circuit, the state forfeiture proceedings and resulting Civil Settlement of Seized Property dated July 1,1993, and Order of Compromise and Settlement issued by the Tennessee Department of Safety on July 7, 1993, being in violation of the automatic stay provisions of § 362(a)(3), will be voided and deemed invalid with respect to the 1981 Mack Truck.
The Trustee seeks, through his Complaint, to avoid and recover the postpetition transfer to the Defendant under Bankruptcy Code §§ 549 and 550, which provide in material part:
(a) Except as provided in subsection (b) or (c) of this section [inapplicable herein], the trustee may avoid a transfer of property of the estate—
(1) that occurs after the commencement of the case; and
(2)(A) that is authorized only under section 303(f) or 542(c) of this title; or
(B) that is not authorized under this title or by the court.
11 U.S.C.A. § 549(a) (West 1993).
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section ... 549 ... 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[.]
11 U.S.C.A. § 550(a)(1) (West 1993). Under the Bankruptcy Code, a “transfer” is defined as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property.” 11 U.S.C.A. § 101(54) (West 1993).
*530For the reasons set forth above, the Plaintiff being entitled to a judgment as a matter of law, his Motion for Summary Judgment will be granted. The Defendant’s Motion to Dismiss will be denied. A discussion of whether the term “criminal action or proceeding” as used in § 362(b)(1) encompasses state forfeiture proceedings is unnecessary. Further, the Plaintiff is entitled to avoid the transfer of the 1981 Mack Truck to the Defendant pursuant to § 549(a) and to recover the transferred property pursuant to § 550(a)(1). An appropriate judgment will be entered.
.The parties refer to this vehicle as both a Mack Tractor and a Mack Truck. The court will use the term "Mack Truck” or “truck” to refer to the vehicle. The Trustee and the Defendant City of Knoxville, by written Stipulations filed January 19, 1995, stipulate that the Mack Truck is property of the estate.
. The term "collected” is used by the parties in their January 19, 1995 Stipulations.
. The Trustee, through his Complaint, also sought recovery of a Timpt Trailer. However, pursuant to the parties' Stipulations, the Timpt Trailer is not subject to this action because the debtor acquired it after the commencement of *525his bankruptcy case, resulting in its exclusion from property of the estate.
. The Motion to Dismiss was filed by the City of Knoxville “for itself and for its instrumentality the Knoxville Police Department." As the Knoxville Police Department has been dismissed, the court will deem the Motion to Dismiss as having been filed solely by the Defendant City of Knoxville.
. Although not specifically stipulated by the parties, the court takes judicial notice pursuant to Fed.R.Evid. 201 of the fact that the debtor did not disclose his interest in the Mack Truck in his bankruptcy schedules filed February 10, 1993. The Trustee asserts in his Brief filed January 19, 1995, that he learned of the Mack Truck sometime after the debtor received his discharge on May 26, 1993. The debtor's discharge was subsequently revoked by Default Judgment entered in another adversary proceeding, No. 94-3001, on August 24, 1994, upon motion by the Trustee. That adversary proceeding was grounded, in part, on the debtor's failure to properly disclose his interest in the Mack Truck.
. All references hereinafter to the Defendant are to the City of Knoxville.
. The terms "seized” and “seizure” are used herein to describe the confiscation of the truck on May 12, 1993. Under the Tennessee Code, property subject to forfeiture may be seized “upon process issued by any circuit or criminal court having jurisdiction over the property" or "without process ... if the seizure is incident to an arrest or a search under a search warrant.” Tenn.Code Ann. § 40-33-102 (1990). The parties' briefs provide that the debtor was arrested on May 12, 1993, and imply that the seizure was incident to the debtor's arrest.
. The Seizure Report recites that a 1986 “Olds Cutless,” a 1981 Mack Truck, a 1980 Timpt Trailer, a cellular phone and charger, $14,970 in cash, and 80 pounds of marijuana were seized from the debtor. The Trustee claims an interest only in the 1981 Mack Truck.
. The Tennessee Legislature enacted sections 40-33-201 to -214 of the Tennessee Code in 1994, setting forth procedures for the seizure and forfeiture of personal property, effective October 1, 1994. These sections are inapplicable to the issues in this adversary proceeding, especially given the Trustee's stipulation that he does not allege that there were any deficiencies in the state law proceedings.
. Two forfeiture Orders were issued, only one of which relates to the 1981 Mack Truck. The Civil Settlement and Orders also require that the debt- or forfeit a Timpt Trailer and $7,485 to the Knoxville Police Department, and that the Knoxville Police Department return a 1986 "Oldsmobile Cutlass,” a cellular phone and charger, and $7,485 to the debtor. The Knoxville Police Department has fulfilled its obligation to return the specified items to the debtor.
. See supra note 5.
. The Trustee's Complaint specifically limits his action to § 362(a)(3).
13. The term "entities,” as defined by the Bankruptcy Code, includes "governmental unit[s].” 11 U.S.C.A. § 101(15), (27) (West 1993).
. Section 362(b) also provides for the following exceptions from the automatic stay:
(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power;
(5) under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or pro*527ceeding by a governmental unit to enforce such governmental unit’s police or regulatory power[.]
11 U.S.C.A. § 362(b)(4)-(5) (West 1993 & Supp.1995). These exceptions are inapplicable to this proceeding because the Trustee’s Complaint is grounded on § 362(a)(3) rather than § 362(a)(1) or (2). Further, the facts of this case do not lend themselves to allegations of a violation of § 362(a)(1), which stays "the commencement or continuation ... [of an] action or proceeding against the debtor that was or could have been commenced before the commencement of the case," or § 362(a)(2), which stays "the enforcement, against the debtor or against property of the estate, qf a judgment obtained before the commencement of the case.” 11 U.S.C.A. § 362(a)(1), (2) (West 1993 & Supp.1995) (emphasis added).
In this case, the debtor commenced his bankruptcy case on February 10, 1993. The Knoxville Police Department arrested the debtor and seized the Mack Truck, among other things, on May 12, 1993. Forfeiture proceedings were commenced shortly thereafter. The Defendant has not asserted that the arrest, seizure, or forfeiture proceedings could have been made or commenced prior to February 10, 1993. Therefore, the court finds that § 362(b)(4) and (5) are inapplicable to determining whether the Defendant violated the automatic stay.
. See supra note 14.
. See supra note 1.
. Section 541(b) — (d) sets forth certain exclusions from property of the estate, none of which are applicable to this case. 11 U.S.C.A. § 541(b) — (d) (West 1993 & Supp.1995).
. See supra note 14.
.The court does not imply that the postpetition forfeiture proceedings were not actions against the debtor solely because they were in rem proceedings. Reliance on the "technical distinction between proceedings in rem and proceedings in personam" might he “misplaced.” Austin v. United States, - U.S. -, - n. 9, 113 S.Ct. 2801, 2809 n. 9, 125 L.Ed.2d 488 (1993).
. For example, had the truck been abandoned by the Trustee or had the debtor claimed and been allowed the truck as exempt, the stay under § 362(a)(3) would no longer be in effect as the truck would be removed from the property of the estate. See 11 U.S.C.A. § 362(c)(1) (West 1993) (‘TTJhe stay of an act against properly of the estate ... continues until such property is no longer property of the estate_"). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492007/ | ORDER
JAMES J. BARTAl, Bankruptcy Judge.
This Order addresses the Plaintiff’s motion to reconsider the Court’s Orders entered on February 17, 1995 and February 23, 1995, and the Defendant’s responsive motion to dismiss the Plaintiff’s motion to reconsider, and a request for costs and attorney fees.
Neither motion included a memorandum of law.
The Plaintiff’s motion to reconsider does not refer to a statute or rule as a basis for the relief requested. If the request is intended to be a motion to alter or amend a judgment pursuant to Bankruptcy Rule 9023 and Federal Rule of Civil Procedure 59, the request must be denied as having been filed out of time.
If the request is intended to be a motion for Relief From Judgment or Order pursuant to Bankruptcy Rule 9024, and Rule 60(b), F.R.Civ.P., the Court has determined *643that the Plaintiffs motion filed on March 13, 1995 was made within a reasonable time after the Orders were entered, and will be considered further here.
On the 13th day of October, 1994, the Plaintiff stipulated, “That the applicable statute of limitations for fraud in Illinois is five (5) years from discovery.” Adversary file no. 94-4234, document no. 9. In its motion to reconsider, the Plaintiff has submitted no authority or other support for its conclusion that, notwithstanding its stipulation, the statute of limitations does not apply to Plaintiff.
In the circumstances presented in this Adversary Proceeding, and on consideration of the record as a whole, it was not unreasonable for the Parties and the Court to rely upon the stipulation and the summary judgment procedure agreed upon by the parties, as a fair and economically sound method to resolve the disputed issue.
The Court finds and concludes that the Plaintiffs motion has not presented any reason justifying relief from the operation of the judgment.
IT IS ORDERED that this matter is concluded; and that the Plaintiffs motion to reconsider the Court’s previous orders by altering or amending the judgment pursuant to Rule 59(e), Federal Rules of Civil Procedure is denied as having been filed out of time.
IT IS FURTHER ORDERED that the Plaintiffs motion to reconsider the Court’s previous orders by relieving it from such final orders pursuant to Rule 60(b), Federal Rules of Civil Procedure is denied for the reasons set out above.
IT IS FURTHER ORDERED that the Defendant’s motion to dismiss Plaintiffs motion to reconsider is denied as moot.
In addition to the foregoing, the Court has determined that the Defendant’s request to find that the position of the Plaintiff/Creditor was not substantially justified in this Adversary Proceeding is not supported by the record in this matter. Therefore,
IT IS FURTHER ORDERED that the Defendant’s motion for attorney’s fees pursuant to 11 U.S.C. § 523(d) is denied; and that all other requests in this matter are denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492008/ | MEMORANDUM OPINION1
JOHN T. FLANNAGAN, Bankruptcy Judge.
Debtor Priscilla Jane McPheeters claims an exemption under K.S.A. § 60-2304(e) for the Mary Kay cosmetics inventory that she sells in the course of her occupation.2 The trustee contests the exemption claim. For the reasons stated, the Court rules that the inventory is not exempt.3
*681The exact language of K.S.A. § 60-2304(e) applicable here comes from the 1988 amendments to the statute:
Every person residing in this state shall have exempt from seizure and sale upon any attachment, execution or other process issued from any court in this state, the following articles of personal property:
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(e) The books, documents, furniture, instruments, tools, implements and equipment, the breeding stock, seed grain or growing plants stock, or the other tangible means of production regularly and reasonably necessary in carrying on the person’s profession, trade, business or occupation in an aggregate value not to exceed $7,500.
K.S.A. § 60-2304(e), L.1988, ch. 217, § 2; July 1. (Emphasis added.)
The parties have stated the relevant facts in their Final Pretrial Conference Order as follows:
A. The debtors filed their Chapter 7 bankruptcy case on April 28, 1993.
B. The separate debtor, Priscilla Jane McPheeters, is, and was at the time the case was filed, engaged in the occupation of selling Mary Kay cosmetics. She purchases the cosmetics from Mary Kay Cosmetics, Inc. at a wholesale price, and resells them to her customers at a retail price. She does not use the cosmetics as raw materials in any manufacturing or other finishing process, nor does she manufacture the cosmetics herself. However, Mrs. McPheeters does use the inventory which is required to carry on her profession.
C. At the time the bankruptcy case was filed, Mrs. McPheeters owned a quantity of Mary Kay cosmetics which had a value at her cost of approximately $2,800.
D. Mrs. McPheeters claimed the Mary Kay cosmetic inventory as exempt in Schedule C attached to her petition, under K.S.A. 60-2304(e).
E. The trustee filed a timely objection to the claim of exemption on June 14,1993.
F. The debtors filed a timely response to the Trustee’s objection on June 17,1993.
The parties further stipulate and agree that the law governing the exemption of tools of the trade' is K.S.A. 60-2304(e).4
The briefs cite Kansas state court cases dating from 1872 to 1920: Guptil v. McFee, 9 Kan. 26, 28 (1872); Bequillard v. Bartlett, 19 Kan. 382 (1877); Jenkins v. McNall, 27 Kan. 532 (1881); Williams v. Vincent, 70 Kan. 595, 79 P. 121 (1905); Reeves & Co. v. Bascue, 76 Kan. 333, 91 P. 77 (1907); Millinery Co. v. Round, 106 Kan. 146, 186 P. 979 (1920). They also cite Kansas bankruptcy cases covering the period from 1981 to 1989: In re Frierson, 15 B.R. 157, 159 (Bankr.D.Kan.1981); In re Currie, 34 B.R. 745 (D.Kan.1983); In re Meckfessel, 67 B.R. 277 (Bankr.D.Kan.1986); In re Massoni, 67 B.R. 195 (Bankr.D.Kan.1986); Heape v. Citadel Bank of Independence (In re Heape), 886 F.2d 280, 282 (10th Cir.1989).
Since the exemption statute involved was substantially amended in 1963 and periodically thereafter, the utility of cases before that time is limited for construing its meaning. Unfortunately, while the cases after 1963 involve the present form of the statute, they are all farm cases covering various items of farm tools rather than items similar to the Mary Kay inventory in this case.
There is, however, one unpublished bankruptcy decision involving property analogous to that before the Court in this case. In re Stoll, Case No. 92-12184-7, (Bankr.D.Kan. February 3, 1994). Stoll claimed an inventory of fruit and nuts exempt under the statute at issue here. He purchased the fruit and nuts in bulk, mixed and packaged them, then retailed the packages to the public. Referring to K.S.A. § 60-2304(e) and the fruit and nuts inventory, Judge Pearson found that “[cjlearly no reasonable construction of the current Kansas statute allows a debtor to exempt inventory.” Id. at 4.
I agree with Judge Pearson’s ruling. The statute’s use of the phrase “or the other tangible means of production regularly and reasonably necessary in carrying on the person’s profession, trade, business ...” takes meaning from the earlier words, “books, doc*682uments, furniture, instruments, tools, implements and equipment, the breeding stock, seed grain or growing plants stock....” All of these categories of property are “means of production” in the sense that without them, a debtor cannot conduct business. On the other hand, inventory held for resale is not “necessary in carrying on ... business” in the same sense. While the sale of the inventory will produce revenue, debtor may still be able to carry on her business and make a living without this particular inventory, provided she gets other inventory with postpetition capital. Without the other types of property listed in the statute, a debtor has no “tangible means of production.” Inventory is distinguishable from “other tangible means of production.”
Debtor’s claim of exemption is denied.
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.
. Debtors Jeffrey Scott McPheeters and Priscilla Jane McPheeters appear by their attorney, Thomas M. Mullinix of Evans & Mullinix, P.A., Lenexa, Kansas. The Chapter 7 trustee, Eric C. Rajala, also appears.
. The state statute controls because Kansas has opted out of the federal exemption scheme. See K.S.A. § 60-2312(b).
.The Court finds that this proceeding is core under 28 U.S.C. § 157 and that 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).
. Final Pretrial Conference Order on Trustee's Objection to Claim of Exemption in Inventory filed December 3, 1993, at 2-3. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492009/ | ORDER GRANTING MOTION FOR SUMMARY JUDGMENT OF DEFENDANT FLEMING COMPANIES, INC.
1
JOHN T. FLANNAGAN, Bankruptcy Judge.
If a trustee2 rejects an unexpired lease, the lessee “may remain in possession of the leasehold” for the balance of the lease term, or longer depending on nonbankruptcy law, according to § 365(h)(1) of the Bankruptcy Code.3 The question here is whether a lessee that subleased the property before the *683debtor-lessor filed bankruptcy can remain in possession after the trustee rejects the lease. The Court answers in the affirmative.
The debtor, a limited partnership, owns a strip shopping center called Stanley Station located in the city of Stanley, Johnson County, Kansas. On November 13, 1978, debtor, as lessor, entered into a 20-year “build and lease” agreement with the lessee, Fleming Companies, Inc. (“Fleming”), covering premises within Stanley Station. Just prior to the filing of the bankruptcy petition on February 16, 1990, Fleming sublet the premises to Mark A. Dobbels and Albert J. Dobbels (collectively, “the Dobbels”).
After the Chapter 11 order for relief, debt- or filed an adversary complaint to reject the lease and regain possession of the leasehold property, joining Fleming and the Dobbels as defendants.4 Fleming and the Dobbels answered that the lease should not be rejected, but if it was, as lessee and sublessee, respectively, they were entitled to remain in possession of the leased property under 11 U.S.C. § 365(h)(1). Debtor filed a motion for partial summary judgment to which Fleming responded with its own summary judgment motion. Following oral arguments on the motions, the Court took the matter under advisement.5
Federal Rule of Civil Procedure 56, governing summary judgment, is made applicable to bankruptcy proceedings through Fed. R.Bankr.P. 7056. The Court must grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The Court must view the evidence and draw any inferences in a light most favorable to the party opposing summary judgment. Eaton v. Jarvis Product Corp., 965 F.2d 922, 925 (10th Cir.1992). The moving party has the burden of showing that it is entitled to summary judgment as a matter of law. Oklahoma Radio Associates v. F.D.I.C., 987 F.2d 685, 690 (10th Cir.1993).
The Court adopts the uncontroverted statements of fact set out.in debtor’s memorandum in support of its motion for partial summary judgment:6
1. On February 16, 1990, Stanley Station filed a voluntary petition commencing this case under Chapter 11 of the United States Code. (Complaint to Reject Lease and Determine Rights of Possession (“Complaint”), Par. 1; Conceded at Answer, Par. 1).
2. Plaintiff is the owner of real estate located in Johnson County, Kansas, more particularly described in the attached Exhibit A and commonly known as “Stanley Station.” (Complaint, Par. 5; Conceded at Answer, Par. 1.)
3. Plaintiff, as Lessor, entered into a Lease dated November 13, 1978, with Defendant Fleming Companies, Inc. (“Flem-1 ing”), as Lessee. The Lease covered certain described premises in Stanley Sta-tion_ (Complaint, Par. 6; Conceded at Answer, Par. 3.)
4. Fleming denies having used the leased premises for a grocery store operation. (Answer, Par. 3.)
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6. After Stanley Station moved to reject Fleming’s lease, Fleming subleased the premises to defendants Dobbels. Any *684rights of defendant [sic] Dobbels in the space are subject to Stanley Station’s rights and remedies under 11 U.S.C. § 365 to reject Fleming’s Lease. (Complaint, Par. 8; Conceded at Answer, Par. 1.)
7.On the date that Stanley Station filed its voluntary petition commencing this case, neither Fleming nor Dobbels was operating a retail operation at the premises. (Affidavit, Par. 4) After the commencement of this case, Dobbels opened a hardware store in the space formerly possessed by Fleming (Aff., Par. 5).7
Further, the Court adopts the uncontro-verted statements of fact contained in defendant Fleming’s brief in support of its motion for summary judgment:8
1. Stanley owns and operates a strip shopping center at the junction of Highway 169 and 151st Street in Stanley, Kansas. On November 13, 1978, Stanley, as lessor, and Fleming, as lessee, entered into a Build and Lease Agreement (“Lease ”). Fleming thereby agreed to lease approximately 15,000 square feet at the shopping center for an initial term of twenty years. Fleming has options to extend the initial term for three additional terms of five years each. Lease (¶¶ 4 and 5).
2. The Lease (¶ 6) requires Fleming to pay rent in an amount equal to $4,500 per month or 1.25% of annual gross sales, whichever is greater; common area maintenance expenses; insurance; maintenance; and repairs. Fleming has paid all rent and performed all of its other obligations under the Lease. Affidavit of Donald Boos (¶ 8).
3. The Lease (¶ 18) gives Fleming an absolute right to assign and sublease without Stanley’s consent.
4. The Lease (¶ 26) specifically acknowledges that Fleming “... is presently involved in numerous other activities at other locations.” The Lease does not limit or restrict Fleming’s right to engage in these activities at any location.
5.The Lease (¶ 24) gives Stanley the right to terminate Fleming’s possessory rights, with or without a termination of the Lease, only upon Fleming’s failure to pay rent or Fleming’s failure to perform its other obligations under the Lease.
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Jegen’s United Super, Inc.
7. Fleming sublet the premises to Je-gen’s United Super, Inc. (“Jegen’s”). Je-gen’s operated a grocery store on the premises from January 1980 to 1988. Fleming and Jegen’s terminated the sublease on January 25, 1990. Affidavit of Donald Boos (¶ 3).
8. The premises were idle from 1988 to January 25, 1990.9 With no income of any kind from the premises, Fleming paid rent (approximately $100,000) to Stanley and performed all of its other obligations under the Lease. Stanley accepted Fleming’s rent payments and performance of Fleming’s other obligations. Affidavit of Donald Boos (¶¶ 8 and 9).
9. In the meantime, Fleming and Je-gen’s controlled access to the premises, and made them available for inspection by the Dobbels and other prospective subles-sees. Stanley’s only right of access to the premises was the right, granted by the Lease (¶ 11), to enter for the purpose of making inspections. Stanley did not attempt to exercise greater control over the premises. Nor did Stanley attempt to restrict Fleming’s or Jegen’s access to the premises. Affidavit of Donald Boos (¶ 7).
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The Dobbels
11. Fleming sublet the premises to the Dobbels on January 25, 1990_ Affidavit of Donald Boos (¶¶ 4 and 6).
*685
Mutual Benefit Life Insurance Company
12. On December 13, 1985, Stanley mortgaged the premises and the remainder of the shopping center, and assigned the Lease and all other leases to Mutual Benefit Life Insurance Company (“Mutual Benefit”). Recorded copies of the Mortgage and Security Agreement (“Mortgage ”) and the Assignment of Rents and Leases {“Assignment”) are identified as Exhibits B and C of this Brief....
13. On February 1, 1990, Mutual Benefit commenced a foreclosure proceeding (No. 90-C1356) in the District Court of Johnson County, Kansas. On the same date, the District Court of Johnson County, Kansas entered an Order that directed Fleming and Stanley’s other lessees to pay rent to Mutual Benefit... .10
.These uncontroverted statements of fact from the parties’ pleadings are consistent and provide the Court with a foundation for finding that there are no genuine issues of material fact and that the matter is ripe for summary judgment.
Section 365(h)(1) addresses a lessee’s right to possession upon debtor’s rejection of an unexpired lease of real property.11
(h)(1) If the trustee rejects an unexpired lease of real property of the debtor under which the debtor is the lessor, ... the lessee ... under such lease ... may treat such lease ... as terminated by such rejection, where the disaffirmance by the trustee amounts to such a breach as would entitle the lessee ... to treat such lease ... as terminated by virtue of its own terms, applicable nonbankruptcy law, or other agreements the lessee ... has made with other parties; or, in the alternative, the lessee ... may remain in possession of the leasehold ... under any lease ... the term of which has commenced for the balance of such term and for any renewal or extension of such term that is enforceable by such lessee ... under applicable non-bankruptcy law.12
In Lee Road Partners, Ltd. v. Woolworth (In re Lee Road Partners, Ltd.), 169 B.R. 507 (E.D.N.Y.1994),13 the court construed this statute to mean that the lessee needs only constructive possession of the leasehold — not actual possession — in order to remain in possession of the premises after rejection of the lease. In arriving at this conclusion, the court stated:
When nontechnical words and phrases are not specifically defined in a statute, they should be interpreted according to their ordinary, natural meaning. See Smith v. United States, - U.S. -, -, -, 113 S.Ct. 2050, 2054, 2061, 124 L.Ed.2d 138 (1993) (citations omitted). In ordinary parlance, the term possession connotes ownership and control. One can certainly possess property without actually inhabiting it. The conventional dictionaries cited by Chief Judge Duberstein confirm this familiar understanding of the word. See In re Lee Road Partners, Ltd., 155 B.R. [55] at 58 [ (Bkrtcy.E.D.N.Y.1993) ] (citing Webster’s Seventh New Collegiate Dictionary and Black’s Law Dictionary). See also Brief of Appellee Ross Stores at 7 (citing The Concise American Heritage Dictionary). As Black’s Law Dictionary states, possession is “[t]he detention and control ... of anything which may be the subject of property, for one’s use and enjoyment, either as owner or as the proprietor of a qualified right in it, and *686either held personally or by another who exercise [sic] it in one’s place and name.” BLACK’S LAW DICTIONARY 1047 (5th ed. 1979). The law recognizes two types of possession, actual and constructive. “A person who, although not in actual possession, knowingly has both the power and the intention at a given time to exercise dominion or control over a thing, either directly or through another person or persons, is then in constructive possession of it.” BLACK’S LAW DICTIONARY at 1047. Clearly, then, Woolworth’s relationship to the Premises falls squarely within both the ordinary understanding and conventional dictionary definitions of possession.
Moreover, words must be interpreted and understood in context. “The meaning of a word that appears ambiguous if viewed in isolation may become clear when the word is analyzed in light of the terms that surround it.” Smith, - U.S. at -, 113 S.Ct. at 2054. Thus, even if the term “possession” were innately ambiguous, the Debtor has to contend with the prepositional phrase immediately thereafter: “of the leasehold.” As one commentator puts it, “the plain language unequivocally provides that the tenant will remain in possession of the leasehold,' under the lease.. Physical possession is not required.” Robert M. Zinman, Landlord’s Lease Rejection and the 1984 Amendments to § 365(h), 13 AM.BANKR. INST.J. 16, 16 (1994) (emphasis in original). In addition, the phrase at issue in this case — which grants the lessee the right to remain in possession of a leasehold under a lease — is juxtaposed with language granting a timeshare interest purchaser the right to remain in possession of a timeshare interest under a timeshare plan. Timeshare interest holders are only in literal, physical “possession” of a premises during a few allotted weeks (or days) of a year. See In re Lee Road Partners, Ltd., 155 B.R. at 59; Zinman, 13 AM.BANKR.INST.J. at 16 n. 2. Understood in context, therefore, it becomes even clearer that Congress did not intend to limit the term possession in § 365(h)(1) to those who at any given time are in physical possession of the subject property. Thus, Woolworth, who still has a valid Overlease with the Debtor, remains in possession of the leasehold, notwithstanding the fact that it has sublet the Premises to a number of subtenants, including one who later assigned its interest in its sublease to the Debtor.14
Under this analysis, Fleming would be entitled to remain in possession of the leasehold.
Furthermore, the provisions of the statute do not indicate that Congress intended to prevent subleasing. Yet, the essence of debtor’s argument is that under § 365(h)(1), Fleming’s exercise of its power to sublease should be viewed as a change in possession preventing it from claiming the benefits of § 365(h)(1). If Fleming had not sublet before the filing and the rejection, it could have done so afterwards. Since by the terms of the statute, neither the filing nor the rejection cut off the power of the lessee to sublease, the language “the lessee ... may remain in possession of the leasehold” simply identifies any party under the lease who would be harmed by rejection if not allowed to remain in possession.
The Court grants debtor’s request to reject the lease since rejection may relieve the debtor of some lease obligations. However, the debtor’s motion for summary judgment is otherwise denied.
Based on the analysis in Lee Road Partners and the reasoning in this opinion, the Court rules that actual possession by Fleming is not necessary under 11 U.S.C. § 365(h)(1) to preserve its leasehold rights after rejection. Fleming’s constructive possession of the leasehold entitles it to remain in possession. To this extent, Fleming’s motion for summary judgment is granted.
This Order 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.
.Debtor Stanley Station Associates, L.P. ("Stanley Station”), appears by its attorneys, Cynthia F. Grimes and Scott Wasserman of the firm of Lewis, Rice & Fingersh, Kansas City, Missouri. Defendants Fleming Companies, Inc. ("Fleming"), and Mark A. Dobbels and Albert J. Dobbels ("Dobbels") appear by their attorney, Michael R. Roser of the firm of Lathrop & Norquist, Kansas City, Missouri.
. The debtor-in-possession, Stanley Station Associates, L.P., will be referred to as "trustee,” "debtor,” "lessor,” or lessor-debtor.”
. Effective October 22, 1994, The Bankruptcy Reform Act of 1994 amended 11 U.S.C. § 365(h)(1). The amendment is not applicable *683here because this case was not filed on or after October 22, 1994. Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, §§ 205, 702 (not applicable, with exceptions, to cases commenced before the October 22, 1994, date of enactment).
.Debtor's brief states that the Court directed it to file an adversary proceeding to reject the lease. However, Fed.R.Bankr.P. 6006 permits motion practice for lease rejection, and the Court has no recollection of requiring an adversary complaint.
. 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 exhibits referred to by plaintiff's memorandum are not attached to this opinion.
. Debtor's Motion and Memorandum in Support of Motion For Partial Summary Judgment filed October 28, 1991, at 2-3.
. The exhibits to Fleming’s brief are not attached to this opinion.
.Debtor contends that the premises remained idle until May 12, 1990. The Court finds that the dispute as to the time the premises remained idle is not material to the resolution of this matter.
. Brief in Support of Motion By Defendant Fleming Companies, Inc. For Summary Judgment and in Opposition to Motion By Plaintiff Stanley Station Associates, L.P. For Partial Summary Judgment filed December 13, 1991, at 2-7. (Footnotes omitted.)
. Effective October 22, 1994, The Bankruptcy Reform Act of 1994 amended 11 U.S.C. § 365(h)(1) to include within the term “lessee”: "any successor, assign, or mortgagee permitted under the terms of such lease.” However, the amendment is not applicable here because this case was not filed on or after October 22, 1994. Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, §§ 205, 702 (not applicable, with exceptions, to cases commenced before the October 22, 1994, date of enactment).
. 11 U.S.C. § 365(h)(1) (emphasis added).
. The decision distinguishes In re Harborview Development 1986 Ltd. Partnership, 152 B.R. 897 (D.S.C.1993), cited by the debtor (finding that the sublessor was not in possession under § 365(h) based on state law statutes).
. Id. at 509-10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492010/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is a claim set forth by Diane L. Jensen (Trustee) in a two-count Complaint filed against Paul L. Brink and Loraine D. Brink (Debtors). In Count I the Trustee seeks an order directing the Debtors to turn over their Nationwide insur-*727anee annuity in the original amount of $13,-400. In Count II of the Complaint the Trustee alleges that on December 22, 1993 the Debtors obtained their discharge; that the Debtors knowingly and fraudulently failed to deliver property of the estate and, therefore, the discharge previously entered should be revoked pursuant to § 727(d)(2) of the Code.
On October 6, 1994, the Trustee amended her Complaint and reduced her demand to $12,000.57. In due course the Debtors filed their answer. On November 8, 1994 the Trustee filed a Motion for Summary Judgment supported by an Affidavit of the Trustee and opposed by an Affidavit executed by the Debtors on November 23, 1994. On November 14, 1994 this Court entered a Partial Final Judgment in favor of the Trustee and against the Debtors in the amount of $12,-000.57 together with $120 for costs. This left for consideration the claim set forth in Count II which is based on § 727(d)(2) of the Code which provides:
§ 727. Discharge
(d) On request of the trustee, a creditor, of the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if—
(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee.
It is the Trustee’s contention that the facts are without dispute and she is entitled to a final judgment on Count II in her favor revoking the discharge heretofore entered based on § 727(d)(2)(A). In opposition, counsel for the Debtors urge that there was no written order entered by this Court which ordered the Debtors to turn over the annuity in question or the proceeds of the annuity therefore there is no legal basis to revoke the discharge. The difficulty with this argument is obvious when one considers the basis of the Trustee’s claim. The Trustee is not seeking an order revoking the discharge under § 727(a)(3) which would warrant revocation of a discharge pursuant to § 727(a)(6) if a debtor, during the case, willfully refused to obey a lawful order of the Court, but under § 727(d)(2)(A) on the basis that the Debtors knowingly and fraudulently failed to report the acquisition or entitlement to property or to deliver such property to the Trustee. The difficulty with the Trustee’s position, however, should be evident if one considers the language of § 727(d)(2)(A) together with § 541(a)(5) which provides that any interest in property which the debtor acquires or becomes entitled to acquire within 180 days by bequest, devise, or inheritance, § 541(a)(5)(A), as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree, § 541(a)(5)(B), or as a beneficiary of a life insurance policy or of a death benefit plan, § 541(a)(5)(C).
Even a cursory reading of this Section leaves no doubt that the property in question, that is the annuity, was not the type of property which the Debtor acquired 180 days after the commencement of the case since it is without dispute that the Debtors purchased the annuity contract even before the commencement of the case. Thus, unless this Court construes § 727(d)(2)(A) to include annuity contracts within its provisions, the Trustee’s request for relief set forth in Count II cannot be granted. The language of this subclause is ambiguous since in the first part of the sentence it refers to property which is property of the estate or, in the disjunctive, became entitled to acquire which no doubt refers to post acquisition of property by the debtor which, by virtue of § 541(a)(5), became property of the estate. Clearly the annuity in question, as noted, would be covered by the first part of the sentence since it was clearly property of the estate from the very beginning. It is without dispute that the Debtors failed to deliver or surrender the property to the Trustee. The contention of counsel for the Debtors that they did not do it fraudulently and knowingly finds scant, if any, support in this record. These Debtors who filed their Petition for Relief in this Court claimed the benefit under the exemption laws of the State of Florida. The Trustee timely challenged their right to claim *728Florida exemptions on the basis that on the date of the commencement of the case they were no longer bona fide residents of Florida, having moved to North Carolina and abandoned their previous homestead located in Florida. This Order was entered by this Court on December 22, 1993. On March 23, 1994, the Debtors filed an amendment to Schedule C and claimed as exempt the North Carolina home and annuity, wages and some equity in the Florida property. On March 25,1994, the Trustee filed an objection to the amended schedule. On March 6, 1994, there was a second amendment by the Debtor of their Schedules B and C and again claimed the items referred to earlier under Fla.Stat. § 222.01 et. seq. and Art. X of the Florida Constitution. On July 6, 1994, this Court entered an Order and sustained the Trustee’s objection to the new claim of exemptions. On August 10, 1994, the Debtors amended their Schedule C again and now claimed under the laws of North Carolina certain personal property basically consisting of household goods and furnishings and some appliance but did not claim the annuity involved in this particular controversy.
On October 21,1994, this Court entered an Order overruling the Trustee’s objection to the latest amendment filed by these Debtors. The most important point, however, is that these Debtors cashed in their annuity on April 16,1994, or after this Court entered its Order on December 22, 1993 in which this Court determined that the Debtors have no right to claim any exemptions under the laws of the State of Florida and limited their right of exemption to the laws applicable to the State of North Carolina and cashed in their annuity on March 24, 1994, or after the Trustee filed her Complaint and after they were served with the summons demanding the surrender and turn over of the annuity.
Based on the totality of the evidence, this Court is satisfied that the conduct of these Debtors was done knowingly and in full disregard of their duty to comply with the law. This act was not an oversight and was done with the knowledge that the Trustee was seeking to recover the annuity. Notwithstanding, the Debtors cashed in the annuity and apparently spent the proceeds. Accordingly, this Court is satisfied that the Trustee is entitled to the relief she seeks and since there are no genuine issues of material fact, is entitled to an order granting her motion for summary judgment.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment is hereby granted and 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/8492012/ | MEMORANDUM OF DECISION AND ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Chief Judge.
I.
Before the court in this action to recover an alleged preferential transfer are cross-motions for summary judgment in which, as stated by the defendant, “[b]oth parties agree that ... the narrow issue [is] ... whether the Debtor had an interest in certain funds transferred to [the defendant].” Defendant’s Reply Memorandum at 1. Because the court 'concludes that the debtor had such an interest, the plaintiff-trustee’s motion for summary judgment will be granted, and the defendant’s like motion denied.
II.
BACKGROUND
One Stop Industries, Inc. (the debtor) entered into a contract with the United States of America, Department of Defense (USA), dated September 5, 1986 (the contract), providing that the debtor, for the sum of $177,-298.34, would deliver a certain quantity of electric cable to the USA. Defendant’s Exhibit A-l. The contract included a statement that “cable material to be provided by Cable U.S.A. of Naples, Florida.” The debtor, at some point, entered into a subcontract with Cable U.S.A., Inc. (the defendant) for the production of the cable. Plaintiffs Exhibit 1.
Following the manufacturing of the cable, the USA, by letter dated September 28,1990, advised the debtor that for the “convenience of the Government,” the contract with the debtor had been “completely terminated” as of May 4, 1990. Defendant’s Exhibit A-3. According to the deposition testimony of Paul J. Sullivan, a termination contracting officer of the USA, the USA negotiated settlements upon contract termination only with the prime contractor as the USA did not consider that it had any privity with subcontractors. Defendant’s Exhibit A, p. 18.
The defendant advised the debtor, by letter dated April 11, 1991, that “we would consider a settlement of $144,000 on the contract.” Defendant’s Exhibit A-4. The debt- or submitted a termination contract settlement offer dated July 1, 1991, requesting payment of $161,400, of which $152,700 was identified as for “Settlements With Subcontractors.” Defendant’s Exhibit A-4. The $152,700 included the defendant’s claim of $144,000 plus an $8,700 claim by a second subcontractor, Cableco, Inc. (Cableco).
The USA subsequently approved the debt- or’s settlement with the defendant but rejected the Cableco claim. The debtor and the *771USA, on November 4, 1991, entered a supplemental agreement styled “Amendment of Solicitation/Modification of Contract” (the Termination Agreement), pursuant to which the USA agreed to pay the debtor (identified therein as “the Contractor”) $144,000. Defendant’s Exhibit A-7. The Termination Agreement included the following standard paragraph:
(5) The Contractor shall, within 10 days after receipt of the payment specified in this agreement, pay to each of its immediate subcontractors (or their respective assignees) the amounts to which they are entitled, after deducting any prior payments and, if the Contractor so elects, any amounts due and payable to the Contractor by those subcontractors.
The USA, on December 11, 1991, issued a check for $144,000 made payable to the debt- or. Defendant’s Exhibit A-8. The debtor endorsed the check to the order of the defendant and sent it to the defendant. Defendant’s Exhibit D. The defendant received the cheek on or about December 20, 1991.
On January 28, 1992, creditors filed an involuntary Chapter 7 petition against the debtor. The bankruptcy court issued an order for relief on July 16, 1992, and on July 24, 1992, Anthony S. Novak was appointed trustee. The trustee commenced this adversary proceeding by complaint filed December 29, 1993, seeking in count one to recover the $144,000 transferred by the debtor as a preferential payment.1
The defendant filed its motion for summary judgment on November 9, 1994, contending there are no genuine issues of material fact and that it is entitled to summary judgment as a matter of law. The trustee, on December 28, 1994, filed opposition papers and a cross-motion for summary judgment. While conceding that some of the facts and the inferences to be drawn from them are subject to dispute, the trustee urges that all material facts are undisputed and that summary judgment is, at this juncture, appropriate.
III.
DISCUSSION
“[T]he preference provisions facilitate the prime bankruptcy policy of equality of distribution among creditors of the debtor. Any creditor that received a greater payment than others of his class is required to disgorge so that all may share equally.” H.R.Rep. No. 595, 95th Cong. 1st Sess. 177-78 (1977), 1978 U.S.Code Cong. & Admin.News 1978, pp. 5787, 6138.
Code § 547. empowers a trustee to avoid “a transfer by a debtor of his property to a creditor on account of an antecedent debt within ninety days of bankruptcy whereby the creditor receives more than he would have received had the debtor liquidated under chapter 7.” Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1355 (5th Cir.1986). The present dispute focuses on whether the $144,000 check the debtor endorsed over to the defendant, constituted property of the debtor.
The defendant does not seriously contest that the other § 547 elements of a preferential transfer are established. It is clear to the court that the defendant was a creditor of the debtor. The defendant argues at one point that its claim was with the USA and there was no antecedent debt owed by the debtor. See Defendant’s Statement of Disputed Material Facts ¶ 29, at 6. This statement is wholly unsupported and contrary to the defendant’s concession that it had no privity of contract with the USA. See id. ¶ 18, at 4. Moreover, it is clear that the defendant produced and delivered the cable and was awaiting payment from the debtor. See id. ¶ 3, at 2. Thus, the defendant’s “mere conclusory allegations” fail to create a genuine factual issue as to whether there existed an antecedent debt. See Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir.1980) (citations omitted).
The defendant does not meaningfully contend that the debtor was solvent at the time of the transfer, or allege any facts to controvert that the transfer enabled the defendant *772to receive more than it would have under a Chapter 7 liquidation.2 The dispositive issue is whether the $144,000 cheek endorsement was a transfer involving property of the debtor. The trustee asserts that the endorsement by the debtor in favor of the defendant constituted such a transfer because the check was payable to the debtor and the check was within the debtor’s effective control upon receipt.
The defendant, in support of its contention that the debtor had no interest in the $144,-000 check, invokes an “earmarking” doctrine. The defendant argues that because the USA paid the debtor pursuant to ¶ 5 of the Termination Agreement, the payment was “earmarked for [defendant] Cable and did not constitute property in which the debtor had an interest.” Defendant’s Initial Brief at 11.
The earmarking doctrine is “a judicially created defense to preference actions.... [which] is typically applicable when a third party makes a ban to a debtor to satisfy the debt of a designated creditor. In other words, a new creditor is substituted for an old creditor.” In re Interior Wood Products Co., 986 F.2d 228, 231 (8th Cir.1993) (emphasis added). “If all that occurs in a ‘transfer’ is the substitution of one creditor for another, no preference is created because the debtor has not transferred property of his estate; he still owes the same sum to a creditor, only the identity of the creditor has changed. This type of transaction is referred to as ‘earmarking’_” Coral Petroleum, 797 F.2d at 1356.
The Second Circuit early on recognized the earmarking doctrine, without so labeling it. Grubb v. General Contract Purchase Corp., 94 F.2d 70 (2d Cir.1938). In Grubb, the debtor obtained from a trust company a loan to pay off an existing creditor. The court ruled where the money was never in the control of the debtor, and there has been merely a substitution of one creditor for another, the money advanced by the new creditor never became part of the debtor’s assets, and a preference action would not be sustained. Grubb, 94 F.2d at 72. See also In re Win-Sum Sports, Inc., 14 B.R. 389, 394-95 (Bankr.D.Conn.1981) (citing Grubb); In re Kemp Pacific Fisheries, Inc., 16 F.3d 313, 316 (9th Cir.1994) (“the ‘earmarking doctrine’ is justified by the fact that in such a ease the funds neither are controlled by, nor belong to, the debtor”); In re Interior Wood Prods. Co., 986 F.2d 228, 232 (8th Cir.1993) (stating that substitution of a new creditor for an old creditor is “a key factor characteristic of the earmarking doctrine”).
To support the application of the earmarking doctrine, the defendant relies primarily on Branch v. Hill, Holliday, Connors, Cosmopoulos, Inc. Advertising (In re Bank of New England Corp.), 165 B.R. 972 (Bankr.D.Mass.1994) (hereafter BNEC). There, the debtor (a holding company) received funds from subsidiary companies to pay for advertising services an agency had provided to the subsidiaries. The debtor used those funds to pay the agency, and the trustee subsequently sought to recover the payments as preferences. The BNEC court concluded that the transfers amounted to “a straight pass-through of funds” that did not constitute a preferential payment. Id. at 978. It noted that that ease did not involve a pure earmarking situation. Id. at 977. The BNEC ruling should not be extended beyond the peculiar facts of that case.
The court concludes that the earmarking doctrine is not applicable in this matter. There has been no substitution of a new creditor for an old one. Instead, the present matter involves the transfer by the debtor of $144,000 to the defendant. The USA paid the debtor by a check made out to the debtor and imposed no legal or enforceable control over the debtor’s use of the check.3 That the debtor endorsed the check to the defendant does not alter the fact that the debtor had complete prior control over the funds. As a result of the debtor forward*773ing the check to the defendant, the debtor’s estate was clearly diminished. In such an instance, the earmarking doctrine, or any variation thereof, is inapplicable. An account payor’s prepetition direction to a debtor to pay specified creditors out of the receivable cannot be the basis for flanking the preference provisions of the Bankruptcy Code. See In re Bohlen Enterprises, Ltd., 859 F.2d 561, 566 (8th Cir.1988) (“[A]lmost every [earmarking] opinion emphasizes that the result involves ‘no diminution’ in the debtor’s estate.”); In re Interior Wood Products Co., 986 F.2d at 232 (Where buyer of debtor’s assets paid one of debtor’s creditors as part of purchase price, earmarking doctrine is not applicable and creditor is liable for preference. “The intent of the parties is not a factor to consider when determining if the payment constituted a voidable preference.”). The trustee may avoid the transfer of the $144,000 to the defendant as a preferential payment and have judgment for such sum. The trustee’s motion for summary judgment is granted. The defendant’s motion for summary judgment is denied. It is
SO ORDERED.
. The complaint included a second count containing fraudulent conveyance allegations. Those contentions are unsupported, and are not further discussed.
. Section 547(e) provides:
For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.
. Sullivan, testified that the only sanction the USA imposes if a prime contractor does not pay a subcontractor is that the USA will not thereafter contract with that contractor. Defendant's Exhibit A, p. 45. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492013/ | ORDER
JOHN E. WAITES, Bankruptcy Judge.
This matter is before the Court on the Motion for Summary Judgment filed by the defendant South Carolina National Bank (“SCNB”) on September 3, 1992.
The claim against SCNB on which SCNB moves for summary judgment is a § 547 preference claim made by the trustee under the Rule of Levit v. Ingersoll Rand Financial Corp. (In re Deprizio), 874 F.2d 1186 (7th Cir.1989). SCNB’s motion is based on two grounds: (1) SCNB’s assertion that an entity other than the debtor was the trans-feror of payments SCNB received, and (2) SCNB’s assertion that the Rule of Deprizio should not govern this action.
The parties have now agreed that $23,-918.89 in transfers were made by the debtor to SCNB during the year preceding the filing of the bankruptcy petition, and it is undisputed that under the Rule of Deprizio such amount would be recoverable by the trustee. Therefore, the only issue with respect to SCNB’s motion is whether the Court will follow the Rule of Deprizio and allow the trustee to avoid these transfers and recover $23,918.89 from SCNB. For the reasons which follow, the Court will follow the Rule of Deprizio, subject to the right of SCNB to show that application of the rule in this case would be inequitable. Because SCNB has not brought forward sufficient evidence to do so, SCNB’s motion is DENIED.
Code § 547(b)(1) provides for avoidance of a payment “to or for the benefit of a creditor.” A transfer may therefore be a preference whether it is (1) to the creditor, or (2) to another party for the benefit of the creditor. The extended one-year preference period applies, under Code § 547(b)(4), “if such creditor at the time of such transfer was *799an insider.” The phrase “such creditor” refers directly back to subsection (b)(1), “to or for the benefit of a creditor.” The plain and clear language’ of the statute therefore provides that a transfer up to one year before the petition to or for the benefit of a. creditor is a preference when the creditor is an insider.
Code § 550 completes the statutory scheme as articulated by Deprizio, providing for recovery of avoided transfers from either the “initial transferee” or the entity for whose benefit the transfer was made. The Deprizio theory therefore gives effect to all of the provisions of the statutes. The Fourth Circuit has commended this approach, explaining that “[i]n construing a statute we are obliged to give effect, if possible, to every word Congress used.” Brown and Co. Securities Corp. v. Balbus (In re Balbus), 933 F.2d 246, 251 (4th Cir.1991) (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331, 60 L.Ed.2d 931 (1979)).
In urging the Court to reject this straightforward reading of the Code, SCNB makes reference to the Bankruptcy Reform Act, which rejects the Rule of Deprizio, but concedes that the new statute has only prospective application and does not apply to this ease. The Court notes that congressional enactment of the Bankruptcy Reform Act did not indicate that the Rule of Deprizio was not then the law, applicable to cases such as this one which were already pending. Moreover, prior to the passage of this act, the Deprizio rule was recently adopted by a Federal District Court within the Fourth Circuit. H & C Partnership v. Virginia Serv. Merchandisers, 164 B.R. 527 (W.D.Va.1994). In fact, “[t]he Deprizio rule of the Seventh Circuit has now been adopted by all circuits that have addressed the issue.” Id., 164 B.R. at 529.
SCNB also relies upon Official Creditors’ Comm. of Arundel Housing Components, Inc. v. Georgia-Pacific Corp. (In re Arundel Housing Components, Inc.), 126 B.R. 216 (Bankr.D.Md.1991), the primary lower-court decision within the circuit to reject Deprizio. In Leake v. First American Bank of Virginia (In re Dovetailed Enters.), 136 B.R. 652, 653 (Bankr.W.D.Va.1991), another lower-court decision within the Fourth Circuit, the court distinguished and limited the holding of Arundel as follows:
The inference which can be made from the Arundel decision is that the bankruptcy court did not feel that it would be equitable to apply the Deprizio doctrine in a case where the only reason for the application of the doctrine is the existence of a guarantee of an insider.
Id. at 653 (emphasis added). The Leake court recognized that in some circumstances it might be inequitable to permit the trustee to recover from an “insider” under the De-prizio reading of the Code, but determined that no such equitable considerations prohibited the recovery in that case.
The Court is inclined to follow the H & C Partnership and Leake cases. The Court will follow Deprizio’s literal reading of the Code, and allow recovery by the trustee from the initial transferee of a transfer for the benefit of an insider guarantor. The transferee may avoid such recovery by the trustee if the transferee can show that such recovery would be inequitable in the circumstances of a specific case.
In this case, SCNB has brought forward no evidence to satisfy its burden of showing that it would be inequitable to allow the trustee to recover the amounts paid it on the guaranteed loan. The facts here, as alleged by the Trustee and as previously established by findings made by this Court in its July 30,1991 judgment denying Powers Construction’s Motion for Relief from Stay, show the following: An insider, Wilbur Powers, took control of the Debtor and operated it for the purpose of improving his position as a creditor and that of his wholly-owned company, Powers Construction; he caused any excess funds in the hands of the Debtor to be transferred to his wholly-owned company immediately or to be transferred to SCNB to pay the debt he had guaranteed; at the time SCNB received the preferential payments, the Debtor was insolvent, and if Powers had not been funnelling funds to SCNB to reduce his own liability then SCNB would have had to rely on its guaranty for payment of the debt. The Trustee here has asked the Court *800to avoid the transfers to SCNB and require SCNB to recover from its guarantor, Wilbur Powers, not from the other creditors of the Debtor who were denied their fair share of the Debtor’s assets by the actions of the insider. SCNB has not met its burden to bring forward evidence to establish that requiring it to do so under these circumstances would be inequitable.
For the foregoing reasons, SCNB’s Motion for Summary Judgment is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492014/ | DECISION GRANTING MOTION TO DISMISS
THOMAS F. WALDRON, Bankruptcy Judge.
Erith Fern Wright (the “Plaintiff’), an officer and shareholder of the debtor-corporation, Buildwright Homes, Inc. (the “Debtor”) filed an adversary proceeding in this court. In this complaint the Plaintiff alleges that the United States, through its agency, the Internal Revenue Service (“IRS”), filed a *866Notice of Federal Tax Lien against the Debt- or to secure a claim for unpaid taxes. On or about August 6, 1990, this lien and the claim which it secured were fully paid from the proceeds of the sale of a parcel of real estate owned by the Debtor. On October 22, 1990, the Debtor filed for relief under chapter 7 of the Bankruptcy Code and John R. Butz was appointed as chapter 7 trustee (the “Trustee”). The Trustee demanded that the IRS turn over the proceeds of the sale of the parcel of real estate. The IRS turned over these proceeds to the Trustee.
The Plaintiff alleges that the IRS “acting negligently, irresponsibly, in the absence of legal authority and in deliberate disregard of its obligations to the plaintiff paid over to the defendant, Trustee, the entire amount it had received from the debtor” and “made a claim for the payment from the plaintiff of taxes, penalties and interest_” (Doc. 1-1). As a result, the Plaintiff demands that the IRS be permanently enjoined from pursuing or collecting its claim against the Plaintiff and that the IRS be ordered to cancel and release its lien against the Plaintiff. The Plaintiff also demands that the Trustee be ordered to return to the IRS the proceeds of the sale so that they can be applied in complete satisfaction of its claim against the Plaintiff.
The United States filed a Motion To Dismiss United States As A Party Defendant (Doc. 4-1) and a United States’ Memorandum In Support Of Motion To Dismiss United States As A Party Defendant (Doe. 5-1). As a result of additional filings, the court entered an Order Fixing . Date For Filing Final Memoranda Concerning Dismissal (Doc. 8-1). Thereafter, the Plaintiff filed a Memorandum of Plaintiff (Doc. 10-1) and the United States filed United States of America’s Final Memoranda (Doc. 11-1). The Plaintiff filed Plaintiff’s Memorandum Contra Motion To Dismiss By The United States (Doc. 6-1), and the Trustee filed a Response of John R. Butz, Trustee (Doe. 12-1).
The United States asserts that the Plaintiffs complaint must be dismissed on the following grounds: 1) the bankruptcy court lacks subject matter jurisdiction over the § 6672 liability of the debtor’s officers, 2) the debtor lacks standing to litigate the separate tax liabilities of its responsible officers and employees, and 3) the Anti-Injunction Act bars the bankruptcy court from enjoining the United States in this case.
Faced with issues similar to the issues raised by the United States in this proceeding, several courts have reached their determinations under the Anti-Injunction Act “because it is relatively straightforward, avoids deciding a constitutional question (Article III standing), and provides the narrowest ground for decision.” LaSalle Rolling Mills, Inc. v. United States (In re LaSalle Rolling Mills, Inc.), 832 F.2d 390, 392 n. 6 (7th Cir.1987). Accord American Bicycle Assoc. v. United States (In re American Bicycle Assoc.), 895 F.2d 1277, 1279 (9th Cir.1990). The Anti-Injunction Act is sufficient to provide a basis for the determination of the particular issue in this proceeding. Significantly, the Plaintiff in this proceeding is neither a debtor herself, nor is she an officer or director of a debtor seeking reorganization under the Bankruptcy Code.
The Plaintiff disputes that the Anti-Injunction Act prohibits this court from enjoining the IRS. First, the Plaintiff argues that because the obligations of the debtor corporation’s liability for withheld employment taxes from the personal responsibility imposed by 26 U.S.C. § 6672 are separate, this action is removed from the ambit of the Anti-Injunction Act. Next, the Plaintiff asserts that the Anti-Injunction Act prohibits courts from issuing injunctions with respect to the collection of a tax, not the collection of a penalty. Lastly, the Plaintiff requests “that the court determine her liability for the imposition of the penalty pursuant to 11 U.S.C. § 505(a) and is asking that while that liability is being determined, the court exercise its authority under 11 U.S.C. § 105 to restrain the improper collection of this penalty.” Under the facts and circumstances of this proceeding, the Plaintiffs arguments are not persuasive.
The Anti-Injunction Act, 26 U.S.C. § 7421, provides:
Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the *867purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.
Under circumstances identical to those existing in this proceeding, including § 6672 liability, courts have concluded that the Bankruptcy Code does not create an exception to the Anti-Injunction Act, and does not give a bankruptcy court the power to enjoin the IRS from collecting a 100% penalty from the responsible officer of a debtor corporation. American Bicycle Assoc., 895 F.2d at 1279-80; A to Z Welding & Mfg. Co. v. United States, 803 F.2d 932, 933 (8th Cir.1986); LaSalle Rolling Mills, Inc., 832 F.2d at 394; Ray Stevens Paving Co., Inc. v. United States (In re Ray Stevens Paving Co., Inc.), 145 B.R. 647, 649 (D.Ariz.1992); Davidson’s of Pikeville, Inc. v. United States (In re Davidson’s of Pikeville, Inc.), 142 B.R. 789, 791 (Bankr.E.D.Ky.1992). As the Ninth Circuit stated:
[ Njothing in the Bankruptcy Code or its legislative history indicates that Congress intended to override the Anti-Injunction Act in these circumstances. See LaSalle Rolling Mills, 832 F.2d at 394. Only section 105(a) of the Bankruptcy Code might arguably give a bankruptcy court power to enjoin the IRS from collecting the 100% penalty from the responsible officer of a debtor corporation. Section 105(a) authorizes a bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a) (1988). All encompassing as this statute seems to be, however, it does not provide specific authorization empowering a bankruptcy court to enjoin collection of the 100% penalty. On the other hand, the text of the Anti-Injunction Act is specific and unequivocal. We hold that its proscription is not overridden by the general grant of authority provided in section 105(a) of the Bankruptcy Code.
We are mindful that some district courts and bankruptcy courts, although in the minority of those considering the issue, have adopted appellants’ argument and granted injunctions in cases similar to ours. These courts have relied primarily on Bostwick v. United States, 521 F.2d 741 (8th Cir.1975). See In re John Renton Young, Ltd., 87 B.R. [635] at 638 [ (Bkrtcy.D.Nev.1988) ] (lists cases where injunctions were determined to be appropriate). In Bostwick, the Eighth Circuit held that the Anti-Injunction Act did not prohibit a bankruptcy court from enjoining the IRS from collecting taxes against a debtor following discharge. The court concluded that the discharge provisions under section 17(c) of the Bankruptcy Act, including a provision “authorizing the issuance of injunctions, clearly evidences an intent by Congress that the orderly administration of the Bankruptcy Act take precedence over the general policy stated in the ‘anti-injunction’ act.” Bostwick, 521 F.2d at 745.
We need not pass on the correctness of Bostwick. Instead, we merely note that the Eighth Circuit has subsequently limited Bostwick to its facts, holding that the Anti-Injunction Act prevents bankruptcy courts from enjoining the IRS from collecting the 100% penalty prescribed by section 6672 from responsible officers and shareholders of a corporate debtor. See Ato Z Welding & Mfg. Co. v. United States, 803 F.2d 932, 933 (8th Cir.1986) (per curiam) (reaffirming the holding of Kelly v. Lethert, 362 F.2d 629 (8th Cir.1966)); accord LaSalle Rolling Mills, 832 F.2d at 392-94; see also In re Heritage Village Church & Missionary Fellowship, Inc., 851 F.2d 104, 105-06 (4th Cir.1988) (per curiam) (holding that the Anti-Injunction Act prevented the bankruptcy court from enjoining the IRS from revoking the debtor’s tax-exempt status); In the Matter of Becker’s Motor Transportation, Inc., 632 F.2d 242, 246 (3d Cir.1980) (holding that although the IRS had failed to give notice of its intention to collect prepetition penalties and postpetition interest from the debtor, the Anti-Injunction Act barred the bankruptcy court from enjoining the IRS’ collection of these taxes following discharge), cert. denied, 450 U.S. 916, 101 S.Ct. 1358, 67 L.Ed.2d 341 (1981).
*868American Bicycle Assoc., 895 F.2d at 1279-80.
Further, under the facts in this proceeding, 11 U.S.C. § 505 does not empower this court to entertain this action. “[A] literal reading of section 505(a) could lead to absurd results: ‘[T]aken at face value, without recourse to the legislative history, § 505 makes the Bankruptcy Courts a second tax court system, empowering the Bankruptcy Court to consider “any” tax whatsoever, on whomsoever imposed.’ ” Michigan Employment Security Comm’n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1139 (6th Cir.1991). “Given the legislative history of section 505 and its placement in a chapter of the Bankruptcy Code denoted ‘Creditors, the Debtor, and the Estate,’ section 505 is not applicable where the court is not dealing with the interrelationship and effect of creditors and their claims on the bankrupt debtor.” Id. at 1140 (emphasis added; footnote omitted; citation omitted). The court notes that this proceeding does not involve facts or circumstances pertaining to any nexus between a debtor and a corporate officer in a bankruptcy where the extension of the court’s authority under § 105 has been demonstrated to be necessary to a successful reorganization. Thus, the court determines that there is no exception to the Anti-Injunction Act and the court cannot grant the plaintiff any of the relief requested.
In addition, the fact that the IRS may or may not have negligently turned over the sale proceeds to the trustee does not change this court’s determination that it lacks authority to issue an injunction. As the court stated in Bernardi v. United States:
Plaintiffs contention that the Government should have protected its right to collect the withheld taxes from the companies in bankruptcy and that by reason of its failure to do so it is estopped from collecting the Section 6672 penalty from the responsible persons, is without merit. No evidence was produced which would support a finding of lack of diligence in the bankruptcy proceeding on the part of the Internal Revenue Service. In any event, failure by the Government to use due diligence in the bankruptcy proceeding would not reheve the responsible persons. The personal liability of responsible persons under Section 6672 is separate and distinct from that imposed upon the corporate employer under Section 3403 of the Code. It is unnecessary for the Internal Revenue Service even to attempt collection from the corporate employer, before asserting the personal liability of the responsible persons.
74-1 U.S.T.C. 83,212, para. 9170, 1973 WL 695 (N.D.Ill.1973), aff'd, 507 F.2d 682 (7th Cir.1974), cert. denied sub nom. Richter v. United States, 422 U.S. 1042, 95 S.Ct. 2656, 45 L.Ed.2d 693 (1975) (emphasis added). See also Reph v. United States, 615 F.Supp. 1236, 1242 (N.D.Ohio 1985) (“[t]he Internal Revenue Service need not attempt collections of the tax assessment from the corporate employer before asserting the personal liability of a responsible person.”).
Accordingly, based upon the facts and circumstances of this proceeding, particularly that the Plaintiff is not a debtor, nor an officer or a director of a debtor seeking to reorganize under the Bankruptcy Code, the Motion To Dismiss United States As A Party Defendant (Doc. 4-1) is GRANTED.
An order in accordance with this decision is simultaneously entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492015/ | DECISION AND ORDER DENYING DEBTORS’ MOTIONS (DOC. #21 AND #22) TO ALTER OR AMEND JUDGMENT
WILLIAM A. CLARK, Chief Judge.
Before the court are motions of the debtors, Larry Morgan and Carlene Morgan, to alter or amend the court’s previous orders of September 20,1994, and September 22,1994. Those orders denied the debtors’ motions to avoid liens under § 522(f) of the Bankruptcy Code. 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)(E).
Section 522(f) of the Bankruptcy Code, as it existed when the debtors filed their petition in bankruptcy,1 granted the following avoidance powers to a debtor:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial hen; or
(2) a nonpossessory, nonpurchase-mon-ey security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
*870(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor.
11 U.S.C. § 522(f).
Debtors assert that they are entitled to an exemption for a variety of household goods, that the presence of Associates’ and City Loan’s security agreements impairs the debtors’ exemptions, and, therefore, they are entitled to avoid these nonpossessory, nonpur-chase-money security interests under § 522(f)(2) of the Bankruptcy Code.
With respect to exemptions, Ohio Revised Code § 2329.66 provides, in part, that:
(A) Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:
(l)(a) In the case of a judgment or order regarding money owed for health care services rendered or health care supplies provided to the person or a dependent of the person, one parcel or item of real or personal property that the person or a dependent of the person uses as a residence....
(l)(b) In the case of all other judgments and orders, the person’s interest, not to exceed five thousand dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence.
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(3) The person’s interest, not to exceed two hundred dollars in any particular item, in wearing apparel, beds, and bedding, and the person’s interest not to exceed three hundred dollars in each item, in one cooking unit and one refrigerator or other food preservation unit;
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(4)(b) Subject to division (A)(4)(d) of this section, the person’s interest, not to exceed two hundred dollars in any particular item, in household furnishings, household goods, appliances, books, animals, crops, musical instruments, firearms, and hunting and fishing equipment, that are held primarily for the personal, family, or household use of the person.
(4)(c) Subject to division (A)(4)(d) of this section, the person’s interest in one or more items of jewelry, not to exceed four hundred dollars in one item of jewelry and not to exceed two hundred dollars in every other item of jewelry.
The result in this proceeding is dictated by Ford Motor Credit Corp. v. Dixon (In re Dixon), 885 F.2d 327 (6th Cir.1989). Although Dixon concerned the avoidance of a judicial lien, rather than a nonpossessory, nonpurchase-money security interest, its rationale appears to apply with equal force to the avoidance of nonpossessory, nonpur-chase-money security interests. In Dixon, the court of appeals for this court employed a strict statutory construction of Ohio Rev. Code § 2329.66(A) and found that a homestead exemption under § 2329.66(A)(1)2 is “effective only when there is an ‘execution, garnishment, attachment or sale to satisfy a judgment.’” Id., at 330. Until such time, “ ‘the explicit language of [the statute] makes clear that absent an attachment or other involuntary disposition of the debtor’s property, the debtor’s exemption is not impaired.’” Id. (citations omitted). “[A]s a result, a debtor is permitted to avoid a judicial hen pursuant to Section 522(f) only when the property affected by the exemption is subject to an ‘execution, garnishment, attachment, or sale to satisfy a judgment or order.’” Id.
As acknowledged by the debtors, the Dixon court focused on the literal language of § 2329.66(A). The same words of Ohio Rev.Code § 2329.66(A), “execution, garnishment, attachment, or sale to satisfy a judgment or order,” also qualify the availability of other exemptions set forth in § 2329.66(A), e.g., household goods under § 2329.66(A)(4)(b). Because the prefatory *871language is the same for both the homestead exemption and the exemption for household goods, this court is of the opinion that it is constrained by Dixon to strictly interpret the language of Ohio Rev.Code § 2329.66(A) for .both the homestead exemption as well as the exemption for household goods. This court is unable to discern a logical rationale for applying a strict construction of Ohio Rév. Code § 2329.66(A) in the case of a homestead exemption, yet applying a looser interpretation of that same section for purposes of determining a debtor’s eligibility for an exemption in household goods. As a result, this court must find under the principles of Dixon that in Ohio a nonpossessory, nonpur-chase-money security interest may be avoided under § 522(f)(2) of the Bankruptcy Code only when the property affected by the exemption is subject to an execution, garnishment, attachment or sale to satisfy a judgment or order. There is no evidence in the present case that the debtors’ household goods were subject to the types of involuntary disposition enumerated in Ohio Rev. Code § 2329.66(A).
Debtors maintain that “this result ... im-permissibly limit[s] the avoidance power contained in the Bankruptcy Code” (Doc. #24, at 3), because “[tjhere is no corresponding point in time when a debtor may avoid a creditor’s hen in his household goods” (Id.). In light of the Supreme Court’s case of Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), this argument has merit.
In Owen the question before the Supreme Court was whether § 522(f) of the Bankruptcy Code “can operate when the State has defined the exempt property in such a way as specifically to exclude property encumbered by judicial hens.” 500 U.S. at 306, 111 S.Ct. at 1834. The Court found that such a definition of exempt property contained a “built-in limitation” on state exemptions which, in hght of the equivalency of treatment accorded to federal and state exemptions by § 522(f), was ineffectual in § 522(f) proceedings.3
The Sixth Circuit has determined, however, at least in the ease of judicial Hens, that Ohio Rev.Code § 2329.66 does not impermis-sibly limit the avoidance power contained in § 522(f) of the Bankruptcy Code.
Owen is not dispositive of the situation presented in Dixon and in the present case. Operation of the Florida laws involved in Owen would have completely denied the debtor his homestead exemption, thereby eliminating any opportunity for avoiding the judgment hen. In contrast, the result in Dixon does not deny a debtor the opportunity to claim his homestead exemption and avoid a creditor’s judgment hen; instead, Dixon defines the time at which such an exemption is available. Under Dixon, when a judicial sale is pending, the debtor can properly avail himself of the Ohio homestead exemption and seek to avoid a judicial hen that impairs that exemption. ...
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Applying the hen avoidance test enunciated in Owen to our interpretation of the Ohio homestead exemption as set out in Dixon, it is clear that the RTC’s judgment hen on Moreland’s homestead property should not have been avoided. But for the RTC’s hen, Moreland still would not have been entitled to her claimed homestead exemption as there was no judicial sale or involuntary execution pending. However, this result does not impermissibly limit the avoidance power contained in the Bankruptcy Code because, upon a judicial sale, Moreland’s ability to assert her homestead exemption and to seek to avoid the RTC’s hen will be unrestricted by our holding in Dixon.
Resolution Trust Corporation v. Moreland (In re Moreland), 21 F.3d 102, 106-107 (6th Cir.1994).
Should the result for nonpossessory, non-purchase-money security interests be different from that for judicial hens? Were it not for the Sixth Circuit’s continued adherence to a strict reading of Ohio Rev.Code § 2329.66(A), this court would be willing to *872explore the subjects of “built-in limitations,” the basic bankruptcy policy underlying § 522(f)(2) of the Bankruptcy Code, and how secured creditors in Ohio actually obtain possession of and dispose of a debtor’s household goods. In light of Dixon and Moreland, however, this court believes it must continue to read § 2329.66(A) as interpreted by the Sixth Circuit. Although the rationale of Dixon may be flawed in relation to the avoidance of nonpossessory, nonpurchase-money security interests, it is not the province of this court to predict whether the Sixth Circuit will adhere to its reasoning in Dixon.
[ DJistriet courts in a circuit owe obedience to a decision of the court of appeals in that circuit and must follow it until the court of appeals sees fit to overrule it. First of America Bank v. Gaylor (In re Gaylor), 123 B.R. 236, 241 (Bankr.E.D.Mich.1991) (citing 1B Moore’s Federal Practice para. 0.402[1] ).4
For the foregoing reasons, it is hereby ORDERED that debtors’ motions to alter or amend judgment are DENIED.
. 11 U.S.C. § 522(f) was amended after the debtors filed their petition in bankruptcy by the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, and, as amended, is not applicable to the present proceeding.
. Ohio Rev.Code § 2329.66 has been amended since Dixon was decided. As a result, a homestead exemption is governed by § 2329.66(A)(1)(a) or (A)(1)(b), depending on whether a judgment or order involves health care services. The prefatory language of Ohio Rev. Code § 2329.66(A) has not been altered since Dixon.
. "[W]e conclude that Florida's exclusion of certain liens from the scope of its homestead protection does not achieve a similar exclusion from the Bankruptcy Code's lien avoidance provision.” 500 U.S. at 313-314, 111 S.Ct. at 1838.
. "The 'obedience' principle is tremendously important in the operation of our hierarchical court system, for unless the inferior courts make a good faith effort to follow the decisions of the courts with jurisdiction to review their judgments, appeals would be endless.” In re Gaylor, 123 B.R. at 241 (citing 1B Moore’s Federal Practice para. 0.402[1] at 12 n. 15). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492016/ | MEMORANDUM
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Rhoden Nissan/Auto Finance Center (“Rhoden Nissan”), asserts that it holds a perfected security interest in the vehicle of debtor, Dawn Went by virtue of Rhoden Nissan’s assignee noting its lien on the vehicle’s certificate of title. Debtor commenced this adversary proceeding to avoid the interest of Rhoden Nissan in the vehicle. I conclude that the security interest of Rhoden Nissan is avoided pursuant to 11 U.S.C. § 544 (1995), because Rhoden Nissan’s name is not noted on the vehicle’s certificate of title.
FINDINGS OF FACT
On September 12, 1992, debtor Dawn Went purchased a 1988 Suzuki Samurai from Rhoden Nissan. At the time of purchase, *891the parties entered into an installment sales contract which provided that Ms. Went would make a $1,400.00 down payment, part in cash and part by trade-in, and the balance of the purchase price would be financed over twenty-five months. The installment sales contract granted Rhoden Nissan a security interest in the vehicle. However, Rhoden Nissan did not note its security interest on the certificate of title to the vehicle.
At the time of purchase, Ms. Went issued two checks to Rhoden Nissan, an $800.00 check for the cash portion of the down payment, and a $42.00 check for administrative expenses. Shortly after the purchase transaction, Rhoden Nissan assigned the installment sales contract to Credit Acceptance Corporation of Southfield, Michigan. Credit Acceptance, the assignee, perfected its hen in the vehicle of Ms. Went by noting its security interest on the certificate of title. Credit Acceptance holds a duly perfected security interest in the vehicle to secure the vehicle’s unpaid purchase price, however, the checks for $800.00 and $42.00 were not transferred from Rhoden Nissan to Credit Acceptance.
Subsequently, the two checks issued by Ms. Went were returned to Rhoden Nissan for insufficient funds. The debt of Dawn Went to Rhoden Nissan in the amount of $842.00 remains unpaid on the date this bankruptcy ease was commenced and Rho-den Nissan has filed a proof of elaim in this amount asserting that its claim for $842.00 is secured by debtor’s vehicle. The debtor now seeks to avoid the security interest of Rho-den Nissan as unperfected, pursuant to § 644. In response, Rhoden Nissan asserts that its security interest is perfected and unavoidable by virtue of the fact that security interest of Credit Acceptance is duly noted on the certificate of title.
DISCUSSION
I conclude that the security interest of Rhoden Nissan is unenforceable under Nebraska law against a levying creditor, that the actions taken by the assignee, Credit Acceptance to perfect its security interest did not affect the status of the Rhoden Nissan lien, and that the interest of Rhoden Nissan is avoidable under § 544 of the Bankruptcy Code.
The filing requirements of Article 9 of the Uniform Commercial Code (“UCC”) are superseded by certificate of title laws, except in limited circumstances not applicable to the present ease. See Neb.Rev.Stat. § 60-110 (Reissue 1988); Nebraska UCC § 9-302(3) (Reissue 1988). Under Nebraska Revised Statutes § 60-110, a lien which is not noted on the certificate of title to a vehicle is unenforceable against purchasers and levying creditors. Neb.Rev.Stat. § 60-110 (Reissue 1988). The exception to this rule, as to vehicles held as inventory by a dealer, is not applicable in this case. Id. It is undisputed that the lien of Rhoden Nissan was not noted on the certificate of title to the vehicle of Dawn Went. Therefore, the hen of Rhoden Nissan is not “... valid as against the creditors of the debtor, whether armed with process or not, and subsequent purchasers, secured parties, and other lienholders or claim-ants_” Neb.Rev.Stat. § 60-110 (Reissue 1992).
This result is consistent with the policy of Nebraska certificate of title laws. Nebraska certificate of title laws should be interpreted to provide a simple straightforward way to determine whether a hen exists on a motor vehicle. Such laws should not be construed to render undisclosed hens enforceable. A third party examining the certificate of title in this case would not receive notice of the interest of Rhoden Nissan. If the third party purchased the vehicle with a check made payable jointly to Credit Acceptance and the debtor, and the cheek was sufficient to pay off the unpaid balance due to Credit Acceptance, the third party would purchase the vehicle free and clear of the interests of Rhoden Nissan and Credit Acceptance. Under Nebraska law, a levying creditor would also take free and clear of the interest of Rhoden Nissan.
Under the installment sales contract, Rho-den Nissan was granted a lien in the vehicle to secure all of the debtor’s obligations under the agreement. The lien was thus granted to secure the unpaid purchase price of the vehicle as well as the $800.00 cash down payment and the $42.00 administrative expenses pay*892ment. However, since the interest of Rho-den Nissan is not noted on the certificate of title, the interest of Rhoden Nissan in the vehicle is avoidable under § 544.
Debtors challenge this result by arguing that the security interest of Rhoden Nissan is enforceable and perfected as a matter of state law by virtue of the actions of the assignee, Credit Acceptance, in noting its hen on the certificate of title. I have found no Nebraska decisional law on the question of whether an assignor’s interest in a vehicle may be perfected by virtue of the actions of an assignee in noting the assignee’s name and interest on the certificate of title. However, I conclude that the Nebraska Supreme Court would find that the interest of Rhoden Nissan is unenforceable on the facts of this ease for several reasons. First, as stated above, that result follows directly from a literal interpretation of Nebraska Revised Statute § 60-110. Second, at common law, although an assignee stands in the shoes of and is subrogated to the rights of its assign- or, there is no comparable doctrine whereby an assignor would be subrogated to the rights of the assignee. Third, UCC § 9-302(2), which deals with assignment in a different context, is superseded by certificate of title laws, and, even if applicable, would not mandate a different result.
Under § 9-302(2) an assignee of a perfected security interest need take no action to remain perfected against creditors of the account debtor. Nebraska UCC § 9-302(2) (Reissue 1988). This rule is entirely consistent with the “notice”’ policy of the UCC. If an assignor perfects its interest before assignment, and a creditor of an account debtor performs a UCC search under the debtor’s name, the creditor will discover that the assignor possesses an interest in the collateral, and will be on inquiry notice of the interest held by an assignee.
However, if only the assignee perfects its security interest, we have a completely different situation from a notice standpoint. A UCC search under the account debtor’s name would disclose only the name of the assignee, but would not disclose that there had even been an assignment. A creditor would not be on inquiry notice as to whether the secured party of record holds its interest by virtue of an assignment or as to whether, if there was an assignment, the assignor retained any interest. A creditor, finding only the interest of the assignee of record, should be able to rely upon release of the lien by the assignee without any inquiry as to whether there was an assignor and, if so, whether the assignor retained an undisclosed secured obligation. Section 9-302(2) of the UCC only addresses the status of a lien in the hands of the assignee not the assignor, and only preserves the perfection previously obtained before assignment. It does not provide that perfection by the assignee inures to the benefit of the assignor. Where an assignor is not perfected, § 9-302(2) does not apply, and the assignor can not become perfected by virtue of actions taken by the as-signee. Even if I were to construe the Nebraska certificate of title laws as adopting a basic inquiry notice system like UCC Article 9, the same reasoning would apply. By noticing its lien on the debtor’s certificate of title, Credit Acceptance did not place anyone on notice that Rhoden Nissan held an interest in the vehicle.
The case cited by counsel for Rhoden Nissan, Van Diest Supply Company v. Adrian State Bank, 305 N.W.2d 342 (Minn.1981), is consistent with UCC § 9-302(2). The court in Van Diest Supply Company held that the assignment of a security interest securing more than one debt, part of which debt is retained, does not affect the status of the security interest in the collateral retained. Van Diest Supply Company, 305 N.W.2d at 346-47. I do not dispute this result. However, Van Diest Supply Company is not applicable to the present case because Van Diest Supply Company involved the assignment of a “perfected” security interest. In Van Diest Supply Company, the assignor had perfected its security interest prior to assignment, and the court simply held that the perfected security interest was not extinguished by the assignment in relation to portions of secured debt retained by the assignor. On the facts of the case before me, the lien of Rhoden Nissan was not extinguished by the assignment to Credit Acceptance. However, Rhoden Nissan did not per-*893feet its interest. The reasoning of Van Diest Supply Company and UCC § 9-302(2) is not applicable to the situation where the interest of an assignee is perfected but the interest of the assignor is not.
In summary, I conclude that the security interest of Rhoden Nissan in the motor vehicle of Dawn Went is avoidable under § 544. Under Nebraska Revised Statute § 60-110, it is clear that Rhoden Nissan’s lien is not valid against subsequent lienholders. Since the interest of Rhoden Nissan is not enforceable against a subsequent lien creditor, the interest of Rhoden Nissan in the vehicle is avoidable under § 544(a)(2) of the Code.
In closing, I emphasize that the transaction before the court is unusual, and my ruling should not be construed to upset or create uncertainties with respect to conventional financing of the chattel paper of automobile dealerships. This case involves an obligation on a downpayment check and a check for administrative expenses which were returned to the dealer, Rhoden Nissan, due to insufficient funds. The obligation of the debtor, Dawn Went, on the insufficient funds cheeks was retained by the dealer and was not assigned. The dealer has stipulated that except for the two cheeks, the entire security interest and all the corresponding documents were assigned to the finance company. Although the security interest granted to the dealer in the installment sales contract is broad enough to secure the insufficient funds checks, Rhoden Nissan did not record or perfect its security interest in the vehicle and the subsequent acts taken by the assignee can not remedy this situation respecting the two checks. This is not to say that the interest of Credit Acceptance is unenforceable or unperfeeted. The interest of Credit Acceptance is duly perfected to the debts assigned to it, namely the unpaid balance of the purchase price. If, before the commencement of this bankruptcy case Rho-den Nissan had transferred all obligations of Dawn Went to Credit Acceptance, including the $800.00 and $42.00 obligations, Credit Acceptance would hold a perfected interest to secure these debts along with the unpaid purchase price since Credit Acceptance perfected its interest by noting it on the certificate of title. Further, if Rhoden Nissan had noted its lien on the certificate of title after the insufficient funds checks were returned to it, but before bankruptcy, Rhoden Nissan would hold an enforceable interest to secure the $800.00 and $42.00 obligations. However, this is not what occurred on the facts of this case.
If an automobile dealer retains a secured obligation but assigns the security interest securing that obligation, the dealer must note its hen on the certificate of title in order to perfect its interest.
IT IS THEREFORE ORDERED, that the hen of Rhoden Nissan in the 1988 Suzuki Samurai of debtor, Dawn Went, is hereby avoided pursuant to § 544 of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492017/ | SUPPLEMENTAL MEMORANDUM OPINION
BLACKWELL N. SHELLEY, Bankruptcy Judge.
This matter comes before the Court on the motion of The Riggs National Bank of Washington, D.C. (“Riggs”), filed herein on September 2,1994, to amend this Court’s Memorandum Opinion, which was entered on August 30, 1994, and on Riggs’ motion for entry of a final order, filed herein on October 3, 1994. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b)(2)(I) and 1334.
FINDINGS OF FACT
The facts are set forth in this Court’s August 30, 1994 Memorandum, and need not be repeated in full here. To summarize, Riggs was the issuer of a Letter of Credit (“LoC”) for which a reimbursement agreement was guaranteed by George T. Ross (“Ross”). Ross was a general partner of Plaza One Associates (“Plaza”), builder of the Richmond Airport Hilton Hotel (“The Hotel”). The project was financed by issuing bonds secured by a first deed of trust on the Hotel. The LoC was to be drawn upon if Plaza did not make its required payments on the bonds.
In addition to Ross’ guaranty, the LoC was secured by a second deed of trust on the hotel. After several draws on the LoC, and upon default under the terms of the LoC, Riggs foreclosed under its second deed of trust. RBV, Inc. (“RBV”), a wholly-owned subsidiary of Riggs, bought the property at the foreclosure sale for $10,000.00, taking the property subject to the existing first deed of trust. Riggs filed a complaint in this Court to determine the dischargeability of the debt owed it by Ross. Following a hearing on the dischargeability complaint, this Court, in its Opinion of August 30,1994,180 B.R. 121 held that:
Ross’s outstanding indebtedness to Riggs should be considered nondischargeable after deducting therefrom such credits received by Riggs as a result of the liquidation of the asset, by it or its subsidiary RBV, which were properly credited to the balance due under the guaranty by Ross. The Court chooses to allow the parties to work together to find the correct amount of Ross’s outstanding indebtedness.
(Mem. Op. at 130).
Within two days of the Court’s entry of its Memorandum Opinion, Riggs filed its motion to amend. Pursuant to F.R.Civ.P. Rule 59, which is applicable to bankruptcy cases by way of F.R.Bankr.P. Rule 9023, this Court granted Riggs’ motion to amend during an October 17, 1994 hearing on Riggs’ motion for entry of final order.
The amendments to the August 30, 1994 Opinion are as follows:
*132(a) The text of footnote 4, page 124, is replaced by the following:
RBV eventually sold the property to RIC Partners L.P. for a gross sales price of $4.7 million dollars.
(b) The last three sentences of the first paragraph of page 127 are replaced with the following:
The Court is also unsure as to the effect on Ross’s indebtedness of the $4.7 million dollar sale by RBV to RIC Partners L.P. It is possible that Riggs would receive the entire $4.7 million from its subsidiary RBV and collect $8.3 million from Ross, thereby receiving about $13,000,000 on a debt that had an original principal balance of about $7,700,000.
At that same October 17,1994 hearing, the Court learned that the parties were unable to work together in the manner anticipated by the Court in its August Opinion. Upon consideration of the parties’ additional memo-randa and oral argument on the issue of the amount of indebtedness, this Court permitted the parties some additional time to reach an agreement. The parties advised the Court in November that a settlement was being negotiated. By December, however, no agreement had been reached. After long deliberation on this matter, the Court now acts upon the Motion of Riggs for the entry of a final order.
CONCLUSIONS OF LAW
This Court’s initial concern was that the subsequent sale of the hotel by a Riggs subsidiary without crediting the proceeds to Ross’s guaranty obligation would result in a windfall to Riggs. (See Mem. Op. at 127, as amended). Upon further consideration, the Court is not certain that any windfall occurred. The sale to RIC was for $4.7 million dollars, $3.7 million of which was in the form of a loan to the purchaser. Only $1 million was received in the form of cash, and that amount might not have covered the expenses of sale. The Court has no evidence as to amounts, but it is conceivable that Riggs or RBV incurred expenses in completing, marketing and selling the property. Ross has conceded, and both parties agree, that the subsequent sale price of the property has no bearing upon Ross’s obligation to Riggs. Ross cites a Maryland case, Walton v. Washington County Hospital, 178 Md. 446, 13 A.2d 627 (1940), as persuasive authority. The Walton court stated:
The measure of liability of a guarantor of a mortgage is established after the amount of the deficiency is determined by the foreclosure ... the indemnity contemplated by the guarantor is ordinarily the deficiency determined by the auditor’s report ... it is not to be limited to the mortgagee’s ultimate loss.
Id. 13 A.2d at 629. The price that the foreclosure sale purchaser may receive through a subsequent sale does not determine the amount of the deficiency.
Ross maintains that no obligation survived the foreclosure sale because the bid price was $10,000.00 plus the amount of the debt, rather than the $10,000.00 bid recited in the deed and settlement documents. Ross reaches this conclusion by relying upon an inconclusive notation found in the margin of the deed and an even less conclusive statement of a bank officer given during testimony at the original hearing on this matter. As a legal basis for his conclusion that Riggs’ bid at the foreclosure sale must necessarily include the amount of Ross’s indebtedness, Ross relies solely upon In re Carter, 56 F.Supp. 385 (W.D.Va.1944). In Carter the Court stated:
But in any public sale of mortgaged property the creditor, for his protection, may bid at the sale and may apply the amount of his debt upon his bid. If some third party bids more than the amount of the debt secured, then the creditor will be paid in full from the proceeds of the sale. If the creditor is forced to buy in the property at the amount of his debt, or less, he has acquired the property in lieu of his debt.
Id. at 388 (emphasis added). While this language seems favorable to Ross, the Carter ease does not offer support for Ross’s argument. The language cited above is taken out of context, and is part of a general discussion of the law’s gradual recognition of a period of redemption. In addition, the language seems *133to suggest that a creditor is not entitled to a deficiency judgment. This is not the state of the law, and Ross does, not contend that obtaining a deficiency judgment is improper. Proceeding to deficiency judgment is a lawful proceeding in Virginia. See Hubard & Appleby v. Thacker, 132 Va. 33, 110 S.E. 263 (1922).
This Court has found the bid price to be $10,000.00, with the property sold subject to the first deed of trust. The general rule has been stated that a “trustee under a second deed of trust must sell subject to prior encumbrances, as he can only sell the equity of redemption in the property.” Kaplan v. Ruffin, 213 Va. 551, 193 S.E.2d 689, 691 (1973). The Court explained further:
The reason for [the] rule [is] apparent. A trustee can sell only what he has. In the case of a trustee under a second deed of trust he must sell subject to prior liens. Therefore, the purchaser taking subject to prior liens pays what he thinks the property is worth over and above those liens.
Id. (citing 1 Glenn on Mortgages § 109 at 659).
In the Kaplan case, the bidder at the foreclosure sale under a second deed of trust chose to bid $17,750.00, an amount sufficient to pay off the first deed of trust obligation of $13,560.54. The Court ruled that the equity of redemption under the second was sold for $4,189.56 ($17,750.00 less the $13,560.54 required to pay and release obligation under the first). While the Court recognized that a better arrangement may have been for the property to have been sold subject to the obligation under the first, and for the bidder to have then satisfied the obligation under the first, the sale was permitted.
The current ease is much different than Kaplan, however. While Riggs sold the hotel at a foreclosure sale under the second deed of trust, RBV did not choose to bid an amount including the obligation under the first. The first deed of trust remained in place until some ten months after the foreclosure sale. Riggs argues correctly that as of the time of the foreclosure sale, the holder of the first deed of trust maintained all of its rights. The property was worth less than the amount of the obligation under the first, making the equity of redemption under the second deed of trust valueless. RBVs bid was $10,000.00 for a property interest that was worth nothing at the time of the sale, given the lack of equity. That bid was adequate, given that the sale was made under a second deed of trust foreclosure sale.
What was also initially troubling to this Court was the concept that the first deed of trust, which secured the bond obligations, and the second deed of trust, which secured the LoC, appear to have been linked to the same obligation. The obligation under the second arose only as a result of draws made against the LoC upon default of the bond obligation. In other words, each draw upon the LoC increased the obligation under the second as it decreased the obligation under the first. This is less troubling, however, when it is remembered that the obligation of Ross is a guaranty of payments made by Riggs on behalf of Plaza under the Letter of Credit rather than an obligation under a mortgage. The first trust/second trust relationship is not at issue. At issue is the amount owed under the terms of the LoC. No matter what transpired at the foreclosure sale, Ross cannot argue that his obligation does not arise under the guaranty.1
The nondisehargeable obligation owed under the Letter of Credit reimbursement agreement and guaranty is $7,771,875.00, together with interest as it accrued pursuant to the agreement. Of that amount, $212,969.44 has already been reduced to judgment by the District Court. That judgment allowed for post-judgment interest at the federal judgment rate. The remaining obligation for which judgment may be had is $7,558,905.56 together with interest as calculated pursuant to the agreement.2 Post-judgment interest *134should be calculated at the federal judgement rate.
Ross personally guaranteed that he would pay the amounts due under the reimbursement agreement. He bears the burden of showing the amount of any credit that should be applied against the indebtedness to Riggs. Carter Coal Co. v. Litz, 54 F.Supp. 115, 180 (W.D.Va.1943) aff'd 140 F.2d 934 (4th Cir.1944) (When a debtor claims to be entitled to credits against a debt, the burden is on the debtor to prove the credits to which he claims he is entitled; he cannot impose this burden upon the creditor.) See also Snidow v. Woods, 198 Va. 692, 96 S.E.2d 157 (1957).
Ross has not met his burden to show any credit beyond the bid at the foreclosure sale. If no credit is to be given for any subsequent sale of the property, as Ross agrees, the only other credit alleged is the amount bid at the foreclosure, sale. The Court again states its holding that amount of that bid was $10,-000.00, not the $10,000.00 plus the amount the debt under the first deed of trust alleged by Ross. Accordingly, the amount owed by Ross under the Guaranty is to be credited by $10,000.00. Judgment shall be entered against Ross and be fixed in the amount of $7,548,905.56 together with the interest that would have accrued under the guaranty agreement. Post-judgment interest shall accrue at the federal judgment rate. An order conforming with this Memorandum Opinion will be entered accordingly.
. The guaranty states at ¶2:
This Guaranty shall be a continuing, absolute and unconditional guaranty and shall remain in full force and effect until all of the Obligations have been paid or provided for in full, at which time this guaranty shall terminate and be of no further force and effect. Guaranty Agreement at 2 (Joint Stip. Ex. 21).
. The amount demanded in Riggs' complaint is $8,068,684.86. The Court assumes that this *134amount includes interest that has accumulated on the principal balance due. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492018/ | MEMORANDUM OPINION
POLLY S. HIGDON, Bankruptcy Judge.
These eases involve complaints by the trustee, Ronald R. Sticka, to recover preferential transfers made by the debtor, Atta-way, Inc. The legally relevant facts in each are identical. The trustee’s complaint alleges that these payments were made to the defendants within 90 days of the debtor’s filing of its voluntary petition in bankruptcy. Defendants Best Line, Inc. and East River Lumber & Grain responded with Motions to Dismiss for failure to state a claim or, in the alternative, Motions for Summary Judgment. Because the Motions to Dismiss were accompanied by additional documents which were not excluded by the court they shall be treated by the court as motions for summary judgment. Fed.R.Civ.P. 12(b); Fed.R.Bankr.P. 7012(b). The record reveals the controversy is ripe for decision on these mo*276tions. For the reasons stated below, defendants’ motions are denied.
A party is entitled to summary judgment if the pleadings and evidence 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). The party moving for summary judgment “bears the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The moving party is not required to produce evidence negating the opponent’s claim, but need only point out to the court the absence of evidence to support the opponent’s case. Id. at 325, 106 S.Ct. at 2553-54. Once the moving party meets this burden, the party opposing the motion then has the burden of showing that there remains a genuine issue as to some material fact. To do this, the non-moving party must present affirmative evidence of a disputed material fact from which a jury might return a verdict in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Two provisions of the Bankruptcy Code govern the recovery of preferential transfers. 11 U.S.C. § 547(b) provides:
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; ...
Section 550(a) provides:
Except as otherwise provided in this section, the extent that a transfer is avoided under section ... 547 ... 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; ...
In his complaint the trustee alleges all of the elements of an 11 U.S.C. § 547(b) transfer, including the allegation that preferential payments were made by the debtor to the defendants. In support of their motions, the defendants filed statements of material fact and affidavits of John R. Butler, General Manager of Best Line, and Neil Charpentier, President of East River Lumber. These documents allege that the defendants sold the relevant bills of lading to Transport Clearing (hereinafter “Transport”) prior to any payments being made, and that the debt- or knew of these assignments and made all the payments on the bills of lading directly to Transport. Therefore, they contend, the trustee’s avoidance of the transfers fails to state a claim in one essential element of 11 U.S.C. § 547(b)(1): that the payments be “to or for the benefit of the creditor.”
The trustee responded with copies of the relevant contractual documents.1 He alleges that- under the terms of the User Service Contracts between the defendants and Transport, Transport purchased .all of the freight bills “with recourse,” thereby enabling Transport to sell back any uncollected bills to the defendants, leaving the defendants then to look to Attaway for payment. In fact no bills were ever returned to the defendants. Nevertheless, the trustee argues that Attaway’s payments to Transport were “for the benefit of’ the creditor defendants within the meaning of 11 U.S.C. § 547(b)(1), since, if they hadn’t been made, Transport would have been able to pursue its recourse rights against the defendants.
Whether the defendants are creditors *277within the meaning of the Bankruptcy Code2 and whether the payments to Transport were “for the benefit” of the defendants, turns on the contractual rights and obligations which appear in the User Service contracts between Transport and the defendants.
Transport was a factor for the defendants. It purchased bills of lading from both defendants in exchange for providing ready funds at a discount. The purchases were governed by the terms of the User Service Contracts entered into between the defendants and Transport. Under the agreements all “interline bills”, defined as “a bill rendered by one member carrier against another member carrier”, were sold with recourse. In this case, both the defendants and the debtor were “member carriers”. Consequently, all of the bills at issue were purchased with recourse.
The User Service Contracts do not define the term “with recourse,”. However, language in the Security Agreements executed by the parties in conjunction with the User Service Contract contains an implied definition of that term.3 The Security Agreements granted Transport a first position security interest in all accounts purchased from the defendants. The Agreements state, however, that “[t]his first priority security interest of [Transport] shall not apply to any accounts not purchased by [Transport] nor to accounts charged back to Debtor pursuant to [Transport’s] recourse rights against the debtor.”4 This language implies an understanding of the parties that Transport’s recourse rights entitled it to charge back uncollected bills to the defendants.
The term “recourse” is a well-recognized one in commercial law. Black’s Law Dictionary defines “recourse” as “[t]he right of a holder of a negotiable instrument to recover against a party secondarily liable ...” and defines “with recourse”- as a “[t]erm which may be used in indorsing a negotiable instrument and by which the indorser indicates that he remains hable for payment of the instrument.” (5th ed. 1979).
ORS 73.0414(5), dealing with negotiable instruments, provides:
If a draft states that it is drawn “without recourse” or otherwise disclaims liability of the drawer to pay the draft, the drawer is not hable under subsection (2) of this section to pay the draft if the draft is not a check.
Subsection (2) of the section would otherwise require the drawer to pay the draft upon dishonor. Similarly, ORS 73.0415(2) provides:
If an indorsement states that it is made “without recourse” or otherwise disclaims liability of the indorser, the indorser is not hable ... to pay the instrument.
Both of these provisions track language in the Uniform Commercial Code. The Official Comment to UCC Sec. 3-414(e) gives as an example the Seller of goods to Buyer who draws a draft on Buyer for the price of the goods, payable upon delivery to the drawee of an order bill of lading covering the goods. The Seller then dehvers the draft and bill of lading to Finance Company named as payee of the draft. If Seller drew without recourse, Finance Company takes the risk that Buyer will dishonor, and cannot recover from Seller in that event, but can sell the goods to obtain reimbursement.
*278The term “with recourse” therefore implies the opposite result — that the drawer, or indorser, or transferor of the document will be liable if the document is not honored by the primary obligor. Since, in the present case, upon sale of the bills of lading, Transport preserved its recourse rights against the defendants, the ultimate risk of Attaway’s non-payment would fall upon the defendants. If Attaway had not made the payments to Transport and Transport had charged back the bills of lading to the defendants, they would then have had a right to payment or a “claim” against Attaway for payment on the bills.
The fact that this claim was contingent does not make it any the less a claim under § 101(5), which explicitly includes contingent debts within its definition. As the Ninth Circuit has stated: “[T]he rule is clear that a contingent debt is ‘one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor.’ ” In re Fostvedt, 823 F.2d 305, 306 (9th Cir.1987 (citing Brockenbrough v. Commissioner, 61 B.R. 685, 686 (W.D.Va.1986). Because the defendants had a contingent claim against the debtor they were creditors of the debtor within the meaning of § 547(b).
That being so, were the payments to Transport “for the benefit of’ the defendants within the meaning of § 547(b)(1)? Apparently this is an issue of first impression. No reported case this court has found has dealt with whether payments by a debtor to a purchaser or assignee who purchased from a creditor “with recourse” constitute payments “for the benefit of the creditor.”
The closest reported analogous facts appear to be those in which a debtor makes payments on a loan which has been guaranteed by a third party. Such payments have been held to be “for the benefit of’ the guarantor within the meaning of § 547(b)(1).5 The leading case is Levit v. Ingersoll Rand Fin. Corp. (In re V.N. Deprizio Constr.), 874 F.2d 1186 (7th Cir.1989) (“Deprizio”). The court interpreted the Code to equate “transfer” with “payments made”:
Sections 547 and 550 both speak of a transfer being avoided; avoidability is an attribute of the transfer rather than of the creditor.... A single payment therefore is one “transfer”, no matter how many persons gain thereby.
Id. at 1195-96. In the situation where a firm borrows money from a lender, with payment guaranteed by the firm’s officer, the court said:
A payment (‘transfer’) by Firm to Lender is ‘for the benefit of Guarantor under § 547(b)(1) because every reduction in the debt to Lender reduces Guarantor’s exposure. Because the payment to Lender assists Guarantor, it is avoidable under § 547(b)(4)(B) [within the one year period] . . .''
Id. at 1191 (citation omitted). Consequently, a transfer is potentially avoidable where shown to be “for the benefit of a creditor” within the meaning of § 547(b), although paid directly “to” another creditor.
Although some courts have disagreed with the Deprizio conclusion, the Ninth Circuit reached the same conclusion in In re Sufolla, Inc., 2 F.3d 977 (9th Cir.1993). The Ninth Circuit agreed with Deprizio that it is the transfer which is avoided, not the beneficiary, quoting with approval the Deprizio language on avoidability cited above. In so holding the court also rejected the Deprizio bankruptcy court’s use of its “equitable powers” to circumvent the “plain meaning” of §§ 547(b) and 550(a), an approach followed by other courts who disagreed with the De-prizio holding. The Ninth Circuit noted that the courts of appeals who discussed the equitable approach unanimously rejected it, and stated: “[W]e decline to depart from a literal reading of the Code.” 2 F.3d at 981. Accord., In re AEG Acquisition Corp., 161 B.R. 50 (9th Cir. BAP 1993) (applying Sufolla in an insider co-obligor situation); and In re Skywalkers, Inc., 49 F.3d 546 (9th Cir.1995) *279(insider guarantors; case was decided under pre-1994 B.R.A. law).
This court considered certain “anti-Depri-zio ” contractual provisions in In re XTI Xonix Technologies Inc., 156 B.R. 821 (Bankr.D.Or.1993). In Xonix the insider guarantors of loans from a bank to their corporation had signed documents subordinating their rights against the corporation, in the event of their payment of any of the loan amount, to any claims the bank still had against the corporation. The guarantors specifically waived all of their rights of indemnity, contribution or exoneration against the corporation which they would otherwise have had as guarantors. I found that consequently the guarantors were not creditors of the debtor; therefore the debtor’s payments to the bank could not be “for their benefit” within the meaning of § 547(b)(1).
In In re Erin Food Services, Inc., 980 F.2d 792 (1st Cir.1992), the court assumed without deciding that the Deprizio ruling was correct, but declined to find that the transfers to the outside creditor in a Chapter 11 proceeding conferred a benefit upon the insider-guarantor greater than he would have received under a Chapter 7 proceeding, a requirement for avoidance under § 547(b). The insider had signed what was described in the opinion as a “personal non-recourse guaranty” for the corporation’s loans, secured by the guarantor’s own real estate which did not cover the majority of the corporation’s debt. The court determined that since the personal guaranty was without recourse the secured lenders’ only remedy would be to foreclose on the collateral. Because the insider would have a contingent claim against the corporation equal to the value of his collateral, he as well as the secured lenders was a creditor of the corporation. However, since the transfers to the lenders did not reduce the amount of the debtor’s obligation below the value of the guarantor’s collateral, there was no reduction of his exposure on the debt and therefore no benefit to him from the payments. In the present ease, by contrast, because Transport had a full right of recourse against defendants, payments to Transport reduced defendants’ exposure dollar for dollar.
If the debtor’s payments to creditors are deemed to be “for the benefit of guarantors” and, by analogy, to the defendants in this case, from whom may the payments be recovered? As the court noted in Deprizio, supra: “Section 547(b) defines which transfers are ‘avoidable’ ... After § 547 defines which transfers may be avoided § 550(a) identifies who is responsible for payment.” 874 F.2d at 1194. See also Sufolla, supra: “Under Deprizio, once it is determined that the elements of § 547(b) are satisfied, the unambiguous language of § 550(a) then identifies the party responsible for repayment of the preference.” 2 F.3d at 980.
Under 11 U.S.C. § 550(a)(1), to the extent any transfer is avoided under § 547, recovery of such transfer may be had from either the transferee or the entity “for whose benefit such transfer was made.” Section 550(d) also provides that the trustee “is entitled only to a single satisfaction under subsection (a) of this section.” This language suggests that the trustee has a choice of parties from whom to seek recovery. Under this statutory language the category of those from whom recovery may be sought is not limited only to the parties to whom the transfers were actually made. Therefore, the fact that the payments were not made to the defendants does not preclude recovery from them. See In re Richmond Produce Company, Inc., 118 B.R. 753, 758 (Bankr.N.D.Cal.1990), involving recovery of fraudulent transfers: “[T]he plain language of 11 U.S.C. § 550(a)(1) does not seem to require that the benefit actually be received [by the party from whom recovery is sought].”
Several courts have upheld recovery under § 550 from guarantors who did not receive the avoided transfer. In re Finn, 909 F.2d 903 (6th Cir.1990), involved an avoidance action by the trustee against a guarantor for loan payments made to the debtor’s credit union. The Sixth Circuit found that the trustee had established all of the elements for an avoidable transfer, but remanded for a determination as to whether the payments were made in the ordinary course of the debtor’s financial affairs. The court did not indicate that the guarantor was an improper party from whom to seek recovery, or that *280recovery should have been sought from the transferee instead.
In dicta, the Eleventh Circuit has noted the benefit that accrues to a guarantor when a debt is paid:
In the typical case where a guarantor is the “entity” from which the trustee can recover under section 550(a)(1), there is a real and immediate financial benefit to the guarantor. By the debtor satisfying the underlying obligation, the guarantor is relieved of his matured obligation to pay any unsatisfied portion. This relief from an obligation to pay money is the economic equivalent of the receipt of money by one to whom money is owed.
In re Coggin, 30 F.3d 1443, 1453-54 (11th Cir.1994).
Matter of Prescott, 805 F.2d 719 (7th Cir.1986) involved both a guarantee and a subordinated interest in a security. The debtors had received a loan from a bank secured by the debtors’ inventory and accounts receivable. A food corporation guaranteed part of the loan and held a second lien in the security. The court found that payments made by the debtors to the bank, and the bank’s offsetting of funds in debtors’ bank accounts, constituted preferential transfers to both the bank and the food corporation. The transfers benefitted the food corporation both as a guarantor and as a junior lienholder, and recovery could be had from it to the extent it received a benefit, although it had received none of the debtor’s payments.
Unlike many guarantors, here the defendants have no insider relationship to the debtor. However, as the court said in In re Richmond Produce Company, supra, in which a party had unsuccessfully argued that recovery under § 550(a)(1) was limited to beneficiaries who were either debtors of the transferee, guarantors, or entities who controlled the transfer: “While former case law [involving grantors, transferees’ debtors, or entities controlling the transfer] may be looked to for guidance, it would be nonsensical to conclude that existing case law has exhausted every possible type of entity from whom recovery may be obtained under 11 U.S.C. § 550(a)(1).” 118 B.R. at 758. In that case, the court refused to dismiss the claim against a creditor of the transferee.
Other courts have also allowed recovery against parties who were not guarantors but who were found to have benefitted from payments made to other entities. In In re H & S Transp. Co., Inc., 939 F.2d 355 (6th Cir.1991), the trustee of an entity which operated a towboat sought to recover from the towboat’s corporate owner as preferential transfers payments made by the debtor to suppliers of towboat fuel. The court agreed that the owner was a creditor because it would have had a right of indemnity against the debtor had the fuel debt not been paid and had the fuel suppliers then executed their statutory liens upon the towboat. However, the court denied the trustee’s claim on the alternate grounds that new value had been provided by the owner to the operator for these payments, and that the trustee’s settlement with the fuel providers was the “single satisfaction” to which it was entitled under § 550(a). Although the court did not specifically state that, absent these defenses, recovery would have been permitted from the towboat owner, its reasoning that the owner was subrogated to the rights and defenses of the fuel suppliers by virtue of the liens upon its boats would imply this result.
In re Checkmate Stereo & Electronics, Ltd., 21 B.R. 402 (E.D.N.Y.1982), involved a payment by the debtor to the defendant’s lawyer, who had represented the defendant in his divorce proceeding. The payment was applied to the defendant’s personal debt to his attorney. Although the court did not specifically find that the defendant was a creditor, it held that the payment could be recovered from him under § 550(a)(1), since the payment was for his benefit.
In a case involving an attempted avoidance of a fraudulent transfer the court held that the trustee could recover the funds from the FDIC, as the initial transferee. The court went on to state that although the corporate debtor’s principal was not a party to the proceeding the trustee could have sought recovery from her under § 550(a)(1) as the entity benefitted by the transfer. The principal had caused the debtor to issue a check to pay a personal debt. In re M. Blackburn *281Mitchell Inc., 164 B.R. 117 (Bankr.N.D.Cal.1994).
The language of § 550(a) and the reasoning of these cases make it clear that recovery may be had from the defendants. The court recognizes that the holding in this case may appear to some as more inequitable than those cases in which the transferee has obtained recovery under § 550 from a defendant who did not receive the payment from the debtor, but who had an inside relationship with the debtor. The Supreme Court has stated on numerous occasions, however, that this court’s equitable powers cannot be exercised to overrule the plain meaning of the statute. The court notes that defendants did receive consideration for the bills of lading, unlike a guarantor who has received no cash in hand in exchange for his exposure.
Under the relevant Code language and pursuant to the terms of the parties’ contracts the defendants are creditors of the debtor. Attaway’s payments to Transport were made for the benefit of them pursuant to § 547(b)(1). These payments may be recovered from them under § 550(a)(1). Therefore, defendants’ motions are denied.
The court is unable to grant affirmative relief to the plaintiff because he has filed no cross-motion for summary judgment. The matter will be set for a status call. This Memorandum Opinion contains the court’s findings of fact and conclusions of law and pursuant to Bankruptcy Rule 7052, they will not be separately stated.
An order consistent herewith shall be entered.
. He did not controvert the statements in the defendants' supporting materials. The court, therefore, for the purpose of addressing these *277motions, accepts as true the statements made therein.
. 11 U.S.C. § 101(10)(A), for purposes of federal bankruptcy law, defines “creditor" as “an entity that has a claim against the debtor.” Section 101 (5)(A) defines “claim" broadly 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[.]
The existence of any right to payment, however, is determined by state law.
. The Security Agreements were entered into between Best Line, Transport, and Midwest Federal Savings & Loan Association of Minneapolis, on the one hand, and East River Lumber, Transport and Norwest Bank on the other. Each granted Transport a first position security interest in the accounts it purchased and subordinated a security interest earlier granted by the defendant to the bank in the accounts to Transport.
. Upon charge back of an account, Transport's security interest in that account ended and the respective bank resumed a first position security interest in the account.
. This latter circumstance has been considered in the context of whether the 90-day period for recovery of transfers to a non-insider creditor of the debtor can be extended to the one-year recovery period for transfers to an insider when payment has been guaranteed by an insider The issue of extension of the preferential period is not before this court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492019/ | ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
RICHARD L. BOHANON, Bankruptcy Judge.
This matter is before the court on plaintiff-debtor’s Motion for Summary Judgment seeking to avoid a transfer of property by the defendant. The complaint is made under sections 547 and 550 of the Bankruptcy Code.
In 1984, plaintiff entered into a loan agreement with The First National Bank & Trust Company of Norman, Oklahoma and pledged as collateral certain assets used in his business. The plaintiffs loan was guaranteed by the Small Business Administration. The Federal Deposit Insurance Corporation was subsequently appointed receiver for First National, and later assigned First National’s security interest in plaintiffs assets to the SBA.
The Internal Revenue Service filed notices of federal tax liens against the plaintiff in 1987, and subsequently seized the plaintiffs assets in 1988. The IRS mailed notices to creditors stating that the plaintiffs interest in the property in question would be sold at a public auction, and in 1988 it was sold to a third party for $40,000. The check was made payable to both the plaintiff and defendant. As a result of the sale, the IRS released the tax levy on plaintiffs assets, they were delivered to the buyer, and the IRS received the proceeds of the sale. Within nine months from the date of the sale, the IRS received a claim to the sale proceeds from the SBA. Based upon the priority of the SBA’s lien, the IRS then transferred the $40,000 to the SBA.
The plaintiff contends that the proceeds from the tax sale should have been applied to his tax liability, and that the IRS improperly transferred the funds to the SBA. Further, plaintiff argues that the transfer to the SBA was an avoidable transfer under section 547 of the Bankruptcy Code.
It is the IRS’ position that it had the right to pay the sale proceeds to the SBA, or any other United States agency to which the plaintiff was indebted. It also states that its receipt of the tax sale proceeds was not a full satisfaction of the plaintiffs tax liability.
THE PLAINTIFF HAS NO CAUSE OF ACTION TO AVOID THE TRANSFER
At the outset, it must be noted that section 547 is a statutory remedy available only to a trustee, not to a debtor. “Under section 547(b), it is the trustee alone who has the power to avoid preferential transfers.” 4 Collier on Bankruptcy ¶ 547.21 (15th Ed.1994). Therefore, the plaintiff has no cause of action to avoid the transfer.
NOTHING IMPROPER RESULTED FROM THE TRANSFER OF PROCEEDS
The plaintiff also argues that the IRS should have applied the proceeds from the tax levy to his tax liability; and that the IRS improperly transferred the funds to the SBA. These arguments are without merit. It is generally held that a debtor who voluntarily pays a debt may direct the application of those items as he so chooses, however, such is not the case where a payment is made involuntarily. See O’Dell v. U.S., 326 F.2d 451, 456 (10th Cir.1964). This proceeding concerned a “forced sale”, and the plaintiff has no right to decide how the proceeds are to be applied to his debts owing to the United States. When the tax payments are invol*293untary the IRS and not the taxpayer has the right to decide how to apply them. Matter of Tom LeDuc Enterprises, Inc., 47 B.R. 900 (W.D.Mo.1984).
The case of U.S. v. Brown, 835 F.2d 176 (8th Cir.1987), addressed this particular issue. In Brown, the debtor sought to challenge the transfer of funds collected by the IRS to the local U.S. Attorney to satisfy bad forfeiture judgments. The court rejected the debtor’s challenge, holding that “the United States has plenary power to transfer funds to which it is entitled from one pocket to another, or to decide which of several debts due from one individual will be satisfied with particular funds of the debtor.” 835 F.2d 176, 180.
Brown also discussed the Internal Revenue Code provisions authorizing the IRS to release levies or to return property wrongfully levied upon:
The Internal Revenue Code provides that persons, other than the taxpayer against whom an assessment is made, may bring an action to assert an interest in property upon which the IRS has levied. 26 U.S.C. § 7426. In addition, section 6343 of the Code authorizes the IRS to release its levy or to return voluntarily specific property or an equal amount of money, if it is determined that the property has been wrongfully levied upon. The Secretary of the Treasury has prescribed procedures for requests for return of property under section 6343. Treas.Reg. § 301.6343-1(b)(2) (1972). If such a request is made within nine months from the date of the levy, the period during which a suit under section 7426 may be filed is extended. 26 U.S.C. § 6532(c). Accordingly, it seems clear that third parties may request the return of property under section 6343.
See also Raymond v. U.S., 983 F.2d 63 (6th Cir.1993).
The IRS has done nothing improper; the SBA asserted a valid claim to the proceeds. Thus, plaintiffs arguments concerning 26 U.S.C. § 6343(b) are without merit.
THE IRS’ RECEIPT OF THE SALE PROCEEDS DID NOT AMOUNT TO A FULL SATISFACTION OF PLAINTIFF’S TAX LIABILITY
Plaintiff also asserts that the $40,000 received from the sale by the IRS was in full payment of all plaintiffs tax liability. While on its face the plaintiffs assertion appears to create a material fact controversy, based upon the facts as presented to the court the plaintiffs argument fails as a matter of law.
Section 7121(a) of the Internal Revenue Code authorizes the IRS to enter into written agreements with taxpayers relating to that person’s liability for a taxable period. The regulations issued under this section provide in pertinent part that:
A closing agreement may be entered into in any ease in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the Commissioner that the United States will sustain no disadvantage through consummation of such an agreement.
26 C.F.R. § 301.7121-l(a). The regulations go on to provide that:
all closing agreements shall be executed on forms prescribed by the Internal Revenue Service. The procedure with respect to requests for closing agreements shall be under such rules as may be prescribed by the Commissioner in accordance with the regulations under this section.
26 C.F.R. § 301.7121-l(d).
Nothing shown by the plaintiff indicates that a final compromise of plaintiffs tax liability was reached. The acceptance of the check by the IRS does not constitute an accord and satisfaction of debtor’s tax liability. Whitaker v. Commissioner of Internal Revenue, 1994 WL 87577 (U.S. Tax Ct.1994).
Accordingly, the plaintiffs motion is denied and summary judgment will be entered in defendant’s favor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492021/ | MARGARET H. MURPHY, Bankruptcy Judge.
This adversary proceeding is before the court on the Trustee’s motion for partial summary judgment as to four defendants. First, the Trustee seeks summary judgment as to the City of Powder Springs (the “City”), who holds ad valorem tax liens against real property of Debtor. Postpetition, the City recorded writs of fi. fa. as to those tax liens. Second, the Trustee seeks summary judgment as to the Georgia Department of Labor (“Labor”), who holds a tax lien for unpaid unemployment taxes. Labor recorded its writ of fi. fa. during the 90-day prepetition preference period. Third, the Trustee seeks summary judgment as to Yancey Brothers Corp. (“Yancey”), who holds a judgment lien against Debtor. Yan-cey also recorded its writ of fi. fa. during the 90-day prepetition preference period. Finally, the Trustee seeks clarification of a consent order entered October 16, 1992, which set forth the agreement between Debtor and the Internal Revenue Service (“IRS”) as to Debtor’s use of cash collateral securing the claim of the IRS. The Trustee also seeks to assert a claim pursuant to 11 U.S.C. § 506(e) against the IRS’ collateral.
1.The tax lien of the City of Powder Springs
The Trustee contends that the City’s hens are void because the writs of fi. fa. were filed postpetition in violation of the automatic stay of 11 U.S.C. § 362(a). The City filed a response in which it argues that because the ad valorem tax Hen arises automatically pursuant to O.C.G.A. § 48-2-56, the acts of filing the writs of fi. fa. were redundant and, therefore, could not violate the automatic stay. The City cites in support of its argument Kocurek v. Arnold (In re Thurman), 163 B.R. 95 (Bankr.W.D.Tex.1994). But see, Pointer v. City of Farmers Branch, 113 B.R. 285 (Bankr.N.D.Tex.1990). The Trustee filed no reply to the City’s response.
Subsection (a)(4) of § 362 provides that the automatic stay prohibits any act to create, perfect, or enforce any Hen against property of the estate. In the instant case, the City’s Hen for ad valorem taxes was perfected and superior to all other Hens before the fi. fa. was recorded. O.C.G.A. § 48-2-56(a) and (d); Tuggle v. IRS, 30 B.R. 718 (Bankr.N.D.Ga.1983). The recording of the writs was a redundant act designed to provide record notice of the tax Hens but according the City no better Hen status than it had before the writs were recorded. Therefore, because the postpetition recording of the writs of fi. fa. did not act to create, perfect or enforce the City’s Hen, the City’s actions did not violate the automatic stay.
2. The tax lien of the Georgia Department of Labor
In the motion for partial summary judgment, the Trustee initially asserted that Labor’s tax Hen was avoidable because it was recorded during the 90-day prepetition preference period. In Labor’s response to the Trustee’s motion, Labor reHes upon the exception set forth in § 547(c)(6) which provides that the Trustee may not avoid a transfer which is the fixing of a statutory Hen not avoidable under § 545. Labor shows that its Hen is a statutory Hen pursuant to O.C.G.A. § 34-8-167(b) and that it is not avoidable by the Trustee pursuant to § 545. The Trustee filed a reply conceding that Labor’s arguments were weH-founded.
3. The judgment lien of Yancey Brothers Corp.
In the motion for partial summary judgment, the Trustee asserted that Yan-cey’s judgment Hen was avoidable because it was recorded during the 90-day prepetition preference period. The Trustee set forth sufficient facts to satisfy the elements of § 547(b). Yancey failed to file a response; accordingly, the motion is deemed unopposed. LR 220-1 NDGa, incorporated in BLR 705-2 NDGa. AdditionaHy, as a result of Yancey’s failure to respond to the motion for summary judgment, the Trustee’s state*310ment of undisputed material fact is deemed admitted. LR 220 — 5(b)(2) NDGa, incorporated in BLR 705-2 NDGa. Therefore, the. Trustee has established his right to summary judgment against Yancey.
4. The replacement lien of the IRS
By consent order entered October 19, 1992, the IRS agreed to allow Debtor to use cash collateral in return for Debtor’s agreement to provide adequate protection of the IRS lien on Debtor’s accounts receivable. The order provided:
The [IRS] shall receive a lien in all cash collateral as defined in 11 U.S.C. § 363(a) and the proceeds thereof acquired postpe-tition to the same extent and in the same priority as it had in similar prepetition collateral at the time of the filing of the Chapter 11 petition. The [IRS] shall not be required to file additional liens in any jurisdiction or take any other action in order to validate or perfect its interest in the postpetition cash collateral and proceeds thereof provided herein.
The Trustee asserts that the language of the consent order is unclear and needs clarification by this court. The Trustee contends that if the consent order intended to grant the IRS a replacement lien on all Debtor’s postpetition accounts receivable and their proceeds, such a replacement lien could be granted only to a creditor whose cash collateral had been used without the creditor’s knowledge or consent and only to the extent that such cash collateral was actually dissipated. The Trustee maintains the IRS is not an “innocent” creditor because it failed to take any action to prevent Debtor’s use of cash collateral for over a year after the petition was filed. The Trustee argues that a replacement lien in postpetition collateral gives the IRS more protection than it had prepetition.
The IRS responds that the relief sought by the Trustee is inappropriate in the context of this adversary proceeding and should, more properly, have been filed under Bankruptcy Rule 9024, which incorporates FRCP 60, as a motion to amend or vacate the consent order. The IRS chastises the Trustee for delaying almost two years in seeking relief from the consent order. The IRS asserts that replacement liens are a common means of providing a secured creditor with adequate protection in return for consent for a debtor to use cash collateral.
The facts appear to support a conclusion that the IRS was oversecured as of the date the petition was filed and is oversecured now. The granting of a replacement lien may have created a greater equity cushion for the IRS but does not appear to have allowed the IRS to receive more in payment of its claim than it would have without the replacement hen. As the IRS points out, the Trustee is in control of the information concerning the dissipation of Debtor’s prepetition cash collateral, so the burden is properly upon the Trustee to provide specific information to support a claim that the IRS received more protection than it was entitled to receive.
The granting of a replacement hen in post-petition accounts is a common practice in cash collateral orders in Chapter 11 cases. The provisions of the order which is the subject of the Trustee’s motion are not unclear or ambiguous. The IRS received a replacement hen in Debtor’s postpetition accounts and their proceeds “to the same extent and in the same priority as it had in similar prepetition collateral at the time of the filing of the Chapter 11 petition.” The IRS was entitled to adequate protection of its security interest and the replacement hen provides such adequate protection. To divest the IRS of that hen now, after Debtor has had the use of the IRS’ cash cohateral for over two years, would be unfair.
The Trustee’s request for payment of expenses pursuant to § 506(c) is premature. The Trustee may, at the appropriate time, file a motion which fully sets forth the expenses incurred and the factual basis of the Trustee’s asserted entitlement to receive payment from the collateral.
Where a non-moving party is entitled to judgment as a matter of law, summary judgment may be awarded in favor of the non-moving party. Bosarge v. U.S. Department of Education, 5 F.3d 1414 (11th Cir.1993); Federal Deposit Insurance Corp. v. Sumner Financial Corp., 376 F.Supp. 772 *311(M.D.Fla.1974); 6 Moore’s Federal Practice ¶ 56.12. Accordingly, for the reasons set forth above, it is hereby
ORDERED that, as to the City of Powder Springs, the Trustee’s motion for summary judgment is DENIED and summary judgment in favor of the City is GRANTED. It is further
ORDERED that, as to the Georgia Department of Labor, the Trustee’s motion for summary judgment is DENIED and summary judgment in favor of the Department of Labor is GRANTED. It is further
ORDERED that, as to Yancey Brothers Corp., summary judgment in favor of the Trustee is GRANTED. It is further
ORDERED that, as to the United States of America (IRS), the Trustee’s motion for summary judgment is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492137/ | ORDER TRANSFERRING ADVERSARY PROCEEDING TO DISTRICT COURT
ARTHUR N. VOTOLATO, Bankruptcy Judge.
This matter was scheduled for trial on July 10, 1995, on the merits of the Plaintiffs Amended Complaint. Upon examination of the pleadings just prior to the commencement of the trial, and although neither party had previously raised the issue, the Court sua sponte questioned whether it had subject matter jurisdiction over the instant dispute. The Plaintiff was unable to offer the Court any comfort regarding its jurisdictional concerns, while the Defendant, understandably, adopted the Court’s thinking on the issue.
It being uncontroverted that the events alleged in the Amended Complaint all occurred post-petition and post-confirmation, we conclude that the Bankruptcy Court is without subject matter jurisdiction over the instant dispute, even if both parties consented, and they have not.
*674Accordingly, in the interest of judicial economy,1 to minimize additional expense to the parties, and because this dispute involves issues of federal law, namely 47 U.S.C. §§ 553 and 605, we abstain pursuant to 28 U.S.C. § 1334(e)(2), and refer this adversary proceeding to the United States District Court for the District of Rhode Island, for whatever action it deems appropriate. Finally, having determined that we are without authority to adjudicate this matter, the Order dated July 5, 1995, granting Plaintiffs Motion for Sanctions, must be and is VACATED.
. Following the Court's expressed concern that it lacked subject matter jurisdiction, the Defendants urged that the matter should simply be dismissed. We disagree, and feel it more appropriate to refer the matter to a Court that unquestionably has jurisdiction, thereby salvaging the pre-trial and discovery efforts that have been invested while the matter was pending before this Court. The parties should not be required to start from scratch as a result of this Court’s belated recognition that it is not the proper forum. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492022/ | DECISION AND ORDER ON “NOTICE OF INTENT BY RODOLITZ CORPORATION, DEBTOR AND DEBTOR IN POSSESSION, TO ENTER INTO AND PERFORM UNDER LEASE AGREEMENT DATED MARCH 31, 1995 BY AND BETWEEN RODOLITZ HOLDING CORPORATION AND PAINT APPLICATOR CORP. OF AMERICA, INC.”
EDWARD J. RYAN, Bankruptcy Judge.
By “Notice of Intent By Rodolitz Holding Corporation, Debtor and Debtor in Possession, To Enter Into And Perform Under Lease Agreement Dated March 31, 1995 By and Between Rodolitz Holding Corporation And Paint Applicator Corp. Of America, Inc.” Rodolitz Holding Corporation “respectfully requests, in the event an objection is filed and hearing requested, the court conduct the requisite hearing on the objection as is appropriate to grant to the debtor the authorization requested herein and such other and further relief as is just and proper.”
No objections were filed by the date fixed in the Notice.
The Petition states the debtor, Rodolitz Holding Corp., is in the “commercial property business,” and the Statement of Operations tells us Rodolitz Holding Corp. is a “real property owner and lessor.” To the extent that it can be said that the applicant has a regular course of business, the proposed transaction is within the course of its business. Ergo, there was no need for the within “request.”
Nor is there anything for the court to adjudicate because, in any event, no objection was filed.
No order is appropriate here. No order is required.
It is so found, ordered, adjudged and decreed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492023/ | DECISION AND ORDER ON NOTICE OF INTENDED SALE OF PROPERTY
EDWARD J. RYAN, Bankruptcy Judge.
Gregory Messer, Trustee of Brookville Plumbing & Heating, Inc., debtor, gave notice that “pursuant to 11 U.S.C. 704(1) and 363(b) the Trustee, Gregory Messer, Esq., will sell through Jackson Hecht Associates, Inc., at public auction free and clear of all liens and encumbrances, if any, same to attach to the proceeds of sale, on Thursday, 4th day of May, 1995 at 10:30 A.M. at Clarkson Van Lines, 921 Conklin Street, Farmingdale, NY 11735, assets of the above Debtor consisting of plumbing supplies and equipment. Fleet Bank alleged secured creditor herein has consented to the sale.”
The notice, inter alia, states “that unless objections are filed in writing with the Clerk of the Court and with the Trustee on or before 5:00 P.M. on Monday, May 1, 1995, the intended sale as described in this notice will go forward” and it states further that “A hearing on objections, if any will take place before the Honorable Edward J. Ryan, U.S. Bankruptcy Judge, in the U.S. Bankruptcy Court at 1635 Privado Road, Room 200, Westbury, New York 11590, on Wednesday, May 3, 1995 at 10:00 A.M.”
* * H* H* ‡
Section 363(b) simply requires notice and a hearing before the trustee may use, sell, or lease property of the estate other than in the ordinary course of business. The section applies when the business is not authorized to be operated or when the business is authorized to be operated and the proposed action is out of the ordinary course of business. A court order is not required. The trustee is required to give notice of any proposed use, sale or lease to provide an opportunity for objections and a hearing if there are objections. This is because section 102(1) provides that “notice and a hearing” means “after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances” but authorizes the act without an actual hearing if one is not timely requested or there is insufficient time for a hearing. 2 Collier on Bankruptcy § 363.03 (15th ed. 1993).
No order approving the sale is needed, no objection having been filed. The statute authorizes the sale.
It is so ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492024/ | ORDER
JOHN E. WAITES, Bankruptcy Judge.
THIS MATTER comes before the Court upon the Debtors’ objection to the Proof of Claim filed by the Resolution Trust Corporation (“RTC”) in the amount of One Hundred and Sixty Five Thousand, Fifty-Three and 22/100 ($165,053.22) Dollars. The RTC’s unsecured claim is based upon a guaranty provided by the Debtors to North Carolina Federal Savings and Loan (“Bank”), the RTC’s predecessor, which secured a loan made by the Bank to Pinewood Builders of South Carolina, Inc., by way of a note and mortgage dated November 30, 1988. Upon default, the RTC foreclosed on the mortgaged property and by way of the subject Proof of Claim asserts a claim against the Debtors as guarantors for the amount of the guaranty, less the proceeds received as a result of the foreclosure sale.1
The Debtors assert that as guarantors, they are entitled to, and should have been afforded, the protection offered by the South Carolina Appraisal Statute codified at § 29-3-680 of the South Carolina Code of Laws (“Appraisal Statute”) because the mortgaged property (which was purchased at the sale by the RTC) has a value greater than that paid by the RTC as evidenced by an appraisal by Anton Poster.
The RTC asserts that the Guaranty provided by the Debtors gives rise to a separate obligation and contract distinct from the Note and Mortgage under which it may bring a claim against the Debtors and that the Debtors were not entitled to the protection offered by the Appraisal Statute since they were not defendants at the time of judgment or sale, to the foreclosure proceeding. Based upon the pleadings, arguments of counsel and the evidence submitted at the hearing, this Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. On November 30, 1988, Pinewood Builders of South Carolina, Inc.2 borrowed $345,685.00 in the form of a Construction Loan from North Carolina Federal Savings and Loan Association (“Bank”). The Construction Loan was evidenced by a Promissory Note (“Note”) and secured by a Mortgage & Security Agreement (“Mortgage”) dated November 30, 1988 between Pinewood Builders of South Carolina, Inc., as Mortgagor, and the Bank, as Mortgagee, which created a security interest in real estate generally described as 9.98 acres in Soeastee, Horry County, South Carolina (“mortgaged premises”).
2. The Note was additionally secured by a Guaranty of Payment and Performance (“Guaranty”) of November 30, 1988 from the Debtors, Robert and Barbara Kirven, and from J. Theron Floyd, Jr. and Marilyn M. Floyd.
3. Effective March 1, 1990, the Office of Thrift Supervision (“OTS”) appointed the RTC as Receiver for North Carolina Federal Savings and Loan Association, and on the same date the OTS authorized the creation of and issued a charter for a new insured depository institution named North Carolina Savings and Loan Association, F.A. The assets of North Carolina Federal Savings and Loan Association were transferred to North Carolina Savings and Loan Association, F.A. On the same date, the OTS appointed the RTC as Conservator for North Carolina Savings *440and Loan Association, F.A. Effective September 21, 1990, the OTS appointed the RTC as sole Receiver for North Carolina Savings and Loan Association, F.A. (“Association”). The RTC as Receiver took possession of the Association and succeeded to all rights, title, powers and privileges of the Association in the property and the Note and Mortgage more particularly described above.
4. The Note and Mortgage were declared to be in default by the RTC on or before July ■ 7, 1993.
5. On July 7, 1993, the RTC filed a Lis Pendens, Summons and Complaint naming Pinewood Builders of South Carolina, Inc., Robert Kirven, Barbara Kirven and others as defendants. The Complaint sought foreclosure of the mortgaged premises, personal judgments and deficiency judgments.
6. On July 13, 1993, the Debtors, Robert and Barbara Kirven, were personally served with the Lis Pendens, Summons and Complaint. The Kirvens failed to answer or otherwise respond as required by the Summons. On August 18, 1993, the RTC filed an Affidavit of Default in the foreclosure proceeding against the Kir-vens.
7. The Kirvens filed a voluntary Chapter 7 petition on August 18, 1993 at 4:25 p.m. o’clock.
8. Robert F. Anderson was appointed the Chapter 7 Trustee and subsequently determined that there were assets available for distribution to creditors.
9. The RTC dismissed the Kirvens as defendants to the foreclosure proceeding on November 9, 1993 by Notice of Dismissal without prejudice pursuant to Rule 41(a)(1) of the South Carolina Rules of Civil Procedure.
10. Based upon the Guaranty, on December 20,1993, the RTC filed an unsecured Proof of Claim against the Debtors in the amount of Two Hundred Eighty-Seven Thousand, Five Hundred and Five and 28/100 ($287,505.28) Dollars.
11. By Masters Report and Judgment of Foreclosure and Sale issued by the Honorable John L. Breeden, Jr., Master-In-Equity for Horry County (“State Court”), dated January 10, 1994 and filed January 12, 1994, it was determined that the RTC was due $307,381.87 together with interest under the Note and Mortgage from Pinewood Builders of South Carolina, Inc. and the mortgaged premises were ordered sold at public auction. At the time of said Report and Judgment of Foreclosure and Sale, the Kirvens were not defendants to the foreclosure proceeding.
12. Neither the Kirvens nor any other defendant to the foreclosure proceeding petitioned the Clerk of Court for Horry County, South Carolina for an order of appraisal pursuant to South Carolina Code Ann. § 29-3-680.
13. The mortgaged premises were sold on February 7, 1994 to the RTC as the highest bidder for $122,452.06. By Masters Report on Sale and Disbursement and Final Order and Order for Deficiency Judgment, entered on April 4,1994, a deficiency judgment was ordered against Pinewood Builders of South Carolina, Inc. At the time of the Final Order and Order for Deficiency Judgment, the Kirvens were not defendants in the foreclosure proceeding.
14. The RTC’s Proof of Claim was amended after the foreclosure sale on April 20, 1994 to claim One Hundred and Sixty Five Thousand, Fifty-Three and 22/100 ($165,-053.22) Dollars which represented the amount due under the Guaranty less the proceeds received from the foreclosure sale.
15. The Debtors timely objected to the RTC’s Proof of Claim.3
DISCUSSION AND CONCLUSIONS OF LAW
The South Carolina Appraisal Statute provides that “[i]n any real estate foreclosure *441proceeding a defendant against whom a personal judgment be taken or asked, whether he has theretofore appeared in the action or not, may within thirty days after the sale of the mortgaged property apply by verified petition to the clerk of court in which the decree or order of sale was taken for an order of appraisal.” S.C.Code, Ann., § 29-3-680.
The Debtors take the position that the Appraisal Statute protects a defendant from a foreclosure sale for an amount which is less than the fair market value of the real estate and which therefore exposes a defendant to personal liability. The Debtors also argue that as guarantors they should have had the protection of the Appraisal Statute once the RTC elected to initiate foreclosure proceedings before suing on the Guaranty.
The RTC takes the position that the Guaranty is a separate and distinct obligation from the Note and Mortgage. The RTC argues that because the Kirvens were dismissed as defendants from the foreclosure proceeding due to their filing of a voluntary Chapter 7 bankruptcy petition and since they were not defendants at the time of the judgment and sale, the Appraisal Statute does not apply to them by its very terms. In the within proceeding, the Debtors raised no factual defenses to the foreclosure proceeding, but relied upon the application of the Appraisal Statute.
The South Carolina Supreme Court has interpreted the Appraisal Statute in three cases which this Court may look for guidance.
In 1991, the South Carolina Supreme Court held that guarantors who were named as defendants in a mortgage foreclosure proceeding and against whom personal judgments were taken in that same action were entitled to the protection of the Appraisal Statute. Anderson Brothers Bank v. Adams, 305 S.C. 25, 406 S.E.2d 173 (1991). The Court held that “under the plain and unambiguous terms of the statute, they [defendants/guarantors] were entitled to its benefits.” Anderson, p. 175.
On August 15, 1994, the South Carolina Supreme Court again held that the determining factor as to whether a party is entitled to assert the Appraisal Statute is whether that party is a defendant, in a real estate foreclosure proceeding and not whether the party is a mortgagor. Standard Federal Savings Bank v. H & W Builder, 448 S.E.2d 558 (S.C.1994).
On May 9, 1994, the South Carolina Supreme Court further held that the application of the Appraisal Statute is limited to real estate foreclosure actions and did not apply to protect guarantors in a separate action to recover on a guaranty of payment. Citizens and Southern National Bank of South Carolina v. Lanford, 443 S.E.2d 549 (S.C.1994). In Lanford, the creditor had a mortgage on real estate as well as a guaranty to secure the note, but because the real estate was property of the estate in a bankruptcy ease, the creditor elected to sue on the guaranty rather than initiate a foreclosure proceeding. The South Carolina Supreme Court citing Rock Hill National Bank v. Honeycutt, 289 S.C. 98, 344 S.E.2d 875 (Ct.App.1986) and Peoples Federal S & L v. Myrtle Beach Retirement Group, 300 S.C. 277, 387 S.E.2d 672 (1989), stressed that a guaranty is separate and distinct from a note under which a creditor may maintain an action immediately upon default of a debtor.
The undertaking of the former (guaranty) is independent of the promise of the latter (principal obligation); and the responsibilities which are imposed by the contract of guaranty differ from those which are created by the contract to which the guaranty is collateral.
Lanford at p. 551, citing Am.Jur.2d Guaranty § 4.
Another ease which is instructive in the area of the application of the South Carolina Appraisal Statute is the unpublished opinion of the United States District Court for the District of South Carolina in RTC v. Robinson (No. 3:91-3102-17, unpub. slip, op.) (D.S.C. March 11, 1992). In Robinson, the defendant asserted that because the creditor, also the RTC, had previously (two days before bringing a separate action on a guaranty) initiated a foreclosure proceeding, the RTC could not maintain a separate action based on the guaranty until the conclusion of *442the foreclosure proceeding and after the application of the Appraisal Statute process to determine a deficiency judgment. In essence, the defendant asserted that once a foreclosure proceeding is initiated, the application of the Appraisal Statute is a condition precedent to an action on a guaranty. Relying on the 1986 South Carolina Court of Appeals holding in Rock Hill National Bank v. Honeycutt, 289 S.C. 98, 344 S.E.2d 875 (Ct.App.1986), the Robinson Court held that:
[A] creditor does not waive its rights under a guaranty by asserting other rights available to it. Although Honeycutt is factually distinguishable from the present case, it is clear that RTC’s rights under the guaranty have not been waived merely because it filed suit in state court to foreclose on property partially owned by the defendant two days prior to filing suit against the defendant on the personal guaranty.
Robinson at 6.
In the Robinson opinion, with issues very similar to the issues within, the Court stated that:
In this case, RTC’s claims arise from different instruments, one of which is a mortgage and the other a contract. The parties to the mortgage and the parties to the guaranty are not identical, and the remedies afforded to RTC are different. Finally, there is a distinction between bringing suit for foreclosure of property and bringing suit directly against a party for breach of contract. Although both the mortgage and the guaranty are related to the loan transaction, the court finds, consistent with 1616 Reminc, [citation omitted] that RTC possesses two separate claims, one arising from the mortgage and one arising from the guaranty contract.
Robinson at 8.
The Court in Robinson also held that a creditor’s right to sue on a guaranty is not dependent upon the foreclosure action or the amount of the deficiency but “[r]ather, the only condition precedent to bringing an action on a guaranty of payment is default on the note, and any rights afforded by the appraisal statutes are waived by a guaranty of payment. Tri-South Mortgage Investors v. Fountain, 266 S.C. 141, 221 S.E.2d 861 (1976)4.” Robinson at 4.
In the within proceeding, it is uncontro-verted that the RTC’s Proof of Claim is based solely upon the Guaranty which by its terms is an absolute guaranty of payment and which is a separate and distinct contract from the Note and Mortgage. In the Guaranty Agreement between the Debtors and the Bank, the guarantors specifically state that it is their intent to be primarily and not secondarily liable for the indebtedness.5 By filing its Proof of Claim, the RTC is effectively asserting its rights under the Guaranty as it could have in a separate suit based on the Guaranty, had the Debtors not filed a bankruptcy case. At the hearing, the Debtors conceded that the RTC could have separately sued them on the Guaranty prior to foreclosure, but argued that once the RTC named them as defendants in the foreclosure proceeding, the RTC triggered the application of the Appraisal Statute to the Debtors, even as guarantors and even in the context of a Proof of Claim in a bankruptcy case.
Neither party cited precedent which was dispositive of the Debtors’ specific argument. It appears to this Court that the ruling in this ease must be based upon a consideration *443of the precedents cited above and an interpretation of the plain language of the Appraisal Statute.
Based upon a literal reading of the Appraisal Statute, a party must be a defendant (against whom a personal judgment is asked) in the foreclosure proceeding at the time of the judgment in order to trigger the protection of that statute. In this Court’s view, the request for personal judgment must be a part of the foreclosure proceeding and not a part of a separate action based on an absolute guaranty of payment. A holding that the initial inclusion of the Debtors as party defendants in the foreclosure proceeding, no matter the period of time, should trigger the application of the Appraisal Statute goes beyond a sensible reading of the Statute. Under South Carolina Rules of Civil Procedure, a defendant can be dismissed by a plaintiff without order of the court under certain circumstances, including those which appear to have existed in this ease. The Debtors were not prejudiced by being initially joined as defendants and later dismissed before any appearance by them in the foreclosure proceeding. The dismissal of the Debtors as defendants precluded the RTC from obtaining a personal judgment against them in that action.
It is also uneontroverted that the Debtors were dismissed from the foreclosure proceeding because they filed a voluntary Chaptér 7 bankruptcy case, the effect of which was to automatically stay any further action against them. It is reasonable to infer that the Debtors filed such a case to evoke the automatic stay and to obtain a discharge of personal indebtedness including any personal liability to the RTC. It appears that only the unexpected inclusion of postpetition death benefits payable to one of the Debtors as property of the bankruptcy estate caused there to be a possibility of a full dividend to creditors in this Chapter 7 case, and created the need to litigate issues associated with the RTC’s Proof of Claim. The Debtors argue that absent the bankruptcy, they would have continued as party defendants in the foreclosure proceeding and therefore would have been entitled to assert the Appraisal Statute for the bankruptcy. The Debtors further argue that it would be inequitable to, in effect, penalize them for the bankruptcy filing by denying them the right to petition for an order of appraisal. This Court notes that there was no evidence that the Debtors petitioned for an order of appraisal nor did they otherwise request relief. It appears to this Court that the Debtors having chosen to voluntarily file the bankruptcy case and to receive the benefits of the automatic stay and discharge and therefore should not be able to bootstrap their way to the rights provided by the Appraisal Statute in a circumstance in which they did not meet the literal requirements of the Statute.
As in the Robinson case, the Guaranty reflects the parties’ intention to allow the creditor the right to seek payment under the terms of the Guaranty separate and apart from any other claims or remedies available to it. By filing a Proof of Claim against the bankruptcy estate, the RTC effectively asserts its rights under the Guaranty, which right is separate and distinct from its right to foreclose. The Debtors in this case are not entitled to the rights afforded by § 29-3-680 of the South Carolina Code of Laws (1976). For the reasons stated within, it is therefore,
ORDERED, that the Debtor’s objection to the Proof of Claim filed by the RTC in the amount of One Hundred and Sixty Five Thousand, Fifty-Three and 22/100 ($165,-053.22) Dollars is overruled.
AND IT IS SO ORDERED.
. The original Proof of Claim filed by the RTC was in the amount of Two Hundred Eighty-Seven Thousand, Five Hundred and Five and 28/100 ($287,505.28) Dollars but was reduced after the collateral property was sold at foreclosure sale.
. Pinewood Builders of South Carolina, Inc. is a separate and distinct entity from the Debtor Robert F. Kirven d/b/a Pinewood Builders.
. 11 U.S.C. § 502(a) states that "A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects”. A proof of claim or interest is prima facie evidence of the claim or interest. S.Rep. No. 95-989, 95th Cong., 2nd Sess. 62 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787.
. The Tri — South Mortgage opinion was overruled in part in 1994 when the South Carolina Supreme Court held that the contractual waiver of appraisal rights was invalid as being against public policy. Tri-South Mortgage was overruled to the extent it was inconsistent with this holding. SCN Mortgage Corp. v. White, 440 S.E.2d 868 (S.C.1994). The issue of contractual waiver of the Appraisal Statute was not raised by either party in this case and this Court does not believe that the overruling of the Tri-South Mortgage opinion would materially effect the decision of the United States District Court in Robinson.
. The Guaranty states that "It is the intent of the undersigned to be primarily and not secondarily liable for the indebtedness guaranteed hereunder. The undersigned agree that this Guaranty may be enforced by Lender without the necessity at any time of its resorting to or exhausting any other security or collateral and without the necessity at any time of having recourse to the Note or any of the property covered by the Mortgage or the Loan Documents, either by foreclosure proceedings or otherwise; and the undersigned hereby waive the benefits of all provisions of law for stay or delay of execution or sale of property | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492025/ | *485
MEMORANDUM
DAVID T. STOSBERG, Bankruptcy Judge.
The Court has considered the fee application of Deitz & Freeburger, P.S.C., attorneys, and specifically addresses the request to award an hourly rate of $190.00 per hour to one of the attorneys, Merritt S. Deitz. In keeping with the Court’s approach adopted in In re Optical Corp. of America, Inc., 157 B.R. 823 (Bankr.W.D.Ky.1993), the Court will allow an hourly rate of $185.00 per hour as the maximum rate allowed in the calendar year of 1995 for attorneys who normally practice in the Bankruptcy Court for the Western District of Kentucky. This amount is based primarily on inflationary increase in a similar fashion as the fees in Chapter 13 cases.
The awarding of this hourly rate to the Applicant does not necessarily mean that all other applicants in this District may automatically be awarded a similar hourly rate. Rather the hourly rate is based on the experience, expertise and abilities of this particular Applicant and each applicant’s fee awards rest on the merits of the particular qualifications.
In publishing this Memorandum opinion, this Court also notes that the maximum allowable hourly rate would apply primarily in Chapter 11 eases and the Court would not normally expect to award fees at this hourly rate in consumer cases, although we decline to set a maximum rate or even minimum rate as the experience of the numerous attorneys that practice in this area varies too greatly.
In the context of the fee application submitted in this particular case, we shall enter an Order reducing the requested fees by $7.50, which represents a reduction in Merritt Deitz’s hourly rate from $190.00 to $185.00 for 1.5 hours in services rendered.
ORDER
Pursuant to the Court’s Memorandum entered this same date and incorporated herein by reference,
It is hereby ORDERED that the firm of Deitz & Freeburger, P.S.C., be awarded interim fees in the sum of $13,008.00 and expenses in the sum of $1,391.72 to be paid as costs of administration. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492026/ | MEMORANDUM
JAMES J. BARTA, Bankruptcy Judge.
This matter is before the Court on a complaint by Virginia Vaughn (“Plaintiff’) to determine dischargeability of certain debts that arose from a judgment entered against Gerard M. Quinn (“Debtor”) by the St. Charles, Missouri, County Circuit Court. The Plaintiff has requested the debts be declared non-dischargeable as based on allegedly willful and malicious actions of the Debtor, pursuant to 11 U.S.C. Section 523(a)(6). Following the denial of a Motion for Summary Judgment by this Court on August 9, 1994, a trial was conducted on April 4, 1995. The following determinations are based on the evidence presented at the trial and on consideration of the record as a whole.
This is a core proceeding pursuant to Section 157(b)(2)(I) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151, 157 and 1334, and Rule 29 of the Local Rules of the United States District Court for the Eastern District of Missouri.
On March 24, 1992, the Plaintiff filed a petition in the St. Charles County Circuit Court for Breach of Contract. The Debtor filed an answer on April 27, 1992. On the eve of the trial, the Circuit Court granted a request that Counsel for the Debtor be permitted to withdraw. On November 16, 1992, the Circuit Court conducted the trial of the matter. The Plaintiff appeared and presented evidence and oral argument; the debtor did not appear, although his attorney appeared and was again allowed to withdraw. The Circuit Court entered a judgment in favor of the Plaintiff on November 16, 1992 awarding the Plaintiff $24,000.00 for actual damages for breach of the construction contract and $24,000.00 for punitive damages. In its Order, the Court characterized the Debtor’s actions as “wilful, wanton, and malicious” and further as “intentional, wilful, wanton and in reckless disregard of the safety and well being of the Plaintiff’.
On April 28, 1993, the Debtor filed a Petition for Relief under Chapter 7 of the Bankruptcy Code.
In October, 1993, during the pendency of the Chapter 7 case, the Debtor filed a Motion in the State Circuit Court to Set Aside Default Judgment. The Circuit Court denied this motion on November 2,1993. The Debt- or has appealed neither the denial of that motion, nor the underlying judgment of the Circuit Court.
In her request for Summary Judgment, the Plaintiff argued that collateral estoppel should operate in this instance to preclude the Bankruptcy Court from conducting further proceedings on matters that had been litigated and ruled upon in the prior proceeding. In denying summary judgment, this Court concluded that the doctrine of collateral estoppel did not apply because the standard of malice under Section 523(a)(6) is not *552the same as the standard involved in the state court proceeding and that the factual record before the Court did not support an independent finding of malice under Section 523(a)(6). In re Quinn, 170 B.R. 1013 (Bankr.E.D.Mo.1994).
Additional facts presented at the trial have supported the determination that the Defendant breached the contract with the Plaintiff: poor workmanship on the roof, low quality of paint, crawl space access door put in backwards, and certain plumbing work which may have resulted in a compression fitting failure that caused water damage in the almost completed addition and in the finished basement of the original structure. After the Debtor removed most of the water, the Plaintiff barred the Debtor from further work on the job although some items remained to be finished. However, based on the evidence presented at this trial, the Court finds that the job was substantially completed at the time of the plumbing incident and that the Plaintiff thereafter used the new kitchen and family room.
Testimony also established that during construction, when interim building inspections revealed code violations, the Debtor complied with the building inspector’s requirements. No mechanic’s liens were filed against the property.. The Debtor used the cash advanced by Plaintiff under their contract for the material and labor expenses of the job. The Debtor attempted to mitigate the water damage caused by the plumbing failure and arranged and paid for the carpet drying. The Plaintiff testified that most of the damage was subsequently repaired by other contractors.
In the Order that denied the Plaintiffs request for summary judgement, this Court described the standards for dischargeability under Federal bankruptcy law, applied those standards to the record before the Court, and held that the record at that time did not support the conclusion that the Debtor’s actions rose to the level of malice required to sustain a determination of nondischargeability under Section 523(a)(6). Upon consideration of the record as a whole, including the testimony at trial and the additional documentation and exhibits, this conclusion remains the same.
Debts for damages arising solely from a breach of contract are not excepted from discharge under Section 523(a)(6). Thus, the portion of the state court judgment based solely on the breach of contract claim is not excepted from discharge in this case. See Quinn, 170 B.R. at 1017. In re Modicue, 926 F.2d 452 (5th Cir.1991). In order to except the punitive damage portion of the judgment from discharge under Section 523(a)(6), the Court must find the Debtor acted both willfully and maliciously.
The Eighth Circuit gave meaning to the terms “willful and malicious” in Section 523(a)(6) in the context of security agreements in its ruling in In re Long, 774 F.2d 875 (8th Cir.1985). The term “willful” in Section 523(a)(6) means intentional. Long, 774 F.2d at 880. Therefore, for “malicious” to have a meaning independent of “willful” it must mean something other than an intentional act that causes injury. Id. The Eighth Circuit has defined malicious conduct under Section 523(a)(6) as being “more culpable than that which is in reckless disregard of creditors’ economic interests and expectations, as distinguished from mere legal rights.” Long, 774 F.2d at 881. Thus, the standard in the Eighth Circuit for a willful and malicious breach of a security agreement is “conduct that is 1) headstrong and knowing (“willful”) and 2) targeted at the creditor (“malicious”) at least in the sense that the conduct is certain or almost certain to cause financial harm.” Id. This standard requires a level of blameworthiness that exceeds recklessness. Quinn, 170 B.R. at 1018.
The Long requirement that the action be “targeted at the creditor” was the standard applied by the Eighth Circuit to hold a damage judgment in a battery action nondis-chargeable. In re Miera, 926 F.2d 741, 744 (8th Cir.1991). The evidence established that the Debtor was “more than reckless” because he intended to cause harm to the Plaintiff and that the Debtor was certain or substantially certain the Plaintiff would be harmed by the action. Id.
In the matter before the Court, the Plaintiff cited In re Geiger, 172 B.R. 916 (Bankr. *553E.D.Mo.1994), to support her position that the Debtor’s actions should be characterized as willful and malicious. The Court in the Geiger case determined that the Debtor/physician’s malpractice was so egregious as to be nondischargeable under Section 523(a)(6). The Geiger court noted that the Eighth Circuit has provided two interpretations of “willful and malicious” under Section 523(a)(6). As applied to liabilities arising in the context of security agreements there is a requirement that the Debtor have the specific intent to injure the creditor. Long, 774 F.2d at 881. However, in the context of personal injury liabilities, there is a less specific intent standard best characterized as conduct certain or almost certain to result in physical harm, even if no harm was intended. Geiger, 172 B.R. at 921 citing In re Hartley, 75 B.R. 165, 166 (Bankr.W.D.Mo.1987), aff'd 100 B.R. 477 (W.D.Mo.1988), and rev’d 869 F.2d 394 (8th Cir.1989), and rev’d on reh’g 874 F.2d 1254 (8th Cir.1989) (en banc).1
In Geiger, the Court found the malpractice claim to be more nearly analogous to the physical injury context of Hartley than the security agreement context of Long. Dr. Geiger’s misdiagnosis of the original infection and his repeated errors during treatment resulted in the amputation of part of the patient’s leg. The Court held that the doctor’s care was so far below the standard level of care that it could be categorized as willful and malicious conduct for dischargeability purposes. Geiger 172 B.R. at 923.
The minimum acceptability standards set by building codes are not analogous to the standard level of care a physician is expected to deliver to a patient. A breach of contract claim is more analogous to the security agreement context of Long than the physical injury context of Hartley. Also, the facts in the current case bear little resemblance to the facts in Geiger. The Plaintiff here has suffered no physical injury. She testified that the damages caused by the water leak and other workmanship complaints have been substantially repaired and that she is living in and using the addition the Debtor built onto her house. The Court, therefore, uses the analytical framework of Long in this case.
There is no dispute that the Debtor’s actions, as building contractor for Plaintiff, were willful. Thus, the crux of this matter is whether the evidence will support the conclusion that Debtor intended to cause the harm, whether the Debtor was certain or substantially certain that the other party would be harmed by his action, or that the Debtor’s conduct was targeted at the Plaintiff in the sense that his conduct was certain or almost certain to cause financial harm. See Quinn, 170 B.R. at 1019 citing Miera, 926 F.2d at 744.
There were no mechanic’s liens filed against the Plaintiffs property and the Debt- or used all cash advances from the Plaintiff for materials and labor on the job. Thus, there is no evidence that the Debtor harmed the Plaintiff by converting her property to his own use. When the plumbing fitting failed at 2:30 A.M., the Debtor did not remain indifferent to the Plaintiffs plight but attempted to mitigate the damage by personally helping with the clean up and arranging for the carpet to be dried. While the Debtor was on the job at other times, he apparently satisfied the building inspectors when code violations were noted.
In summary, no evidence was provided at the trial to change the Court’s previous opinion that the Debtor’s actions did' not rise to the level of malice needed to sustain a determination that the punitive damage claim is nondischargeable under Section 523(a)(6). The Plaintiffs claim is based on a judgment for breach of a construction contract and is therefore dischargeable in a Chapter 7 proceeding. Quinn, 170 B.R. at 1019; also see In re Magee, 164 B.R. 530 (Bankr.S.D.Miss. *5541994); In re Modicue, 926 F.2d 452; In re Keller, 72 B.R. 599 (Bankr.M.D.Fla.1987).
. In Hartley, an employer told an employee to clean and paint some used tires in an unventilated basement with a mixture of gasoline and tire black. After the employee had been at the task about an hour, the employer tossed a lit firecracker into the fume filled basement causing an explosion that severely injured the employee. There was no evidence that the employer intended anything other than to startle, surprise, or scare the employee. Nevertheless, his actions were so certain to cause harm that the damage claim was nondischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492027/ | ORDER DENYING MOTION FOR RELIEF FROM JUDGMENT DUE TO MISTAKE
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the Motion For Relief From Judgment *645Due to Mistake filed by American Freight System, Inc. (“plaintiff’). The motion alleges in pertinent part that:
the Reply Brief of AFS to the Supplemental Submission was not delivered to the Clerk of this Court in Topeka, Kansas, and therefore it would appear that it was not made available to the Court for review prior to entry of the Final Judgment.... Plaintiff believes that the mistake of the Court by the Clerk in Kansas City, Kansas in apparently failing to deliver the Reply Brief to the Clerk of this Court for docketing, filing and review, has resulted in prejudice to Plaintiff, which constitutes sufficient grounds to grant Plaintiff relief from the Final Judgment.
The Court finds that plaintiffs motion is without merit. This Court received plaintiffs Reply Brief prior to rendering its decision on March 30, 1995. The Reply Brief responds to the Supplemental Submission of Authority in Support of Motion to Dismiss by ICC and the United States, which brought to this Court’s attention the fact that the District Court in Utah had rejected the report and recommendation of the bankruptcy court in In re Americana Expressways, Inc., upon which plaintiff relied in its initial brief. The Reply Brief addresses the District Court opinion by arguing that it was “wrongly decided.” This Court’s March 30,1995 decision merely mentions the Americana case in a footnote by noting that “[w]ith the exception of the decision in Americana, which the District Court refused to adopt, virtually every other court considering the issue has held that Section 9 does not render the NRA inapplicable to bankrupt carriers.” Therefore, although the Court received a copy of the Reply Brief and reviewed it before rendering its decision, plaintiffs analysis of why the District Court “wrongly decided” its opinion had little impact on the Court’s decision. This should be obvious in light of the Court’s mere mention of the District Court opinion in a footnote.
Furthermore, even if the Court had not received plaintiffs Reply Brief and a “mistake” had been made as alleged by plaintiff, this Court is without jurisdiction to rule on its prior decision because plaintiff has filed a notice of appeal. It has been held that “[t]he general rule is that once a notice of appeal has been filed, the lower court loses jurisdiction over the subject matter of the appeal.” In re Butcher Boy Meat Market, Inc., 10 B.R. 258, 259 (Bankr.E.D.Pa.1981). “This rule is clearly necessary to prevent the procedural chaos that would result if concurrent jurisdiction were permitted.” Id. (citing In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir.1977)).
This Court recognizes that the U.S. Supreme Court in Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U.S. 131, 57 S.Ct. 382, 81 L.Ed. 557 (1937), inferred through dicta that the Bankruptcy Court had wide latitude to reconsider and vacate prior decisions, so long as the proceedings have not been terminated. This Court agrees with the Court’s reasoning in In re Butcher Boy Meat Market, Inc., supra that the Supreme Court could not possibly have intended that the Bankruptcy Court could rule on eases on appeal to the District Court, thus giving the Bankruptcy Court concurrent jurisdiction with the District Court. This Court therefore concludes that the Bankruptcy Court cannot reconsider or modify a ruling in this case which is presently on appeal to the District Court.
IT IS THEREFORE ORDERED BY THE COURT that plaintiffs Motion For Relief From Judgment Due To Mistake is DENIED.
IT IS FURTHER ORDERED that the deadline for the parties to submit a Joint Report indicating what matters are ready for referral to the ICC and what matters remain before the Court, is extended to May 5, 1995.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492028/ | ORDER DENYING MOTION FOR STAY OF ORDER PENDING APPEAL
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the Motion For Stay Of Order *647Pending Appeal filed by American Freight System, Inc. (“plaintiff’)- The motion seeks an order staying any action on the Judgment and Memorandum Opinion and Order entered by this Court on March 30, 1995 (“Judgment”), pending plaintiffs appeal. The Court’s Judgment entered on March 30, 1995, ordered plaintiff to give notice to all parties to its adversary proceedings of the Court’s ruling that the Negotiated Rates Act of 1993 (“NRA”) is constitutional and applicable to plaintiff, and further directed plaintiff and the defendants in each adversary proceeding to jointly submit a report to the Court by April 21,1995, indicating what matters are ready for referral to the ICC and what matters remain before the Court. Plaintiff filed a Notice of Appeal from the Judgment, and alleges that if the provisions of the Judgment are not stayed pending appeal and the Judgment is overruled, the estate will have incurred substantial and unnecessary expenses in reporting to the Court and proceeding with litigation before the Interstate Commerce Commission. Plaintiff also alleges that the defendants will not suffer material harm as a result of a stay pending appeal.
The standard for a motion to stay pending appeal requires the consideration of four factors:
1) whether the appellant has a strong position on the merits of the appeal; 2) whether the appellant will suffer irreparable injury if a stay is denied; 3) whether a stay would substantially harm other parties to the litigation; and 4) where the public interest lies.
In re Hodgson, 1994 WL 413903, p. 1 (D.Kan. 1994) (citing Hilton v. Braunskill, 481 U.S. 770, 776, 107 S.Ct. 2113, 2119, 95 L.Ed.2d 724 (1987); Securities Investor Protection v. Blinder, Robinson & Co., 962 F.2d 960, 968 (10th Cir.1992); Battle v. Anderson, 564 F.2d 388, 401 (10th Cir.1977); Hellebust v. Brownback, 824 F.Supp. 1524, 1530 (D.Kan.1993)). Plaintiffs motion fails to meet any of the four requirements necessary to support entry of a stay pending appeal.
Plaintiffs position on the merits of the appeal is weak considering the fact that this Court’s ruling is consistent with the majority of courts which have addressed the issue. Plaintiffs motion fails to even address the merits of the Court’s ruling.
Plaintiff has not shown irreparable harm. The alleged harm should be certain and immediate, not speculative or theoretical. Hellebust v. Brownback, 824 F.Supp. at 1531 (citation omitted). Plaintiff alleges that the estate will incur expenses in reporting to this Court and proceeding with litigation before the ICC. This reason is admittedly contingent upon the District Court rejecting this Court’s analysis and the analysis of numerous courts which have also determined that the NRA is valid and applicable. This is not the type of irreparable harm required in order to justify the issuance of a stay. The law is plain that to constitute irreparable harm, “[m]ere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough.” Id. (citation omitted). See also Sampson v. Murrray, 415 U.S. 61, 90, 94 S.Ct. 937, 953, 39 L.Ed.2d 166 (1974); Williams Exploration Co. v. U.S. Dept. of Energy, 561 F.Supp. 465, 469 (N.D.Okla.1980). Furthermore, plaintiff will need to identify issues and report the status of its adversary proceedings to this Court even if this Court’s decision is overruled.
Plaintiff asserts that the defendants will not suffer material harm as a result of a stay pending appeal. A stay would impose further needless delay on the shipper-defendants and be contrary to the public interest as reflected in the NRA. The NRA was enacted in order to resolve the protracted, nationwide litigation involving freight undercharge claims. In enacting the NRA, Congress has already determined that referral of these matters to the ICC is in the public interest.
IT IS THEREFORE ORDERED BY THE COURT that the Motion For Stay Of Order Pending Appeal is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492029/ | ORDER DISALLOWING EVIDENCE OF SETTLEMENT NEGOTIATIONS
BENJAMIN COHEN, Bankruptcy Judge.
This matter is before the Court on an evidentiary question associated with a Motion to Establish Fixed Payment on Secured Claim filed by Copelco Capital. The motion was filed on October 3, 1994, and on October 12, 1994, Mr. David Rogers, the Chapter 13 Trustee recommended an adequate protection payment of $140.00 per month. On October 13, 1994, the Court granted the motion and set the payment to Copelco at $140.00 per month. The Court set November 2, 1994, as the deadline for objecting to the payment allowance. The Debtors objected on November 2,1994, contending that Copel-co was a lessor and not a secured creditor and thus not entitled to such payments. The Debtors also objected to the $5,865.08 claim filed by Copelco and contend that the proper amount of the claim is $300.00. The $300.00 amount is the subject of the evidentiary question before the Court.
I. Issue
The issue is whether settlement talks, which the Debtors contend resulted in a binding contract between Copelco and the Debtors, will be admissible at the trial of the motion for fixed payment. If the talks are admissible, the Debtors will use them to attempt to prove that Copelco compromised its claim from $5,865.08 to $300.00.
*655The Court asked the parties to address the evidentiary question in -writing and at oral arguments. Both parties timely filed excellent memorandums of law. Oral arguments were held on January 10, 1995. Ms. Judith Holt represented Copelco. Mr. Gregory Biddle represented the Debtors.
II.Facts
The Debtors “lease” a copying machine from Copelco which is the subject of the filed claim. The Debtors contend that after Co-pelco filed its motion for a fixed payment, that Mr. Bondurant received a telephone call from Josephine Torterella, a representative of Copelco of whom Mr. Bondurant asked if the matter might be settled. The Debtors further contend that during a subsequent telephone call, Ms. Torterella offered to settle the matter for a $300.00 payment by the Debtors and that at that time Mr. Bondurant accepted the offer when advised that he would receive a bill of sale for the copier if he paid the $300.00. Copelco contends that it did not agree “to settle the entire matter” for $300.00.
III.Contentions
The Debtors maintain that the offer by Copelco and the acceptance of that offer by the Debtors created a binding contract which the Debtors should be allowed to prove to this Court by way of the settlement talks. Copelco contends that, even if the talks resulted in a contract, that they were none the less settlement talks and are not admissible pursuant to Fed.R.Evid. 408. And even if the talks are admissible, Copelco contends that there was no offer and acceptance creating a contract.
IV.Discussion
This Court finds that the talks were in the nature of settlement talks and that the evidence generated by those talks is not admissible pursuant to Fed.R.Evid. 408. The test in this circuit to determine whether statements fall within Rule 408 is “whether the statements or conduct were intended to be part of the negotiations toward compromise.” Blu-J, Inc. v. Kemper C.P.A. Group, 916 F.2d 637, 642 (11th Cir.1990) (quoting In Ramada Dev. Co. v. Rauch, 644 F.2d 1097, 1106 (5th Cir.1981) (quoting 2 J. Weinstein & M. Berger, Weinstein’s Evidence § 408[03], at 408-20 to 408-21 (1980))). See also, North American Biologicals, Inc. v. Illinois Employers Insurance of Wausau, 931 F.2d 839 (11th Cir.1991) (opinion amended on rehearing, 938 F.2d 1265 (11th Cir.1991)); Lampliter Dinner Theater v. Liberty Mutual Ins. Co., 792 F.2d 1036 (11th Cir.1986). There is no dispute here, and both parties agree, that whatever was said by .the parties in the telephone conversations was a settlement talk to facilitate a compromise of controversy created by Copelco’s claim.
The plain language of Fed.R.Evid. 408 excludes, “[e]vidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount ...” from admission “to prove liability for or invalidity of the claim or its amount.” Fed.R.Evid. 408. This has been interpreted by the Honorable Barry Russell, author of the Bankruptcy Evidence Manual to establish that, “neither an offer to compromise, acceptance of such offer, nor an actual completed compromise of a disputed claim is admissible to prove liability or invalidity of the claim or amount.” Russell, Bankruptcy Evidence Manual, § 408.1 (emphasis added).
The Debtors argue that if the settlement talks resulted in a binding contract as they contend, then Rule 408 does not apply and they should be able not only to rely on, but also prove, that contract. Notwithstanding Rule 408, oral agreements to settle legal matters, unlike other oral agreements, are, at least in the state of Alabama, unenforceable unless accompanied by consideration. Section 8-1-23, Code of Alabama 1975, provides, “An obligation is extinguished by a release therefrom given to the debtor by a creditor upon a new consideration or in writing with or without new consideration.” About this section the Supreme Court of Alabama wrote, “The cases have consistently held that new consideration to support an oral release exists only when it is shown that ‘something substantial which one party is not bound by law to do has been done by him, or that something he has the right to do he *656abstains from doing at the request of the other party.’ ” Deason v. Thrash, 465 So.2d 1118, 1120 (Ala.1985) (quoting Penney v. Bums, 226 Ala. 273, 146 So. 611, 612 (1933)). There is no question in the instant case that the agreement here, if there is one, was oral. Neither was there any new consideration nor a writing, such as a bill of sale, which would support a release. The parties did not complete the transaction.
Y. Conclusion
In conformity with the above, this Court finds that the talks between Mr. Bondurant and Copelco were conduct intended to be part of negotiations toward compromise, and hence settlement negotiations inadmissible under Fed.R.Evid. 408 to prove the amount of Copelco’s claim.
It is therefore ORDERED that any evidence associated with the settlement talks is inadmissible for the purpose of proving liability for or invalidity of Copelco’s claim or the amount of Copelco’s claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492031/ | DECISION ON COMPLAINT BY TRUSTEE SEEKING TO AVOID A MORTGAGE DUE TO FORGERY
DOROTHY EISENBERG, Bankruptcy Judge.
This matter is before the Court pursuant to a complaint by the Trustee of the Bankruptcy Estate of Sebastian Piazza (the “Trustee”), seeking to void a mortgage lien based on the Trustee’s allegation that the signature of Sebastian Piazza (the “Debtor”) on a certain note and mortgage in favor of A & C Holding Co. (the “Defendant”) is a forgery.
A trial on such complaint was held before the Court on January 30, 1995. After having heard the testimony and having examined the evidence offered by the parties, the Court concludes that the Trustee has not met his burden to prove that the signature of the Debtor on the note and mortgage is a forgery.
FACTS
On February 25, 1993, the Debtor filed for relief under Chapter 7 of the United States Bankruptcy Code. Allan B. Mendelsohn was appointed the Chapter 7 Trustee, and is acting as such. On the Debtor’s Schedule “D” (Creditors Holding Secured Claims), A & C was listed as having a second mortgage on the Debtor’s residence in the amount of $90,-000. In section “B” of the Chapter 7 Individual Debtor’s Statement of Intention the Debtor indicated that he wished to reaffirm the debt to A & C.
On July 14, 1993, the Court entered an Order of Discharge with respect to the Debt- or. An application to amend the Debtor’s petition to reclassify A & C’s claim as disputed was brought and an Order amending the petition was entered on December 20, 1993. The Chapter 7 case was thereafter closed on January 24,1994. The Trustee reopened the case on or about November 10, 1994 and brought an adversary proceeding claiming that the signatures on the Note and Mortgage are forgeries.
The Debtor had been the Vice President and one third owner of the now defunct Triangle Petroleum Transport Corporation (“Triangle”). The sum of $225,000.00 was given to Triangle by A & C Holding Co. (“A & C”). This transfer appears to have been memorialized by a note dated October 18, 1986, in the principal amount of two-hundred twenty-five thousand ($225,000.00) dollars (the “Note”), payable by the Debtor and his non-debtor wife, Carol Piazza (“Carol”) to A & C. This Note reflects an obligation of and signatures by the Debtor and Carol.
Pursuant to the terms of the Note, there was an agreement to pay A & C consecutive monthly installments of $4,780.60 commencing on November 18, 1986 and ending October 18, 1991. Interest provided for by the Note accrued at the rate of 10% per annum.
There is a mortgage between the Debtor and his co-obligor, Carol and A & C (the “Mortgage”) encumbering the premises known as 792 Mayer Drive, Wantagh, New York (the “Premises”). The Mortgage was dated “October 28” on its first page, however, the acknowledgment of the signatures of *21the Debtor and Carol by a notary public on the last page of the Mortgage was dated October 18, 1986, the same date as the Note. The Mortgage secures the payment of an indebtedness to A & C in the amount of $225,000.
Although the Debtor and Carol deny signing such a Mortgage, the Mortgage was notarized and witnessed by two people. The Mortgage was recorded with the Nassau County Clerk’s Office on April 3, 1987 at Liber 11958, Page 581 et seq. at which time it became a lien against the Premises.
The testimony adduced at trial indicates that the Note and Mortgage were executed at a closing that took place at the offices of Cantalupo Realty located at 1434 86th Street, Brooklyn, New York (the “Closing”). At the Closing on October 18, 1986, the signatures of the Debtor and Carol on the Mortgage were acknowledged by Anthony Cantalupo, a notary public of the State of New York, who is now deceased. Despite the fact that the Debtor and Carol deny having attended such Closing, two witnesses under oath, Vincent Magnone, Esq. and Martin Odorisio both testified that they witnessed the Debtor and Carol execute the Mortgage at the Closing. Martin Odorisio, in fact, signed the Mortgage as a witness.
Thirty-eight (38) payments were made to A & C pursuant to the Note and Mortgage commencing November 1986. Some of these payments were made to A & C subsequent to 1988 when Triangle ceased its operations and stopped paying its creditors.
At no time prior to the filing of the petition, did the Debtor claim that the signatures on the Note and Mortgage were false. Nor did the Debtor attempt to commence a proceeding to void the obligation.
At trial, the Trustee produced as his witnesses the Debtor, Carol, the Debtor’s father (Mr. Anthony Piazza) and Mr. Robert Palimi-eri, an accountant for Triangle and the Piazza’s. Mr. Palimieri’s testimony was minimally relevant to the issue of whether the mortgage or note were forgeries, and shed no light thereon. The Defendant introduced the testimony of Vincent Magnone, Esq., counsel to A & C and Mr. Martin Odorisio, a loan officer of A & C. Aside from Mr. Palimieri, the Court notes that the credibility of the witnesses for both the Debtor and the Defendant is unconvincing and borders on being questionable. The Court further finds that the testimony and related evidence with regard to whether or not the Debtor and Carol utilize their middle initials in executing documents inconclusive, and unpersuasive. The Trustee failed to introduce any expert testimony with respect to the handwriting that could corroborate the testimony of the Debt- or, Carol or Anthony Piazza that the signatures were forged.
DISCUSSION
Under New York law, a certificate of acknowledgment by a notary public attached to an instrument raises a presumption of due execution. Son Fong Lum v. Antonelli, 102 A.D.2d 258, 476 N.Y.S.2d 921, 923 (1984); See also: In re McCarthy, 119 Misc. 257, 196 N.Y.S. 265 (Sup.Ct.1922) (holding that the presumption that every public officer does his duty applies to the administration of oaths by notaries public). In Son Fong Lum, the Court held that “a certificate of acknowledgment should not be overthrown upon evidence of a doubtful character, such as the unsupported testimony of interested witnesses, nor upon a bare preponderance of evidence, but only on proof so clear and convincing as to amount to a moral certainty.” Son Fong Lum, 476 N.Y.S.2d at 923, quoting, Albany County Savings Bank v. McCarty, 149 N.Y. 71, 80, 43 N.E. 427 (1896).
Son Fong Lum is analogous to the case at bar. In that case, the plaintiff alleged that an “X” mark on a deed was a forgery as she never signed or made an identifying “X” mark on the instrument. A certificate of acknowledgment of a notary public was affixed to the deed in question.
The Court held that the plaintiff failed to come forward with sufficient proof to rebut the presumption of due execution arising from the notary’s certificate of acknowledgment. Id. at 924. The court noted, “the plaintiffs case rested upon her own testimony that the X mark on the deed was not hers and upon several documents bearing her authentic signature.” Id. In addition to the *22acknowledgment, “five witnesses ... contradicted Plaintiffs testimony that she was not present when the deed was signed,” and two witnesses “testified that they personally witnessed the plaintiff place her mark upon the deed.” Id. The Court, concluding that the “plaintiff failed to come forward with proof of the nature required to rebut the presumption of due execution (arising from the notary’s certificate of acknowledgment)”, Id., and had not met “her burden of proving forgery,” dismissed the complaint. Id. at 925.
Similarly, in the case at bar, the Trustee is alleging that an acknowledged Note and Mortgage was not duly executed by the Debtor. The Mortgage was acknowledged by Anthony Cantalupo, a notary public of the State of New York. Additionally, both Vincent Magnone, Esq. and Martin Odorisio testified that they personally witnessed the Debtor execute the Mortgage in the presence of Anthony Cantalupo.
To overcome the burden of due execution, the Trustee must offer clear and convincing proof that the signatures on the Mortgage and Note are forgeries. Id. at 923. However, the Trustee has failed to offer any evidence, other than the oral testimony of the interested parties to rebut the presumption that the acknowledged Mortgage was duly executed. The Trustee failed to present a handwriting expert who could testify regarding the authenticity of the execution of the otherwise presumptively genuine document. This Court does not profess to be a handwriting expert and absent handwriting expert testimony, or other compelling evidence the Trustee has not sustained his burden of proof necessary to overcome the legal presumption of authenticity of acknowledged documents.
Although this Court cannot make a finding that the signatures are forgeries, this does not preclude the Debtor or his spouse from asserting this defense in state court, based on more compelling evidence.
CONCLUSION
This court has jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. 157(b) and 1334. This is a core proceeding under 28 U.S.C. 157(b)(2)(E).
The Trustee has not sustained his burden to show that the Debtor’s signature on the Note and Mortgage is a forgery, which would result in the avoidance of the mortgage.
Accordingly, judgment is rendered in favor of A & C Holding Co., which retains a security interest in the Debtor’s real property. The Trustee’s adversary proceeding is dismissed.
Submit an Order in accordance with this decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492032/ | *32ORDER DENYING DEMAND BY DEFENDANT FOR A JURY TRIAL
FRANCIS G. CONRAD,* Bankruptcy Judge.
At a hearing held in this matter on April 11, 1995, we asked the parties to address the issue of whether Defendant was entitled to a jury trial. Based upon the arguments of Counsel and the pleadings on file with this Court, we hold that Defendant is not entitled to a jury trial for two separate and distinct reasons. First, both sides are seeking equitable relief for claims that do not entitle them to a jury trial. Secondly, Defendant has submitted voluntarily to the jurisdiction of the this Court.
Defendant claims it is entitled to a jury trial by the Seventh Amendment to the United States Constitution, which provides, “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved ...” The Supreme Court has
consistently interpreted the phrase “Suits at common law” to refer to “suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.” Parsons v. Bedford, 3 Pet. 433, 447, 7 L.Ed. 732 (1830). Although “the thrust of the Amendment was to preserve the right to jury trial as it existed in 1791,” the Seventh Amendment also applies to actions bi’ought to enforce statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century, as opposed to those customarily heard by courts of equity or admiralty. Curtis v. Loether, 415 U.S. 189, 193, 94 S.Ct. 1005, 1007, 39 L.Ed.2d 260 (1974).
The form of our analysis is familiar. “First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature.” Tull v. United States, 481 U.S. 412, 417-418, 107 S.Ct. 1831, 1835, 95 L.Ed.2d 365 (1987). The second stage of this analysis is more important than the first. Id., at 421, 107 S.Ct., at 1837.
Granfinanciera v. Nordberg, 492 U.S. 33, 41-42, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989).
Neither step in the analysis supports Defendant’s claim to a right to trial by jury. Plaintiffs complaint has four causes of action. Defendant points only to one, a fraudulent conveyance action under N.Y. Debt. & Cred. Law § 276 as entitling it to a jury trial. In Granfinanciera, however, the Supreme Court made it quite clear that whether an action for fraudulent conveyance requires a jury trial depends upon the subject matter of the action.
“[Wjhether the trustee’s suit should be at law or in equity is to be judged by the same standards that are applied to any other owner of property which is wrongfully withheld. If the subject matter is a chattel, and is still in the grantee’s possession, an action in trover or replevin would be the trustee’s remedy; and if the fraudulent transfer was of cash, the trustee’s actions would be for money had and received. Such actions at law are as available to the trustee to-day as they were in the English courts of long ago. If, on the other hand, the subject 'matter is land or an intangible, or the trustee needs equitable aid for an accounting or the like, he may invoke the equitable process, and that also is beyond dispute.”
Granfinanciera, supra, 492 U.S. at 44, 109 S.Ct. at 2791, quoting 1 G. Glenn, Fraudulent Conveyances and Preferences § 98, pp. 183— 84 (rev. ed. 1940) (emphasis added). At issue *33in this ease is the ownership of shares of stock. Black’s Law Dictionary (6th ed.) defines “intangible” as “such property as has no intrinsic and marketable value, but is merely the representative or evidence of value, such as certificates of stock....” Accordingly, Committee’s fraudulent conveyance action is an equitable action because its subject matter is shares of stock, an intangible.
In its prayer for relief, Committee requests a declaration that the Debtor is the rightful owner of the stock. Similarly, Defendant requests a declaration that it is the rightful owner of the stock. Committee also seeks avoidance of the transfer of the shares, and turnover of the stock certificate and all related records. The remedy in each case is one that only this Court can grant. In Granfinanciera, by contrast, the relief sought was an award of “money payments of ascertained and definite amounts.” Granfinanciera, supra, 492 U.S. at 49, 109 S.Ct. at 2794, quoting Schoenthal v. Irving Trust Co., 287 U.S. 92, 95, 53 S.Ct. 50, 51, 77 L.Ed. 185 (1932). In such a case, “the long-settled rule that suits in equity will not be sustained where a complete remedy exists at law ... ‘serves to guard the right of trial by jury preserved by the Seventh Amendment....’” Id., at 48, 109 S.Ct. at 2794.
Even if Defendant would otherwise be entitled to a trial by jury, however, we find in the alternative that it has waived that right and submitted itself to the equitable jurisdiction of this Court. Defendant was one of numerous entities affiliated with the Debtor or controlled by the Debtor’s former principal. An examiner found evidence of a number of questionable dealings among those entities that had a detrimental impact on the Debtor. Accordingly, a global settlement was reached in exchange for which a release was granted to those entities. Defendant was specifically named as a beneficiary of the release in the confirmed Plan. Indeed, Defendant now asserts that release as a defense against Committee’s action. Accordingly, Defendant has submitted itself to the equitable jurisdiction of this Court, and has waived its right to a jury trial. Compare, Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (creditors filing proofs of claim against Debtor’s estate submit to equity jurisdiction of bankruptcy court).
For the foregoing reasons, we hold that the Defendant has no Seventh Amendment right to a jury trial, and, alternatively, that Defendant has waived its right to a jury trial and submitted itself to the equitable jurisdiction of this Court. Accordingly, it is ORDERED that the trial of this matter will be to the Court.
Sitting by special designation to the Southern District of New York. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492033/ | MEMORANDUM OF DECISION
DUNCAN W. KEIR, Bankruptcy Judge.
Upon consideration of Cross Motions for Summary Judgment, the parties agree that there is no general issue of material fact in dispute. Therefore, summary judgment is appropriate. Miller v. Federal Deposit Insurance Corp., 906 F.2d 972, 973 (4th Cir.1990). The undisputed facts are as follows:
Debtor and Department of Navy entered into contract under which debtor supplied photographic and graphic arts production services to the Navy. Under the contract, the Navy mistakenly made a duplicate payment of $36,833.53. After discovery of the *39second payment, the debtor and Navy entered into an installment repayment agreement. After one payment was received by the Navy, the debtor filed its Chapter 11 petition. The total amount now due the Navy is $37,077.62.
The Navy argues that the debtor holds the payment for its benefit under a constructive trust theory. The debtor does not address this issue and, instead, focuses its attention on the effect of the execution of the repayment agreement. Debtor argues that the agreement constituted “an accord and satisfaction” which transformed the constructive trust relationship into a debtor-creditor one, thereby rendering the Navy a general unsecured creditor.
The Court of Appeals of Maryland has succinctly stated the law of constructive trusts as follows:
“A constructive trust is a remedy employed by a court of equity to convert the holder of the legal title to property into a trustee for one who in good conscience should reap the benefits of the possession of said property. The remedy is applied by operation of law where property has been acquired by fraud, misrepresentation, or other improper method, or where the circumstances render it inequitable for the party holding title to retain it.”
Wimmer v. Wimmer, 287 Md. 663, 414 A.2d 1254, 1258 (1980) (citations omitted). Other courts have held: “When the money was paid under a plain mistake of fact equity impressed upon it a constructive trust which followed it through the bank and into the hands of the trustees.” Matter of Country Club Casuals, Inc., 1 B.R. 274, 276 (Bankr.S.D.Fla.1979) (quoting In re Berry, 147 F. 208 (2d Cir.1906)).
However, the Navy has failed to show this court that the property exists in the hands of the debtor, upon which the Navy seeks imposition of the trust. As proffered by the debtor, the duplicate payment was deposited into debtor’s general operating account.
“The beneficiary of a constructive trust does not have an interest superior to the trustee’s interest in every asset the trustee holds, but only in the assets held in constructive trust or traceable to such assets.” County of Oakland v. Vista Disposal, Inc., 826 F.Supp. 218, 224 fn. 5 (E.D.Mich.1993) (citing U.S. v. Schwimmer, 968 F.2d 1570, 1583, citing United States v. Benitez, 779 F.2d 135, 140 (2d Cir.1985)) (It is hornbook law that before a constructive trust may be imposed, a claimant to a wrongdoer’s property must trace his own property into a product in the hands of the wrongdoer). While the Navy claims to be a beneficiary of the debtor as constructive trustee, it avers no subject or res of the trust. The duplicate payment was deposited into debtor’s general operating account and subsequently spent. While the Navy has traced its funds into the debtor’s account when the payment was initially received, the entire general operating account is not the asset over which the trust could be imposed.
The Maryland Court of Appeals has summarized the standards which will suffice for identification when a party attempts to trace money into property held by a trustee as follows:
“It is not essential to a sufficient identification that the fund or property delivered to the trustee be traced in the precise or identical form in which it was received, but it is sufficient if it can be traced into some product or substitute for the original fund ... [Wjhere trust funds, which have been mingled with other funds by the trustee, remain in the insolvent estate and go to swell it, the identification is sufficient ... But where it appears that the trust fund has been dissipated or so mingled and merged with the general assets of the insolvent estate as not to be separable or distinguishable therefrom, there is no identification, and the cestui que trust has no claim other than as a general creditor ...”
Brown v. Coleman, 318 Md. 56, 566 A.2d 1091, 1099 (1989) (quoting County Commissioners of Frederick County v. Page, 163 Md. 619, 638-39, 164 A. 182, 190-91 (1933)).
The Navy has averred no facts to prove that the account is swelled by the duplicative payment or consists solely of the duplicate payment, non-commingled with any other deposits. Indeed, such facts appear unlikely.
*40The Navy cites favorably Matter of Country Club Casuals, Inc., supra, in support of its position. That court did impose a constructive trust upon funds mistakenly paid to the debtor. The facts of that case, however, are distinguishable in that the court found that, “the funds are readily traceable and remain in plaintiffs custody subject to the decision in this case.” Id. at 275 (emphasis added). The existence of a “res” is crucial to the existence of a trust interest, any trust imposed can only extend to identifiable property. The Navy has failed to identify any such property.
Because the Navy has failed to satisfy a condition precedent for the imposition of a constructive trust, the court need not decide whether the Navy has shown circumstances that warrant imposition of a constructive trust. However, the uncontested facts illustrate that an error was committed by the Navy that resulted in the duplicate payment to the debtor. Clearly, such erroneous duplicative payment created a liability by the debtor in favor of the Navy for unjust enrichment. If the property delivered in error and/or traceable proceeds remained in the hands of the debtor and was identifiable, such circumstances also would justify the imposition of a constructive trust.
It may be that the subsequent installment agreement by and between the debtor and the Navy could be found to have terminated such right of constructive trust. This court would not agree that an accord and satisfaction occurred which would destroy such right. The pre-accord rights of the parties would not change until full satisfaction of the accord. The full payment under the installment agreement was not made. However, the Navy’s agreement to allow the debtor the use of the duplicative payment by permitting the debtor to repay the unjust enrichment over a period of time without requirement of escrow or segregation of the proceeds of the duplicative payment, may have effectuated a waiver of any constructive trust right. It also could be found that such an installment agreement created a novation of the rights of unjust enrichment into the contractual right of repayment under the installment agreement, for which no security was taken.
The debtor’s Chapter 11 Plan of Reorganization has been confirmed by an Order dated January 20, 1995. The Navy’s claim is now entitled to treatment only pursuant to debt- or’s Plan of Reorganization. 11 U.S.C. § 1141. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492034/ | MEMORANDUM OPINION3
JOHN T. FLANNAGAN, Bankruptcy Judge.
The question before the Court is whether the purchaser of a landowner’s oil and gas royalty at a trustee’s sale has the right to rescind the sale and recoup her purchase price, adjusted for royalties she received after the purchase.4 The parties have filed briefs with agreed facts. Principles from the netherworld of Kansas oil and gas law will clarify the nature of a Kansas landowner’s oil and gas royalty interest.
Kansas recognizes an ownership-in-place concept of oil and gas. Under this theory, ownership extends to oil and gas in the ground as part of the land, similar to the ownership of hard minerals. The owner of the surface of the land also owns the minerals in place below the ground, a corporeal estate in realty in the oil and gas. He or she can create a separate corporeal estate in realty in the oil and gas apart from the rest of the land. Such a severed mineral interest is, in general, subject to the same rules as affect other corporeal interests in real property. Richard W. Hemingway, The Law of Oil and Gas 27 (3rd ed. 1991).
*92In contrast, other states use a non-ownership theory of oil and gas. The landowner holds only a right to search for and reduce the oil and gas to possession. Such a right of search is “owned apart from the land, [and] it is usually classified as a profit á prendre, an incorporeal interest in the land, although it has also been classified as a license, a servitude, or a chattel real.” Id.
When the owner of a Kansas mineral estate grants an oil and gas lease, he or she commonly reserves a fractional interest known as a “landowner’s royalty.” Such a royalty is customarily a one-eighth share of oil and gas produced from the lease, but it does not include a perpetual interest in the minerals in place. It is simply a “share” of production “paid.” Stratmann v. Stratmann, 6 Kan.App.2d 403, 628 P.2d 1080 (1981); Davis v. Hurst, 150 Kan. 130, 90 P.2d 1100 (1939). This landowner’s royalty is classified as personal property under Kansas law. Burden v. Gypsy Oil Co., 141 Kan. 147, 40 P.2d 463 (1935); Lathrop v. Eyestone, 170 Kan. 419, 227 P.2d 136 (1951); Cosgrove v. Young, 230 Kan. 705, 642 P.2d 75 (1981).
The lessee’s interest in a Kansas oil and gas lease, called the “working interest,” is a license to go upon the land in search of oil and gas. Customarily, it consists of seven-eighths of the oil or gas produced and severed from the ground. Like the landowner’s royalty, the working interest is classified as personal property, an incorporeal hereditament, a profit á prendre. Burden, 141 Kan. at 150; Davis, 150 Kan. at 131; Utica Nat’l Bank & Trust Co. v. Marney, 233 Kan. 432, 661 P.2d 1246 (1983). However, for some purposes it may be treated as real estate. Ingram v. Ingram, 214 Kan. 415, 420, 521 P.2d 254 (1974) (holding that an oil and gas lease is a hybrid property interest which, for some purposes, is considered to be personal property and for other purposes is treated as real property).
The landowner’s royalty interest is assignable by the owner of the mineral interest and mesne assignors. Hardcastle v. McCluskey, 139 Kan. 757, 33 P.2d 127 (1934). The facts surrounding the creation of the lease and the landowner’s royalty interest in this case and the transfer of the latter interest will be developed first, followed by those facts relating to the transfer of the working interest.
Royalty Facts
Leslie Ray Wolfe and his wife, Edna M. Wolfe, owned real property in Chautauqua County, Kansas, subject to a recorded real estate mortgage5 held by the Federal Land Bank of Wichita (now Farm Credit Bank). Since neither party contends otherwise, the Court assumes that the mortgage hen covered both the surface and the minerals.
The Wolfes divorced on May 2, 1984, and as part of the division of property, the court awarded the real property in question to Mr. Wolfe. Apparently, it also awarded Mr. Wolfe a number of other properties and leases as well.6
On May 29,1984, Leslie Ray Wolfe executed an oil and gas lease running to his son, Jimmy Ray Wolfe, as lessee.7 The lease was for a primary term of two (2) years and for “as long thereafter as oil or gas, or either of *93them, is produced from said land by the lessee.”8 Jimmy Ray Wolfe agreed in the lease “[t]o deliver to the credit of lessor, free of cost, in the pipe line to which lessee may connect his wells, the equal one-eighth (Jé) part of all oil produced and saved from the leased premises.”9 No one contests that this language created a landowner’s royalty or suggests that the mortgagee, Federal Land Bank, agreed to subordinate its lien to the lease.
Leslie Ray Wolfe filed for relief under Chapter 7 of the Bankruptcy Code on August 28, 1985, while holding interests in a large number of oil and gas leases. Edward J. Nazar was appointed interim trustee on September 3, 1985.
On March 4, 1986, Nazar filed notice of his intention to sell a number of leases, including the ‘Wolfe Lease” at issue in this case. The notice stated that the sale was under § 363(f) of the Bankruptcy Code, free and clear of liens, and included the following terms:
All of the Debtor’s interest in certain oil and gas leases located in Chautauqua County, Kansas, and Montgomery County, Kansas, more particularly described as follows:
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Wolfe Lease
The South Half of the Southwest Quarter (S/2 of SW/4) of Section Thirty-Three (33), Township Thirty-Four (34) South, Range Twelve (12) East of the 6th P.M. and Lots 1 and 2, Section 4, Township 35 South, Range 12 East of 6th P.M., Chautauqua County, Kansas.
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15. The property as hereinabove described will be sold to the highest bidder, and said property will be sold in its present condition with no expressed or implied warranties, and the purchaser is to accept said property in its present condition.
16. The sale will be free and clear of all liens and encumbrances of record, and in the event of any mortgage or security interest in and to said property to be sold, the mortgage or security interest shall be transferred to the proceeds of sale... .10
The stipulated facts do not address why the notice of sale described the sale property as the “Wolfe Lease ” without indicating that it was a landlord’s royalty that was being offered for sale. Nor do the agreed facts mention that as successor to the debtor’s ownership interests in realty, Nazar had the power to sell the debtor’s ownership rights in the minerals below the ground described. (Perhaps he felt the mortgage on that interest was an impediment to such a sale.) In any event, according to the stipulations, the only interest Nazar sold was the landowner’s royalty interest.
Louise A. Stralka successfully bid $8,000.00 for the royalty interest on March 19, 1986.11 The trustee’s deed described the interest as follows:
[A]ll the Debtor’s right, title and interest in a .1250 royalty interest in and to real property described as the South Half of the Southwest Quarter (S/2 of SW/4) of Section 33, Township 34 South, Range 12 East, and Lots 1 and 2, of Section 4, Township 35 South, Range 12 East, and containing_[sic] acres, in Chautauqua County, Kansas; free and clear of all liens and encumbrances of record, and thereon to have and to hold the same with all the appurtenances and hereditaments thereto belonging forever.12
According to her brief, Stralka received the following royalty payments after her purchase:
*941986 — $1,730.00
1987 — 294.68
1988 — None
1989 — 197.00
1990 — 534,00
Total $2,755.68
The last payment was made on March 19, 1990.13
Having obtained relief from the automatic stay on January 23, 1986, the Federal Land Bank of Wichita filed a petition to foreclose its mortgage on April 9, 1987, in a case captioned: The Federal Land Bank of Wichita v. L. Ray Wolfe, et al, Case No. 87-C-34 in the District Court of Chautauqua County, Kansas. The named defendants were: L. Ray Wolfe; Leslie Ray Wolfe; Ray Wolfe; Edna Wolfe; Edna M. Wolfe; Edna May Wolfe; Edna Wolfe Peel; Edna May Wolfe Peel; Edna May Beasley; Ray Wolfe Farms; Ray Wolfe Oil Company; Ray Wolfe Dozer Service; Ray Wolfe Seeding and Fencing; The Sedan State Bank, through its Receiver, the Federal Deposit Insurance Corporation, the Federal Deposit Insurance Corporation; and Edward J. Nazar, Trustee in Bankruptcy.14 Notably absent from those joined as defendants were the working interest holder, Jimmy Ray Wolfe, and the plaintiff here, Louise K. Stralka, and their assigns.
On September 8, 1987, the state court awarded the Federal Land Bank judgment against Leslie Ray Wolfe (in rem) and Edna M. Beasley (formerly Edna M. Wolfe) for $86,072.69. The state court journal entry of that date contained the following language barring the trustee from any claim to the described property outside his redemption rights:
The Court further finds that the terms and conditions of the mortgage has [sic] been broken and as a result thereof, Plaintiff [Federal Land Bank] is now entitled to have its mortgage foreclosed and the real estate set forth above sold in satisfaction of the said note and mortgage executed in conjunction therewith; and that from and after the date of the sale of the premises the Defendants, L. Ray Wolfe; ... Edna M. Beasley; ... The Sedan State Bank, through its receiver, Federal Deposit Insurance Corporation; Federal Deposit Insurance Corporation and Edward J. Nazar, Trustee in Bankruptcy, should be forever barred and estopped from claiming any right, title, lien, estate or interest in and to the above described property and every part thereof as against the purchaser at such sale except for the right of redemption granted to Edna M. Beasley and Edward J. Nazar, Trustee in Bankruptcy of six (6) months as provided by law.15
The state court journal entry also ordered the Sheriff to sell the subject property and to apply the sale proceeds to the judgment. At the Sheriff’s Sale on October 30, 1987, the Federal Land Bank successfully bid $63,000 for the parcels of real property, “together with all and singular the tenements, heredita-ments and appurtenances thereunto belonging or in anywise appertaining.”16
Finally, on February 17, 1989, the Farm Credit Bank of Wichita, Kansas, sold the real estate to the defendants in this adversary, Gary M. Alexander and Jennifer K. Alexander.17
Working Interest Facts
On October 11, 1986, Jimmy Ray Wolfe assigned the undivided seven-eighths working interest in the Wolfe Lease to Continen*95tal Oil & Gas and Larry Soles.18 In turn, Continental Oil & Gas and Larry Soles assigned the undivided seven-eighths working interest to E. Fern Soles on January 1, 1987.19 On June 11, 1987, Continental Oil & Gas, Larry Soles, Owner, and Larry Soles and E. Fern Soles, his wife, assigned all of their right, title and interest in the Wolfe Lease working interest to James K. Sals-man.20
James K. Salsman and Nancy Salsman, his wife, granted a security interest in the Wolfe Lease and mortgaged other property to the Caney Valley National Bank of Caney, Kansas, on September 21, 1987.21 Apparently the Salsmans defaulted because Caney Valley National Bank filed suit to foreclose its security interest in the working interest on August 25, 1989, in a case captioned: Caney Valley National Bank v. James K. Salsman, et al., Case No. 89 C 64, in the District Court of Chautauqua County, Kansas.22
The state court awarded a $61,726.03 money judgment against James K. Salsman and Nancy Salsman in favor of Caney Valley National Bank and entered an Order of Sale on December 22, 1989, directing the Sheriff to sell the property of the Salsmans.23 Ca-ney Valley National Bank successfully bid $7,500.00 for the described property.24
Having foreclosed on the working interest, Caney Valley then filed suit against the Alexanders and Louise A. Stralka in Chautauqua County, Kansas,25 demanding that the lease be declared valid and that the defendants be enjoined from interfering with Caney Valley’s right to operate the lease.
Louise A. Stralka answered Caney Valley’s petition and filed a third-party petition against Edward J. Nazar in his capacity as trustee of Leslie Ray Wolfe’s bankruptcy estate.26 Stralka’s third-party petition asked the court to cancel the trustee’s sale of the landowner’s royalty interest and to return *96her purchase money, after adjustment for royalty payments received by Stralka.
Nazar responded by removing the complete Caney Valley action to this Court.27 While Caney Valley had joined Stralka as a defendant in the action, Caney Valley made no claim to the royalty she held. In turn, Stralka made no claim to the seven-eighths working interest in which Caney Valley claimed a security interest. Since the Alexanders did not crossclaim against Stralka, the suit by Stralka against the trustee remained independent of all the other claims in the Caney Valley suit. Consequently, except for Stralka’s claim for relief against the trastee, Judge Pearson remanded the Caney Valley action to the District Court of Chautauqua County, Kansas.28
While this removed controversy between Stralka and Nazar has been under advisement, the remanded state court action between Caney Valley National Bank and the Alexanders was settled and dismissed. Although he has not furnished this Court with the terms of the settlement, Nazar has filed a motion to dismiss Stralka’s action against him on the grounds that dismissal of the underlying suit moots Stralka’s claim against him. However, since Stralka’s suit stands independently of the Caney Valley litigation, the trustee’s mootness argument fails.
Discussion
In her state court third-party petition and in her brief here, Stralka claims that Nazar induced her to purchase the royalty by selling it free and clear of hens. She blames him for her loss because allegedly he knowingly sold her an interest that was in fact encumbered by a mortgage. According to Stralka, if the “free and clear” language had not misled her into believing that the royalty interest was unencumbered, she would not have made the purchase. She claims that Nazar made a mistake and that equity should correct it by decreeing reversal of the sale and return of her purchase price.29
Stralka seeks restitution of $5,244.32, plus interest and reasonable attorney’s fees. From the time she purchased the royalty interest in 1986 to its termination in 1990, Stralka collected $2,755.68 on her one-eighth royalty interest.30 The $5,244.32 amount being sought, exclusive of interest and fees, represents the return of her $8,000.00 purchase price, less $2,755.68, the royalty payments she collected.
A number of Kansas oil and gas cases hold that a landowner’s royalty is treated as rents and profits which the landowner or his as-signee are entitled to receive only until the end of the redemption period. Hardcastle v. McCluskey, 139 Kan. 757, 33 P.2d 127 (1934) (foreclosing a mortgage held to cut off a landowner’s royalty that was created before the mortgage was granted (and not mentioned in the mortgage) but assigned by the landowner to a third party after the mortgage was granted); Fairchilds v. Ninnescah Oil and Gas Co., 151 Kan. 551, 99 P.2d 839 (1940) (ruling that a landlord’s royalty interest was extinguished by foreclosure of a prior recorded mortgage); Rathbun v. Williams, 154 Kan. 601, 121 P.2d 243 (1942) (holding that the sale under the foreclosure of a tax hen on a separately owned mineral interest resulted in the extinguishment of the mineral title and a one-eighth oil royalty interest that depended on the mineral interest that was transferred to the buyer); Home State Bank v. Johnson, 240 Kan. 417, 729 P.2d 1225 (1986) (allowing a landowner’s royalty holder to receive royalty payments during the period of redemption only).
While explaining how she came to lose her royalty interest, Stralka’s brief acknowledges the doctrine of the cited cases with the following language:
*97The action of The Federal Land Bank of Wichita against L. Ray Wolfe named as a defendant, Edward J. Nazar, Trustee in Bankruptcy, and was filed April 9, 1987. Edward J. Nazar, as Trustee, entered his appearance on April 20, 1987. Judgment foreclosing the mortgage was rendered on September 8, 1987. By said judgment Edna M. Beasley (Wolfe) and Edward J. Nazar were each granted a right of redemption for a period of six (6) months. On October 3, 1987, an Order of Sale was issued, the sale was held October 30, 1987, and the property was sold to The Federal Land Bank of Wichita. The sale was confirmed on December 11, 1987.
During the redemption period, which ended May 1, 1988, the landowner, in this case the Trustee in Bankruptcy, was entitled to the royalty, but when the redemption period expired, the purchaser would be entitled to the royalty. Home State Bank v. Johnson, 240 Kan. 417, 429; 729 P.2d 1225. The Federal Land Bank of Wichita would have been entitled to the royalty from May 1,1988, until the sale on February 17, 1989.
L. Ray Wolfe owned the surface, as well as the minerals, subject to the mortgage. Edward J. Nazar, as Trustee in Bankruptcy, became entitled to the equities of L. Ray Wolfe on September 3, 1985. As said Trustee, he was entitled to receive the royalties until the mortgage to The Federal Land Bank foreclosed its prior lien and then for the redemption period. Royalties then became the property of the purchaser at the foreclosure sale.31
After granting a mortgage that covered the surface and the minerals in place, the landowner, Leslie Ray Wolfe, leased the oil and gas to his son, Jimmy Ray Wolfe, reserving the customary landowner’s one-eighth royalty share of any oil produced from the land. The Federal Land Bank did not subordinate its prior mortgage to the lease.
Then, Leslie Ray Wolfe filed a bankruptcy petition which transferred all of his interests in property to the bankruptcy estate. His property interests included the fee interest in the land consisting of the surface and the minerals, subject to the mortgagee’s prior recorded lien thereon, and his landowner’s royalty. However, the royalty interest was not subject to the prior mortgage because it was personal property that came into existence after Wolfe granted the mortgage.
The trustee sold the landowner’s royalty interest as the Bankruptcy Code empowered him to do. According to the usual practice, and perhaps because other properties were being sold, the trustee noticed the sale as being free and clear of liens. However, in this instance since the royalty interest was unencumbered personal property, this form of sale was unnecessary.
Next, the Federal Land Bank filed to foreclose its real estate mortgage on the surface and minerals, joining as defendants the bankruptcy trustee, Nazar, and the landowner, Leslie Ray Wolfe. Nazar’s joinder resulted in foreclosure of the mortgage against the bankruptcy estate’s ownership of the surface and minerals of the land. Having obtaining title and there being no redemption by May 1, 1988, the Land Bank conveyed the land and minerals to the Alexanders. Since the Land Bank did not join the royalty assignee, Stralka, as a defendant, its mortgage foreclosure did not foreclose on her royalty interest. This is no surprise, of course, since the Land Bank’s foreclosure could not have freed Stralka’s royalty interest from a lien the Bank did not have.32
However, the Bank’s foreclosure had the indirect effect of extinguishing the royalty when redemption was not exercised. In reality, it was the nature of the royalty interest that caused its cancellation when redemption was not accomplished. The Kansas cases cited above treat the royalty like rents and profits. During the redemption period, the rents and profits go to the owner *98of the fee or her assignee. If no one redeems, the foreclosure order vests ownership of the land and minerals in place in the purchaser at the sale. While the owner of the fee who also holds the royalty interest can assign the royalty to a third party, and that party can assign the royalty to others, all such assignees hold their royalty interests subject to the possibility that the owner of the minerals in place will be divested of those rights by a foreclosure which extinguishes the royalty interest.
Nazar sold only the royalty interest belonging to Leslie Ray Wolfe. Nazar’s notice of sale makes it clear that the sale was “as is” with the language:
The property as hereinabove described will be sold to the highest bidder, and said property will be sold in its present condition with no expressed or implied warranties, and the purchaser is to accept said property in its present condition.33
Stralka says equity should come to her aid because Nazar sold the royalty free and clear of liens, but this is false because while the Land Bank’s foreclosure action took her royalty, it did so, not because there was a lien on the royalty, but because the foreclosure decree transferred the minerals in place to a different owner. The law took her interest when she failed to redeem in the foreclosure.
Stralka knew or should have known before she bought the royalty interest that before Leslie Ray Wolfe gave the lease that reserved the royalty, he had given a mortgage on the land. She, as easily as Nazar, could have discovered the Kansas decisions that extinguish a royalty upon foreclosure on the fee. The cases do so even where the mortgage was granted after the lease and royalty were created. Hardcastle v. McCluskey, 139 Kan. 757, 33 P.2d 127 (1934); Home State Bank v. Johnson, 240 Kan. 417, 729 P.2d 1225 (1986).
While Stralka claims that Nazar made a mistake that entitles her to relief, if he made a mistake, it was one of law; a mistake she made as well by not finding that Kansas law would extinguish her royalty interest by foreclosure, even when there was no lien on thát interest. There is no justification for equitable interference with the sale. Plaintiffs petition is dismissed.
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.
. Defendant and third-party plaintiff Louise A. Stralka appears by her attorney, John M. Wall, Sedan, Kansas. The Chapter 7 trustee, Edward J. Nazar, appears by his attorney, Mary Patricia Hesse of Redmond, Redmond & Nazar, Wichita, Kansas. There are no other appearances.
. The pretrial order stipulates that the Court has jurisdiction over the parties and subject matter of the action; that venue in this district is proper; that all necessary and indispensable parties are joined; and that the Court may try this adversary proceeding to final judgment. The Court finds independently of the stipulation that this adversary proceeding is core under 28 U.S.C. § 157 and that 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).
.On October 28, 1977, in consideration for a $76,000.00 loan, Leslie Ray Wolfe and Edna M. Wolfe signed a promissory note in favor of the Federal Land Bank of Wichita and granted the Land Bank a mortgage in the following real estate, to wit:
Lots 1, 2, 3 and 4 in Section 4, Township 35 South, Range 12 East of the 6th P.M.
S¡6 SW'A Section 33, Township 34 South, Range 12 East of the 6th P.M.
The mortgage was recorded in the Office of the Register of Deeds of Chautauqua County, Kansas, on November 10, 1977, in Book 72 of Mortgages at Page 11. (Promissory Note and Mortgage, Exhibit No. 2 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. Nunc Pro Tunc Amended Decree of Divorce, Exhibit A attached to Complaint to Determine Dischargeability and for Declaratory Relief filed December 20, 1985, by Edna May Wolfe, at 3-7. (Although this dischargeability complaint was assigned adversary no. 85-0773, it is document no. 22 in the main case court file.)
. The lease (the “Wolfe Lease’’) was recorded with the Chautauqua County Register of Deeds on May 29, 1984, at Book 57, Page 513. (Oil and Gas Lease, Exhibit No. 3 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. Oil and Gas Lease, Exhibit No. 3 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.
. Id.
. Notice of Intended Sale, Exhibit No. 11 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 1, 3, 9-10.
. The Trustee’s Royalty Deed reflecting the sale was filed with the Chautauqua County Register of Deeds on May 16, 1986, on page 732 of Book 86 of Deeds. (Trustee's Royalty Deed, Exhibit No. 12 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. Id.
. Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 4.
. Petition for Foreclosure of Mortgage Pursuant to K.S.A. Chapter 60, Exhibit No. 1 to Trustee's Memorandum Brief filed March 17, 1992.
. Journal Entry, Exhibit No. 2 to Trustee’s Memorandum Brief filed March 17, 1992, at 3.
. Sheriff's Deed, Exhibit No. 9 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 2.
.The Corporation Special Warranty Deed reflecting the sale was filed with the Chautauqua County Register of Deeds on March 2, 1989, at Page 417, Book 89 of Deeds. It was “SUBJECT TO: Easements, rights of ways, restrictions, reservations, mineral interests or mineral leases, and any building or zoning restrictions or regulations, and any discrepancies an accurate survey would reveal.” (Corporation Special Warranty Deed, Exhibit No. 10 to Brief of Louise A. Stral-ka, Third Party Plaintiff, filed March 12, 1992.)
. This assignment was recorded by the Chautauqua County Register of Deeds on October 14, 1986, at Page 366, Book 72 of Assignments. (Assignment of Oil and Gas Lease, Exhibit No. 4 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. This assignment was recorded by the Chautauqua County Register of Deeds on January 30, 1987, at Page 687, Book 72 of Assignments. (Assignment of Oil and Gas Lease, Exhibit No. 5 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. This assignment was recorded by the Chautauqua County Register of Deeds on June 12, 1987, at page 267, Book 74 of Assignments. (Assignment of Oil and Gas Lease, Exhibit No. 6 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. The Mortgage and Security Agreement was filed with the Chautauqua County Register of Deeds on September 23, 1987, at Page 589, Book 85 of Mortgages. Apparently Uniform Commercial Code financing statements were filed with the Kansas Secretary of State and the Chautauqua County Register of Deeds; however, the copies attached as exhibits to the Stralka brief are not file-marked. (Promissory Notes, Mortgage and Security Agreement, Exhibit No. 7 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. Petition, Exhibit No. 3 to Trustee's Memorandum Brief filed March 17, 1992.
. This property included, among other things, the following:
100% interest in the oil and gas lease rights covering the following described land in Chautauqua County, Kansas, to wit: the S/2 of the SW/4 of Section 33, Township 34 South, Range 12 East, together with all oil, gas and casinghead gas produced from said property together with all of the mortgagor’s interest in all oil wells, gas wells, casing, tubing, rods, towers, derricks, tanks, pipelines, buildings, machinery and all other property located thereon or used in connection therewith.
(Sheriff's Assignment and Bill of Sale, Exhibit No. 8 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 2.)
. The Sheriff’s Assignment and Bill of Sale reflecting the Bank’s purchase was recorded by the Chautauqua County Register of Deeds at page 139 of Book 78 of Assignments. (Sheriff's Assignment and Bill of Sale, Exhibit No. 8 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992.)
. Petition filed August 29, 1989, in Caney Valley National Bank v. Alexander, et al., Case No. 90 C 18 in the District Court of Chautauqua County, Kansas, Exhibit No. 5 to Trustee's Memorandum Brief filed March 17, 1992.
. Third Party Petition filed August 26, 1991, in Caney Valley National Bank v. Alexander, et al., Case No. 90 C 18 in the District Court of Chautauqua County, Kansas, Exhibit G to Application for Removal filed September 16, 1991.
. Trustee’s Application for Removal filed September 16, 1991; Amended Notice of Removal filed November 19, 1991.
. Order Partially Remanding Cause filed January 22, 1992.
. She cites Klepper v. Stover, 193 Kan. 219, 392 P.2d 957 (1964), for the proposition that the statute of limitations on a cause of action to cancel an instrument for mistake does not begin to run until the mistake is discovered.
. The last payment was by check dated March 19, 1990. Supra note 13.
. Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 6-7.
. The same reasoning would apply to working interest owner, Jimmy Ray Wolfe, who also was not joined as a party in the mortgage foreclosure. However, whether the working interest would be extinguished by the conveyance of the fee, as the royalty interest was, is not for decision here.
. Notice of Intended Sale, Exhibit No. 11 to Brief of Louise A. Stralka, Third Party Plaintiff, filed March 12, 1992, at 9-10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492035/ | ORDER
TOM R. CORNISH, Bankruptcy Judge.
On the 11th day of April, 1995, the creditor’s, Wilburton State Bank, Motion to Dismiss and Motion for Relief from Stay came on for an evidentiary hearing in McAlester, Oklahoma.
After a review of the above-referenced pleadings, hearing testimony presented and arguments of counsel, this 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. The Debtors filed Chapter 7 on September 14, 1994. The case was converted to Chapter 12 on February 14, 1995. This Court previously determined that the relevant taxable year to determine Chapter 12 eligibility was calendar year 1993.
2. The Debtors’ 1993 tax return reflects income as follows:
Wages $ 9,113.00
Interest $ 853.00
Capital gain $23,299.00
The Debtors’ capital gain was from the sale of timber. The Debtors reported a loss on their farm operation in the amount of $16,-073.00. The sale of timber consisted of both selling timber off his own property or selling timber from others. Mr. Burlen Glenn testified that he purchased timber contracts from individuals, such as neighbors, and sold them to Weyerhaeuser company (“Weyerhaeu-ser”). Weyerhaeuser actually cut the timber. Mr. Glenn further testified that he did not cultivate or fertilize the trees. He did testify that he kept fires out of the property and managed the property.
3. Wilburton State Bank (“the Bank”) filed its proof of claim in the amount of $195,038.73. As of the date of the hearing, the amount due to the Bank was $204,023.74. The Bank had a security interest in a piece of real property, all cattle and inventory, and the following equipment:
2 Gooseneck Trailers
2 Brushhogs
Ford Tractor
2 Leyland Tractors
Front End Loader
Flatbed Trailer
Hay Mower
New Holland Sperry Rake
Stock Trailer
In December, 1994, the real property was appraised at $125,000.00. At the time of one of the Bank’s inspections, the Debtors had 180 head of cattle on the property, having a value of $80,400.00. The last inspection made by the Bank approximately one month ago revealed that there were 193 head of cattle on the Debtors’ property. Clay Bennett, President of Wilburton State Bank, testified that he was concerned about the declining value of the cattle. However, Mr. Bennett conceded on cross-examination that the cattle market had improved over the last ten (10) months. Mr. Bennett testified that he believed the Bank’s own appraisal was even too high.
4. The Trustee, Robert Hemphill, testified that the cattle were in better condition than most cattle at this time of the year. The Debtor, Mr. Glenn, testified that all of his equipment was operable.
*1075.The Bank has filed a Motion to Dismiss alleging that the Debtors are ineligible for Chapter 12. Additionally, the Bank seeks relief from the stay or alternatively, the Bank seeks adequate protection payments.
CONCLUSIONS OF LAW
A. The first issue which needs to be addressed is whether the Debtors are eligible for Chapter 12 relief. Section 109(f) of the Bankruptcy Code provides that “[o]nly a family farmer with a regular annual income may be a debtor under Chapter 12 of this title.” Section 101(18)(A) defines a “family farmer” as follows:
individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or individual and spouse receive from such farming operation more than 50 percent of such individual’s or such individual and spouse’s gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed.
B. The definitions of “farmer” and “farming operation,” when determining Chapter 12 eligibility, are to be liberally construed. In re Maike, 77 B.R. 832, 835 (Bankr.D.Kan.1987) (citing In re Blanton Smith Corp., 7 B.R. 410 (Bankr.M.D.Tenn.1980)). In Maike, the PDIC and Federal Land Bank of Wichita brought a motion to dismiss the bankruptcy because the debtors were not farmers. A majority of their income was derived from the breeding, raising, and sale of puppies. Id. at 833. The court in Maike framed the issue as “Does the debtors’ nontraditional enterprise constitute a farming operation?” Id. The court in determining whether the debtors were eligible for Chapter 12 relief noted that “while some of the more traditional farming operations are listed, other activities may be considered farming operations.” Id. The court found:
[A] location that would be considered a farm under the traditional definition should weigh heavily in the court’s decision. The enterprise at the location should next be considered. Functions which are strictly service oriented, and which are merely tangentially related to the breeding, maintaining and marketing of animals or the planting, maintaining and harvesting of crops, even though performed on the farm would not qualify the actor as a farmer.
Id. at 839. In Maike, the court found that a game farm and a kennel were considered a farming operation. Id.
In In re Sugar Pine Ranch, 100 B.R. 28 (Bankr.D.Or.1989), the court was faced with the issue of whether the Debtor qualified for Chapter 12. The court listed factors to determine Chapter 12 eligibility from various cases, as follows:
1. whether the location of the operation would be considered a traditional farm;
2. the nature of the enterprise at the location;
3. the type of the product and its eventual market, although the court should not be limited to products which are traditionally associated with farming;
4. the physical presence or absence of family members on the farm;
5. ownership of traditional farm assets;
6. whether the debtor is involved in the process of growing or developing crops or livestock;
7. whether or not the operation is subject to the inherent risks of farming.
Id. at 31 (citations omitted).
In the instant case, the Debtors have a cow and calf operation. In addition to the cow and calf operation, the Debtors have sold their own timber and brokered the timber of neighbors to Weyerhaeuser. They live in rural Southeastern Oklahoma in a traditional farm setting. The Debtors have traditional farm equipment such as tractors, a bailer, brushhogs, and trailers, as set forth in the *108Bank’s Motion for Relief from Stay. The Debtors live and work on the farm, although Mrs. Glenn has outside employment. The Debtors’ operation is subject to the inherent risks of farming. As in the Sugar Pine case, the timber operation is exposed to the risk of fire. A fire could potentially destroy all of the Debtors’ timber for more than one year.
The Debtor, Mr. Glenn, testified that he managed the property to protect it from fire and he worked with the forestry department and other agencies. In light of the factors listed above, this Court finds that the timber operation is a farming operation. For these reasons, this Court finds that the money derived from the Debtors’ timber operation constituted farm income and therefore, the Debtors qualify for Chapter 12 relief.
C. The next issue to be addressed is whether the Bank is entitled to relief from the automatic stay pursuant to § 362(d). Section 362(d) provides:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay ... such as by terminating, annulling, modifying, or conditioning such stay—
(1) For cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property ... if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
The 100 acres in which the Bank has a security interest includes the Debtors’ home. The Trustee filed an inventory listing the real property, which is mortgaged to the Bank, to be valued at $95,000, livestock at $84,900, and the equipment (less a Dodge Truck which is subject to a lien of Chrysler) in the amount of $19,700. In December, 1994, the real property was valued at $125,-000. In analyzing these figures, it appears to this Court that there is a reasonable likelihood that equity does exist in this property. At the hearing, the testimony reflected that the amount of the debt was equal to the value of the land and the cattle alone. As a result, the Bank is not undersecured.
The fact that a debtor lacks equity in the property is not fatal to the protection of the automatic stay. Here, the secured claimant is adequately protected; the debtor has made progress in formulating a plan; and there is a reasonable possibility of confirmation within a reasonable time. In re White Plains Dev. Corp., 140 B.R. 948 (Bankr.S.D.N.Y.1992). The court in In re Honett, 116 B.R. 495 (Bankr.E.D.Tex.1990) held that a mortgagee was not entitled to relief from the stay, where the Chapter 13 debtor did not have any equity in the mortgaged residence, absent a showing that the debtor would be unable to successfully propose a plan which would result in payment of the outstanding mortgage arrears. A mortgagee was not entitled to lifting of the stay where it was not clear that the debtor would be unable to effectively reorganize. In re Century Inv. Fund VIII Ltd. Partnership, 155 B.R. 1002 (Bankr.E.D.Wis.1989). Furthermore, the loss of the Debtors’ home would be detrimental to any prospect of reorganization. See, In re Deeter, 53 B.R. 623, 625 (Bankr.N.D.Ind.1985).
The Debtors’ Chapter 12 Plan is due on May 17, 1995. The case law has almost uniformly held that an equity cushion of 20% or more constitutes adequate protection. In re McKillips, 81 B.R. 454, 458 (Bankr.N.D.Ill.1987) (citations omitted). Case law has further held that an equity cushion of less than 11% is insufficient to constitute adequate protection. Id. However, case law is divided on whether a cushion of 12% to 20% constitutes adequate protection. Id. At the hearing, no evidence, other than the Trustee’s inventory, was presented regarding the value of the equipment. As a result, this Court cannot accurately determine the amount of equity cushion. At the present time, the Court will not require adequate protection payments. The movant may re-urge its Motion for Adequate Protection if the Debtors do not propose a feasible plan by May 17, 1995.
There was no evidence presented at trial that the Debtors would clearly not be able to reorganize. This Court is of the opinion that *109the Debtors should be given an opportunity to formulate a plan and work through their financial difficulties. The Motion to Modify Stay will therefore be denied without prejudice to refiling if the Debtors are not able to formulate a feasible plan.
IT IS THEREFORE ORDERED that the Amended Motion to Dismiss by Wilburton State Bank is denied.
IT IS FURTHER ORDERED that the Motion to Modify Stay or in the Alternative Motion for Adequate Protection is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492036/ | ORDER GRANTING MOTION FOR RELIEF FROM THE AUTOMATIC STAY FILED BY HUBBARD PROPERTIES, INC.
BENJAMIN COHEN, Bankruptcy Judge.
This matter is before the Court on a Motion for Relief from the Automatic Stay filed by Hubbard Properties, Inc. After notice a *110hearing was held on August 15,1991 at which Mr. Michael G. Trucks, the attorney for the Debtor, and Mr. Thomas G. Tutten, the attorney for the Movant appeared.
The Movant is a lessor of an apartment complex. The Debtor is the lessee of a unit in the apartment complex. Pursuant to Alabama law and provisions of the Debtor’s lease, the Movant sent a twenty-four hour notice to terminate the lease on June 22, 1994, for failure to pay rent. A written demand for the Debtor to surrender possession of the premises within ten days was sent on June 24, 1994. The Debtor’s bankruptcy petition was filed on July 5, 1994.
The Movant has requested relief from the stay to file an unlawful detainer action against the Debtor under state law to gain possession of the subject premises. The Debtor has proposed to assume the lease in accordance with 11 U.S.C. §§ 365 and 1322(b)(7) and to cure the rent arrearage of approximately $1436.19 (including attorney fees, court costs, and other expenses) over a period of six months.
The lease provides that it is for a term of twelve months beginning on October 1, 1991, and ending on September 30, 1992, and “from year to year thereafter.” The original term of the lease expired on September 30, 1992. Thereafter, the lease became and now is a year to year tenancy which may be terminated effective the last day of September of any year provided at least 60 days written notice of the prospective termination is provided by either party. The notice of termination delivered by the Movant to the Debtor on June 22 effectively operated to notify the Debtor of the Movant’s intent not to renew the lease for another term. Even if the Movant is not granted relief from the stay, assumption of the lease by the Debtor would entitle her to occupy the apartment only for approximately two weeks. And while the Bankruptcy Code authorizes the Debtor to assume an unexpired lease by curing a default,1 this Court knows of no legal basis upon which the Movant can be required to renew the Debtor’s lease once the lease term has expired.2 No true benefit, therefore, can result to the Debtor from assumption of the lease.3
Based on the record in this case and the arguments and stipulations of counsel, the Court has determined that the Motion for Relief Jrom the Automatic Stay should be granted subject to the limitations expressed below. It is therefore ORDERED, ADJUDGED AND DECREED that:
1. The Debtor’s request to assume the lease is DENIED.
2. The Motion for Relief from the Automatic Stay is GRANTED to allow the Mov-ant to pursue any remedies available under state law to recover possession of the subject premises.
3. Any debt owed by the Debtor to the Movant for monetary damages resulting from default in or rejection of the lease shall be determined solely by means of a proof of claim in this bankruptcy proceeding. Unless otherwise modified by order of the Bankruptcy Court or terminated by operation of law, the stay shall remain in effect to preclude the adjudication or collection of any such debt outside of this bankruptcy proceeding.
. See this Court's order in In re Morgan, 181 B.R. 579 (Bankr.N.D.Ala.1994) issued contemporaneously with this order.
. This holding is consistent with this Court’s ruling in In re Shaw, No. 94-00513-BGC-13, 1994 WL 803495 (Bankr.N.D.Ala. March 23, 1994).
.The lessor can of course agree to renew the Debtor’s lease on terms similar to those described in this Court's order in In re Morgan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492037/ | ORDER GRANTING MOTION FOR RELIEF FROM STAY
(For Lack of Jurisdiction)
BENJAMIN COHEN, Bankruptcy Judge.
This matter came before the Court for trial on the Claim of First Mortgagee to Proceed with Mortgage Foreclosure and Right to Rent and Allow Tenant to Occupy *126Abandoned Property of Debtor Estate (Proceeding No. 12), the Claim and Notice by Sterling Limited, Inc., First Mortgagee to Improvements/Fixtures and Hand Delivered Notice to Greentree Financial Inc., of Bankruptcy Court Hearing (Proceeding No. 16) and the Motion for Relief From Automatic Stay to Allow Ownership Claims to be Settled in State Court Pursuant to Rule 4001 of United States Bankruptcy Code (Proceeding No. 21), all filed by Mr. Sam Raine, Jr. Appearing were Mr. Sam Raine, Jr., pro se, Mr. William Schley Hereford, the attorney for Green Tree Financial Corp. (“Green Tree”), and Mr. Don Newberry, a field representative of Green Tree. The matter was submitted upon the record in the ease and the arguments of counsel, the testimony of Mr. Raine and Mr. Newberry, and the exhibits offered and admitted into evidence.
Green Tree holds a security interest in a mobile home owned and previously occupied by the Debtor as his homestead. Green Tree has been granted relief from the stay, by consent of the Debtor and the Trustee, to foreclose its security interest (Proceeding No. 14). The proceedings on the Green Tree motion for relief, however, did not involve or resolve any questions regarding Green Tree’s rights to the property as between it and parties other than the Debtor and the Trustee.
Mr. Raine is the mortgagee of the real estate on which the mobile home is situated. The Debtor is the mortgagor and is in default. Mr. Raine claims that, according to Alabama law, the mobile home is a “fixture” on the real estate, that the security interest of Green Tree has not been properly perfected, and that he, rather than Green Tree is entitled to possession of the mobile home.
Mr. James G. Henderson, the bankruptcy trustee, has filed a “no asset” final report in which he abandoned the estate’s interest in the mobile home and real estate, as well as any other property once owned by the Debt- or (proceeding No. 11). The Debtor has also specifically abandoned his interest in the real estate and mobile home (Proceeding No. 15). The dispute, therefore, lies strictly between Mr. Raine and Green Tree. Futhermore, the dispute between Mr. Raine and Green Tree involves questions of state law and does not involve bankruptcy law issues.
The gist of the relief sought by Mr. Raine in his various motions is that he should be allowed to proceed under state law to foreclose his mortgage and to gain possession of the real property and the mobile home, to the extent he is entitled to foreclose and obtain possession of the real estate and mobile home under state law and the contract he has with the Debtor. Mr. Raine also seeks to have questions regarding title in and right to possession of the mobile home, as between Green Tree and him, litigated in state court, rather than the bankruptcy court.
At the trial of this matter, the Court allowed testimony and other evidence to be presented on the substantive, nonjurisdic-tional issues between the parties, with the understanding of both parties that the Court would first address the question of whether this Court had jurisdiction over these matters. The parties agreed. As both were prepared for a trial on the merits, rather than require the participants to return if jurisdiction was found to lie in this Court, a trial was held on October 18, 1994.
This Court has attempted to accommodate the parties with a ruling on the merits, but after significant time and research is unable to do so. The law in this circuit is clear. This Court lacks jurisdiction to decide the substantive issues between these parties. “[I]f the resolution of litigation cannot affect the administration of the estate, the bankruptcy court does not have jurisdiction to decide it.” In re Gallucci, 931 F.2d 738, 742 (11th Cir.1991).1 Resolution of the dispute *127between Mr. Raine and Green Tree will neither increase nor decrease either the liabilities or assets of the bankruptcy estate, or of the Debtor. Nor will resolution of the dispute either hinder or facilitate the administration of the bankruptcy estate, which has already been concluded. Also, resolution of the dispute will not affect the Debtor’s right to a discharge. Because the dispute between Mr. Raine and Green Tree has no connection with either the bankruptcy estate, the Debt- or, or the Trustee, this Court lacks jurisdiction to hear and dispose of the same.2 See In re Challenge Air Int’l, Inc., 952 F.2d 384 (11th Cir.1992); cf. United States v. Huckabee Auto Co., 783 F.2d 1546 (11th Cir.1986).
In accordance with the foregoing discussion, the Court has determined that Mr. Raine should be granted relief from the stay to proceed under state law to foreclose his mortgage and to gain possession of the real estate and mobile home, and to litigate questions regarding the ownership of the mobile home in a forum other than the bankruptcy court.3
It is therefore ORDERED that:
1. Mr. Sam Raine, Jr., is granted relief from the stay to proceed under state law to foreclose his mortgage and to gain possession of the mortgaged real estate and mobile home made the basis of these proceedings.4
2. Mr. Sam Raine, Jr., is granted relief from the stay to litigate questions regarding the ownership of the mobile home made the basis of these proceedings in a forum other than the bankruptcy court.
3.To the extent that the various motions and pleadings filed by Mr. Raine, which relate to the dispute between him and Green Tree regarding the mobile home, request relief different from that granted by way of the preceding paragraphs 1 and 2, said motions and pleadings are hereby dismissed.
Done and ordered.
. For the purpose of illustrating this axiom, the court of appeals cited as an example the following circumstances, which so happen to be virtually identical to those in the present case:
For example, in In re Denalco Corp., 57 B.R. 392 (N.D.Ill. 1986), two secured creditors asked the bankruptcy court to determine which of them had the superior interest in a piece of the debtor's equipment; the bankruptcy trustee disclaimed any interest in the equipment since the creditors' claims exceeded it value. On these facts, the district court held that the action was a noncore, unrelated matter; the resolution of the creditors' competing claims *127could not affect either the assets or the liabilities of the debtor's estate.
931 F.2d at 742.
.28 U.S.C. § 157(b)(2)(K) provides that a “core proceeding," over which the bankruptcy court has jurisdiction, includes "determinations of the validity, extent, or priority of liens.” That section of the statute only makes sense, however, if taken to refer strictly to liens on property of the bankruptcy estate. "Otherwise, we would be asserting a form of jurisdiction ferae naturae, capable of the rampant adjudication of property rights wherever found and by whomever owned.” In re Denalco Corp., 57 B.R. at 395, quoting, In re Dr. C. Huff Co., 44 B.R. 129, 134 (Bankr.W.D.Ky.1984).
. For purposes of judicial economy, if the parties litigate these matters in state court, they may want to consider submitting the matters on the record from this Court.
. This order does not in any respect resolve the dispute between Mr. Raine and Green Tree. The function of this order is merely to allow the parties to take their dispute elsewhere. While this order allows Mr. Raine to proceed under state law and in state court, if that is what he chooses to do, it is not intended to suggest that he or Green Tree actually have interests in or rights to the property, or to define what rights, if any, Mr. Raine or Green Tree have in the property- | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492038/ | HELEN S. BALICK, Chief Judge.
In this consolidated adversary proceeding, the defendant Conston Corporation has filed a motion to dismiss pursuant to Fed. R.Bankr.P. 7012(b). This is the court’s decision on this core matter. 28 U.S.C. § 157(b)(2)(B).
I. Facts
On this motion to dismiss, the court will consider and assume to be true the well-pleaded allegations of the complaint. The court will also consider certain other matters of record in the Conston bankruptcy proceeding (Case No. 92-217). MAI Systems Corporation v. C.U. Technologies, Inc. (In re MAI), 178 B.R. 50, 51 (Bankr.D.Del.1995).
According to the complaint filed in A-94-85, Cascade International, Inc. was a woman’s apparel retailer. Cascade acquired a controlling interest in Conston on August 11, 1990. Cascade filed a Chapter 11 petition in the United States Bankruptcy Court for the Southern District of Florida in December, 1991. Prior to, and within one year of this petition date, Cascade made several money transfers to Conston totaling $10,690,935.00. Post-petition, Cascade made several money *176transfers to Conston totaling $578,746.00. The plaintiff, Kenneth A. Welt, as Chapter 7 trustee for Cascade, seeks the return of all these transfers based on twelve alternative legal theories, for a total claim against Con-ston of $11,269,681.1
September 16,1992 was the bar date in the Conston ease for filing proofs of claims. On that date, the trustee on behalf of Cascade filed a proof of claim with attached documentation in the Conston case seeking a secured claim of $10,396,000 and an unsecured claim of $2,878,000. This court has since ruled that the secured portion of the claim was unper-fected, resulting in a proof of claim for the unsecured amount of $13,274,000. Conston has filed an objection to the claim; however, a hearing has not yet been scheduled on the objection.
II. Discussion
Conston moves to dismiss this adversary proceeding. Conston argues that this adversary proceeding is essentially a proof of claim, and that it was filed contrary to the procedures established for filing such proofs in the Conston case. Conston further argues that the facts that form the basis for the adversary, and the relief requested in the adversary are duplicative of the filed proof of claim.
The trustee concedes most of the issues pertinent to Conston’s motion to dismiss. The trustee agrees that an adversary proceeding in Conston’s case can not be used as a substitute for a proof of claim. In re Coastal Group, Inc., 100 B.R. 177, 178 (Bankr.D.Del.1989). The trustee argues, however, that when a creditor is itself a debtor, it has the ability to circumvent that doctrine. This argument is without merit under the circumstances here. 9 Collier on Bankruptcy ¶ 7001.04, at 7001-7-8 (15th ed.1993).
The trustee also concedes that the sums sought to be recovered in the adversary are limited to those sums already sought in the proof of claim. However, the trustee does point out that the complaint raises new legal theories in support of the monies sought in its proof of claim. The trustee concludes therefore, that the complaint should be allowed as an amendment to the proof of claim. Conston has not claimed any prejudice in connection with the assertion of these new legal theories. Thus, Con-ston is on notice that the trustee may assert these theories in support of the filed proof of claim. Hatzel & Buehler, Inc. v. Station Plaza Assoc., L.P., 150 B.R. 560, 562 (Bankr.D.Del.1993). This observation, however, does not provide a basis to permit the prosecution of the adversary to continue.
The other arguments of Conston in support of its motion to dismiss need not be considered. The motion to dismiss is
GRANTED.
IT IS SO ORDERED.
. The theories invoke fraudulent transfer under bankruptcy and Florida law, sections 362, 542, 547, and 549 of Title 11 of the Bankruptcy Code, and various equity doctrines. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492039/ | HELEN S. BALICK, Chief Judge.
TWA has objected to claim number 12849 filed by Larry E. Tyree Co, Inc. and Tyree Environmental Services, Inc. TWA has filed a motion for summary judgment in support of that objection. This is the court’s decision on TWA’s motion in this core matter. 28 U.S.C. § 157(b)(2)(B).
I. Legal Standard
On a motion for summary judgment, the court will view the record and the inferences therefrom in the light most favorable to the non-moving party. Hon v. Stroh Brewery Co., 835 F.2d 510, 512 (3d Cir.1987). If that record shows no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law, then summary judgment shall be granted. Fed. R.Bankr.P. 7056(c). Summary judgment shall be granted against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). As shall be discussed below, TWA argues Tyree has failed to satisfy its burden as to three essential elements of its case.
II. Facts
The parties filed a stipulation of facts to assist the court. The following facts are not in dispute.
On September 16, 1991, TWA entered into a written contract with Larry E. Tyree Co., Inc. (Tyree) identifying Tyree as the “contractor.” Pursuant to the contract, in exchange for $305,800.00, Tyree agreed to provide labor and materials and perform services to remove existing fuel storage dispensing systems and to install replacement systems and monitoring devices at and around Building No. 296 at the John F. Kennedy International Airport, Jamaica, New York. Tyree commenced work on December 15, 1991. The premises where Tyree performed its work is owned by the City of New York. In 1947, the City of New York leased the premises to the Port Authority, which in turn subleased the premises to TWA in 1953.
TWA filed its Chapter 11 petition on January 31, 1992. Tyree completed its obligations under the 1991 contract. There is a dispute whether a portion of its work was performed post-petition; however, that dispute is not germane to TWA’s motion for summary judgment.
*178Post-petition, Tyree mailed a notice of mechanic’s lien for account of public improvement in the sum of $293,489.66. Tyree, and Tyree Environmental Services, Inc. filed a proof of claim (no. 12849) for the secured amount of $293,486.66. Tyree stipulates to reduce that claim to the secured amount of $254,283.58 to reflect monies received from TWA.
III. Discussion
The sole dispute addressed by TWA’s motion is whether the claim for $254,283.58 is secured or unsecured. Tyree argues its claim is secured, based upon sections two, five, and twelve of the New York Lien Law, which both parties agree applies here. Tyree argues that its claim is entitled to a public improvement lien under these sections.
Section two is a definitions section. The parties agree that Tyree is a “contractor.” See New York Lien Law § 2(9) (McKinney 1993) (defining “contractor”). Section twelve prescribes the procedure for filing a notice of lien on account of public improvements.
Section five provides:
A person performing labor for or furnishing materials to a contractor, his subcontractor or legal representative, for the construction or demolition of a public improvement pursuant to a contract by such contractor with the state or a public corporation, ... shall have a lien for the principal and interest of the value or agreed price of such labor, including benefits and wage supplements due or payable for the benefit of any person performing labor, or materials upon the moneys of the state or of such corporation applicable to the construction or demolition of such improvement, to the extent of the amount due or to become due on such contract, ... upon filing a notice of lien as prescribed in this article.
New York Lien Law § 5 (emphasis added). TWA argues that Tyree fails to satisfy three of the requirements of this section, as suggested by the above-added emphasis.
First, TWA argues that Tyree is not within the class of persons entitled to a lien under this section. Indeed, Tyree is the contractor, not “a person performing labor or furnishing materials to a contractor.” In response, Tyree cites two cases it argues supports its right to a lien.1 They do not. Contractors are not entitled to a public improvement lien pursuant to section five. Anderson v. John L. Hayes Constr. Co., Inc., 243 N.Y. 140, 153 N.E. 28, 30 (1926).
Second, TWA argues that the labor and materials must have been furnished pursuant to a contract with the state or a public corporation, and that here, the contract was with TWA. Tyree has failed to establish a genuine issue of fact that the contract was with a state or public corporation. TWA’s argument is correct.
Third, TWA argues that any lien under section five would only attach to “moneys of the state or of such [public] corporation.” Tyree has failed to establish a genuine issue of fact that public funds were appropriated in connection with the 1991 contract. TWA’s argument is correct.
IV. Conclusion
Tyree’s position on this motion for summary judgment is completely without merit. The motion for summary judgment is granted. An order in accordance with this letter opinion is attached.
ORDER
AND NOW, May 3, 1995, for the reasons stated in the attached Letter Opinion, IT IS ORDERED THAT:
1. TWA’s motion for summary judgment is GRANTED.
2. Claim No. 12849 is REDUCED to the amount of $254,283.58.
3. This claim, as reduced, is RECLASSIFIED as unsecured.
. Davis v. Fidelity and Deposit Co. of Maryland, 75 A.D. 518, 78 N.Y.S. 336 (1902); A & J Buyers, Inc. v. Johnson Drake & Piper, Inc., 25 N.Y.2d 265, 303 N.Y.S.2d 841, 250 N.E.2d 845 (1969). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492040/ | MEMORANDUM OPINION
JUDITH K. FITZGERALD, Bankruptcy Judge.
The matter before the court is the complaint of PNC Bank, National Association, successor by merger to Provident National Bank (hereafter “PNC”), objecting to the claim of Bucks County Tax Claim Bureau (hereafter “Bureau”) for 1991 property taxes (county, township, and school).1 PNC objects to inclusion of interest and penalties in the Bureau’s claim. PNC also seeks subordination of the Bureau’s claim for interest and penalties and asserts that the claim should be disallowed in its entirety because it was filed untimely.2 The parties have submitted this *207dispute on the pleadings and a stipulation of facts. Because no material facts are in dispute, we will decide the matter as submitted on the pleadings and stipulation.3
This bankruptcy was commenced by the filing of a chapter 11 petition on September 19, 1991. The bar date for filing claims was April 28, 1992. Ray Wall, tax collector for Bensalem Township, Bucks County, was served with notice of the bar date in February, 1992. The Bureau asserts that it had no notice of the bar date until October 1, 1992, when it received from Wall a copy of the August 24, 1992, order which approved the amended disclosure statement and set the hearing on plan confirmation. No claim was filed by any defendant until December 4, 1992, when the Tax Claim Bureau filed a proof of claim in the amount of $245,119.91. The claim was calculated as of October 30, 1992, Stipulation of Facts at ¶ 15, and, therefore, included postpetition interest and penalties. The plan was confirmed on October 2, 1992, and a modified plan was approved on December 22, 1992.
The Bureau’s claim arises from property taxes assessed in 1991 against land and a building owned by Debtor and on which PNC held a mortgage. Pursuant to the confirmed plan, of which PNC’s predecessor was the proponent, the estate was liquidated and its property was offered for sale at auction. The building was sold for $7.5 million to KBI Holding, Inc., free and clear of liens except for PNC’s mortgage and any prepetition tax liens senior to the mortgage. No one offered to buy the land, and so, pursuant to the plan, it was conveyed to a designee of PNC. The plan stated the value of the land to be about 22 percent of that of the building or approximately $1.6 million. PNC’s secured claim was allowed at $16,453,474. Thus, even without the existence of tax claims, PNC is grossly undersecured.
We must decide
1. whether the Bureau should be permitted to file a late proof of claim;
2. whether the Bureau’s claim is secured or unsecured;
3. whether the interest and penalty portions of the claim are entitled to priority; and
4. whether the penalty and interest should be subordinated to the claims of general unsecured creditors.
1. Late Proof of Claim
Debtor sent notice of the filing of the bankruptcy to Ray Wall and not to the Bureau. The Bureau became aware of the bankruptcy in October, 1992,13 months after the bankruptcy was filed, when it received a copy of the order approving the disclosure statement. The plan was confirmed later in October, 1992. The proof of claim for taxes was not filed until December, 1992. The Bureau contends that notice to Wall as Township tax collector did not constitute notice to the county and so it should be permitted to file a late proof of claim. Under certain circumstances notice to a tax collector constitutes notice to the Bureau, see generally Geier v. Tax Claim Bureau of Schuylkill County, 527 Pa. 41, 588 A.2d 480 (1991). In this case we find no prejudice in considering the proof of claim as though it had been filed timely. Thus, we need not consider the effectiveness of the notice in the context of the Bureau’s tardiness in filing its proof of claim.
The confirmed plan of reorganization provides for payment of the taxes, estimated in the disclosure statement to be a base tax of $208,400. The parties have stipulated that the base tax amount is $208,681.99. Stipulation of Facts at ¶ 8. Because the plan provides for payment of taxes, we find no prejudice to Debtor or other creditors in allowing the Bureau to file a late proof of claim or in allowing that claim in accordance with the terms of the plan, at least in the base amount, as an unsecured priority claim under *20811 U.S.C. § 507(a)(7).4 See Pioneer Investment Services Co. v. Brunswick Assocs., L.P., — U.S. -, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). Under these circumstances, we see no impediment to permitting the Bureau’s filing a late proof of claim.
2. Status of Tax Claim
The parties do not dispute that the Bureau asserted § 507(a)(7) priority to the base tax claim in its proof of claim, and the plan is in accord. Furthermore, in its answer to the complaint, the Bureau admitted that its claim was listed in Debtor’s schedules as an unsecured priority claim. The Bureau did not contradict this characterization of its claim until it filed its brief in this Adversary when, for the first time, it asserted a secured claim. The parties did not avail themselves of the opportunity extended to them for oral argument so we must decide this matter on the pleadings, stipulation, and briefs. Taking into account all circumstances, we conclude that the Bureau’s claim, although a Hen, was not perfected on the date of the fifing of the bankruptcy and, therefore, is an unsecured § 507(a)(7) priority claim.
Pennsylvania statute provides that the types of taxes at issue here (county, township, and school) are a first lien on real estate. 53 P.S. § 7102; 72 P.S. § 5860.301. If the taxes which are due and payable remain unpaid by January 1 of the following year, the tax collector
make[s] a return to the bureau on or before the last day of April of each year, but no earlier than the first day of January of that year. The return ... shall include a fist of all properties against which taxes were levied, the whole or any part of which were due and payable in the calendar year immediately preceding and which remain unpaid....
72 P.S. § 5860.306. In this case the certification for delinquent 1991 taxes would have been made on or after January 1,1992, which was three months postpetition. Pennsylvania statute further provides that “claims for taxes against property so returned must be entered by the bureau in the office thereof in suitable dockets.” 72 P.S. § 5860.307. Furthermore, § 5860.302 requires that
The lien for taxes shall exist in favor of the taxing district to which the tax is payable and the claim therefor shall be filed against the property taxed.
72 P.S. § 5860.302. Because the return was not made until after the bankruptcy was filed and there is no evidence that the claim for 1991 taxes was perfected prepetition, the liens were unperfected on the date of fifing of the chapter 11. See 53 P.S. § 7143 (“Claims for taxes ... must be filed in the court of common pleas_”).5
3. Priority of Interest and Penalty
We also find that the Bureau is not entitled to prepetition interest on its claim because interest did not begin to accrue until after the bankruptcy was filed. Had any interest matured on the claim prepetition, it would have been entitled to the same priority as the underlying tax. See 11 U.S.C. §§ 502, 507(a)(7); In re Suburban Motor Freight, Inc., 36 F.3d 484, 489 (6th Cir.1994); Matter of Garcia, 955 F.2d 16, 18 (5th Cir.1992). However, Pennsylvania law provides that penalty and interest begin to run from the first day of the month following the township’s certification6 to the Bureau of unpaid taxes. 72 P.S. § 5860.306(a). The certification is not made until the year following that in which the tax was due and unpaid and interest begins to run “from and after but not before the first day of the month following the return”. Id. In this case, certification occurred on a date after January 1,1992, three months postpetition. Thus, no interest accrued until after the bankruptcy was filed in September of 1991. By virtue of the operation of state law, therefore, the prepeti*209tion priority claim of the Tax Claim Bureau consists of the base tax only.7
The plan provides that, to the extent that the tax is not paid from the proceeds of sale of the land and building, and, if the property was transferred to Provident, the tax will be paid “over a period of six years [from] the date of assessment of the Allowed Claim with interest at 6% per year”. The land was transferred to Provident. Amended Plan of Reorganization Proposed by Provident National Bank at ¶ 4.8(a); Stipulation at ¶4. Interest will be allowed on the base tax claim only to the extent provided in the plan in accordance with § 1129(a)(9)(C) of the Bankruptcy Code.
In summary, to the extent any interest accrued prepetition, it would have received the same priority as the prepetition tax. All of the interest at issue in this case accrued postpetition, however. Thus, no claim for interest is entitled to priority treatment.
We also conclude that the penalty is not entitled to priority status. State law provides that each taxing district may establish a penalty of not more than ten percent to be added to taxes that remain unpaid four months after the date of the tax notice. 72 P.S. § 5511.10. In this case the penalty date was postpetition with respect to school taxes. However, with respect to county and township taxes, the four month date was June 30, 1991, three months before the bankruptcy was filed.8 See Stipulation at ¶ 5. Therefore, some portion of the penalty is prepetition and some is postpetition. Nonetheless, penalties on seventh (now eighth) priority taxes will enjoy the same priority as the underlying tax only to the extent that the penalties are in compensation for actual pecuniary loss.9 11 U.S.C. § 507(a)(7)(G). We must decide whether the § 5511.10 penalty was punitive or whether it was in compensation for actual pecuniary loss.
Generally, some proof must be advanced to show that a penalty represents actual pecuniary loss because interest serves to compensate for the out-of-pocket loss. When penalties and interest are charged, the penalties typically are not considered to be compensatory. See In re New England Carpet Company, Inc., 26 B.R. 934 (Bankr.D.Vt.1983). Even though, in this case, interest did not begin to run until after the certification was made with respect to delinquent taxes, an event that occurred postpetition, no proof of actual pecuniary loss was submitted nor has any explanation been placed of record as to what actual pecuniary loss the Bureau suffered, either pre- or postpetition. On this record we must conclude that the postpetition penalty is not in compensation for actual pecuniary loss.
In addition, the Pennsylvania legislature made separate provision for the accrual of interest and penalties and authorized different percentage rates. Section 5860.306(a) of title 72 of the Pennsylvania statutes provides for interest at nine per cent. Section 5511.10 of title 72 provides that penalties of not more than ten per cent shall be charged when tax is unpaid for four months after date of notice. The Bureau claims the maximum 10 per cent penalty but has not shown why, if the penalty is in compensation for actual pecuniary loss, the maximum penalty is the appropriate one. See also 72 P.S. § 5860.306(b) (referring to “penalties, interest and costs”).
Based on the lack of evidence of actual pecuniary loss, we conclude that none of the penalties in this case are entitled to priority status.
4. Subordination
The final question is whether the penalty and interest portions of the claim should be subordinated to the claims of general unsecured creditors. As indicated above, there is no allowed claim for prepetition interest and the plan provides for postpetition *210interest. As to the penalty, which we have determined to be a general unsecured claim without priority, we need not decide the issue inasmuch as there are no funds to pay any unsecured claims through the liquidation of this estate. The parties agree that there is insufficient value in the property to pay all secured and priority debt. The sale proceeds of $7.5 million dollars are less than half of the amount owed to PNC as the mortgage holder ($16,453,474) and the property is the only source of funding of the plan. The unsecured claims will not be paid whether or not any portion is subordinated. The fact that no payment will be made on any unsecured claim means that other general unsecured creditors cannot be harmed because of the addition of the penalty to the total unsecured claims pool.
An appropriate order will be entered.
ORDER
And now, to-wit, this 24th day of April, 1995, for the reasons set forth in the foregoing Memorandum Opinion, it is ORDERED that the objection to the claim of the Bucks County Tax Claim Bureau and Ray Wall, Treasurer of Bensalem Township, is sustained in part and overruled in part.
It is FURTHER ORDERED that the Bucks County Tax Claim Bureau’s claim is allowed as a priority claim under former 11 U.S.C. § 507(a)(7), now § 507(a)(8), in the amount of $208,681.99.
It is FURTHER ORDERED that all claims for prepetition interest were unma-tured on the date of the bankruptcy filing and are disallowed. Postpetition interest is allowed in accordance with the terms of the confirmed plan of reorganization and this Memorandum Opinion. Penalties are allowed as unsecured claims without priority.
It is FURTHER ORDERED that the Clerk shall close this Adversary.
. Although the claim was filed for 1990 and 1991 taxes, no evidence regarding 1990 taxes was submitted.
. The base tax assessed against the property is $208,681.99 of which $180,280.37 relates to the building and $28,401.62 to the land. The penalties claimed are $18,028.04 with respect to the building and $2,840.16 with respect to the land. Interest at nine percent, calculated on both the base tax and the penalty, from January 1992 amounts to $25,284.30 on the building and $3,983.38 on the land. Fees charged total $60. The Bureau’s total claim according to the Stipulation of Facts is $245,119.91, calculated as of October 30, 1992. Stipulation of Facts at ¶ 15. However, the table showing the breakdown of base tax, interest, penalty and fees by parcel and land indicates a total of $258,877.87, with interest calculated to June, 1993. Stipulation of Facts at ¶ 8.
. Defendant Ray Wall, Treasurer of Bensalem Township, did not file an answer and the Bureau’s answer does not purport to speak on behalf of Wall. Wall alternatively is referred to as the township tax collector. In the complaint, PNC objected to the tax claim as scheduled in the amount of $208,387.12, asserting that this amount includes interest and penalties. Complaint at ¶ 4. PNC also objected to the claim as it appears on the proof of claim in the amount of $245,119.91. Id. at ¶ 6. See also Exhibit A to Complaint. The parties have now stipulated that the base tax amount for the land and building is $208,681.99. Stipulation of Facts at ¶ 8.
. Since this matter came before the court the Bankruptcy Code was amended. Section 507(a)(7) is now § 507(a)(8). See Bankruptcy Reform Act of 1994, P.L. 103-394, § 304(c) (October 22, 1994).
. Whether the tax claims are secured or priority is not of controlling significance in this case inasmuch as the taxes will be paid through the plan.
.Section 5860.306 requires the tax collector to "make a return to the bureau” during the first four months of the year following that in which taxes remain unpaid.
. Even if we were to find that the base tax claim is secured, no right to interest on that claim existed until after the bankruptcy was filed. Thus, there is no prepetition interest allowable in this case.
. The record does not establish whether any 1990 tax penalties are included.
.The Bureau argues that the penalties are non-dischargeable. That question is not before us and, furthermore, does not affect disposition of the questions at bar. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492041/ | MEMORANDUM OPINION
JUDITH K. FITZGERALD, Bankruptcy Judge.
The matter before the court is Debtor’s Objection to the Claim of Dale A. and Bonnie Carr (hereafter “Carr”). Prior to the filing of this bankruptcy, the Illinois state court denied Debtor’s motion for summary judgment. Resolution of a claim dispute is a core matter under 28 U.S.C. § 157(b)(2)(B). In In re Chateaugay Corp., 111 B.R. 67, 78 (Bankr.S.D.N.Y.1990), aff'd 146 B.R. 339 (S.D.N.Y.1992). The summary judgment standard of Fed.R.Civ.P. Rule 56(c) applies in bankruptcy cases. Fed.R.Bankr.P. 7056. Accordingly, we must find that “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). We conclude that a genuine dispute of material fact exists and an evidentiary hearing is therefore necessary. In accordance with Fed.R.Civ.P. 56(d), we shall designate material facts not subject to substantial controversy.1
I. FACTS
Dale A. Carr was injured while operating a single block wire drawing machine designed and manufactured in 1948 by Vaughn Machinery Co., a predecessor of Debtor, for delivery to Universal Cyclops. Debtor is the sole successor to Vaughn. Subsequently, the machine was transferred to Techalloy, Inc., Carr’s employer at the time of the accident.
On August 12, 1988, the Carrs filed a product liability action against Debtor in Cook County, Illinois. Mr. Carr alleged in the state court action that Debtor is liable to him for his injuries under two separate theories: negligent design and breach of the duty to warn.2
Carr’s cause of action arose from injuries sustained in December of 1986 while working for Techalloy, Inc., in Union, Illinois. His duties included the operation of the wire drawing machine at issue. This machine rotates a vertical block which pulls stock rod through a die box, thereby reducing the size of the stock through one or more dies so as *257to produce finished wire that meets the customer’s specifications. The wire then connects to the block in such a manner that it begins to “climb” up the block as the block rotates. This point of contact is known as the “in-running nip-point.”
On the day that Carr was injured, he was experiencing difficulty with the run of wire that he was attempting to feed through the machine and onto the block. The wire was “lacing”, or crossing over itself, rather than “climbing” up the block properly. Carr consulted with a number of his co-workers about these difficulties, and they advised him to try soaping the wire as it exited the die and before it wrapped around the block. In conformity with this suggestion, Carr held a large block of industrial soap against the wire with his left hand. He stood to the right of the wire, which was stretched between the die and the block, and reached over the wire to hold the soap against its face as it exited the die. His gloved left hand became caught on the wire as it passed by the block, and he was pulled forward into the nip-point. Carr was drawn around the block which rotated at least once before the machine could be stopped by one of his coworkers. Carr suffered numerous injuries, including a broken neck and paralysis of his body.
It is not disputed that the machine was altered after its manufacture and delivery to Universal Cyclops, but prior to Carr’s injuries, in the following material respects:
(1)The safety bar was disconnected. The safety bar’s purpose was to stop the machine when the safety mechanism was activated “either by the operator intentionally leaning into it with his thigh, or in the event that the operator became caught on the wire and was pulled toward the block and into contact with the safety bar”. Affidavit of E.B. Eichen-laub, Jr., at ¶ 10 (hereafter “Eichenlaub Affidavit”).3
(2) An “end out limit switch”, intended to stop the machine automatically if a wire came loose and began to lash around, was also removed. Had the switch been in place, in the event that an operator was pulled toward the nip-point, the operator could pull or kick the switch and stop the machine.
(3) The “dynamic braking system” was altered. In the event that any of the safety devices were engaged, the purpose of the braking system was to bring the block to a stop within one tenth to one quarter of a revolution after the power was disconnected.4
At least three other modifications were made to the machine. First, it had been raised above the floor by approximately six or seven inches. Debtor contends that this modification reduced the distance between the operator and the nip-point. Second, an air duct had been installed to allow for air cooling of the block. This system replaced the water cooling system and occupied the space that previously housed the end-out limit switch. Finally, the originally designed block had been replaced. The diameter of the block in place on the night of Carr’s accident was 27 jé inches, not the 22 or 22jé inch block originally designed for the machine. Debtor asserts that this modification also reduced the distance from the operator to the nip-point.
II. DISCUSSION
Debtor objects to Carr’s claim on two bases: (1) its conduct in designing the machine was not a proximate cause of Carr’s injuries; and (2) it did not breach its duty of care in designing the machine.
A. Choice of Law
Pennsylvania’s choice of law rules provide that the substantive law to be ap*258plied is that of the jurisdiction having the most significant relationship to the parties and the transaction. Tieman v. Devoe, 923 F.2d 1024 (3d Cir.1991). In this case, Carr is an Illinois resident, the accident took place in Illinois, and Techalloy, Inc., is located in Illinois. Therefore, we conclude that Illinois has the most significant relationship to this matter, and its substantive law must be applied.
1. Legal Standard Under Illinois Law
In order to establish negligence under Illinois law, a plaintiff must prove that: (1) the defendant owed the plaintiff a duty of care; (2) the defendant breached that duty; (3) the plaintiff suffered an injury; and (4) the breach of the duty of care proximately caused the injury. Hansen v. Demarakis, 259 Ill.App.3d 166, 197 Ill.Dec. 78, 82, 630 N.E.2d 1202, 1206 (1 Dist., 1994).
The parties do not dispute that Debtor owed a duty of care when manufacturing the machine or that Carr suffered an injury while operating the machine. Debtor’s first argument addresses probable cause, but we can not reach that issue prior to determining whether Debtor breached its duty of care in designing the machine.
B. Standard Of Care
There can be no negligence liability in the absence of a breach of duty.
“[Djuty” is a question of whether the defendant is under any obligation for the benefit of the particular plaintiff; and in negligence eases, the duty is always the same, to conform to the legal standard of reasonable conduct in the light of the apparent risk.
Kay v. Ludwick, 87 Ill.App.2d 114, 230 N.E.2d 494, 497 (1967).
In the present case, the pertinent inquiry as to the standard of care applicable to Debtor’s design of the machine is whether Debtor “either failed to do something which a reasonably careful person would have done or did something which a reasonably careful person would not have done.” Sparacino v. Andover Controls Corporation, 227 Ill.App.3d 980, 169 Ill.Dec. 944, 949, 592 N.E.2d 431, 436 (1 Dist., 1992). Using Carr’s theory of Debtor’s breach of duty, Carr would have to demonstrate at trial, through expert testimony, inter alia, the inability of the originally designed safety features to prevent any injury to the operator of the machine. Debt- or would have the opportunity to counter this evidence with its own expert testimony.
Debtor argues that this court should find, as a matter of law, that it did not breach its duty because the in running nip-point was not accessible to the operator as the machine was originally designed and manufactured. In the opinion of Debtor’s expert witness, E.B. Eichenlaub, Jr., P.E., the nip-point was not accessible due to the fact that the distance that a man in the 97.5th percentile of height can reach, measured from the shoulder pivot point to the tips of the fingers, is 30.8 inches. Eichenlaub Affidavit at ¶28. See also Exhibit 3 to Eichenlaub Affidavit. Eichenlaub calculated the distance on the machine from the nip-point to a 97.5th percentile male operator’s shoulder pivot point to be 39.8 inches. Eichenlaub Affidavit at ¶ 28. Therefore, Eichenlaub concludes that the nip-point was not accessible because, from the normal operating position, an operator with a 30.8 inch reach could not touch the nip-point, which was 39.8 inches away, without activating one of the originally designed safety features.
Carr’s expert, J. Kenneth Blundell, Ph.D.,5 disagrees with Eiehenlaub’s contention that the nip-point was adequately guarded and therefore not accessible. Blundell defines the nip-point as being “accessible” to the operator when “he could intentionally stick his hand in, fall into, or be inadvertently pulled into the nip-point while standing in his normal operator’s position.” Affidavit of J. Kenneth Blundell, ¶ 12(b) (hereafter “Blun-dell Affidavit”). Blundell’s affidavit stated that the reach of an average man is 31}£ *259inches and, therefore, any nip-point closer than 30 inches is accessible. Blundell Affidavit at ¶ 12(c). Due to the height of this nip-point and the dynamics of the human body, including its ability to bend at the waist, Blundell asserts that the nip-point was accessible to the operator from his normal operating station in front of the machine. Blundell Affidavit at ¶ 12(b). Blundell opined that an interlocking barrier guard, which was not part of the original design of the machine, would have minimized the accessibility of the nip-point, thereby preventing Carr’s injuries. Blundell Affidavit at ¶ 12(g). Furthermore, Blundell asserts that the originally designed safety features would not have prevented Carr’s injuries. See Blundell Affidavit at ¶ 12(e), (f). Thus, it is Carr’s contention that, even if the nip-point was out of the operator’s reach as Debtor contends, the safety features would not have prevented his accident. Using this analysis, the nip-point was accessible under Blundell’s definition.
The parties dispute whether the nip-point was accessible to the operator of the machine as originally designed. This is a disputed issue of material fact that cannot be decided on a motion for summary judgment.
C. Proximate Cause
Debtor correctly asserts that even if the nip-point was accessible to an operator under the original design of the machine, there can be no liability for negligence on Debtor’s part if the design was not the proximate cause of Carr’s injuries. Thus, if Carr is able to demonstrate that the removal and/or modification of the original safety features may not have been the sole proximate cause of his injuries, Debtor may not be relieved of its liability as a matter of law.
1. Cause-in-Fact
Debtor contends that the accident was caused when Carr’s gloved hand was caught on the wire moving through the machine, but before it reached the nip-point, and not through the failure of the originally designed safety features to adequately protect the nip-point. Furthermore, Debtor argues that an interlocking barrier guard, as suggested by Carr’s expert, would not have prevented Carr’s injury, only delayed it for a matter of seconds.
Carr contends, however, that the safety bar, even as originally designed and operated, would not have stopped the machine quickly enough to prevent his injuries. Thus, the parties dispute whether any safety feature adequately protected the operator from access to the nip-point. This issue of fact is material and cannot be decided on a motion for summary judgment.
2. Intervening Cause
Notwithstanding the foregoing, Debtor argues that the removal and modification of the original safety features constituted an intervening and superseding cause of Carr’s injuries. Debtor cites the Illinois “cause versus condition” rule as adopted by the Illinois Supreme Court in Merlo v. Public Service Co. of Northern Illinois, 381 Ill. 300, 45 N.E.2d 665 (1942):
[I]f the negligence charged does nothing more than furnish a condition by which the injury is made possible and that condition causes an injury by the subsequent, independent act of a third person, the creation of the condition is not the proximate cause of the injury where the subsequent act is an intervening efficient cause which breaks the causal connection between the original wrong and the injury, and itself becomes the proximate or immediate cause. The cause of an injury is that which actually produces it, while the occasion is that which provides an opportunity for the causal agencies to act.
Id., 45 N.E.2d at 675. The test prescribed by the Merlo court for determining proximate cause is whether “the first wrongdoer might have reasonably anticipated the intervening cause as a natural and probable result of the first party’s own negligence.” Id. Debtor asserts that the removal and modification of the originally designed safety features was unforeseeable. Therefore, Debtor concludes that it merely furnished a condition which made Carr’s injury possible and that it was the unforeseeable removal or modification of virtually all of the machine’s safety devices, by a third person, which was *260the intervening efficient cause of Carr’s accident.
Carr, however disputes this assertion, claiming that the removal or modification of the safety devices was not an intervening cause due to the fact that the safety devices as originally designed were not intended to prevent, and would not actually have prevented, his injuries. As noted above, the parties dispute the basic factual issue of whether the safety mechanisms incorporated into the machine as originally designed and manufactured would have prevented the accident. We cannot determine this issue by way of summary judgment.
III. CONCLUSION
The accessibility of the nip-point is a material fact in dispute, the determination of which will require expert testimony and an assessment of credibility, precluding summary judgment. If Carr’s injuries would not have been incurred while operating the machine as it was originally designed, then the parties agree that Debtor has no liability. Whether Debtor was negligent in designing the machine based upon the standards in effect in 1948 and Debtor’s contributory liability, if any, are also matters for the trial court to determine based upon the evidence presented to it.
An appropriate order will be entered.
ORDER
And now, to-wit, this 2nd day of May, 1995, for the reasons set forth in the foregoing Memorandum Opinion, it is ORDERED that Debtor’s oral motion for summary judgment is DENIED and the case may proceed in the Illinois state courts. The execution of any judgment issued by the state court in Illinois in favor of Carr, however, will be dealt with through the confirmed plan of reorganization.
It is FURTHER ORDERED that the Carrs’ objection to entry of findings of fact pursuant to Fed.R.Civ.P. 56 is OVERRULED.
. We do not determine damages inasmuch as no evidence has been presented on this point. In addition, on June 3, 1994, pursuant to 28 U.S.C. § 157(b)(5), this court entered an order lifting the automatic stay to allow Carr to file a motion to determine venue in the District Court for the Western District of Pennsylvania. Subsequently, the District Court, in an order dated September 2, 1994, abstained in favor of the case pending in the state circuit court of McHenry County, Illinois. Thus, any issues to be resolved will be handled by the state court.
. It is not disputed that Carr's strict product liability claim is barred by the Illinois statute of repose, 735 ILCS 5/13-213, amended 1995 Ill.Legis.Serv. P.A. 89-7 (H.B. 20) (West). The Illinois legislature, in amending the statute of repose, recognized the ease with which plaintiffs could circumvent the 12-year strict liability limitation period by asserting a negligence cause of action. The statute as amended provides that “no product liability action based on any theory or doctrine shall be commenced except within the applicable limitations period and, in any event, within 12 years from the date of first sale....” Id. at § 13-213(b) (emphasis added). This amendment applies only to causes of action filed on or after its effective date and does not apply to Carr’s claim.
Furthermore, Carr raised the question of duty to warn. Inasmuch as material disputes of fact exist with respect to the design issue, disposition of the duty to warn question must be postponed until trial.
. Mr. Eichenlaub is Debtor’s expert. He is a professional engineer with considerable experience, including service as the assistant chief engineer of the Vaughn Machinery company and chief engineer of the Vaughn division of Wean United, Inc.
. In addition to the enumerated modifications to safety devices, Debtor alleges that the “snarl switch”, a device intended to stop the machine if the wire became tangled, also was disconnected. Carr, however, disputes this, stating that there is no evidence showing that the switch was disconnected. Whether or not the snarl switch was disconnected, and its import to this case, is a matter to be resolved at trial.
. Blundell obtained a Bachelor of Science in Mechanical Engineering at the University of Sal-ford, England, in 1972, a Master of Science in Production Engineering from the University of Longhborough, England, and a Ph.D. in Mechanical Engineering from the University of Nottingham, England, in 1977. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492042/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Debtor’s Motion to Show Cause as to why the City of Toledo Department of Public Utilities should not be held in contempt for violating the Automatic Stay. A Hearing was held and the Parties were instructed to file Briefs with the Court, and if further oral argument was needed the Parties were to request the same. The Parties have filed their briefs, and no request for further argument was made. This Court has reviewed the arguments of counsel, exhibits as well as the entire record in the case. Based upon that review, and for the following reasons, the Court finds that the Toledo Department of Public Utilities has not violated either the Automatic Stay or the Permanent Injunction provisions of the Bankruptcy Code, and that Debtor’s Motion to Show Cause shall be dismissed.
FACTS
Richard Albert Burks and Fern Irene Burks (hereafter “Debtors”) filed for Chapter 7 Bankruptcy relief on February 22,1993. On April 30,1993, the City of Toledo Department of Public Utilities (hereafter “DPU”) sent a bill to the Debtors for unpaid water and sewer service provided at their residential property from 1981 through 1993, total-ling Three Thousand Nine Hundred Seventy-one Dollars and 62/100 ($3,971.62). On May 6, 1993, the Debtors amended their petition to include the debt to DPU in the amount of Four Thousand One Hundred Sixty-two and 70/100 Dollars ($4,162.70). DPU did not file a proof of claim. The Debtors were granted a discharge on June 28, 1993.
On August 25,1993, DPU sent the Debtors a letter advising them that a lien would be attached to their property unless the outstanding debt was paid. On October 12, 1993, the City of Toledo enacted Ordinance No. 674-93, which certified city sewer hens to be placed on tax duplicates for collection. This Ordinance included the sewer hens placed on the property owned by the Debtors. The amount certified did not include the water hens on the Debtor’s property, which total approximately One Thousand Six Hundred Thirty-six and 43/100 Dollars ($1,636.43).
Debtors claim that DPU’s actions conno-tate violations of the automatic stay, that DPU’s hens were not perfected under Ohio law, and the hens were therefore avoided and discharged by this Court. DPU contends that though the water service charges did not become a perfected hen, the sewer hen did automatically perfect under Ohio law, and thus was not avoided in bankruptcy. Thus, DPU contends, its actions did not violate the automatic stay.
LAW
The relevant portions of the Bankruptcy Code are as fohows:
11 U.S.C. § 101. Definitions.
In this title—
(36) “judicial hen” means hen obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding; (53) “statutory hen” means hen arising solely by force of a statute on specified circumstances or conditions, or hen of dis*305tress for rent, whether or not statutory, but does not include security interest or judicial hen, whether or not such interest or hen is provided by or is dependent on a statute and whether or not such interest or hen is made fully effective by the statute;
11 U.S.C. § 362. Automatic stay
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 USC 78eee(a)(3)), operates as a stay, applicable to all entities, of—
(4) any act to create, perfect, or enforce any hen against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any hen to the extent that such hen secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an apphcation under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 USC 78eee(a)(3)), does not operate as a stay—
(3) under subsection (a) of this section, of any act to perfect an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title or to the extent that such act is accomphshed within the period provided under section 547(e)(2)(A) of this title;
(c) Except as provided in subsections (d), (e), and (f) of this section—
(2) the stay of any other act under subsection (a) of this section continues until the earliest of—
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under Chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.
11 U.S.C. § 524. Effect of discharge
(a) A discharge in a case under this title—
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
11 U.S.C. § 544. Trustee as lien creditor and as successor to certain creditors and purchasers
(a) The Trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debt- or or any obligation incurred by the debtor that is voidable by—
(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists [and has perfected such transfer].
11 U.S.C. § 545. Statutory Liens
The Trustee may avoid the fixing of a statutory hen of the debtor to the extent that such hen—
(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property, whether or not such a purchaser exists.
11 U.S.C. § 546. Limitations on avoiding powers
(b) The rights and powers of a trustee under sections 544, 545, and 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection. If such *306law requires seizure of such property or commencement of an action to accomplish such perfection, and such property has not been seized or such action has not been commenced before the date of filing of the petition, such interest in such property shall be perfected by notice within the time fixed by such law for such seizure or commencement.
The relevant portions of the Ohio Revised Code are as follows:
O.R.C. § 729.49
The legislative authority of a municipal corporation which has installed or is installing sewerage, sewerage pumping works, or sewerage treatment or disposal works for public use, may, by ordinance, establish just and equitable rates or charges of rents to be paid to the municipal corporation for the use of such services, by every person, firm, or corporation, whose premises are served by a connection thereto. Such charges shall constitute a hen upon the property served by such connection and if not paid when due shall be collected in the same manner as other municipal corporation taxes.
DISCUSSION
Determinations concerning the violation of the automatic stay, and the validity of hens are core proceedings pursuant to 28 U.S.C. Section 157. Thus, this case is a core proceeding.
Debtors claim that DPU violated the automatic stay provisions of the Bankruptcy Code, namely § 362(a)(6), by seeking to collect and perfect their water and sewer hens against the property of the Debtors. Debtors claim that their debts to DPU have been discharged because the debt does not fall within the exceptions hsted in § 523, and because under § 544 the Trustee may avoid judicial hens. Regarding § 544, the Debtors argue that under the Ohio Court of Appeals case First Federal S. & L. v. Hayes, 42 Ohio App.3d 89, 536 N.E.2d 655 (1987), the hens were not properly perfected under Ohio law, and were therefore avoided.
DPU takes a different approach. Under its analysis, the automatic stay was not violated because § 362(b)(3) states that certain actions taken regarding valid hens do not violate the stay. Though that subsection hsts § 546(b) and § 547(e)(2)(A) as actions which do not violate the stay, DPU nevertheless argues that its actions are perfected statutory hens, under Ohio Revised Code § 729.49, and thus cannot be avoided under § 545 of the Bankruptcy Code. Finahy, DPU argues that First Federal was wrongly decided, and that an opposing position taken by the Ohio Attorney General is correct. OAG 81-030 (June 1981). The Attorney General’s opinion is that sewer hens automatically become perfected when the charges are incurred under the Ohio Revised Code. Id. at 2-111 to 2-112. DPU concedes that its charges for water service were dischargeable in bankruptcy because they do not become a hen on the property until they are certified to the county auditor, which to date has not been done.
This Court fails to understand either side’s approach. Section 362(c) provides that the automatic stay ends when a discharge is granted. In this ease a discharge was granted on June 28, 1993, before any improper actions were taken by DPU. The only possible action that could be considered a violation of the stay was the bill sent to the Debtors on April 30, 1993. However, DPU was not hsted as a creditor on the Debtors’ schedules at that time. DPU’s actions, if improper at all, could only be considered improper under the Permanent Injunction section of the Bankruptcy Code, § 524.
Even an argument made under § 524 lacks merit. Section § 524(a)(2) provides that a discharge operates as an injunction against acts to collect or recover a debt as a personal liability of the debtor. The actions taken by DPU were not taken to recover the debt as a personal habihty, but rather were taken in rem to collect a debt against the Debtors’ property. Thus, they do not violate the permanent injunction.
This Court also fails to understand the Parties’ concern with the Trustee’s powers to avoid hens under § 544 and § 545. The Debtors argue that the water and sewer hens are avoidable judicial hens under § 544. *307The DPU argues that the sewer lien is an unavoidable statutory lien under § 545. Though it seems apparent to the Court that the liens in question would fall under the definition of statutory liens provided in § 101(53), as they are created by a statute, the issue appears non-determinative. Whether the Trustee could have used his power under § 544 or § 545 is irrelevant. The fact is that he did not. The Trustee’s avoidance powers are not automatic, but rather require affirmative actions taken by the Trustee as prescribed under the Bankruptcy Rules. In this case, the Trustee apparently felt that there was little benefit to creditors in avoiding the hens, and rightly chose not to pursue the matter. The eases cited by the Court in In re Hagemann, 86 B.R. 125, 126-27 (Bankr.N.D.Ohio 1988) aptly demonstrate the principle that hens which were not avoided by the Bankruptcy Trustee survive the Bankruptcy unaffected.
It should also be noted that if the automatic stay were in effect, any steps taken by DPU to perfect or collect its hen during the pendency of the automatic stay could be in violation of § 362. Acts to collect debts, or to foreclose on property of the estate, even with a perfected security interest in such property, would violate the § 362 unless such act falls under an exception Hsted in § 362(b), or permission to do so is sought and obtained from the Bankruptcy Court under § 362(d) or (f).
Further, even acts to perfect a statutory hen could be a violation of the stay. It would appear from a reading of § 362(b) that unless the perfection of a DPU sewer hen falls under the relation back doctrine excepted from being a violation under § 362(b)(3), and codified in § 546(b), the act of perfecting a statutory hen would be in contravention of the stay. The § 546(b) relation back doctrine, in conjunction with § 362(b)(3), provides that a creditor may take actions to perfect its hen if, under state law, the perfection of the hen would be deemed to relate back to a time before the actual perfection. See 4 Collier on Bankruptcy ¶ 546.03 at 546-14 (15th ed. 1994). Because the issue is not before the Court today, the Court will dechne to rule on the applicability of the relation back doctrine to sewer hens under O.R.C. § 729.49. However, the Court will observe that the holding of the Ohio Court of Appeals in First Federal, 42 Ohio App.3d at 92, 536 N.E.2d 655, that sewer hens are not perfected until certified, appears more sound than that of the Attorney General’s opinion. The Court notes that the Attorney General’s opinion, OAG 81-030 at 2-111 to 2-112, fails to differentiate between attachment and perfection of hens, and rehes upon Union Properties v. Cleveland, 38 Ohio Law Abs. 246, 49 N.E.2d 571 (1943), in which the sewer hen before the court was already certified to the tax duphcate, and thus was previously perfected. Union Properties at 251, 49 N.E.2d 571.
For the foregoing reasons, this Court finds no violation of the automatic stay, and will dismiss Debtors’ Motion to Show Cause. 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 Debtors’ Motion to Show Cause be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492043/ | MEMORANDUM
ALETA ARTHUR TRAUGER, Bankruptcy Judge.
This matter came before the court on April 18, 1995, upon the application of the debtor-in-possession to hire attorneys and the objection of the United States Trustee thereto. For the reasons set forth below, the U.S. Trustee’s objection will be sustained. The following constitute findings of fact and conclusions of law. F.R.B.P. 7052.
*324I
On March 10, 1995, the debtor in possession (“DIP”) filed an Application for Approval of Employment of Attorneys, seeking court approval to hire the firms of Hiland, Mathis & Schuller and Lassiter, Tidwell & Hildebrand. Attached to the application were affidavits of Henry C. Hildebrand and Jeanne Schuller. Ms. Schuller’s affidavit stated that she represented Jasper and Terri Moon in their pending Chapter 13 case. The Moons are the DIP’S president and secretary as well as its sole directors and shareholders.
The U.S. Trustee objected to Ms. Schul-ler’s appointment under 11 U.S.C. § 327 in this case due to her concurrent representation of the Moons in their Chapter 13 case. The U.S. Trustee was particularly concerned that Mr. Moon was a creditor of the DIP, having loaned substantial funds to the DIP.1 In the U.S. Trustee’s view, Mr. Moon’s status as an officer, director, shareholder, and creditor of the DIP creates an impermissible conflict of interest for an attorney seeking to represent both the DIP and the Moons.
At the hearing on the U.S. Trustee’s objection, Ms. Schuller stated that Mr. Moon had agreed to waive any claim against the DIP which he might have as a creditor and to waive the potential conflict of interest arising out of Ms. Schuller’s dual representation. The U.S. Trustee asserts that, even with such waivers, Ms. Schuller’s representation of both entities is prohibited by § 327.
II
Code § 327(a) provides in pertinent part that “the trustee, with the court’s approval, may employ one or more attorneys ... that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee’s duties under this title.”2 Section 101(14) defines “disinterested person” to include a person that: 1) is not a creditor, equity security holder, or insider; and 2) “does not have an interest materially adverse to the estate or any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor ... or for any other reason.” 11 U.S.C. § 101(14)(A) and (E).
Bankruptcy courts have traditionally had wide discretion in matters involving hiring, payment, or disqualification of attorneys and other professionals by the estate. See In re BH & P, Inc., 949 F.2d 1300, 1316 (3d Cir.1991). Each case must be evaluated on its own facts to determine whether the professional meets the requirements of § 327.
In determining whether an attorney or other professional should be disqualified from representing or assisting the bankruptcy estate, the Sixth Circuit has increasingly strictly construed § 327 to disqualify professionals who fail to meet the statutory criteria, even though there may be practical reasons for retaining them. See In re Federated Department Stores, 44 F.3d 1310 (6th Cir.1995); In re Eagle-Picher Industries, 999 F.2d 969 (6th Cir.1993); Childress v. Middleton Arms, L.P., 934 F.2d 723 (6th Cir.1991); In re Georgetown of Kettering, 750 F.2d 536 (6th Cir.1984). See also In re W.F. Development Corp., 905 F.2d 883 (5th Cir.1990); In re Pierce, 809 F.2d 1356 (8th Cir.1987).
In this ease, the interests of the DIP and the Moons are at odds in several important respects. First, the Moons have personally guaranteed the two largest debts of the corporation, those owing to NationsBank and Valley Management, which currently total over $1 million. These guarantees are the largest single debts listed in the Moons’ Chapter 13 petition3 and appear to be the primary, if not sole, reason the Moons needed Chapter 13 relief. Though it would be to the Moons’ advantage to discharge those guaranties in the Chapter 13, the DIP would *325likely be better served by the Moons’ remaining fully liable on the guaranties.
Second, Mr. Moon has testified that he loaned money to the DIP, and he is listed on the DIP’s schedules as an unsecured creditor with a claim of $65,800. According to Ms. Schuller, Mr. Moon is willing to waive that claim if necessary to permit her dual representation to go forward, but that will not solve the problem. That claim is an asset of the Moons’ Chapter 13 estate which they have a duty to assert on behalf of their individual creditors. See In re Lee, 94 B.R. 172, 178-79 (Bankr.C.D.Cal.1988). Mr. Moon’s desire to waive the claim in order to benefit the DIP merely highlights the adverse interests of the two estates.
Third, Mr. Moon is an employee of the DIP who receives a monthly salary. At the cash collateral hearing, Mr. Moon testified that he was willing to forego some or all of his salary to aid the DIP’s prospects of reorganization. While this sacrifice may be commendable in the Chapter 11 case, it creates several problems in the Chapter 13 case. Under § 1306, Mr. Moon’s post-petition earnings are property of the estate. Section 1322(a) requires the Moons to submit to the trustee “all or such portion of future earnings or other future income ... as is necessary for the execution of the plan.” Under § 1325(b)(1)(B), if the trustee or an unsecured creditor objects to confirmation, the plan cannot be approved unless the Moons apply all of their projected disposable income toward their plan. Thus, while the DIP would certainly prefer to avoid the expense, the Chapter 13 creditors have a strong stake in Mr. Moon’s receiving his full salary from the DIP.
These facts all highlight the conflicting interests of the Chapter 11 estate and the Chapter 13 estate. In these circumstances, the attorney who represents the debtor in one case cannot help but have “an interest materially adverse to the interest of the estate” in the other case, and thus cannot be a “disinterested person” under § 101(14)(E). The Moons will inevitably be torn between conflicting fiduciary duties to the respective estates and at the very least must have separate counsel to properly advise them as to those duties.4
The DIP urges that Ms. Schuller’s employment can be approved under § 327(c), which provides a limited exception to the disinterestedness requirement of § 327(a). That subsection provides:
In a case under Chapter 7,12, or 11 of this title, a person is not disqualified for employment under this section solely because of such person’s employment by or representation of a creditor, unless there is objection by another creditor or the United States trustee, in which case the court shall disapprove such employment if there is an actual conflict of interest.
11 U.S.C. § 327(c) (emphasis added). This exception, however, provides only that representation of a creditor is not alone sufficient grounds for disqualification; it does not prevent disqualification on other grounds. Likewise, the provision that the court “shall disapprove” employment for an actual conflict of interest does not require the court to approve employment in every other situation. In any event, in this case, Mr. Moon is much more than simply a creditor, and the facts discussed above demonstrate an actual conflict of interest. Section 327(c) thus cannot prevent disqualification under § 327(a) here.
The court appreciates the practical concerns which often result in a single attorney or firm representing both a corporation and its principals in their respective bankruptcies, but those concerns cannot override the *326clear language of § 327. See Middleton Arms, 934 F.2d at 725 (court cannot use § 105 to disregard disinterestedness requirement); Eagle-Picher, 999 F.2d at 972 (“the court is bound to apply the plain meaning of the statute even when the application apparently results in an apparent anomaly” and “make[s] little sense” to the debtor or the court). Section 327 precludes the court from ignoring the materially adverse interests present in this case, even though the dual representation may “make more sense” to the clients.
For these reasons, Ms. Schuller cannot properly represent both the DIP in this case and the Moons in their Chapter 13 case. The U.S. Trustee and the court agree that both cases are at an early enough stage that Ms. Schuller and her clients may elect between the two representations. An appropriate order will be entered.
ORDER
For the reasons stated in the Memorandum filed herewith, the Objection of the U.S. Trustee to Notice and Application of Debtor for Approval of Employment of Attorneys is SUSTAINED.
. From testimony of Jasper Moon at March 24, 1995, preliminary cash collateral hearing. See infra n. 3.
. Section 327 is made applicable to debtors-in-possession by 11 U.S.C. § 1107(a).
.The court may take judicial notice of the Moons’ Chapter 13 petition and schedules, as well as Mr. Moon’s testimony at the cash collateral hearing. See F.R.E. 201(b)(2) and (c); In re Missionary Baptist Foundation of America, Inc., 712 F.2d 206, 211 (5th Cir.1983).
. Although ethical rules permit a client to waive a conflict of interest, the bankruptcy court by virtue of its role under § 327 may override such waiver and prohibit the dual representation. See In re Amdura Corporation, 121 B.R. 862, 866 (Bankr.D.Colo.1990) (acknowledging that "activities and multiple representation that may be acceptable in commercial settings, particularly with the informed consent of clients, may not be acceptable in bankruptcy”); In re B.E.S. Concrete Products, Inc., 93 B.R. 228, 235 (Bankr.E.D.Cal.1988) (noting that "the waiver is more difficult to obtain in a chapter 11 case because the debtor in possession stands in a fiduciary capacity that constrains its ability to make such a waiver”); 1 Norton, supra, § 27:8 at 27-19, -20 and n. 71. Because he is subject to such competing interests, Mr. Moon’s offer to waive the conflict on behalf of himself and the DIP raises more problems than it solves. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492044/ | MEMORANDUM ON TRUSTEE’S OBJECTION TO CLAIM
RICHARD S. STAIR, Jr., Chief Judge.
The debtor, Claims Group Administrators, Inc., commenced this Chapter 7 bankruptcy case on May 7, 1992. The Trustee, Mary C. Walker, filed an Objection to Claim on March 2,1995, asserting that the Tennessee Department of Revenue’s Proof of Claim was filed after the September 14, 1992 claims bar date and that payment of the Department’s claim should, therefore, be subordinated pursuant to 11 U.S.C.A. § 726(a)(3) (West 1993). The Trustee and the Department of Revenue have submitted this matter to the court on written Stipulations of Fact filed April 10, 1995, and on briefs.
The issue to be determined in this contested proceeding, as set forth in the pretrial Order entered April 6, 1995, is
whether payment of the unsecured claim filed by the Commissioner of Revenue of the State of Tennessee should be subordinated under 11 U.S.C. § 726(a)(3) or whether the claim, as to the $7,570.00 unsecured priority portion, should be allowed and paid as a timely-filed claim pursuant to 11 U.S.C. § 726(a)(1), and whether the $890.60 unsecured nonpriority claim should be allowed and paid as timely filed pursuant to 11 U.S.C. § 726(a)(2).
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(A), (O) (West 1993).
I
The facts relevant to the resolution of the Trustee’s Objection are essentially undisputed. The Trustee and Department of Revenue have stipulated that the debtor commenced this bankruptcy ease under Chapter 7 on May 12, 1992;1 that the first meeting of creditors was originally set for June 16,1992, *330but was continued to June 22,1992; that the Department of Revenue received notice of the debtor’s bankruptcy ease on July 9, 1992,2 but did not receive notice of the September 14, 1992 claims bar date; and that the Department of Revenue was informed that the debtor’s bankruptcy case was filed on May 5,1992,3 and that the first meeting of creditors was on June 22, 1992.
The Department of Revenue’s Proof of Claim, of which the court takes judicial notice pursuant to Fed.R.Evid. 201, was filed on September 21, 1992,4 in the amount of $8,460.60, comprised of a $7,570.00 unsecured priority claim for franchise taxes of $7,125.00 and prepetition interest of $445.00, and an $890.60 unsecured nonpriority claim for a late-charge penalty. The Legal Claims Summary Sheet affixed to the Proof of Claim states that the debtor’s petition was filed on May 7, 1992, that the first meeting of creditors was held on June 22, 1992, and that the penalty and interest reported on the Proof of Claim are “[figured to” May 7, 1992.
II
In this case, the bar date for filing claims was fixed pursuant to Fed.R.Bankr.P. 3002(c), which provides in material part: “In a chapter 7 liquidation ... case, a proof of claim shall be filed within 90 days after the first date set for the meeting of creditors called pursuant to § 341(a) of the Code....” The first meeting of creditors was scheduled for June 16, 1992, and the claims bar date was September 14, 1992. Although the Department did not receive notice of the claims bar date, it did have notice of the debtor’s bankruptcy case as of July 9, 1992,5 and thereafter tardily filed its Proof of Claim seven days after the bar date.6 See 11 U.S.C.A. § 726(a)(2)(C)(i) (West 1993) (using the phrase “notice or actual knowledge of the case” as opposed to the claims bar date); United States v. Chavis (In re Chavis), 47 F.3d 818 (6th Cir.1995) (using similar phrases that stress the importance of a creditor’s notice of the bankruptcy as opposed to notice of the claims bar date); Internal Revenue Serv. v. Century Boat Co. (In re Century Boat Co.), 986 F.2d 154 (6th Cir.1993) (same); United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087 (6th Cir.1990) (same); United States v. Ginley (In re Johnson), 901 F.2d 513, 520 (6th Cir.1990) (“[W]e cannot conclude that any alleged ambiguity [in the notice] salvages the untimely claim.”); see also Kilbarr Corp. v. General Servs. Admin. (In re Remington Rand Corp.), 836 F.2d 825, 833 (3d Cir.1988).
Ill
Because proof of the Department’s unsecured claim was not timely filed, the Trustee argues that it must be subordinated pursuant to § 726 of the Bankruptcy Code, which provides in material part:
*331(a) Except as provided in section 510 of this title, property of the estate shall be distributed—
(1) first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title;
(2) second, in payment of any allowed unsecured claim, other than a claim of a kind specified in paragraph (1), (3), or (4) of this subsection, proof of which is—
(A) timely filed under section 501(a) of this title;
(B) timely filed under section 501(b) or 501(c) of this title; or
(C) tardily filed under section 501(a) of this title, if—
(i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and
(ii) proof of such claim is filed in time to permit payment of such claim;
(3) third, in payment of any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title other than a claim of the kind specified in paragraph (2)(C) of this subsection;
(4) fourth, in payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim[J
11 U.S.C.A. § 726 (West 1993).
This section was amended by § 213(b) of the Bankruptcy Reform Act of 1994 to include at the end of subsection (a)(1) the phrase “proof of which is timely filed under section 501 of this title or tardily filed before the date on which the trustee commences distribution under this section.” § 726(a)(1) (West Supp.1995). Section 502 of the Bankruptcy Code, regarding allowance of claims, was also amended by § 213(a) of the Reform Act to provide that a claim shall be disallowed when
proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Procedure, except that a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide.
11 U.S.C.A. § 502(b)(9) (West Supp.1995).
Although these 1994 amendments to the Bankruptcy Code are inapplicable to this case,7 they evidence “Congress’ intent to demand that claims be timely filed,” United States v. Chavis (In re Chavis), 47 F.3d 818, 823 (6th Cir.1995), and the intent that under § 726(a)(1), all claims specified in § 507 of the Bankruptcy Code, whether timely or tardily filed, are to be paid first. However, the Trustee asserts under the authority of this court’s decision in In re Larry Merritt Co., 166 B.R. 875 (Bankr.E.D.Tenn.1993), aff'd, 169 B.R. 141 (E.D.Tenn.1994), appeal docketed, No. 94-6073 (6th Cir. Aug. 25, 1994), that the Department of Revenue’s claim should be subordinated pursuant to § 726(a)(3).
In Larry Merritt Co., this court determined that when a priority creditor knowingly fails to comply with the Rule 3002 bar date, its claim must be subordinated pursuant to § 726(a)(3). 166 B.R. at 880. In affirming the bankruptcy court, the district court also held that the IRS’s tax claim, filed after the bar date of which the IRS had notice, was properly subordinated pursuant to § 726(a)(3) based on “the Sixth Circuit’s application of Bankruptcy Rule 3002 ..., and considering the statutory policy of orderly distribution and settlement of estates.” 169 B.R. at 143.
Both this court’s decision and the district court’s decision in Larry Merritt Co. were based on an interpretation of two Sixth Cir*332cuit cases, Internal Revenue Service v. Century Boat Co. (In re Century Boat Co.), 986 F.2d 154 (6th Cir.1993), and United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087 (6th Cir.1990).8 In both Cardinal Mine Supply and Century Boat Co., the IRS was entitled to receive distribution of its priority claim under § 726(a)(1) although it had failed to timely file its proof of claim. The key to both decisions is that the IRS lacked notice of the Chapter 7 bankruptcy case until several months after expiration of the claims bar date.9
The holding of Cardinal Mine Supply is best explained in the Sixth Circuit’s Century Boat Co. decision:
Cardinal Mine Supply did not establish the rule that a priority creditor who files an untimely proof of claim because it did not receive notice of the bankruptcy will always receive priority distribution despite the untimely fifing. We simply decided then, and we reaffirm today [in Century Boat Co.], the principle that a priority creditor who fails to receive notice of the bankruptcy and consequently files an untimely proof of claim is not barred from receiving priority distribution as a matter of law_ Cardinal Mine Supply established a narrow exception for priority creditors who lack notice of the bankruptcy. Not every priority creditor, however, may invoke the holding in Cardinal Mine Supply. At a minimum, the creditor [lacking notice of the bankruptcy case up to the claims bar date] must file its proof of claim before the trustee makes any distribution from the estate and before the bankruptcy court closes the estate.
986 F.2d at 158.
Consistent with Cardinal Mine Supply, the court concluded in Century Boat Co. that the IRS’s untimely claim “was as much the result of shoddy reporting and record-keeping on the part of Century Boat as it was the result of actions by the Internal Revenue Service.” Id. Therefore, because the estate had not been distributed at the time the IRS filed its claim, the court held that it would be paid as a priority claim under § 726(a)(1). Id.
Since the rendering of the opinions in Larry Merritt Co., Century Boat Co., and Cardinal Mine Supply, the Sixth Circuit has rendered its decision in Chavis on the issue of untimely filed claims and Congress has enacted the Bankruptcy Reform Act of 1994. In Chavis, the Sixth Circuit held that in Chapter 13 cases, untimely filed claims must be disallowed, except where excusable neglect would permit otherwise. See 47 F.3d at 820, 824. In analyzing decisions in Chapter 7 cases by the Second and Ninth Circuit Courts of Appeals which hold to the contrary, the court noted that “there are fundamental differences between Chapter 7 and Chapter 13 bankruptcies.... In a Chapter 7 action, the debtor’s non-exempt assets are liquidated and the proceeds are distributed to the creditors. Accordingly, even late-filed claims must be paid before any distribution to the debtor may be made.”10 Id. at 823-24.
The Sixth Circuit’s interpretation of the Code in Chavis arguably leads to a result in Chapter 7 cases that differs from the holding in Larry Merritt Co. Chavis requires that in Chapter 13 cases, the Bankruptcy Code and Rules should be “harmonized” as follows:
[Section] 501 creates the substantive right to file a claim and identifies the parties *333holding that right; § 502 states that a claim, filed in accordance 'with § 501, is allowed unless a party in interest objects; § 501 contemplates a timeliness requirement; Rule 3002 designates when a claim is timely filed (i.e., § 501 incorporates Rule 3002); and, because § 501 incorporates Rule 3002, and because § 502 presupposes compliance with § 501, compliance with Rule 3002 (i.e., timeliness) is a prerequisite to § 502 allowance. The Bankruptcy Code’s legislative history supports this result. Indeed, Congress anticipated that the Rules of Bankruptcy Procedure would set the time limits, the form, and the procedure for filing claims.
Id. at 823 (footnote omitted). When this analysis is applied in Chapter 7 eases, taking into consideration the 1994 amendments to the Bankruptcy Code, § 726(a)(1) would arguably lead to the conclusion that all claims specified in § 507 of the Bankruptcy Code, whether timely or tardily filed, are to be paid first.
Such a finding would be consistent with the Second Circuit’s interpretation of § 726(a)(1) in In re Vecchio, 20 F.3d 555 (2d Cir.1994), prior to the enactment of the Bankruptcy Reform Act:
Section 726(a)(1) accords priority status to claims specified in § 507 without regard to the timeliness of their filing. In sharp contrast, subsections (a)(2) and (a)(3) of § 726 categorize non-priority unsecured claims into those that are timely filed, those that are tardily filed where the creditor did not have proper notice of the bankruptcy, and those that are tardily filed where the creditor received proper notice of the bankruptcy. Thus, Congress plainly knew how to distinguish between timely and tardily filed claims, yet did not make that distinction for claims filed under § 507. The absence of a timeliness distinction in § 726(a)(1) strongly suggests that this subsection encompasses all priority claims whenever filed.
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We accept ... that our straightforward reading of § 726(a) results in no penalty for priority creditors who, with notice of the bankruptcy, fail to file their claims within prescribed deadlines. To be sure, the logic of our reading of § 726(a) leads to the conclusion that first priority payment could be accorded even to claims filed after the distribution of the estate’s assets. However, we believe that bankruptcy courts can adequately address these concerns through the careful exercise of their discretion over the entry of disgorgement orders.... In addition, bankruptcy courts have authority to subordinate a late filed priority claim under principles of equitable subordination.
Id. at 557-60 (citation omitted). The Sixth Circuit discussed and quoted the Second Circuit’s Vecchio opinion in Chavis, and although it did not adopt the Second Circuit’s holding or analysis, the Sixth Circuit did state that the “fundamental differences between Chapter 7 and Chapter 13 bankruptcies ... effectively limit” Vecchio. Chavis, 47 F.3d at 823.
The legal issue in this case turns on whether the Sixth Circuit’s discussion in Chavis of Vecchio’s § 726(a)(1) interpretation and the Circuit’s reliance on the Bankruptcy Reform Act of 1994 to evidence congressional intent effectively determines the issue not addressed in Century Boat Co. and Cardinal Mine Supply: Whether priority distribution of a claim under § 726(a)(1) is afforded to a creditor regardless of whether it had notice of the bankruptcy case in time to meet the filing requirements established in Bankruptcy Rule 3002(c). See Century Boat Co., 986 F.2d at 157-58. This court, in Larry Merritt Co., decided this issue in favor of timeliness as opposed to priority, which is supported by the holding in Chavis: “Because ... the Bankruptcy Reform Act of 1994 reveals that Congress now expects unsecured creditors’ claims to be timely filed, [a] bankruptcy court’s rebanee on Rule 3002 (prior to the Bankruptcy Reform Act’s effective date) [is] proper.” 47 F.3d at 824.
Conversely, the rationale of Chavis does not support a conclusion identical to that found in Larry Merritt Co. The Bankruptcy Reform Act of 1994 evidences that Congress intended § 726(a)(1) to apply to timely and tardily filed priority claims. See In re Monroe Distrib., Inc., 176 B.R. 458, 466 (Bankr.*334N.D.Ohio 1995). This interpretation of § 726(a)(1) prior to the Reform Act is supported by the Second Circuit’s opinion in Vecchio. Moreover, in rejecting the argument that a creditor “may not invoke the holding of Cardinal Mine Supply because it did not file its proof of claim against the estate promptly after learning of the bankruptcy,” the Sixth Circuit has stated that such an argument “seems counter to the holding in Cardinal Mine Supply that time of filing is less important than the priority status of a given claim.” Century Boat Co., 986 F.2d at 158.
Furthermore, the Sixth Circuit’s interpretation of § 726(a)(1) in Cardinal Mine Supply is consistent with the interpretation found in Vecchio. The Sixth Circuit stated:
The language of section 726 does not itself bar tardily filed priority claims. Subsection (a)(1) merely provides that the order of distribution of priority claims will be the order specified in section 507. This subsection makes no distinction between tardily filed and timely filed priority claims or between tardily filed claims where the priority creditor had notice or had no no-tice_ There are valid reasons for permitting all tardily filed priority claims to be paid whether or not the creditor had notice.... Congress has chosen to place certain taxes in the privileged category. Congress has expressed itself that these claims are to be paid first. Since their priority is set in the statute, it is reasonable that that priority is more important than whether they were tardily filed either because they had received no notice of the bankruptcy or for some other reason.
916 F.2d at 1091 (emphasis added).
Numerous courts have determined that the Sixth Circuit’s interpretation of § 726(a)(1) in Cardinal Mine Supply was limited by the court’s Century Boat Co. decision, which states that “Cardinal Mine Supply established a narrow exception for priority creditors who lack notice of the bankruptcy.”11 986 F.2d at 158; see, e.g., In re Cole, 172 B.R. 287, 290 (Bankr.W.D.Mo.1994). In addition, the district court in Larry Merritt Co., in affirming this court, rejected the holding of Vecchio under the following rationale:
The problem with the Second Circuit’s rigid interpretation and application of § 726 is that in practice it allows claims under § 726(a)(1) to retain their priority indefinitely_ Indeed, it is no more “absurd” to subordinate such claims [that are not timely filed], than to permit indefinite priority.
Although the Vecchio court purported to rely on the Sixth Circuit decision in Cardinal Mine Supply, it effectively ignored the Century Boat holding, which clearly recognized the continued validity of Bankruptcy Rule 3002. In addition, the Vecchio court acknowledged that “the logic of [its] reading of § 726(a) leads to the conclusion that first priority payment could be accorded even to claims filed after the distribution of the estate’s assets.” While the court in dictum stated that it believed the bankruptcy courts could adequately address this concern under principles of equitable subordination ... and through the use of disgorgement orders, numerous other scenarios exist that could lead to untoward and onerous results, especially in view of the Bankruptcy Code’s policies of finality and providing a fresh start.
169 B.R. at 143 (emphasis added and alteration in original) (citations omitted) (quoting Vecchio, 20 F.3d at 558, 560).
*335The Sixth Circuit’s Cardinal Mine Supply and Century Boat Co. decisions are binding on this court and those opinions do not permit the court to find that a priority creditor, having notice of the bankruptcy in ample time to permit it to file its claim, will receive priority distribution under § 726(a)(1) regardless of whether it files its claim within the period set forth in Fed.R.Bankr.P. 3002. But see Monroe Distrib., 176 B.R. at 462-66. The Sixth Circuit has stated that Cardinal Mine Supply “established a narrow exception for priority creditors who lack notice of the bankruptcy,” and has not interpreted the pre-Reform Act version of § 726(a)(1) to allow a priority creditor with notice of the bankruptcy case in time to permit the timely filing of a proof of claim to receive priority distribution regardless of whether its claim was timely or tardily filed. Century Boat Co., 986 F.2d at 158. Therefore, the court will continue to follow its decision in Larry Merritt Co., as affirmed by the district court, and the Sixth Circuit’s decisions in Cardinal Mine Supply and Century Boat Co. The Department of Revenue’s unsecured priority claim, which would be entitled to priority distribution under § 726(a)(1) if timely filed, ■will be subordinated and entitled to distribution under § 726(a)(3).12
An appropriate order will be entered.
ORDER
For the reasons set forth in the Memorandum on Trustee’s Objection to Claim filed this date, the court directs the following:
1. The Trustee’s Objection to Claim filed March 2, 1995, is SUSTAINED.
2. The Tennessee Department of Revenue’s claim for $7,570.00 in franchise taxes and prepetition interest is subordinated and is entitled to distribution under 11 U.S.C.A. § 726(a)(3) (West 1993).
3. The Tennessee Department of Revenue’s claim of $890.60 for a late-charge penalty is entitled to distribution under 11 U.S.C.A. § 726(a)(4) (West 1993).
SO ORDERED.
. This stipulation is incorrect. The debtor’s petition was actually tiled on May 7, 1992.
. Although the parties did not stipulate the July 9, 1992 date in their written Stipulations of Fact filed with the court, both the Trustee and Department of Revenue agree to this date in their briefs. As there is no dispute that the Department received notice of the debtor's bankruptcy case on that date, the court will accordingly deem this fact stipulated.
. The bankruptcy petition was signed on May 5, 1992, but filed on May 7, 1992.
. The Department of Revenue incorrectly alleges in its response to the Trustee's Objection that it filed its Proof of Claim on September 18, 1992. However, the Department states in its brief that it does not dispute the facts and dates set forth in the Trustee's brief, which include that the Claim was filed on September 21, 1992.
. See supra note 2.
.The Due Process Clause of the Fifth Amendment need not be discussed in this case. See South Carolina v. Katzenbach, 383 U.S. 301, 323, 86 S.Ct. 803, 816, 15 L.Ed.2d 769 (1966) (“The word 'person' in the context of the Due Process Clause ... cannot, by any reasonable mode of interpretation, be expanded to encompass the States of the Union_”); United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087, 1089-91 (6th Cir.1990). The Department of Revenue received notice of the bankruptcy case more than two months prior to the claims bar date, and pursuant to Fed.R.Bankr.P. 3002(c)(1), was entitled to file a motion seeking an extension of the claims bar date prior to the expiration of the claims period. See United States v. Ginley (In re Johnson), 901 F.2d 513, 522 (6th Cir.1990); In re Larry Merritt Co., 166 B.R. 875, 880 (Banlcr.E.D.Tenn.1993), aff'd, 169 B.R. 141 (E.D.Tenn.1994), appeal docketed, No. 94-6073 (6th Cir. Aug. 25, 1994). No such motion was ever filed.
. Section 702(b)(1) of the Bankruptcy Reform Act of 1994 provides that the amendments are not applicable to “cases commenced under title 11 of the United States Code before [October 22, 1994],” except in certain instances which are inapplicable in this case.
. In Larry Merritt Co., the district court also relied on the Sixth Circuit opinion of United States v. Ginley (In re Johnson), 901 F.2d 513 (6th Cir.1990). In Johnson, the court affirmed the bankruptcy and district courts’ holding that a claim for administrative expenses incurred prior to the conversion of the debtor's Chapter 11 bankruptcy case to Chapter 7 would be disallowed if it was filed outside the bar date by a creditor that had notice of the bankruptcy proceedings. Id. at 522.
. Conversely, in Larry Merritt Co. and the present case, the creditor had notice of the bankruptcy case well in advance of the claims bar date but nonetheless failed to timely file its proof of claim. However, this case and the cases of Larry Merritt Co., Cardinal Mine Supply, and Century Boat Co. are analogous in one important respect: the underlying bankruptcy cases were all commenced under Chapter 7.
.This statement by the Sixth Circuit can be interpreted to support the conclusion that in this Chapter 7 case, the Department's claim may be subordinated under § 726(a)(3), but not disallowed.
. The Sixth Circuit arguably recognized in Chavis that its Century Boat Co. decision placed this limitation on Cardinal Mine Supply. In Chavis, the court discussed and quoted extensively from United States v. Towers (In re Pacific Atlantic Trading Co.), 33 F.3d 1064, 1067 (9th Cir.1994), in which the Ninth Circuit held that the IRS was entitled to priority distribution under § 726(a)(1) although it knowingly failed to timely file its priority claim. After a lengthy quotation of and pinpoint citation to Towers, the Sixth Circuit made the following comment in citation form:
See generally United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087, 1091 (6th Cir.1990) (“There are valid reasons for permitting all tardily filed priority claims to be paid whether or not the creditor had notice."). But see In re Century Boat Co., 986 F.2d 154, 158 (6th Cir.1993) (“Generally, every creditor will adhere to the timing requirements established in Bankruptcy Rule 3002. Cardinal Mine Supply established a narrow exception for priority creditors who lack notice of the bankruptcy.”).
Chavis, 47 F.3d at 823.
. The Department of Revenue's unsecured nonpriority claim for a late-charge penalty must be subordinated to the fourth level of distribution established under § 726(a)(4), regardless of whether the claim was timely or tardily filed. Larry Merritt Co., 166 B.R. at 877 n. 3. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492045/ | ORDER DENYING MOTION TO REOPEN ESTATE
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the creditor’s “Motion to Reopen Es-*385tate” filed on May 2, 1995. The creditor Sherree Gnau, the ex-spouse of the debtor, seeks to have the case reopened in order that it may be dismissed for bad faith.1 Specifically, Gnau asserts that the case was filed solely to frustrate her efforts regarding court-ordered support for herself and her children. Assuming the allegations of the motion to be true, there is no cause established for reopening the case to hear the motion to dismiss because the bankruptcy case has no effect upon Gnau’s state court remedies. Indeed, subject to any other intervening orders of the state court, there appears to be no impediment to Ball being immediately incarcerated pursuant to the arrest warrant issued by the Chancery-Court.
The motion to reopen must be denied because there is no relief to be offered by this Court. By dismissal of the bankruptcy case, Gnau seeks to ensure that her state court remedies continue to exist. However, all of the state court remedies available to her continue to exist despite the discharge of the debtor under Chapter 7 of the Bankruptcy Code. Debts in the nature of child and spousal support are nondischargeable in bankruptcy. 11 U.S.C. § 523(a)(5). Accordingly, now that the discharge has been entered, and the automatic stay no longer exists, 11 U.S.C. § 362, Gnau is free to resume her actions against the debtor, including requesting that the arrest warrant be acted upon by the sheriff.2
Should the debtor have a good faith basis for asserting that the debts are not in the nature of child or spousal support, those arguments may be raised before the Chancery Court since that court has concurrent jurisdiction with the bankruptcy court to determine the dischargeability of support debts. Inasmuch as the Chancery Court is familiar with the case, it is judicially economical for that court to make such a determination.
Since Gnau is free to proceed in state court against the debtor with the actions that are pending there, there is no cause for reopening this case to hear a motion to dismiss. Assuming that the debtor in fact filed this case to thwart the Chancery Court orders and Gnau, debtor was under a misapprehension. The filing of the bankruptcy case, at most, merely delayed the action pending before the state court. The debtor is now subject to all of the remedies of Gnau and subject to the powers of the state court, including the power to incarcerate the debtor for contempt.
ORDERED that the Motion to Reopen Estate, filed on May 2, 1995, is DENIED.
IT IS SO ORDERED.
. The Court does not address the issue of whether such a motion may be properly made by a party in interest. See 11 U.S.C. § 707(a) (setting forth grounds for dismissal in a Chapter 7 case).
. The Court also notes that the bankruptcy may have been of some benefit to Gnau. Now that debtor's general unsecured debts have been discharged, debtor will have fewer defenses available to him. Having been granted a "fresh start” he should now be able to comply with the state court orders regarding his support obligations. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492046/ | ORDER
JAMES J. BARTA, Bankruptcy Judge.
This matter concerns the objection by Patricia G. Kaiser (“Debtor”) to the proof of claim filed on behalf of the United States Internal Revenue Service (“IRS”). The trial was conducted on March 13, 1995. The IRS had previously filed a timely response to the Debtor’s objection. Following the trial, the matter was submitted to the Court on the record as a whole.
This is a core proceeding pursuant to Section 157(b)(2)(A) and (0) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151, 157 and 1334, and Rule 29 of the Local Rules of Missouri. These findings and conclusions are the final determinations of the Bankruptcy Court.
Facts
At the time of the trial, the Debtor had been married to Thomas Kaiser for 27 years. Thomas Kaiser is not a debtor in this case. However, the last contact the Debtor had with her husband was on December 16, 1993, when, to the best of the Debtor’s knowledge, he left St. Louis due to substantial debt and other problems associated with his business dealings. The Debtor had no active role in her husband’s business activities. The extent of her financial responsibilities in the marriage was to maintain a cheeking account to pay monthly household bills. The sole funding for this account was provided by her husband. For tax preparation reasons, the Debtor provided her husband with cancelled checks written for charitable purposes. She continues to maintain a separate savings account containing approximately $35,000.00, none of which came from her husband.
The Debtor has not worked outside of the home since approximately nine months after she and Mr. Kaiser married in 1967. She never participated in the management or ownership of her husband’s primary business concern, Kaiser Electric, Inc. (“Kaiser Electric”). When Mr. Kaiser left St. Louis in December 1993, the Debtor was not aware that Mr. Kaiser had sold his interest in Kaiser Electric. The Debtor did not receive any of the proceeds from this sale.
In the fall of 1993, just before leaving St. Louis, Mr. Kaiser filed a joint 1992 income tax return. The document bears the signature, “Patricia G. Kaiser” on the bottom of the second page of the return in the box requiring a spouse’s signature. The IRS and the Debtor have agreed that the Debtor in this proceeding did not sign the return and that the signature on the return is a forgery. The Debtor did not know that Mr. Kaiser had filed the return with her forged signature. The Debtor testified that she learned of the forged signature only after she requested and received a copy of the 1992 return in late 1993 or early 1994. She stated further that she never authorized anyone to sign the return for her; she never adopted the signature on the return as her own; she did not intend to file a joint return for 1992; she had planned to file an individual return until she realized she was not required to do so; and, that she was never asked to sign the 1992 return filed by her husband.
*397During the marriage, the Debtor never questioned Mr. Kaiser concerning tax matters. From 1967 through 1991, the couple filed joint tax returns. The Debtor acknowledged that for the tax years before 1992, she had signed the couple’s joint tax returns without reviewing any of the documentation. Occasionally, Mr. Kaiser would cover part of a return with his hand or a piece of paper while the Debtor signed the return. The Debtor acknowledged that she had never indicated to Mr. Kaiser that she did not intend to file a joint return for 1992. She testified that she would have signed the 1992 return had Mr. Kaiser presented it to her. The 1992 return reflected a tax liability in the amount of $166,554.00, significantly more than in any previous year. Mr. Kaiser also sought and obtained an extension to file the 1992 return. The Debtor did not know why Mr. Kaiser requested the extension, and she had no input into the request for an extension.
The Debtor initiated divorce proceedings in March of 1994. A decree of dissolution had not been entered as of the time of this trial.
Discussion
The issue before the Court is whether the income tax return filed by Mr. Kaiser absent the valid signature of the Debtor, qualifies as a joint return. If so, the Debtor and Mr. Kaiser are jointly and severally liable for the tax due. 26 U.S.C. § 6013(d)(3) (1989 & Supp.1994); see Stevens v. Commissioner of Internal Revenue, 872 F.2d 1499, 1503 (11th Cir.1989). If the return is not a joint return, the Debtor is not responsible for any portion of the tax liability and the Debt- or’s objection to the IRS proof of claim will be sustained. For the reasons below, the Debtor’s objection will be sustained and the proof of claim filed by the IRS will be disallowed.
To determine whether an income tax return qualifies as a joint return, the Court must make a factual determination as to whether the taxpayer or taxpayers intended to file a joint return. See Shea v. Commissioner of Internal Revenue, 780 F.2d 561 (6th Cir.1986); Sharwell v. Commissioner of Internal Revenue, 419 F.2d 1057 (6th Cir.1969). In the Sharwell case, the Court determined that the tax return was a joint return, even though the wife did not sign the document. The court concluded that the signature (or lack of a signature) is only one of several factors to be considered in deciding whether or not a tax return is a joint return. The factors that were most persuasive to the Sharwell court included the determination that the wife knew that the tax returns were being prepared and that she took an active role in helping prepare the documents. 419 F.2d at 1059.
In the Shea case, neither the wife nor the husband signed the return; the wife later contested whether the return was a joint one. 780 F.2d at 563. The court concluded that the determination of intent to file a joint return should focus not on the wife’s intent to file “any joint return,” but rather on her intent to “file and be bound by the particular return in question.” Id. at 567. Therefore, in the Shea case, facts such as the wife’s delegation of most of the tax return responsibility to her husband, her decision not to file a separate return, and her filing of a joint return for every married year until the one in question, while relevant, could not overcome the conclusion that the wife did not intend to file the particular return at issue. In so concluding, the court noted the following: the wife had been denied the opportunity to review the form before it was signed; in previous years she had been present when the forms were being prepared, but for the return in question she had not been present and was wholly uninformed; and, she had derived no independent income to require her to file a separate return. Id. at 567-68; see also Helfrich v. Commissioner of Internal Revenue, 25 T.C. 404, 1955 WL 504 (1955) (no intent of wife to file joint return when her signature on the return was forged, she did not authorize anyone to sign for her, she did not know the return had been filed, and she did not participate in preparation of the return).
In the case at bar, the Debtor did not review the return before it was filed. In fact, she did not know Mr. Kaiser had filed a return until well after he had done so. Dur*398ing the course of their marriage, Mr. Kaiser had always asked the Debtor to sign the joint return that he would subsequently file; however, Mr. Kaiser never asked the Debtor to sign the 1992 return and she never did so. Furthermore, the fact that the Debtor did not file a separate return does not mean that she tacitly consented to the filing of the joint return. See Shea, 780 F.2d at 567. The Debtor did not derive enough income to require her to file a separate return; therefore, her failure to file a return has no bearing on this case.
Further evidence that the Debtor had no intent to file the particular return in question appears from other facts in the record. In previous years, when the Debtor merely signed the documents presented to her, the amount of the tax liability had never been as large as it was for the 1992 tax year. No evidence exists to refute the Debtor’s position that she knew nothing of the sale of stock that resulted in the large tax liability. Also, nothing in the record suggests that the Debtor benefitted from the proceeds of Mr. Kaiser’s sale of his stock in Kaiser Electric. At a time when she was a party to a dissolution proceeding, it is highly unlikely that the Debtor would have signed the contested return subjecting herself to well over $150,-000.00 in tax liability. The circumstances surrounding Mr. Kaiser’s filing of the return compel the conclusion that the Debtor did not intend to file the 1992 tax return as a joint return with her husband.
Although a wife’s deference to her husband in tax and financial matters, along with a couple’s history of fifing joint returns and the wife’s assertion that she would have signed a contested joint return had it been presented to her, can indicate an intent to file a joint return, the particular facts in each case may indicate the absence of such intent. See Teplitz v. Commissioner of Internal Revenue, 37 T.C.M. (CCH) 229, 238, 1978 WL 2752 (1978); Groves v. Commissioner of Internal Revenue, 16 T.C.M. (CCH) 887, 890, 1957 WL 810 (1957). The facts and circumstances presented in this case have indicated that the Debtor did not intend to file the 1992 tax return that is the subject of this proceeding.
IT IS ORDERED that this matter is concluded; and that the Debtor’s objection to Proof of Claim No. 6, filed on behalf of the United States Internal Revenue Service is SUSTAINED; and that said Proof of Claim is not allowed in this Chapter 7 Bankruptcy case as not being a debt of this Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492047/ | MEMORANDUM OPINION
ARTHUR B. FEDERMAN, Bankruptcy Judge.
Lawrence R. Whyte filed a claim in the amount of $1,200,000 in this Chapter 11 bankruptcy case. Pursuant to Rule 3007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), debtor filed a written objection to the claim. Debtor did not request that Mr. Whyte’s claim be equitably subordinated, pursuant to Rule 7001 of the Bankruptcy Rules, and section 510(e) of the Bankruptcy Code (the “Code”). A hearing was conducted on February 23,1995. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1). For the reasons set forth below, I find that the claim of Lawrence Whyte is allowed in the sum of $487,-499.97.
FACTUAL BACKGROUND
Ferromet Resources, Inc. (“Ferromet”) was the parent of debtor City Metals Company, Inc. (“City Metals”). Lawrence Whyte was the president and principal shareholder of Ferromet on May 19, 1989, when he sold the company to Clogau Gold Mines, pic (“Clogau”). Subsequently, on June 7, 1989, Mr. Whyte entered into a Service Agreement (the “Agreement”) with Ferromet for a term of five years. The Agreement provided that Mr. Whyte would serve as chairman of the board of directors, president, and chief executive officer of Ferromet and its subsidiaries for an annual compensation package of $450,-000 per year. Pursuant to the Agreement, Ferromet, its existing subsidiaries, and any future subsidiaries in which Ferromet had voting control were jointly and severally liable for Mr. Whyte’s compensation. Additionally, the Agreement provided that Clogau would pay Mr. Whyte $50,000 per year. In the event Clogau failed to compensate Mr. Whyte, Ferromet and its subsidiaries, present and future, were responsible for the $50,-000 as well.
Mr. Whyte testified that City Metals was incorporated in the State of Texas on Janu*400ary 15, 1990, as a subsidiary of Ferromet. He stated it was formed to acquire a foundry, and after two failed attempts debtor was able to acquire the assets of Missouri Precision Castings on June 5, 19911. Ferromet acquired an eighty-percent share and George Fauverque acquired a twenty-percent share of City Metals. Mr. Whyte was involved in the negotiations to acquire City Metals, and became its president, chief executive officer, and chairman of its board of directors pursuant to the Agreement.
Ferromet was forced into bankruptcy on March 17,1992. Mr. Whyte testified that he received no compensation after February of 1992, though he continued to provide services to Ferromet and its subsidiaries until his dismissal by the bankruptcy trustee on June 28, 1992. Mr. Whyte sent a letter to City Metals on August 17, 1992, demanding the sum of $1,200,000 pursuant to the terms of the Agreement. City Metals did not respond to this demand.
City Metals was itself forced into bankruptcy on February 12, 1993. The debtor was unable to propose a confirmable plan and on April 22, 1994, this Court approved a liquidating plan to sell City Metals’ assets to St. Louis Steel Casting, Inc. Pursuant to the terms of the liquidating plan, the sum of $200,000 is set aside to pay all unsecured claims pro rata.
City Metals objects to Mr. Whyte’s proof of claim for the following reasons: (1) it was not a party to the contract, therefore, it has no liability under the Agreement; (2) there was no consideration for the contract; (3) City Metals never ratified the contract; (4) any liability is limited by section 502(b)(7) of the Code.
DISCUSSION
The Agreement provides that issues relating to its validity are to be governed by the laws of the State of Texas. Id., ¶ 12 at pg. 10. In construing a contract and the liabilities of the parties thereunder, the Court must begin with the language of the document itself. When the terms of a document are clear and unambiguous, the parol evidence rule bars any extrinsic evidence to vary, contradict, add to, or explain the unambiguous terms of a written agreement. Gold Kist, Inc. v. Carr, 886 S.W.2d 425, 429 (Tex.Ct.App.1994) (citing Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948, 952 (I960)). See also Grundy Nat’l Bank v. Frank (In re Frank), 103 B.R. 771, 773 (W.D.Va.1989). The general rule in Texas is that absent fraud, accident, or mistake the parol evidence rule prohibits consideration of extrinsic evidence to contradict the terms of an unambiguous, final, and complete writing. Gold Kist at 429. See also Jake C. Byers, Inc. v. J.B.C. Investments, 834 S.W.2d 806, 811 (Mo.Ct.App.1992). The purpose of the rule is to preserve the sanctity of written contracts. Jake C. Byers at 812. The Agreement is a written contract. It initially provides that it is between Lawrence Robert Whyte and Fer-romet Resources Inc. (the “Company”) together with its wholly and partially owned subsidiaries and joint ventures (the “Group”). Claimant’s (“Cl.”) Exh. # 2. The Agreement commences on the date of execution and continues for a period of five years. Id., ¶ 7 at pg. 6. The Agreement, executed on June 7, 1989, would have expired on June 6, 1994, without breach. There is no dispute that the term of the contract, as executed, is for a period of five years. There is also no dispute that the Agreement is an employment agreement. The terms of the Agreement, which are unambiguous, cannot be contradicted or varied by extrinsic evidence. See In re The Charter Company, 82 B.R. 144, 146 (Bankr.M.D.Fla.1988). City Metals, however, argues that it was not a party to the Agreement, and, thus, cannot be bound by its terms because City Metals had not been incorporated on the date the Agreement was executed.
The Agreement provides that:
Should the Company or the Group acquire in whole or in part by any manner, including joint venture, additional subsidiaries, directly or indirectly ... to the extent the Company or the Group or any combination thereof shall have voting control, directly *401or indirectly to elect at least one director and voting control, directly or indirectly, to control the election of officers, the Executive shall immediately be appointed as the Chairman of the Board of directors and the Chief Executive Officer of each such company with full responsibility of and authority for managing all of their operations, current and future, for the remainder of the term of this Agreement and each such additional company shall be included within the definition of “Group.”
Id., 11 at pg. 1. It is undisputed that Mr. Whyte was the chief executive officer of Fer-romet at the time City Metals was formed. He is listed as one of two directors in the Articles of Incorporation of City Metals. Deb.’s Exh. # 4. The Asset Purchase Agreement which transferred the assets of Missouri Precision Castings, Inc. to City Metals was between Ferromet and J. Kevin Cheek-ett, Trustee in Bankruptcy for Missouri Precision Castings, Inc. Deb.’s Exh. # 1. Said agreement provides that Ferromet purchased eighty-percent of Missouri Precision’s assets and George Fauverque and Benjamin Rosenburg received a twenty-percent ownership interest. Id. All of the documents relating to said asset sale were signed by Scott Breimeister, Senior Vice President of Ferromet. Mr. Breimeister testified that at all times he operated under authority delegated to him by Mr. Whyte. Mr. Checkett testified that he was aware that Mr. Whyte was the ultimate decision maker during the negotiations for the asset purchase. The Agreement is clear and unambiguous that the parties intended the contract to bind later acquired subsidiaries provided Ferro-met maintained voting control. I find that, with an eighty-percent ownership interest in City Metals, Ferromet had voting control and could and did control the election of officers. I further find that the Agreement applies to City Metals as an after-acquired subsidiary of Ferromet.
City Metals next argues that City Metals never ratified the Agreement. Under the laws of the State of Texas acquiescence is evidence of ratification. Simms v. Lakewood Village Property Owners Ass’n, Inc., 895 S.W.2d 779 (Tex.Ct.App.1995) (citing Jamail v. Thomas, 481 S.W.2d 485, 490 (Tex.Ct.App.1972)). Ratification which may be express or implied, occurs when a party recognizes the validity of a contract by acting under it or affirmatively acknowledging it. Zieban v. Platt, 786 S.W.2d 797, 802 (Tex.Ct.App.1990). See also Petroleum Anchor Equipment v. Tyro, 419 S.W.2d 829, 834 (Tex.1967); Jamail at 490; Wetzel v. Sullivan, King & Sabom, 745 S.W.2d 78, 71 (Tex.Ct.App.1988); Diamond Paint Co. of Houston v. Embry, 525 S.W.2d 529, 535 (Tex.Ct.App.1975). City Metals accepted the services of Mr. Whyte as its president, chief executive officer and chairman of its board of directors from the time of its incorporation until his dismissal in Ferromet’s bankruptcy. Mr. Whyte testified that he was actively engaged in seeking additional financing for City Metals until his dismissal. Mr. Breimeister testified that Mr. Whyte made all the major decisions. There was no testimony to dispute Mr. Whyte’s claim that the board of directors of City Metals was at all times under his control until June 23, 1993, when he was dismissed by the bankruptcy trustee appointed in Fer-romet’s bankruptcy. I find that the Agreement was impliedly ratified by City Metals because the company acquiesced to the leadership of Mr. Whyte and acted under the Agreement he entered with Ferromet. I also find that Mr. Whyte performed services for City Metals during the course of his employment in consideration of City Metals obligations under the Agreement. For all of the above reasons, I find that City Metals is bound by the terms of the Agreement.
Having found that City Metals is bound by the terms of the Agreement, I will next address the measure of damages.
The Agreement states:
For services rendered hereunder, the Executive shall be compensated by the Company and the Group, responsible jointly and severally, at a minimum rate of US$350,000 per annum during the continuation of this Agreement plus benefits and/or cash ... equal to US$100,000 per annum ... provided that should the Executive not be paid at least 30,000 British Pounds per annum by Clogau under the Service Agreement during each year of the *402initial term of this Agreement, the Company shall pay the Executive ... the difference between (i) US$50,000 and (ii) the amount, if any, paid to the Executive [by Clogau].
Id., ¶ 1 at pg. 2. Mr. Whyte testified that he continued to provide services for Ferromet and its subsidiaries until he was officially terminated by the trustee in Ferromet’s bankruptcy on June 23, 1992. However, Mr. Whyte stated that he received no compensation from Ferromet after February of 1992, and no one disputed that testimony. Mr. Whyte, therefore, claims he is entitled to compensation from any and all of the subsidiaries of Ferromet to compensate him for the twenty-seven months remaining on the Agreement. He has received one payment in the sum of $25,000 from Techmet, Inc., a subsidiary of Ferromet.
City Metals argues that any damages are limited by section 502(b)(7) of the Code. Section 502(b)(7) provides:
(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 as of the date of the filing of the petition ... except to the extent that—
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(7) if such claim is the claim of an employee for damages resulting from the termination of an employment contract, such claim exceeds—
(A) the compensation provided by such contract, without acceleration, for one year following the earlier of—
(i) the date of the filing of the petition; or
(ii) the date on which the employer directed the employee to terminate, or such employee terminated, performance under such contract; plus
(B) any unpaid compensation due under such contract, without acceleration, on the earlier of such dates.
11 U.S.C. § 502(b)(7). There is no dispute that Mr. Whyte’s claim is a claim for damages resulting from the termination of the employment contract he executed with Fer-romet. For purposes of section 502(b)(7) Mr. Whyte’s damages are, therefore, limited to one year from the date of Ferromet’s bankruptcy petition filed March 17,1992, plus any unpaid compensation on that date. See, In re Hooker Invest. Inc., 145 B.R. 138, 151 (Bankr.S.D.N.Y.1992); In re Murray Industries, Inc., 114 B.R. 749, 752 (Bankr.M.D.Fla.1990), aff'd, 147 B.R. 597 (M.D.Fla.1992); In re The Charter Co., 82 B.R. 144, 147 (Bankr.M.D.Fla.1988). Ferromet terminated the Agreement, and the damages under the terminated Agreement are capped by the provisions of section 502(b)(7). Mr. Whyte cannot recover from any of Ferromet’s subsidiaries under a theory of joint and several liability an amount in excess of that he would have been able to recover from Ferromet. See generally Levinson v. LHI Holding, Inc. (In re LHI Holding, Inc.), 176 B.R. 255 (M.D.Fla.1994). Mr. Whyte’s proof of claim for $1,200,000 is based upon an annual compensation package of $500,000. He has included the $50,000 Clogau is obligated to pay for the twenty-seven months remaining on the contract. However, Mr. Whyte negotiated a Retirement Agreement with Ferromet Group pic, successor-in-interest to Clogau, on August 3, 1992. Deb.’s Exh. # 6. Pursuant to the Retirement Agreement, Mr. Whyte and Ferromet Group pic released each other from any claims provided that Mr. Whyte’s salary was paid up to the date when the Retirement Agreement was approved by Ferromet Group pic at its general meeting not later than October 31, 1992. Id., ¶¶ 1.2, 2.0, and 2.2 at pages 1-3. No evidence as to when Ferromet Group pic approved the Retirement Agreement was offered, though Mr. Whyte did testily that it was approved. Therefore, for purposes of determining the compensation to which Mr. Whyte is entitled, I find that Ferromet Group pic paid Mr. Whyte $50,000 per annum through October 31, 1992. Mr. Whyte’s claim is calculated as follows: (1) Mr. Whyte is allowed $18,750.00 as unpaid compensation from March 1, 1992 through March 16, 1992, the day prior to the filing of Ferromet’s bankruptcy petition; (2) section 502(b)(7) of the Code limits the claim to an additional $500,000, Mr. Whyte’s compensation for one year following such filing; *403and (3) City Metals is entitled to reduce the claim by the $31,250.03 which Mr. Whyte received from Ferromet Group pic from March 17, 1992, through October 31, 1992. For the reasons stated above, Mr. Whyte’s claim is allowed in the sum of $487,499.97.
. Missouri Precision Castings had filed a Chapter 11 bankruptcy and its assets were under the protection of this Court at the time of the purchase. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492048/ | *419
MEMORANDUM
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Before the court is the Motion for Relief From the Automatic Stay by the First Nebraska Bank of Stanton, Nebraska, (the “Bank”), and the Resistance by the debtor. This ease involves successive bankruptcy filings, and the automatic stay is lifted.
FINDINGS OF FACT
The debtor previously filed Chapter 12 bankruptcy in Nebraska on July 30, 1992 (BK92-81355). This predecessor case was dismissed on November 7, 1994, by Bankruptcy Judge Mahoney. In his dismissal order, Judge Mahoney denied confirmation of the proposed plan of reorganization, stating:
The debtor has had three opportunities to present evidence in support of confirmation of a plan. The debtor has failed to present evidence on any occasion that he had the necessary financing available to put in place a hog operation which would generate sufficient funds to meet his optimistic cash flow projections. The court finds as a fact that the debtor is unable to obtain confirmation of a plan which could meet his financial obligations at a reasonable interest rate over a reasonable amount of time. Therefore, this plan shall not only be denied confirmation but the debtor shall not be granted the opportunity to file another amended plan and this case shall be dismissed for cause.
Following dismissal of BK92-81355, the debtor filed a Motion to Alter or Amend Judgment or for Partial New Trial, which was denied by the bankruptcy court on January 25, 1995. On February 2, 1995, the debtor filed a Motion for Stay of Order Pending Appeal. This Motion was denied by the bankruptcy court on February 10, 1995, and the appeal was dismissed upon motion of the debtor on February 17, 1995. The order of the bankruptcy court dismissing the bankruptcy ease then became final.
Subsequent to dismissal of the appeal, the Bank proceeded under state law and filed a Trust Deed Notice of Default on February 21, 1995. On the same date, which was four days after dismissal of the predecessor case, the debtor filed this Chapter 12 bankruptcy case. The Bank immediately filed a Motion for Relief from the Automatic Stay.
I conclude, as a finding of fact, that the debtor has substantially the same assets and creditors as in the predecessor Chapter 12 bankruptcy ease. The only alleged change in circumstance since dismissal of the predecessor case is the possible granting of a loan to the debtor by the Bank of Norfolk. However, no firm loan commitment letter has been issued, and the loan is conditioned upon debt- or demonstrating adequate cash flow to service the loan. Even if the loan is made, it will not reduce debtor’s overall debt service because loan proceeds will be paid to another creditor. The fact that the new lender may have a different amortization schedule than the Bank is not a significant factor in this case.
DISCUSSION
I conclude that cause exists to lift the automatic stay pursuant to § 362(d)(1). Under the facts and circumstances of this case, the refiling of bankruptcy within four days of dismissal of the predecessor case amounts to an impermissible collateral challenge to the orders of the bankruptcy court and an abuse of the bankruptcy process.
First, Bankruptcy Judge Mahoney’s order dismissing the predecessor Chapter 12 bankruptcy is entitled to finality. Indeed, Bankruptcy Judge Mahoney’s decision is res judicata as to the debtor’s ability to reorganize under the circumstances existing at the time the order was entered. The debtor has identified no significant change in circumstances between the dismissal of the predecessor case and the commencement of this case. It would constitute an impermissible collateral challenge to Bankruptcy Judge Mahoney’s order to permit the debtor to proceed in a serial Chapter 12 bankruptcy case de novo, within four days of dismissal of the predecessor case.
Second, the filing of this bankruptcy case constitutes an abuse of the judicial and bankruptcy process. By refiling bankruptcy, the debtor, in essence, obtained an injunction of *420the Bank on an ex parte basis without approval of the court. Obtaining an injunction under § 362 is in contravention of dissolution of the injunction of § 362 upon dismissal of the predecessor case and of the order denying a stay pending appeal. Debtor’s appropriate remedy was to exhaust appellate remedies.
Third, the plan of reorganization presently proposed by the debtor is substantially the same as the plan denied confirmation in the predecessor ease. By filing this case with an essentially identical plan, I conclude that the debtor is not proceeding in good faith.
In resistance to the motion for relief, debt- or’s counsel asserts that the Bank is overcol-lateralized. Counsel for the debtor also asserts that during the pendency of the previous Chapter 12 case, payments were made to the Bank covering accrued interest, and therefore the claim of the Bank has not increased in amount. Finally, debtor’s counsel asserts that any delay caused to the Bank has not harmed or impaired its position because adequate protection has been provided by the overcollateralization.
I find these arguments unpersuasive. The fact that a creditor’s interest in collateral may be adequately protected does not license a debtor to unreasonably delay the creditor from exercising its rights and remedies under state law. Although it is clear under the decision of the Supreme Court in United Savings Assoc. of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988), that a secured creditor is not entitled to adequate protection for lost opportunity costs, such costs represent real economic damage and may be appropriately considered in determining whether relief from the stay should be granted. Under the Bankruptcy Code, unreasonable delay that is prejudicial to creditors is a basis for dismissal. 11 U.S.C. § 1208(c)(1) (1995). Dismissal of the case terminates the automatic stay. Therefore, I conclude that unreasonable delay prejudicial to creditors is appropriately considered grounds for relief from the automatic stay. Unreasonable delay is contrary to the policies of Chapter 12. Chapter 12 was designed to provide quick relief to both debtors and creditors. Prompt filing of Chapter 12 plans is required, as is a prompt confirmation hearing. 11 U.S.C. § 1221 and § 1224 (1995). In the predecessor bankruptcy case, the debtor was provided an extensive opportunity to reorganize and file a feasible plan of reorganization. Further delay is not warranted on the facts of this case.
IT IS THEREFORE ORDERED, that the Motion for Relief From the Automatic Stay by the First Nebraska Bank of Stanton, Nebraska (Fil. #28) is granted. The First Nebraska Bank of Stanton, Nebraska is hereby granted relief from 11 U.S.C. § 362 to pursue its rights and remedies under applicable nonbankruptcy law, and to perform all acts necessary or incidental thereto. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492049/ | AMENDED MEMORANDUM DECISION
SARAH SHARER CURLEY, Bankruptcy Judge.
PROCEDURAL HISTORY
This matter comes before this Court on an objection to proof of claim filed by James D. Fox, the Chapter 7 Trustee (hereinafter “Trustee”), on January 14, 1993. On February 16, 1993, Concrete Equipment Co., Inc. (hereinafter “CECO”) filed its response. At the May 26, 1993 hearing on the objection to proof of claim, this Court ordered the parties to file simultaneous memoranda of law by July 15, 1993. This Court further ordered the parties to file any responsive memoranda of law on or before July 29, 1993.
On August 17, 1993, CECO and the Trustee filed a stipulation as to the briefing schedule. On August 20, 1993, a motion to continue the oral argument set for August 30,1993 was filed. The Court granted the stipulation as to the briefing schedule and set a continued hearing for November 4, 1993.
On November 4, 1993, the Trustee and CECO filed a second stipulation as to the briefing schedule and a joint motion to continue the hearing set for November 4, 1993. On November 5, 1993 this Court granted the stipulation and entered an order continuing the hearing to January 27, 1994. The January 27, 1994 hearing was again continued. On February 16, 1994, this Court entered an order granting the stipulation concerning the briefing schedule and noted that no further extensions would be granted. This Court further set a continued hearing for April 4, 1994.
On March 4, 1994, the Trustee filed his opening brief. CECO filed its responsive brief on March 21,1994 and the Trustee filed his reply brief on March 28, 1994. The Court initially conducted a hearing consisting solely of oral argument on April 4, 1994. The Court set forth the remaining issue upon which CECO would have the opportunity to present evidence. This Court set a trial on the remaining issue for July 5, 1994.
The trial was continued from July 5, 1994 to August 2, 1994 because a witness did not appear. The joint pretrial statement was filed by the parties on July 15, 1994. On August 2, 1994, the trial was held. Only Mr. Vigil testified before the Court. The Court then deemed this matter under advisement.
This constitutes this Court’s findings of fact and conclusions of law pursuant to Rule 7052, Rules of Bankruptcy Procedure (hereinafter “RBP”). This is a “core” proceeding and this Court has jurisdiction over this matter. 28 U.S.C. §§ 1334 and 157.
ISSUE
The issue before this Court is narrow; that is, whether the Debtor transferred an insignificant portion of its accounts receivable to CECO, so that a financing statement need not be filed by CECO to obtain and maintain a perfected security interest in the account receivable.
ANALYSIS
On June 25, 1989, the Debtor and CECO executed a promissory note pursuant to which the Debtor agreed to pay CECO the sum of $49,385.56, with interest to accrue at a certain prime rate plus three percent (3%) *455per annum.1 Simultaneously, the Debtor assigned to CECO a “sum not to exceed $49,-385.56 of assignor’s interest in a debt due to it [Debtor] from Joe E. Woods, Inc.” as security for the repayment of the promissory note.2 The Assignment further stated that the Joe E. Woods, Inc. receivable (hereinafter “the Woods Receivable”) arose from work performed at Arizona State University.3 No financing statement was filed by CECO.
This Court notes that neither party was able to produce the books and records of the Debtor. In fact, this Court was informed that the books and records of the Debtor for the relevant time period could not be located. Thus, this Court must rely on the testimony and exhibits presented at the trial.
Mr. Vigil testified that he worked “in the field” and was not in charge of the books and records of the Debtor. However, Mr. Vigil did state that he received the Debtor’s financial statements on an annual basis. Mr. Vigil apparently last thoroughly reviewed the financial statements of the Debtor around January, 1989. Mr. Vigil subsequently resigned from the Debtor in November, 1989.
Mr. Vigil testified as to the business operations of the Debtor. He stated that at one point in time, the annual gross revenues of the Debtor were between $3 million to $4 million. At one point the Debtor had approximately 80 employees, of which between twelve to fifteen employees were long-term.
Mr. Vigil further testified that by 1989, the operations of the Debtor had changed. As projects were completed, the Debtor laid off employees and did not enter bids on any new construction projects. Mr. Vigil further stated that by June, 1989, the Debtor lacked sufficient funds to pay CECO; thus, the Debtor assigned the Woods Receivable to CECO.
Mr. Vigil testified that in early 1989, the following amounts were owed to the Debtor on various contracts:
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Mr. Vigil then estimated that approximately $125,000 was owed on a variety of contracts as of June 25, 1989. Mr. Vigil stated that approximately $90,000 was owed to the Debt- or on the Arizona State University project and $35,000 was owed to the Debtor on other miscellaneous contracts; however, Mr. Vigil was not able to reconcile this amount of $125,000 with the amounts indicated as being owed on the contracts listed above. The Court concludes that $125,000 was due and owing on a variety of contracts as of June 25, 1989.
Mr. Vigil testified as to his best estimate as to the aggregate amount of accounts receivable still due and owing to the Debtor at the time the Woods Receivable was assigned to CECO. However, this Court does have concerns as to the accuracy of the information provided by Mr. Vigil, since he was not in charge of the books and records of the Debtor, did not review the books and records of the Debtor on a more frequent basis than annually, and was not able to reconcile his estimate of the accounts receivable outstanding as of June 25, 1989 with his estimate of the outstanding accounts receivable on the aforementioned contracts.
To resolve this dispute, the Court must analyze Arizona law. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). This Court notes that CECO, as the assignee, has the burden of proof to show that it was not required to file a financing statement in order to have a properly perfected security interest in the Woods Receivable. See Black, Robertshaw, Frederick, Copple & Wright, P.C. v. United States, 130 Ariz. 110, 634 P.2d 398, 402 (App.1981) (citing to Consol. Film Indus. v. United States, 547 *456F.2d 533 (10th Cir.1977) and Architectural Woods, Inc. v. State, 88 Wash.2d 406, 562 P.2d 248 (1977)).
Under Ariz.Rev.Stat. Ann. § 47-9302 (West 1988 and Supp.1994), a financing statement does not need to be filed in order to perfect a security interest when an insignificant portion of the outstanding accounts are assigned by the assignor.4 An account is defined as being the “right to payment for ... services rendered which is not evidenced by an instrument5 or chattel paper6 whether or not it has been earned by performance.” Ariz.Rev.Stat.Ann. § 47-9106 (West 1988 and Supp.1994). No evidence has been presented which reflects that the Woods Receivable constitutes an instrument or chattel paper. The Woods Receivable is an account granted as security to repay the indebtedness due and owing from the Debtor to CECO.
Arizona case law provides some guidance on the issue of whether a significant portion of a debtor’s accounts receivable has been transferred. In Black, Robertshaw, Frederick, Copple & Wright, P.C. v. United States, 130 Ariz. 110, 634 P.2d 398, 403 (App.1981), Regal and Kealy had entered into two construction contracts. Id. at 111, 634 P.2d at 399. After a dispute arose, the contracts were terminated. Kealy determined it owed Regal approximately $11,000 for work performed and deposited that sum with the State Court. Regal subsequently went out of business, and the Kealy account was assigned to Black, Robertshaw for legal services rendered and to be rendered. The assignment documents were dated January 6, 1976. Black, Robertshaw did file a financing statement, but this document was filed two hours after the IRS had filed its tax lien. The Black court was asked to determine the priority of the security interest of Black, Ro-bertshaw and the Internal Revenue Service. Id., 130 Ariz. at 111, 634 P.2d at 399.
In Black, the court stated that there were three different tests for determining what was a “significant portion” of the accounts receivable:
(1) a percentage of accounts test;
(2) a “casual and isolated transaction” test; and
(3) a combination of (1) and (2).
Id. at 112-13, 634 P.2d at 401-02. The Black court concluded that it did not need to select a specific test for Arizona, because Black, Robertshaw failed to provide the requisite support for its motion for summary judgment. Id. at 114, 634 P.2d at 402.
Although the Black court did not determine which test was appropriate, it found the analysis set forth by the commentator, White & Summers, Uniform Commercial Code § 23-8 (1972), to be the most persuasive. Black, 130 Ariz. at 114, 634 P.2d at 401. White & Summers stated that although there was not a case which gave a clear picture as to the percentage which is considered to be significant, the percentage of accounts test *457was the preferred method. Id. at 113, 634 P.2d at 401.7
The Black court further cited with approval the following language set forth in the White & Summer analysis:
This seems to us an appropriate place to exercise our bias in favor of certainty. If the Court defines “significant” in terms of a percentage of the total accounts of the assignor, we can hope for the cases to produce a comparatively certain and reliable rule on which creditors and debtors can rely. If, on the other hand, we leave it to the courts to determine which sales are casual and isolated and which are not, we suspect that the process could go on for the rest of this century and part of the next without ever producing a rule on which a lawyer could rely.
Black, 130 Ariz. at 113, 634 P.2d at 401 (citing White & Summers, Uniform Commercial Code § 23-8 (1972)). In considering the percentage of accounts test, there is no information beyond the testimony of Mr. Vigil and the exhibits admitted into evidence for this Court to consider.
Here, Mr. Vigil testified that his best estimate as to the total outstanding accounts receivable as of June 25,1989 was the sum of $125,000. Mr. Vigil testified that the $125,-000 was comprised of $90,000 due from Arizona State University and $35,000 from miscellaneous accounts. The Court rejects as not credible Mr. Vigil's efforts to prove somehow that the Debtor’s outstanding accounts were greater than $125,000. His testimony was vague and indefinite, and his recollections of the Debtor’s business operations of nearly five years ago do not support any greater amount being accorded to the aggregate amount of Debtor’s outstanding accounts receivable as of June, 1989. Based upon Mr. Vigil’s estimate of the total accounts receivable owed to the Debtor as of June 25, 1989, the Debtor assigned forty percent (40%) of its total accounts receivable to CECO at the time of the assignment of the Woods Receivable.8 The Court concludes that the Debtor’s assignment of 40 percent (40%) of its accounts receivable to CECO was significant.
This Court concludes that CECO has not met its burden of proof in showing that only an insignificant portion of the accounts receivable of the Debtor were transferred to CECO. Therefore, CECO was required to file a financing statement to perfect its security interest in the Woods Receivable to support its claim that it was a secured creditor of the Debtor. Since CECO did not file a financing statement, CECO is an unsecured creditor of the Debtor. The Trustee’s objection to the CECO claim must be sustained.
. See Movant’s Exhibit A.
. See Movant's Exhibit B.
.See Movant's Exhibit B.
. A.R.S. § 47-9302(A)(5) provides:
A. A financing statement must be filed to perfect all security interests except the following:
k * * * * #
5.An assignment of accounts which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor.
. A.R.S. § 47 — 9105(A)(11) defines an instrument as:
a negotiable instrument (defined in § 47-3104), or a certificated security (defined in § 47-8102), or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment.
The only change made to § 47 — 9105(A)(11) by the 1990 Amendment, after the events described herein took place, was to add the word "certificated.”
.A.R.S. § 47-9105(A)(3) defines chattel paper as:
a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods. When a transaction is evidenced both by such a security agreement or a lease and by an instrument or a series of instruments, the group of writings taken together constitutes chattel paper.
The 1990 Amendments to the Arizona Uniform Commercial Code did not alter § 47~9105(A)(3).
. In Standard Lumber Co. v. Chamber Frames, Inc., 317 F.Supp. 837 (E.D.Ark.1970), the Arkansas district court determined that 16 percent (16%) was not a significant transfer of accounts. See also, In re Sun Int’l, Inc., 24 B.R. 135 (S.D.Fla.) (concluding that the assignment of 14 percent (14%) of the accounts receivable was not significant).
. The sum of $49,385.56 (the Woods Receivable) divided by $125,000 (the aggregate accounts receivable at the time) = 39.5 percent (39.5%). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492050/ | *546MEMORANDUM OPINION
STEPHEN J. COVEY, Bankruptcy Judge.
This matter comes on to be heard upon the amended complaint filed herein by Tulsa Energy, Inc. (“Tulsa Energy”) against KPL Production Company (“KPL”), Dalco Petroleum (“Dalco”), and Dynex Energy, Inc. (“Dynex Energy”), among others. The parties have filed stipulated facts and briefs on the issues. Upon review of the evidence and the applicable law, the Court finds as follows:
Procedural Background
Tulsa Energy filed its voluntary petition under Chapter 7 of the Bankruptcy Code on March 11, 1992. On August 19, 1993, Tulsa Energy filed this adversary proceeding. In its amended complaint, filed on August 26, 1993, Tulsa Energy sought turnover of suspended revenue from certain oil and gas production and interest thereon from KPL, operator of the wells. In addition, Tulsa Energy requested that this Court determine the rights and interests of Tulsa Energy, Dalco, Dynex Energy, and Dynex Properties, Inc. (not a party to this litigation) (collectively, the “Settling Parties”) in the oil and gas production. The Settling Parties have agreed on the determination of their respective interests in the oil and gas production.1 The only issue remaining is whether KPL must pay interest on the suspended revenues and, if so, what rate of interest applies.
Statement of Facts
Dalco has owned a working interest in certain oil and gas wells (the “Wells”)2 since May 1984. Dalco assigned some of its interest in the Wells to Dynex. On June 19,1992, Dalco assigned its interest in the Wells to Tulsa Energy.
In early 1984, Dalco and Dynex Energy became involved in a dispute with regard to their respective interests in the Major # 1 well. KPL received notice of the dispute and suspended revenues beginning with May 1984 production. On October 11,1990, Dalco requested that KPL suspend one-half of the revenues of Dynex Energy in the King, Lan-kard, Elmer, and Ernest wells. Dalco notified KPL that the revenues should be suspended pending execution of division and/or transfer orders reflecting a change in the payout status of these wells.
KPL suspended all revenues of Dalco and Dynex Energy in the King, Lankard, Elmer, and Earnest wells pending execution of appropriate documents. To date, KPL has received no executed division or transfer orders from Dalco, Dynex, or Tulsa Energy.
On August 10, 1994, KPL paid the suspended revenues in the amount of $80,354.70 into the Court. KPL did not pay any interest on the suspended revenues.
Conclusions of Law
The principal issue before the Court is whether KPL must pay interest on the suspended revenues. Oklahoma’s Production Revenue Standards Act provides as follows:
Except as otherwise provided in paragraph 2 of this subsection, where proceeds from the sale of oil or gas production or some portion of such proceeds are not paid prior to the end of the applicable time periods provided in this section, that portion not timely paid shall earn interest at the rate of twelve percent (12%) per an-num to be compounded annually, calculated from the end of the month in which such production is sold until the day paid.
2. a. Where such proceeds are not paid because the title thereto is not marketable, such proceeds shall earn interest at the rate of six percent (6%) per annum to be compounded annually, calculated from the end of the month in which such production was sold until such time as the title to such interest becomes marketable. Marketability of title shall be determined in accordance with the then current title *547examination standards of the Oklahoma Bar Association.
52 O.S.Supp.1993, § 570.10 (emphasis added) (hereinafter the “Production Revenue Standards Act” or the “Act”).3 The Act provides that if proceeds from oil and gas production are not paid within a specified time, interest must be paid on the proceeds at the rate of twelve percent (12%) per annum. However, the Act further provides that if title to the oil and gas production is not marketable, interest shall be paid at the rate of six percent (6%) per annum.
The Act provides that “[mjarketability of title shall be determined in accordance with the then current title examination standards of the Oklahoma Bar Association.”4 While there are no Oklahoma eases which further define marketability under the Act,5 this Court finds that title to the oil and gas production in this case was not marketable. Dalco and Dynex have had an ongoing dispute over their interests in the proceeds of the Wells since 1984. The stipulation of facts filed herein as well as the joint motion filed by the Settling Parties contain numerous references to the ongoing dispute regarding the ownership of the oil and gas production.6 This Court holds that if the owners of a working interest cannot agree as to how the revenues should be divided, the title to the working interest is not marketable. This Court can cite no authority to support its holding, but it seems self-evident. Therefore, the statute requires that KPL pay interest on the suspended revenues at the rate of six percent (6%) per annum.
KPL has raised several defenses to its obligation to pay interest on the oil and gas production. The first defense raised by KPL concerns the division orders. In 1984, Dalco and Dynex Energy executed division orders on all the Wells.7 KPL contends that Dalco and Dynex Energy are bound by the language in the division orders which provides that if a dispute arises concerning title, unless such dispute is resolved to KPL’s satisfaction, KPL may withhold proceeds without interest. The Court disagrees with KPL’s reasoning.
*548The language of the Production Revenue Standards Act providing for payment of interest on suspended revenues is mandatory. Contracts or portions thereof in derogation of statutes will not be enforced by Courts. 15 O.S.1993, § 211; Dycus v. Belco Industries, Inc., 569 P.2d 553, 556 (Okla.Ct.App.1977); see An-Cor, Inc. v. Reherman, 835 P.2d 93, 95-96 (Okla.1992); Hamilton v. Cash, 185 Okla. 249, 91 P.2d 80, 81 (1939). The division order which provides for suspension of proceeds without payment of interest is in derogation of the Production Revenue Standards Act and, therefore, will not be enforced by this Court.
KPL has also raised the statute of limitations as a defense to its liability for interest on the suspended revenue. The Court finds that the statute of limitations does not bar Tulsa Energy’s claim for interest on the suspended revenues.
Prior to September 1, 1992, the statute of limitations applicable to the Production Revenue Standards Act was determined by 12 O.S. § 95 (Second) which provides a three-year limitation for actions created by statutes. After September 1, 1992, the Act was amended to create a limitation period of five years. 52 O.S.Supp.1993, § 570.14(D). The amendment specifically stated that it did not apply “to production occurring prior to September 1, 1992.” Accordingly, the statute of limitations applicable to the Act is three years for production occurring prior to September 1, 1992 and five years for production occurring after September 1, 1992.
Generally, the statute of limitations on a claim begins to run when a cause of action accrues. The accrual of a cause of action occurs at the time that plaintiff could have first maintained the action successfully. Sherwood Forest No. 2 Corp. v. City of Norman, 632 P.2d 368, 370 (Okla.1980). The Production Revenue Standards Act provides that the operator shall pay interest on suspended revenues. KPL had no duty to pay the proceeds of the oil and gas production until the title thereto became marketable. In this case, the Court finds that the cause of action accrued when the title became marketable. This occurred when the settling parties agreed on their respective interests in the proceeds of the oil and gas production. At that time, KPL had a duty to pay the proceeds, the working interest owners had a right to receive the proceeds, and the statute of limitations began to run. Therefore, the statute of limitations began to run on March 3, 1995 or thereafter when curative documents were executed and it has not yet expired.
A separate judgment order will be entered consistent with this Memorandum Opinion ordering KPL to pay interest on the suspended proceeds in the amount of six percent (6%) per annum. The interest should be calculated as simple interest prior to July 1, 1989 and compounded annually after that date.8 If the parties are unable to agree upon the mathematical calculations to arrive at this amount, the Court will hold a hearing to do so.
. See Joint Motion For Approval Of Compromise And Settlement Agreement Between Tulsa Energy, Inc., Dalco Petroleum, Inc., Dynex Properties, Inc. And Dynex Energy, Inc. filed herein.
. The oil and gas wells are designated as follows:
Major # 1 NE/4 Sec. 25-T17N-R9W
Lankard # 1 NE/4 Sec. 17-T15N-R6W
Elmer # 1 NE/4 Sec. 13-T16N-R7W
Ernest # 1 NE/4 Sec. 17-T16N-R7W
Walter # 1 NW/4 Sec. 26-T17N-R8W
King # 1 SW/4 Sec. 18-T17N-R8W
. In 1984, the statute provided in pertinent part as follows:
A. The proceeds derived from the sale of oil or gas production from any oil or gas well shall he paid to persons legally entitled thereto, commencing no later than six (6) months after the date of first sale, and thereafter no later than sixty (60) days after the end of the calendar month within which subsequent production is sold.... Provided, however, that in those instances where such proceeds cannot be paid because the title thereto is not marketable, the purchasers of such production shall cause all proceeds due such interest to earn interest at the rate of six percent (6%) per annum, until such time as the title to such interest has been perfected ...
B. Any said first purchasers or owner of the right to drill and produce substituted for the first purchaser as provided herein that violates this section shall be liable to the persons legally entitled to the proceeds from production for the unpaid amount of such proceeds with interest thereon at the rate of twelve percent (12%) per annum ...
52 O.S. 1981, § 540 (emphasis added).
. Standard 4.1 of the Title Examination Standards provides:
All title examinations should be made on the basis of marketability as defined by the Supreme Court, to-wit: "A marketable or merchantable title is synonymous with a perfect title or clear title of record; and is one free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.”
. The United States Court of Appeals for the Tenth Circuit discussed marketability under the Oklahoma Revenue Production Standards Act in Quinlan v. Koch Oil Co., 25 F.3d 936, 939-40 (10th Cir.1994). However, the Court concluded that "the marketability of Quinlan’s title was not legitimately in question at the time of unitization.”
. See Stipulated Facts and Joint Motion For Approval Of Compromise And Settlement Agreement Between Tulsa Energy, Inc., Dalco Petroleum, Inc., Dynex Properties, Inc. And Dynex Energy, Inc.
. The division orders provide, in part, as follows:
In the event any dispute or question arises concerning the title of Owner to the Property and/or the oil or gas produced therefrom or the proceeds thereof, you will be furnished evidence of title satisfactory to you upon demand. Until such evidence of title has been furnished and/or such dispute or question of title is corrected or removed to your satisfaction, or until indemnity satisfactory to you has been furnished, you are authorized to withhold the proceeds of such oil or gas received and run, without interest.
Oil and Gas Division Order, dated April 4, 1984 (emphasis added).
. Quinlan v. Koch Oil Co., 25 F.3d 936, 940-41 (10th Cir.1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492058/ | ORDER DENYING MOTION FOR SUMMARY JUDGMENT
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the debtor plaintiffs Motion for Summary Judgment, filed on April 14, 1995, to which the defendant has failed to respond.1 The debtor reopened his bankruptcy case to file this adversary proceeding which requests that the Court find a debt be declared discharged. The creditor defends this suit on the grounds that the debt was for wilful and malicious injury such that it is nondischargeable pursuant to section 523(a)(6).
In July 1993, the creditor Jerry Langfitt obtained a judgment against the debtor in the amount of $131,360.61 from the Superior Court of the State of California. Purportedly unaware of this debt, the debtor did not list this debt on his bankruptcy petition, filed on May 11, 1993.2 The debtor moves for summary judgment, asserting that the defendant cannot meet his burden of demonstrating that the debt was due to wilful and malicious injury. In support of this assertion, the debtor shows only that the Superior Court in California did not impose punitive damages.
While it is true that an imposition of punitive damages will support a finding that *36an act was done wilfully and maliciously for dischargeability purposes, In re Williams (Davis v. Williams), 173 B.R. 912 (Bankr.W.D.Ark.1994), the converse is not necessarily true. That is, the fact that the trial court did not impose punitive damages is insufficient to demonstrate that the creditor cannot carry his burden of proof. The fact that punitive damages were not imposed does not necessarily negate a finding of wilful and malicious injury by the state court. The evidence submitted does not even indicate the nature of the cause of action litigated in the state court proceeding. If collateral es-toppel applied, the judgment of the Superior Court alone is insufficient to grant summary judgment on this issue. See generally, Johnson v. Miera (In re Miera), 926 F.2d 741, 743 (8th Cir.1991) (requiring court to examine state court record to determine collateral estoppel issues). Accordingly, it is
ORDERED that the Motion for Summary Judgment, filed by the debtor on April 14, 1995, is DENIED.
IT IS SO ORDERED.
. The fact that defendant’s counsel has moved to withdraw as counsel does not relieve him of the duty to represent his client until such time as an Order is entered granting permission to withdraw as counsel.
. Inasmuch as the judgment was not entered until after the bankruptcy case was filed, it is presumptively "invalid." See Reichenbach v. Kizer (In re Reichenbach), 174 B.R. 997 (Bankr.E.D.Ark.1994), appeal filed, No. 5-95cv48 (E.D.Ark. filed Dec. 15, 1994). Thus, it does not appear that collateral estoppel would apply. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492059/ | ORDER DENYING MOTION FOR SUMMARY JUDGMENT AND ORDER SETTING HEARING
MARY D. SCOTT, Bankruptcy Judge.
This case presents the quintessential circumstance for which the doctrine of res judi-cata was formulated. The plaintiff previously was party to an action filed in the United States District Court for the Western District of Arkansas in which the parties sought a determination as to lien priority on certain property. The district court entered judgment in favor of the Department of Housing and Urban Development (“HUD”), specifically ruling that HUD held “liens superior to those of Edmundson, Thomas, and Cunningham. ... That all federal defendants hold a lien entitled to first priority.” Edmundson v. Pine Creek II Apartments, Ltd., Civ. No. 88-4027 (W.D. Ark. judgment filed Feb. 26, 1990). The Eighth Circuit Court of Appeals affirmed this judgment. Edmundson v. Pine Creek II Apartments, Ltd., 938 F.2d 184 (8th Cir. May 7, 1991). Having already litigated its position before the district court and the Eighth Circuit Court of Appeals, plaintiff seeks to relitigate the cause of action by raising a new argument.
The doctrine of res judicata bars the relitigation of all claims which were litigated or which might have been litigated in another court of competent jurisdiction. Lane v. Peterson, 899 F.2d 737, 742 (8th Cir.1990), cert. denied, 498 U.S. 823, 111 S.Ct. 74, 112 L.Ed.2d 48 (1990). The doctrine applies if the following elements are met:
(1) the prior judgment was rendered by a court of competent jurisdiction;
(2) the prior judgment was a final judgment on the merits; and
(3) the same cause of action and the same parties or their privies were involved in both eases.
Id.
The district court is a court of competent jurisdiction, and its final order was affirmed by the appellate court. Both the action in district court and this action were filed to determine lien priority with regard to particular property, and both involved HUD and the plaintiff. Thus, each of the elements has been indisputably met with regard to the proceeding before the Court such that application of the doctrine of res judicata is merited. Plaintiff argues that res judicata is inapplicable under Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) because a different issue is now being raised. However, Brown v. Felsen does not support this proposition. Indeed, Brown, not only holds that res judicata applies to all issues which might have been raised in the prior litigation, Brown, at 139 n. 10, 99 S.Ct. at 2213 n. 10, it instructs the trial court to apply the doctrine with regard to state law issues, as are presented here. Brown, 442 U.S. at 132, 99 S.Ct. at 2209; see Tway v. Tway (In re Tway), 161 B.R. 274, 277 (Bankr.W.D.Okla.1993).
While Brown ultimately does apply an exception to the doctrine of res judicata, that exception is not applicable here for two reasons. First, the exception in Brown relates only to dischargeability proceedings. Brown’s rationale was that it was solely for the bankruptcy court to determine the dis-chargeability of debts; such matters of federal law could not be determined by the state courts such that res judicata could not be applied to preclude relitigation of issues in dischargeability proceedings. The Supreme Court specifically distinguished this particular circumstance from other matters to which res judicata would apply, and particularly matters raising issues of state law before the bankruptcy court. See Brown, 442 U.S. at 132, 99 S.Ct. at 2209; see Tway v. Tway (In re Tway), 161 B.R. 274, 277 (Bankr.W.D.Okla.1993). Secondly, it is does not appear that the holding of Brown, a case decided under the Bankruptcy Act, is viable under the Bankruptcy Code and the pronouncements in Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). See Rosenbaum v. Cummings (In re Rosenbaum), 150 B.R. 994, 996 & n. 2 (E.D.Tenn.*381993) (Brown superseded by statute and distinguished).
Based upon the foregoing, plaintiffs reliance upon different substantive law and a new legal argument does not preclude application of res judicata principles. Lane at 744. As noted above, res judicata applies to claims which might have been litigated as well as those claims actually litigated. See Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir.1983). Thus, the plaintiff is not entitled to summary judgment on its claim.
While the principles of res judicata are clearly applicable here, and it would appear that HUD is entitled to judgment in its favor, no motion is before the Court for such entry of judgment. Since HUD has, inexplicably, not yet seen fit to move for summary judgment, this matter must be set for trial.
ORDERED as follows:
1. The plaintiffs Motion for Summary Judgment, filed on April 3, 1995, to which HUD responded on April 19, 1995, is DENIED.
2. This matter is set for trial on May 18, 1995, at 10:00 at the United States Courthouse located at 500 State Line Ave., Texar-kana, Arkansas.
IT IS SO ORDERED.
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
This cause is before the Court upon the defendant’s Motion for Summary Judgment, filed on May 8, 1995. The motion presents the same issues that were presented to the Court in the plaintiffs motion for summary judgment. The Court denied the plaintiffs motion for summary judgment on the grounds that res judicata barred plaintiff from recovery of the relief he sought. Therefore, for reasons stated in the Court’s Order of May 2, 1995, in this adversary proceeding, the government’s motion should be granted. Accordingly, it is
ORDERED as follows:
1. The defendant’s Motion for Summary Judgment, filed on May 8, 1995, is GRANTED.
2. The trial set for May 18, 1995, at 10:00 at the United States Courthouse located in Texarkana, Arkansas, is removed from the calendar.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492060/ | MEMORANDUM ON MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION OF ISSUES AND ORDER THEREON
KATHLEEN T. LAX, Bankruptcy Judge.
Gary Plotkin, Chapter 7 trustee (the “Trustee”) in the bankruptcy case of Stanley Mark Cohen (“Debtor”) filed an adversary proceeding against Pomona Valley Imports, Inc. dba Metro Motors (“Pomona”) seeking to avoid various purchases of new automobiles by the Debtor on the grounds that such purchases constituted fraudulent transfers under 11 U.S.C. § 548 or California Civil Code § 3439.04 and § 3439.05. Pomona moves for summary judgment or, in the alternative, summary adjudication of issues on numerous grounds more fully discussed below.
This dispute arises out of the activities of the Debtor in a “ponzi” scheme, the basic facts of which are not in dispute. In 1989 and 1990, the Debtor received money from various individuals to purchase luxury automobiles at below-market prices. The Debtor bought the cars from dealers at full retail price, using money from new “buyers/inves*47tors” to make up the difference between the money previously received and the retail cost of the vehicles. At the time of purchase, the car was registered in the name of the buyer/investor for whom the car was purchased and was ultimately delivered to the buyer/investor (the “Recipient”). At some point, of course, the scheme collapsed because the Debtor was paying out more than he was taking in and monies from the later buyer/investors were insufficient to purchase the promised automobiles from dealers. Apparently, the Debtor is now in prison for criminal fraud in connection with this scheme.
An involuntary petition was filed against the Debtor on September 26, 1991. In this adversary proceeding, the Trustee seeks to recover the difference between the amount the Debtor received from each individual Recipient and the amount the Debtor paid to Pomona on the grounds that the Debtor had actual intent to hinder, delay, and defraud creditors pursuant to his scheme and the Debtor did not receive reasonably equivalent value because the automobiles were transferred to the third party Recipients resulting in a net depletion of money in the estate.
Viewing the scheme as a whole and the purchase and transfer of each vehicle to a Recipient who paid the Debtor less than what the Debtor paid for the vehicle, it is apparent that fraudulent transfers occurred within the meaning of Section 548 of the Bankruptcy Code and California Civil Code § 3439. However, after considering the arguments of both parties, including the supplemental issues briefed at the request of the court, this court concludes that the transfers which proved to be fraudulent were not the payments made to Pomona in exchange for vehicles at their respective retail prices.
DISCUSSION
Although the parties hereto dispute a number of issues potentially relevant to the outcome of this proceeding, the threshold issue is whether the Debtor received value from Pomona equal to the money paid to Pomona. If so, no fraudulent transfer of assets of the Debtor to Pomona took place.
Pomona is in the commercial business of selling cars to buyers with the resources to pay for such cars. It is undisputed that the Debtor paid the full retail price for each car at issue. In exchange, the Debtor received either the right to own the vehicle if purchased for his own account or the right to direct disposition of the vehicle if purchased for the benefit of another. In either case, in consideration for the price paid, the Debtor received rights in the vehicle equal to the rights in the vehicle relinquished by Pomona. Such rights included the right to transfer it to another for less than what the Debtor paid for it.
The fact that the Debtor instructed the dealer to carry out the intent to transfer the car to another person is immaterial to the basic economics of the sale to the Debtor. Until the Debtor paid the purchase price and acquired constructive dominion and control over the vehicle either as a principal or as an agent for a Recipient, he had no right to take the vehicle in his own name or to direct that it be registered to or delivered to someone else. If the Debtor had transferred ownership of the cars into his own name and then transferred them to the Recipients, there would be no question that Pomona had given fair value to the Debtor and ultimately to the bankruptcy estate in exchange for the purchase price. The Trustee cannot skip over or ignore the fact that the transfer of the vehicles to the Recipients could only take place once the Debtor had acquired sufficient rights in the vehicles to direct their registration and delivery. Pomona’s compliance with the Debtor’s directions in this regard are consistent with its duties under state law to complete the documentation necessary to transfer registered ownership of the inventory it sells. The Debtor received what he paid for: rights in the vehicle, including the right to direct its delivery and registration.
This court’s conclusion that the undisputed facts of this case do not support a cause of action for fraudulent transfer under federal or state law mandates that Pomona’s motion for summary judgement be granted. This conclusion is further elucidated by examining other arguments proffered by the Trustee.
The Trustee has offered no evidence that Pomona or its salesman knew or had reason *48to know that the sales were part of a scheme which ultimately resulted in damage to Cohen’s creditors. Nevertheless, the Trustee argues that the dealer should have known that something was “amiss” because Cohen purchased more than one vehicle and that a credit cheek would have revealed a prior bankruptcy by Cohen.
It is not clear when, in the course of Pomona’s dealings with Cohen, the Trustee believes Pomona should have done something or what action the Trustee believes Pomona could have or should have taken. At what point should a seller of retad goods decide that a buyer with the demonstrated means to pay full value has purchased too many items and, therefore, may be defrauding his or her creditors? What kind of investigation of the transaction would provide the seller with useful or actionable information? Should Pomona have required proof that registered owners in prior, completed transactions had paid Cohen at least as much or more than Cohen paid for the car? Would a Recipient be likely to volunteer such information? Since Cohen told Pomona’s sales representative that the purchases were on behalf of a group of entertainment figures, including his wife’s company, and were gifts and bonuses, should Pomona have made some kind of independent investigation of the financial posture of Cohen or his wife’s company to ascertain if either or both would be rendered insolvent by the latest contemplated sale?
Is the Trustee arguing that retail sellers should run a credit check on all cash purchasers? What purpose would be served in doing so? Even if Pomona had discovered that Cohen had filed bankruptcy in the past, this information would not constitute notice that Cohen was engaged in a scheme that would lead him into bankruptcy a second time.
If a retail seller of goods refuses to sell such goods when offered its full selling price, it is not only unlikely to stay in business long, but may also find itself the object of a lawsuit, having made an offer to sell which is accepted by a willing and able buyer. The seller does not have a duty to investigate the bona fides of a cash purchaser who consents to pay the asking price for goods for sale on the open market. To impose such a duty would create an unfair and impossible burden on ordinary commercial activity. In this case, the Trustee’s suggestion that Pomona shares responsibility for Cohen’s actions in defrauding creditors is unsupported by any facts in evidence.
The Trustee further argues that he has stated a cause of action for unjust enrichment that should be preserved for trial. However, the only “facts” that the Trustee offers are that Pomona sold several vehicles to Cohen and that Pomona made more money than it would have if Pomona had negotiated a lower price for each vehicle. There is no cause of action for unjust enrichment here.
There is no requirement in law or equity for a retail seller of luxury goods in an open market to sell its product for less than the price it wishes to receive, much less bargain with itself to lower the price. Nor does such a seller have to prove the fairness of the price by demonstrating that other buyers would be willing to pay at least as much the successful buyer, although Pomona has offered testimonial evidence from its fleet manager at the time to prove this point. If the seller cannot obtain the price it wants, it can choose to hold the goods hoping for a better market.
If, on the other hand, the seller sets a price for its goods and a ready, willing, and able buyer offers to pay the asking price, the fact that the price falls at the high end of fair market value for the goods does not result in unjust enrichment to the sellers.
CONCLUSION
Based on the foregoing, the motion for summary judgment should be granted.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492062/ | Memorandum Decision On Debtor’s Motion To Stay Mercury Capital Corp.
JAMES L. GARRITY, Jr., Bankruptcy Judge.
Debtor is an individual whose voluntary petition under chapter 11 of the Bankruptcy Code (the “Code”) lists seven apartment buildings as his principal assets. Mercury Capital Corporation (“Mercury”) claims to be owed in excess of $1 million and may be debtor’s largest creditor. Its claim is secured by a first mortgage on four of the buildings (two of which are identified below as the “U-Ton Buildings” and two as the “Realty Buildings”), and a second mortgage on the remaining three buildings. The issues, rents and profits of the U-Ton and Realty Buildings have been assigned to Mercury to secure payment of its claim. Postpe-tition, without seeking leave of the court, Mercury took steps to seize the rents generated from operation at the U-Ton and Realty Buildings. Debtor immediately petitioned the court for an order pursuant to § 362 of the Code staying Mercury’s actions and directing it to turn over any rents it may have received as a result of its allegedly unauthorized collection activities. Mercury was not paid any rent and consented to the entry of an order barring it from seizing the rents pending full hearing and resolution of the motion. It opposes the motion arguing that the automatic stay is not implicated because the U-Ton and Realty Buildings (and rents generated therefrom) do not constitute property of debtor’s estate. For the reasons stated below, the motion is denied and the consent order is vacated.1
Facts
The underlying facts are not in dispute. On February 23, 1995, debtor filed a voluntary petition for reorganization under chapter 11 of the Code. Pursuant to §§ 1107 and 1108 of the Code, debtor has continued in possession of his business and assets as a debtor in possession. No creditors’ committee has not been appointed herein.
Among debtor’s assets is his 100% ownership of two New York corporations: Great Goldhead Realty Corp. (“Realty”) and U-Ton Farms Inc. (“U-Ton”). Realty is the record owner of two apartment buildings located at 4006 and 4008 Paulding Avenue, Bronx, New York, respectively (the “Realty Buildings”). U-Ton is the record owner of two apartment buildings located at 3940 and 3942 Barnes Avenue, Bronx, New York, respectively (the “U-Ton Buildings”).
*98On or about April 13, 1989, Progressive Credit Union, Central Credit Union and Independent Credit Union (collectively, “Progressive”) loaned debtor the sum of approximately $700,000. That loan is evidenced by a Mortgage Note dated April 13, 1989. See Mercury Objection, Ex. A.2 Simultaneously with the execution of that note, debtor caused U-Ton and Realty to execute unconditional guarantees of his indebtedness to Progressive, with each waiving presentment for payment, protest, notice of protest and notice of non-payment. Id. As security for those pledges, debtor caused Realty and U-Ton to grant Progressive first mortgages on the Realty and U-Ton Buildings, respectively. See Mercury Objection, Ex. B. In addition to granting Progressive liens on those buildings, U-Ton and Realty assigned to Progressive “the rents, issues, and profits of the premises as further security of said indebtedness”, id, ¶ 13, and in doing so, granted Progressive “the right to enter upon and take possession of the premises for the purpose of collecting [the issues, rents and profits]”. Id.
Pursuant to § 203-a of the New York Tax Law (“Tax Law”), on March 24, 1993, U-Ton and Realty were dissolved by proclamation of the New York State Secretary of State for failing to pay their franchise taxes. Since that time, no steps have been taken either to reinstate them, or to wind up their affairs. In his voluntary petition, debtor represents that his principal assets consist of his fee ownership of the Realty and U-Ton Buildings, and three other apartment buildings located in the Bronx, New York.3 Mercury is the assignee of Progressive’s rights under the note and mortgage. As of the filing date, debtor was in default under those instruments and by Mercury’s count, owed it the sum of $1,082,017.82, consisting of $687,-621.01 in principal, $363,337.43 in interest, and other charges of approximately $31,-019.38.
On or about March 27, 1995, debtor learned that Jeffrey Meshel, an employee of Mercury, had sent a form letter dated March 24, 1995 to each tenant at the U-Ton and Realty Buildings demanding that rent otherwise payable to the landlord be sent directly to Mercury. In relevant part, the letter states as follows:
Please be advised that the building you live in is in foreclosure. Commencing April 1, 1995 do not pay any more rent to the landlord. We are the owners of the first mortgage and are exercising our right to collect the rent. Going forward you will send your rent and make your check out to Mercury Capital, our mailing address is 41 East 42nd Street, Suite # 1100, New York, N.Y. 10017.
Again under no circumstances are you to pay rent to the landlord. If you do, you won’t get credit for it.
See Affidavit of Stanley N. Kutcher, Esq., as counsel to debtor, sworn to on March 30, 1995, submitted in support of debtor’s motion, Ex. A. Upon learning of that action, debtor moved by Order to Show Cause to stay all such collection activity and to compel Mercury to turn over any rents it may have collected. On March 31, 1995, representa*99tives of the debtor and Mercury (although not Mercury’s counsel) appeared and were heard on debtor’s request for entry of an order barring Mercury’s collection activities pending a hearing on the motion. We entered such an order (the “March Order”) and scheduled a hearing on the motion for April 7,1995. At that hearing Mercury was represented by counsel who submitted a written objection to the motion just prior to the commencement of the hearing. In that objection, Mercury contends that U-Ton and Realty, not debtor, own the U-Ton and Realty Buildings. The hearing was adjourned to afford debtor an opportunity to respond to the objection. Mercury agreed that the March Order would remain in effect pending resolution of the motion.
Discussion
The automatic stay of § 362 of the Code is intended to facilitate a debtor’s reorganization and thereby promote the equitable distribution of the debtor’s assets among its creditors, by providing a debtor breathing space from creditor claims during which to formulate a plan of reorganization. See, e.g., In re Ionosphere Clubs, Inc., 922 F.2d 984, 989 (2d Cir.1990), cert. denied sub nom., Air Line Pilots Ass’n Int’l v. Shugrue, 502 U.S. 808, 112 S.Ct. 50, 116 L.Ed.2d 28 (1991); In re Petrusch, 667 F.2d 297, 299 (2d Cir.1981), cert. denied, 456 U.S. 974, 102 S.Ct. 2238, 72 L.Ed.2d 848 (1982). In relevant part, § 362(a) states that the filing of a chapter 11 petition automatically acts as a stay, applicable to all entities, of “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3). Mercury contends that because debtor does not have a legal or equitable interest in the Realty and U-Ton Buildings, or the rents, issues and/or profits generated from the operation of those buildings, its collection activities are beyond the scope of § 362 of the Code and the motion must be denied. Debtor does not dispute that his motion should be denied if the subject rent is not property of his estate under § 541 of the Code. Whether the rent is property of the estate must be determined by reference to New York state law. See Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136 (1979); Morton v. National Bank of New York City (In re Morton), 866 F.2d 561, 563 (2d Cir.1989).
A corporation is “an artificial being, invisible, intangible, and existing only in contemplation of law.” Trustees of Dartmouth College v. Woodward, 17 U.S. 518, 4 L.Ed. 629, 4 Wheat. 518 (1819). Because Realty and U-Ton are New York corporations, New York state law governs their affairs. See First Nat’l City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 621, 103 S.Ct. 2591, 2597, 77 L.Ed.2d 46 (1983) (“As a general matter, the law of the state of incorporation normally determines issues relating to the internal affairs of a corporation); In re G & L Packing Co., Inc., 41 B.R. 903, 910 (N.D.N.Y.1984) (state law governs the affairs of a corporation). On or before March 15 of each year, every New York corporation liable to pay franchise taxes is required to make a “written report of its condition at the close if its business on the preceding December thirty-first, stating the amount of its authorized stock, the amount of stock paid in, the date and rate per annum of each dividend paid by it during the year ending with such day, the entire amount of the capital of such corporation, and the capital employed by it in [New York] state during such year.” N.Y. Tax Law § 192(1). In the first instance, the state tax commissioner polices compliance with those provisions. On or before the last day of March, June, September or December in each calendar year, the tax commissioner may certify and transmit to the department of state a list of all such corporations that have failed to file their reports in the immediately preceding two years or that have failed to pay required taxes during that period. N.Y. Tax Law § 203-a(l). Thereafter, the “secretary of state shall make a proclamation under his hand and seal of office, as to corporations where names are included in such list ... declaring such corporations dissolved and their charters forfeited ... ”. N.Y. Tax Law § 203-a(3).
Because a private corporation can exist only to the extent provided by the law of the state or sovereignty by which it is *100created, a corporation’s dissolution ends its existence, except to the extent otherwise provided by statute or other applicable law. See, e.g., Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120, 125, 58 S.Ct. 125, 127, 82 L.Ed. 147 (1937); see also Oklahoma Natural Gas Co. v. Oklahoma, 273 U.S. 257, 259, 47 S.Ct. 391, 392, 71 L.Ed. 634 (1927) (“It is well settled that at common law and in the federal jurisdiction, a corporation which has been dissolved is as if it did not exist, and the result can not be distinguished from the death of a natural person in its effect”). Thus, to give effect to the equitable rule that the assets of a dissolved corporation are held for the benefit of its creditors and shareholders, state law includes provisions extending the life of a dissolved corporation to permit it to wind up its affairs. See Fletcher Cyc. Corp. § 8158 (Perm.Ed.). In New York, those provisions are contained in §§ 1005-1008 of the Business Corporations Law (“BCL”). They apply to a corporation dissolved by proclamation under N.Y. Tax Law § 203-a(3). See N.Y. Bus. Corp. Law § 1009; N.Y. Tax Law § 203-a(10). Accordingly, although New York law prohibits a dissolved corporation from engaging in new business, see, e.g., Lorisa Capital Co. v. Gallo, 119 A.D.2d 99, 506 N.Y.S.2d 62, 70 (1986); Brandes Meat Corp. v. Cromer, 146 A.D.2d 666, 537 N.Y.S.2d 177 (1989), it can act to the extent necessary to wind up its affairs. See N.Y. Bus. Corp. Law § 1005(a)(1); see also Brady v. State Tax Commission, 176 Misc. 1053, 29 N.Y.S.2d 88 (N.Y.Sup.Ct.1941), aff'd 263 A.D. 955, 33 N.Y.S.2d 384, aff'd 289 N.Y. 585, 43 N.E.2d 719 (N.Y.1942); Lorisa Capital Co. v. Gallo, 506 N.Y.S.2d at 70. The dissolved corporation retains the “power to fulfill or discharge its contracts, collect its assets, sell its assets at a public or private sale, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business.” N.Y. Bus. Corp. Law § 1005(a)(2). Moreover, the dissolution of a corporation does not “affect any remedy available to or against such corporation, its directors, officers or shareholders for any right of claim existing or any liability incurred before such dissolu-tion_” N.Y. Bus. Corp. Law § 1006(b). A dissolved corporation remains responsible for its liabilities “until its affairs are fully adjusted.” Flute, Inc. v. Rubel, 682 F.Supp. 184, 186 (S.D.N.Y.1988) (quoting Rodgers v. Logan, 121 A.D.2d 250, 503 N.Y.S.2d 36, 39 (1986) (citing cases)). Pending completion of the winding up, title to the assets of the dissolved corporation “shall remain in the corporation until transferred by it in its corporate name.” N.Y. Bus. Corp. Law § 1006(a)(1). See Rodgers v. Logan, 503 N.Y.S.2d at 39 (“Until dissolution is complete, title to the corporate assets remains in the corporation.” (citing BCL § 1006(a)(1)). See also N.Y. Bus. Corp. Law §§ 1005(a)(2), (3) (shareholders are not entitled to a distribution on account of their equity interests in dissolved corporation until corporation pays, or adequately provides for the payment of, all corporate liabilities.)
Debtor contends that when Realty and U-Ton were dissolved under Tax Law § 203-a, he automatically was vested with fee ownership of the U-Ton and Realty Buildings. That contention stems from his mistaken belief that the affairs of U-Ton and Realty need not be wound up. Compare N.Y.Bus.Corp.Law § 1009; N.Y.Tax Law § 203-a(10). It also ignores that the Second Circuit rejected a similar argument in New Haven Radio v. Meister (In re Martin-Trigona), 760 F.2d 1334 (2d Cir.1985). In that case, Martin-Trigona, the sole shareholder of New Haven Radio, Inc. (“Radio”), itself a chapter 11 debtor, sought to overturn a bankruptcy court sanctioned sale of Radio’s assets. Prior to the filing of Radio’s chapter 11 petition, the Connecticut Secretary of State declared Radio’s charter forfeited pursuant to Conn.Gen.Stat. § 33-387. Instead of seeking to reinstate its corporate charter as permitted by Conn.Gen.Stat. § 33-388, Radio filed a voluntary chapter 11 petition. 760 F.2d at 1342. Martin-Trigona contended that the asset sale should be annulled because Radio was not properly a debtor under the Code. Among other things, Martin-Tri-gona argued that when Radio was dissolved by forfeiture it ceased to exist for any purpose, and that as sole shareholder, he automatically was vested with title to Radio’s assets. Id. at 1341^2. The court found no merit to either contention. Under Connecti*101cut law, Radio had two options after its charter was forfeited. Either it could cure the defect giving rise to the forfeiture and seek reinstatement pursuant to Conn.Gen.Stat. § 33-388(a), or its affairs had to be wound up pursuant to §§ 33-379 — 380, with its assets being distributed first in satisfaction of the claims of creditors and then to the shareholder on account of his equity interest. The court held that by virtue of the winding up procedures, Radio’s assets did not automatically vest in the shareholder when the corporate charter was forfeited. See 760 F.2d at 1342. It also held that because Connecticut’s winding up provisions did not expressly prohibit a dissolved corporation from filing a chapter 11 petition, and because relief under chapter 11 was consistent with the plan and purpose of the Connecticut statute authorizing dissolution by forfeiture, Radio’s chapter 11 petition was properly filed. Id. at 1341-43.
A corporation dissolved by proclamation under Tax Law § 203-a either can seek reinstatement, see N.Y.Tax Law § 203-a(7), or be wound up. See N.Y.Tax Law § 203 — a(10); N.Y.Bus.Corp.Law § 1009. In In re Cedar Tide Corp., 859 F.2d 1127, 1133 (2d Cir.1988), the court found that the Connecticut statutory scheme in issue in Marbin-Trigona is substantially similar, although not identical, to that in Tax Law § 203-a. Accordingly, “[f|rom the statutory scheme in [New York], it is apparent, therefore, that there is no merit to [debtor’s] claim that all the assets of [U-Ton and Realty] immediately passed to him as sole stockholder when the corporation[s] [were] dissolved [under Tax Law § 203-a]”. In re Marbin-Trigona, 760 F.2d at 1342. Under the Code, the term “property of the estate” is broadly defined to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” See 11 U.S.C. § 541(a)(1). Because debtor has not shown that he has either a legal or equitable interest in the U-Ton and Realty Buildings, or the rents generated from the operation of those buildings, he has not established a right to the relief sought in the motion. See United States W. Fin. Servs. v. Berlin (In re Berlin), 151 B.R. 719, 724 (Bankr.W.D.Pa.1993) (automatic stay did not extend to real property which partnership had purported to transfer to debtor on eve of dissolution because the transfer agreements made no provision for satisfying debts owed partnership creditors; because partners have no right to partnership property until creditors have been satisfied, debtor could not thereby have acquired any interest in the real property).
In further opposition to the motion, Mercury contends that U-Ton and Realty are the real parties in interest and that each can secure the automatic stay’s benefits by filing a bankruptcy petition under the Code, notwithstanding that each has been dissolved pursuant to Tax Law § 203-a. As support, it cites In re Cedar Tide Corp., 859 F.2d 1127 (2d Cir.1988). In that case, the chapter 11 debtor was a New York corporation that had been dissolved by proclamation pursuant to Tax Law § 203-a(3). A creditor sought to dismiss the case on the grounds that the court lacked subject matter jurisdiction over the corporation by virtue of the fact that it had been dissolved. After determining that the relevant provisions of the BCL and Tax Law are substantially similar to the Connecticut statutes at issue in In re Martin-Trigo-na, the court applied the rationale of that case to deny the creditor’s motion. See 859 F.2d at 1132-33.
Debtor contends that we should not follow Cedar Tide because that decision assumes that a dissolved New York corporation continues to exist for the limited purpose of winding up its affairs, see 859 F.2d at 1132, while De George v. Yusko, 169 A.D.2d 865, 564 N.Y.S.2d 597 (1991), holds that such a corporation ceases to exist for all purposes. Debtor has misread De George. In that case, defendant, the president and sole shareholder of Le Vison Care Products, Inc., entered into an agreement to sell plaintiff 39% of the outstanding shares of the corporation’s stock for $40,000. Id. 564 N.Y.S.2d at 597. An addendum to that agreement further assured plaintiff management authority and that he would eventually attain the position of Le Vison’s chief administrative officer. Id. at 598. Seven months after plaintiff and defendant executed the agreement, and plaintiff made a $10,000 down payment, the corporation’s assets were liquidated at a *102sheriffs sale. Id. Plaintiff sued to recover his down payment and defendant counterclaimed for the balance of the contract. Id. After learning through discovery that the corporation had been dissolved pursuant to Tax Law § 203-a for failing to pay its franchise taxes five years before the agreement was executed, plaintiff moved for summary judgment alleging that the agreement was unenforceable for lack of consideration. Id. The trial court denied his motion finding that a triable issue of fact existed as to whether the corporation had a defacto existence when the agreement was executed, due to the fact that Le Vison continued to do business and pay taxes post-dissolution. Id. The appellate division affirmed but for different reasons. It found that the triable issue of fact was whether the transfer of the corporation’s accounts to an entity controlled by plaintiff, coupled with defendant’s guarantee to plaintiff of future employment, constituted sufficient consideration to support their agreement. Id. In parting ways with the trial court’s analysis, the court reiterated the well settled rule that a dissolved corporation is essentially legally dead and has no de facto existence. Id. Contrary to plaintiffs assertion, it did not hold that a dissolved corporation ceases to exist for all purposes. As noted above, the black letter law in New York is that a corporation dissolved by proclamation under Tax Law § 203-a is empowered to wind up its affairs. De George does not purport to challenge that. In any event, resolution of the issue of whether U-Ton and Realty are eligible to be debtors under the Code is inappropriate because neither entity is before us in this case. Moreover, it is irrelevant to our review of the merits of this motion.
Conclusion
Based on the foregoing, debtor’s motion is denied and the March Order is vacated.
SETTLE ORDER.
. Our subject matter jurisdiction of this matter is predicated on 28 U.S.C. §§ 1334(b) and 157(a) and the "Standing Order of Referral of Cases to Bankruptcy Judges” of the United States District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This motion is a core proceeding. See 28 U.S.C. § 157(b)(2)(A).
. "Mercury Objection” means the Objection of Mercury Capital Corp. To The Motion Of The Debtor For A Stay And Directing That All Rents Be Paid To Debtor, dated April 6, 1995.
. Debtor contends that he holds fee title to the following buildings:
3940 Barnes Avenue, Bronx, New York 3942 Barnes Avenue, Bronx, New York } U-Ton Buildings
4006 Barnes Avenue, Bronx, New York 4008 Bames Avenue, Bronx, New York } Realty Buildings
918 East 225th Street, Bronx, New York 4126 Bronxwood Avenue, Bronx, New York 4017 Paulding Avenue, Bronx, New York
See Voluntary Petition, Schedule A. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492063/ | OPINION RE: DEBTOR’S OBJECTION TO ALLOWANCE OF CLAIM OF STEPHEN W. AND LANA G. PEARSON
LAURENCE E. HOWARD, Chief Judge.
This matter comes before the court on the debtor in possession’s objection to the claim of Stephen W. and Lana G. Pearson (“Pear-sons” or “claimants”). The Pearsons filed their timely claim in the amount of $292,-904.00 as unsecured creditors. The debtor, First Actuarial Corporation of Illinois, (“First Actuarial” or “debtor”) subsequently filed a written objection to the Pearsons’ claim for the reason that:
Debtor has scheduled Claimants’ claim as being in dispute since a liability to Claimants was shown on the Debtor’s books, but the Debtor also showed that it owned the Capital stock of Pearson Gordon Jones Corporation as an asset as well. The Debtor has not had control of such company since January 1991 when the original sellers of such company, including these Claimants, regained control of such company through action commenced in the courts of the State of Arizona. Since Claimants have now taken back and received control of what they previously sold (the corporation), they should not have any further claims against the Debtor.
The debtor asks that this claim be disallowed in its entirety.
Thereafter, the Pearsons filed a brief entitled “Response to Debtor’s Objection to Claim of Stephen W. and Lana Pearson.” In that brief, the Pearsons indicated that they would not travel to Michigan for any hearings in this matter. The Pearsons live in Arizona and appear before this court pro se. *180A hearing on this objection to claim went forward but the Pearsons did not attend. First Actuarial did appear and offered the testimony of its president, John Edward Hansen. The matter was taken under advisement pending the submission of briefs on the issues presented.
The debtor submitted its “Brief in Support of Debtor’s Objection to Claim of Stephen W. and Lana Pearson.” To that brief, the Pear-sons responded with their “Claimants’ Response to Debtor’s ‘Brief in Support of Debt- or’s Objection to Claim of Stephen W. and Lana Pearson’.” All briefs filed contain a number of supporting documents attached as exhibits.
Based on those briefs, the court file, and the testimony taken in open court, the history of the dealings between the debtor and the Pearsons appears to be as follows.
BACKGROUND
The Pearsons’ claim arises out of the sale of their stock in the Pearson Gordon Jones Corporation (“PGJ”). In 1988, the Pearsons were co-trustees of the Pearson Revocable Trust (“Pearson”) dated January 23, 1986. Pearson was the owner of 36.72% of the stock in PGJ whose other shareholders were Maurice Gordon (“Gordon”), Donald Jones (“Jones”) and Michael Gainer (collectively, “shareholders”).
At some point, the shareholders of PGJ were contacted by Raymond Ankner (“Ank-ner”) and G.C. Pettey, III (“Pettey”) regarding the possible purchase of PGJ. Ankner is the chairman of First Actuarial’s board of directors and its principal stockholder. Pet-tey was the President of another actuarial company, Custom Benefit Services (“CBS”). Together, Pettey and Ankner were attempting to develop a nationwide actuarial business.
On May 19, 1988, CBS acquired the stock of PGJ. CBS executed a Stock Purchase Agreement as well as Promissory Notes to the shareholders of PGJ. In addition, Ank-ner and Pettey executed a personal guaranty in the form of a Stock Repurchase Agreement. Besides selling their PGJ shares, Mr. Pearson and the other stockholders executed Covenants Not to Compete. Pearson was to receive $306,060.00 for the Covenant Not to Compete and $280,748.00 for its stock in PGJ.
The Stock Repurchase Agreement required Ankner and Pettey (“repurchasers”) to cure any default by CBS by paying the outstanding amounts on the Promissory Notes. In the event of a default by the repurchasers, the stock would revert back to the sellers. Pearson claims that these agreements entitled it to recover the amount of the Promissory Notes reduced by the net book value of PGJ. The debtor disputes that claim.
After the purchase, CBS operated the company for approximately one year. Apparently, Ankner and Pettey decided to discontinue their association with one another. The two decided that CBS would transfer the stock of PGJ to the debtor pursuant to a Settlement Agreement between Ankner and Pettey. Under ¶ 111(A) of that Settlement Agreement, First Actuarial assumed all of CBS’s obligations under the Stock Purchase Agreement, the Covenants Not to Compete, and the Promissory Notes.
CBS attempted to obtain from the shareholders a formal acknowledgement of the assignment of the stock to First Actuarial. Gordon and Jones signed such an acknowledgment. However, because Mr. Pearson was apparently concerned about losing any remedies against CBS, neither he nor his wife, on behalf of the Pearson Trust, formally acknowledged the assignment. But this did not prevent the assignment from CBS to the debtor. First Actuarial assumed the obligation and made a number of payments to Pearson under the Promissory Notes. Pearson accepted those payments.
After selling his stock in 1988, Mr. Pearson was not involved in the operation of PGJ. CBS did keep Gordon and Jones on as employees of PGJ. During the term of their employment, CBS and/or the debtor made only small interest payments on the obligations to Gordon and Jones.
In February of 1991, after a period of dispute, Gordon and Jones gave the debtor formal notice of default under the Stock Pur*181chase Agreement and Promissoiy Notes. The debtor failed to cure the default. Therefore, pursuant to the terms of the Stock Purchase Agreement, Gordon and Jones retook control of PGJ.
On February 21, 1991, the debtor filed a complaint for Declaratory Judgment and Application for Preliminary Injunction against Gordon and Jones in Arizona state court (“the First Action”). In that case, the debtor sought an injunction against Gordon and Jones to prevent them from retaking their stock after the debtor and the individual repurchasers of the stock had defaulted. In response, Gordon and Jones filed a counterclaim against the debtor for amounts allegedly owed under the contracts.
On August 12, 1991, Gordon and Jones filed a Motion for Summary Judgment in the First Action. In that motion, Gordon and Jones contended that since the “Net Book Value” of PGJ was a negative number, under the terms of the Stock Repurchase Agreement, they were entitled to recover the full amounts outstanding on the Promissory Notes. Gordon and Jones relied upon a balance sheet for PGJ which the debtor had prepared on December 31, 1990. That balance sheet indicated that PGJ had total assets of $346,730.87 and total liabilities of $1,130,156.67. Therefore, PGJ’s Net Book Value was less than zero (i.e. - $783,424.70). The Arizona state court granted summary judgment in favor of Gordon and Jones.
Having lost on summary judgment, the debtor filed a Motion for Reconsideration and an Objection to Defendants’ Proposed Form of Judgment. First Actuarial argued that allowing Gordon and Jones to regain their stock in PGJ while requiring the debtor to pay the liquidated damages amounted to a windfall to Gordon and Jones. The trial court denied the debtor’s Motion for Reconsideration. The court signed a Judgment dated July 8, 1992 which awarded over $1,000,000.00 to Gordon and Jones. The debtor has appealed the judgment; from the record before me, it appears that the matter remains on appeal. Pearson was never a party to the First Action.
According to Pearson, it never joined the counterclaim in the First Action because the debtor was current in its obligations at the time. Further, Mr. Pearson claims that he had no desire to sue the debtor or reclaim his stock. Unlike Gordon and Jones, Mr. Pearson was no longer an officer or an employee of PGJ. He had not been associated with PGJ for approximately three years. Pearson claims that for these reasons, its interest was different than that of Gordon and Jones. Pearson wanted the debtor to continue running PGJ and to continue making payments under the Promissory Notes. Pearson claims that it would have gained nothing by reclaiming a minority interest in PGJ, a closely held corporation.
The default by the debtor with respect to Pearson occurred later in 1991. On September 6, 1991, Pearson noticed a default under the Stock Purchase Agreement. On October 7, 1991, Pearson noticed a default on the Stock Repurchase Agreement. Pursuant to the terms of the Stock Repurchase Agreement, the repurchasers were given ninety days after notice of default to obtain a bona fide offer to purchase Pearson’s stock. That ninety day period expired on January 7, 1992.
Pearson argues that the first date it could have joined in the First Action was the next day, January 8, 1992. That is the same date as the entry of the state court’s Order granting Gordon and Jones’ Motion for Summary Judgment in the First Action.
Also in 1991, Gordon and Jones, having previously counterclaimed against the debtor in the First Action, filed a separate complaint against CBS as well as Ankner and Pettey, for amounts allegedly due them under the various contracts. In July, 1992, Pearson filed an action against First Actuarial, CBS, Ankner, and Pettey for damages under those contracts. The two suits were consolidated by the state court in Arizona (“the Second Action”).
Apparently, during the pendency of the Second Action, three of the four defendants (i.e. CBS, First Actuarial, and Pettey) filed bankruptcies. Each debtor would have been afforded the protection of an automatic stay. The existence of automatic stays under 11 U.S.C. § 362 with respect to these three *182would explain why the state court’s findings of fact and conclusions of law in the Second Action dated August 4, 1993 addresses Ank-ner as the only defendant in the consolidated cases.1
Pursuant to the opinion in the Second Action, judgment was rendered against Ankner and in favor of Pearson and Gordon. The judge stated:
10. Court does not find that res judicata or collateral estoppel from the case of First Actuarial Corporation v. Gordon Jones is appropriate.
The question which now arises is what effect, if any, is to be given by this court to determinations made in the Arizona state court actions. The Pearsons assert that since the state court’s decision in the First Action was based on the same documents and transactions, the debtor is collaterally estopped from relitigating those issues in this court. The debtor disagrees.
ANALYSIS
The preliminary issue in this matter is whether this court must give any consideration to the prior actions in Arizona. Article TV, section 1 of the Constitution requires that each state give full faith and credit to the public acts, records, and judicial proceedings of every other state. The Constitution also allows Congress to enact laws which prescribe the manner in which such acts, records and proceedings shall be proved and the effect thereof. 3 James Wm. Moore, Moore’s Manual ¶ 30.06 (1992). Congress exercised this power in 28 U.S.C. § 1738 which states, in part:
Such Acts, records and judicial proceedings or copies thereof, so authenticated, shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State ... from which they are taken.
Section 1738 imposes a statutory duty upon federal courts to accord full faith and credit to the judicial proceedings of state courts. Not surprisingly, the issue becomes more difficult in instances where Congress has made federal jurisdiction exclusive.2
The power to permit relitigation in the federal courts of issues disposed of by the state courts has been recognized by the Supreme Court in Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 1331-32, 84 L.Ed.2d 274 (1985), reh’g denied, 471 U.S. 1062, 105 S.Ct. 2127, 85 L.Ed.2d 491 (1985); Moore, supra, ¶ 30.06. Marrese dealt specifically with the issue of whether a state court judgment may have preclusive effect on a federal antitrust claim that could not have been raised in the state court proceeding. Id. 470 U.S. at 379, 105 S.Ct. at 1331.
The Supreme Court in Marrese found that the full faith and credit statute “directs a federal court to refer to the preclusion law of the State in which judgment was rendered.” Id. 470 U.S. at 380, 105 S.Ct. at 1332. Therefore, § 1738 requires federal courts, including bankruptcy courts, to preclude relitigation of claims or issues resolved by prior and final judgments rendered by state courts. The federal court which is presented with a final state court judgment *183must give it the same preclusive effect that another state court would give the judgment.
Once the determination is made that a state court would give preclusive effect to the prior state court judgment, the federal court must inquire whether any federal statute or policy governing the litigation either expressly or implicitly repeals or creates an exception to the full faith and credit section. Id. 470 U.S. at 383, 105 S.Ct. at 1333. The Supreme Court has emphasized that an exception to § 1738 will not be recognized unless a later statute contains an express or implied partial repeal. Kremer v. Chemical Construction Corp., 456 U.S. 461, 468, 102 S.Ct. 1883, 1890, 72 L.Ed.2d 262 (1982), reh’g denied, 458 U.S. 1133, 103 S.Ct. 20, 73 L.Ed.2d 1405 (1982).
In this instance, I find no exception to exist that would prevent the use of the preclusion law of Arizona. Therefore, the task of this court is to give to the state court judgment the same preclusive effect as would be given to it under the law of Arizona where it was rendered.
I. Collateral Estoppel in Arizona
Under Arizona law, collateral estop-pel is available whenever (i) the issue was “actually litigated in a previous suit,” (ii) a final judgment was entered, (iii) the party against whom the doctrine is to be invoked had a “full opportunity to litigate the matter and actually did litigate it,” and (iv) the issue was “essential to the prior judgment.” Chaney Bldg. Co. v. City of Tucson, 148 Ariz. 571, 716 P.2d 28, 30 (1986).
A. Actually litigated
The debtor’s first contention is that the issue upon which it finds support for its objection to the claim has not been “actually litigated”. The debtor frames the issue as whether the specific terms of the contracts executed by or assumed by the debtor obligate it to the claimants under Arizona law. (See, debtor’s brief in support at pp. 4-5). I disagree. It seems plain that the state court, in the First Action, considered this same transaction and these same documents in determining the rights and obligations between the debtor and Gordon and Jones.
The rights and remedies of the Pearsons would be identical to those of Gordon and Jones as sellers under the original contracts. The only distinguishing factor among the sellers was the amount of their shares of ownership of PGJ. Otherwise, they seem to be identically situated under the contracts.
The fact that the First Action was determined in a summary fashion is not fatal to the “actually litigated” requirement. The Arizona Supreme Court, in Chaney, supra, clarified:
When an issue is properly raised by the pleadings or otherwise, and is submitted for determination, and is determined, the issue is actually litigated, (citing Restatement (Second) of Judgments § 27 comment d).
716 P.2d at 30.
From the documents provided by the parties, it is evident that the issues of rights and remedies under the various contracts between the purchasers of PGJ and the sellers were raised in the pleadings, submitted for determination, and determined by the state court judge in his summary judgment opinion. Under Arizona law, then, the issue of the rights and remedies afforded to the parties to the various contracts was “actually litigated.”
B. Final Judgment
The next requirement is that the judgment upon which the party seeks to rely is final. In this instance, the debtor has noted that the judgment in the First Action is on appeal. The debtor has not argued that the judgment is not “final”.
In Arizona, res judicata effect is given to final judgments of a trial court:
In order for res judicata or collateral es-toppel to be applicable there must be a final judgment_ There are some jurisdictions which hold that the filing of an appeal prevents the operation of res judi-cata, but the majority rule is that an appeal from a judgment does not suspend the effect of the judgment as res judicata between the parties, (citations omitted).
*184Arizona Downs v. Superior Court, 128 Ariz. 73, 76, 623 P.2d 1229, 1232 (1981).
I find therefore that the judgment in the First Action is final for the purposes of collateral estoppel.
C. Full Opportunity to Litigate
The third requirement for collateral estop-pel is that the party against whom the doctrine is to be invoked had a “full opportunity to litigate the matter and actually did litigate it”.
As stated in Chaney, supra, 148 Ariz. at 673, 716 P.2d at 30, when an issue is properly raised by the pleadings or otherwise, and is submitted for determination, and is determined, the issue is actually litigated.
In this instance, it is apparent that the debtor had the opportunity to litigate in the First Action. In fact, the debtor was the plaintiff and actually instituted that action. The debtor lost that action on summary judgment. Certainly, a ruling as a matter of law, based on the pleadings, briefs submitted, and argument of counsel qualifies as “actually litigated.” I find that the debtor had the full opportunity and did litigate the First Action. Therefore, this requirement for collateral es-toppel is also fulfilled.
D. Issue Essential to Prior Judgment
Finally, the last element necessary for the collateral estoppel determination is that the issue in the First Action was “essential to the ... judgment.” The issues presented in the First Action between the debtor and Gordon and Jones are identical to the issues presented between the debtor and the Pearsons. Gordon, Jones, and Pearsons’ respective causes of action were all based on the same contracts of sale. These identical issues were certainly “essential” to the judgment in the First Action. For that reason, this element of the collateral estoppel test is satisfied.
II. Offensive use of collateral estoppel
Collateral estoppel, if invoked, can be used either “offensively” or “defensively”. Collateral estoppel is used offensively when a party making a claim attempts to assert against an opponent a determination made by prior judgment to which it was not a party. Food for Health Co., Inc. v. 3839 Joint Venture, 129 Ariz. 103, 106, 628 P.2d 986, 989 (Ariz.App.1981). Defensive use of collateral estoppel occurs when a party defending a claim attempts to assert a previous judgment, to which it was not a party, against an opponent who was a party to preclude relitigation of the claim. Id. at 107. In this instance, the Pearsons seek to invoke collateral estoppel offensively against the debtor.
Traditionally, collateral estoppel precluded the relitigation of a fact or issue previously determined in a prior suit between the same parties or their privies. Wetzel v. Arizona State Real Estate Dept., 151 Ariz. 330, 333, 727 P.2d 825 (Ariz.App.1986). However, Arizona thereafter abandoned the “mutuality” requirement so that a party precluded from litigating an issue under the traditional rule, was also precluded from doing so with another, provided there was a full and fair opportunity to litigate the issue in the first action. Id. (citing Restatement (Second) of Judgments § 29 (1982)).
Arizona courts had recognized this trend, but prior to Wetzel, supra, had limited the doctrine of collateral estoppel to its defensive use. Id. The Wetzel court recognized the developing law and approved the offensive use of the doctrine. Id. Section 29 of the Restatement (Second) sanctions both the offensive and defensive use of collateral estop-pel by parties not involved in the previous determination:
A party precluded from relitigating an issue with an opposing party ... is also precluded from doing so with another person unless the fact he lacked full and fair opportunity to litigate the issue in the first action or other circumstances justify affording him an opportunity to relitigate the issue.
Restatement (Second) of Judgments § 29 (1982).
The rationale for approving the offensive use of collateral estoppel is explained in the comment to section 29 as follows:
*185A party who has had full and fair opportunity to litigate an issue has been accorded the elements of due process. In the absence of circumstances suggesting the appropriateness of allowing him to relitigate the issue, there is no good reason for refusing to treat the issues as settled....
Restatement (Second) of Judgments § 29, comment b (1982).
The debtor contends that under Arizona law, the offensive use of collateral estoppel is available only in instances where the party raising the doctrine was legally prevented from becoming a party to the prior action. (Debtor’s brief at pp. 5-6, citing Wetzel, supra). However, this restrictive reading of Wetzel has not been shared by other courts analyzing the doctrine of collateral estoppel in Arizona.
In an unpublished opinion, the Ninth Circuit has recognized that:
Arizona courts have recently accepted the use of nonmutual offensive collateral estop-pel as long as the party against whom preclusion is sought had a “full and fair opportunity to litigate the issue in the pri- or proceedings.” See, e.g., Wetzel v. Arizona State Real Estate Dep’t., [151 Ariz. 330] 727 P.2d 825, 828-29 (Ariz.Ct.App.1986), cert. denied, 482 U.S. 914 [107 S.Ct. 3186, 96 L.Ed.2d 674] (1987); Chaney, [148 Ariz. at 573] 716 P.2d at 30 (adopting the Restatement (Second) of Judgments, which allows the use of nonmutual offensive collateral estoppel).
Hovdestad v. Ward (In re Ward), 21 F.3d 1119, 1994 WL 134682 (9th Cir.1994).
While I realize the limited precedential value of unpublished opinions, I make reference to this as it is a recent opinion of the Ninth Circuit which directly deals with this evolving aspect of Arizona law. I, too, decline to adopt the restrictive reading of Wetzel put forth by the debtor. It appears that Arizona law now recognizes the general use of non-mutual offensive collateral estoppel.
III. Non-Joinder in the First Action
The debtor also contends that Pearson should be denied the offensive use of collateral estoppel for the reason that under Arizona Rule of Civil Procedure 20(a), they “could have legally joined in [the First Action].” (See, Debtor’s Brief at p. 6). I am not persuaded by this conclusory argument for two reasons. First, Rule 20(a) is entitled, and deals with, “permissive joinder”.3 Under that rule, while Pearson might have conceivably joined in the action, it certainly was not required to. Second, apart from its plain reading of Rule 20(a), the debtor has cited no case law in support of its position. I decline to adopt the position that Rule 20(a) precludes the claimants from invoking the principal of collateral estoppel.
Since the debtor’s default as to the Pear-sons did not become actionable until the same day that the state court rendered summary judgment in the First Action, I find that they were not required to have joined in the First Action.
IV. Ruling on this issue in the Second Action
Next, the debtor contends that the state court’s opinion in the Second Action found that the judgment in the First Action could not be used under the doctrine of collateral estoppel to avoid an analysis of the issues raised in the Second Action. Specifically, the debtor points to ¶ 10 of the Conclusions of Law dated August 4, 1993 which states that res judicata and collateral estop-*186pel from the First Action is not appropriate. (See, p. 182, supra). However, I see this argument as being flawed. Since the Second Action was decided after the imposition of the automatic stays of the various bankruptcies, it seems to me that the state court judge’s comment that collateral estoppel did not apply was limited to Ankner as he was the only remaining defendant in that Second Action. (See, fn. 1, supra).
For these reasons, I find that based on the law of the State of Arizona, the application of the offensive use of collateral estoppel is appropriate and the debtor is precluded from relitigating these issues in this court.
In addition to the arguments specific to collateral estoppel, the debtor asserts that it is not indebted to the Pearsons based on the language of the various contracts executed in association with the sale of PGJ. Having dealt with the collateral estoppel issue, I now turn to this final assertion.
Y. The Debtor is not Indebted to the Claimants
The remainder of the debtor’s assertions that it is not indebted to these claimants is based on the contracts themselves. The debtor attempts to analyze the Stock Purchase Agreement, the Promissory Notes, the Stock Repurchase Agreement, and the Settlement Agreement pursuant to which the debtor assumed CBS’s obligations. (See, debtor’s brief in support of its objection to claim at pp. 7-14).
Unfortunately for the debtor, an analysis of the various contracts and their effects was precisely the issue in the First Action. Since I have found that collateral estoppel applies in this case, I will not address these arguments because these are the same arguments proffered in the First Action. The debtor is collaterally estopped from having these arguments adjudicated a second time in this court. For me to reconsider these arguments would be to give the debtor a “second bite at the apple” that is precluded by collateral estoppel. These issues have been presented once to a competent court. The debt- or had an adequate opportunity as well as incentive to obtain a full and fair adjudication on this argument in the First Action. I find no compelling need for a redetermination of these issues beyond that already made by the state court.
CONCLUSION
IT IS HEREBY ORDERED that, for the reasons stated above, the debtor’s objection to the allowance of the claim of Stephen W. and Lana Pearson is OVERRULED.
IT IS SO ORDERED.
. Paragraph 3 of that document states in part: Defendant G.C. Pettey filed for bankruptcy during the trial and his matter has been stayed.
That document makes no specific reference to First Actuarial and CBS, although they were named defendants in the consolidated cases. However, given the date of filing of this bankruptcy, I assume that the state court judge honored the automatic stay and therefore did not address this debtor in his final adjudication.
. At present the most significant areas include bankruptcy proceedings (28 U.S.C. § 1334), patent and copyright cases (28 U.S.C. § 1338(a)), cases involving fines, penalties, forfeitures, or seizures, under the laws of the United States (28 U.S.C. §§ 1355, 1356), crimes against the United States (18 U.S.C. § 3231), actions and proceedings against consuls and vice consuls of foreign states (28 U.S.C. § 1351), and review of decisions of collectors of customs (28 U.S.C. § 1583). Some provisions for exclusive federal jurisdiction appear outside the Judicial Code. See, e.g. 15 U.S.C. §§ 15, 26 (antitrust actions), 15 U.S.C. § 78aa (cases under tire Securities Exchange act), 15 U.S.C. § 717u (violations of the Natural Gas Act), and 40 U.S.C. § 270(b) (suits on bonds under the Miller Act). Wright, Law of Federal Courts § 10, at 43-44 (5th ed. 1994).
. That rule reads:
Rule 20(a). Permissive joinder
All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action. A plaintiff or defendant need not be interested in obtaining or defending against all the relief demanded. Judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492065/ | ORDER DENYING HENRY WEITZ-MAN’S MOTION TO DISMISS FOR INSUFFICIENCY OF SERVICE, OR, IN THE ALTERNATIVE, TO QUASH SERVICE OF PROCESS
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before the Court on April 25, 1995 on Defendant Henry Weitz-man’s Motion to Dismiss for Insufficiency of Service of Process, or, in the alternative, Motion to Quash Service of Process, and the Court having reviewed the file, having heard arguments of counsel, and the Court being otherwise fully advised in the premises determines as follows.
The Trustee filed the Complaint with respect to this action against Henry Weitzman (‘Weitzman”) on February 17, 1995. The Trustee submits that he effected service upon Weitzman on February 21, 1995 by mailing, via first class mail, a copy of the Summons and Complaint to Weitzman’s condominium located at 9999 Collins Avenue # 17H, Bal Harbour, Florida (the “Bal Har-bour Condominium”) in accordance with F.R.B.P. 7004(b)(1). On March 20, 1995 the Defendant Weitzman moved, pursuant to F.R.B.P. 7012(b)(5), for an order dismissing the Complaint for insufficient service of process or, alternatively, to quash service of process.
*351Weitzman challenges service first by contending that he has not been personally served in accordance with Rule 4 of the Federal Rules of Civil Procedure. He argues that because he resides in a foreign country, absent personal delivery, service of process is proper only at his foreign residence.1 The Trustee argues that the clear language of Rule 7004(b)(1) provides for service in the United States by first class mail at one’s “dwelling house or usual place of abode.” Weitzman argues that the Bal Har-bour Condominium is not his “dwelling house or usual place of abode,” but rather is his son’s home. The issue then is whether there is a sufficient nexus between the defendant and the place where service was attempted. For the reasons set forth below, Weitzman’s Motion is denied.
I. APPLICABLE LAW & DISCUSSION
Rules relating to service of process should be liberally construed to effectuate service. A liberal construction is especially warranted here where the defendant receives actual notice of the suit. Blackhawk Heating & Plumbing v. Turner, 50 F.R.D. 144, 145 (D.Ariz.1970); 4A C. Wright & A. Miller, Federal Practice and Procedure, § 1096 at 80 (2d ed. 1987) (“It makes little sense to construe [the Rule] technically when actual notice has been received; to do so would be inconsistent with the spirit of the federal rules as expressed in Rule 1”). Id.
Rule 7004(b) allows for service to be made in the United States by mailing a copy of the summons and complaint to the defendant’s “dwelling house or usual place of abode.” There must be a reasonable nexus between the defendant and the place where service is effected. In Re Deboul, 82 B.R. 657 (Bky.D.Mass1987). The analysis is fact driven. Consideration is given to the fact that “in a highly mobile and affluent society, it is unrealistic to interpret [the Rule] so that the person to be served has only one dwelling house or usual place of abode at which process may be left.” National Development Co. v. Triad Holding Corp., 930 F.2d 258 (2d Cir.1991), citing 4A C. Wright & A. Miller, Federal Practice and Procedure § 1096 at 73 (2d ed. 1987).
An executed return of service is pri-ma facie evidence of valid service which may be overcome only by strong and convincing evidence. Trustees of Local Union No. 727 Pension Fund v. Perfect Parking, Inc., 126 F.R.D. 48 (N.D.Ill.1989). Here, Weitzman has submitted no affidavits in support of his motion or to overcome the executed return of service. Rule 9006(d) provides that where a movant intends to support a motion by affidavit, “affidavits shall be served with the motion”. F.R.B.P. 9006(d). See, Switzer Bros. Inc. v. Bryne, 242 F.2d 909 (6th Cir.1957) (Affidavits in support of motions are proper and verification of motions by affidavits is the general rule.) Weitzman remains silent on the issue of the frequency with which he resides at the Bal Harbour Condominium. Nowhere has Weitzman demonstrated that his presence there is too attenuated to meet Rule 7004(b)’s definition. Rather, Weitzman relies solely on the fact that the title to the property and the utility services are in his son’s name.
The Trustee concedes in his opposition papers that title to the Bal Harbour Condominium is held in the name of his son, Leslie Weitzman. However, this fact is not particularly surprising since the results of a search by the Trustee of the public records in Florida, the province of Quebec, Canada and the Bahamas indicate that, despite his notable wealth2, all of Weitzman’s property in Florida and Canada is held in the name of his son, Leslie Weitzman, or other nominal designee.3 *352Harry Weitzman does not hold title to any land, automobiles, boats or airplanes in the province of Quebec, Canada or Florida.
Ownership is one, but not the sole factor for determining one’s dwelling or place of abode. Campbell v. Bartlett, 975 F.2d 1569 (10th Cir.1992). Here, if the Court were to accept Weitzman’s sole criteria of ownership, Weitzman could completely frustrate service. According to his own counsel, Weitzman describes his status as a “traveler.” Transcript of Hearing on April 11,1995, 10:00 A.M. at p. 8 (“Transcript”). At different times during the same hearing Weitz-man’s counsel described him as a Canadian citizen and Bahamian resident or Bahamian citizen and Canadian resident. Transcript, p. 5-6, 8. The Trustee has discovered one piece of property: an apartment unit located at 3322 Coral Beach Hotel Apartments Free-port, Bahamas, titled in Weitzman’s name. The Trustee’s investigation reveals that Weitzman’s visits to the Freeport Apartment are infrequent and that Weitzman has not been present on the Island for many months. The Trustee, through Bahamian authorities, made several attempts to serve Weitzman at the Freeport apartment. No one at the apartment, including Weitzman, was present to accept service and no one at the building knew of Weitzman’s whereabouts. (Affidavit of DSP, Inspector Richard Gardner, Free-port, Bahamas filed May 1, 1995, copy attached). Undoubtedly, Weitzman’s extensive travels and absence from the only residence where title is held in his name has compelled the Trustee to look elsewhere to effect service. The Trustee submitted the following evidence in opposition to Weitzman’s Motion to Dismiss for Insufficiency of Process.
A. The Grover Affidavit
On April 24, 1995, the Trustee filed the affidavit of Bill Grover, General Manager for the Bal Harbour Tower Condominium Association (“Grover Affidavit”). According to Grover’s unrefuted affidavit, Weitzman has resided at various times at the Bal Harbour Condominiums for the past five years. (Grover Affidavit, ¶ 5). Weitzman and his wife are known to frequent unit 17H in the Bal Harbour Condominium regularly, albeit at sporadic intervals throughout the year. (Grover Affidavit, ¶ 6) Weitzman and wife stay in the unit “several times throughout the year.” (Grover Affidavit, ¶ 6). Each stay lasts approximately one to four weeks. (Grover Affidavit, ¶ 6). Grover describes the Bal Harbour Towers Condominium as a high security building. Each unit, including the Weitzman’s unit # 17H, is only accessible through a private elevator which opens directly into the unit. Weitzman’s unit is one of two occupying the entire 17th floor of the building. Access between units on the same floor is limited to service personnel only. (Grover Affidavit, 1Í 4).
Mr. Grover states that he observed ‘Weitzman and his wife in the Building in December 1994 and believe(s) they stayed in their [Bal Harbour Condominium] for a one to two week period.” (Grover Affidavit, ¶ 7) Grover further states that he observed Weitzman in the building for a one to two week period in January 1995 and again for several days in February, 1995. In each-instance, according to Mr. Grover, Weitzman resided in unit 17H. (Grover Affidavit, ¶¶ 7-8).
B. The Security Report
In addition to Grover’s eyewitness accounts, the Trustee submitted a four page excerpt of the Bal Harbour Tower’s Security Report for the period October 1, 1994— March 31, 1995. Grover states that he reviewed the Security Report, that it is a regularly maintained business record, and that he believes the Security Report to be accurate. (Grover Affidavit, ¶¶ 9-10). Between October 1, 1994 — March 31, 1995, the security office recorded Weitzman and his wife’s arrival on four occasions. According to Grover, the Security Report does not necessarily in-*353elude every instance in which residents arrive or depart.4
On November 1, 1994, and again on November 22, 1994, security noted that Mr. and Mrs. Weitzman were “back.” (Grover Affidavit, ¶ 11 and excerpts attached thereto). On January 17, 1995, security again noted that Mr. and Mrs. Weitzman “are back.” On February 16, 1995, five days before the date of service, the Security Report indicates that Mr. and Mrs. Weitzman and their daughter were “here” at the Bal Harbour Condominium. There is no record of their having departed.
C. The Phone Records
In further support of his opposition to Weitzman’s Motion to Dismiss, the Trustee filed with the Court the phone records for the Bal Harbour Condominium unit for the period January 1994 — February 1995. These records were obtained by subpoena and filed with the Court on April 24, 1995. The phone records show hundreds of long distance calls from the Weitzman’s Bal Har-bour Condominium between January 1994 and February 1995, including 3 long distance calls made on February 24, 1995 — four days after the Trustee attempted service at the Bal Harbour Condominium.
Phone records further indicate daily phone activity from Weitzman’s unit for the 4 month period preceding and including February 21, 1995, the date of service. Daily long distance calls were made during the periods of November 2-30, 1994, December 1-31,' 1994, January 1-10, 1995, January 17-31, 1995, and February 1-24, 1995.5
The Court need not view this evidence in a vacuum. Taken together, the evidence submitted in this case provides a strong inference that Henry Weitzman resided at the Bal Harbour Condominium for extended periods of time, including the time period when service was effected. The phone records from November 1994 through February 1995 are consistent with the Security Reports dated November 1,1994, November 22, 1994, January 17, 1995 and February 16, 1995, and Mr. Grover’s recollection that he saw Mr. and Mrs. Weitzman in the building during this period. Although given ample opportunity, Weitzman has not submitted any affidavits to refute this, nor has he provided any basis to reject the clear inference from the totality of the evidence.
Viewing this evidence as a whole and given the lack of any evidence to the contrary, the Grover Affidavit, the Security Report and the phone records appear to establish that Weitz-man was present at the Bal Harbour Condominium for a four month period between November 1, 1994 and February 24, 1995. For the five years prior to this time, Weitz-man stayed in the unit regularly throughout the year. (Grover Affidavit ¶ 6). It is also undisputed that Weitzman received actual notice as a result of the Trustee’s service by mail at the Bal Harbour Condominium.
The Court finds the Second Circuit’s decision in National Development Company v. Triad Holding Corp., 930 F.2d 253, 256, 258 (2d Cir.1991), cert. denied, Khashoggi v. National Development Co., 502 U.S. 968, 112 S.Ct. 440, 116 L.Ed.2d 459 (1991) instructive and persuasive for upholding service. In National Development, the court found that a defendant’s New York apartment was his “dwelling house or usual place of abode” even though the defendant had resided there for 34 days during the preceding year. Id. In so finding, the court upheld a default judgment entered against the defendant. Id. The court explained that in an age of high speed international travel, the terms “dwelling house or usual place of abode” are not as concrete as when the Federal Rules of Civil Procedure were written fifty years ago. Id. at 257. The court noted that with approximately 1.16 billion passengers annually in international airline travel and an estimated *354five million people with second homes in the U.S., determining one’s “dwelling” is not as clear cut “as in the early days of yesteryear.” Id. at 254.
The defendant in National Development, a Saudi citizen, who travelled between residences in Saudi Arabia, Spain, Italy, France, Monte Carlo and the United States, moved to vacate a default judgment by challenging the effectiveness of service made at a New York apartment. In grappling with Rule 7004(b)’s arcane language, the Second Circuit observed that “there is nothing startling in the conclusion that a person can have two or more dwelling houses or usual places of abode, provided each contains sufficient indi-cia of permanence.” Id. at 257. The court found that service was effective despite the defendant’s relatively short stay at the New York apartment during the previous calendar year. Not wishing to indulge in hypotheti-cals and limiting its decision solely to the facts before it, the Second Circuit refrained from deciding whether the default judgment would have been upheld had the defendant not been physically present at the New York apartment at the time of service. Id. at 258.
The leading commentators support the Second Circuit’s practical approach to construing the rule:
Despite the length of time the language ‘dwelling house or usual place of abode’ has been part of the federal practice, the decisions do not make clear precisely what it means and facts of a particular case often prove to be crucial, especially in an era of international travel that has blurred the meaning of the phrase still further. Thus, it may be that if a place is capable of classification as a dwelling house or usual place of abode and notice actually is received by defendant when served at that place, the service will be sustained. This approach seems especially appropriate when there is no place significantly more desirable for the papers to be left, (emphasis supplied) (citations omitted)
4A C. Wright & A. Miller, Federal Practice & Procedure, § 1096, p. 20 (2d ed. 1995 Pocket Part).
The parallels to the defendant in National Development and Weitzman are clear. As his counsel conceded in open court, Weitz-man is a “traveler.” (Tr. p. 8). He is a Canadian citizen and claims Bahamian residence although efforts to personally serve him in the Bahamas have been unsuccessful. The critical fact, unrefuted by Weitzman, is that Weitzman spends several months during the year residing in the Bal Harbour Condominium. The unrefuted affidavits, phone records and Security Reports indicate that Weitzman may even have been present at the Bal Harbour Condominium when service was attempted, even though actual presence on that day is not a legal requirement. Moreover, it is undisputed that Weitzman received actual notice as a result of the Trustee’s service by mail at the Bal Harbour condominium.
This Court agrees with the commentators Wright and Miller that service should be sustained when there is presently no place significantly more desirable for the papers to be left. Based upon the evidence before the Court, and given Weitzman’s actual notice of the suit, the Court determines that Weitz-man’s presence at the Bal Harbour Condominium is sufficiently regular to constitute his dwelling house or usual place of abode. Accordingly, Weitzman’s Motion to Dismiss for Insufficiency of Service or, in the alternative, to Quash Service of Process is DENIED.
DONE AND ORDERED.
. The Trustee attempted service on Weitzman’s foreign "residence” in the Bahamas without success. Mr. Weitzman was not "in residence.”
. The Trustee filed with its April 6, 1995 opposition to Weitzman's Motion, a letter from Weitz-man’s banker at Barclays Bank, Pic, Miami Branch, addressed to the Toronto Dominion Bank. The Barclays Bank Miami Branch officer states that Weitzman has been a valued customer of Barclays Bank since 1981 and maintains account balances in excess of $20 Million.
.According to the Trustee's search, in addition to the Bal Harbour Condominium, other properties titled in the name of Leslie Weitzman include: (1) A large two-story suburban home located at 25 Thurlow Road, Montreal, Canada; (2) A high security luxury condominium unit located at 5140 MacDonald Road, 11th Floor, *352Montreal, Canada, (3) A large multi-story office building located at 6600 Decarie Blvd., Montreal, Canada where Weitzman makes occasional appearances and (4) A ten acre estate improved by a five bedroom manor house located in the mountains 50 miles north of Montreal.
. Residents generally maintain their privacy and rarely volunteer information concerning their whereabouts. Residents often depart and arrive without any record of their departure or arrival. (Grover Affidavit, ¶¶4 and 9)
. In January, 1995 through February 24, 1995, 49 long distance calls were placed to an Ottawa, Canada number. According to the Trustee, this is Weitzman's daughter’s home. (Trustee’s Opposition, p. 4) An additional 21 calls were placed to Weitzman’s niece in Atlanta between January 1, 1995 and February 24, 1995. Three calls were placed to Hollywood, Florida on February 24, 1995. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492066/ | *377
MEMORANDUM OF DECISION ON PLAINTIFFS’ MOTION TO DISMISS COUNTERCLAIM
ROBERT L. KRECHEVSKY, Chief Judge.
I.
Byron Paul Yost (Yost), as successor trustee in thirteen Chapter 7 eases and also in the name of the United States of America (together, the plaintiffs), brought a complaint against Thomas M. Germain (Germain), the prior trustee in each of the thirteen cases, and against Seaboard Security Company (Seaboard), a company which had bonded1 at all relevant times Germain’s trustee activities.2 The complaint generally alleges, in three separate counts for each bankruptcy case, (1) that Germain had both embezzled monies from the bankruptcy estate and engaged in other misconduct, causing losses to the estate; (2) that Germain’s misconduct constituted breaches of the bond issued by Seaboard, making Seaboard liable to the United States for such losses; and (3) that Seaboard is also liable to the individual bankruptcy estate for such losses.
Germain filed a responsive pleading to the complaint which, inter alia, included a counterclaim containing two counts. The first count, entitled “Trustee’s Bond Claim ex rel United States of America,” avers that Yost, as successor trustee, negligently handled his duties in each estate and is liable to each estate for resulting damages. The second count, entitled “Indemnification for Active Negligence,” asserts that Yost has commenced an action against him for damages to the estates, and that if Germain is liable in damages, the damages were caused by “the active negligence of Yost,” and Yost must indemnify Germain for any judgment entered against Germain.
The plaintiffs filed a motion to dismiss both counts of the counterclaim pursuant to Fed.R.Civ.P. 12(b)(1) (“lack of jurisdiction over the subject matter”) and 12(b)(6) (“failure to state a claim upon which relief can be granted”), made applicable in bankruptcy adversary proceedings by Fed.R.Bankr.P. 7012(b).
II.
The court in resolving this motion under Rule 12(b)(6) must accept as true all allegations of the counterclaim and draw all reasonable inferences in the counterclaim-ant’s favor. See Sykes v. James, 13 F.3d 515, 519 (2nd Cir.1993). “[A counterclaim] should not be dismissed unless it appears beyond doubt that the [counterclaimant] can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).
III.
The plaintiffs assert in support of the motion to dismiss the first count of the counterclaim that Germain does not qualify as a party in interest under Rule 2010(b); that he lacks standing to pursue the counterclaim based upon Yost’s asserted negligent performance of his duties; and that Germain lacks authority to bring an action in the name of the United States. The plaintiff’s arguments are not sustainable under the standards set out in Section II, supra.
As the plaintiffs note in their memorandum (see Plaintiffs’ Memorandum at 13), the thrust of the first count, despite its heading, is not an action under Rule 2010(b) since it makes no claim on a bond. Germain, consequently, is not bringing the counterclaim on behalf of the United States. Rather, the first count states a cause of action based on Yost’s asserted negligence. If a party in interest, under Rule 2010(b), may bring an action against a trustee’s surety, it is logical that such party may bring a direct action against the trustee.
The term “party in interest,” which the Bankruptcy Code does not define, “is generally understood to include all persons *378whose pecuniary interests are directly affected by the bankruptcy proceedings.” In re Hutchinson, 5 F.3d 750, 756 (4th Cir.1993) (citations and internal quotations omitted). See also In re Savage Industries, Inc., 43 F.3d 714, 721 (1st Cir.1994) (“The term parties in interest encompasses not only entities holding claims against the debtor, but any entity whose pecuniary interests might be directly and adversely affected by the proposed action.”). An entity holding a claim against a debtor qualifies as a party in interest. In re Comcoach, 698 F.2d 571, 573 (2d Cir.1983). Germain, in his responsive pleading entitled “Fifth Special Defense,” claims to be an administrative expense creditor of the estates for unpaid fees and reimbursement of expenses due him. Thus, while the issue of whether an entity qualifies as a party in interest must be analyzed on a case by case basis, see In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir.1985), there is no dispute that Germain, as an alleged creditor in the present proceeding, so qualifies. The plaintiffs’ motion to dismiss the first count of the counterclaim is denied.
IV.
The plaintiffs seek to dismiss the second count of the counterclaim arguing that (1) a claim for indemnity is not ripe, and (2) no independent legal relationship exists between Yost and Germain. Germain responds that he can seek indemnification from Yost “for losses resulting from the co-fiduciaries [sic] active negligence.” Germain’s Memorandum at 9.
Under the allegations made both in the complaint and in the counterclaim, Yost and Germain were not co-fiduciaries of each estate, but were successive trustees or fiduciaries. If, as Germain alleges, the estates may have suffered injuries based upon Germain’s initial negligence, and such injuries were exacerbated by Yost’s subsequent negligence, Germain has established a claim for contribution, not indemnification.
Contribution and indemnification are based on fundamentally different principles. Parenthetically, it perhaps should be pointed out that both an implied obligation to indemnify and contribution are based on equitable principles. But indemnity involves a claim for reimbursement in full from one on whom a primary liability is claimed to rest, while contribution involves a claim for reimbursement of a share of a payment necessarily made by the claimant which equitably should have been paid in part by others.
Kyrtatas v. Stop & Shop, Inc., 205 Conn. 694, 701, 535 A.2d 357 (1988) (citations and quotation marks omitted). As detailed by the court in United States v. Yale New Haven Hospital, 727 F.Supp. 784, 785-86 (D.Conn.1990), Connecticut law provides that ordinarily there is neither a right of indemnity nor of contribution between joint tort-feasors. Connecticut law, however, permits apportionment of damages where “the independent acts of two or more persons combine to bring about one injury and one of the actors seeks to isolate his monetary liability by proving the damages arising from his particular involvement in the harm to the plaintiff.” Id. at 786. Construing Germain’s allegations in the light most favorable to him, Germain has stated a claim against Yost for apportionment should Germain be found liable in full for damages which only partially are attributable to his misconduct. The court perceives no reasons why all such issues should not be heard in the proceeding. See Fed. R.Civ.P. 18(b),3 incorporated by Fed. R.Bankr.P. 7018; Smith v. Insurance Co. of North Am., 30 F.R.D. 540, 543-14 (M.D.Tenn.1962) (holding that although right of subrogation, upon which counterclaim was based, could not arise until claim was paid, Rule 18 permits a counterclaim in “any case in which two related actions may be determined in a single proceeding without prejudice to substantive rights”). The plaintiffs’ motion to dismiss the second count of the counterclaim is not sustainable.
*379V.
The plaintiffs’ motion to dismiss the counterclaim filed by the defendant, Thomas M. Germain, is denied. It is
SO ORDERED.
. Bankruptcy Code § 322(a) requires a trustee in a case under Title 11 to file a bond in favor of the United States conditioned on the faithful performance of the trustee’s official duties.
. Fed.R.Bankr.P. 2010(b) provides:
(b) Proceeding on Bond. A proceeding on the trustee’s bond may be brought by any party in interest in the name of the United States for the use of the entity injured by the breach of the condition.
. Rule 18(b) provides:
(b) Joinder of Remedies; Fraudulent Conveyances. Whenever a claim is one heretofore cognizable only after another claim has been prosecuted to a conclusion, the two claims may be joined in a single action; but the court shall grant relief in that action only in accordance with the relative substantive rights of the parties. In particular, a plaintiff may state a claim for money and a claim to have set aside a conveyance fraudulent as to that plaintiff, without first having obtained a judgment establishing the claim for money. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492067/ | MEMORANDUM
ROBERT J. WOODSIDE, Chief Judge.
Before me is the Complaint of Dutch Masters Meats, Inc. (“Dutch Masters” or the “Debtor”), requesting injunctive relief against the Internal Revenue Service (the “IRS” or the “Service”) and Meridian Bank (“Meridian”). The Complaint seeks primarily to enjoin the IRS from taking action to collect post-confirmation employment tax deficiencies from the reorganized Debtor. For the reasons stated below, the relief requested in the Complaint will be denied.
Procedural History
Dutch Masters filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 19,1991. On September 23,1992,1 issued an Order confirming its Chapter 11 plan of reorganization.
On October 31, 1994, Dutch Masters initiated the instant adversary proceeding by Complaint; Dutch Masters also filed a motion for temporary restraining order and a motion for a preliminary injunction. I granted Dutch Masters’ request for a temporary restraining order on November 1, 1994.
On November 3, 1994, the IRS moved for dismissal of the complaint. Meridian filed an Answer to the Complaint on November 15, 1994. I conducted a hearing on the request for a preliminary injunction on November 7, 1994. Dutch Masters and the IRS subsequently submitted briefs. Dutch Masters’ request for a preliminary injunction and the IRS’ motion to dismiss the Complaint are both now ready for disposition.
Factual Findings
1. Dutch Masters filed a First Amended Plan of Reorganization (the “Plan”) on July 10, 1992. Article VIII of the Plan reads in pertinent part:
The Court will retain jurisdiction until this plan has been fully consummated, including, but not limited to the following purposes:
6. Entry of an order including injunctions necessary to enforce the title rights and powers of the debtor-in-possession and to impose such limitations, restrictions, terms, and conditions of such title, rights and powers as this court may deems necessary.
2. The Plan was confirmed by Order of this Court on September 23, 1992.
3. Subsequent to the confirmation of the Plan, Dutch Masters failed to pay certain trust fund taxes to the IRS. At the time of the filing of the complaint, Dutch Masters’ post-petition trust fund tax delinquency was approximately $140,000.00.
4. Dutch Masters reached an oral agreement with IRS Revenue Agent Jeff White regarding the delinquency in trust fund taxes. Under this agreement, Dutch Masters was to make monthly payments of $14,000.00 to the IRS for the months of October and November 1994. The parties intended to discuss the payment of the balance of the *408delinquency at the end of November. In return, the IRS would refrain from taking action on the unpaid taxes through the end of November.
5. Dutch Masters sent a letter to Agent White confirming this arrangement on September 28, 1994. The IRS does not appear to have responded in writing to this letter.
6. On September 30,1994, the IRS filed a lien against Dutch Masters for the delinquent taxes.
7. Dutch Masters sent the IRS the first payment of $14,000.00 in the month of October, pursuant to the agreement.
8. After the first $14,000.00 payment, the IRS informed Dutch Masters that the agreement entered into with Agent White had been rejected by the Service. The IRS advised Dutch Masters that it intended to levy on the debtor’s accounts receivable.
9. The IRS’ actions have caused Meridian Bank, a significant secured creditor of Dutch Masters, to deem its loan to be in default. Meridian Bank has indicated its intention to enforce its lien.
10. Since the filing of the instant complaint, Dutch Masters has failed to pay further trust fund tax obligations to the IRS.
11. If the IRS and/or Meridian Bank execute their liens against Dutch Masters, it will be unable to continue operation.
Discussion
I. JURISDICTION OVER POST-CONFIRMATION REQUEST FOR IN-JUNCTIVE RELIEF.
The IRS first argues that this Court lacks jurisdiction over this matter, as it concerns a post-confirmation debt. Section 1141(b) of the Bankruptcy Code requires that: “Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.” 11 U.S.C. § 1141(b). While bankruptcy court jurisdiction generally ceases upon confirmation, the plan may reserve jurisdiction over certain matters. See, e.g., Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Assoc., 997 F.2d 581, 587 (9th Cir.1993).
Article VIII of the Plan, quoted in my factual findings, appears to be an express reservation of jurisdiction for the provision of injunctive relief, in addition to a broad, general reservation of jurisdiction for the determination of matters pertinent to this reorganization. I find therefore that this court has jurisdiction to hear the matter in controversy.
II. DUTCH MASTERS’ RIGHT TO PRELIMINARY INJUNCTIVE RELIEF.
Injunctive relief against the IRS is generally prohibited by the Anti-Injunction Act, 26 U.S.C. § 7421. The Act provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person....” 26 U.S.C. § 7421(a). The prohibition against injunctions has been held to apply to the bankruptcy courts. In re Becker’s Motor Transp., Inc. (Needham’s Motor Serv., Inc. v. Internal Revenue Serv.), 632 F.2d 242, 246 (3d Cir.) (decided under the Bankruptcy Act), cert. denied, 450 U.S. 916, 101 S.Ct. 1358, 67 L.Ed.2d 341 (1980); In re Heritage Village Church and Missionary Fellowship, Inc. (Clark v. United States), 851 F.2d 104, 105 (4th Cir.1988) (decided under the Bankruptcy Code).
An exception to the anti-injunction rule was recognized by the Supreme Court in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). A party may be entitled to an injunction against the IRS if she can show that:
(1) The Government can not prevail on the merits, even if the facts and law are examined in the light most favorable to it; and
(2) Equitable jurisdiction otherwise exists.
Id. at 7, 82 S.Ct. at 1129; Bob Jones Univ. v. Simon, 416 U.S. 725, 737, 94 S.Ct. 2038, 2046, 40 L.Ed.2d 496 (1974); Hillyer v. Commissioner, 817 F.Supp. 532, 535 (M.D.Pa.1993).
A. The Government’s chances of prevailing on the merits.
The Williams Packing exception to the Anti-Injunction Act requires that the taxpayer show that “it is clear that under no cir*409cumstances could the Government ultimately prevail” on the merits. Williams Packing, 370 U.S. at 7, 82 S.Ct. at 1129. Dutch Masters here raises two substantive grounds for relief: (1) its payment arrangement -with the IRS represents an enforceable agreement; and (2) if the agreement is not prima facie enforceable against the IRS, the Service should nonetheless be equitably estopped from pursuing collection. Dutch Masters has failed to meet its burden under either theory.
1. The enforceability of the agreement between Dutch Masters and the IRS.
Dutch Masters argues that the IRS is bound by the terms of the agreement between the debtor and Agent White. As the only written evidence of this agreement is a letter from Dutch Masters to the IRS, making reference to a prior oral agreement, I must note initially that any such arrangement does not satisfy the requirement of 26 U.S.C. § 7121 that all agreements regarding compromises of liability be in writing. Dutch Masters has offered no evidence of a written acceptance of the terms of the payment arrangement by the IRS. See Boulez v. Commissioner, 810 F.2d 209, 216-17 (D.C.Cir.), (finding oral agreement with IRS invalid under Treas.Reg. § 301.7122-l(d)), cert. denied, 484 U.S. 896, 108 S.Ct. 229, 98 L.Ed.2d 188 (1987); Heffelfinger v. United States, No. 4:CV-94-0122, slip op. at 8 (M.D.Pa. Sept. 21, 1994).
Furthermore, Dutch Masters’ agreement with Agent White can not represent a contract enforceable as against the Government, since an IRS agent lacks authority to bind the service in the settlement of tax liability. 26 U.S.C. § 7122. Dutch Masters’ argument that the agent’s failure to disclose his lack of authority to enter into compromises binds the Service under the principles of agency is unpersuasive; once a statute has been published, all citizens are on notice of its contents. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85, 68 S.Ct. 1, 3-4, 92 L.Ed. 10 (1947) (“Just as everyone is charged with knowledge of the United States Statutes at Large, Congress has provided that the appearance of rules and regulations in the Federal Register gives legal notice of their contents.”); Boulez, 810 F.2d at 218 n. 68; Heffelfinger, slip op. at 10. Regardless of such disclosure, Agent White lacked the authority to bind the Service. United States v. Asmar, 827 F.2d 907, 913 n. 7 (3d Cir.1987); Brooks v. United States, 833 F.2d 1136, 1145-46 (4th Cir.1987); Boulez, 810 F.2d at 217. Dutch Masters has failed to demonstrate that it will clearly be able to prove that it entered into an enforceable contract with the IRS.
2. Debtor’s claim of equitable estoppel against the United States.
Dutch Masters further claims that even if its agreement with the IRS does not represent an enforceable contract in fact, its reliance upon that agreement should equitably estop the IRS’ attempts to collect the delinquent taxes.
While the Supreme Court has not expressly ruled on the application of estoppel against the government, Heckler v. Community Health Serv. of Crawford County, 467 U.S. 51, 60, 104 S.Ct. 2218, 2224, 81 L.Ed.2d 42 (1984), the Third Circuit has found that estoppel may be effectively asserted against the government. Asmar, 827 F.2d at 912. Governmental estoppel must, however, be construed narrowly:
When the Government is unable to enforce the law because the conduct of its agents has given rise to an estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined. It is for this reason that it is well settled that the Government may not be estopped on the same terms as any other litigant.
Heckler, 467 U.S. at 60, 104 S.Ct. at 2224. The party asserting estoppel against the government has the burden of proving the traditional elements of estoppel, as well as “affirmative misconduct.” Asmar, 827 F.2d at 912; U.S. v. Lair, 854 F.2d 233, 237-38 (7th Cir.1988).
The elements of governmental estoppel are therefore:
(a) Material misrepresentation by the government;
(b) A reasonable reliance upon that misrepresentation;
*410(c) Detriment resulting from that reliance; and
(d) Affirmative misconduct by the government.
Asmar, 827 F.2d at 912.
a. Material Misrepresentation. Assuming that Dutch Masters did in fact come to an oral agreement with the IRS to make two payments of $14,000.00 in exchange for forbearance in collection, such an agreement would represent a material misrepresentation by the Service, in that Agent White lacked authority to enter into it. See Asmar, 827 F.2d at 913 n. 7 (IRS agent’s promise to pursue collection of joint liability from taxpayer’s husband, not taxpayer, was a material misrepresentation, as agent lacked authority to so bind the Service). I find therefore that the IRS’ agreement with Dutch Masters to forgo collection pending the October and November payments was a material misrepresentation.
b. Reasonable reliance. Dutch Masters argues that its payment of $14,-000.00 to the IRS in October 1994 constitutes reasonable reliance upon its agreement with the Service. Although Dutch Masters was on constructive notice of the IRS agent’s lack of authority to bind the Service as noted above, supra part II.A.l; see Merrill, 332 U.S. at 384-85, 68 S.Ct. at 3-4; Boulez, 810 F.2d at 218 n. 68, I nonetheless find that its rebanee upon the payment agreement was reasonable. A financially distressed taxpayer, seeking to cure a substantial tax delinquency, would reasonably comply with the terms of any settlement agreement that its reached with an IRS agent, even if it knew that the agreement would have to be approved by the Service. But see Heffelfinger, sbp op. at 10. It must surely have been apparent to Dutch Masters that further failure to meet its obbgations to the IRS would doom its reorganization; it was reasonable of it to comply with the terms of the settlement tentatively reached as to debnquent trust fund taxes.
c. Detriment based on reliance. For Dutch Masters to estabbsh detriment based on reliance it must show reliance which resulted in a change for the worse. In re Crain (Crain v. Maryland), 158 B.R. 608, 613 (Bankr.W.D.Pa.1993). The alleged agreement between Dutch Masters and the IRS only covered $28,000.00 of Dutch Masters’ $140,000.00 delinquency. Even if the IRS was bound by this agreement to permit Dutch Masters to make two payments, it would then have been free to proceed against the debtor; the only agreement as to the balance owed was to discuss the matter further. Given the IRS’ attempted repudiation of the two-payment agreement, it does not appear that it would have been wilhng to strike a deal as to the remaining $112,000.00 owed.
An analogous situation may be seen in the Third Circuit’s Asmar decision. There, an IRS agent represented to the taxpayer that the Service would pursue her ex-husband, and not her, in the collection of joint tax habihty. In rebanee upon this forbearance, the taxpayer did not seek to enforce provisions in her divorce agreement regarding the joint tax obbgations. This rebanee was found to have resulted in no detriment to the taxpayer:
[W]e cannot accept the fact that Asmar has suffered any demonstrable detriment. Any benefit she received from the IRS agents’ promise not to proceed against her for execution of the judgment is not one to which she was or is legally entitled. To the contrary, she is jointly and severaby bable for the 1976 tax judgment against her and her former husband. It would be a windfall to Asmar if she were not required to satisfy any of the adjudged tax deficiency. Moreover, strictly speaking, the IRS agents never forgave the adjudicated habihty. They represented only that the IRS would “go after” Robert for satisfaction. There was always the possibihty that, after fulfilhng their promises and proceeding against Robert, the IRS would proceed against Kathleen Asmar for the remainder of any unsatisfied judgment.
While she may be adversely affected by the execution of the judgment, it is not clear that Asmar is worse off than if the IRS had never promised to forgo an action against her.
*411Asmar, 827 F.2d at 915 (emphasis in original).
Similarly, any forbearance by the IRS in permitting Dutch Masters to pay delinquent trust fund taxes over an extended period of time represents a windfall to it. The Internal Revenue Code requires that employers withhold and pay over to the IRS taxes on the wages of their employees. 26 U.S.C. §§ 3402 & 3403. Properly speaking, the employer has no right to this withholding once wages are paid; such withholding is commonly referred to as “trust fund tax” precisely because the employer holds it in trust for the Government. 26 U.S.C. § 7501(a). It is because of this trust relationship that, unlike other tax obligations, trust fund taxes are nondischargeable regardless of age. 11 U.S.C. §§ 523(a)(1)(A) & 507(a)(8); see CollieR on BANKRUPTCY ¶523.06[6]. The IRS’ initial willingness to accept installment payments on a delinquent trust fund tax obligation represents a substantial benefit to Dutch Masters. The payment of ten percent of the past due amount of such a tax obligation can not reasonably be viewed as a detriment.
More substantially, the IRS here made a promise to Dutch Masters which was limited in scope in much the same manner as that made to the taxpayer in Asmar: the agreement allegedly entered into between Dutch Masters and the IRS covered only two months. Once Dutch Masters had made two payments, the parties had agreed only that they would discuss the matter further. Even if it was bound by the two month agreement, the IRS would have been free in December of 1994 to refuse to further compromise, and to proceed immediately to collection. As Dutch Masters has conceded, enforcement by the IRS of its right to the delinquent trust fund taxes will result in the failure of the reorganization, and the collapse of its business. In that event, the $14,000.00 payment made to the IRS under the oral agreement will make no difference to Dutch Masters. See also Crain, 158 B.R. at 614 (no detriment where taxpayers sold their house in reliance upon alleged statements of IRS agent regarding capital gains liability, since if taxpayers had not sold the house, the Service would
have foreclosed its lien and had the house sold at forced sale).
Detriment based on reliance implies that Dutch Masters’ position now would be better had it not acted in reliance at all. Clearly, had the Debtor not relied on its alleged agreement with the IRS, it still would have been subject to levy and execution. I note further that Dutch Masters’ failure to pay $140,000.00 worth of post-confirmation trust fund taxes represents a failure to live up to the terms of the plan, and suggests in and of itself that the proposed reorganization is failing. The single $14,000.00 payment does not represent detriment sufficient to require equitable relief.
d. Affirmative misconduct. The exact meaning of Williams Packing’s “affirmative misconduct” requirement is unclear; it must, however, be more than negligence or omission. United States v. Pepperman, 976 F.2d 123, 131 (3d Cir.1992); Kennedy v. United States, 965 F.2d 413, 421 (7th Cir.1992). For governmental action to rise to the level of affirmative misconduct, it must imperil “the ‘interest of citizens in some minimum standard of decency, honor, and reliability in their dealings with their Government.’ ” Pepperman, 976 F.2d at 131 (quoting Heckler, 467 U.S. at 61, 104 S.Ct. at 2224).
No such affirmative misconduct occurred here. While the IRS agent’s failure to warn Dutch Masters that he did not have the authority to bind the service absent approval of the agreement by appropriate superiors is a material misrepresentation, this omission does not rise to the level of affirmative misconduct. As noted above, supra part II.A.1, all citizens are on constructive notice of the law once it is published. Merrill, 332 U.S. at 384-85, 68 S.Ct. at 3-4; Boulez, 810 F.2d at 218 n. 68. Dutch Masters had the burden of ensuring that it understood the law in its negotiations with the IRS. “Men must turn square corners when they deal with the Government.” Rock Island, Ark. & La. R.R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 56, 65 L.Ed. 188 (1920). I note further that Dutch Masters is a sophisticated commercial debtor, and has been represented in its dealings with its creditors by experienced *412counsel. I find therefore that Dutch Masters has failed to show any affirmative misconduct by the IRS.
I must therefore find that Dutch Masters has not shown that the Government can not prevail on the merits; the Anti-Injunction Act, 26 U.S.C. § 7421, therefore bars the grant of a preliminary injunction.
B. Equitable jurisdiction.
Having determined that Dutch Masters has failed to establish that the Government can not prevail on the merits, I need not resolve the second prong of the Williams Packing exception to the anti-injunction rule: whether equitable jurisdiction exists.1 There are strong arguments on both sides of this question. On the one hand Dutch Masters contributes to the public interest by employing a substantial number of persons and the denial of an injunction will likely result in the failure of the reorganization. On the other hand, Dutch Masters cannot be permitted to continue to utilize trust fund monies to fund its business; once a reorganization plan is confirmed, a debtor must operate in a manner consistent with the plan and with applicable law. See United States v. Hill, 368 F.2d 617, 621 (5th Cir.1966) (stating that “[t]he desire to continue in business is not justification for violating the trust imposed to pay taxes”). The extent to which equitable jurisdiction is triggered under such circumstances is an issue that will be reserved for a case that is closer on the merits.
III. THE IRS’ MOTION TO DISMISS THE COMPLAINT.
The IRS has moved for dismissal of the Complaint based both on an absence of jurisdiction and on the Anti-Injunction Act’s bar against the granting of injunctive relief against the IRS. As discussed above, supra part I, I find that this court does have jurisdiction over post-confirmation requests for injunctive relief. However, I further find that the IRS is entitled to a grant of their request for dismissal of the Complaint in light of the Anti-Injunction Act.
The Anti-Injunction Act, 26 U.S.C. § 7421(a), acts as a bar to the grant of any injunctive relief against the IRS. As discussed above, supra part II, Dutch Masters must prove that this case falls under the Williams Packing exception as a threshold requirement for the grant of any injunction. As Dutch Masters has failed to do so in the context of its request for a preliminary injunction, it is clear that it will be unable to do so in order to obtain a permanent injunction. The Anti-Injunction Act provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person....” 26 U.S.C. § 7421(a). Dutch Masters’ Complaint seeks to bar the collection of a tax; I must therefore find that the Anti-Injunction Act bars the maintenance of this action against the IRS. The Service’s motion to dismiss the Complaint must be granted.
IV. DEBTOR’S REQUESTED RELIEF AGAINST MERIDIAN BANK.
Dutch Masters’ Complaint in this proceeding requests injunctive relief against both the IRS and Meridian. Although my ruling today is on the IRS’ Motion to Dismiss and not on the merits of Dutch Masters’ claims against Meridian, the relief requested against Meridian is expressly tied in the Complaint to that requested against the IRS. In light of my denial of the requested injunction against the IRS, Dutch Masters has no grounds for the requested relief against Meridian. Meridian’s relationship with Dutch Masters is therefore governed by the Plan and by those agreements entered into between them and Meridian is free to proceed against the debtor in response to post-confirmation defaults to the extent so permitted by those documents and by applicable law.
Conclusions of Law
1. I have jurisdiction of the instant adversary proceeding pursuant to 28 U.S.C. *413§§ 157 & 1334, and pursuant to Article VIII of the Plan. This is a core matter pursuant to 11 U.S.C. § 157(b)(2)(I).
2. Dutch Masters has failed to show that the Government will be unable to prove that an enforceable agreement does not exist between the parties.
3. Dutch Masters has faded to show that the Government will be unable to prove that it is not equitably estopped from collecting the debtor’s post-petition obligations.
AN APPROPRIATE ORDER WILL FOLLOW.
ORDER
AND NOW, this 3rd day of March, 1995, after a hearing on the merits and for the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:
1. Debtor’s request for a preliminary injunction is hereby DENIED;
2. The temporary restraining order issued by this Court on November 1, 1994, is hereby DISSOLVED; and
3. The motion of the Internal Revenue Service for dismissal of the Complaint is hereby GRANTED;
4. Based upon the failure of its cause against the Internal Revenue Service, the Complaint is also dismissed as against Meridian Bank, N.A.
The Clerk is directed to close the adversary file.
. To establish an entitlement to equitable relief, the movant must show that: (1) the injunction is necessary to prevent irreparable harm; (2) greater harm will result from the denial of the injunction than from its grant; and (3) the grant of the requested injunction would best serve the public interest. Hillyer, 817 F.Supp. at 537; Opticians Assoc. of America v. Independent Opticians of America, 920 F.2d 187, 192-93 (3d Cir.1990). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492068/ | MEMORANDUM OPINION
MARILYN SHEA-STONUM, Bankruptcy Judge.
This matter came before the Court on plaintiffs’ complaints to determine discharge-ability pursuant to 11 U.S.C. § 727(a), and, in the case of Antonia Neumann, § 523(a)(2)(A), (a)(5) and (a)(6) and to determine whether defendant-debtor converted certain property owned by plaintiff, Antonia Neumann.
JURISDICTION
This proceeding arises in a ease referred to this Court by the Standing Order of Reference entered in this District on July 16, 1984. It is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (I), and (J), and includes this Court’s determination of the dollar value of a claim that was the subject of a complaint to determine its dischargeability.
FACTS .
Debtor, Donald Neumann, filed a voluntary chapter 7 bankruptcy petition on July 30, 1993. On January 20, 1994, debtor’s ex-wife, Antonia Neumann, filed a complaint (which was later amended on June 16, 1994) objecting to the debtor’s discharge pursuant to 11 U.S.C. §§ 523(a) and 727(a). (Docket # 1 and # 16). Thereafter, on August 18, 1994, plaintiff, Mule-Hide Products Co. (Mule-Hide), moved to intervene as a party plaintiff so as to object to debtor’s discharge pursuant to § 727(a). (Docket # 27). That motion was subsequently granted on September 13, 1994, with instructions that Mule-Hide’s complaint was to be deemed to have been filed upon the date that Mule-Hide moved to intervene. (Docket # 34). Trial in this matter was scheduled for March 10, 1995.
Prior to the beginning of trial, defendant-debtor informed the Court that he would waive his discharge pursuant to 11 U.S.C. § 727(a)(10). Mr. Neumann’s formal waiver *504was accepted by the Court and filed on March 15, 1995. (Docket # 61).
Following defendant-debtor’s waiver of discharge, plaintiff, Antonia Neumann, sought to proceed with her action for conversion. Count three of Ms. Neumann’s complaint (docket # 16) alleged that:
19. The Debtor sold, transferred and otherwise disposed of property which rightfully belonged to Plaintiff and which she was entitled to by order of the Domestic Relations Court.
20. Debtor caused willful and malicious injury to Plaintiffs property by virtue of his intentional conversion of said property.
21. Debtor’s obligations pursuant to the parties’ divorce decree are non-dis-chargeable pursuant to 11 U.S.C. § 523(a)(6).
In said complaint, Ms. Neumann prayed that judgment be granted in her favor, “specifically ... (2) [t]hat Debtor be required to reimburse Plaintiff for the fair market value of all assets 'wrongfully converted by Debtor.”
Prior to the March 10 trial, Joint Stipulations of Fact were filed. (Docket # 53). Those stipulations were signed by defendant-debtor’s counsel and included the following information regarding the property that was allegedly converted:
9. As set forth in said decree1 ... Antonia Neumann and Debtor were to divide their furniture, furnishings and other personal possessions.
‡ ^ ‡ ‡
11. Debtor still has in his possession furniture, furnishings and other personal possessions which were to be divided by Debtor and Antonia Neumann pursuant to the Divorce Decree.
12. Debtor has sold and/or junked some of the furniture, furnishings and personal possessions that were to be divided by Debtor and Antonia Neu-mann pursuant to the Divorce Decree.
At the beginning of the trial, this Court reviewed with the parties each paragraph of the joint stipulations. In its review the Court asked if there were any corrections to or continuing disputes with the text of each stipulation. As to paragraphs 9, 11, and 12, no party expressed any objection.
During the trial, plaintiff, Antonia Neu-mann testified that the division of household goods and furniture, pursuant to the Divorce Decree, has never occurred. On cross-examination, Ms. Neumann indicated that both she and her divorce attorney have attempted to get the defendant-debtor to agree on a time, place and date in which to exchange the property.2 The only evidence of the specific property that was allegedly converted was Plaintiffs trial exhibit A-F which was described by plaintiff as “one of many lists that have gone back and forth between divorce attorneys trying to settle the property.” Plaintiff did, however, indicate that she could *505not attest to the list’s completeness. This exhibit was entered into evidence without objection.
Thereafter, plaintiff gave her opinion as to the fair market value of the household goods and furniture that were to be divided as “approximately $40,000.00.” Plaintiffs opinion of the fair market value of her share of these items was “at a minimum, $20,000.”3
Given defendant-debtor’s voluntary waiver of discharge, only one issue remains before this Court. That issue is whether the debt- or’s conduct, in failing to divide the former marital property and unilaterally disposing of some of that property, constitutes conversion.
DISCUSSION
In Ohio, the tort of conversion has been defined as “a wrongful or unauthorized act of control or exercise of dominion over the personal property of another which deprives the owner of possession of his property.” Taylor v. First Natl. Bank of Cincinnati, 31 Ohio App.3d 49, 52, 508 N.E.2d 1006, 1011 (1986) (citing Fulks v. Fulks, 95 Ohio App. 515, 518-20, 121 N.E.2d 180, 182 (1953)). To prove the elements of the tort of conversion the plaintiff must show: (1) that plaintiff has ownership interests or a right to possession of the property at the time of the conversion; (2) that defendant’s conversion was by a wrongful act of disposition of plaintiffs property rights; and (3) that as a result of the defendant’s actions the plaintiff suffered damages. Hodges v. Byars, 1992 WL 113027, 1992 Ohio App. LEXIS 2742 (Ohio Ct.App.1992). Plaintiff must prove these elements by a preponderance of the evidence. Miller v. Proctor & Sturgeon, 13 Ohio L.Abs. 295 (Ohio Ct.App.1932).
[1] Plaintiff’s Ownership Interest or Right to Possession of Property: The effect of a Divorce Decree is to dissolve the marital relationship, to extinguish the preexisting joint property interests, and to create new property interests to replace the old. Hoyt v. Hoyt, 53 Ohio St.3d 177, 184-86, 559 N.E.2d 1292, 1300 (1990); Koepke v. Koepke, 52 Ohio App.3d 47, 47-49, 556 N.E.2d 1198, 1199 (1989); Farrey v. Sanderfoot, 500 U.S. 291, 299-300, 111 S.Ct. 1825, 1830-31, 114 L.Ed.2d 337 (1991). See also O.R.C. § 3105.17.1 — Equitable Division of Marital and Separate Property. In the case at bar, the Divorce Decree awarded the plaintiff the right to receive 50 per cent of the former marital assets pursuant to either an agreement by the parties or supervised division. Therefore, although the Divorce Decree did not set forth plaintiffs ownership interests as to any particular item of property, she did have a right to receive, and thus possess, a portion of the former marital assets.
Conversion was by Wrongful Act of Disposition of Plaintiff’s Property Rights: It is uncontroverted in this case that defendant-debtor “has sold and/or junked some of the furniture, furnishings and personal possessions that were to be divided by Debtor and [plaintiff] pursuant to the Divorce Decree.” Joint Stip. of Fact para. 12. (Docket # 53). Moreover plaintiff testified that although she had attempted repeatedly to arrange for a time and place in which to separate the property, defendant-debtor was uncooperative. Therefore, although not all of the property was sold or destroyed, the prolonged possession of plaintiffs property may also constitute conversion as that tort can arise “from the exercise of a dominion over [the property] in exclusion of the rights of the owner.” Miller v. Uhl, 37 Ohio App. 276, 280-82, 174 N.E. 591, 592 (1929).
It might be argued that because defendant-debtor was initially in rightful possession of the former marital assets, a conversion could not occur. However, given the circumstances of that possession, a bailment relationship was created, with defendant-debtor as bailee. A bailment arises when one person holds personal property in trust for another person, the property is held for a particular purpose, and once that purpose has been achieved, the property must be *506returned. Collins v. Click Camera & Video, Inc., 86 Ohio App.3d 826, 829-30, 621 N.E.2d 1294, 1296 (1993), juris, mot. dented, 67 Ohio St.3d 1438, 617 N.E.2d 688 (1993). Therefore, regardless of the fact that a bailee is rightfully in possession of the bailed property, he can still have effectuated a conversion “if he has made an illegal use of it, or has abused the conditions under which it was received or delivered to him.” Miller v. Uhl, 37 Ohio App. 276, 278-80, 174 N.E. 591, 591 (1929).
Although there was no direct evidence or testimony going to why defendant-debtor was uncooperative in distributing the property, the tortfeasor’s intent or purpose to do the wrongful action is not a necessary element of proof to establish conversion. Fulks v. Fulks, 95 Ohio App. 515, 518-20, 121 N.E.2d 180, 182 (Ohio Ct.App.1953). Further, the motive by which a party was controlled in converting the property is not an available defense. Id.
Damages: Damage to the plaintiff is evidenced in this case by the fact that plaintiff has been deprived of her property, and any proceeds derived therefrom, for more than two years from the date of the entry of the Divorce Decree which ordered that the former marital property be divided. Her damages are further established by defendant-debtor’s admission to having junked and sold some of the property, as well as the admission that he is still in possession of the remaining items that were to be distributed pursuant to the Divorce Decree. Joint Stip. Of Fact para. 11, 12. (Docket # 53).
The measure of damages in a conversion claim is the value of the converted property at the time of the conversion. Brumm v. McDonald & Co. Securities, Inc., 78 Ohio App.3d 96, 103-05, 603 N.E.2d 1141, 1146 (1992). During the trial, the plaintiff testified without objection that her opinion of the fair market value of the household goods and furniture in the marital home was “approximately $40,000.00.” Plaintiff further testified that her opinion of the fair market value of her portion of these items was “at a minimum $20,000.” It is well established in Ohio that “the owner of personal property, because of such ownership, has a sufficient knowledge of its value to be qualified to give an opinion thereon which will be some evidence of the actual value, though not conclusive.” Bishop v. East Ohio Gas Co., 143 Ohio St. 541, 544-47, 56 N.E.2d 164, 166 (1944). This rule is especially applicable where the property may have a particular worth to the plaintiff. Id. Further, in assessing the damage caused by a conversion, there may be a consideration of additional loss suffered due to a deprivation of the property or compensation for the loss of use of-the property. See Keys v. Pittsburg & Wheeling Coal Co., 58 Ohio St. 246, 275-79, 50 N.E. 911, 917 (1898); Modarelli v. Fullerton Transfer & Storage Ltd., Inc., No. 77 CA 128, slip. op. at 5-6 (Ohio Ct.App.1978).
In the ease at bar, plaintiff was damaged by being deprived of the use of her property as well as by being forced to replace some of those items. Under these circumstances, damages should be calculated on both the past deprivation and the prospect that the debtor-defendant may continue his noncooperation in the division of the assets. To compensate plaintiff for the deprivation of the use of her property and the disposal of certain unspecified property, this Court will award plaintiff $5,000.00 which consists of the 10 per cent state judgment interest rate (see O.R.C. § 1343.03) on the $20,000.00 determined value of the former marital property from the date of entry of the Divorce Decree to the date of entry of this Order (approximately $4,500.00) plus $500.00 for the unspecified property that was the subject of the defendant-debtor’s disposal. In addition, based upon her uncontroverted testimony as to the fair market value of the former marital assets being at least $40,000.00, the plaintiff will also be awarded damages totaling $20,-000.00, or one-half of that amount. However, given that certain portions of the property are still in existence,4 defendant-debtor can *507still generally perform the property division as provided in the Divorce Decree. Therefore, if defendant-debtor performs under the order of the Domestic Relations Court requiring division of the marital assets by June 30, 1995, plaintiff’s second damage claim of $20,000.00 will be deemed satisfied. Whether the defendant-debtor has complied with the order of the Domestic Relations Court is to be determined by that Court. Unless this Court receives evidence of the defendant-debtor’s compliance with the terms of the Divorce Decree by July 7, 1995, this Court will enter a further judgment in favor of plaintiff in the amount of $20,000.00.
CONCLUSION
To succeed in proving a cause of action in conversion, the plaintiff must show that she owned or had a right to possess the property in question; that the defendant-debtor’s conversion was by a wrongful taking of or interfering with those property rights; and, that as a result of defendant-debtor’s conduct, plaintiff suffered damages. Based upon the admissions of defendant-debtor via the joint stipulations of fact, and the uncontroverted testimony at trial, the plaintiff has proven these elements.
Therefore, based upon the foregoing, this Court hereby finds: (1) that defendant-debt- or’s conduct constituted conversion; and (2) that plaintiff was damaged by defendant-debtor’s conversion in the amount of $5,000.00 for the past deprivation of her property and prospectively in the amount of $20,000.00 for the cost of replacing such property should the property not be divided by June 30, 1995 in accordance with the Divorce Decree.
IT IS SO ORDERED.
. The Divorce Decree, (see Exhibit to first complaint) which serves as the basis for plaintiff’s conversion allegation was entered by the Summit County Domestic Relations Court on February 22. 1993, and states inter alia:
(15) The parties shall attempt to agree on the division of the remaining items of personal property. If the parties are unable to agree as to such division, the remaining items shall be placed on a list, item by item and not in groups, subject to division. The division shall take place by the parties making alternate selections, item by item and not in groups, with the Plaintiff making the first selection. All items of personal property shall be placed on the list including gifts that may have been made between the parties ... Both parties shall make complete lists of all items they consider marital assets subject to division.
. On September 13, 1993, plaintiff filed a motion for relief from the automatic stay requesting, inter alia, that she be able to pursue division of the household goods and furnishings as provided for in the Divorce Decree. Thereafter, the Court, in a letter to the parties in interest dated October 12, 1993, explained that as to the portion of property that belonged to plaintiff, the Court had no jurisdiction as it was not part of the debtor’s estate. The Court did, however, enter a general Order granting relief from the automatic stay on October 14, 1993. Therefore, as to the division of the former marital property pursuant to the divorce decree, the issue of relief from the automatic stay has been thoroughly addressed by this Court.
. The Court notes that the defendant-debtor amended the schedule of property in his bankruptcy case to list property allegedly in his wife’s possession on which he placed a value of $81,-000, although at trial the wife disputed the listed value for and, in some instances the existence of, those items of property.
. During trial, the only evidence produced regarding what constituted the former marital property was a “partial” listing introduced by plaintiff. (See Plaintiff’s Trial Exhibit A-F). Although there were no objections entered regarding this list, there was also no evidence presented as to which items are still in defendant-debtor’s *507possession, which items have been junked, and/or which items were simply not listed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492069/ | MEMORANDUM ORDER SETTING EFFECTIVE DATE OF LEASE REJECTION
NANCY C. DREHER, Bankruptcy Judge.
The above-entitled matter came on for hearing before the undersigned on the 24th day of May, 1995 on a motion by the debtor 1 Potato 2, Inc. (“Debtor”) for an order approving the rejection of a lease with Cadillac Fairview Shopping Center Properties (Dela*541ware), Ine. (“Cadillac”). Appearances were as follows: William Kampf and Elizabeth Zerby for the Debtor; and Paul Jones for Cadillac.
FACTS
Debtor is a lessee of property in the Dover Mall food court pursuant to a lease with Cadillac dated August 14, 1992. On March 27,1995, Debtor filed a voluntary petition for relief under Chapter 11 of the Code. On that same date, Debtor sent written notice to Cadillac stating that it rejected the lease. The notice also indicated that the rejection was effective March 27, 1995, and that Debt- or would seek court approval of the rejection as soon as possible. Debtor then vacated the premises.
On April 28, 1995, Debtor filed a motion seeking an order authorizing the rejection of the lease. Although Debtor did not specify the effective date of rejection in its moving papers, Debtor’s proposed order indicated the lease was rejected as of March 27, 1995. While Cadillac does not object to the Debt- or’s right to reject the lease, it does object to the effective date of the rejection. According to Cadillac, the rejection can not be effective until the court approves the rejection.
ISSUE
The sole issue is whether, under § 365(a), a lease is rejected only upon the court’s approval of Debtor’s decision to reject a lease, or whether the court’s approval is simply a condition subsequent to rejection.
DISCUSSION
Section 365(a) provides that “the trustee [or debtor-in-possession], subject to the court’s approval, may assume or reject” any unexpired lease. 11 U.S.C. § 365(a). Courts disagree as to whether this subsection requires court approval for the rejection to be effective. The issue is important because, under § 365(d)(3), the lessor is entitled to an administrative priority claim for all obligations under the lease that accrue postpetition but prior to an effective rejection. See 11 U.S.C. § 365(d)(3).
The majority view is that the rejection of a lease is not effective until the rejection is approved by the court. See In re Revco D.S., Inc., 109 B.R. 264, 267-68 (Bankr.N.D.Ohio 1989). See also Paul Harris Stores, Inc. v. Mabel L. Salter Realty Trust (In re Paul Harris Stores, Inc.), 148 B.R. 307 (S.D.Ind.1992); In re Federated Dep’t Stores, Inc., 131 B.R. 808 (S.D. Ohio 1991); In re Thinking Machines Corp., 178 B.R. 31 (Bankr.D.Mass.1994); Allegheny Center Assocs. v. Appliance Store, Inc. (In re Appliance Store, Inc.), 148 B.R. 226 (Bankr.W.D.Pa.1992). The minority view, which has been adopted by judges in this district as well as in Debtor’s prior bankruptcy, holds that approval of the court is only a condition subsequent to the rejection of the lease. “Section 365 contemplates two distinct actions — one by the trustee and one by the court. The trustee assumes or rejects, and the court approves — nothing suggests the court authorizes.” In re Joseph C. Spiess Co., 145 B.R. 597, 600 (Bankr.N.D.Ill.1992). Accord Mid Region Petroleum, Inc., 111 B.R. 968 (Bankr.N.D.Okla.1990); In re Carlisle Homes, Inc., 103 B.R. 524 (Bankr.D.N.J.1988); In re 1 Potato 2, Inc., 58 B.R. 752 (Bankr.D.Minn.1986); In re Re-Trac Corp., 59 B.R. 251 (Bankr.D.Minn.1986).
The Eighth Circuit Court of Appeals has not addressed the issue. Indeed, no circuit court has provided guidance on the issue.
The starting point for resolving this issue is the language of the Code itself. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). The plain meaning of the Code shall be conclusive, except in the “rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafter.” Id. at 242, 109 S.Ct. at 1031 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)). Courts on both sides of the debate insist that the language of § 365(a) is clear on its face. Compare Joseph Spiess, 145 B.R. at 600 (“nowhere does the plain language of Section 365(a) expressly require prior court authorization to assume or reject an executory contract or unexpired lease.”) with Revco, 109 *542B.R. at 268 (“the unequivocal language of section 365(a)” establishes that the rejection is effective upon court approval). If the language of § 365(a) is so clear on its face, it is unlikely that there would be such disagreement as to what it says.
In 1978, Congress eliminated § 70(b) of the Bankruptcy Act, which set forth time limits for assuming or rejecting unexpired leases.1 In its place, Congress enacted § 365(a), which allows the trustee to assume or reject a lease without time limits, subject only to court approval. New Bankruptcy Rule 6006(a) provides that a proceeding to assume or reject an unexpired lease is governed by Bankruptcy Rule 9014 whieh in turn states that such relief shall be requested by motion with reasonable notice and opportunity for hearing.
Because § 365(a) no longer fixed deadlines and did not obligate the debtor to make payments on the lease pending the debtor’s decision to assume or reject, commercial lessors engaged in an extensive lobbying effort. The result was the “Shopping Center Amendments” of 1984, whereby Congress enacted § 365(d)(3) and (4) requiring the trustee to timely perform all obligations of the debtor until the assumption or rejection of a lease. See The Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333. Section 365(d)(3) states that the trustee must perform the obligations under a nonresidential real property lease “until such lease is assumed or rejected.” Section 365(d)(4) provides that if the “trustee does not assume or reject an unexpired lease of nonresidential real property” within 60 days of the order for relief the lease is “deemed rejected.” These amendments were decidedly anti-debtor and pro-commercial lessor. The legislative history makes clear that Congress intended to provide significant advantages to commercial lessors which were not enjoyed by other creditors because Congress viewed lessors as decidedly different from other unsecured creditors. See 130 Cong.Rec. 20084, 20088 (1984), reprinted in 1984 U.S.C.C.A.N. 590, 598-99 (statement of Senator Hatch).
I conclude that the majority view, exemplified by Reveo, is the more correct one and that rejection of a lease is only effective upon court approval. This interpretation of § 365 is more consistent with the intention of Congress than the Spiess analysis.
Section 365 marked a significant change from pre-Code law, a change made, in part, to remedy the problem of informal rejection of leases by trustees by requiring court approval to effectuate rejection. Unfettered control by the trustee was replaced with court involvement in the decision-making process of rejection. The changes from old Bankruptcy Rule 607 to new Bankruptcy Rule 6006 underscored that change. Further, this interpretation of § 365(a) is supported by the legislative history of § 901(a), which explicitly states that the court must authorize the rejection of a lease.2 Therefore, I adopt the majority rule that holds a rejection of a lease is not effective until a *543court approves the rejection.3
CONCLUSION
ACCORDINGLY, IT IS HEREBY ORDERED THAT:
1. Cadillac’s limited objection to the rejection of the lease is SUSTAINED; and
2. Debtor’s rejection of the lease is approved, effective May 24, 1995, the date of the hearing on the debtor’s motion at which I approved rejection.
. Section 70(b) of the Bankruptcy Act of 1898 provided, in relevant part:
The trustee shall assume or reject an executory contract, including an unexpired lease of the properly, within sixty days after the adjudication or within thirty days after the qualification of a trustee, whichever is later, but the court may for cause shown extend or reduce the time.
11 U.S.C. § 110(b) (1976) (repealed 1978). To implement section 70(b), Bankruptcy Rule 607 required court approval for the assumption of executory contracts but provided no guidance for rejection. The courts were split as to whether rejection required court approval. Compare Bradshaw v. Loveless (In re American Nat'l Trust), 426 F.2d 1059, 1064 (7th Cir.1970) with Vilas & Sommer, Inc. v. Mahony (In re Steelship Corp.), 576 F.2d 128, 132 (8th Cir.1978).
. Section 901 sets forth the Code provisions that are applicable in Chapter 9 cases, including § 365. The legislative history to § 901 provides: "The applicability of section 365 incorporates the general power of a bankruptcy court to authorize the assumption or rejection of executory contracts or unexpired leases found in other chapters of this title." H.R.Rep. No. 595, 95th Cong., 2d Sess. 394-95 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6349-51. According to one commentator, the importance of this history has not been recognized by courts dealing with this issue. See Gregory G. Hesse, A Return to Confusion and Uncertainty as to the Effective Date of Rejection of Commercial Leases in Bankruptcy: A Critical Analysis of Revco and Joseph C. Spiess Company, 9 Bankr.Dev.J. 521 (1993).
. Because I conclude that rejection is not effective until the date of this order, Cadillac may have an administrative expense claim against Debtor. Cadillac’s counsel stated at the hearing that any issues surrounding the administrative expense claim will be addressed at a later date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492070/ | PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW IN NON-CORE PROCEEDING1
JOHN T. FLANNAGAN, Bankruptcy Judge.
American Business Supply, Inc., the Chapter 11 debtor, distributes office supplies, computer supplies, copier supplies, and storage racking.2 Steven Tyrrel is its president, sole shareholder, and responsible party for the debtor-in-possession.
Barbara Lowry and Caroline Reynolds (hereinafter “Lowry,” “Reynolds”, or collectively, “defendants”) entered into, for our purposes, identical employment agreements with American Business Supply, Inc. (hereinafter “plaintiff’ or “debtor”), on June 1,1988, and December 5, 1988, respectively. Each was to be employed as a sales representative.
The agreements contained the following non-compete and liquidated damages language:
In the event of termination of this Agreement by either party, the Employee agrees that she shall not either directly or indirectly, for a period of two (2) years after such termination, perform any services for any person, firm or corporation that competes with Employer or that provides services or merchandise to customers of Employer. This covenant shall apply to the counties of Jackson, Cass, Platte, and Clay in Missouri and Johnson, Wyandotte, Shawnee, and Sedgwick in Kansas.
*5825. In the event the Employee violates the terms of any part of this Agreement, the Employer, in addition to the other remedies available to it under the law, shall have the right to apply to any court of competent jurisdiction for an injunction restraining the Employee from further violation. The Employee further agrees that she will pay on demand to the Employer as liquidated damages for any violation of this Agreement a sum equivalent to one times the amount billed by the Employer in the preceding twenty-four (24) months to the customer or customers for whom any work was done or sales made in violation of Paragraph 4 herein.3
Prior to debtor’s filing of its Chapter 11 petition on April 5, 1995, and continuing thereafter, it experienced significant problems with cash flow, was unable to fill purchase orders, and experienced a significant loss of staff.4
Barbara Lowry and Caroline Reynolds voluntarily terminated their employment with the debtor on April 25, 1995, and April 28, 1995, respectively.5
Each of the defendants began employment with Media Recovery, Inc., in Jackson County, Missouri6 on or about May 1, 1995.7 Media Recovery, Inc., is a competitor of American Business Supply, selling some of the same products that debtor sells. Some of Media Recovery, Inc.’s customers are located within the Kansas and Missouri counties that are the subject of the non-eompete provision in the employment agreement.8
Since Lowry and Reynolds have been employed by Media Recovery, Inc., they have each had several contacts with customers of American Business Supply, Inc. In these contacts, both defendants let debtor’s customers know where they were employed and how to find them. Both deny advising the customers to cancel their contracts with debtor or encouraging them in any way, but both acknowledge initially contacting these customers to inform them of the job changes.9
Plaintiff filed an adversary Complaint for Damages and Injunctive Relief on May 5, 1995, seeking an order permanently enjoining Barbara Lowry and Caroline Reynolds from violating the non-compete provisions of their employment agreements and for related damages. As required by Fed.R.Bankr.P. 7008(a), the Complaint alleged that the adversary proceeding was “core” as that term is used in 28 U.S.C. § 157(b).
Since under Fed.R.Bankr.P. 7012(a) no answer is due for 30 days after issuance of the adversary summons, and since that time period has not yet expired, neither defendant has answered the Complaint. Consequently, neither defendant has admitted or denied that the proceeding is core nor have they consented to entry of a final judgment by the bankruptcy judge as required by Fed. R.Bankr.P. 7012(b).
With its Complaint on May 5, 1995, plaintiff also filed an Emergency Motion for Temporary Restraining Order and Preliminary Injunction against the defendants.
Although this Chapter 11 case was filed in Kansas City, Kansas, and thus assigned to me, when the Complaint was filed, I was out of the state and unavailable to hear the emergency motion. Therefore, the Honorable Julie A. Robinson heard the emergency motion on May 5, 1995, in Topeka, Kansas. After hearing the testimony of Steven Tyr-rel, Barbara Lowry, and Caroline Reynolds, Judge Robinson granted the request for temporary restraining order but limited it to 10 days, until May 15, 1995. The order en*583joined the defendants from performing any services that competed with those provided by the plaintiff within the geographical area specified in the employment agreements. Judge Robinson found that Lowry and Reynolds violated the non-compete provision of the employment agreements by going to work for Media Recovery, Inc., within a matter of approximately 10 days after leaving the employ of debtor.10
Judge Robinson’s findings of fact and conclusions of law under Fed.R.Bankr.P. 7052 were spread upon the record in open court. A short journal entry embodying the restraining order was filed May 5,1995, stating that the order was effective without the plaintiff giving security as authorized in Fed. R.Bankr.P. 7065. Also, the journal entry stated that the proceeding would be set before me in Kansas City, Kansas, within 10 days for further proceedings.
On May 9, 1995, defendants filed a Motion for Order Compelling Attendance of Steven Tyrrel at Deposition and Further Compelling Steven Tyrrel to Produce Documents at Deposition. The plaintiff objected to the motion to compel and document request on May 10, 1995.
Following the May 5, 1995, hearing before Judge Robinson, a transcript of the witnesses’ testimony and the judge’s findings of fact and conclusions of law announced on the record in open court was prepared and delivered to me for review before the hearing scheduled before me within 10 days.
On May 15,1995, within the 10-day period set out in Judge Robinson’s order, the parties brought the Emergency Motion for Temporary Restraining Order and Preliminary Injunction and the motion to compel production before me in Kansas City, Kansas. Pri- or to beginning this hearing, I read the transcript of the May 5, 1995, hearing before Judge Robinson.
At the May 15, 1995, hearing, I denied defendants’ motion to compel production as not relevant to the Complaint.
Next, although the defendants had not yet filed an answer contesting the Complaint’s core allegations or otherwise challenging the Court’s jurisdiction over the proceedings, I inquired of counsel concerning jurisdiction to satisfy the directive of 28 U.S.C. § 157(b)(3), to wit, “The bankruptcy judge shall determine, on the judge’s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a ease under title 11.”
After hearing the statements of counsel that are set out in the May 15, 1995, hearing transcript, I found sua sponte that the Complaint and the Emergency Motion for Temporary Restraining Order and Permanent Injunction presented state law contract questions involving private rights that did not fall within any of the core proceeding categories of 28 U.S.C. § 157(b). See Alec P. Ostrow, Constitutionality of Core Jurisdiction, 68 Am.Bankr.L.J. 91 (1994). Rather, the proceeding constituted a non-core “related to” proceeding over which the bankruptcy court had no jurisdiction to enter a final order appealable under 28 U.S.C. § 158, unless both parties to the proceeding consent to such jurisdiction. The Court’s duties in this regard are set out as follows in 28 U.S.C. § 157(e):
§ 157. Procedures
(c)(1) 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 judge 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.
(2) Notwithstanding the provisions of paragraph (1) of this subsection, the district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and *584judgments, subject to review under section 158 of this title.
Involved in the determination of whether this is a “related to” or “core” proceeding is the question of whether, by appearing before Judge Robinson and offering testimony, the defendants had implicitly consented to the jurisdiction of the bankruptcy court to enter a final order under 28 U.S.C. § 157(c)(2). I ruled that consent under § 157(c)(2) of Title 28 must be express rather than implied. See 2 William L. Norton, Jr., Norton Bankruptcy Law and Practice 2d § 4.40 (1994), on the topic on consent jurisdiction.
Finally, I held that although the Complaint does not address a core proceeding, it does involve a proceeding that has an effect on the Chapter 11 debtor’s estate;11 therefore, the proceeding is sufficiently “related to” the bankruptcy case to require the Court to comply with § 157(c)(1) of Title 28 and Fed.R.Bankr.P. 9033 by proposing suggested findings of fact and conclusions of law to the district court.
On the record in open court on May 15, 1995, I ruled that this proceeding should be forwarded to the district court as a “related to” proceeding and that the findings of fact and conclusions of law required by Fed. R.Bankr.P. 9033 would consist of the open court record made before Judge Robinson on May 5,1995, and the open court record made before me on May 15, 1995. The use of the transcripts to satisfy the requirement of findings of fact and conclusions of law was to help expedite the district court’s timely consideration of the proceeding because of its critical impact on the jobs of the defendants and the interests of the debtors.
While I recognize that if this proceeding is a “related to” matter, there may be a question about the efficacy of Judge Robinson’s ruling, her ruling as expressed in the transcript of May 5, 1995, is proposed as the decision for adoption of the district court.
The transcript of proceedings held May 5, 1995, accompanies this order. The transcript of the proceeding on May 15, 1995, is being prepared. Both transcripts are incorporated by reference herein.
IT IS SO ORDERED.
. Debtor/plaintiff appears by its attorneys, Ronald S. Weiss and Samuel S. Ory of Berman, DeLeve, Kuchan & Chapman, L.C., Kansas City, Missouri. Defendants appear by their attorneys, Dwight D. Sutherland, Jr., of Gage and Tucker, Kansas City, Missouri, and Carl R. Clark and John J. Cruciani of Lentz & Clark, P.A., Overland Park, Kansas.
. Transcript of proceedings held May 5, 1995, at 45.
. Plaintiff's Exhibits "A" and "B” admitted at hearing of May 5, 1995, at 1-2.
. Transcript of proceedings held May 5, 1995, at 47.
. Transcript of proceedings held May 5, 1995, at 45.
. Complaint for Damages and Injunctive Relief filed May 5, 1995, at 3.
. Transcript of proceedings held May 5, 1995, at 45.
. Transcript of proceedings held May 5, 1995, at 46.
. Transcript of proceedings held May 5, 1995, at 46.
. Transcript of proceedings held May 5, 1995, at 47.
. See Pacor v. Higgins, 743 F.2d 984 (3d Cir.1984); Gardner v. United States (In re Gardner), 913 F.2d 1515 (10th Cir.1990). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492072/ | *591
MEMORANDUM DECISION GRANTING MOTION FOR SUMMARY JUDGMENT OF TRALINS AND RICHMAN
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before the Court for a hearing on March 8, 1995, on the Motion for Summary Judgment of Tralins and Rich-man, dated February 17, 1995. By its motion, Tralins and Riehman, now known as Tralins and Associates, a Florida professional association (“Tralins”), seeks the entry of summary judgment in its favor, pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, on (i) the complaint filed by James S. Feltman, trustee (the “Trustee”) for the estate of the debtor, Allied Respiratory Care Services, Inc., against Tralins and BankAtlantie; and (ii) Tralins’ cross-claim against BankAtlantie. Because the Court finds no disputed issues of material facts, the matter is ripe for summary judgment.
I. FINDINGS OF FACT
Prior to the commencement of the debtor’s bankruptcy case on February 7,1994, Tralins represented the debtor in an action in the Dade County Circuit Court to collect in excess of $100,000 due from Irwin Neswitz, individually and as personal representative of the estate of Gertrude Neswitz (“Neswitz”), St. Francis Barry Nursing and Rehabilitation and St. Francis Barry Health Services, Inc. (collectively, “St. Francis”). St. Francis counterclaimed against the debtor for a set-off in excess of $100,000 and also sought to recover from Neswitz.
In May, 1993, Tralins successfully resolved the debtor’s claim against Neswitz for the sum of $21,000 which Neswitz paid in the form of a cashier’s check. On September 21, 1993, Neswitz’s cashier’s cheek was deposited in Tralins’ attorneys trust account pursuant to an escrow agreement with St. Francis, to be disbursed upon resolution of the debtor’s dispute with St. Francis (the “Neswitz Settlement Funds”).
By the time the debtor filed its bankruptcy petition, Tralins had negotiated the material terms of a settlement with St. Francis. Under that settlement, St. Francis would pay the debtor $14,000 (the “St. Francis Settlement Funds”; the Neswitz Settlement Funds and the St. Francis Settlement Funds are collectively referred to herein as the “Settlement Funds”) and release its claims against the Neswitz Settlement Funds being held in Tralins’ trust account, so that the debtor could receive these funds as well. Thus, through Tralins’ efforts, the entire Nes-witz/St. Francis matter, including St. Francis’ claims against the debtor, would be resolved in the debtor’s favor by the debtor’s receipt of $35,000. Tralins’ attorneys’ fees and costs associated with the matter totalled $18,490.65, and the parties have stipulated that such amount is reasonable and constitutes a valid and perfected attorneys charging lien on the Neswitz Settlement Funds, subject to this Court’s determination of whether BankAtlantie’s alleged security interest is prior to Tralins’ charging lien. See Agreed Order Denying in Part and Granting in Part BankAtlantic’s Objection to the August 25,1994 Agreed Order Granting the Ore Tenus Motion of Chapter 7 Trustee James S. Feltman to Approve Settlement and Compromise with the Law Firm of Tralins & Rich-man and St. Francis Barry Nursing and Rehabilitation and St. Francis-Barry Health Services, Inc. and denying Without Prejudice as Moot Tralins’ Motion for Relief from the Automatic Stay and Motion to Compel the Trustee to Abandon Property of the Estate, paragraph 3.e., dated December 3, 1994 (the “Agreed Settlement Order”).
On March 1, 1994, BankAtlantie filed a motion for relief from the automatic stay imposed under section 362 of the Bankruptcy Code, seeking to modify the stay to permit BankAtlantie to proceed against the debtor’s inventory, accounts receivable and other property against which BankAtlantie alleged it had a valid and perfected first priority security interest. BankAtlantie further alleged that the estate lacked an equity in the property.
No party in interest, including the Trustee, objected to BankAtlantic’s stay relief motion and the Stay Relief Order was entered without a hearing and in accordance with Local Rule 401(C).
Thereafter, the Trustee and Tralins finalized the settlement with St. Francis and sub*592mitted it to the Court for approval at a hearing held August 11, 1994. The Court entered an order dated August 25, 1994 (the “August 25 Order”), approving the settlement and affording parties in interest twenty days to object. The August 25 Order was duly served on BankAtlantic, which timely filed an objection to the settlement. BankAtlantie’s objection was resolved by the entry of the Agreed Settlement Order, which again approved the settlement with St. Francis as fair and reasonable and validated Tra-lins’ lien on the Neswitz Settlement Funds, but also provided the following mechanism for the determination of the nature and extent of the parties’ interest in the Settlement Funds:
e. Jenner & Block and Tralins, as escrow agents, shall retain the Settlement Funds in interest bearing accounts pending further order(s) of this Court as to the extent, validity and priority of any lien claims or other claims, such as surcharges, against the Settlement Funds by BankAtlantic, the Trustee and Tralins only; provided, however that this Order and the August 25, 1994 Order shall be deemed to constitute a determination that Tralins holds a valid and perfected lien at least to the extent of $18,490.65 of [the Neswitz Settlement Funds], subject only to a subsequent determination of the priority of such lien, the validity, priority and extent of BankAtlantic’s lien and any other claims of Tralins against BankAtlantic and the Settlement Funds. Within ten (10) days of the date of this Order, the Trustee shall commence an action, either by motion or adversary proceeding (as agreed among the Trustee, Tralins and BankAtlantic) to determine the appropriate distribution of the Settlement Funds;
f. The Court shall retain jurisdiction for the purpose of enforcing the terms of the settlement between the Trustee and St. Francis and to enter an order pursuant to [the preceding subparagraph].
Agreed Settlement Order, paragraph 3.
On December 13, 1994, the Trustee commenced this adversary proceeding against BankAtlantic and Tralins by filing a complaint in which the Trustee (1) objects to the proof of claim filed by BankAtlantic (Count I); (2) seeks to invalidate BankAtlantic’s lien (Count I); (3) seeks to compel turnover of property of the estate (Count I); (4) seeks to equitably subordinate BankAtlantic’s claim (Count II); (5) requests an accounting from BankAtlantic (III); and (6) seeks to surcharge BankAtlantic and Tralins’ collateral (Count IV).
On January 9, 1995, Tralins answered the complaint and cross-claimed against BankAt-lantic (1) to determine the priority of BankAtlantic’s alleged lien on the Neswitz Settlement Funds relative to the priority of Tralins’ charging lien (Count I); (2) to surcharge BankAtlantic for the fees and costs due Tralins in rendering the services which produced the Settlement Funds (Count II); (3) to recover for unjust enrichment (Count III); and (4) to recover in quantum meruit (Count IV).
II. CONCLUSIONS OF LAW
At the hearing on Tralins’ summary judgment motion, the parties agreed that to the extent BankAtlantic holds a valid and perfected security interest in the debtor’s accounts receivable,1 whether BankAtlantic’s lien would extend to the Neswitz Settlement Funds as proceeds of such collateral turns on section 679.306(4) of the Florida Statutes,2 which provides:
In the event of insolvency proceedings instituted by or against a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest only in the following proceeds:
(a) In identifiable noncash proceeds and in separate deposit accounts containing only proceeds;
(b) In identifiable cash proceeds in the form of money which is neither commingled with other money nor deposited in a *593deposit account prior to the insolvency proceedings;
(c) In identifiable cash proceeds in the form of cheeks and the like which are not deposited in a deposit account prior to the insolvency proceedings; and
(d) In all cash and deposit accounts of the debtor, in which proceeds have been commingled with other funds, but the perfected security interest under this paragraph (d) is:
1. Subject to any right of setoff; and
2. Limited to an amount not greater than the amount of any cash proceeds received by the debtor within 10 days before the institution of the insolvency proceedings less the sum of:
a. The payments to the secured party on account of cash proceeds received by the debtor during such period; and
b. The cash proceeds received by the debtor during such period to which the secured party is entitled under paragraphs (a) through (c) of this subsection.
Under 9 — 306(4)(a)—(c), the secured party prevails as to (i) identifiable noncash proceeds and separate deposit accounts which contain only proceeds; (ii) identifiable cash proceeds in the form of money not commingled with other money or deposited in a bank account prior to bankruptcy; and (in) identifiable cash proceeds in the form of checks and the like which are not deposited in a bank account prior to the bankruptcy proceedings. If the proceeds have been commingled with other cash or in a deposit account, the formula provided in 9 — 306(4)(d) governs. J. White & R. Summers, Uniform Commercial Code § 23-7 at 1103 (3d ed. 1988).
A. IDENTIFIABLE NONCASH PROCEEDS AND SEPARATE DEPOSIT ACCOUNTS: 679.306(4)(a)
Section 679.306(1) of the Florida Statutes defines “proceeds” as:
whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds.... Money, checks, deposit accounts, and the like are “cash proceeds”. All other proceeds are “non-cash”.
Under this definition, the Neswitz Settlement Funds constitute “cash proceeds”, not “non-cash proceeds”. Further, the Neswitz Settlement Funds were deposited to Tralins’ attorneys trust account, which presumably contained funds of clients other than the debtor, and thus would not have contained only proceeds of BankAtlantic’s collateral. Accordingly, section 679.306(4)(a) is inapplicable.
B. IDENTIFIABLE CASH PROCEEDS IN THE FORM OF MONEY: 679.306(4)(b)
Section 679.306(4)(b) is inapplicable as well because the Neswitz Settlement Funds were paid by “check” and not by “money”. Section 679.306(4)(b) only deals with proceeds in the form of money, which is defined at section 671.201(24) of the Florida Statutes,3 as “a medium of exchange authorized or adopted by a domestic or foreign government_” Tralins received a (cashier’s) check for the Neswitz Settlement Funds. A check is defined in section 673.1041(6), made applicable to Article 9 by section 679.105(3), as:
a draft, other than a documentary draft, payable on demand and drawn on a bank or a cashier’s check or teller’s check. An instrument may be a check even though it is described on its face by another term, such as “money order.”
F.S. § 673.1041(6) (emphasis added).
Even if Tralins had received the Nes-witz Settlement Funds in the form of “money”, BankAtlantic would not prevail because the Funds were deposited to Tralins’ trust account, which is a “deposit account.” BankAtlantic contends that Tralins’ trust account does not constitute a “deposit account” for purposes of 679.306(4) and that the Nes-witz Settlement Funds could not have been commingled in such account because the *594Florida Bar requires its members to maintain client funds in their possession separate from other client funds.
A “deposit account” is defined as “a demand, time, savings, passbook, or like account maintained with a bank, savings and loan association, credit union, or like organization, other than an account evidenced by a certificate of deposit.” F.S. § 679.105(e). Tralins’ trust account is a demand account maintained with a bank. What makes it special is that the funds deposited in it are held in trust for the benefit of persons other than the attorney who establishes it, subject to the Rules Regulating the Florida Bar; it is still a deposit account under the UCC. See F.S. § 679.105(l)(e).
Furthermore, BankAtlantic’s assertion that the Neswitz Settlement Funds could not have been commingled in Tralins’ trust account because the Florida Bar requires its members to maintain client funds in their possession separate from other client funds is not supported by the Rules Regulating the Florida Bar (“Fla.Bar R.”). What the rules require is that an attorney maintain a bank account separate from his own, Fla. Bar R. 5-1.2(b)(l), keep detailed records to account for the funds, id., and follow strict accounting procedures, Fla.Bar R. 5 — 1.2(e). Nothing requires the attorney to segregate one client’s funds from another’s. Indeed, Rule 5 — 1.1(g) even contemplates that client funds will be commingled, in providing certain limited circumstances in which the attorney may make a disbursement from a trust account on uncollected funds.
Thus, BankAtlantic’s reliance on 679.306(4)(b) to establish its lien on the Nes-witz Settlement Funds is misplaced.
C. IDENTIFIABLE CASH PROCEEDS IN THE FORM OF CHECKS: 679.306(4)(e)
As discussed above, the Neswitz Settlement Funds were paid in the form of a cashier’s check which was deposited to the Tralins trust account. Because the check was deposited in a deposit account, as with 679.306(4)(b), 679.306(4)(c) is inapplicable.
D. CASH AND NONCASH PROCEEDS COMMINGLED WITH OTHER FUNDS: 679.306(4)(d)
This leaves only 679.306(4)(d) to afford BankAtlantic a lien on the Neswitz Settlement Funds. However, application of (4)(d) requires that the proceeds be received by the debtor within ten days before the commencement of the bankruptcy case. It is undisputed that the Neswitz Settlement Funds were paid long before the ten-day period of (4)(d) and accordingly 679.306(4)(d) is also inapplicable.
III. CONCLUSION
Because the Court finds that the Nes-witz Settlement Funds do not “fit” within any of the categories of proceeds listed in subpar-agraphs (a) through (d) of section 679.306(4), the Court grants summary judgment in favor of Tralins on Count I of the Trustee’s complaint and Count I of Tralins’ cross-claim. Consistent with the August 25 Order:
1. Tralins shall immediately retain $18,-490.65 of the Neswitz Settlement Funds, plus interest on such amount, and apply the same in satisfaction of Tralins’ secured claim as filed against the debtor’s estate on May 17, 1994; provided, however, that Tralins shall continue to hold an allowed general unsecured claim against the estate totalling $17,-900.61 without the necessity of filing an amended proof of claim, which amount shall not be subject to setoff, objection or subordination by the Trustee or any other party in interest.
2. Tralins shall immediately pay and deliver the balance of the Neswitz Settlement Funds totalling $2,509.35, plus interest on such amount, to the Trustee by cheek made payable to James S. Feltman, Chapter 7 Trustee for Allied Respiratory Care Services, Inc. Such funds shall be deemed free and clear of any lien in favor of BankAtlantic.
3. The funds paid to the Trustee under paragraph 2 above, shall be in full and complete satisfaction of any and all claims of the Trustee that have been or could have been asserted against Tralins.
*5954. The Trustee and Tralins shall execute, deliver and exchange the releases provided under the August 25 Order.
5. The Court retains jurisdiction for the purpose of enforcing the foregoing.
In accordance with Rule 9021 of the Federal Rules of Bankruptcy Procedure, the Court will enter a separate final judgment.
. The Trustee continues to dispute the validity, priority and extent of BankAtlantic’s lien, and this order is without prejudice to the Trustee's right to do so.
. Section 679.306(4) of the Florida Statutes is Florida’s codification of section 9-306(4) of the Uniform Commercial Code ("UCC”) unaltered and in its entirety.
. The general definitions provided in section 671.201 of the Florida Statutes (Article 1, Part II of the UCC) are applicable throughout the UCC as adopted in Florida. F.S. § 679.201. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492073/ | DECISION ON DEFENDANT’S MOTION TO DISMISS
WILLIAM C. HILLMAN, Bankruptcy Judge.
The debtor (“BIG”), as the sole beneficiary of MMG Realty Trust (“MMG”), brought this adversary proceeding to avoid a second mortgage granted by Marvin M. Glick (“Glick”) on certain real estate owned by MMG. Debtor alleges that there was no consideration for the mortgage and that it is avoidable as a fraudulent conveyance under M.G.L. c. 109A § 4. The defendant, The Cadle Company II, Inc. (“Cadle”), has moved to dismiss the complaint.
The following facts are drawn from the complaint.
Glick was the general partner of MMG. The sole beneficiary of the Trust is BIG. MMG owned seven condominium units in Boston.
Glick also did business other than as general partner of MMG. In 1989 and 1990, acting in his individual capacity, he borrowed *639various sums from Coolidge Bank and Trust Company (“Coolidge”). Those loans were unsecured.
In 1991 Glick, acting as trustee of MMG, granted a mortgage to Coolidge to secure the preexisting notes1 which had an aggregate balance due of $362,297. The notes are specifically described in the mortgage and no other sums are specified as secured thereby.
Coolidge failed and its assets were acquired by the Federal Deposit Insurance Corporation (“FDIC”) as liquidating agent. FDIC subsequently assigned the mortgage and the notes which it secures to Cadle.
In ruling upon a motion to dismiss, the Court must accept as true all well pleaded factual allegations of the complaint. United States Trust Co. v. Raritan River Steel Co. (In re American Spring Bed Mfg. Co.), 153 B.R. 365, 370 (Bankr.D.Mass.1993). The plaintiff must be given the benefit of all reasonable inferences, and the motion must be denied unless it appears that plaintiff can prove no set of facts in support of its claims that would entitle it to the relief sought. Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
Great specificity is ordinarily not required to survive a Rule 12(b)(6) motion. It is enough for a plaintiff to sketch an action claim by means of a generalized statement of facts from which the defendant will be able to frame a responsive pleading. Garita Hotel Limited Partnership v. Ponce Federal Bank, 958 F.2d 15, 17 (1st Cir.1992).
The motion to dismiss is based upon the Supreme Court decision in D’Oench Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and the subsequent codification of its doctrine in 12 U.S.C. § 1823(e).2 Cadle argues that D’Oench prohibits the debtor from claiming lack of consideration by referring to circumstances outside of the bank’s records.
As to D’Oench, Cadle correctly summarizes its holding as being that “the defense to collection of a note could not be premised upon ‘a scheme or arrangement whereby the banking authority ... was likely to be misled.’ ” Motion to Dismiss, unnumbered page. The subsequently enacted statute has specific requirements:
“No agreement which tends to diminish or defeat the interest of [FDIC] in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against [FDIC] unless such agreement—
“(A) is in writing,
“(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,
“(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and
“(D) has been, continuously, from the time of its execution, an official record of the depository institution.”
The purpose of the D’Oench holding and the statute “is to insulate the FDIC from unwritten side agreements between borrowers and failed banks that would diminish the assets that the FDIC acquires from failed banks and that are not apparent from the bank’s records.” The Cadle Co. v. McKernan (In re McKernan), 180 B.R. 350, 354 (Bankr.D.Mass.1995) (emphasis added).
Cadle correctly points out that the FDIC was entitled to rely upon the documents which it received from Coolidge. Motion to Dismiss, unnumbered page. If BIG’s argument were based upon a secret side agreement, Cadle’s point would be well taken. The situation is different here because the mortgage indicates on its face that the obligations secured thereby are not obligations *640of the mortgagor. There is no connecting document, such as a guaranty by MMG of Glide’s notes.
Under these circumstances, the D’Oench doctrine is inapposite. The issue is whether under the documents themselves BIG could raise the claims of lack of consideration and fraudulent conveyance against FDIC. Given the test for a motion to dismiss, I cannot say that BIG could not prove a set of facts in support of its claims sufficient to entitle it to the relief sought.
I need not reach the issues of the availability to Cadle of FDIC’s defenses,3 nor the merits of BIG’s claims. The motion to dismiss is a limited one, and must be denied.
ORDER
For the reasons stated in the accompanying decision, it is ORDERED:
1. Defendant’s motion to dismiss is denied.
2. Defendant shall serve and file its answer or otherwise plead to the complaint within two (2) weeks from the date hereof.
. One of the notes was made by “Jamar Properties III” but I have no information about its relationship to BIG, MMG, Glick, or any of them.
. Cadle also urges that 12 U.S.C. § 1821(d)(9)(A) enforces the rule. It provides that any agreement which does not meet the requirements of § 1823(e) "shall not form the basis of, or substantially comprise, a claim against” FDIC.
. BIG concedes that Cadle stands in FDIC's shoes. Plaintiff’s Supplemental Memorandum 3. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492074/ | MEMORANDUM OF DECISION ON TRUSTEE’S OBJECTION TO DEBTOR’S EXEMPTION
FRANCIS G. CONRAD, Bankruptcy Judge.
Trustee’s objection to Debtor’s claim of an exemption in homestead proceeds presents1 an issue of first impression in this District. We must determine whether Debtor may claim as exempt a $20,000 note secured by a mortgage on Debtor’s former homestead in another state. The note represents her share of the proceeds of the former homestead, awarded to her upon dissolution of her marriage. We hold that it is exempt.
Debtor and her former spouse owned a home in Newington, Connecticut. When they divorced in May of 1993, Debtor’s spouse was awarded possession of the homestead, and was ordered to pay Debtor $20,-000. That obligation is evidenced by a promissory note due not later than December 4, 1999, and is secured by a mortgage on the Connecticut property now owned by her former husband. Debtor has lived in Vermont since July of 1993.
When she filed her petition for relief under Chapter 7 on December 19, 1994, Debtor elected the Vermont State exemptions in*700stead of the federal exemptions, as she is permitted to do by § 522(b).2 She claimed the note and mortgage as exempt proceeds of her former homestead under 27 V.S.A. § 101 and 12 V.S.A. § 3023. Trustee objects to the exemption on grounds that Vermont’s homestead exemption applies only to property located within the State, and that Debtor has not resided at the property since May 15, 1993.
Debtor would clearly be entitled to the exemption she claims had the entire transaction taken place in Vermont. Prior to her divorce, Debtor’s interest in the homestead would have been exempt by virtue of 27 V.S.A. § 101, which provides:
The homestead of a natural person consisting of a dwelling house, outbuildings and the land used in connection therewith, not exceeding $30,000.00 in value, and owned and used or kept by such person as a homestead together with the rents, issues, profits and products thereof, shall be exempt from attachment and execution except as hereafter provided.
Debtor would also be able to exempt the note and mortgage under 12 V.S.A. § 3023, because they represent the proceeds of a conveyance of exempt property. Section 3023 provides, in pertinent part, as follows:
Except as herein otherwise provided, a person shall not be liable on trustee process on account of a sum due or owing to the principal debtor for property sold or conveyed or delivered by him, which was exempt from attachment and execution at the time of the sale.
If, Debtor had remained in Connecticut after her divorce, however, she would not be entitled to claim the note and mortgage from her ex-husband as exempt. As Chief Judge Robert L. Krechevsky of the Connecticut Bankruptcy Court has observed,
Because a debtor’s “right to an exemption is governed by statute,” ... the extent to which an exemption applies to property received in exchange for exempt property depends on the particular exemption statute and the legislative intent demonstrated by the statute. The general rule is that if property exempted by statute is exchanged for property not covered by any applicable exemption statute, the exemption is lost.
In re Cesare, 170 B.R. 37, 39 (Bkrtcy.D.Conn.1994).
While Connecticut does recognize a $75,000 homestead exemption, Conn.Gen. Stat.Ann. § 52 — 352b(t) (West 1995), it does not exempt the sale proceeds from exempt property. Connecticut National Bank v. Harding, 1994 WL 174676, 1 (Conn.Super.Ct.1994) (“Taking as a given that the escrowed proceeds were derived from the sale of the defendant’s ‘homestead’, the problem is that the money is just that — money— and not a homestead as defined by the statute _”). Thus, Debtor seeks to apply Vermont’s statutory exemption law to a transaction that took place in another state to exempt funds that would not be exempt in that state. We hold, with one caveat, that she can do just that.
The language of 12 V.S.A. § 3023 is plain and unambiguous. It exempts proceeds owed to the Debtor for conveyance of property “which was exempt from attachment and execution at the time of the sale.” After a review of the teachings of the Vermont Supreme Court on construction of the State’s exemption statutes in In re Christie, 139 B.R. 612, 613 (Bkrtcy.D.Vt.1992), we concluded that “Vermont broadly construes its exemption statutes” in favor of debtors, “within the parameters of a plain meaning interpretation.”
Vermont’s legislature intended that its citizens should be able to exempt up to $30,000 in value of their homesteads, 27 V.S.A. § 101, as well as their right to receive the proceeds from the sale of that homestead. 12 V.S.A § 3023. Debtor is now a Vermont citizen. The $20,000 she claims as exempt represents the amount owed to her by her former husband in consideration for her conveyance to him of her homestead interest. Debtor’s homestead interest “was exempt from attach*701ment and execution at the time of the sale,” under Connecticut law.
We hesitate, however, to rule broadly that 12 V.S.A. § 8023 applies to the proceeds of the sale of any property that is exempt in any other state, because to do so might in some cases contravene the policies and purposes intended by 12 V.S.A. § 3023. For example, debtors who sold their homestead for $50 million in Florida, which has an unlimited homestead exemption, might then move to Vermont and claim the entire amount as exempt, a result clearly at odds with Vermont’s limited $30,000 homestead exemption. Accordingly, our holding is that Vermont law defines the parameters; a Debtor in Vermont may use 12 V.S.A. § 3023 to exempt the proceeds of the sale of property in another state which was exempt under the laws of that state at the time of sale, if that property would also have been exempt in Vermont. Moreover, the amount of the exemption is limited by the amount of the exemption available in Vermont. In this case, Vermont also has a homestead exemption, and the amount claimed is within the $30,000 homestead exemption it is the policy of this State to afford its citizens.
Although it is highly unlikely that the State’s legislature or its courts ever envisioned the scenario presented here, we believe that denial of the exemption would be contrary to the plain language and underlying purposes of 12 V.S.A. § 3023, and to the rules of construction articulated by the Vermont Supreme Court. Accordingly, Debtor’s exemption is allowed and Trustee’s objection is overruled.
Debtor is to submit an order consistent with the views expressed in this Memorandum of Decision upon five days’ notice to Trustee.
. Our subject matter jurisdiction over this controversy arises under 28 U.S.C. § 1334(b) and the General Reference to this Court under Part V of the Local District Court Rules for the District of Vermont. This is a core matter under 28 U.S.C. §§ 157(b)(2)(A) and (B). This Memorandum of Decision constitutes findings of fact and conclusions of law under F.R-Civ.P. 52, as made applicable by F.R.Bkrtcy.P. 7052.
. All statutory references are to Title 11 of the United States Bankruptcy Code unless otherwise specifically noted. | 01-04-2023 | 11-22-2022 |
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