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https://www.courtlistener.com/api/rest/v3/opinions/8492216/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE came before the Court upon the trial of the merits of the Complaint to *403recover a fraudulent transfer, filed on June 12, 1995.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 1334. Moreover, this Court concludes that this is a “core proceeding” within the meaning of 28 U.S.C. § 157(b) as exemplified by 28 U.S.C. § 157(b)(2)(H).
In July 1986, the debtors gave their daughter, the defendant Heather McCall, a 1986 Pontiac as a high school graduation present. For insurance reasons, title and insurance was maintained in the debtor father’s name. Accordingly, although title was in debtor’s name, the defendant was the equitable owner of the vehicle. See 11 U.S.C. § 541(d). Defendant drove this vehicle for several years, until September 24, 1993, she traded in the vehicle for a 1994 Chevrolet. Although she was given a $3,000 credit on the trade-in, the actual wholesale value of the Pontiac was nearer $500.
On August 12, 1994, the debtors filed a petition under Chapter 7 of the Bankruptcy Code. Thereafter, the trustee initiated this action under Bankruptcy Code sections 547, 548(a), 544, and the Arkansas fraudulent transfer statutes, seeking recovery of the $3,000 trade-in allowance from the debtors’ daughter.
The trustee asserts that the debtor father transferred an interest he held in the vehicle to his daughter with the intent to hinder, delay, or defraud their creditors, 11 U.S.C. § 548(a)(1); Ark.Code Ann. §§ 4-59-204, 4-59-205, such that the transfer must be avoided. The trustee also asserts a cause of action under section 547 inasmuch as the transfer enabled debtor’s daughter to receive more than she would receive under Chapter 7 had the transfer not been made.
Any theory of recovery the trustee asserts must fail because the transfer of value was made to Heather McCall in 1986 when the debtors gave her the 1986 Pontiac. At that time, although the debtor retained legal title to the vehicle, the equitable interest in the vehicle was given to defendant. Cf. Cowden v. Ramsay (In re Cowden), 154 B.R. 531 (Bankr.E.D.Ark.1993) (proceeds from bank account held in mother’s name were equitable property of children); 11 U.S.C. § 541(d). When the 1986 Pontiac was exchanged in 1993 for another vehicle and the debtor relinquished nominal title to the 1986 Pontiac, there was no transfer of any monetary value given to the defendant. The debtor had no equitable interest in the $3,000 trade-in allowance. Even had the debtor an equitable interest in this vehicle, the credible evidence revealed that the true value of that interest is more in the area of $500, not $3,000. Accordingly, while the debtor held legal title to the Pontiac, there is no $3,000 “interest of the debtor in property,” 11 U.S.C. §§ 547(b), 548, for the trustee to recover.
Second, the Court finds that the transfer was not made with any fraudulent intent. Specifically, there was no intent to hinder, delay or defraud any other entity. In 1986 the debtors, as they had with their other children, gave their daughter, then a high school senior, a car. Eight years later, in 1994 she traded that vehicle. The only interest and involvement of the debtor father was his retention of legal title in order to maintain insurance at a lesser cost to the daughter. There was no evidence of fraudulent intent in either of these transactions. Indeed, the only effect upon the debtor or, ultimately, to the bankruptcy estate, was relinquishment of legal title to a wrecked automobile of at most salvage value. Accordingly, it is
ORDERED that judgment shall be entered in favor of the defendant and the complaint dismissed.
IT IS SO ORDERED.
JUDGMENT
This action came on for trial before the Court, Honorable Mary Davies Scott, U.S. Bankruptcy Judge, presiding, and the issues having been duly tried and a decision having been duly rendered,
It is Ordered and Adjudged that the plaintiff take nothing and that the action be dismissed on the merits.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492217/ | ORDER SUSTAINING OBJECTION TO SETTLEMENT
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the debtor’s letter objection, filed on May 22, 1995. On March 8, 1995, the trustee filed a Compromise and Settlement Agreement, Combined with Notice Thereof, under which the trustee proposed to settle a lawsuit against Swift Eckrich, Inc. pending in the United States District Court for the Western District of Arkansas, Case No. 94-5137. While the notice stated that objections were to be filed on or before April 5, 1995, it does not appear that this notice was actually served upon any person or entity. Although on April 18, 1995, an Order was entered approving the settlement, it was not until April 24, 1995, that the trustee filed an affidavit of mailing, which affidavit indicated that notices were mailed on April 24, 1995. Inasmuch as notice was improper, the trustee, on April 24, 1995, refiled the settlement proposal with an amended notice. The notice advised that objections were to be filed on or before May 22, 1995. The debtors timely filed an objection to the compromise and settlement on May 22, 1995.
The trustee proposes to settle the above-described lawsuit for a payment from the defendant in the amount of $50,000. It is undisputed that this settlement would pay all of the unsecured debts, the trustee’s fees, and provide for some payment to the debtor. The debtors object to the settlement on the basis that the suit has a value greatly in excess of the settlement proposal. Inasmuch as there is insufficient evidence of the reasonableness of the settlement proposal, and, there is evidence that the settlement may constitute a waste of the estate asset, the objection will be sustained.
In In re Bowman, 181 B.R. 836 (Bankr.D.Md.1995), the court stated the rule *405under which settlement may be approved. The court may approve the settlement unless the amount is below what is reasonable. The court should approve the settlement if
1. It provides for prompt payment to the creditors;
2. Rejection of a settlement offer may expose the trustee to lesser recovery;
3. Rejection would benefit only the debt- or; and
4. Settlement is the best way to realize the asset without undue waste or needless litigation.
In this instance, it is clear that two of the four factors weigh in favor of the trustee. Specifically, the rejection benefits only the debtors since they will recover all of the value in excess of the settlement amount. Secondly, the settlement would provide for payment to all unsecured creditors.
However, the Court cannot find that settlement in the proposed amount is reasonable because several potential means of recovery were not considered by the trustee. The evidence demonstrated that the potential recovery of this suit is far in excess of the proposed settlement, in contrast to a marked lack of evidence regarding any litigation hazards. The lack of information regarding litigation hazards is important in this case because of the existence of similar suits against Swift Eckrich, Inc. in which punitive damages, among other recovery causes or elements, appear to have substantial value.
The evidence before the Court is that compensatory damages in the suit would be properly calculated at $65,000. While a settlement of $50,000 may be a reasonable sum on a case valued at $65,000, the asset appears to have a greater value than $65,000. This is demonstrated by the fact that the trustee did not take into account several potential elements of the recovery calculus: punitive damages, a usury cause of action, and a breach of contract cause. The trustee admits that he did not even consider punitive damages in the settlement calculus, but admits that they are a potential. Inasmuch as the Eighth Circuit recently reversed the U.S. District Court for the Eastern District of Arkansas for not submitting a similar case to the jury for a determination of punitive damages, the failure to consider, and negotiate with regard to, punitive damages does not appear reasonable. See Renfro v. Swift Eckrich, Inc., 53 F.3d 1460 (8th Cir.1995); see also Jackson v. Swift Eckrich, Inc., 53 F.3d 1452 (8th Cir.1995) (district court properly ruled that the fraud and breach of contract claims were for the jury). Second, The contract claim was not considered in calculating damages. While there is no evidence as to the value of this claim, it should be considered in the determination of settlement.1 Finally, there is a usury count which may be viable. Compare Renfro v. Swift Eckrich, Inc., 53 F.3d 1460 (8th Cir.1995) (usury count filed, but failed for lack of evidence of the interest rate at the time of contracting).
The circumstances in Bowman, 181 B.R. 836, the case urged by the trustee, are clearly distinguishable. Of primary import in Bowman was the debtor’s evident bad faith in managing the Chapter 11 assets, including the lawsuit at issue in that case. Moreover, in Bowman the debtor originally claimed the lawsuit was worth less than the settlement amount, and only asserted a higher amount in the objection to settlement. Finally, the court believed that punitive damages would be “difficult” under Maryland law.
The debtor, while making a statement to the court and during cross-examination presented a demeanor consistent with truthfulness and, based upon his brief questions to the trustee’s expert, appeared to have some knowledge of the appropriate damages of this case. In light of the failure of the trustee to take into account several factors in the potential recovery, the lack of evidence regarding litigation risks in contrast to recoveries in similar suits, and the evidence regarding the value of the suit, the Court believes that $50,000 is an amount below what is reasonable. Accordingly, while set*406tlement for some sum may be appropriate in this case,2 the Court does not believe that $50,000 is appropriate.
ORDERED as follows:
1. The Order of April 18, 1995, approving settlement is set aside.
2. The debtor’s objection to the compromise and settlement is SUSTAINED.
IT IS SO ORDERED.
. It appears that, in addition to the cases pending in the districts in Arkansas, there are similar cases against this defendant in other districts. See, e.g., Godshall’s Hatchery, Inc. v. Swift-Eckrich, Inc., 1989 WL 126238, 1989 U.S.Dist.Lexis 12526 (E.D.Pa. Oct. 20, 1989) (claim for breach of oral contract against Swift Eckrich, Inc.)
. Counsel for plaintiffs in the other cases pending in the districts of Arkansas may provide the most guidance for the trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492219/ | SECOND ORDER DIRECTING DEFENDANT TO PRODUCE ALL OVERDUE DOCUMENTS: (1) TO THE PLAINTIFF; or (2) TO THE COURT FOR IN CAMERA INSPECTION, AND ORDER DENYING, WITHOUT PREJUDICE, PLAINTIFFS MOTION FOR BLANKET DISCLOSURE
ARTHUR N. VOTOLATO, Bankruptcy Judge.
On April 14, 1995, the Defendant was ordered to:
deliver to the Plaintiff, forthwith, all documents still due under the Plaintiffs first Request for Production.... [Documents allegedly protected by the attorney-client privilege, work product, etc., should be delivered to the Court for in camera inspection, with the Government’s request and reasons for relief regarding any claimed privilege, i.e., we are not leaving the determination of privilege with the IRS.
Williams v. United States (In re Williams), 181 B.R. 1, 5 (Bankr.D.R.I.1995).
The Debtor contends, and we fully agree, that by filing its “first, second, third, and fourth post-trial lists of documents withheld for in camera inspection,” the Govern*718ment has violated both the letter and the spirit of the April 14, 1995 Order requiring delivery of disputed documents to the Court, and has provided no acceptable reason for continuing to withhold said documents, notwithstanding its incessant references to 26 U.S.C. § 6103.1
Now, in what we see as a belated recognition of the vulnerability of the position in which it now finds itself, and perhaps to buy still more time, the Government has filed a “Request for Instructions Respecting TurnOver of Documents Withheld for In Camera Inspection and Opposition to 7/10/95 Motion for Blanket Disclosure.” In its memorandum in support of that pleading, the Government makes a series of assumptions based on an incorrect and completely unjustified reading of the July 19, 1995 Order granting its Motion to Clarify. The plain and uncomplicated language of the clarification Order only mirrored the Government’s request to specify and categorize the documents to be produced pursuant to the April 14, 1995 Order. By agreeing that our “Decision and Order is clarified as set forth in the Defendant’s Motion" (emphasis added), we merely obliged and adopted the IRS’s recommendation, made in its own motion.
By no stretch of either logic or imagination can the Government’s present alleged uncertainty over the meaning and scope of the Clarification Order as expanded, and indeed distorted, in its Request for Instructions, be taken seriously.2 Therefore, all of the reasons given by the Defendant for its misguided but chosen course of action are rejected, as are the self-serving procedural suggestions in its Request for Instructions, at pages 3-5.
The Defendant’s conduct in these proceedings continues to be disruptive of an orderly discovery process, and becomes more burdensome as its rhetoi'ieal tantrums go on.3 Although the Government, through recalcitrance and the creation of a blizzard of paper, has clearly succeeded in avoiding full document production thus far, it is reminded that absent the most serious damage that the IRS may eventually inflict upon itself (and, incidentally the U.S. Treasury) by continued discovery abuse, this tax dispute will be heard and resolved on the merits. Accordingly, the Internal Revenue Service is urged and admonished to stop the posturing, and for the reasons argued by the Debtor in his July 10, 1995 response, which are adopted and incorporated herein by reference, is ORDERED to deliver to the Plaintiff, within fifteen (15) days, all overdue documents, or to deliver to the Court within the same time, together with its reasons, those documents withheld pursuant to its requests for in camera inspection.4
*719Finally, the Plaintiffs Motion for Blanket Disclosure is DENIED without prejudice, but with the caveat that the failure of the IRS to comply with this Order will in all likelihood result, at a minimtum, in the entry of an order granting said request. The issue of additional Rule 37 monetary sanctions, institutional and/or personal, is deferred until the conclusion of this largely unnecessary discovery litigation.
EXHIBIT A
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(At Tape # 1, Index # 254)
THE COURT: Lawrence Williams.
MR. RICHARDSON: Your Honor, that’s on this morning on the debtor’s motion to *720compel the production of documents from the Internal Revenue Service.
The original request for production was sent out on April 30th, 1991. No response was received, and on June 7th, 1991 a motion to compel was filed. On June 24th we received an objection to the motion to compel as well as a response to the request for production. Essentially, the response said that there was a limited objection by the IRS to producing any materials requested which would divulge potentially confidential information of other taxpayers; however, it also said that they would produce the other documents that we requested, copies of tax returns, et cetera; but no documents were produced with the response.
We filed — what we did then was I think it was originally scheduled for hearing around July or so, we agreed to put off the hearing for the time being on the basis that the IRS contacted us and said that they would be producing the documents, that they had to get them from various centers. They had to be reviewed by various attorneys, and at this point, Your Honor, we’ve asked that it be scheduled for a hearing because we believe that we need an order. I know Mr. Boyajian received a phone call from counsel for the IRS in Washington yesterday indicating that there were documents in New York, documents in New Jersey, documents in Hartford. They would be forthcoming. We still think maybe it’s necessary that we have an order from the Court requiring the IRS to produce the documents, so we’d ask for a thirty-day order.
THE COURT: Any objections?
MR. SAMMARTINO: Basically there is no objection, Your Honor, because the notification I received yesterday was that, in fact, the documents have been compiled logistically. They just have to be put in the proper order; however, just to give us a little cushion, we’re asking for forty-five days, if possible.
THE COURT: Okay, now can I ask you, do you — -can you tell us whether your client intends to produce everything that’s asked for or is this — what’s the privilege that’s being asserted here, the privacy of other taxpayers and stuff? I’m not aware.
MR. SAMMARTINO: Standing where I’m standing, Your Honor, I cannot frankly answer your question because I don’t know; but it’s my understanding.
THE COURT: Okay, let me make a ruling and take this a step at a time as we go along.
MR. SAMMARTINO: All right.
THE COURT: In the absence of any authority and the possible ignorance of the Court to the privacy right that has been mentioned, but very vaguely in the pleadings, I would rule for our purposes now that there is no such privacy right or privilege and that any tax returns or tax information that is requested should be included with the delivery, notwithstanding that somebody else’s name or figures might be in there. Okay? Does that make your job easier?
MR. SAMMARTINO: Your Honor, I frankly — without trying to excuse myself in any way under authority, I just don’t know what documents they have. I haven’t seen them, and I don’t know whether or not this claim of privacy, under the circumstances, should or should not be claimed.
THE COURT: Well, right or wrong, it’s the law of this case, okay?
MR. SAMMARTINO: Okay.
THE COURT: And I guess if you prepare an order, you can—
MR. SAMMARTINO: Is it for thirty or forty-five—
THE COURT: It’s forty-five days since I’ve—
MR. SAMMARTINO: Forty-five?
THE COURT: —added the burden to give stuff that they don’t think is—
MR. SAMMARTINO: Thank you very much, Your Honor.
MR. RICHARDSON: Thank you, Your Honor.
(End at Tape # 1, Index # 402).
* * * * * *
I certify that the foregoing is a true and accurate transcript of the proceedings elec-*721ironically sound recorded on the above-entitled matter.
8/9/95
DATE
/s/ Gloria C. Irwin
Gloria C. Irwin
GCI Transcription & Recording Services
505 Hamilton Avenue Suite 107
Linwood, NJ 08221
(609) 927-0299 FAX (609) 927-6420
1-800-471-0299
.The Government’s ongoing claims of privacy/privilege have previously been decided adversely, at the January 7, 1992 hearing on the Plaintiffs Motion to Compel Production, when we ruled that such documents were not protected by the Defendant's vague and unspecified references to "other taxpayers.” That ruling was not challenged, and is the law of this case. (See Exhibit A, Transcript of Jan. 7, 1992 hearing, at 3-4.) Even in the event, however, that the January 7, 1992 ruling is determined on appeal to be erroneous, the option to submit documents to the Court for in camera inspection removes any possible merit to the Government's § 6103 objection. See United States v. Praetorius, 451 F.Supp. 371 (E.D.N.Y.1978) (Court required in camera inspection of taxpayer information allegedly protected by § 6103, notwithstanding the fact that § 6103 does not expressly allow for in camera disclosure of taxpayer information). On the ground § 6103 is not an issue in this adversary proceeding, and that enough is enough, if the Government wishes to press the issue any further, it may do so only after obtaining from the District Court a reversal of our ruling herein.
. Trying to learn as we go along, future rulings on requests for such seemingly innocuous relief will not be dealt with so naively by this Court.
. Since the April 14, 1995 Decision and Order, the United States has filed thirty separate motions, memoranda, affidavits, declarations, and letters totaling over 260 pages (including over 200 footnotes in mini-type which effectively expand its filings to, probably, 290-300 pages), presenting arguments and issues never raised at the sanctions hearing. Borrowing from footnote 3 in its Request for Instructions, at 2, it is the Government that has laid the "welcome mat” for the prevailing hostile atmosphere, and it is the Government that needs to be disabused of the notion that this Court will just continue to receive its argumentative verbiage, without an appropriate response.
. We also reject the Defendant's proposal to have a government attorney present during in camera examination. If assistance is necessary, the parties will be so advised. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492220/ | OPINION ON COMPLAINT FOR PERMANENT INJUNCTION
RODNEY R. STEELE, Chief Judge.
At Montgomery, Alabama, on Thursday March 23, 1995, the above complaint came for hearing. All parties were offered an opportunity to present testimony and other evidentiary materials and extensive oral argument was heard. After careful consideration of the facts in the instant proceeding as well as the relevant law, the court finds that the debts in question are non-dischargeable and that this court lacks sufficient jurisdiction to determine the amount of the debt.
I. Facts
On March 29, 1990 Harold Wade Ward petitioned for relief from his creditors under Chapter 13 of the United States Bankruptcy Code.1 The principal debt provided for in this plan was payment of child support arrearage.
Prior to filing this bankruptcy case, Mr. Ward and his former spouse, Vanessa Ward Archulleta, were divorced in accordance with an order of an Alaska state court. In that order, Mr. Ward was directed to make ongoing child support payments. In return for public assistance for herself and the child, Ms. Archulleta assigned her rights to these child support payments to the State of Alaska.
Subsequently, Ward and Archulleta moved to Alabama. In two Talladega Circuit Court actions custody of the minor child was given to Ward and payments of future child support from Ward to Archulleta were terminated. In the 1989 action, the court ordered that Ward owed to Archulleta $2,836.19 which was listed as for “reimbursement.” In the 1991 action the amount of arrearage owed to Archulleta was litigated and determined to be $3,000.00. There was no mention of nor modification to arrearage owed to any other party, including the State of Alaska in either order.
The State of Alabama filed a claim for $5,335.73 in Ward’s pending Chapter 13 case. *1004Included in that claim is $2,836.19 under the order establishing the “reimbursement” and $3,000.00 for Arehulleta, less $477.46 received between the date of entry of the above orders and the date of filing of the claim. The State of Alaska itself has filed no claim. During the pendency of Ward’s Chapter 13 case, these claims have been paid in full.
On September 12, 1994 Ward filed a complaint seeking a permanent injunction against any collection efforts following the discharge in this case. After several amendments to the pleadings and as well as preliminary hearings, this complaint came before this court on March 23, 1995. At that time, the parties were offered an opportunity to present evidence and advance oral argument.
II. Analysis
A. Res Judicata
Counsel for Mr. Ward has alleged that the all matters regarding the amount and nature of Ward’s child support debts have been fully litigated and determined by a court of competent jurisdiction. Thus, alleges Ward, any attempt to collect an amount above and beyond that ordered in the Tal-ladega Circuit Court actions, is barred by the docti'ine of res judicata. This court respectfully disagrees.
According to the uncontroverted assertions of counsel for the States of Alaska and Alabama, the common practice in URESA actions in the Talladega Circuit Court, is to determine a portion of the arrearages owed which will be enforceable by Alabama court order. See Trial Transcript, pp. 26-9. That is, the presiding judge will announce an amount which must be paid by the obligated party; however, for collection beyond that amount, the originating state must use other means such as attaching a party’s IRS tax refunds.
Furthermore, even if the presiding judge in the circuit court action had in fact, attempted to modify or adjust the arrearages due to the State of Alaska, the Code of Alabama would prevent such acts. Alabama law on URESA actions is fairly well settled. Under the Uniform Reciprocal State Enforcement of Duty to Support Act, codified in Alabama at §§ 30-4-80 through 98, Alabama, as a “responding state” may have jurisdiction of the proceeding, § 30-4-93(a) and may modify future obligations. Murphy v. Murphy, 395 So.2d 1047 (Ala.Civ.App.1981) However, the state, when acting as a “responding state,” may not modify or supersede any previous order regarding support obligations, Brown v. Brown, 476 So.2d 114 (Ala.Civ.App.1985) and the determinations of the “initiating state” must be given “full faith and credit.” Murphy, supra If the Talladega court actions in any way modified existing support obligations, than those actions were taken in violation of the state code.
Therefore, the doctrine of res judicata does not bar future collection efforts of any and all remaining liability for child support arrear-age.
B. Dischargeability of the Debt
Mr. Ward’s complaint seeking a permanent injunction is essentially a request for this court to hold that the child support debts are discharged through the successful completion of his Chapter 13 reorganization case. However, such a holding would violate both the letter and the spirit of the Bankruptcy Code.
Section 1328 provides for a general discharge of “all debts provided for by the plan....” Specific debts, nevertheless, are excepted from discharge. Included in these exceptions are long term debts due after the termination of the plan, §§ 1328(a)(1), 1322(b)(5) debts arising out of criminal convictions, § 1328(a)(3), student loan obligations, §§ 1328(a)(2), 523(a)(8), DUI related debts, §§ 1328(a)(2), 523(a)(9) and, most importantly to the instant proceeding, alimony or child support obligations, §§ 1328(a)(2), 523(a)(5). Section 523, as it applies in limited form to Chapter 13 cases states in part:
§ 523. Exceptions to discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title *1005does not discharge an individual debtor from any debt—
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(5)to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support[.]
11 U.S.C. § 523(a)(5)
Courts which have interpreted this statute have consistently held that obligations which are actually in the nature of child support are clearly barred from discharge. In the Harrell case, the Eleventh Circuit unambiguously stated, that an agreement to pay child support and educational expenses is non dischargeable. In re Harrell, 754 F.2d 902 (11th Cir.1985) See also In re Petty, 60 B.R. 86 (Bankr.M.D.Ala.1986) (child support assigned to state agency is non-dischargeable); In re Delaine, 56 B.R. 460 (Bankr.N.D.Ala.1985) (obligation to third party for the intended benefit of former spouse and children is in nature of alimony or support and thus non-disehargeable).
Furthermore, Congress has shown a clear intent to continually expand the protection of debts arising out of the termination of a marriage. The Bankruptcy Amendment of 1984 added alimony and child support debts assigned to a governmental entity to the discharge exception list. § 454(b) Bankr. Amends, and Federal Judgeship Act of 1984. The Bankruptcy Act of 1986 provided for debts arising out of court proceedings, administrative procedures, or expedited judicial processes. § 281 Bankr. Act of 1986 And most recently the 1994 Bankruptcy Reform Act provided two expansions to these protections: first, property settlements arising out of divorce are, with some limited exception, non-dischargeable, and second, the automatic stay provisions do not apply to actions to establish or modify an order for alimony, maintenance, or support out of non-estate property. § 304 Bankr. Reform Act of 199k
Finally, and most persuasively to this Court, the Bankruptcy Code on its face clearly indicates that child support debts are dis-chargeable only in two limited circumstances, where the debt, denominated as child support, is in fact not such, or, where the debt is assigned to an entity other than a governmental entity. There has been no dispute by Mr. Ward of the former, that is, this obligation is indeed in the character and nature of child support. Furthermore, the transfer of the right to recover this obligation was transferred to the a political subdivision of the State of Alaska and in due course the State of Alabama. Therefore, under the clear language of the Code, this obligation is non-dischargeable.
C. Amount of the Debt
In addition to Ward’s plea to hold that the debts owed to the States of Alabama and Alaska for child support arrearage dis-chargeable, Ward also requested that this court determine the amount of the debt.
No federal court is in the business of dispensing advisory opinions. Petitioner apparently wishes for this court to instruct a state institution how to rule on a case pending in a state court. From Chief Justice *1006John Jay’s refusal to advise President Washington on questions of neutrality in the European War of 1793 see Laurence Tribe, American Constitutional Law 2d. § 3-9, and the Supreme Court’s ruling in Haybum’s Case, 2 U.S. 408, 1 L.Ed. 436 (1792) refusing to give Congress and the Executive Branch advice on pension applications, courts of this land have steadfastly declined to assert any authority to rule where a case or controversy does not present itself. “Any judicial expression amounting to ... an advisory opinion [is] given wholly without constitutional authority.” Coleman v. Miller, 307 U.S. 433, 459, 59 S.Ct. 972, 984, 83 L.Ed. 1385 (Black, J., concurring)
Bankruptcy courts as well have taken this stricture to heart. For example, in the recent case of In re Inn on the Bay, Ltd., 154 B.R. 364 (Bankr.S.D.Fla.1993), Bankruptcy Judge A. Jay Cristol, declined to rule on the validity, priority and extent of liens allegedly secured by a Chapter 11 debtor’s post-petition property tax, holding that where no useful purpose would be served, the Bankruptcy Court will not entertain the adversary proceeding. “Under the circumstances at bar, the adversary complaint seeks no more than an advisory opinion.” Id. at 368.
Furthermore, there is a well established doctrine of abstention by federal courts. The Burford court stated that generally, federal courts should exercise their discretion to abstain from cases which would hinder state government efforts at carrying out their domestic policy. Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Furthermore, the Younger line of cases instructs courts to abstain where a federal judgment will necessarily disrupt state proceedings in a area traditionally reserved to state law. Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). And most recently, the Supreme Court held that considerations of judicial administration and conservation of judicial resources allows the abstention of a federal court in deference to parallel state litigation. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).
Bankruptcy Courts, in particular, have followed this federal mandate. For example, in Carver v. Carver, 954 F.2d 1573 (11th Cir. (Ga.) 1992) the Court of Appeals held that the bankruptcy court should abstain from hearing a Chapter 13 debtor’s complaint where that complaint alleged a violation of a state court order. And in Kadel v. Thompson, 84 B.R. 878 (N.D.Ga.1988) the court abstained where “issues of state law predominated.” See also Sabato v. Florida Department of Insurance, 768 F.Supp. 1562 (S.D.Fla., 1991); Su-Ra Enterprises, Inc. v. Barnett Bank of South Florida, N.A., 142 B.R. 502 (S.D.Fla., 1992); Southerland v. Smith, 142 B.R. 980 (M.D.Fla., 1992).
In a case similar to the matter now before the bar, the Eleventh Circuit held that the only appropriate determination is whether the debt arising out of the divorce is non-dischargeable. In re Harrell, 754 F.2d 902, 907 (11th Cir.1985) The determination of amount of the debt is reserved for the appropriate courts. Id. As the Harrell court stated,
The parties do not agree on the amount of debtor’s arrearages. We decide here only that debtor’s obligation is not dischargea-ble in bankruptcy. The precise terms under which debtor’s obligation can be enforced must be determined by the appropriate state court, if necessary.
Id., ftnt 9.
This court has sympathy for Mr. Ward’s plight. Evidence has been presented which could lead a reasonable person to conclude that Debtor in fact owes the State of Alaska significantly less than the amount that they are claiming outside of this bankruptcy proceeding. But the Bankruptcy Courts are not courts of general jurisdiction. Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Furthermore, the Eleventh Circuit has specifically held that the Bankruptcy Courts are not to sit in review of the state courts in regard to matters of divorce, custody, and support. Carver v. Carver, 954 F.2d 1573 (11th Cir.1992). To con*1007test these amounts, Debtor must bring his complaint in the court of proper jurisdiction — the Alaska state courts.
III. Conclusion
Mr. Ward has asked this court to do two things: to establish the amount of the debt owed on his child support obligations, and to determine that this debt is dischargeable and therefore prevent any action to recover it after the conclusion of this bankruptcy proceeding. However, under the plain language of the Code, any and all child support obligations are non-dischargeable and the court lacks jurisdiction to render an advisory opinion declaring the amount of owed on this non-dischargeable debt. Therefore, the court must rule against Ward.
An appropriate order will enter.
ORDER ON COMPLAINT FOR PERMANENT INJUNCTION
By an opinion entered on this date, the court has concluded that the debts in question are non-dischargeable and that the court lacks sufficient jurisdiction to render an advisory opinion on the extent of the debt.
In accordance with the above findings, it is therefore ORDERED the child support obligations owed to Ms. Archulleta or her assigns are NON-DISCHARGEABLE. It is further ORDERED that Ward’s Complaint for Permanent Injunction is decided in favor of defendants and no injunction will enter.
. 11 U.S.C. § 101 et seq. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492223/ | ORDER GRANTING DEFENDANTS’ REQUEST FOR FINDINGS OF FACT
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Before the Court is the Defendants’ request for findings of fact regarding our October 5, 1995 Order awarding the Plaintiff attorney fees in the amount of $1,260. Said Order was entered as a sanction for the unnecessary litigation caused by the Defendants’ failure to provide the Trustee with monthly reports as required under a modified consent order dated June 30, 1995.
The Trustee correctly points out that the imposition of sanctions is a matter within the sound discretion of the Court, is highly fact driven and not governed by § 330, as are standard applications for compensation. However, since the Court did require the Movant to provide the detail of the time and effort expended on account of the Debtor’s recalcitrance, the reasonableness of the information contained in that record is a sub-issue in this dispute. Therefore, we will provide the findings of fact requested by the Debtor, see Fed.R.Bankr.P. 7052 and 9023, but at the same time make it clear that the October 5, 1995 Order was intended as a sanction, and not as an order allowing compensation under § 330 of the Code. To the contrary, the Court’s action without question, was the result of the Defendant’s failure and/or refusal to comply with earlier Court orders. At the same time it was an attempt to improve, by financial coercion, the Debtor’s behavior for the duration of the case.1
*24Having said all that, and while we were not acting upon a fee request under 11 U.S.C. § 330, the same analysis is often applied to requests for sanctions that are mainly compensatory. See In re Almacs, Inc., 178 B.R. 598 (Bankr.D.R.I.1995). In this and in most other Circuits, the process requires the determination of a reasonable hourly rate, and multiplying that figure by the number of hours reasonably required to perform the task. See In re Swansea Consol. Resources, Inc., 155 B.R. 28, 30 (Bankr.D.R.I.1993). Reviewing the instant motion, we conclude that the services in question could and should have been performed in approximately nine hours by an associate attorney, at the rate of $140 per hour. No complex legal or factual issues were involved, and in examining the time expended, we found that the time entries submitted by the Trustee were excessive for the services performed. For example, the charges by the Trustee and a senior attorney for attendance at the hearing on September 7, 1995, at rates of $270 and $200 per hour respectively is not reasonable, and we recommend that this kind of overloading be avoided in the future. This Court prefers to approve reasonable requests, as filed, rather than having to pare down applications filed “on the high side,” on the assumption that the amount requested will be reduced anyway. Accordingly, compensation was awarded in the amount of $1,260 ($140 per hour x 9 hours).
. Although the Debtor's conduct in this proceeding has been dilatory and obstructionist, it does not begin to compare with many of his other transgressions in the case. In the circumstances, this sanction was meant to reasonably compensate the Trustee for the extra time and effort involved in obtaining compliance with prior Court orders. On the other hand Mr. LaRoehe must understand that he is not immune from the assessment of punitive, as well as compensatory sanctions, if his future conduct calls for punishment in addition to compensation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492224/ | ORDER DENYING DEFENDANT’S MOTION FOR ENTRY OF PARTIAL FINAL JUDGMENT
ARTHUR N. VOTOLATO, Bankruptcy Judge.
On November 22, 1995, the Court received a letter from the Department of Justice on behalf of the Defendant, the Internal Revenue Service, requesting, inter alia, the entry of partial final judgment in this adversary proceeding. To save time and judicial resources we will treat the letter as a motion, and do not require a response by the Debtor. The Department of Justice/IRS seeks, with respect to certain discovery orders, leave to file an immediate appeal of a personal sanction imposed against a government attorney. See Williams v. United States (In re Williams) 181 B.R. 1 (Bankr.D.R.I.1995), modified, 188 B.R. 721 (Bankr.D.R.I.1995).
Upon consideration of the clear and unambiguous language of Fed.R.Civ.P. 54(b)1 concerning the entry of partial final judgment in an action, we conclude that Rule 54(b) is not intended to cover or include discovery orders, and that the entry of partial final judgment on the order in question is not authorized. Rule 54(b) states in part:
When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim ... the court may direct the entry of a final judgment as to one or more but fewer than all of the claims ... only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. (Emphasis added.)
Fed.R.Civ.P. 54(b). We believe that the term or phrase “claim for relief’ refers to a specifically pleaded claim or counter-claim, and does not include discovery disputes re-suiting in orders imposing sanctions, which are plainly interlocutory. Accordingly, the Internal Revenue Service’s request for entry of partial final judgment of the order in question is DENIED. To press its desire for an immediate appeal, the Defendant should follow the appellate procedure governing requests for leave to appeal interlocutory orders. See Fed.R.Bankr.P. 8003.
. Rule 54(b) is made applicable in bankruptcy proceedings by Fed.R.Bankr.P. 7054. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492227/ | ORDER OVERRULING DEBTOR’S OBJECTION TO CLAIMS
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Heard on November 7, 1995, on Debtor’s Objections to various claims. We took under advisement the objections to the claims of Alex J. Ettl and Sculpture House (claim numbers 10, 11, and 12). The claims of Ettl/Sculpture House stem from an agreement dated October 24, 1984, whereby Ettl agreed to enlarge six of Felix DeWeldon’s Iwo Jima Monument replicas. Certain disputes arose, and on June 21, 1990, Ettl filed a complaint against Mr. DeWeldon in the Rhode Island Superior Court, alleging breach of contract. On September 18, 1990, Ettl obtained a default judgment against DeWeldon, and recorded the judgment against DeWeldon’s Beacon Rock mansion in Newport, Rhode Island, and his Shenandoah County, Virginia, real estate. On December 14, 1990, DeWeldon filed a motion to vacate the Superior Court default judgment, and on February 27, 1991, he filed a Chapter 11 bankruptcy petition, staying all activity in the Superior Court. The Debtor, in his Objections, asks this Court to vacate the default and to adjudicate these claims on their merits.
At the November 7, 1995 hearing the Debtor did not appear, but the Chapter 7 Trustee argued the objection to the best of his ability. The attorney for Ettl/Sculpture House appeared and presented argument and informed the Court that Alex J. Ettl was deceased. Neither side presented any evidence, and the parties who knew the most about the dispute and the circumstances surrounding the default, Alex Ettl and Felix DeWeldon, were unavailable. Based upon the travel and the record developed thus far, we have no alternative but to overrule the Debtor’s Objection to these claims.
The Creditor argues correctly that the party seeking to vacate the default has the burden of establishing one of the conditions enumerated in Rhode Island Superior Court Rule 60(b),1 and that a meritorious defense to *250the cause of action exists. See Forcier v. Forcier, 558 A.2d 212, 214 (R.I.1989); Metcalf v. Ceno, 103 R.I.157, 235 A.2d 669, 671-72 (1967). Here Mr. DeWeldon has fallen far short of the mark and has failed to sustain the burden required to vacate a default judgment. Additionally, we find that Mr. DeWel-don has failed to provide sufficient evidence to rebut the Creditor’s prima facie case that the claims are valid. We have described the claims objection process as follows:
1) pursuant to Bankruptcy Rule 3001(f), the claimant establishes a prima facie case against the debtor upon the filing of its proof of claim; (2) the objecting party is then required to produce evidence to rebut the claimant’s prima facie case; (3) once the objecting party produces such rebuttal evidence, the burden shifts back to the claimant “to produce additional evidence to ‘prove the validity of the claim by a preponderance of the evidence.’ The ultimate burden of proof always rests upon the claimant....”
In re Colonial Bakery, Inc., 108 B.R. 13, 15 (Bankr.D.R.I.1989) (citing In re Circle J Dairy, Inc., 92 B.R. 832, 833 (Bankr.W.D.Ark.1988)) (quoting California State Bd. of Equalization v. Official Unsecured Creditors’ Comm. (In re Fidelity Holding Co., Ltd.), 837 F.2d 696, 698 (5th Cir.1988)); see also In re Pontarelli, 169 B.R. 499, 501 (Bankr.D.R.I.1994).
For the foregoing reasons, the Debtor’s Objections to claims 10, 11, and 12 are overruled. Because it is undisputed that there is no equity in the real estate securing the Ettl/Sculpture House default judgment, claim number 10 is allowed as a general unsecured claim. Claim number 12, in the amount of $6,878.40, for pre-petition storage of items related to the disputed contract is allowed as a general unsecured claim, and Claim number 12, in the amount of $2,121.60, for post-petition storage, is allowed as a Chapter 11 administrative expense.
Enter Judgment consistent with this Order.
. Rule 60(b), similar to its federal counterpart, states:
On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule *25059(b); (3) fraud, ... misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.
R.I.Sup.Ct.R.Civ.P. 60(b). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492229/ | ORDER DENYING MICHAEL KOVEN’S VERIFIED EMERGENCY MOTION FOR INJUNCTIVE RELIEF AS TO KATHLEEN F. RUNDLE, STATE ATTORNEY
A. JAY CRISTOL, Chief Judge.
THIS MATTER came on before the Court on October 12, 1995 upon Michael Koven’s Verified Emergency Motion for Injunctive Relief against KATHLEEN F. RUNDLE, State Attorney for the State of Florida.
Movant, MICHAEL KOVEN, was at all material times the comptroller of the Debtor, its Chief Financial Officer, and responsible for signing checks on behalf of the Debtor. KOVEN seeks assessment of fees, costs and damages, a cease and desist order from the prosecution of KOVEN under the Florida Worthless Check Statute, a sealing of any criminal file relating to certain worthless checks, and to enjoin the State of Florida from any future action against KOVEN.
The genesis of this controversy is the Debtor’s issuance and delivery of the following checks on the following dates: No. 053156 on April 3, 1995 for $4,636.80; No. 053204 on April 5, 1995 for $4,636.80; No. 053287 on April 13, 1995 for $4,636.80. The signature of KOVEN, the corporate debtor’s comptroller/Chief Financial Officer, appears on each cheek. (Koven’s Exhibit “A”)
The checks were all returned for non-sufficient funds. A complaint was filed with the State Attorney’s office against KOVEN.
KOVEN argues that an injunction under 11 U.S.C. § 105 is appropriate because the State is trying to circumvent the automatic stay imposed under 11 U.S.C. § 362(a)(6). KOVEN contends that the State of Florida is acting in bad faith if it prosecutes him under Fla.Stat. 832.01 et seq., pertaining to worthless checks. Rather it is KOVEN’S argument that as a representative of the Debtor he has no personal liability under Fla.Stat. 673.4021.
Whether or not this is a viable defense to the worthless check prosecution is a question this Court need not reach. This Court’s authority to issue an injunction is limited by the principals set forth in Barnette v. Evans, 673 F.2d 1250 (11th Cir.1982).
In Barnette, the Court of Appeals dissolved an injunction which had been issued by a bankruptcy court enjoining a county prosecutor and complaining witness from continuing an action against a debtor for theft arising from worthless checks. The Barnette Court, citing the United States Supreme Court’s decision in Younger v. Harris, *543401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), found that:
Contrary to plaintiffs arguments, 11 U.S.C. § 105(a) gives a bankruptcy court no more authority to ignore the principles of Younger v. Harris than does the grant of general jurisdiction to a district court. The Younger Court held that federal court should not enjoin a pending state criminal prosecution except under extraordinary circumstances where there is a great and immediate danger of irreparable harm to plaintiffs federally protected rights that cannot be eliminated by his defense against a single prosecution. 401 U.S. at 46, 91 S.Ct. at 751. (id. at 1251)
The Court finds that an injunction under § 105 is not appropriate as to any action which does not prejudice the Debtor’s reorganization and a criminal prosecution against a non-debtor, who is currently neither an officer or director cannot be said to be an attempt by the State Attorney to thwart the Debtor’s liquidation or restructuring. Therefore, the Court finds there has been no showing of immediate danger or irreparable harm.
KOYEN’S contention that the criminal prosecution is a disguised collection action has not been proven, and by the wildest stretch of the imagination this Court cannot see how the State’s Attorney would benefit by same. Rather, the Court finds the State Attorney is carrying out her statutory duties in investigating and pursuing persons who violate laws concerning the issuance of worthless checks.
The Court has on prior occasion considered requests for an injunction of State criminal proceedings. In the ease of In re Heart of the City, 52 B.R. 108 (Bkrtcy.S.D.Fla.1985) this Court refused to enjoin the criminal prosecution by the State against key officers of the Debtor for the issuance of bad checks. (See also In re Frances, 44 B.R. 1016 (Bkrtcy.S.D.Fla.1984) — Individual debtor’s prosecution on bad check charges not enjoined.)
Because there has been no showing of irreparable harm which could not be eliminated by raising the issues as a defense in a criminal proceeding, and because this Court is bound by the directive of Barnette, that “There is a public interest in every good faith criminal proceeding ... which overrides any interest the bankruptcy court may have in protecting the financial interest of debtors” (or non-debtors), id. at 1251 it is thereupon
ORDERED that MICHAEL KOVEN’S Emergency Motion for Injunctive Relief as to KATHLEEN F. RUNDLE, State Attorney, is DENIED.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492230/ | MEMORANDUM OF DECISION
JAMES B. HAINES, Jr., Bankruptcy Judge.
In this adversary proceeding, Bombardier Capital, Inc., (“Bombardier”), seeks a determination that certain obligations owed to it by Richard Baietti (“Baietti” or “debtor”) are excepted from discharge under § 523(a)(2)(A) of the Bankruptcy Code.1 For the reasons set forth below, I conclude that Baietti’s debt to Bombardier in the amount of $25,107.30 is excepted from discharge.2
Facts
Commencing in 1972, Baietti operated an auto body and auto glass business in Houl-ton, Maine. About 1974, he incorporated it as Rick’s Auto Body, Inc., (“RAB”). Baietti became the corporation’s sole shareholder and, in all respects, controlled its affairs.
RAB expanded its activities to include, among other things, pleasure boat sales. With Baietti’s personal guaranty, RAB first obtained floor plan financing from Trans-america Capital Corporation. On August 9, 1991, RAB entered into a floor plan financing agreement with Bombardier. Thereafter, Bombardier financed RAB’s inventory, including a line of “Stingray” brand boats. Bombardier’s financing terms did not vary significantly from Transamerica’s. RAB paid 10% down on each Stingray. Bombardier retained a security interest in each boat to secure the balance. “[Ijmmediately upon the sale of each item of inventory” RAB was required to pay Bombardier the “total amount due on that item.” In addition, Bombardier required monthly interest payments and periodic principal payments (referred to as “curtailments”) as the inventory aged. Baietti personally guarantied RAB’s obligations to Bombardier.
To police its financing arrangements, Bombardier regularly conducted “floor checks” at dealers, including RAB. Its representative would visit regularly to confirm the extent and condition of unsold inventory. Mr. Gary Davis, Bombardier’s district manager from 1991 until early 1994, conducted floor cheeks at RAB every sixty to ninety days. He would arrive at RAB unannounced, let Baiet-ti know he was there and then cheek invento*552ry on the premises against Bombardier’s record of unsold, financed inventory.
Davis would inquire if a unit of inventory was missing (presumably sold), and Bombardier had not been paid. Under such circumstances, Baietti might show that the sale had been reported and a check mailed, might indicate that the unit was off the lot for some acceptable purpose or, in the case of a very recent sale, might tender a payoff check.
In the course of each visit, Davis also discussed with Baietti the status of RAB’s account, including late interest and principal payments. Generally speaking, Bombardier’s policy regarding overdue principal and interest payments was flexible. Depending on a dealer’s circumstances, Bombardier might forbear collecting arrearages awaiting, for example, an anticipated seasonal sales upswing.
But Bombardier’s policy regarding inventory sales was strict. It insisted that payment in full of the balance owing on each sold unit be made immediately upon that unit’s sale. In the event Bombardier discovered an unreported sale, it insisted that the balance due be paid at once. Although continuing a dealership’s financing thereafter was possible, Bombardier generally terminated floor plan financing and liquidated its collateral when a dealer failed to report sales. Bombardier might permit the dealer to liquidate the collateral in the ordinary course, providing that the dealer made some acceptable arrangement for paying promptly the amount due on unreported sales. Otherwise Bombardier would repossess the encumbered inventory and liquidate it itself.
Baietti understood that Bombardier’s principal objective in conducting floor checks was to determine whether there had been unreported sales by confirming that each unit shown as unsold on Bombardier’s records was, in fact, on site at the dealership.
Commencing in July 1992, RAB sold five Bombardier-financed boats without reporting the sales to Bombardier or paying off the loan balances encumbering each boat:
Date Unit Sold Due to Bombardier at Sale
(Purchaser)
7/10/92 1992 Stingray $ 6,745.20
(Graham)
9/3/92 1993 Stingray $ 7,304.40
(Westerdahl)
1/14/93 1993 Stingray $10,881.90
(Hartin)
4/1/93 1993 Stingray $ 7,126.20
(Bishop)
1993 1993 Stingray $ 7,099.20
(Anderson) 3
All the while, floor checks continued regularly. During each floor check, the previously sold boats were sitting on the RAB lot, by all appearances still for sale.
Because the boats remained on the lot, Davis investigated no further. For all he knew, Bombardier’s collateral was not impaired and payoffs were not yet due. Davis routinely called in his inspection results to Bombardier in Baietti’s presence. Baietti, knowing that appearances had deceived Davis (postponing the day of reckoning with Bombardier), volunteered no information. On at least two occasions he initialed Davis’s inventory reports without illuminating comment.
As time passed, RAB’s arrearages on the Bombardier account mounted. On December 28,1993, Bombardier demanded additional collateral as a condition for continued financing. Shortly thereafter, Baietti concluded that the business could stay afloat no longer. With Baietti’s consent, Bombardier entered RAB’s premises and repossessed its collateral in February 1994. All the Stingray boats it expected to find were there. But Bombardier soon discovered the five unreported sales. Rather than liquidating them to reduce RAB’s obligations, it had to release the boats to their owners.4
Discussion
1. Burden of Proof.
A creditor seeking a determination of nondischargeability under § 523(a) must prove the discharge exception elements by a preponderance of the evidence. See Grogan *553v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991); Commerce Bank & Trust Co. v. Burgess (In re Burgess), 955 F.2d 134, 136 n. 2 (1st Cir.1992).
2. Elements of § 523(a)(2)(A).
To establish that its claim is excepted from discharge, Bombardier must demonstrate that Baietti’s debt to it is one for “money, property, services, or an extension, renewal or refinancing of credit” obtained by “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).
Under § 523(a)(2)(A) and First Circuit precedent, creditors have historically been required to show that the debtor obtained money, property or credit “by means of representations which he knew were false or which were made with reckless disregard for their truthfulness, that the debtor intended to deceive the creditor through misrepresentations, and that the creditor reasonably relied, to his detriment on [those] misrepresentations.” Wallingford’s, Inc. v. Waning (In re Waning), 120 B.R. 607, 610 (Bankr.D.Me.1990); see In re Burgess, 955 F.2d at 140; Hardy v. McCaffrey (In re McCaffrey), 150 B.R. 301, 303 (Bankr.D.R.I.1993); Macaulay v. Shields (In re Shields), 147 B.R. 627, 629 (Bankr.D.Mass.1992).
The Supreme Court has recently overruled First Circuit law in one respect: the character of reliance a creditor must prove under § 523(a)(2)(A) is “justifiable” reliance, rather than “reasonable” reliance. Field v. Mans, — U.S. -, -, 116 S.Ct. 437, 444, 133 L.Ed.2d 351 (1995).5 The other elements of § 523(a)(2)(A) nondischargeability are unchanged. Id. at -, 116 S.Ct. at 443.6
3. False Pretenses, False Representations or Actual Fraud.
Express written or oral misrepresentations are not § 523(a)(2)(A)’s exclusive province. The section encompasses two additional categories of debtor misconduct: “false pretenses” and “actual fraud.” In the mill-run case, careful distinctions among the three categories is unimportant, leading some courts to opine that they are functionally equivalent. Thorp Credit and Thrift Co. v. Pommerer (In re Pommerer), 10 B.R. 935, 938 (Bankr.D.Minn.1981); 3 Collier on Bankruptcy ¶ 523.08[4] & n. 11 (Lawrence P. King, ed., 15th ed. 1995) (distinguishing actual fraud from false pretenses or representation, treating the latter two interchangeably, but noting that some courts do analyze false pretenses and representations differently); 3 William L. Norton, Jr., Norton Bankruptcy Law and Practice 2d § 47:14 n. 98 (1994) (“There is no significant difference between the three terms [false pretenses, false representations, or actual fraud]; fraud ... includes false pretenses and false representa-tions_”). In appropriate circumstances, however, courts have described “false pretenses” as a species of wrongful conduct related to, but distinct from, “false representation” and “actual fraud.” It has been described as:
a series of events, activities or communications which, when considered collectively, create a false and misleading set of circumstances, or false and misleading understanding of a transaction, in which a creditor is wrongfully induced by the debtor to *554transfer property or extend credit to the debtor. “False pretense” may, but does not necessarily, include a written or express false representation. It can consist of silence when there is a duty to speak.
Evans v. Dunston (In re Dunston), 117 B.R. 632, 641 (Bankr.D.Colo.1990), partially rev’d on other grounds, 146 B.R. 269 (D.Colo.1992), quoted in Check Control, Inc. v. Anderson (In re Anderson), 181 B.R. 943, 950 (Bankr.D.Minn.1995); see also Caspers v. Van Horne (In re Van Horne), 823 F.2d 1285, 1288 (8th Cir.1987) (debtor’s silence can constitute false pretenses where there is an intention to deceive); Durbin v. Miranda (In re Miranda), 172 B.R. 55, 60 (Bankr.E.D.Mo.1994) (debt excepted from discharge where debtor, seller of a vehicle, failed to inform purchaser that others also held an interest in the ear); Hile v. Lewis (In re Lewis), 164 B.R. 588, 591 (Bankr.N.D.Ohio 1994) (describing false pretenses as implicit misrepresentations intended to create or foster a false impression, but finding that debtor had not engaged in false pretenses); Galvin v. Cole (In re Cole), 164 B.R. 947, 949 (Bankr.N.D.Ohio 1993) (excepting from discharge contractor’s obligation for funds obtained from a customer for the purchase of materials but applied to pay off business debts).
“False pretenses” is a variation on § 523(a)(2)(A)’s theme. It encompasses “ ‘implied representations, or conduct intended to create or foster a false impression.’” Citizens & Southern Nat’l Bank v. Thomas (In re Thomas), 12 B.R. 765, 767 n. 3, 769 n. 9 (Bankr.N.D.Ga.1981) (quoting Davison-Paxon Co. v. Caldwell, 115 F.2d 189,193 (5th Cir.1940) (Sibley, J., dissenting)). Intentional deceit is a critical note in the score. Id. As with other provisions of § 523(a), however, there is scant room for improvisation in light of the admonition that discharge exceptions are to be read narrowly, not expansively, so as to afford the “honest but unfortunate” debtor a “fresh start.” Gleason v. Thaw, 236 U.S. 558, 561, 35 S.Ct. 287, 288-89, 59 L.Ed. 717 (1915); In re Burgess, 955 F.2d at 137; Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir.1987) (quoting Dilworth v. Boothe, 69 F.2d 621, 624 (5th Cir.1934)). “To prevail in a dischargeability proceeding under § 523(a)(2)(A), a plaintiff must demonstrate that the debtor engaged in conduct that is truly blameworthy in an everyday sense, as well as in a technical, legal sense.” In re Anderson, 181 B.R. at 948.
A Intentional Deceit: A Stingray Sting.
Essential to Bombardier’s claim is a showing that Baietti knowingly or recklessly employed false pretenses or false representations intending to deceive it. In re Burgess, 955 F.2d at 140; In re Waning, 120 B.R. at 610; Depositors Trust Co. v. Nichols (In re Nichols), 6 B.R. 842, 845 (Bankr.D.Me.1980).
Bombardier claims that Baietti knowingly misrepresented the state of RAB’s inventory by placing previously sold boats on RAB’s lot during Bombardier’s floor inspections and by failing to rectify Davis’s obvious misunderstanding when he tallied those boats as unsold units. Baietti asserts that the previously sold Stingrays were at the dealership for storage or repair and that he had no affirmative duty to dispel Davis’s confusion.
Baietti characterizes his role in Bombardier’s misapprehension as that of a silent onlooker. Thus, he argues his conduct cannot sustain a § 523(a)(2)(A) nondischarge-ability finding. See, e.g., Rochester Hills Chrysler Plymouth v. Phillips (In re Phillips), 153 B.R. 758, 761 (Bankr.E.D.Mich.1993) (silence by itself does not rise to § 523(a)(2)(A) fraud); Hawthorne Corp. v. Grogan (In re Grogan), 146 B.R. 866, 870-71 (Bankr.M.D.Fla.1992) (absent a duty of disclosure imposed by law or willful concealment of facts requested by the creditor, silence does not constitute a misrepresentation under § 523(a)(2)(A)); see also Schweig v. Hunter (In re Hunter), 780 F.2d 1577, 1580 (11th Cir.1986) (debtor has no duty to volunteer information relevant to his creditworthiness in the absence of meaningful creditor inquiry); Flint Area School Employee Credit Union v. Nogami (In re Nogami), 118 B.R. 846, 848 (Bankr.M.D.Fla.1990) (failure to disclose alone will not support nondischargeability, but pattern of conduct intended to evade detection of important information may amount to fraud).
*555The premise that “silence can’t constitute fraud” is misleading in its simplicity. Be it called “false pretenses” or “fraud,” intentional deceit perpetrated by silence has long been recognized as a ground for nondis-ehargeability under § 523(a)(2)(A):
“Actual” fraud precluding discharge consists of any deceit, artifice, trick or design, involving the direct and active operations of the mind used to circumvent or cheat another; something said, done or omitted with the design of perpetrating what is known to be a cheat or deception. In re Davis, 11 B.R. 156,158 (Bankr.D.Vt.1980). However, fraud may consist of silence, concealment or intentional non-disclosure of a material fact, as well as affirmative misrepresentation of a material fact.
Leeb v. Guy (In re Guy), 101 B.R. 961, 978 (Bankr.N.D.Ind.1988), (citing In re Frye, 48 B.R. 422, 426 (Bankr.M.D.Ala.1985); In re Samford, 39 B.R. 423, 427 (Bankr.M.D.Tenn.1984); In re Weinstein, 31 B.R. 804, 809 (Bankr.E.D.N.Y.1983); In re Slutzky, 22 B.R. 270, 272 (Bankr.E.D.Mch.1982)).
In any event, Baietti was much more than an innocent bystander to Bombardier’s befuddlement. Although all the circumstances under which previously sold boats found their way to RAB’s lot in time for Davis’s inspections are not apparent, Baietti knew full well where they were, how they appeared and how their presence was misleading. He created (and later perpetuated) Bombardier’s false impression.7 Baietti fostered Bombardier’s false impression, knowing that, had it learned the true state of affairs, it would have terminated financing and repossessed its remaining collateral.8 The evidence leaves no doubt that at the time Baietti misled Davis, he intended to do so.
5. Pointing the Finger at the Corporation: No Avail.
At the threshold, Baietti argues that, to the extent that credit may have been extended or property obtained as a consequence of misrepresentations or false pretenses, the corporation received it, not him. He considers what he owes Bombardier to be simply a guaranty obligation, which is not a proper subject for a § 523(a)(2)(A) complaint.
Baietti’s attempts to station himself in the corporation’s lee are unavailing. To begin, § 523(a)(2)(A) does not require that a debt excepted from discharge be one for property acquired by the debtor or credit extended to the debtor.9 Courts generally conclude that when a debtor, through fraud, obtains some benefit, albeit an “attenuated” *556one, from property or credit provided to a third party, he or she may not evade nondis-chargeability by claiming that he or she did not directly receive the benefit of the transaction. See, e.g., Ashley v. Church (In re Ashley), 903 F.2d 599, 604 (9th Cir.1990). Others have held that § 523(a)(2)(A) may operate on a fraudulent debtor’s liability even when he or she received no benefit. See Central Finance Co. v. Carroll (In re Carroll), 16 B.R. 494 (D.Minn.1982).
For today, it is unnecessary to decide whether some benefit to the debtor is a prerequisite to § 523(a)(2)(A) nondischarge-ability. Baietti participated directly in misleading Bombardier. He benefited directly from the deception. He used Bombardier’s property (Stingray sales proceeds) to reduce personal liabilities (e.g., a business mortgage debt and unpaid obligations to Trans-america), to pay himself a salary and to shore up RAB’s shaky finances so that it could continue operations (an activity that redounded directly, and virtually exclusively, to his benefit).
In such instances, “an officer, director or shareholder of a corporation will not be shielded by the corporate form from liability for a tort, including fraud, in which he himself is involved.” Takeuchi Mfg. v. Fields (In re Fields), 44 B.R. 322, 327 (Bankr.S.D.Fla.1984). Neither Baietti’s personal guaranty or an exercise in piercing the corporate veil plays a role in his liability. The obligation subject to § 523(a)(2)(A)’s discharge exception is Baietti’s tort liability. See Field v. Mans, — U.S. -, -, 116 S.Ct. 437, 443, 133 L.Ed.2d 351 (text of § 523(a)(2)(A) refers to common law torts); McMillan v. Firestone (In re Firestone), 26 B.R. 706, 714 (Bankr.S.D.Fla.1982); see also Hemelt v. Pontier (In re Pantier), 165 B.R. 797, 799 (Bankr.D.Md.1995); In re Wagenti, 110 B.R. at 605. See generally Norton, supra, § 47:13 (discussing § 523(a)(2) as one of the Code provisions regarding tort liability). The debt is within § 523(a)(2)(A)’s reach.
6. Describing the Debt:
a. How Far Does Extension Extend?
Bombardier claims that Baietti’s wrongful concealment of Stingray sales led to an involuntary “extension” of credit that would otherwise have been terminated. As soon as it would have discovered RAB’s first unreported sale, Bombardier claims it would have terminated financing and liquidated its collateral, receiving no less than the loan balance secured by each Stingray.10
In response, Baietti points out that under § 523(a)(2)(A) the creditor must prove “a causal link between any specific actions of the Debtor and its own provision of credit.” In re Waning, 120 B.R. at 612; see also In re Burgess, 955 F.2d at 140 (under § 523(a)(2)(A) creditor must show losses “resulted from” reliance on fraudulent conduct); cf. Shawmut Bank v. Goodrich (In re Goodrich), 999 F.2d 22, 25-26 (1st Cir.1993) (under § 523(a)(2)(B) creditor need not show “damage or detriment” beyond renewal or refinancing made in reliance on false financial statement). Because Bombardier provided no new credit or property to Baietti after he concealed the first (and second, third, fourth and fifth) Stingray sale, he asserts it cannot prevail.
The question whether forbearance obtained by fraud or false pretenses constitutes obtaining property or credit within the meaning of § 523(a)(2)(A) is dicey. Without having spoken directly to the point, the First Circuit has expressed some skepticism about the notion. In re Burgess, 955 F.2d at 140. Other courts have no trouble with the concept, at least where credit has already been called, FDIC v. Cerar (In re Cerar), 84 B.R. 524 (Bankr.C.D.Ill.1988), aff'd 97 B.R. 447, 451 (C.D.Ill.1989); see also Zarate v. Baldwin (In re Baldwin), 578 F.2d 293, 295 (10th Cir.1978), or where the obligation in question is due on demand and the debtor’s conduct leads the creditor to forbear making demand, leading to losses that would otherwise have been avoided. See Marine Bank Southwest v. Hoffman (In re Hoffman), 80 B.R. 924, 926 (Bankr.N.D.Ill.1988); First Federal Savings and Loan Assoc. v. Mancini (In re *557Mancini), 77 B.R. 913, 916 (Bankr.M.D.Fla.1987); First Bank v. Eaton (In re Eaton), 41 B.R. 800, 802 (Bankr.E.D.Wis.1984).
To the extent that fraudulently induced forbearance and loss might lead to nondischargeable obligations under § 523(a)(2)(A), I decline to embrace the concept here.11 The acts Baietti concealed were breaches of the floor plan financing agreement, the discovery of which would have led to termination and collection. To hold that concealing (or delaying reports of) contract breaches results in an involuntary credit “extension” creating § 523(a)(2)(A) nondis-chargeability goes too far. The concept could transmogrify dischargeable breach of contract claims into nondischargeable “extension of credit” § 523(a)(2)(A) claims. See generally In re Guy, 101 B.R. at 978. The theory is sufficiently elastic to reach the claims of unsecured creditors who delayed initiating collection action (and, say, obtaining interlocutory attachments) in reliance on a debtor’s statement that “the check is in the mail.” They could assert that during the time that they “relied” on the “representation” the debtor’s (collectible) net worth diminished, causing them “loss.” Such a rule holds potential for too much mischief. See Howard & Sons, Inc. v. Schmidt (In re Schmidt), 70 B.R. 634, 644 (Bankr.N.D.Ind.1986) (forbearing collection efforts does not constitute an extension of credit); Drinker, Biddle & Reath v. Bacher (In re Backer), 47 B.R. 825, 829 (Bankr.E.D.Pa.1985) (same).
b. The Analysis Proceeds: Obtaining Property Improperly.
In any event, stretching § 523(a)(2)(A) to such lengths is unnecessary. The statute easily reaches Baietti’s conduct. By selling encumbered Stingrays and misappropriating their proceeds, Baietti wrongfully obtained Bombardier’s property, thereby creating nondischargeable obligations. See e.g., In re Fields, 44 B.R. 322, 329 (explaining that debtor’s failure to remit inventory sales proceeds to secured party by deceiving inventory checkers constituted “obtaining property” rather than an “extension” of credit); cf. In re Schmidt, 70 B.R. at 642 (holding that debtor has not received property of the creditor where debtor fraudulently obtained release of an unsecured claim that would have been discharged in bankruptcy notwithstanding).
Bombardier’s security interest in the Stingray boats and their proceeds sets Baiet-ti’s debt to it apart from debts owed unsecured creditors. Baietti’s deceptive conduct enabled him to take Bombardier’s property by converting its collateral and proceeds. In this light, Bombardier’s § 523(a)(2)(A) claim is strictly garden variety.12
*558
7. Reliance Issues: What You See and What You Get.
Bombardier actively policed its secured credit relationship with RAB. Cf. Michigan Steel Erectors, Inc. v. Crane (In re Crane), 154 B.R. 60, 64 (Bankr.E.D.Mich.1993); Marx v. Reeds (In re Reeds), 145 B.R. 703, 708 (Bankr.N.D.Okla.1992); First Leasing and Funding, Inc. v. Black (In re Black), 113 B.R. 79, 83 (Bankr.M.D.Fla.1990). Its representative personally visited RAB’s location to physically examine the stock of financed inventory every sixty to ninety days. During those visits, Bombardier’s agent reviewed the status of the dealer’s account and affirmatively inquired regarding missing inventory and accrued arrearages. It relied on its agent’s firsthand observations and had no reason to suspect that those observations did not reflect reality.
One could not fairly require a creditor to be more vigilant. Whether Bombardier’s conduct is measured against a reasonable reliance standard or against a justifiable reliance standard, it has satisfied its burden.13 Bombardier’s reliance on the facts as they appeared caused it to leave its collateral in Baietti’s hands, enabling him wrongfully to appropriate its property for his own purposes.14
8. Extent of the Nondischargeable Debt: How Sharp the Sting?
Baietti’s debt to Bombardier is excepted from discharge only “to the extent” that it resulted from his false pretenses. In re Burgess, 955 F.2d at 140; In re Waning, 120 B.R. at 612. I credit Bombardier’s proof and find that, had unreported Stingray sales come to light in the course of the first floor check following them, it would and could have prevented losses flowing from later unreported sales. As a result, Baietti’s debt to Bombardier is nondischargeable insofar as he acquired Bombardier’s property after unreported sales were first concealed through false pretenses.
The first unreported sale took place on July 10, 1992. The parties agree that Bombardier’s next floor inspection took place within the next ninety days. Baietti wrongfully concealed that sale during that and subsequent inspections. Although the precise date of that first inspection is not known, it could have occurred no later than mid-October 1992. Certainly the first (Graham) and, as likely as not, the second (Westerdahl) unreported sale occurred before Baietti first deceived Bombardier.
Thus, Baietti’s deception enabled him to misappropriate proceeds of the third (Har-tón — proceeds due Bombardier: $10,881.90) and the fourth (Bishop — proceeds due Bombardier: $7,126.20). The date of the last sale (Anderson — proceeds due Bombardier: $7,099.20) is not pinpointed in the evidence. But the parties’ factual stipulation contains sufficient detail (e.g., the boat was a 1993 model, it was returned to RAB for storage in October 1993) from which I infer that, more likely than not, it took place well after October 1992, probably during 1993.
Thus, Baietti’s false pretenses enabled him to obtain $25,107.30 in Stingray sales proceeds that were rightfully Bombardier’s. The funds have not been repaid. The debt will not be discharged.
Conclusion
Pursuant to § 523(a)(2)(A), I conclude that Baietti’s debt to Bombardier is nondischarge*559able in the amount of $25,107.30.15 A separate order to that effect will enter forthwith,
. The Bankruptcy Code (or "Code”) is found at 11 U.S.C. § 101, et seq. Unless otherwise indicated, citations to statutory section numbers are to sections within the Bankruptcy Code.
. This memorandum sets forth findings of fact and conclusions of law in accordance with Fed. R.Bankr.P. 7052 and 9014.
Bombardier’s complaint originally included counts brought under § 727(a) objecting to Baietti’s discharge, as well as seeking a determination of nondischargeabilily under §§ 523(a)(2)(B) and 523(a)(4). At trial, Bombardier withdrew all counts except those under §§ 523(a)(2)(A) and 523(a)(2)(B). The § 523(a)(2)(B) claim was not fully developed at trial or in Bombardier’s brief. I will therefore not consider it.
. See discussion infra at page 558.
. The boats passed to RAB's retail customers free of Bombardier’s security interests. See 11 Me. Rev.Stat.Ann. § 9-307(1) (West 1995).
. Justifiable reliance is an “intermediate level of reliance,” connoting something more than mere reliance in fact, something less than reasonable reliance. Id. - U.S. at -, 116 S.Ct. at 443-44, 133 L.Ed.2d 351. It is a subjective standard, applied in view of " ‘qualities and characteristics of the particular plaintiff, and the circumstances of the particular case.' ” Id. at -, 116 S.Ct. at 443. (quoting Restatement (Second) of Torts § 545A cmt. b (1976) (hereinafter "Restatement”)). To establish justifiable reliance, one is " 'required to use his senses, and cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.' " Id. at -, 116 S.Ct. at 444 (quoting Restatement § 541).
. Field v. Mans applied the justifiable reliance standard to a case in which the trial court had concluded that the debtor committed fraud. The Court did note that ”[a]lthough we do not mean to suggest that the requisite level of reliance would differ if there should be a case of false pretense or representation but not of fraud, there is no need to settle that here." Id. - U.S. at - n. 8, 116 S.Ct. at 443 n. 8.
. Baietti was in charge at RAB. Bombardier’s floor checks were sufficiently regular to be anticipated. And, given the other evidence in the record, I conclude that Baietti arranged or permitted the previously sold Stingrays to be on the lot in order to mislead Bombardier. I cannot accept the proposition that, given RAB’s standing with Bombardier and Baietti’s admission that he delayed reporting sales to Bombardier to “buy time,” the sold boats’ presence on RAB’s lots during floor checks was serendipitous.
. Baietti asserts that Bombardier’s practice, as opposed to its formal policy, did not mandate repossession and liquidation of a dealer's financed inventory in the event of an unreported sale. Although Davis's testimony provides some evidence that there may have been cases in which Bombardier did not initiate repossession in such circumstances, I conclude that it would not have been so forgiving of RAB in this case. At the time of the Stingray sales in question, RAB was substantially in arrears for monthly interest and principal payments.
. The statute excepts from discharge debts “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by ... false pretenses, a false representation, or actual fraud...." § 523(a)(2)(A). It does not expressly require that the debtor be the one to have obtained it. The operative language defines the debts that will be excepted from discharge by the manner of their creation only. See Jacobs v. Mones (In re Morns), 169 B.R. 246, 252-53 (Bankr.D.D.C.1994); see also, e.g., Smith v. Cunningham (In re Cunningham), 163 B.R. 657, 660 (Bankr.D.Mass.1994); Designed Flooring Distributors, Inc. v. Wagenti (In re Wagenti), 110 B.R. 602, 605 (Bankr.S.D.Fla.1990); European American Bank v. Gitelman (In re Gitelman), 74 B.R. 492, 496 (Bankr.S.D.Fla.1987); FDIC v. Bombard (In re Bombard), 59 B.R. 952, 954 (Bankr.D.Mass.1986); Takeuchi Mfg. v. Fields (In re Fields), 44 B.R. 322, 329 (Bankr.S.D.Fla.1984); cf. Republic Bank v. Vermont (In re Vermont), 98 B.R. 581, 583-84 (Bankr.M.D.Fla.1989) (analyzing § 523(a)(2)(B)); First Nat’l Bank v. Mann (In re Mann), 40 B.R. 496, 499 (Bankr.D.Mass.1984) (same); Harris v. Pirnie (In re Pirnie), 16 B.R. 65, 68 (Bankr.D.Mass.1981) (interpreting state law).
. Baietti does not dispute Bombardier's claimed measure of harm upon repossession. Bombardier would have realized from the disposition of each boat no less than the outstanding loan balance secured by it.
. The facts of Field v. Mans, in which a second mortgagee failed to enforce a “due on sale” clause in reliance upon misrepresentations regarding whether a conveyance had occurred, might he read as presenting an "involuntary extension of credit” nondischargeability claim. However, the case was litigated exclusively on reliance issues. Field, - U.S. -, at - n. 2, 116 S.Ct. 437, at 440 n. 2. In a concurring opinion, Justice Ginsberg observed that the question whether the debtor had "obtained” credit by his fraud remained open. Id. at -, 116 S.Ct. at 447^)48.
. Contrary to Baietti’s contention, this court’s holding in In re Waning is not inconsistent with today's result. In Waning, the debtor’s failure to report sales and pay his supplier occurred, for the most part, as a consequence of sloppy record keeping and was not accompanied by an intention to deceive. 120 B.R. at 611. The supplier paid little attention to Waning's sales reports, other than to measure what new goods to provide him and did not rely reasonably on the inventory and account information he submitted. Id. Although the debtor did admit to intentionally inflating his accounts receivable reports one time in an effort to forestall his supplier, the report was submitted after the supplier cut off his credit and supplies. 120 B.R. at 612. Waning's observation that, had the creditor proved that the debtor acquired property from it “as a result of false pretenses or representations,” its claim would be excepted from discharge in that amount, supports Bombardier's position here.
The creditor's § 523(a)(2)(A) theory in Waning typifies the brand of claim addressed in the "involuntary extension of credit” discussion, supra, in one respect. It argued, unsuccessfully, that, had the debtor timely and accurately provided sales information (i.e. reported contract breaches), it could have terminated its relationship with him before its losses grew so large. 120 B.R. at 612.
. Because today’s decision considers Bombardier’s claim under the false pretenses model, a question might endure as to whether reasonable reliance remains the required showing. See supra note 6. On the facts of this case, the difference between the standards is of no moment.
. In concluding that Bombardier's reliance was reasonable, I have not overlooked testimony of both Baietti and Davis that the floor check was often conducted hurriedly and that, rather than exploring the status of inventory found on RAB’s premises, Davis only made specific inquiries of Baietti in instances when a unit of inventory was missing. Baietti’s knowledge of the purpose of the floor checks and the checker’s practice to investigate only the status of missing units reveals the essence of his deceit.
. I recognize that so-called “collateral conversion” cases are most often brought under § 523(a)(6). Because Bombardier did not bring a claim under that provision, I express no opinion whether the facts of this case would lead to a finding of nondischargeability, or what the extent of nondischargeable debt might be, under § 523(a)(6). See Collora v. Leahy (In re Leahy), 170 B.R. 10, 15 n. 8 (Bankr.D.Me.1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492231/ | MEMORANDUM OPINION
JUDITH K. FITZGERALD, Bankruptcy Judge.
Before the Court in this core proceeding is Count II of the complaint of Continental Bank requesting a finding that the debt of Maytor H. McKinley (Debtor) to Continental Bank is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). At the close of Continental Bank’s case, Debtor’s Motion for Directed Verdict on Count I of the complaint, which stated a cause of action under § 523(a)(2)(A), was granted and Count I was dismissed with prejudice.
In Count II Continental Bank maintains that the debt is nondischargeable on the basis of § 523(a)(2)(B). In order to prove nondischargeability on this ground the Bank must establish that Debtor obtained the refinancing by a materially false written statement regarding his financial condition on which the Bank reasonably relied.1 The Bank also must show that Debtor intended to deceive the Bank in submitting the materially false written statement. 11 U.S.C. § 523(a)(2)(B). We find that the Bank has not proved all elements of nondischargeability to a preponderance under this section and, therefore, the debt is dischargeable. See Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
FACTS
Based on a referral from someone associated with a development corporation, Debtor contacted Continental Bank in the fall of 1990 in an effort to obtain a loan of $550,000 for the development of a business, the Chesapeake Gun Club. The loan was to be secured by Club assets. Although Debtor believed that the loan would be approved, it became evident some time after the holidays in 1991 that the Bank would not provide the commercial financing because it was leaving the commercial lending business.
At the suggestion of William Fagan, vice president of Continental Bank, Debtor agreed to take a personal unsecured loan of $250,000 as a bridge loan for six months until he could obtain other financing for the Club. Until this time the Bank had not inquired into Debtor’s personal finances but, in connection with the personal loan, the Bank requested information about his current financial status. Debtor provided an unsigned document referred to by the trial witnesses as a financial statement. However, the caption of the signed version of the document entered into evidence as Plaintiff’s Exhibit 11 and dated “12/31/90” is “Maytor H. McKinley — Balance Sheet”. The unsigned copy no longer exists in the Bank’s file. Nonetheless, the fact that William Fagan saw the unsigned document is established by Fagan’s affidavit which incorporates Plaintiffs Exhibit 20.
Plaintiffs Exhibit 20 is a memorandum from Fagan to the Bank’s credit acquisition department concerning the agreement to lend Debtor $250,000. It refers to various items on Plaintiffs Exhibit 11, the signed version of the 1990 financial statement. These items include a $5.4 million interest in various businesses, $500,000 in cash or securities, a $5.7 million interest in real estate, a $3 million trust (the “100% trust”) and an *47$815,000 trust (the “Hawaiian Guardian trust”) as well as other assets. The net worth reflected on Exhibit 11 is $16.4 million. In his affidavit, which was filed in connection with the trial of this matter, Fagan stated that, prior to approval of the loan on January 9, 1991, he had seen and relied on an unsigned “personal financial statement” given to him by Debtor. See Affidavit of William W. Fagan (“Fagan Affidavit”) at ¶ 10. The testimony established that the Bank had been shown an unsigned balance sheet before it made the loan. Based on the testimony, we find that the unsigned version is identical to the signed version in all material respects. The only differences are that Exhibit 11 has handwritten notes in the left margin and Debtor’s signature at the end of the exhibit. Neither of these was on the missing unsigned version. The changes are not material to any issue before the court. See Plaintiff’s Exhibit 11.
Fagan’s internal bank memorandum, dated January 16, 1991, indicates that he granted the loan and authorized the first disbursement of $50,000 on January 16, 1991, based upon, inter alia, the assets listed on the unsigned, now missing, version of Plaintiffs Exhibit 11 and Debtor’s minimal debt. Plaintiffs Exhibit 20. The loan was approved on January 9, 1991, and the first disbursement of $50,000 was made on January 16, 1991. The signed balance sheet, Exhibit 11, was not sent to the Bank until after the loan was approved and the first disbursement made. See Plaintiffs Exhibit 21 (letter of January 22, 1991, from Premier Sporting Clubs by Maytor H. McKinley, Chairman, to William W. Fagan transmitting Exhibit 11). The next advance of $50,000 was made on January 23, 1991. Both the January 16 and the January 23 disbursements are shown on Plaintiffs Exhibit 19, Commercial Loan Statement of Continental Bank. See also Plaintiffs Exhibits 17, 18.
It is not disputed that Debtor eventually received the entire $250,000. The parties agree that Debtor made “interest only” payments, as required by the loan documents, and that the Bank refinanced the loan on April 28, 1992, July 4, 1992, and November 30, 1992, without obtaining any updated financial information from Debtor, despite requests dated November 21, 1991, (Debtor’s Exhibit 3), and April 10, 1992, (Debtor’s Exhibit 5). The November 30, 1992, renewal was in the amount of $245,000 due to Debt- or’s payment of $5,000 toward principal. See Plaintiffs Exhibit 23, Memorandum of December 18, 1992, from Joseph G. Meterchiek, Vice President of Continental Bank, to CAIC # 4 (credit department) (“Meterchiek memorandum”).
In his internal bank memorandum, Joseph G. Meterchiek, Fagan’s successor, indicated that, in connection with the renewal on November 30,1992, he had requested an updated personal financial statement from Debtor as well as collateral for the Note. Plaintiffs Exhibit 23. He sent McKinley a blank form utilized by the Bank for this purpose. It was not until February 2, 1993, however, that Debtor provided any updated financial information, and it was not submitted on the Bank’s form as Meterchiek had requested. See Plaintiffs Exhibit 12 (balance sheet dated February 2, 1993, signed by Debtor). The 1993 balance sheet reflects Debtor’s net worth as slightly in excess of $2.5 million, a diminution of $13.9 million from the 1990 balance sheet. Notwithstanding the magnitude of the loss in net worth between the 1990 and 1993 balance sheets, the Bank issued its final renewal on February 3,1993, in the form of a non-discount note in the amount of $244,000 payable on demand. The reduced principal amount reflected another $1000 payment toward principal. The unpaid balance is $229,688.33. See Plaintiffs Exhibit 6. See also Affidavit of Joseph G. Meter-chick (“Meterchiek Affidavit”) at ¶ 9.
ISSUES
The disputed issues are (1) whether the statements of financial condition were materially false; (2) whether the Bank reasonably relied on materially false financial statements in extending and/or renewing credit to Debt- or; and (3) whether Debtor intended to deceive the Bank. Section 523(a)(2)(B) of the Bankruptcy Code provides that a debt for an extension, renewal, or refinancing of credit is *48nondischargeable to the extent that it is obtained by
use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive ...
11 U.S.C. § 523(a)(2)(B). The Bank must prove all the elements of § 523(a)(2)(B) by preponderate evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). It is not disputed that the 1990 and 1993 balance sheets concerned Debtor’s financial condition.
DISCUSSION
Introduction
The Bank argues that both the 1990 and the 1993 balance sheets are materially false in that they contain a value for two trusts (the “100% trust” and “Hawaiian Guardian Ltd.”) in which Debtor held only a beneficial interest in proceeds on investments, but no right to the corpora. Debtor conceded at trial that the balance sheets included values in excess of his beneficial interests in both trusts, even though he knew when he prepared them that he did not then, and would never, own the principals. He testified that he included the information because he once was told by a bank to disclose the source of his trust income. The 1990 balance sheet specifically names the trusts. The 1993 balance sheet includes a “Trusts/ Sales Contracts” category but does not specify the trusts or any other items in the category.
December 30, 1991, Balance Sheet Material Falsity and Reasonable Reliance
With respect to the 1990 balance sheet, we find that it was false in that it overstated or misstated Debtor’s interest in the trusts. However, the falsity was not material in the circumstances of this case. In determining materiality under § 523(a)(2)(B)(i) we must consider whether the statement “is so substantial that a reasonable person would have relied upon it, even if the creditor did not in fact rely upon it”. In re Cohn, 54 F.3d 1108, 1114 (3d Cir.1995) (emphasis in original). In this case, the statement of Debtor’s interest in the trusts was not material to a $250,000 loan inasmuch as excluding approximately $4 million from the value of the trusts would have reduced Debtor’s net worth to approximately $12.6 million. The Bank presented no evidence to establish that it would not have given Debtor the $250,000 unsecured loan, that it solicited, based on a $12.6 million net worth, although it did, in fact, lend Debt- or $250,000 unsecured on what it believed was a $16.4 million net worth.
Even if the discrepancy between $16.4 million and $12.6 million was “capable of influencing” the Bank’s decision to lend $250,000, and, therefore, was a material falsity, the Bank has not established that it reasonably relied on the misstatement, as is its burden pursuant to § 523(a)(2)(B)(iii).
A determination of reasonable reliance requires consideration of three factors: (1) the creditor’s standard practices in evaluating credit-worthiness (absent other factors, there is reasonable reliance where the creditor follows its normal business practices); (2) the standards or customs of the creditor’s industry in evaluating creditworthiness (what is considered a commercially reasonable investigation of the information supplied); and (3) the surrounding circumstances existing at the time of the debtor’s application for credit (whether there existed a “red flag” that would have alerted an ordinarily prudent lender to the possibility that the information is inaccurate, whether there existed previous business dealings that gave rise to a relationship of trust, or whether even minimal investigation would have revealed the inaccuracy of the debtor’s representations).
In re Cohn, 54 F.3d at 1117.
The testimony established that the Bank solicited and granted an unsecured loan of $250,000 without verifying any of the items listed on the now missing, unsigned December 31, 1990, balance sheet. See Fagan Affidavit. However, as is evident from the face *49of Exhibit 11, the 1990 balance sheet was not prepared in accordance with any generally accepted accounting technique. The methods and sources of valuation of the particular assets listed are not identified anywhere on the balance sheet and there are no explanatory notes accompanying the document. The Bank did not attempt to identify the “marketable securities” mentioned in the 1990 balance sheet and never asked Debtor about his ownership interest in any of the stocks, real estate or trusts identified. The signed' balance sheet could not have influenced the Bank’s decision to make the loan because the Bank did not have the balance sheet until after it had approved the loan and made the first disbursement. The Bank neither required Debtor to verify the contents under penalty of perjury nor insisted that Debtor fill out its own readily available form for financial information, although it requested that Debtor do so several times. To the extent that the Bank’s standard practice in determining the credit-worthiness of a borrower was to require use of its form, we find that it did not follow its normal business practice. The Bank did not exercise “that degree of care which would be exercised by a reasonably cautious person in the same business transaction under similar circumstances”. In re Cohn, 54 F.3d at 1117 (citations omitted). Because the balance sheet was not clear and does not contain sufficient indicia of reliability of the truthfulness of the content on its face, the Bank should have ' inquired into its contents. Cf. In re Hall, 109 B.R. 149,154 (Bankr.W.D.Pa.1990) (creditor has no duty to conduct independent investigation when, on its face, all facts are sworn to as accurate). A cursory investigation would have revealed that Debtor incorrectly included the trusts’ values as part of his net worth. Cf. In re Martz, 88 B.R. 663, 671 (Bankr.E.D.Pa.1988) (creditor has duty to make reasonable check on credit rating and not rely solely on financial statement).
The Bank proved that the stated value of the “100% trust” (more than three million dollars) and of the “Hawaiian Guardian Ltd.” trust (more than $800,000) should not have been included on the balance sheet. However, deletion of those amounts merely reduced a net worth of over $16.4 million to a net worth of approximately $12.6 million. There was no evidence that the Bank would not have lent the money to Debtor based on a net worth of $12.6 million. The Bank made no effort to introduce evidence of any policies it may have had to evaluate credit-worthiness, such as its loan to equity ratios, that may have shown that a net worth of $16.4 million was sufficient for this loan but a net worth of $12.6 million was not. Moreover, the Bank was aware that Debtor’s taxable income in 1988 was “in excess of $228,000 and is expected to be similar in 1989 and 1990.” Plaintiffs Exhibit 20, Memorandum of January 16,1991, from William W. Fagan, Vice President # 15 of Continental Bank, to Credit Acquisition Department # 14) (“Fa-gan Memorandum”). From this income and Debtor’s minor debts at the time, ability to repay the loan as it was structured (i.e., interest-only payments until Debtor obtained a commercial loan)2 was established. The court credits Debtor’s evidence that the Bank relied on Debtor’s income.
The evidence adduced at trial by the Bank established that it made the loan because it wanted to obtain new business from Debtor and his companies. See Plaintiffs Exhibit 20. In his memorandum to Continental Bank’s credit acquisition department, Fagan wrote that Debtor
is the principal owner of a group of companies ... [which] includes over 50 companies located in seven (7) states.... The main company in the Philadelphia area is Oliver H. Bair Funeral Home. This name and this company is [sic] well known in the Philadelphia area for over 50 years.... [Debtor] represents a significant depositor and we expect over time to be able to attract more deposits, not only of a personal nature but of the related companies that he owns.
*50Plaintiff’s Exhibit 20. In this case, Fagan’s affidavit that he relied on a net worth of $16.4 million is the only evidence of the Bank’s reliance. We do not credit this self-serving statement because of the other circumstances detailed herein. However, even if the Bank relied on it, we find the reliance unreasonable. The Bank knew Debtor’s 1988 taxable income and projected his future income. The Bank also recognized his interests in various companies and relied upon his reputation and name recognition. The Bank made the first extension of credit without having received the signed balance sheet and never availed itself of numerous opportunities to insist upon updated, verified statements of Debtor’s financial condition. Merely asking Debtor to explain the contents of the balance sheet would have revealed the inclusion of the trusts’ corpora in the valuation. The Bank simply never asked. It was motivated by factors other than the balance sheet — to-wit, the possibility of future business from Debtor. We also find that the $250,000 unsecured loan was made at the Bank’s suggestion, pending financing from another source for the Chesapeake Gun Club project. The suggestion was made before Debtor submitted any personal financial information to the Bank. We find that the fair inference from the evidence is that the Bank would have made the loan even if the trust values had been excluded from the 1990 balance sheet. That is, based on the testimony and evidence adduced at trial, we find that the Bank would have made the loan based on a net worth of over $12 million, Debtor’s annual taxable income, Debtor’s reputation, and the prospect of additional business from him and his companies.
With respect to each of the three refinances from 1990 through 1992, the Bank offered no evidence of any efforts to ascertain that the 1990 information, as reflected on Exhibit 11, was correct at the time it made each refinance. In his affidavit, Meter-chick, who replaced Fagan in January of 1992, stated that he relied on the 1990 balance sheet in renewing the extension of credit to Debtor through 1992. However, despite the Bank’s repeated requests to Debtor to use its form and update his financial information3, Debtor never complied. Nonetheless, the Bank continued to renew the loan. Furthermore, the Bank presented no evidence concerning whether the extensions of the loan on stale information accorded with the Bank’s regular practice or with banking industry standards. It offered no evidence concerning what, if any, policies and procedures it had in place to extend or refinance loans under these circumstances. Reliance on stale information in this case was not reasonable.
Balance Sheet of February 2, 1993 Material Falsity and Reasonable Reliance
The balance sheet signed by Debtor and dated February 2,1998, reflected an interest in “Trusts/Sales Contracts” of $685,000. See Plaintiffs Exhibit 12. In his affidavit, Met-erchick stated that he relied on the February 2 balance sheet for the final extension of the loan on February 3, 1993. Although in his affidavit Meterchick stated that he extended credit on February 3, 1993, based on the February 2, 1993, “personal financial statement” that listed Debtor’s net worth as in excess of $2.5 million, no evidence was adduced to prove that the 1993 balance sheet was false. See Meterchick Affidavit at ¶¶ 7, 8. Thus, even if the Bank relied upon this information, it failed to prove the element of material falsity. Assuming, arguendo, that the statement contained some unidentified material falsehood, the Bank also failed to prove reasonable reliance.
At trial, Debtor testified that the category “Trusts/Sales Contracts” contained an undisclosed value for the trusts. The 1990 balance sheet showed that the trust corpora were valued in excess of $4 million. See Exhibit 11. The reduction in value of over $3 million *51in the trusts was not explained on the 1993 balance sheet and the Bank did not require an explanation before the loan was made. The Bank failed to elicit any information from Debtor concerning this and, at trial, did not explain why it never questioned the decrease in the trust values or the $13.9 million reduction in net worth. At trial Debtor said, and we find, that no one ever asked him regarding the decrease in his net worth but, if asked, he would have said it was because real estate values decreased as did the value of the stock in the Oliver H. Bair Funeral Home. No evidence was introduced regarding the Bank’s or the banking industry’s practices or customs under similar circumstances. Moreover, no evidence was introduced to show that the Bank would not have extended its prior loan to Debtor on February 3, 1993, based on a net worth of $2.5 million. In this regard we note that, by letter of December 18, 1992, before the loan was renewed on February 3, 1993, the Bank requested Debtor to provide updated financial information, on the Bank’s form. The Bank asked for the information before December 30, 1992, when the principal amount of the loan became due, but yet again failed to insist on timely receipt or use of its form.
As in 1990, instead of complying with the Bank’s request to use its form, Debtor substituted his own creation which is the 1993 balance sheet, Plaintiffs Exhibit 12. This document is even less specific, clear or regular on its face than Exhibit 11. It does not identify assets with any particularity. It merely lists broad categories, such as “current assets worth $95,115”, “fixed assets worth $1,203,750”, “real estate (estimated fair market value net of mortgages) worth $731,904” for a total in excess of $2.5 million. Nonetheless, the Bank renewed the loan without insisting on Debtor’s compliance with their requests, without questioning the $13.9 million reduction in Debtor’s net worth between 1990 and 1993, and without investigating the reduction in the stated trust values from more than $4 million in 1990 to $685,000 in 1993. We find, therefore, that the Bank had a duty to inquire into the contents of, or otherwise investigate, this document. It failed to do so. The Bank did not reasonably rely on the 1993 balance sheet in renewing the loan on February 3, 1993.
Intent to Deceive — 1990 and 1993 Balance Sheets
The Bank argues that the inclusion of the false valuations for the trusts was either an intentional effort to deceive it or in such reckless disregard of the truth that we should find an intent to deceive. Intent to deceive “can be inferred from the totality of the circumstances, including the debtor’s reckless disregard for the truth”. In re Cohn, 54 F.3d at. 1119. We note first that Debtor denied an intention to deceive, and, from the facts of this case, we credit his testimony. This personal loan came about because the Bank offered it when it could not extend the commercial loan Debtor sought. Second, the first signed-balance sheet was presented to the Bank in 1990 after the first advance was made to Debtor and on the day the Bank made the second advance. No updated information was given for the first three refinances. The second signed balance sheet was given to the Bank in 1993 one day before the last renewal of credit.
The evidence established that Debtor was an experienced businessman who had invested in real estate and real estate projects for many years. However, he was not skilled in the preparation and presentation of financial statements. Debtor testified that, in calculating the value of his real estate interests, he considered his percentage interest and the debt on the property and reported the net value of his interest. With respect to the trust values, he testified that he included the value of the corpora because, from past experience, he had been required to include that information in applying for credit. No testimony or evidence was introduced to contradict this testimony. Debtor testified that he prepared the December 30, 1990, balance sheet to give himself an idea of the worth of his own assets and liabilities. He used it as a “yardstick” to compare his fortunes to those in prior years. Although he was not careful to be accurate in the information presented, we find insufficient evidence to establish an intent to deceive or reckless disregard for the truth. The Bank offered the loan with*52out any representations from Debtor regarding his financial condition. It lent the money before it obtained a signed statement of financial condition.
There was no testimony elicited as to why Debtor did not disclose the details of his beneficial interest in the trusts.4 We find, however, the error in the values of the trusts is not dispositive of the intent to deceive issue because the Bank lent him the money simply on the basis of an unsigned statement of financial worth, which statement was not even in the format required by the Bank. Debtor also testified, regarding the 1990 balance sheet, that, when Fagan asked him to fill out the Bank’s form, Debtor asked Fagan if he could use his own form and Fagan agreed. This testimony was not contradicted. Even if Debtor harbored an intent to deceive in 1990, the Bank failed to prove that it reasonably relied on either financial statement. All elements of § 523(a)(2)(B) must be established by a preponderance of evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Regarding the 1993 balance sheet, there was no evidence that it was false and, therefore, no proof of any intent to deceive.
Based on the record and the fact that exceptions to dischargeability are to be construed strictly against the creditor and in favor of the debtor, we find that the debt to Continental Bank is dischargeable. See In re Cohn, 54 F.3d at 1113.
An appropriate order will be entered.
ORDER
And now, to-wit, this 21st day of December, 1995, for the reasons set forth in the foregoing Memorandum Opinion, it is ORDERED that the debt owed by Debtor to Plaintiff Continental Bank in the amount of $229,688.33 is DISCHARGEABLE.
The Clerk shall close this Adversary.
. On November 28, 1995, the United States Supreme Court decided Field v. Mans, - U.S. -, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995), and held that under 11 U.S.C. § 523(a)(2)(A) the standard is one of justifiable reliance. Because Count I alleging nondischargeability under § 523(a)(2)(A) was dismissed, we do not reach this issue.
. The Note stated that Debtor would pay $250,-000 “On Demand — after date, ... with interest thereon, payable monthly unless otherwise indicated hereon, at the rate of P + O percent per annum or such other rate of interest as Bank may from time to time determine.” Plaintiff's Exhibit 1. The terms “On Demand” and "P + O” were typed into the form Note.
. Debtor’s Exhibit 3 is a letter dated November 21, 1991, requesting Debtor to use the Bank’s form (Debtor’s Exhibit 4) and submit a copy of his 1990 federal tax return. Debtor's Exhibit 5 is a letter from the Bank to Debtor dated April 10, 1992, requesting that the updated personal financial statement be submitted on the Bank's form. Debtor did not comply. The Bank renewed the credit on April 28, 1992, July 4, 1992, and November 30, 1992, based on the 1990 balance sheet. Meterchick Affidavit at ¶4. This was done without insisting that Debtor comply with its requests for financial information in the proper format.
. Debtor testified that, on the 1990 balance sheet, Plaintiff’s Exhibit 11, he included his annual income from the "100% trust" ($109,000) as well as the corpus. The 1990 balance sheet shows "current due from [100%] trust” as $109,-000, and "current due from Hawaiian Guardian Ltd” as $55,000. However, Debtor included the trust corpora and the annual income in his calculation of net worth. See Plaintiff’s Exhibit 11. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492233/ | REASONS FOR DECISION
HENLEY A. HUNTER, Chief Judge.
This matter comes before the Court on the complaint of Danny “Bo” Corley, Jr. (“Bo”, “Corley” or “plaintiff’) to the dischargeability of the debt owed to him by the debtor, David Alan Delaney (“debtor”). The plaintiff filed this action seeking a determination that the debt is not dischargeable under 11 U.S.C. § 523(a)(6). This a Core Proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and by virtue of the reference by the District Court pursuant to Local District Court Rule *7922.01 incorporated into Local Bankruptcy Rule 1.2. No party at interest has sought to withdraw the reference to the bankruptcy court, nor has the District Court done so on its own motion. This Court makes the following findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. Pursuant to these reasons, this Court finds that the debt to the plaintiff is not dischargeable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The facts of this case were previously litigated in a state court personal injury action brought by Corley against the debtor, the debtor’s father, C.H. Delaney (“Mr. Delaney”) and Mr. Delaney’s homeowner’s insurance company, State Farm Fire and Casualty Company. Judgment was rendered for the plaintiff and the case was appealed to the Louisiana Third Circuit Court of Appeals. The trial court had found Corley 40% at fault, Mr. C.H. Delaney 10% at fault and the debtor 50% at fault. The appellate court basically upheld the trial court, but reapportioned the negligence or “fault” of each party — Mr. Delaney was absolved of fault, Cor-ley was found to be 20% at fault and the debtor 80% at fault. That judgement, entered December 15, 1993, is final.1 Corley v. Delaney, 629 So.2d 1255 (La.Ap. 3 Cir.1993).
The parties to this adversary proceeding stipulated to the introduction of seventeen joint exhibits. Additionally the plaintiff offered the state court proceeding “jury charge” (exh. P-18) and the weapon used by the debtor. Exh. P-19. The debtor offered the state court appellate brief of the plaintiff herein. Exh. D-20. All exhibits were admitted. The parties agreed that it was not necessary to offer any live testimony. After admission of the evidence, the debtor’s counsel made an oral motion for involuntary dismissal to the plaintiffs case. Presumably, counsel was referring to a dismissal under Federal Rule of Civil Procedure 52(c), although he cited another rule at trial.
The underlying facts in this tragedy were summarized by the Third Circuit as follows:
“Bo and David had known each other for about one year before the shooting. Their relationship was described at trial as ‘hot and cold.’ On some occasions they were friendly; on others, they exchanged harsh words, usually about their girlfriends. David testified that Bo verbally abused him but that their differences never led to a fight or even to shoving. Bo admitted that he had threatened to ‘whip’ David in the past.
On the night in question, David and Bo saw each other at a local bar, but they did not speak'. Later, after leaving the bar, Bo became angry about David’s involvement in an earlier altercation between their girlfriends. At 1:00 a.m. he telephoned C.H. Delaney’s residence, where David lived, and asked to speak to David. C.H. answered the phone and then told his wife to see if David was in the house. David had just arrived as Mrs. Delaney began to look for him.
The contents of the telephone conversation between Bo and David were disputed at trial. Bo testified that he wanted to meet David at Camp Livingston, a neutral site, where they would ‘just get it out in the open — either we’re going to be friends or we ain’t.’ According to Bo, David replied that he was not leaving his house but that, ‘If you want me, you can come over here.’ David, however, denied suggesting that Bo come to his house. He testified that he specifically told Bo, ‘Do not come to my house.’ David’s version of the conversation was corroborated by C.H. who was listening on an extension phone and overheard the entire conversation, and by his mother, who was in the same room as her son. Police Chief Spencer Williams offered testimony that corroborated Bo’s version of the - conversation. Chief Williams testified that shortly after the *80shooting David gave a recorded statement in which he stated he told Bo, ‘If you want me, you can come over here.’
After this telephone conversation, David went upstairs to his room where he loaded his 12 gauge, double barrel, sawed off shotgun, which he had recently purchased. Downstairs, C.H. saw David with the gun and told him to put it down. David complied, placing the gun on a table in the foyer. C.H. then went to his bedroom to get dressed.
While C.H. was in his bedroom, David noticed two vehicles approach the Delaney residence. One stayed on the street at the end of the Delaney’s long driveway; the other, with Bo as a passenger, drove toward the house. David re-armed himself with the shotgun and waited on the porch as the vehicle came up the driveway. He then walked through some bushes and appeared near the passenger side of the vehicle. With his finger on the trigger, David pointed the gun at the car and tapped it on the windshield, while saying something such as ‘Get out of the damn car, Danny.’ At that point, the gun discharged, with the shot blasting a hole in the windshield and striking Bo on the right side of his face.
Bo testified that he was shot before he made any movement to get out of the car. He had no recollection of the ten days immediately following the shooting. His injuries, more fully discussed below, include the loss of one eye, legal blindness in the remaining eye, the destruction of bone and facial tissue, and permanent disfigurement.”
629 So .2d at 1256, 1257.
The debtor’s defense is that the incident was an accidental shooting and therefore was not “willful and malicious.” Additionally, the debtor maintains that the episode was an accident and that “all facts relating to this matter were elicited at trial by jury resulting in a judgment based on state law negligence theories, thus, the issues raised in the Complaint are barred by the doctrine of res judi-cata.” See Answer To Creditor’s Complaint To Determine Dischargeability, filed February 12, 1993. The debtor also asserts “various doctrines of estoppel.” Answer, Ibid. The theory of the defense distills to the contention that the shooting was accidental. The defendant further asserts that, because there was recovery in the state courts against an insurer on a policy which excludes willful and malicious injury, plaintiff cannot now prevail.
Applicable Law
The burden of proof on an action to determine the dischargeability of actions under 11 U.S.C. § 523 is the preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). In that matter, the Court observed:
“The statutory provisions governing nondischargeability reflect a congressional decision to exclude from the general policy of discharge certain categories of debts— such as child support, alimony, and certain unpaid educational loans and taxes, as well as liabilities for fraud. Congress evidently concluded that the creditors’ interest in recovering full payment of debts in these categories outweighed the debtors’ interest in a complete fresh start. We think it unlikely that Congress, in fashioning the standard of proof that governs the applicability of these provisions, would have favored the interest in giving perpetrators of fraud a fresh start over the interest in protecting victims of fraud. Requiring the creditor to establish by a preponderance of the evidence that his claim is not dis-chargeable reflects a fair balance between these competing interests.”
498 U.S. at 287, 111 S.Ct. at 659, 112 L.Ed.2d at 765.
Section 523(a)(6) excepts from discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.”
The Supreme Court formerly applied a “reckless disregard” standard to the predecessor provision of § 523(a)(6)2. Matter of Quezada, 718 F.2d 121 (5th Cir.1983) citing Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754 (1904). However, “Congress expressly intended to overrule legislatively *81the reckless-disregard test for nondischarge-ability.” Quezada, Id. at 122.
Quezada quotes Collier’s to explain that for a debt:
“[T]o fall within the exception of § 523(a)(6), the injmy to an entity or property must have been willful and malicious. An injury of an entity or property may be a malicious injury within this provision if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite or ill-will. The word ‘willful’ means ‘deliberate or intentional’, a deliberate and intentional act which necessarily leads to injury. Therefore, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury. 3 Collier on Bankruptcy § .523.16 at 523-118 (15th ed. 1983).”
718 F.2d at 123.
In decisions both earlier and later than Quezada, the Fifth Circuit has held that an injury to a person is “malicious” if it is wrongful and without just cause or excuse and “willful” if the debtor intentionally does an act which necessarily leads to injury. Vickers v. Home Indemnity Company, 546 F.2d 1149 (5th Cir.1977); Chrysler Credit Corp. v. Perry Chrysler Plymouth, 783 F.2d 480 (5th Cir.1986).
The problem in applying these determinations was noted in In re Limbaugh, 155 B.R. 952 (Bkrtcy.N.D.Tex.1993). In that case the Court observed:
“In considering dischargeability issues, courts have differed over whether the focus under § 523(a)(6) should be the Debt- or’s intent to produce the injury, or the intent to perform the act which gives rise to the injury. (Footnote omitted). A significant majority of the courts, including the Fifth Circuit, have held that § 523(a)(6) merely requires an intentional act by the debtor which results in injury to the creditor. Matter of Quezada, 718 F.2d 121 (5th Cir.1983), cert. den’d, 467 U.S. 1217, 104 S.Ct. 2662, 81 L.Ed.2d 368 (1984); Seven Elves v. Eskenazi, 704 F.2d 241 (5th Cir.1983); In re Dean, 79 B.R. 659 (Bankr.N.D.Tex.1987).
155 B.R. at- 960, 961.
Analysis
In reviewing the state court pleadings, exhs. J-l to J-6, the selected testimony from the trial, exhs. J-123 to J-17, and the appellate decision this Court can draw one certain conclusion: that the debtor clearly committed willful and malicious acts against the plaintiff and should be held accountable for the results.
Defendant argues that the shooting was an accident. This argument is largely premised on the Third Circuit’s opening paragraph reading:
“On August 24, 1989, 19 year old Danny ‘Bo’ Corley sustained a close range shotgun blast in the face that was accidentally inflicted by David Delaney....”
629 So.2d at 1256.
The Third Circuit also made the following findings:
“The jury obviously believed that the conduct of both young men contributed to the fateful outcome, with David bearing more of the blame because of his use of the firearm....
The actions of both young men were deliberate, as opposed to inadvertent, with nothing of significance to be gained.... On the other hand, the circumstances do not justify David’s introduction of a firearm into the controversy. David claimed he retrieved the weapon for protection, but we find no evidence of any real danger: only one vehicle approached the Delaney residence, and Bo and David had never fought before. David’s use of the firearm was totally unwarranted and created a greater risk than any action of Bo’s.”
629 So.2d at 1258 (emphasis supplied).
Debtor described his actions prior to the shooting as follows:
“1. Well, isn’t it true, David, that what you did is you went upstairs, you got the gun, it was unloaded, correct?
*82A. Yes, sir.
Q. You loaded the gun. You loaded that unloaded gun with two twelve gauge shells?
A. Yes, sir.”
Exh. J-14, p. 178, .line 27; p. 179, line 2.
Debtor was questioned further as follows:
“Q. When you walked over to the ear and you made some remarks about, ‘Come on, Danny, go ahead and get out of your damned car,’ correct?
A. Well, sir, I said some things. I don’t really remember what they were.
Q. Words to that effect. ‘Go ahead, Danny, get out of your damned car,’ correct?
A. I also told him to get out of my ... get out of here, too.
Q. You had already pulled the shotgun out and aimed it at the vehicle, didn’t you?
A. Yes, sir.
Q. And you were walking up to it with the shotgun pointed at the windshield saying, ‘Get out of your damned car, Danny,’ correct?
A. Correct.
Q. When you were holding the twelve gauge shotgun, did you have your fingers on the trigger, correct?
A. Inaudible.
* * * * * *
Q. When you walked up to the automobile with your fingers on the trigger, you made motions toward it — towards the passenger side of that vehicle, didn’t you?
A. On the windshield, yes, sir.
Q. And that loaded twelve gauge, double barrel, shotgun went off?
A. Yes, sir.
Q. Danny Corley never made a motion to get out of that vehicle, did he?
A. No, sir.
Q. Danny Corley never said a word that you could heai* before the blast?
A. No, sir.
Q. You didn’t see any weapon or anything of that nature, did you?
A. No, sir.
Q. You saw two individuals in a vehicle, correct?
A. Yes, sir.
Q. And no moves made toward you to get out of that vehicle to start any type of trouble, correct?
A. No, sir.”
Exh. J-14, p. 186, line 29; p. 188, line 19.
The jury found that Delaney was at fault and the fault was a legal cause of the plaintiffs injuries. Exh. J-5.
A comparison with other shooting cases is warranted here. In In re Kelly, 140 B.R. 291 (Bkrtcy.N.D.Okl.1992), the court dismissed the plaintiffs claim under § 523(a)(6), since, under applicable state law, plaintiffs sole remaining action was under negligence law, the action for assault and battery having been barred by the statute of limitation. Noting that willful and malicious requires more than mere negligence, the Court dismissed the complaint. In In re Adams, 21 B.R. 301 (Bkrtcy.N.D.Ohio), debtor and plaintiff were involved in a barroom brawl. Debtor had been drinking. Following an altercation, debtor brought a gun on the premises. Shots were fired. The plaintiff was injured. The Court found the actions by debtor were “unlawful, unjustified and malicious.” Id. at 305. It rejected a claim that no allegation was made in an earlier state court judgment that the actions were willful and malicious.
A hunting accident was the subject of In re Britt, 143 B.R. 419 (Bkrtcy.S.D.Miss.1992). There, debtor, believing he was shooting at a deer, shot another hunter who later died from the injuries. The Court found (after an extensive analysis of shooting cases and the burden of proof) that the shooting was an “act of negligence or reckless disregard ... [but t]here is nothing in the record to indicate that the debtor intentionally or deliberately shot [the other hunter]. Therefore, the element of ‘willfulness’ for purposes of Section 523 has not been established....” Id. at 424.
It is beyond peradventure that loading a twelve gauge, double barreled, sawed-off shotgun and pointing it toward the face of *83another unarmed person or against a windshield just beyond the face is wrongful and without just cause. The facts also support a finding that the acts were deliberate, intentional and led to the plaintiffs injuries. The debtor systematically went to his room and loaded the gun. He briefly put it down when reprimanded by his father. Even after his father advised him to relinquish it, he again picked up the weapon, put his finger on the trigger and headed outside to confront the plaintiff.
There are no facts indicating that Corley was about to commit harm to the debtor, his parents or their property. These willful and malicious acts necessarily led to the plaintiffs injury. In short, the evidence at trial, the findings of the jury, and the facts as recited by the Louisiana Court of Appeal are more than sufficient to satisfy plaintiffs burden of proof under a preponderance standard. The facts are clearly distinguishable from Britt, and similar to Adams.
This Court finds no merit in the defense arguments that some sort of estoppel theory bars this plaintiffs claim. Counsel for debtor argues that plaintiff, having originally filed suit on negligence theories, cannot now be heard to assert that debtor’s actions were willful and malicious. This theory is not supported by a review of the record. Actually, the original petition in the state court action alleged that the incident was “caused by the conduct and negligent actions” of Delaney. Exh. J-l, ¶ 8 (emphasis supplied). Delaney was alleged to be responsible for the injuries “without regard to fault or, in the alternative, is guilty of actionable conduct and negligence.... ” Id. at ¶ 14. The jury was asked to return a verdict concerning Delaney’s “fault in causing the injuries to the plaintiff, which fault was a legal cause of accident.” Exh. J-5. This Court does not read this instruction as requiring an ultimate conclusion that the incident was solely an accident. The jury was instructed on “[t]he principle of law upon which the plaintiff seeks recovery is Article 2315 of our Civil Code. That Article provides that every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it.” Exh. P-18. Thus, there is no showing that there was any finding in the state court founded solely on negligence. While the policy exclusions of Mr. Delaney’s homeowner’s insurance contract were initially raised in the state court actions,4 the defense was subsequently withdrawn by an amended answer. Exh. D-20, p. 3.
Counsel for debtor cites no ease law in support of the various estoppel theories. In Matter of Dennis, 25 F.3d 274, 278 (5th Cir.1994), commenting on collateral estoppel, the Fifth Circuit noted the limited circumstances in which bankruptcy courts can apply such preclusive doctrines in the context of dischargeability actions. It observed:
“Hence, in only limited circumstances may bankruptcy courts defer to the doctrine of collateral estoppel and thereby ignore Congress’ mandate to provide plenary review of dischargeability issues. Collateral estoppel applies in bankruptcy courts only if, inter alia, the first court has made specific, subordinate, factual findings on the identical dischargeability issue in question — that is, an issue which encompasses the same prima facie elements as the bankruptcy issue — and the facts supporting the court’s findings are discernible from that court’s record. In re Davis, 3 F.3d 113, 115 (5th Cir.1993); In re Shuler, 722 F.2d [1253] at 1256. See In re Comer, 723 F.2d 737 (9th Cir.1984) (ruling that bankruptcy courts should not rely solely on state court judgments when determining the true nature of a debt for dischargeability purposes if so doing would prevent the bankruptcy courts from exercising their exclusive jurisdiction to determine whether the debt is dischargeable); see also Browning v. Navarro, 887 F.2d 553, 561 (5th Cir.1989) (providing that although the doctrine of res judicata is generally applicable to bankruptcy courts, the contours of the doctrine are ‘different for bankruptcy courts ... because tasks which have been *84delegated to [bankruptcy courts] by Congress may not be interfered with by the decisions of other courts.... [Bankruptcy courts have a job to do and sometimes they must ignore res judicata in order to carry out Congress’ mandate.’]).”
In the final analysis, only the reference to the term “accidentally” in the Third Circuit's opinion is supportive of the defendant’s argument. But reliance on that term alone (taken as it is out of the context of its other findings, supra), is misplaced.
CONCLUSION
For the reasons previously set forth, there will be judgment in favor of the plaintiff and against the defendant decreeing the judgment in Civil Suit # 157,789 in the Ninth Judicial District Court in and for the Parish of Rapides, non-disehargeable. The debtor’s oral Motion for Involuntary Dismissal of the ■plaintiff’s case under F.R.C.P. 52(C), made applicable to bankruptcy adversary proceedings under Federal' Rule of Bankruptcy Procedure 7052, is denied. A separate, conforming order will enter.
ORDER
Pursuant to reasons previously set forth,
IT IS HEREBY ORDERED that there is judgment in favor of the plaintiff and against the defendant decreeing the judgment in Civil Suit # 157,789 in the Ninth Judicial District Court in and for the Parish of Rapides, non-dischargeable.
IT IS HEREBY FURTHER ORDERED that the debtor’s oral Motion for Involuntary Dismissal of the plaintiffs ease under F.R.C.P. 52(C), made applicable to bankruptcy adversary proceedings under Federal Rule of Bankruptcy Procedure 7052, is denied.
. This Chapter 7 bankruptcy case was filed on October 9, 1992. On November 23, 1992, this Court entered an order in the case granting relief from the automatic stay to allow the plaintiff to proceed with the appeal then pending before the Third Circuit Court of Appeals. The order reserved all rights relating to the enforcement of the judgment and the issues of dischargeability to this Court.
. Section 17(a)(8), as amended, formerly 11 U.S.C. § 35(a)(8).
. The debtor objected to portions of the testimony found in Exh. J-12, that of Officer William Myers, as not relevant and prejudicial. This Court overruled that objection.
. Policy exclusions listed in the homeowner’s insurance contract included “Bodily injury or property damage which is either expected or intended by an insured; or to any person or property which is the result of willful and malicious acts of an insured.” Exh. J-2. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492234/ | ORDER
MARGARET H. MURPHY, Bankruptcy Judge.
This adversary proceeding is before the court on Trustee’s motion for summary judgment. Trustee proposes in the motion for summary judgment a distribution, based upon the priority of the relevant liens of the claimants, of certain encumbered funds in Trustee’s possession as a result of liquidation of Debtor’s estate. The issue presents a conflict of hen priority law between Georgia state law and federal law, as a sizable IRS tax hen falls, chronologically, in the middle of four state hens which state law accords equal priority.
The following facts appear to be undisputed:
1. Trustee holds a fund in the amount of $675,-175.22 (the “Fund”), which represents the net proceeds from the sale of property of the Debt- or to Pro-Quip Corporation.
2. The Fund is subject to numerous liens.1 The total of the liens asserted against the Fund *131exceeds the amount of the Fund. The hens relevant to Trustee’s motion are:
a. Export-Import Bank of the U.S. (“Eximbank”), pursuant to a UCC-1 financing statement filed in Cherokee County Superior Court January 31, 1989: $ 96,603.57
b. State of Georgia Department of Labor (“Georgia Labor”), pursuant to writs of Fieri Fa-cias filed in Cherokee County Superior Court January 4, 1991 and February 26, 1991: $ 17,759.11
c. Blaw Knox Corporation (“Blaw Knox”), pursuant to a writ of Fieri Facias filed in Cherokee County Superior Court April 19, 1991, on a judgment obtained April 16, 1991: $ 89,408.08
(plus postpetition interest)
d. Ingersoll Rand Company $ 94,440.88 (“Ingersoll”) pursuant to a writ of Fieri Facias filed in the Cherokee County Superi- or Court June 7, 1991, on a May 9, 1991 judgment obtained from Fulton County Superior Court:
e. Radnor Alloys, Inc., (“Rad- $115,607.84 nor”), pursuant to a writ of Fieri Facias filed in Cherokee County Superior Court June 7, 1991, on a judgment obtained May 28, 1991:
f. Manior Electralloys Corpora- $ 82,323.57 tion (“Manior”) pursuant to a writ of Fieri Facias filed in Cherokee County Superior Court June 11, 1991 on a judgment obtained from the Lorrain County, Ohio Court of Common Pleas, domesticated in Georgia in Cherokee County Superior Court June 11, 1991:2
(plus postpetition interest)
g. The United States of America $800,000 (“IRS”), pursuant to a Notice of tax lien filed in Cherokee County Superior Court June 21, 1991: approximately
h. Electralloy Corporation $210,993.00 (“Electralloy”), pursuant to a writ of Fieri Facias filed in Cherokee County Superior Court July 29, 1991, on a judgment obtained July 9, 1991:
i. Fisher Controls Internation- $461,166.76 al, Inc. and Fisher Controls Company of Canada (collectively “Fisher”), pursuant to a writ of Fieri Facias filed in Cherokee County Superior Court July 30, 1991, on a judgment obtained July 30, 1991:
39,957.19 Smither Equipment, Inc. (“Smither”), pursuant to a writ of Fieri Facias filed in Fulton County Superior Court Sept. 13, 1991, on a judgment obtained from the State Court of Fulton County 3 8/30/91:
(plus prepetition post-judgment interest)
Trustee suggests that the administrative expenses to be paid from the Fund should be allocated pro rata among the secured creditors receiving distributions from the fund.
The priority of Eximbank, Georgia Labor, and Blaw. Knox appears to be undisputed. The dispute arises with respect to the remaining claims, i.e. those of Ingersoll, Man-ior, Radnor, IRS,. Electralloy, Fisher and Smither. All of those claimants except IRS are judgment lien creditors.
DISCUSSION
All the claimants and Trustee clearly and cogently presented their respective positions in this contest of lien priorities for purposes of payment. Rather than recount the respective positions of each creditor, the dispute will be framed, initially, by a description of the positions maintained by the Trustee, which includes the positions of Trustee, In-gersoll, Manior, Radnor, and IRS, and by Fisher, which includes the positions of Fisher and Electralloy.
Trustee proposes that the priority of the above-described liens should be based upon the dates the liens were recorded. If Trustee’s position is accepted, the Fund will be depleted by the IRS claim, leaving nothing for Fisher, Electralloy and Smither, as each of those claims were recorded after the IRS claim was recorded. Fisher asserts that application of Georgia law would require that all of the judgment liens for which the judgments were obtained at the same term of court should be considered of equal date, and therefore, of equal priority. Fisher, however, further proposes that, in order to accord effect to both federal and state law, those claimants whose liens were recorded before the IRS tax lien will be deemed to have *132captured a fund in which the later claimants will share pro rata. Although the facts which have emerged during the course of the proceedings on Trustee’s motion for summary judgment will require some refinement of the result proposed by Fisher, Fisher’s position has merit.
Pursuant to 11 U.S.C. § 724(b), only lien-holders whose liens are senior to a federal tax lien may obtain a distribution of property of the estate ahead of the IRS. Additionally, federal tax law provides that when a notice of tax lien has been duly recorded, the IRS lien takes priority over all other liens (with certain exceptions not applicable to the facts in this proceeding). 26 U.S.C. § 6323. Internal Revenue Regulations further provide that a judgment lien will take priority over a tax lien only if (a) it has been previously determined in amount, and (b) appropriately recorded or docketed, “[i]f recording or docketing is necessary under local law before a judgment becomes effective against third parties.” Internal Revenue Regulation (26 C.F.R.) § 301.6323(h)-l(g). Trustee thus advocates determination of the seniority of the various judgment liens based upon the date those liens were recorded.
Under Georgia law, no judgment lien is effective against third parties until the judgment is entered on the General Execution Docket (GED) for the Superior Court of the county in which the judgment debtor is a resident. O.C.G.A. § 9-12-81. When so recorded, however, for priority purposes, the judgment lien relates back to the date of rendition of the judgment and is considered of equal date (and, therefore, equal priority) with other perfected liens arising from judgments rendered at the same term of court. O.C.G.A. § 9-12-87; National Bank of Georgia v. Morris-Weathers Co., 248 Ga. 798, 286 S.E.2d 17 (1982).4 Pro rata distribution from property subject to more than one judgment lien is appropriate where the aggregate amount of the liens exceeds the value of the property. Wellington v. Lenkerd Co., 157 Ga.App. 755, 278 S.E.2d 458 (1981).
The relevant term of court in Cherokee County (the Blue Ridge Circuit) commenced the second Monday in May, May 13, 1991, and ended August 31, 1991. The relevant terms of court in Fulton County (the Atlanta Circuit) commenced the first Monday in’ May, May 6, 1991, and ended June 30, 1991 (Ingersoll), and began the first Monday in July, July 1, 1991, and ended August 31, 1991 (Smither). Therefore, it appears that the judgments of Manior, Radnor, Electralloy, and Fisher were all rendered during the same term of Cherokee County Superior Court and, thus, are of equal date and priority with the Radnor judgment, rendered May 28, 1991, which was the earliest judgment obtained in that term of court. As the Ingersoll judgment was rendered during a different, earlier term of court, it stands alone and prior to the later Cherokee County judgments. Eads v. Southern Surety Co., 178 Ga. 348, 173 S.E. 163 (1934). As the Smither judgment was rendered during a different, later term of court, it is subordinate to liens on judgments obtained during an earlier term of court.5 Id. [See chart at Figure 1].
*133A complication arises, however, because the IRS tax hen is interposed between the judgments of Manior and Radnor, and the judgments of Eleetralloy and Fisher. Without dispute, the hens of Manior and Radnor are senior to the IRS tax hen. Also, without dispute, the IRS hen is senior to the hens of Electrahoy and Fisher, as those hens were neither determined as to amount nor recorded prior to the recordation of the Notice of tax hen. The refined issue, therefore, is whether this court can give effect to both the federal law and the state law apphcable to determination of priority of hens.
A firmly held principle of bankruptcy law is that, except in those areas specifically addressed by Congress in a federal statute, property rights in a debtor’s assets are determined in accordance with state law. Butner v. U.S., 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).
Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving “a windfall merely by reason of the happenstance of bankruptcy.” (Citations omitted.) ... [T]he federal bankruptcy court should take whatever steps are necessary to ensure that the [secured creditor] is afforded in federal bankruptcy court the same protection he would have under state law if no bankruptcy had ensued.
Id. at 55, 56, 99 S.Ct. at 918, 919. Therefore, to the extent that state law may be given effect in defining a claimant’s interests in property of a debtor, the court has a duty to apply state law to assure that the claimant is not deprived of those state law property rights.
Essentially this court has three choices as to determining the priority of the hens in this case: First, apply only federal law and, therefore, look only to the dates the hens were recorded, with the result that Fisher and Electrahoy get nothing and lose the benefit of their rights under state law to equal priority with Radnor and Manior. Second, apply only state law and, therefore, move Fisher and Electrahoy ahead of IRS, with the result that Radnor, Manior, Electrahoy and Fisher share pro rata in the balance of the Fund remaining after payment in full of the first four claimants and IRS loses its federal law priority and receives nothing. Third, apply federal law to determine that the IRS claim has priority over the Electral-loy and Fisher claims, with the result that Electrahoy and Fisher receive none of the funds to which the IRS is entitled; then apply state law by creating a fund equal to the amount of the claim of Radnor plus the claim of Manior and then distributing the fund pro rata among Radnor, Manior, Elec-trahoy and Fisher.
This court is bound by the Supremacy Clause6 to apply federal law to determine the priority of the claim of the IRS. U.S. v. Rodgers, 461 U.S. 677, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1982). Therefore, only the third choice fulfills the bankruptcy court’s duty to employ the federal law apphcable to the federal tax claim and also assure that the state court judgment lien claimants are not deprived of their state law property rights. The application of state law is especiahy appropriate in the instant case as the state law, O.C.G.A. § 9-12-87, is intended to achieve a purpose also intended by the Bankruptcy Code: to achieve equality of distribution among creditors by avoiding a “race to the courthouse.” See, National Bank of Georgia v. Morris-Weathers Co., 248 Ga. 798, 286 5.E.2d 17 (1982). Creditors who obtain judgments in the same term of court in the same county have equal lien priority on their writs of Fieri Facias.
*134Trustee also proposed in his motion for summary judgment that the administrative expenses allocated to and payable from the Fund should be allocated pro rata among the claimants who receive payment from the Fund. The responses of Blaw Knox and Ingersoll oppose allocation of administrative expenses among the claimants to the Fund.
Section 506(c) provides:
The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
Section 724(b) provides that property subject to tax liens shall be distributed first to senior lienholders and next to priority claimants asserting claims under § 507(a)(l)-(7). Administrative expenses are accorded priority under § 507(a)(1). The plain language of both § 506 and § 724 appears to contemplate that administrative expenses are a separate claim against the relevant property. Under § 506, the trustee’s costs and expenses are deducted ahead of payment of the secured creditor’s claim. In re AFCO Enterprises, Inc., 35 B.R. 512 (Bankr.D.Utah 1983). Under § 724, administrative expenses are deducted after payment of secured creditors’ claims but before payment of a tax lien.
Under neither § 506 nor § 724 is a pro rata assessment against each of the claimants an option. In the instant case, this court cannot approve such a procedure without consent of all the claimants. As objections to the Trustee’s proposal have been raised, it cannot be approved. Accordingly, it is hereby
ORDERED that Trustee’s motion for summary judgment is granted in part and denied in part: With respect to the Fund identified above, Trustee may distribute the Fund as follow:
(a) Payment in full to Eximbank;
(b) Payment in full to Georgia Labor;
(c) Payment in full to Blaw Knox;
(d) Payment in full to Ingersoll;
(e) Creation of a fund equal to the amount of the allowed secured claim of Radnor plus the amount of the allowed secured claim of Manior. From that fund shall be paid pro rata, the claims of Radnor, Manior, Electralloy and Fisher;
(f) Payment of priority claimants as provided in 11 U.S.C. § 724(b)(2); and
(g) The remaining balance of the Fund to the IRS.
As the validity, priority and extent of liens has thus been finally determined pursuant to the above-captioned complaint filed pursuant to Rule 7001, it is further
ORDERED that issues regarding allowance of claims, including administrative expenses and other priority claims, will be determined on appropriate motion or other pleading filed in the main case.
IT IS SO ORDERED.
Figure 1
Creditor Mode of Perfection ;i!Dollar Amount (000’s) Dates of Fi,Fa » Judgment Relevant County and 1st Day of Court Term
Eximbank U.C.C. Cherokee $ 96 n/a (1989) n/a n/a
(1/04/91 & 2/26/91) (prior) Ga. Labor FiFa Cherokee
4/19/91 * 4/16/91 (prior) Blaw Knox FiFa Cherokee OO CD
(judgment Fulton) Fulton 6/07/91 t 5/09/91 5/6/91 Ingersoll FiFa Cherokee CD
*135Creditor Mode of Perfection *Dollar Amount (OOP’s) Dates of Fi.Fa | Judgment Relevant County and 1st Day of Court Term
Radnor FiFa Cherokee $116 6/07/91 ‡ 5/28/91 Cherokee 5/13/91
Manior Ohio (> Cherokee $ 82 6/11/91 Cherokee 5/13/91
IRS Tax Lien-Cherokee 6/21/91 n/a
Electralloy FiFa Cherokee $211 Cherokee 7/29/91 » 7/9/91 5/13/91
Fisher FiFa Cherokee $461 Cherokee 9/30/91 * 7/30/91 5/13/91
Smither FiFa Fulton Fulton 40 9/13/91 * 8/30/91 7/1/91
. In the original complaint, Trustee named 70 lien claimants as defendants. As a result of either consent order or default judgment, the majority of the original defendants have no lien or interest of any kind in the Fund.
. This representation of the facts as to Manior's judgment lien differs slightly from Trustee's statement of undisputed facts, but is based upon the documents in Manior's answer.
. Only Smither's judgment was recorded in Fulton County rather than Cherokee County. Smither’s judgment is perfected pursuant to O.C.G.A. 9-12-81, however, because Debtor was a resident of Fulton County as well as Cherokee County. No party to this proceeding has argued that Smither’s claim lacks validity or priority because it was recorded in Fulton County instead of Cherokee County.
. The case specifically rejected the holding in the case of In re Tinsley, 421 F.Supp. 1007 (M.D.Ga.1976), which held that the single date and sole criterion for measuring priorities between competing judgment liens and for determining the effect of a judgment on the title to real property was the date of recordation of the judgment.
. The overlapping dates of the relevant terms of court set forth above illustrate an anachronism in the use of terms of court as a vehicle for determining priority of judgment liens. Smith-er’s lien relates back to the August 30, 1991 judgment date. Because the term of court to which it dates for priority purposes began July 1, however, it becomes a "different, later” term of court. In fact, however, Cherokee's similar term of court, which began May 13 and ended August 31 in 1991, encompasses two terms of Fulton Court, the earlier of which began May 6 and the later of which ended August 31. Thus a lien obtained through a judgment rendered August 31 in Cherokee County would be prior to a lien obtained by judgment rendered August 30 in Fulton, because Fulton's relevant term of court did not begin until July 1.
Recent technological advances in transportation and telecommunication, as well as the proliferation of multi-county, multi-state and multinational companies, render it increasingly likely that competing judgment liens will be obtained from different circuits with different terms of court. Because of the non-standardization of terms of various courts set forth in the Georgia Code, Ingersoll wins full payment in this lien contest because it was able to obtain its Fulton *133judgment before the Cherokee County Superior Court's term even began. Similarly, Smither loses this lien contest even though it obtained its judgment before the end of the Cherokee term of court, because it filed in Fulton County, where new terms of court commence eveiy two months.
. U.S. Const., Art. VI, cl. 2.
Amounts used are rounded in thousands, based upon the amounts set forth in Trustee’s brief. This chart does not constitute a conclusion by this court that a claim is allowed in a particular amount. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492235/ | MEMORANDUM DECISION
WILLIAM C. HILLMAN, Bankruptcy Judge.
On September 26,1995, B. Ann Whittaker, James F. Whittaker, E. Douglas Whittaker, Catherine Cryan and Maxine Seavey (the “Movants”), filed a Motion Pursuant to Fed. R.Bankr.P. 9024 Seeking Nunc Pro Tunc Order Extending Deadline for Filing Complaint(s) Objecting to Discharge Under 11 U.S.C. Sections 523 and 727 (the “Motion”). I held a hearing on the Motion and then took the matter under advisement. For the reasons set forth below, I deny the Motion.
The debtors, Robert G. Leedberg and Ma-rylyn C. Leedberg (the “Debtors”), filed for relief under Chapter 7 on June 1, 1995.1 On June 15, 1995, the Court mailed to the Debtors and all creditors a notice which indicated that the first meeting of creditors would take place on July 6,1995 and the last day to file a complaint objecting to discharge/discharge-ability of debt was September 5,1995.
The Movants believe they have grounds to bring a complaint objecting to discharge or dischargeability of debt against Marylyn Leedberg based upon her alleged malfeasance while acting as an executrix of an estate. The Movants, with the exception of one, attended the meeting of creditors. At the meeting, many of the Movants were represented by counsel.
Despite the deadlines set forth in the Court’s notice, the Movants failed to file a timely complaint objecting to discharge/dis-chargeability. They explain that they failed to comply with the deadlines on the grounds that the Court’s notice and the role of the Trustee were confusing and their attorneys were unfamiliar with bankruptcy. By the Motion, the Movants ask that I grant them an extension nunc pro tunc to file a discharge/dischargeability complaint pursuant to 11 U.S.C. § 105, Fed.R.Civ.P. 60 and Fed. R.Bankr.P. 9024.
The final sentences of Fed.R.Bankr.P. 4007(c) provide that “[o]n 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.” Fed. R.Bankr.P. 9006(b)(3) states that “[t]he court may enlarge the time for taking action under Rules ... 4007(c) ... only to the extent and under the conditions stated in those rules.” *137Fed.R.Bankr.P. 9024 makes applicable Fed. R.Civ.P. 60(b) to cases under the Bankruptcy Code with three exceptions not applicable here.
The Movants argue that Rule 9024 is applicable to this case because it states that Fed. R.Civ.P. 60 applies to all cases under the Code with three inapplicable exceptions. It appears at first blush that Movants are correct, but the Supreme Court has ruled otherwise.
In Pioneer Inv. Services v. Brunswick Associates, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), the Supreme Court stated as follows:
Subsections (b)(2) and (b)(3) of Rule 9006 enumerate those time requirements excluded from the operation of the “excusable neglect” standard. One of the time requirements listed as excepted in Rule 9006(b)(3) is that governing the filing of proofs of claim in Chapter 7 cases. Such filings are governed exclusively by Rule 3002(c).
507 U.S. at 389,113 S.Ct. at 1495.
Because of the dictates of Pioneer, I conclude that the deadline for a dischargeability/discharge action can only be extended pursuant to Fed.R.Bankr.P. 4007(c). As 4007(c) states that a extension of the deadline is only considered if the request is received before the deadline expires, a motion seeking relief nunc pro tunc must be denied.
These conclusions are amply supported by the case law of this circuit. See e.g. Dole v. Grant (In re Summit Corp.), 109 B.R. 534, 537 (D.Mass.1990) (“rule 4007(c) is strictly interpreted and applied.”); Hecht v. Hatch (In re Hatch), 175 B.R. 429 (Bankr.D.Mass.1994) (excusable neglect inapplicable and 4007(c) strictly applied); and In re Gray, 156 B.R. 707 (Bankr.D.Me.1993) (extension motion must be filed before deadline expires, 9006(b)(3) does not allow for excusable neglect).
For the reasons set forth above, I will enter a separate order denying the Motion.
. The Court accepts the facts in the Motion as true as the Debtor did not respond to the Motion or appear in Court for the hearing on the Motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492236/ | ORDER OVERRULING OBJECTION TO CONFIRMATION
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the objection of the Client’s Security Fund of Ohio (“CSFO”) to confirmation of the second amended chapter 13 plan proposed by James F. Anadell.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(L).
This case began on September 28, 1994 as a voluntary filing under chapter 7 of the Bankruptcy Code. The schedules and statements of affairs filed with that petition show all assets are exempt from the claims of unsecured creditors under Ohio law. Although there is no secured debt, approximately $87,000 is scheduled as unsecured obligations. Of that amount $13,850.99 is an obligation to a former spouse who was a cosignatory on certain debts and $71,415.94 is the debt to CSFO arising from a judgment against the debtor in the Common Pleas Court of Pickaway County. All other debts are for relatively small amounts. The chapter 7 trustee filed a report of no distribution immediately after the meeting of creditors on November 7,1994.
On December 5,1994 CSFO filed an adversary proceeding seeking to have its obligation declared nondisehargeable. The debt- or then requested a delay in the issuance of his discharge under chapter 7 and on March 1, 1995, he obtained a conversion of his case to chapter 13.
The debtor formerly was a practicing attorney. His debt to CSFO arises from the subrogation of certain claims of former clients of his law practice. The debtor had a substance abuse problem and used, on his own behalf, certain funds of his clients which had been placed in an escrow fund in connection with a real estate sale. The clients were repaid by CSFO. The debtor lost his license to practice law and spent a number of years in prison, apparently primarily for drug-related offenses.
The debtor now works as a legal assistant in the office of the Ohio Public Defender. He takes home $1,402.95 each month. His chapter 7 filings showed monthly expenditures of $342 for rent, $100 for utilities and telephone, $325 for food, $50 for clothing, $30 for laundry and dry cleaning, $50 for medical and dental expenses, $200 for transportation, $150 for recreation and $55.35 for automobile insurance. Those projected expenses to-talled $1,302.35.
After converting his case to chapter 13, the debtor initially proposed to pay $100 to the chapter 13 trustee each month for payment of $200 to his attorney, payment in full of a tax obligation, and a dividend of four percent to all allowed unsecured claimants over a period of 40 months. CSFO and the chapter 13 trustee objected to confirmation of that plan. On May 9, 1995, after the creditors’ meeting in the chapter 13 ease, but before the hearing on confirmation, the debtor amended his plan to increase his payments to $150 each month for a six percent dividend over a period of 38 months. The additional $50 each month to be contributed to the plan came from deletion of the $150 budget item for recreation. At the same time the telephone expense increased by $10, food increased by $25 and transportation increased by $65.
On June 6, 1995 the Court held a hearing on confirmation. The Trustee objected to the plan on the ground that all disposable income was not being devoted to the plan and that he had no explanation why various budget expenses had been increased. In that context the debtor testified that his recent telephone bill history required adjustment *311upward, he was incurring repair costs to his 12-year-old car, he was having to pay $85 each month to park at his place of employment, and lunches at work cost approximately $60 each month.
CSFO then presented its objection to confirmation of the debtor’s first amended plan. The Court sustained that objection, but gave the debtor .30 days to further amend his plan.
On June 12, 1995 the debtor filed his second amended plan. That plan is identical to the first amended plan except that the $150 monthly payments are proposed to extend for 60 months. Such payments are to return a dividend of at least nine percent to unsecured claimants. The claims bar date has passed, and the only claims of record are CSFO’s for $72,302.57 and a tax claim of $874.11.
CSFO again objected to the second amended plan, and the Court held a second confirmation hearing on August 8, 1995. The chapter 13 trustee no longer opposes confirmation, and confirmation is now before the Court only on CSFO’s objection.
CSFO alleges that the debtor’s plan cannot satisfy the requirement of 11 U.S.C. § 1325(a)(3) that a plan be proposed in good faith and not by any means forbidden by law. As support, CSFO points to the debtor’s failure to make any voluntary effort to repay CSFO after his release from prison, his filing of a chapter 7 case when CSFO attempted to garnish his wages, his initial filing under chapter 7 in an attempt to discharge this obligation, and his minimal attempt at repayment under his original plan. CSFO concedes that the second amended plan probably represents the debtor’s best efforts under his current circumstances, but asserts that such efforts still produce only a de minimis return to CSFO after all attempts to pay less failed. CSFO alleges that such behavior does not establish good faith under the statute.
The debtor argues that he cannot pay more than his current plan requires, that he has paid a considerable price for his past mistakes and that he wants to rehabilitate himself by continuing to work in his new job and by paying CSFO as. much as he can and still support himself. He asserts that the Bankruptcy Code does not require more than that and his attorney should not be faulted for advising him to file initially under chapter 7.
The issue of good faith in a chapter 13 plan has been the subject of many opinions at all court levels since the passage of the Bankruptcy Reform Act of 1978. The most recent pronouncement of this circuit, in the context of a motion to convert from chapter 7 to chapter 13, is Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir.1990). Caldwell holds that the burden of showing good faith is on the debtor and that best efforts do not alone satisfy the requirement. The Caldwell court reaffirms its prior position in In re Okoreeh-Baah, 836 F.2d 1030 (6th Cir.1988). Okoreeh-Baah held that any analysis of a debtor’s good faith requires examination of all the circumstances surrounding a case and includes review of the following criteria:
(1) the amount of the proposed payments and the amount of the debtor’s surplus;
(2) the debtor’s employment history, ability to earn and likelihood of future increase in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan’s statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought rélief under the Bankruptcy Reform Act;
(10) the motivation and sincerity of the debtor in seeking Chapter 13 relief;
*312(11) the burden which the plan’s administration would place upon the trustee; and
(12) whether the debtor is attempting to abuse the spirit of the Bankruptcy Code.
836 F.2d 1030 at 1032.
In examining the Okoreeh-Baah factors under the facts of this case, this court finds that the debtor’s second amended plan satisfactorily meets nine of the listed criteria. Specifically, the debtor is now proposing to pay as much as he probably can pay, is in employment where frequent or significant raises do not appear likely, has proposed a plan of maximum duration, and appears to be accurate in his statements. He has not preferred certain creditors, is not modifying any secured claims, has not presented any special financial circumstances, and has not had any other bankruptcy cases within the last six years. Finally, he is not proposing a plan which would present any administrative burden for the trustee.
Accordingly, there remain only three criteria for further examination. More specifically the issue before the Court is whether the debtor is properly motivated and sincere in seeking chapter 13 relief and whether he is attempting to abuse the spirit of the Bankruptcy Code. The primary debt sought to be discharged most likely would not be dis-chargeable if this case were still under chapter 7.
The difficulty of using the Okoreeh-Baah criteria can be seen in this case. Proper motivation, sincerity, and nonabuse of the chapter 13 remedy must mean something other than a satisfactory analysis of all factors except the type of debt sought to be discharged. Is motivation to be measured by the final plan offered? Is it an abuse of the spirit of chapter 13 only to pay approximately 10% of an obligation conceded not to be dischargeable under chapter 7? How is the sincerity of a debtor measured? Does the law require the Court to assess not only whether the debtor appears to intend to pay what he proposes to pay, but whether he really wants to reimburse CSFO for the monies it paid out on his behalf? Such traits are difficult for a court to determine after such limited observation of a party.
After analyzing the criteria which govern good faith in this circuit and comparing this debtor’s demeanor, history and current behavior to that ascribed to the debtor in Caldwell, the Court finds that this debtor has proposed his chapter 13 plan in good faith. Most of his payments will go for an obligation not dischargeable under chapter 7 and a debt incurred by the misappropriation of another’s property. Such debt may be dis-chargeable under the chapter 13 statute. However, the debtor has sought chapter 13 relief in an effort to pay what he must. He appears to intend to make those payments and to be putting his life back together in as responsible a manner as possible. He has served his time in prison and has lost his professional license. Perhaps he is the sort of individual for whom chapter 13 relief is intended. This Court cannot find that confirming his plan, as amended, would be an abuse of the Bankruptcy Code.
Based upon the foregoing, the Court hereby OVERRULES the objection to confirmation of CSFO. The debtor’s second amended plan satisfies all requirements of 11 U.S.C. § 1325(a) and (b) and will be confirmed.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492237/ | MEMORANDUM OPINION AND ORDER
BARRY S. SCHERMER, Bankruptcy Judge.
INTRODUCTION
The issue presented in this objection to confirmation is the time in which a Chapter 13 debtor has to cure the default on a note which matured pre-petition under § 1332(c)(1).
JURISDICTION
This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157, 1334 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a “core proceeding” which the Court may hear and enter appropriate judgements pursuant to 28 U.S.C. § 157(b)(2)(L).
STATEMENT OF FACTS
South Side National Bank (the “Bank”) holds a note (the “First Note”) from Beverly A. Hamen (the “Debtor”) secured by a first deed of trust on Debtor’s principal residence. This $18,310.34 note matured on February 23, 1995. On October 16, 1990, Debtor executed a second promissory note (the “Second Note”) with Bank in the amount of $24,000 secured by a second deed of trust on the same property.
Debtor failed to satisfy her obligation under the First Note. Due to this default, the Bank notified Debtor that it would be exer-rising its right to foreclose on the property and scheduled foreclosure for September 27, 1995. Debtor’s Chapter 13 filing on September 26, 1995 prohibited Bank from foreclosing. See 11 U.S.C. § 362(a)(3), (4), and (5) 1.
Debtor’s Chapter 13 plan proposes to pay the full loan balance with 12.50% interest through the plan over the first forty five (45) months. See Debtor’s Chapter 13 Plan at para.ll.b. Bank filed an Emergency Motion for Relief from the Automatic Stay or in the Alternative for Dismissal (the “Motion”). In its Motion, Bank claims $18,310.34 is owed on the First Note. Bank also claims that principal of $20,781.69 is due on the Second Note. For each note, Bank claims interest, late charges and attorneys fees. See § 506(b).
On November 22, 1995, this Court held a confirmation hearing on Debtor’s proposed plan. The Bank objected to plan confirmation citing the same reasons stated in its Motion. At the confirmation hearing, the Bank’s Motion and Objection to Confirmation were consolidated and treated as one. This decision resolves both pleadings.
DISCUSSION
The issue presented in this case is one of first impression. The parties have submitted no case authority in support of their positions, and the Court has found no guidance on the issue of the length of time within which a debtor may cure the arrearage on a note which matured by its terms before the filing of the Chapter 13 ease.
At the confirmation hearing, Debtor argued that § 1322(e)(1) allowed curing of the balance of the First Note over the life of the plan. Bank agreed that § 1322(c)(1) permitted curing of the matured First Note, but it argued that the curing must be made within a “reasonable time” as provided in § 1322(b)(5) and not over the plan as permitted under § 1322(b)(3). In interpreting “reasonable time” in § 1322(b)(5), the Courts of this District have consistently held that, absent evidence to the contrary or written consent of the mortgagee, thirty (30) equal monthly payments over the first thirty (30) *360months of the plan is a reasonable time in which to cure home mortgage arrearage. The Bank argues that allowing Debtor to -cure a note, which has by its own terms matured, over a period longer than thirty months would unduly benefit the Debtor over debtors who must cure a default, a sum which is usually a small fraction of an unma-tured note.
1. The Applicability Section 1322(c)(1)
Through Section 301 of the Bankruptcy Reform Act of 1994, Congress reaffirmed its support of allowing Chapter 13 debtors to keep their homes through extended payments. Section 1322(c)(1) provides:
(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law — (1) a default with respect to, or that gives rise to, a lien on the debtor’s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law2.
As the parties herein agree, Debtor has under § 1822(e)(1) the right to cure the default on the First Note which expires by its own terms prior to the filing of the bankruptcy petition. See also In re Jaar, 186 B.R. 148, 150 (Bankr.M.D.Fla.1995) (applying literal language of § 1322(c)(1)); In re Sims, 185 B.R. 853 866-7 (Bankr.N.D.Ala.1995). Prior to the enactment of § 1322(c), a debtor seeking to cure the default on a note secured by a principal residence was forced to cure that default under § 1322(b)(5) because it was the sole exception to § 1322(b)(2)’s prohibition against modifying the rights of claims “secured only by a security interest in real property that is the debtor’s principal residence.” With the enactment of § 1322(e)(1), Congress for the first time permitted mortgagors of a “principal residence” secured debt an alternative to the § 1322(b)(2) modification prohibition. It permitted the § 1322(b)(3) cure provisions. Most importantly, Congress gave the debtor a choice when it codified the language “may be cured under paragraph (3) or (5).” The only issue remaining is the length of time in which a debtor should be allowed to cure the default.
II. The Applicability of § 1322(b)(3) or (b)(5)
The Court concludes that Debtor’s default on her note which matured pre-petition by its terms may be cured under § 1322(b)(3) which allows curing over the forty five (45) month period as provided in the Debtor’s plan.
Section 1322(e)(1), namely “a default may be cured under paragraph (3) or (5)”, makes it apparent that the debtor may cure under either paragraph. Section 1322(b)(3) allows the debtor to cure the debt without limitation to the “reasonable time” restriction of § 1322(b)(5). This result is mandated by the plain meaning of the statute, and it has support among commentators. See King, Collier on Bankruptcy, para. 1322.14A (15th ed. 1995) (“The statutory language [of § 1322(e)(1)] also makes clear that debtors may cure home mortgage defaults under section 1322(b)(3), which may be used if the mortgage does not extend beyond the date the final payment under the plan is due, as required by section 1322(b)(5).”)
■ In the typical ease with a long-term mortgage (commonly 15 to 30 years), a debtor misses a number of payments, the bank accelerates the note, the debtor then files a Chapter 13 petition and § 1322(b)(5) allows the debtor to both cure the default and maintain payments on the note as it was originally *361written. 'In these eases, § 1322(b)(5) does not allow the debtor to extend the term of the original note; the date of maturity remains constant.
The Court concedes that the application of the statute may produce a seemingly inequitable result when compared with this Court’s thirty month “reasonable time” yardstick. What troubles the Court is that § 1322(c)(1) permits a debtor who enters into a short-term (e.g. three to five years) note secured by a principal residence to extend that note after maturity for up to five additional years. By use of this device, the term of a note could be more than doubled.3 The Court concludes, however, that Congress considered this consequence when it wrote § 1322(c)(1), and it is the job of this Court to interpret and apply the law, not to rewrite it.
III. Other Courts View of § 1322(c)(1)
Section 1322(c)(1) has not received a great deal of judicial examination since its enactment. Two courts which have examined the provision have cited it merely for its literal proposition: that a debtor has the right to cure a default secured by a hen on the debt- or’s principal residence until the time of a foreclosure sale. See In re Sims, 185 B.R. 853 (Bankr.N.D.Ala.1995); In re Jaar, 186 B.R. 148 (Bankr.M.D.Fla.1995). Another court cited the provision as “Illustrative of Congress’s intention to provide homeowners with continuing rights to cure defaults.” In re Bellinger, 179 B.R. 220, 224 (Bankr.D.Idaho 1995).
Three other courts have examined the issue of curing the default on a note which matured pre-petition under § 1322(c). In re Escue, 184 B.R. 287 (Bankr.M.D.Tenn.1995); In re Chang, 185 B.R. 50 (Bankr.N.D.Ill.1995); In re Jones, 188 B.R. 281 (Bankr.D.Or.1995). In Escue and in Jones, the bankruptcy courts utilized § 1322(c)(2) when determining whether a debtor may cure a pre-petition matured note through the Chapter 13 plan. In each case, the court conceded that § 1322(c)(2) did not literally apply to the facts before it,4 yet each court determined the Congressional intent behind the enactment of § 1322(c)(2) and allowed the debtor to cure the default on a note which matured pre-petition.5 Likewise in Chang, the court applied § 1322(c)(2)6 and held that the debt- or can pay such a mortgage balance over the life of the plan. 185 B.R. at 53.
This Court believes it is unnecessary to refer or to apply § 1322(c)(2) when dealing with a note which matured prior to filing, such as the instant case. Section 1322(c)(2) applies to cases “in which the last payment on the original payment schedule for ... is due before the date on which the final payment under the plan is due.” Such is clearly not the case when the note matures pre-petition, and the Court therefore concludes that § 1322(c)(2) does not apply.
In accordance with the above, it is
ORDERED that Debtor’s plan be confirmed.
. The Bankruptcy Code is 11 U.S.C. §§ 101-1330. All future references are to Title 11 unless otherwise indicated.
. § 1322(c)(1) was added to overrule and to clarify the Third Circuit opinion in Matter of Roach, 824 F.2d 1370 (3d Cir.1987); See King, Collier on Bankruptcy, para. 1322.14A (15th ed. 1995). In Roach, the Third Circuit joined other circuits which held that a home mortgage default may be cured after contractual acceleration of the full mortgage debt. See e.g. In re Glenn, 760 F.2d 1428 (6th Cir.1985), cert. denied, 474 U.S. 849, 106 S.Ct. 144, 88 L.Ed.2d 119. But in Roach, the debtor not only attempted to cure the mortgage after contractual acceleration but after a foreclosure judgement. On this point, the court held that there "are no substantial federal interests that would justify ignoring property interests created by the judgement of a New Jersey court.” 824 F.2d 1370 at 1377. The Roach court held that the right to cure a home mortgage under § 1322(b)(5) expired when the mortgagee obtained a foreclosure judgement. Id. at 1377. § 1322(c)(1) overruled this second point of Roach by expressly allowing the debtor the right to cure a default "until such residence is sold at a foreclosure sale."
. Assume a case with a three year note with a balloon payment. After debtor defaults, he may cure the default on the balloon for up to five additional years by filing a sixty month Chapter 13 plan. The original three year note would then become an eight year obligation.
. See Escue, 184 B.R. 287 at 292 ("Subsection (c)(2) appears to contemplate mortgages which mature post-petition ...”); Jones, 188 B.R. at 283 (“... [A]lthough [§ 1322(c)(2)] facially does not address those circumstances [the right to cure a mortgage debt on a principal residence which came due post-petition]”)
. See Escue, 184 B.R. 287 at 292 ("... Congressional intent of [§ 1322(c)(2)] when considered in light of the other provisions of Chapter 13, and the overall objectives of bankruptcy, suggest Congress also intended for debtors to be able to cure defaults on short-term mortgages which mature or balloon prior to the petition date.”); Jones, 188 B.R. at 283 ("First, given the policy of supporting the debtor's attempts to retain his residence which pervades this new section there is no reasonable basis to assume that Congress intended that creditors whose mortgages may have matured by their own terms just prior to ... filing would not be prohibited by the filing from pursuing their non-bankruptcy rights while those creditors whose mortgages expired by their own terms just after the bankruptcy filing would be required to receive payments on the mortgage through the plan.”)
.See 185 B.R. 50 at 52, fn. 1. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492239/ | AMENDED MEMORANDUM OPINION AND ORDER
BARRY S. SCHERMER, Bankruptcy Judge.
INTRODUCTION
The issue raised in this motion for relief from the automatic stay is the reasonableness of a Chapter 13 trustee’s policy of holding proceeds of checks received from employers of debtors for ten (10) days before disbursement to creditors.
JURISDICTION
This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157, 1334 and Local Rule 29 of the United States District for the Eastern District of Missouri. This is a “core proceeding” which the Court may hear and enter appropriate judgements pursuant to 28 U.S.C. § 157(b)(2)(G).
STATEMENT OF FACTS
Marion Williams (the “Debtor”) voluntarily filed a Chapter 13 petition on May 9, 1995. On that same day, an Order to Deduct from Wages or Other Income was entered by this Court. This Order was sent to the Debtor’s employer, McDonnell Douglas Corporation.
Debtor’s Chapter 13 plan called for payments to the Trustee of $675.00 per month, and it was confirmed on July 19, 1995. A first payment of $168.75 was received from McDonnell Douglas on June 8, 1995. Subsequent payments were received through employer withholding on the following dates and in the corresponding amounts:
July 6,1995 $675.00
August 10,1995 $675.00
September 7, 1995 $675.00
October 5,1995 $675.00
November 9,1995 $675.00
December 7,1995 $675.00
Ford Motor Credit Company (“Ford”) holds a security interest in the Debtor’s automobile. On November 22, 1995, Ford filed a Motion to Lift Stay (the “Motion”) because, presumably, its collateral was inadequately protected under the plan. See 11 U.S.C. § 362(d). A hearing was held on December 13,1995, and the Motion was overruled.
Despite prevailing on the Motion, Debtor’s attorney raised an issue as to the reasonableness of the standing Chapter 13 trustee’s policy of holding proceeds of checks received by employers for ten (10) days. He stated to the Court:
The problem associated with what I’ve already gone over where people all dislike me saying it about the ... holding of the checks and the once a month distribution. [Marion Williams] worked for McDonnell-Douglas and the trustee is paying out. The plan was confirmed. It called for arrearages to be cured within thirty months. The trustee has put him on the computer to pay him in equal thirty month payments. Now, as a consequence, Ford has gotten some money but the Trustee is going back and recapturing the arrearage, (emphasis added).
Mr. Mullin then informed the Court that the Debtor was “on wage assignment” and *367that the Debtor was less than one payment behind. After the Court’s ruling denying Ford’s Motion, Mr. Mullin offered a copy of the printout from the trustee’s office for the Court to examine “at [its] leisure.”
Following Mr. Mullin’s suggestion, this Court on that same day sent a letter to John V. LaBarge, the standing Chapter 13 Trustee in this region (the “Trustee”). In that letter, the Court explained to the Trustee its ruling in this particular ease and the underlying cause of similar relief motions, namely: the holding of proceeds of employer withholding checks for ten (10) days before disbursement to ensure the cheek has been honored. The Court requested the Trustee’s response to Mr. Mullin’s objection. The Trustee responded by letter on December 19,1995 with supporting documentation.1
The Court today accepts Mr. Mullin’s invitation as an opportunity to clarify and to annunciate its position on a seemingly fundamental issue which has, curiously, caused great controversy in some circles.
DISCUSSION
I. The Williams Case
A. The Trustee’s Policies
Two policies of the Trustee are challenged here, and each must be explained. First, as previously noted, the Trustee holds funds received through employer withholding orders for ten (10) days before distributing the proceeds to creditors according to the terms of confirmed Chapter 13 plans (hereafter referred to as the “ten day policy”). Not surprisingly, the purpose of this ten day policy is to ensure the funds deposited are actually collected. Next, the Trustee’s payment policy is to disburse funds to creditors once monthly on the 25th day of each month.
The combined effect of the Trustee’s ten day policy and the monthly distribution is that all checks received on or prior to the 15th of any month are distributed in that month. Conversely, checks received from the 16th to the 24th of any month result in disbursements on the 25th day of the following month2.
B. Application of the Trustee’s Policies
In the instant case, all funds received from McDonnell Douglas were disbursed in the month they were received because, as shown by the receipt schedule above, all payments were received prior to the 15th day of the month. Thus, contrary to counsel’s suggestion, no money was held over to the following month because of the Trustee’s policies.
The deficiency in the present ease was caused by other factors, as the Trustee explains in his letter. First, the July, 1995 disbursement to Century Finance was held because Debtor’s counsel incorrectly scheduled the claim as unsecured, and the claim was filed as a secured claim. Next, the Debtor grossly underestimated the amount of the home loan arrearage claim held by the Department of Housing and Urban Development (“HUD”). The claim filed by HUD was 73% higher than the claim filed by the Debt- or. Curing this arrearage alone required monthly payments of $403.04.
Lastly and most importantly, the Debtor has never been current on his payments to the Trustee. The first payment received was for $168.75 when $675.00 was due. Although this inadequate payment may not be the fault of the Debtor, he failed to cure the deficiency of $506.25. As the trustee points out, had the Debtor made the full payment in June, 1995, Ford would have been paid, and quite possibly, the Motion would never have been filed. Notwithstanding the fact that there was absolutely no basis for Debtor’s counsel’s objection, this Court will speak to the Trustee’s policy which counsel has gone to great lengths to criticize.
*368II. Policy of the Trustee
The Trustee adopted and abides by the ten day policy for the simple reason that not all checks are honored when they are deposited. By holding disbursement for ten days, the Trustee allows the check to “clear” and makes sure the funds are available for distribution.
For some reason, this simple and prudent policy has caused great confusion3. Some have argued that the Trustee should make disbursements immediately upon depositing checks into his bank account. In effect, this belief is that the Trustee should absorb the costs of all funds which are disbursed and for which certain checks are subsequently dishonored4. Presumably, the Trustee is to absorb such imprudent disbursements either in operating expenses or personally. The Court believes these arguments are ludicrous and border on the frivolous.
The Court endorses the Trustee’s ten day policy and holds that it is both a prudent and reasonable policy. Additionally, the once monthly distribution policy of the Trustee is appropriate as no other Chapter 13 trustee in the three state United State Trustee Region 13 distributes funds more than once per month, and this Court knows of no such practice anywhere in the country.
The Trustee concedes in his letter that there may be cases in which secured creditors may not be adequately protected because of the ten day policy. But the Trustee states — and this Court absolutely concurs— that the number of wage withholding cases where a Debtor is current on plan payments and where payments are received between the 16th day and 25th day of the month are few relative to the total number of Chapter 13 cases in this district. In such case, the Trustee notes that there are two solutions which the Debtor may choose: paying ahead one monthly payment or rescinding the wage withholding and paying by money order or cashiers check. Although the former choice may not be possible for some debtors and the latter is discouraged by the trustee for reliability problems, alternatives do exist and any slight inconvenience must be borne by the debtors themselves.
In support of his policy, Trustee points to Federal Regulation CC of the Expedited Funds Availability Act, 12 U.S.C. §§ 4001-4010, which states: “all other cheek deposits will be available on the seventh business day for local checks or the eleventh business day for non-local checks after the day of [the] deposit.” Furthermore, the Trustee represents that his banker — a banker the Court knows specializes in work for Chapter 13 trustees — has stated to him that a five day holding policy would be insufficient. The accountant for the Trustee has characterized the ten day policy as “prudent behavior for a fiduciary.”
The argument has also been made that the Trustee should hold checks only from “non-reputable” employers and disburse cash after receipt of checks from large, “reputable” employers. The Court also believes this approach to be impractical. The first and most obvious problem with this proposed solution is that any determination made by the Trustee would be completely arbitrary. No single factor — number of employees, corporate net worth, longevity, etc. — ensures a single check will not be returned to the Trustee for insufficient funds.
Another problem with this proposed solution is that many companies considered to be large and “reputable” have recently undergone financial difficulties and Chapter 11 filings. For example, Trans World Airlines, a major employer in the St. Louis metropolitan area, is currently in Chapter 11 before this Court. Similarly, the Trustee represented that a check issued by Edison Brothers, a publicly held company with corporate offices in St. Louis, was recently returned to him. Even the Debtor’s employer, McDonnell Douglas Corporation, has been rumored to be near bankruptcy on numerous occasions *369over the past few years5. This Court does not believe it is the duty of the Trustee and will not force the Trustee to make subjective, independent and updated evaluations of the financial health of every business from which he receives checks.
Lastly, any complaint about the rate at which this Trustee turns money over to creditors is incredible in view of national statistics. The Trustee submitted statistics from the Office of the United States Trustee which show that the national average for all Chapter 13 trustees to hold receipts is 1.33 months with a range of .21 months to 6 months. The Office of Mr. LaBarge holds money for .5 months, and the Office of the United States Trustee ranks this as within the top 20 of the approximately 175 Chapter 13 trustees in the country. This turnover rate is especially impressive when considering the volume of cases the Chapter 13 Trustee handles annually6.
CONCLUSION
For these reasons, the Court finds that Ford Motor Credit Company is adequately protected. It is
ORDERED that the Motion to Lift Stay filed by Ford Motor Credit Company is OVERRULED.
It is
FURTHER ORDERED that the objections to the Chapter 13 Trustee’s dual policies of holding funds on checks received by employer withholding for ten days before disbursements to creditors and of once monthly disbursement are OVERRULED.
. Mr. Mullin and Mr. David Sadat, Attorney for Ford Motor Credit Company, have been mailed copies of all correspondence and addendums.
. It should be noted that the consistent policy of this Court has been to deny motions for relief from the automatic stay filed by secured creditors when the Trustee holds the money to the following month. The reason for this is that, although the creditor will not receive the money, the money is held by the Trustee and that fact ensures adequate protection.
. The Court has discussed this issue and has observed debate over it among the bankruptcy bar at its quarterly Chapter 13 practitioners meetings.
. The cost of this policy to the Trustee is hardly insignificant. As the Trustee's letter points out, his office has had $4,498.00 in returned checks in the fourth quarter of 1995 alone. This averages to approximately $400.00 per week. Such amount would especially impact an office which is a closely monitored by the Office of the United States Trustee.
. See e.g. Dave Fusaro, McDonnell Douglas Battered by Financial Weather, Metalworking News, June 18, 1990, 1990 WL 2691877 (First Boston analyst stated that McDonnell Douglas is "flying into bankruptcy”); Sandra Sugawara, McDonnell Douglass to Cut jobs; Up to 17,000 Employees Will be Affected, 80 in Washington Area, The Washington Post, July 17, 1990, at Cl (rumors of a bankruptcy filing sweep Wall Street”); Richard L. Stem and Thomas Bancroft, McDonnell Douglas’ Make-or-Break Year, Forbes, Jan. 7, 1991 at 36 (Pentagon audit documents rate the company a “possible bankruptcy.”); Steven Pearlstein, Defense Contractors vs. Pentagon; general Dynamics, McDonnell Douglas File Suit Over A-12, The Washington Post, June 8, 1991, at Cl (Navy officials state publicly that [McDonnell Douglas] could be forced into bankruptcy if required to return money to the government); John D. Mor-rocco, Headline News McDonnell Douglas Sought $1 Billion Advance from U.S. to Ease Cash Crunch, Aviation Week & Space Technology, July 29, 1991 at 23 (repayment would have “forced McDonnell to declare bankruptcy”); Ralph Var-tabedian, Bush Withholds Defense Memo from Congress ..., Los Angeles Times, Aug. 31, 1991, at 1. ("McDonnell ... may have been threatened by bankruptcy without the [government] deferral”); Steven Pearlstein, Pentagon Says It Would Aid McDonnell Douglass ..., The Washington Post, Oct. 4, 1991, at FI (Pentagon to offer help of cost overrun brings [McDonnell] to brink of bankruptcy); Stuart Auebach and Steven Pearl-stein, Aerospace Giant Goes to Taiwan for Edge; McDonnell Douglas May Sell Stake, The Washington Post, at Cl (McDonnell on “the verge of bankruptcy" earlier in the year”); Laura D'Andrea Tyson, McDonnell Douglas-Taiwan Deal Present U.S. With a Pandora's Box, Los Angeles Times, Mar. 1, 1992 at 3 (McDonnell's commercial operations "teetering on the brink of bankruptcy.”); Clinton Says he Opposes British-USAir Deal/Democratic Hopeful Says Such Plans Could Hurt McDonnell Douglas, Boeing, Star Tribune, Newspaper of the Twin Cities, Oct. 30, 1992, at 3D (Bill Clinton publicly states McDonnell Douglas is at the point of bankruptcy); Bmce Ein-hom, Taiwan Balks at McDonnell Price Aerospace ..., Los Angeles Times, Apr. 30, 1992, at 1 ("some called on the government to take measures to ensure the success of Taiwan's part of the investment in the event of [McDonnell’s] bankruptcy.”); John Mintz and Brett Fromson, Pentagon Payment to a Contractor a Mystery; Check, Later Returned, Bolstered McDonnell Douglas Balance Sheet, The Washington Post, Dec 2, 1992, at Cl (Pentagon official reports that the government was prepared to advance funds early in 1991 to help McDonnell avert bankruptcy); David J. Lynch, McDonnell Douglas Still Trying to get Cargo Jet Off the Ground, The Orange County Register, Feb. 28, 1993, at K1 (Air Force contracting officer states that data indicates McDonnell had "severe financial problems” and was “on the verge of bankruptcy.”); SEC Investigating McDonnell Douglas Over C-l 7 'Losses’, Wall Street Journal, Mar. 18, 1993 at C17; Thomas.E. Ricks, McDonnell Douglas’s Financial Health Is Challenged by Top Pentagon Auditor, Wall Street Journal, Apr. 23, 1993, A4.
. In 1994, 3,354 Chapter 13 cases were filed in the Eastern District of Missouri. In the first eleven (11) months of 1995, 3,271 cases have been filed. Although many cases are of short duration, cases from years prior to 1994 are still viable in the Trustee’s office. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492240/ | ORDER ON CHAPTER 13 TRUSTEE’S OBJECTION TO DEBTORS’ CLAIM OF HOMESTEAD EXEMPTION
PAUL B. LINDSEY, Chief Judge.
On July 27, 1995, debtors filed a joint voluntary petition for relief under Chapter 13 of the Bankruptcy Code. On August 31, 1995, debtors filed the required Schedule C— Property Claimed As Exempt, claiming as their exempt homestead 80 acres of rural property located in Lincoln County, Oklahoma, in which, according to their schedules, debtors’ equity exceeds $29,000.
On September 21, 1995, the standing Chapter 13 trustee timely filed an objection to debtors’ claimed homestead exemption, asserting that debtors operate an auto repair facility on their homestead property. The trustee argues that because the homestead is used both for residence and business purposes, Okla.Stat. tit. 31, § 2 (1991) limits the value of debtors’ exemption to $5,000.1 She *428therefore objects to debtors’ claim for exemption to the extent that its value exceeds $5,000.
At the hearing on the trustee’s objection, held October 25, 1995, debtors testified that their 80-aere homestead was not located within any city, town or village, that they assigned a value of $60,000 to the property, and that the debt against the property was approximately $31,000. Debtors further testified that of the entire 80 acres, only 2 acres are used for the auto repair facility, and that the remaining acres serve as their residence or are currently in cultivation.
At the conclusion of that hearing, after having heard the testimony and the arguments by counsel, the court took the matter under advisement.
DISCUSSION
As support for her objection, the trustee cites In re Rashid, 97 B.R. 610 (W.D.Okla.1989). In Rashid, the bankruptcy debtor claimed a homestead exemption in property comprised of less than a 54 acre located within the city of Sayre, Oklahoma. A creditor objected to the claimed exemption on the basis that the homestead property was used for both residence and business purposes. The court, having found that debtor utilized the property as alleged, held that Okla.Stat. tit. 31, § 2 limited the value of debtor’s homestead exemption to $5,000.
In this matter, however, the court is of the view that the trustee’s reliance on Rashid is misplaced, and, for the reasons discussed infra, that portion of the relevant statute providing for such limitation is inapplicable to the facts of this case.
The trustee’s argument assumes that the $5,000 limitation for homesteads used for both residential and business purposes is equally applicable to property located within or without a city, town or village.
In his argument in opposition, debtors’ counsel urged, without referring the court to any specific authority, that application of this limitation to owners of rural property who operate farming or ranching operations on their homesteads, would limit their claim for homestead exemption to a value of $5,000, even in circumstances where the quantity of land claimed as homestead was within the statutory limitation. This argument placed before the court the issue of whether the subject limitation is applicable to rural property.
This court, after having reviewed the few reported Oklahoma decisions involving the applicability of the subject limitation, including Rashid notes that in each instance where the limitation has been applied, the property claimed as exempt homestead by the debtor was located within a city, town or village. See, In re Hughes, 166 B.R. 957 (Bankr.E.D.Okla.1994) (property located within City of Muskogee, Oklahoma); In re Ozey, 171 B.R. 116 (Bankr.N.D.Okla.1994) (property located within the City of Tulsa, Oklahoma); In re Landry 183 B.R. 899 (Bankr.W.D.Okla.1995) (property located in Oklahoma City, Oklahoma). This court has found no reported Oklahoma decisions where the subject limitation has been applied to rural property.
The manner in which Okla.Stat. tit. 31, § 2 (1991) is constructed lends support to debtors’ position. The only reference to a rural homestead is within the first full sentence of the provision, and the only limitations upon such a homestead are that it not be within any city, town or village and that it consist of not more than 160 acres of land. The second sentence of the provision, while far from being a model of clarity, initially refers to a homestead which is within a city or town, is occupied as a residence only and does not exceed one acre of land. Immediately following that language, separated only by a colon, is the first proviso, that “the same” not exceed $5,000 in value, but that in no event shall it be reduced to less than one-quarter of an acre, without regard to value. The next proviso, again separated only by a colon, is that in case “said homestead” is used for both residence and business purposes, the homestead interests therein shall not exceed in value the sum of $5,000.
*429The latter proviso was undoubtedly intended to define the effect upon a homestead interest within a city or town, if the same was owned and occupied other than as a residence only. It immediately follows, within the same sentence, the description of such an urban homestead, and refers to “said homestead.” The reference can not logically or rationally be interpreted or construed as being to the rural homestead described in the preceding sentence.
This court is therefore of the view that the value limitation on a homestead used for both business and residence purposes is applicable only to a homestead within a city or town, and that it has no applicability to a homestead not within a city, town or village. Trustee makes no other argument in support of the objection to the claim of exemption. The objection of the trustee to debtors’ claim of exemption of their homestead must therefore be overruled.
IT IS SO ORDERED.
. Okla.Stat. tit. 31, § 2 provides as follows:
The homestead of any family in this state or the homestead of a single, adult person in this state, not within any city, town or village, shall consist of not more than one hundred sixty acres (160) of land, which may be in one or more parcels, to be selected by the owner. The homestead within any city, or town, owned and occupied as a residence only, shall consist of not exceeding one (1) acre of land, to be selected by the owner: Provided, that the same shall not exceed in value the sum of Five Thousand Dollars ($5,000.00), and in no event shall the homestead be reduced to less than one-quarter (¡4) of an acre, without regard to value: And provided, further, that in case said homestead is used for both residence and business purposes, the homestead interests therein shall not exceed in value the sum of Five Thousand Dollars ($5,000.00): Provided, that nothing in the laws of the United States, or any treaties with the Indian tribes in the state, shall deprive any Indian or other allot-*428tee of the benefit of the homestead and exemption laws of the state: And provided, further, that any temporary renting of the homestead shall not change the character of the same, when no other homestead has been acquired. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492241/ | ORDER GRANTING FINAL SUMMARY JUDGMENT AGAINST BELLOMY LAWSON
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before the Court on July 27, 1995, on Plaintiffs motion for Sum*466mary Judgment against the Defendants Her-rol W. Bellomy and Agnes E. Bellomy as Trustees under the Herrol W. Bellomy Trust Agreement dated December 15, 1987, as amended; Agnes E. Bellomy and Herrol W. Bellomy as Trustee under the Agnes E. Bel-lomy Trust Agreement dated December 15, 1987, as amended, and Charles A. Lawson (collectively referred to herein as “Bellomy-Lawson”). Bellomy Lawson had also moved for Summary Judgment, seeking dismissal of the amended complaint against them. For the reasons set forth below, the Court grants the Plaintiff’s motion for summary judgment and denies the Bellomy-Lawson defendants’ motion for summary judgment.
The Facts
The salient facts are essentially undisputed. In May, 1991, Bellomy-Lawson, then being 100% shareholders of Aerial Transit, Inc., the Debtor corporation, entered into an agreement to sell their stock to a newly-formed Nevada corporation, Cargo Aire Group, Inc. (“Cargo Aire”). The price was $1.5 million, with a 10% down-payment, and the entire remainder of the purchase price was to be paid at the closing (the “cash to close”), after the outstanding trade payables of the Debtor had been deducted. Ultimately, the parties agreed that the “cash to close” was $505,324.76. Prior to the stock sale, Bellomy-Lawson had removed several aircraft from the corporation, as well as all cash, receivables, spare airplane tires and other items; thus, at the time of closing, the assets consisted of two DC-6 aircraft, a C-121 certificate, some spare parts, the furniture, fixtures and equipment in the office of the Debtor, and its lease with the Dade County Aviation Authority, under which it was obligated to pay almost $35,000 per month for occupancy. It had no receivables, no cash equivalents, and no cash. The contract entered into between Cargo Aire and Bellomy-Lawson recognized the Debtor’s lack of liquidity at closing, and contemplated that the Debtor would have to be recapitalized by Cargo Aire; it also provided that, on the date of closing, Bellomy-Lawson would loan the exact “cash to close” back to the Debtor in return for the Debtor’s note, to be guaranteed by Cargo Aire, its new parent, and to be secured by a mortgage encumbering the two DC-6 aircraft. In effect, Bellomy-Lawson and Cargo Aire created a leveraged buyout.
To document the alleged “loan” on the date of closing, May 21, 1991, Cargo Aire issued its check No. 1001 in favor of Bellomy-Law-son in the amount of $505,324.76 for the “cash to close”. Bellomy-Lawson in turn, endorsed the self same check, without recourse, to the order of the Debtor. The check was drawn on an account which had $10.00 in it as of May 21,1991, and never had sufficient funds therein to make the check good. The check was never deposited; after the statutory 6 months, it became stale.
In a prior hearing concerning the same subject matter, Defendant produced Mark Ottosen as its witness. He had been an officer of both Cargo Aire and the Debtor at the relevant time. He confirmed that the Debtor emerged from the closing on May 21, 1991 with no receivables, no cash, no liquid assets, approximately $845,000 in short term trade payables, and a business plan wherein Cargo Aire, its new owner, contemplated the necessity of injecting in excess of $1.2 million of new capital into the Debtor before it would reach the break even point, exclusive of the alleged $505,324.76 loan from Bellomy-Law-son.
After the closing, the Debtor’s financial statements show that it lost approximately $700,000 in the last 7 months of 1991; the Debtor’s schedules filed in the main case indicate that its debts increased to approximately $3.5 million by November 1992, when an involuntary bankruptcy petition was filed against it.
The Contentions of the Parties
The Liquidating Trustee, acting on behalf of the interest of all creditors, seeks to set aside the obligation to Bellomy-Lawson as fraudulent utilizing the “strong arm” powers under 11 U.S.C. § 544, together with the Uniform Fraudulent Transfer Act, Fla.Stat. § 726.105, asserting that the obligation in question was given for patently insufficient consideration and that the Debtor knew, at the time the obligation was incurred, that it intended to be in business and would incur *467debts which it had no reasonable expectation of being able to repay from its own resources. The Liquidating Trustee also seeks to avoid the transfer of all sums which were paid to Bellomy-Lawson on account of the fraudulently-incurred obligation, whether such payments were made pre- or post-petition, and to recover same .for the benefit of the estate. According to the Liquidating Trustee’s review of Bellomy-Lawson’s proof of claim and amended proof of claim, filed in this proceeding and mathematical computation, the pre-petition payments amount to $267,802.00. A review of the DIP reports filed in this case reveals post-petition payments totaling $60,000.00. Thus the pre- and post-petition payments to Bellomy-Lawson amounted to $327,802.00. Thus, the Trustee, in addition to avoidance of the fraudulently-incurred debt, seeks judgment for the avoidance of the transfers in that amount.
Bellomy-Lawson, on the other hand, contends first, that the subject cheek was valid consideration in that the Debtor received some benefit from the disputed “loan”, whether or not it was ultimately made good; that Cargo Aire subsequently did, in fact, make the check good; that the Debtor was “solvent” at all relevant times and the otherwise — fraudulently incurred obligation and subsequent payments thereon should thus be immune from attack; that the Liquidating Trustee cannot pursue this cause of action, since it was not specifically provided for in the confirmed Liquidating Plan and/or that a previous “settlement” made with the then-Debtor-In-Possession and ratified by a court order which was subsequently vacated, should bar any recovery in this action. Bel-lomy-Lawson’s contentions are without merit.
Prior Proceedings; Judicial Notice; Estoppel
At the outset, it must be noted that virtually all of the issues extant in this portion of this adversary proceeding were ventilated at considerable length in two evidentiary hearings held on November 17,1994 and January 5, 1995 in connection with the Liquidating Trustee’s motion in the main case under F.R.B.P. 9024 to set aside an earlier order of this Court dated May 19, 1993, wherein the DIP and Bellomy-Lawson had agreed upon the amount of their secured claim and reset the payment schedule thereof. In the course of those two evidentiary hearings, testimony was taken from Ottosen; Charles A. Lawson; James S. Feltman, the Liquidating Trustee; William Seidle; and an accounting expert for Bellomy-Lawson. An affidavit had been submitted signed by Dan Wirth, who, with Ottosen, was a principal of Cargo Aire, and an officer of both Cargo Aire and the Debtor. Ottosen, too, had submitted an affidavit which was filed, and was virtually identical to that of Wirth. Wirth did not testify at the evidentiary hearings.
The Court has gained a substantial factual knowledge of this matter through the pleadings, testimony and documents presented by the Liquidating Trustee/Plaintiff herein and Bellomy-Lawson in connection with the Rule 9024 Motion. Various factual matters have already been decided adversely to Bellomy-Lawson and Seidle therein. Now, on this Motion for Summary Judgment, the Court has the right to take notice of its own files, records and experience in the case, and has no duty to “grind the same corn a second time”. Aloe Creme Laboratories, Inc. v. Francine Co., 425 F.2d 1295, 1296 (5th Cir.1970). In Aloe Creme Laboratories, Inc., the district court in a summary judgment setting, had concluded that no material facts were in actual good faith dispute inasmuch as the relevant issues had previously been decided adversely to the Plaintiff by reason of a judgment entered in another case brought by the same Plaintiff before the same Judge. Since the issues were substantially the same as those which had been recently decided, the Court was bound by its decision in the earlier case.
No Consideration
Here, based upon the testimony, exhibits, court file in the main case and the prior ruling, the Court finds that there is no material fact at issue which would preclude summary judgment. In the Amended Order Granting Liquidating Trustee’s Motion Pursuant to Rule 9024, Including Findings of Fact And Conclusions of Law dated April 20, *4681995 (“Amended Order”), the Court made specific findings that cheek No. 1001 from Cargo Aire Group, Inc., had never been made good and that there was no consideration given for the note and mortgage.
In their motion for summary judgment, Bellomy-Lawson argue that even though Check 1001 was not presented for payment or deposited, that does not mean the sums represented by the check were never paid. Bellomy-Lawson contends the check was, in essence, re-written in pieces and handed to Aerial Transit. Accordingly, Aerial did not need to present the check in order to get the benefit of the transfers because the funds were at its disposal. In support of this reasoning, Bellomy-Lawson point out to the Court that a cheek is dishonored when presentment is made and due acceptance or payment is refused. Fla.Stat. § 673.5021. Bel-lomy-Lawson also note that if an uncertified check is taken for an obligation, the obligation is suspended until dishonor of the check. Fla.Stat. § 673.3101(2). Bellomy-Lawson conclude that because Aerial chose not to present Check 1001 for payment, Check 1001 is not a dishonored or worthless check even though it was drawn on a bank account with only $10.00 on deposit. Therefore, Bellomy-Lawson argue that because Check 1001 was a promise to pay, suspended an obhgation, and was not dishonored, Aerial received consideration for the mortgages on the two DC-6 aircraft. However, the Court is not persuaded by Bellomy-Lawson’s argument and will not alter its finding of no consideration contained in the Amended Order.
The Court did not decide any issues pertaining to solvency in the Rule 9024 matter, however, leaving such issues, to this adversary proceeding. Therefore the next issue to address is the proper standard to be applied.
Unreasonably Small Capital; Incurring Debts Beyond Ability to Pay
The relevant counts of the adversary proceeding as against Bellomy-Lawson are brought pursuant to 11 U.S.C. § 544, the “strong arm powers”, whereby a trustee enjoys all of the rights and remedies available to a so-called “perfect hen creditor”; that is, one who has a perfected hen on all assets of the debtor as of the date of the filing of the petition for bankruptcy rehef. Section 544 allows the trustee to utilize available state law for the purpose of avoidance of various transactions. Here, the apphcable state law is Fla.Stat. § 726.105, which provides, in relevant part that:
(1) A transfer made or obhgation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obhgation was incurred, if the debtor made the transfer or incurred the obh-gation .
b. Without receiving a reasonably equivalent value in exchange for the transfer or obhgation, and the debtor.
1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
2. Intended to incur, or beheved or reasonably should have beheved that he would incur, debts beyond his ability to pay as they became due.
Thus, in order to invahdate the fraudulently incurred obhgation as well as the aheged security interest flowing therefrom, it is incumbent upon Feltman to show (a) lack of consideration; and either (b) that the Debtor was engaged or about to engage in a business for which its remaining assets were unreasonably small, or in the alternative (c) that the Debtor intended to incur, or beheved (or reasonably should have beheved) that it would incur debts beyond its ability to pay as they came due.
The Court has already held that there was no consideration for the mortgage. Similarly, the undisputed facts demonstrated that the Debtor, at the time of closing, knew full well that it had no receivables, no cash, no liquid assets, heavy short term debt, and no means of paying it. This is amply demonstrated by Mark Ottosen’s testimony at the 9024 hearing wherein he claimed that Cargo Aire had assumed the necessity of injecting upward of $1.2 million into the business to *469turn it around and reach the break even point, [without considering the supposed $505,324.76 represented by check No. 1001 (transcript of 9024 hearing, November 17, 1994, P. 99 L4-20) ]. The books and records of the Debtor did not reflect the receipt of even the $1.2 million that Ottosen had testified was required (transcript of 9024 hearing, November 17, 1994, P. 45 L9-12). The exhibits from the 9024 hearing demonstrate that the Debtor’s business lost about $700,-000 in the 7 months after the closing, and the Debtor’s bankruptcy schedules show that, far from turning around, it continued to amass more debt until the involuntary petition was filed. Therefore, Plaintiff has amply demonstrated the factual prerequisite for a constructively fraudulent obligation and conveyance under FlaStat. § 726.105(l)(b).
By way of contrast, Bellomy-Lawson has asserted that the Debtor was “balance sheet” solvent both before and after the subject transaction. Even assuming arguendo this to be the case, “balance sheet” solvency is not the proper test under FlaStat. § 726.105(l)(b)(l) or (2). “Balance sheet” solvency only comes into play if a claim is made to avoid a fraudulent transfer that was made with actual intent to hinder, delay or defraud under FlaStat. § 726.105(l)(a).
Although it is possible that Cargo Aire may or may not have had sufficient assets to continue its business of owning the Debtor on an ongoing basis, the record is clear that, the Debtor itself had no resources from which it could pay its debts, absent a massive capital infusion from Cargo Aire. Thus, Plaintiff has proven the elements necessary to the avoidance of the $505,324.76 debt as a fraudulently incurred obligation, and to the avoidance of the transfer of all sums received by Bellomy-Lawson on account thereof as fraudulent transfers.
Amount Avoidable
The amount in dispute is readily susceptible of computation by review of documents on file with the Court, and the Court notes that Bellomy-Lawson has offered neither affidavit nor legal argument to suggest that the Plaintiffs computation is wrong. A review of the terms of the promissory note together with Bellomy-Lawson’s filed proof of claim would indicate, as a matter of calculation, that Bellomy-Lawson received pre-petition payments against the fraudulent obligation in the amount of $267,802.00. Similarly, review of the DIP reports filed with this court shows that the Debtor made post-petition payments to Bellomy-Lawson in the aggregate amount of $60,000.00. Thus, Plaintiff is entitled to recover the pre-and post-petition payments on the fraudulent obligation in the aggregate amount of $327,802.00 together with prejudgment interest from the date the Plaintiff filed his amended complaint which sought avoidance of these transactions, at the same rate as fixed by law for post-judgment interest together with post-judgment interest as well.
Affirmative Defenses not Otherwise Treated Herein
Bellomy-Lawson raises two other issues which have not already been dealt with herein: First, that an order of this Court in the main ease dated May 19, 1993, which authorized a settlement between the Debtor and Bellomy-Lawson, allowed its claim in full and reset payment terms, is res judicata to the questions raised in this adversary proceeding and bars any further debate as to the underlying validity of the claim. That issue was dealt with through the evidentiary hearings previously referred to, and this Court’s ruling and Amended Order wherein the previous order ratifying the alleged settlement was vacated in its entirety. The same order made specific findings that Cargo Aire’s check No. 1001 had never been made good, that there was no consideration for the note and the mortgage, and implicitly, that the Liquidating Trustee had the right to pursue this matter notwithstanding the lack of a specific provision to that effect in the confirmed liquidating plan.
Generally, the “disclose it or lose it” line of cases is a judicial gloss grafted upon confirmation statutes in order to avoid situations where a reorganizing debtor gains the endorsement of a particular creditor who helps to confirm its plan, and then the debtor afterward reverses field and seeks to sue the creditor on a previously undisclosed claim *470which pre-dated the reorganization, e.g. lender liability.
Two of the leading cases demonstrating the estoppel concept involved are Payless Wholesale Distributors, Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570 (1st Cir.1993); and Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3rd Cir.1988), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988). In Payless, the plaintiff had filed for Chapter 11. It never even suggested that the defendant Alberto Culver was responsible for its financial woes. A plan was confirmed. Thereafter, Payless sued Alberto Culver, alleging that its bankruptcy was a “direct result of the eonspira-tional acts of defendants.” As the Court said:
“even a cursory examination of the claims shows that defendants should have figured in both aspects of the Chapter 11 proceedings and that Payless could not have thought otherwise ... assuming that there is validity in Payless’ present suit it has a better plan. Conceal your claims; get rid of your creditors on the cheap, and start over with a bundle of rights. This is a palpable fraud that the Court will not tolerate, even passively ... [citation omitted] Payless, having obtained judicial relief on the representation that no claims existed, can not now resurrect them and obtain relief on the opposite basis.” Payless at 571.
In Oneida Motor Freight, roughly the same situation occurred. The debtor obtained confirmation for its own benefit, and thereafter sought to pursue United Jersey Bank under theories of lender liability after United Jersey had been lulled into approving the reorganization plan based on the disclosures made for that purpose, which gave no inkling of the claim.
Here, the plaintiff is not a debtor seeking to hide assets in the form of choses in action for its own profit; the plaintiff is a liquidating trustee appointed for the express purpose of investigating the finances of the business, isolating potential claims, and pursuing them for the benefit of creditors, while liquidating the other assets, also for the benefit of the creditors. In this respect, he is no different than any other bankruptcy trustee. The plan was confirmed without disclosure since everyone at the time recognized it to be simply an adjunct to the liquidation procedure. The facts as previously shown at the Rule 9024 hearing were that Feltman had no idea that he had a claim against Bellomy-Lawson, until he found the undeposited Check # 1001 which has supposedly represented the “loan” against the aircraft. He is not the dishonest debtor seeking to profit from his own failure to disclose castigated in Payless and Oneida.
Even were the Plaintiffs claims not disclosed adequately prior to confirmation, these post-confirmation proceedings are proper because, as was the ease in Matter of Texas General Petroleum Corp., 40 F.3d 763 (5th Cir.1994), cert. denied, sub nom. McFarland v. Leyh, — U.S. -, 115 S.Ct. 2002, 131 L.Ed.2d 1003 (1995), and contrary to Harstad v. First American Bank, 39 F.3d 898, 902 (8th Cir.1994), their Plan “provided for ‘the retention and enforcement [of that claim ... ] by the Plaintiff.’ ” Here, the plan generally provides that the trust res includes all potential avoidance actions. Specifically:
3.6 “The Liquidating Trust.
3.6.1 ... James S. Feltman is hereby designated as Liquidating Trustee ... for the purpose of receiving all of the Trust Property and Property of the Debtor and the bankruptcy Estate and any other consideration to be received by the Trust Creditors ... including, but not limited to the following Trust Property:
3.6.1.1 All causes of action, rights, claims, demands against third parties, investors, individuals or insiders that the Debtor and the bankruptcy Estate own, or have an interest in, or can assert in any fashion since its formation, including all causes of action belonging to the Debtor and the bankruptcy Estate, whether Pre-Petition or Posi^Confirmation and whether pending prior to Confirmation, including but not limited to, actions under Sections 542, 543, 544, ... and 553 of the Code to recover assets for the estate and the benefit of the Creditors; and any interest in properties or entities which the Debtors *471and the bankruptcy Estate own or control.”
It is thus clear that the Plan reserved to the Liquidating Trustee all choses of action including those of the nature presented by this adversary proceeding.
CONCLUSION
The Court being otherwise fully advised in the premises, it is
ORDERED and ADJUDGED that Summary Final Judgment is entered in favor of the Plaintiff, James S. Feltman, as Liquidating Trustee and against the Defendants, Herrol W. Bellomy and Agnes E. Bellomy as Trustees under the Herrol W. Bellomy Trust Agreement dated December 15, 1987 as amended; Agnes E. Bellomy and Herrol W. Bellomy as Trustee under the Agnes E. Bel-lomy Trust Agreement dated December 15, 1987, as amended, and Charles A. Lawson (collectively referred to herein as Bellomy-Lawson) jointly and severally for the following relief:
a. For avoidance of the constructively fraudulent obligation owed by the Debtor to the Bellomy-Lawson defendants in the amount of $505,824.76;
b. For avoidance of the transfer of a security interest in two DC-6 aircraft to the Bellomy-Lawson defendants as collateral for the fraudulently-incurred obligation;
e. For $327,802.00 together with interest from May 20, 1994, (the date of filing of the Amended Complaint herein) at the rate of 5.02%; and for reimbursement of costs incurred in connection with the prosecution of this adversary proceeding against these defendants, which will be set at a later date for all of which let execution issue; and it is further
ORDERED that the motion of the Bello-my-Lawson defendants for Summary Judg-' ment dismissing this adversary proceeding is denied.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492242/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is the amended motion of the debtor’s attorney, Jim Waide, for the allowance of attorney’s fees and expenses, coupled with a motion for a determination that such attorney’s fees and expenses may be paid from the proceeds realized from the sale of the debtor’s stock certificates, which constitute intangibles upon which the judgment creditor, Georgia Marie Redus McKenna, has no lien; objections to said motions having been filed by the following: Office of the U.S. Trustee; Jacob C. Pongetti, Chapter 7 Trustee; Cynthia Ether-idge Daniels, an administrative expense claimant as the attorney for the Chapter 7 trustee; and Georgia Marie Redus McKenna; and the court having heard and considered same, hereby finds as follows, to-wit:
I.
The court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (O).
II.
The debtor’s attorney, Jim Waide, hereinafter referred to as Waide, filed his amended motion for the allowance of attorney’s fees and expenses, etc., and allocated his charges to the following categories:
A Statement on bankruptcy file:
Attorney fees $3,541.50
Reimbursable expenses 197.25
Total $3,738.75
B. Statement on criminal file including Oktib-beha County Circuit Court, Mississippi Supreme Court, U.S. District Court, and U.S. Court of Appeals for the Fifth Circuit
Attorney fees $8,227.75
Reimbursable expenses 106.00
Total $8,333.75
The court has examined the fees and expenses relative to work on the bankruptcy file and allocates these charges as follows:
*550Chapter 11 administrative expense claim $ 882.00
Chapter 7 administrative expense claim 2,856.75
Total $3,738.75
For purposes of his final report and accounting, the Chapter 7 trustee is directed to take into account the aforementioned allocation by the court to the Chapter 11 and Chapter 7 administrative expense categories.
For reasons which will be explained here-inbelow, the services performed by Waide on the criminal file are not compensable from property of the debtor’s bankruptcy estate, but must be paid directly by the debtor.
III.
The following material factual issues which are not in dispute are set forth as follows:
A. Based on criminal charges initiated by Georgia Marie Redus McKenna, the debtor, John S. Jordan, was convicted of the crime of rape by a jury in the Circuit Court of Oktibbeha County, Mississippi, on February 7, 1987.
B. Jordan’s criminal conviction was affirmed by the Mississippi Supreme Court on May 17, 1989. (See Jordan v. State, 543 So.2d 191 (Miss.1989).)
C. Through a Report and Recommendation, dated February 10, 1992, United States Magistrate Judge Jerry A. Davis recommended to the United States District Court for the Northern District of Mississippi that a petition for habeas corpus, filed by Jordan, be granted and that he be released from custody unless he was awarded a new trial. Essentially, Judge Davis concluded that Jordan’s petition for habeas corpus contained persuasive, substantiated evidence that he had asserted his right to testify at his criminal trial, but was prevented from doing so by his attorney. The United States District Court did not accept the aforementioned Report and Recommendation and denied Jordan’s petition for habeas corpus. On October 7, 1994, the United States Court of Appeals for the Fifth Circuit reversed the District Court’s order denying the petition and remanded the case for further consideration. (See Jordan v. Hargett, 34 F.3d 310 (5th Cir.1994).) According to debtor’s counsel, no mandate has yet issued from the Fifth Circuit relative to this decision.
D. Prior to Jordan’s criminal conviction, McKenna had commenced an action in the Circuit Court of Oktibbeha County, Mississippi, to recover civil damages for injuries resulting from the rape and assault inflicted upon her by Jordan. On February 1,1988, a jury returned a verdict in McKenna’s favor against Jordan in the sums of $380,000.00 actual damages and $50,000.00 punitive damages.
E. On December 27,1990, the Mississippi Supreme Court affirmed the civil judgment against Jordan based exclusively on the premise that Jordan’s criminal conviction should be given preclusive collateral estoppel effect on the relitigation of his liability in the civil cause of action. (See Jordan v. McKenna, 573 So.2d 1371 (Miss.1990).) A petition for rehearing was denied on February 13, 1991.
F. Jordan filed his voluntary Chapter 11 bankruptcy petition on October 20, 1988. The case was converted to Chapter 7 on December 26, 1991. The fees and expenses incurred by Waide prior to the latter date would be considered as his Chapter 11 administrative expense claim.
IV.
Without question, Waide has performed a significant amount of work in attempting to set aside Jordan’s criminal conviction for rape. In the opinion of this court, the results that he has achieved could be rated as “not less than remarkable.” However, whether the conviction will be set aside is still unknown. If Waide is successful, the following possibilities become apparent:
A. Since Jordan has now served his criminal sentence and has been released from custody, the setting aside of his conviction would likely result in the elimination of a $10,000.00 fine imposed against him in favor of the State of Mississippi, which is considered a claim against his bankruptcy estate. Whether Jordan would be retried is doubtful.
B. Even if the criminal conviction were vacated, the civil judgment would remain unaffected unless it is unraveled through ac*551tion before the Mississippi Supreme Court. This event is not outside the realm of possibility since the affirmance of the civil judgment by the Supreme Court was based, as mentioned hereinabove, exclusively on the collateral estoppel effect of Jordan’s criminal conviction. If the civil judgment were vacated because collateral estoppel was no longer applicable, the Court could affirm for other reasons; but, more than likely, it would remand to the trial court for further proceedings. This court does not entertain the possibility that the judgment would be reversed and rendered.
At this point, it is extremely difficult for this court to speculate with any degree of certainty as to how this matter will be ultimately resolved. The goal of the debtor, of course, is to totally eliminate the claims of the State of Mississippi and McKenna. The civil cause of action, however, stands on an entirely separate footing from the criminal prosecution. Even if the civil judgment were reversed and remanded, there is still the possibility that the civil suit would again be pursued by McKenna regardless of the existence of the criminal conviction.
Waide has argued that his work on the criminal file should be compensable from the bankruptcy estate because it might eventually eliminate two unsecured claims against the estate, i.e., the non-dischargeable fine claim in favor of the State of Mississippi and the judgment claim of McKenna. In support of his position, Waide has cited two Chapter 11 cases, In re Warner, 141 B.R. 762 (M.D.Fla.1992), and Intercontinental Metals Corp. v. The Committee of Creditors Holding Unsecured Claims, 53 B.R. 487 (D.C.N.C.1985). These decisions, however, are no longer relevant because the debtor’s bankruptcy case has been converted from Chapter 11 to Chapter 7, and the bankruptcy estate is comprised exclusively of prepetition, unencumbered, non-exempt assets, or the proceeds thereof.
(Without dispute, McKenna’s judgment is simply an unsecured claim in the context of this case because it did not attach to any assets of the estate by operation of law or by execution before the debtor’s bankruptcy petition was filed. See the judgment of this court, entered July 29, 1994, Adversary No. 93-1194, styled Jacob C. Pongetti, Trustee for the Estate of John S. Jordan v. Georgia Marie Redus McKenna.)
If the two claims are eliminated, the proceeds held in the bankruptcy estate, less the payment of administrative expense claims, would be payable to the debtor, not to other creditors. On the other hand, if the claims are not eliminated, the administrative expense claims would still have to be paid before any distribution to either of the unsecured creditors. Therefore, if Waide prevails on the debtor’s behalf at every level, he would ultimately benefit only the debtor and not the bankruptcy estate. If he should fail, he clearly would not benefit the bankruptcy estate.
The court, therefore, concludes that under either scenario, Waide’s efforts could not benefit the bankruptcy estate but, at best, only the debtor. As such, his fees and expenses relative to the criminal file, which he has most deservedly earned, must be paid by the debtor. They cannot be “boot strapped” into an administrative expense priority claim against the bankruptcy estate.
Waide, as the attorney for the debtor, should be awarded compensation and reimbursement of expenses to be paid as follows:
$ 882.00 - payable as a Chapter 11 administrative expense claim;
$2,856.75 - payable as a Chapter 7 administrative expense claim;
$8,333.75 - although this amount is approved as to reasonableness, it cannot be paid from assets of the bankruptcy estate now being held by the Chapter 7 trustee; it must be paid by the debtor, individually.
To the extent that the objections to the amended motion for the allowance of attorney’s fees and expenses, etc., filed as noted hereinabove, are inconsistent with this opinion, said objections are hereby overruled.
A separate order will be entered consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492243/ | DECISION AND ORDER ON PLAINTIFFS’ MOTION RE COUNTERCLAIM
BURTON PERLMAN, Bankruptcy Judge.
This adversary proceeding involves a lease dispute between debtor Transicoil, Inc., a subsidiary of debtor Eagle-Picher Industries, Inc., and Blue Dove Development Associates (“Blue Dove”), the lessor of premises leased and occupied, by Transicoil. In the complaint, plaintiff Transicoil asserts numerous claims against Blue Dove that arise out of Blue Dove’s alleged delay in obtaining permanent financing in accordance with the lease. The parties have filed cross-motions for summary judgment on counts III, IV, *565and V of the complaint. We have considered those motions in a separate decision.
In addition, defendant Blue Dove has filed a counterclaim, asserting that plaintiffs breached the lease agreement by failing to pay monthly rent as it became due on June 1, 1993, July 1, 1993, and August 1, 1993, and that plaintiffs failed to pay monthly base rent at the rate calculated pursuant to the formula set forth in the lease after defendant obtained permanent financing in September, 1993. Plaintiffs’ motion for summary judgment on the counterclaim is now before the court. (In defendants’ cross-motion (Doc. 77), in addition to seeking summary judgment on the Counts of the complaint, defendants say that they seek summary judgment “on the issue of liability alone on Defendants’ counterclaim.” We have, however, been unable to find that this is addressed in defendants’ several memoranda. We therefore make no ruling on this motion.)
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding arising under 28 U.S.C. § 157(b)(2)(A), (B), and (O).
The following facts are not in dispute. Plaintiffs and defendants entered into a lease agreement on April 28, 1989, pursuant to which plaintiffs agreed to lease from defendants an office and manufacturing facility to be constructed at defendants’ expense. The lease obligated plaintiffs to pay rent to defendants as calculated according a formula that included as a factor the constant of the permanent mortgage ultimately to be obtained by defendants. The lease also provided for payment of interim base rent during the period before defendants obtained permanent financing, based upon a calculation that included as a factor the cost of defendants’ construction financing. Defendants had not secured permanent financing when plaintiffs took occupancy of the subject premises in September, 1990. As a result, plaintiffs continued to pay base rent to defendants according to the interim base rent formula. In August, 1992, when defendants still had not obtained permanent financing, the parties agreed to a reduced monthly interim base rent of $75,000.00. Plaintiffs allege that the continued payment of rent during the interim period resulted in rent overpayments. After filing this adversary proceeding against defendants to recover the alleged overpayments, plaintiffs ceased paying base rent until September 7, 1993, when this court ordered it to deposit the disputed payments into an escrow account. On September 22, 1993, after defendants finally obtained permanent financing, this court approved defendants’ request that plaintiffs resume making monthly rent payments of $75,000.00 directly to defendants rather than into the escrow account.
Defendants then filed a motion to dismiss the complaint for lack of venue on October 5, 1993, which this court subsequently denied. On October 13, 1993, while the motion to dismiss was pending before this court, defendants filed an action in Pennsylvania District Court asserting claims against plaintiffs for nonpayment of rent due June 1, 1993, July 1, 1993, and August 1, 1993, the same claims which are the subject of the instant counterclaim. The relevant paragraphs from the Pennsylvania District Court complaint, which appear in almost the same form as paragraphs (1) and (2) in defendants’ counterclaim, are as follows:
(20) [Transicoil] has refused to pay to [Blue Dove] the Interim Base Rent of Seventy-Five Thousand Dollars ($75,-000) per month, due under the lease on June 1, 1993, July 1, 1993, August 1,1993 and September 1,1993.
(21) [Blue Dove] obtained a permanent mortgage on September 7, 1993 and in a letter dated September 8,1993, in accordance with Article 2, section 2.01(a) of the lease, definitively calculated the monthly Base Rent at Seventy-Six Thousand Seven Hundred Eighty-Eight Dollars and Thirty-Two Cents ($76,788.32) and notified [Transicoil], however [Transicoil] has refused to pay the Base Rent since June, 1993 although [Transicoil] paid $75,000 to [Blue Dove] on October 6, 1993.
Plaintiffs base their motion for summary judgment on an order of this court entered March 31, 1994, in which we imposed sane-*566tions on defendants for their conduct in filing the Pennsylvania action while the question of propriety of venue was pending in this court. Plaintiffs argue that, in the March 31, 1994 order, this court “destroyed the factual predicate for defendant’s Counterclaim by ruling that identical allegations asserted in the Pennsylvania Action were false and made in bad faith.” Plaintiff quotes the following language from that order:
With respect to paragraph 20 [of the Pennsylvania District Court complaint], this court had ordered that lease payments for June 1, 1993, July 1, 1993, August 1, 1993 and September 1, 1993 be paid into escrow. Transicoil had not refused to make those payments.
With respect to paragraph 21, Blue Dove and K-Jem had no right to rent at $76,-788.32 per month, for this court had fixed rent payments at $75,000.00 per month pending resolution of the lease dispute between the parties which was pending in this court.
Plaintiffs also note this court’s conclusion in the order that, in asserting the allegations cited above, counsel “could not possibly in good faith have certified that the allegations ... ‘were well grounded in fact.’ ” Plaintiffs contend that, by this language, the court has already determined that defendants’ counterclaim has no factual basis and that payment of rent into escrow for June, 1993 through September, 1993 was not a breach of the lease. Plaintiffs argue that it therefore is entitled to summary judgment on defendants’ counterclaim, and that the counterclaim should be dismissed as a matter of law.
Plaintiffs misread the court’s March 21, 1994 order. Our statement that “plaintiff had not refused to make those payments” referred to the payments to be made into escrow, not the prior nonpayment for which defendants allege breach. The court has not made a determination as to whether plaintiffs breached the lease by failing to pay rent for June, July, and August, 1993 or whether plaintiffs’ payment into escrow cured any breach that may have resulted from plaintiffs’ initial nonpayment of rent under the lease. Likewise, our reference to paragraph 21 was not a final determination that plaintiff had no right under the terms of the lease to monthly rent of $76,788.32. Rather, it was a reference to our directive that plaintiffs continue to make payments of $75,000.00 into escrow (the amount to which the parties previously had agreed), until such time as we resolved the underlying lease dispute.
Accordingly, we deny plaintiffs’ motion for summary judgment.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492244/ | OPINION
WILLIAM V. ALTENBERGER, Chief Judge.
The matter presently before the Court is the Plaintiffs motion for partial summary judgment on Count I of his complaint brought under § 548(a)(1) of the Bankruptcy Code, 11 U.S.C. § 548(a)(1), alleging payments made by the Debtor to the Defendant were fraudulent conveyances in that they were made with actual intent to hinder, delay or defraud creditors. The basic facts giving rise to this litigation are as follows.
The Debtor was a corporation engaged in the business of raising feeder pigs. Kendall Z. Knowles (KNOWLES) was its sole shareholder, president, and principal operating employee. In late 1990 and early 1991, the Defendant loaned money to KNOWLES, his brother-in-law, Mitchell Welsh (WELSH), their wives, and a corporation controlled by WELSH. Between February and December of 1991 KNOWLES devised and perpetrated a check kiting scheme. Between February and sometime in August of 1991 the check kiting occurred between a bank account maintained by the Debtor at the First National Bank of Blandinsville (FNBB) and a bank account maintained by KNOWLES under the name of Kendall Knowles Farm Ac*628count at the Colchester State Bank. From sometime in August until December 13,1991, the cheek kiting occurred between the bank account at FNBB, and a bank account maintained by another corporation controlled by KNOWLES, Lamoine Valley Pork, at the Defendant/Bank. In June and July, the Debtor paid the Defendant $104,311.06. In 1992, KNOWLES was charged, and pled guilty to federal bank fraud charges arising out of the cheek kiting scheme.
On December 27,1991, an involuntary petition in bankruptcy was filed against the Debtor. On August 24, 1993, the Debtor consented to the entry of an order for relief. Thereafter, the Plaintiff was appointed Trustee and he brought a ten count complaint against the Defendant seeking to recover a variety of payments made by the Debtor to the Defendant. Count I seeks to recover the $104,311.06 as a fraudulent conveyance under § 548(a)(1) of the Bankruptcy Code.
Section 548(a)(1) provides as follows:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted;
The Plaintiff contends that the payments to the Defendant occurred within the appropriate time period, the Debtor had a property interest in the kited funds used to make the payments and that KNOWLES’ guilty plea to bank fraud is prima facie evidence of intent to hinder, delay or defraud the Debt- or’s creditors. The Defendant opposes the motion for partial summary judgment on the grounds that numerous questions of fact are raised as to whether the Debtor made the payments with the actual intent to hinder creditors and by its affirmative defenses.
This Court agrees with the Defendant that there are questions of fact which prevent the entry of summary judgment. Based on the motion, supporting documents, and the Defendant’s opposition and supporting documents, a major factual question involves KNOWLES’ intent. Section 548(a)(1) requires that the debtor actually intended to hinder, delay, or defraud its creditors through the payments made by it to the Defendant. To establish that element, the Plaintiff relies on KNOWLES’ guilty plea. That reliance is insufficient. The Plaintiffs position is that a ruling in his favor on this motion for partial summary judgment would permit him to recover every transfer that the Debtor had made during the year prior to bankruptcy, unless the transferee has an affirmative defense. From the first time a kited check was written on the Debtor’s account, the Plaintiff would have the Court find that the Debtor intended to defraud a creditor, the Banks where the accounts were located, and later perhaps other creditors. Because the Debtor has this general intent, it would taint every transfer thereafter made. The burden then would shift to the transferee. If a transferee is able to show that the Debtor received in exchange for the transfer reasonably equivalent value, and if the transferee received the transfer in good faith, the transferee could retain the interest in property to the extent value was given under § 548(c).
It is important to distinguish between KNOWLES’ intent while engaged in the kiting scheme to provide funds for the Debtor’s operations and his intent in using those funds so generated to pay the Debtor’s creditors. His intent in generating funds, may not be the same as in spending the funds. It is undeniable that KNOWLES defrauded the Banks through the check kiting scheme by writing checks between them. In his proposed plea agreement and stipulation of facts, KNOWLES admits that he executed a scheme to defraud a financial institution. The agreement states that dining the time from September 1, 1991, to November 30, 1991, a total of 303 cheeks resulting in excess of eighteen million dollars in kited funds between the Lamoine Valley Pork account at the Defendant bank and the Debtor’s account *629at FNBB. KNOWLES’ affidavit states that he kited cheeks between the Debtor’s account and the Kendall Knowles Farm account between March, 1991, and August, 1991. His guilty plea stands as prima facie evidence of a pervasive, actual intent to defraud the Banks being used for the kiting. But it is only those transfers which are deemed conclusively fraudulent.
As to other creditors, who were not part of the kiting scheme and who received payments from the Debtor, the guilty plea has no significance because it does not show that the payments to the other creditors with regard to each and every transaction that occurred during the period of the kiting were made with an intent to defraud anyone.
At the time of the payments in question, which are being attacked in Count I, Union was not being used for the kiting scheme. Its status was the same as any non bank creditor who received a payment from the Debtor. It received payments on debts owed it. As to those types of payments nothing has been submitted as to KNOWLES’ actual intent.
In the context of § 548(a)(1) the courts look to the surrounding circumstances to determine intent. 4 Collier on Bankruptcy, ¶ 548.02. Its determination cannot be by some mechanical means. Collier states:
Since section 548(a)(1) requires an actual intent to hinder, delay, or defraud, its application cannot be mechanical. As Judge Hough so aptly said:
The elements productive of that intent ... can never be defined. They vary as do facts, and any judge or jury, dealing with facts by some rule of thumb, will always miss the human touch. Testimony can never be tested or weighed by machine.
KNOWLES’ cheek kiting scheme may be a factor to be considered, but it is not controlling.
The cases which the Plaintiff relies on to support his proposition that KNOWLES’ plea of guilty to bank fraud is prima facie evidence of intent to defraud the Debtor’s creditors are factually inapposite. Those eases do not involve cheek kites. In re Mark Benskin & Co., Inc., 161 B.R. 644 (Bkrtcy.W.D.Tenn.1993), cited in the Plaintiffs brief, involved a Ponzi scheme, and it appears that the court rendered its decision after a trial. Holding that the transfers were avoidable under § 548(a)(1), the court stated:
The Trustee’s complaint relied upon the transfers being made with the debtor’s “actual intent to hinder, delay, or defraud” other creditors. 11 U.S.C. § 548(a)(1). The proof demonstrated that the debtor, and its principal Mark Benskin, knew when paying the Maples that there were insufficient assets to satisfy other creditors. The debtors’ intent to defraud creditors was established by the guilty pleas to the related criminal charges and preclusive effect may be given to those guilty pleas as factual findings to the extent that the debtors’ intent to defraud creditors is required in this adversary proceeding. The indictment to which Mr. Benskin and his company pled guilty is Exhibit 12 to the eviden-tiary deposition of Mr. Benskin, and it clearly alleges a scheme by both Mr. Bens-kin and his solely controlled company to defraud creditors, including a scheme to control the investors’ funds and to use those funds for the debtors’ benefit. By pleading guilty the debtors admitted, among other things, misappropriation of customers’, including Beverly Poston’s, funds and misrepresentation to customers of the status of or return on their investments.
Later on in the opinion, the court commented:
The Court does not believe that any of the parties deny the debtor’s fraudulent intent and there can be no doubt of it. As one court observed “[t] statutory language makes it plain that one can infer an intent to defraud from the mere fact the Debtors were operating a Ponzi scheme.”
On appeal, In re Mark Benskin & Co., 1995 WL 381741, 1995 U.S.App. LEXIS 16053, the court affirmed, stating:
We believe the district court correctly found, pursuant to section 548(a)(1), that when Benskin transferred funds to the Maples and the Hollies, he made the transfers with the actual intent to hinder, delay, *630or defraud his present or future creditors. In determining whether the debtor has the requisite intent, this court looks to the circumstances surrounding the transaction. One of the circumstances that unequivocally evidences fraudulent intent is the debt- or’s pursuit of a classic Ponzi scheme. Since 1966, this court has found that the question of intent to defraud in a Ponzi scheme “ ‘is not debatable.’ ” Other courts have also noted that an intent to defraud can be inferred as a matter of law from the mere fact that the debtor was running a Ponzi scheme:
One can infer an intent to defraud future undertakers from the mere fact that a debtor was running a Ponzi scheme. Indeed, no other reasonable inference is possible. A Ponzi scheme cannot work forever. The investor pool is a limited resource and will eventually run dry. The perpetrator must know that the scheme will eventually collapse as a result of the inability to attract new investors. The perpetrator nevertheless makes payments to present investors, which by definition, are meant to attract new investors. He must, know all along, from the very nature of his activities, that investors at the end of the line will lose their money. Knowledge to a substantial certainty constitutes intent in the eyes of the law, and a debtor’s knowledge that future investors will not be paid is sufficient to establish his actual intent to defraud them.
Based on the facts presented at trial and the indictment to which Benskin pled guilty, the bankruptcy court had more than enough evidence to find that Benskin had the requisite intent to defraud his investors. (Citations omitted.)
There are fundamental differences between the Ponzi eases relied on by the Plaintiff and the facts of this case. The analogy that the Plaintiff makes is faulty. A Ponzi scheme cannot last forever and the investors at the end of the line will come up empty. Therefore, an intent to defraud, with regard to the last investor, can be inferred from the very beginning. This “fraudulent intent permeates the whole scheme and the courts have found an intent to defraud in a Ponzi scheme “not debatable.” The challenged transfers involve payouts to other investors. Thus, as the court found in In re Mark Benskin & Co., the debtor, when making the transfer of Ponzied funds, need only have the actual intent to defraud a creditor, whether an early or later investor.
In the present case, the Debtor had ongoing legitimate businesses apart from the cheek kiting scheme. All KNOWLES’ criminal conviction establishes is that he defrauded the Banks by writing checks between them. It is only those transfers which are conclusively fraudulent. While the kite was going on, KNOWLES did have the “intent to defraud a creditor” but there is no showing that he made the challenged payments to Union with the intent to defraud the Banks or any other creditor. The check kiting, like a Ponzi scheme, comes to a point of no return where the cheek kiter could never find a way out. At that point, every transfer might be made with an intent to defraud creditors, for the cheek kiter would not be able to pay them all. Whether the Debtor was at that point when the transfers were made to Union would present a question of fact.1
The rule that a Ponzi scheme evidences an intent to defraud, does not necessarily apply to a check kite. In In re Drayer, 29 B.R. 831 (Bkrtcy.D.Mass.1983), the bank argued that the debtor was collaterally estopped from relitigating the issue of fraudulent intent in a non-dischargeability action based upon a determination of liability in a prior state court civil action for check kiting. Rejecting the *631bank’s contention and refusing to decide the matter on a motion for summary judgment, the court stated:
[The state court judge] found that the debtor was liable as a matter of law for the overdrafts. He did not make the finding of fraudulent intent which would be necessary under § 523(a)(2)(A), and which would make collateral estoppel appropriate. [The state court judge] found that the bank was empowered to pay overdrafts pursuant to [the UCC] and that the one who caused the overdraft is liable as a matter of law for any loss.... Although [the state court judge] did state that the debtor was involved in a “cheek kiting scheme,” the finding merely describes the action of the debtor in writing cheeks in very large amounts, depositing that check with another bank and then writing a cheek against that deposit before the first check has cleared; it is not a finding of fraudulent intent to deceive or the making of a false statement. (Citation.) The plaintiff cites the case of Stevens v. United States, 227 F.2d 5 (8th Cir.1955) to stand for the proposition that a finding of a cheek kiting scheme is equivalent to a finding of fraud. In Stevens, the court affirmed a jury finding that a check kite was a willful scheme to defraud. While it may be true that check kiting is commonly found to be fraudulent conduct, such a determination was neither made nor was it essential to the finding of liability, and is an issue of fact which has not yet been determined. Because the state court did not make the finding of fraud in fact, collateral estoppel is not appropriate.
Noting that the debtor had admitted engaging in check kiting, the court continued:
However, the debtor asserts that [the bank] has never proven that he acted with the requisite fraudulent intent. In his affidavit, the debtor states that although he wrote the checks which created the overdraft, he had made deposits of checks from [another], which the debtor expected to be collected. He also claims that the bank was aware of the overdrafts and they were created with the bank’s consent. The debtor states that he fully expected the check overdrafts to be covered.
A motion for summary judgment can only be granted if there exists no genuine issue of fact. Further all inferences contained in the affidavits and exhibits must be viewed in the light most favorable to the party opposing the motion for summary judgment. Although plaintiff argues that debtor’s admitted participation in creating the check overdrafts should lead to a presumption of fraud, the court should not on a motion for summary judgment draw fact inferences. The issue of fraud and the requisite intent under § 523(a)(2)(A) must be tried by this Court. The plaintiffs motion for summary judgment is denied. (Citations omitted.)
In In re Clemente, 15 B.R. 937 (Bkrtcy.N.D.Ohio 1981), the court, again after a trial, rejected the trustee’s contention that the existence of a check kiting scheme established an actual intent to defraud. The court stated:
Check-kiting is properly defined in the case of Federman v. United States, 36 F.2d 441 (7th Cir.1929), wherein the Court expressed that cheek-kiting was the following:
“... a plan whereby the perpetrator intended to get, and did get, money from one bank upon the representation of the cheek, which was a representation that there was money in the bank on which the check was drawn, when as a matter of fact there were no funds in the draw-ee bank, without any power in the drawer of the check to provide funds to pay such check, except by drawing a like check under like circumstances, constituted a scheme to defraud. This does not mean that every drawer of a check against an account where he has no funds is guilty of a scheme to defraud. This does not mean that every drawer of a check against an account where he has no funds is guilty of a scheme to defraud, but, when the undertaking is such that the checks must be drawn in rapid succession from one bank to another in an endless chain, as here, a scheme to defraud is shown.” at 442.
*632The eases cited by the trustee dealing with check-kiting all include a requirement of actual intent, where the defendants knowingly kited checks to defraud creditors. (Citations.) Upon examination of these cases, it appears that the majority of check-kiting cases are in a criminal setting, dealing with the criminal code. Thus, it is difficult to draw any correlations between those cases and the case at bar [objection to claim on basis that claimant had received fraudulent transfer.] The analysis here shall be made exclusively in the context of the Bankruptcy Act, and makes no representations whether the activity involved fits the requirements of criminal code violations.
It is clear that if one intentionally entered such a scheme, he would necessarily be misrepresenting his financial status. However, as the Federman case (supra.) indicated, the mere use of uncollected funds is not of itself proof of an intent to defraud, for a reasonable expectation of repayment would in many cases tend to negative the issue of intent. (Citation.)
Summary judgment is also inappropriate because the Defendant has pled two affirmative defenses specifically directed to Count I which raise questions of fact. Under Count I the Plaintiff contends he is entitled to summary judgment because there was no obligation between the Debtor and the Defendant. The payments made to the Defendant were not for the benefit of the Debtor, but were applied by the Defendant to satisfy personal indebtedness of KNOWLES and WELSH. The Defendant contends, first, that the Debtor received reasonably equivalent value from the transfer by the Defendant to Southwest Feed & Grain (SOUTHWEST), another entity owned and controlled by KNOWLES, by reason of the close business relationship of the Debtor and SOUTHWEST, so that the Debtor then “evened out” when it paid the obligation of SOUTHWEST. Second, the Defendant contends that the Debtor was paying a constructive dividend to KNOWLES when it made the payment to the Defendant on behalf of KNOWLES. The questions of fact raised by the Defendant are whether the Debtor received “reasonably equivalent value” and whether the Debtor owed KNOWLES at the time the payment to the Defendant was made.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in the Opinion entered this day, IT IS HEREBY ORDERED that the Motion filed by the Trustee for Partial Summary Judgment is hereby DENIED.
. KNOWLES was somewhat equivocal with regard to whether the Debtor was insolvent at the time the transfer was made to the Defendant. Apparently, the Debtor had funds which were tied-up in KNOWLES' speculation attempts. But whether these funds, had they not been lost or forfeited, could have covered the kite is conjecture and likely wishful thinking on his part. With regard to his commodity trading, KNOWLES stated, "I meant for, you know, I thought in my mind that I had all the bases covered and it would end up being profitable, but if not it would come out of their pocket in the end, anyhow." (Dep. p. 74) He characterized his perception of the check kiting at the time as "minimal," but agreed that in retrospect that such belief was not accurate. (Dep. p. 67) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492245/ | ORDER ON OBJECTION OF THE CLAIMS OF THE UNIVERSITY OF ALABAMA
ALEXANDER L. PASKAY, Chief Judge.
Among the several wholly owned subsidiaries of Hillsborough Holdings, Inc./Walter Industries (“HHC”), with possible exception, none has been involved in more serious and important litigations than Jim Walter Resources Inc. (“JWR”). Although the Joint Plan of Reorganization of HHC, its subsidiaries, and the Official Committees has been confirmed, the Plans expressly provided for the retention of jurisdiction to consider all objections to the allowance of claims filed against any of the Debtors involved in these Chapter 11 cases.
The immediate matter under consideration is an Objection by JWR to the claims filed by the University of Alabama (“University”). The original claims have been orally amended by the University and it is without dispute that the claims under consideration are the following: (1) an unsecured claim in the amount of $712,327.00 based on coal royalty allegedly due to the University on coal not mined but should have been mined and; (2) the sum of $170,340.98 for underpayment of coal royalty due to a miscalculation of the “F.O.B. mine” selling price.
JWR, in addition to challenging the alloca-bility of these two claims, filed its own claim against the University in the amount of $50,-695.10 based on alleged prior overpayment mistakenly made to the University. Because the claims of the University and the claim of JWR involved different factual basis, the parties agreed to try them separately and requested to have them considered accordingly. The facts relevant to both claims of the University as established at the final evidentiary hearing can be summarized as follows:
CLAIM FOR ROYALTY FOR THE UNMINED COAL
On June 26, 1974, the University granted to United States Pipe and Foundry company a coal mining lease covering certain real property, owned by the University, located in Tuscaloosa and Jefferson Counties, Alabama. (Debtor’s Exh. #32) Part of the property covered by the Coal Lease is 560 acres of land which comprises all of Section 6 (except N2/NW), T19S, R5W (“University Tract”). The unmined coal involved in this claim of the University is 42 acres located in the northeast corner of the University Tract. (Debtor’s Exh. # 1) This disputed area is marked red on the Exhibit. The Exhibit also depicts an additional triangular strip in the northeast corner which also has not been mined although it is covered by the Coal Lease. It is conceded by the University that this strip cannot be mined economically, thus, there is no claim asserted by the University for royalty payment relating to the unmined coal under this tract.
At the time the Coal Lease was executed, which was later assigned to JWR, all underground mining by JWR was the “room and pillar” type mining. Under this method of mining the coal was removed from interconnecting tunnels beneath the surface either by blasting (conventional mining) or by use of a machine referred to in the industry as a “continuous miner”. In deep mines such as the ones operated by JWR, this type of mining produced only 30% of the coal available for mining underneath the property being mined. In order to explore the possibility of increased production JWR consulted in 1976 with the mining consulting firm of Paul *678Weir & Co. (later renamed Weir International Mining Consultants). The Firm after having conducted a study recommended that JWR change its method of mining from the “room and pillar method” to longwall mining method.
Longwall mining is a fairly recently developed method and at the time of the Weir study was not well known in the United States. Under this method a large area can be mined by one machine. The continuous miners which are relatively small machines cut out tunnels, sometimes called “entries” or “roadways” in the underground coal seams which in turn creates a large panel or block of coal that is 6 feet tall, 700 feet in width and 5,000 feet in length. After the roadways are cut out around the panel, a longwall machine called a shearer is set up across the width of the panel of coal. This machine has two cutters which run across the 700 feet face of the longwall panel, cutting out the coal, which is then carried out by a conveyor belt that runs underneath the machine. On the top of the machine a shield is installed which provides roof support for the miners and the equipment. (See Debtor’s Exh. # 6) As the longwall machine cuts into the panel of coal it moves forward along the length of the panel and the shield with it, leaving behind a cavity in the earth with no roof support. As a result of the weight of the coal and rock overlying the cavity, the roof collapses and breaks down into a mass of smaller pieces called the “gob”.
The longwall mining method has been recognized to have decided advantages in deep mines primarily because the recovery under this method is typically 50 to 60% as distinguished from the 30% recovery which is the norm in the room and pillar type mining. While it is true that even under this method a substantial portion of the coal cannot be recovered, the loss of coal is unavoidable and under the present state of art the result produced by longwall mining is the best one can expect. However, it should be pointed out that longwall mining is extremely expensive. For instance, the longwall mining equipment described earlier, is composed of a shearer, shields and a conveyor belt, runs as high as $20 million. Moreover, unless the machinery is utilized, constantly operating, such an expensive machine is not economically feasible.
There is another problem with the longwall mining. In order to operate the machinery in an economical fashion, the longwall panels must be the shape of rectangles and must be laid out in a series so that panels can be developed in sequence, one after the other, with the development of entries sometimes referred to as tunnels which are shared among the panels in the series. In essence, this method is not suitable for small or irregular shaped or isolated pieces of properties.
An unavoidable byproduct of coal mining has been traditionally the methane gas which is, of course, dangerous because it might cause asphyxiation in addition to being highly explosive. In order to dilute and remove the methane gas, operators of deep mines including JWR use large fans in order the circulate vast quantities of air through the mines. The fans used are the largest such fans used in the United States. They are designed to pull the air down into the intake shaft, through the roadways or tunnels across the active mining face of the longwall panel and then back out through the tunnels behind the longwall panel. These are called “bleeders.” The air is exhausted through fan shafts to the surface. Federal law requires not only that these fans are kept in constant operation but also that the bleeders for each longwall panel be kept open during the entire time the panel is being mined.
OPERATION OF THE UNIVERSITY TRACT
JWR began its mining of University Tract during the first half of 1983. (Debtor’s Exh. # 1) Over the next 9 years, parts of five separate longwall panels and related development entries were mined underneath the University Tract. These operations paid to the University as royalties in excess of $11 million based on the coal mined. While this operation produced approximately 50% of the total coal underlying the entire University Tract which, of course, was in excess of what was produced through the room and pillar type of mining, it was only achieved by overcoming some unusual and difficult hurdles. *679In about 1986, when mining the east/west tunnels at the southern end of what later became F panel, JWR encountered a faulted, disturbed zone. Prior to running into this disturbed zone JWR was not aware of its existence and although repeated core hole drillings were utilized to test the ground, this type of geological feature was not readily detectable. Initially this disturbed zone was not expected to present a major problem since in the past similar disturbed zones had been encountered. As mining progressed between the entries of F and G panels this disturbed zone got worse and ultimately made it impossible to continue mining in the entries. Attempts to bypass the disturbed zone and to continue to mine were not very successful and because the entries for the F panel were west of the disturbed zone, which extended through the entire length of F panel, these entries could not be used to mine G panel as was originally planned. In addition, there were unsteady roof conditions present in the disturbed zone that rendered the mining of the G panel dangerous. Further plans were made to overcome this obstacle and to mine the G panel. Such additional exploratory work was conducted to further define the direction and the extent of the faults which were bordering the G panel. After completing this additional work JWR came up with a new design for G panel which they believed would permit mining of the G panel.
One of the changes recommended was to change the layout of the G panel so that two sets of entries would be driven for G panel, one on each side, rather than only one set. This new design was more expensive and time consuming to implement. This modification and the redesign of G panel permitted JWR to mine additional significant amount of coal. Safety considerations and timing/economic considerations prohibited extending the G panel up to the disputed area.
SAFETY CONSIDERATIONS
The safety considerations primarily related to the ability to keep the bleeders of G panel open if the panel was extended to the north. In order to extend the G panel to the north it would have required JWR to employ what is known in the industry as “internal bleeders.” It appeared to be doubtful that the mine safety hazard agency of the Federal Government, MSHA, would have approved the use of internal bleeders because of the likelihood that the roadways would collapse as the mining proceeded. Furthermore, if JWR attempted to utilize the internal bleeders, it appeared likely that the interconnecting bleeders between the F and G panels (see inset B on Debtors’ Exh. #3) would have collapsed before G panel was completed because of the stress that would have been placed on them when' the longwall mining operating passed. There is testimony in this record to establish that extending the G panel into the disputed area would have created unacceptable risk not only for JWR and its miners but also for the University. It appears that even with the limited stress placed on the bleeders, through the operation actually conducted, they began to experience severe deterioration before mining on G panel was completed. During the last two months of mining on G panel, MSHA required that JWR maintain continuous 24 hour inspection of that area as a precondition to continue the mining of the G panel. In addition, several other problems were encountered toward the end of the mining operation of the G panel. Flooding and cave-ins in the headgate and tailgate area were so severe that the panel could not be completed and some of the mining equipment had to be abandoned.
TIMING/ECONOMIC CONSIDERATIONS
In addition to safety concerns, economic considerations also made it impractical to extend G panel northward into the disputed area. As noted earlier, due to the fact that the longwall mining equipment is extremely expensive the equipment must be kept in almost constant operation to make the mining through this method economically feasible. JWR plans its mining operations 5 to 10 years in advance. Obviously, the ten year plan is very general and non-specific and the five year plan is more, and in fact very, detailed. The five year plan is reviewed every three months as the mining progresses so adjustments can be made as required by changed or unknown underground conditions. Additionally, JWR was constantly re*680viewing satellite photographs, conducting seismic tests, and drilling core holes at the cost of $100,000.00, even before the mining commenced, in order to make sure there were not geological problems which would either impede, inhibit or obstruct the proposed mining operation. A total of six or seven core holes were drilled in conjunction with the planned mining of the G panel. Notwithstanding, even with this extensive pre-testing it did not become evident until later, that due to the fault, there existed a disturbed zone and certainly there was not prior evidence of the magnitude of this disturbed zone. After discovering this problem, JWR revised its five year mining plan and even though the inherent risk involved in this proposed mining, laid out a double drivage panel to be mined between the disturbed zone and the large fault to the east. Generally speaking, mining continued through two shifts per day and the third shift was reserved for equipment maintenance. In the present instance, G panel was mined in three shifts, that is around the clock, in an effort to expedite the mining of the panel and to compensate for delays which were expected to be caused by the geological features encountered in and around the F and G panels. It became evident that moving the start up point for the G panel further to the north would have been impractical even if the above discussed safety consideration could have been overcome. It appears that moving the start up point to the north, thus extending the G panel, would have resulted in a delay of at least 93 work days or almost five calendar months which would have cost JWR approximately $18 million.
In sum, it appears that because of the safety considerations and the unexpected and undiscoverable geological conditions, it would not have been economically sound to extend the G panel up north and attempt to mine the disturbed zone. This leaves for consideration whether or not the coal in the disturbed zone is lost completely and cannot be economically mined or that it has no value because it is unmineable or “bypassed coal” as used in the parlance of mining. The area is not isolated from any potential mining operation in the future and on the contrary is accessible from the north and therefore the coal in the disturbed zone could be mineable in the future.
MINING PROJECTIONS REQUIRED TO BE PROYIDED TO THE UNIVERSITY
Section 11 of the coal lease provides that:
In advance of any actual mining on property of Lessor, Lessee shall submit to Lessor suitable detailed projections showing the contemplated advance of all workings. Lessor shall have thirty (30) days after receipt of such projections within which to raise objections based on the ground that such workings, if projections, will constitute imprudent or unworkmanlike mining operations; and any matters not objected to in writing, delivered by Lessor to Lessee within such thirty (30) day period, shall be deemed to have been approved by Lessor. ...
Under the coal lease, the University has 30 days after receipt to object to the proposed operations but in absence of an objection the proposal is deemed to have been approved by the university. The lease further requires that at least every six months that mining operations are being conducted, JWR must furnish the University with a map showing where the operation is being conducted. Pursuant to the requirements of section 8 and 11 of the coal lease, JWR provided the University “Progress Maps” every six months. and with the five year plan maps annually. The progress maps were intended to inform the University where the mining is taking place and also where the mining is going to take place in the future. The purpose of the five year map plans is also identical.
It is without dispute that the maps furnished to the University beginning in 1988, clearly showed that no mining was contemplated in the disputed area. For instance, the five year plan for 1988-1993 (Deb exh. 11) clearly indicated that the G panel would not extend into the disputed area, that G panel would begin south of the disputed area, and that no mining would be conducted in the disputed area. In addition, progress maps submitted to the University (Deb. ex. *68126) which covered the period of January to June in 1989, set forth precise projections for the layout of the G panel, and just like the five year plans, clearly showed that the G panel was not to extend into the disputed area. There is no evidence in this record to warrant the finding that the University did at any time prior to August 19, 1991, interpose an objection either orally or in writing to the proposed layout of the G panel. Despite the fact that the maps furnished to the University during 1988, 1989, and 1990, clearly indicated that Jim Walter Resources did not contemplate and intend to mine in the disputed area by extending the G panel north, it was not until August 1991, after the commencement of the Chapter 11 case, before the University voiced an objection to the mining plan as depicted by the maps discussed earlier.
Basically these are the facts established at trial, based on which the claims as set forth in the Debtor’s Objection to the claims filed by the University must be evaluated. The University has filed a unsecured claim in the amount of $712,327.00 as a royalty payment for unmined coal. The burden of proof is upon the University to prove is claim by a preponderance of the evidence. Basically there are two claims alleged by the University.
First, it is alleged that JWR was negligent, imprudent or guilty of faulty practices when it adopted and implemented a mining plan that located the longwall start-up point for G panel south of the disputed area. In mining panel F and G, JWR was faced with unforeseen geological disturbances. Based upon expert testimony presented at trial, JWR followed the best possible alternative by placing the start-up point for panel G south of the disputed area. The decision to place the start-up point there is justified because it would have been an imprudent decision for JWR to continue into the disturbed area based upon the safety considerations involved and the fact that the longwall mining machine must be constantly running in order to prevent millions of dollars of loss due to idle time. This Court is convinced any mining business confronted with the same geological situation would have taken the same approach.
Secondly, the University claims that by changing the start-up point for panel G to the south of the disturbed area, the coal remaining in the 42 acres at the northeast corner of the University Tract is rendered unmineable. There is no believable evidence before this Court that the coal located in this area is unmineable. Obviously, the coal is not reachable from the original approach but the facts show that the coal could be mined by someone else by approaching it from another direction, such as from the adjoining property to the north, and thus this Court is not convinced the coal is unmineable.
Based on the foregoing, this Court is convinced that the University has not met it’s burden of proof, and therefore, JWR’s objection to the portion of the University’s claim involving royalties claimed for coal still in the ground, is sustained.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection by JWR to the claim of the University of Alabama as it relates to the coal royalties be, and the same is hereby sustained and that portion of the claim be, and the same is hereby, disallowed. A separate order will be entered on the portions of the claim arising from the underpayment of royalties due to the calculation of the F.O.B. selling price and the counterclaim asserted by JWR to recover overpayments made to the University. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492246/ | ORDER ON OBJECTION TO EXEMPTIONS
ALEXANDER L. PASKAY, Chief Judge.
IN THIS Chapter 7 liquidation case, Donna L. Ulino (Debtor) claimed as exempt certain personal properties including a 1989 Ford Mustang. Diane L. Jensen (Trustee), the Trustee in charge of the administration of the estate, timely challenged the Debtor’s claim of exemptions. The Trustee’s objection is twofold. First, the Trustee contends that the aggregate value of the personal properties claimed as exempt exceeds the maximum allowed by Article X, § 4(2) of the Florida Constitution which places a cap on personal property of $1,000.00. Second, the Trustee objects to the claim of exemption concerning the 1989 Ford Mustang, contending her claim also exceeds the cap fixed on the exemption by Fla.Stat. 222.25, which is $1,000.00. The Debtor in her response, while admits that her personal property exemption claim exceeds the maximum of $1,000.00, contends that the excess is only $80.00. And concerning the claim of exemption of the Ford Mustang, while admits again that it is more than is permitted by law, exceeds the Statutory cap only by $701.14, not the amount claimed by the Trustee. Concerning the alleged excess exemption represented by the monies on deposit in the bank, the Debt- or contends that the true balance in her bank account on the date of the commencement of this case was only $7.77 rather than $25 stated on her Schedule C. Accordingly, it is the Debtor’s contention that her claim of exemptions exceeds the maximum allowable only by $781.14, the amount she is willing to pay to the Trustee in redemption of the excess.
The real controversy centers around the valuation of the 1989 Ford Mustang. Both the Trustee and the Debtor presented expert testimony, one relying on the well-known periodic publication by the National Automobile Dealers Association (NADA) and the other on the so-called Black Book, a publication of the National Auto Research Division, Hearst Business Media Corp. The expert who relied on the Black Book, after deducting the costs of repairs which according to the expert were needed to put the car in shape, valued the Ford Mustang at $2,000 using trade-in value. The Trustee’s expert using the NADA book valued the Ford Mustang using wholesale valuation at $4,500.00 and using retail valuation at $5,700.00. The expert who deals with used automobiles stated that he is willing to pay $3,500 for the automobile as is and expected to resell it for at least $4,200 to $4,500.
The wide difference between the two values opined by the experts is due largely to the different bases used by each, i.e. trade-in versus wholesale or retail value. Disputes concerning valuations usually came up in the past in connection with proceeding for the purpose of determining the amount of allowable secured claim pursuant to § 506(a) of the Bankruptcy Code. The Courts interpreting this Section have placed varying importance on two clauses of the Section. One line of cases concluded that the clear language of the Section in the first sentence is determinative. This sentence provides that the creditor’s claim is secured to the extent of the value of the creditor’s interest in the estate’s interest in the property involved. In re *683Mitchell, 954 F.2d 557 (9th Cir.) cert. denied 506 U.S. 908, 113 S.Ct. 303, 121 L.Ed.2d 226 (1992); In re Overholt, 125 B.R. 202 (S.D.Ohio 1990). The proponent of this approach contend that the right of the secured creditor is nothing more than to take possession of the collateral upon default and the value of the secured claim is equal to the amount the creditor could receive upon the resale of the collateral, i.e. the wholesale value of the collateral.
The second approach focused on the second sentence of the Section which provides that the interest of the secured creditor must be valued in light of the purpose of the valuation and the proposed disposition or use of the collateral. In re Rash, 31 F.3d 325 (5th Cir.1994); In re Green, 151 B.R. 501 (Bankr.D.Minn.1993). Under this approach where the Debtor intends to retain and use the collateral the value of the creditor’s secured interest should be the cost to replace the collateral that is the retail value. The issue was considered recently by the Eighth Circuit in the case of In re Trimble, 50 F.3d 530 (8th Cir.1995). The Court in Trimble voiced its approval of the approach of the Fifth Circuit in Rash, supra. The court in Trimble reasoned that only the Rash approach gives full effect to the entire language of § 506(a). Based on the foregoing, the Court concluded that the proper basis to be used when valuing the interest of a secured creditor when the debtor intends to retain and use the collateral is the retail value of the collateral without any deduction for cost of repossession or sale.
The question still remains, however, whether the holdings of Rash and Trimble should be limited to valuation of encumbered assets of the debtor’s estate pursuant to § 506(a) and for the purpose of determining the amount of the allowable secured claim or should also be used for the purpose of determining the value of a property claimed as exempt. At first blush one might conclude the difference requires a different result and the proper basis for valuation in the present instance should be the wholesale value of the automobile. A closer analysis of the issue leaves no doubt that distinction is really without difference. This is so because in the present instance the Debtor just as the debtors in Trimble and Rash intends to retain and use the collateral. Thus, the value of the Ford Mustang as far as the Debtor is concerned is the value of the right of the continuing use of the collateral. This value, in turn, must be measured by the costs of replacement, i.e. the retail value because if the right of continuing use is lost the debtor will have to replace the car if she desires to have the same age and type paying retail and not the wholesale value for the replacement.
Based on the foregoing, this Court is satisfied that the value of the Ford Mustang is the NADA book’s retail, that is $5,700.00, minus the cost of repairs $1,390.00 (Debtor’s Exhibit No. 1) or $4,310.00. Accordingly, the Trustee’s Objection to the claim of exemptions concerning the Ford Mustang is sustained and the exemption concerning same is limited to the value of $1,000.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Debtor either redeems the car by paying the excess of $3,310.00 within thirty (30) days from the date of entry of this Order and in the event she fails to do so the Trustee is authorized to take possession of the Ford Mustang and sell the same pursuant to § 363(f) of the Bankruptcy Code and pay the Debtor the amount of the allowed exemption, the sum of $1,000. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor’s claim of exemption as to other personal property, the claim of exemption is limited to the sum of $1,000 and the Debtor shall pay the excess to the Trustee within thirty (30) days from the date of this Order unless the Trustee consents to a repayment schedule.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492247/ | ORDER APPROVING STIPULATED SETTLEMENT AND VACATING JUDGMENT BELOW
Having considered the stipulated settlement proposal submitted by the parties, and the entire record in this matter, it is by the Court this 21 day of April, 1994,
ORDERED that the stipulated settlement is approved; it is further
ORDERED that the decision in In re Cost, 161 B.R. 856 (Bankr.S.D.Fla.1993), is vacated; it is farther
ORDERED that, pursuant to the settlement between the parties to this appeal, this case is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492248/ | ORDER ON STATUS CONFERENCE TO DETERMINE STATUS OF ADVERSARY PROCEEDING
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before the Court upon an Order of Transfer from the United States District Court for the Southern District of Florida dated August 24, 1994 and filed with this Court on September 7, 1995, wherein the District Court, upon mandate issued by the Eleventh Circuit Court of Appeals, transferred the above-styled adversary proceeding the this Court for all further proceedings.
BACKGROUND
On June 18, 1991, the Debtor, Emerald International Investments, Inc. (“Emerald”) filed a chapter 11 bankruptcy petition.
In a notice dated August 4, 1992, the Federal Deposit Insurance Corporation (the “FDIC”) informed Emerald that the Office of the Comptroller of the Currency had declared insolvent and closed Southeast Bank, N.A. (“Southeast”). The notice also announced the appointment of the FDIC as receiver, and stated that creditors should file claims against Southeast with the FDIC within 30 days of the date of notice, or risk having their claims disallowed.
On September 1, 1992, the FDIC received Emerald’s claim against Southeast in the amount of $268,141.91 representing loan payments made to Southeast.1 Though apparently timely filed, the FDIC stated in a notice dated February 17, 1993 that Emerald’s claim “should be entirely disallowed” because it was “not timely filed.”
Based on the adverse determination of its claim, Emerald immediately filed, on February 25, 1993, a lawsuit in the United States District Court for the Southern District of Florida to obtain a trial de novo, pursuant to 12 U.S.C. § 1821(d)(6)(A).
On November 24, 1993, the District Court dismissed Emerald’s action without prejudice. The court, citing the Southern District of Florida’s Administrative Order No. 84-12, determined that “Emerald’s fraudulent transfer claim must be presented to the bankruptcy court.” The District Court then dismissed the action without prejudice “for resubmission in the bankruptcy court.”
Emerald moved for reconsideration arguing that, by dismissing the action, the District Court in effect was precluding Emerald *703from resubmitting its ease to the Bankruptcy Court because the 60-day statute of limitations period under 12 U.S.C. § 1821(d)(6)(A) was by this point expired. The District Court denied Emerald’s Motion for Reconsideration on January 14, 1994. Emerald appealed to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit agreed with Emerald and concluded that the District Court abused its discretion by dismissing Emerald’s action. The court stated that had the district judge felt the claim belonged in the Bankruptcy Court, it could have so ordered or transferred such without resort to dismissal and, in the process, preserved Emerald’s action. Accordingly, on May 25, 1995, the Eleventh Circuit Court of Appeals, per curiam, reversed the District Court’s order of dismissal and remanded the ease to the District Court with directions that the District Court refer the case to the Bankruptcy Court.
APPLICABLE LAW AND DISCUSSION
The FDIC’s claims process was enacted in 1989 as part of the Financial Institutions Reform, Recovery and Enforcement Act, Pub.L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989) (“FIRREA”) and is found at 12 U.S.C. § 1821(d)(3)-(13). The FDIC’s claims process under 12 U.S.C. § 1821(d)(3)-(13) gives the FDIC the authority to disallow claims not proved to its satisfaction. 12 U.S.C. § 1821(d)(5)(D); Bueford v. RTC, 991 F.2d 481, 486 (8th Cir.1993).
To effectuate its goals of managing claims in an expeditious and efficient manner through an administrative process, Congress placed jurisdictional limits on the power of the federal courts to review matters involving failed savings and loans under FIRREA. The precise jurisdictional limitations on federal courts mandated by FIRREA are determined by reading § 1821(d)(13)(D) in conjunction with the statute’s allowance of an action within sixty days of a claim being denied as provided for in § 1821(d)(6)(A). Together, these provisions mandate that the district court not hear any claim until it has been rejected by the RTC in its administrative review or until the 180 day administrative review period has expired. Brady Dev. Co. v. RTC, 14 F.3d 998, 1003 (4th Cir.1994). Therefore, § 1821(d)(6) does not prohibit judicial review, but rather spells out when and how judicial review is available. Congress instructed district courts to determine claims against failed banks de novo rather than merely to review the receiver’s initial determination for error or abuse of discretion. 12 U.S.C. § 1821(d)(6)(A); Office and Professional Employees Int’l Union Local 2 v. FDIC, 962 F.2d 63 (D.C.Cir.1992); Rosa v. RTC, 938 F.2d 383, 391-92 (3d Cir.1991); Brady Dev. Co. v. RTC, 14 F.3d 998, 1003 (4th Cir.1994); Bueford v. RTC, 991 F.2d 481, 486 (8th Cir.1993). The legislative history which discussed the FDIC’s claim process states:
The agency’s determination cannot be appealed but a claimant, after exhaustion of administrative remedies, may choose to present its claim de novo in the District Court or to use an administrative review procedure established by the agency, (emphasis added).
(H.R. No. 101-54(1), 101st Cong. 1st Sess. (1989). Reprinted in 1989 U.S.C.C.A.N. 86, 130).
Specifically, § 1821(d)(6)(A) provides that in order to pursue a claim disallowed by the FDIC a party may, within 60 days of the date of the notice of disallowance, “file suit on such claim ... in the district or territorial court of the United States for the district which the depository institution’s principal place of business is located or in the United States District Court for the District of Columbia (and such court shall have jurisdiction to hear such claim).” 12 U.S.C. § 1821(d)(6)(A) (West 1989). Emerald filed suit on its claim eight days after the FDIC’s February 17, 1993 notice of denial of Emerald’s claim as untimely; therefore Emerald was well within the 60-day time limit to pursue its disallowed claim in the District Court under § 1821(d)(6)(A). Moreover, because the Eleventh Circuit reversed the dismissal of Emerald’s § 1821 lawsuit and remanded the matter to the District Court to be transferred to the Bankruptcy Court, the suit before the Bankruptcy Court is also timely.
*704This matter is a case of first impression in the United States Bankruptcy Court for the Southern District of Florida. As a rule, in order to pursue a claim disallowed by the FDIC, a party must file suit in the District Court where the depository’s principal place of business is located. As set out above, Emerald did timely file suit in the District Court and the suit was dismissed by the District Court. However, upon the dismissal of Emerald’s § 1821 lawsuit and the subsequent reversal of the dismissal of Emerald’s suit, the Eleventh Circuit remanded the § 1821(d)(6)(A) proceedings to be heard by the Bankruptcy Court. Accordingly, the Bankruptcy Court in effect has been directed to determine a matter traditionally heard by the District Courts.
Based on the foregoing, the Court determines that pursuant to the order of the Eleventh Circuit Court of Appeals and § 1821(d)(6)(A), Emerald shall be allowed to present to this Court de novo its claim which was disallowed by the FDIC in accordance with the claims process under 12 U.S.C. § 1821(d)(13). Accordingly, it is
ORDERED: that the Court shall enter its standard pre-trial order regarding Emerald’s trial de novo of the FDIC’s disallowance of Emerald’s claim.
DONE AND ORDERED.
. Emerald contended that the payments constituted fraudulent transfers in violation of 11 U.S.C. § 548 and Florida Statutes §§ 726.101-201, and could be avoided pursuant to 11 U.S.C. § 544. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492249/ | DECISION ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
CONRAD B. DUBERSTEIN, Chief Judge.
This matter comes before the court as an adversary proceeding brought by the Chapter 7 Trustee (“Plaintiff’ or “Trustee”) of the estate of Robert B. Smith (“Debtor”) to recover a preferential transfer pursuant to section 547 of the Bankruptcy Code (“Code”). The defendant in this case, Valerie Schretter (“Defendant”), seeks an order for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure (“Fed.R.Civ.P.”),1 dismissing this adversary proceeding on the ground that Plaintiffs action was commenced after the relevant statute of limitations period had expired. After consideration of the facts and issues raised herein, for the reasons hereinafter set forth, the Defendant’s motion for summary judgment should be granted and the Trustee’s complaint should be dismissed in its entirety.
FACTS
On January 21, 1993, the Debtor filed a voluntary petition for relief under Chapter 7 of the Code. Pursuant to section 701, David Doyaga was appointed interim trustee on that same date. At the first meeting of Creditors, held on February 23, 1993, Mr. Doyaga was appointed permanent trustee.
The Trustee initiated this adversary proceeding on July 12, 1995, seeking to recover a $4,100 payment made by the Debtor to Valerie Schretter, the Debtor’s sister-in-law. The complaint alleges that the payment was made within one year of the filing date and is, therefore, recoverable as a preferential payment under 11 U.S.C. § 547(b)(4)(B).2
In a letter dated December 30, 1993, the Trustee, through his attorney, attempted to contact the Defendant in regard to this payment. See Exhibit B to Trustee’s Complaint. The letter reads, in pertinent part, as follows:
The records of the above captioned debtor indicate that within one year prior to January 21, 1993, the date of the filing of the above captioned case, the debtor paid over to you the sum of $4,100.00 on account of *755an antecedent debt incurred more than 45 days prior to the day of payment. In our opinion, this payment to you constitutes a voidable preference which the Trustee is entitled to set aside and recover back pursuant to United States Bankruptcy Code. I, therefore, respectfully demand that you pay over to me the aforementioned sum of $4,100.00 by return mail.
Id.
According to the Debtor’s Statement of Financial Affairs, this alleged payment is part of a larger debt of which the Defendant is still owed $15,000.00.
The Defendant timely filed an answer with this Court on August 11, 1995. In her answer, the Defendant asserts that the Plaintiff is time barred as he failed to initiate his preference action within two years of his appointment as Permanent Trustee, the statutorily prescribed limitations period mandated by section 546(a) of the Code.3 The Defendant subsequently moved this Court for summary judgment to dismiss the Plaintiffs complaint.
In response to the Defendant’s motion, the Plaintiff points to the Debtor’s failure to supply him with the proper address of the Defendant so that she could be contacted regarding her alleged receipt of the preferential payment. The Trustee argues that the Debtor, represented by the same counsel as the Defendant, willfully manipulated the Defendant’s address in his schedules in order “to purposely delay and frustrate” the procurement of the Defendant’s correct address. See Plaintiffs Affirmation in Opposition to Debtor’s Motion for Summary Judgment ¶ 4 (“Plaintiffs Affirmation”). As listed in the Debtor’s Statement of Financial Affairs, the address of the Defendant is “2 Eaton Court, Baskingridge, New Jersey 17920.” The correct address, as conveyed in a June 15, 1995 letter from the Defendant’s (and Debtor’s) attorney to Plaintiffs attorney, is “39 Eaton Court, Bedminister, New Jersey 17921.” See Exhibit B to Plaintiffs Affirmation.
The Defendant claims that the Trustee’s argument is completely without merit as the Trustee failed to make any request for the correct address until May, 1995, approximately three months, according to the Defendant, after an adversary proceeding could have properly been commenced. In support of this claim, the Defendant offers a letter from the Trustee’s counsel to the Defendant’s counsel, dated May 30, 1995, in which the former states:
For the past couple of weeks, I have been trying to obtain the address for Valerie Schretter which you have failed to supply me with. I do not understand why it is taking you so long to obtain the address of Valerie Schretter.
Exhibit A to Defendant’s Reply Affirmation in Further Support of Motion for Summary Judgment Dismissing Complaint.
The Defendant asserts that this letter shows that the earliest the Trastee sought her correct address was during the month of May, 1995. Accordingly, the Defendant claims that since the statute of limitations had already expired, the failure to provide the correct address was not the cause of the delay in commencing this adversary proceeding. In response, the Trustee contends that the Debtor’s willful manipulation of the Defendant’s correct address constitutes an allowable excuse for the lateness in bringing this action.
DISCUSSION
Under section 547(b) of the Code, a Trustee has the power to avoid certain transactions, known as “preferential transfers,” made by a debtor prior to filing a petition in bankruptcy. This section reads as follows:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property-—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
*756(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payments of such debt to the extent provided by the provisions of this title.
11 U.S.C. 547(b).
A trustee is limited, however, in when this “preference action” may be brought. Section 546(a) of the Code imposes the following restrictions:
(a) An action or proceeding under section 544, 545, 547, 548, or 558 of this title may not be commenced after the earlier of—
(1) two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title; or
(2) the time the case is closed or dismissed.
11 U.S.C. 546(a).4
This section is very clear. A permanent trustee5 has two years from the time of his appointment, under section 702, to initiate a preference action pursuant to section 547(b).6 In the case at bar, David Doyaga was elected permanent trustee on February 23, 1993. The present adversary proceeding to recover an alleged preferential payment was not commenced by the Trustee until July 12, 1995, nearly two and one-half years after the Trustee’s appointment. The two year statute of limitations had clearly expired.
Plaintiff argues that it procrastinated in commencing this adversary proceeding because of the Debtor’s willful manipulation of the Defendant’s address in the Debtor’s schedules. This was done, according to the Plaintiff, “to purposely delay and frustrate the trustee” in obtaining Ms. Schretter’s address. Plaintiffs Affirmation, ¶ 4. Based on this allegation, this Court now looks to see if the Plaintiff has a valid claim under the doctrine of “equitable tolling.”
The equitable tolling doctrine provides:
[W]here the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party.
Lampf, Pleva, Lipkind, Prupis, & Petigrow v. Gilbertson, 501 U.S. 350, 362, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991) (quoting Bailey v. Glover, 88 U.S. (21 Wall) 342, 348, 22 L.Ed. 636 (1875).
The equitable tolling doctrine applies to “every federal statute of limitation.” Ernst & Young v. Matsumoto (In re United Insurance Management, Inc.), 14 F.3d 1380, 1384-85 (9th Cir.1994) (quoting Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1945)); Metzeler v. Bouchard (In re Metzeler), 66 B.R. 977, 980 (Bankr.S.D.N.Y.1986) (“Since Bailey v. Glover, it has been the rule that a federal bankruptcy statute applicable to fraudulent transfer actions is subject to tolling until the plaintiff has ‘discovered, or has failed in reasonable diligence to discover’ the wrong.”) (citation omitted). This includes section 546(a)(1). See United Insurance Manag*757ement, Inc., 14 F.3d at 1385 (providing a substantial list of cases applying the equitable tolling doctrine under section 546(a)(1)).
The District Court for the Southern District of New York has dealt with the issue of equitable tolling in the context of Section 546(a). The Mediators, Inc. v. Manney (In re The Mediators, Inc.), 190 B.R. 515 (S.D.N.Y.1995). Citing the Second Circuit Court of Appeals in State of New York v. Hendrickson Bros., Inc., 840 F.2d 1065 (2d Cir.1988), cert. denied, 488 U.S. 848, 109 S.Ct. 128, 102 L.Ed.2d 101 (1988), in which the Court affirmed the application of an equitable toll in an antitrust case, the District Court held that equitable tolling was available to a plaintiff seeking to avoid a fraudulent transfer if it could be shown that:
(1) the defendant concealed from plaintiff existence of plaintiffs cause of action;
(2) upon discovering the cause of action, plaintiff commenced an action within the time period prescribed by the applicable statute of limitations; and (3) plaintiffs ignorance of the cause of action was not the result of a lack of due diligence on his part.
The Mediators, Inc., 190 B.R. at 524.7
Although it is clear that the equitable tolling doctrine may be applied in conjunction with section 546(a), see United Insurance Management, Inc., 14 F.3d at 1385, the question of whether it pertains to the case at bar still remains. “The ‘doctrine has application only where the plaintiff has ‘exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud, and [ujnawareness of facts or law, alone, does not justify suspending the operation of the statute.’” Metzeler, 66 B.R. at 981 (quoting Arneil v. Ramsey, 550 F.2d 774, 781 (2d Cir.1977)). Furthermore, a plaintiff must seriously endeavor to seek out the truth rather than wait for a “leisurely discovery of the ... [defendant’s] scheme.” Metzeler, 66 B.R. at 981 (quoting Klein v. Bower, 421 F.2d 338, 343 (2d Cir.1970)). See also Freschi v. Grand Coal Venture, 767 F.2d 1041, 1047 (2d Cir.1985), vacated on other grounds, 478 U.S. 1015, 106 S.Ct. 3325, 92 L.Ed.2d 731 (1986) (Stating that satisfaction of the plaintiffs inquiry may involve a “rather painstaking investigation.”).
Aside from sending its initial letter to the Defendant, dated December 30, 1993, Plaintiffs counsel failed to act on the matter of obtaining the Defendant’s correct address until May of 1995. This is evidenced by the May 30,1995 letter from Plaintiffs counsel to Debtor’s counsel, in which the former explains that he had been trying to get Ms. Schretter’s address “[f]or the past couple of weeks,.... ” Between the time in which the Plaintiff was appointed permanent trustee and the Plaintiffs first attempt at contacting the Defendant, there was a gap of nearly 10 months in which the Plaintiff did nothing to locate the Defendant. Similarly, between the mailing of the December 30, 1993 letter and Plaintiffs subsequent request of the Debtor to supply the Defendant’s correct address, there is another gap of nearly one and a half years in which no attempts were made to correct the situation.
Plaintiffs statutory time limit to initiate an adversary proceeding under section 547 expired during that last year and a half period. As previously stated, any chance of proceeding with an action against the Defendant at that point could only be accomplished by an equitable decree. However, this Court is convinced that the Plaintiff has failed to make a proper showing of the necessary diligence and effort required to implement an equitable toll. The Plaintiff was clearly aware of its cause of action, as evidenced by its letter of December 30, 1993. No legitimate reason has been supplied to this Court as to why the Plaintiff waited until after the two year time limit was up to first try and unearth the Defendant’s correct address.
*758Furthermore, even without said address, the Plaintiff could have still commenced this adversary proceeding. At the very least, Plaintiff should have filed its complaint with this Court within the period prescribed by section 546(a). This would have demonstrated that the Plaintiff was aware of its statutory constraints and unfailing in its efforts to timely move to avoid the preferential transfer. However, Plaintiff failed to take any action in pursuit of its claim until after the statute of limitations had expired.
For the aforementioned reasons, this Court must now address Defendant’s motion for summary judgment. Summary judgment is appropriate when the Court determines that “ ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... 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.’” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)); see also Skouras v. United States, 26 F.3d 13 (2d Cir.1994); Bank of India v. Sapru (In re Sapru), 127 B.R. 306, 319 (Bankr.E.D.N.Y.) 1991). A fact is considered material if it “might affect the outcome of the suit under governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Id.
In considering a motion for summary judgment, “the court’s responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party.” Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir.1992); Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11 (2d Cir.), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); Moran v. Hong Kong & Shanghai Banking Corp. (In re Deltacorp, Inc.), 179 B.R. 773, 780 (Bankr.S.D.N.Y.1995).
Furthermore, it is the moving party who initially bears the burden of establishing the absence of any genuine issue of fact. Celotex Corp., 477 U.S. at 322-323, 106 S.Ct. at 2552-2553; In re Ionosphere Clubs, Inc., 147 B.R. 855, 861 (Bankr.S.D.N.Y.1992). Rule 56(e) requires the non-moving party to set forth specific facts demonstrating that genuine issues of material fact remain for trial. Matsushita Elec. Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S.Ct. 1348, 1355-57, 89 L.Ed.2d 538 (1986). Thus, the non-movant may not merely rely upon the contentions of its pleadings, but must produce significant evidence to support its position by bringing to the attention of the Court some favorable indication that its version of relevant events is not a merit-less allegation. SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978).
It appears from the record that the Plaintiff has not met this burden. Plaintiff failed to commence this adversary proceeding within two years of his appointment as permanent trustee. Therefore, Plaintiff was effectively time barred by section 546(a) of the Code. In addition, the record also fails to sufficiently persuade this Court that it would be proper to grant equitable relief in the form of a tolling of the statute of limitations. The Defendant has clearly demon-, strated that the Plaintiff’s cause of action was neither concealed nor obscured by the Debtor or Defendant; only the Plaintiffs lack of due diligence prevented the adversary proceeding from being commenced within the appropriate time frame. For these reasons, Defendant’s motion for Summary Judgment should be granted.
CONCLUSIONS
1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 157(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).
2. Defendant’s motion for Summary Judgment is GRANTED.
SETTLE AN ORDER CONSISTENT WITH THIS OPINION.
. Rule 56 of the Fed.R.Civ.P. is applicable to bankruptcy proceedings pursuant to Bankruptcy Rule 7056. Rule 56 provides, in pertinent part, as follows:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56.
. See infra discussion of section 547(b).
. See infra discussion of section 546(a).
. This Court recognizes that § 546(a) was amended by § 216 of the Bankruptcy Reform Act of 1994, Pub.L. 103-394, on Oct. 22, 1994. However, the amended section only applies to cases filed after that date.
. In a recent decision, this Court reinforced earlier cases which held that it is the trustee’s election as "permanent trustee" and not "interim trustee” which triggers § 546(a). See Gazes v. Kesikrodis (In re Ted A. Petras Furs, Inc.), 172 B.R. 170, 175-76 (Bankr.E.D.N.Y.1994).
. The purpose of providing a trustee with this two year period “is to ensure that the trustee has ample time to investigate any potential claims and causes of action for the estate.” Petras, 172 B.R. at 175 (quoting A.M. Mancuso v. Continental Bank National Association Chicago (In re Topcor), 132 B.R. 119, 124-5 (Bankr.N.D.Tex.1991)).
. According to the District Court, the doctrine may be separated into two prongs. Prong one allows for an equitable toll if the plaintiff can prove that “the alleged fraud was concealed by affirmative acts of the defendant." The Mediators, Inc. 190 B.R. at 524 (emphasis added). “Even in the absence of ‘fraudulent concealment' by the defendant, if ‘the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part,’ the limitations period is tolled until the fraud is discovered.” Id. (citing Bailey v. Glover, 88 U.S. 342 at 348). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492250/ | OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
Pearl B. Serino t/a Serino’s Nurses Registry is in Chapter 13 bankruptcy having filed for same on February 4,1993.
Objections have been filed to the bankruptcy plan alleging the Debtor has not arranged for the full payment of priority taxes pursuant to 11 U.S.C. § 1322(a)(2). The Debtor responds to the objection of the IRS by asserting that she was not responsible for the specific tax assessed against her. Contemporaneous with the objection to the plan, the court heard Debtor’s objection to the proof of claim of the IRS. These litigations were consolidated for trial.
The Debtor denies liability to the Internal Revenue Service. The IRS has assessed various trust fund taxes against Ms. Serino arguing that between 1986 and 1988 she employed various nurses for which she was responsible for withholding FICA and FUTA taxes pursuant to 26 U.S.C. § 3101 et seq. and 26 U.S.C. § 3301 et seq. Serino responds that these nurses were not her employees but rather independent contractors, the withholding for which she was not responsible. The court is thus confronted with the classic battle between the Internal Revenue Service and the proprietor as to the relationship that a business owner might have had with their assistants.
Unquestionably, the “right to control” test has been the most important index of the relationship between the entities. Equal Employment Opportunity Commission v. Zippo Manufacturing Co., 713 F.2d 32 (3rd Cir.1983). American Consulting Corporation v. United States, 454 F.2d 473 (3rd Cir.1971). Employer/employee relationships are generally deemed to exist when a person for whom services are performed has a right to control and direct not only the result but also the details and means by which the result is to be accomplished. Treasury Regulation § 31.3121(d)-1(c) (26 C.F.R. § 31.3121(d)-1(c)).
Even though the “right to control” factor is an important factor, it is neither the only factor nor is it the controlling factor. American Consulting Corp. v. United States, 454 F.2d 473, 477 (3rd Cir.1971). The court has generally weighed a multitude of other considerations in adjudicating the final result. Twenty-four (24) of those factors are set forth in In re Compass Marine Corp., 146 B.R. 138 (Bankr.E.D.Pa.1992). Those twenty-four (24) factors are briefly identified as follows:
1. Instructions;
2. Training;
3. Integration;
4. Services rendered personally;
5. Hiring, supervising and paying assistants;
6. Continuing relationship;
7. Set hours of work;
8. Full time required;
9. Doing work on employer’s premises;
10. Order or sequence of tasks set;
11. Oral or written reports;
12. Payment by hour, week or month;
13. Payment of business and/or travel expenses;
14. Furnishing of tools and materials;
15. Significant investment;
16. Realization of profit or loss;
17. Working for more than one firm at a time;
18. Making service available to the general public;
19. Right to discharge;
20. Right to terminate;
21. Industry practice or custom;
22. Intent of the parties — how they view the relationship;
*78023. Written, signed independent contract or agreements; and
24. Employee-type benefits provided.
While we will discuss these factors at a later time in this opinion, they generally identify indicators suggesting that the right to control has shifted from the operator to the assistant (making the assistant more likely to be considered an independent contractor rather than an employee).
This is not to imply that a balancing of these factors would end our inquiry. In 1978, Congress enacted Section 530 of the Revenue Act (26 U.S.C.A. § 3401 note).1 That section, known as the “safe haven” defense, provides that a taxpayer who can demonstrate a reasonable basis for the treatment of an individual in some other manner than as an employee is entitled to termination of employment tax liabilities. This would suggest that even if the IRS could persuade the court that a consideration of the factors required a finding that the Debtor’s relationship with her private nurses is that of employer-employee, the Debtor would still have the opportunity to establish a “reasonable basis” for treating her nursing assistants as other than employees.
As if this did not provide a sufficient test of our analytical talents, the court is also required to reconcile the competing burdens placed upon the parties by decisional ease law. The proof of claim is prima facie evidence of its validity. In re Allegheny International, Inc., 954 F.2d 167 (3rd Cir.1992). Nevertheless, the burden of persuasion remains on the claimant (IRS). Id. The burden of defeating an Internal Revenue Service assessment is on the taxpayer. Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935). Anastasato v. Commissioner, 794 F.2d 884 (3rd Cir.1986). The burden of establishing an exception to discharge is on the creditor. In re Cohn, 54 F.3d 1108 (3rd Cir.1995). The burden of showing the reasonableness of the treatment of its workers under the “safe haven” defense is on the taxpayer. In re Rasbury, 141 B.R. 752, 757 (N.D.Ala.1992). In re Compass Marine Corp., supra.
While we relish the opportunity to evaluate the facts and apply the applicable law, the court is somewhat disappointed that the taxpayer chose not to support her position with a brief even though represented by two lawyers.
Since our inquiry is fact intensive, a review of the evidence is imperative.
Pearl Serino was the owner and operator of Serino’s Nurses Registry. She was an L.P.N. engaged in business at least since 1986. The business was licensed in Harrisburg. The operation was located at 130 Church Street, Kingston, Pennsylvania, in the basement of Ms. Serino’s home. She worked there alone with a minimal amount of office equipment. The apparent business of Serino’s Nurses Registry was to place nurses with patients requiring nursing assistance. Patients were located in hospitals, nursing *781homes and private homes. Patients were not solicited. Rather, by word of mouth, various hospitals, nursing homes’and private individuals as well as other nurses would contact Serino’s Nurses Registry for a nursing assistant.
In order to provide this service, the Debtor maintained a list of Registered Nurses (R.N.s), Licensed Practical Nurses (L.P.N.s), and nurses’ aides for placement with various patients. These individuals who would register, often heard about Serino’s Nurses Registry through other nurses or, sometimes, through advertising. In order to qualify to be added to the registry, a nurse had to have a state license, malpractice insurance and be knowledgeable in cardiopulmonary resuscitation (CPR). The insurance was obtained by the individual nurses and not the Debtor.
None of the nurses were required to work exclusively for Serino’s. When patients at a hospital or the family would call for nursing assistants, the Debtor would give them the name of a nurse on the registry.
Sometimes, the family hiring the nurse through Serino’s would terminate the service through Serino’s and hire the individual nurse on their own. This effectively terminated the compensation that the Debtor would receive.
The Debtor denied supervising any of the nurses who she placed with patients. She would neither call nor check on their performance nor was the nurse required to contact Serino’s. The relationship of the nurse and the patient was entirely a matter between those two parties. The nurses were not provided with vacation time nor life insurance, health insurance or disability insurance and no taxes were withheld.
Upon entrance into the office, a large sign about six to seven feet long would advise prospective applicants that they had to pay their own taxes, get their own malpractice insurance, and know C.P.R. For a short time in 1988, the Debtor maintained workmen’s compensation insurance for the nurses. She obtained workmen’s compensation because of the requirement of a certain nursing home.
Serino did not file 1099 forms until 1989 when she was advised to do so after an audit. Until then, she was unaware that such filings were required.
Financially, patients or, in some eases, the nursing home or insurance company compensated Serino who would deposit the payment, take a certain percentage for her business and send the balance to the nursing assistant. If Serino is not paid for a certain project, then the nurse who supplied the care in that project would not get paid. Serino did not furnish any uniforms nor did she pay for transportation, journals or furnish the modest equipment that a nurse might have such as a blood pressure gauge.
Once a month, the state inspector visited Serino’s office. Serino, who has a state issued employment agent’s license, started the business in 1980.
While Serino denied having any rules or regulations other than the requirements for malpractice insurance, a state license and C.P.R. training, some of the documents that she utilized contained a requirement that a registry nurse “abide by [Serino’s] rules and regulations”.
During the trial, a document was identified setting forth certain “grounds for termination policy”. Serino denied that this document was ever actually utilized in the business.
Serino denied ever paying any nurse association dues for the nurses that were registered with her but she did acknowledge that she paid for three people to attend a seminar.
Serino acknowledged that she made no investigation as to how other nurses registry services operated in the area and whether they treated their nurses as employees or -independent contractors.
On June 22, 1989, Ms. Serino answered a questionnaire with an Internal Revenue Service agent. The answers to that questionnaire were basically consistent with the testimony of Ms. Serino at the trial in 1994.
Government exhibits numbers 9,10 and 11 were documents located on the site during an audit and labeled, respectively, Serino’s *782Nurses Registry (Obligations); Job Description-Licensed Nursing Personnel; and Seri-no’s Nurses Registry Grounds for Termination Policy. The Debtor denied that any of the documents were actually utilized in the business. Rather, she explained that they were under consideration pending an expansion of the business, which plan was terminated because of illness in her family.
The question we address is whether the nurses registering with the Debtor are the “employees” of the Debtor within the provisions of the Federal Insurance Contributions Act (FICA) 26 U.S.C. § 3101 et seq. and the Federal Unemployment Tax Act (FUTA) 26 U.S.C. § 3301 et seq.
In companion cases before the United States Supreme Court, a significant effort was made to explain the differences between an employee and an independent contractor. Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947); United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947). Not all who render service to an industry are considered employees. U.S. v. Silk, supra, at 712-14, 67 S.Ct. at 1468. A review of Silk, Bartels, and the subsequent United States Supreme Court case of United States v. W. M. Webb, Inc., 397 U.S. 179, 90 S.Ct. 850, 25 L.Ed.2d 207 (1970), bolstered a conclusion that the traditional common law test (right to control) remains intact as the principal factor in determining whether an employer-employee relationship exists.2
Silk and Bartels did not, however, stop at the common law test but specifically expanded that definition in a less constricted way to encompass the “economic reality” of those who are dependent upon a business to which they render a service to also be considered employees. The need to view the employer-employee relationship in an expanded way was deemed necessary because of the fact that the legislation in question was presumably drafted to counter the “recognized evils in our national economy”. U.S. v. Silk, supra, at 712, 67 S.Ct. at 1467. This is a view recognized and accepted by our circuit. American Consulting Corp. v. United States, 454 F.2d 473 (3rd Cir.1971).
With this overview of the law, we will proceed with a review of the twenty-four (24) factors heretofore mentioned against the facts present in this ease.
Our conclusion is that thirteen (13) of the twenty-four (24) factors are specifically geared to determining the degree to which the Debtor retained control over her workers. Specifically, the following thirteen (13) factors were weighed in this fashion:
1. Instructions: Ms. Serino assigned nurses to specific households and facilities which thereafter controlled the relationship of nurse and patient. We view this factor as weighing against the employer-employee relationship.
2. Training: The Debtor did no training since the nurse or nurse’s aide was presumably qualified by prior experience and/or education. Again, this militates against the employer-employee relationship.
3. Hiring, supervising and paying assistants: The evidence on the record suggested that Ms. Serino was no more than a matchmaker between nurse and patient with compensation to Ms. Serino as an override of salary. Although she handled the billing and the receipts, hiring and supervising were left to the patients or the facility supervising the patients. Again, this weighs in favor of independent contractor status.
4. Set hours of work: Hours of work were apparently set between patient and nurse without input from Ms. Serino. This, again, suggests independent contractor status.
5. Full time required: There was no indication on the record that Ms. Serino required any specific number of hours worked. She did indicate that if a nurse was unavailable to provide services to patients repeatedly, that nurse would no longer be called. Again, the employer-employee relationship is not indicated.
6. Doing work on employer’s premises: None of the nurses’ work occurred on or *783about Ms. Serino’s office. This, again, weighs in favor of independent contractor status.
7. Order or sequence (of task) set: Since Ms. Serino did not supervise the specific jobs, neither could she set the order in which those jobs were performed. Again, the record suggests only that Ms. Serino matched up nurses with patients who needed nurses. This factor weighs in favor of independent contractor status.
8. Oral or written reports: None were necessary and, therefore, independent contractor status is indicated.
9. Furnishing of tools and materials: A nurse’s tools are her blood pressure meter apparatus (sphygmomanometer) and her uniform, typically the traditional white outfit, both items of which were supplied by the nurses and not Ms. Serino. Again, this would suggest independent contractor status.
10. Working for more than one firm at a time: Ms. Serino indicated that she was not concerned about nurses working for more than one patient at a time or through more than one agency at a time. She had no exclusivity relationship with the nurses on her registry. Again, this would suggest independent contractor status.
11. Making service available to the general public: Consistent with our discussion on whether full time was required, the nurses were allowed to offer their services to the general public and to other registry services during the same period that they were available for placement by Serino’s Nurses Registry. Again, this suggests independent contractor status.
12. Right to discharge: Ms. Serino denied any responsibility or ability to fire the nurses that were placed in various institutions and homes. She indicated this was the responsibility of the facility or the patient. Again, she did indicate that if nurses did not respond to her request for placement, they would eventually be dropped from her registry list. That was not the equivalent of firing a nurse. The independent status of the nurse is again illustrated by this factor.
13. Right to terminate: The last factor we will look at in determining who had the right to control the worker is the question as to whether the worker could terminate her relationship with the registry at any time. With regard to this, the court has no evidence that a nurse could not have her name removed from the registry at any time. Nor, is there any evidence that a nurse terminating her position in a certain facility or with a certain patient would automatically suffer any consequences with regard to the registry.
Each and every one of these factors suggests that the right to control the work was almost entirely absent. Other than asking the nurse to report to a certain facility and handle the accounting for the services performed, Ms. Serino maintained absolutely no control over the individuals on her registry.
This, however, does not end our discussion since the right to control is not the controlling element nor the only element to consider. American Consulting Corp. v. United States, supra. Other factors may play a part in the ultimate decision. We view the bulk of the other factors in the twenty-four (24) factor list as being of an economic nature. Traditionally, independent contractors are willing to make the investment and risk the loss as well as benefit from the profit. An employee would be somewhat immune from these concerns. Among the factors that we consider are economic related are the following:
1. Payment by hour, week or month: The nurses, in this case, were paid on an hourly basis just as an hourly employee would be treated with Ms. Serino retaining an override. This would suggest employer-employee status.
2. Payment of business and/or travel expenses: Ms. Serino did not pay any travel or business expenses except in one isolated ease where it was established that she may have paid the seminar fees in the amount of $30.00 for three workers. Even if this was a fact (denied by Ms. Serino) one isolated incident cannot allow the court to conclude that Ms. Serino paid the travel and expenses of the nurses on her registry. We weigh this factor in favor of independent contractor status.
*7843. Significant investment: The nurses who supplied services cannot be held to have made any significant investment in their trade apart from their education. Since we had no evidence of the extent of that expense, we view this factor as favoring employer-employee status.
4. Realization of profit or loss: This factor becomes a non-factor because the pay scale for the nurses was apparently regulated by the state association and the expenses involved in providing nursing services were apparently rather nominal. This factor is inconclusive.
5. Employee-type benefits provided: The only evidence of any employee-type benefit received by the nurses who registered with Serino’s Nurses Registry was workmen’s compensation insurance which was obtained for a period during 1988-1989 as a result of a requirement of some of the facilities to which Serino’s Nurses Registry was offering services. Although the government is correct in concluding thát this suggests employer-employee status, the fact that it only existed for one of the three (3) years for the tax in question, allows us to conclude that, overall, this factor would favor independent Contractor status. We view the insurance as no more than an isolated expense not in the ordinary course of Ms. Serino’s affairs.
While this concludes our analysis of the economic factors, there are other factors in the list of twenty-four (24) that must be reviewed which do not neatly fit within the right to control aspect nor the economic aspect of this decision. They are as follows:
1. Continuing relationship: While some nurses may have worked with Ms. Serino for significant periods of time, the record does not demonstrate any general long-term relationship between numbers of nurses and Ms. Serino. This factor can benefit neither government nor Debtor.
2. Intent of the parties — how they view the relationship: The testimony suggested that the nurses viewed their status as independent contractors and Ms. Serino apparently took a similar position. There is no suggestion that workers demanded workmen’s compensation, unemployment compensation, or sick days. There was no evidence that regular cheeks were requested or any of the other attributes of an employer-employee relationship were sought or provided. We view this as favoring independent contractor status.
3. Written, signed independent contractor agreements: There were none suggesting that the relationship was an employer-employee one.
4. Integration: Nurses’ jobs were fully integrated in Serino’s Nurses Registry; that is to say, that without the nurses producing their services, Ms. Serino would suffer a complete loss of income. This would suggest employer-employee status.
5. Services rendered personally: The nurses utilized their own personal services and no one else. This also would suggest employer-employee status.
Our review of the various factors allows us to conclude that the right to control factors weigh heavily in favor of independent contractor status and the remaining economic and other factors we have considered are inconclusive in categorizing the relationship of the nurses to the Debtor. We view this development as heavily suggesting that we rely on the right to control factors as persuasive under these facts. We therefore conclude that the nurses working for Serino were independent contractors; that the Debtor is not responsible for the withholding taxes in question; that the Debtor’s objection to the proof of claim should be sustained; and that the Debtor’s plan should be confirmed.
The result we reach is supported by Revenue Ruling 61-196, 1961-2 CB 155. Also, reaching a similar decision on virtually identical facts is Hospital Resource Personnel, Inc. v. United States, 860 F.Supp. 1557 (S.D.Ga.1994).
. (a) Termination of certain employment tax liability.—
(1) In general. — If—
(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period, and
(B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be tiled by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee, then for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee.
(2) Statutory standards providing one method of satisfying the requirements of paragraph (1). — For purposes of paragraph (1), a taxpayer shall in any case be treated as having a reasonable- basis for not treating an individual as an employee for a period if the taxpayer’s treatment of such individual for such period was in reasonable reliance on any of the following:
(A) judicial precedent, published rulings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;
(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax purposes) of the individuals holding positions substantially similar to the position held by this individual; or
(C) long-standing recognized practice of a significant segment of the industry in which such individual was engaged.
. "... [O]ne was an employer if he had the 'right' to direct what should be done and how it should be done”. Bartels v. Birmingham, 332 U.S. 126, 129, 67 S.Ct. 1547, 1549. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492251/ | MEMORANDUM OPINION AND ORDER
H. CLYDE PEARSON, Bankruptcy Judge.
Before the Court is the motion of the Administrator and Heirs of the Estate of the deceased Debtor to stay this Court’s Order of September 7, 1995, awarding counsel fees to the Estate of the late James E. Nunley. Notice of Appeal was filed on behalf of the Administrator of the Estate of Walter C. Mullins, Deceased, Talmadge Frambrough of the State of Alabama, as well as the Heirs of the Estate of Walter C. Mullins, Deceased (“Heirs”). The Court is not advised as to whether or not the Heirs is a necessary party in interest and that matter is not before the Court. The Heirs apparently join in the Administrator’s appeal. The Court entered an Order that stayed temporarily the Court’s Order awarding the fees pending a hearing on the motion for stay. The Court having heard the motion for stay and considered the arguments of counsel and the record herein, accordingly, denies the motion.1
The Appellant gives the following as Statement of Issues on appeal: (1) whether the Court’s findings of fact were clearly erroneous; (2) whether the Court erred in considering matters outside the record and not relevant to the issue; (3) whether the Court’s legal conclusions, that a fee enhancement was appropriate in the case and that a reasonable fee for 51.96 hours of service rendered was $100,000.00, were erroneous; and (4) whether the Court’s determination that a fee arrangement authorizing a surcharge for favorable results created a contingent fee arrangement is supported by the record.
A leading case in the Fourth Circuit on the subject of staying orders or judgments is Long v. Robinson, 432 F.2d 977 (1970), wherein the court cited four factors for consideration on the issue of whether or not a stay of an appealed order should be granted, as follows: (1) the likelihood of success of the appeal; (2) the harm that failure to grant the stay will result to the appellant; (3)the harm resulting to the appellee or others if the stay is granted; and (4) that granting stay will serve the public interest concerning the subject matter. The fourth element has no relationship to this case since the parties involved are only private parties.
In considering the other three elements, it is necessary for the Court to recite facts concerning the history of this matter including the Order of the Court awarding fees herein appealed. Counsel for the Administrator recited the foregoing four elements that the Fourth Circuit Court of Appeals has noted in oral arguments. Counsel for the Heirs of Mr. Mullins, likewise, joined in the argument of counsel for the administrator and adopted the same as part of their Appeal filed on behalf of the Heirs. We have in this matter the Estate of James E. Nunley, Deceased, being administered by the Executrix in the State of Virginia, which will administer any funds received from the Orders herein and make appropriate accounting for such fees as the fiduciary of this decedent’s estate. The same is true with the Estate of Mr. Mullins in the State of Alabama where he *814apparently resided at the time of his death through the Administrator of that estate.
A review of the history of this case is necessary from the standpoint of the hearings to fix fees of present successor counsel, Mr. Lamie, counsel for the Disbursing Agent, Mr. Copeland, and counsel for the Estate of Mr. Nunley. These counsel fees grew out of the legal services rendered and ordered by this Court to be paid as administrative expense, under 11 U.S.C. §§ 503 and 507, from funds being disbursed in accordance with the Chapter 11 confirmed Plan. This Court entered an Order on January 23, 1995, when the funds from the litigation in Kentucky became available for the purpose of consummation of the Chapter 11 Plan. It directed that applications for allowance of administrative fees and expenses be filed by February 1, 1995 and that objections thereto be filed and served upon opposing parties on or before February 10, 1995. This Order was an effort to expedite hearings and determination of administrative expenses, fees, and costs and close this case as soon as feasible.
Hearings were held upon the applications filed by the three parties. The record reflects that only written or oral objections were noted primarily to the fee of Mr. Copeland. Neither the written objections nor the oral objections at hearing were made with any substance, to the fee application of Mr. Nunley. On February 14, 1995, Mr. Read, counsel for the Heirs, filed a belated written objection which dealt solely with the allowance of any fee to Mr. Copeland as Disbursing Agent, contending that such fees were unwarranted and were duplicative. Mr. La-mie, as successor counsel for the Debtor herein to Mr. Nunley, filed a memorandum of objection in which he generally objected to Mr. Copeland’s fee and set forth therein acknowledging, as Debtor’s counsel, that the Court could award larger and enhanced fees than those previously approved in the prior applications of the Nunley Estate and that such additional fees were proper. Although the Administrator, Fambrough, is apparently a member of the Alabama Bar, he neither appeared nor filed any objection in person or by counsel to any of the fees awarded by this Court, although he had due notice of all the proceedings thereon. There was no objection to Mr. Lamie’s application and the Court approved generally the requests in the applications of Mr. Lamie and Mr. Copeland, as well as the Nunley application. No appeal has been noted to the fees of Mr. Lamie or Mr. Copeland.
This Court is compelled to note that when the funds became available from the litigation in Kentucky, they were paid into the registry of the State Court of Kentucky where the litigation was pending pursuant to its orders. When these funds became available, the Disbursing Agent, Mr. Copeland, who had previously been appointed counsel fdr himself by Order of this Court and under the Chapter 11 Plan confirmed by this Court, became gravely concerned over certain reported actions and efforts on the part of the administrator, Mr. Fambrough. The Administrator had engaged counsel in the State of Kentucky apparently for the purpose of seeking to thwart the procedures and orders in this Court and to prevent the disbursement of those funds to Mr. Copeland as Disbursing Agent in this case. Mr. Copeland, over the vigorous objections of these parties, properly filed proceedings in this Court to enjoin and prohibit the Administrator from subverting the processes, procedures, and orders of this Court in his duties as Disbursing/Escrow Agent for the confirmed Plan in payment of administrative costs, expenses, fees and creditors’ claims as provided therein.
This Court, after notice to all proper parties, including the Administrator, heard these matters brought by Mr. Copeland in his capacity as Disbursing Agent representing the creditors in this case. It is now clear that absent the orders of this Court, from pleadings filed by Mr. Copeland, his efforts would have been thwarted by the Administrator and his counsel in Kentucky to the detriment of the creditors and in contravention of this Court’s orders in this case. The efforts of the Administrator, his counsel, and others were so flagrant that this Court directed Mr. Copeland to bring these matters before the Court for contempt and sanctions on behalf of the creditors in his capacity as Disbursing Agent. Those proceedings remain unre-solvéd before the Court.
*815As appears from this Court’s opinion fixing the fees of the Nunley Estate, this case has been ongoing for approximately 16 years. Mr. Nunley, who was engaged in 1980 as counsel to file the case and render service in the same, died in 1986. He had devoted approximately six years of his time and effort to this Debtor’s case. Thereafter, the case proceeded by Mr. Lamie as successor counsel.
In winding up the Estate of Mr. Nunley, his wife, as Executor of his estate, apparently sought to conclude his affairs and resolve his pending cases, requested that this Court approve a fee for his services in the amount of $5,100.96 and expenses of $349.40.2 This was an addition to a fee theretofore allowed by this Court to Mr. Nunley by Order on September 30, 1982, in which the Court awarded $3,500 fee and $353.30 cost and expenses.
The Court notes that this application only recites services to November 22, 1983. It notes time expended of approximately 51 or 52 hours, which the Notice of Appeal alludes to. This attorney, however, continued to render service to this Debtor and this Estate until his death in 1986, for a period of three additional years. The many hours of service rendered may not have been included in the docket entries available to counsel; however, this, by no means, establishes that this attorney only expended 51 hours in his service. In fact, the docket sheet does not contain an entry beyond August 24, 1983, until March 1987. This Court takes judicial notice that the time expended by an attorney is not confined solely to those items appearing on the docket register of a Clerk’s Office. Time expended is only one factor for consideration of fees under the Fourth Circuit rulings.-
The Court approved the fees and expenses and directed that these fees to the Nunley Estate be paid by the Debtor absent which the case would be dismissed or converted in an effort to seek a conclusion thereof. The fees were not paid and, indeed, have never been paid, and this Court did convert this case to Chapter 7. Thereafter, Mr. Lamie was employed as successor to Mr. Nunley and filed a motion to reopen the case and reconvert the same to Chapter 11 and reinstate the confirmed Plan. In the application and motion on behalf of Mr. Mullins to reinstate, Mr. Lamie documented in detail the value of the services of Mr. Nunley to this Estate in preparing a Plan and obtaining confirmation of the same for the benefit of the Debtor and all the creditors herein. The motion stated that it was essential that the Chapter 11 case continue on the docket to permit the case to go forward in Kentucky in the hopes that funds from the litigation would be available for payment to creditors hereafter. The Court, upon hearing said motion, agreed with the Debtor to reinstate the case and reconverted the same to Chapter 11 and reinstated the Plan where it has proceeded to this date.
The reinstatement, in effect, vacated the attorney fee awarded by the Court previously. This proceeding clearly demonstrated what this Court held in the Order approving fee — that it was essentially the services of Mr. Nunley that resulted in the recovery on behalf of these creditors, as well as the Administrator and Heirs of the Mullins Estate, and permitted the litigation to go forward to its conclusion in Kentucky. This resulted in the creditors being paid 100 percent on their claims. Additionally, his efforts alone resulted in $300,000.00 accruing to the Administrator and the Heirs of the Estate of Mr. Mullins because Mr. Nunley had provided in the Plan for the principal only, without interest, for creditors, to which they agreed and whose claims were allowed. At the time the $5,000.00 fee Order was entered, a “surcharge for favorable results” was unknown and could not be considered. The litigation in Kentucky was ongoing and was not concluded until approximately January 1995.
As stated from the bench, upon hearing of the motion to stay, the award was a modest and conservative award under the circumstances; that this award of an enhancement of fees above that requested by the estate was clearly called for and justified by numerous authorities cited therein. This Court is fully convinced that if the deceased attorney had filed the application, it would have been *816appropriate to request an amount of at least twice what this Court has awarded; and that the Debtor, if living, would have acquiesced in the request knowing the value of the services rendered in his time of need. This would have been so because it is apparent that the recovery of approximately 1.9 million dollars due to this counsel’s efforts, with a savings of $300,000.00 in interest alone, warrants same.
Accordingly, it is the conclusion of the Court that the elements set forth in the Fourth Circuit holding that the likelihood of success is lacking; that the harm to the appellant and the appellee is nonexistent and that the fourth ground is inapplicable.
The Notice of Appeal alludes to the fact that the Court set forth in the opinion appealed extraneous matters that were not a part of the record — apparently, alluding to the references as to the personal and professional qualifications and diligence of Mr. Nunley in handling of his cases without upfront fee and his work with his clients. In Barber v. Kimbrell’s, Inc., 577 F.2d 216 (1978), the Fourth Circuit states as follows:
“It is well established that the allowance of attorney’s fees is within the judicial discretion of the trial judge, who has close and intimate knowledge of the efforts expended and the value of the services rendered.”
This Court, in its efforts to review the file in this case, since the attorney is deceased and to do justice to the parties, has reviewed the qualifications of the attorney, his personal integrity, and professionalism as a member of the legal profession, which compelled him to accept a case with substantial involvement of his time and effort without the ability of his client to even pay one cent upon his fee. Recognizing the needs of his client, he voluntarily accepted as a part of his duty, as a member of the legal profession and his inherent professionalism as a member thereof, the charge of his client and represented his client to the best of his ability under the circumstances and conditions that prevailed, with the obvious understanding that there would be a surcharge available if favorable results were obtained in his client’s case. A review of the qualifications and the efforts on the part of this counsel, in light of his service and the quality thereof as it pertained to the case before the Court, was only available by reviewing the court file and considering the qualifications of this attorney and the services he rendered, as well as the trial court’s knowledge of his efforts. This is clearly in keeping with the admonition of the Fourth Circuit where it states that fixing of fees is clearly within the intimate knowledge and the efforts of the attorney expended and the value of the services rendered appearing to the trial court.
Since the Appellants raised the question of professionalism and extraneous matters in the appeal of this matter, the Court finds it appropriate to quote from the Virginia State Bar Professional Handbook, 1986 Ed., Sec. II, Va.Code of Professional Responsibility, under the title, “Ethical Considerations,” E.C. 1-1, it is stated: “A basic tenet of the professional responsibility of lawyers is that every person in our society should have ready access to the independent professional services of a lawyer of integrity and competence.”
Mr. Nunley, in accepting service as counsel to this Debtor, was complying with the tenet of that ethical consideration.
Under DR 2-105. Fees (C), the Code states: “A fee may be contingent on the outcome of the matter for which the service is rendered ...” with certain exceptions not applicable here.
Under Paragraph EC 2-18, under the heading “Financial Ability to Employ Counsel,” it is stated:
The legal profession cannot remain a viable force in fulfilling its role in our society unless its members receive adequate compensation for services rendered, and reasonable fees should be charged in appropriate cases to clients able to pay them. Nevertheless, persons unable to pay all or a portion of a reasonable fee should be able to obtain necessary legal services, and lawyers should support and participate in ethical activities designed to achieve that objective.
Under Paragraph EC 2-20, it states:
*817The determination of the reasonableness of a fee requires consideration of all relevant circumstances. The fees of a lawyer will vary according to many factors, including the time required, his experience, ability, and reputation, the nature of the employment, the responsibility involved and the results obtained.
Under Paragraph EC 2-22, as it relates to contingent fees, this surcharge provision is clearly applicable and states:
Contingent fee arrangements in civil cases have long been commonly accepted in the United States in proceedings to enforce claims. The historical bases of their acceptance are that (1) they often, and in a variety of circumstances, provide the only practical means by which one having a claim against another can economically afford, finance, and obtain the services of a competent lawyer to prosecute his claim and (2) a successful prosecution of the claim produces a res out of which the fee can be paid.
Under Paragraph EC 2-26, the Code further states:
A layman whose financial ability is not sufficient to permit payment of any fee cannot obtain legal services, other than in eases where a contingent fee is appropriate, unless the services are provided for him. Even a person of moderate means may be unable to pay a reasonable fee which is large because of the complexity, novelty, or difficulty of the problem or similar factors.
Also, in keeping with the duty of a member of the legal profession to render services to the needy and those unable to pay the fee up front, Section EC 2-27 sets forth as follows:
Historically, the need for legal services of those unable to pay reasonable fees has been made in part by lawyers who donated their services or accepted court appointments on behalf of such individuals. The basic responsibility for providing legal services for those unable to pay ultimately rests upon, the individual lawyer, and personal involvement in the problems of the disadvantaged can be one of the most rewarding experiences in the life of a lawyer. Every lawyer, regardless of professional prominence or professional workload, should find time to participate in serving the disadvantaged. The rendition of free legal services to those unable to pay reasonable fees continues to be an obligation of each lawyer, but the efforts of individual lawyers are often not enough to meet the need.3
It is not the purpose of this Court to attempt to teach legal ethic lessons; however, this Court does feel that in view of the reference to the extraneous considerations of the legal ability and professionalism of this attorney that in keeping with the Fourth Circuit’s admonition, the foregoing ethical provisions of the state bar are clearly appropriate for consideration.
The Court, further, has applied, in its decision fixing the fee herein, the 12 elements or factors set forth by the Fourth Circuit in Barber, specifically, the following: (1) the time and labor expended; (2) the novelty and difficulty of the questions raised; (3) the skills required to properly perform these legal services rendered; (8) the amount in controversy and results obtained, which is clearly applicable in this case; (9) the experience, reputation, and ability of the attorney, which only the Court can assess whose application is before it, as well as the other factors set forth therein.
Accordingly, having reviewed the relevant authorities, it is the conclusion of the Court that the stay should be denied; however, the stay will be continued for a period of ten (10) days to permit the Appellants to seek a review of this Order. SO ORDERED.
. The Court gave the parties a period of time for filing written authorities; however, it appears that the issue is governed by the application of the Fourth Circuit Court’s opinion in Long v. Robinson herein discussed and the Court concludes that written authorities, in addition to oral argument, is unnecessary.
. Interestingly, counsel for Fambrough, as Clerk of this Court, was vigorously carrying out the Administrative Office's policy of hastily closing cases.
. The Virginia State Bar now requires Legal Ethics CLE attendance yearly. It has obviously been made aware of those firms who publicly proclaim that they do not do pro bono work. If Mr. Nunley had been one of those, he would have politely escorted Mr. Mullins out of this office upon learning he could not pay a fee up front. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492252/ | DECISION AND ORDER DISMISSING COMPLAINT
WILLIAM A. CLARK, Chief Judge.
This matter is before the court upon the defendant’s motion to dismiss the plaintiffs complaint under Fed.R.Civ.P. 12(b)(6). The court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference *833entered in this district. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(H)— proceedings to determine, avoid, or recover fraudulent conveyances.
PROCEDURAL POSTURE
On March 10, 1995, John Paul Rieser (the trustee in bankruptcy for the bankruptcy estate of Terry L. Douglas) filed an adversary proceeding against defendant Janet Reno, Attorney General of the United States of America. The trustee’s complaint contains the following essential allegations:
1) On February 24, 1998, Terry L. Douglas (“debtor”) filed a petition in bankruptcy pursuant to chapter 7 of the Bankruptcy Code.
2) On or about October 11, 1991, defendant — on behalf of the United States of America — initiated a “Complaint for Forfeiture In Rem” in the United States District Court for the Southern District of Ohio. Such complaint was brought under 21 U.S.C. § 881 (“Forfeitures”) and requested the forfeiture of various items (real property, vehicles, travel trailers, eontents'of the real property, and currency) on the ground that such items were used or intended for use in connection with controlled substance transactions or represented proceeds traceable to such transactions. The district court complaint alleged that the above items were either titled in the name of the debtor or that they were believed to be owned by the debt- or. On or about September 30, 1991, the Government’s agents had physically seized the listed property. On October 6, 1992, an “Agreed Entry of Forfeiture” was entered by Hon. Walter Rice, United States District Judge for the Southern District of Ohio, whereby it was found that the debtor did not wish to contest the forfeiture of the property listed in the defendant’s complaint for forfeiture and wherein it was ordered:
[T]hat the above-described defendants [the items of property]1 are hereby forfeited to the United States of America in accordance with the terms of 21 U.S.C. § 881(a)(4), (6) and (7) and that all claims and interests other than those specifically noted in this order are forever foreclosed and barred. Doc. # 1; Exh. B.
3) In his first claim for relief, the plaintiff-trustee alleges that the transfers of the forfeited assets to the Government took place within one year of the debtor’s filing of his petition in bankruptcy, and that such transfers are voidable under § 548 of the Bankruptcy Code as fraudulent transfers.
4) In his second claim for relief, the plaintiff alleges that the transfers of the forfeited assets are voidable as fraudulent transfers under Ohio’s Uniform Fraudulent Transfer Act.
5) The plaintiff also requests the court to impose a constructive trust upon all money and property received by the Government in relation to the forfeiture action and for an order disallowing and/or subordinating any and all prepetition and postpetition claims of the Defendant. Finally, the plaintiff alleges that he is entitled to prejudgment interest, attorney fees and costs.
In response to the plaintiffs complaint, the defendant has moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) for “failure to state a claim upon which relief can be granted.”
CONCLUSIONS OF LAW
“The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true.” Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). In appraising the sufficiency of the plaintiffs complaint, the court must, of course, follow “the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff 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, 102, 2 L.Ed.2d 80 (1957). On a motion to dismiss, plaintiffs factual allegations must be accepted as true, but legal conclusions, deductions *834or opinions couched as factual allegations are not given a presumption of truthfulness. Crane & Shovel Sales Corp. v. Bucyrus-Erie Co., 854 F.2d 802 (6th Cir.1988).
Section 548 of the Bankruptcy Code governs fraudulent transfers by a debtor and reads, in relevant part, as follows:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debt- or was an unreasonably small capital; or
(iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured.
11 U.S.C. § 548(a).
At issue here is whether the prepetition disposition of the above-described property under a federal forfeiture statute (21 U.S.C. § 881) and pursuant to a district court’s order constituted a fraudulent transfer under § 548 of the Bankruptcy Code.
In 1978, Congress amended the Comprehensive Drug Abuse Prevention and Control Act of 1970, 84 Stat. 1236,2 thereby expanding the government’s forfeiture power and authorizing the seizure and forfeiture of proceeds of illegal drug transactions. Prior to the amendment, “the statute had authorized forfeiture of only the illegal substances themselves and the instruments by which they were manufactured and distributed.” United States v. 92 Buena Vista Ave., Rumson, N.J., 507 U.S. 111, 121-22, 113 S.Ct. 1126, 1133, 122 L.Ed.2d 469 (1993). As amended, the statute authorizes forfeiture of all moneys, negotiable instruments, securities, or other things of value illegally exchanged for a controlled substance and “all proceeds traceable to such an exchange.” 21 U.S.C. § 881(a)(6).3
Of critical importance to the instant case is the statutory provision regarding the vesting of title of forfeited property:
(h) Vesting of title in United States
All right, title, and interest in property described in subsection (a) of this section shall vest in the United States upon commission of the act giving rise to forfeiture under this section.
21 U.S.C. § 881(h).
Based on this “relation back” provision of the forfeiture statute, the Government contends that, even assuming that the debtor at some time had an “interest” in the forfeited property, transfer of the property did not occur, as a matter of law, within the one year period preceding the filing of the debtor’s petition in bankruptcy and, therefore, the transfer is not voidable under § 548 of the Bankruptcy Code. This court agrees.
Section 881(h) was enacted in 1984,4 and its effect was to codify the common-law doctrine *835of relation back. United, States v. 92 Buena Vista Ave., supra, 507 U.S. at 126-28, 113 S.Ct. at 1136. In 92 Buena Vista Ave. the Supreme Court noted that its understanding of how the Government’s title to forfeited property relates back to the moment of for-feitability is contained in the much earlier case of United States v. Stowell, 133 U.S. 1, 16-17, 10 S.Ct. 244, 247, 33 L.Ed. 565 (1890):
By the settled doctrine of this court, whenever a statute enacts that upon the commission of a certain act specific property used in or connected with that act shall be forfeited, the forfeiture takes effect immediately upon the commission of the act; the right to the property then vests in the United States, although their title is not perfected until judicial condemnation; the forfeiture constitutes a statutory transfer of the right to the United States at the time the offence is committed; and the condemnation, when obtained, relates back to that time, and avoids all intermediate sales and alienations, even to purchasers in good faith.
In the instant case, then, the court finds that under 21 U.S.C. § 881(h) “all right, title, and interest” in the property which is the subject-of this adversary proceeding vested in the United States no later than September 30, 1991 (the date the Government seized the property).5 As a result, although the judgment of the district court was entered during the year preceding the debtor’s filing of his petition in bankruptcy on February 24, 1993, the condemnation related back to a date preceding the one-year period for avoiding fraudulent transfers under § 548 of the Bankruptcy Code. In other words, the forfeiture constituted a statutory transfer of the right to the property to the United States at the time the debtor’s offenses were committed, and there was — as a matter of law — no transfer during the one-year period preceding the debtor’s petition in bankruptcy.
In the instant case, at least, this result is consistent with the Bankruptcy Code’s definition of a “transfer.” Although the Bankruptcy Code’s definition of “transfer”6 is extremely broad in its inclusion of the types of dispositions considered to be transfers, § 548 itself specifies when a transfer is deemed to have occurred for purposes of fraudulent transfers. For purposes of § 548, a transfer is made when it is valid against a subsequent bona fide purchaser:
For the purposes of this section, a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee....
11 U.S.C. § 548(d)(1).
“Although the term ‘bona fide purchaser’ is not defined in the Bankruptcy Code, it is generally understood to mean ‘[o]ne who has purchased property for value without notice of any defects in the title of the seller.’” United States v. Hunter (In re Walter), 45 F.3d 1023, 1030 (6th Cir.1995) (quoting Black’s Law Dictionary 177 (6th ed. 1990)). Clearly, the fact that defendant’s agents seized the property in this case on September 30, 1991, gave notice to the world that other interests were being asserted against the property and of the debtor’s inability to .transfer the seized assets to any potential purchaser. As a result, as of September 30, 1991, no transferee of the debtor could have gained rights superior to the defendant, and, therefore, under § 548(d) the transfer of the subject property is deemed to have occurred no later than September 30, 1991, more than one year prior to the debtor’s bankruptcy petition. As a matter of law, then, the trustee may not prevail under 11 U.S.C. § 548.
The trustee also asserts that he may avoid the transfers of the debtor’s assets under the Ohio Uniform Fraudulent Transfer *836Act which is contained in Chapter 1336 of the Ohio Revised Code. Such state law is made available to the trustee by virtue of § 544(b) of the Bankruptcy Code which provides that:
(b) The trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
11 U.S.C. § 544(b).
The purpose of § 544(b) is to give “the trustee the rights of actual unsecured creditors under applicable law to void transfers.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 370 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 85 (1978) U.S.Code Cong. & Admin.News 1978 pp. 5787, 5871, 6326 (emphasis supplied). Section 550 of the Bankruptcy Code further provides that the trustee may recover from the transferees all property transferred in violation of applicable law. As a result, the trustee stands in the shoes of the debtor’s unsecured creditors, Hayes v. Palm Seedlings Partners-A (In re Agricultural Research and Technology Group, Inc.), 916 F.2d 528, 534 (9th Cir.1990), but he acquires no greater rights of avoidance by operation of § 544(b) of the Bankruptcy Code than such creditors would themselves have under state law. Kaliner v. Load Rite Trailers, Inc. (In re Sverica Acquisition Corp., Inc.), 179 B.R. 457, 466 (Bankr.E.D.Pa.1995).
It is his status as an actual unsecured creditor which reveals a flaw in the trustee’s position in this adversary proceeding. Underlying the trustee’s complaint and his memorandum of law is the premise that it is inequitable for the Government to be the sole beneficiary of the debtor’s assets and that the debtor’s creditors are entitled to share in any “tainted” property previously in the possession of the debtor. Such is not the case. “The federal courts have consistently held that an unsecured creditor has no standing to contest the forfeiture of seized property.” United States v. One 1965 Cessna 320C Twin Engine Airplane, 715 F.Supp. 808, 812 (E.D.Ky.1989). Had an actual unsecured creditor attempted to assert rights under Chapter 1336 of the Ohio Revised Code during the pendency of the Government’s forfeiture proceeding in federal district court against the debtor’s property, the unsecured creditor would have been found to have no ownership or possessory interest in the seized property and to be without standing. The Bankruptcy Code does not subsequently clothe the trustee with greater powers than the actual unsecured creditor would have had to contest the Government’s forfeiture action. While it is arguable that the court’s interpretation of the forfeiture statute in this case may appear to cause a harsh result to the debtor’s unsecured creditors, “it is a result frequently mandated by forfeiture procedures.” United States v. Campos, 859 F.2d 1233, 1238 (6th Cir.1988) (in a case involving 21 U.S.C. § 853, a criminal forfeiture statute).
The plaintiffs remaining claims for relief are predicated upon his allegation that the Government received fraudulent transfers of property; since the court is finding that there were no fraudulent transfers, plaintiffs other requests for relief are moot.
In the opinion of the court, even if all factual allegations of the plaintiffs complaint were proven true, it appears — as a matter of law — that the plaintiff is not entitled to legal relief.
For the foregoing reasons, it is hereby ORDERED that plaintiffs complaint is DISMISSED.
. “In a forfeiture proceeding, the property becomes the named defendant.” United States v. Trotter, 912 F.2d 964, 965 (8th Cir.1990).
. “The forfeiture statute at issue here is designed to provide a significant weapon in the government's arsenal for the war on narcotics.” Counihan v. Allstate Ins. Co., 25 F.3d 109, 113 (2nd Cir.1994).
. The statute does contain, however, an exception, not relevant here, for so-called innocent owners of proceeds.
."The Senate report explaining that amendment shows that Congress relied upon the common-law 'taint' theory — that property is considered tainted from the time of its prohibited use or acquisition — in enacting 21 U.S.C. § 881(h).” Eggleston v. State of Colorado, 873 F.2d 242, 247 (10th Cir.1989).
. Obviously the acts giving rise to forfeiture must have occurred prior to September 30, 1991, but for purposes of this decision it is sufficient to find that such acts were committed at least by that date.
. " 'Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption.” 11 U.S.C. § 101(54). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492254/ | ORDER
ARMAND DAVID KAHN, Bankruptcy Judge.
Plaintiff, the Chapter 7 Trustee for the estate of James E. and Karin B. Combs (“Plaintiff-Trustee”) filed the above-styled adversary proceeding (the “Complaint”) to recover certain allegedly preferential and fraudulent transfers pursuant to 11 U.S.C. §§ 547, 548, and 550. It is before the Court on cross-motions for summary judgment filed by Defendant Westside Bank & Trust Company (‘Westside”) and Plaintiff-Trustee. Defendant American Mobile Offices, Inc. (“AMO”) has failed to file a response to 'either cross-motion. Therefore, the cross-motions are deemed to be unopposed by AMO. See LR 220-l(b), NDGa., made applicable to this proceeding by BLR 705-2, NDGa. The Court finds this matter to be a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).
I.
The following facts are undisputed. On or about April 8, 1993, AMO, the wholly owned corporation of James E. and Karin B. Combs (the “Debtors”), executed a promissory note (the “Note”) in favor of Westside in the principal amount of $20,000.00. See Exhibit “A” attached to the Complaint. It was payable in full on April 8, 1994. The Note was secured by, inter alia, AMO’s accounts receivable, and it was guaranteed by the Debtors.
*980Sometime on or before March 31,1994, the Debtors liquidated their retirement account at Westside by withdrawing the sum of $30,-871.08. This sum was deposited in the Debtors’ personal bank account at the Etowah Bank. On April 7,1994, the Debtors wrote a check on this account in the amount of $23,-000.00 payable to AMO. The next day, April 8, the check to AMO was deposited in AMO’s bank account at Westside. On the same day, April 8, AMO paid Westside $20,137.78 by check number 1234, signed by Debtor Karin B. Combs in satisfaction of the Note.
The Parties appear to dispute the amount of funds available in AMO’s Westside bank account during the time surrounding the transaction in question. For the purposes of the cross-motions for summary judgment, the Court will adopt Plaintiff-Trustee’s version of the “facts” and assume that there was little in AMO’s account before or after the transaction and that the only way AMO could have paid its debt to Westside was by the $23,0000.00 deposit made by the Debtors into its account on April 8,1994.
II.
A. RECOVERY AGAINST WESTSIDE
Plaintiff-Trustee seeks to recover, pursuant to § 550(a)(1), the transfer of the sum of $20,137.78 from Westside as a preferential transfer of property of the Debtors. It is undisputed that, if the transfer had been made directly from the Debtors to Westside, the transfer would have been preferential.1 Plaintiff-Trustee maintains that he may recover the transfer from Westside pursuant to § 550(a)(1), which provides that
[ejxcept as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made.
Although Westside was not the actual initial transferee of the funds from the Debtors, Plaintiff-Trustee argues that AMO acted as a mere conduit and should be overlooked. In support of his conduit theory, Plaintiff-Trustee relies upon the case of Nordberg v. Societe Generate (In re Chase & Sanborn Corp.), 848 F.2d 1196 (11th Cir.1988) (“Chase & Sanborn II”). In Chase & Sanborn II, the trustee was attempting to recover a fraudulent conveyance. The Eleventh Circuit Court of Appeals affirmed the lowers courts’ refusal to find that the defendant, Societe Generate — a French bank, was an initial transferee within the meaning of § 550(a)(1), where it had received a wire transfer of funds from the debtor.
The court found that Societe Generate was a mere commercial conduit. In reaching this result, the Court of Appeals used a control test previously adopted in In re Chase & Sanborn, 813 F.2d 1177 (11th Cir.1987) (“Chase & Sanborn I”) to determine whether Societe Generate had actual control over the funds. “The control test, then, as adopted by this circuit, simply requires courts to step back and evaluate a transaction in its entirety to make sure that their conclusions are logical and equitable.” Chase & Sanborn II, 848 F.2d at 1199.
Applying this control test to the proceeding sub judice, it is undisputed that the funds were deposited into AMO’s own bank account. After the deposit, AMO could have used the funds in any manner it chose, in.cluding paying its debt to Westside. Plaintiff-Trustee, in essence, is requesting that this Court ignore the fact that AMO was a separate entity from the Debtors. However, he has not alleged any facts that would allow *981the Court to ignore the corporate form of AMO.
In support of its position that AMO was not a mere conduit, Westside relies heavily on the case of Billings v. Key Bank of Utah (In re Granada, Inc.), 156 B.R. 303 (D.Utah 1990). In Granada, the trustee was attempting to recover as preferential transfers made by the debtor general partner through its partnerships. The district court affirmed the bankruptcy court’s finding that the partnerships were initial transferees within the meaning of § 550(a)(1) and not mere conduits as the trustee had asserted. Just as the Debtors in the proceeding sub judice controlled AMO, the debtor in Granada controlled the partnerships. In response to this fact pattern, the Granada court stated as follows:
The bankruptcy court was concerned with the fact that Granada not only controlled the funds transferred to the partnerships but also controlled the disposition of the partnerships’ funds. This fact, however, does not mean that the partnerships had no control over the money. The partnerships properly exercised control over the funds through Granada, their general partner. Granada’s control over the funds was also the partnerships’ control over the funds. The trustee has offered no persuasive reason why Granada should be treated as an entity foreign to the partnerships. To follow the trustee’s reasoning would mean that partnerships would almost always be conduits of their general partners since general partners always control their partnerships. Such a rule would, in this court’s opinion, go far beyond what the conduit theory was designed to accomplish.
Granada, 156 B.R. at 308.
Although the holding in Granada is obviously not binding on this Court, the Court does find its reasoning persuasive. If the Court were to adopt Plaintiff-Trustee’s reasoning and find that AMO was a conduit, then most closely held corporations could be said to be mere conduits in similar situations where they receive a transfer from a sole or majority shareholder. The Court is unwilling to so readily disregard the corporate form, especially as in this instance where Plaintiff-Trustee has failed to allege, let alone establish, any facts which would persuade the Court to do so. Therefore, the Court will grant summary judgment in favor of Westside2.
B. RECOVERY AGAINST AMO
In the alternative to recovery from West-side, Plaintiff-Trustee seeks recovery of the $23,000.00 transfer from AMO as a fraudulent transfer. Plaintiff-Trustee also seeks to recover two other transfers in the amounts of $1,450.00 and $7,000.00 from the Debtors to AMO. In addition to the undisputed facts which appear in Part I of this Memorandum, the following facts appear in Plaintiff-Trustee’s Statement of Material Facts to Which There is no Dispute and are uncontroverted by AMO:
12.
Debtors earned no income from AMO from 1993 through the June 30,1994 filing date.
13.
Debtors valued AMO at $0 as of the filing date.
17.
On March 14, 1994, Debtors wrote check number 5459 in the amount of $1,450.00 from their personal bank account at First *982Union National Bank, account number 1039002217023, to AMO.
18.
On March 14, 1994, AMO deposited the $1,450.00 check into its account at West-side, account number 3-010475-6.
19.
On June 19, 1994, Debtors wrote check number 164 in the amount of $7,000.00 from their personal account at the Etowah Bank, account number 9000025842, to AMO, Debtors’ wholly owned corporation.
20.
On June 23, 1994, AMO deposited the $7,000.00 check into its account at West-side, account number 3-010475-6.
21.
The Debtors were presumed to be insolvent at the time that each of these transfers were made in accordance with 11 U.S.C. § 547(f).
22.
As of June 30, 1993, Debtors had assets n the amount of $172,633.73 and liabilities in the amount of $268,056.27.
Plaintiff-Trustee’s Statement of Material Facts to Which There is no Dispute at 3 — 5 (citations omitted).
Plaintiff-Trustee seeks to set these three transfers aside as fraudulent transfers pursuant to § 548(a)(2) of the Bankruptcy Code, which provides:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(2)(A) received less that a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.
It is undisputed that all three transfers in question occurred within one year of the Debtors’ filing their bankruptcy petition. Furthermore, by not responding to Plaintiff-Trustee’s Motion for Summary Judgment, AMO has failed to dispute that the Debtors received nothing of value in exchange for the transfers and that the Debtors were insolvent at the time of the transfers3. Therefore, the Court finds that Plaintiff-Trustee is entitled to judgment against AMO for the total of the three transfers, or $31,450.00. He is also entitled to prejudgment interest from August 24, 1994, the date of demand.
Therefore, in accordance with the reasoning above, IT IS THE ORDER OF THE COURT that the Motion for Summary Judgment filed by Defendant Westside Bank & Trust Company be, and the same hereby is, GRANTED.
IT IS THE FURTHER ORDER OF THE COURT that the Motion for Summary Judgment filed by Plaintiff-Trustee be, and the same hereby is, DENIED as to Defendant Westside Bank & Trust and GRANTED as to Defendant American Mobile Offices, Inc.
An appropriate Judgment is entered contemporaneously herewith.
IT IS SO ORDERED.
. The transfer would then appear to satisfy all the elements of a preference:
a 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 ...; and (5) that enables such creditor to receive more than such creditor would receive if — (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Section 547(b).
. The Court is granting summary judgment in favor of Westside on the basis that it was not the initial transferee. Section 550(a)(2) allows recovery from an immediate or mediate transferee of the initial transferee. However, recovery under § 550(a)(2) is limited by § 550(b), which provides that
[t]he trustee may not recover under section (a)(2) of this section from
(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such transferee.
It appears to the Court that Plaintiff-Trustee is not contending that he is able to recover from Westside under § 550(a)(2). If this assumption is incorrect, Plaintiff-Trustee may file an appropriate motion to bring the issue of recovery under § 550(a)(2) before the Court.
. Plaintiff-Trustee argues in his brief that the presumption of insolvency contained in § 547(f) dealing with preferences can be used in the context of § 548 fraudulent transfer litigation. The Court does not accept this theory. Clearly, Congress intended the presumption of insolvency to be available in preference litigation only. It deliberately did not include such a presumption for fraudulent transfer litigation. However, because AMO has failed to controvert Plaintiff-Trustee’s assertion that the Debtors were insolvent at the time of the transfers, it is unnecessary for the Court to rule against Plaintiff-Trustee on this point. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492255/ | ORDER
JAMES G. MIXON, Chief Judge.
On January 21, 1994, Charles and Sylvia Evans (debtors) filed a voluntary petition for relief under the provisions of chapter 7 of the United States Bankruptcy Code. Walter M. Dickinson, Esq., was appointed trustee. The debtors claimed certain real property as an exempt rural homestead pursuant to 11 U.S.C. § 522(b)(2) (1988), Ark.Code Ann. § 16-66-218 (Michie Supp.1993), and Ark. Const, art. 9, § 4.
On March 8, 1994, the trustee filed an objection to the debtors’ claim of homestead *1017exemption alleging that the property does not qualify for a rural homestead exemption but rather the exemption should be limited to an urban homestead.
On April 15, 1994, Worthen National Bank of Pine Bluff (Worthen) filed an objection to the debtors’ claim of homestead exemption alleging that the property does not qualify for a rural homestead but should be limited to an urban homestead exemption.
On February 27, 1995, a hearing was held on the trustee’s and Worthen’s objections to exemptions and the matter was taken under advisement. The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) (1988), and the Court has jurisdiction to enter a final judgment in the case.
BACKGROUND
The debtors claimed the following real property as an exempt rural homestead pursuant to 11 U.S.C. § 522(b)(2) (1988), Ark. Code Ann. § 16-6&-218 (Michie Supp.1993), and Ark. Const, art. 9, § 4:
Commencing at the North corner of Section 24, Township 6 South, Range 9 West in Jefferson County, Arkansas; thence 28 minutes West 383.8 feet; thence South 31 degrees 50 minutes East 340.35 feet; thence South 40 degrees East 260 feet; thence South 48 degrees 12 minutes East 320 feet to a point of beginning, said point being on the West R-O-W of County Rd. # 51 (Grider Field-Ladd Rd.); thence South 44 degrees 17 minutes West 770 feet; thence South 47 degrees 12 minutes East 160 feet; thence North 44 degrees 17 minutes East 770 feet; thence 47 degrees 12 minutes West 160 feet to the point of beginning, and containing 2.8 acres more or less.
The debtors’ residence is located on the east end of the property and on the west end of the property are located metal buildings that were used in the business of manufacturing new buses and rebuilding used buses.
Both the trustee and Worthen object to the debtors’ claim of a rural homestead exemption alleging that the homestead should be limited to an urban homestead because the property is located in an area which is essentially urban. Both objecting parties also argue that the debtors’ use of the property is more consistent with an urban rather than a rural homestead. Worthen also alleges that by designating the west part of the property to be used for business purposes, the debtors have segregated that portion of the property from their homestead and are no longer entitled to claim that portion of the property as a homestead.
The parties have submitted stipulations in which they have agreed to the relevant facts regarding the property. The property consists of a 2.8 acre tract of land located on Grider Field Ladd Road in Jefferson County, Arkansas. The debtors purchased the property in 1981 and first used it as a single family residence. A modular home was placed on the property and a fence and driveway were added.
The debtors operated a business on Main Street, Pine Bluff, Arkansas, known as Evans Motor Company. In 1980, Arkansas Bus Exchange, Inc., a closely-held corporation, (Arkansas Bus) was incorporated and began operations with Evans Motor Company on Main Street. Arkansas Bus was in the business of building new buses and rebuilding used buses. A personal shop was built on the property for use by Mr. Evans in connection with the Arkansas Bus business. The debtors eventually sold the property on Main Street and moved their business to the subject property. The debtors built a paint booth shop and added other shops to the personal shop already on the property to make one large shop, later known as Arkansas Bus. Arkansas Bus operated its business on the property until January 1994.
The debtors’ residence is located on the east end of the debtors’ property and has an appraised value of $64,000.00. The metal buildings located on the west end of the property have an appraised value of $200,-000.00. The debtors arranged for Arkansas Bus to lease the metal buildings from them for $2,500.00 per month. The metal buildings are located about 300 feet from the debtors’ residence. The stipulations regarding the metal buildings conflict with other evidence. Paragraph 8 of the stipulations *1018states that the metal buildings were built by Arkansas Bus with proceeds from the operation of the business. Paragraph 8 also states that Arkansas Bus and its subsidiaries claimed depreciation for the buildings on their consolidated tax returns. Contrary to these statements, paragraph 46 of the stipulations states:
[I]f the Debtors were called to testify at trial their testimony would be: “The improvements on the property were built with the Debtors’ funds from Evans Motor Company and from the sale of the Main Street property. $100,000.00 of which was placed.in a certifícate of deposit and withdrawn as needed.” Furthermore, $14,-000.00 inherited from Ms. Evans’ mother’s estate and some funds obtained through Arkansas Bus Exchange as shown as an officer’s draw were used to build the improvements on the property.
The stipulations also state that if the debtors were to testify at trial they would testify that Arkansas Bus leased the property on the west end from the debtors and made lease payments to the debtors. The debtors would also testify that Arkansas Bus did not build any improvements, but the improvements were made using proceeds from the debtors’ draw accounts.
According to the stipulations, the utility services for the residence and the metal buildings are measured by the same meter. The corporation has paid all utility costs, including the utility charges incurred in connection with the debtors’ residence. The parties also stipulated that the debtors have transferred no interest in the property to Arkansas Bus, other than a leasehold interest, and that the property is assessed in the name of the debtors.
The land on which the debtors’ residence and the metal buildings are located has an appraised value of $86,000.00. The property claimed as exempt is not used for any agricultural purposes by the debtors. Aerial photographs attached as exhibits to the stipulations reflect that a substantial amount of the land immediately adjacent to the debtors’ property is still devoted to agricultural uses. However, several other business enterprises are located within one mile of the debtors’ property, including American Freightways, Cook Crane, Key Company, Central Tin Shop, and Bayou Metal Buildings. Most of the residences located near the debtors’ property are occupied by people who also operate businesses on their property.
The debtors’ property is located six to eight feet from the Pine Bluff, Arkansas, city limits. Grider Field Ladd Road is a paved county road maintained by Jefferson County, Arkansas. The area is served by a fully developed system of roads and highways. The property is located two-tenths of a mile from U.S. Highway 65 and approximately one mile from Pines Mall in Pine Bluff, Arkansas, which is the largest shopping mall in southeast Arkansas. Retail services such as gas stations, convenience stores, and a grocery store, are located on U.S. Highway 65 in the vicinity of Pines Mall. Banking services are available on U.S. Highway 65B in the vicinity of the Pines Mall. The property is also located approximately one mile from Grider Field, the municipal airport for Pine Bluff, Arkansas, which is the largest airport in southeast Arkansas.
Fire protection is provided by the Southeast Fire Department, a volunteer fire department. Police protection is provided by the Jefferson County Sheriffs office. The property has a septic tank. Water is supplied to the property by the Ladd Water Association, a small community located south of Pine Bluff that maintains a municipal waterworks that expanded to include the debtors’ property. City water is available at the road adjoining the property, if the debtor so elects. Electricity is supplied by Arkansas Power and Light Company, which supplies electricity to the residents of Pine Bluff, Arkansas. Telephone service is provided by Southwestern Bell Telephone Company, which provides service to the residents of Pine Bluff, Arkansas. The debtors have curbside garbage pickup provided by Waste Management, Inc., the company serving the residents of Pine Bluff, Arkansas. Emergency services, including fire, police, and ambulance services, are provided to the property through the 911 Emergency Services System in Pine Bluff, Arkansas.
*1019DISCUSSION
Ark.Code Ann. § 16-66-218(b) (Michie Supp.1993) provides that the following property shall be exempt from execution:
(3) Rural homesteads not exceeding one hundred sixty (160) acres of land with improvements thereon, up to two thousand five hundred dollars ($2,500) in value but in no event less than eighty (80) acres without regard to value — Arkansas Constitution, Article 9, § 4;
(4) The urban homestead not exceeding one (1) acre of land with improvements thereon, but no to exceed two thousand five hundred dollars ($2,500) in value, but in no event to be less than one-quarter (%) of an acre of land without regard to value — Arkansas Constitution, Article 9, § 6[J
Ark.Code Ann. § 16-66-218(b) (Michie Supp. 1993).
The Arkansas Supreme Court has stated that “[i]t is the settled policy of this court that our homestead laws are remedial and should be liberally construed to effectuate the beneficent purposes for which they are intended.” Smith v. Flash T.V. Sales & Serv., Inc., 17 Ark.App. 185, 190, 706 S.W.2d 184, 187 (1986); Franklin Fire Ins. Co. v. Butts, 184 Ark. 263, 270, 42 S.W.2d 559, 562-63 (1931). The party objecting to the claim of exemption has the burden of proving that the exemptions are not properly claimed. Fed.R.Bankr.P. 4003(c).
A. The Debtors’ Use of a Portion of the Property for Manufacturing New Buses and Rebuilding Used Buses
Worthen argues that the debtors have segregated a portion of their homestead and dedicated a portion of the property to business purposes and, therefore, have voluntarily reduced the size of their homestead by abandoning a portion for commercial purposes. The debtors argue that under Arkansas law the homestead protection is not lost by using a portion of the property for business purposes and cite Bank of Sun Prairie v. Hovig, 218 F.Supp. 769 (W.D.Ark.1963); Jordan v. Jordan, 217 Ark. 30, 228 S.W.2d 636 (1950); Berry v. Meir, 70 Ark. 129, 66 5.W. 439 (1902); and Gainus v. Cannon, 42 Ark. 503 (1884) in support of their argument.
It is well-settled law that a “[o]ne does not lose his homestead by using part of it for business purposes.” Starr v. City Nat’l Bank, 159 Ark. 409, 413, 252 S.W. 356, 357 (1923); King v. Sweatt, 115 F.Supp. 215, 219 (1953). It is also well-settled law that a party can abandon a portion of his homestead by devoting a portion of his homestead to business purposes. Vestal v. Vestal, 137 Ark. 309, 316, 209 S.W. 273, 275 (1919); Curtis v. Des Jordins, 55 Ark. 126, 17 S.W. 709 (1891); Klenk v. Knoble, 37 Ark. 298 (1881). As the Arkansas Supreme Court noted as early as 1881 in the case of Klenk v. Knoble, 37 Ark. 298 (1881), the result of the reasoning is that “one owning a lot in a town might, then, to any reasonable extent, have retained the whole of it as a homestead, if kept for family convenience or pleasure. But he was not required by any policy to retain forever, as part of his homestead, more of it than he might deem reasonably sufficient, and might determine to hold and use the balance as other property.” Klenk, 37 Ark. at 307.
A party can manifest an intention to abandon a portion of his homestead for business purposes in “any sufficient way.” Klenk v. Knoble, 37 Ark. at 307. Whether the debtor has abandoned a portion of his homestead by devoting it to business purposes is a factual question and “[a]ny facts or circumstances showing a permanent design, •may be considered.” Klenk v. Knoble, 37 Ark. at 307.
The facts in the instant case are similar to the facts used by the Courts in analyzing in Klenk and Vestal. In Klenk, Mr. Knoble and his family resided on a parcel of land in Fort Smith, Arkansas, consisting of lots 4, 5, and 6. The residence was on part of lot 4 and on lot 5 and Mr. Knoble had built a brewery on part of lot 5 and on lot 6. In Klenk, the court focused on the permanency of the business in determining Mr. Knoble’s intention:
It is certainly reasonable that the owner of such a homestead, after its character, as such, had been impressed by residence and acts manifesting intention, should be allowed to.transact any business upon it he *1020might deem necessary for the support of his family, to erect conveniences proper for the business, and to, occasionally, rent out such portions of the premises as could be temporarily spared. It would very much neutralize the advantages of a homestead if these things could not be done.... It is certainly true, upon the other hand, and equally reasonable, that any one may, by acts equally indicative of intention, contract the area of his homestead, by cutting off a portion and appropriating it permanently to uses apart from his family conveniences. It is a matter of intention to be derived from the facts.
Klenk v. Knoble, 37 Ark. at 303. In determining that Mr. Knoble had abandoned the portion of the property on which the brewery was located the Court stated:
The defendant retained his dwelling house, and a considerable amount of ground with it; seventy-five feet in front, running back one hundred and forty feet, to an alley. What he cut off constituted no part of his actual residence, although occasionally used for family convenience. The brewery-house and cellar had not been built with a view to domestic convenience....
It is to be observed that the Constitution does not limit the minimum extent of the lot. The resident may make his homestead as small as he pleases, provided it be not so contracted as to show an intent to evade law, by making it too small for actual use as a homestead.... [T]here is nothing in the policy of the Constitution to prevent the owner from utilizing other portions of his property as a basis of credit— although he might, if so disposed, have held it all against execution. His design so to separate it, may be as fairly inferred from acts and circumstances, as was his original design to invest it with the homestead character.
Klenk, 37 Ark. at 305-06.
In Vestal, the debtor entered into a partnership arrangement with his son to operate a florist business. Mr. Vestal owned eighty acres of land and, in the partnership agreement, he agreed to rent five acres of his land to the partnership for constructing greenhouses and other improvements.- The fee simple title to the property was to remain in Mr. Vestal. In determining that Mr. Vestal had abandoned the five-area tract of land by devoting it to the partnership business, the Court stated:
The contract of partnership was in writing and while [Mr. Vestal] did not convey any interest in the land to his son, he provided for the continuation of the business on the five acres in controversy and the greenhouses, ... were made a part of the partnership effects, and provision was made for their repair, etc. There is nothing in our Constitution or statutes which would prevent [Mr. Vestal] from abandoning a part of his homestead and devoting it to the partnership business and thus subjecting it to the payment of the partnership debts. The business of a florist requires houses peculiar to themselves.... The equipment and fixtures are not fit or appropriate for any other kind of business. The whole of the contract is considered together with the attendant circumstances, it is evident that [Mr. Vestal] intended to segregate the five acres from his homestead and to devote them to the partnership business.
Vestal, 137 Ark. at 315-16, 209 S.W. at 275.
Like Klenk and Vestal, the debtors in this particular case have manifested an intent to devote a portion of their property to business purposes. The debtors did not construct the buildings on their property for any “family” or “domestic convenience” purpose. The buildings were constructed to conduct a manufacturing business by Arkansas Bus. The buildings are permanent in nature and are intended for industrial purposes. The character of the buildings is such that they are only fit or appropriate for commercial or industrial purposes. Mrs. Evans testified at the first meeting of creditors for Arkansas Bus that the debtors’ future plans were to either use the buildings to start a new business or to lease the buildings. All of these facts and circumstances considered together are strong evidence that the debtors intended to abandon that portion of the property on which the buildings are situated by devoting that area to the manufacture of new and refurbished buses.
*1021The debtors are allowed to reduce the amount of their homestead as long as the amount of property retained for their homestead appears to be reasonable and bona fide. Klenk, 37 Ark. at 307. The metal buildings are located on the west end of their property over 300 feet from the residence. The remaining single family dwelling and the ground immediately adjacent thereto appear reasonable and bona fide.
The facts in this particular case can be distinguished from the cases cited by the debtors. For instance, two of the four cases cited by the debtors involved less than one-fourth of an acre of land (Jordan, 217 Ark. at 31, 228 S.W.2d at 636; Berry, 70 Ark. at 130, 66 S.W. at 439-40) and one case involved less than an acre of land (King v. Sweatt, 116 F.Supp. at 217). All four cases involved improvements that were used for the “family” or “dwelling” conveniences. The value of the improvements under consideration in the eases cited by the debtors were not overly significant nor disproportional to the value of the homestead dwelling. E.g., Berry, 70 Ark. at 132, 66 S.W. at 440 (stating “[t]his view of the law certainly works no injustice to the creditor where the value of the homestead, including the shop or store used for the business convenience of the owner, is small, as it is here, the whole of the value of $900”). Also, the cases cited by the debtors involve relatively small, “family-type” operations.
By contrast, the property involved in this case involves 2.8 acres and the business was not for family or domestic convenience. The metal buildings located on the debtors’ property are worth approximately $200,000.00, which is three times as much at the debtors’ residence valued at $64,000.00. The business was operated by a corporation, Arkansas Bus, and is a much more substantial business enterprise than the small businesses involved in the cases cited by the debtors. Because the eases cited by the debtors involved small, family-run operations, there was no injustice done to creditors by allowing the debtors in those cases to claim the whole of the property as a homestead.
Similar to the debtor in Klenk, the debtors in this case may still occupy their residence and a considerable amount of property surrounding the residence as a homestead. What the debtors have segregated from their property does not constitute part of their actual residence. The structure of the buildings is such that the character and nature of the buildings constitute evidence of the debtors’ intention to permanently devote this property to business purposes.
• Therefore, for the foregoing reasons, that . portion of the debtors’ property constituting the business property is determined to have been permanently segregated by the debtors and is no longer a portion of the debtors’ homestead.
B. Rural or Urban Homestead,
Even if the debtors had not segregated a portion of their homestead by devoting it to industrial business purposes, they cannot exempt the portion of the property containing the buildings as their homestead because the debtors’ homestead is urban in nature and is limited to one-fourth an acre. The Arkansas Constitution describes a rural homestead as:
[t]he homestead outside any city, town or village, owned and occupied as a residence, shall consist of not exceeding one hundred and sixty acres of land with the improvements thereon, to be selected by the owner, provided the same shall not exceed in value the sum of twenty-five hundred dollars, and in no event shall the homestead be reduced to less than eighty acres, without regard to value.
Ark. Const, art. 9, § 4. The Arkansas Constitution describes an urban homestead as:
[t]he homestead in any city, town or village, owned and occupied as a’residence, shall consist of not exceeding one acre of land, with the improvements thereon, to be selected by the owner, provided the same shall not exceed in value the sum of two thousand five hundred dollars, and in no event shall such homestead be reduced to less than one-quarter of an acre of land, without regard to value.
Ark. Const, art. 9, § 5.
*1022The question of whether a homestead claimed as exempt constitutes a rural or urban homestead must be determined based on the facts of each case and must be considered in light of the constitutional intent of the exemptions allowed. King v. Sweatt, 115 F.Supp. 215, 220 (W.D.Ark.1953); Farmers Coop. Ass’n v. Stevens, 260 Ark. 735, 736-37, 543 S.W.2d 920, 921 (1976). The rural/urban issue is not “altogether controlled by the corporate limits,” thus property located outside the corporate limits may be determined urban. First Nat’l Bank v. Wilson, 62 Ark. 140, 143, 34 S.W. 544, 544 (1896). See King v. Sweatt, 115 F.Supp. at 219-20; Farmers Coop. Ass’n v. Stevens, 260 Ark. at 738-39, 543 S.W.2d at 922-23. The court stated in First Nat’l Bank v. Wilson, 62 Ark. 140, 34 S.W. 544 (1896):
[T]here may be towns that have overgrown their corporate limits, so that one may dwell within the town, and still be outside the corporate limits. In such cases it may be that the courts would look to the facts to determine whether the homestead claimed was located in town or country, and not be altogether controlled by the corporate limits.
First Nat’l Bank v. Wilson, 62 Ark. at 143, 34 S.W. at 544.
The parties objecting to the debtors’ claim of exemption assert that the debtors’ use of the property for business purposes makes the property urban rather than rural. The use made of the property is “very much pertinent” to the determination of the rural or urban character of a debtor’s homestead. Farmers Coop. Ass’n v. Stevens, 260 Ark. at 738, 543 S.W.2d at 921. Use of the property for exclusively agricultural purposes generally indicates a rural homestead; however, property used for other purposes may still be determined rural. Smith v. Webb (In re Webb), 121 B.R. 827, 830 (Bankr.E.D.Ark.1990); Bank of Sun Prairie v. Hovig, 218 F.Supp. 769, 783-84 (W.D.Ark.1963); King v. Sweatt, 115 F.Supp. at 218-19; George v. George, 267 Ark. 823, 826, 591 S.W.2d 655, 657 (Ct.App.1979). But see First Nat’l Bank v. Wilson, 62 Ark. 140, 143, 34 S.W. 544, 544 (1896) (holding that residence on nine-acre tract of land used for agricultural purposes should be limited to urban homestead because it was within the town of Brinkley).
Courts have focused on the characteristics of the property and surrounding area in determining whether the homestead should be considered rural or urban. The Constitution describes a rural homestead as a “homestead outside any city, town or village, owned and occupied as a residence.” Ark. Const, art. 9, § 4. No precise legal definition is provided for the terms “city, town or village,” as used in the Arkansas Constitution to describe the homestead exemption. In cases concerning the definition of these terms, the Arkansas Supreme Court has determined that the “words were used in the Constitution in their popular sense.” King v. Sweatt, 115 F.Supp. at 220. See Farmers Coop. Ass’n v. Stevens, 260 Ark. at 738-39, 543 S.W.2d at 921. In one case the term “village” was described as a small urban community or town. King v. Sweatt, 115 F.Supp. at 221. In Bank of Sun Prairie v. Hovig, 218 F.Supp. 769 (W.D.Ark.1963) the court stated that “[a] city is a town and a village is a town, and ordinarily the word city or village indicates the size of the town. Therefore, the word town seems to be the key word in the Constitutional provisions under consideration.” Bank of Sun Prairie, 218 F.Supp. at 784. The Arkansas Supreme Court discussed the popular meaning of the word “town” in the case of Rogers v. Galloway Female College, 64 Ark. 627, 635, 44 S.W. 454 (1898) where it stated:
Generally, in speaking of a town as a mere place of geographical location, we have no reference whatever to the corporate limits, but simply use the name of the town as designating the aggregate body of people living in such considerable collection of dwelling houses and in such proximity as to constitute a town, as distinguished from the country.
Rogers v. Galloway Female College, 64 Ark. 627, 635, 44 S.W. 454, 456 (1898). The Arkansas Supreme Court also discussed the popular sense of the word “town” in Southeast Ark. Levee Dist. v. Turner, 184 Ark. 1147, 1151, 45 S.W.2d 512, 514 (1932). In *1023that case the issue was whether certain property was situated in the town of McGehee, Arkansas. The residences were all of a permanent and substantial character and the residents were engaged in “pursuits related to and carried on in the city of McGehee.” Southeast Ark. Levee Dist. v. Turner, 184 Ark. at 1150, 45 S.W.2d at 513. In addition, the occupants were furnished with gas, water, electric, and telephone services from the city of McGehee. In holding that the area was within the city of McGehee, although not within the actual corporate limits of McGe-hee, the Court stated:
We have here a compact community of 42 houses, occupied by persons who may fairly be said to dwell together, and who are separated from a city of the second class only by the city’s incorporation line, and who have all the conveniences which proximity to the city affords, and whose property is assessed for general taxation as additions to this city.
... The city of McGehee has grown in various directions, and is now, and was at the time the assessments in question were made, a larger town than its corporate limits indicate. In other words, many persons are residents of the town of McGehee within the popular meaning of the word “town” who do not reside within the corporate limits thereof.
Southeast Ark. Levee Dist. v. Turner, 184 Ark. at 1153, 45 S.W.2d at 514.
Although the law creating the homestead should be liberally construed, the “Construction should not be so liberal as to depart from the plain and obvious meaning of the words used in the Constitution or to confer rights upon persons who have not brought themselves at least with the spirit of the Constitutional provisions.” King v. Sweatt, 115 F.Supp. 215, 218 (W.D.Ark.1953).
Property will be determined to be urban, if it is in a community that contains the common attributes and conveniences of a city. See Bank of Sun Prairie v. Hovig, 218 F.Supp. at 785; King v. Sweatt, 115 F.Supp. at 221; Farmers Coop. Ass’n v. Stevens, 260 Ark. at 739, 543 S.W.2d at 923. Numerous factors are considered in making this determination. The courts in the following cases found a rural homestead: Bank of Sun Prairie v. Hovig, 218 F.Supp. at 785 (finding rural homestead where property is located less than three miles from Hot Springs city limits in an unincorporated community with no local fire protection, public schools, sewer systems, public waterworks, street lights, or public sidewalks and where the cost of paving the road was partly borne by the landowners); King v. Sweatt, 115 F.Supp. at 215 (finding rural homestead where property is located one mile from Hot Springs corporate limits situated in an unincorporated community with no post office, school, church, or other improvements except filling stations, tourist courts, and one or two “country stores”); Farmers Cooperative Ass’n v. Stevens, 260 Ark. at 739, 543 S.W.2d at 923 (finding rural homestead where property is used for agricultural purposes and is situated in incorporated community with two churches, no schools, no service stations, no industry, and no motels).
In this case, the facts support a finding that the debtors’ homestead is urban in nature. The debtors’ property on Grider Field Ladd Road, although not technically within the city limits of Pine Bluff, is only six to eight feet away. The debtors’ property enjoys all the modem conveniences that are enjoyed by the residents of the city of Pine Bluff. For example, electricity and phone services are provided by the same suppliers that service Pine Bluff residents. Emergency services, including fire, police, and ambulance services, are provided to the property through the 911 Emergency Service System in Pine Bluff, Arkansas. In addition, although the debtors use the services of a Ladd Water Association, city water is available at the road adjoining the property. Retail services such as gas stations and a grocery store are available approximately one mile from the homestead.
The bus manufacturing business located on the debtors’ property is consistent with other uses of the property in close proximity to the debtors’ residence. The surrounding area *1024contains many commercial and industrial businesses, which is not characteristic of a rural area, but more characteristic of an urban area.
For the foregoing reasons, the Court finds that the debtors’ homestead is urban in nature and is, therefore, limited to one-fourth an acre,
IT IS SO ORDERED, | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492256/ | ORDER GRANTING TRUSTEE’S APPLICATION TO EMPLOY ATTORNEY
ARTHUR N. VOTOLATO, Bankruptcy Judge.*
Heard on January 4, 1996, on the Motion to Employ Stephen G. Morrell, Esq., and the firm of Eaton, Peabody, Bradford & Veague, P.A., as attorneys for Trustee, Joseph V. O’Donnell. Subsequent to the hearing the Debtor filed an Objection, asserting that she has been prejudiced by the Trustee’s failure to serve her with a copy of the Application, and alleging a conflict of interest in that the Applicants represent the firm of Bernstein, Shur, Sawyer & Nelson in an unrelated case pending before the United States District Court for the District of Maine.
Notwithstanding the Debtor’s absence, a telephonic hearing was held to address the conflict issue, and based upon the representations of the Trustee, the Applicant, the United States Trustee, as well as the Debtor’s memorandum, we find that an actual conflict of interest does not presently exist. Additionally, to ensure that all matters involving Bernstein, Shur, Sawyer & Nelson are properly and fully investigated, the Trustee has agreed, and the Court has ordered that the Trustee hire special, independent counsel to investigate, and to prosecute, if appropriate, all Bernstein, Shur matters.
Regarding Ms. Petit’s due process concerns, Fed.RJBankr.P. 2014(a) requires that the “application shall be filed and, unless the case is a chapter 9 municipality case, a *2copy of the application shall be transmitted by the applicant to the United States trustee.” Nothing in the Code or Rules requires that the application be served on the Debtor or her Counsel. See In re AroChem Corp., 181 B.R. 693, 696 (Bankr.D.Conn.1995).
Accordingly, the Trustee’s Application to Employ Counsel is APPROVED, and the Debtor’s Objection is overruled, on both procedural and substantive grounds.
Enter Judgment consistent with this opinion.
Of the District of Rhode Island, sitting by designation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492258/ | OPINION AND ORDER
JOHN J. THOMAS, Bankruptcy Judge.
Under consideration in this Chapter 11 case is a Motion to Convert the case to Chapter 7, an Objection to Brizers’ and Ba-ilaras’ (hereinafter “Debtors”) amended plan filed by The First National Bank of Jermyn (hereinafter “FNBJ”) and FNBJ’s Motion for Relief from the Automatic Stay. An Objection to FNBJ’s Proof of Claim was filed by the Debtors.
The pertinent facts are as follows: the male Debtors, along with Edward Kubecki (hereinafter “Kubecki”) are principals of the partnership known as M. Brizer & Co., (hereinafter “Brizer & Co.”), a meat processing business located in Jermyn, Lackawanna County, PA., which ceased operations in 1988. The principals of Brizer & Co. hold title to the real estate and all equipment contained therein.
In November of 1979, FNBJ extended a $650,000.00 loan to the Wilkes-Barre Industrial Development Authority (hereinafter “1979 loan”) for the purpose of financing the acquisition of a commercial building and equipment for the use of Brizer & Co. That company was the beneficiary of the loan which was secured by a mortgage on the commercial property. The Debtors and Ku-becki and his spouse, Stella, personally guaranteed the loan with a bond guaranty. The language of the bond guaranty states that the guarantor agrees that their liability as “Guarantor shall not be impaired or affected by any renewal or extension which may be made with or without their knowledge or consent ...” (See Plaintiffs Exhibit No. 1). Monthly repayment of that loan in the amount of $6,200.00 per month was made until September of 1987.
A second loan was made with FNBJ in May of 1987 for $200,000.00. This loan was secured by the personal residences of the Debtors, Kubecki and his spouse, and two Kubecki children and their spouses as co-promisors (not co-guarantors or co-sureties) to be held jointly and severally liable for the *71debt.1 (See Plaintiffs Exhibit No. k). By virtue of written appraisals submitted without objection, the Brizer residence is found valued at $138,500.00 and the Bahara residence is found valued at $148,000.00. An additional, unsecured third loan for $200,-000.00 was obtained by Brizer & Co. in June of 1987. This loan was later released and/or stricken from the record by FNBJ. (Transcript dated June 15, 199k at pp. 8 and 10.) On appeal, the Pennsylvania Supreme Court affirmed the validity of the judgments on the 1979 and the May 1987 obligations.
On June 16, 1992, Edward and Stella Ku-becki executed a loan modification agreement with FNBJ. This agreement released Ku-becki, his spouse, his children and their spouses from all prior obligations to FNBJ in exchange for a $6,000.00 down payment and a $127,000.00 promissory note accompanied by a first lien mortgage on the Edward and Stella Kubecki residence. The mortgaged residence used as security for this note was the same collateral that Edward and Stella Kubecki used to secure the May 1987 loan. This agreement failed to reserve FNBJ’s rights of recourse against the Debtors, although an amended agreement executed September 2nd of that year attempted to reserve those rights. The Debtors were offered a similar loan modification agreement by FNBJ, but found the terms unacceptable and refused the offer. The Kubecki loan modification agreement was negotiated without the consent of the Debtors.
A dispute has arisen concerning the value of the commercial property securing the 1979 loan. The parties have submitted appraisals that demonstrate a substantial dispute with FNBJ as to value. The Debtors’ appraiser submitted a fair market value of $560,000.00 for the commercial property. FNBJ’s appraiser valued the property at $208,000.00, significantly as a result of the inclusion of potential costs for an environmental clean-up not addressed in the Debtors’ appraisal.
An auction of machinery and equipment remaining on the premises of Brizer and Co. was held by FNBJ in November of 1993. The sale of these items yielded $34,079.00 which was applied to partial satisfaction of the Debtors’ obligation to FNBJ. (See Transcript dated March 15, 199k cd P- 9 and Plaintiffs Exhibit No. 11). An additional $18,285.00 was credited to the Debtors’ loan through rental payment on the commercial property paid directly to FNBJ.
The salient issue is whether a loan modification agreement signed by the Ku-beekis, as co-guarantor and co-maker of the above mentioned loans, without the consent of the other co-guarantors and co-makers, releases the Debtors from their obligations under the loan agreements. The Debtors argue that the loan modification agreement with the Kubeckis altered the use of the Kubecki’s residence as collateral, as well as the availability of the children’s residences, for the May 1987 loan, thus the Debtors should be discharged of all prior and current obligations since this was done without their consent.
Before commencing our analysis, it is necessary to summarize some well established common law principles of surety and guaranty law. When there are several sureties for the principal’s unpaid debt, each surety owes to his co-sureties a duty to pay his proportional share of their common debt. Schnader v. National Surety Co., 349 Pa. 599, 37 A.2d 753 (1944). “Should one co-surety have to pay more than his proportional share of the debt, one of the rights incidental to his co-suretyship is the right to enforce contribution from the other sureties for his excess.” In re Bailey’s Estate, 156 Pa. 634, 27 A. 560 (1893).
The Debtors rely on First Federal Savings and Loan Association of Pittston v. Reggie, 376 Pa.Super. 346, 546 A.2d 62 (1988) to support their argument. The Reggies cosigned a loan to enable their son and his spouse to own a home. When the son de*72faulted, the bank sold the son’s property and applied the proceeds to satisfaction of a junior lien on the property instead of satisfying the senior lien eo-signed by the Reggies. The Reggie court concluded that the bank selectively satisfied a junior lien on the mortgaged property which violated their duty to the surety on the first mortgage. The decision of the court to discharge the surety on the senior lien was its remedy for the violation of the bank’s duty as a lender. In the case at bar, any release the bank gave to the Kubeeld family has not been proven to have increased the exposure of the Debtors since no evidence has been offered as to value of the Kubecki family assets prior to the modification.
The Debtors also rely on Federal Deposit Ins. Corporation v. Steinman, 53 F.Supp. 644 (E.D.Pa.1943), to support their position. The court in Federal Deposit provided a complete discharge to the unreleased party in a mortgage loan where nearly all the property subject to the mortgage has been released to one of two mortgagors. The unreleased mortgagor was left with no collateral with which to secure his loan, thus increasing his risk of loss considerably. The court concluded that a mortgagee may not release any portion of the mortgaged land in a way that would destroy or impair its value as security for the debt, absent the consent of the mortgagor, without forfeiting its rights to seek a deficiency against the unreleased party. Federal Deposit, supra at 647. While the situation in Federal Deposit is analogous to the case at bar, Federal Deposit deals with mortgage law and not the law of principals and sureties applicable in the case before us. The Debtors are not co-mortgagors with the non-debtors on mortgages col-lateralized by the same property. Therefore, while this court agrees with the notions of equity espoused in Federal Deposit, it is not controlling.
Both parties rely on Keystone Bank v. Flooring Specialists, Inc., 513 Pa. 108, 518 A.2d 1179 (1986) in advancing their position. In Keystone, the corporation signed various business loans evidenced by promissory notes personally guaranteed by the McCos-bys and the DeRubeises. Not long after signing the notes, the corporation defaulted on the loans. Keystone obtained a judgment lien against the personal property of the co-guarantors. During revival proceedings of the judgment liens five years later, the bank released a portion of land owned by the McCosbys for $5,000.00 consideration, as well as releasing them from any further obligations under the terms of the previously signed promissory notes. This agreement was made without the consent of the DeRu-beises. The Supreme Court remanded the case to the lower court to determine the extent, if any, that the rights of DeRubeises were impaired.
Keystone concludes that if the creditor releases collateral obtained from one of several co-sureties, such release can impair the other sureties’ right to resort to such collateral to enforce their rights of contribution. If the release should have such an effect on the co-surety, the other co-surety will be entitled to a pro tanto discharge of their obligations. Id. 518 A.2d at 1186, In re F.B.F. Industries, Inc., 165 B.R. 544, 552 (E.D.1994), First Federal Savings and Loan Association of Pittston v. Reggie, supra at 353, 546 A.2d at 65, National Building and Savings Ass’n v. Fink, 182 Pa. 52, 37 A. 1009 (1897).
The court in Keystone relied heavily on Williston’s treatise on contracts to arrive at its conclusions:
In the case of co-sureties, ...
[Ejach must be treated as between himself and his co-sureties as a principal for the fraction of the debt which he ought to pay and a surety for the remainder....
If the creditor by any dealings with the one co-surety impairs the suretyship rights of other co-sureties, they will be discharged from such proportion of the debt as they would equitably have been entitled, on payment of it, to throw upon the co-surety with whom the inequitable dealings have been had. Keystone Bank v. Flooring Specialists, Inc., supra at page 116, 518 A.2d at 1186.
FNBJ claims that the loan modification agreement is a first lien mortgage on the personal residence of the Kubeclds. However, the same residential property was also *73used as collateral in the form of a short mortgage on the KubecM residence for the May 1987 loan. The May 1987 loan had no consent provisions similar to those in the 1979 loan which served to provide advance consent to an agreement between co-guarantor and the bank.
The use of the same property as collateral for the May 1987 loan and the loan modification agreement, as well as the release of the children, suggests an impairment not only discussed by Williston, but referenced as a statutory defense pursuant to 13 PclC.S.A § 3606 as follows:
§ 3606. Impairment of recourse or of collateral
(a) General rule. — The holder discharges any party to an instrument to the extent that without the consent of the parties, the holder:
(1) without express reservation of rights releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person ...; or
(2) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.
(b) Express reservation of rights by holder. — By express reservation of rights against a party with a right of recourse the holder preserves:
(1) all his rights against such party as of the time when the instrument was originally due;
(2) the right of the party to pay the instrument as of that time; and
(3)all rights of such party to recourse against others. 13 Pa.C.SA § 3606.2
The words used in § 3606 “to the extent that ...” indicate that the party seeking discharge would be entitled to a pro tanto discharge, but only to the extent that their rights have been impaired. First Arlington National Bank v. Stathis, 115 Ill.App.3d 403 at 414, 71 Ill.Dec. 145 at 153, 450 N.E.2d 833 at 841 (1983). The burden of proof is on the Debtors to show the degree to which the collateral or their rights of contribution have been impaired by the Kubecki loan modification agreement. National Building & Savings Association v. Fink, 182 Pa. 52 at 59, 37 A. 1009 at 1010 (1897), Ramsey v. First Nat. Bank and Trust Co., 683 S.W.2d 947 at 954 (Ky.App.1984), Bank of Ripley v. Sadler, 671 S.W.2d 454 (Tenn.1984), Peacock v. Farmers & Merchants Bank, 454 So.2d 730 (Fla.App.1984).3
The Restatement of Contracts guides the court on the manner in which to apply this statute in a situation dealing with co-promi-sors rather than co-sureties as exists regarding the May 1987 loan.
(1) Except as stated in § 295, where the obligee of promises of the same performance discharges one promisor by release
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(a) co-promisors who are bound only by a joint duty are discharged unless the discharged promisor is a surety for the co-promisor;
(b) co-promisors who are bound by joint and several duties or by several duties are not discharged except to the extent required by the law of suretyship. Restatement of the Law of Contracts, Second, § 294. at p. 423.
*74(1) Where the obligee of promises of the same performance contracts not to sue one promisor, the other promisors are not discharged except to the extent required by the law of suretyship. Restatement of the Law of Contracts, Second, § 295(1) at p. m.
The lack of information concerning the worth of the Kubeeki residence or their finances or their children’s residences or finances gives the court no indication to what extent the Debtors have been damaged, their rights of contribution impaired or whether the Ku-beekis could have satisfied all or part of the May 1987 loan. In short, the court has no idea if there actually was an impairment and, if so, the degree of that impairment.
The court concludes that since the Debtors have failed to meet their burden under Section 3606, the question of whether or not there was a reservation of rights under the language of the loan modification agreement and its amendment need not be addressed. The statute requires proof of impairment and that burden has not been carried. The Debtors would be responsible for the entire amount due on the May 1987 note.
Notwithstanding this conclusion, however, the proof of claim filed by FNBJ on September 10, 1992 only identified the 1979 loan and no other. When a claim is listed as disputed, as was done here, the failure to file a timely proof of claim results in a preclusion of the allowance of that claim.
Nevertheless, as stated in In re Tarnow, 749 F.2d 464, 465 (7th Cir.1984), when dealing with a hen on property, the law allows, “... a creditor with a loan secured by a Hen on the assets of a debtor who becomes bankrupt before the loan is repaid to ignore the bankruptcy proceeding and look to the Hen for the satisfaction of the debt.” This is true regardless of whether the secured creditor files a proof of claim. Therefore, regarding the May 1987 loan, the bank is secured to the extent of the combined worth of the Debtors’ homes and no aUowance for any unsecured portion can be permitted beyond that.
The 1979 loan was secured by the jointly owned commercial property with Brizer & Co. as the principal. The loan was further guaranteed by the Debtors and Edward and Stella Kubeeki. While this agreement negotiated by the bank and Kubeeki may result in an increased risk for the Debtors, the Debtors, in advance, have consented and agreed to not aHow such an agreement to affect their obHgation to the bank. FNBJ has the rights under the contract to sue the Debtors for the entire amount due on the 1979 loan regardless of whether FNBJ reserved their rights in the loan modification agreements.
The bank has received rental payments concerning the commercial property, only two-thirds of which were appHed to the Debtors’ account. The other one-third portion of the rental payment was credited to the Ku-beckis pursuant to the 1992 agreement between FNBJ and the Kubeckis. A total of $18,285.00 has been credited to Brizer & Co. of a total $27,000.00 rents. The difference shall be credited back to the Debtors’ account due to the stipulation of March 10, 1993, whereby both parties agreed that the fuH amount of the rent was to be paid directly to FNBJ and put towards the Debtors’ account in partial payment of the debt owed.
The court finds that the principal balance on the November 1979 loan was $403,962.63. To this we have added interest to the filing date of $156,020.26 and costs of $165,955.73 in order to arrive at the total due of $725,-938.62.
From this amount, credit should be given for the appHcation of the proceeds of the personalty earHer identified. The testimony appeared to indicate that credit should be given for that reason in the amount of $34,-079.00. Furthermore, we wiH give credit for the rent received from the commercial property of $27,000.00. These amounts reduce the net amount payable on the 1979 loan to $664,859.62.
FNBJ is secured under the 1979 loan up to the value of the commercial property less any prior Hens. The court concludes that FNBJ’s appraisal of $208,000.00 is more accurate because it takes into account a decrease in value due to water and ground soil contamination. Moreover, the Debtors’ ap*75praisal inexplicably omitted the cost comparison approach, a significant element customarily factored into an equation that leads to the computation of a final fair market value estimate of the property. Furthermore, the Debtors’ appraisal does not substantiate the $15,000.00 per acre figure it assigns to the excess land surrounding the subject building.
The building is also encumbered by a lien for unpaid taxes owed to the date of filing of $38,805.89. FNBJ’s claim is therefore allowed as secured for $169,194.11 and unsecured for $495,665.51.
The court denies the Debtors’ objection to FNBJ’s proof of claim based on this reasoning.
FNBJ’s objection to the amended plan is sustained. The Debtors offer a cram down in their plan of reorganization through the sale of over-valued machinery, equipment and commercial real estate without addressing the disposition of the Debtors’ homes should the collateral be insufficient to satisfy the loan. The plan makes no provisions for unsecured or undersecured debts. Nevertheless, the court will not preclude the Debtors from attempting to present a confirmable plan consistent with this opinion. We, therefore, will allow the Debtors thirty (30) days to file an amended plan and disclosure statement.
Notwithstanding that conclusion, we are compelled to address the bank’s Motion for Relief from the Automatic Stay with regard to their collateral.
Obviously, under no circumstances will the court find equity in the commercial real estate. Neither can we find the necessity of this property to an effective reorganization since its liquidation can only partially address the debt due the bank. With accruing interest and costs against the property, there can only be but one conclusion — that relief from the automatic stay should be granted immediately as to the commercial real estate.
That conclusion may not necessarily be the same with regard to the residences of the Debtors. The bank has not filed a proof of claim with regard to those items of real estate. Conceivably, by offering the bank the value of the secured claim i.e., the value of the real estate, the Debtors can salvage their residences. We shall await review of the amended plan before we consider favorably the Motion of the bank for relief from stay with regard to these parcels of real estate. Accordingly, the bank’s Motion with regard to the two residences is denied without prejudice.
Consistent with this opinion, we further conclude that the Motion to Convert to Chapter 7 is granted only if an amended plan is not filed within thirty (30) days, otherwise, it is denied.
. Although the loan indicates that the parties are only jointly liable for the debt as indicated by the language “We promise to pay ... ”, 13 Pa.C.S.A. § 3118(5) states, "[U]nless the instrument otherwise specifies, two or more persons who sign as maker, acceptor or drawer or indorser and as a part of the same transaction are jointly and severally liable even though the instrument contains such word as ‘I promise to pay’.”
. This statute has, since the institution of this suit, been repealed, but under 1 Pa.C.S.A. § 1976, "... the repeal of any civil provisions of a statute shall not affect or impair ... any civil action pending to enforce any right under the authority of the statute repealed. Such action may be proceeded with and concluded under the statutes in existence when such action was instituted.” 13 Pa.C.S.A. § 3606 has now been incorporated in 13 Pa.C.SA. § 3605.
. 13 Pa.C.S.A. § 3605 was not in effect at the inception of these proceedings, but is the current law in Pennsylvania. Section 3605 serves to codify 3606 and the existing case law concerning this matter. Section (f) states "... the obligation of any party who is jointly and severally liable with respect to the secured obligation is discharged to the extent the impairment causes the party asserting discharge to pay more than that party would have been obliged to pay, taking into account rights of contribution, if impairment had not occurred_ The burden of proving impairment is on the party asserting discharge.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492259/ | INTRODUCTION
RONALD BARLIANT, Bankruptcy Judge.
This matter is before the court on motions to dismiss three adversary complaints seeking to recover tax payments to (1) the Illinois Department of Revenue, (2) the Illinois Department of Employment, and (3) David D. Orr (“Orr”) and Edward J. Rosewell (“Rose-well”).1 The complaints allege that the tax payments were either preferential transfers, avoidable under §§ 547 and 550 of the Bankruptcy Code,2 or fraudulent transfers, avoidable under §§ 548 and 550. The complaints against the Departments of Revenue and Employment also allege that they filed liens against Leyden Community Hospital (“Ley-den”), the alter ego of the debtor, to secure penalties and therefore the liens are avoidable under §§ 724(a) and 726(a)(4).
Count II of the complaint against the Department of Revenue, which is the lien avoidance claim, will be dismissed pursuant the parties’ agreement because that defendant never recorded a hen. The preference and fraudulent transfer claims, Counts I and III, will also be dismissed because the payments of Illinois trust fund taxes were not made with property of the Debtor. Contrary to the assertions of the moving parties, however, the remaining claims are not time barred. The motions of the Illinois Department of Employment and Orr and Rosewell will therefore be denied.
*124BACKGROUND
On January 28, 1991, Leyden entered into an agreement for the sale of assets, including the real estate on which its hospital was located. This real estate was owned by Hilltop Real Estate Investment Co. Partnership (“Hilltop”). Proceeds of that sale went into an escrow, from which the tax payments that are the subjects of the complaints were made. The Department of Revenue received $72,644.45 as payment for taxes owed by Leyden. Although neither the complaint nor the motions specifically allege it, these taxes were apparently “trust fund taxes” — that is, employee income taxes withheld from employees’ paychecks pursuant to 35 ILCS 5/705.3 The Department of Employment received a tax payment of $103,989.60; Orr, in his capacity as Cook County Clerk, received $498,393.60; and Rosewell, in his capacity as Cook County Collector, received $391,432.98. On April 4, 1991, Lakeside Community Hospital (the “Debtor” or “Lakeside”) filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On August 5, 1993, the case was converted to a Chapter 7 proceeding and a trustee was appointed. On August 4, 1995, the Trustee filed the three separate complaints now before us, alleging that the tax payments were preferential or fraudulent transfers, and thus avoidable. The complaints also allege that the Departments of Revenue and Employment filed liens against Leyden for taxes, penalties, and interest.
In October 1995, the defendants filed their motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b) (made applicable to proceedings under the Bankruptcy Code by Federal Rule of Bankruptcy Procedure 7012(b)). The motions of the Department of Employment and Orr and Rosewell are identical and assert only that the actions against them are time barred. (Motions, f 1). Both motions adopt the Department of Revenue’s arguments that the actions are time barred. (Motions, ¶ 3). The Department of Revenue further argues that the payment of trust fund taxes it received is not avoidable because the funds were not the Debtor’s property when the payments were made.
DISCUSSION
In order to prevail on a motion to dismiss under Rule 12(b), it must appear from the pleadings that the plaintiff can prove no set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). Allegations in the pleading are to be construed in favor of the nonmoving party and the motion should be granted “only if the moving party clearly established that no material issue of fact remains to be resolved and that he or she is entitled to judgment as a matter of law.” National Fidelity Life Ins. v. Karaganis, 811 F.2d 357, 358 (7th Cir.1987). Furthermore, all uncontested allegations are taken as true. Id.
A. Is the action time-barred?
Section 546 limits the time for filing complaints to avoid preferential or fraudulent transfers. That section was amended in 1994, but the Seventh Circuit recently held that in bankruptcy cases commenced before the effective date of the 1994 Bankruptcy Reform Act, October 1, 1994, the old § 546 applies. Under the old § 546, a two year limitation on the power to avoid a preference begins to run if and when a trustee is appointed. Gleischman Sumner Co. v. King, Weiser, Edelman & Bazar, 69 F.3d 799, 800 (7th Cir.1995). Because this bankruptcy case began before the 1994 act went into effect, the limitations period began to run when the trustee was appointed. This action was begun less than two years after that appointment, but more than two years after the commencement of the case when the Debtor became a debtor in possession.
The Department of Revenue4 attempts to distinguish Gleischman Sumner by arguing *125that the case did not involve a debtor in possession. This argument is without merit and is in direct conflict with the court’s opinion:
The parties agree that Gleischman Sumner is not a “trustee” within the meaning of the Bankruptcy Code and should be treated like a debtor in possession.
Gleischman Sumner at 800 (emphasis added).
Furthermore, the Department’s argument that it made a difference in Gleischman Sumner that the adversary proceeding had been filed within the time limits prescribed by the debtor’s confirmed Chapter 11 plan ignores the court’s reasoning entirely. The court reasoned that if § 546 were read in conjunction with § 1107, the result would be that the statute of limitations could potentially fade “in and out like the Cheshire Cat,” during the course of the bankruptcy case. Id. at 802. Even Judge Flaum in his concurring opinion states that “Section 1107 does not ... impose on debtors in possession those powers and limitations, such as § 546(a)(1), that clearly apply only to certain types of trustees.” Id. at 803 (Flaum, J., concurring). The Seventh Circuit unequivocally held the § 546 limitation period begins to run only if and when a trustee is appointed, and not before. The three actions here are thus not time barred.
B. Were the payments property of the estate?
The Department of Revenue further argues that the payments it received were in satisfaction of “trust fund” taxes. Thus, the payments were not property of the debtor. Since only transfers of property of the debtor are subject to §§ 547 and 548, the preferential and fraudulent transfer actions cannot stand. This Court agrees.
In 1990, the Supreme Court held that the act of making a voluntary pre-petition payment of “trust fund” taxes was sufficient to establish that the money paid had been held in trust for the IRS. Begier v. Internal Revenue Service, 496 U.S. 53, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990). Therefore, any voluntary pre-petition payments of “trust fund” taxes are not made with property of the Debtor.
The Trustee asserts that Illinois state law is distinguishable from IRC § 7501, the statute at issue in Begier. The Illinois statute, 35 ILCS 5/705, creates a trust in favor of the Department of Revenue. The statute provides that:
Any amount of tax actually deducted and withheld under this Act shall be held to be a special fund in trust for the Department.
This language is substantively indistinguishable from the language of IRC § 7501, which provides that:
Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States.
The Trustee argues that use of the words “actually deducted and withheld” in 35 ILCS 5/705 precludes a finding that Begier is applicable. He argues that under those words, funds must be actually placed in a segregated account before they become subject to a trust. This argument is without merit. Both statutes require a finding of a trust whenever money is withheld from an employee’s paycheck. There is no substantive difference between the phrase “the amount of tax so collected or withheld” and the phrase “actually deducted and withheld.” The key meaning of these phrases is that the trust arises, not when moneys are segregated as such, but when the paycheck is issued in an amount that reflects a deduction for these taxes. The amount deducted is “actually deducted and withheld” and, pursuant to 35 ILCS 5/705, is held in trust for the Department of Revenue. When that amount is paid as taxes, the specific funds so paid are identified as the trust res.
Under Begier, the voluntary payment of these funds is sufficient to establish that the funds were held in trust for the Department of Revenue, and were not property of the debtor. Because no property of the debtor was transferred, the tax payment cannot be avoided under either § 547 or § 548 and the *126Department of Revenue’s motion to dismiss on Counts I and III of the Trustee’s complaint must be granted.5
Defendant Illinois Department of Revenue’s motion to dismiss Count II is also granted by agreement of the parties. The motions of the Illinois Department of Employment and of Orr and Rosewell are denied.
ORDER
For the reasons stated in the Memorandum Opinion, IT IS HEREBY ORDERED that the Motion to Dismiss of Defendants David D. Orr, in his capacity as Cook County Clerk, and Edward Rosewell, in his capacity as County Collector, is denied.
ORDER
For the reasons stated in the Memorandum Opinion of even date herewith, IT IS HEREBY ORDERED that the Motion to Dismiss of Defendant, Illinois Department of Employment is denied.
ORDER
For the reasons stated in the Memorandum Opinion of even date herewith, IT IS HEREBY ORDERED that the Motion to Dismiss of the Illinois Department of Revenue is granted and the complaint is Dismissed with Prejudice with respect to all counts.
. Although three separate adversary proceedings have been filed, they have been consolidated solely for the purpose of disposing of these motions.
. All references herein are to 11 U.S.C. § 101 et seq., unless otherwise noted.
. Neither party specifically alleges that these were “trust fund" taxes, but the issue is not in dispute. Both sides, in their briefs, assume that the taxes owed were trust fund taxes and cite 35 ILCS 5/705 as the mandate for the collection of the taxes owed to the Department of Revenue.
. The arguments of the Department of Revenue were adopted by reference in the motions of the Department of Employment and Orr and Rose-well. For clarity, the court will only discuss these arguments in terms of the Department of Revenue's motion. However, the discussion is *125equally applicable to all three cases under consideration.
. This result is consistent with other state court decisions that have held that Begier controls in state law trust fund tax cases. See City of Farrell v. Sharon Steel Corp., 41 F,3d 92, 98 (3d Cir. 1994) (finding no significant difference between Pennsylvania and Federal withholding law and thus holding that Begier controls); In re Nash Concrete Form Co., Inc., 159 B.R. 611, 614-15 (D.Mass.1993) (finding no significant difference between Massachusetts and Federal statutes and thus holding that Begier controls). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492260/ | OPINION
WILLIAM V. ALTENBERGER, Chief Judge.
This case involves the soybean seed industry and the production of soy bean seed (soybean seed). The industry background is as follows. A developer develops a particular variety of soybean seed (foundation seed). The developer then licenses the rights to reproduce the foundation seed and the right to market the reproduced seed to a dealer. The developer also supplies the foundation seed to the dealer. The dealer then contracts with a producer and supplies the foundation seed to the producer to reproduce the foundation seed into soybean seed. The producer, in turn, contracts with growers to plant the foundation seed and to grow the soybean seed. The producer supervises the planting, growing, and harvesting of the soybean seed. When harvested the growers deliver the soybean seed to the producer, who processes and bags it and delivers it to the dealer. The producer will either keep enough soybean seed to serve as the next year’s foundation seed, or return all the soybean seed if the relationship between the dealer and producer is terminated. The dealer then sells the soybean seed either on the wholesale market to retail dealers or on the retail market direct to farmers for soybean production.
In late 1990 or early 1991, Golden Seed Company Incorporated (GOLDEN), as a dealer, and Ostrom-Martin, Inc. (OMI), as a producer, entered into an oral contract whereby GOLDEN was to supply foundation seed to OMI who, in turn, was to reproduce soybean seed for GOLDEN. It was understood that OMI was to contract with various growers to use the foundation seed to grow soybean seed. Under the oral contract between GOLDEN and OMI, OMI was to supervise the growers in their planting, growing and harvesting of the soybean seed crop. When the growers delivered the soybean seed to OMI, OMI was to process and bag it into GOLDEN’s bags. GOLDEN agreed to pay OMI the posted per bushel market price at the time of delivery plus a $1.20 per bushel premium. OMI was to pay the growers the posted per bushel market price plus a 40$ per bag premium.1 At this point in time GOLDEN had no obligation to the growers.
*129In early 1991 GOLDEN delivered to OMI 2107 bags of foundation seed. That delivery was evidenced by an invoice from GOLDEN to OMI dated May 31, 1991, for 2107 bags of foundation seed priced at $16,856.00. OMI, in turn, contracted with growers to grow most of the soybean seed. OMI was unable to contract with enough growers to produce all the soybean seed required by GOLDEN. So OMI entered into an oral contract with Baird Seed Co. (BAIRD) to produce soybean seed on 230 acres.
In August of 1991, for its own income tax reasons, GOLDEN contacted OMI to see if it could make a progress payment to OMI. OMI agreed and sent GOLDEN an invoice for 1693 acres @ 42 bushels per acre @ $1.00 per bushel, less a 2% discount, for a total of $69,683.88. GOLDEN prepaid OMI $69,-683.88 on the same day.
In September or October of 1991, OMI requested that GOLDEN pay the 40<t per bag premium, due the growers, direct to the growers and subtract that amount from the contract price due OMI. GOLDEN agreed. Starting in October of 1991, as the growers harvested and delivered the soybean seed to OMI, OMI started to process and deliver the soybean seed to GOLDEN. In December of 1991, GOLDEN paid OMI $75,000.00 and OMI gave GOLDEN a $22,394.00 credit for the 40<t per bag payment GOLDEN made to the growers.
Due to its inability to maintain certain financial ratios required to keep its State of Illinois grain license, on December 27, 1991, OMI surrendered its license back to the Department of Agriculture of the State of Illinois (DEPARTMENT) and ceased doing business. On the following Monday the DEPARTMENT, pursuant to the State Licensing Law, took control of OMI’s business and employed OMI’s president, Kenneth Martin, to aid in the wind-down of OMI’s business. Soybean seed in OMI’s possession continued to be delivered to GOLDEN through January 2, 1992. A total of 62,109 bags of soybean seed were delivered to GOLDEN during the period of October 14, 1991, to January 2, 1992. By the tíme the DEPARTMENT took control of the business, GOLDEN had taken possession of the majority of soybean seed. What little remained, the DEPARTMENT gave GOLDEN permission to pick up. On January 13 and 21, 1992, GOLDEN wrote two checks to OMI, one for $95,512.16 and one for $69,688.88 respectively. These checks were endorsed to and cashed by the DEPARTMENT. On January 13, 1992, an involuntary petition in bankruptcy was filed against OMI, with an order of relief being entered against OMI on May 1, 1992.
As to the 230 acres subcontracted to BAIRD, BAIRD shipped direct to GOLDEN 11,597 bags of soybean seed at a price of $11.00 per bag, and GOLDEN paid BAIRD the sum of $127,563.00.2 OMI received nothing on this part of the transaction.
OMI’s Trustee in Bankruptcy (TRUSTEE) filed a three count amended complaint against GOLDEN. The first count is under § 548(a)(2) of the Bankruptcy Code, 11 U.S.C. § 548(a)(2), alleging a fraudulent conveyance contending that OMI delivered soybean seed with a fair market value of $654,-990.82 while being paid only $240,201.04. Count 2 is brought under § 547 of the Bankruptcy Code, 11 U.S.C. § 547, alleging that the delivery of $101,361.67 in soybean seed within ninety days of the bankruptcy filing was a preference.3 Count 3 is also under § 548(a)(2) alleging a fraudulent conveyance as to the transfer of a portion of the contract to BAIRD.
The TRUSTEE’S first two counts are based upon two concepts. First, the Illinois Seed Law, found in 505 ILCS 105/1, et seq., required that the contract between GOLDEN and OMI be in writing. Therefore, the *130oral contract between them was of no legal effect. Second, because the oral contract had no legal effect, OMI had no legal obligation to resell the soybean seed crop to GOLDEN and was free to sell it on the open market. Therefore when OMI transferred the soybean seed to GOLDEN at less than open market price, a fraudulent conveyance occurred,4 or when OMI transferred soybean seed to GOLDEN to satisfy the amount due GOLDEN by OMI, a preference occurred.
Section 548(a)(2) provides that a trustee in bankruptcy may set aside as a fraudulent conveyance a transfer of a debtor’s property if the debtor “received less than a reasonably equivalent value in exchange for such transfer or obligation”.5 Amplifying on the TRUSTEE’S position as set out above, the TRUSTEE argues that as GOLDEN had no enforceable contract with OMI, when the growers delivered the soybean seed crop to OMI, OMI was free to sell it to anyone in the same manner, for the same price, as GOLDEN could have sold it on the wholesale or retail market for a higher price than what GOLDEN paid OMI for it. Therefore, there was a transfer of OMI’s property for less than “reasonably equivalent value”. GOLDEN contends that OMI could not have sold the soybean seed at the dealer level with a specific variety designation, but only as a “brown bag” seed. Therefore, the amount it paid, a lower amount, was “reasonably equivalent value”.
This case cannot be determined based on what might have occurred, but on what occurred. In In re Townsend-Robertson Lumber Co., 144 B.R. 407 (Bkrtcy.E.D.Ark.1992), the court examined the meaning of “reasonably equivalent value” stating:
The Eighth Circuit Court of appeals addressed the meaning of “reasonably equivalent value” in In re Ozark Restaurant Equipment Co., Inc., 850 F.2d 342 (8th Cir.1988):
The concept of reasonably equivalent value is a means of determining if the debtor received a fair exchange in the market place for the goods transferred. Considering all the factors bearing on the sale, did the debtor receive fair market value for the property.
Id. at 344-45.
Important to the court in reaching its determination that the debtor received reasonably equivalent value was the fact that the transfer was an arms-length transaction.
The fact that OMI might have been able to sell the soybean seed crop in a manner similar to GOLDEN’s, is irrelevant.6 What is relevant is that GOLDEN and OMI had an oral contract which was performed. The relevant issue is whether what OMI received was “reasonably equivalent value” for its performance under the contract? The answer is yes.
A factor of considerable importance in assessing reasonably equivalence is whether the sale was an arm’s length transaction between a willing buyer and a willing seller. In re Morris Communications NC, Inc., 914 F.2d 458 (4th Cir.1990) Other factors to be considered include the good faith of the transferee and the difference between the amount paid by the transferee and the fair market value. The Supreme Court in BFP v. Resolution Trust Corp., — U.S. -, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), in a foreclosure context, stated that the “reasonably equivalent value” criterion would ordinarily equate with “fair market value” outside the foreclosure context.
The oral contract was freely entered into. OMI agreed to limit its participation in the growing and distributing of soybean seed to a middleman position by acting as a producer, an intermediary between the dealer and the growers. It elected not to act as a dealer. By electing to restrict its business activity to the producer level, it elected to being paid as a producer. There was no *131evidence that the posted market price plus the $1.20 premium was not what producers reasonably expected to receive for services of that nature. In fact the evidence was to the contrary. BAIRD testified that the premium of $1.20 charged by OMI was within the market at the time. Lyle Davis, the TRUSTEE’S own expert, stated that the $1.20 charged by OMI, while at the low end of the market, was within it. There was not a shred of evidence that the contract between GOLDEN and OMI was a bad deal. The TRUSTEE’S theory here is grounded upon an entirely different theoretical deal.
The TRUSTEE’S argument that the transaction involved a sale of soybean seed from the growers to OMI and a resale of soybean seed by OMI to GOLDEN, does not help the TRUSTEE succeed under § 648(a)(2). The legal classification of the transfer is not the issue. The issue is one of “reasonably equivalent value”. Did OMI get value when it transferred the soybean seed to GOLDEN regardless of the basis of the transfer.7
Nor is the TRUSTEE’S position helped by the TRUSTEE’S rebanee on § 110/11.1 of the Illinois Seed Law (SEED LAW), 505 ILCS 110/11.1, which provides as follows:
Any seed permit holder who acquires agricultural seed for resale and conditioning from Illinois producers thereof shall document all such seed acquisition transactions through the use of a seed contract. Such contracts shall be specifically identified and a complete record of such contracts shall be retained by the seed permit holder. All such contracts shall clearly indicate that the contract consignment is for agricultural seed purposes only, with a clarifying description of the kind of agricultural seed dealt with in each contract.
Even if the statute appbes and a written contract was required, the TRUSTEE still doesn’t prevail.8 The statute itself does not provide that a contract which does not comply is unenforceable and void. Rather, the act provides that if a seed dealer violates any of the provisions of the act, the permit may be removed and penalties may be imposed. 505 ILCS 110/12. Penalties may also be imposed against a “person” who violates any of the provisions of the act. 505 ILCS 110/13.
Where a statute governing a particular topic declares a violation to result in a contract being unenforceable and void, the courts so hold. In Somerset Importers, Ltd., v. Continental Vintners, 790 F.2d 775 (9th Cir.1986), the court enforced a California regulatory provision which specifically required grape purchase contracts to provide for a final price to be set on a certain date and stated that any “contract entered into in violation of this provision is illegal and unenforceable.”
However, where the statute does not provide that the contract is unenforceable and *132void, courts do not automatically so hold. In Asdourian v. Araj, 38 Cal.3d 276, 696 P.2d 95, 211 Cal.Rptr. 703 (S.Ct.Cal.1985), the court considered whether an oral contract for home improvements, required by statute to be in writing, was unenforceable. The court stated:
Generally a contract made in violation of a regulatory statute is void. Normally, courts will not “ ‘lend their aid to the enforcement of an illegal agreement or one against public policy....”’ This rule is based on the rationale that “the public importance of discouraging such prohibited transactions outweighs equitable considerations of possible injustice between the parties.”
However, “the rule is not an inflexible one to be applied in its fullest rigor under any and all circumstances. A wide range of exceptions has been recognized.” For example, the rule will not be applied where the penalties imposed by the Legislature exclude by implication the additional penalty of holding the contract void. Further, illegal contracts will be enforced to avoid unjust enrichment to the defendant at the expense of the plaintiff.
Plaintiff asserts that a contract entered into in violation of section 7159 is not for that reason void because the exclusive penalties for noncompliance are those provided in the statute.
Violation of [the provision] is a misdemeanor punishable by fine and/or imprisonment. Nothing in the statute declares that an oral contract entered into in contravention of [this provision] shall be void. Whether the statute is to be interpreted as providing exclusive penalties depends upon the intent of the Legislature. (Citations omitted.)
Even though the California legislature had previously deleted a provision which provided that contracts which failed to comply with the provision were not to be deemed to be invalid solely by reason of noncompliance, the court held that the contract was enforceable. The court determined that the misdemeanor penalties in the statute were sufficient to accomplish the policy behind the statute and that the defendants would be unjustly enriched if they were not required to compensate the plaintiff.
In Illinois, the legislature has enacted statutes which take such approach. Under § 3L49 of The Illinois School Code, (105 ILCS 5.34-49), the legislature included such a provision as to the validity/invalidity of a contract in violation of the statute:
§ 34-49. Contracts, expense and liabilities without appropriation. No contract shall be made or expense or liability incurred by the board, or any member or committee thereof, or by any person for or in its behalf, notwithstanding the expenditure may have been ordered by the board, unless an appropriation therefor has been previously made. Neither the board, nor any member or committee, officer, head of any department or bureau, or employee thereof shall during a fiscal year expend or contract to be expended any money, or incur any liability, or enter into any contract which by its terms involves the expenditure of money for any of the purposes for which provision is made in the budget, in excess of the amounts appropriated in the budget. Any contract, verbal or written, made in violation of this section is void as to the board, and no moneys belonging thereto shall be paid thereon....
As previously noted, the statute involved in this case only provides for a loss of license and penalties. If the Illinois legislature would have wanted to include a provision avoiding a contract made in violation of the statute, it surely knew how to do it. Furthermore, the TRUSTEE’S request here goes beyond a determination that the contract was unenforceable, for here it was fully performed. Even a contract which is unenforceable if it fails to comply with statutory writing requirement, is enforceable if one side has fully performed. See City of Chicago v. Reliable Truck Parts Co., Inc., 822 F.Supp. 1288 (N.D.Ill.1993).9
*133While the TRUSTEE is not a true stranger here, having stepped into the shoes of OMI, and the overshoes of OMI’s creditors, at the point in time he did so this was a done deal. All that remained was for GOLDEN to pay OMI for the seed it had purchased, and to pick up a small amount of soybean seed remaining at OMI, which it did with the approval of the DEPARTMENT. Though the avoiding powers of a bankruptcy trustee are extraordinary, they are not unlimited, and the ability to reach back does not extend to completed contracts, on the basis of mere hypotheticals.
Nor does the TRUSTEE fare any better with his fraudulent conveyance attack on the transaction whereby BAIRD took over OMI’s responsibilities for 230 acres of soybean seed production.10 OMI could not contract with growers for those acres. So it subcontracted out its duties and its expected benefits. It provided nothing under the oral contract with GOLDEN as to those acres. So it is entitled to receive nothing. It was a wash transaction from OMI’s perspective. If it is entitled to nothing, equivalent value is nothing.
Count 2 of the TRUSTEE’S amended complaint alleges GOLDEN received a preference of $101,361.67. It is the TRUSTEE’S position that the invoice for the foundation seed in the amount of $16,856.00 and the progress payment of $69,683.88 created an antecedent debt of $87,962.00 which was paid within 90 days of bankruptcy through the transfer of soybean seed by OMI to GOLDEN. GOLDEN contends that the transfers were in the ordinary course of business exception and that it can rely on the theory of recoupment.
Section 547 of the Bankruptcy Code sets forth the requirements for a preference recovery. One of those requirements is that the transfer must be for or on account of an antecedent debt owed by the debtor before such transfer was made. The TRUSTEE’S own evidence shows that the amount of the alleged antecedent debt prior to the transfers by OMI was only $87,962.00. Apparently the TRUSTEE has merely calculated the amount of soybean seed transferred to GOLDEN within 90 days of bankruptcy and concluded that amount was preferential. Transfers totalling $87,962.00 could be a preference. But the difference between that figure and $101,361.67, or $13,399.67 could not be. It might be avoidable under some other provision of the Bankruptcy Code, but not § 547.
Nor can the $16,856.00 invoice form the basis of a preference recovery as it did not evidence a debt owed by OMI to GOLDEN. It merely was issued to keep track of the amount of foundation seed supplied by GOLDEN to OMI which OMI was either to use the following year or return to GOLDEN. It was a bailment of the foundation seed which did not create a debt for the purposes of § 547.
But even if the balance of the transfers totalling $71,106.00 were preferential they are not recoverable by the TRUSTEE if they come within the scope of the ordinary course of business exception of § 547(c) which excepts a transfer that was
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms;
The first requirement is that the debt be incurred in the ordinary course of business or financial affairs of both the debtor and the transferee. That is the situation in this case. GOLDEN was in the business of acquiring for sale and selling soybean seed and OMI was in the business of producing soybean seed. They contracted for soybean seed and GOLDEN invoiced OMI for foundation seed and prepaid OMI for services rendered in providing that seed. The debt was incurred *134in the ordinary course of both their businesses.
The second requirement is that the transfer be made in the ordinary course of their businesses or financial affairs. OMI provided either soybean seed or a cash discount pursuant to the oral contract. It was a transfer in the ordinary course of both their businesses.
The third requirement is that the transfer be according to ordinary business terms. The evidence is undisputed that the use of an oral contract and the terms of the oral contract were within ordinary business standards. The TRUSTEE’S position is that it was not because of the following:
1. It was illegal under 505 ILCS 110/11.1. That argument has been considered and rejected.
2. The transaction was unique. This Court sees nothing unique in the transaction.
3. The magnitude of the transaction suggests a need for a written contract. It is the terms that are significant, not the form they are evidenced by. Regardless of whether they are agreed to orally or in a writing, their terms were in accordance with ordinary business standards. Furthermore, as previously noted, the evidence was that there was nothing unusual about the oral contract or its terms.
4. The prepayment of $69,683.88 to relieve GOLDEN’s tax problem is barely believable. Prepayments for tax purposes are a common occurrence. This Court has no difficulty believing that occurred in this case.
5. GOLDEN’s assertion there was no antecedent debt logically means there was no enforceable contract. In the context of § 547(e) this argument is difficult to follow. It would appear the TRUSTEE is taking the position that the transfers were not according to ordinary business terms because there was no enforceable contract. That position overlooks the fact that the transfers were made pursuant to an oral contract, the terms of which were common to the industry, and performed.11
6. The diversion of $127,000 worth of production from OMI to BAIRD without OMI receiving any consideration. As previously noted, OMI subcontracted to BAIRD as OMI did not have the capacity to complete the contract. There is nothing unusual in a company subcontracting to meet its contractual obligations, if it does not have the capability to do so. What this Court is concerned with in the preference count is whether as to the balance of the oral contract the transfers to GOLDEN by OMI were according to ordinary business terms. Again, as previously noted, they were.
7. The change in the contract from $1.20 per bag to $1.20 per bag with GOLDEN paying the grower the 40$ per bag. There is nothing out of the ordinary in changing a contract term. It is done all the time. Nor was there anything in the evidence to indicate that GOLDEN’s assumption of an OMI liability was outside ordinary industry standards or practices.
There were several other issues raised during the course of the trial or post-trial briefing that need to be decided.
The TRUSTEE also objected to the expert testimony of Doug Baird, called by OMI, on the grounds that as an officer of *135BAIRD SEED CO. he was interested in the outcome and therefore not disinterested. The TRUSTEE’S objection should be overruled as BAIRD’s interest goes to the weight to be given Ms testimony. As the court in Liberty Mutual Insurance Company v. B. Frank Joy Co., Inc., 424 F.2d 831 (D.C.Cir.1970), noted:
[Djisinterestedness is not required of expert witnesses any more than it is required of ordinary witnesses. The interest of a witness is merely one matter that goes to the weight of Ms testimony.
During the trial there was substantial testimony as to whether the variety of the soybean seed could be identified through DNA testing so as to be sold on the market at a Mgher price as the variety delivered to GOLDEN by the developer, or if it had to be sold without that designation or plain “brown bag” seed. After the trial, through its post-trial brief, GOLDEN contends that under § 550 of the Bankruptcy Code, 11 U.S.C. § 550, any recovery must be for the “benefit of the estate” and the recovery by the TRUSTEE would not be for the benefit of the estate as it would go to the State of Illinois to satisfy its lien claim. This Court does not reach either of those issues.
TMs Opirnon is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in the Opirnon entered this day, IT IS HEREBY ORDERED that judgment is entered in favor of the Defendant, GOLDEN SEED COMPANY, INC., and against the Plaintiff, RICHARD E. BARBER, Chapter 7 Trustee for Ostrom-Martin, Inc., on all counts of the First Amended Complaint.
. Two points need to be noted concerning the method of payments. First, the premium to OMI was based on a per bushel calculation, while the premium to the growers was based on a per bag calculation. Second, the record is confusing as to whether the 40$ premium to the growers was to be paid from the $1.20 premium, or if the 40$ premium was in addition to the $1.20 premium. The confusion stems from an earlier deposition of GOLDEN’s president, Mr. Werner, where at page 96 he stated that GOLDEN paid OMI the cash price of beans plus $1.20 and in addition to that paid the grower 40 cents a bag. At trial he testified that the statement in the deposition was in error and that the original agreement was that GOLDEN would pay OMI a premium of $1.20.
. There is some confusion in the evidence as to the number of bags involved with the subcontract. Plaintiff's Exhibit # 20, which is the Trustee’s computation, shows, and Mr. Wemer admitted, that BAIRD processed 24,162 bags of beans. Mr. Werner also testified that BAIRD had processed some seed which was not related to the OMI contracts. It is not crucial to a decision that those amounts be exactly ascertained.
. The TRUSTEE acknowledges that if he is completely successful under Count 1, there should be no recovery under Count 2.
. The TRUSTEE draws a distinction between the posted price of soybean seed in the hands of the grower, which is the basis of the oral contract, and the open market price of soybean seed in the hands of a dealer, the latter being higher.
. The requirements of § 548(a)(2)(B) are not at issue.
. This Court does not infer that such a right existed. It is merely accepted for the purposes of stating and analyzing the TRUSTEE'S position.
. If this Court did base its opinion on the issue of whether a sale was involved, it would have to hold against the TRUSTEE, as his own witness testified it was not a sale, that the invoice was merely a method of inventory control, and that OMI would have kept some seed for the next year or returned all seed once the relationship ended.
. The SEED LAW is only applicable as to contracts between a permit holder and producers. Producers is not a defined term. Is it used in the same context as that term is used by the parties in this case, or does it mean the growers/farmers? Is it applicable to the GOLDEN-OMI contract, or the OMI grower/farmer contracts? GOLDEN argues it is applicable to the grower/farmer contracts. Another issue, not raised by GOLDEN, is whether the SEED LAW is applicable only where the acquisition is for resale and conditioning. GOLDEN certainly acquired the soybean seed for resale. But there is nothing in the record to indicate it also conditioned the soybean seed. Section 110/2.108 defines "conditioning” to mean:
"Conditioning” means drying, cleaning, scarifying or blending to obtain uniform quality, and other operations which would change the purity or germination of the seed and therefore require retesting to determine the quality of the seed, but does not include operations such as packaging, labeling, blending together of uniform lots of the same kind of variety without cleaning, or the preparation of a mixture without cleaning, and of which would not require retesting to determine the quality of the seed.
Nothing in the record indicates that GOLDEN was engaged in any activities that could be classified as "conditioning”. It appears to be solely a marketing entity. OMI was the entity conditioning the soybean seed.
. This case involved § 2-201(1) of the Uniform Commercial Code as adopted in Illinois, Ill.Ann. Stat. Ch. 26, § 2-201(1), requiring contracts for the sale of goods to state a quantity term to be enforceable.
. The evidence is conflicting as to the exact number of acres and bags produced. At one point it would appear to be 100-200 acres producing 7563 bags. At another it is 230 acres producing 11,597 bags. The exact figures do not affect the result.
. This point seems to be directed to the fraudulent conveyance challenge under § 548 of the Bankruptcy Code. In the TRUSTEE'S concluding remarks in his Reply Brief, he states:
When Golden testified that the $69,000 payment was for services rendered up to that point and that the parties were even-steven, it overlooked the point that anything OMI provided after August 30 had to be paid for. And the payment had to be equivalent to the value of the services or product provided after that date. Any uncompensated transfer of OMI’s assets after the accounts were zeroed out in late August 1991 is, by definition, a fraudulent conveyance.
The $69,000 payment was not a final payment in exchange for a final delivery of soybean seed. It was a progress payment intended to compensate OMI for the value of its services to date, with GOLDEN and OMI expecting to make more payments and deliveries until they both performed under the oral contract. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492261/ | ORDER
JAMES G. MIXON, Chief Judge.
On October 26, 1994, John E. Oldner (debtor) filed a voluntary petition for relief under the provisions of Chapter 7 of the United States Bankruptcy Code. Richard L. Ramsay, Esq., was appointed trustee. The debtor claims his residence and 9.7 acres of land as an exempt rural homestead pursuant to 11 U.S.C. § 522(b)(2) (1988), Ark.Code Ann. § 16-66-218 (Miehie Supp.1993), and Ark.Const. art. 9, § 4.
On December 22,1994, the trustee filed an objection to the debtor’s claim of homestead exemption alleging that the property does not qualify for a rural homestead exemption, but should be limited to an urban homestead exemption. On January 9, 1995, a hearing was held on the trustee’s objection and the matter was taken under advisement. On January 19,1995, the Court viewed the property.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), and the Court has jurisdiction to enter a final judgment in the ease.
BACKGROUND
The debtor claims his residence and 9.7 acres of land located in Saline County, Arkansas, as an exempt rural homestead pursuant to 11 U.S.C. § 522(b)(2) (1988), Ark.Code Ann. § 16-66-218 (Miehie Supp.1993), and Ark. Const, art. 9, § 4. The debtor purchased the property in 1971 and built a single family residence on it in 1977, which he has occupied as his residence since that time. Other improvements on the property include a barn used for storage, swimming pool, workshop, garage, children’s playhouse, bathhouse, and gazebo. The property has never been used for any agricultural purpose.
The property is located approximately seven miles south of the Pulaski County line and is located on a paved road. The address of the property is 3821 Mount Carmel Road, Benton, Arkansas. On the date the petition was filed the property was located outside the city limits of Bryant, Arkansas. Subsequent to the date the petition was filed, the property was annexed into the city of Bryant. The debtor’s address and telephone number are listed in both the Little Rock and Bryant telephone directories.
The area in which the property is located is served by a fully developed system of roads and highways. The property is located about three-fourths of a mile from Interstate 30. The nearest bank is located approximately four miles from the property and the *148debtor purchases groceries at a grocery store located approximately three and one-half miles from the property. The debtor purchases gasoline at a service station located approximately three and one-half miles from the property, although there are other facilities for gasoline purchases located approximately one and one-fourth mile from the property. A large retail store is also located approximately three and one-half miles from the property. The debtor’s property is located within the Bryant School District and the closest Bryant school is approximately three miles from the property. The closest church is located within three miles of the property.
Water is provided to the property by the Salem Water Department, a rural water association that buys water from the city of Benton. Electricity is provided by the First Electric Cooperative, a rural electric cooperative. Gas is provided to the property by ArkLa Gas Company. The property is not provided garbage pickup. On the date the petition was filed, police protection was provided by the Saline County Sheriffs Department and fire protection was provided by the Salem Volunteer Fire Department.
Several single family residences are located near the debtor’s property on Mount Car-mel Road. In addition, eleven single family residences are located across the road from the debtor’s property within a 1.75 mile area of Mount Carmel Road.
DISCUSSION
The debtor claimed his residence and a 9.7 acre tract of land as an exempt rural homestead pursuant to 11 U.S.C. § 522(b)(2) (1988). Section 522 of the Bankruptcy Code allows a debtor to claim exemptions pursuant to state law applicable on the date the petition is filed. 11 U.S.C. § 522(b)(2)(A) (1988). Section 16-66-217 of the Arkansas Code allows a debtor to choose exemptions provided by the Constitution of the State of Arkansas. Ark.Code Ann. § 16-66-217 (Michie Supp.1993). Article 9, section 4 of the Arkansas Constitution provides that:
[t]he homestead outside any city, town or village, owned and occupied as a residence, shall consist of not exceeding one hundred and sixty acres of land, with the improvements thereon, to be selected by the owner, provided the same shall not exceed in value the sum of twenty-five hundred dollars, and in no event shall the homestead be reduced to less than eighty acres, without regard to value.
Ark. Const, art. 9, § 4. Article 9, section 5 of the Arkansas Constitution provides that:
[t]he homestead in any city, town or village, owned and occupied as a residence, shall consist of not exceeding one acre of land, with the improvements thereon, to be selected by the owner, provided the same shall not exceed in value the sum of two thousand five hundred dollars, and in no event shall such homestead be reduced to less than one-quarter of an acre of land, without regard to value.
Ark. Const, art. 9, § 5.
Section 16-66-218(b) of the Arkansas Code provides that the following property shall be exempt from execution:
(3) Rural homesteads not exceeding one hundred sixty (160) acres of land with improvements thereon, up to two thousand five hundred dollars ($2,500) in value but in no event less than eighty (80) acres without regard to value — Arkansas Constitution, Article 9, § 4;
(4) The urban homestead not exceeding one (1) acre of land with improvements thereon, but not to exceed two thousand five hundred dollars ($2,500) in value, but in no event to be less than one-quarter (¡4) of an acre of land without regard to value — Arkansas Constitution, Article 9, § 5[J
Ark.Code Ann. § 16-66-218(b) (Michie Supp. 1993).
The rule is well-established in Arkansas that homestead laws are remedial and should be liberally construed to effectuate the purpose for which they are intended. Smith v. Flash T.V. Sales & Serv., Inc., 17 Ark.App. 185, 190, 706 S.W.2d 184, 187 (1986). The party objecting to the claim of exemption has the burden of proving that the exemption is not properly claimed. Fed. R.BankrJ?. 4003(e).
*149The question of whether a homestead claimed as exempt constitutes a rural or urban homestead must be determined based on the facts of each case and must be considered in light of the intent of the constitutional provisions allowing the exemption. King v. Sweatt, 115 F.Supp. 215, 220 (W.D.Ark.1953); Farmers Coop. Ass’n v. Stevens, 260 Ark. 735, 736-37, 543 S.W.2d 920, 921 (1976). The rural/urban issue is not “altogether controlled by the corporate limits,” thus property located outside the corporate limits may be determined urban. First Nat'l Bank v. Wilson, 62 Ark. 140, 143, 34 S.W. 544, 544 (1896). In Wilson, the Arkansas Supreme Court stated:
[T]here may be towns that have overgrown their corporate limits, so that one may dwell within the town, and still be outside the corporate limits. In such cases it may be that the courts would look to the facts to determine whether the homestead claimed was located in town or country, and not be altogether controlled by the corporate limits.
Wilson, 62 Ark. at 143, 34 S.W. at 544.
No precise legal definition is provided in the case law for the terms “city, town or village,” as used in the Arkansas Constitution in describing the two types of homestead exemptions. The Arkansas Supreme Court has determined that the “words were used in the Constitution in their popular sense.” King v. Sweatt, 115 F.Supp. at 220. The Arkansas Supreme Court discussed the popular meaning of the word “town” in an analogous context in Southeast Ark. Levee Dist. v. Turner, 184 Ark. 1147, 1150, 45 S.W.2d 512, 514 (1932). In that ease the issue was whether certain property was situated in the town of McGehee, Arkansas. The residences were all of a permanent and substantial character and the residents engaged in “pursuits related to and carried on in the city of McGehee.” Turner, 184 Ark. at 1150, 45 S.W.2d at 513. In addition, the occupants were furnished with gas, water, electric, and telephone services from the city of McGehee. In holding that the area was within the town of McGehee, even though outside the physical corporate limits of McGehee, the Court stated:
We have here a compact community of 42 houses, occupied by persons who may fairly be said to dwell together, and who are separated from a city of the second class only by the city’s incorporation line, and who have all the conveniences which proximity to the city affords, and whose property is assessed for general taxation as additions to this city.
... The city of McGehee has grown in various directions and is now, and was at the time the assessments in question were made, a larger town than its corporate limits indicate. In other words, many persons are residents of the town of McGehee within the popular meaning of the word “town” who do not reside within the corporate limits thereof.
Turner, 184 Ark. at 1152-53, 45 S.W.2d at 514. Property will be determined to be urban if it is in a community that contains the common attributes and conveniences of a town or city. See Bank of Sun Prairie v. Hovig, 218 F.Supp. 769, 785 (W.D.Ark.1963). King v. Sweatt, 115 F.Supp. 215 (W.D.Ark. 1953); Farmers Coop. Ass’n v. Stevens, 260 Ark. 735, 739, 543 S.W.2d 920, 923 (1976). Numerous factors have been considered by the courts in determining the nature of a homestead. E.g., Bank of Sun Prairie v. Hovig, 218 F.Supp. at 785 (finding rural homestead where property is located in unincorporated community with no local fire protection, public schools, sewer systems, public waterworks, street lights, or public sidewalks and where cost of paving the road was partly borne by the landowners); King v. Sweatt, 115 F.Supp. at 215 (finding rural homestead where property is located in unincorporated community with no post office, school, church, or other improvements except filling stations, tourist courts, and one or two “country stores”).
The facts in this case support a finding that the debtor’s homestead is urban in nature. The Court observed from viewing the area in which the debtor’s property is located that the property is located in a megalopolitan area that has developed in recent years on either side of Interstate 30 from Little Rock, Arkansas, on the north and Benton, Arkansas, on the south. Bryant, Arkansas, is located in between Little Rock and Benton. While traveling on Interstate 30 between Little Rock and Benton it is not *150easy to discern when you leave one municipal corporate limit and enter another. Land uses range from single family residences to commercial and industrial uses. Only a relatively small percentage of the land in the immediate area is still devoted to agricultural activity.
The property has access to the common attributes and conveniences of a town or city. Although many of the town or city conveniences such as grocery stores, banks, retail stores, and service stations are located one to five miles from the debtor’s property, the road and highway systems in the area are substantially developed and access to these conveniences are readily available by automobile in a matter of a few minutes. The residents in the area in which the debtor’s property is located enjoy the same conveniences as residents of the nearby cities enjoy and the residents are engaged in pursuits related to and carried on in the cities. All these characteristics taken together clearly support a finding that the debtor’s property is urban in nature. Therefore, the trustee’s objection to the claim of a rural homestead is sustained. The debtor is granted thirty days to select an urban homestead.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492319/ | *172
ORDER
RICHARD S. STAIR, Jr., Chief Judge.
This matter came on for hearing on March 21, 1996, on the Motion for Certificate of Contempt filed by the debtor, Misty Renee McCoy, on February 8, 1996, seeking an order requiring First Tennessee Bank Credit Card Division to cease and desist from violating the automatic stay. For the reasons stated in the Memorandum filed this date, containing findings of fact and conclusions of law as required by Fed.R.Bankr.P. 7052, the court directs the following:
1. The Motion for Certificate of Contempt filed by the debtor on February 8, 1996, is GRANTED.
2. First Tennessee Bank Credit Card Division shall cease and desist from sending the letter and proposed reaffirmation agreement attached as Exhibit A to the Stipulations filed March 15, 1996, in its current form to debtors under the jurisdiction of the United States Bankruptcy Court for the Eastern District of Tennessee, Northern Division.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492320/ | DECISION ON DEBTOR’S MOTION OBJECTING TO CLAIM FILED BY GENERAL MARINE INDUSTRIES, INC.
DOROTHY EISENBERG, Bankruptcy Judge.
Before the Court is the motion of the debtor, G. Marine Diesel Corp., (the “Debt- or”) objecting to the claim filed by General Marine Industries, Inc. (“GMI”) against the estate for services rendered and materials furnished as a subcontractor to the Debtor. This Court held healings to consider the objection on March 17, May 22, and September 8, of 1995 at which both parties presented documentary, as well as testimonial evidence. The parties also filed post-hearing memoranda. For the reasons set forth below, the Court concludes that GMI’s claim shall be allowed in the sum of $214,217.79 as an unsecured claim.
FACTS
The Debtor is in the business of renovating and repairing large ships. In late 1989 and early 1990, the Debtor was serving as the general contractor for the refurbishment project of several warships of the United States Navy (“Navy”). During that period the Debtor entered into a contract with GMI under which GMI was to serve as a subcontractor on the Navy project. GMI was to provide, among other work, installation of piping, removal of asbestos, tiling, ventilation system repair and related work on Navy vessels docked at the Brooklyn Navy Yard, to wit, the U.S.S. Nitro, the U.S.S. Bogalusa and the U.S.S. Los Alamos. Evidence adduced at the hearings established that the Debtor was an experienced prime contractor with the Navy and that GMI, though experienced in ship repair on Navy projects, was usually a prime contractor for Navy projects and was not often in the position of subcontractor.
The Debtor’s Program Manager for the project was Michael Alloway (“Alloway”). Alloway routinely dealt with Robert Debona (“Debona”), GMI’s Local Area Manager, in the course of the Debtor’s management of the renovation work. Bruce Taylor (“Taylor”), the president of GMI, was personally involved, but relied heavily in the day to day business on his agent Debona, in supervising the project.
GMI commenced work on the Navy project sometime in October of 1989. Soon after beginning work, GMI encountered difficulty in obtaining payment from the Debtor; payments were not made in a timely or regular fashion. In order for GMI to receive payment, Taylor testified, he was to submit progress invoices to Alloway by 12:00 p.m. on each Monday followed by a meeting at which the parties would discuss the work and payments, if they were forthcoming, were to be made soon thereafter. The essence of this arrangement was documented and conveyed between the parties via correspondence between the Debtor and GMI in October, 1989. (GMI’s Exs. 16 and 22). In reality, according to Taylor, he often provided the invoices by Friday of the prior week, Alloway did not conduct meetings at all and payments by the Debtor were sporadic at best. The evidence demonstrates clearly that the Debtor faded to hold the weekly meetings to review the progress invoices. Instead, Alloway took the invoices from Taylor, advised GMI to continue work and usually took no further action beyond making some periodic, albeit insufficient, payments after GMI proceeded with the work.
By letter dated December 16, 1989 Taylor advised the Debtor of the gravity of the situation. (GMI’s Ex. 17). Citing the Debt- or’s outstanding bill for, at that time $173,-883.38, the Debtor’s consistent delinquency in making payments against submitted progress invoices, GMI’s inability to meet payroll and thus, to make progress payments to subcontractors and the fact that one subcontractor had already stopped work on the job, Taylor informed the Debtor that it was discontinuing work as of December 17, 1989 but would *309return to the job immediately upon receipt of the overdue payments. On December 17th GMI walked off the job and instructed its subcontractors, Generation Refrigeration Inc. (the labor subcontractor) and Maritime Equipment Inc. (the material supplier), to leave the job as well. On February 5, 1990 Taylor wrote a letter to Alloway detailing GMI’s final invoice to the Debtor for total outstanding payments of $314,212.81 constituting work performed on the three ships as follows: (1) U.S.S. Nitro $279,372.29; (2) U.S.S. Bogalusa $31,440.52; and (3) U.S.S. Los Alamos $3,400.00. (GMI’s Ex. 20).
On May 8, 1991 the Debtor filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and thereafter, continued operations as a debtor-in-possession. On November 25, 1991 GMI filed an unsecured non-priority claim against the estate in the amount of $230,360.69 for pre-petition work and services performed by GMI in connection with the repair of the Navy ships. GMI filed an amended unsecured non-priority claim in the amount of $314,212.81 on March 16,1993. As explained below, a large portion of GMI’s claim are charges referable to additional labor and materials furnished based on “growth work.”
The Debtor filed the instant motion to reduce or expunge GMI’s claim on January 28, 1993. This motion also applies to this claim as amended by GMI after the motion was filed.
Prior to the filing of Debtor’s petition, GMI sued the Debtor in the Supreme Court of the State of New York, County of New York, for recovery of costs regarding work and supplies rendered in connection with the Navy project. According to GMI, the basis of that suit is based on a similar claim to the one filed by GMI in this Court. However, in the state action, Debtor counter-claimed against GMI, claiming that the work performed by GMI was incomplete and improperly performed and that some materials were defective. GMI commenced a third party action against its labor contractor (Generation Refrigeration) and its material supplier (Maritime Equipment) arguing that if GMI was liable to the Debtor on the Debtor’s counterclaim, then Generation Refrigeration and Maritime Equipment would be liable to GMI on the same grounds. Generation Refrigeration is not a party to this contested matter. Further, GMI will receive on its allowed claim only 16 cents on the dollar pursuant to the Debtor’s confirmed plan of reorganization. This Court has no jurisdiction over the third party, or over the amount that may be due to any of them pursuant to that third party action.
At the hearing conducted on March 17, 1995, this Court, finding that the sum of $99,995.02 was the subject of the state court dispute between the Debtor, GMI and Generation Refrigeration, reduced GMI’s claim by that sum without prejudice and left that portion of the claim to be decided by the state court. If the state court determines that any money is due to GMI from the Debtor, that sum will then become payable pursuant to the confirmation order in this case. Therefore, the starting figure for this Court’s analysis is $214,217.79.
To understand fully the dispute at bar some further background about the peculiar nature of government contract work must be reviewed. As this Court has seen previously in a similar matter, in contractual relationships involving the government and a contractor, the government has the right to order changes in the contractor’s work throughout the period of performance. See In re G. Marine Diesel Corp., 155 B.R. 851, 853-54 (Bankr.E.D.N.Y.1993) (citation omitted). In some instances, especially on large government projects, the contractors discover that changes to the original work plan are necessary. Generally, these changes result in modifications to the materials needed and man power necessary to complete the job.
In this case, both the Debtor and GMI fully understood the potential for “growth work” during the course of the Navy project. The term “growth work” describes an expansion (from the work originally contracted) of the scope, time required and cost of the work as repairs progress (hereinafter referred to as “growth work” or “change orders”). To account for this possibility the Debtor and GMI agreed upon a procedure to present the modifications to and obtain approval from the Navy. GMI was to document in writing to *310the Debtor the necessary changes in scope, time and cost. In turn, the Debtor was to negotiate the necessity and cost of the proposed changes with the Navy. Finally, if the modifications were approved by the Navy, within four to six days the Debtor was to give to GMI a change order authorizing the work. If the Navy did not agree to the changes then GMI was told not to perform the requested changes. To some degree, this procedure was embodied on the Debtor’s initial form purchase order under the heading “Pricing and Conditions,” where the following clause stated:
The Sub-Contractor/Vendor is authorized to Perform/Supply the requirements the [sic] Purchase Order, including Fixed Price Agreements, no additional work nor additional material/supplies will be provided/performed without an Amendment to this Purchase Order. In the event of performing work on an Original Item the Sub-Contractor discovers that a request in deviation from the Original Item is required the Sub-Contractor is required to provide a report with a Cost Breakdown Attachment [sic]. The Sub-Contractor shall not proceed to provide/perform prior to his receiving modification to this Purchase Order.
(GMI’s Ex. 1). However, this Court finds that in this case, in practice, this process was rarely, if ever, followed.
DISCUSSION
A proof of claim that is properly executed and filed constitutes “prima facie evidence of the validity and amount of the claim.” Fed. R.Bankr.P. 3001(f); In re Tesmetges, 87 B.R. 263, 270 (Bankr.E.D.N.Y.1988), aff'd, 95 B.R. 19 (E.D.N.Y.1988). A claim is “deemed allowed” unless a party in interest objects. 11 U.S.C. § 502(a). If such an objection is made, the court, after notice and a hearing, shall determine the amount of the claim. 11 U.S.C. § 502(b).
Because a properly executed and timely filed claim is deemed allowed, the initial burden rests on the objecting party to produce sufficient evidence to rebut the claimant’s prima facie case. G. Marine Diesel Corp., 155 B.R. at 853 (citing In re Simmons, 765 F.2d 547, 552 (5th Cir.1985)). If the objecting party sufficiently rebuts the claimant’s prima facie case, the ultimate bur den shifts back to the claimant to prove the claim. See In re Bagnato, 80 B.R. 655, 658 (Bankr.S.D.N.Y.1987); In re Anchorage Boat Sales, Inc., 29 B.R. 275, 277 (Bankr.E.D.N.Y.1983). The claimant must prove its claim by a fair preponderance of the evidence. Tesmetges, 87 B.R. at 270; 3 Collier on Bankruptcy ¶ 502.02, at 502-22 (15th ed. 1995).
This Court finds that GMI’s proof of claim was properly executed and timely filed and therefore, stands as prima facie evidence of GMI’s claim. Accordingly, the Debtor, as the objecting party, carries the initial burden to rebut the presumptive validity of GMI’s claim.
The Debtor’s objections fall into two general categories: (1) GMI failed to follow the guidelines for obtaining Navy approval of growth work and thus, performed unauthorized work; and (2) various complaints that can collectively be called billing disputes for additional charges. Because of these defects, the Debtor argues that the maximum claim GMI can assert is for $131,881.92.
A. Unauthorized Work
The agreed upon procedure to obtain Navy approval of the growth work lies at the heart of this controversy. The Debtor argues that GMI did not follow the requisite outlined steps and proceeded to perform work that was not first authorized by the Navy, GMI contends that the Debtor faded to adhere to its own directions and informed GMI to proceed with work before the Debtor received formal approval from the Navy. GMI asserts that the Debtor’s actions constitute a waiver of this procedure. This Court agrees.1
*311In the context of contract performance, a waiver is a voluntary and intentional abandonment or relinquishment of a known right or advantage which, but for the waiver, the party would have enjoyed. Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir.1991) (cite omitted); Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 184, 451 N.Y.S.2d 663, 668, 436 N.E.2d 1265, 1269-70 (1982). Contract terms can be waived either expressly or by implication of the party for whose benefit the provision inures. In re Gordon Car and Truck Rental, Inc., 59 B.R. 956, 962 (Bankr.N.D.N.Y.1985); see Wolff & Munier, 946 F.2d at 1009. Although not raised by GMI, I point out that the facts herein are also sufficient to sustain a claim of estoppel. An estoppel ‘“rests upon the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury.’ ” Nassau Trust Co., 56 N.Y.2d at 184, 451 N.Y.S.2d at 667, 436 N.E.2d at 1269 (quoting Triple Cities Constr. Co. v. Maryland Cas. Co., 4 N.Y.2d 443, 448, 176 N.Y.S.2d 292, 295, 151 N.E.2d 856, 858 (1958)). Estoppel is imposed by law in the interest of fairness to prevent the enforcement of rights which would work, a fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party’s words or conduct, has been misled into acting upon the belief that enforcement would not be sought. Nassau Trust Co., 56 N.Y.2d at 184, 451 N.Y.S.2d at 667, 436 N.E.2d at 1268-69 (citation deleted).
As the evidence indicates, both the Debtor and GMI were clearly aware of the procedure to obtain Navy approval before proceeding with any changes in the repair work. This Court finds that credible evidence suggests that on many occasions this procedure was not complied with, rather, the Debtor directed GMI to begin the growth work without previously securing Navy permission. Taylor testified that when GMI documented growth work and presented the change orders to Alloway pursuant to the parties’ arrangement, Alloway instructed GMI to “go ahead and do the work” and the Debtor would “settle on it later” with the Navy. This evidence was uncontroverted.
Here, the Debtor’s conduct shows an indisputable departure from the agreed upon procedure to obtain Navy consent to proceed with growth work. “When a party knowingly receives and accepts the benefits of extra work outside the scope of a construction contract orally directed by himself and his agents, such conduct constitutes a waiver of the [written authorization] requirement.” S. Leo Harmonay, Inc. v. Binks Manufacturing Co., 597 F.Supp. 1014, 1032 (S.D.N.Y.1984), aff'd, 762 F.2d 990 (2d Cir.1985). By instructing GMI to commence work, the Debtor effectively induced GMI’s reliance to disregard the agreed upon procedure and, as such, is now estopped from complaining that GMI did not follow that very process before starting work. In short, it is apparent to this Court that the Debtor intentionally and voluntarily waived the agreed procedure and that GMI relied upon this behavior in affirmatively choosing not to observe the procedure and proceeding with its performance under the contract.
The Court finds that the Debtor, as the objecting party, has not sufficiently rebutted GMI’s prima facie proof of claim on this issue and therefore, to the extent that the Debtor’s objection is premised on this ground, the motion is denied.
B. Additional Charges and Billing Disputes
The Debtor further objects to GMI’s claim based on several aspects of GMI’s billing invoices.
First, the Debtor objects to that portion of GMI’s invoices charging the Debtor for additional work done by GMI due to delay and disruption in the course of the Navy project. Almost from the outset of the Navy renovation project, GMI was plagued by a litany of delays and disruptions due to, inter alia: loss of electrical power, heating and lighting on one of the ships, lack of a gangway in order for GMI’s work crew to board the ships, unforeseen but necessary asbestos removal, and unsanitary bathroom facilities requiring GMI’s workmen to use restrooms at a restaurant across the street from the shipyard. The record in this case is *312replete with GMI’s information reports to the Debtor itemizing these delays and disruptions. E.g., Exs. 13 and 21. All of these interferences resulted in extra labor costs and/or additional materials. Moreover, these problems were exacerbated by the fact that the Navy insisted upon an ambitious “come aboard date” for the contractors to complete their work.
To establish what is essentially a breach of contract, a subcontractor must demonstrate that the general contractor caused substantial delay in the subcontractor’s performance. See Wolff & Munier, 946 F.2d at 1007-08 (under New York contract law, general contractor breached subcontract, in part, by causing delays which in turn caused subcontractor to incur acceleration costs for which general contractor was ultimately responsible); Quaker-Empire Constr. Co. v. D.A. Collins Constr. Co., 88 A.D.2d 1043, 1044, 452 N.Y.S.2d 692, 694 (3d Dep’t 1982) (parties to construction contract impliedly agree not to hinder or obstruct other party’s performance). As far as this Court can tell, GMI incurred substantial excess labor and material costs as a result of significant, unanticipated and in some respects, inexcusable complications arising from numerous difficulties on the ships which were in the control of the Debtor and/or the Navy. The Debtor contends that it never agreed to all of the requests for additional work. However, after reviewing GMI’s information reports and appraising the hearing testimony, the Court concludes that the Debtor, instead of objecting to the work when it was proposed and instructing GMI not to do the work, acquiesced, either expressly or tacitly to virtually all of the work performed by GMI. As stated above, the Debtor cannot now tardily invoke objections and protest finished work when it accepted the work in the first place. See Leo Harmonay, 597 F.Supp. at 1032. In sum, it is obvious that GMI and the Debtor played loose with their agreements and undertook a considerable amount of work pursuant to oral agreements or representations which contributed to the troubles on this poorly managed project.
In a related objection, the Debtor complains about additional invoiced charges because of GMI’s additional work after GMI received revised blueprints of the vessels. GMI argues that it was initially given inaccurate blueprints by either the Debtor or the Navy. Based on the evidence presented at the hearings, this Court is convinced that the specifications provided to GMI were entirely inadequate. These deficiencies arose because the original drawings or blueprints presented to GMI were outdated and failed to reflect major structural changes which had been made to the ships over the years. Some of the ships, in particular the U.S.S. Nitro, had undergone major repairs in the recent past. Taylor testified, and GMI’s reports and invoices corroborate, that although GMI was aware that revised specifications often surface after a contracting job started, GMI (through Debona, its on site manager) was not alerted to the existence of the revised drawings until early December, 1989, two months after it began work. Indeed, much of the growth work on the project was the direct result of the updated specifications finally being made available to GMI. GMI’s own information reports to the Debtor make clear that much of the additional work was “not taken into account by design at the time [of the bidding] but discovered later....” (GMI’s Ex. 21). Given the circumstances, these charges were entirely necessary once the Debtor informed GMI to proceed with work. See Leo Harmonay, 597 F.Supp. at 1026 (failure of general contractor to provide layout drawings in a timely and orderly manner requiring subcontractor to work on accelerated basis with increased work hours and costs is basis to award subcontractor the extra costs). Bad as these defects were, they were only aggravated by the Navy’s deadline for the contractors to complete the job.
In addition, as the Debtor knows, when it objected on similar grounds to another subcontractor’s (creditor’s) claim in this case, the Court explained that a contractor trying to perform to defective specifications may be entitled to costs incurred in attempting to meet the requirements of the original specifications, as well as the costs resulting from mistakes in the plans. G. Marine Diesel, 155 B.R. at 854 (citing E. Massengale, *313Fundamentals of Federal Contract Law, at 124 (1991)).
Finally, the Debtor protests an additional 10% charge on piping supplies purchased by GMI. As Taylor testified, when GMI bid on the job, the Debtor and GMI agreed that GMI would purchase some of the necessary piping materials and bill the Debt- or for these materials at cost plus 10%. (GMI’s Exs. 16 and 22). The Debtor specifically agreed to this term when it was proposed by GMI. Furthermore, the Debtor’s Program Office repeatedly signed off on GMI’s progress and invoice reports which included' the 10% addition to the cost of the piping. E.g., GMI’s Ex. 11. If the Debtor did not want to pay the additional 10% on the piping it should have objected earlier and not agreed to such an expense. For this reason, the Debtor’s objection on this ground is without merit.
As to all of these grounds, this Court concludes that the Debtor has, likewise, failed to rebut GMI’s prima facie proof of claim.
CONCLUSION
The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (0).
Based on the foregoing analysis, the Debt- or’s motion to reduce or expunge GMI’s claim is denied.
Therefore, at this point, GMI’s claim against the Debtor’s estate will be allowed in the sum of $214,217.79 and paid pursuant to the distribution authorized by this Court in the Debtor’s confirmed plan of reorganization. This determination is, of course, without prejudice to GMI’s right to add the $99,-995.02 or any amount found to be due to it from the Debtor in the proceeding which is sub judice in a state court between the Debt- or and GMI and Generation Refrigeration.
SETTLE AN ORDER in accordance with this Decision.
. I note that this issue might also be analyzed based on the alternative contract theories of oral modification of a written contract see Rose v. Spa Realty Associates, 42 N.Y.2d 338, 397 N.Y.S.2d 922, 366 N.E.2d 1279 (1977), or altered perfor-manee and acceptance of that performance. The parties did not brief any of these concepts, though GMI’s 'counsel raised the issue of waiver in his post-hearing memorandum. Under either theory, the Debtor's objection does not fare well. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492321/ | ORDER
JOHN E. WAITES, Bankruptcy Judge.
THIS MATTER comes before the Court upon the Motion of Summatyme Corporation, a N.C. corporation, (“Summatyme”), for an Order modifying the 11 U.S.C. § 3621 stay in this case to allow the completion of the foreclosure proceeding before the Master-in-Equity for Charleston County, and to allow the entry of Judgment of foreclosure and sale of the Debtor’s real property. With the consent of the parties, this Court previously granted a limited modification of the automatic stay so as to allow the Master-inEquity to complete his findings and issue a Decree of Foreclosure and Sale or other Order up to the point before a sale may take place. The issue presently before the Court is whether this Court should also grant further and complete relief from the automatic stay as to this real property. After consideration of the pleadings before the Court and the evidence presented at the hearing held on December 7, 1995, this Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. On November 1, 1995 (the “Petition Date”), Remington Forest, a S.C. Partnership (“Remington Forest”), commenced the above-captioned case under Chapter 11 of the United States Bankruptcy Code and has remained a debtor in possession pursuant to §§ 1107 and 1108.
2. Remington Forest is a South Carolina partnership which was formed in 1984, and has its principal place of business in Mount Pleasant, South Carolina.
3. Remington Forest’s primary asset is the real property, improvements and personal property which comprise 62 units of a horizontal properly regime known as Remington Forest Condominium Complex (the “Complex”) located in Mount Pleasant, South Carolina.
4. The two equal partners of Remington Forest are Mulherin-Howell, a S.C. partnership, and Real Venture Partnership.
5. Summatyme Corporation is a North Carolina corporation. Summatyme is the Debtor’s sole secured creditor and the holder of 62 separate notes (the “Notes”) which are all secured by 62 mortgages on the Complex.
6. For purposes of this § 362 Motion, the stipulated debt due Summatyme as of December 7,1995 is $3,569,414.91, exclusive of accrued attorneys’ fees and costs.
7. The Complex has historically been rented as apartments which provides the only income for the Debtor.
8. The Debtor’s Schedules filed on November 1, 1995 listed only four creditors: Summatyme Corporation, All American Pest Control, Atkinson Pool Company and Corporate Center, a SC Partnership. There has been no amendment to the Schedules.
9. The debts listed to All American Pest Control and Atkinson Pool Company for services rendered in August of 1995 *386have been paid by the Debtor or the manager of the Complex in the ordinary course of business.
10. Corporate Center, a SC Partnership is a creditor which is controlled by Allen Howell, a controlling partner in the partnerships which comprise the Debtor.
11. At the hearing on December 7,1995, the Debtor filed its Disclosure Statement and Plan of Reorganization (the “Plan”).2
12. The Plan proposes three alternative treatments for Summatyme; (a) sale of the entire property; (b) sale of the 62 units separately; and (c) long term financing by Summatyme. The Plan does not identify any other actual creditors of the Debtor and indicates that all indebtedness other than that to Summatyme is current.
CONCLUSIONS OF LAW
The automatic stay may be modified pursuant to Section 362(d)(1) for cause or (d)(2) if the debtor does not have an equity in such property and such property is not necessary to an effective reorganization.
Pursuant to § 362(d)(2)(A), as to the issue of equity, in the recent Fourth Circuit case of Estate Construction Company v. Miller & Smith Holding Company, Inc., 14 F.3d 213 (4th Cir.1994), the Court states:
To determine if there is equity in the property, the bankruptcy court must determine the following: (1) the value of the real estate, and (2) the amount of debt encumbering the property. If the debt is greater than or equal to the value of the realty, the stay may be properly lifted.
14 F.3d at 219. In order to determine the value of the collateral, the initial burden of proof is upon the movant, Summatyme. See 11 U.S.C. § 362(g) (“In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section — (1) the party requesting such relief has the burden of proof on the issue of the debtor’s equity in property; and (2) the party opposing such relief has the burden of proof on all other issues.”).
Summatyme’s appraiser, Herbert Sass, testified that the present “as is” value of the Complex if sold as a whole to a third party is $2,700,000.00. This represents an increase over the appraised value in Sass’ December, 1994 written appraisal, which reflected a value of $2,420,000.00. Sass also testified that alternatively a 21-month sellout of the individual units within the Complex would indicate a present value of $2,670,000.00. As a basis for that valuation, Sass opined that the present value of the 2-bedroom units and the 3-bedroom units within the Complex are $57,000.00 and $61,000.00 respectively and that such present values would need to be discounted to take into account sales over an extended period of either 21 or 31 months.
The Debtor’s appraiser, Mike Robinson, testified that he had no opinion on either the present “as is” value of the entire project if sold to one buyer or the present “sellout” value of the individual units sold over any period of time. Robinson did testify to three appraisals of individual units which stated a present retail value for one 2-bedroom unit of $60,000.00 and for two 3-bedroom units of $68,000.00 and $68,500.00. The Debtor’s realtor, Bill Smith, also testified that he believed the 62 units could individually be sold by his company within a 31 month period at an average rate of two units per month. (The record indicates that there are ten 2-bedroom units and fifty-two 3-bedroom units in the Complex.) Smith further testified that there was a contract on one of the 3-bed-room units which was signed on the day of the, hearing for $69,500.00. Smith also testified that the newly signed contract required at least $2,300.00 in repairs to the unit and after taking into consideration the six (6%) percent commission of $4,170.00 to be charged on such a sale, that the sale of that 3-bedroom unit would provide an approximate net value of $63,000.00. The Debtor offered no other evidence on the value of the Complex, but its Certification of Facts asserts a fair market value of $4,000,000.00.
*387In order to determine the value and therefore equity in the Complex, the Court has examined the evidence presented by both appraisers Sass and Robinson and finds that the testimony presented by Sass is more complete and credible.
The Court finds that the present value of the Complex as a single asset is $2,700,000.00 and that the value of the sale of the individual units over a 21-month period would be $2,670,000.00 and over a 31-month period would be $3,175,956.00.3 Under either valuation, it appears that the Debtor has no equity in the Complex property.
The second inquiry for the Court under § 362(d)(2) is whether the subject property is necessary for an effective reorganization. The Fourth Circuit has summarized the standard for relief under § 362(d)(2) by stating that,
A creditor seeking relief from the automatic stay provisions in § 362 may obtain an order from the bankruptcy court allowing it to proceed against property if ‘(A) the debtor does not have any equity in such property; and (B) such property is not necessary to an effective reorganization.’ 11 U.S.C. § 362(d)(2). The Supreme court has construed the second requirement as ‘a reasonable possibility of successful reorganization within a reasonable time.’ United Savs. Ass’n v. Timbers of Inwood Forest Assocs., Ltd,, 484 U.S. 365, 376 [108 S.Ct. 626, 633, 98 L.Ed.2d 740] (1988).
In re Ursula Patestas, No. 93-1639, slip op. at 3, 1995 WL 10325 (4th Cir. Jan. 12, 1995) (Unpublished).4 See In re Coates, 180 B.R. 110 (Bkrtey.D.S.C.1995).
In order to determine if this Debtor has a reasonable possibility of successful reorganization within a reasonable period of time, the Court must examine the Debtor’s Plan and its confirmability.
Besides Summatyme, whose debt represents more than 99% of the indebtedness listed on the Schedules, the Debtor lists only three other creditors in its Schedules, Plan and Disclosure Statement. Two of these creditors, if owed on the date of the Petition, are no longer owed the nominal amounts of money listed by the Debtor. Specifically, Naomi Simpson, an employee of the management company which operates the Complex for the Debtor, (and in which Allen Howell also has an ownership interest), testified concerning the October, 1995 income statement for Remington Forest that the two debts ($125.00 for pest control and $335.00 for pool maintenance) were paid. The third creditor, Corporate Center, S.C. Ptr., is an insider creditor, as Allen Howell is a controlling principal of both it and the Debtor.
Based on the Debtor’s Schedules, Disclosure Statement and the testimony at the hearing, it is evident that there exists no truly impaired class of claims in this case that would vote to accept any Plan put forth by the Debtor and therefore such a Plan is unconfirmable. The only means by which the Debtor has to obtain an accepting impaired class is to artificially impair or create a class of claims or to use a separate classification of similar claims to secure the vote of an accepting impaired class of claims under § 1129(a)(10). The Fourth Circuit Court of Appeals, as well as the Bankruptcy Court in this district, have rejected such attempts by debtors to obtain confirmation of a plan by manipulation of the chapter 11 process as a violation of the § 1129(a) requirements, including a lack of good faith. See In re Bryson Properties, XVIII, 961 F.2d 496, 503 (4th Cir.1992), cert. denied, 506 U.S. 866, 113 S.Ct. 191, 121 L.Ed.2d 134 (1992); In re W.C. Peeler Co., Inc., 182 B.R. 435 (Bankr.D.S.C.1995) (Bishop, J.) and this Court’s opinion dated September 20, 1995 in the case of In re
*388Dunes Hotel Associates, 188 B.R. 174 (Bkrtcy.D.S.C.1995).
This Court concludes that the Debtor has failed to meet its burden of proof of showing that the Complex property is necessary to an effective reorganization in so far as it appears that there is no reasonable possibility of the Debtor confirming a Plan of Reorganization without the consent of Summatyme Corporation, which has indicated its opposition to the Debtor’s reorganization efforts. In re Swedeland Development Group, Inc., 16 F.3d 552 (3rd Cir.1994), In re Cho, 164 B.R. 730 (Bkrtcy.E.D.Va.1994), In re Madison Hotel Corp., 175 B.R. 94 (Bkrtey. N.D.Ala.1994). Based thereon, the Court concludes that Summatyme Corporation is entitled to relief from stay pursuant to § 362(a)(2).5
Pursuant to all of the foregoing Findings of Fact and Conclusions of Law, it is therefore
ORDERED, that the Motion of Summa-tyme Corporation for Relief from the 11 U.S.C. § 362 Automatic Stay is granted.
AND IT IS SO ORDERED.
. Further references to the Bankruptcy Code, 11 U.S.C. § 101, et seq., shall be by section number only.
. The Plan was introduced into evidence as an exhibit to the Debtor’s Objection to Summa-tyme's Motion for Relief from Stay.
. The Sass opinion of $2,670,000.00 was based on a 21-month sellout period but did not include debt service of approximately $699 per day on the principal balance of $3,131,000.00. The Sass opinion also made a deduction for profit and an on site sales office, the need for which the Debtor disputed. Even if the Court gives the benefit of any doubt to the Debtor in increasing the value by these amounts plus increasing the discount rate in considering a 31 month rather than 21 month sellout period, the Court concludes the value over a 31 month sellout period would be $3,175,956.00.
. Unpublished opinions are not binding precedent in this circuit but may be persuasive. See I.O.P. 36.5 and 36.6.
. The Court need not reach a conclusion regarding the motion for relief from the stay for cause pursuant to § 362(d)(1) at this time and therefore reserves ruling thereon. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492322/ | ORDER
Chapter 7
JOHN E. WAITES, Bankruptcy Judge.
THIS MATTER comes before the Court upon the Debtor’s Motion to Dismiss or in *390the Alternative, Motion for Summary Judgment (the “Motions”). After reviewing the pleadings and the evidence presented along with arguments of counsel for the Plaintiff and the Debtor, who is appearing pro se, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure.1
FINDINGS OF FACT
1. On March 9, 1995, Frampton Mikell Harper (the “Debtor”) filed a voluntary Chapter 7 bankruptcy petition. Robert F. Anderson (the “Trustee”) is the Debt- or’s duly appointed Trustee in Bankruptcy. The Debtor’s first meeting of creditors pursuant to 11 U.S.C. § 3412 was conducted on April 21, 1995. According to the Notice of the Commencement of Case issued on March 14, 1995, the deadline for filing Complaints objecting to discharge or dischargeability was originally June 20,1995.
2. On May 23, 1995, the Trustee filed a Motion for Extension of Time to File Complaints Objecting to Discharge or Dischargeability of Particular Debts. This motion, as supplemented in the memorandum attached, moved for an extension of the time for “filing by any party (1) complaints objecting to discharge pursuant to 11 U.S.C. § 727, and (2) complaints seeking exceptions to discharge pursuant to 11 U.S.C. § 523 ... of approximately sixty (60) days, until August 20,1995.”
3. There were no objections filed to the Trustee’s motion.
4. A hearing was held on the motion for extension on June 14, 1995 in Charleston, South Carolina. The Court’s Appearance Sheet reflects that the Trustee was the only interested party in attendance.
5. At the June 14, 1995 hearing, the Trustee stated that he was “requesting an extension through August 20, 1995, which is about sixty days after the regular conclusion of the time for the filing of such”. Without opposition, the motion for extension was granted and the Trustee was instructed to prepare a proposed order granting the motion.
6. The proposed order from the Trustee was received by the Court on August 16, 1995, executed on August 18, 1995 and entered into judgment on August 21, 1995 (“August 21, 1995 Order”). The August 21,1995 Order states in part “[i]t appears that such extension of sixty (60) days is just, no objections to such extension being entered, it is therefore Ordered, Adjudged and Decree that the deadline for filing complaints objecting to discharge, or for the determination of the dischargeability of a particular debt under 11 U.S.C. § 523 and/or § 727 be, and it herewith is extended, for a period of sixty (60) days from the date of this Order”.
7. The August 21,1995 Order was served by mail by the Clerk of the Bankruptcy Court on all parties in interest including creditors, the Debtor and the Trustee, on August 21, 1995. No appeal of the Order or motion for reconsideration was filed by any party including the Debtor or Trustee. No party at any time prior to these Motions notified the Court that they believed the August 21,1995 Order to be in error.
8. On October 17, 1995, three days prior to the last day to file complaints pursuant to the August 21, 1995 Order, the within adversary complaint seeking a denial of the dischargeability of a debt to the Plaintiff pursuant to § 523(a)(6) was filed.
9. The Plaintiff, as a creditor in this case, relied in good faith upon the August 21, 1995 Order which extended the time to object to dischargeability until October *39120, 1995, sixty (60) days after the entry of the August 21,1995 Order.
10. On November 13, 1995, the Debtor filed the within Motion to Dismiss alleging that the Complaint was untimely as it was filed more than sixty (60) days following the first date set for the meeting of creditors. In the same pleading, the Debtor alternatively filed a Motion for Summary Judgment on the grounds that the underlying District Court judgment lacked a finding of “willfulness” or “malicious” injury.
11. At one point during the hearing on the within Motions, the Debtor indicated that he had no objection to the Trustee obtaining an extension on his behalf and that of creditors through August 20, 1995 and further that he did not read the August 21, 1995 Order as applicable to any party other than the Trustee and did not object to that Order applying to the Trustee.
CONCLUSIONS OF LAW
I. MOTION TO DISMISS
Rule 9006(b)(3) of the Federal Rules of Bankruptcy Procedure3 states that “[t]he court may enlarge the time for taking action under Rules 1006(b)(2), 1017(e), 3002(c), 4003(b), 4004(a), 4007(c), 8002, and 9033, only to the extent and under the conditions stated in those rules”. Pursuant to Rule 4007, “[a] complaint to determine the dischargeability of any debt pursuant to § 523(e) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 341(a) ... [o]n motion of any party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision.”
The Supreme Court has made it clear that such motions for extensions of time must be made within the initial time period. See, Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), regarding a motion under Rule 4003(b). Likewise in In re Jeffrey, 169 B.R. 25 (Bkrtcy.D.Md.1994), the Court in citing Rule 4007, has held that once the period for filing complaints to determine dischargeability of debt has expired without the filing of a motion to extend, the bankruptcy court is powerless to extend the deadline based upon a tardy motion.
However, in the within case, there is no dispute that the motion filed by the Chapter 7 Trustee for an extension of time to file discharge complaints pursuant to § 727 as well as an extension to file dischargeability complaints pursuant to § 523 was filed within the initial time period. While there is case law within the Fourth Circuit which questions whether a Chapter 7 Trustee has standing to seek an extension pursuant to Rule 4007, there were no objections to the motion of the Trustee and no party in interest appeared at the hearing to oppose the motion despite the motion’s clear request that the extension was for the benefit of filings “by any party ” and was to be applied both to the discharge and dischargeability deadlines. Matter of Farmer, 786 F.2d 618 (4th Cir.1986). Based upon the lack of objection and appearance of any other party, the Court granted the Trustee’s request at the June 14, 1995 hearing.
a. Standing
In Farmer, the Court of Appeals reversed the Bankruptcy Court’s order which had overruled an objection by the debtors to a trustee’s request for a second extension of time and held that a Chapter 7 trustee generally lacked standing to request an extension of time to file dischargeability complaints. However, in the instant case unlike in Farmer, the Debtor did not object to or appear at the hearing to oppose the request for extension and did not ask for reconsideration or appeal the Court’s granting of an extension because of the trustee’s lack of standing.4 Furthermore, at one point in the *392hearing on the Motions, the Debtor confirmed that he had no objection to the Trustee’s standing to obtain an extension for the benefit of creditors until August 20, 1995. The Debtor’s only objection was to any extension for the creditor’s benefit beyond that date.
Under the circumstances of this case, as distinguishable from Farmer, it would be unjust and inequitable to allow the Debtor to raise the defense of a lack of standing by the Trustee at this stage of the proceedings. Further support for this ruling is indicated by a recent 11th Circuit opinion with similar facts to the instant case. In re Demos, 57 F.3d 1037 (11th Cir.1995). In that case, the trustee filed a motion to extend the deadlines to file complaints to determine dischargeability and objections to discharge. One of the creditors in Demos relying upon the order granting the trustee’s motion, filed a complaint pursuant to § 523 after the initial time period to file such a complaint had run, without filing his own motion for an extension of time. The 11th Circuit in finding that the creditor reasonably relied upon the trustee’s motion, allowed the creditor’s complaint to stand pursuant to the court’s equitable powers under § 105. The 11th Circuit stated:
If the bankruptcy court did not intend to grant creditors an extension of time—as the district court found—then the bankruptcy court made a mistake, and it should have exercised its equitable powers under Section 105 to allow [the creditor’s] complaint to stand.
In re Demos, 57 F.3d at 1040.
b. Timeliness of Complaint
The second issue raised by the Motions is whether under the circumstances of this case, a complaint objecting to discharge-ability which was filed after August 20, 1995 should be allowed as timely.
There is no question that in his motion for extension and the accompanying memorandum as well as at the hearing, the Trustee specified that his request was for sixty (60) days beyond the original deadline, and that he was specifically seeking an extension until August 20,1995. The record is equally clear that the Court granted the motion and instructed the Trustee to prepare an Order to that effect. For whatever reason a proposed Order was not submitted by the Trustee until August 16, 1995 and it reflected by its terms an extension “for 60 days from the date of (said) Order”. These terms were different than requested in the Trustee’s motion and at the June 14,1995 hearing.
Just as clearly, before entering the August 21, 1995 Order, neither the Clerk of Court nor the Court noticed the difference in terms. The Court’s written minutes of the June 14, 1995 hearing only reflect that the Trustee’s motion was granted. Furthermore, as it is not the Court’s usual practice, the Court did not review the transcript of the June 14, 1995 hearing before considering such a routine order as the proposed order. The Court relied on the Trustee to comply with its instructions and prepare the correct order. The Trustee failed to present a proposed order which correctly represented the Court’s ruling at the June 14, 1995 hearing. While the Trustee in his affidavit has stated that it is his usual practice to submit extension orders which provide for “60 days from the date of the (extension) Order”, such is not an acceptable practice unless the Trustee expressly requests such extension in his pleadings and at the hearing.
Despite the difference in terms, any oral ruling or comments made by the Court at the hearing would have been preempted by the formal order entered on August 21, 1995. See, Davis v. Rhay, 156 F.Supp. 114 (E.D.Wash.1957) (an oral or written opinion by a judge announcing his decision and giving the reasons therefor is tentative rather than final; if there is any conflict between the opinion and the formal findings of fact, conclusions, and judgment, the latter govern), Hong v. United States, 363 F.2d 116 (9th Cir.1966) (since the District Court made and entered formal and detailed findings of fact and conclusions of law, the Court of Appeals would not and should not review statements appearing in the District Court’s ‘oral decision’), Greiner v. Chicago and Eastern Illinois Railroad Company, 360 F.2d 891 (7th Cir.1966) (the appellate court could not treat the trial court’s oral comment as a *393special finding that modifies his formal Findings of Fact; the latter must be viewed as controlling).
The ultimate issue therefore before the Court on the Motion to Dismiss is not whether the difference in terms between the Order and the Hearing is a mistake made by the Trustee or by the Court, but rather the effect of such on the two parties to this proceeding. Specifically, the issue is whether the Plaintiff may reasonably rely on the extension of time provided by the August 21, 1995 Order or whether his complaint should be dismissed. Under the circumstances of this case, the Court finds that the Plaintiff and similarly situated creditors in this case must be able to rely on this Court’s written order and, therefore, shall deny the Defendant’s Motion to Dismiss.
In making this determination, as other courts have done in similar situations, the Court relies upon its equitable powers under § 105 to serve the interest of justice. Section 105(a) provides that “[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process”.
While the Court has not found a Fourth Circuit opinion with the same facts as within and the Demos case, the Farouki v. Emirates Bank International Limited, 14 F.3d 244 (4th Cir.1994) opinion from the Fourth Circuit is very similar. In Farouki the Fourth Circuit held that Rule 4004(a) does not preclude a bankruptcy court from exercising its equitable powers in extraordinary cases. In Farouki the creditor filed a timely motion to extend the deadline to file a complaint objecting to discharge pursuant to § 727 and Rules 4004(a) and 9006(b)(3); however, due to car trouble, the creditor’s attorney failed to attend the hearing and the Court denied the motion for lack of prosecution. A motion for reconsideration was filed by the creditor later that day. The motion for reconsideration was granted. The Debt- or appealed alleging that the time period of Rule 4004 is jurisdictional and therefore the court lacked jurisdiction to act upon the motion for reconsideration. Relying upon the 9th Circuit’s BAP opinion of In re Santos, 112 B.R. 1001 (9th Cir. BAP 1990), the Fourth Circuit held that the deadlines for filing dischargeability complaints (emphasis added) and objections to discharge set forth in Rule 4007(c) and 4004(a) are not jurisdictional time limits. The Fourth Circuit held:
Although the excusable neglect rationale may not be available to excuse a failure to file within the initial time period, we have found no authority suggesting that excusable neglect is not available to justify the grant of a motion for reconsideration filed on the same day that a timely filed motion for enlargement is denied. Such a rule would not be equitable.
Farouki v. Emirates Bank International Limited, 14 F.3d at 249.
The Farouki opinion was then cited in Lust v. Burke, 876 F.Supp. 1474 (D.Md.1994) by Judge Harvey from the District Court in Maryland to stand for the proposition that “Rule 4004(a) does not preclude a bankruptcy court from exercising its equitable powers in extraordinary cases.” Lust v. Burke, 876 F.Supp. at 1487.
Because Rule 9006 allows the enlargement of the time period for motions pursuant to Rule 4004(a) as well as 4007(c), it would appear that the Fourth Circuit would follow the logic of the Farouki opinion under the facts of the instant case.
In another case with very similar facts, the New Hampshire District Court in In re Riso, 57 B.R. 789 (D.N.H.1986) held that a bankruptcy court has the inherent equitable power to correct its own mistakes to prevent an injustice. In that case, after granting a motion which requested an extension until October 27, 1984 to object to discharge, the bankruptcy court staff erroneously mailed a routine order which set a different deadline of December 3, 1984. The subject creditor relied on the erroneous order and filed his complaint on November 29, 1984. In refusing to dismiss the complaint as untimely, the *394Court confirmed the Bankruptcy Court’s equitable power:
The mistake in this case was a mistake of “the court” and should be corrected by the same in the absence of any substantial prejudice to any party.
In re Riso, 57 B.R. at 792. Likewise, other courts have confirmed the bankruptcy court’s equitable power to prevent an injustice because of reliance on a deadline set by an error made by the bankruptcy court. See, In re Themy, 6 F.3d 688, 689 (10th Cir.1993) (bankruptcy court could accept late-filed complaint by creditor who had relied on bankruptcy court’s notice setting incorrect deadline and “[ajlthough the provisions of Rules 4004 and 4007 are strictly enforced, courts have almost uniformly allowed an out-of-time filing when the creditor relies upon a bankruptcy court notice setting an incorrect deadline”), In re Isaacman, 26 F.3d 629 (6th Cir.1994) (bankruptcy court should exercise its equitable powers and permit non-dis-chargeability complaint to proceed if creditor reasonably relies on bankruptcy court’s erroneous statement of second bar date, and creditor reasonably relied on court clerks erroneous oral statement of bar date; bankruptcy court abused its discretion in dismissing creditor’s complaint as untimely) and In re Anwiler, 958 F.2d 925 (9th Cir.1992), cert. denied, 506 U.S. 882, 113 S.Ct. 236, 121 L.Ed.2d 171 (1992) (bankruptcy court could use its equitable powers to permit late filing of dischargeability complaint inasmuch as creditors reasonably relied on bankruptcy court’s conflicting notices with respect to bar date). Also, see In re Kennerley, 995 F.2d 145 (9th Cir.1993), In re Ginn, 179 B.R. 349 (Bkrtcy.S.D.Ga.1995), In re Schwartz and Meyers, 64 B.R. 948 (Bkrtcy.S.D.N.Y.1986), In re Reichmeier, 130 B.R. 539 (Bkrtcy.W.D.Mo.1991), In re Schoofs, 115 B.R. 1 (Bkrtcy.D.Dist.Col.1990) and In re Sibley, 71 B.R. 147 (Bkrtcy.D.Mass.1987).
Despite receiving the August 21,1995 Order, the Debtor did not seek a reconsideration, file an appeal, or, by any other timely means, raise the error to the Court’s attention. In bankruptcy courts, as in other courts, the doctrine of law of the case mandate that parties are bound by prior, unap-pealed orders of the court. See, In re Russell, 148 B.R. 564 (Bkrtcy.E.D.Ark.1992) (the debtor is bound by prior, unappealed order of the court) and In re Olmstead, 1995 WL 495892 (Bkrtcy.Idaho 1995) (debtor bound through law of the case to prior, unappealed order disallowing homestead exemption). At the hearing on the Motions, the Debtor indicated that he did not appeal or otherwise act because he did not understand the August-21, 1995 Order to provide any extension to creditors. While the Order did not state with particular terms the beneficiaries of the extension, when considering the terms of the motion for extension which expressly referred to “complaints to be filed by any party” as well as the Order’s reference to § 523 as well as § 727, the Court does not accept the explanation of the Debtor, an attorney by training, and finds that the August 21, 1995 Order clearly applied to extensions to creditors to object to discharge and dis-chargeability. The Court finds that the Debtor should not now be able to raise such issues that were clearly available after his receipt of the August 21,1995 Order.
In this case, the Court has weighed the prejudice to be suffered by the Debtor against the prejudice to the Plaintiff Creditor if the Motion to Dismiss is granted. It appears to the Court that the Debtor’s desire to have this adversary proceeding dismissed summarily on a possible procedural defect is far outweighed by the prejudice to the Creditor Plaintiff if the Complaint is dismissed despite his reasonable reliance upon an unap-pealed and final order of this Court. It appears that justice can therefore only be served by allowing both parties to proceed to a substantive adjudication on the discharge-ability complaint.
II. MOTION FOR SUMMARY JUDGMENT
The Alternative Motion for Summary Judgment filed by the Debtor alleges that the Complaint fails to allege any willful and malicious injury by the Debtor to the Plaintiff within the meaning of § 523(a)(6) and that the underlying judgment on which the § 523 complaint is based upon does not make a finding of willful and malicious injury.
*395Summary judgment is appropriate in those cases in which there is no genuine issue of material fact. Rule 7056(c). Summary judgment should be granted if “there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). “At the summary judgment stage the judge’s function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Id. at 249, 106 S.Ct. at 2511. Since it is the movant who bears the onus of establishing his entitlement to summary judgment, his opponent enjoys the benefit of all favorable inferences from evidence proffered, and the facts asserted by the nonmoving party, if adequately buttressed by evidentiary material, are to be taken as true. Abraham v. Graphic Arts Intern. Union, 660 F.2d 811, 212 U.S.App.D.C. 412 (1981).
In support of his Motion, the Debt- or alleges that the Order entered by the Honorable Robert S. Carr, United States Magistrate Judge on August 31, 1994 in civil action proceeding number 9:92-0951-19AJ and captioned Peter Ruben versus F. Mikell Harper and Randall M. Chastain and civil action proceeding number 9:92-1471-19AJ and captioned Denny Allen and The International Yachting Group, Inc. versus F. Mikell Harper does not make a specific finding of malice, willfulness or recklessness that would be necessary to an action pursuant to § 523. However, as recently stated by the Fourth Circuit, such a finding does not need to be limited to this exact terminology.
“Malice,” however, does not mean the same thing in Section 523(a) that it often does in other contexts. A debtor may act with malice even though he bears no subjective ill will toward, and does not specifically intend to injure, his creditor. Hence, a debtor’s injurious act done “deliberately and intentionally in knowing disregard of the rights of another”, i.e. a creditor, is sufficiently willful and malicious, and prevents discharge of the debt.
In re Stanley, 66 F.3d 664 (4th Cir.1995) (citations omitted).
Essentially the Debtor’s argument is based upon a res judicata or a collateral estoppel defense. “[T]he difference between res judicata and collateral estoppel is that res judicata forecloses all issues that could have been litigated previously, while ‘collateral es-toppel treats as final only those questions actually and necessarily decided in a prior suit.’ Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767 (1979).” In re Lucas, 186 B.R. 67 (Bkrtcy.E.D.Va.1995). Collateral estoppel applies only to those issues which were actually, completely and necessarily litigated in a pri- or action between the parties, thereby barring relitigation of specific issues previously determined by a court of competent jurisdiction. Combs v. Rickardson, 838 F.2d 112 (4th Cir.1988).
The August 31, 1994 Order on the issue of liability and the subsequent March 9, 1995 Order from Judge Carr on the issue of damages are based upon a negligence cause of action. While the amended complaint in the District Court litigation sounds in negligence and is captioned as a negligence cause of action, the allegations of the complaint raise the issue of recklessness, but such are not mentioned in the Orders.
The determination that this Court must make is whether the issues of willfulness and maliciousness could have been litigated previously or whether they were actually and necessarily decided in the District Court litigation. “[T]he bankruptcy court must determine whether the issue was actually litigated ‘with particular care.’ ” In re Raynor, 922 F.2d 1146 (4th Cir.1991). As Judge Adams of the Bankruptcy Court of the Eastern District of Virginia recently stated:
This Court interprets the mandate of the Raynor and Combs decisions to require an analysis of whether the prior court proceedings involved a complete and thorough presentation of the issues presented in the dischargeability complaint and whether there was a thoughtful determination of those issues by the (state) court.
In re Stankovich, 171 B.R. 27 (Bkrtcy.E.D.Va.1994).
*396The only documents relating to the District Court litigation presented to this Court were the two referenced Orders of the District Court along with the amended complaint in that litigation, which was attached to the § 523 Complaint. Neither party presented a transcript of the District Court trial or an Order relating to the allegations of willful or malicious injury which would allow this Court to make a determination of whether the issue has been previously litigated. Therefore, viewing the evidence before the Court in the light most favorable to the Plaintiff, and without ruling with prejudice upon the res judicata or collateral estoppel effect of Judge Carr’s Orders, the Court finds that the Debtor has failed at this time to meet his burden of coming forward with proof of the absence of any genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 321, 106 S.Ct. 2548, 2551-52, 91 L.Ed.2d 265, 273 (1986).
CONCLUSION
Based upon the motion for extension by the Trustee, the transcript of the June 14, 1995 hearing, and the August 21,1995 Order and the numerous references to an extension of time for creditors to file dischargeability complaints pursuant to § 523, and the creditors reasonable reliance upon this Order, it would appear that pursuant to the equitable powers of the Court as conferred upon it by § 105, the Debtor’s Motion to Dismiss must be denied. Additionally, the Alternative Motion for Summary Judgment must similarly be denied for the failure of the Debtor to demonstrate an absence of any genuine issues of material fact. For the reasons stated within, it is therefore,
ORDERED, that the Motion of the Debtor to Dismiss and the Alternative Motion for Summary Judgment are denied.
AND IT IS SO ORDERED.
. The court notes that to the extent any of the following Findings of Fact constitute Conclusions of Law, they are adopted as such, and to the extent any Conclusions of Law constitute Findings of Fact, they are so adopted.
. Further references to the Bankruptcy Code, 11 U.S.C. § 101, et seq., shall be by section number only.
. Further references to the Federal Rules of Bankruptcy Procedure shall be by reference to Rule number only.
. Had there been a timely objection and had the Court denied the Trustee's request for an extension for creditors to object to dischargeability due to a lack of standing at the June 14, 1995 hearing, creditors would still have had time within the initial period up to June 20, 1995 to file motions seeking their own extensions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492323/ | ORDER ON MOTION FOR RELIEF FROM AUTOMATIC STAY
JOHN E. WAITES, Bankruptcy Judge.
This matter came before the Court on the motion of Joy M. Ackerman (“Mrs. Acker-man”) for relief from the automatic stay. Mrs. Ackerman sought relief from the stay in order to prosecute an action seeking equitable apportionment of the marital property in the Family Court of the State of South Carolina, Colleton County (“Family Court”). Ralph C. McCullough, II, as Trustee for the bankruptcy estate of Clyde 0. Ackerman (the “Trustee”), objected to the relief requested. This Court has heard the arguments of counsel and in balancing the potential prejudice to the bankruptcy estate against the hardships that will be incurred by Mrs. Ackerman, this Court sustains the objection of the Trustee and denies Mrs. Ackerman’s motion for relief from the automatic stay. In denying this Motion, the Court makes the following Findings of Facts and Conclusions of Law.
FINDINGS OF FACT
1. This matter arises from the adversary proceeding brought by the Trustee against Mrs. Ackerman and the Debtor, Clyde 0. Ackerman (“Mr. Ackerman”), adversary proceeding number 95-8322 (the “bankruptcy litigation”). In his Complaint, the Trustee has alleged two causes of action: (1) fraudulent conveyances pursuant to 11 U.S.C. § 544(b) and (2) equitable apportionment of marital property. The parties agree that the Family Court would not have jurisdiction over the cause of action pursuant to 11 U.S.C. § 544(b).
2. After the filing of this bankruptcy ease, Mrs. Ackerman brought a complaint in the Family Court for divorce and for equitable apportionment of marital property. Mrs. Ackerman asserts that she did not know of the pendency of the bankruptcy proceeding when she sought the relief for equitable apportionment. Upon learning of the bankruptcy, all proceedings in the Family Court litigation were stayed. Discovery has not begun in the Family Court litigation.
3. In the bankruptcy litigation, the issues have been joined and Mr. Ackerman has agreed that the Trustee is entitled to Mr. Ackerman’s portion of the equitable apportionment of marital property. Thus, the Trustee is the real party in interest in the proceeding for equitable apportionment.
CONCLUSIONS OF LAW
The standard for determining whether to grant relief from the automatic stay in order to allow a state court action for equitable apportionment to proceed is set forth in In re Robbins, 964 F.2d 342 (4th Cir.1992). In Robbins, the Fourth Circuit states, in part:
The court must balance potential prejudice to the bankruptcy debtor’s estate against the hardships that will be incurred by the person seeking relief from the automatic stay if relief is denied, (citation omitted) The factors that courts consider in deciding whether to lift the automatic stay include (1) whether the issues in the pending litigation involve only state law, so the *406expertise of the bankruptcy court is unnecessary; (2) whether modifying the stay will promote judicial economy and whether there would be greater interference with the bankruptcy case if the stay were not lifted because matters would have to be litigated in bankruptcy court; and (3) whether the estate can be protected properly by a requirement that creditors seek enforcement of any judgment through the bankruptcy court.
964 F.2d at 345.
In applying the Robbins factors to the case at hand, it appears that all factors indicate that the motion for relief from the automatic stay should be denied at this time without prejudice.
While the Family Courts of this State have great expertise in equitable apportionment issues, this case also involves issues of fraudulent conveyances pursuant to 11 U.S.C. § 544 which must be heard in this Court. Additionally, counsel for Mrs. Ackerman stated that an equitable apportionment action in the Family Court would probably not be heard within the year; however, if the litigation remains in this Court, the matter could be heard within a few months. Thus, judicial economy weighs in favor of this Court retaining jurisdiction.
In addition, the facts of this case appear similar to the facts of In re Roberge, 181 B.R. 854 (Bankr.E.D.Va.1995). In this case, like Roberge and unlike Robbins, the bankruptcy petition was filed prior to the equitable apportionment lawsuit. No discovery had taken place in either the family court litigation or the bankruptcy litigation. In this case, the bankruptcy litigation to determine the Debtor’s share of property is likely the sole asset of the estate. Therefore, the entire distribution to creditors must await a determination of the equitable apportionment issues. Any delay seems unnecessary since this Court can expediently decide such issues at the same time it determines the fraudulent conveyance action.
And finally, as to the issue of whether the estate can be protected properly, Judge Shelley in the Roberge decision expressed concerns regarding that protection of the interests of the creditors in such state court litigation.
First, the creditors [and the Trustee here] are not parties to the divorce case and there is presumably no reason for the state court to consider the creditor’s interests. Furthermore, there is a question as to whether the creditors have standing to participate in the state court proceeding. Second, when a bankruptcy court retains jurisdiction over the distribution, the question remains whether that court can review or reject the allocation of the marital estate once the automatic stay has been lifted and the state court has fixed the ex-spouse’s rights. Finally, if relief is granted, there is the concern that the parties may enter into a consent judgment providing for a distribution of property interests that is collusive or fraudulent as to the interests that of the debtor’s creditors.
181 B.R. at 858 (citations and footnotes omitted). While there is no indication of collusive or fraudulent settlement in this ease, where the husband in a family court matter expects no personal recovery, his incentive for a zealous prosecution of the litigation may not be as great as the Trustee’s incentive in the bankruptcy litigation. For these reasons, it would appear to be in the best interest of the estate to deny the motion for relief from the automatic stay at this time. It is therefore
ORDERED, that the motion for relief from the automatic stay filed by Joy M. Ackerman is denied at this time.
AND IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492324/ | OPINION
DONALD R. SHARP, Bankruptcy Judge.
The Court heard Debtors’ Objection to Allowance of Claim of Internal Revenue Service (IRS) pursuant to regular setting. This opinion constitutes the Court’s findings of fact and conclusions of law to the extent required by Fed.R.Bankr.Proc. 7052 and disposes of all issues before the Court.
FACTUAL AND PROCEDURAL BACKGROUND
Debtors filed their Chapter 13 petition on October 5, 1994. On November 18, 1994, Debtors filed a proof of claim on behalf of the IRS in the amount of $8,076.00. The last date to file claims was February 8,1995. On March 8, 1995, Debtors withdrew the claim they had filed on behalf of IRS. On April 3, 1995, the IRS filed a proof of claim (IRS claim) in the amount of $8,041.82. Debtors filed their Objection to Allowance of Claim of Internal Revenue Service (Objection) on May 3, 1995. The Objection requests disallowance of the IRS claim because it was late-filed.
DISCUSSION
The positions of the parties are rather straight forward. Debtors take the position that since they filed the proof of claim on behalf of the IRS, they have the authority to withdraw it and therefore, the only valid claim on file is the late filed claim filed by the IRS. The Debtors argue that late filing alone is grounds to deny the claim. IRS takes the position that the attempted withdrawal of the claim filed by the Debtors was ineffective and that the claim filed by them is either an amending or superseding claim under the rules or alternatively, the fact of late filing is not grounds for disallowance under 11 U.S.C. § 502.
The Debtors filed their claim on behalf of the IRS pursuant to Federal Rule of Bankruptcy Procedure 3004 which specifically allows a debtor to file on behalf of a creditor when that creditor fails to file a proof of claim. The IRS correctly points out that Federal Rule of Bankruptcy Procedure 3006 allows a creditor to withdraw a claim by filing a notice of withdrawal. Although Rule 3004 allows a Debtor to file a claim on behalf of a creditor, there is no corresponding provision in Rule 3006 which would allow the Debtor to withdraw that claim once it has been filed.
The Court does not believe that the IRS position is correct insofar as the Federal Rules of Bankruptcy Procedure are concerned. It is clear from the last sentence of Rule 3004 that in order for the proof of claim filed by the creditor to supersede the proof filed on the creditor’s behalf by the debtor, the creditor’s proof of claim must be filed “pursuant to Rule 3002” which clearly requires the proof of claim to be filed within 90 days of the first date set for the first meeting of creditors. Therefore, the IRS claim in this case could not supersede the one filed on its behalf by the Debtors regardless of whether the earlier claim was withdrawn or not.
Fortunately for the IRS, it is on much stronger ground with its alternate argument. The IRS asserts that a late-filed claim need not be disallowed under § 502. Section 502 sets out eight specific grounds for disallowing claims. Tardy or late filing is not one of them. Consequently, lateness is not a ground for disallowance under section 502 of the Code. In re Hausladen, 146 B.R. *420557, 559 (Bkrtcy.D.Minn.1992).1
Since the Debtors offered no evidence other than the fact of late filing to support its contention that the IRS claim should be disallowed and since 11 U.S.C. § 502, as it existed at the time this case was filed, did not require disallowing late filed claims, the Court has no basis on which to disallow the claim of the Internal Revenue Service.
ORDERED that the Objection is hereby OVERRULED. It is further
ORDERED that the IRS Claim is hereby ALLOWED.
. This line of authority has been overruled by The Bankruptcy Reform Act of 1994. The Bankruptcy Reform Act of 1994 added section 502(b)(9), which disallows late-filed claims. However, The Bankruptcy Reform Act of 1994 only applies to cases filed on or after October, 22, 1994. Debtor filed on October 5, 1994. Therefore, The Bankruptcy Reform Act of 1994 does not apply and Hausladen is good law in this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492325/ | *545MEMORANDUM OF DECISION ON MOTION TO AVOID JUDICIAL LIEN
ALBERT S. DABROWSKI, Bankruptcy Judge.
This Memorandum of Decision is a companion to a Memorandum of Decision and Order on Objection to Claims of Exemption (hereafter referred to as the “Exemption Opinion”) also entered this day. In the Exemption Opinion this Court determined the extent of the Debtors’ entitlement to a homestead exemption pursuant to C.G.S. § 52-352b(t). This Memorandum of Decision undertakes the analytically distinct exercise of determining whether the Debtors may avoid the lien of a creditor whose claim arose prior to October 1,1993.
I. JURISDICTION
The United States District Court for the District of Connecticut has jurisdiction over the instant matter by virtue of 28 U.S.C. § 1334(b); and this Court derives its authority to hear and determine the matter on reference from the District Court pursuant to 28 U.S.C. § 157(a), (b)(1). This is a “core proceeding” pursuant to 28 U.S.C. § 157(b)(2)(0), inter alia.
II. BACKGROUND
On November 29, 1993, the Debtors commenced the instant bankruptcy case through the filing in this Court of a joint voluntary petition pursuant to 11 U.S.C. § 302(a). Relief on said petition was simultaneously ordered by this Court. Details concerning the Debtors’ Schedules and Statements are set out at length in Section II of the Exemption Opinion 1 and all facts set out in that Opinion are incorporated herein.
On July 29, 1994, the Debtors filed their “Motion to Avoid Judicial Lien Impairing Exemption”. The Motion seeks to avoid a lien purportedly held by G & L Excavating, Inc. (hereafter referred to as the “Respondent”) on the Residence. In support thereof the Motion alleges the following facts, which are not contested in the context of this matter. On July 9, 1993, the Respondent obtained a prejudgment attachment (hereafter referred to as the “Attachment”) on the Residence in the amount of $15,000.00 through the recording of a duly authorized Certificate of Attachment. The value of the Residence is $180,000.00, and is encumbered by Respondent’s $15,000.00 attachment and two prior mortgages in favor of Naugatuck Savings Bank which secure claims totalling $137,-819.12.
As noted in the Exemption Opinion, the Debtors have most recently claimed an exemption in the Residence pursuant to C.G.S. § 52-352b(t) in the amount of $42,180.88— their perceived equity in the Residence over and above the mortgage interests of Nauga-tuck Savings Bank. The Debtors claim that the Attachment is a judicial lien that impairs their claimed homestead exemption in the Residence, and consequently, they are entitled to avoid the fixing of that lien pursuant to Section 522(f) of the Bankruptcy Code. The Respondent argues that avoidance of its lien is not available to the Debtors because, inter alia, they are not entitled to claim a homestead exemption pursuant to C.G.S. § 52-352b(t) as against its claim.
III.DISCUSSION
‘ A debtor’s ability to avoid the fixing of a judicial lien springs from the provisions of Section 522(f) of the Bankruptcy Code, which provided, in relevant part, that
(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 lien....
11 U.S.C. § 522(f) (1993) (emphasis supplied).
It is undisputed that the Attachment is a “judicial lien” within the meaning of Section 522(f). See 11 U.S.C. § 101(36). It is also undisputed that if the Debtors “would have been entitled” to an exemption under C.G.S. § 52-352b(t), then the Attachment impairs *546that exemption entitlement. Thus the pivotal question posed in this Section 522(f) matter is whether the Debtors “would have been entitled” to an exemption under C.G.S. § 52-352b(t).
The Court is convinced that this question is controlled and ultimately resolved by its decision sustaining the Respondent’s objection to exemption as set out in the Exemption Opinion. Nonetheless, the Court provides this Memorandum of Decision to address directly the implications of Owen v. Owen, 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), an authority which arguably is germane only in a lien avoidance context. Then Chief Judge Robert L. Krechevsky’s opinion in Morzella noted in a footnote that the pure exemption objection issues involved in that case did not “involve any of the issues addressed by the Supreme Court in Owen_” In re Morzella, 111 B.R. 485, 489 n. 4 (Bankr.D.Conn.1994). While Chief Judge Alan H.W. Shiff discussed Owen at length in his opinion in In re Duda, 182 B.R. 662, 670-71 (Bankr.D.Conn.1995), he did so only to dispose of the debtors’ misplaced argument that Owen somehow compelled the provision of the homestead exemption, even in the absence of a hen avoidance contest. Id.
Owen is a pure hen avoidance case decided under Section 522(f). A shallow reading of Owen could lead one to conclude that hens can be avoided even when the subject exemption claim has been denied as against the hen creditor’s claim, as in the instant case. In fact, when one follows Owen s analytical process precisely, it becomes clear that hen avoidance is inappropriate 'under the facts of the instant case. In this regard, this Court cites with favor the well-reasoned discussion contained within Chief Judge Shiffs Opinion in Duda, to wit:
... Owen directed bankruptcy courts considering hen avoidance proceedings to “ask first whether avoiding the hen would entitle the debtor to an exemption, and if it would, then avoid and recover the hen.” [Owen, 500 U.S.] at 312-13, 111 S.Ct. at 1837.
* * * * * *
... The first step under the Owen analysis is to determine whether, ignoring the particular hen in question, the debtor is entitled to an exemption, [citations omitted]. In Owen, had the judicial hen in question never existed, the debtor would have been entitled to claim the full homestead exemption. An attribute of the hen, i.e. that it attached before the property acquired homestead status, was the basis for the creditor’s argument that it was not subject to avoidance.
By contrast, in these cases are no circumstances under which the debtors would have been entitled to claim a $75,000 homestead exemption because state law defined the exemption so that it was not available to these debtors on the petition date as against pre-effective date claims. Because the Act is by its terms inapplicable to unsecured claims that predate its effective date, the unavailability of the exemption does not depend upon the existence of a particular judicial hen. [citation omitted].
Duda, 182 B.R. at 670-71.
Although the foregoing analysis of Chief Judge Shiff was expheitly addressed to the impact of the claimed homestead exemption upon the unsecured claims that were at issue in the cases before him, the analysis is equally dispositive as to the secured claim at issue in the instant case. Simply put, in the present case, Owen’s pivotal question — “whether avoiding the hen would entitle the debtor to an exemption” — must be answered in the negative. Avoidance of the Attachment would not entitle the Debtors to a homestead exemption under C.G.S. § 52-352b(t), since even if the Attachment were avoided, the homestead exemption is unavailable as against creditor claims, such as the Respondent’s, which arose prior to October 1, 1993, as this and other courts of Connecticut jurisdiction have unanimously held.
IV. CONCLUSION
For the foregoing reasons, the Debtors’ Motion to Avoid Lien Impairing Exemption *547shall be DENIED.2
. Familiarity with the Exemption Opinion is assumed; and all defined terms therein cany the same meaning if and when used in this Memorandum of Decision.
. Given the nature of the Court’s disposition of the instant matter, it is unnecessary for the Court to address the Respondent’s alternative arguments, to wit: (1) that the Debtors were estopped or otherwise barred from changing their exemption scheme election from federal to State; and (2) that the Debtors are barred from bringing the instant motion by virtue of this Court’s denial for failure to prosecute of a previous lien avoidance motion premised upon a claim of homestead exemption under the federal exemption scheme. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492326/ | MEMORANDUM OF DECISION ON MOTION FOR RECONSIDERATION
ALBERT S. DABROWSKI, Bankruptcy Judge.
I.JURISDICTION
The above-captioned matter is before this Court for decision. The United States District Court for the District of Connecticut has jurisdiction over the instant matter by virtue of 28 U.S.C. § 1334(b); and this Court derives its authority to hear and determine the matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1). This is a “core proceeding” pursuant to 28 U.S.C. §§ 157(b)(2)(Z).
II. BACKGROUND
On October 25,1995, this Court entered an Order on Cross Motions for Summary Judgment (hereinafter, the “Order”) and issued a Memorandum of Decision in connection therewith (hereinafter, the “Opinion”).1 The Order denied both Plaintiffs and Defendant’s motions for summary judgment.2 On November 6,1995, Plaintiff Federal Trade Commission (hereinafter, “FTC”) filed with this Court the instant Motion for Extension of Time to File Notice of Appeal and Motion for Reconsideration (hereinafter, the “Motion for Reconsideration”). After due notice the Court convened a telephonic hearing on the Motion for Reconsideration on November 21, 1995, at which time the parties presented their respective arguments. After considering such arguments and the entire record of this ease, the Court makes the following observations and determinations.3
III. DISCUSSION
The Motion for Reconsideration is somewhat equivocal as to the basis upon which FTC seeks to have this Court reconsider its Opinion. On one hand, that motion could be read to argue that this Court misapplied the doctrine of collateral estoppel. More clearly though, it argues that principles other than collateral estoppel should have been utilized by this Court in reaching a determination. Motion for Reconsideration, p. 3 (‘We respectfully submit that this Court’s holding ... confuses the issue of ‘collateral estoppel’ with the question of finality and validity of judgments.”). At hearing FTC clarified that it did not believe that the Court misapplied the doctrine of collateral estoppel, but rather, should have given preclusive effect to the District Court Judgment under principles of “finality and validity of judgments”. FTC has never articulated the precise nature and scope of those principles of “finality and validity of judgments” which it contends sup*717plant the doctrine of collateral estoppel in the present context, and it has cited no case law or other authority in direct support thereof.4
Even if a principle other than collateral estoppel dictates a proper outcome in this case, at this stage of the proceedings an argument to that effect is at best untimely, and at worst disingenuous, since FTC’s Motion for Summary Judgment sought judgment solely upon grounds of collateral estop-pel. Motion for Summary Judgment, p. 2 (“This motion is made because there is no genuine issue as to any material facts in this case. The judgment, including civil penalties, that was imposed upon Wright in the district court action is entitled to collateral estoppel effect ... ”). Motions for reconsideration should not serve as vehicles to present a matter under a new legal theory which could or should have been argued prior to the entry of an order. See, e.g., Anderson v. Flexel, Inc., 47 F.3d 243, 247 (7th Cir.1995). A rule or practice to the contrary would produce a procedural folly, and the Court would be inundated by dissatisfied litigants who in hindsight, and with the benefit of the Court’s thought processes, thought better of their previous pleadings and/or arguments. Therefore, the Motion for Reconsideration does not present an appropriate ground for reconsideration, and must be denied. Nonetheless, because this Court has considered at length the issues raised by FTC, it will briefly discuss the possible implications of those questions in a case such as that at bar.
Although FTC has not identified a specific principle of “validity and finality of judgments” which provides a legal basis for the preclusion of a defense on the merits to the present dischargeability action, the Court’s independent research and analysis indicates that the principle of res judicata may operate in the limited context of Section 523(a)(7) to require summary judgment in favor of a governmental unit which obtained a prior non-bankruptcy monetary judgment for civil penalties, despite the fact that such prior judgment was by default.
Under principles of res judicata, “a final judgment on the merits bars further claims by parties or their privies based on the same cause of action.” Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979) (emphasis supplied). In the present dischargeability context the case of Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) is instructive. In Felsen the Supreme Court formulated the doctrine of res judicata as follows: “Res judicata prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.” Id., 442 U.S. at 131, 99 S.Ct. at 2209 (emphasis supplied). Thus res judicata, unlike collateral estoppel, can preclude litigation of defenses not actually litigated in connection with a prior judgment. Accordingly, if the present Dischargeability Action involves the same claim or cause of action as the District Court Action, principles of res judicata would compel summary judgment in favor of FTC.
Ruling in a bankruptcy context, the Second Circuit Court of Appeals has held that “the test for deciding sameness of claims requires that the same transaction, evidence, and factual issues be involved ...”, Sure-Snap Corp. v. State Street Bank and Trust Co., 948 F.2d 869, 875 (1991), and/or that the second action “impair or destroy rights or interests established by the judgment entered in the first action.” Id. (quoting Herendeen v. Champion International Corp., 525 F.2d 130, 133 (2d. Cir.1975)).
Under Second Circuit standards a forceful argument could be stated that the Dischargeability Action involves the “same claim” as that determined by the prior District Court Judgment. Since all of the elements of a Section 523(a)(7) dischargeability claim were necessarily determined in the pri- or District Court Action, it seems clear that the “same transaction, evidence, and factual *718issues” are involved.5 Also, because the result of dischargeability litigation determines the continued enforceability of the prior non-bankruptcy judgment, a judgment of dis-chargeability holds the prospect of “impair[ing] or destroy[ing] rights or interests established by the [non-bankruptcy] judgment.”
Therefore, because the Dischargeability Action can be viewed as the “same claim” as the District Court Action, the Defendant would appear to be precluded under principles of res judicata from presently offering any defenses which were available to him in the District Court Action.6 Nonetheless, as stated above, none of these considerations affect a determination of the matter sub judi-ce since FTC failed to raise them in a timely manner, if at all.
IV. CONCLUSION
Because FTC seeks to have this Court reconsider the Opinion and Order on the basis of a non-specific legal theory not identified or articulated in its summary judgment pleadings or arguments, its Motion to Reconsider will be denied by separate order.
. The Opinion and Order are reported at 187 B.R. 826.
. Familiarity with the Order and Opinion is assumed; and all defined terms therein carry the same meaning if and when used in this Memorandum of Decision.
.At the conclusion of the hearing on the instant matter the Court announced its intention to treat the Motion for Reconsideration as a motion for reconsideration that tolls the time for filing a Notice of Appeal of the Order pursuant to Fed. . R.Bank.P. 8002(b).
. Nonetheless, the Court's independent consideration of, and reflection upon, the issues presented has raised an alternative basis upon which otherwise disputed issues of material fact might well be precluded in a case of this nature. See discussion at p. 717, infra.
. Section 523(a)(7) is unique. Essentially all a governmental unit must prove is the existence of a judgment debt rendered in its favor in a prior forum. By contrast, grounds for non-discharge-ability under other subsections of Section 523(a) require proof of elements additional to, or different from, those involved in the prior non-bankruptcy judgment. Compare 11 U.S.C. §§ 523(a)(2) and (7).
. If one concludes that a Section 523(a)(7) dis-chargeability action involves the “same claim” as a prior non-bankruptcy action which produced a monetary judgment for civil penalties, an interesting question comes into focus which must be surmounted if summary judgment is to be granted. Namely, if a Section 523(a)(7) dischargeability action is sufficiently the "same” as a previous non-bankruptcy action so as to preclude defenses by a defendant/debtor, why then is a plain-tifficreditor not equally precluded from asserting that claim? This apparent paradox appears to be explained and justified by reference to the Restatement (Second) of Judgments (1980) (hereinafter referred to as the “Restatement”).
Section 18 of the Restatement provides in full as follows:
When a valid and final personal judgment is rendered in favor of the plaintiff:
(1) The plaintiff cannot thereafter maintain an action on the original claim or any part thereof, although he may he able to maintain an action upon the judgment; and
(2) In an action upon the judgment, the defendant cannot avail himself of defenses he might have interposed, or did interpose, in the first action.
Restatement (Second) of Judgments § 18 (1980) (emphasis supplied). Thus under Restatement concepts, a Section 523(a)(7) dischargeability action can be pursued despite the fact that it is effectively the "same claim" as the prior non-bankruptcy action, provided that such discharge-ability action is an "action upon the judgment”. Comment c to Section 18 of the Restatement clarifies that res judicata principles are not violated by either (1) proceedings to execute upon a prior judgment or (2) an action upon the judgment. The Comment observes with regard to the latter that—
[ojrdinarily no useful purposé is served by bringing an action in the same state upon the judgment instead of executing upon it, but if the period for executing upon a judgment has run or the period of the statute of limitations applicable to the judgment has almost run, the plaintiff can by appropriate proceedings revive the executability of the judgment or bring an action upon the judgment and obtain a new judgment upon which the limitations period will run again.
These Restatement concepts are consistent with relevant federal judicial authority. E.g., United States v. Hannon, 728 F.2d 142, 145 (2d Cir.1984) (citing cases). Although no judicial or other authority identifies a bankruptcy dis-chargeability action as an "action upon" a prior non-bankruptcy judgment, this Court believes that such a characterization is appropriate. A creditor's prosecution of an action seeking a determination of the non-dischargeability of a prior monetary judgment is substantially similar to a classic "action upon a judgment”, in that both seek to preserve the creditor’s abilily to execute upon the prior judgment. Cf. Felsen, 442 U.S. at 133-34, 99 S.Ct. at 2210-11 (observing that a defendant’s bankruptcy upsets the repose that would justify treating a prior judgment as final, and thus it would undermine confidence in judgments to allow res judicata to prevent plaintiff from meeting defendant’s "new initiative”). Consequently, it appears that in the context of a Section 523(a)(7) dischargeability action, principles of res judicata can simultaneously permit a creditor to bring such an action and preclude defenses offered by a defendant defaulted in the prior non-bankruptcy action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492328/ | MEMORANDUM OPINION
STEPHEN S. MITCHELL, Bankruptcy . Judge.
A hearing was held on March 25, 1996, on the motion filed by Principal Mutual Life Insurance Company (“Principal Mutual”) on February 13, 1996, for relief from the automatic stay in the case of Lakeside Associates, L.P. (“Lakeside” or “the debtor”) in order to foreclose under a deed of trust or, in the alternative, for dismissal of the case. At the conclusion of the hearing the court made findings of fact and conclusions of law orally on the record and ruled that relief from the stay would be granted. The purpose of this memorandum opinion is to explicate more fully the basis for the court’s ruling and to modify in certain respects the conclusions of law stated orally on the record, although the modifications do not change the court’s ruling.
Facts and Procedural Background
The debtor, Lakeside Associates, L.P., is a Virginia limited partnership whose sole asset consists of a 60,000 square foot office budding known as the Lakeside Building, located in the Countryside Shopping Center complex, in Sterling, Loudoun County, Virginia. The general partners are Robert and Marilyn *800DeLuca (“the DeLucas”), who are now also the only limited partners.1 Principal Mutual holds a first deed of trust and assignment of rents to secure a loan made on February 17, 1989, in the amount of $7,000,000. The loan matured in February, 1994, at which time the debtor was unable to obtain refinancing or to pay the loan off. In July, 1994, Principal Mutual revoked the debtor’s license to collect rents and instructed the tenants to pay then-rent directly to Principal Mutual. Since that date Principal Mutual has collected all or essentially all of the rents and has directly paid the operating expenses, although it declined to pay a number of expenses that the debtor requested be paid, including the Lou-doun Country business and professional license tax imposed on business landlords and the management fees and some of the direct labor costs of American Property Services, Inc. (“APS”),2 the property manager. The DeLucas, whose real estate portfolio included numerous distressed projects, filed a chapter 11 petition for themselves in this court on May 5, 1995. Within a short period before and after that date, they also caused chapter 11 petitions to be filed in this court by thirteen of the real estate partnerships or limited liability companies they owned or controlled (“the DeLuca entities”), including Lakeside, whose petition was filed on May 16,1995.3
Lakeside remains, at least technically, in possession of its estate as debtor in possession, although Principal Mutual has continued since the filing date to collect the rents and to directly pay the operating expenses. The debtor has proposed, with several variations, what is styled a “joint” plan of reorganization with the DeLucas and nine of the other DeLuca entities.4 The most recent version of this plan — entitled the Fifth Amended Joint Plan of Reorganization — was filed in open court on March 25, 1996, the day of the relief from stay hearing.5
For the purpose of relief from stay and confirmation, the debtor and Principal Mutual stipulated that the fair market value of the Lakeside Building was $6.9 million. The debtor further stipulated that Principal Mutual’s allowed claim was at least in that amount, and that the debtor had no equity in the property.
Conclusions of Law and Discussion
This court has jurisdiction over this controversy under 28 U.S.C. §§ 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. This is a “core” proceeding under 28 U.S.C. § 157(b)(2)(G).
Under § 362(a), Bankruptcy Code, the filing of a bankruptcy petition creates an *801automatic stay of, among other actions, “any act to ... enforce any lien against property of the estate.” Under § 362(d), the court, “on request of a party in interest and after notice and a hearing,” may grant relief from the 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 equity in such property; and
(B) such property is not necessary to an effective reorganization.
An “effective” reorganization requires “a reasonable possibility of a successful reorganization within a reasonable time.” United Savings Assn. v. Timbers of Inwood Forest Assocs. Ltd., 484 U.S. 365, 376, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988). See, Sun Valley Newspapers, Inc. v. Sun World Corp. (In re Sun Valley Newspapers, Inc.), 171 B.R. 71 (9th Cir. BAP 1994) (relief from stay properly granted where debtor unable to propose a confirmable plan). The party seeking relief from the stay has the burden of proof on lack of equity; the debtor has the burden of proof on all other issues, including whether the property is necessary to an effective reorganization. § 362(g), Bankruptcy Code.
Since the debtor concedes it has no equity in the Lakeside Budding, the issue resolves to whether the property is necessary to an effective reorganization. Certainly, since the budding is the debtor’s sole asset, there is no apparent way the debtor could reorganize without the property. Accordingly, the property is clearly necessary to a reorganization. The question remains, however, whether any reorganization is possible within a reasonable period of time under the facts of this case.
To answer this question, the court is required to inquire into the potential con-firmabddy of the debtor’s proposed plan or any likely amendment to it. Principal Mutual asserts that neither the Fourth nor the Fifth Amended Joint Plan of Reorganization can be confirmed because the debtor, as an objective matter, cannot obtain the acceptance of a non-insider impaired accepting class. The debtor rejoins that the only reason it is unable to obtain such acceptance is that Principal Mutual has bought up a sufficient number of the unsecured claims to block acceptance by the class of unsecured creditors. The debtor, accordingly, has moved the court under § 1126(e), Bankruptcy Code, to designate the rejecting votes of the claims purchased by Principal Mutual as not having been cast in good faith. Alternatively, the debtor contends that Principal Mutual is an “insider,” and that for that reason the claims held by it must be disregarded in determining whether there is an impaired accepting class. Under either theory, if the unsecured claims voted by Principal Mutual are not counted, the debtor has sufficient accepting votes from among the class of general unsecured creditors so as to have the acceptance of that class, thereby positioning the debtor to seek confirmation of the plan under the “cramdown” provisions of § 1129(b). Finally, the debtor contends that even if the unsecured claims voted by Principal Mutual are counted, the plan’s acceptance by the priority tax claim class constitutes the required acceptance by a non-insider impaired class. Principal Mutual responds by asserting that the proposed treatment of the priority tax claim class constitutes “artificial” impairment.
A. The debtor’s proposed plan
The Fourth Amended Joint Plan of Reorganization,6 which until the morning of the hearing was the plan before the court, provided the following treatment of claims and interests:
*802Class 1 — Administrative Claims. These are to be paid from “funds first available” at or after confirmation.
Class 2 — Priority Claims. The sole claim in this class is a $2,200 claim by Loudoun County for business license tax. The claims in this class are to be paid in full, with interest at 7%, either at confirmation, “to the extent funds are available,” or, in any event, within 5 years of confirmation. This class has voted to accept the plan. Class 3 — Secured Claim of Principal Mutual. Principal Mutual would retain its lien, but the debtor’s license to collect rents would be restored. All arrearages and accumulated interest existing as of 30 days after confirmation would be capitalized and added to the outstanding principal. The resulting new principal balance would be paid in monthly installments beginning 60 days after confirmation, with interest calculated at 8% and amortized over 30 years, but with the entire balance due and payable in seven years. This class is impaired, and Principal Mutual has voted to reject it.
Class 4 — Tenant security deposits. This class would be paid in full in the ordinary course of business and is not impaired. Class 5 — General unsecured creditors. This class, which consists of approximately $27,778 in unpaid vendor and utility bills, is to be paid in full from cash flow following payment of operating expenses, administrative claims, debt service on the Principal Mutual claim, and the priority tax claim. The plan provides no payment schedule, but the disclosure statement estimates the claims will be paid within 12 months. This class is impaired. If the votes of four claims totalling $17,003 purchased by Principal Mutual are counted, this class has rejected the plan.
Class 6 — “Related Party” unsecured claims. No distribution will be made on account of such claims, and the claims will be treated as a contribution to capital and the claimant’s capital account adjusted accordingly.
Class 7 — Equity interest holders. These consist of the general and limited partners. The partners will retain their partnership interests and will be entitled to distributions of available cash flow after operating expenses, debt service, and other claims are paid.
In addition, Crestar Bank, which is not a creditor in Lakeside, but is classified as a Class 3(b) creditor in the companion case of Countryside Commercial and Professional Center, L.P., would have its existing lien in that case “extended” as a second deed of trust against the Lakeside Building. .
The Fifth Amended Joint Plan of Reorganization, filed the morning of the relief from stay hearing, makes one minor and one major change. The minor change involves Class 2 and the deletion of the language referring to payment, “to the extent funds are available,” at confirmation, so that the plan now simply provides for payment within five years of confirmation. The major change affects the treatment of Principal Mutual’s secured claim. Principal Mutual also holds a first deed of trust against a neighboring parcel of real estate owned by one of the other DeLuca entities, Countryside Commercial and Professional Center, L.P. Under the new plan, the amounts due on the Lakeside note and the amounts due on the Countryside Commercial note, including all arrearages and accrued interest as of thirty days after confirmation, would be combined into a single obligation, to be repaid in monthly installments beginning 60 days after confirmation. Payments would be amortized over thirty years at an interest rate “to be determined by the court,” with the obligation to be paid in full at the end of seven years. The existing deeds of trust against the Lakeside and Countryside Commercial properties would be modified “to provide for cross-col-lateralization of the re-stated and combined loan balance.” 7 The DeLucas would make a *803“new value” contribution of $150,000 to the two partnerships, to be used for administrative expenses and tenant fit-out.
B. Whether Principal Mutual is an “insider”
One of the requirements for confirmation, even in a “cramdown” under § 1129(b), Bankruptcy Code, is that
If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider.
§ 1129(a)(10) (emphasis added). The debtor asserts that Principal Mutual, because of its actual control over the affairs of the debtor via its collection of the rents, is an “insider” and that its rejecting votes therefore cannot be counted in determining whether the debt- or has obtained the acceptance of at least one impaired class. This argument, however, runs aground on the plain language of the statute, which in literal terms requires the court to disregard only an “acceptance ” by an insider. The unsecured claims voted by Principal Mutual have rejected, not accepted, the plan. Therefore, even if Principal Mutual were an insider, § 1129(a)(10), Bankruptcy Code, does not require that its rejecting votes be disregarded.
But even if by some stretch of statutory construction the term “acceptance” were somehow construed as simply meaning “vote” — whether in favor of or against the plan — the evidence (both in the record and proffered) simply does not establish that Principal Mutual is an insider of the debtor. With respect to a debtor that is a partnership, § 101(31)(C), Bankruptcy Code, defines “insider” to include
(i) general partner in the debtor;
(ii) relative of a general partner in, general partner of, or person in control of the debtor;
(in) partnership in which the debtor is a general partner;
(iv) general partner of the debtor; or
(v) person in control of the debtor [.]
(emphasis added). In order to qualify under the rubric of being “in control of the debtor”, the alleged insider “must exercise sufficient authority over the debtor so as to unqualifi-ably dictate corporate policy and the disposition of corporate assets.” Butler v. David Shaw, Inc., 72 F.3d 437, 443 (4th Cir.1996). The debtor points to the fact that Principal Mutual has been collecting all the rents and, since the debtor has no other source of income, effectively controlling which expenses are paid. The debtor has proffered testimony that Principal Mutual refused to pay a number of valid and necessary operating expenses and would not agree to the debtor entering into advantageous leases with a number of new tenants which would have required the use of Principal Mutual’s cash collateral to construct the tenant improvements. As a practical matter, the debtor argues, Principal Mutual has a financial strangle-hold on the debtor and is therefore clearly a “person in control” of the debtor.
There is no question that Principal Mutual, whose loan matured pre-petition, has been collecting all the rents from the property under an assignment of rents that has not been challenged in this case. That, of course, does not prevent the debtor’s partners from contributing additional cash to the debtor to be used to pay for tenant improvements or other capital expenses. APS has continued to perform the actual property management functions during the pendency of the chapter 11 case. If there was a dispute that essential operating expenses were not being paid, the debtor could have sought relief by bringing an appropriate motion before this court. No such motion was brought, and the debtor, although bringing a *804motion for use of cash collateral, ultimately never pressed it. In any event,
In order for a creditor to “control” a debt- or so ás to be considered an “insider,” the creditor must be so powerful that the debt- or becomes a mere instrument or agent of the creditor, unable to make independent policy and personnel decisions. The mere exercise by a lender of financial control over a debtor incident to the debtor-creditor relationship does not make the lender an insider.
LW-SP2, L.P. v. Krisch Realty Assocs., L.P. (In re Krisch Realty Assocs., L.P.), 174 B.R. 914, 920 (Bankr.W.D.Va.1994) (emphasis added; internal citations omitted).8 See also, Practical Inv. Corp. v. Relien (In re Practical Inv. Corp.), 95 B.R. 935 (Bankr.E.D.Va.1989); Gray v. Giant Wholesale Corp., 758 F.2d 1000 (4th Cir.1985). Here, the only control exercised by Principal Mutual was financial control incident to the debtor-creditor relationship. That is simply insufficient to make Principal Mutual an “insider” of the debtor, and on that basis to disqualify its votes rejecting the debtor’s plan.
C. Whether the unsecured claims purchased by Principal Mutual were voted in bad faith
Even though Principal Mutual is not an “insider” of the debtor, there remains the question of whether its rejecting votes should be disregarded as not having been cast in good faith. As noted above, the debtor filed a motion under § 1126(e), Bankruptcy Code, to disqualify the unsecured claims voted by Principal Mutual.9 Here, Principal Mutual candidly admits that it set out to purchase claims with the specific purpose of blocking acceptance of the debtor’s plan. Principal Mutual’s counsel contacted every unsecured creditor and offered to purchase the creditor’s claim for 100 cents on the dollar. A number of the creditors declined to sell, but Principal Mutual was able to purchase more than one-third in dollar amount of the unsecured claims, sufficient to block acceptance by that class, since acceptance requires that at least two-thirds in dollar amount of the voting claims vote to accept the plan. § 1126(c), Bankruptcy Code.10
The potential for mischief from the buying up of claims in the chapter 11 context is obvious. As one court has vividly expressed it,
Sanctioning claims acquisition for purposes of blocking an opponent’s plan would ... ignite a scramble for votes conducted almost entirely outside the [Bankruptcy] Code’s carefully developed structure (plan, disclosure statement, equal treatment, regulated solicitation, court-supervised confirmation), leaving creditors to select not the best plan but the best they might be able to individually negotiate. Creditors would be paid, no doubt, but not equally, and not on the basis of accurate information. Such a wild free-for-all may appeal to the entrepreneurial capitalist, but it also issues a gilt-edged invitation to fraudulent and corrupt practices.
In re Applegate Property, Ltd., 133 B.R. 827, 836 (Bankr.W.D.Tex.1991). In Applegate, the debtor and a creditor proposed competing plans. An insider of the debtor purchased a majority of the unsecured claims and sought to vote those claims in favor of the debtor’s plan and against the creditor’s plan. The court, although conceding that “[u]nder the proper circumstances, the purchasing of claims may well be a legitimate tactic,” Id. at 836, n. 7, found under the facts *805before it that the insider’s purchase of a blocking interest “was an obstructionist tactic done in contemplation of gaining an unfair advantage over other creditors,” Id. at 835, and on that basis the court disqualified the rejecting votes. Although in Applegate it was the debtor’s purchase of claims that was in issue, courts have reached the same result in the context of claims purchases by other parties. See, In re Allegheny Int'l, Inc., 118 B.R. 282 (Bankr.W.D.Pa.1990) (non-creditor with designs to take over company acquired claims, proposed plan, and then acquired more claims to block confirmation of debtor’s plan).
The Fourth Circuit, in construing § 1126(e), has explained,
When a plan of reorganization is submitted to the creditors of a bankrupt for approval or disapproval, votes that are not cast in “good faith” are not to be counted.... It is well settled, however, that good faith in casting a vote does not require of the creditor a selfless disinterest. Each creditor is expected to cast his vote in accordance with his perception of his own self-interest, but he may not act with an ulteri- or or coercive purpose.
Insinger Machine Co. v. Federal Support Co. (In re Federal Support Company), 859 F.2d 17, 19 (4th Cir.1988). Examples of bad faith include votes cast “with a purpose of coercing payment ... of more ... than [the creditor] might reasonably perceive as his fair share of the debtor’s estate,” Id., and votes cast out of “pure malice, ... blackmail ... [or] to destroy an enterprise in order to advance the interests of a competing business.” Id. In Federal Support Co., the bankruptcy court had held that the votes of three creditors voting against the plan had not been cast in good faith. The three creditors had joined in filing the involuntary petition that brought the debtor into bankruptcy court in the first instance and one of the creditors was the target of an antitrust suit brought by the debtor. The Fourth Circuit held that all three of the rejecting votes should have been counted. With respect specifically to the creditor (Insinger) that was the defendant in the antitrust action brought by the debtor, the court observed,
... Insinger must have thought that disapproval of the plan of reorganization coincided with its self-interest_ One’s self-interest, however, does not provide an ulterior motive. Insinger was entitled to east its vote in accordance with its perception of its self-interest, and nothing suggests that Insinger was motivated by any other interest or purpose.
Id. at 20.
To be sure, Federal Support Co. involved creditors voting their own claims, not claims they had purchased to secure an advantage in the confirmation process. Here, however, Principal Mutual is by far the largest creditor and the one with the greatest financial stake in the reorganization. Its loan to the debtor matured pre-petition, but the debtor was unable to pay it. The debtor’s proposed plan would make Principal Mutual an involuntary lender to the debtor for the next seven years. Principal Mutual obviously does not want to do so and obviously does not feel it to be in its financial self-interest to continue as the debtor’s lender. There is not the slightest suggestion in the record or the proffers that Principal Mutual is motivated by malice, blackmail, or any design to further the interest of a competing enterprise — or indeed, any interest other than to be able to enforce its legitimate contractual rights with respect to a loan that has matured. Principal Mutual paid 100 cents on the dollar for the claims it purchased, and it extended the purchase offer to every unsecured creditor. The amount it paid is the same (100%) as the amount proposed by the debtor’s Fourth and Fifth amended plans. While the concerns expressed in Applegate remain valid ones, the court finds that under the standard expressed in Federal Support Co., no basis exists in this case to disqualify the unsecured claims purchased by Principal Mutual as having been voted in bad faith.
D. Whether the priority tax claim class is impaired
The debtor takes the position finally that even if Principal Mutual’s rejecting votes are counted with respect to Class 5, there is one other non-insider impaired class that has accepted the plan, namely Class 2. *806That class, as noted above, consists of a single $2,200 claim owed to Loudoun County, Virginia, for business license tax. The claim has been purchased by a friend of the DeLu-cas and has voted to accept the plan. Under the Fourth amended plan, now withdrawn, the claim was to be paid, together with 7% interest, either at confirmation (if funds were available), otherwise within five years. Under the Fifth amended plan, the provision for payment at confirmation was deleted, and the plan simply proposes payment with interest at 7% over a period not exceeding five years, although no particular payment schedule is specified.
Principal Mutual asserts, however, that any impairment of the Class 2 claim (by paying it over time rather than in full at confirmation) is artificial. See, In re North Washington Center Ltd. Partnership, 165 B.R. 805 (Bankr.D.Md.1994) (payment of trade creditors over time when debtor had funds to pay them in full at confirmation was artificial impairment); In re Investors Florida Aggressive Growth Fund, Ltd., 168 B.R. 760 (Bankr.N.D.Fla.1994) (debtor had sufficient unencumbered funds to pay trade creditors immediately); Windsor on the River Assocs., Ltd v. Balcor Real Estate Finance, Inc. (In re Windsor on the River Assocs., Ltd), 7 F.3d 127 (8th Cir.1993) (By lowering payment to mortgagee, debtor could have paid unsecured creditors in full on confirmation date). Indeed, given the relatively insignificant amount of the claim and the fact that the Fifth amended plan provides for a “new value” contribution by the DeLucas of $150,-000.00,11 it seems highly unlikely that the debtor would be able to demonstrate a valid business reason for paying the Class 2 claim over time rather than in full at confirmation.
However, the court need not reach the issue of artificial impairment, because in any event a class of priority tax claims cannot constitute an impaired accepting class. Travelers Ins. Co. v. Bryson Properties, XVIII (In re Bryson Properties, XVIII), 961 F.2d 496, 501, n. 7 (4th Cir.1992). In Bryson Properties, the court noted that priority tax claims “are not designated as a ‘class’ within the definition of § 1123(a)”12 and that other courts had held, on that basis, that “acceptance of a plan by priority tax claimants is not acceptance by a ‘class’ of impaired claims under § 1129(a)(10) for the purpose of cram down.” Id. The court concluded,
We agree that priority tax claimants, which receive preferential treatment under the Code (see 11 U.S.C. § 1129(a)(9)(C)), are not an impaired class that can accept a plan and bind other truly impaired creditors to a cram down.
Id. Bryson is controlling, and the debtor therefore cannot rely on acceptance by the Class 2 claim as satisfying the requirement of § 1129(a)(10) for acceptance by a non-insider impaired class.
Ruling
This chapter 11 case has been pending for ten months and the debtor does not have a confirmable plan before the court. If the defect in the debtor’s plan were remediable, the court would give the debtor a reasonable opportunity to amend its plan and would not grant immediate relief from the automatic stay. See, In re Krisch Realty Assocs., L.P., supra (although plan violated absolute priority rule, debtor was given 30 days to file amended plan where chapter 11 case had been pending for only eight and one-half months and the secured creditor was already substantially undersecured). But the defect here is one that goes to the very heart of the debtor’s ability to achieve confirmation, namely the lack of sufficient votes (unless Principal Mutual were to change its mind) to obtain acceptance by a non-insider impaired class, which in turn is a prerequisite to confirmation. Since the debtor concedes that it has no equity in the Lakeside Building, and since the debtor is, as an objective matter, *807unable to achieve confirmation over the rejection of Principal Mutual and the votes it controls, there is no “reasonable possibility of a successful reorganization within a reasonable time.” Timbers, supra. Accordingly, the property is not necessary to an effective reorganization, and under § 362(d)(2), Principal Mutual is entitled to relief from the automatic stay in order to enforce its deed of trust.
A separate order will be entered consistent with this opinion.
. When the debtor's chapter 11 petition was filed, Joel T. Broyhill owned a 12% limited partnership interest in the debtor. As a result of a post-petition settlement of various controversies between the DeLucas and Broyhill, Broyhill has transferred his interest to the DeLucas.
. APS is wholly owned by the DeLucas.
. An order for joint administration of the DeLu-cas' case with the cases of the DeLuca entities was entered early in the proceedings before it became apparent that each of the DeLuca entities was separate and distinct in terms of debt structure and assets. While a chapter 11 trustee has been appointed for ten of the DeLuca entities (not including Lakeside), the DeLucas themselves remain in possession of their estate.
. Although entitled a "joint” plan, separate disclosure statements have been prepared in each case and separate confirmation hearings scheduled. So far, the plan has been confirmed in one of the DeLuca entity cases (Baronwood Associates Limited Partnership) and withdrawn in five others.
.The relief from stay hearing was scheduled, at Principal Mutual’s request, to be heard together with the hearing on confirmation of the debtor's Third Amended Joint Plan of Reorganization. After approval of the disclosure statement, the debtor filed a Fourth Amended Joint Plan of Reorganization which, while it effected some modification of the treatment of claims and interests in one of the companion cases (Colonial Associates, L.P.), made no change with respect to Lakeside. The Fifth Amended Joint Plan of Reorganization, filed the morning of the confirmation hearing, however, effected a very substantial change in the proposed treatment of claims and interests in the Lakeside case. Accordingly, the court ruled that preparation and approval of a new disclosure statement would be required. A confirmation hearing was therefore not held. Principal Mutual, however, elected to go forward on the relief from stay.
. With respect to the Fourth amended plan and its predecessors, the adjective "joint” is largely a misnomer. Although the DeLucas rely in their individual case on the expected distributions of cash flow from the reorganized DeLuca entities, the original "joint” plan nevertheless consisted essentially of eleven different plans (that of the DeLucas and ten of the DeLuca entities) in a single document. With respect to Lakeside, however, there was one "joint” feature in that Crestar Bank, a creditor in the individual case and in several of the other DeLuca entity cases, was being given a subordinate lien on the Lakeside Building to secure its claim even though it is not a creditor in the Lakeside case.
. Considerable argument was presented at the hearing as to whether the Fifth amended plan, if confirmed, would result in the substantive consolidation of the Lakeside and Countryside Commercial cases. Although the plan provides for the combining of what are now separate notes into a single recapitalized obligation, as well as for the cross-collateralization of that obligation by the Lakeside and Countryside Commercial properties and for the granting of a second deed *803of trust against the Lakeside Building as further security for Crestar Bank’s claim in Countryside Commercial, it does not otherwise provide for the "consolidation” of the two estates. Each debtor remains liable only for its own unsecured claims, priority claims, and administrative expenses, and there is no provision for treating the future rents and operating expenses as though the properties were owned by a single entity. In any event, for the purpose of confirmation, each case remains distinct. Specifically, the court, in determining whether in each case the debtor had obtained the required acceptances, would consider the votes only of the creditors in that particular case.
. The issue of "insider” status arose in Krisch in the context of the debtor's attempt to separately classify a secured creditor's deficiency claim on the basis that, as an "insider” claim, it could properly be placed in a different class than general unsecured creditors.
. "On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title.”
."A class of claims has accepted a plan if such plan has been accepted by creditors, other than any entity designated under subsection (e) of this section, that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan.”
. The $150,000 is for both Lakeside and Countryside Commercial. The stated purpose for the cash infusion is "to fund payment of administrative expenses and to commence ... capital improvements necessary to new leases....”
. "... a plan shall — (1) designate ... classes of claims, other than claims of a kind specified in section 507(a)(1), 507(a)(2), or 507(a)(7) of this title, and classes of interests.” (emphasis added). Section 507(a)(7) refers to the allowed unsecured claims of governmental units for certain pre-petition taxes. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492329/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Bankruptcy Judge.
In this adversary proceeding, the parties, Edlee Taft Lilly and Louella Lee Lilly (the “Debtors”), and the Internal Revenue Service of the United States (the “Service”) have filed cross-motions for summary judgment.
FACTUAL BACKGROUND
The Service conducted an audit of the Debtors’ income tax return for 1981. The Debtors appealed the Service’s audit determination to the Service’s Office of Appeals. The Debtors were represented in the appeal by Michael Emert. Mr. Lilly participated in the audit process in person. Mrs. Lilly did not attend the hearings and conferences. Instead, she gave Mr. Emert a power of attorney to act on her behalf.
On July 24, 1986, Mr. Emert signed, on behalf of the Debtors, an IRS Form 872-A Special Consent to Extend the Time to Assess Tax. The 872-A form states that “if a notice of deficiency is sent to the taxpayer(s), the time for assessing the tax for the period(s) stated in the notice of deficiency will *887end 60 days after the period during which the making of an assessment was prohibited.”
The Service and the Debtors reached an agreement as to the amount of taxes due in December of 1988. Mr. Emert testified that on December 19,1988, he mailed an unsigned IRS Form 870-AD Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Over-assessment to the Debtors. Neither of the Debtors remembers receiving or signing the 870-AD form sent by Emert.
Mr. Lilly does, however, remember signing an earlier 870-AD in Mr. Hal Palley’s office. Mr. Palley is one of the Service’s audit staff who worked on the Debtors’ 1981 audit. Neither the Service nor the Debtors have been able to locate a copy of the executed 870-AD. Mr. Emert and Mr. Lilly considered this 870-AD a binding agreement.
The Debtors contend they executed a second 870-AD form due to a mathematical error in the first form. This 870-AD form has not been located either.
On March 27, 1989, the Service issued a notice of deficiency to the Debtors. Mr. Emert retained in his files both the notice of deficiency sent to the Debtors and the copy . which was sent to him as the Debtors’ accountant.
On August 7, 1989, the Service formally made assessments for tax penalty and interest against the Debtors for the tax year 1981 in the following amounts:
Tax: $10,602.00
Penalty $21,499.00
Interest $29,537.33
On March 16, 1990, the Debtors filed a voluntary petition for relief under Chapter 7 of Title 11 of the United State Code. The tax penalty assessed for the 1981 tax year was discharged in the bankruptcy. The Debtors filed this action seeking a declaratory judgment that the 1981 taxes assessed and the interest thereon were also discharged in the bankruptcy.
DISCUSSION
Taxes of the kind specified in § 507(a)(7)1 are not discharged in a chapter 7 bankruptcy. 11 U.S.C. § 523(a)(1)(A). Code § 507(a)(7)(A)(ii) provides:
(A) a tax on or measured by income or gross receipts—
....; [or]
(ii) assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition.
11 U.S.C. § 507(a)(7)(A)(ii).
The Service formally assessed the 1981 taxes at issue within the 240 day period. However, the Debtors contend the taxes should be considered “assessed” for purposes of § 507(a)(7)(A)(ii) as of the date they signed the 870-AD form in December of 1988.
The vast majority of those cases considering the issue have held that a tax is “assessed” for purposes of § 507(a)(7)(A)(ii) when the Service enters the assessment pursuant to 26 U.S.C. § 6203. See In re Hartman, 110 B.R. 951, 956 (D.Kan.1990); In re Oldfield, 121 B.R. 249, 252-253 (Bankr.E.D.Ark.1990); In re Shotwell, 120 B.R. 163, 164 (Bankr.D.Or.1990); In re Carter, 74 B.R. 613, 617 (Bankr.E.D.Pa.1987); In re Kostoglou, 74 B.R. 202, 203 (Bankr.N.D.Ohio 1987).
The In re Hartman, decision best states the reason for this rule:
As worded, § 507(a)(7)(A)(ii) does not preclude applying the definition of “assessment” found in the Internal Revenue Code when a federal tax deficiency is involved. This ostensibly “technical” definition provides a readily determinable date of assessment. Courts have assumed, with little dispute, that the assessment date under *888the Internal Revenue Code is the same assessment date under the Bankruptcy Code provision, § 507(a)(7)(A)(ii). [citations omitted]. Even though the term may appear in the Bankruptcy Code, it is specifically used in reference to taxes and its meaning must be a function of that context. Recognizing the difficulty of defining “assessment” so as to encompass all possible tax procedures of federal, state, and local governmental units, Congress employed a common term of tax lexicon and left its peculiar meaning to depend upon the particular tax procedures.
In re Hartman, 110 B.R. at 956.
I agree with the court’s analysis in In re Hartman. Accordingly, I conclude the taxes were assessed within the 120 day period proceeding the filing of the Debtors’ chapter 7 petition.
In the alternative, the Debtors contend the Service should not be allowed to delay assessment without justification. However, the plan language of § 507(a)(7)(A)(ii) does not make any exception for “unjustified” delay on the part on the-Service. Nor is the Service’s ability to delay assessment unlimited. The Service may not assess taxes after the statute of limitations set forth in 26 U.S.C. § 6501 has run. Accordingly, I see no reason to prohibit the Service from relying on timely assessments regardless of whether the Service could have assessed the taxes earlier. See In re Hays, 166 B.R. 946 (Bankr.D.N.M.1994) (where debtors’ 1984 taxes were not assessed until July 1, 1991, the Service was not required under § 507(a)(7)(A)(ii) to date assessment back to the date the debtors’ 1988 return was filed).
But, a case exists in which the Service was precluded from using the actual date of assessment under 26 U.S.C. § 6503 for determining priority or dischargeability under § 507(a)(7)(A)(ii): In re Hollenbeck, 166 B.R. 291 (Bankr.S.D.Tex.1993). In Hollenbeck, the Service affirmatively promised the debtors not only that it would assess a particular amount of taxes, but also that it would assess the tax at a particular time. Under those circumstances, the court held the Service was estopped from claiming the assessment took place at any time other than the date on which the Service promised to assess the taxes.
Although the Service and the Debtors dispute the facts surrounding the execution and delivery of the IRS Form 870-AD, the determination of the facts surrounding this controversy do not create a genuine issue of material fact under the Hollenbeck court’s analysis. There is no evidence in this case that the Service affirmatively represented, or even implied, that it would assess the 1981 taxes on any particular date. Accordingly, I conclude that the 1981 taxes and the interest thereon were not discharged in the Debtors’ chapter 7.
The remaining facts are not in dispute. Therefore summary judgment is appropriate.
CONCLUSION
The Debtors’ motion for summary judgment will be denied and the Service’s motion for summary judgment will be granted. Counsel for the Service may prepare an appropriate order for signature.
. With the passage of the 1994 Bankruptcy Reform Act (the "BRA”), Congress renumbered but did not amend § 507(a) (7)(A) (ii) as § 507(a)(8)(A)(ii). However, because the BRA only applies to cases filed after October 22, 1993, and all of the relevant case law refers to § 507(a)(A)(ii) (West Supp.1994) all references in this memorandum shall be to the pre-BRA Code unless otherwise noted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492330/ | ORDER DENYING PLAINTIFF’S MOTION TO COMPEL RELEASE OF FUNDS
A JAY CRISTOL, Chief Judge.
THIS CAUSE came on for hearing before the Court on January 2,1996 upon the Plaintiffs Emergency Motion to Compel the Release of Funds, and having reviewed the Motion, heard argument of counsel, and being otherwise fully advised in the premises, the Court finds as follows:
Patrick Pierre (“Debtor”) filed a voluntary petition for rehef under Chapter 13 of the Bankruptcy Code on May 15,1992. The ease was converted to Chapter 7 on March 28, 1994, and the Debtor was discharged on August 8, 1994. Robert A and Jacquelyn Welfare (the “Defendants”) obtained a Judgment against the Debtor on April 29, 1991, which the Debtor failed to include in his Bankruptcy schedules. On or about April 25,1995, the Debtor purchased a piece of real property located in Dade County, Florida. The property was sold by the Debtor on the same day to a third party, who is not a party to this action. At the time of the closing, the settlement agent, Broward Title Company, withheld a portion of the proceeds sufficient to satisfy the Defendants’ Judgment lien.
On May 22, 1995, the instant adversary proceeding was commenced against the Defendants seeking to have the debt owed to them by the Debtor determined to be dis-chargeable. This Court determined that the Debt was dischargeable pursuant to 11 U.S.C. § 523 and issued a Summary Judgment accordingly on December 7, 1995. At the same time, this Court issued an order allowing the Defendants to amend their pleadings in order to seek relief pursuant to 11 U.S.C. § 727(d). The Defendants amended their pleadings by way of a CounterClaim which is currently scheduled to be tried in February, 1996.
During the pendency of this action Bro-ward Title Company indicated that its underwriter, Attorney’s Title Insurance Fund, Inc., took the position that the bankruptcy discharge affected only the personal debt of the Debtor, and not an otherwise valid hen on real property. Accordingly, Broward Title Company notified the Plaintiff that it would release the escrowed monies to the Defendants in order to secure a Satisfaction of Judgment and clear title to the property. The Debtor then filed the instant Emergency Motion to Compel Release of Funds.
*929In Florida, a judgment becomes a lien on real property upon recordation of a certified copy thereof amongst the public records of the County wherein the property is located. Florida Statutes § 55.10. A bankruptcy discharge only relieves the debtor of personal responsibility for the debt, but does not automatically discharge the lien from the property. Albritton v. General Portland Cement Co., 344 So.2d 574 (Fla.1977). In fact the Courts have uniformly held that a bankruptcy discharge has no effect upon a lien which survives the bankruptcy and remains enforceable to the extent permitted under state law. See e.g. Lang v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886); In Re Owen, 86 B.R. 691 (M.D.Fla.1988); Barnett Bank v. Harris, 421 So.2d 822 (Fla. 1st DCA 1982). In fact, § 524(a)(1) of the Code clearly states that:
A discharge in a case under this title (1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor ...
This section has formed a common source of confusion. The quoted provision merely voids judgments to the extent that they are unsecured, liens pass through bankruptcy unaffected. Collier on Bankruptcy (15th ed.) ¶ 506.03 at pages 506-6 and 12; In Re Sillani, 9 B.R. 188 (S.D.Fla.1981); Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886).
Turning to the facts of the instant ease. It is undisputed that the Defendants’ judgment was never scheduled and, therefore, it was not discharged. However, pursuant to the automatic stay provisions of § 362, the Defendants were enjoined from any activity to enforce their judgment. The automatic stay as to the real property at issue in this ease remains in effect until it is lifted, the ease is closed, the case is dismissed, or until the Order of Discharge is entered. Consequently, when the Order of Discharge is entered, any act to create or enforce a lien against property of the debtor would no longer be automatically stayed and the parties may pursue such actions. In re Berry, 11 B.R. 886, 888 (Bankr.W.D.Pa.1981).
This Court entered its Order of Discharge on August 8, 1994, and accordingly the stay was lifted. On April 25, 1995, post-petition, the Debtor acquired title to real property in Dade County, Florida. It did not become property of the estate. The debt owed to the Defendants had not been discharged because it was never scheduled. The Plaintiff did not have the judgment canceled of record as provided by Florida Statutes § 55.1451. Therefore, the Defendants’ judgment lien attached instantly to the property.
The Plaintiff argues that the language of this Court’s December 7, 1995 Summary Judgment, precludes the lien from attaching, since the Order provides that the debt was discharged as though it had been originally scheduled. The Court disagrees. The Court can retroactively discharge a personal liability, however, the Court cannot retroactively discharge a lien on property once it attaches to the property. If this had been a lien upon his homestead, the debtor could have it removed as impairing his homestead rights having attached subsequent to homesteading the property, regardless of whether he failed to properly schedule the debt.
In preparing his bankruptcy petition, the Debtor must disclose all of his financial affairs to his attorney. The attorney can only put the information provided to him into the petition. After his attorney has filled out the forms with the information provided by the Debtor, the Debtor must review the petition prior to signing it. At the end of the Debt- or’s petition, directly above his signature appears the following statement: “I declare under penalty of perjury that I have read the *930foregoing summary and schedules, consisting of_ sheets, and that they are true and correct to the best of my knowledge, information, and belief.” In this ease, the Debtor failed to provide his attorney with the necessary information. Then, the debtor failed to adequately review his schedules and notice the omission prior to signing his petition and schedules. The attorney did not err, the Debtor did.
If the debtor had properly filled out his schedules and reviewed them prior to signing “under penalty of perjury”, the debt would have been discharged. However, he did not and the lien remained unaffected by the bankruptcy lying in wait like a snake waiting to bite the Debtor, and it did.
Accordingly based upon the foregoing analysis, it is
ORDERED and ADJUDGED:
1. That the Summary Judgment entered by this Court on December 7, 1995, did not retroactively discharge the Defendant’s lien.
2. That the Debtor’s Emergency Motion to Compel Release of Funds is denied.
DONE and ORDERED.
. Florida Statutes § 55.145 Discharge of judgments in bankruptcy.
At any time after (1) year has elapsed since a bankrupt ... was discharged from his debts, pursuant to the act of congress relating to bankruptcy, the bankrupt ... may petition the court in which the judgment was rendered ... for an order to cancel and discharge such judgment.... If it appears upon the hearing that the bankrupt ... has been discharged from the payment of that judgment or of the debt upon which it was recovered, the court shall enter an order canceling and discharging said judgment. The order of cancellation and discharge shall have the same effect as a satisfaction of judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492332/ | ORDER DETERMINING NON-CORE STATUS AND REPORT AND RECOMMENDATION OF DISMISSAL OF AMENDED COMPLAINT AS AGAINST CO-DEFENDANT MACK WILBOURN
ROBERT E. BRIZENDINE, Bankruptcy Judge.
This adversary proceeding is before the Court on the renewed motion of Co-Defendant Mack Wilbourn to dismiss or, in the alternative, for a more definite statement.1 Upon consideration of these matters, the Court recommends that the motion be granted and that the complaint be dismissed as against this defendant.
In his complaint, Plaintiff-Trustee seeks an award of money damages, including punitive damages, against the above-named co-defendants under several causes of action. The allegations asserted against Mack Wilb-ourn are based on the following theories of relief: (Count I) federal Racketeer Influenced and Corrupt Organizations Act (RICO), as set forth in 18 U.S.C. §§ 1961-1968; (Count II), Georgia RICO, as set forth at O.C.G.A. §§ 16 — 14—1 to -15 (Michie Supp. 1994); and (Count V) tortious interference *165with business relations. These allegations generally center around operations of the subconcessionaire program at Atlanta Harts-field International Airport.
By previous order, this Court granted Plaintiffs motion to amend complaint and deferred Wilboum’s motion to dismiss same. See Order of June 27, 1994. After Plaintiff filed such amended complaint, Wilbourn filed a renewed motion to dismiss or, in the alternative, motion for a more definite statement.2 Now that Plaintiff has finally pled his claims in his amended complaint, the sufficiency of his allegations can be tested under Fed. R.Bankr.P. 7012, which incorporates Fed. R.Civ.P. 12(b)(6), and Wilbourn’s motion is ripe for consideration.
The Court must first determine whether this action constitutes a core or a non-core proceeding. This determination will dictate the appropriate form in which the Court shall enter its ruling herein.3 In accordance with 28 U.S.C. § 157(b)(1), bankruptcy judges may hear and determine “all eases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11” as referred by the district court under Section 157(a). See also LR 265-l(a), N.D.Ga. In a core proceeding, the Court may enter a final order subject to review on appeal. If this suit is a non-core matter, the Court can still hear it in accordance with Section 157(c)(1), but absent consent of the parties, proposed findings of fact and conclusions of law as to dispositive matters, such as dismissal under Fed.R.Civ.P. 12(b)(6), would need to be submitted to the district court in the form of a recommendation. See generally THB Corp. v. Essex Builders Co. (In re THB Corp.), 94 B.R. 797, 803 (Bankr.D.Mass.1988); see also Providers Benefit Life Ins. Co. v. Tidewater Group, Inc. (In re Tidewater Group, Inc.), 734 F.2d 794, 796 (11th Cir.1984).
. Core proceedings are defined in Section 157(b)(2)(A)-(0) in terms of a non-exclusive list of examples. By contrast, a non-core proceeding is a matter that is not a core proceeding but is “otherwise related to a case under title 11.” See 28 U.S.C. § 157(b)(3). Plaintiff-Trustee’s RICO claims against Wilbourn, who is not asserting a claim against this bankruptcy estate, do not readily fall within any of the categories of core proceedings set forth in Section 157(b)(2). The predominant view in the case law appears to support the conclusion that RICO claims are in the nature of non-core, related proceedings. See e.g. Barnett v. Stern, 909 F.2d 973, 979-81 (7th Cir.1990); Marill Alarm Systems, Inc. v. Equity Funding Corp. (In re Marill Alarm Systems, Inc.), 81 B.R. 119, 123 n. 8 (S.D.Fla.1987), aff'd without op., 861 F.2d 725 (11th Cir.1988).4 Undoubtedly, any recovery by Plaintiff in this action would affect the bankruptcy estate in terms of the *166amount of funds available for distribution to claim holders, but such an eventuality is not determinative.
The following test has been used in contrasting “core” and “related” or non-core proceedings:
If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under section 157(c)(1) it is an ‘otherwise related’ or non-core proceeding.
Barnett, supra, 909 F.2d at 981, quoting Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir.1987) (emphasis in original); see also Gower v. Farmers Home Administration (In re Davis), 899 F.2d 1136, 1140-41, reh’g denied, en banc, 908 F.2d 980 (11th Cir.), cert. denied, 498 U.S. 981, 111 S.Ct. 510, 112 L.Ed.2d 522 (1990) (quoting same in non-RICO context). RICO claims do not invoke a substantive right provided by title 11 nor do they arise only in the context of a bankruptcy case. Barnett, supra, 909 F.2d at 981. Based on the above discussion, the Court concludes that Plaintiffs RICO claims against Wilbourn constitute a non-core matter.5
As previously noted, Wilbourn has also filed a motion for withdrawal of the reference of the above-styled adversary proceeding. See 28 U.S.C. § 157(d). Under Fed.R.Bankr.P. 5011(c), a motion to withdraw the reference does not automatically stay administration of this bankruptcy case or this adversary proceeding. Even though this motion has not been forwarded to the district court, this Court is not prohibited from acting and in fact is required to consider whether a claim has been sufficiently pled before such a motion is transmitted. Accordingly, those matters addressed herein are being considered before transmission of the motion to withdraw the reference to the district judge. See generally Auto Specialties Mfg. Co. v. Sachs (In re Auto Specialties Mfg. Co.), 134 B.R. 227, 228-29 (W.D.Mich.1990); see also Solomon v. Security Pacific Bank Nevada (In re Nady), 138 B.R. 608, 610 (D.Nev.1992); Citicorp North America, Inc. v. Finley (In re Washington Mfg. Co.), 128 B.R. 198, 200-01 (Bankr.M.D.Tenn.1991).
Having addressed the jurisdictional nature of Plaintiffs claims, the Court will next consider Wilboum’s motion wherein he seeks the dismissal of Plaintiffs amended complaint pursuant to Fed.R.Bankr.P. 7012(b)(2), (3), and (6) or, in the alternative, a more definite statement of the allegations asserted against him so that he might frame a response. See Fed.R.Bankr.P. 7012(e). With respect to Counts I and II, Wilbourn argues that the amended complaint fails to state a claim under federal or state RICO because it does not adequately allege: (1) that Debtor was injured by conduct prohibited by RICO; (2) that Wilbourn was a member of an enterprise as defined under RICO law; (3) that such alleged enterprise had a connection to interstate commerce; and (4) that Wilbourn engaged in specific conduct constituting a pattern of racketeering activity. Wilbourn further contends that Count V (tortious interference with business relations) fails to state a claim against him because the allegations show that he took no such action in preventing or making more burdensome Debtor’s performance under a certain sub-concessionaire agreement.6
A motion to dismiss may be granted if it appears that the plaintiff could not possibly prove any set of facts consistent with the allegations in his complaint upon which he would be entitled to relief. See H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 249-50,109 S.Ct. 2893, 2905-06, 106 L.Ed.2d 195 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, *1672232-33, 81 L.Ed.2d 59 (1984). Further, in deciding such a motion, the court must accept plaintiffs allegations as true and all reasonable inferences must be viewed in his favor.
In Count I, Plaintiff alleges that Wilboum and the other co-defendants herein violated federal RICO law as set forth in 18 U.S.C. § 1962(a), (b), (c), and (d) and that Debtor and its bankruptcy estate are thereby entitled to treble damages, attorneys fees, and costs pursuant to 18 U.S.C. § 1964. Section 1964(c) provides civil remedies for private litigants, who suffer injury to their business or property proximately caused by a violation of Section 1962.
The primary focus of a federal RICO offense is the commission of certain predicate acts or crimes, sufficiently related and continuous to form a pattern of racketeering activity as defined in 18 U.S.C. § 1961(1) and (5), in a manner forbidden by the RICO statutory provisions (18 U.S.C. § 1962(a)-(c)), and in connection with the conduct of an enterprise engaged in or affecting interstate or foreign commerce.7 Simply stated, under federal RICO, it is unlawful “to use money derived from a pattern of racketeering activity to invest in an enterprise, to acquire control of an enterprise through a pattern of racketeering activity, or to conduct an enterprise through a pattern of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 495, 105 S.Ct. 3275, 3284, 87 L.Ed.2d 346 (1985), citing 18 U.S.C. § 1962(a)-(c). Further, a conspiracy to violate any of the aforesaid provisions is unlawful under Section 1962(d).
Under Section 1964(c), a private cause of action for damages may be asserted by persons who are injured in their business or property by reason of a RICO violation under Section 1962. Sedima, supra, 473 U.S. at 495, 105 S.Ct. at 3284. Unlike a criminal prosecution, in a civil RICO suit, a plaintiff must meet certain standing requirements by alleging a direct causal connection between his injury and the commission of the predicate acts. See Sedima, supra, 473 U.S. at 495-97, 105 S.Ct. at 3284-85. State of Georgia ex rel. v. Dairymen, Inc., 813 F.Supp. 1580, 1583 (S.D.Ga.1991); see also Durham v. Business Management Associates, 847 F.2d 1505, 1511 (11th Cir.1988); Pelletier v. Zweifel, 921 F.2d 1465, 1497, reh’g, en banc, denied, 931 F.2d 901 (11th Cir.), cert. denied, 502 U.S. 855, 112 S.Ct. 167,116 L.Ed.2d 131 (1991). In other words, in addition to factual or “but for” cause, a compensable injury under Section 1964(c) must have been proximately caused by sufficiently related and continuous predicate acts committed in connection with the conduct of an enterprise. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) (“but for” causation is insufficient, a direct relation must be alleged between the injury asserted and the conduct alleged); Pelletier, supra, 921 F.2d at 1499; Morast v. Lance, 807 F.2d 926, 933 (11th Cir.1987); see also Sedima, supra, 473 U.S. at 497, 105 S.Ct. at 3285.
The federal RICO statute uses various words and phrases that have special legal meanings. See 18 U.S.C. § 1961. As used in Section 1962, for example, the term “enterprise” is defined as a “group of individuals associated in fact,” who exhibit a “community of interest” and have a “continuing core of personnel.” Windsor Plumbing Supply, supra, 170 B.R. at 532, quoting United States v. Errico, 635 F.2d 152, 156 (2d Cir.1980), cert. denied, 453 U.S. 911, 101 S.Ct. 3142, 69 L.Ed.2d 994 (1981); see also United States v. Turkette, 452 U.S. 576, 581-85, 101 S.Ct. 2524, 2527-30, 69 L.Ed.2d 246 (1981); 18 U.S.C. § 1961(4). Although participation in criminal acts is necessary, federal RICO liability is premised upon a person engaging in such activity on behalf of or in relationship with another entity which constitutes an enterprise.8
*168Racketeering acts may be used to establish an enterprise, but the separate existence of an enterprise consisting of an association with a common purpose and continuity of structure, distinct from the pattern of racketeering activity in which it allegedly has engaged, must be alleged. Windsor Plumbing, supra, 170 B.R. at 533, citing Turkette, supra, 452 U.S. at 583, 101 S.Ct. at 2528-29; see also NL Industries, Inc. v. Gulf & Western Industries, Inc., 650 F.Supp. 1115, 1128 (D.Kan.1986). In this circuit, the associational aspect has been eliminated in connection with claims arising under 18 U.S.C. § 1962(c) (conducting affairs of an enterprise through a pattern of racketeering activity), in the sense that the defendant and the enterprise can be one in the same. See United States v. Hartley, 678 F.2d 961, 986, reh’g denied, 688 F.2d 852 (11th Cir.1982), cert. denied, 459 U.S. 1170,103 S.Ct. 815, 74 L.Ed.2d 1014 (1983); see also 18 U.S.C. § 1961(4). A sufficient nexus, however, must be alleged as between the racketeering activities and the affairs of the enterprise for claims arising under Section 1962(c). Hartley, supra, 678 F.2d at 991; see also United States v. Carter, 721 F.2d 1514, 1526 (11th Cir.), cert. denied sub nom. Morris v. United States, 469 U.S. 819,105 S.Ct. 89, 83 L.Ed.2d 36 (1984).9
In Section 1961(1), “racketeering activity” is defined to include, among others, criminal predicate acts or offenses such as mail fraud, wire fraud, and bribery. To assert a RICO violation, a “pattern” of such activity must be alleged. Although Section 1961(5) defines such a pattern as requiring at least two acts of racketeering activity occurring within ten years of each other, the United States Supreme Court has held that two isolated acts alone are not enough. Northwestern Bell, supra, 492 U.S. at 238, 109 S.Ct. at 2900. Instead, to constitute a “pattern,” the alleged acts must be construed in terms of continuity plus relationship. See Sedima, supra, 473 U.S. at 496 n. 14, 105 S.Ct. at 3285 n. 14.10
First, in determining whether sufficient continuity exists between the alleged predicate acts to constitute a pattern, the following factors are considered:
the number of predicate acts, their duration, the nature of the scheme they are designed to promote, the actual or potential number of victims, the nature of the scheme’s objectives, the number of participants in the scheme, the potential for continued criminal activity, and whether the particular scheme is part of a broader set of criminal objectives.
Gulf & Western, supra, 650 F.Supp. at 1127. Continuity requires more than sporadic or isolated activity and can be formulated in either an open-ended fashion or with reference to a closed period. The open-ended standard requires a showing that the criminal conduct is likely to occur in the future, as when predicate acts constitute a regular way of doing business such that they “amount to or pose a threat of continued criminal activity.” Windsor Plumbing, supra, 170 B.R. at 533, quoting Northwestern Bell, supra, 492 U.S. at 239, 109 S.Ct. at 2900-2901; accord United States v. Hobson, 893 F.2d 1267 (11th Cir.), cert. denied, 498 U.S. 957, 111 S.Ct. 384, 112 L.Ed.2d 395 (1990) (single defendant convicted for single shipment of controlled substance); see also United States v. Church, 955 F.2d 688, 693 (11th Cir.), cert. denied sub nom., Coppola v. United States, 506 U.S. 881, 113 S.Ct. 233, 121 L.Ed.2d 169 (1992).
Continuity in a closed period is demonstrated “by a showing of a ‘series of related predicates extending over a substantial period of time.’ ” In re Sahlen & Assoc., Inc. Sec. Litigation, 773 F.Supp. 342, 366 *169(S.D.Fla.1991), quoting Northwestern Bell, supra, 492 U.S. at 242,109 S.Ct. at 2902; see also Windsor Plumbing, supra, 170 B.R. at 533, citing Northwestern Bell, supra, 492 U.S. at 241-43, 109 S.Ct. at 2901-03.11 Predicate acts which only extend over a few weeks or months are inadequate. See e.g. Aldridge v. Lily-Tulip, Inc., 953 F.2d 587, 593, reh’g, en banc, denied, 961 F.2d 224 (11th Cir.1992) (six months is too short). The period of time alone, however, is not always determinative as commonality of purpose, method, and result must also be alleged. See United States v. Alexander, 888 F.2d 777 (11th Cir.1989), cert. denied, 496 U.S. 927, 110 S.Ct. 2623, 110 L.Ed.2d 643 (1990).
Secondly and as mentioned above, in addition to continuity, a relationship among the alleged racketeering predicate acts must be established such that they form a “pattern.” To allege a sufficient relationship, such acts “must involve common perpetrators, methods of commission, victims, or motives.” Gulf & Western, supra, 650 F.Supp. at 1127. In other words, as stated by the Supreme Court, quoting 18 U.S.C. § 3575(e) by analogy, criminal conduct forms a pattern “if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or [such acts] are otherwise interrelated by distinguishing characteristics_” Sedima, supra, 473 U.S. at 496 n. 14,105 S.Ct. at 3285 n. 14.
Mindful of the definitions discussed above, a defendant commits a RICO violation by engaging in racketeering activity in one of four different ways as set forth in Section 1962(a)-(d). First, Section 1962(a) provides generally that it is a crime for anyone to use or invest proceeds, which were derived from a pattern of racketeering activity in which that person has participated, to acquire an interest in or to establish or operate an enterprise engaged in interstate commerce. Further, under federal RICO, it must be shown that the investment itself, as opposed to the underlying acts of racketeering, caused the harm in issue. Dairymen, 813 F.Supp. at 1584; Sahlen, supra, 773 F.Supp. .at 367.
Second, Section 1962(b) imposes criminal liability upon anyone acquiring or maintaining an interest in or control of an enterprise through a pattern of racketeering activity. Unlike Section 1962(a), a claim may be made under Section 1962(b) by alleging that the injury occurred as a result of the pattern of racketeering activity that was used to acquire an interest in or control of such an enterprise, as opposed to the acquisition itself. Sahlen, supra, 773 F.Supp. at 369; accord Gulf & Western Industries, supra, 650 F.Supp. at 1128; but see Moffatt Enterprises v. Borden, Inc., 763 F.Supp. 143, 145 (W.D.Pa.1990).
Third, Section 1962(c) prohibits anyone associated with an enterprise from knowingly conducting or participating in the conduct of its affairs through a pattern of racketeering activity. Generally, the defendant must have assisted an enterprise with knowledge of its illegal activities. Andrea, supra, 660 F.Supp. at 1370. Moreover, in Reves v. Ernst & Young, 507 U.S. 170, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993), the Supreme Court held that in order to participate in the affairs of an enterprise, the defendant must have played some part in directing or managing its affairs. The extent to which those who are not in upper management are vulnerable to such liability, however, remains to be seen. 507 U.S. at 184 n. 9, 113 S.Ct. at 1173 n. 9.
Finally, Section 1962(d) makes it unlawful to conspire to commit any of the aforesaid offenses under Section 1962(a)-(c). See Dairymen, supra, 813 F.Supp. at 1584; Sahlen, supra, 773 F.Supp. at 369-70; Gulf & Western, supra, 650 F.Supp. at 1128-29. As compared with an allegation under general conspiracy law, the objective of a RICO conspiracy is the violation of a substantive RICO provision. Carter, supra, 721 F.2d at *1701529. Allegations of a conspiracy must be sufficiently detailed to enable defendants to identify the conspiracy of which they are alleged to be a part. Accord Durham, supra, 847 F.2d at 1511 (discussing RICO, particularity requirement under Fed.R.Civ.P. 9(b), and concept of notice pleading); see also Windsor, supra, 170 B.R. at 535 (with respect to averments of fraud, the role of each defendant in the scheme must be specified). A mere conclusory allegation that certain parties conspired to violate Section 1962(a), (b), or (c) is insufficient. Sahlen, supra, 773 F.Supp. at 370. At a minimum, an agreement to commit the predicate acts must be alleged, but since a RICO conspiracy agreement more precisely relates to the agreement to participate in an enterprise as opposed to the commission of the predicate crimes, it is not necessary that each defendant agreed to commit two predicate acts. Dairymen, supra, 813 F.Supp. at 1584; accord Carter, supra, 721 F.2d at 1530, citing United States v. Elliott, 571 F.2d 880, reh’g denied, 575 F.2d 300 (5th Cir.), cert. denied, 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978).
A RICO conspiracy agreement in violation of Section 1962(d) can be asserted in several ways depending upon the nature of the objective of the conspiracy. Church, supra, 955 F.2d at 694. First, a defendant may knowingly agree to become a member of a conspiracy with a RICO objective that contemplates the violation of a substantive RICO provision through the commission of predicate acts sufficient to constitute a pattern of racketeering activity in relation to an enterprise. Carter, supra, 721 F.2d 1514, 1529-31, citing Elliott, supra, 571 F.2d 880. In certain circumstances, an agreement to commit such predicate acts or offenses may be inferred from allegations of an agreement to commit the fraudulent scheme underlying such predicate acts. Church, supra, 955 F.2d at 695; Dairymen, supra, 813 F.Supp. at 1584-85. Such an agreement may also be inferred from conduct of the alleged conspirators or based on circumstantial evidence as when the totality of the allegations clearly suggest that a grand scheme or group-oriented operation was knowingly carried out by a number of individuals. When a RICO conspiracy agreement is present, it is not necessary that a particular defendant have further agreed to commit the predicate acts personally, and he need not have full knowledge of every detail regarding the acts committed in furtherance of the conspiracy by others. Carter, supra, 721 F.2d at 1530; Sahlen, supra, 773 F.Supp. at 369.
Secondly, by contrast, in the case of a single objective RICO conspiracy, which contemplates the commission of only one criminal act, the necessary agreement to a pattern of racketeering activity is absent. Thus, in order to allege a RICO conspiracy violation in such instance, plaintiff must establish the required pattern through allegations that defendant agreed to commit personally at least two predicate acts forming such pattern in furtherance of said single objective. See Church, supra, 955 F.2d at 694; Carter, supra, 721 F.2d at 1530-31; Sahlen, supra, 773 F.Supp. at 369.
Further, allegations of the completion of overt acts in furtherance of the conspiracy are ordinarily not required to establish criminal RICO liability under Section 1962(d). Carter, supra, 721 F.2d at 1528 nn. 20 and 21; United States v. Coia, 719 F.2d 1120, 1123-25 (1983), reh’g denied, 724 F.2d 978 (11th Cir.), cert. denied, 466 U.S. 973, 104 S.Ct. 2349, 80 L.Ed.2d 822 (1984). When civil damages are sought pursuant to Section 1964(c), however, additional allegations are necessary to set forth a proper cause of action. As noted above, the complaint must contain allegations of an agreement to commit, or to the commission of, predicate acts forming a pattern of racketeering activity and that plaintiff suffered an injury proximately caused through the completion of such acts. Accord Windsor Plumbing, supra, 170 B.R. at 534; see also Carter, supra, 721 F.2d at 1528-31.
The legal standards under Georgia RICO law, O.C.G.A § 16-14-1 et seq., as alleged in Count II of the amended complaint, are similar to the federal RICO provisions discussed above. In addition to various state law crimes, Georgia RICO includes crimes that are indictable under federal law (e.g. mail fraud) in its definition of predicate acts. See *171O.C.GA. § 16-14-3(9)(A)(xxix) (Supp.1994); Dairymen, supra, 813 F.Supp. at 1585.12 Other conduct constituting racketeering activity includes influencing witnesses (O.C.GA § 16-10-93) and bribery (O.C.GA § 16-10-2). See O.C.GA § 16-14-3(9)(A)(xiv) and (xiii). Under O.C.GA § 16-14-6(c), Georgia law provides a civil remedy for injuries sustained as a result of a violation of O.C.GA. § 16-14-4, similar to the federal remedy in 18 U.S.C. § 1964(c).
Georgia RICO is generally broader in scope than federal RICO. See Chancey v. State, 256 Ga. 415, 349 S.E.2d 717, 722-23 (1986), cert. denied, 481 U.S. 1029, 107 S.Ct. 1954, 95 L.Ed.2d 527 (1987); Dover v. State, 192 Ga.App. 429, 385 S.E.2d 417, 420 (1989). For instance, an alleged violation under O.C.GA § 16-14-4(a) does not depend on a relationship with an enterprise because liability extends to the acquisition of an interest in any property or money, in addition to an interest in an enterprise.13 Further, unlike 18 U.S.C. § 1962(a) of federal RICO, Georgia RICO makes it unlawful to acquire proceeds through a pattern of racketeering without requiring further allegations of an injury specifically resulting from the subsequent investment of said proceeds in an enterprise. See O.C.GA § 16-14-4(a); Dairymen, supra, 813 F.Supp. at 1586. In addition,' allegations of continuity between predicate acts are unnecessary. See Inter-Agency, Inc. v. Danco Financial Corp., 203 Ga.App. 418, 417 S.E.2d 46, 53-54 (1992); see also Kenny & Smith, supra note 8, at 550-54.
Before reviewing the sufficiency of Plaintiffs factual allegations under the above standards, the Court observes that Plaintiffs allegations as to the existence of an enterprise engaged in a pattern of racketeering activity rest, in large part, upon a 133 count criminal indictment purportedly signed by the United States Attorney for the Northern District of Georgia, to wit: United States v. Ira Jackson, Mack Wilboum, et al, Criminal Indictment No. 1:93-CR-310, N.D.Ga., a copy of which is attached to the original complaint as Exhibit “A.” See Plaintiffs Amended Complaint, ¶ 24.14 The copy included in the record, however, bears no filing date and it does not appear to have been signed by a grand jury foreperson. The record herein also does not reflect the results of the grand jury’s deliberations or whether these charges were entered and the overall status of this matter is unclear.15
The sufficiency of the aforementioned indictment as the basis for the claims pled herein by Plaintiff is problematical. Although it was purportedly signed by a United States Attorney, the indictment does not show the source or evidentiary foundation for making the allegations or how persons having knowledge of such claims were in a position to know the relevant facts concerning the scheme to defraud. Plaintiff merely incorporates the allegations into his complaint and same are not otherwise verified or confirmed.
Assuming that the criminal indictment is a sufficient basis to consider Plaintiffs allegations, the Court will review the factual allegations set forth in both the federal and Georgia RICO counts of the amended complaint. *172Plaintiff asserts that the above-named defendants, in a scheme involving mail fraud, bribery, and political corruption, combined to infiltrate and influence the decision-making process of officials of the City of Atlanta in connection with the operation of the concessions program at Atlanta Hartsfield International Airport. Defendants, other than the city, allegedly created, maintained, and controlled an enterprise that generated significant economic benefits, which ostensibly were to benefit minority owned concessionaire interests. Additionally, the alleged enterprise jealously guarded its profits and used its power to keep the subconcessio-naires on the biink of failure. Amended Complaint ¶ 11.
Specifically, it is alleged that certain sub-concessionaire entities at the airport, in which some of the above-named defendants held an interest, were singled out for favorable treatment through the receipt of various benefits. These benefits consisted of free concession space plus rent and commissary credits and were the result of amendments to the principal concessionaire agreement between the City of Atlanta and Dobbs Paschal Midfield Corporation. Under this agreement, Dobbs Paschal was responsible for managing the concessions program at the airport on behalf of the city. The amendments had been designed to address and ameliorate complaints from subconcessio-naires in regard to Dobbs Paschal’s fee schedule and commissary program. Although the benefits contemplated by these amendments were intended to be provided to all subconcessionaires, based on the alleged massive scheme of bribery and corruption, Plaintiff alleges that said benefits were instead selectively and unfairly distributed and were withheld from those who were not a part of said enterprise.
As a result of this alleged scheme, businesses in which defendants had an interest flourished at the expense of subconcessio-naires such as Debtor, who were denied additional concession space and rent and commissary credits. Amended Complaint ¶ 46. But for the racketeering acts of defendants, Plaintiff alleges, Debtor would have received these important benefits in connection with its business. See Amended Complaint ¶¶ 28-37. Further, in addition to obtaining favored treatment for subconcessionaires in which they held an interest, certain of the co-defendants allegedly illegally enriched themselves through bribes in connection with the distribution of these economic benefits. Amended Complaint ¶¶ 32 and 34.
During the time period in question, co-defendant Ira Jackson served as a member of the Atlanta City Council and also chaired the finance committee, in addition to serving as Commissioner of Aviation for the City of Atlanta. It is alleged that Wilboum assisted Jackson in the hereinbefore-described scheme by aiding and abetting in Jackson’s purchase and control of an interest in certain subconcessionaire entities. Further, while serving in the above-described official capacities, Jackson allegedly participated in and used his influence to favor airport subconces-sionaires in which he held an interest.
Wilboum allegedly assisted Jackson in concealing and failing to disclose this lack of financial disinterestedness by acting as a front man in a corporate entity known as Hartsfield Concessions. Through this entity, Jackson allegedly received dividends and management fees from his subconcessionaire interests through a process by which the ill-gotten proceeds were sent through the mails in the form of checks made payable to Harts-field Concessions. See Amended Complaint ¶¶24, 27-35, and 52(c) and (d); Indictment ¶¶ llg-i, 12, and 14.
Plaintiff further alleges that as a part of the criminal enterprise, co-defendant William Brooks, former president of Dobbs Paschal, used his authority to determine who would be the beneficiaries of the amendments to the concessionaire agreement between Dobbs Paschal and the City of Atlanta. Additionally, Brooks allegedly accepted bribes and granted advantageous economic terms to selected subeoncessionaires operating at the airport, including co-defendant Robert Echols. Amended Complaint ¶¶ 35-37, 52(f). Moreover, realizing the profitability of Debt- or’s frozen yogurt business, the first of its kind at the airport, Brooks allegedly targeted it for destruction using the vast array of powers at his disposal.
*173As an illustration of Brooks specific harassment of Debtor, under a pretext of Debtor’s breach of its subconcessionaire agreement, Brooks allegedly limited the free space and rent credits to which Debtor claims he was entitled. Further, he allowed others to compete directly with Debtor’s business in violation of Debtor’s subeonces-sionaire agreement. In particular, Echols opened a frozen yogurt stand directly across from the location of Debtor’s business. In a further attempt to injure Debtor’s business, Brooks allegedly approved the building of a partition in front of Debtor’s store, which decreased its visibility to airport patrons. See Amended Complaint ¶¶ 38-41. Brooks also allegedly imposed upon Debtor exorbitant fees pursuant to an obligatory commissary program under which subconcessio-naires were required to store or purchase food supplies, while others through the payment of bribes were relieved from paying such fees. As a result of this alleged scheme, Plaintiff claims, Debtor’s performance under its subconcessionaire agreement was made more expensive and burdensome and, ultimately, it was driven out of business. Amended Complaint ¶¶ 42-49, 61.
Applying the legal standards previously discussed to the factual allegations herein, the Court will now proceed to analyze the legal sufficiency of Plaintiffs federal and Georgia RICO claims. First, the Court will decide whether Plaintiff has sufficiently alleged that Wilboum violated federal RICO law by engaging in a pattern of racketeering activity in a manner forbidden by Section 1962(a)-(e). For the limited purpose of undertaking this analysis, the Court will assume that the necessary underlying criminal predicate acts have been properly alleged, although this assumption is ultimately without validity and is more fully and critically examined hereinafter.
Section 1962(a) requires allegations pertaining to injury caused by investment of proceeds derived from a RICO enterprise. In paragraph 53 of Count I of the amended complaint, Plaintiff alleges that each defendant used income received from racketeering activity in the acquisition of an interest in or operation of an alleged enterprise in violation of Section 1962(a). His allegation, however, is conclusory and without sufficient factual support. Neither the complaint nor the indictment assert what specific benefit Wilbourn received from the alleged racketeering activity or how an investment by Wilbourn in the enterprise itself, as opposed to the underlying acts of racketeering, caused injury to Debtor. See Sahlen, supra, 773 F.Supp. at 367-69. As discussed above, Section 1962(a) only forbids use or investment of racketeering income in the manner proscribed therein and Plaintiff has failed to allege same.
Nonetheless, civil liability may attach under Section 1962(a) if, among other things, a defendant aids and abets another in the commission of at least two predicate acts in a manner prohibited by this subsection. To assert a proper claim under this theory, it must be alleged, with regard to each such act, that the defendant “was associated with the wrongful conduct, participated in it with the intent to bring it about, and sought by his actions to make it succeed.” Sahlen, supra, 773 F.Supp. at 367-68. Additionally, liability for predicate acts based on mail fraud, for example, which is a specific intent crime, must be supported by allegations that the aiding and abetting defendant shared the principal’s criminal intent in regard thereto. Id. at 368; Andreo, supra, 660 F.Supp. at 1371. But even under an aiding and abetting claim, again assuming that the predicate acts are sufficiently alleged, it must be asserted that monies obtained from a pattern of racketeering activity were used or invested in violation of Section 1962(a). Plaintiff’s complaint is deficient in this respect with regard to Wilbourn. Sahlen, supra, 773 F.Supp. at 368-69.
This conclusion notwithstanding, one who aids and abets another in a violation of Section 1962(a) may still be liable on grounds of conspiring to violate this provision, even if he did not personally invest such income and would not otherwise have been hable for such an investment injury under Section 1962(a). Sahlen, supra, 773 F.Supp. at 369 n. 36. In the present case, however, there are no allegations that Wilboum assisted, agreed to assist, or conspired to assist Jackson or anyone else through such prohib*174ited use or investment in violation of Section 1962(a).
The viability of a claim for relief under Section 1962(b), acquiring control of a RICO enterprise, is equally problematical as stated in paragraph 54 of the amended complaint. For instance, no factual detail is provided regarding how Wilboum’s involvement in the alleged predicate acts resulted in his acquiring or maintaining an interest in or control of the enterprise. At most, it is alleged that he profited from the sale of a subconcessionaire interest to Jackson. Similarly, it is not clear that he benefitted from later efforts to conceal such interest. Likewise, there are no allegations that Wilbourn acquired any degree of control over the enterprise at any level.
Even if the Court were to conclude that it is unnecessary under this subsection to allege a nexus between such acquisition or maintenance and Debtor’s injury, Plaintiff herein, as a civil RICO plaintiff, has failed to allege how sufficiently continuous indictable acts or racketeering activity of Wilbourn directly and proximately caused Debtor’s injury. See Pelletier, supra, 921 F.2d at 1498-1500; Morast v. Lance, supra, 807 F.2d at 933; see also Sahlen, supra, 773 F.Supp. at 369. In accordance with this standard, to the extent he relies on a violation of Section 1962(b), including any possible aiding and abetting liability arising therefrom, Plaintiff has failed to allege a claim upon which relief may be granted against Wilbourn under Section 1964(c).
Similarly, Plaintiffs allegations under Section 1962(c), conducting an enterprise through a pattern of racketeering activity, suffer the same infirmity. Wilbourn’s role in managing or directing the affairs of the alleged enterprise is not asserted. In addition, although an aiding and abetting claim may exist under this provision, Plaintiffs allegations concerning the causal connection between the underlying alleged predicate acts and Debtor’s injury are insufficient. Accord Sahlen, supra, 773 F.Supp. at 368 n. 35; Andreo, supra, 660 F.Supp. at 1371. Accordingly, Plaintiff has not sufficiently alleged that Wilbourn committed a violation under Section 1962(c).16 Based on the foregoing analysis, the Court concludes that Plaintiff has failed to allege a sufficient factual basis to assert a RICO violation by Wilbourn under Section 1962(a)-(c). Accordingly, Plaintiffs claim for civil damages pursuant to Section 1964(c), as set forth in Count I of the amended complaint, should be dismissed as against Wilbourn.
As mentioned above, for purposes of the above analysis, the Court has assumed the sufficiency of Plaintiffs allegations in connection with the criminal predicate acts recited in the amended complaint. This assumption, however, does not withstand scrutiny and Plaintiffs claims fail for this reason as well. RICO violations occur through a pattern of racketeering activity, and as defined and explained above, it must be alleged that the predicate acts, constituting such a pattern, directly and proximately caused Debtor’s injury. Plaintiff, however, has failed to allege same with sufficient particularity.
The criminal offenses or predicate acts, which defendants allegedly committed, separately or in conspiracy with one another, arise under the following provisions: 18 U.S.C. § 1341 (mail fraud); 18 U.S.C. § 1343 (wire fraud); and 18 U.S.C. § 201 (bribery). See Amended Complaint ¶ 51.17 In addition, Wilbourn and others allegedly aided and abetted co-defendant Ira Jackson in violating his fiduciary duties as a city official (paragraphs 51 and 52(c)), and along with Jackson, Wilbourn allegedly violated 18 U.S.C. § 1342 *175(conducting a scheme or device or other unlawful business by means of the Postal Service while using a fictitious name). Amended Complaint ¶ 52(d).18 Finally, in paragraph 52(e), it is alleged that Wilboum attempted to corrupt certain testimony of Bernard Parks by attempting to obtain a false affidavit in violation of 18 U.S.C. § 1512(b)(1).
With respect to alleged predicate acts based on mail fraud, Plaintiff claims that Jackson and Wilboum, aided and abetted by each other and through others, knowingly caused certain checks to, be delivered through the mails for the purpose of executing the scheme to defraud and in furtherance of the enterprise’s racketeering activity. See Amended Complaint ¶ 52(d); see also Indictment ¶ 13 and 14.19 To prove mail fraud under 18 U.S.C. § 1341, it must be alleged that Wilboum intentionally participated in a scheme to defraud and that the mails were used in furtherance of said scheme. United States v. Downs, 870 F.2d 613, 615 (11th Cir.1989). The focus is on the deceptive activity and it is not necessary that the documents actually being transported contain fraudulent information. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1413-15 (3d Cir.), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991); see also Schmuck v. United States, 489 U.S. 705, 715, 109 S.Ct. 1443, 1450, 103 L.Ed.2d 734 reh’g denied, 490 U.S. 1076, 109 S.Ct. 2091, 104 L.Ed.2d 654 (1989).
The requisite knowledge or state of mind in connection with use of the mails is sufficiently alleged if completion of the scheme depended on documents passing through the mails and the defendant knew that such use would occur or such use could reasonably be foreseen. Moreover, in multiparty mail fraud schemes as claimed herein, an alleged participant may be held accountable for a mailing whether or not he speeifieally agreed to or knew of its commission under a conspiracy theory. See United States v. Dick, 744 F.2d 546, 552 (7th Cir.1984). Likewise, under a conspiracy to commit mail fraud, only a specific intent to defraud must be alleged as opposed to an intent to use the mails. United States v. Smith, 934 F.2d 270, 274-75 (11th Cir.1991).
In the present ease, the transmission of checks through the mails, representing proceeds from certain subconeessionaire operations, to a corporate entity allegedly controlled by Jackson was apparently integral to the success of the aforesaid scheme, and use of the mails could have been foreseen by all involved. See Indictment ¶¶7, 11, and 14. In any event, whether or not Wilboum participated in a scheme to defraud, and regardless of whether or not he knew of, could foresee, or was party to a conspiracy to defraud involving use of the mails, Plaintiffs allegations are insufficient.
As discussed hereinbefore, an injury is not compensable under Section 1964(c), unless the predicate acts alleged were both the factual and the proximate cause of the injury. See Sedima, supra, 473 U.S. at 497, 105 S.Ct. at 3285; Pelletier, supra, 921 F.2d at 1499; see also Holmes, supra, 503 U.S. at 264-70, 112 S.Ct. at 1316-18. The injury must flow directly from the commission of the alleged predicate acts. Pelletier, supra. In other words, a direct relation must be alleged between Debtor’s injury and Wilboum’s participation in a scheme of deception involving use of the mails. To show such a connection, a private plaintiff, relying on mail fraud as a predicate act, must allege that he was an intended target of a fraudulent scheme and that he relied to his detriment on the misrepresentations made in furtherance of such scheme. See Pelletier, supra, 921 F.2d at 1498-1500; see also Dairymen, supra, 813 F.Supp. at *1761583-84. Further, the time, place, and content of the false representations must be described as well as the identity of the person making them and the loss suffered thereby. Gulf & Western, supra, 650 F.Supp. at 1126.
The test for showing a causal connection between an injury and the alleged predicate acts, as formulated by the Eleventh Circuit in Pelletier, supra, 921 F.2d at 1499-1500, is subject to at least two interpretations. First, in Kingston Square Tenants Assoc. v. Tuskegee Gardens, Ltd., 792 F.Supp. 1566, 1578 (S.D.Fla.1992), the court held that the plaintiff himself must have been a target of and relied on a misrepresentation. In contrast, in Pine Ridge Recycling, Inc. v. Butts County, 855 F.Supp. 1264, 1274 (M.D.Ga.1994), the court determined that a plaintiff need not prove his own reliance, but may utilize a third party's reliance upon such misrepresentation.
Although eighty-three (83) specific checks are described as having been sent through the mails over a forty (40) month period (Indictment ¶ 14), applying either the Kingston Square or the Pine Ridge test, the Court concludes that Plaintiff has failed to set forth a private claim for damages using mail fraud as a predicate act. Although Debtor ultimately closed its business, it is not alleged how these acts of mail fraud, in which Wilbourn was involved, directly or proximately caused Debtor’s injury.
Any injury suffered by Debtor’s business as a result of Jackson’s alleged concealment of his financial stake in the airport subeon-cessionaire program, his participation in the inequitable distribution of ameliorative benefits, and his receipt of checks through the mail, which made it profitable for him to continue such scheme, as aided and abetted by Wilbourn, even if true, is too indirect to be compensable under the holding of Pelletier, supra, 921 F.2d at 1499. First, Debtor was not alleged to be a target of the aforede-seribed scheme to defraud by Jackson and Wilbourn. The fact that injury to the Debtor and those similarly situated was foreseeable as a result of the institution of a system that favored certain subeoncessionaires over others regarding the distribution of benefits is insufficient. See Amended Complaint ¶¶ 27-32, and ¶ 61. Secondly, there are no allegations of specific injury incurred by reason of Debtor’s reliance on any deception in which Wilbourn participated. Even under the less demanding test set forth in Pine Ridge, supra, Plaintiff herein has alleged no third party reliance in connection with Jackson and Wilboum’s scheme to defraud, which proximately caused Debtor’s injury.
These deficiencies are not cured by construing Plaintiffs mail fraud claim in terms of allegedly aiding and abetting the breach of a fiduciary duty by a public official which resulted in the deprivation of an economic right or benefit. Under this theory, a defendant through use of the mails engages in a scheme of self-dealing, which defrauds his constituency of money or property in breach of the duties entrusted to him. In the present case, however, the indictment does not contain sufficient allegations with regard to such a claim, because it is not clear that the citizens of Atlanta would have otherwise been entitled to the monies Jackson received by virtue of his subconcessionaire interest. See also Amended Complaint ¶ 52(c).
Without a factual basis for the loss of money or property, the only remaining grounds for a possible mail fraud claim would be the deprivation of an intangible right to honest and impartial services pursuant to 18 U.S.C. § 1346. See generally United States v. Goodrich, 871 F.2d 1011 (11th Cir.1989).20 *177Although claims for deprivation of intangible rights evidently have renewed viability under Section 1346, Plaintiff has not alleged that Debtor suffered any particular or distinctive direct injury, apart from being a general member of the citizenry of Atlanta, entitling him to money damages from Wilboum. Further, it does not appear that Section 1346 relieves a private plaintiff under Section 1964(c) from the standing requirements set forth in Pelletier, supra, 921 F.2d at 1499-1500. See also Holmes, supra, 503 U.S. at 268-70, 112 S.Ct. at 1318. Debtor stands at too remote a distance to recover money damages based merely upon the citizenry's alleged loss of honest services on behalf of a public official such as Jackson. Accordingly, based on the preceding analysis, the predicate act of mail fraud has not been sufficiently alleged in the amended complaint under any of the possible theories discussed above for purposes of stating a compensable claim for relief under the civil remedy provided by Section 1964(c).21
Having fully addressed the mail fraud claims as predicate acts and the Court having previously noted the apparent abandonment of the claims relating to wire fraud and bribery (note 17, supra), the remaining alleged predicate acts will be considered. First, Wilboum allegedly aided and abetted Jackson in violating his fiduciary duties and in unlawfully influencing members of the city council in approving amendments to the principal concessionaire agreement. He also aided and abetted Jackson in concealing Jackson’s financial interests in such matters. See Amended Complaint ¶¶ 28 and 52(e); see also Indictment ¶ 6. Additionally, Wilboum allegedly attempted to corrupt the testimony of Bernard Parks by seeking to obtain a false affidavit in violation of 18 U.S.C. § 1512(b)(1). Amended Complaint ¶ 52(e).
Similar to the analysis of Plaintiffs claims concerning mail fraud, insufficient facts are alleged concerning how Debtor’s injury directly flowed from the above-referenced predicate acts. Further, the remaining allegations in paragraphs 54 through 61 of the amended complaint are eonclusory in nature and lack a proper factual basis to state a claim as they appear to merely track the language and requirements of the RICO statute. Accepting Plaintiffs allegations as true, at most, they only amount to an indirect injury which, as noted, is not compensable under Section 1964(c).
The only conduct alleged in the amended complaint that appears to have directly injured the Debtor consists of those actions taken primarily by Brooks and perhaps Echols. Amended Complaint ¶¶ 37-44, 46, and 48. For instance, whereas Wilboum allegedly aided and abetted Jackson’s violation of his fiduciary duties in concealing his interests and selectively distributing various ameliorative economic benefits to certain subcon-cessionaires, it is alleged that Brooks actively and specifically intended to harm Debtor’s business. See Amended Complaint, ¶¶25, 36-49; see also United States v. William E. Brooks, Criminal Information No. 1:93-CR-000117, N.D.Ga., March 11, 1993, attached to original complaint as Exhibit “B.” Yet, no commonality of purpose, motive, method, victim, or result has been suggested as between the alleged predicate acts committed by Wilboum and those of Brooks and Echols to show that they are sufficiently related to constitute a pattern of racketeering activity.
Moreover, Plaintiff does not allege any interrelatedness between Wilboum’s alleged predicate criminal acts, subparagraphs 52(c), (d), and (e), and those predicate acts allegedly committed by Brooks as set forth in sub-paragraph 52(f). The latter allegations only address Brooks’ acceptance of certain payments from Echols and use of the mails in *178execution of their scheme to ensure that Echols benefited from the aforesaid ameliorative amendments. Simply stated, Plaintiff has failed to allege a satisfactory connection between such harmful conduct and the activity in which Wilboum allegedly engaged.
Based upon all of the foregoing discussion, the Court concludes that Plaintiff has failed to allege adequately either that Wilboum participated in a pattern of racketeering activity in connection with an enterprise in a manner forbidden by Section 1962(a)-(c), or that Debtor’s injury directly flowed from the underlying predicate crimes which Wilboum committed or aided and abetted. Given the insufficiency of the factual allegations of a direct causal link between Wilboum’s alleged predicate criminal acts and Debtor’s injury, and the lack of a sufficient relationship between such acts and the injurious conduct of Brooks, the only remaining basis upon which Plaintiff can possibly assert a claim for civil relief against Wilb-ourn could only arise under Section 1962(d) on grounds of RICO conspiracy liability.
Plaintiff alleges that Wilboum, Jackson, and Brooks, among others, were members of the same criminal enterprise which prevented Debtor from performing under its sub-concessionaire agreement. See Amended Complaint ¶¶ 82-35, 46-49. Further, it is asserted that as a part of this alleged enterprise, co-defendant Brooks actively singled out and interfered with Debtor’s business in a substantial and adverse manner. Amended Complaint ¶¶ 36-49. The amended complaint, however, lacks sufficient factual allegations to support the claim that Wilboum was a part of a conspiracy to cripple Debt- or’s business.
Nowhere, for example, is it alleged that Wilboum had knowledge of or participation in the actions targeted at Debtor by Brooks. Plaintiff merely asserts in general terms that Wilbourn and Brooks were part of a conspiracy. Amended Complaint ¶¶ 34, 45, 51. Further, Plaintiff simply provides broad statements that Debtor was ultimately driven out of business as a result of direct or indirect efforts to interfere with Debtor’s interests through the denial of important economic benefits received by others. See Amended Complaint ¶¶ 30-35, 45-46, and 61; see also Sahlen, supra, 773 F.Supp. at 367. These allegations, however, do not address Wilb-ourn’s knowing participation in the affairs of an enterprise, which contemplated the commission of racketeering acts in furtherance of its goal of causing direct and substantial harm to Debtor’s business.
Under RICO conspiracy law, a party may incur liability for predicate crimes he did not commit, if he knowingly agreed to participate in the affairs of an enterprise, which others were using to accomplish certain criminal objectives through a pattern of racketeering activity. While there may be many minor or separate, individual conspiracies, ultimately they must be unified by one overall common goal and one over-arching conspiracy. See United States v. Valera, 845 F.2d 923, 929-30 (11th Cir.1988), cert. denied, 490 U.S. 1046, 109 S.Ct. 1953, 104 L.Ed.2d 422 (1989). Mere association with the enterprise in and of itself is insufficient to support RICO liability. Similarly, although RICO conspiracy liability does not require that all defendants have knowledge of the entire sweep of the conspiracy, its components must be linked in such a manner that provides a basis for concluding that an agreement existed and that the defendant was aware of the essential goals or the overall objective of the conspiracy. See generally United States v. Boylan, 898 F.2d 230, 241-42 (1st Cir.), cert. denied, 498 U.S. 849, 111 S.Ct. 139, 112 L.Ed.2d 106 (1990); United States v. Campione, 942 F.2d 429, 437-38 (7th Cir.1991); see also Church, supra, 955 F.2d at 695; Carter, supra, 721 F.2d at 1531.
In his amended complaint, at best, Plaintiff has only alleged multiple and separate conspiracies with different goals. One possible connection is described in paragraph 46 in which it is alleged that the withholding of benefits in the form of free space and the imposition of excessive fees or commissary charges were tools used by the enterprise to strangle Debtor’s business. Amended Complaint ¶46. In terms of intent and result, however, although injury to entities such as Debtor may have been foreseeable, no facts are alleged that Wilbourn and Jackson, through their conduct, knowingly proceeded *179in such a manner that demonstrated a desire to ruin Debtor’s business.
To the contrary, Brooks’ alleged actions with regard to the Debtor appear to have been deliberately designed to cause substantial harm to its business. No facts, however, are alleged that Wilbourn knew or must have known that Brooks was conspiring to participate in the enterprise (of which Wilbourn was allegedly a member) through a sustained pattern of racketeering activity and cause the harm in question by use of such enterprise. Therefore, absent allegations that Wilbourn agreed to participate in this activity by knowingly using said enterprise for his own benefit, the amended complaint fails to state a claim for relief as against Wilbourn under Section 1962(d). See generally Valera, supra, 845 F.2d at 929. Hence, RICO conspiracy liability has not been sufficiently alleged and, accordingly, the federal RICO claim in Count I should be dismissed in its entirety as against Wilbourn.
In Count II of the amended complaint, Plaintiff relies on predicate acts described in O.C.G.A. § 16-10-93 (influencing witnesses), O.C.G.A. § 16-10-2 (bribery), and O.C.G.A. § 16-14-3(9)(A)(xxix) (conduct defined as racketeering activity under 18 U.S.C. § 1961(1)(A), (B), (C), and (D)). As discussed above, Georgia RICO is generally broader in scope than federal RICO, but to the extent Plaintiff is relying on federal predicate criminal acts previously discussed in connection with Count I, this portion of the Georgia RICO claim should be dismissed for the reasons previously discussed hereinbe-fore.
The Court farther finds and concludes that Plaintiff has failed to allege a causal connection between the predicate crimes of influencing witnesses and bribery and the injury suffered by Debtor or even their relation to each other.22 Additionally, the Georgia statute does not appear to include acts in violation of a fiduciary duty by an elected official in its definition of predicate acts. In any event, as noted herein, Plaintiff does not allege that Debtor’s injury resulted by reason of such a violation. Hence, the Georgia RICO claims under Count II should be dismissed as against Wilbourn.
Plaintiff’s allegations under Count V fail to set forth a claim against Wilbourn for tortious interference with business relations. Under this theory of liability, it must be alleged that a defendant:
(1) acted improperly and without privilege, (2) purposely and with malice with intent to injure, (3) induced a third party or parties not to enter into or continue a business relationship with the plaintiff, and (4) caused plaintiff to suffer some financial injury.
U.S. Anchor Mfg., Inc. v. Rule Industries, Inc., 1 F.3d 986, 1003 (11th Cir.1993), certified question answered, 264 Ga. 295, 443 S.E.2d 833, cert. denied, — U.S. -, 114 S.Ct. 2710, 129 L.Ed.2d 837 (1994), quoting DeLong Equipment Co. v. Washington Mills Abrasive Co., 887 F.2d 1499, 1518 (11th Cir.1989) (quotation omitted), reh’g denied, en banc, 896 F.2d 560, cert. denied, 494 U.S. 1081, 110 S.Ct. 1813, 108 L.Ed.2d 943 (1990).
Plaintiff broadly alleges in paragraph 80 that defendants wrongfully interfered with Debtor’s contractual rights under its subcon-cessionaire agreement with Dobbs Paschal and, further, conspired to ruin its business and drive it out of the airport. He does not sufficiently allege, however, that Wilbourn caused or participated in such interference or that he intended or agreed to the commission of such acts as against Debtor. Assuming all *180factual allegations to be true and taking all reasonable inferences in Plaintiffs favor, the Court concludes that Plaintiff can prove no set of facts in support of his claim for relief against Wilbourn on grounds of tortious interference with business relations. In this regard, these allegations seem to focus only upon Brooks. Thus, Count V of the amended complaint should be dismissed.
For all of the foregoing reasons, the Court concludes that Plaintiff has not sufficiently alleged a cause of action against Co-Defendant Mack Wilbourn under either federal or Georgia RICO law or with regard to tortious interference with business relations under state law and these claims should be dismissed. This decision is dispositive in nature and, as previously discussed, because Plaintiffs claims herein constitute non-core matters, the Court’s ruling will be entered in the form of a recommendation to the district court. Accordingly, it is
RECOMMENDED to the district court that Co-Defendant Mack Wilboum’s renewed motion to dismiss should be granted and that Plaintiffs claims as asserted in the Amended Complaint under Counts I, II, and V should be dismissed as against Mack Wilb-ourn.
Written objections to this Court’s proposed findings and conclusions herein may be filed in accordance with Fed.R.Bankr.P. 9033(b). If no objections are filed, this Order and Report may be adopted as the order of the district court.
The clerk is directed to transmit this Court’s Order and Report, as well as those Orders entered by this Court on June 27, 1994, to the clerk of the district court.
The clerk is further directed to transmit Wilboum’s motion to withdraw the reference to the clerk of the district court.
Finally, the clerk is directed to serve a copy of this Order upon counsel for Plaintiff, counsel for Mack Wilbourn, and counsel for all other defendants herein.
IT IS SO ORDERED.
At Atlanta, Georgia this 20th day of June, 1995.
. Mr. Wilbourn's name was apparently misspelled in the caption of the complaint.
. Based on the filing of an amended complaint and a second motion to dismiss, Wilboum’s prior motion to dismiss has thus been superseded and no further ruling is necessary in connection with same.
. As observed in this Court’s Order entered on June 27, 1994, Wilbourn has also filed a motion for withdrawal of the reference of the above-styled adversary proceeding. See 28 U.S.C. § 157(d). Although the district court must decide the motion to withdraw the reference under 28 U.S.C. § 157(d), the issue of whether this proceeding is core or non-core is determined in the first instance by the bankruptcy court. See 28 U.S.C. § 157(b)(3); O'Connell v. Terranova (In re Adelphi Institute, Inc.), 112 B.R. 534, 539 (S.D.N.Y.1990); Hatzel & Buehler, Inc. v. Central Hudson Gas & Electric Corp., 106 B.R. 367, 369-70 (D.Del.1989). Such a determination is, of course, subject to review on appeal. See Blackburn v. Blue Cross & Blue Shield (In re GF Corp.), 127 B.R. 384 (Bankr.N.D.Ohio 1991).
. Compare In re Windsor Plumbing Supply Co., 170 B.R. 503, 512, 532-36 (Bankr.E.D.N.Y.1994) (RICO matter considered in context of claims estimation). Further, the present case is distinguishable from such core proceedings as when the RICO claim is asserted as a counterclaim or in the context of the claims objection and allowance process. See e.g. In re Chapman, 132 B.R. 132, 153 n. 10 (Bankr.N.D.Ill.1991); cf. Mann v. Michael Industries, Inc. (In re Inland Shoe Mfg. Co.), 90 B.R. 981, 983, 988 (Bankr.E.D.Mo.1988) (determination of motion to dismiss included consideration of trustee’s RICO claim); see also Highway Equipment Co. v. Alexander Howden Ltd. (In re Highway Equipment Co.), 153 B.R. 186, 188, 200 (Bankr.S.D.Ohio 1993) (parties consented to bankruptcy court determination in non-core matter); Balaber-Strauss v. American Teltronics, Inc. (In re Coin Phones, Inc.), 148 B.R. 391, 396-97 (Bankr.S.D.N.Y.1992) (dismissal of alleged RICO violation claim treated as core matter).
. Similarly, the Court concludes that Plaintiff's state law RICO claims and state law tort claims for interference with business relations, as asserted against a third party, non-claim holder, are in the nature of a non-core proceeding.
. Wilbourn also maintains that Plaintiff has failed to allege adequately that venue and personal jurisdiction are proper in this Court. The Court finds, however, that in paragraphs 1 and 9 of the amended complaint, Plaintiff has made sufficient allegations as to venue (28 U.S.C. § 1409) and personal jurisdiction with regard to this defendant.
. Although they are complementary in certain basic respects, Georgia RICO as discussed hereinafter contains important differences.
. As discussed infra, Georgia RICO does not rely upon the existence of a RICO enterprise to the same degree as federal RICO, although in practice this distinction may be less significant. See generally Michael P. Kenny & H. Suzanne Smith, A Comprehensive Analysis of Georgia RICO, 9 Ga.St.U.L.Rev. 537, 544-45 (1993).
. The nexus/relationship issue, as discussed in Carter, supra, is reflective of the fact that, although Congress was originally targeting organized criminal activity, a RICO complaint may also be cast in a manner whereby the enterprise in question concerns a legitimate operation allegedly infiltrated by a scheme of illegal activity. Thus, even if the racketeering activity did not affect the affairs of an enterprise, a sufficient nexus is shown if the enterprise facilitated such activities. 721 F.2d at 1526-27; see also Turk-ette, supra, 452 U.S. at 577, 101 S.Ct. at 2525-26.
. The predicate acts themselves, of course, must be alleged with sufficient particularity. See Andreo v. Friedlander, Gaines, Cohen, Rosenthal & Rosenberg, 660 F.Supp. 1362, 1369 (D.Conn.1987).
. Moreover, under the language of the statute, it is the separate indictable acts which must be sufficiently continuous to constitute a pattern, as opposed to the scheme to defraud. In other words, multiple schemes are not required in order to show a pattern of racketeering activity under Section 1961(1) and (5).
. The federal incorporation clause has been subject to conflicting interpretations in connection with the issue of whether mail fraud is included within offenses “chargeable by indictment” under Georgia law. Cf. J.G. Williams v. Regency Properties, Ltd., 672 F.Supp. 1436, 1443 (N.D.Ga.1987); State v. Shearson Lehman Bros., Inc., 188 Ga.App. 120, 372 S.E.2d 276, 278 (1988); see also Dairymen, supra, 813 F.Supp. at 1585.
. Georgia RICO prohibits the acquisition or maintenance of an interest in or control of an enterprise or property of any nature through a pattern of racketeering activity or proceeds therefrom. See O.C.G.A. § 16-14 — 4(a). Section 16-14-4(b) makes it unlawful for a person associated with an enterprise to participate in such enterprise through a pattern of racketeering activity. Section 16-14 — 4(c) is the conspiracy provision.
. Several other indictments or criminal infor-mations, which do not appear to relate directly to Wilboum, are also referenced in the amended complaint.
. Wilboum’s acquittal as to these charges is generally public knowledge, but that fact has not been brought to the Court’s attention in any of the pleadings filed of record herein. Neither has the present status of the charges against any of the other defendants been brought to the Court's attention.
. Moreover, as previously discussed herein, the lack of any allegations as to what part Wilbourn had in the management or direction of the affairs of the alleged enterprise may constitute a substantive deficiency under Section 1962(c).
. Wire fraud, which is similar to mail fraud, was not alleged in the indictment nor are grounds for such a claim set forth in the amended complaint against Wilbourn. In addition, the bribery charges (18 U.S.C. § 666) alleged in Count 85 of the indictment were not made with respect to Wilbourn, and the amended complaint contains no such allegations. See Amended Complaint ¶ 52(a) (18 U.S.C. § 666) and (b) (18 U.S.C. § 201). Thus, these alleged predicate acts do not appear to be applicable to Wilbourn, although the bribery charges could conceivably fall within the conspiracy allegation, which is addressed hereinafter.
. The phrase “scheme or artifice to defraud” as used in the mail fraud provision of Section 1341 includes a scheme “to deprive another of the intangible right of honest services.” See 18 U.S.C. § 1346. This provision is also included in Plaintiff's allegations in paragraph 52(d).
. The scheme identified in these allegations may refer to Jackson’s violation of his fiduciary duties, which is also asserted as the basis for a separate predicate act, though it could relate to the overall goal of the alleged conspiracy. Amended Complaint ¶ 52(c). In the indictment, the alleged scheme was to defraud the City of Atlanta and its citizens of their right to the honest services of Jackson in the performance of his official duties. See Indictment ¶ 1.
. This statutory provision, enacted on November 18, 1988, appears to restore the law to the status held prior to the Supreme Court’s decision in McNally v. United States, 483 U.S. 350, 360-62, 107 S.Ct. 2875, 2882, 97 L.Ed.2d 292 (1987). In McNally, the Court determined that deprivation of an intangible right to honest services, as distinguished from a property right, could not support a conviction for mail fraud. See also United States v. Baker, 19 F.3d 605, 613 (11th Cir.1994). For example, commissions received by a state officer, by virtue of his procurement of insurance from a company in which he holds an interest, do not amount to a loss of property for purposes of mail fraud because said commissions are not property of the commonwealth. Under Section 1346, however, the basis of mail fraud convictions are apparently no longer restricted to schemes to defraud persons of money or property and may now extend to loss of intangible rights. See United States v. Johns, 742 F.Supp. *177196, 201-06, 216-17 (E.D.Pa.1990), aff'd in part and rev’d in part without op., 941 F.2d 1204 (3d Cir.1991), and aff'd without op., 972 F.2d 1333 (3d Cir.1991). Although the Eleventh Circuit narrowly defines a property right in such contexts, based on Section 1346, deprivation of an intangible right to honest services may be sufficient to sustain a mail fraud conviction. See generally Goodrich, supra, 871 F.2d 1011.
. Because Plaintiff does not appear to have alleged any grounds for his claim under Section 1342 (conducting a scheme through the mails using a fictitious name) apart from the mail fraud allegations under Section 1341, the above analysis and conclusion is likewise applicable to said claim. See Amended Complaint ¶ 52(d).
. Although federal RICO and Georgia RICO have certain differences, it is likely that Georgia courts would reach a similar conclusion with regard to standing or causation requirements in civil actions as required in decisions such as Pelletier, supra. See generally Campbell v. Emory Clinic, 1:90-CV-1403-HTW (N.D.Ga. Aug. 6, 1992) (federal court applied federal RICO standing requirements in context of Georgia RICO); see also Martin v. State, 189 Ga.App. 483, 485, 376 S.E.2d 888 (1988) (Georgia courts look to federal RICO decisions for guidance in applying Georgia RICO). Even though the Georgia Court of Appeals stated in InterAgency, supra, 203 Ga. App. at 424, 417 S.E.2d 46, that direct harm need not be proven in connection with each predicate act to establish the requisite interrelatedness, such reasoning does not preclude the requirement of a direct connection between some of the alleged acts and the injury asserted for purposes of civil damages. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492333/ | JOHN C. NINFO, II, Bankruptcy Judge.
On April 20, 1993, the Debtor, William T. Connelly, (the “Debtor”) filed a petition initiating a Chapter 13 case (the “1993 Case”). On July 6, 1993, the Court entered an Order denying confirmation of the Debtor’s proposed Chapter 13 plan and dismissing the case pursuant to the provisions of Section 109(g)(2).1 Pursuant to Rule 8005, the Debt- or has requested a stay of a rescheduled mortgage foreclosure sale of his residence pending his appeal of the July 6,1993 Order.
BACKGROUND
The 1993 Case is the fourth Chapter 13 case filed by the Debtor since 1985. A 1985 ease (the “1985 Case”) was dismissed in February, 1989 because of the Debtor’s failure to make the payments required by a confirmed Chapter 13 plan. A 1989 case (the “1989 Case”), filed seven months after the dismissal of the 1985 Case, was dismissed in December, 1989, again because of the Debtor’s failure to make the payments required by a confirmed plan. In the 1989 Case, because of the many difficulties encountered in the 1985 and 1989 Cases, the Court2 included in its confirmation order a specific provision automatically dismissing the case if the plan payments were not made when due.
On April 3, 1992, less than seven months after the 1989 Case was dismissed, the Debt- or, pro se, filed his third Chapter 13 case (the “1992 Case”). By the Debtor’s own admission, the 1992 case was filed to stop a pending state court mortgage foreclosure sale of his residence by Bath National Bank (“Bath National”), which holds the first mortgage on the residence, and to prevent the possible loss of the residence because of unpaid real estate taxes, some going as far back as 1985, for which a number of tax deeds have been issued to Steuben County. The residence is actually a multi-unit dwelling, more in the nature of an apartment building.
On May 29, 1992, an initial Section 341 meeting of creditors was conducted by the standing Chapter 13 Trustee (the “Trustee”). On that same date, the Debtor forwarded a complaint to the Office of the United States Trustee (“U.S. Trustee”) regarding the Trustee’s conduct in the Debtor’s pending *232and prior Chapter 13 cases, which requested that the Trustee be removed. After a series of responses and an investigation, the U.S. Trustee determined that the Trustee should not be removed as requested by the Debtor.
On June 25, 1992, the Trustee filed an objection to the confirmation of the Debtor’s proposed plan on the grounds that: (1) the plan was not filed in good faith and was not feasible; (2) the Debtor had failed to provide various items requested by the Trustee in connection with the case; and (3) the Trustee believed that the Debtor was not eligible to be a Chapter 13 debtor by reason of the provisions of Section 109(g)(1).
After a series of adjourned Section 341 meetings and confirmation hearings, the Trustee made a motion, pursuant to Section 1307(c), to dismiss the 1992 Case for cause, principally because of the Debtor’s continuing failure to provide requested information to the Trustee. On September 15, 1992, a conditional order of dismissal was entered providing that the case would be dismissed unless the. Debtor complied with certain requirements, including providing necessary information to the Trustee.
Although the Debtor, for unexplained reasons, failed to appear at an adjourned September 25, 1992 confirmation hearing, the Court adjourned the confirmation hearing to October 30, 1992. At the October 30, 1992 confirmation hearing, the Trustee renewed his objections to the confirmation of the Debtor’s plan on the grounds that the plan was not filed in good faith, the plan was not feasible and the case should be dismissed pursuant to the provisions of Section 109(g)(1). The Trustee’s position was that the dismissal of the 1989 Case automatically resulted upon the Debtor’s failure to make payments specifically required by the Court in the confirmation order. Therefore, the Trustee asserted that the Debtor’s failure to make the required payments was a willful failure to abide by a court order within the meaning of Section 109(g)(1), which made the Debtor ineligible to file within 180 days of the dismissal of the 1989 Case.
Representatives of Bath National appeared at each of the Section 341 meetings held in the 1992 Case on May 29,1992, July 31,1992 and August 28, 1992, and they appeared at the confirmation hearings held on August 28, 1992 and October 30, 1992. At the October 30, 1992 confirmation hearing, the attorney for Bath National expressed the bank’s concerns about the Debtor’s history in Chapter 13, the substantial outstanding real estate taxes due on the Debtor’s residence which were increasing and priming the Bank’s mortgage lien, and the prepetition and post-petition mortgage arrearages due to Bath National (the Debtor had made no postpetition mortgage payments in the six months that the 1992 Case had been pending). At the confirmation hearing, Bath National requested that confirmation of the Debtor’s plan be denied and that the Section 362 stay be lifted so that it could continue its mortgage foreclosure or, in the alternative, that the Court otherwise provide it with adequate protection in connection with any confirmed plan, including requiring the Debtor to immediately bring all postpetition mortgage payments current and make future payments when due. The Court treated Bath National’s requests as a motion for relief from the automatic stay pursuant to Section 362 made in accordance with Rule 9013 at. a confirmation hearing.
After reviewing the totality of the facts and circumstances before the Court including the objections of the Trustee and Bath National, the request for relief by Bath National, the history of the Debtor in this Court and the Debtor’s protestations that his plan was feasible and that he should be given a chance to prove it, the Court confirmed the Debtor’s plan. At that time, the Court clearly advised the Debtor that it was giving him one last chance to prove that he could finally meet his promises, including that he could bring all postpetition mortgage payments current within a reasonable time. In response to the request of Bath National for relief from the stay, the Court required that the confirmation order provide for the immediate lifting of the stay as to Bath National and the dismissal of the 1992 Case should the Debtor not cure all postpetition mortgage arrearages due to Bath National by November 30, 1992 and continue to make plan payments and postpetition mortgage payments *233when due as well as to pay all future real estate taxes as they became due. On November 30, 1992, before the stay would have been lifted and the case dismissed because of the Debtor’s failure to cure all postpetition mortgage arrearages to Bath National, the Debtor made a motion, pursuant to Section 1307(b), to voluntarily dismiss the 1992 Case. Because Section 1307(b) gives the Debtor the absolute right to dismiss a Chapter 13 case, the Court granted the Debtor’s motion on the January 29,1993 return date. In the ten months that the 1992 Case was pending, the Debtor paid no postpetition mortgage payments to Bath National and no postpetition real estate taxes.
The 1993 Case was filed by the Debtor, pro se, within 74 days after the entry of the Order dismissing the 1992 Case and within three days of a rescheduled sale in the Bath National pending state court mortgage foreclosure proceeding, clearly to stop that sale.
On his schedules, the Debtor valued his residence at $35,000. This $35,000 value is less than the outstanding real estate tax liens and mortgage balance due to Bath National Bank as of August 1, 1993. The Debtor’s proposed plan in the 1993 Case provided for the payment of $400.00 per month to the Trustee for a period of sixty (60) months with the arrearages due to the real estate taxing authorities and Bath National to be paid through the plan and ongoing mortgage payments and real estate taxes to be paid outside the plan. Schedule J filed by the Debt- or showed excess income available on a monthly basis of exactly $400.00, the amount proposed to be paid to the Trustee under the plan.
On May 21, 1993, an initial Section 341 meeting and a hearing on confirmation were held. At that time, the Trustee indicated that he believed that both the Debtor’s case and the proposed plan had not been filed in good faith, the plan was not feasible and the Debtor was ineligible for Chapter 13 relief by reason of the provisions of Section 109(g)(2). In order to afford the Trustee an opportunity to file a formal motion to dismiss and written objections to confirmation, the confirmation hearing was adjourned to June 25,1993.
By motion returnable June 25, 1993, the Trustee requested that the Court dismiss the Debtor’s ease pursuant to the provisions of Section 109(g)(2) or, in the alternative, that it deny confirmation of the Debtor’s proposed Chapter 13 plan. The Trustee asserted that the Debtor was not eligible to be a debtor in Chapter 13 since he had filed the 1993 Case within 180 days after he had obtained the voluntary dismissal of a prior case following the request by Bath National for relief from the automatic stay provided by Section 362. As to the good faith and feasibility of the Debtor’s proposed plan in the 1993 Case, the Trustee asserted that: (1) this was the Debt- or’s fourth Chapter 13 plan in eight years, filed after three previous plans had been dismissed because the Debtor failed to make the required payments; (2) as a result of the Debtor’s four Chapter 13 cases, he had essentially obtained the benefit of the automatic stay for a period which exceeds the five year maximum Chapter 13 plan term envisioned by Congress in Section 1322(c); (3) the four eases filed by the Debtor have been essentially to prevent the secured creditors with liens on his residence from exercising their lawful rights to foreclose; (4) the stated purpose of the 1992 and 1993 Cases was to stop foreclosure sales by Bath National; (5) despite the Debtor’s attempts to work with an accountant and to rent more of his residence and use it for a flea market, which the Debtor speculatively hoped would generate additional income with which to make plan payments, in fact the Debtor’s income was the same as during the 1992 Case and in that case he was only able to pay into his plan $413.00 over a nine month period which was the equivalent of one plan payment; and (6) because of the increased arrearages due to Steuben County and Bath National, the minimum required monthly plan payment would have to be $502.00, an amount the Debtor’s own budget indicated he could not pay.
At the June 25, 1993 adjourned confirmation hearing and hearing on the Trustee’s motion to dismiss, the Court heard from the Trustee, representatives of Bath National, the Debtor, and even the Debtor’s sister, who asked to be heard. Based on all of the facts and circumstances before the Court in connection with the Debtor’s 1993 Case and the *234Court’s knowledge of pleadings and proceedings in the Debtor’s 1992 Case, the Court denied confirmation of the Debtor’s proposed plan finding that the Debtor’s case and his plan had not been proposed in good faith within the meaning of Section 1325(a)(3) and the proposed plan was not feasible within the meaning of Section 1325(a)(6). In addition, the Court granted the Trustee’s motion to dismiss the case finding that the Debtor was not eligible to be a debtor in the 1993 Case, since he had obtained a voluntary dismissal of the 1992 Case following the making of a request by Bath National for relief from the Section 362 stay and the Court granting it conditional relief.3
On July 6, 1993, an order dismissing the Debtor’s case and denying confirmation of his plan was entered. In view of the Debt- or’s history in Chapter 13 and the Court’s view that the Debtor was manipulating the Bankruptcy Code and the Bankruptcy System to the detriment of his secured creditors, using the automatic stay provided by Section 362 as a sword rather than as a shield, and exhibiting bad faith by his serial filings, the Court, to prevent further injury and expense to the secured creditors, included in the order dismissing the Debtor’s case a provision that, “if the debtor files another bankruptcy petition under any Chapter at any time prior to the Bath National Bank mortgage being current and the full payment of all real estate taxes due and owing on said property at the point of filing, that any foreclosure preceding [sic] commenced by any entity can be continued and will not be considered a violation of the automatic stay; provided that said entity apply to this Court within 10 days of the completion of said sale for an order of this Court confirming said sale and authorizing the entity to complete said sale.”
On July 8, 1993, the Debtor filed a Notice of Appeal of the Court’s Order dismissing his case. On July 26, 1993, the Debtor filed a motion, returnable on August 4, 1993, requesting a stay pending appeal of a foreclosure sale of the Debtor’s residence by Bath National, which the Debtor advised the Court was rescheduled for August 31, 1993. Bath National filed opposition to the Debtor’s request for a stay pending appeal and the Trustee took no position on the Debtor’s request.
DISCUSSION
A request for a stay pending appeal is addressed to the discretion of the Court, and requires that the Court take into consideration the following four factors:
1. The likelihood that the party seeking the stay will prevail on appeal;
2. The prospect of irreparable injury to the moving party which might result without the stay;
3. The relative certainty that no substantial harm will come to other parties if the stay were issued; and
4. The relative absence of harm to the public interest if the stay were granted. See Hirschfeld v. Board of Elections, 984 F.2d 35,39 (2d Cir.1993).
Each of these four factors, when carefully considered, must be resolved against the Debtor.
This Court believes that there is little likelihood that the Debtor can or will succeed on his appeal of this Court’s July 6,1993 Order. Both the language and the underlying purpose and policy of Section 109(g)(2) clearly make the Debtor ineligible to file the 1993 Case. The purpose and intent of Section 109(g)(2) is to preclude a debtor from denying a secured creditor the benefit of a termination of the automatic stay by filing another case reimposing the stay. In re Berts, 99 B.R. 363, 365 (Bankr.N.D.Ohio 1989). Section 109(g)(2) addresses the situation in which a debtor files a bankruptcy case to stay a foreclosure and when the creditor seeks relief from the automatic stay, the case is voluntarily dismissed by the debtor. Then the debtor refiles prior to the creditor completing its next attempt to foreclose and thereby continually frustrating the creditor’s *235attempts at foreclosure. In re Patton, 49 B.R. 587, 589 (Bankr.M.D.Ga.1985). This section is a Congressional response to the perceived abuse of Section 1307(b), which allows a Chapter 13 debtor the absolute right to dismiss his case at any time so long as the case is not converted, because the debtor can, by dismissing and refiling, avoid the consequences of a creditor’s obtaining relief from the stay since refiling brings into play the automatic stay of Section 362(a). In re Keul, 76 B.R. 79, 80 (Bankr.E.D.Pa.1987).
Clearly Section 109(g)(2) is designed to prevent the very series of actions taken by this Debtor in the 1992 Case and in the filing of the 1993 Case. Not to dismiss the 1993 case pursuant to Section 109(g)(2) would allow the Debtor to frustrate the legitimate attempts of Bath National and Steuben County to exercise their rights as secured creditors, especially when, as here, the Debt- or has continued to fail to make payments to Bath National or the real estate taxing authorities. As Bankruptcy Judge for the Eastern District of Pennsylvania Bruce Fox expressed in In re Keul, “However one interprets the language of section 109(g)(2), Congress clearly determined that a debtor cannot voluntarily dismiss a bankruptcy case after a creditor has obtained relief from the stay and then file another bankruptcy petition within 180 days solely to avoid the consequences of the earlier order granting relief. To do so is an abusive use of section 362(a) and 1307(b).”
As to substantial harm to other parties, it is clear from a review of the 1992 and 1993 Cases that the Debtor’s actions have caused the Bath National secured debt to increase substantially, not only by continuing interest accrual but by requiring Bath National to incur substantial and unnecessary additional expenses in both the bankruptcy and state court proceedings, including attorneys’ fees and publication costs, all in an attempt to enforce its lawful contractual rights. As set forth above, the outstanding tax liens (now in excess of $16,000) and mortgage balance now due exceed the scheduled value of the Debt- or’s residence. At the hearing on the request for a stay pending appeal, the Debtor expressed that he now believed that the property was worth, more than $35,000. However, the Debtor acknowledged that it was quite reasonable to conclude that at a forced sale of the property less would be received than the amount necessary to pay off the tax hens and the current mortgage balance due to Bath National. Therefore, a stay pending appeal, which would result in increased interest accruing on the mortgage and real estate tax debts and additional expenses to be incurred by Bath National, which may not be recoverable based on the value of the collateral, would result in substantial harm to Bath National.
As to the prospect of irreparable injury to the Debtor, property such as the Debtor’s residence is sold at foreclosure sales every day when debtors fail to perform their agreements with mortgage holders and when the facts and circumstances do not warrant a bankruptcy court staying such a foreclosure sale for the benefit of the debtor’s creditors or a debtor. In this case, the Debtor’s four attempts at a Chapter 13 reorganization have failed; there is no clear showing that the Debtor can now propose a plan which could be confirmed by the Court in accordance with the requirements of Section 1325; and there is not sufficient evidence before the Court that there is any value in the Debtor’s residence over valid real estate tax and mortgage hens.
As to harm to the public interest, if the Court allowed the Debtor a stay pending appeal preventing Bath National and the taxing authorities from exercising their lawful rights, it would frustrate the clear purpose and intent of Section 109(g)(2) and enable the Debtor to obtain the very relief which this Court in its discretion, pursuant to Section 105 4 to prevent further abuse of the Bankruptcy Code and the Bankruptcy System, *236specifically denied him when in its order of dismissal the Court provided that no subsequent ease filed by the Debtor would prevent the completion of a Bath National foreclosure sale. It would be detrimental to this Bankruptcy Court and the. Bankruptcy System and, thus, to the public interest to allow this Debtor to continue to manipulate and abuse the Bankruptcy System.
CONCLUSION
Based on the foregoing, the Court denies the Debtor’s motion for a stay of a state court foreclosure sale of his residence by Bath National and any actions which may be taken by Steuben County in connection with its real estate tax liens and tax deeds on that property.
IT IS SO ORDERED.
. Section 109(g) provides:
Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if—
(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.
. At that time, the Honorable Edward D. Hayes was the Bankruptcy Judge.
. Had the Trustee included in his motion to dismiss a request that the Court dismiss the case pursuant to provisions of Section 1307(c) or Section 105(a), the Court, in its discretion, would also have dismissed the Debtor's 1993 Case pursuant to those provisions of the Bankruptcy Code.
. Section 105(a) provides,
the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement cotut orders or rules, or to prevent an abuse of process. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492334/ | ORDER OF COURT
M. BRUCE McCULLOUGH, Bankruptcy Judge.
AND NOW this 9th day of May, 1996, upon consideration of the motion of Stephen D. Tebo requesting (a) a declaration by this Court that an unexpired lease is terminated pursuant to 11 U.S.C. § 365(d)(4), and (b) surrender to himself and/or immediate possession of the leased premises, it is hereby ORDERED, ADJUDGED, AND DECREED that:
1. Section 365(d)(4) applies to the unexpired lease between Tebo and the debt- or. This Court finds that such lease is precisely the type of arrangement intended by Congress to be affected by § 365(d)(4), especially in light of 11 U.S.C. § 365(m) which provides that “for purposes of this section 365 ... leases of real property shall include any rental agreement to use real property.” Clearly, the only purpose for the arrangement in question was to rent for a business purpose the particular realty owned by Tebo. Moreover, the debtor’s remaining interest in its lease with Tebo is much more than merely that of a guarantor because it still remains the sole lessee with respect to such lease; Tebo may not legally look to Col-Han for satisfaction of any obligation pertaining to his lease with the debtor. Finally, potential consequences to the bankruptcy estate in this case, in the event that § 365(d)(4) is applicable, are simply not relevant to a determination that such section is pertinent in this ease.
2. Because the Chapter 7 trustee did not assume this lease within the 60-day period subsequent to either the date of the order for relief in this bankruptcy case (October 26, 1995) or the date upon which bankruptcy schedules were amended so as to reflect the lease (February 2, 1996), such lease is deemed rejected pursuant to § 365(d)(4). Because both time periods had expired at the time of Tebo’s motion, this Court merely assumes, without approval, that the additional 60-day period from the date of amendment of the debtor’s bankruptcy schedules is pertinent.
3. On the basis of the Chapter 7 trustee’s deemed rejection of the lease between Tebo and the debtor, this Court finds that such lease is hereby legally terminated with respect to the debtor. This Court, after considering In the Matter of Austin Development Co., 19 F.3d 1077 (5th Cir.1994), and In re Locke, 180 B.R. 245 (Bankr.C.D.Cal.1995), determines that both of these cases are consistent with the proposition that a § 365(d)(4) deemed rejection of a lease, while not necessarily extinguishing the rights therein of a nondebtor third party, nevertheless automatically extinguishes the rights therein of a debtor and/or bankruptcy trustee. With respect to a nondebtor third party, the lease may still exist but third party rights therein survive only if mentioned explicitly therein and/or to the extent recognized under pertinent nonbankruptcy law.
*3574. Tebo, by way of his conduct, has neither waived, nor is he estopped from asserting, his rights emanating from § 365(d)(4). Tebo’s acceptance of rent payments prior to the deemed rejection is expressly nonprejudicial in this regard, 11 U.S.C. § 365(d)(3) (“Acceptance of any ... performance [prior to rejection of a lease] does not constitute waiver or relinquishment of the lessor’s rights under such lease or under this title.”), and acceptance of such payments after rejection is similarly not prejudicial. In re Food Barn Stores, Inc., 174 B.R. 1010, 1015 (Bankr.W.D.Mo.1994) (citing In re Fosko Mkt., Inc., 74 B.R. 384 (Bankr.S.D.N.Y.1987), to the effect that “ ‘[t]he decisions are many which hold that even after the lease is deemed rejected, the landlord may freely accept use and occupation payments from a holdover debtor without waiving the deemed rejection’ ”). This Court also finds that the allegations, as well as copies of correspondence filed with this Court, of communications from Tebo to representatives of both Col-Han and the debtor, are not supportive of waiver or estoppel with respect to Tebo’s rights under § 365(d)(4). Finally, this Court notes that Col-Han had approximately 2 months in which to seek action offered under the Bankruptcy Code; in particular, Col-Han could have prompted the Chapter 7 trustee to either (a) abandon the lease asset, or (b) assume the primary lease, after which an assignment to itself pursuant to § 365 could have been explored. These measures might have provided protection against, or negated the possibility of, the filing of Tebo’s motion.
5. Because the debtor was not in possession of the leased premises on the date of the order for relief, the Chapter 7 trustee may only satisfy his responsibility to personally surrender such premises by notification to Tebo of the lease’s rejection and termination. See Chatios Systems, Inc. v. Kaplan, 147 B.R. 96,100 (D.Del.1992). Tebo’s receipt of this order will constitute such notification. Id.
6. The unexpired sublease between the debtor and Col-Han is also rejected given the deemed rejection of the primary lease between the debtor and Tebo. Such determination is supported by Gordon v. Schneiker, 699 P.2d 3, 4 (Colo.Ct.App.1984) (“cancellation of the prime lease ..., which discharged sublessor from further liability thereunder and revested possession of the premises in the owner, ... cause[d] a surrender and termination of the sublease as a matter of law”). See also Chatios, 147 B.R. at 100; and In re Dial-A-Tire, Inc., 78 B.R. 13, 16 (Bankr.W.D.N.Y.1987). Because this determination impacts upon whether 11 U.S.C. § 365(h)(l)(A)(ii) is applicable in this case, this Court has jurisdiction to render this portion of this order.
7. Because Col-Han’s sublease has been rejected subsequent to the commencement of its term, Col-Han, pursuant to 11 U.S.C. § 365(h)(1)(A)(ii), retains a right to possess the premises which are the subject of said sublease, as well as other rights under the sublease, but only “to the extent that such rights are enforceable under applicable nonbankruptcy [ie., Colorado state] law." In other words, Col-Han retains possessory rights in the premises to the extent that its sublease is recognized under Colorado state law notwithstanding that the lessee/sublessor (ie., the debtor) retains no further right to possess such premises. Additionally, because the primary lease between Tebo and the debtor is not terminated with respect to any nondebtor third party, Col-Han retains any right that it obtained by way of explicit language in that lease agreement.
8. Because the issue of existence of a remaining possessory interest in the realty with respect to Col-Han, either by virtue of language in the primary lease agreement or Colorado state law, implicates matters involving purely state law, Austin Development, 19 F.3d at 1084; Dial-A-Tire, 78 B.R. at 16, this Court, therefore, is obliged to abstain from entertaining such dispute notwithstanding the obvious ramifications that such dispute could have with respect to administration of the debtor’s bankruptcy estate. Entering into this Court’s decision in this regard are the following additional considerations: (a) given the nature of the dispute, it should be handled on an expedited basis in the appropriate state court of Colo*358rado, (b) although this Court is equipped to interpret and apply pertinent Colorado state law regarding this issue with a minimum of difficulty, judicial comity is furthered by such abstention, and (c) regardless of whether Col-Han has remaining possessory rights in the realty, Tebo would nevertheless have to enlist the aid of the appropriate Colorado state court in the event that Col-Han refused an order of this Court to surrender possession of the premises in question. With respect to the last point, this Court notes that it is not faced with the issue of whether a debtor must abdicate itself from leased premises absent a state court proceeding because, in this case, the debtor is not presently in possession of such premises. This Court finds that Tebo may not resort to self-help with respect to a nondebtor subtenant notwithstanding the “surrender” language in § 365(d)(4). See In re Urbanco, Inc., 122 B.R. 513, 520 (Bankr.W.D.Mich.1991).
9. The automatic stay of 11 U.S.C. § 362(a) will not preclude Tebo and/or Col-Han from instituting an action in the appropriate state court of Colorado to adjudicate the state law issue(s) referred to in paragraphs 6 and 7 of this order because such action (a) is not against the debtor in this case, and (b) is not with respect to property that remains a part of this debtor’s bankruptcy estate. To the extent that this stay is asserted with respect to such action, this Court wishes to make clear that it will freely grant relief from such stay.
10. This Court’s declaratory relief regarding the deemed rejections of both the primary lease and sublease in this case, as well as their consequences, need not follow a hearing given that these matters are effected by operation of law. This procedural decision is consistent with the stated intent of Congress “to assist lessors in obtaining a speedy resolution of the status of their property,” D. Epstein, S. Nickles & J. White, Bankruptcy Practitioner Treatise Series § 5-10 at 465-66 (1992), and is buttressed by this Court’s inherent authority under 11 U.S.C. § 105(a). This Court nevertheless also wishes to make clear that the equitable relief sought by Tebo in the form of repossession could only have been obtained by way of an adversary proceeding had the debtor still possessed the property. This conclusion follows necessarily from Rules 7001(1) and 7001(7) of the Federal Rules of Bankruptcy Procedure. However, because Col-Han, rather than the debtor, presently possesses such property, this matter cannot appropriately be viewed as an adversary proceeding. This conclusion is also supported by the fact that that portion of Tebo’s requested relief in the nature of repossession may not actually be obtained in any event from this Court.
IN SUMMARY, Tebo’s motion with respect to the debtor is GRANTED regarding both termination of the primary lease and surrender of the premises. However, notwithstanding the deemed rejection of Col-Han’s sublease, this Court ABSTAINS from adjudicating Tebo’s motion regarding whether Col-Han retains possessory rights either by way of language in the primary lease (ie., whether it is also effectively terminated with respect to Col-Han) or pursuant to Colorado state law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492335/ | ORDER WITHDRAWING OPINION AND ORDER
JUDITH K. FITZGERALD, Bankruptcy Judge.
AND NOW, this 20th day of June, 1996, it is ORDERED that the Memorandum Opinion and Order entered on the above-captioned motion on May 9, 1996, are WITHDRAWN and the deadlines and hearing date(s) set forth therein are CANCELLED pending further order of court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492336/ | ORDER ON FIRST AMENDED MOTION FOR RELIEF FROM STAY
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 11 case is the First Amended Motion for Relief from Stay filed by King-Funk Partnership, a Florida partnership d/b/a Sunstate Commerce Center (Landlord), who seeks relief from the automatic stay to complete a state court action to evict Sorren-to’s I, Inc. (Debtor). The issue before this Court involves the construction of Florida Statute § 83.56(5) (1993) which governs the remedies and termination of rental agreements. This Statute provides, inter aha, that “if the landlord accepts rent with actual knowledge of non-compliance by tenant of any other provisions of rental agreement that is at variance with its provisions, the landlord waives right to terminate the rental agreement.” Relying on this provision of the Statute, the Debtor contends that the termination notice was ineffective as a matter of law and the lease in question is property of the estate. Thus, the Debtor should be entitled to assume the same pursuant to § 365(b)(2)(B).
The facts relevant to the issue under consideration are basically without dispute and although no actual evidence was presented, they may be fairly summarized based on statements of counsel for the Landlord and counsel for the Debtor.
On July 15, 1995, the Landlord and the Debtor entered into a two-year commercial lease (Lease) covering the premises located at 1105 K. Taylor Road, Punta Gorda, Florida. Paragraph 3 of the Lease provided for an annual rent during the first year of $72,-000 per year payable on the first day of each month at the rate of $6,000. The Lease is actually a consolidation of two previous Leases between the parties, one dated November 1992, and the other July 19, 1993. The new Lease extended the space covered by the previous leases and encompasses 7800 square feet of rental space. The Lease also requires the Debtor to pay, in addition to the rent, the following: specified real estate taxes, and amounts over and above those levied on the land upon which the leased premises are located; a pro rata portion of fire casualty and extended insurance coverage; and applicable sales and use tax.
Paragraph 12 entitled “Default; Notice” provides, inter alia, that any failure of the tenant to perform any provisions of the Lease constitutes a default and the Landlord may, at its option, terminate the Lease and retake the premises. While there is a ten-day grace period for defaults and notice of cancellation is required, this provision is not applicable to defaults based on non-payment of rent.
It appears that the Debtor failed to pay the rent due on October 1, 1995. However, on October 18, 1995, the Debtor delivered to the Landlord two checks; one in the amount of $3,920, the other in the same amount, tendered as payment of the October rent. It is without dispute that the October rent was not paid on time, but, that the Landlord negotiated the first check and the cheek was paid by the Bank. The second check was accepted by the Landlord even though it was postdated to October 23. However, before the Landlord deposited the second check, he attempted to verify with the Bank whether the Debtor had sufficient funds on deposit to cover the cheek. When informed by the Bank that there were insufficient funds to cover the second check, the Landlord did not deposit it.
On October 26,1995, the Landlord notified the Debtor that the Debtor failed to pay the full rent for the month of October. Therefore, the Landlord elected to terminate the Lease and stated that it intended to retake the premises. On the same date, the Landlord also put the Debtor on notice of Debtor’s monetary default of a Promissory Note (Note) granted by the Debtor in favor of the Landlord. Based on this default, the Landlord elected to accelerate the entire indebtedness evidenced by the Note in the principal amount of $92,333. This amount is secured by the collateral described on the Security *504Agreement executed by the Debtor in conjunction 'with the execution of the Note.
It is apparent from the foregoing that (1) the Debtor defaulted on its obligation to pay the monthly rent pursuant to the payment provisions of the Lease; and (2) notwithstanding, the Landlord accepted the two checks with full knowledge that they were not tendered on time, that the second check was post-dated, and that even when the two checks were tendered, they did not represent the full amount for the month of October. This payment by the Debtor was clearly at variance with Paragraph 3 of the Lease. Thus, the question is whether the acceptance by the Landlord of the two untimely checks operated as a waiver of the right to terminate the Lease under Paragraph 12 of the Lease and Florida Statute § 83.56(5).
It is clear that a lessor waives his right to assert a forfeiture for a breach of covenant or condition in a lease, if, after the breach of covenant, he accepts rent from his tenant with knowledge or notice of such breach. Moskos v. Hand, 247 So.2d 795, 796 (Fla. 4th DCA 1971); Farmers’ Bank & Trust Co. v. Palms Publishing Co., 86 Fla. 371, 98 So. 143 (1923). Furthermore, courts generally do not favor forfeitures and strictly construe them against parties seeking to invoke them. Waits v. Orange Creek Turpentine Corp., 123 Fla. 31, 166 So. 449 (1936). See also, Rader v. Prather, 100 Fla. 591, 130 So. 15 (1930) (holding that equity will relieve against forfeiture of a lease for non-payment of rent).
In the instant case, the Landlord waived his rights to forfeiture under the Lease through the following actions: by accepting the rent that was due on October 1, 1995, on October 18; by negotiating the first check; and by attempting to negotiate the second check. Thus, the Lease did not terminate pre-petition and the Landlord may not seek to complete its eviction action in state court.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the First Amended Motion for Relief from Stay filed by King-Funk Partnership, a Florida partnership d/b/a Sunstate Commerce Center be, and the same hereby denied without prejudice, provided that the Debtor cure the outstanding arrearages and make timely payments consistent with the terms of the Note and Lease.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492337/ | *509
ORDER DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
STEVEN H. FRIEDMAN, Bankruptcy Judge.
This matter came before the Court for hearing January 2,1996, on the motion of the Defendants, Juliana Johnston and Elizabeth T. Hanna (the “Defendants”), for summary judgment. The Chapter 7 Trustee, Patricia Dzikowski (the “Trustee”), filed a complaint seeking to avoid and recover fraudulent transfers, turnover of property, avoid redemption of stock and restitution. The Defendants have filed a motion for summary judgment and assert that the filing of the complaint was barred by the statute of limitations imposed under Section 546(a)(1) of the Bankruptcy Code. Having considered the motion, the argument of counsel, the state of the case law, and for the reasons set forth below, the Court denies the Defendants’ motion for summary judgment.
The Debtor, Johnston Irrigation, Inc. (the “Debtor”), filed a chapter 11 petition on February 21, 1992. Eventually, the case was converted to one under Chapter 7 on April 27, 1993. The Trustee filed this adversary proceeding on April 25,1995. The sole issue raised by this motion for summary judgment is whether the statute of limitations began to run on the date the Debtor filed its petition, February 21, 1992, or on the date that the Trustee was appointed, April 27, 1993. To resolve this issue, the Court must look to the language of former Section 546(a)(1) which provided—
(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.
The seemingly clear language of Section 546 has resulted in varying interpretations. Thankfully, Congress has resolved this issue by amending Section 546. Unfortunately, this case was filed before the amendment.
Six of the twelve Circuit Courts have considered whether the two year limitation period applies to a Chapter 11 debtor in possession. None of them, however, considered whether the two year period would restart upon the appointment of a chapter 11 trustee or the conversion of the case to a chapter 7. The Second, Third, Ninth and Tenth Circuits examined the relationship between Section 1107 and 546 and determined that a debtor-in-possession, having the same powers and limitations of a trustee, must commence an action within two years from the date on which the bankruptcy petition was filed to seek relief under the sections of the Code to which Section 546 applies.1 The Tenth Circuit noted that it “d[id] not believe that Congress intended to limit actions filed by an appointed trustee to two years without making the same restriction apply to a debtor in possession who is the functional equivalent of an appointed trustee.” Zilkha Energy Co., 920 F.2d at 1524. In more recent opinions, the Fourth and Seventh Circuits, taking a contrary view, have looked to the plain language of Section 546 to conclude that a debt- or-in-possession is not the equivalent of a trustee for purposes of Section 546(a)(1). Thus, according to the interpretations of the Fourth and Seventh Circuits, the two year statute of limitations does not begin until a trustee has been appointed.2
Interestingly, the decisions of the Second, Third, Ninth and Tenth Circuits have done nothing to resolve the issue of whether the two year limitation restarts upon the appointment of a trustee in either chapter 11 or chapter 7. In fact, there remains a split of ease law regarding this issue. Some courts have determined that only one statute of *510limitations exists.3 According to these eases, the two year limitation runs from the date the case is filed. However, the majority of the courts have determined that two distinct limitation periods exist.4 Each of these courts have decided that Section 546 limits the debtor-in-possession to two years from the filing of the petition and, upon the appointment of a trustee, a new two year limitation period begins. The courts that have used the latter interpretation of Section 546 have distinguished the findings by the Circuit Courts by concluding that the two year limit applies in those cases where a debtor-in-possession exists but does not apply to later appointed trustees. In effect, these courts have ignored the rationale of the decisions of the Circuit Courts and have interpreted Section 546 strictly to find that the limitation begins upon the appointment of a trustee. The Second, Third, Ninth and Tenth Circuit Courts have expressly found that the term “trustee” as used in Section 546(a) applies to debtors-in-possession. Therefore, the limitation must also apply to later appointed trustees unless Section 546 could be interpreted to mean that all later appointed trustees are entitled to a two year limitation period.
The Eleventh Circuit has not addressed the interpretation of Section 546 as it applies in this case. However, there are many decisions on this issue from the bankruptcy courts throughout the state. Again, there is a split in the ease law. Judges Proctor and Paskay from the Middle District of Florida have entered opinions in agreement with the decisions from the Second, Third, Ninth and Tenth Circuits. See, In re Knapp, 146 B.R. 294 (Bankr.M.D.Fla.1992); In re Bulman Construction Co., 172 B.R. 356 (Bankr.M.D.Fla.1994). Judge Hyman from the Southern District in a recent opinion also agrees with those Circuit Court decisions. See, In re TUSA Florida, Inc., 186 B.R. 542 (Bankr.S.D.Fla.1995). However, Judge Baynes from the Middle District has explicitly interpreted Section 546 to provide that where there is a debtor-in-possession that entity has until the close of the case to bring an action. See, Matter of Freedom Ford, Inc., 140 B.R. 585 (Bankr.M.D.Fla.1992). Although Judge Cristol, in In re Kendall Meat Imports, Inc., 176 B.R. 80 (Bankr.S.D.Fla.1994), did not consider the issue of whether the statute of limitations began to run upon the filing of the Chapter 11 case, he did find that in a Chapter 7 case, the statute did not begin to run until the date of the appointment of a permanent Chapter 7 Trustee pursuant to Section 702. Judge Cristol’s opinion can be interpreted to hold that the statute commences upon the appointment of a trustee, and not upon the filing of the case, under either Chapter 7 or 11.
Although this Court agrees with the rationale that a debtor-in-possession has the same duties, powers and limitations of a trustee, the Court reads Section 546(a) to distinguish between the powers of a trustee and/or a debtor in possession and the limitation period imposed upon an appointed trustee. Nowhere else in the Bankruptcy Code does Congress delineate between a trustee and “the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title.” If Congress had intended for the time period to run from the beginning of the case, it could have easily, and more clearly, stated that the two year period starts upon the entry of an order for relief. As noted in Tusa, “[t]he plain meaning of legislation is conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters.” Tusa, 186 B.R. at 544. This Court has the same concerns as other courts that an interpretation of Section 546 that a trustee can bring an action pursu*511ant to Section 546 within two years after appointment could sanction the filing of an action many years after the filing of a debt- or-in-possession’s chapter 11 petition, if a debtor-in-possession continued to operate and did not bring such an action. However, unlike Judge Hyman’s conclusion, this Court does not consider that interpretation to be an absurd result requiring the Court to disregard the literal application of the statute. Therefore, the Court determines that the two year limitation period begins upon the actual appointment of a trustee, and not upon the commencement of the ease. Accordingly, it is
ORDERED that the Defendants’ motion for summary judgment is denied.
. See, In re Century Brass Products, Inc., 22 F.3d 37 (2nd Cir.1994); In re Coastal Group, Inc., 13 F.3d 81 (3rd Cir.1994); In re Softwaire Centre Int'l Inc., 994 F.2d 682 (9th Cir.1993); Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th Cir.1990). Three of the four Circuits expressly denied ruling on whether the limitation period would be renewed upon the appointment of a trustee.
. In re Maxway Corp., 27 F.3d 980 (4th Cir.1994); Gleischman Sumner Co. v. King, Weiser, Edelman & Bazar, 69 F.3d 799 (7th. Cir.1995).
. In re Harry Levin, Inc., 175 B.R. 560 (Bankr.E.D.Pa.1994); In re Austin Truck Rental, Inc., 183 B.R. 398 (E.D.Pa.1995); In re EPI Products USA, Inc., 162 B.R. 1 (Bankr.C.D.Cal.1993);
. In re Ted A. Petros Furs, Inc., 172 B.R. 170 (Bankr.E.D.N.Y.1994); In re Wingspread Corp., 178 B.R. 938 (Bankr.S.D.N.Y.1995); In re Nelson Co., 167 B.R. 1018 (Bankr.E.D.Pa.1994); In re Austin Truck Rental, Inc., 177 B.R. 827 (Bankr.E.D.Pa.1995); In re Arthur F. Hazen & Co., 184 B.R. 233 (Bankr.W.D.Pa.1995); In re Continental Capital & Credit, Inc., 158 B.R. 828 (Bankr.C.D.Cal.1993); In re Ridge II, 158 B.R. 1016 (Bankr.C.D.Cal.1993); In re D-Mart Services, Inc., 138 B.R. 985 (Bankr.D.Utah 1992); In re M & L Business Machine Co., 171 B.R. 383 (D.Colo.1994); In re Peterson Distributing, Inc., 176 B.R. 584 (Bankr.D.Utah 1995). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492338/ | MEMORANDUM
ROBERT J. WOODSIDE, Chief Judge.
Before me is the Complaint of The Official Committee of Unsecured Creditors of R.M.L., Inc., previously known as Intershoe, Inc. (the “Committee”), seeking to recover $846,791.07, representing payments made by debtor Intershoe, Inc. (“Intershoe”) to defendant Conceria Sabrina (“Sabrina”). The Committee brought its claims pursuant to *607Sections 547(b) and 548(a)(2) of the Bankruptcy Code, and also seeks an award of prejudgment interest. For the reasons stated below, judgment will be rendered on the claim under Section 547 in favor of the Committee and against Sabrina in the amount of $363,575.99, and judgment will be rendered in favor of Sabrina and against the Committee on the claim under Section 548.
Procedural history
On February 18, 1992, Intershoe filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On January 20, 1993,1 issued an Order confirming the Chapter 11 plan of reorganization submitted by Intershoe. Pursuant to the terms of the confirmed plan, all claims of Intershoe for the avoidance of preferential and fraudulent transfers pursuant to Sections 547, 548 and 550 of the Bankruptcy Code were assigned to the Committee to pursue for the benefit of unsecured creditors.
On July 30, 1993, the Committee initiated the instant adversary proceeding against Sabrina, initially bringing only a claim under Section 547 of the Bankruptcy Code. Sabrina filed an answer, and extensive discovery ensued.
On June 6, 1994, the Committee filed a motion for leave to amend the Complaint to bring an additional claim under Section 548 of the Bankruptcy Code, which Sabrina opposed. On September 26, 1994, I conducted a hearing regarding the amendment, and on October 3,1994,1 issued an Order permitting amendment. The Committee filed the Amended Complaint on October 11, 1994, and Sabrina filed an Answer on October 17, 1994. Discovery proceeded on the Section 548 issues.
Subsequently the Committee twice amended its Amended Complaint with Sabrina’s consent. Sabrina filed appropriate answers.
On July 5, 1995, I conducted a trial. At Sabrina’s request, I allowed the record to remain open for the parties to submit the trial deposition of Eduardo Rossi (“Rossi”). On August 9, 1995, the parties conducted Rossi’s deposition and subsequently lodged the transcript with the Court.
On October 6, 1995, I granted the Committee’s motion for leave to take several additional trial depositions for purposes of rebuttal. Although the Committee attached several pages from one of the depositions to its reply brief, the parties did not lodge the entire transcripts with the Court.
The parties have filed their proposed findings of fact and conclusions of law and their respective briefs. All matters raised in the amended pleadings are ready for decision.
Factual findings
1. At all times relevant to the Complaint, Intershoe engaged in the business of large-scale wholesale distribution of women’s shoes, importing the bulk of its product lines from manufacturers in Italy, Spain and Yugoslavia.
2. Sabrina is a leather tannery which sells prepared skins. Sabrina leather was used as raw material in the manufacture of shoes made for Intershoe by factories in Yugoslavia.
3. During the late 1980’s, Dukes Beograd Ltd. and Dukes London Ltd. (collectively “Dukes”) functioned as a trade and purchasing agent for Intershoe in procuring supplies and services in connection with the manufacture of shoes in Yugoslavia. Dukes was owned by Mr. Savo Djukic and had no direct corporate relationship with Intershoe. The use of a Yugoslavia-based trading company was either a requirement or an expedient under local law in importing materials and commissioning and coordinating the manufacture and export of shoes from factories located in Yugoslavia.
4. Although the manner in which Inter-shoe and Dukes operated may have varied, at various times Dukes received orders from Intershoe, placed orders with the Yugoslavian factories, purchased raw materials from Italian suppliers such as Sabrina, arranged for delivery of the materials to the Yugoslavian factories, and coordinated shipment of the finished goods to Intershoe in the United States.
5. Ordinarily, foreign factories manufacturing shoes for Intershoe, such as those located in Italy and Spain, purchased their *608own raw materials. The Yugoslavian factories, however, were thinly capitalized and apparently were unable to generate sufficient credit. It is for this reason that Dukes (acting as Intershoe’s trade/purchasing agent) actually placed orders for the purchase of raw materials for use in the Yugoslavian factories in the manufacture of shoes to be sold by Intershoe.
6. By the fall of 1990, a dispute developed between Intershoe and Dukes, and, subsequent to November, 1990, Intershoe ceased utilizing Dukes as a trade agent. Instead, Intershoe began using I.S. International as a trade and purchasing agent for buying materials for use by Yugoslavian factories in the manufacture of shoes to be sold by Intershoe.
7. I.S. International was a London-based company owned by Intershoe’s principal, Ivan Rempel, organized for the purpose of selling various lines of shoes in European markets. Its role as a trade and purchasing agent for Intershoe in dealing with the Yugoslavian factories was a secondary role which served as a convenience based upon its location in Europe.
8. Although I.S. International was organized to sell shoes in European markets, it generally sold different lines of shoes than did Intershoe; it did not actually begin to take orders for purchase until May or June of 1991; it did not itself purchase the raw materials that were used as the components in the manufacture of the shoes it sold; and it did not itself sell shoes that were manufactured in Yugoslavia. The evidence was undisputed that, with respect to all relevant transactions involving the purchase of leather from Sabrina, I.S. International acted solely in its capacity as a trade/purehasing agent for Intershoe in essentially the same manner as did Dukes.
9. With respect to all transactions at issue involving I.S. International, it instructed Intershoe to pay the Yugoslavian factories and the Italian suppliers directly, rather than funneling payment through I.S. International. For example, if a shoe eost $10.00 to manufacture, Intershoe would pay $8.00 to the suppliers in Italy and $2.00 to the factory in Yugoslavia.
10. By the Spring of 1991, Sabrina’s director of accounts, Silvano Da Maso (“Da Maso”), became concerned regarding payment for Sabrina leather invoiced to Dukes, and he met with Eduardo Rossi (“Rossi”), Intershoe’s representative in Italy.
11. Rossi assured Da Maso that, if Dukes did not pay Sabrina, Intershoe would tender full payment. Rossi confirmed this guarantee with a letter dated March 7, 1991. With power of attorney for Intershoe, Rossi subsequently issued formal written guarantees of payment with respect to individual shipments of leather invoiced to I.S. International, pursuant to which Intershoe was required to pay Sabrina invoices immediately upon their respective due dates if I.S. International failed to pay.1
12. Under similar circumstances, Inter-shoe guaranteed payments for the benefit of suppliers of raw materials other than Sabrina.
13. By June, 1991, Intershoe advised Sabrina that it had organized a separate, wholly-owned subsidiary corporation, Yugoslav Footwear Export D.O.O. (“Yugoslav Footwear”) to serve as a trading company in Yugoslavia. In all material respects, the relationship between Intershoe, Yugoslav Footwear and Sabrina functioned in the same manner as the relationship between Inter-shoe, I.S. International and Sabrina.
14. Intershoe’s payment history with respect to Sabrina may be summarized as follows: 2
*609Payment on invoices directed to I.S. International:
Invoice Number Date Factory Amount Line Payment Amount/ Date
5264 12/10/90 4,694,008 3/31/91* *59,966,007 paid
5255 12/10/90 12,405,270 3/31/91* on 4/29/91;
5293G 12/18/90 Bio 2,792,402 Jazz A 3/31/91* 9,128,967 paid
5294G 12/18/90 CIK 5.635.272 Jazz 3/31/91* on 5/30/91
5295G 12/18/90 CIK 11.986.748 Jazz 3/31/91*
5296G 12/18/90 Aida 31,581,274 Glacee 3/31/91*
5G 1/2/91 Kvalitet 7,859,247 Glacee M 4/30/9K® @72,801,728 paid
6G 1/2/91 Zenit 12,806,063 Glacee 4/30/91@ on 5/30/91
7G 1/2/91 Aida 22,310,413 Glacee 4/30/91@
8G 1/2/91 Zenit 4,624,948 Glacee 4/31/91@
9G 1/2/91 Aida 25,201,057 Glacee 4/31/91@
90G 1/24/91 Bio 13,012,780 Jazz 4/30/91# #47,754,771 paid
91G 1/24/91 Zenit 1,380,373 Glacee 4/30/91# on 6/10/91
92G 1/24/91 Aida 10,924,596 Glacee 4/30/91#
93G 1/24/91 Aida 22,437,022 Glacee 4/30/91#
610G 2/14/91 Bio 7,344,176 Jazz A 5/31/91 full 6/27/91
657G 2/21/91 3,871,457 5/31/91 full 7/5/91
1590G 4/8/91 Borac 90,282,070 7/31/91 +
1591G 4/8/91 Borac 56,378,250 Glacee 7/31/91 +
1601G 4/11/91 Kvalitet 47,040,384 Glacee 7/31/91 + + 304,539,052
1602G 4/11/91 Kvalitet 32,475,352 Glacee 7/31/91 + paid 12/3/91
2057G 5/8/91 Zenit 38,783,836 Glacee P 8/31/91 +
2066G 5/10/91 Kvalitet 5,294,581 Glacee 8/31/91 +
2715G 6/6/91 Kvalitet 18,778,499 Glacee 9/30/91 +
2716G 6/6/91 Borac 3,558,331 Glacee 9/30/91 +
2717G 6/6/91 Kvalitet 11.947.749 Glacee 9/30/91 +
2751G 6/19/91 Kvalitet 15,448,421 9/30/91 ~ ~ 33,943,693
2923G 6/27/91 Zenit 18.495.272 Glacee 9/30/91 ~ paid 12/27/91
3449 7/24/91 3,434,078 10/31/91 full 2/6/92
959 11/30/91 13,659,313 2/28/92 unpaid
Payment on invoices directed to Yugoslav Footwear:
Invoice Number Date Factory Amount Line Due Date Payment Amount/ Date
3653G 7/29/91 Zenit 116,175,370 10/31/91 66,531,922 paid 2/6/92
3654G 7/29/91 Kvalitet 28,631,436 10/31/91 full 12/27/91
3658G 7/29/91 Marsala 21,771,911 10/31/91 full 11/13/91
3655G 7/29/91 24,588,974 10/31/91 unpaid
3659G 7/29/91 4,143,996 10/31/91 unpaid
4185G 9/18/91 2,627,148 12/31/91 unpaid
4186G 9/18/91 13,519,270 12/31/91 unpaid
4187G 9/18/91 18,005,688 12/31/91 unpaid
4188G 9/18/91 798,297 12/31/91 unpaid
4189G 9/18/91 11,901,709 12/31/91 unpaid
4657G 10/11/91 140,104,287 1/31/92 unpaid
4658G 10/11/91 1,665,244 1/31/92 unpaid
4659G 10/11/91 79,989,490 1/31/92 unpaid
4826G 10/28/91 30,612,558 1/31/92 unpaid
4827G 10/28/91 27,052,174 1/31/92 unpaid
5277G 11/11/91 49,637,327 2/28/92 unpaid
5278G 11/11/91 77,161,068 2/28/92 unpaid
5305G 11/18/91 18,394,990 2/28/92 unpaid
5306G 11/18/91 791,720 2/28/92 unpaid
5332 11/25/91 21,251,992 2/28/92 unpaid
5333 11/25/91 9,728,951 2/28/92 unpaid
5454G 11/25/91 19,708,248 2/28/92 unpaid
5455G 11/25/91 18,877,855 2/28/92 unpaid
*610Payment on invoices directed to Dukes:
Invoice Number Date Factory Amount Due Date Payment Amount/ Date
686G 2/23/90 184,348,675 5/31/90* *106,960,000 paid 6/20/91;
695G 2/27/90 61,421,548 5/27/90* 105,195,655 paid 7/23/91
728G 2/28/90 189,114,241 5/28/90 199,970,000 paid 8/19/913
15. On or about May 3, 1991, Intershoe and Dukes entered into a settlement agreement (the “Intershoe/Dukes Agreement”) reconciling their continuing disputes and litigation that had arisen therefrom.
16. Under the form of the Inter-shoe/Dukes Agreement offered into evidence, the parties agreed that Intershoe would pay Dukes $326,023.27, and that Dukes would pay various Italian suppliers 694,880,053 lira.
17. In the form of the Intershoe/Dukes Agreement offered into evidence, Intershoe also agreed to make direct payments to suppliers, including 200,000,000 lira to Sabrina. Such payments were described as follows:
At the same time as payment [of the $3,26,023.27, Intershoe will remit Lira to the Italian suppliers listed in paragraph 4(b) in Schedule 2 which monies are otherwise due to Dukes (London) from C.I.K. and due to C.I.K. from Intershoe.
18. The evidence at trial indicated that Intershoe satisfied its obligations under the Intershoe/Dukes Agreement and that, at least during some portion of time, Dukes did not satisfy its obligations. The evidence did not, however, indicate whether Dukes finally satisfied its obligations.
19. Regardless of Intershoe’s and Dukes’ respective obligations under the Inter-shoe/Dukes Agreement, Intershoe satisfied all outstanding obligations to Sabrina with respect to invoices 686, 695 and 728.
20. KPMG Peat Marwick (“Peat Mar-wick”) was the public accounting firm engaged by Intershoe to complete annual financial audits, to prepare audited financial statements and to assist Intershoe with tax compliance.
21. In accordance with Generally Accepted Audit Standards (“GAAS”), Peat Marwick conducted a financial audit of Intershoe for the fiscal year ended August 31, 1991, and finalized an audited financial statement prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) on approximately November 15, 1991, in which it reported that, as of August 31, 1991, Inter-shoe’s total liabilities exceeded its assets by approximately $4,055,000.00.
22. Intershoe’s monthly internal operating statements also demonstrate the degree to which its financial condition had deteriorated by the fall of 1991 and continued to deteriorate. The October statement indicated a loss for the two months ending October 31, 1991, of $4,132,934.00; the November statement indicated a $390,514.00 loss for the month; the December statement indicated a $690,326.00 loss for the month; and the January statement indicated a loss of $1,245,-069.00 for the month.
23. Intershoe’s amended schedules and statements indicate an excess of liabilities over assets in the amount of approximately $14 million at the time Intershoe filed its Chapter 11 petition.
Discussion
A. Section 51*7 — Preference
Section 547(b) of the Bankruptcy Code authorizes trustees to avoid transfers of a debtor’s interest in property “if five conditions are satisfied and unless one of seven exceptions defined in subsection (c) is applicable.” Union Bank v. Wolas, 502 U.S. 151, 154-55, 112 S.Ct. 527, 529-30, 116 L.Ed.2d 514 (1991). The statute provides as follows:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any *611transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). The trustee bears the burden of proving the above elements by a preponderance of the evidence. See In re Biggs, Inc., 159 B.R. 737, 742 (Bankr. W.D.Pa.1993).
During the 90 days preceding the filing of Intershoe’s Chapter 11 petition, Intershoe made the following payments to Sabrina totaling 437,080,181 lira:
Payments related to guarantees for Yugoslav Foot>wear:
Date of Amount of
Payment . Payment (Lira)
12/27/91 28,631,436
2/6/92 66,531,922
subtotal 95,163,358
Payments related to guarantees for I.S. International:
Date of Amount of
Payment Payment (Lira)
12/3/91 304,539,052
12/27/91 33,943,693
2/6/92 3,434,078
subtotal 341,916,823
Through discovery, Sabrina admitted three of the five requisite elements of a preference: that it received the relevant payments from Intershoe in its capacity as a creditor; that the payments were received within the 90 days preceding Intershoe’s Chapter 11 filing; and that the payments were made on account of antecedent debt owing from Intershoe to Sabrina. The requirements of Section 547(b)(l)(2) and (4) being satisfied, it remains to consider the requirements of Section 547(b)(3) and (5), and whether Sabrina has met its burden of establishing any affirmative defense.
1. Section 54.7(b)(3)—insolvency
The Bankruptcy Code defines “insolvent” as a “financial condition such that the sum of [the] entity’s debts is greater than all of [the] entity’s property, at a fair valuation. ...” 11 U.S.C. § 101(32)(A). This test is frequently referred to as the balance sheet test. Pair value, in the context of a going concern, generally is determined by “the fair market price of the debtor’s assets that could be obtained if sold in a prudent manner within a reasonable period of time to pay the debtor’s debts.” In re Roblin Industries, Inc., 78 F.3d 30, 35 (2d Cir.1996). The relevant date for determining the value of a company’s assets is the time of the alleged transfer. In re Morris Communications, Inc., 914 F.2d 458, 466 (4th Cir.1990); In re Coated Sales, Inc., 144 B.R. 663, 668 (Bankr.S.D.N.Y.1992).
Pursuant to Section 547(f) of the Bankruptcy Code, a debtor is presumed to have been insolvent during the 90 days preceding the bankruptcy filing. This presumption places the burden on the creditor to go forward with evidence to rebut the presumption; however,- the ultimate burden of proof that the debtor was insolvent remains with the trustee. Biggs, 159 B.R. at 742-43; In re Total Technical Services, Inc., 150 B.R. 893, 899 (Bankr.D.Del.1993); see also 4 Collier on Bankruptcy ¶ 547.06, at 547-38-39 (15th ed. 1991).
In the instant case, the Committee relied upon the presumption that Intershoe was insolvent during the 90 days preceding its Chapter 11 filing. Additionally, the Committee offered the testimony of its expert, a certified public accountant, that Intershoe was insolvent on a fair value basis during the relevant 90-day time period. Finally, the Committee offered Intershoe’s audited finan*612cial statement wMch indicates that, as of August 31, 1991, Intershoe’s liabilities exceeded its assets by some $4 million.4 Sabrina made no affirmative showing whatsoever in the face of this evidence. Under the drcumstanees, it is clear that the Committee met its burden with respect to Section 547(b)(3).
2. Section 54.7(b)(5) — liquidation analysis
In order to establish that the requirement of Section 547(b)(5) is met, a plaintiff in a preference case must offer evidence that unsecured creditors will receive less than one hundred percent recovery on their claims in the bankruptcy case. In re Lan Yik Foods Corp., 185 B.R. 103, 108-09 (Bankr.E.D.N.Y.1995); In re Tire Kings of America, Inc., 164 B.R. 40, 41-42 (Bankr.M.D.Pa.1993). The Committee offered In-tershoe’s bankruptcy schedules which indicated that, as of the time of its Chapter 11 filing, Intershoe’s liabilities exceeded its assets by some $14 million. Additionally, the Committee’s accountant specifically testified that, if Intershoe’s bankruptcy case had proceeded under Chapter 7 of the Bankruptcy Code, unsecured creditors would have received no distribution. Sabrina offered no contrary evidence. Accordingly, I find that the Committee has met its burden of proof under Section 547(b)(5).
3. Ordinary course defense
The Committee having met its burden under all subsections of Section 547(b), judgment is appropriate in its favor on the preference claim, unless Sabrina establishes an affirmative defense. Sabrina has asserted the “ordinary course of business” defense under to Section 547(c)(2). Pursuant to Section 547(c)(2), Sabrina must establish that the otherwise preferential transfers to it were:
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms.
11 U.S.C. § 547(c)(2); see also Biggs, 159 B.R. at 743.
The purpose of the “ordinary course of business” exception is:
to leave undisturbed normal financing relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor’s slide into bankruptcy.
In re Richardson, 94 B.R. 56, 59 (Bankr.E.D.Pa.1988) (quoting H.Rep. No. 595, 95th Cong., 1st Sess. 373 (1977), U.S. Code Cong. & Admin.News 1978, pp. 5787, 6329). More particularly, the Third Circuit described the purpose of a preference action and the function of the “ordinary course of business” exception as follows:
On the one hand the preference rule aims to ensure that creditors are treated equitably, both by deterring the failing debtor from treating preferentially its most obstreperous or demanding creditors in an effort to stave off a hard ride into bankruptcy, and by discouraging the creditors from racing to dismember the debtor. On the other hand, the ordinary course exception to the preference rule is formulated to induce creditors to continue dealing with a *613distressed debtor so as to kindle its chances of survival without a costly detour through, or a humbling ending in, the sticky web of bankruptcy.
In re Molded Acoustical Prod., Inc., 18 F.8d 217, 219 (3d Cir.1994).
In order to qualify for treatment under the ordinary course of business exception, the transferee must establish that transfers of property were made in the normal course of business between the parties, and that the transfers were made according to ordinary business practices in the industry. Molded Acoustical, 18 F.3d at 223; In re Fred Hawes Organization, Inc., 957 F.2d 239,243-44 (6th Cir.1992); Biggs, 159 B.R. at 744; In re Lila, Inc., slip op., 1993 WL 62382 (Bankr.E.D.Pa. Mar. 5, 1993) (collecting eases). These two distinct inquiries are often referred to respectively as the “subjective test” and the “objective test.” See Biggs, 159 B.R. at 744. As to all elements of the exception, the burden of proof is upon the transferee, and the applicable standard of proof is the preponderance of the evidence standard. In re Midway Airlines, Inc., 69 F.3d 792, 797 (7th Cir.1995); Advo-System, Inc. v. Maxway Corp., 37 F.3d 1044, 1047 (4th Cir.1994).
a. Section 54.7(c)(2)(A) — debt incurred in ordinary course
The Committee disputes whether the Intershoe obligations at issue were incurred in the ordinary course of business between the parties for purposes of Section 547(c)(2)(A). While the Committee’s arguments to this effect are supported by some degree of logic, I am satisfied that the guarantee by a principal-in-interest of payment owed by its trade/purchasing agent is a sufficiently ordinary practice in business to satisfy the requirement. Testimony offered by Sabrina indicating that Intershoe guaranteed payments to other suppliers of raw materials supports this conclusion to a degree, and I take judicial notice that a guarantee is a standard commercial device.
b. Section 547(c)(2)(B) — the “subjective” inquiry
In determining whether the second requirement of Section 547(c)(2) is satisfied, “the focus of the inquiry is subjective, i.e., were the payments made in the ordinary course of dealings between the parties.” In re Daedalean, Inc., 193 B.R. 204, 211 (Bankr.D.Md.1996). Such determination is “peculiarly factual,” and I normally consider factors such as:
the length of time the parties have engaged in the type of dealing at issue, whether the subject transfer was in an amount more than usually paid, whether the payments were tendered in a manner different from previous payments, whether there appears any unusual action by either the debtor or creditor to collect or pay on the debt, and whether the creditor did anything to gain an advantage (such as gain additional security) in light of the debtor’s deteriorating financial condition.
Richardson, 94 B.R. at 60 (citations omitted); see also In re Grand Chevrolet, Inc., 25 F.3d 728, 732 (9th Cir.1994); Fred Hawes, 957 F.2d at 244; In re Pittsburgh Cut Flower Co., 124 B.R. 451, 460-61 (Bankr.W.D.Pa.1991). The creditor must demonstrate some consistency with other business transactions between the debtor and the creditor, rather than a rigid conformance to past transactions. Daedalean, 193 B.R. at 211; Lan Yik, 185 B.R. at 111.
A comparison between a past payment history and the timing of the preferential payments often constitutes persuasive evidence that such payments were made outside the ordinary course of business. See, e.g., In re Tolona Pizza Products Corp., 3 F.3d 1029, 1032 (7th Cir.1993) (noting that late payments generally will not be in the ordinary course of business); In re Anderson-Smith & Associates, Inc., 188 B.R. 679, 686 (Bankr.N.D.Ala.1995) (finding that late payment establishes a rebuttable presumption that payment was not made in the ordinary course of business); In re Braniff, Inc., 154 B.R. 773, 780 (Bankr.M.D.Fla.1993) (same). The pre-preference period conduct of the parties often has been described as a “baseline of dealings” from which to determine the ordinariness of the preference payments. See, e.g., Lan Yik, 185 B.R. at 111.
*614Courts, however, generally have rejected a per se rule that late payments can never be ordinary. See generally Grand Chevrolet, 25 F.3d at 732. Instead, late payments may be protected under the ordinary course of business exception “if those payments are the ordinary practice of the debtor and the other two elements of § 547(c)(2) are proven.” Beading China and Glass Co. v. Loomis Co., slip op., 1992 WL 55707 (E.D.Pa. Mar. 11, 1992); see also Grand Chevrolet, 25 F.3d at 732; In re Yurika Foods Corp., 888 F.2d 42, 45 (6th Cir.1989); In re Parkline Corp., 185 B.R. 164, 169 (Bankr.D.N.J.1994); Lan Yik, 185 B.R. at 111; In re Rave Communications, Inc., 128 B.R. 369, 372 (Bankr.S.D.N.Y.1991) (stating that “[l]ate payment in conformity with the prior course of dealing is in the ordinary course of business”). Thus, while an analysis of past payment history serves as a significant factor and a guide post, it is not always, by itself, determinative; rather, other relevant factors should be considered according to their appropriate weight under the circumstances. Daedalean, 193 B.R. at 213.
In the instant ease, I first note that Sabrina’s shipments generally were made on open credit supported by Intershoe’s guarantee, with a specific due date written on the face of the invoice. Due dates generally were set an average of three to four months after invoice.
The Committee’s evidence established that invoices were paid an average and median number of 30-32 days after the specified due date during the pre-preference period, and that, during the preference period, invoices were paid an average and median number of 94 days late.5
While late payment is not the only relevant criterion, given the large disparity in lateness as between the pre-preference and preference periods, Sabrina should have gone forward with some evidence to explain the lateness and reconcile it with the parties’ ordinary business practice, i.e., the baseline of 30-31 days lateness. Sabrina did offer evidence that: during the preference period it never held up any shipment of leather to secure payment; it never instituted legal proceedings to recover amounts owed to it from Intershoe; it did not alter its credit terms for leather manufactured into shoes destined for Intershoe; and the preference payments were no larger than payments during the pre-preference period. These negative proofs, however, while relevant, do not function to explain the unusual lateness of the preference payments in ordinary business terms or to offset the weight of such lateness in the subjective analysis.6 Under the circumstances and lacking such affirmative proof, I find that Sabrina has failed to meet its burden under Section 547(c)(2)(B). Compare Molded Acoustical, 18 F.3d at 228 (upholding conclusion that payments made 89 days late were outside of parties ordinary course relationship where prior pattern established that payments were normally made 58 days late); In re National Enterprises, Inc., 172 B.R. 829, 833 (Bankr.E.D.Va.1994) (finding payments outside ordinary course of business when the lateness of payment more than doubled during the preference period as compared to prior practice); In re Lila, Inc., slip op., 1993 WL 62382 (Bankr.E.D.Pa. Mar. 5, 1993) (finding ordinary course of business *615between the parties to have been payment within 45 days after invoice, and payments made outside such period were deemed to be outside the ordinary course of business exception); Samar Fashions, Inc. v. Private Line, Inc., 116 B.R. 417, 419-20 (E.D.Pa.1990) (holding payments made 88 and 110 days late to have been outside the ordinary course of business between parties where the debtor paid 45 days late on average); In re Homes of Port Charlotte, Florida, Inc., 109 B.R. 489, 491 (Bankr.M.D.Fla.1990) (holding payments made over 76 days from the date of invoice to have been outside the ordinary course of business between the parties where the evidence established that the prior pattern between the parties was for debtor to pay 28-76 days after the invoice date),
c. Section 51.7(c)(2)(C) — The “objective” inquiry
With regard to Section 547(e)(2)(C)’s objective element of the ordinary course of business defense, I must examine the factors identified above in the broader context of similar transactions between parties similarly situated. Id. Courts have had difficulty, however, in applying this analysis. To provide appropriate guidance, in Tolona Pizza, 3 F.3d at 1029, the Seventh Circuit held
that “ordinary business terms” refers to the range of terms that encompasses the practices in which firms similar in some general way to the creditor in question engage, and that only dealings so idiosyncratic as to fall outside that broad range should be deemed extraordinary and therefore outside the scope of subsection C.
Id. at 1033 (emphasis in original).
Defining “ordinary business terms” to encompass a broad range of terms used in the relevant industry spares the creditor the task of
prov[ing] the existence of some single, uniform set of industry-wide credit terms, a formidable if not insurmountable obstacle given the great variances in billing practices likely to exist within the set of markets or submarkets which one could plausibly argue comprise the relevant industry.
Molded Acoustical, 18 F.3d at 224. Defining the relevant industry to encompass “firms similar in some general way to the creditor” recognizes that in most cases it is “difficult to identify the industry whose norm shall govern.” Advo-System, 37 F.3d at 1049 (quoting Tolona Pizza, 3 F.3d at 1033).
In Molded Acoustical, the Third Circuit adopted and elaborated upon the Seventh Circuit’s flexible approach “with a rule that subsection C countenances a greater departure from that range of terms [representative of the industry norm] the longer the pre-insolvency relationship between the debtor and creditor was solidified.” Molded Acoustical, 18 F.3d at 220 (emphasis in original). Molded Acoustical is succinctly summarized as follows:
Molded Acoustical says that the extent to which a preference payment’s credit terms can stray from the industry norm yet still satisfy § 547(c)(2)(C) depends on the duration of the debtor-creditor relationship. “[T]he more cemented (as measured by its duration) the pre-insolvency relationship between the debtor and the creditor, the more the creditor will be allowed to vary its credit terms from the industry norm yet remain within the safe harbor of § 547(c)(2).” A “sliding-scale window” is thus placed around the industry norm. On one end of the spectrum, “[w]hen the relationship between the parties is of recent origin, or formed only after or shortly before the debtor sailed into financially troubled seas, the credit terms will have to endure a rigorous comparison to credit terms used generally in a relevant industry.” In such a case, only those “departures from [the] relevant industry’s norms which are not so flagrant as to be ‘unusual’ remain within subsection C’s protection.” On the other end of the spectrum, “when the parties have had an enduring, steady relationship, one whose terms have not significantly changed during the pre-petition insolvency period, the creditor will be able to depart substantially from the range of terms established under the objective industry standard inquiry and still find a safe haven in subsection C.” In any event, “[e]ven when the debtor/creditor relationship has been well-settled prior to the *616debtor’s insolvency, should the creditor be unable to fit its terms within the sliding-scale window surrounding the established industry norm, the preferential transfer will not be deemed unavoidable by virtue of § 547(e)(2), although the terms of §§ 547(c)(2)(A) & (B) are fulfilled. That is to say, the parties’ longstanding credit terms, although consistent as between them, may depart so grossly from what has been established as the pertinent industry’s norms that they cannot be seriously considered usual and equitable with respect to the other creditors.”
Advo-System, 37 F.3d at 1049 (citations omitted) (quoting Molded Acoustical, 18 F.3d at 226); see also Midway Airlines, 69 F.3d at 797 (stating that “to satisfy section 547(c)(2)(C), the creditor need establish only that its own dealings with the debtor are situated “within the outer limits of normal industry practice’ ” (citation omitted)).
In the instant case, I note that the evidence on the industry standard was limited to evidence of the Intershoe/Sabrina payment history. I already have found, however, that the pre-preference period payment history differed substantially from the timing of the preference payments; therefore, to the extent that an industry standard could be established by evidence of the parties’ relationship during the pre-preference period, that industry standard would not have been met by Intershoe during the preference period.
Moreover, I find Sabrina’s failure to proffer any evidence of an industry standard exclusive of the parties’ course of dealings to be fatal to its Section 547(c)(2) defense. While Sabrina’s several-year course of dealings with Intershoe may have moved the Molded Acoustical analysis somewhere toward Sabrina’s end of the sliding scale, the relationship was not of sufficient longevity to absolve Sabrina of any requirement of proffering any evidence whatsoever to establish a range of conduct in a relevant industry with which to compare the parties’ practices. Compare Roblin, 78 F.3d at 43 (finding that “the behavior of the parties cannot be sufficient in and of itself to sustain the creditor’s burden of proof with respect to ordinary business terms in the industry”); Midway Airlines, 69 F.3d at 798 (same). Under the circumstances, I find that Sabrina has failed to meet its burden of proof under Section 547(c)(2)(C).
4. Section 51p7(c)(k) — new value
Under Section 547(c)(4), the provision of “new value” constitutes an affirmative defense to an otherwise voidable preference. Pursuant to the defense, a transfer is not avoidable to the extent the creditor can establish that the transfer was followed by an advance of new value to the debtor on an unsecured basis. In re Lease-A-Fleet, Inc., 155 B.R. 666, 684 (Bankr.E.D.Pa.1993).7 In order to calculate the amount of new value to be applied against preferential payments, most courts apply a “subsequent advance” method of calculation. The method
looks at the 90-day preference period and calculates the difference between the total preferences and the total advances, provided that each advance is used to offset only prior (although not necessarily immediately prior) preferences.
In re Meredith Manor, Inc., 902 F.2d 257, 259 (4th Cir.1990); see also In re M & L Business Machine Co., 160 B.R. 851, 855 (Bankr.D.Colo.1993); aff'd, 167 B.R. 219 (D.Colo.1994); In re Ladera Heights Community Hosp., Inc., 152 B.R. 964, 969 (Bankr.C.D.Cal.1993).
The burden of establishing the existence of new value and the amount of new value is on the creditor who has received the transfer. In re Jet Florida Systems, Inc., 861 F.2d 1555, 1558-59 (11th Cir.1988), cited affirmatively in In re Spado, 903 F.2d 971, 976 (3d Cir.1990). The amount of new value must be proved with specificity. In re Arrow Air, Inc., 940 F.2d 1463, 1466 (11th Cir.1991).
Although in its Answer Sabrina plead “new value” as a defense, it did not argue the issue in its brief. Sabrina’s exhibit summarizing the Intershoe/Sabrina payment history does *617indicate that three invoices were issued after the dates of the preferential payments. However, no testimony was offered to establish the dates that shipment was made with respect to such invoices, ie., the dates that new value may have been advanced. Nor was any specific evidence, other than a reference to the three invoices, offered that would establish that Sabrina provided any leather for Intershoe’s ultimate benefit after the date of the first preferential payment. Absent such proof, I find that Sabrina has failed to establish a new value defense pursuant to Section 547(e)(4) of the Bankruptcy Code.
B. Section 548 — Fraudulent Transaction
Pursuant to Section 548(a)(2) of the Bankruptcy Code, the Committee seeks to avoid Intershoe’s guarantees to Sabrina and recover monies paid with respect to all transfers the Committee sought to recover on a preference theory, plus additional transfers which occurred within the one-year period preceding Intershoe’s Chapter 11 filing as follows:
Payments related to Dukes:
Date of Amount of
Payment Payment (Lira)
6/20/91 106,960,000
7/23/91 105,195,655
8/19/91 199,970,000
subtotal 412,125,1558
Payments related to guarantees for Yugoslav Foob wear and I.S. International:
Date of Amount of
Payment Payment (Lira)
4/29/91 59,966,007
5/30/91 9,128,967
5/30/91 72,801,728
6/10/91 47,754,771
6/27/91 7,344,176
7/5/91 3,871,457
11/13/91 21,771,911
222,639,017
Section 548(a)(2) provides in relevant part:
the trustee may avoid any transfer of an interest of the debtor in property, that was made or incurred on or within one year before the date of filing of the petition, if the debtor voluntarily or involuntarily—
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(1) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
11 U.S.C. § 548(a). Section 548(a)(2) thus permits avoidance if the trustee can establish:
(1) that the debtor had an interest in property;
(2) that a transfer of that interest occurred within one year of the filing of the bankruptcy petition;
(3) that the debtor was insolvent at the time of the transfer or became insolvent as a result thereof; and
(4) that the debtor received “less than a reasonably equivalent value in exchange for such transfer.”
BFP v. Resolution Trust Corp., — U.S. -, -, 114 S.Ct. 1757, 1760, 128 L.Ed.2d 556, reh’g denied, — U.S. -, 114 S.Ct. 2771, 129 L.Ed.2d 884 (1994); Butler v. Lomas and Nettleton Co., 862 F.2d 1015, 1017 (3d Cir.1988).
The parties agree that, under Section 548 of the Bankruptcy Code, the ultimate burden of proof rests upon the Committee. See Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 648 (3d Cir.1991), cert. denied sub nom. Committee of Unsecured Creditors v. Mellon Bank, N.A., 503 U.S. 937, 112 S.Ct. 1476, 117 L.Ed.2d 620 (1992); Pittsburgh Cut Flower, 124 B.R. at 456. However, the Committee contends that, once the plaintiff has made a prima facie case of a fraudulent transfer, the burden to proceed with the evidence shifts to the defendant. See, e.g., In re Minnesota Utility Contracting, Inc., 110 B.R. 414, 418-20 (D.Minn.1990); In re Suburban Motor Freight, Inc., 124 B.R. 984, 994-95 (S.D.Ohio 1990).
The first two requirements of Section 548 are not in dispute. The parties disagree as to whether Intershoe received reasonably equivalent value in exchange for the transfers and whether Intershoe was insolvent at the time the relevant transfers occurred.
*6181. Reasonably equivalent value
The term “reasonably equivalent value” is not defined in the Bankruptcy Code.9 Courts recently have rejected any fixed mathematical formula for determining reasonably equivalent value and instead have reviewed and considered the totality of the circumstances surrounding the transaction. See Barrett v. Commonwealth Federal Savings and Loan Ass’n, 939 F.2d 20, 23 (3d Cir.1991); see also In re Fairchild Aircraft Corp., 6 F.3d 1119, 1125-26 (5th Cir.1993) (stating that “[although the minimum quantum necessary to constitute reasonably equivalent value is undecided, it is clear that the debtor need not collect a dollar-for-doUar equivalent to receive reasonably equivalent value”).
Preliminarily, I note that payments on an existing guarantee generally are considered to be for reasonably equivalent value. The courts generally recognize that “[a] proportionate reduction in rights or liability constitutes an exchange of reasonably equivalent value for fraudulent transfer purposes under the Bankruptcy Code.” In re Walters, 163 B.R. 575, 581 (Bankr.C.D.Cal.1994).
In this case, however, the Committee not only challenges the payment on Intershoe’s guarantees to Sabrina as unsupported by reasonably equivalent value but also the guarantees themselves, which also occurred within the one year preceding Intershoe’s Chapter 11 filing.
Generally transfers made or obligations incurred (including guarantees) solely for the benefit of third parties do not furnish reasonably equivalent value. See In re Chicago, Missouri & Western Railway Co., 124 B.R. 769, 773 (Bankr.N.D.Ill.1991). However, exceptions to the general rule can be found where the debtor receives the benefit of the original consideration, id. at 773, or where the debtor and third party “are so related or situated that they share an identity of interests because what benefits one will, in such case benefit the other to some degree.” In re Pembroke Development Corp., 124 B.R. 398, 400 (Bankr.S.D.Fla.1991) (citation omitted).
In the instant case, through the admission of answers to interrogatories, the Committee established that the relevant transfers were made by Intershoe in payment of Sabrina invoices directed to third parties (Dukes, I.S. International and Yugoslav Footwear). The Committee contends that such evidence was sufficient to establish a prima facie case under Section 548(a)(2).
In response, Sabrina introduced uncontra-dicted testimony and documentary evidence, including the testimony of both Sabrina and Intershoe officers, that indicated that, with respect to all relevant transfers at issue: 1) Dukes, I.S. International and Yugoslav Footwear acted as Intershoe’s authorized and disclosed trade/purehasing agents;10 2) Inter-shoe guaranteed payment on and paid only Sabrina invoices that related to leather to be used in the manufacture of shoes to be manufactured in Yugoslavia and destined for In-tershoe; 3) without such guarantee, Sabrina may not have delivered the leather to the factories for manufacture into shoes destined for Intershoe; 4) with limited exception, In-tershoe actually received the shoes manufactured from the leather for which it guaranteed payment; and 5) with limited exception, Intershoe paid the factories and material suppliers (including Sabrina) directly, satisfying both its obligation to pay its trade/purchasing agent for the shoes and its guarantee to the material suppliers (including Sabrina).
*619The Committee countered by asserting that the evidence introduced by Sabrina was incompetent and inspecific as to whether In-tershoe actually physically received the shoes manufactured from leather for which it paid Sabrina and thus whether Intershoe truly received the benefit of the transfers. The Committee identified three instances in which Intershoe may not have received the shoes and/or in which Intershoe may have made a double payment.
The specific exceptions, discussed below, however, do not prove the rule. I found the testimony of the Sabrina and Intershoe officers to be direct and specific in describing the relationship between Intershoe, its trade/purehasing agents and Sabrina. It is especially telling that the Committee produced no witness from Intershoe to rebut that testimony. To the extent the Committee’s prima facie burden was met by Sabrina’s admissions, Sabrina’s evidence was more than sufficient to shift the burden back to the Committee to prove its case.
In other words, the testimony of Sabrina and Intershoe officers established that Inter-shoe realized some degree of benefit from its transfers to Sabrina, contrary to the Committee’s assertion that no benefit was established. Because, with limited exception, the Committee’s evidence was generalized (i.e., the invoices were directed to Dukes, I.S. International and Yugoslav Footwear, therefore, no benefit to Intershoe), Sabrina need only have offered generalized evidence (i.e., Dukes, I.S. International and Yugoslav Footwear were acting as Intershoe’s trade/pur-ehasing agents in the acquisition of materials and services for the manufacture of shoes to be sold by Intershoe) to shift the burden back to the Committee.
Indeed, any other rule would be patently unfair to the defendant. A supplier who is the beneficiary of a guarantee has little control over the consideration it provides, and it would be extremely burdensome to require the supplier, through discovery, to attempt to trace every single shipment of its goods through manufacturing, international commerce, and the hands of the guarantor’s agents when all parties are fully aware that the materials are being used in the manufacture of goods to be delivered to the guarantor. A fraudulent conveyance defendant should be required to confront and meet particularized evidence adduced by a trustee or committee; it should not, however, be required to trace the entire history of every shipment of its merchandise to meet a generalized (and largely unsupported) contention that value intended for the debtor never actually arrived at its doorstep.
My conclusion as to the parties’ respective burdens is supported by the decision of the Third Circuit in the Metro Communications case. There, an official committee of unsecured creditors sought, inter alia, to avoid an alleged fraudulent conveyance to a bank which financed a leveraged buyout (“LBO”) of a Chapter 11 debtor’s stock and received, in return, the debtor’s guarantee of repayment and a security interest in the debtor’s assets collateralizing the guarantee. The committee contended that the defendant gave no value in exchange for the guarantee and security interest.
In making its determination, the Third Circuit acknowledged that the debtor corporation, as the target in an LBO, receives no direct benefit in the transaction. Metro Communications, 945 F.2d at 646. However, the Third Circuit determined that “[i]f the consideration [the debtor] received from the transaction, even though indirect, approximates the value it gave [the acquiring corporation], this can satisfy the terms of the statute.” Metro Communications, 945 F.2d at 646. The Third Circuit found indirect benefits in the debtor’s ability to borrow working capital from the bank subsequent to the LBO. It also concluded that the bankruptcy court had failed to account for value produced by the LBO itself in terms of a “strong synergy” between the debtor and the acquiring corporation. Metro Communications, 945 F.2d at 647.11
*620More importantly, the Third Circuit decided against the committee for having failed to go through the exercise of quantifying the value of the indirect benefits. It stated:
Although the [indirect benefits] no doubt had value, the Committee introduced no evidence to support its burden of showing that [the debtor] received less than reasonably equivalent value in exchange for its guaranty and security interest. The Committee acted on the blind assumption that they had no value....
Id. at 648. Thus the Circuit did not put the defendant through the difficult exercise of quantifying the exact value received in absence of specific evidence adduced by the committee. See also In re Lawrence Paperboard Corp., 76 B.R. 866, 876 (Bankr.D.Mass.1987) (stating that “[a]t trial, there will be no question that the Committee will have the burden of quantifying the consideration”).
In the instant case, the Committee’s generalized assertion that Intershoe received no value can similarly be characterized as “blind assumption,” which was specifically rebutted by direct testimony adduced by Sabrina as to the relationship between Intershoe, its trade/purehasing agents and Sabrina, and In-tershoe’s status as the principal-in-lnterest with respect to all relevant transactions. To put issues of misdelivery or nondelivery fairly into play, I find that the Committee would have to offer particularized evidence. With limited exception, no such particularized evidence was offered; therefore, I find that the Committee has failed to meet its burden with regard to the bulk of the transactions.
The Committee did identify three particularized instances in which actual delivery was put into dispute: 1) the case of shoes stored at the Kvalitet factory when it was destroyed; 2) the case of approximately 85,000 pairs of shoes claimed not to have been delivered from the Aida factory; and 3) the case of the Intershoe/Dukes transactions,
a. the Kvalitet shoes
With respect to the shoes destroyed in Kvalitet, Rossi’s testimony was as follows:
A At the end, I remember that we were holding in that factory only 117 pairs, and I received one phone call informing me that the factory had been destroyed.
Q. Do you know whether in the factory when it was destroyed there were supplies?
A Practically no, because as I told you, we were at the end of the production. They had to ship to us only 117 pairs, so the balance of the quantity that we gave in that season, it had already been shipped.
Rossi Dep., at 130.
This might be a different case if it was a claim for recovery of the cost of materials to make 117 pairs of shoes. The Committee, however, offered no evidence from which a value could be placed upon those shoes. Moreover, in context, it is clear that the issue of 117 pairs of shoes is a de minimus issue. There is no basis to generalize from this incident a conclusion that the Inter-shoe/agent/Sabrina relationship wasn’t exactly as described in the bulk of the testimony offered by Sabrina.
b. the Aida shoes
The second exception involves a dispute between Intershoe, Dukes and the Ada factory in Yugoslavia involving approximately 81,000 pairs of shoes, a much more significant event. The Committee suggested that Intershoe paid Sabrina for leather sent to the Ada factory which was intended to be used in the manufacture of these shoes, which shoes either were not actually manufactured or did not ultimately reach Intershoe. The Committee pointed to several documents used to cross-examine Rossi which suggest that in the early summer of 1991, Intershoe was attempting to reconcile a dispute over the Ada shoes. A flavor of the Committee’s proofs on this point can be gleaned from Rossi’s testimony as follows:
Q. ... isn’t it true that 812,29412 pairs of shoes were never shipped from the Ada factory to the United States?
A. Where is this written?
* * * * * *
*621Q. I would like you to look at Schedule 2, and look at No. 3.
A. No. 3, yes.
Q. Does that refresh your recollection that Aida had not shipped approximately $630,000 worth of shoes to Intershoe?
A. (In English) Just a moment. Let me see.
(Through the Interpreter) This, though, says something else.
The shoes were shipped. The materials were not paid for. The materials that were given to the factory were not paid for.
The shipment was made, the goods were shipped, but the factory had not paid for the goods that were used to then make the shoes.
Q. But Intershoe was supposed to recover from Aida $630,000, is that correct? A. Yes.
Q. Wasn’t Dukes supposed to sell shoes in the Soviet Union?
A. Yes.
Q. And weren’t the shoes that Dukes was supposed to sell in the Soviet Union the shoes referred to in Schedule 3?
A. That is what was supposed to happen.
Q. And isn’t it true that Dukes never sold those shoes?
A. It could have been.
Rossi Dep., at 100-02. Thus, the most specific evidence available with respect to the Aida shoes is that they were delivered into the hands of Dukes, Intershoe’s authorized trade/purehasing agent, for sale in the former Soviet Union, and that Dukes may at some time actually have sold the shoes for Intershoe’s benefit. It is difficult to imagine how some speculative liability on the part of Dukes may be transformed into a fraudulent conveyance action against Sabrina.13
The documentary proofs submitted by the Committee establish at most that, at some point around the Spring of 1991, there was a dispute over the Aida shoes and that the dispute continued at least through the consummation of the Intershoe/Dukes Agreement.14 Without a witness to testify as to the future course of events, I am also unwilling to presume from the'snapshot provided by the Committee that the Aida dispute never was finally resolved.
c. the Intershoe/Dukes Agreement
Intershoe’s guarantee of the invoices to Dukes and the associated Intershoe/Dukes Agreement present the most troubling set of circumstances. First, the guarantees were given with respect to payment for leather that already had been shipped; whereas, all other guarantees appear to have been pre-shipment guarantees. Therefore, the value Intershoe received from shoes made from the leather does not correlate as directly with the guarantees.
Additionally, the Committee’s contention that Intershoe paid both Dukes and Sabrina with regard to the same leather finds some support in the evidence. The evidence established that Intershoe made all required payments under the Intershoe/Dukes Agreement. The evidence also established that Intershoe paid Sabrina 412,125,655 lira related to invoices 686, 695 and 728; however, under the Intershoe/Dukes Agreement, In-tershoe’s contribution with respect to these invoices would have been limited to 200,000,-000 lira.15 Therefore, it appears that Inter-*622shoe may have paid Sabrina some 212,125,-655 lira which it was not obligated to pay under the form of the Intershoe/Dukes Agreement submitted into evidence. Additionally, the testimony confirmed that, at least during some portion of time, Dukes was withholding payments to the suppliers to which it had agreed under the Inter-shoe/Dukes Agreement.
Further than that, the evidence related to the Intershoe/Dukes Agreement was murky. One former Intershoe insider confirmed the existence of a double payment, while another discounted the possibility. None of the witnesses presented had comprehensive knowledge of the Intershoe/Dukes Agreement, and none was willing to testify that Dukes ultimately failed to fulfill its obligations thereunder.
Moreover, I have concerns about the extent to which the Intershoe/Dukes Agreement can be utilized by the Committee against Sabrina in absence of informed testimony to validate the document. Sabrina was not a party to the agreement such that it might constitute an admission. Former In-tershoe insiders disagreed over the history of payment under the agreement. Additionally, at least one witness testified that the form of the agreement submitted into evidence was not the final form. Therefore, although both parties ultimately sought to refer to the agreement in their cases, I give limited weight to the document in terms of assessing whether the Committee has met its burden.
It must be remembered too that, by the time the Intershoe/Dukes Agreement was executed (whatever its final form), Intershoe already had guaranteed payment to Sabrina of the Dukes invoices. Therefore, regardless of whether Intershoe paid Dukes more than it was entitled to, Intershoe paid Sabrina once on its guarantee for leather from which it benefited. It appears that it is Dukes, not Sabrina, that may not have provided value relating to the payments it received under the Intershoe/Dukes Agreement. Again, whatever Intershoe’s grievances may have been against its own former trade/purchasing agent, I conclude that they cannot be transformed into a fraudulent transactions case against Sabrina.
The guarantees of Dukes’ performance themselves, while they occurred post-shipment, also were supported by value. First, the testimony indicated that Sabrina was reluctant to continue to ship leather to under-capitalized factories in Yugoslavia, an unstable part of the world, in absence of such guarantees. Thus, the guarantees had the effect of permitting a continued extension of credit to Intershoe’s trade/purchasing agents, which kept Intershoe’s foreign-commissioned production process intact. Compare Metro Communications, 945 F.2d at 646-47 (finding value in the continued ability to receive credit). Additionally, although Sabrina did not argue the point, it is likely that Intershoe’s post-shipment guarantee of its agents’ obligations was not necessary, as In-tershoe already would have been liable for payment. As stated in American Jurisprudence 2d:
It is a fundamental rule underlying the structure of agency law that the principal is bound by, and liable for, the acts which his agent does with or within the actual or apparent authority from the principal and within the scope of the agent’s employment, or which the principal ratifies. Thus, a principal is bound by, and is liable upon, a contract executed properly as to form by his agent, within the actual or apparent authority of the agent, and with the understanding that the agent is contracting on behalf of the principal.
3 AM.JuR.2d Agency § 270 (1986) (footnotes omitted).16
In sum, the Committee’s “blind assumption” that no value was provided by Sabrina *623is rebutted by substantial evidence that: 1) Intershoe was the principal-in-interest and the actual or intended beneficiary of every single relevant transaction that was the subject of this case; and 2) Intershoe’s guarantees had the effect of maintaining its agents’ credit with Sabrina and permitting Intershoe to continue to commission manufacturing services from the Yugoslavian factories. In the face of Sabrina’s evidence, the Committee offered no credible evidence that would suggest that Sabrina did not deliver all leather for which Intershoe paid to the factories for Intershoe’s actual or intended benefit. In-tershoe may have suffered a degree of loss at the hands of its own international trade/purchasing agents or may have suffered a volume loss for the fact that it chose to take the risk of commissioning manufacturing services in an economically unstable part of the world; however, the Committee failed to establish that the possibility of such losses took the obvious value provided by Sabrina outside the realm of reasonably equivalent value.
2. Insolvency
In order to meet its burden under Section 548(a)(2), the Committee was required to establish that Intershoe was insolvent at the time of all relevant transfers, or, essentially, during the one year period preceding Intershoe’s Chapter 11 filing. Sabrina has repeatedly objected to the admissibility of the expert testimony of the Committee’s accountant on the ground that the Committee failed to produce information in discovery upon which it relied at trial.
Although I stated previously that Sabrina’s objection would be overruled generally, I was troubled by the failure of the Committee to disclose in its answers to Sabrina’s expert witness interrogatories its theory that Inter-shoe’s financial statement covering August 31, 1990, and August 31, 1991, understated Intershoe’s liabilities by some $3.4 million due to an improper classification of certain stock purchase warrants held by Westinghouse Corporation. While the theory was not necessary to establish that Intershoe was insolvent as of the August 31, 1991, date, the theory was essential to the Committee’s contention that Intershoe was insolvent during the prior 6 month period.
Because I have concluded that the Committee failed to establish a lack of reasonably equivalent value by a preponderance of the evidence, it is unnecessary to resolve this issue. I merely note that a decision as to the proper financial treatment of Intershoe’s liabilities in light of the Westinghouse stock purchase warrants is unnecessary to my conclusion reached in connection with the Committee’s preference claims that Intershoe was insolvent during the 90 days preceding its Chapter 11 filing.17
C. Conversion of foreign currency
The Committee argues that its judgment should be converted from Italian lira to American dollars as of the time of the contested transfers. Sabrina offered no counterargument and did not contest the Committee’s conversion figures or arithmetic. Accordingly, pursuant to the Committee’s request, I take judicial notice of the exchange rates from Italian lira into United States dollars as published in the Journal of Commerce or the Wall Street Journal, for the dates of the transfers, and the judgment on the preference claims in the amount of 437,-080,181 lira will be converted to $363,575.99.
D. Prejudgment interest
The award of prejudgment interest in a preference case is in the discretion of the bankruptcy court. I have generally followed a line of cases that awards prejudgment interest only where the defendant does not put forth a substantial defense. See, e.g., In re Lessig Constr., Inc., 67 B.R. 436, 437 (Bankr.E.D.Pa.1986); In re Demetralis, 57 B.R. 278, 284 (Bankr.N.D.Ill.1986).
I acknowledge the weakness of Sabrina’s ordinary course defense in this case. However, a large portion of the effort and time in this case was expended with respect to the fraudulent transactions actions. In my judgment, the Committee’s fraudulent transactions case was little stronger than Sabrina’s ordinary course defense. The fraudulent *624transactions claim added nearly $500,000.00 to the Committee’s trial demand, making settlement of the overall action, even at a moderate percentage of the demand, a dim prospect. Under the circumstances, I do not find it appropriate to charge Sabrina with prejudgment interest with respect to any of the Committee’s claims.
Conclusions of law
1. I have jurisdiction over the instant adversary proceeding pursuant to Sections 157 and 1334 of the Judicial Code. Pursuant to Section 157(b)(2)(F) and (H), the proceeding is core in nature.
2. The Committee satisfied its burden of establishing the elements of Section 547(b) by a preponderance of the evidence.
3. Sabrina failed to meet its burden of establishing the elements of Section 547(c)(2) or (4) by a preponderance of the evidence.
4. Judgment should be rendered in favor of the Committee and against Sabrina in the amount of $363,575.99, pursuant to Sections 547 and 550 of the Bankruptcy Code.
5. The Committee failed to meet its burden under Section 548(a)(2).
6. Under a review of the equities, an award of pre-judgment interest in favor of the Committee is not appropriate.
. Rossi did not have authority to execute a guarantee for and did not guarantee any invoice not used to supply leather ultimately to be used in the manufacture of shoes destined to be distributed by Intershoe.
. All factories identified below are in Yugoslavia; all lines of shoes identified were distributed by Intershoe; most of the lines were not lines which were distributed by I.S. International.
. It appears from the exhibits that the 199,970,-000 amount, in addition to covering the full amount of invoice number 728, also covered a portion of amounts remaining due and owing after partial payments on invoice 695.
. Sabrina sought to strike the testimony of the Committee’s accountant on the ground that the Committee did not provide Sabrina with a written report regarding the accountant’s opinion. However, pursuant to standing order, the particularized disclosure requirements of amended Fed.R.Civ.P. 26 have been waived in this Court, limiting the Committee’s obligation to the filing of answers to expert interrogatories, which it did. The Committee disclosed both its accountant’s opinion that Intershoe was insolvent and the fact that the audited financial statement would be relied upon in support of that contention. Additionally, the Committee made its accountant available for deposition, which opportunity Sabrina declined. For these reasons, Sabrina’s motion to strike is denied and its objections to the accountant’s testimony overruled insofar as the testimony and evidence was offered to establish only that Intershoe was insolvent within the 90 days preceding its Chapter 11 filing. The evidence offered by the Committee to establish that Intershoe was insolvent during the one year period preceding its Chapter 11 filing and the objections thereto are discussed further below.
. In assessing the “baseline of dealings” of the parties, I agree with the Committee that the number of days between Intershoe's guarantee of Dukes’ obligations to Sabrina and ultimate payment to Sabrina on that guarantee is not relevant. The Intershoe guarantee of Dukes’ obligations was dissimilar to the guarantees of invoices to I.S. International and Yugoslav Footwear invoices, in that the guarantee was given after shipment of the raw materials from Sabrina and after the due date of payment on the invoice. In other words, the post-transaction guaranty of the Dukes invoices was not an ordinary course transaction and therefore should not be used as a yardstick to measure ordinary course transactions. The number of days between the date of execution of the Inter-shoe/Dukes Agreement and ultimate payment by Intershoe of invoices directed to Dukes similarly lacks relevance due to the unusual nature of the transaction.
. For example, the intervention of a war into parties’ ordinary business relationship might be considered to establish a new ordinary course relationship. See e.g., Daedalean, 193 B.R. at 214 (finding that fact questions existed as to whether the Persian Gulf conflict established a new ordinary course of business between the debtor and a subcontractor with respect to late payments made by the debtor, precluding summary judgment on a preference claim).
. Additionally, the debtor must not have made "an otherwise unavoidable transfer to or for the benefit of such creditor” on account of the new value. In re Toyota of Jefferson, Inc., 14 F.3d 1088, 1091 (5th Cir.1994).
. The Committee’s Third Amended Complaint in-coirecdy states this number as 704,133,884.
. Of the three words, only the last is defined. Pursuant to Section 548(d)(2)(A), "value” means "property, or satisfaction or seeming of a present or antecedent debt of the debtor....”
. The parties argue extensively over whether transfers made by a parent company for the benefit of a subsidiary create sufficient indirect value in the parent to satisfy the requirement of Section 548. The instant case, however, is one where the subsidiary (Yugoslav Footwear), affiliate (I.S. International) or separate company (Dukes) acted as an agent for the transferor company (Intershoe) in the relevant transactions. The ultimate direct benefit of each transaction, then, was conferred on the transferor (Intershoe) and not the subsidiary, affiliate and/or agent. The piincipal/agent relationship entails a much more direct and significant benefit to the principal (transferor) than presented in many of the general parent/subsidiary cases.
. The Third Circuit also found that, in valuing the cost of the debtor's guarantee, the right to contribution from co-guarantors needed to be balanced against the debt for which the debtor was liable. Id. at 648.
. The correct number of shoes appears to be 81,294, which appears on page 102 of the deposition.
.To some extent, I understand the Committee’s frustration in attempting to interpret foreign documents and interview domestic and foreign insiders of a defunct corporation (who have little incentive to remember) in order to trace international transactions. These imposing barriers, however, do not warrant a lightening of the Committee's burden. One must also be cognizant of Sabrina’s frustration, having supplied all leather invoiced for Intershoe's ultimate benefit and merely having been paid by Intershoe pursuant to its guarantees, at being called to defend for allegedly not having given value to Intershoe.
. The Aida shoes are referenced in Schedule 3 of the Intershoe/Dukes Agreement.
. To the extent of the 200,000,000 lira, the Intershoe/Dukes Agreement states on its face that the payment to Sabrina by Intershoe was in lieu of making the same payments to other creditors: the agreement by its terms effected an offset of obligations between Dukes, C.I.K. (a Yugoslavian factory) and Intershoe. As previously noted, "[a] proportionate reduction in rights or liability constitutes an exchange of reasonably equivalent value for fraudulent transfer purposes under the Bankruptcy Code.” Walters, 163 B.R. at 581.
*622The Committee contends that there is no evidence that Intershoe ever received the appropriate credit from the C.I.K. factory. Again, I find the Committee attempting to turn the burden of proof on its head. In order to shift the burden of production to Sabrina, the Committee should have offered some credible evidence that the C.I.K. factory did not issue the credit; only thereafter could Sabrina be fairly called to offer evidence regarding the credit.
. I note that the Committee’s citation of a lay witness’ characterization of Intershoe’s pre-guar-antee obligation to Sabrina in connection with the Dukes transactions as a "moral” obligation rather than a legal one carries very little weight. The witness was not a lawyer, was not qualified as an expert, and was not a Sabrina representa*623tive, such that the statement might be taken as an admission of sorts.
. Both the unrebutted presumption of insolvency in the 90 days preceding the filing under Section 547(f) and Intershoe's audited financial statement support that determination. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492339/ | ALEXANDER L. PASKAY, Chief Judge.
ORDER ON UNITED STATES TRUSTEE’S OBJECTIONS TO (1) TRUSTEE’S PRELIMINARY REPORT OF ESTATE; (2) APPLICATION OF TRUSTEE FOR COMPENSATION; (3) APPLICATION FOR ALLOWANCE OF ATTORNEY’S FEES FOR ATTORNEY FOR TRUSTEE (JOY, GAUSE, GENSON & MORAN); AND (4) APPLICATION FOR ALLOWANCE OF ATTORNEY’S FEE FOR ATTORNEY FOR TRUSTEE (MELODY D. GENSON)
THIS IS a Chapter 7 liquidation ease and the matters under consideration are the United States Trustee’s (US Trustee) Objections to (1) the Trustee’s Preliminary Report; (2) the Application of the Trustee for Compensation; (3) the Application for Allowance of Attorney’s Fees for Attorney for Trustee filed by the law firm of Joy, Gause, Genson & Moran (Joy & Gause); and (4) Application For Allowance of Attorney’s Fee by Melody Genson (Genson) for services rendered to herself acting as the Trustee of the estate of Caddie Construction Company, Inc. (Debtor).
At the duly scheduled and noticed hearing on the above matters, this Court heard argument by the US Trustee and Ms. Genson, after which the Court announced that the Preliminary Report was clearly unacceptable and could not be approved unless the deficiencies identified by the US Trustee were corrected. The Court directed the US Trustee to submit an Order Sustaining the Objection, with leave granted to Ms. Genson to file an amended Preliminary Report within 15 days of the entry of the Order. This left for consideration the remaining Objections of the US Trustee directed to the Applications for Allowance of Attorney’s Fees by the law firm of Joy & Gause, Ms. Genson as Trustee, and Ms. Genson as attorney for the estate.
APPLICATION FOR ALLOWANCE OF ATTORNEY’S FEES BY ATTORNEYS FOR TRUSTEE
The firm of Joy & Gause was authorized to be employed as attorneys for the Trustee on June 27, 1990. In its first Application filed on March 22, 1991, Joy & Gause sought an allowance of $24,825.00 as fees for legal services, and $898.20 as reimbursement for expenses for the period of February 19, 1990, through February 28, 1991. According to the Application, Joy & Gause spent 165.50 hours performing legal services for the Trustee at an hourly rate of $150.00.
On February 9, 1996, Joy & Gause filed a second Application (dated July 30, 1993) seeking $23,296.80 as fees, and $968.00 as reimbursement for expenses for the period from March 1, 1991, through November 30, 1991. The time spent by the law firm, according to this second Application, was approximately 155.3 hours. However, it appears from the attachment to this second Application that Joy & Gause rendered 32.20 hours of legal services and seeks only an additional $4830.00 as fees, and $69.80 as reimbursement for expenses. Be that as it may, the total amount requested in this second Application is $23,296.80, which includes an unexplained balance forward of $19,-365.00.
The US Trustee in its Objection points out first, that in its original Fee Application, Joy & Gause sought compensation for services rendered during approximately four months prior to this Court’s authorization of its employment which was not a nunc pro tunc authorization. The US Trustee further points out that the majority of services rendered dining this time period related to an auction conducted by an auctioneer employed by the Trustee, which generated a net *799amount to the estate of $978.00. According to the schedules submitted with the first Application, attorneys of the law firm spent 8.5 hours attending the auction and attempting to sell a condominium which never produced any benefit to the estate. Attending an auction is a service which, by no stretch of the imagination, could be characterized as legal services. The fee sought for attending the auction is $1,275.00.
In addition, the Application of Joy & Gause contains numerous entries which lump items together, making it impossible to determine whether or not any particular matter required the time to perform as indicated on the application. Lastly, Joy & Gause also charged travel time on a professional basis, which is also improper. Based on the foregoing, it is evident that the amount sought by Joy & Gause is grossly excessive, and the reasonable fee shall not be more than $12,500.00.
APPLICATION OF TRUSTEE FOR COMPENSATION
The United States Trustee also filed an Objection to Ms. Genson’s Application for Compensation, pointing out two matters which require consideration by this Court. Ms. Genson’s Application sought compensation for her services as Trustee in the amount of $3,950.53 and reimbursement of expenses in the amount of $377.05. The fee sought is based on the percentage fixed by § 326 of the Bankruptcy Code, which provides the maximum allowance to be computed on “all monies disbursed or turned over in the case by the Trustee to the party of interest, excluding a Debtor, but including holders of secured claims.” In its Objection, the United States Trustee points out that on November 19, 1990, this Court entered an Order and scheduled a pre-trial conference in an adversary proceeding styled, MCA Insurance Company v. Melody D. Genson, as Trustee of Caddie Construction Company, Inc., et al., Adv.Proc. No. 90-307. Based on a stipulation of the parties, this Court directed the City of Altamonte Springs to turn over to the estate a sum of $40,323.16. This was to be held in an interest-bearing account pending a resolution of MCA’s Motion for Partial Summary Judgment. Those funds were undisbursed monies remaining on a construction project owned by the City to which there were conflicting claims asserted by the parties, including Ms. Genson on behalf of the Estate. Although the procedure was not technically cast in the form of an interpleader, this Court is satisfied that the funds never became property of the estate, and the Trustee merely held the funds as a stakeholder. The funds were eventually turned over to MCA which prevailed on its Motion for Partial Summary Judgment. In opposition, Ms. Genson contends that the Trustee’s position was no different in this situation then when a Trustee liquidates encumbered assets and holds the proceeds pending the resolution of the right of several parties to the funds.
While it is true that § 326(a) permits an inclusion in the base to calculate the Trustee’s commission, funds turned over to secured parties are clearly not the case here. In addition, there is authority to support the proposition that when the trustee fully liquidates encumbered assets, assets which provided no net benefit to the estate, it is improper to be included in the base for calculating the commission to which the Trustee is entitled. See, e.g., In re B & L Enterprises, Inc., 26 B.R. 220 (Bkrtcy.W.D.Kentucky 1982) (trustee was not entitled to proceeds of sale of fully encumbered property where proceeds would not satisfy the indebtedness and where no benefit was conferred on secured creditors and no equity in favor of the unsecured creditors); see also In re Barnett, 133 B.R. 487 (Bkrtcy.N.D.Iowa, W.D.1991); In re Lambert Implement Co., Inc., 44 B.R. 860 (Bkrtcy.W.D.Kentucky 1984).
In addition, Ms. Genson also included $500.00 in the base in calculating the maximum fee allowable, which she received as a deposit on a prospective sale which was later returned because the sale was never consummated. Equally, the $500.00 never became property of the estate, and again, should not be included in the base in calculating her commission.
Even a brief review of the history of this case, which has been pending since 1990, *800leaves more than a lingering doubt that the administration of the estate by Ms. Genson was less than exemplary. This is true even if one considers this record in a charitable and most favorable light to Ms. Genson. Ms. Genson filed her interim final report 2years ago in 1993. The report is replete with deficiencies, all of which were called to her attention by the US Trustee. However, even as of today, the deficiencies have not been corrected. For instance, on May 1,1990, this Court authorized the Trustee to employ Walter Driggers of Apt Realty to conduct an auction. The auction produced a gross amount of $4,373.60 which netted to the estate the munificent sum of $978.40 as a result of an unverified nonitemized disbursement of $3395.20 by the auctioneer. This amount was disbursed by the auctioneer and remains a well-kept secret as to the nature of the disbursements. In light of the fact that this deficiency was called to Ms. Genson’s attention several times and has yet to be corrected, it is evident that Ms. Genson was less than alert and vigilant in looking after the affairs of the estate of which she was a fiduciary, and was entrusted to administer. For the foregoing reasons, this Court is satisfied that the amount $40,323.16, was improperly included in the base used by Ms. Genson for calculating her entitlement to commission under § 326(a) of the Bankruptcy Code.
One of the most appalling aspects of this administration was Ms. Genson’s lackadaisical attitude concerning her duties under § 704(5) of the Bankruptcy Code which requires the Trustee to examine proof of claims and to object to any claim which appears to be improper. In the present instance, MCA filed a proof of claim in the amount of $302,-115.75 as a general unsecured claim. The proof of claim is totally undocumented. In addition, the proof of claim is accompanied by no documentation whatsoever indicating whether or not there is a legally due and owing obligation of the Debtor. MCA also filed a secured claim in the amount of $207,-338.08. This was purported to be the short fall on the construction projects which, allegedly, MCA was required to make good pursuant to a Payment and Performance Bond it furnished to the Debtor. MCA never filed any accounting and this secured portion appears to have been fully satisfied, and it is impossible to tell what is the collateral which secures this claim which has been liquidated by Ms. Genson.
Florida Crushed Stone Company filed a proof of claim No. 9 as a secured claim in the amount of $5,916.11. The claim purports to be entitled to secured status because the claimant has a Mechanic’s Lien. Even assuming without admitting that Florida Crushed Stone in fact has a valid perfected Mechanic’s Lien, a proposition far from clear, it is evident it cannot be allowed as a secured claim since it appears that there are no funds currently in the hands of the Trustee which were derived from the sale of the property Florida Crushed Stone on which came to have a Mechanic’s Lien.
Employer’s Contract services (ECS) filed proof of claim (No. 4) in the amount of $24,234.97. It appears from the adversary proceeding, commenced by a complaint filed by MCA, that a portion of this claim may have been paid, in full, by MCA Clearly, this claim should be reviewed and objections interposed to the allowance if it appears to be appropriate. One of the most glaring oversights of Ms. Genson was her failure to object to the allowance of ALTAIR Services Inc., who filed proof of claim (No. 3) in the amount of $15,182.50. The Trustee included this claim as one scheduled to receive distribution even though, the claim was already resolved and paid in full pursuant to an Order entered by this Court on September 20,1991.
Considering the foregoing, the Trustee’s objection to the Application of Trustee for Compensation is sustained and the reasonable fee should not be more than $2,000.00.
APPLICATION FOR ALLOWANCE OF ATTORNEY’S FEE FOR ATTORNEY FOR TRUSTEE
Shortly after her appointment, Ms. Genson sought authority to employ herself as the attorney for the estate, the application for which was granted. The matter under consideration is her application for allowance which seeks allowance of $1,005.00 for attor-*801ne/s fees for 6.7 hours spent on legal services billed at the rate of $150.00 per hour. In addition she also seeks a reimbursement of expenses of $43.55. The schedule submitted with the fee application leaves no doubt that the bulk of the time spent was for routine services which were primary duties to be performed by a Trustee, and did not require professional service. In light of the fact that the estate also had special counsel employed to handle legal matters relating to the administration of the estate, this Court is satisfied that compensable legal services were minimal and a reasonable fee should not be more than $600.00. Ms. Genson also seeks a reimbursement for unspecified expenses in the amount of $43.50 indicating postage and photocopies but failing to disclose how many copies were actually necessary and at the rate charged per page. Thus, it is impossible to determine if the expenses were reasonable. Therefore, this request should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the US Trustee’s Objections to (1) the Trustee’s Preliminary Report; (2) the Application of the Trustee for Compensation; (3) the Application for Compensation by the Law Firm of Joy, Gause, Genson & Moran; and (4) the Application for Compensation by Ms. Genson for Attorney’s Fees be, and the same are hereby sustained in part. It is further
ORDERED, ADJUDGED AND DECREED that Ms. Genson shall file an Amended Preliminary Report after having reviewed such claims and interposed objections to such claims as may be appropriate within 15 days from the date of this Order. It is further
ORDERED, ADJUDGED AND DECREED that the Application for Allowance of Attorney’s Fees for Attorney for Trustee filed by the law firm of Joy, Gause, Genson & Moran shall be allowed but, reduced to a reasonable amount which is hereby determined to be $12,500. It is further
ORDERED, ADJUDGED AND DECREED that the Application of the Trustee for Compensation shall be allowed but, reduced to a reasonable amount which is hereby determined to be $2,000. It is further
ORDERED, ADJUDGED AND DECREED that the Application For Allowance of Attorney’s Fee for Attorney For Trustee filed by Melody Genson shall be allowed but, reduced to a reasonable amount which is hereby determined to be $600.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492342/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matter under consideration is a claim that the debt owed by James A. Marks and Peggy E. Marks (Debtors) should be discharged in bankruptcy and not exempted from the discharge based on § 528(a)(3) of the Code. The claim asserted in the Complaint filed by the Debtors is against Firstar Trust Company (Firstar) and the Cincinnati Insurance Company (Cincinnati Insurance). The Debtors in their one-count Complaint contend that they filed their Voluntary Petition in this Court on October 3, 1991; that although Firstar and Cincinnati Insurance were not scheduled by the Debtors on their bankruptcy Schedules and they did not receive a notice of the meeting of creditors or notice of the bar date to file claims or complaints pursuant to § 523(c), the case was noticed as a “no asset” case and “the claim of these defendants against the Debtors was a debt incurred by virtue of a deficiency claim.” Therefore, since the omission was not willful and knowing, but an oversight, the debt should be declared to be discharged.
In due course a pretrial conference was conducted and the matter was scheduled for final evidentiary hearing at which time the following relevant facts were stipulated as true:
On November 1,1986 the Debtors signed a Guaranty Agreement guaranteeing the obligation evidenced by a Promissory Note executed on December 12, 1986, by Menasha Building Associates Limited Partnership (Menasha) in the amount of $1,320,000. On May 11, 1987, the Debtors were notified of the default by Menasha on the Promissory Note. On November 23,1987, Badger Highways Co., Inc. filed a Complaint against James A Marks and sought to foreclose a mechanics lien on real property owned by Menasha.
On May 30, 1991, the Debtors filed their Joint Voluntary Petition. On their Schedule of Liabilities they did not list either First Wisconsin Trust Company, or its predecessor interest, First State Trust, or Cincinnati Insurance as creditors (Cincinnati Insurance). On June 17,1991, the Clerk issued the notice of the 341 meeting and notified creditors pursuant to F.R.B.P. 2002(e) that the case was a no asset case and, therefore, it was not necessary to file a proof of claim. On July 29, 1991, the Trustee filed a Report of No Distribution and on October 3, 1991, the Debtors received their general bankruptcy discharge. The case was closed on June 10, 1994.
The record reveals that on April 2, 1993, before the Chapter 7 case was closed, Firstar filed a Complaint in Winnebago County, Wisconsin, seeking to foreclose a mortgage on the real estate owned by Menasha and to obtain a deficiency judgment against the Debtors as guarantors of the Note. On June 9,1993, the Debtors filed their Answer to the Complaint and denied any liability under the Guaranty Agreement. On April 19,1994, the Circuit Court entered a deficiency judgment against the Debtors in the amount of $1,326,-002.66. The deficiency judgment was domesticated and recorded in the public records of Collier County on September 20, 1994. The judgment creditors sought to institute discovery in aid of execution and noticed the Debtors for deposition on February 2, 1995, but the Debtors failed to appear. On February 6, 1995, Firstar filed a Motion in the Circuit Court and sought to hold the Debtors in contempt for failure to appear at the deposition. On April 11, 1995 the Circuit Court entered an order compelling the Debtors to appear for deposition.
On the same date, the Debtors filed their Motion to Reopen the Chapter 7 case; the case was reopened on April 18, 1995, and on April 25, 1995, the Debtors filed the instant adversary proceeding, in which the Debtors sought a determination by this Court that the liability to the Defendants, Firstar and Cincinnati Insurance has been discharged.
*945§ 523. Exceptions to discharge.
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
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(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—
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the ease in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;
Even a cursory analysis of these two alternative basis to declare debt nondisehargeable makes it painfully evident that the remedy provided to an unscheduled creditor is utterly meaningless for the following reasons.
First, the right to file a proof of claim in the vast majority of Chapter 7 cases is nothing more than a sheer exercise in futility. This is so because it is rare, indeed, that there are any assets in these estates, liquidation of which would produce funds, let alone sufficient funds to pay dividends to general unsecured creditors. Despite the fact that these cases are treated as no-dividend cases and the notice sent to creditors pursuant to F.R.B.P. 2002(e) informs the creditors that there is no need to file Proofs of Claim, the time to file claims is still open, and the requirement of F.R.B.P. 3002(c) to file Proofs of Claim within 90 days after the first date set for the meeting of creditors is not applicable.
Second, the alternative exception to discharge in subparagraph (B) equally fails to provide any meaningful remedy. This is so because at the time the nonscheduled creditors learn about the bankruptcy, with the passage of time, as a general rule, memories fade, witnesses disappear, and so do debtors, especially if the Chapter 7 case has been closed already. In this connection it is also appropriate to point out that the nonscheduled creditor without notice and without actual knowledge of the case, has lost several valuable rights, rights far more valuable than a declaration of nondischargeability of the debt owed to the creditor, such as a right to challenge the debtor’s claim of exemption and, most importantly, the right to challenge the debtor’s discharge.
Be that as it may, it is clear that in the present instance neither of the two exceptions set forth in § 523(a)(3) would assist the nonscheduled creditors first because they still have the right to file a Proof of Claim, clearly a meaningless exercise in futility; and second, because the time to file a Complaint seeking the determination of nondischarge-ability of the debt owed to them by the Deficiency Judgment under subparagraph (a)(2)(4) or (6) even if they have such type of claim which they do not claim to have, long expired. (See F.R.B.P. 4007(c)—60 days after the conclusion of the meeting of creditors.)
Some courts suggested that the nonscheduled creditor may file a Complaint even after the case is closed and the time to file such Complaint already expired. In re Anderson, 72 B.R. 495 (Bankr.D.Minn.1987). This is clearly incorrect and is contrary to F.R.B.P. 4007(c) and F.R.B.P. 9006(b)(3) which permits an extension beyond the 60 days fixed by the Rule only if the motion to extend the time is filed prior to the expiration of the original 60 days time limit fixed by F.R.B.P. 4007(c).
Based on the foregoing, this Court is constrained to sustain the Debtor’s claim that the debt represented by the Deficiency Judgment is not excepted from the overall protection of the general discharge but not for the reasons stated in the Complaint filed by the Debtor, which was that the omission was not willful but only an oversight, a proposition this Court has difficulty accepting based on the undisputed facts established by the record.
*946A separate final judgment will be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492343/ | ORDER ON MOTION TO ABSTAIN
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a Motion to Abstain, filed by Jim Smith (Smith), the Property Appraiser for Pinellas County. Smith seeks an Order Abstaining from the Debtor’s Motion originally filed on December 21, 1995, and amended on January 26, 1995, which seeks a Determination of Real Property Ad Valorem Taxes concerning the Debtor’s property, pursuant to § 505 of the Bankruptcy Code.
The Court heard argument of counsel and considered the record and is satisfied that the Motion under consideration is not well taken and should be denied for the following reasons. The record reveals that the Debtor in its original Motion sought a determination by this Court that the ad valorem property taxes assessed by Pinellas County for the years 1985 through 1995 assessments were improper and excessive; thus, this Court should re-examine the value of the subject property during the relevant years and based on the revaluation, determine the amount which should have been taxed against the subject property during the years in question.
On January 11, 1995, the Pinellas County Tax Collector filed a Motion for Summary Judgment. The Motion was heard in due course and on March 6, 1996, this Court entered its Order Denying the Motion for Summary Judgment based on the conclusion that the Debtor’s Motion did state a claim under § 505 for which relief can be granted. However, treating the Motion for Summary Judgment in part as a Motion to Dismiss, the Motion was conditionally granted as to third party certificate holders, unless the Debtor were to join the third party certificate holders as parties to this contested matter. It should be noted that at the time this Order was entered, the Debtor had already filed an Amended Motion for Determination of the Real Property Ad Valorem Taxes which was served on all third party certificate holders, but so far there has been no Order entered on this Amended Motion. To further complicate the matter, the Debtor filed a Motion for Reconsideration of this Court’s March 6, 1996, Order which in part conditionally granted the Tax Collector’s Motion for Summary Judgment, as the proceeding related to the third party certificate holders. It is evident from the foregoing that the Amended Motion as it relates to joinder of the third party certificate holders should be granted, which in turn would moot out the Debtor’s Motion for Reconsideration.
The Debtor’s Motion for Reconsideration is based on the contention of Smith that this is a proceeding based on pure state law; an action which could have been timely adjudicated by the Debtor in the forum of the appropriate jurisdiction under Florida law. Thus, sufficient cause exists pursuant to 28 U.S.C. § 1334 for this Court to abstain from hearing and considering the merits of the Debtor’s Motion. It should be noted, however, that the Motion does not specify whether or not Smith seeks the optional abstention under subsection (c)(1) or the mandatory abstention under subsection (e)(2) of 28 U.S.C. 1334.
*951The Motion is challenged by the Debtor on two different grounds: first, it is the contention of the Debtor that the Motion to Abstain is untimely because it was not filed in the time specified by Local Rule 1.05 which requires that a Motion to Abstain shall be filed not later than 30 days after the filing of the initial pleading or other paper commencing the proceeding or contested matter. Local Rule 1.05(b)(2) (Bankr.M.D.Fla.). Second, it is contended by the Debtor that it has no remedy available to it in the state court and clearly § 105 was designed , to authorize the Bankruptcy Court to determine the liability for taxes relating to property of the estate.
In response to the first proposition urged by the Debtor, Smith contends that in light of the fact that the Debtor amended its Motion for Determination of the Real Property Taxes on January 26, 1996, and filed a Motion of Reconsideration on March 15, 1996, his Motion to Abstain filed on March 20, 1996, was timely.
Even a cursory review of this record leaves no doubt that none of the propositions urged by Smith are valid or supported by the record. First, the fact that the Debtor filed an Amended Motion for Determination of Real Property Taxes on January 26, 1996, is without significance; and even is it is, the Motion to Abstain the Amended Motion was clearly untimely, since it was filed more than two months after the Amended Motion was filed. Next, the Motion for Reconsideration filed by the Debtor on March 15, 1996, has absolutely no relationship to the pleading presented for this Court’s consideration of which Smith seeks this Court to abstain. Whether or not the pleading which controls the timeliness of the Motion is the original pleading filed on December 21, 1995, or the Amended Motion for Determination filed on January 26, 1996, it is clear that the Motion to Abstain was untimely and was not made within the time frame provided by Local Rules 1.05 and 1.06. Local Rules (Bankr.M.D.Fla.).
Even assuming, without conceding, that this is a fatal defect which in turn would render the merits of the Motion moot, this Court is also satisfied that the Motion to Abstain equally lacks factual or legal support. There is hardly any question that § 105 was designed to authorize the Bankruptcy Court to determine the liability of the Debtor for any tax, including taxes imposed by state taxing authorities, and not only federal taxes as is intimated. Second, the fact that the tax in question is imposed by Pinel-las County and is governed by state law, is clearly a non sequitur. While it is true that outside of bankruptcy the state court would have had competence to deal with the matter, the Debtor no longer has this opportunity and its sole remedy is in this Court.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion of Jim Smith, Property Appraiser for Pinellas County, Florida to Abstain be, and the same, is hereby denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492345/ | MEMORANDUM OPINION AND ORDER
H. CLYDE PEARSON, Bankruptcy Judge.
Before the Court is Debtors’ Objection to Claim of Farmer’s Home Administration (“FmHA”) to determine the value of certain real estate, chattels, livestock and equipment and to conclude the secured status of the FmHA claim. For the reasons hereinafter stated, the Court determines the value of the Debtors’ real property to be $83,750.00 and the value of the personal property to be $21,306.00. FmHA, holding a second deed of trust, is secured to the extent of value in the real property, subject to the first deed of trust held by SWVA Farm Credit in the amount of $16,933.94, as of July 1, 1994 and is further secured to the extent of value of the personal property.
The Debtors, George W. and Nora I. Fuller, submitted their own appraisal of the real estate and other personal property. FmHA also submitted an appraisal of the properties. However, neither appraisal appears to be greatly helpful for several reasons. First of all the FmHA’s appraisal was not prepared by a disinterested party. Instead, the appraisal was prepared by their own employee, Paul Wray. Secondly, the Debtor’s personal opinion as to the value of his property was inconsistent and vague. The Debtor’s testimony at trial, along with his Second Amended Plan and letter briefs submitted to the Court, were contradictory as to the approximate value of the property. The Court had great difficulty in determining which statements and appraisals were accurate. In light of the discrepancy between the FmHA and the Debtor’s estimates, the *42Court determines the value of Debtors’ property to be the average of the two appraisals.
The FmHA valued the Debtors’ real estate to be $87,500.00. (See FmHA Appraisal dated 8/11/93). The appraisal estimated the house, barns, and the shed to be valued at approximately $22,000.00 and valued the land at $65,500.00. The Debtors filed a second Amended Plan wherein they estimated the values of the real estate to be $80,000.00, which is fairly close to the FmHA’s value. However, by letter dated February 28, 1995, the Debtors listed values much lower than the previous estimates, stating that the residential dwelling is valued at $24,200.00 and the “land” is approximately $500.00 per acre, which totals approximately $54,000.00. (See Letter dated 2/28/95). The tax assessed value of the property was $76,000.00. Again, there exists a substantial inconsistency between the two statements and it is difficult for the Court to conclude which is accurate. Therefore, the Court, having determined that neither party’s appraisal is completely reliable, takes the average of the two ($87,500 and $80,000) and calculates the value of the property, which includes the buildings, to be $83,750.00.
Secondly, FmHA’s appraisal indicates the value of the chattels/livestock is $29,-200.00. The Debtors’ letter brief dated September 1, 1995 values the chattels/livestock to be $6,730.00 and the equipment to be $6,700.00, totaling $13,430.00. This statement is different than Mr. Fuller’s testimony in Court.1 Taking the average of the two appraisals, ($29,200 and $13,430) the value of the personal property is $21,306.00.
FmHA holds a second deed of trust on Debtors’ property. SWVA Farm Credit is the only other secured creditor who has a prior interest to FmHA and their payoff, as of July 1, 1994, was $16,933.94. No other secured creditor has a prior interest in the personal property. Accordingly, it is
ORDERED
that the value of the real estate is $83,750.00 and FmHA is secured to the extent of the value of such property, subject to SWVa first deed of trust; that the value of the Debtors’ personal property is $21,306.00 and FmHA is secured to the extent of the value of the property.
It is further
ORDERED
that FmHA’s Motion to Dismiss and Objection to Claim is denied since it is clear that a Modified Plan must be filed; and, accordingly, the Debtors shall file a Modified Plan on or before February 1, 1996, and schedule same for hearing.
. At hearing. Debtor testified that he owned 16 cows at $450.00 each, totaling $8,500.00. His letter dated September 1, 1995 lists the livestock as follows:
16 cows (average weight 1,000 lbs.) @ $.30/lb. 2 bred heifers (average weight 800 lbs.) @ $250.00 each
8 open heifers (average weight 500 lbs.) @ $.32/lb.
3 heifers (average weight 200 lbs.) @ $50.00 each
The total value of the livestock was valued at $6,730.00. The confusion rests in the fact that Debtor valued only 18 cows to be worth several thousand dollars more than what he values 16 cows plus 13 heifers to be. Furthermore, Debtor testified at the hearing that the value of the equipment was only $2,000.00, which is over $4,000.00 dollars less than his values stated in the September 1, 1995 letter brief. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492346/ | MEMORANDUM OPINION AND ORDER
H. CLYDE PEARSON, Bankruptcy Judge.
This matter is before the Court on remand from the district court for additional findings of fact and conclusions of law. The thrust of this Adversary Proceeding, alleging violation of fraudulent transfer under § 548(a)(2), involves a transaction entered into in July of 1988 wherein the Debtor, Sunshine Kaylor, and his wife executed a second Deed of Trust on property (“South Carolina property”) owned by them jointly in Myrtle Beach, South Carolina, to First Virginia Bank (“Bank”) to secure a pre-existing note payable to the Bank, in exchange for the release and substitution of other collateral securing the note.1 The sole issue here is whether the Trustee may avoid this transaction between the Debtor and the Bank under 11 U.S.C. § 548(a)(2)(A) and (B)(i) as having been made within one year of filing of the Petition in this Court for less than reasonably equivalent value during a time when the Debtor was insolvent or became insolvent.
The history of this Adversary Proceeding is as follows: The Debtor filed his Chapter 11 Petition on November 24,1988, which was converted to Chapter 7 on May 14, 1992. This Adversary Proceeding was originally filed on April 25,1991 by the Debtor requesting a determination of liens and leave to sell the South Carolina property free and clear of liens. The Court approved the sale and reserved for further hearing all issues surrounding the alleged fraudulent transaction under § 548(a).2 Upon conversion to Chapter 7, the Trustee was substituted as party Plaintiff, for a determination of whether the Deed of Trust given to First Virginia Bank by the Debtor was a fraudulent transfer under 11 U.S.C. § 548(a)(1) & (2).
Following a hearing, the Court entered its Memorandum Opinion on September 29, 1993, holding that the Trustee had npt sustained the burden of proof that there was actual intent to delay, hinder, or defraud creditors under 11 U.S.C. § 548(a)(1). The Trustee and the Creditors’ Committee then moved for a new trial on the issue of “constructive fraud” under § 548(a)(2). At that hearing, counsel for the Trustee announced *44to the Court that he elected not to introduce any additional evidence. (Tr. at 11,12/21/93). After reviewing the September 29, 1993 Opinion and the evidence before the Court, the Court reaffirmed its decision and denied the motion for a new trial. On appeal, the district court remanded this case for further findings of fact regarding the issue of value and solvency under 11 U.S.C. § 548(a)(2).
In his October 19, 1994 Opinion, Judge Wilson affirmed this Court that there is no evidence to support the contention that the Debtor acted with intent required by § 548(a)(1) to render the transaction avoidable. The district court also agreed with this Court’s finding that Debtor’s Deed of Trust to the Bank was in the “normal course of business” and was an ongoing credit financing and a consolidation and rearranging of the current financial arrangement under normal banking procedures by giving the additional collateral in the property in South Carolina. Richard A Money, Trustee v. Coastal Federal S & L and First Virginia Bank, Civ. Action No. 94-0052-A (W.D.Va. Oct. 19, 1994) [hereinafter “10/19/94 Op.”]. The Court further affirmed this Court that there was ample evidence that First Virginia Bank and Kaylor had a long-standing credit arrangement and that the transaction in question was a continuation of that relationship. Id. at 4-5. The Court remanded the case to determine the Debtor’s insolvency at the time the Deed of Trust was transferred, under § 548(a)(2). Id.
Upon remand, this Court scheduled a further evidentiary hearing to enable Trustee to present additional evidence, at which time counsel for Trustee again announced that prior evidentiary hearings had developed the evidence and that the record on all issues was complete and no additional evidence would be presented. (Tr. at 4, 4/4/95). Counsel for the Trustee relies on Debtor’s schedules stating that “the schedules demonstrate insolvency ... [and] also demonstrate the values of the property.” Id. (emphasis added). The Trustee elected not to introduce any additional evidence. First Virginia Bank introduced additional evidence in the nature of testimony from Mr. Richard Allen Martin (“Martin”), a representative of the Bank, who testified as to the value of the property. Having no additional evidence for consideration, this Court held that the Trustee failed to meet the burden of proving that the Debtor received less than “reasonably equivalent value” for the transaction and, having failed to prove the first prong of the formula, it was unnecessary to reach the issue of insolvency.
The Trustee again appealed and the district court again remanded the case to this Court to determine whether the Debtor was insolvent at the time of the transaction and whether reasonably equivalent value was given. See Richard A. Money, Trustee v. Coastal Federal and First Virginia Bank, Civ. Action No. 95-CV-140-A (W.D.Va. Oct. 18, 1995) [hereinafter “10/18/95 Op.”]. Upon hearing scheduled by this Court on remand, the Trustee again represented to the Court that the record is complete and no additional evidence would be submitted. Upon request by the Court in an effort to learn the parties’ positions with reference to the evidence of record, the parties submitted proposed findings of fact and conclusions of law. These proposed findings and conclusions are affixed hereto as appendices.
From the record before the Court from prior hearings, documentary and otherwise, and from the proposed findings, it appears to the Court that documents referred to as evidence for the Court to consider is extremely speculative and leaves substantial uncertainty concerning the facts upon which the Court is called upon to decide the merits of this matter.
For example, the appraisal of First Virginia Bank dated June 24, 1988, which apparently was made in connection with the refinancing in question, and noted thereon as a “Walk-By Inspection,” lists the value of the property in the identical amounts appearing on the Horry County tax assessment of $59,-200.00 for the building and $96,000.00 for the land, for a total of $155,200.00.
The financial statement submitted by the Debtor to First Virginia Bank dated September 18,1985, approximately three years prior to the crucial date in question, shows total assets of $594,577.00 and total liabilities of $181,883.00 with a net worth of $412,694.00. *45Listed thereon was the Myrtle Beach house and lot acquired in 1978 at a cost of $60,-000.00 and showing a market value of $150,-000.00 with a first Deed of Trust of $32,500 due and owing to Coastal Federal Savings and Loan. The financial statement given by the Debtor to First Virginia Bank dated April 1, 1987, shows total assets of $579,-800.00 and total liabilities of $217,646.00 with the Myrtle Beach property noted as being acquired for $60,000.00, with a market value of $150,000.00 and the Deed of Trust balance of Coastal Federal of $28,000.00.
The Debtor’s schedules filed with the Chapter 11 Petition on November 24, 1988, approximately 4 months following the date in question, notes on the list of creditors as “date security obtained or date incurred” as to the debt itself as 1987 in virtually every instance, including the first Deed of Trust of Coastal Federal, which, in fact, and without question, was acquired and the date incurred in 1978. All secured and unsecured creditors listed on said schedules were noted as “disputed claims” under the category as to whether claims were contingent, unliquidat-ed, or disputed. The claims with the designation “disputed” reflect that no specific amount listed would be reliable as evidence or as a criteria for determining the amount due and owing from the schedules themselves without additional evidence.
On Schedule B-l, real property listed totaled $525,000.00 with the Myrtle Beach property listed at a value of $200,000.00. Schedule B-2, as to personal property, lists a total value of $131,950.00. The recapitulation Summary attached to the schedules shows total liabilities of $441,150.00 with total assets of $656,950.00. These are reflected as of the date of the petition of November 24, 1988.
In the “Stipulation of Facts” submitted by First Virginia Bank, Paragraph III states: “that there is no direct evidence of the fair market value of the Myrtle Beach property in July 1988,” and this Court agrees with this statement. The Court further concludes that from the evidence there is no direct evidence as to the value of the Debtor’s estate or the amount of indebtedness on the date in question of July 1988 that is not totally speculative.
The issue, then, is whether the Debtor received less than reasonably equivalent value at a time when he was insolvent or became insolvent, pursuant to Bankruptcy Code § 548(a)(2).
11 U.S.C. § 548(a)(2) states as follows:
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(1) was insolvent on the date of that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
The Trustee, or Plaintiff, has the burden of proof not only to prove reasonable equivalent value but also to prove the Debtor’s insolvency. In re Morris Communications NC, Inc., 914 F.2d 458 (4th Cir.1990).3
If the Trustee fails to meet the burden of proof to either element, the entire formula fails. The Trustee must prove both prongs of § 548(a)(2). Id.
In its July 18, 1995 Memorandum Opinion, this Court found that the Trustee had not sustained the burden of proof to show that the Debtor received less than “reasonably equivalent value”; and, having failed to meet the first prong, it was unnecessary to reach the second issue of insolvency. However, upon remand, the district court listed several factors for the Court to consider regarding the issue of insolvency. (10/18/95 Op. at 3). They are as follows:
(1) Debtor’s financial statements submitted to First Virginia Bank in 1985 and 1987.
*46(2) Debtor’s schedules filed in November, 1988.
(3) Debtor’s indebtedness of $123,000 to First Virginia Bank in July, 1988.
(4) Debtor’s difficulty making loan payments, leading First Virginia Bank to terminate an ongoing relationship with him.
The first factors of evidence submitted by the Trustee are the financial statements dated September 18, 1985 and April 1, 1987. The Trustee did not present financial statements or additional evidence of 1988, the date of the transaction; and since the crucial date in determining insolvency is the date of the transaction, the 1985 and 1987 statements offer slight probative value to the Court. See In re Kaylor Equip. & Rental, Inc., 56 B.R. 58 (Bankr.E.D.Tenn.1985). Additionally, Mr. Martin testified without contradiction at the March 16,1993 hearing, that “as far as the financial statements provided to the Bank ... it never appeared that he was insolvent.” (Tr. at 44, 3/16/93).
The second factor to consider is the Debt- or’s schedules filed on November 24, 1988. The schedules indicate as hereinabove noted that claims were in dispute. Furthermore, the Debtor’s schedules show $656,950.00 in assets of real and personal property and $441,150.00 in liabilities. (Debtor’s Schedules, November 24, 1988). In Liberty National Bank v. Bear, 265 U.S. 365, 44 S.Ct. 499, 68 L.Ed. 1057 (1924), the Supreme Court noted that even the admission by the debtor in his petition that he was insolvent, which is not the case here, was “at the most, an admission of such insolvency ... when the petition in bankruptcy was filed — a very different thing from insolvency at the time the [judgment] was recovered.” Id. at 370, 44 S.Ct. at 501. Furthermore, there is no “presumption” of insolvency for any period before the Petition in bankruptcy was filed. Id. In fact, Mr. Martin specifically stated in his testimony, without contradiction as above noted, that “it never appeared that the [Debtor] was insolvent.” (Tr. at 44, 3/16/93).
As for the third factor, the Trustee failed to present any evidence to the Court which tends to show that, when the collateral was substituted, Debtor’s indebtedness of $123,-000 to First Virginia Bank rendered him insolvent.
The fourth factor was Debtor’s difficulty making loan payments. Upon examination of the testimony of Mr. Martin on two separate occasions, March 16, 1993 and April 4, 1995, there is no indication that the Bank terminated an ongoing loan relationship with the Debtor. Mr. Martin testified that the Debt- or was having problems making his payments and that there were times that cars were not selling, but “it never appeared that he was insolvent.” Id. at 44. In light of the facts overall, it would not seem appropriate to conclude that, merely because car sales were slow, the Debtor was insolvent.
Thus, the Court finds that the Trustee’s burden has not been sustained. The Trustee submitted to the Court, "without any explanation or additional evidence, the speculative nature of the alleged insolvency issue of the Debtor and the Court is unable to make a determination based on this record that the Trustee has sustained this burden.
The district court set forth specific elements of evidence to be considered regarding “value.” Pursuant to the remand Order of the district court, it agreed that the Trustee has the burden of proving that Kaylor did not receive “reasonably equivalent value.” (10/18/95 Op. at 2). The Court further agrees that the Trustee has the burden of proving the Debtor’s insolvency at the time of the transfer in July of 1988. Id. at 3. As to “value,” the evidence in addition to the foregoing, is as follows:
(1) The fact that the house was purchased in 1978 for $60,000.00.
(2) A tax appraisal valuing the house at $156,000.00, dated September 8, 1988.
(3) A financial statement submitted by Kaylor to First Virginia Bank dated April 1, 1987 valuing the property as $150,000.00.
(4) Appraisal Report prepared by First Virginia Bank dated June 24,1988.
(5) The bankruptcy Schedules filed in November, 1988 listing the value of the house as of 1987 at $200,000.00.
(6) The house sold on February 25, 1992, more than three years following the *47filing of the Petition in this Court, for approximately $99,000.00.
The factors are taken into consideration as follows: As an initial matter, it is undisputed that the Bank gave up and Mr. Kaylor received the release of collateral previously held by First Virginia Bank consisting of a note payable to Mr. & MrS. Kaylor at a principal value of approximately $10,000.00 to $11,000.00. It is also undisputed that the witness, Mr. Martin, a representative of First Virginia Bank, testified that the Bank would not have released the note as collateral unless Mr. Kaylor pledged other collateral in its place as a substitute therefor. Thus, the Kaylors executed a second Deed of Trust on the South Carolina property to secure the Bank’s pre-existing debt. Martin testified further that the Bank did not obtain a formal appraisal as to the value of the property. (Tr. at 10, 4/4/95). The Bank relied solely upon the representations of Mr. Kaylor, with whom they had a long-standing business relationship. In fact, the district court held that there is “ample evidence that First Virginia and Kaylor had a long-standing credit arrangement and that the transaction in question was a continuation of that relationship.” (Op. at 5, 10/19/94).4
The Bank knew only that the property was purchased for $60,000.00 and that there was an existing note secured by a Deed of Trust on the property with a payoff of approximately $30,000.00 to $35,000.00. They had financial statements dated 1985 and 1987 where Mr. Kaylor thought the property was worth approximately $150,000.00. The Bank released its lien and accepted the Deed of Trust based on these representations only.
The only other evidence in the record is the fact that the house sold more than three years later for approximately $99,000.00. The schedules filed in November 1988, subsequent to the transaction at issue, listed the value of the property at approximately $200,-000.00. As for the Appraisal Report dated June 24, 1988, it is not a certified appraisal but, instead, it is an appraisal prepared by Mr. Martin of First Virginia Bank, as herein noted, with words written along the side stating “Walk By Inspection.” Mr. Martin explained to the Court that he was on vacation in Myrtle Beach and he “did drive by and take a picture ... and that was the extent of the appraisal.” (Tr. at 10, 4/4/95). The appraisal listed the property as being valued at the tax-assessed value and close to the values Mr. Kaylor represented to the Bank, which is $150,000.00.
There is no direct evidence in the record of this case as to the fair market value of the South Carolina real estate in July of 1988, the crucial date in question. The Court has before it various estimates before and after the transaction, but it would be pure speculation for the Court to determine the value of said real estate in July of 1988. Furthermore, since the Trustee has the burden of proof and has not submitted evidence as to the value of the property in July of 1988, the Court can only speculate as to whether the unsecured creditors are worse off because of the transaction. The Bank acted at arms-length in the “normal course of business” and did everything required by normal banking standards. The Trustee has not submitted any evidence to demonstrate how the transaction affected the Debtor’s estate. See In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479, 484 (4th Cir.1992).
Secondly, in In re Bigelow, the court states that the value of the transfer to a creditor is not relevant to the § 548(a)(2) inquiry; instead, it is the value of the transfer with respect to the debtor’s estate which is crucial. In determining whether reasonable equivalent value is given, the Fourth Circuit has stated that “[t]he focus is on the consideration received by the debtor, not on the value given by the transferee.” See In re Bigelow Design, at 484.
Thus, the Court holds that the Trustee has not carried the burden of proof showing that the transaction is avoidable pursuant to 11 U.S.C. § 548(a)(2); and that the Debtor was insolvent in July 1988 or became so as a result of the transfer It is so ORDERED and this Adversary Proceeding is closed.
*48APPENDIX
IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA ABINGDON DIVISION
Richard A. Money, Trustee, Appellant, v. Coastal Federal Savings & Loan, et ah, Appellees.
Civil Action No. 95-0140-A
January 23, 1996
TRUSTEE’S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Pursuant to order of the court, the Trustee submits the following proposed findings of fact and conclusions of law:
1. This matter comes to the court on remand from the district court for specific findings of fact and conclusions of law with respect to the solvency or insolvency of the debtor, Sunshine Kaylor, at the time of the granting of the South Carolina deed of trust and with respect to the reasonable equivalence of the value of the note released to the value of the security obtained by the bank by virtue of the transfer. The district court directed that these issues required inquiry into “the effect of the transfer upon the debtor’s estate” and “whether the unsecured creditors are made worse by the transfer” (October 18, 1995, Memorandum Opinion, p. 4). The district court further directed that the inquiry should focus on the effect of the transfer on the debtor’s estate. (Memorandum Opinion, p. 5).
2. Regarding the issues of insolvency, the court finds from the debtor’s petition, Schedule A, that the total indebtedness of Sunshine Kaylor existing and outstanding prior to 1988, the year of the transfer, is $436,250.00, and that this debt was existing on July 29, 1988. The court also finds that all of Kay-lor’s Virginia real estate was owned as tenants by the entireties with his wife and that these properties are not answerable to his debts.
3. The court finds that, at times material, the sole asset of the debtor to be included in the calculation of insolvency from a balance sheet prospective, as required by Bankruptcy Code § 101(32)(A)(ii), was his interest in the South Carolina property.
4. The evidence of value most probative of the value of the South Carolina property at the time of the transfer is the $200,000.00 value listed in the schedules and the bank’s appraisal report, which is Exhibit 6, shows a value of $156,000.00. The court finds that the value of the property at the time of transfer was $156,000.00. Subtracting the amount of the first lien held by Coastal Federal in the amount of $34,000.00 yields the debtor and his wife an equity of $122,000.00. The debtor’s interest, therefore, was $61,-000.00.
5. Comparing the value of the debtor’s assets with the amount of his debt, the court finds that he was insolvent at the time of the transfer.
6. The court finds that the Casey note was held by Kaylor and his wife and that it had a balance of $10,000.00 at the time it was released to the debtor in exchange for the deed of trust on the South Carolina property. The court finds that if the bank be given credit for this consideration on the ground that it was in good faith (a finding which the trustee challenges), that the value of the transfer which the trustee seeks to recover is $56,000.00.
7. The court has found that this transfer occurred within one year of the filing of the petition and the issue before the court is whether the debtor’s estate received reasonably equivalent value for the release of the Casey note. The court finds that the debtor-in-possession and trustee, upon his succession, were, from the commencement of the case, under a duty to apply the aforesaid $56,000.00 equity to payment to the unsecured creditors. At the time of the transfer, therefore, $56,000.00 in equity was taken and depleted from the debtor’s estate. The court finds and concludes that no reasonably equivalent value supported this depletion from the estate.
8. The court finds and adjudges, therefore, that the trustee should have and recover from the bank judgment in the amount of $56,000.00 and that it should also recover *49interest at the judgment rate of_% per annum from July 29, 1988, and further, that the trustee shall recover his costs herein expensed.
Respectfully, submitted this 19th day of January, 1996.
RICHARD A. MONEY, TRUSTEE BY COUNSEL
WOODWARD, MILES & FLANNAGAN, P.C.
Suite 200 Executive Plaza 510 Cumberland Street P.O. Box 789 Bristol, Virginia 24203-0789
By: /s/ John E. Kieffer John E. Kieffer
CERTIFICATE OF SERVICE
I hereby certify that I have this 19th day of January, 1996, served a true copy of the foregoing on David J. Hutton, Esquire, Boucher, Hutton and Kelly, 188 East Main Street, Abingdon, Virginia 24210, by mailing to him on or before the date of filing.
/s/ John E. Kieffer John E. Kieffer
APPENDIX
IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA ABINGDON DIVISION
In re: Sunshine Kaylor, Debtor.
Richard A. Money, Trustee, Plaintiff, . v. Coastal Federal Savings & Loan and First Virginia Bank-Mountain Empire, Defendants.
Chapter 7
Case No. 7-88-01834-HPA Adversary Proceeding No. 7-91-00089
January 23, 1996
PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW OF FIRST VIRGINIA BANK-MOUNTAIN EMPIRE
Comes now the defendant, First Virginia Bank-Mountain Empire, by counsel, and pursuant to Order of this Court entered on October 24, 1995 submits the following proposed findings of fact and conclusions of law.
A. FINDINGS OF FACT
1. The debtor in this case, Sunshine Kay-lor, filed a Petition under Chapter 11 of the Bankruptcy Code on November 24, 1988 and the case was converted to Chapter 7 on May 14, 1992. In July of 1988, the debtor, Sunshine Kaylor, and his wife executed a deed of trust conveying property owned by them jointly in South Carolina to secure a preexisting note payable to First Virginia Bank in exchange for the bank releasing other collateral securing said pre-existing note which was a note payable to the Kaylors in the principal amount of approximately $10,-500.00.
2. That the evidence in the record as to the value of the South Carolina property includes (a) the fact that the house was purchased in 1978 for $60,000.00; (b) a tax appraisal valuing the property at $156,000.00; (c) financial statements submitted by Kaylor to First Virginia Bank indicating the value of the property to be $156,000.00; (d) an appraisal report generated by First Virginia Bank for its internal use estimating the value of the property at approximately $150,000.00; and (e) the schedules of the debtor, Sunshine Kaylor, listing the value of the property at $200,000.00; and the fact that the property sold on February 25, 1992 for $99,000.00.
3. There is no direct evidence in the record of this case as to the fair market value of the South Carolina real estate in July of 1988.
4. That absent direct evidence of an actual appraisal from a licensed appraiser as to the value of the South Carolina property in July of 1988, this Court finds that given the disparity of values represented by the evidence cited, it would be speculation for this Court to determine the value of said real estate in July of 1988.
5. There is evidence in the record that there was a first lien deed of trust on the *50subject South Carolina property for the benefit of Coastal Federal Savings & Loan. However, there is no evidence in the record as to the actual balance which was due on said note secured by said first deed of trust in July of 1988, or evidence of other liens on said South Carolina property, such as real estate taxes. As a result, this Court is unable to determine the equity value in the South Carolina property in July of 1988, if any, as such a determination would be speculative.
6. That the evidence of record in this proceeding which the Court finds relevant as to the issue of insolvency of the debtor, Sunshine Kaylor, in July of 1988 include (a) information contained in the debtor’s schedules; (b) a deed admitted as joint Exhibit 3 wherein the debtor, Sunshine Kaylor, individually, acquired a tract of land from Dewey Yarber, et al, by deed dated February 8, 1983, of record in the Clerk’s Office of the Circuit Court of Washington County, Virginia in Deed Book 664, page 588 (however no evidence was presented as to the value of this tract of land); and the financial statements of the debtor submitted to First Virginia Bank admitted as Exhibits in this proceeding.
7. The Court finds that after a review of the debtor’s schedules that the information contained therein does not provide the actual date that the debts listed therein by the debtor were incurred with any specificity. The schedules indicate that all of the unsecured debts of the debtor were incurred in 1987. As the debtor lists only the year 1987 as the date many of his debts were incurred, the Court finds that the schedules of the debtor are unreliable in determining whether or not said debts existed in July of 1988.
8. That a determination of the value of the real estate owned individually by Sunshine Kaylor acquired by deed dated February 3, 1983 cannot be made as no evidence was presented with respect thereto.
9. That the evidence in the record is insufficient for the Court to determine without speculation that the debtor, Sunshine Kaylor, was insolvent in July of 1988 or became insolvent as a result of the transfer.
10.The Court finds that based upon all of the evidence presented and considered as set forth herein, that the debtor received reasonably equivalent value in exchange for the transfer of his interest in the South Carolina property by the July, 1988 deed of trust for the benefit of First Virginia Bank when the debtor received a release of the Casey note by said bank which previously was collateral on the existing indebtedness to said bank. This finding results as the Court cannot determine from the evidence of record in this proceeding the amount of equity, if any, that existed in the South Carolina property which would have been an asset of this debtor’s estate depleted by said transfer in July of 1988. The debtor pledged collateral of a value which cannot be determined, absent speculation, in exchange for the release of previously existing collateral.
B. CONCLUSIONS OF LAW
1. The trustee has the burden of proving by preponderance of the evidence that the debtor received less than the reasonably equivalent value of the transferred South Carolina property, and that the debtor was insolvent on the date of the transfer or became insolvent as a result of said transfer. In Re Morris, 914 F.2d 458 (4th Cir.1990).
2. That the trustee has failed to meet its burden of proof in this proceeding as the trustee has failed to present sufficient evidence for this Court to determine, without speculation, the fair market value as of the date of transfer of the South Carolina property transferred by deed of trust in July of 1988.
3. In addition, the trustee has failed to meet its burden as the evidence is insufficient for this Court to determine that reasonably equivalent value was not given for said transfer as there is insufficient evidence in the record to determine the amount of indebtedness or other liens which may have existed against the South Carolina property in July of 1988 to determine the amount of equity which the debtor, Sunshine Kaylor, had in said property on the date of transfer, *51which is necessary to determine the effect said transfer had on the debtor’s estate.
4. That given the Court’s determinations and conclusions as previously set forth herein, it is unnecessary for the Court to determine whether or not the debtor, Sunshine Kaylor, was insolvent in July of 1988 or became insolvent as a result of said transfer. However, based upon this Court’s findings that the schedules themselves were insufficient to make such a determination, this Court concludes that the trustee has failed to meet its burden of proof by failing to present evidence sufficient for this Court to determine that the debtor was, in fact, insolvent in July of 1988 at the time of said transfer, or in fact became insolvent as a result of said transfer.
5. That judgment be entered in favor of First Virginia Bank in this proceeding and said bank shall be entitled to apply the balance of funds held from the sale of the South Carolina property to existing indebtedness of the debtor, Sunshine Kaylor.
Respectfully submitted,
FIRST VIRGINIA BANK-MOUNTAIN EMPIRE
By Counsel
BOUCHER, HUTTON and KELLY 188 East Main Street Abingdon, Virginia 24210
By/s/ David J. Hutton David J. Hutton
CERTIFICATE
I certify that a true copy of the foregoing Proposed Findings of Fact and Conclusions of Law was faxed to John E. Kieffer, Esq., counsel for trustee, this 22nd day of January, 1996.
/s/ David J. Hutton David J. Hutton
. The note payable to the Kaylors was in the principal amount of approximately $10,000.00 to $11,000.00. (Findings of Fact & Conclusions of Law).
. The Court approved the sale of the property on February 25, 1992 for $98,000.00, whereby the sum of $34,586.61 remained after satisfaction of prior liens, real estate taxes, and closing costs. Since Mary Kaylor, Debtor's wife, was not a party to the bankruptcy proceeding, her one-half interest in said proceeds was distributed to the Bank and the remaining $17,293.30 was to be held in escrow pending a determination of other issues under § 548(a). (See Orders dated 2/25/92, 6/16/92, and 8/13/92).
. "The burden of establishing that debtor received less than measurably equivalent value for transferred property and was insolvent on date of such transfer or became insolvent as result of such transfer, which occurred within one year of filing of bankruptcy petition, so as to permit avoidance of transfer, rests on the trustee." Id. at 466.
. The district court held that Kaylor did not execute the Deed of Trust in order to hinder, delay, or defraud creditors. Id. at 5. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492347/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This proceeding came before the Court upon defendant’s motion to dismiss and motion for summary judgment. After a hearing on March 19, 1996, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. Harry A. Taylor (Taylor), a long-time resident of New York, died on September 30, 1978. His will, dated May 17, 1978, was admitted to probate in Suffolk County, New York on October 16,1978. (Plaintiff Brief at. 1-2).
2. Pursuant to Article THIRD of the will, Taylor directed that one-half of all stocks and bonds owned by him at the time of his death be distributed to his trustee, to be held in trust for the benefit of his son, Donald Taylor (plaintiff).
3. The will directed the trustee to make distributions of trust income to the plaintiff in “convenient installments.” (File Doc. 11). The will further provided that the trustee could utilize the principal of the trust to preserve the health or welfare of the plaintiff. (File Doc. 11).
4. Jean Taylor, testator’s daughter and plaintiff’s sister, was appointed original trustee of the trust on October 16, 1978. By order of the Surrogate’s Court of Suffolk County, New York, dated February 25,1993, Percy Ingerman was appointed as successor trustee and served in that capacity until his *199death on August 17, 1994. (Plaintiff Brief at 2-3).
5. On March 23, 1993, plaintiff entered into an agreement under which he agreed to pay monies owed by him to the estate of his incapacitated sister. Pursuant to the agreement, plaintiff agreed not to receive future income from the Taylor trust. (Plaintiff Brief at 3).
6. Plaintiff filed his petition for relief under Chapter 7 of the Bankruptcy Code on July 1,1993. Plaintiff has received no distribution from the trust since August 1993.
7. On November 2, 1993, defendant filed a complaint against plaintiff, alleging that plaintiffs interest in the trust was property of his bankruptcy estate and seeking turnover of both accrued and future income distributions. The complaint also sought a determination of whether defendant’s interest in the trust proceeds was superior to any interest asserted by parties to the March 23, 1993 agreement. (Adversary 93-402, File Doe. 1).
8. On July 27, 1994, this Court awarded summary judgment to defendant, which declared defendant’s interest in the Taylor trust to be superior to the interest of other parties and ordered the plaintiff to pay to defendant any accrued distributions as well as all future distributions arising under the trust. (Adversary 93-402, File Doc. 17).
9. On November 27, 1995, plaintiff filed the current proceeding, seeking to enjoin defendant from scheduling a sale of plaintiffs interest in the trust until a successor trustee could be appointed to obtain legal representation for the trust. Plaintiff also seeks an injunction ordering the defendant to accept a proposed settlement agreement. (File Doc. 1). Plaintiff amended his complaint to seek an injunction against the sale of his interest in the trust, alleging that the trust is a spendthrift trust and his interest is excepted from property of the estate pursuant to 11 U.S.C. § 541(c)(2).
10. Defendant answered the complaint and filed a motion for summary judgment and a motion to dismiss. Defendant argues that because this Court previously determined that plaintiffs interest in the trust is property of the estate, the doctrine of res judicata applies to bar the re-litigation of that issue. Defendant also argues that plaintiff has failed to state a claim for which relief can be granted; that plaintiff alleges only prospective damages which are insufficient to warrant equitable relief; that the plaintiff cannot seek to enjoin the defendant from performing his duties mandated by 11 U.S.C. § 704; and, that plaintiff cannot compel defendant to settle the dispute.
CONCLUSIONS OF LAW
I. Defendant’s Motion to Dismiss
Defendant moved to dismiss this proceeding on the grounds that the complaint fails to state a claim upon which relief can be granted. This Court has previously held that “courts generally do not favor dismissal for failure to state a claim for which relief can be granted ... Motions to dismiss for failure to state a claim for which relief can be granted are generally denied unless the movant can prove the logical insufficiency of the [claim].” Grant v. Florida Power Corporation, Whitlock Industrial Painting Co., Inc., A & A Welding & Fabrication, Inc., and, Tri State Contractors of Florida Inc. (In re American Fabricators, Inc.), 186 B.R. 526, 529 (Bankr.M.D.Fla.1995).
In support of his motion, defendant argues that the injunctive relief sought by the plaintiff cannot be awarded because the complaint states no basis for the relief. Although the Court also questioned plaintiffs desire to pursue injunctive relief, the Court is unpersuaded by defendant’s argument that the complaint is legally insufficient. Accordingly, the Court will deny defendant’s motion to dismiss.
II.Defendant’s Motion for Summary Judgment
Pursuant to Federal Rule of Bankruptcy Procedure 7056, a motion for summary judgment should be granted if the material facts, construed in the light most favorable to the non-moving party, are not in dispute, and the movant is entitled to judgment as a matter of law. F.R.B.P. 7056. See Macks v. United States (In re *200Macks), 167 B.R. 254 (Bankr.M.D.Fla.1994) (holding that “the facts relied upon by the moving party must be viewed in the light most favorable to the non-moving par-ty_” Id. at 256).
In his motion for summary judgment, defendant alleges that no genuine issues of fact exist because res judicata bars the re-litigation of whether plaintiffs interest in the trust is property of the estate, plaintiff cannot enjoin defendant from fulfilling his statutorily mandated duties as trustee of the estate, and plaintiff cannot compel defendant to settle disputes relating to estate property. (File Doc. 4).
A Res judicata
“The doctrine of res judicata insures the finality of decisions, conserves judicial resources, and protects litigants from multiple lawsuits.” Macks v. United States (In re Macks), 167 B.R. 254, 257 (Bankr.M.D.Fla. 1994). The Eleventh Circuit Court of Appeals has held that res judicata applies to bar the re-litigation of a cause of action when the following elements are met:
1. the prior judgment must have been rendered by a court of competent jurisdiction;
2. a final judgment on the merits must have been rendered;
3. the parties, or those in privity with them must be identical in both actions; and
4. the same cause of action must be involved in both actions.
In re McCoy, 163 B.R. 206, 210 (Bankr.M.D.Fla.1994) (quoting Ray v. Tennessee Valley Authority, 677 F.2d 818, 821 (11th Cir.1982), reh’g denied, 683 F.2d 1375, cert. denied, 459 U.S. 1147, 103 S.Ct. 788, 74 L.Ed.2d 994 (1983)).
In a prior proceeding between these parties, this Court found that plaintiffs interest in the trust was property of the estate and awarded judgment to defendant based on that finding. This Court’s jurisdiction is established pursuant to 28 U.S.C. §§ 1334 and 157. This Court’s prior judgment in favor of defendant was a binding adjudication of the issue presented in this proceeding. This Court’s prior judgment encompassed the same parties and cause of action as the current proceeding.
The Court finds that the doctrine of res judicata applies to bar the re-litigation of whether plaintiffs beneficial interest is property of the estate and eliminates any issue of fact regarding the ownership of the trust proceeds.
B. Defendant’s Duties as Trustee
Bankruptcy Code § 704(1) states that it is the duty of the bankruptcy trustee to “collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest....” 11 U.S.C. § 704(1). As Chapter 7 Trustee, defendant is required to administer plaintiffs bankruptcy estate in accordance with § 704.
This Court has determined that plaintiffs interest in the trust is property of the estate. Thus, defendant is entitled to complete the sale of that interest to generate money for the estate. The Court finds no reason to enjoin defendant from performing his statutory duty. The Court finds no factual issue surround defendant’s duties as proscribed by the Bankruptcy Code.
C. Proposed Settlement Agreement
Plaintiff argues that after consultation with defendant’s counsel, a settlement agreement was proposed under which defendant would receive a lump sum payment for the amount of undistributed trust income through October 27, 1995, plus a six month accumulation of future income as a reserve for the payment of additional potential claims. (File Doc. 1 at 2). For reasons unknown to the Court, defendant has elected not to enter into the settlement agreement. It has long been the policy of this Court that settlement agreements are private agreements reached between parties outside the confines of the Court. Accordingly, the Court will not compel the defendant to settle the dispute. The settlement agreement is outside the jurisdiction of the Court and does *201not present an issue of fact requiring adjudication.
D. Summary Judgment as a Matter of Law
Having determined that no genuine issue of fact exists, the Court must now decide whether defendant is entitled to summary judgment as a matter of law. This Court has held that
[i]n opposing a motion for summary judgment, the other party may not simply rest upon mere allegations or denials of the pleadings; after the moving party has met is burden of coming forward with proof of the absence of any genuine issue of material fact, the other party must make a sufficient showing to establish the existence of an essential element to that party’s case, and on which that party will bear the burden of proof at trial.
Macks v. United States (In re Macks), 167 B.R. 254, 256 (Bankr.M.D.Fla.1994). Thus, plaintiff must demonstrate to the Court the likelihood of establishing the elements of his cause of action at trial. In this proceeding, plaintiff seeks an injunction to prevent defendant from selling plaintiffs interest in the trust and to compel the defendant to settle the dispute over ownership of the trust income. To prevail, plaintiff must demonstrate that
(1) [he] has a substantial likelihood of success on the merits;
(2) [he] would suffer irreparable injury if the injunction is not granted;
(3) the threatened injury to [plaintiff] outweighs the harm of an injunction to defendant; and
(4) [an injunction] would not disserve the public interest.
Chisholm v. B.P. Oil Inc., Gulf Products Division (In re Chisholm), 57 B.R. 718, 719 (Bankr.M.D.Fla.1986). See also Cate v. Oldham, 707 F.2d 1176, 1185 (11th Cir.1983).
Plaintiff has not demonstrated a substantial likelihood of success on the merits of his cause of action. The Court has found that no genuine issues of fact surround plaintiffs prayer for relief. Specifically, the Court has found that res judicata bars plaintiffs request for an injunction to prevent the sale of the trust interest. The Court has also found that plaintiffs request for injunctions to impede the defendant’s duties as trustee and to compel defendant to accept the settlement agreement are meritless prayers for relief unsubstantiated by law.
Plaintiff has also failed to demonstrate that he would suffer irreparable injury if the injunction is not granted. In his brief, plaintiff suggests that he depends on the trust income for maintenance of his household. (Plaintiff Brief at 13). Plaintiff, however, makes such an assertion without indication that he could prove irreparable injury at trial.
The threatened injury to plaintiff, (sale of the trust interest), does not outweigh the harm of an injunction against the defendant. As stated earlier, plaintiff has failed to assert that he faces irreparable injury if the injunction is not granted. The defendant, however, if enjoined from selling the trust interest, would be prohibited from fulfilling his statutory duty as trustee of the bankruptcy estate, and would therefore suffer the greater harm.
The Court finds no evidence of what effect an injunction against defendant would have on public interest. The Court, however, concludes that the public interest is best served when the Bankruptcy Rules and Code are adhered to strictly. An injunction would prevent defendant from completing his obligation under the Code and would be inappropriate.
The Court finds that as a matter of law, plaintiff would not be entitled to an injunction against defendant. Plaintiff has failed to establish sufficient elements to allow him to proceed to trial on his cause of action and has been unsuccessful in opposing defendant’s motion for summary judgment. Defendant is entitled to summary judgment as a matter of law.
The Court finds that res judicata bars the re-litigation of whether plaintiffs trust interest is property of the estate. The Court finds no reason to enjoin the defendant from fulfilling his duties as Chapter 7 trustee or to compel defendant to enter into a settlement agreement. The Court finds that no material issue of fact exists, and that the defendant *202is entitled to judgment as a matter of law pursuant to Federal Rule of Bankruptcy Procedure 7056.
CONCLUSION
Defendant failed to prove that plaintiffs complaint is legally insufficient and failed to offer the Court acceptable arguments for why the complaint should be dismissed. Defendant, however, successfully proved that no genuine issues of fact exist and that defendant is entitled to summary judgment as a matter of law.
By separate order, the Court will deny defendant’s motion to dismiss, grant defendant’s motion for summary judgment, and authorize the clerk to close this adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492349/ | *418
OPINION
LARRY L. LESSEN, Bankruptcy Judge.
Before the Court is Plaintiffs’ Complaint to Quiet Title and Defendant’s Answer thereto. The question of fact in this case is whether William A. Neiderer died owning a certain 100-acre tract of land or whether a completed gift of the 100 acres was made to and accepted by the Defendant prior to William A. Neiderer’s death.
In 1936, William A. Neiderer (“Bill”) purchased a farm in rural Mason County, Illinois. The farm consisted of two tracts of land, totalling approximately 140 acres: (i) approximately 100 acres (including the home and outbuildings) in the Northwest Quarter of Section 6 (“the north farm”), and (ii) approximately 40 acres in the Southwest Quarter of Section 6 (“the south farm”), all in Township 21 North, Range 7 West of the Third Principal Meridian.
Bill and his wife were the parents of Glenn Neiderer (“Glenn”) and Stanley Neiderer (“Stanley”), both of whom lived on the farm in their youth. Glenn later married and now resides in Rochester, Indiana. Stanley married in 1964, and his marriage produced two sons, Gary Neiderer (“Gary”) and Paul Neid-erer (“Paul”). In 1969, Stanley’s marriage ended and he returned to the farm, where he has resided continuously since that date.
For a number of years prior to 1986, Bill, Stanley and Gary ran the farm and operated a produce stand and Christmas tree stand on the farm. Gary performed most of the actual labor on the farm, having started working on the farm years ago while he was still in high school.
On January 2,1987, Bill died, leaving a last will and testament bequeathing his entire estate to Stanley and Glenn in equal shares and appointing Stanley and Glenn as co-executors of his estate. On March 27, 1987, the estate was opened and Stanley was appointed executor. Four months later, Stanley filed a sworn inventory in Bill’s estate proceeding which included the two tracts of farmland which constitute the family farm.
On April 8, 1988, Bill’s estate sold the south farm to Paul for $12,000. The executor’s deed to Paul was signed by both Stanley and Glenn. Thereafter, the probate proceedings were inactive for a while, and were dismissed on February 20, 1990, without the estate having been fully administered.
During 1989, approximately 37.4 acres of the north farm was placed into a conservation program with a ten-year duration, and all government payments have been made to Stanley. Also commencing in 1989, Robert L. Henninger, an adjacent landowner, began cash renting 45 acres on the west side of the north farm, and all of his rent payments have been made to Stanley. Accordingly, the vast majority of the north farm had been either out of production or cash-rented since 1989.
On July 19, 1990, the First Bank of Havana obtained a state-court judgment against Stanley in the amount of $16,246.77 and recorded a memorandum of judgment in Mason County, thereby placing a judgment lien on any interest Stanley had on real estate in Mason County.
On January 31, 1991, the estate was reopened and Glenn was appointed sole executor.
In February, 1993, Gary recorded a deed dated December 1, 1986, whereby Bill purportedly conveyed the north farm to Gary. In addition to being signed by Bill, the deed was also signed by Stanley, as Bill’s agent pursuant to a grant of power of attorney. The deed is not notarized, nor does it reveal the identity of its preparer. Gary acknowledges that he gave no consideration in exchange for the real estate purportedly conveyed to him by the deed.
On March 8, 1993, Stanley filed his Chapter 7 bankruptcy petition. Stanley did not list any interest in the north farm on his bankruptcy schedules.
The issue before the Court is whether a valid and complete gift of the north farm was made to Gary by Bill during Bill’s lifetime. Resolution of this issue determines whether Stanley’s bankruptcy estate has an interest in the north farm pursuant to Bill’s last will and testament. Plaintiffs dispute (i) that Bill’s signature on the deed is genuine, (ii) that the deed was delivered to Gary, (iii) that Bill relinquished dominion and control *419over the north farm to Gary during his lifetime, and (iv) that the gift was accepted by Gary before Bill’s death.
As the recipient, Gary bears the burden of proving all the elements of a completed gift by clear and convincing evidence. U.S. v. One 1986 Chevrolet Monte Carlo, Vehicle Identification No. 1G1GZ37G2GR201549, 817 F.Supp. 729 (N.D.Ill.1993); Estate of Poliquin, 247 Ill.App.3d 112, 617 N.E.2d 40, 186 Ill.Dec. 801 (1st Dist.1993), appeal denied sub nom. Estate of Poliquin v. Carden, 162 Ill.2d 667, 622 N.E.2d 1204, 190 Ill.Dec. 887 (1993); Moniuszko v. Moniuszko, 238 Ill.App.3d 623, 606 N.E.2d 468, 179 Ill.Dec. 636 (1st Dist.1992). Under Illinois law, the elements of a gift of realty are: (i) execution of a deed with an intent to convey; (ii) delivery of the deed, and (iii) acceptance by the grantee. In re Strotheide, 142 B.R. 850 (Bankr.S.D.Ill.1992) citing Gallagher v. Girote, 23 Ill.2d 170, 177 N.E.2d 103 (1961), Chicago Land Clearance Comm. v. Yablong, 20 Ill.2d 204, 170 N.E.2d 145 (1960).
As a preliminary matter, the Court must first address the admissibility of certain testimony offered by two witnesses at trial. After sustaining Plaintiffs’ evidentiary objections to certain testimony of Alan Pherigo and Avalee Frese based upon the Dead-Man’s Act, 735 ILCS 5/8-201, the Court allowed Defendant to make an offer of proof with respect to certain matters said and done in the presence of Bill prior to his death. Most of this testimony pertained to the purported execution and delivery by Bill of the subject deed. Having extensively reviewed relevant case law in this area, the Court now believes that the testimony of Mr. Pherigo and Ms. Frese regarding matters which were allegedly said or done in the presence of the decedent is admissible because the Dead-Man’s Act prohibits only “adverse part(ies) or person(s) directly interested in the action” from testifying as to matters which took place in the presence of the deceased. 735 ILCS 5/8-201; see also Hockersmith v. Cox, 407 Ill. 321, 95 N.E.2d 464 (1950) (test of interest is whether he will gain or lose as a direct result of the suit); Williams v. Garvin, 389 Ill. 169, 58 N.E.2d 870 (1945) (“interest” must be direct and immediate). Because neither Mr. Pherigo nor Ms. Frese have any interest in the outcome of these proceedings, the Court can and will consider the testimony of Mr. Pherigo and Mr. Frese regarding matters which were allegedly said or done in the presence of the decedent before his death subject, however, to legitimate hearsay objections raised by Plaintiffs’ counsel.
The subject deed bears what purports to be Bill’s signature. In addition, the deed was also signed by Stanley, as Bill’s agent under a power of attorney. Stanley testified that he signed the deed on his father’s behalf on December 1, 1986. The genuineness of Stanley’s signature is not disputed; the only evidence offered to dispute the genuineness of Bill’s signature was Glenn’s opinion testimony that the signature did not appear to be that of his father. Glenn expressed doubt that his father was able to see well enough in December, 1986, to place his name on the signature line.
Although Glenn’s lay opinion on this matter is admissible, the fact that he is an interested party with no special expertise in the area of handwriting analysis effects the weight to which his testimony is entitled.
Mr. Pherigo testified that, on December 1, 1986, he was present in Bill’s house, and that he saw Bill sign something and hand the signed paper to Gary. Mr. Pherigo could not identify what was signed and could not testify that the document signed was a deed. Ms. Frese also testified that, on December 1, 1986, she was present in Bill’s house and that she saw Bill sign something and hand the signed paper to Gary. Like Mr. Pherigo, Ms. Frese could not identify what was signed. While the Court found both Mr. Pherigo and Ms. Frese to be forthright witnesses, their testimony was somewhat contradictory and sometimes inconsistent. In addition, neither was able to identify the document signed by Bill and handed to Gary. On balance, however, their testimony gives at least indirect support to the presumption that Bill’s signature on the deed is genuine. Glenn’s opinion testimony was insufficient to rebut this presumption.
*420In addition, Stanley’s testimony that he signed the deed as his father’s agent at his father’s direction on December 1, 1986, was not refuted in any way, nor was the validity of the power of attorney questioned. Accordingly, the Court finds the deed to have been properly executed by both Bill and Stanley.
Stanley, Gary, Ms. Frese and Mr. Pherigo all testified that Bill’s mental condition on and around December 1, 1986, was alert and coherent. This testimony leads the Court to conclude that Bill was aware of the effect of executing the deed, and that he executed the deed with the requisite donative intent.
Under Illinois law, delivery of a deed is essential to render it operative as a conveyance. In re Strotkeide, supra, citing McClugage v. Taylor, 352 Ill. 550, 186 N.E. 145 (1933); Herrin v. McCarthy, 339 Ill. 530, 171 N.E. 621 (1930). The intention of the grantor is the primary and controlling factor in determining whether there has been a delivery, and anything which clearly manifests the grantor’s intention that the deed become operative, that the grantor lose control thereof, and that the grantee become the owner of the deeded property is sufficient to show delivery. Id.
Gary’s former wife Kay Painter testified that, on December 1, 1986, Gary brought home a deed. This testimony is important in that it places a document identified as a deed in Gary’s hand on the date of the alleged execution. Ms. Painter’s testimony is also valuable because the Court found Ms. Painter to be a credible witness whose testimony was entitled to a good deal of weight. This evidence, along with the supporting testimony of Ms. Frese and Mr. Pherigo that they each saw Bill hand Gary the document which Bill executed, constitutes clear and convincing evidence of delivery. There was no testimony or evidence offered to refute the evidence of delivery.
Plaintiff argues that during the 32-day period between the purported gift being made and Bill’s death, nothing changed regarding the operation or possession of the north farm inasmuch as there was no relinquishment of dominion or control by Bill and no corresponding exercise of dominion and control by Gary. Consequently, Plaintiff argues, actual delivery of the subject matter of the gift did not occur prior to Bill’s death and, additionally, the gift fails for lack of acceptance by Gary prior to Bill’s death.
While Plaintiffs’ argument has some superficial appeal, the Court finds it more instructive that, by signing and delivering the deed, Bill immediately and completely relinquished his legal right to exercise dominion and control over the subject property. At the same time, Gary, in receiving the deed, immediately acquired the legal right to do as he wished with the north farm. The fact that Gary declined to exercise the option to make dramatic changes prior to Bill’s death does not mean that Bill had any legal right to prevent Gary from doing so, nor does it mean that there was a lack of acceptance of the gift on Gary’s part. This is especially so given the specific facts of this case.
Those facts — the familial relationship of Bill, Stanley and Gary, their interdependence upon one another and the farm, and the manner in which farm finances and farm operations had traditionally been handled— make it difficult to imagine why Gary would have had the need or desire to make any major changes in matters regarding the farm. At the time the gift was made, Bill was over ninety years-old and was in poor health, Stanley was struggling financially and had nowhere else to live and no independent means of support, and Gary had his own home a mile or two away. Under these circumstances, it would not be illogical for Gary to decline to evict his grandfather and father or begin charging them rent once he acquired the deed to the north farm. While Plaintiff argues that Gary could have done less intrusive things to exercise dominion and control over the premises, e.g. change the tax bill, notify the utility companies or the phone company, the Court finds that his failure to do so to be not really instructive. Accordingly, the Court finds that not only was there delivery of the north farm by Bill, but there was also acceptance by Gary.
Following Bill’s death, Gary’s acts of dominion and control over the north farm became somewhat more evident. From 1986 *421through 1988, and in 1990 and 1991, Kay Painter testified that she paid the real estate taxes on the farm with cash given to her by Gary. In 1989, Joanne Dodds, Gary’s mother, testified that she paid the real estate taxes on the farm with cash given to her by Gary. This evidence is irrelevant to prove acceptance of the gift by Gary because a valid gift must be completed during the donor’s lifetime. See Dudley v. Uptown National Bank of Moline, 25 Ill.App.2d 514, 167 N.E.2d 257 (2d Dist.1960). However, it is important because it is inconsistent with Plaintiffs’ theory that the deed constituted a fraudulent last-minute attempt to transfer the property to Gary before Stanley filed bankruptcy.
While the Court finds the timing of the appearance of the deed in this case slightly suspect, the Court also finds the apparent failure of Glenn to exercise any dominion and control over the property as co-executor and beneficiary under his father’s will extremely odd as well. After having successfully removed Stanley from the position of co-executor in 1991, Glenn failed to do anything, including pay real estate taxes on the property, to indicate that Bill’s probate estate, through its legally-appointed representative, owned or claimed to own the north farm. Even more curious is the fact that Glenn apparently never once inquired about his share (or the probate estate’s share) of the CRP payments and cash rent payments. This apparent ambivalence over the years since 1986 did nothing to help Plaintiffs’ case.
Glenn argues that the fact that Stanley signed up the farm for the CRP and the fact that Stanley negotiated a cash rent agreement with Robert Henninger supports his claim that Gary neither owned nor claimed to own the farm until the appearance of the deed in 1993. In addition, Glenn suggests that the cash used to pay the real estate taxes was given to Gary by Stanley. In the Court’s opinion, Gary’s testimony that he allowed Stanley to keep much or all of the CRP and cash rent proceeds as he needed to live on is not inconsistent with Gary’s claim of ownership. Gary clearly expressed at trial that he felt morally obligated to look out for his father’s basic needs, and the means by which he elected to do so was consistent with Stanley’s living arrangement. As a tenant, it makes sense that Gary would allow Stanley to collect rents. As for the claim that the real estate taxes were paid by cash given to Gary from Stanley, again, it is not inconsistent with Gary’s claim of ownership that CRP proceeds or rent proceeds not needed by Stanley to live on would be used to pay the real estate taxes.
For the reasons set forth above, the Court finds that the evidence supports Defendant’s claim that a valid gift was made by Bill to Gary of the north farm. Hence, Stanley had no ownership interest in the north farm at the time he filed his bankruptcy petition herein. Accordingly, Plaintiffs’ Complaint to Quiet Title must be denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS THEREFORE ORDERED that Plaintiffs’ Complaint to Quiet Title be and is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492350/ | MEMORANDUM OF DECISION
JIM D. PAPPAS, Chief Judge.
Background.
This adversary proceeding is brought by the Plaintiffs Dale and Leah Jones, as Chapter 18 debtors (hereafter “Debtors”), against the Internal Revenue Service (hereafter “the IRS”) seeking a determination from the Court that Debtors are no longer hable for certain taxes. The matter is before the Court after a hearing held on April 25, 1996, at which the Court took under advisement the parties’ cross-motions for summary judgment. F.R.B.P. 7056. After review of the record herein, together with the arguments of the parties, the Court concludes that the IRS motion for summary judgment should be granted, and the Debtors’ motion should be denied. This Memorandum constitutes the Court’s findings of fact and conclusions of law. F.R.B.P. 7052.
Facts.
The following material facts are undisputed. On December 24, 1987, Debtors submitted an “Offer in Compromise” to the IRS seeking to compromise their federal tax liabilities for tax years 1975 through 1979. Debtors offered to pay $139,466.00 to satisfy a tax liability the IRS claimed totaled over $287,000.00. In effect, Debtors sought forgiveness of accrued interest and penalties in consideration of their agreement to pay the amount of the underlying tax. As is required by the regulations, Debtors submitted certain financial and other written information to the IRS in connection with the Offer concerning their assets, debts and ability to pay the taxes. In 1989, the IRS accepted Debtors’ Offer in Compromise, and Debtors thereafter paid the IRS the compromise amount.
On April 13, 1994, a criminal indictment was secured by the Government against Dale *544Jones in the United States District Court for the District of Idaho. Count I of the indictment alleged in relevant part that:
On or about October 1, 1979, and continuing to about August, 1989, in the District of Idaho, Dale D. Jones, a resident of Pocatello, Idaho, ’ did willfully attempt to evade and defeat the payment of a large part of over $287,000.00 in income tax due and owing by him to the United States of America for the calendar years 1975 through 1979 1) by concealing his ability to pay, 2) by making false statements to representatives of the IRS and 3) by submitting false documents to the IRS.
In violation of Title 26, United States Code, Section 7201.
See Indictment, attached as Exhibit A to Affidavit of Rick Budd filed April 11, 1996. On July 18, 1994, Dale Jones entered a voluntary guilty plea to Count I and admitted that all material allegations of Count I were true and that he had violated 26 U.S.C. § 7201.1 See Transcript of Change of Plea Hearing, attached as Exhibit C to Declaration of Richard Ward filed April 11, 1996. On November 28, 1994, the IRS revoked acceptance of the Offer in Compromise under authority of 26 C.F.R. § 301.7122-l(c)(l) on the grounds that Debtors had falsified documents and concealed assets in connection with submission of the Offer. As a result, on April 3, 1995, the IRS reassessed the Debtors’ tax liability which consists of, in the largest part, the accrued interest on the tax previously paid.
On May 11, 1995, Debtors filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. On June 19, 1995, the IRS filed a proof of claim in Debtors’ bankruptcy proceeding for $411,318.98 for penalties and interest for tax years 1975 through 1979. In the bankruptcy case, Debtors have objected to the proof of claim, and also filed a motion to determine whether the IRS claim is secured or unsecured. Debtors also then commenced this adversary proceeding.
The parties filed cross-motions for summary judgment. By the motions, the IRS seeks recognition of its right to reopen and revoke the Offer in Compromise, and to establish Debtors’ tax liabilities as stated in the IRS’s proof of claim. Debtors seek a determination that the Offer and Compromise is valid and binding upon the IRS, and thus, that they have satisfied the entire tax obligation, and owe the IRS nothing further.
Discussion.
Summary judgment is appropriate only if the evidence, viewed in the light most favorable to the non-moving party, shows that there are no genuine issues as to any material fact, and that the moving party is entitled to judgment as a matter of law. F.R.C.P. 56(c); Hopkins v. Andaya, 958 F.2d 881, 884 (9th Cir.1992); In re Keller, 95 I.B.C.R. 164.
The regulation critical to resolution of this dispute provides in pertinent part that:
(a) ... [t]he Commissioner may compromise any civil or criminal liability arising under the internal revenue laws....
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(c) ... Neither the taxpayer nor the Government shall, upon acceptance of an offer in compromise, be permitted to reopen the case except by reason of (1) falsification or concealment of assets by the taxpayer, or (2) mutual mistake of a material fact sufficient to cause a contract to be reformed or set aside.
26 C.F.R. § 301.7122-l(a), (c). When a taxpayer and the Government enter into a compromise, both parties are bound by that agreement. United States v. McCorkle, 94-2 ustc ¶ 50,450, 1994 WL 317702 (N.D.Ill.1994). However, as authorized by the regulation, a compromise may be reopened and revoked upon a showing of falsification or concealment of assets. 26 C.F.R. § 301.7122-1(c)(1).
In this case, the IRS contends that because Debtor Dale Jones pled guilty to submitting falsified documents and concealing assets in connection with the Offer in Compromise, it has the authority under 26 C.F.R. § 301.7122 — 1(e)(1) to reopen Debtors’ tax liability and to revoke the compromise *545agreement. Debtors do not dispute that Dale Jones falsified documents and concealed assets. Debtors assert, however, that the IRS must prove Dale Jones committed “fraud” before it can revoke the Offer in Compromise. As a necessary element of this showing, Debtors contend that the IRS must prove it reasonably relied upon the accuracy and completeness of the information Debtors supplied. Debtors point to evidence in the record that at the time the IRS agreed to the compromise, IRS agents strongly suspected the information submitted by Debtors may be unreliable.2 Therefore, Debtors conclude, the IRS did not reasonably rely upon this information, and cannot prove Debtors defrauded the IRS.3
Debtors cite four cases in support of the proposition that the IRS must prove fraud in order to reopen the Offer and Compromise. See Jones v. IRS, 795 F.2d 566, 86-2 ustc ¶ 13,675 (6th Cir.1986); Timms v. United States, 678 F.2d 831, 82-2 ustc ¶9426 (9th Cir.1982); Waller v. United States, 767 F.Supp. 1042, 91-1 ustc ¶ 50,288 (E.D.Cal. 1991); McCorkle, 94-2 ustc at ¶ 50,450. However, these decisions do not stand for the proposition relied upon by Debtors. The cases make only loose reference to the term “fraud” as a ground to reopen an Offer and Compromise. Although it may appear that the decisions, in dicta, generally equate “falsification or concealment of assets” with “fraud”, none of the cases cited determines the scope of this phrase in the context of reopening a taxpayer’s tax liability subsequent to an Offer in Compromise agreement. The cases cited do not employ the term “fraud” intending thereby to incorporate the elements of common law fraud into the regulation as Debtors suggest. Rather, they refer to fraud as a convenient substitute for the precise language of the regulations. Accordingly, this Court is unwilling to hold that the “falsification or concealment of assets” referred to in 26 C.F.R. § 301.7122-l(c)(l) compels the IRS to prove “fraud”, and therefore reasonable reliance upon the false information, in order to revoke an Offer in 'Compromise.
Instead, the Court looks to the plain language of the regulation. 26 C.F.R. § 301.7122-l(c)(l) allows the IRS to reopen the case by reason of “falsification or concealment of assets by the taxpayer.... ” If the information submitted by a taxpayer to the IRS in connection with a proposed Offer in Compromise is in fact false, or if the taxpayer in fact conceals assets in this process, the regulation’s requirement is satisfied, regardless of the taxpayer’s intent or motive or whether the IRS reasonably relied upon the accuracy of the taxpayer’s representations. If the drafters of the regulations intended additional requirements for revocation of a compromise, they could have easily stated them in the regulation.
In this case, Dale Jones admitted he violated 26 U.S.C. § 7201 and that the material allegations in Count I of the criminal indictment to which he pled guilty were true.4 The issue is whether concealing his ability to pay, making false statements to representatives of the IRS, and submitting *546false documents to the IRS, are the same thing as a “falsification or concealment of assets” by Debtor. This Court concludes that they are. Therefore, the IRS is entitled to reopen and revoke the Offer in Compromise pursuant to 26 C.F.R. § 301.7122-1(e)(1).
Next, Debtors cite several cases in support of the proposition that the Offer in Compromise is a contract governed by generally applicable rules of contract law, and therefore, under the facts of this case, the IRS cannot now rescind the agreement. See Timms v. United States, 678 F.2d 831 (9th Cir.1982); Keating v. United States, 92-1 ustc ¶ 50,178, 1992 WL 110535 (1992); United States v. Feinberg, 372 F.2d 352 (3rd Cir.1965); United States v. Lane, 303 F.2d 1 (5th Cir.1962). All of the cases cited, however, involve disputes over interpretation of the terms of the compromise agreements, unlike the present case where the terms of the agreement are not contested.
Again, in this case, the IRS seeks to revoke the entire Offer in Compromise pursuant to 26 C.F.R. § 301.7122-l(e). This regulation is an implicit component of every compromise agreement entered into by the IRS and governs the outcome here. Once the regulation is satisfied, the IRS can reopen and revoke the compromise.
Finally, Debtors cite this Court’s decision in In re McCarron, 94 I.B.C.R. 52, in support of their assertion that even if the Offer in Compromise is set aside for Dale Jones, it cannot be set aside as to Leah Jones because she is not responsible for her husband’s fraud. In McCarron, a husband and wife each filed individual chapter 7 petitions. Prior to filing their petitions, a bank had obtained a judgment against them based upon the wife’s fraudulent conduct. Accordingly, in the wife’s bankruptcy proceeding, the judgment was held nondischargeable. The issue in McCarron was whether the fraud of the wife could be imputed to the husband and the debt held nondischargeable in his bankruptcy proceeding. This Court refused to impute the fraud.
In the present case, however, the IRS is not seeking a determination that the debt in Debtors’ bankruptcy proceeding is nondis-chargeable; rather, it seeks to revoke an Offer in Compromise of Debtors’ tax liability under 26 C.F.R. § 301.7122-l(c)(l) obtained by falsification of documents and concealment of assets. It is not necessary for the Court to determine whether Mrs. Jones actively participated in fraudulent representations or conduct, or whether her husband’s conduct should be “imputed” to her. This is because the clear intent of the regulation is to allow the IRS to void agreements procured through such conduct. Prohibiting the IRS from doing so would be inconsistent with that intent. If an Offer in Compromise is secured by submission of any false information, grounds exist to set it aside. At best, Leah Jones is losing the advantage of a compromise which was tainted in the first instance. This Court finds no injustice in denying her the benefit of a bargain achieved by such conduct. The Court concludes that the IRS acted properly in reopening and revoking the Offer in Compromise as to both Debtors.
In addition, the Court concludes that there is no genuine issue of material fact with respect to the amount owed by Debtors to the IRS. The IRS has, through its proof of claim and supporting materials, shown pri-ma facie evidence of the amount of its claim. See F.R.B.P. 3002(f) (proof of claim executed and filed in accordance with Rules constitutes prima facie evidence of the validity and amount of the claim); United States v. Janis, 428 U.S. 433, 440-441, 96 S.Ct. 3021, 3025-3026, 49 L.Ed.2d 1046 (1976); Gentry v. United States, 962 F.2d 555, 557 (6th Cir. 1992); United States v. Chila, 871 F.2d 1015 (11th Cir.1989); Anderson v. United States, 561 F.2d 162, 165 (8th Cir.1977) (all holding that an assessment for taxes, when properly certified, is presumptively correct evidence of a taxpayer’s liability and satisfies Government’s burden of proof). Here, the IRS has offered both its proof of claim in the bankruptcy case, and a certificate of assessment in support of the amount due from Debtors.5 *547Debtors offer no competent evidence to contest this amount, and no genuine issue of material fact exists which would prevent summary judgment in favor of the IRS.
However, there is no basis in the record for the Court to conclude whether the IRS claim in the bankruptcy ease is secured or unsecured. A determination as to that issue may be made in connection with Debtors’ pending motion to determine secured status and need not prevent entry of a final order in this adversary proceeding.
Conclusion.
The IRS motion for summary judgment should be granted. Debtors’ motion for summary judgment should be denied. F.R.B.P. 7056. Dale Jones admitted to violating 26 U.S.C. § 7201 and to concealing assets from, and submitting false documents to, the IRS. Accordingly, the Court finds that the IRS is entitled to entry of summary judgment declaring that they are authorized as a matter of law to reopen and revoke the Offer in Compromise pursuant to 26 C.F.R. § 301.7122-l(c)(l), and fixing the amount of the IRS claim at that sum set forth in its proof of claim filed in the bankruptcy case. The Court makes no finding concerning the extent to which the IRS claim is secured and unsecured.
Counsel for the IRS should submit an appropriate order and final judgment for entry by the Court, which order/judgment has been approved as to form by Debtors’ counsel.
. “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof” is guilty of a felony. 26 U.S.C. § 7201.
. Strong evidence of the IRS skepticism about the accuracy of Debtors’ information submitted with the Offer is found in a Revenue Officer's written report wherein she recommends that the IRS accept the compromise offer because of probable difficulties in collecting the taxes from Debtors, but that the IRS “pursue the question of fraud” by further investigation. See Exhibit D, attached to Affidavit of Dale D. Jones, filed April 12, 1996.
. One problem with Debtors' argument from the perspective of the record is that Dale Jones may have expressly admitted he did commit "fraud” in connection with the offer to the IRS, based upon the statements of his counsel in the criminal proceedings that:
The Defendant did, in fact, as stated in Count I in the state of Idaho engage in fraud by concealing his ability to pay, by making false statements to the Internal Revenue Service and by submitting false documents to the Internal Revenue Service.
Transcript of Change of Plea Hearing, attached as Exhibit C to Declaration of Richard R. Ward, at pg. 23.
. While here Dale Jones expressly admitted the truth of these allegations in open Court, his entry of guilty plea to the indictment constitutes, as a matter of law, a legal admission that all material allegations of the indictment are true. United States v. Mathews, 833 F.2d 161, 163 (9th Cir. 1987), citing McCarthy v. United States, 394 U.S. 459, 466, 89 S.Ct. 1166, 1170-71, 22 L.Ed.2d 418 (1969).
. While the proof of claim and certificate of assessment show different amounts due on the taxes, it is obvious to the Court that the proof of *547claim includes additional interest accruing on the obligation to the date of bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492351/ | PHILIP H. BRANDT, Bankruptcy Judge.
BancBoston Mortgage Corporation objects to confirmation2 on the ground that the Debtors’ plan does not include “anti-Peters ” language. The reference is to In re Peters, 184 B.R. 799 (9th Cir. BAP 1995), a Chapter 13 (of the Bankruptcy Code: 11 U.S.C.3) ease in which the Ninth Circuit Bankruptcy Appellate Panel held a lender’s postconfirmation continuances of its nonjudicial foreclosure sale violated the automatic stay, and stated that the prepetition defaults were cured on the confirmation of the debtors’ plan.
While the BAP’s effect of confirmation analysis may well be dicta, as the opinion seems to indicate the prepetition delinquencies had been paid, its conclusion has provoked numerous objections to confirmation such as this one. Additionally, Peters is on appeal to the Ninth Circuit.
I am aware of Judge Glover’s conclusion that Peters is wrongly decided, and that anti-Peters language is unnecessary, but have not seen a transcript of his oral ruling in In re Brooks, No. 95-08776.4 A written decision is, I understand, forthcoming.
Debtors’ contention that the objection is moot is not well taken: although no foreclosure was pending at the time of their petition, they were delinquent on their obligation to BancBoston. If Sheldons default postconfirmation and relief from stay (rather than dismissal) is granted, the Peters effect of foreclosure analysis would limit the default which BancBoston could notice under RCW 61.24.030(6)5 to the postconfirmation delinquency. That amount (plus accruing payments and costs) would be necessary to cure the default and stop the sale under state law. If Peters does not apply, BancBoston could notice the whole delinquency, increasing the probability that the foreclosure will be completed, and increasing Debtors’ incentives to avoid postconfirmation default. Of course, *553BancBoston could foreclose judicially6 to preclude cure and reinstatement, but that process is significantly more expensive and, taking into account the redemption period, slower.
The question here presented differs from those before the BAP in Peters: there it was the effect of confirmation and of the stay; here, it is what the plan (or confirmation order) should say.
Under §§ 1321 and 1323 of the Code, only the debtors may file or propose modifications to a Chapter 13 plan preconfirmation. Thus, BancBoston cannot succeed on its objection to the plan’s text, but it can object to confirmation, and thus the substance of its position is properly before the court. The fundamental question for resolution is: what effect should confirmation have on the lender’s state law foreclosure rights? As the BAP noted in Peters, 184 B.R. at 802, § 1327 provides that the confirmation order may affect the answer.
Neither party points to any basis in the Code for inclusion or exclusion of the language requested by BancBoston in the plan, and neither directly addresses the confirmation order. I know of no reason why the text of the confirmation order is not within the discretion of the court, so long as it does not conflict with the Code, the rules, or controlling authority.
In exercising that discretion, I can properly consider the impact of various alternatives on judicial economy and the public, including other borrowers and lenders. A mechanical application of Peters would increase a lender’s time to realization after a postconfirmation default when a nonjudicial foreclosure sale had been noticed prepetition, because of the unavailability of a continued or short-notice nonjudicial foreclosure sale under RCW 61.24.040(6)7 or .130(4)8. Further, as noted above, the Peters analysis would reduce the state law cure amount. Taken together, these. effects will tend to reduce and delay lenders’ recoveries, effectively increasing their costs, and pushing them to scrutinize Chapter 13 plans more rigorously, which will also increase their costs. Lenders will compensate by marginally increasing interest rates and other charges (or denying credit) to borrowers such as the Sheldons, and by objecting on good faith and feasibility grounds more frequently in Chapter 13 eases.
To avoid these adverse impacts on borrowers, lenders, and judicial economy, and because the plan does not explicitly provide for BancBoston to retain its lien, which it must to comply with § 1325(a)(5)(B), BancBoston’s objection is SUSTAINED. Its counsel shall propose language for the confirmation order.
. Of debtors’ Chapter 13 plan. The objection is a core proceeding within this Court’s jurisdiction. 28 U.S.C. §§ 157(b)(2)(L) and 1334; GR 7, Local Rules W.D.Wash.
. Herein "Code". Absent contrary indication, all “Chapter" and "Section” references are to the Bankruptcy Code.
. U.S. Bankruptcy Court, W.D. Washington. Thomas T. Glover is Chief Judge of this Court.
. Chapter 61.24 of the Revised Code of Washington ("RCW”) governs nonjudicial foreclosure of deeds of trust in Washington. RCW 61.24.040 requires the recording (and service on or transmission to the grantor or successor in interest and lienholders) of a notice of sale not less than 90 days prior to sale.
RCW 61.24.030(6) requires the transmission or service of written notice of default by the beneficiary or trustee to the grantor or successor in interest containing:
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(d) An itemized account of the amount or amounts in arrears if the default alleged is failure to make payments;
(e) An itemized account of all other specific charges, costs or fees that the grantor is or may be obliged to pay to reinstate the deed of trust before the recording of the notice of sale;
(f) The total of subparagraphs (d) and (e) of this subsection, designated clearly and conspicuously as the amount necessary to reinstate the note and deed of trust before the recording of the notice of sale;
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. Under RCW Chapter 61.12. RCW 61.24.100; Helbling Bros. Inc. v. Turner, 14 Wash.App. 494, 542 P.2d 1257 (1975); Washington Mutual v. U.S., 115 Wash.2d 52, 58, 793 P.2d 969, 800 P.2d 1124(1990).
. Which provides that the trustee may continue the sale for a period or periods not exceeding 120 days by public proclamation at the time and place noticed for the sale, or alternatively by renoticing and publishing notice of continuance as if it were an initial notice of sale.
. Which provides:
(4) If a trustee's sale has been stayed as a result of the filing of a petition in federal bankruptcy court and, after the period for continuing sale as allowed by RCW 61.24.040(6), an order is entered in federal bankruptcy court granting relief from the stay or closing or dismissing the case, or discharging the debtor with the effect of removing the stay, the trustee may set a new sale date which shall not be less than forty-five days after the date of the bankruptcy court's order....
The trustee is required to give written notice and to publish it in the same fashion as an initial notice of sale.
Some lenders and counsel, as BancBoston's here, interpret this section as requiring the sale be continuing to the latest date available under RcW 61.24.040(6) before the republishing and renoticing of a new sale date is permitted, that may present other problems: Judge Klobucher, of the Eastern District of Washington, has held in In re Fritz, 188 B.R. 438 (Bankr.E.D.Wa.1995), that oral continuances which effectively require the debtor or an agent to attend to determine the new sale datet, violates the automatic stay of § 362. Fritz is on appeal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492352/ | AMENDED ORDER DENYING BANKS’ MOTION UNDER 11 U.S.C. § 1112(b) TO CONVERT CASE TO CHAPTER 7
ALEXANDER L. PASKAY, Chief Judge.
This is a yet-to-be-confirmed Chapter 11 case filed on October 11, 1995, by Lykes Brothers Steamship Co., Inc. (Debtor). The immediate matter under consideration is a Motion to Convert Case to Chapter 7 (Motion), filed by J.P. Morgan Delaware, Morgan Guaranty Trust Co., Whitney National Bank and Premier Bank, N.A. (Banks), members of a group of asset-based lenders. The Motion is filed pursuant to § 1112(b)(2) of the Bankruptcy Code and is based on the Banks’ contention that the Debtor is suffering from continuing loss to or diminution of the estate and that there is an absence of a reasonable likelihood of rehabilitation. The Motion was filed at 1:21 PM on Monday, May 6th, just moments before a regularly scheduled hearing began on other numerous and miscellaneous, properly-noticed matters in this Chapter 11 case. Ordinarily, the moving party, in this instance the Banks, would like a speedy ruling on the motion and the Debtor would violently object to immediate consideration of the Motion on the basis of insufficient service and notice. Surprisingly, at approximately 1:30 PM, the Debtor filed in open court its Emergency Motion for an Immediate Trial of Motion to Convert, in which it waived any objection to the almost non-existent notice and demanded that the Court consider the Banks’ Motion forthwith.
The Debtor’s Motion was supported by the Official Committee of Unsecured Creditors (Unsecured Creditors Committee), which joined the Debtor in urging that an immediate hearing and resolution of the issues raised by the Motion was necessary because the mere filing of the Banks’ Motion would negatively impact the Debtor’s business as soon as the news was publicized and disseminated to the shipping industry, a result which this Debtor can ill afford. Although this Court’s May 6th afternoon calendar was fully booked and included a final evidentiary hearing to determine the validity, extent and priority of a maritime lien claimed by the South Carolina State Ports Authority, this Court agreed to take up the Motion after the conclusion of the maritime lien litigation.
The facts relevant to the issues raised by the Banks’ Motion, as established by the record, may be summarized as follows: Prior to commencement of this Chapter 11 case, the Banks financed the Debtor’s business operations under a Credit Agreement (Agreement), which was a revolving loan agreement secured by the Debtor’s accounts receivables. Under the Agreement, the advances were originally capped at $30 million and later reduced to $25 million, and were tied to the borrowing base fixed by the Agreement.
It is without substantial dispute that, on the date of filing the Chapter 11 case, the balance owed to the Banks stood at an amount in excess of $13 million and the Bank’s collateral, i.e., the accounts receivables, at $60 million. The borrowing base was determined by eligible receivables which, in turn, were determined by discarding from the total receivables those considered uncol-lectible because they were over the acceptable aging limit or were subject to serious disputes or litigation or those on which the Bank could not perfect a security interest.
On October 11, 1995, in conjunction with the filing of its Chapter 11 Petition, the Debtor filed an Emergency Motion for Authority to Use Cash Collateral, i.e., the collections from the accounts receivables pledged to the Banks. This Court immedi*593ately entered an Order Authorizing Interim Use of Cash Collateral, Granting Replacement Lien and Scheduling Hearing. In that Order, the Banks were given, as adequate protection, a replacement security interest in accounts receivables and other cash collateral, including proceeds, of the Debtor generated post-petition. A preliminary hearing was scheduled for October 26, 1995, with proper notice to all interested parties. Thereafter, on December 19,1995, this Court entered its Agreed Order Authorizing Debtor to Use Cash Collateral and Granting Security Interests and Administrative Priority Under 11 U.S.C. § 364 (First Cash Collateral Order). The First Cash Collateral Order provided that the Debtor would make weekly adequate protection payments to the Banks in the amount of $31,600.00, and that the borrowing base would be calculated pursuant to the Agreement. It is without dispute that the Debtor abided by the terms of the First Cash Collateral Order.
On February 21, 1996, at a duly noticed hearing, this Court revisited the issue of the Debtor’s continuing use of cash collateral and considered certain objections to such use. Thereafter, on March 5, 1996, this Court entered its Order Authorizing Debtor to Use Cash Collateral and Granting Security Interests and Administrative Priority under 11 U.S.C. § 364 (Second Cash Collateral Order), extending the Debtor’s use of cash collateral under the terms contained in the First Cash Collateral Order through April 8,1996.
On April 23, 1996, the Debtor’s use of cash collateral was again heard, together with certain objections, and, at the request of the Debtor and the Banks, the matter was continued until May 6,1996. In the interim, the Banks, the Debtor and the Unsecured Creditor’s Committee resumed discussions concerning further extension of the authority to use cash collateral previously granted. During that time, the Debtor and the Banks arrived at a Stipulation Providing for Continued Use of Cash Collateral (Stipulation) as to the terms of the adequate protection to be furnished to the Banks; however, the Unsecured Creditors Committee refused to join in the Stipulation and objected to the marked increase in required adequate protection payments.
Although counsel for the Banks mailed out, on April 25, 1996, a Notice of Hearing to Consider Stipulation Providing for Continued Use of Cash Collateral, no motion was ever filed either by the Banks or by the Debtor. Moreover, the time fixed in the notice to object to the Stipulation was far less than adequate. Thus, it was no surprise that numerous objections were registered to this Court’s consideration of the Stipulation and non-existent motion to approve the Stipulation, and the matter had to be rescheduled with adequate notice. It is without dispute that even though the Stipulation was yet to be approved by the Court, the Debtor made two adequate protection payments in the amount of $120,000 each, on April 29th and May 6th, respectively, to the Banks pursuant to the Stipulation. Notwithstanding, the Banks, apparently frustrated by the opposition of the Unsecured Creditors Committee to the Stipulation, filed the Motion presently under consideration seeking a conversion of this Chapter 11 case to a Chapter 7 liquidation case.
CURRENT STATUS OF THE BANK’S BORROWING BASE
The operational history of the Debtor since the commencement of the case reveals the following: As of the petition filing date, the Debtor had gross accounts receivables of $60,621,000 and, after discounting ineligible receivables and making some other adjustments, had net adjusted accounts receivables of $47,349,000. According to the Account Receivable Analysis, on April 27, 1996, the Debtor’s gross accounts receivables were $50,930,000 and, after making the same adjustments, showed an outstanding net adjusted receivable balance of $42,430,000. (Debt- or’s Exhibit 6).
The accounts receivables of the Debtor at any given time, of course, are directly tied to TEU’s (Twenty Equivalent Units) lifted. There is hardly any doubt that shortly after commencement of the case, there was an immediate decrease of TEU’s, which are historically subject to seasonal fluctuation. However, by January 1996, the TEU’s had *594increased and have ever since maintained a stable level. (Debtor’s Exhibit 3). Most importantly, the traffic to Europe, which represents a major portion of the revenues of the Debtor, increased dramatically and indicates a high level of shipping activity. (Debtor’s Exhibit 2). The majority of the eligible accounts receivables of the Debtor, representing the bulk of the Debtor’s revenues, are owed by major corporations, all of which are either Fortune 500 companies or considered in the trade to be blue chip companies, e.g., Monsanto Chemical, DuPont Chemical, Goodyear, Dow Chemical, Phillip Morris and the like. (Debtor’s Exhibit 8). The collateral-to-debt ratio in October, 1995, was 3.45 to 1 resulting in a cushion of 245 percent. On April 27,1996, that ratio was 3.31 to 1, with a cushion of 231 percent. (Debtor’s Exhibit 7). Contrary to the claim of .the Banks, the value of the collateral did not decline $20 million, but rather, the decline was only, in fact, $6 million. In fact, there is evidence in this record to support that the decline was only $5 million.
CURRENT CASH POSITION OF THE DEBTOR
The evidence indicates that on the date of commencement of the case, the Debtor had close to $6 million in cash which immediately radically declined for several reasons: one, the impact on the Debtor’s business of its Chapter 11 filing and the attendant publicity posed some serious concern among the Debt- or’s customers and apprehension that the Debtor would not be able to perform under its contracts and deliver the cargos entrusted to it; two, the overseas vendors demanded substantial deposits and the Debtor was required to make, within two weeks of filing its Chapter 11 petition, a $5 million cash deposit; three, the cumulative effect of slow liftings in December 1995, due to the decline of the pipeline business in Northern Europe, which precipitated a drop to 900,000 TEU’s.
On the other hand, during the last months, the TEU’s increased to 1.6 million, or almost double the previous liftings from Northern Europe to the United States. (Debtor’s Exhibits 4 and 5). As of the most recent cash report, the Debtor has $2 million in cash. One would be less than candid not to admit that the Debtor’s cash position is currently precarious. In this connection, it should be pointed out that the Debtor, so far, has made more than $1 million in adequate protection payments to the Banks.
INTERNAL MANAGEMENT OF THE DEBTOR
The Banks placed great reliance on the undisputed fact that, on the date of commencement of the ease, the Debtor’s internal recordkeeping system was less than adequate and, in fact, the Debtor was not able to generate reliable financial data requested by the Banks. For instance, it is now admitted by the Debtor that the Borrowing Base Certificate dated April 30, 1996, incorrectly indicated that the total eligible receivables were only $10,542,000, thus reflecting a negative position of the Banks of $16,453,000. (Banks’ Exhibit 1). This reliance is misplaced, first, because it is now conceded and admitted that the data furnished in this report is incorrect and second, because the amount of indebtedness to the Banks stated to be $16,453,000 includes the amount owed to Lykes Brothers, Inc., an affiliate of the Debtor who is a participant in this syndicated loan, albeit with its portion of the total indebtedness subordinated to the interests of the Banks.
Next, at the time of the commencement of the case, the Debtor maintained its internal accounting records through the LYNX computer system, which apparently was not suitable initially to track the actual collections and reconcile them with the accounts receivables, which resulted in a distorted financial picture. The Debtor adjusted its internal recordkeeping operation, and although the readjustment process is not yet concluded, it appears to be well on the road to reaching the point at which the Debtor will be able to furnish accurate financial data. Be that as it may, there is credible evidence in this record to support the proposition that the Debtor’s current method of recordkeeping is satisfactory and generally accepted in the shipping industry, although it may not be acceptable in another industry. Moreover, the Debtor brought in a turnaround specialist with a proven track record in assisting financially *595troubled companies, both inside and outside of bankruptcy, who is now fully in charge of the operation of the Debtor.
It is also evident from this record that the Debtor has taken steps to reduce its costs of operation, including engaging in extensive reconfiguration of its fleet by, for example, limiting its activities to the Northern Europe, Mediterranean, Adriatic and North African trade routes.
LEGAL PRINCIPLES GOVERNING DISMISSAL UNDER § 1112(b)(2)
It should be noted at the outset, that the provisions of Chapter 11 are remedial and designed to assist a financially troubled economic entity to achieve rehabilitation. It is axiomatic that the courts should be reorganization-minded and public policy clearly prefers rehabilitation to liquidation. It is equally true, however, that if the entity has reached not only a moribund stage but arrived at the bankruptcy court with rigor mortis already set in, it deserves nothing more than a speedy burial. There is no justification to resuscitate a dead or semi-dead corpse. It has been repeatedly stated that the real test is the need for reorganization and a sincere honest desire to achieve rehabilitation. On the other hand, “[h]owever honest in its efforts the Debtor may be, and however sincere its motives, the District Court is not bound to clog its docket with visionary or impractical schemes for resuscitation.” Tennessee Publishing Co. v. American National Bank, 299 U.S. 18, 22, 57 S.Ct. 85, 87, 81 L.Ed. 13 (1930). The Motion under consideration seeks a conversion pursuant to § 1112(b)(2), which warrants the conversion of a Chapter 11 case to a Chapter 7 case for continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation. This requirement is in the conjunctive, and it clearly is the burden of the Movant to prove both of these elements. See, e.g., In re All American of Ashburn, Inc., 40 B.R. 104 (Bankr.N.D.Ga. 1984); In re Powell Bros. Ice Co., 37 B.R. 104 (Bankr.D.Kan.1984). Very few Chapter 11 debtors arrive in the bankruptcy court with their coffers stuffed with hard currency and with a history of successful and profitable operations. Neither is there any empirical evidence to support the proposition that the mere filing of a Chapter 11 Petition operates • as a magic wand to produce an instant miracle and turn a losing operation into a profitable one overnight. This Court, as many others, has been reluctant in the past either to dismiss or convert a Chapter 11 case in its early or embryonic stage. See, e.g., In re Clause Enterprises of Ft. Myers, Ltd,., 150 B.R. 476 (Bankr.M.D.Fla.1993); In re Rentclub, Inc., 141 B.R. 235 (Bankr.M.D.Fla.1992).
In order to prevail under § 1112(b) in the early stages of a case, the moving party has the burden to prove that the whole scheme is no more than a pipe dream — an utterly hopeless and unrealistic prospect totally devoid of any factual basis to support the Debtor’s rehabilitation. E.g. In re Economy Cab & Tool Co., 44 B.R. 721 (Bankr.D.Minn.1984). The Banks place a great emphasis on the fact that the Debtor has not been able, so far, to propose a meaningful business plan and that it has no audited financial statements. According to the Banks, that latter fact supports the proposition that the Debtor has no realistic expectation of achieving rehabilitation under Chapter 11. This Chapter 11 case has been pending for approximately seven months and this Court takes judicial notice of the fact that the Debtor is involved in extensive arid complex litigation involving issues which must be resolved prior to formulation of any meaningful Plan of Reorganization designed to preserve the going concern value of the Debtor’s business. Considering these legal problems, clearly, this Chapter 11 case does not have the procrastination history .condemned by courts. This Court is not oblivious to the admonition by Judge Clark in his concurring opinion in In re Timbers of Inwood Forest Associates, Ltd., 808 F.2d 363, 374 (5th Cir.1987) that “a reorganization is not a Holy Grail to be pursued at any length. Creditors are entitled to a prompt determination of efficacy.” Id. However, there is ample justification in this case to overcome the suggestion that the Debtor or the Unsecured Creditors Committee has procrastinated and is improperly delaying the progress of this reorganization case.
The alternative suggestion by the Banks, i.e., conversion, would cause nothing but ut*596ter chaos and would destroy forthwith the going concern value of the Debtor’s business which forms the core of the entire reorganization process. This Court has no difficulty in rejecting the notion that the Debtor’s going concern value could be preserved in a Chapter 7 case by a Trustee. First, while a Trustee may be authorized to operate the Debtor’s business temporarily by virtue of § 721 of the Bankruptcy Code, presumably none of the current prime customers of Lykes would be lined up and anxious to be in business with a Chapter 7 liquidating Trustee. Neither is there any doubt that the account debtors would be begging the Chapter 7 trustee to accept payment when he or she is attempting to collect the receivables.
Moreover, in the event this Chapter 11 case is converted, Mitsubishi Heavy Industries, Ltd. and Mitsui Engineering Heavy Industries, Ltd. (Japanese Shipyards) who hold preferred ships’ mortgages on the Debt- or’s L-9 vessels would attempt to immediately seize the vessels, including the cargo, and that would speedily bring to a halt any contemplated operation of the Debtor’s Chapter 7 business by the Chapter 7 Trustee. Only the Banks are apparently anxious to terminate this Chapter 11 ease, and the fact of the matter is that the Unsecured Creditors Committee is fully supportive of the Debtor and consented to the extension of the exclusivity period. By the way, the Banks would also be supportive of this Debtor, provided this Court approves the adequate protection Stipulation.
There is hardly any doubt that a conversion at this time would not only be premature based on these factors, but would not be in the interests of the general estate, nor upon serious reflection, in the interests of the Banks. Based on the facts of this ease, it is not unreasonable to infer that the Motion was filed solely for the purpose of using psychological leverage against the Unsecured Creditors Committee to overcome their objection to the proposed Stipulation for use of cash collateral. This conclusion is further supported by the fact that counsel for the Banks conceded that if the Unsecured Creditors Committee no longer objects to the Stipulation and it is approved by this Court, the Banks are willing to withdraw their Motion to convert this case. In the last analysis, this record is woefully lacking in any persuasive evidence which would warrant the finding that this Debtor will continue to suffer significant losses and has no reasonable expectation or likelihood of achieving reorganization.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Banks’ Motion Under 11 U.S.C. § 1112(b) to Convert Case to Chapter 7 be, and the same is hereby, denied.
It is further
ORDERED, ADJUDGED AND DECREED that the Debtor’s Emergency Motion for an Immediate Trial of Motion to Convert be, and the same is, hereby denied as moot, inasmuch as the motion has been heard.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492354/ | Memorandum Opinion
MARK W. VAUGHN, Bankruptcy Judge.
The Court has before it the final application for fees of Attorney Terrie Harman, attorney for the Debtor herein.
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
Facts
This case was originally filed on October 4, 1993, as a Chapter 7 case. On September 1, 1994, this Court granted a motion to convert to Chapter 11. The Court then granted a motion to convert back to Chapter 7 on October 18, 1994. Attorney Harman seeks fees for the Chapter 7 phase from October 4, 1993, through September 1, 1994, in the amount of $24,790.46 and expenses of $658.27. Prior to the filing, Attorney Har-man received a retainer of $2,200.
Upon conversion to Chapter 11, the Court approved Attorney Harman’s retention as *7counsel to the Debtor in Possession and a retainer of $3,000. Attorney Harman now seeks fees in the amount of $6,992 and expenses of $342.88 for the Chapter 11 phase.
The United States Trustee filed a written objection to Attorney Harman’s request and both the United States Trustee and the Chapter 7 trustee, Attorney Dahar, spoke in opposition to the fee request at a hearing held on May 14, 1996/ The thrust of both the United States Trustee’s objection and the Chapter 7 trustee’s objection is that throughout the Chapter 7 phase and the Chapter 11 phase, Attorney Harman was representing the interests of the stockholders of the Debt- or corporation, not the estate. This Court agrees.
The facts of the case are somewhat unique. As indicated, the case was originally filed as a Chapter 7 case. Notice of an intended sale in the amount of $435,000 by the Chapter 7 trustee produced a bidding war in open court and a final bid of $605,000. Subsequent to the sale, Attorney Harman, as counsel for the Debtor, moved to dismiss the ease, realizing there would be a substantial distribution to the principals of the Debtor. The Court would not allow dismissal without proof of payment to creditors. In connection with the motion to dismiss, the Debtor, through counsel, objected to certain fees and expenses of the trustee.
As luck would have it, prior to the closing and in accordance with the terms of the purchase and sale agreement entered into by the trustee, the purchaser discovered hazardous waste on the premises and so informed the trustee. The trustee represents that the purchaser then offered to close in twenty-four hours if the purchase price was reduced by $50,000. The trustee, for whatever reason, requested the consent of the Debtor, through counsel. The Debtor suggested a reduction of $30,000, which offer was conveyed to the purchaser. A final price was never agreed to, the purchaser elected not to proceed and the Court authorized the return of the purchaser’s deposit. The Debtor withdrew its motion to dismiss.
Subsequent to the termination of the purchase and sale agreement, this Court granted relief from the automatic stay to the secured creditor, Amreseo. A foreclosure was apparently held on August 17, 1994, which produced a surplus to the Debtor in excess of $100,000.
On August 29,1994, the applicant moved to convert to Chapter 11 with full knowledge of the results of the foreclosure sale. The ex parte motion to convert made no mention of the surplus funds, and the Court granted the motion on September 1, 1994. The United States Trustee immediately moved to convert the case back to Chapter 7, which the Court granted on October 18,1994.
Discussion
Upon the filing of a Chapter 7 case, a bankruptcy estate is created which is represented by the Chapter 7 trustee and counsel to the Chapter 7 trustee, if authorized by this Court. 11 U.S.C. § 328. Unless otherwise authorized by the Court, these functionaries are the sole representatives of the estate and responsible for its liquidation. 11 U.S.C. §§ 323 and 704. The functions of debtor’s counsel are limited: advising the debtor of certain bankruptcy procedures, cooperating with the trustee, preparation of schedules and statements of affairs, and attendance at the section 341 meeting. 11 U.S.C. § 521; Fed.R.Bankr.P. 4002. For this, the applicant, Attorney Harman, received a retainer of $2,200, which the Court finds to be a reasonable fee for these services. The Court finds the remainder of the Chapter 7 services of Attorney Harman were intended to get the highest sale price for the assets to benefit the principals. The fact that these actions may also have benefitted the Debtor’s creditors does not justify payment of Debtor’s counsel’s fees from the estate. See In re Alert Holdings, Inc., 157 B.R. 753, 758 (Bankr.S.D.N.Y.1993) (denying administrative expense claim because benefit to the estate was “unintentional and incidental”); In re By-Rite Oil Co., 87 B.R. 905, 914 (Bankr.E.D.Mich.1988) (“Services rendered to or for the benefit of the principals of the debtor are not compensable as an administrative expense.”). On obtaining a sales price of $605,000, all efforts of Attorney Har-man went to dismiss the case for the purpose of reducing administrative costs, including *8the trustee’s fees and getting the maximum benefit in the quickest amount of time to the principals. When the sale fell through, there was no effort by Debtor’s counsel to convert to Chapter 11 until once again it was evident that the foreclosure sale provided a surplus.
As indicated above, there was no mention in the motion to convert of the foreclosure sale or of the surplus. Further evidence that the main concern of Debtor’s counsel was the principals of the Debtor is the plan and disclosure statement filed by the Debtor on the same day the Court converted the case to Chapter 7. That plan provided payment in full to the Internal Revenue Service, as an administrative expense, the sum of $37,000, which was the capital gain resulting from the foreclosure sale, despite the fact that the Debtor was a subchapter S corporation and this tax liability was a liability of the shareholders and not of the Debtor.
For all of the above reasons, the Court will allow, as a final award, the sum of $5,200 for all fees and expenses and order that the retainer previously obtained by the applicant be applied to that amount in full payment.
This opinion constitutes the Court’s findings and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492355/ | MEMORANDUM OPINION
KATHRYN C. FERGUSON, Bankruptcy Judge.
INTRODUCTION
On July 11, 1994, Victor and Heidi Starr (the “Starrs” or “Plaintiffs”) filed an adversary complaint against Donald 0. Reynolds (“Defendant” or “Debtor”). The Starrs allege that their claim, arising out of the purchase of an allegedly defective house from the debtor, is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6). The court conducted a trial by declaration on July 5, 1995. The following represents the opinion of the court.
FACTS
Donald and Patricia Reynolds purchased a home located at 84 Deerhaven Road, Mah-wah, New Jersey (“the property”) in December, 1984. At that time, they hired Sherlock Home Inspectors, Inc. to inspect the property. The inspection report revealed no structural defects, and the Reynolds relied on the report when they purchased the property. According to Mr. Reynolds, no structural *200changes were made to the property after they purchased it.
The Reynolds were divorced on February 13, 1990.. As part of the divorce proceeding, the Superior Court Judge ordered Joel Rein-feld (“Reinfeld”), Patricia Reynolds’ attorney in the divorce proceeding, to act as the attorney-in-fact for the sale of the property. Re-infeld listed the property for sale over the course of 1990 and 1991. During the end of July, 1991 Reinfeld received two offers on the property, one from Timothy and Gloria Tuttle and the other from Victor and Heidi Starr. Since the Tuttle offer was slightly higher, Reinfeld executed a contract of sale with the Tuttles on July 28,1991.
The Tuttles then retained Gerry Guilfoyle, president of Guardian Homes, to conduct a home inspection. Mr. Reynolds was at the property for the home inspection, but did not accompany Mr. Guilfoyle and the Tuttles through the house. At the end of the inspection, Mr. Guilfoyle spoke with Mr. Reynolds and the Tuttles regarding his conclusions. Neither Mr. Reynolds nor the Tuttles were present for the entire conversation, although there was clearly some overlap. Mr. Guil-foyle states that he advised Mr. Reynolds that the house had structural defects. Mr. Reynolds contends that he was informed that some parts of the house evidenced poor workmanship but he was never told that there were any structural defects. Mr. Guil-foyle never prepared a written report for the Tuttles or served the Reynolds with any sort of written inspection report. Based on the home inspection the Tuttles withdrew their offer.
Reinfeld then informed the Starrs that the previous offer had been withdrawn due to problems with the inspection. On August 13, 1991, the Starrs and Reinfeld executed a contract of sale. Both Mr. and Mrs. Starr acknowledge that they were aware that the first offer had been withdrawn because of the home inspection.
As a condition of entering into the contract with Reinfeld, the Starrs requested that the Reynolds execute a Property History Form. Donald Reynolds completed and signed a Property History Form in which, inter alia, he indicated that he was not aware of any condition or information regarding the property that might affect its value or use. The Property History Form also contained a disclaimer, which stated in bold letters that
THIS PROPERTY HISTORY IS BASED ON MY LAYMAN’S OBSERVATION AND IS NOT A WARRANTY OF ANY KIND BY MYSELF OR MY AGENT AND IS NOT A SUBSTITUTE FOR EXPERT INSPECTIONS THAT THE BUYER MAY WISH TO OBTAIN
On August 21, 1991, Joseph Agner d/b/a Executive Home Consultants inspected the home for the Starrs. A copy of his report was forwarded to Reinfeld on August 26, 1991. The report revealed the need for certain minor repairs to the porch, attic ladder, and certain areas of dry wall but made no mention of structural defects. The parties went forward with the closing on December 9,1991.
Shortly after closing on the transaction, the Starrs became aware of various structural defects in the home. They discovered that at least some of the “minor repairs” identified in their home inspectors report were actually symptoms of larger structural problems. After a serious roof leak in April, 1992 the Starrs decided to investigate both the extent of the structural problems and the extent of the Reynolds prior knowledge. Mr. Starr meet with Timothy Tuttle, who gave him the name of the home inspector he had used. Mr. Starr then met with Mr. Guil-foyle, who informed him of the results of the inspection of 84 Deerhaven Road that he had performed for the Tuttles. At Mr. Starr’s request, Mr. Guilfoyle provided him with a letter containing his recollections. The letter pointed out specific problems with the house, and concluded that the construction was clearly sub-standard. Notably, the letter did not use the word “severe” or the phrase “structural defects”. The letter was dated May 1, 1992, almost a year after the inspection, and was based exclusively on Mr. Guil-foyle’s recollection of the property. No written report was prepared at the time of the inspection and Mr. Guilfoyle stated that if he had kept written or recorded notes he no longer had them at the time that he prepared the letter.
*201On June 12, 1992, the Starrs instituted an action in the state court against the Reynolds, Reinfeld, the listing and selling agents, and Joseph Agner d/b/a Executive Home Consultants. Joseph Agner filed a Chapter 7 petition on September 1, 1993. Donald Reynolds filed his voluntary Chapter 7 petition on February 25, 1994 and this court granted the debtor a discharge on August 22, 1994. The plaintiffs commenced this adversary proceeding on July 11, 1994 seeking to except the Starrs’ claim from the debtor’s discharge based on sections 523(a)(2)(A) and 523(a)(6).
DISCUSSION
In keeping with the overriding goal of the Bankruptcy Code to give debtors a fresh start, exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors. In re Cohn, 54 F.3d 1108 (3d Cir.1995). The burden of proving that a debt is nondischargeable under section 523(a) is on the creditor, who must establish entitlement to an exception by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
Section 523(a)(2)(A)
Section 523(a)(2)(A) excepts from discharge any debt “for money, property, [or] services ... to the extent obtained by false pretenses, a false representation or actual fraud”. Actual fraud has been defined as “any deceit, artifice, trick or design involving direct and active operation of the mind, used to circumvent and cheat another — something said, done, or omitted with the design to perpetrating what is known to be a cheat or a deception.” Flint Area School Employee Credit Union v. Nogami (In re Nogami), 118 B.R. 846, 848 (Bankr.M.D.Fla.1990).
Plaintiffs allege that the debtor committed actual fraud when he knowingly misrepresented the condition of the house to the Starrs and when he unlawfully concealed the existence of material, latent defects in the house that were known to him.
In order to prove actual fraud, the creditor must show that the debtor either made a misrepresentation or did an act which was wrong. The proofs must show that the debtor knew that it was wrong, that she intended the creditor to rely on the act or misrepresentation and that the creditor did, in fact, rely on such act or misrepresentation and, finally, that the creditor was damaged thereby.
United Counties Trust Co. v. Knapp (In the Matter of Knapp), 137 B.R. 582, 586 (Bankr.D.N.J.1992). Therefore, in order to prevail in this action, the plaintiffs must show that Mr. Reynolds knew at the time he signed the Property History Form that he was concealing known structural defects in the house and that he intended the Starrs to rely on his representations to their detriment.
Plaintiffs cite Petrillo v. Bachenberg, 139 N.J. 472, 655 A.2d 1354 (1995), in support of the proposition that the objective purpose of a disclosure form in a real property transaction is to induce the purchaser to rely on the characterization of the property made therein. A careful reading of Petrillo yields a much more narrow holding. Petrillo held that in certain circumstances an attorney has a duty to a buyer not to provide misleading information if the attorney knows or should know that the buyer will rely on it. Petrillo at 489, 655 A.2d 1354. In fact, while the opinion contained dicta about the purpose of the disclosure form, a purpose with which this court can agree in principle, the court did' not hold that buyers are absolutely entitled to reliance on all disclosure forms. The Petrillo court acknowledged that had the composite report at issue in that case stated that it should not be relied on for any other purpose, the outcome may have been different. In this case the document allegedly relied upon by the Starrs stated that it was only a lay opinion and should not be relied upon for anything more.
The plaintiffs also argue that the fact that they obtained an independent home inspection does not relieve the debtor of his responsibility for making a false statement or lessen the Starrs’ right to rely on the statement. Golden v. Northwestern Mutual Life Ins. Co., 229 N.J.Super. 405, 415, 551 A.2d 1009 (App.Div.1988). That case, however, arose in the context of statements made in an insur-*202anee application. The court found that it is customary in the industry for insurance companies to rely on the truthfulness of an insured’s report of his medical history. Those facts are far different from the present ease, because buyers do not customarily rely on the seller’s assurances about the condition of the property. If that were the case, then buyers throughout the state would be wasting their money on home inspections. Moreover, the Golden court stated that “the law governing independent investigations seems clearly to have settled the principal that when one undertakes to make an independent investigation and relies upon it, he is presumed to have been guided by it and be bound accordingly.” Id. at 415, 551 A.2d 1009.
The first element the plaintiffs need to establish under § 523(a)(2)(A) is that Mr. Reynolds was aware of the defects in the house and intentionally concealed that knowledge from them as purchasers. When Mr. Reynolds purchased the house in 1984 he had obtained a home inspection from Sherlock Home Inspectors, Inc. that revealed no structural defects in the property. Therefore, any prior knowledge Mr. Reynolds had of defects would have to have been as a result of the home inspection conducted by Mr. Guilfoyle on behalf of the Tuttles. There is contradictory testimony regarding what information Mr. Guilfoyle conveyed to Mr. Reynolds about the inspection. Mr. Guil-foyle claims that Mr. Reynolds participated in his discussion with Mr. Tuttle about the significant structural defects. Mr. Reynolds agrees that he spoke briefly with Mr. Guil-foyle after the inspection about the results, but insists that all he was told was there was evidence of poor workmanship.
It is significant to note that the structural defects contained in the house were not readily detectable by a lay person. The Starrs themselves went to look at the house twice prior to purchasing it and never noticed any problems. In fact, the problems were not even detected by two supposedly trained professionals. Neither Sherlock Home Inspectors, Inc. nor Executive Home Consultants detected the existence of any structural problems when they inspected the house.
Even assuming for the moment that Mr. Reynolds was aware of the defects and withheld that information from the Starrs, that alone does not establish the Plaintiffs’ case. The second prong of the analysis under § 523(a)(2)(A) requires that Mr. Reynolds intended that the Starrs rely on his misrepresentation. Knapp at 586. The Starrs point to the Property History Form as tangible evidence of Mr. Reynold’s intent that they rely on his fraudulent misrepresentation. That document proves quite the opposite. The bottom of the one page form clearly states that the opinion is based on a layman’s observation and that it is not a substitute for any expert inspection that the buyer may wish to obtain. The lack of intent to induce reliance on the part of the Debtor is further buttressed by the Contract of Sale that was executed concurrently between Re-infeld and the Starrs. The Contract of Sale contains a provision expressly permitting the purchaser to have an inspection of the premises conducted. Those documents taken together clearly indicate an anticipation if not a desire on the part of the Debtor that the buyers obtain an independent inspection of the property rather than rely on his representations.
Although not expressly required by the statute, some courts have held that reasonable reliance is required to render a debt nondischargeable under 11 U.S.C. § 523(a)(2)(A). Fluehr v. Paolino (In re Paolino), 89 B.R. 453 (Bankr.E.D.Pa.1988). Although the Third Circuit has not specifically ruled on the issue, the majority of circuit courts to have considered it require that the reliance be reasonable. See, e.g., Coman v. Phillips (In re Phillips), 804 F.2d 930 (6th Cir.1986). Under that standard, the Plaintiffs clearly do not prevail because even if they establish that the Debtor intended that they rely on his misstatements, under the circumstances their reliance was not reasonable. The Starrs were aware that the prior offer had been withdrawn because of the home inspection, yet they claim that they relied on the Debtor’s assurance in the Property History Form that he was aware of no *203problems with the property. After receiving .the Property History Form the Starrs then obtained their own independent home inspections. While it might be fair to say that the Starrs reasonably relied on the home inspection report, it is illogical to say that they reasonably relied on the statements of the Debtor, who admittedly was a lay person and had not been residing on the property for several years prior to the sale.
As noted above, the burden is on the creditor to establish that the requirements for an exception to discharge have been established. Based on the evidence presented, the Starrs have not met their burden of establishing that the Debtor acted with the intent that the Starrs rely on his representations to then-detriment. Nor have they established that any possible reliance was reasonable under the circumstances.
Section 523(a) (6)
Section 523(a)(6) excepts from discharge “any debt for willful and malicious injury by the debtor to another entity or to the property of another entity.”
Fraud can ... constitute a cause of action under § 523(a)(6) as well if the conduct meets the tests of willful and malicious injury. To prove that fraudulent representations or other conduct were “malicious” within the meaning of Code § 523(a)(6), the plaintiffs must prove that the representations necessarily led to their injuries.
Lerch v. Iommazzo (In re Iommazzo), 149 B.R. 767, 772 (Bankr.D.N.J.1993) (citations omitted). The Third Circuit has stated that the requirement of ‘necessarily produce harm’ is the equivalent of ‘substantially certain to produce harm’. In re Conte, 33 F.3d 303, 308 n. 2 (3d Cir.1994).
The Plaintiffs face a difficult task in establishing that any possible misrepresentations by the Debtor necessarily led to then-injuries. Mr. Starr testified that had the Property History Form mentioned structural defects, he would not have even taken the additional step of having a home inspection. And while the Starrs testified that they relied upon both their home inspection report and the Property History Form, at a deposition conducted on August 10, 1993, Mr. Starr’s response to a question about whether he noticed that the ceiling on the first floor was sagging was “I relied on my home inspector”. Based on the plaintiffs own testimony, it is clear that the Property History Form only induced the Starrs to take the additional step of hiring a home inspector. The Starrs did not simply take Mr. Reynolds word for the condition of the property. There is no reason to assume that Mr. Reynolds did not fully expect that the Starrs would hire a home inspector; he and his wife had done so when purchasing the house seven years earlier. The Starrs had done so when they purchased a prior house. Thus, any statements made by Mr. Reynolds could not have been substantially certain to produce harm. Putting aside the state of the debtor’s knowledge regarding defects, the debtor’s actions did not necessarily lead to the plaintiffs injuries; a faulty home inspection did. In their closing argument, plaintiffs suggest that because the home inspection gave them no reason to question the representation made in the Property History Form it was reasonable to rely on it. That argument begs the question. It is unfortunate that the home inspection did not reveal the defects, but it is patently unreasonable to suggest that the Starrs relied to their detriment on the observations of a lay person when they had obtained their own professional evaluation of the house.
CONCLUSION
The Plaintiffs have failed to establish by a preponderance of the evidence that their claim is nondischargeable under either 11 U.S.C. § 523(a)(2)(A) or (a)(6). The evidence has established, however, that the Debtor’s representations did necessarily lead to the Plaintiffs incurring the expense of a home inspection. Therefore, the court finds that pursuant to section 523(a)(6) the cost of the home inspection, in the amount of $250, is non-dischargeable. The remainder of the Plaintiffs’ claim is discharged pursuant to 11 U.S.C. § 727. Attorney for the Defendant should submit a proposed form of judgment in accordance with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492356/ | MEMORANDUM OPINION
DOUGLAS O. TICE, Jr., Bankruptcy Judge.
This case is before the court on the objection by creditor Contractor’s Paving Company to an exemption claimed by the debtor. *226For the reasons stated in this opinion, the objection will be sustained and the exemption disallowed.
FINDINGS OF FACT
In February 1992 debtor purchased real property located in Virginia Beach, Virginia. Debtor’s wife was not a party to the purchase contract. The deed to the property was delivered to debtor on February 4, 1992. The following is an extract from the deed as it was when delivered:
This Deed, made this 4th day of February 1992, by and between HUGH C. WEST and MOLLY WEST, his wife, and MARY SOPHIA CARNAGEY and LEONARD CARNAGEY, her husband Grantors; and CLAUDE MICHAEL SCIALDONE and DANA L. SCIALDONE, husband and wife, Grantee, whose mailing address is 2437 North Landing Road, Virginia Beach, Virginia 23456.
WITNESSETH:
That for and in consideration of the sum of Ten Dollars ($10.00), bash in hand paid and other good and valuable consideration, the receipt of which is hereby acknowledged, the said Grantors do hereby grant and convey, with GENERAL WARRANTY and with ENGLISH COVENANTS of TITLE unto the Grantee, to-wit:
[property description omitted]
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It is distinctly understood that this conveyance is made to the said Grantee as his sole and separate estate, free from the control of marital rights of any present or future wife, and free from any curtesy or inchoate curtesy rights of any present or future wife of the said party of the second part, all of which are hereby expressly excluded, and with the full and complete authority in the said party of the second part to convey, encumber or otherwise deal with and dispose of the same without the necessity of joinder by or with any present or future wife of the party of the second part.
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After the deed was delivered to debtor but before it was recorded, debtor altered the deed by adding new language as shown to the granting clause of the deed:
That for and in consideration of the sum of Ten Dollars ($10.00), cash in hand paid and other good and valuable consideration, the receipt of which is hereby acknowledged, the said Grantors do hereby grant and convey, with GENERAL WARRANTY and with ENGLISH COVENANTS of TITLE unto the Grantee,/to-wit: as tenants by the entirety with right of survivorship as at common law (emphasis added)
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On November 9, 1994, debtor’s chapter 13 bankruptcy case was converted to chapter 11. Debtor claimed the real property exempt as a tenancy by the entirety pursuant to 11 U.S.C. § 522(b)(2)(B). Contractor’s Paving Company timely filed an objection to the exemption.
DISCUSSION AND CONCLUSION
Contractor’s Paving Company (CPC) objects to debtor’s § 522(b)(2)(B) claim of exemption on the ground that the debtor and his wife do not hold the realty as tenants by the entireties. The party objecting to a claim of exemption has the burden of proving that the exemption is not properly claimed. Fed.R.Bankr.P. 4003(c).
An individual debtor may exempt an interest in property held by debtor as a tenant by the entirety to the extent that the interest is exempt from process under applicable law. 11 U.S.C. § 522(b)(2)(B). Under Virginia law, creditors of one spouse may not attach property held by the entireties; accordingly, only joint creditors of both spouses may reach entireties property. Ford v. Poston, 773 F.2d 52 (4th Cir.1985); Price v. Harris (In re Harris), 155 B.R. 948 (E.D.Va.1993); Ames v. Wickham (In re Wickham), 130 B.R. 35 (Bankr.E.D.Va.1991); In re Zimpel, 106 B.R. 451 (Bankr.E.D.Va.1989). If property owned by an individual debtor and nondebtor spouse is not held by the entire-ties then the debtor’s interest is an asset of the bankruptcy estate. In re Manicure, 29 B.R. 248 (Bankr.W.D.Va.1983).
*227In Virginia, estates by the entire-ties are abolished except where the deed or will manifests an intent of survivorship. Va. Code Ann. §§ 55-20, 55-21 (Michie 1995).1 Manifest means “obvious to the understanding, evident to the mind, not obscure or hidden, and is synonymous with open, clear, visible, unmistakable, indubitable, indisputable, evident, and self-evident.” Hoover v. Smith, 248 Va. 6, 444 S.E.2d 546, 548 (1994). When real property is conveyed to a husband and wife, the deed must specify that a tenancy by the entireties is intended, or this intent must otherwise appear in the deed. Wolfe v. Sprouse, 183 B.R. 739 (W.D.Va.1995); In re Manicure, 29 B.R. at 250.
The objecting creditor CPC disputes debtor’s assertion that the property is held as tenants by the entireties. It claims that the deed did not create a tenancy by the entirety because the grantors did not acknowledge the tenancy by the entirety language inserted by debtor nor was the deed re-executed by the grantors after the insertion. Consequently, debtor’s interest is not exempt under Virginia law and not entitled to exemption under § 522(b)(2)(B).
Debtor argues that the deed, although altered, specifically conveyed a tenancy by the entirety and is thus exempt under Virginia law.
In Allen v. Parkey, 154 Va. 739, 149 S.E. 615 (1929), aff'd, 154 Va. 739, 154 S.E. 919 (1930), the Supreme Court of Appeals held that an unsigned memorandum, attached to a deed that was complete and duly signed, had no effect. Parkey, 149 S.E. at 618. The memorandum sought to create an interest that the deed, as executed, did not create. The facts in Parkey are substantially similar to the instant ease. Debtor altered the delivered deed, seeking to establish a tenancy by the entirety which was not specified originally. Accordingly, the language added by debtor, “as tenants by the entirety with right of survivorship as at common law,” had no effect on the type of estate conveyed to the grantees. See Evans v. Bottomlee, 150 W.Va. 609, 148 S.E.2d 712, 719 (1966) (explaining that material alteration of duly executed does not affect transfer of title but renders deed invalid); Waldron v. Waller, 65 W.Va. 605, 64 S.E. 964, 967 (1909) (holding that altered deed cannot operate to invest in grantee land not covered by original grant without re-execution of deed).
Once the tenancy by the entirety language is removed, the deed does not manifest an intent to create a survivorship estate. To the contrary, the deed unequivocally states that the conveyance was made to debtor as his sole and separate estate free of any interest of his wife. See Sprouse, 183 B.R. at 742; Parkey, 149 S.E. at 617, and Va.Code Ann. § 55-21 (Michie 1995).
A separate order will be entered sustaining creditor’s objection and disallowing debtor’s claim of exemption.
. Section 55-20 of the Virginia Code states:
Survivorship between joint tenants abolished. — When any joint tenant dies, before or after the vesting of the estate, whether the estate is real or personal, or whether partition could have been compelled or not, his part shall descend to heirs, or pass by devise, or go to his personal representative, subject to debts or distribution, as if he had been a tenant in common. And if hereafter any estate, real or personal, is conveyed or devised to a husband and his wife, they shall take and hold the same by moieties in like manner as if a distinct moiety had been given each by a separate conveyance.
However, § 55-21 provides certain exceptions:
Exceptions to § 55-20. — Section 55-20 shall not apply to any estate which joint tenants have as executors or trustees, nor to an estate conveyed or devised to persons in their own right when it manifestly appears from the ten- or of the instrument that it was intended the part of the one dying should then belong to the others ... | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492357/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
This adversary proceeding is before the Court on the Plaintiffs Motion to Compel Discovery. Plaintiff seeks an order compelling Defendant to appear for a deposition duces tecum. Defendant argues that he is not required to appear for the deposition unless and until Plaintiff provides the appropriate fees and other costs as provided for under 28 U.S.C. § 1821. Further, Defendant alleges that he need not comply with the duces tecum request as such is duplicative of that discovery that has occurred in a divorce proceeding between these two parties.
Bankruptcy Rule 4002 sets forth duties of the Debtor. Thereunder, the Debtor shall “(1) attend and submit to an examination at the times ordered by the court; (2) attend the hearing on a complaint objecting to discharge and testify if called as a witness ... (5) file a statement of any change of the debtor’s address.”
Bankruptcy Rule 2004 addresses examinations and the provision of mileage and fees. Thereunder, Rule 2004(e) provides that debt- or shall be provided a mileage fee only, and such mileage fee is subject to further conditions:
[i]f the debtor resides more than 100 miles from the place of examination when required to appear for an examination under this rule, the mileage allowed by law to a witness shall be tendered for any distance more than 100 miles from the debtor’s residence at the date of the filing of the first petition commencing a case under the Code or the residence at the time the debtor is required to appear for the examination, whichever is the lesser.
B.R. 2004(e).
The Debtor herein, at the time of filing his petition, resided in Parma, Ohio. Counsel *259represented to the Court that subsequent to the filing date, Debtor voluntarily moved to Seattle, Washington for the sole purpose of “getting away from” Plaintiff. Debtor failed to provide notice to the this Court of his change of address as required by Bankruptcy Rule 4002(5).
Title 28 U.S.C. § 1821 does provide for fees and allowances to be provided to a witness in conjunction with the taking of a deposition “[ejxcept as otherwise provided by law ...” 28 U.S.C. § 1821(a). Bankruptcy Rule 2004, while not squarely applicable to depositions in adversary proceedings, clearly indicates Congress’ aversion to providing fees to a debtor that has come into the Bankruptcy Court seeking relief and then removes himself from the jurisdiction or venue of the Court in which he first sought relief. Indeed, in the case of In re McNair, 16 F.Cas. 315, 2 N.B.R. 219, No. 8907 (D.N.C.1868), the District Court of North Carolina expressed this concern succinctly:
[A bankrupt] does not stand as any other witness would, but he is expressly made subject to the order of the court, to be examined, when and where the court may direct, not as an ordinary witness, but it is one of the conditions that he shall do this if required; which entitles him to his discharge in the end, if no fraud is found against him.
Id.
Bankruptcy law contains some peculiarities as a result of its broad incorporation of the Federal Rules of Civil Procedure. Although it has adopted Rule 30 of the Federal Rules of Civil Procedure for use in adversary proceedings, the creditor also has access to Bankruptcy Rule 2004 notwithstanding that an adversary proceeding is pending. To ignore the clear provision of 2004 regarding fees because a creditor has chosen one form of oral examination over another places form over substance. Clearly, when one enters the Bankruptcy Court seeking relief from debts, he has subjected himself to be examined by creditors, and Congress has clearly indicated that in such a ease, the Debtor is not entitled to fees. Title 28 U.S.C. § 1821 applies “[e]xcept as otherwise provided by law ...” 28 U.S.C. § 1821(a). Bankruptcy Rule 2004 clearly satisfies the exception to § 1821. Bankruptcy Rule 2004(e) provides that a debtor only recover mileage under certain conditions.
In this case, the Debtor voluntarily subjected himself to this Court’s jurisdiction in order to obtain a discharge of some $70,-000.00 of debt. He voluntarily removed himself thousands of miles away even though this and at least one other lawsuit were still pending here in northern Ohio. Consistent with the thrust of the Bankruptcy Rules, the Debtor cannot shift or create costs of litigation in a case initiated by him to the Plaintiff/creditor herein and, in essence, make the dischargeability action cost prohibitive to the creditor. To permit such a result is inconsistent with the two-fold purpose of the bankruptcy law: (1) to provide an honest debtor with a fresh start and (2) to insure that the debtor’s creditors receive an equitable dividend from the bankruptcy estate. Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). The record indicates that Debtor does not meet the conditions entitling him to recovery of mileage costs in this case.
Plaintiffs motion is granted. Defendant is ordered to appear for deposition on or before July 19, 1996, at his own expense, at a time and place specified by Plaintiffs counsel. Further, in as much as Plaintiff properly subpoenaed documents from Defendant, such are to be produced on or before July 19, 1996 at a time and place specified by Plaintiffs counsel. Defendant did not substantiate his argument that such production is duplicative of that made in another proceeding. Finally, Debtor is ordered to provide notice of his change of address to the Court within 10 days from the entry of this Order.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492358/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the trial of the complaint to determine dis-chargeability pursuant to 11 U.S.C. § 523(a)(4). The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 1334. This is a “core proceeding” within the meaning of 28 U.S.C. § 157(b) as exemplified by 28 U.S.C. § 157(b)(2)(I).
The debtor is a “golf pro” who, under contract to the plaintiff, toured various tournaments selling plaintiffs wares. In November 1992, the debtor telephoned a large order of “Ben Hogan pillows” to the home office, at which time the principal, Jerry Moncrief, questioned the debtor, asking if debtor had spoken with each buyer. The debtor responded that he had. As it turned out, the debtor had not spoken with each buyer, but, since they were former customers, simply processed their credit card numbers for the sale. He then immediately requested and *319received his commissions on these “sales.” Upon a few complaints from the customers, the plaintiff sent a letter of apology to all of the buyers and credited their respective accounts, terminated the debtor’s contract, and obtained judgment against the debtor for the cost of the pillows. Plaintiff now seeks to have this debt held nondischargeable as fraud committed by a fiduciary.
The parties stipulate that judgment was entered against the debtor and that there existed a fiduciary relationship between the parties during 1991 and 1992. Although the judgment was entered upon default by the debtor, it is a valid and, absent the bankruptcy, enforceable order. See Kapp v. Naturelle, Inc., 611 F.2d 703, 710 (8th Cir.1979). Although collateral estoppel principals apply to default judgment, id., there is insufficient evidence of the nature of the issue in state court in the form of pleadings and other documents to properly apply the doctrine to this judgment. See Johnson v. Miera (In re Miera), 926 F.2d 741 (8th Cir.1991) (court should review record to apply collateral es-toppel). Apparently, the parties agree with this conclusion because neither party urges that the doctrine be applied. Rather both parties request that the Court determine whether fraud exists.
Section 523(a)(4) provides that a debt owed by a debtor is excepted from discharge if there was fraud or defalcation while acting in a fiduciary capacity. Thus, the plaintiff must prove two elements: that the debtor was a fiduciary, and that, while a fiduciary, the debtor committed a fraud against the plaintiff. The first element is met by stipulation. The only issue for the Court is whether debtor’s actions constitute fraud.
The essential elements of a fraud action are that (1) defendant made a false, material representation (ordinarily of fact); (2) defendant had knowledge the representation was false; (3) defendant intended the plaintiff should act on the representation; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff was damaged as a result of such reliance. Barnett v. Arkansas Transport Company, Inc., 303 Ark. 491, 800 S.W.2d 429, 430 (Ark.1990); Vanderboom v. Sexton, 460 F.2d 362, 366 (8th Cir.1972).
In the instant case, there is no dispute that the debtor made representations to the plaintiff regarding the orders, that these representations were false, and that he intended for the plaintiff to rely upon the statements by shipping the orders and remitting debt- or’s commission. Although the debtor was generally a credible witness, it is clear from his testimony that his misrepresentation was deliberate. He affirmed to Moncrief that he had spoken with each buyer and that the sales were valid. He had not in fact spoken with each buyer, took credit card numbers from previous unrelated sales orders, and transmitted the orders to the plaintiff in order to obtain his commission from those sales. Thus, the debtor clearly had the requisite intent under the statute such that the debt is nondischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(4).
ORDERED: that the debt owed by the debtor HAROLD LEE ROBERTS to GOLFINGLY YOURS, INC. is nondis-chargeable in this bankruptcy proceeding.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492359/ | MEMORANDUM OPINION
ELIZABETH L. PERRIS, Bankruptcy Judge.
The trustee’s objection to debtor Ian Thompson’s claim of exemption in an annuity issued by First Colony Life Insurance Company (First Colony) came on for hearing' on May 21, 1996. Debtor claims that payments he is scheduled to receive from First Colony in the future constitute an annuity that is exempt under ORS 743.049. The trustee argues that the payments are not an annuity or that, if they are, debtor does not own the annuity. The trustee has submitted to the court a copy of the Uniform Qualified Assign*327ment and Release, which governs debtor’s right to payment.
FACTS
The evidence shows that debtor is entitled to receive payments for personal injury under a settlement agreement with the tortfea-sor’s insurer. American National Fire Insurance Company, the tortfeasor’s insurer, assigned its liability to make the payments to Jamestown Life Insurance Company (Jamestown Life). To fund the payments, Jamestown Life in turn purchased an annuity from First Colony. Jamestown Life retained all ownership rights in the annuity and gave debtor a security interest in it. The payments pursuant to the settlement agreement included specified amounts on specified dates, beginning in 1991 and ending in 2013. The agreement provides that “all payments are certain,” and names debtor’s estate as the primary beneficiary of the payments.
ISSUE
Is debtor’s right to receive payments under the First Colony annuity exempt under ORS 743.049?
DISCUSSION
The assignment and release indicates that the payments due to be made to debtor are the proceeds of a personal injury settlement, which are funded by an annuity. The question is whether the annuity is one that is exempt under ORS 743.049, and whether debtor owns or has an interest in the annuity that fits within the exemption.
ORS 743.049 provides:
“(1) The benefits, rights, privileges and options which are due or prospectively due an annuitant under any annuity policy issued before, on or after June 8, 1967, shall not be subject to execution, nor shall the annuitant be compelled to exercise any such rights, powers or options, nor shall creditors be allowed to interfere with or terminate the policy, except [for exceptions not pertinent here].”
ORS 743.049 is part of the Oregon Insurance Code. ORS 731.004. Definitions provided in the Insurance Code govern its construction. ORS 731.062. An “annuity” is defined in the Insurance Code as
“any agreement to make periodic payments, whether fixed or variable in amount, where the making of all or some of such payments, or the amount of any such payment, is dependent upon the continuance of human life, except payments made pursuant to the settlement provisions of a life insurance policy, and includes additional benefits operating to safeguard the policy from lapse or to provide a special surrender value or special benefit or annuity in the event of total or permanent disability of the annuitant.”
ORS 731.154(1). Thus, by definition, an annuity thát is exempt under ORS 743.049 is one in which the payment is dependent on the continuation of human life.
The payments or amount of payments debtor is entitled to receive are not in any way dependent on the continuation of human life. The agreement between debtor and the insurer provides instead that the payments are certain, and designates a beneficiary for receipt of the payments in the event of debt- or’s death. Therefore, under Oregon law, the payments are not benefits of an annuity as that term is used in the exemption statute, ORS 743.049, and are not exempt under it.
I recognize that there are a myriad of arrangements involving the right to receive fixed or certain periodic payments, either for life or for a fixed amount of time, all of which are commonly thought of as annuities. In this case, however, I am dealing not with the commonly understood meaning of annuity, but with the term as defined by the Oregon legislature.
Even if the payments were benefits of an annuity, debtor is not an annuitant. Under the agreement, Jamestown Life “shall have all ownership rights in any such annuity arid [debtor] shall have no right or interest in the annuity, except as stated herein.” The agreement further gives debtor a security interest in the annuity to secure the promise of Jamestown Life to make the periodic payments. This indicates that the payments are merely periodic payments óf a personal injury settlement, funded by an annuity pur*328chased by the insurer. Debtor has no interest in the annuity that can be exempted under ORS 743.049.1
CONCLUSION
This Memorandum Opinion shall constitute Findings of Fact and Conclusions of Law as required by Bankruptcy Rule 7052 and Fed. R.Civ.P. 52, and they shall not be separately stated. The trustee’s objection to the claim of exemption is sustained.
. Debtor has not claimed that the payments are exempt under any other exemption statute, for example, ORS 23.160(l)(j)(B), and I express no opinion about whether any other statute would apply. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492360/ | MEMORANDUM OPINION ON FIRST INTERIM FEE APPLICATION OF DEBTOR’S COUNSEL
FRANK R. MONROE, Bankruptcy Judge.
The Court held a hearing on January 18, 1996 upon the Debtor-in-possession’s counsel’s First Interim Fee Application. The only objection was filed by the Office of the United States Trustee. That objection was that the Application was filed prematurely since § 331 of the Bankruptcy Code precludes the filing of a fee application for any professional fees within 120 days after the order for relief.
This case was filed on September 8, 1995. Applicant was approved as counsel for the Debtor on September 11,1995. The Application covers the period of time from September 1, 1995 through October 31, 1995, a period of sixty-one (61) days. The Application was filed on November 14,1995, seventy-four (74) days after the entry of the order for relief.
Section 331 of the Bankruptcy Code provides in relevant part that, “..., a debtor’s attorney, ... employed under § 327 ... of this title may apply to the court not more than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for compensation for services rendered before the date of such application ... ”. 11 U.S.C. § 331.
No party has asked and the Court has not allowed compensation to be requested more often than every 120 days. The question here is whether the language of the statute requires Debtor’s counsel to wait 120 days from the order from relief to file its first interim fee application.
“Congress intends the words in its enactments to carry their ordinary, contemporary, common meaning.” Pioneer Investment Services v. Brunswick Asso., 507 U.S. 380, 388, 113 S.Ct. 1489, 1495, 123 L.Ed.2d 74 (1993). “There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes.” Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982). “If the language is clear, then ‘the inquiry should end’.” Matter of Greenway, 71 F.3d 1177 (5th Cir.1996) citing United States v. Ron Pair Enterprises, 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989).
The relevant statutory language says that debtor’s attorney may apply to the court “not more than once every 120 days after the order for relief ... ”. 11 U.S.C. § 331 (emphasis added). It seems clear, at least to this writer, that a debtor’s attorney may, therefore, not apply for interim compensation until at least 120 days after the order for relief. See accord, In re Augie/Restivo Baking Co., Ltd., 64 B.R. 236, 238 (Bankr.E.D.N.Y.1986), reversed on other grounds, 860 F.2d 515 (2nd Cir.1988); Matter of Sun Spec Industries, Inc., 3 B.R. 703, 706 (Bankr.S.D.N.Y.1980).
Accordingly,’ this First Interim Fee Application should be denied without prejudice as being prematurely filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492361/ | OPINION AND ORDER DENYING MOTION TO AMEND OR MAKE ADDITIONAL FINDINGS OF FACT
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court on Debtor Margaret Braithwaite’s (the “Debtor”) motion to amend or make additional findings of fact pursuant to Fed.R.Civ.P. 52(b), made applicable in bankruptcy proceedings by Fed. R.Bankr.P. 7052. Specifically, the Debtor *835seeks to amend this Court’s opinion and order dated February 15, 1996 (the “Opinion”) which held that the Debtor’s bankruptcy case constituted a “substantial abuse” of chapter 7 under 11 U.S.C. § 707(b). The United States Trustee (“UST”) has filed a response to which the Debtor has filed a reply. The Court finds that the Debtor’s motion is not well taken and should be denied.
FACTS
Although the Debtor seeks to supplement the record with additional documentary and testimonial evidence, the Debtor has not presented any newly discovered evidence. Further, the Debtor seeks to reargue this Court’s findings of fact and conclusions of law.
DISCUSSION
A court may amend a prior judgment “to correct manifest errors of law or fact or, in some limited situations, to present newly discovered evidence.” Fontenot v. Mesa Petroleum Co., 791 F.2d 1207, 1219 (5th Cir.1986) (citation omitted); see also TGC Corp. v. HTM Sports, B.V., 896 F.Supp. 751, 754 (D.Tenn.1995) (stating that “the Court may grant a new trial where it concludes that it has made a ‘manifest error of law or mistake of fact’ and that ‘substantial reasons’ exist for setting aside the judgment”) (citations and internal quotation marks omitted). “This is not to say, however, that a motion to amend should be employed to introduce evidence that was available at tidal but not proffered, to relitigate old issues, to advance new theories, or to secure a rehearing on the merits.” Fontenot, 791 F.2d at 1219 (citations omitted); see also Nat’l Metal Finishing Co. v. Barclays-American/Commercial, Inc., 899 F.2d 119, 123 (1st Cir.1990) (stating that “Rule 52(b) is not intended to allow parties to rehash old arguments already considered and rejected by the trial court”) (citation omitted).
First, the Debtor’s untimely request to supplement the record must be denied. Cf. Javetz v. Bd. of Control, Grand Valley State Univ., 903 F.Supp. 1181, 1190-92 (W.D.Mich.1995) (denying plaintiff’s motion to alter or amend under Fed.R.Civ.P. 59(e) which sought to supplement the record with affidavit of plaintiffs expert where plaintiff failed to demonstrate reasonable diligence for untimely submission of expert testimony). “ ‘A party who failed to prove [her] strongest case is not entitled to a second opportunity by moving to amend a finding of fact and a conclusion of law.’ ” Colunga v. Young, 722 F.Supp. 1479, 1489 (W.D.Mich.1989) (citing 9 C. Wright, A. Miller & F. Elliott, Federal Practice and Procedure § 2852 (1971 & Supp.1989)), aff'd, 914 F.2d 255 (6th Cir.1990). Permitting the Debtor to supplement the record at this late date would prejudice the UST, who has not had the opportunity to cross-examine the Debtor’s affiants. Likewise, the UST has not had the opportunity to challenge the documentary evidence submitted by the Debtor on cross-examination. See In re Marion Carefree Ltd. Partnership, 171 B.R. 584, 587-88 (Bankr.N.D.Ohio 1994) (granting Debtor’s motion to strike exhibits contained in government’s post-trial brief where Debtor did not have the opportunity to cross-examine or rebut proffered documents at trial) (citing Jackson v. Frank, 859 F.Supp. 1250, 1257 (E.D.Mo.1994)). Here, as in Javetz, the need to safeguard an adverse party from unfair prejudice and the need to uphold the finality of this Court’s judgment weigh heavily against permitting the Debtor to supplement the record. Javetz, 903 F.Supp. at 1192.
Second, the Debtor has not convinced the Court that the Opinion contained a manifest error of law or mistake of fact. On the contrary, the Opinion adequately sets forth the Court’s findings of fact and conclusions of law. As the Court stated in Erickson Tool Co. v. Balas Collet Co.,
[t]he Court need not fragmentize the evidence and make extensive findings to negative every offer of proof which has failed to persuade it, nor must it make findings and conclusions to set forth the extent of its reliance upon the testimony of witnesses or its assessment of their credibility, or the weight given to such testimony in relation to other evidence introduced at trial. The Court need only find such ultimate facts as are necessary to reach a decision in the case and is not required to *836make findings encompassing each and every detailed dispute or disagreement asserted by counsel or appearing in the evidence.
Erickson Tool Co. v. Balas Collet Co., 277 F.Supp. 226, 234-35 (N.D.Ohio 1967), aff'd 404 F.2d 35 (6th Cir.1968).
Third, the Court cannot conclude that denying the Debtor’s motion would work a manifest injustice.
In light of the foregoing, it is therefore
ORDERED that the Debtor’s motion be, and it hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492364/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This proceeding came before the Court upon complaint to recover property of the estate pursuant to 11 U.S.C. § 542(b); to determine extent, validity ■ and priority of. lien; and objections to claims 13, 14 and 46. A trial was held on March 6,1996. Upon the evidence presented, the Court enters the following findings of fact and conclusions of law:
*990
FINDINGS OF FACT
1. On October 20, 1992, American Fabricators, Incorporated d/b/a Buffalo Tank Corporation (“Debtor”) entered into a contract with Florida Power Corporation (“FPC”) to construct a storage tank on FPC’s leasehold property. (FPC Ex. 1).
2. Debtor subcontracted the welding and painting portion of the work to A & A Welding & Fabrication, Incorporated (“A & A”). (Trustee’s Brief at 1). On July 19,1993, A & A subcontracted the painting and sandblasting portion of the work to Whitlock Industrial Painting, Company (“Whitlock”). (Id.). Debtor also subcontracted portions of the work to Tri-State Contractors of Florida, Incorporated (“Tri-State”). The controversy in this proceeding stems from the amount of money that is owed to sub-subcontractor Whitlock pursuant to the “A & A — Whitlock” contract.
3. On January 6, 1994, an involuntary petition was filed against Debtor under Chapter 7 of the Bankruptcy Code and relief was ordered. (Main Case Rec. at 1). Plaintiff Charles W. Grant (“Trustee”) was appointed trustee on August 19,1994.
4. FPC owed Debtor $95,985.20 for work Debtor completed pursuant the Debtor-FPC contract (“the general contract”). (Adv.Rec. 1). FPC retains possession of the $95,985.02 (“the funds”). FPC paid A & A $7,320.00 and Tri-State $6,556.00 from the funds. (FPC Ex. 3). Pursuant to this Court’s Order of January 19, 1996, Whitlock was paid $14,-756.15 in principal and interest. (Id.). The funds FPC currently has on hand total $67,-343.05. (FPC’s Brief at 1).
5. On March 15, 1995, Trustee filed this adversary proceeding naming FPC, Whit-lock, A & A and Tri-state as defendants. (Adv.Rec. 1). Count I of the complaint seeks a turnover of the funds as property of the estate pursuant to 11 U.S.C. § 542(b). (Adv. Rec. 1). Count II of the complaint seeks a determination of the amount and validity of Whitlock’s lien or other interest in the funds. (Id.).
6. Counts III and IV of the complaint are moot for purposes of resolving this proceeding because stipulations of dismissals were filed dismissing defendants A & A and TriState. (Adv.Rec. 55-56).
7. In Counts V and VI of the complaint, the Trustee objects to Whitlock’s claim 13, a general unsecured claim in the amount of $21,450.00 and Whitlock’s claim 14 for $15,-905.54, a claim secured under Florida’s Mechanics’ Lien law.
8. Throughout the proceeding, the parties have not addressed claim 13. Claim 14 in the amount of $15,905.54 consists of $12,-106.00, the principal amount owed to Whit-lock by Debtor, and $3,799.54 for extras. (Claim file 14). This sum of $15,905.54 arose from the Claim of Lien Whitlock filed against FPC on September 15, 1993, in Alachua County, Florida. (Whitlock Ex. 16). Whit-lock has received payment for the $12,106.00 principal, together with $2,650.15 in interest. The remaining dispute in this proceeding concerns the $3,799.54 portion of Whitlock’s Claim of Lien, and entitlement to attorneys’ fees, costs and interest.
9. Count VII of the complaint objects to claim 46 filed by FPC for $59,355.93 for estimated breach of contract damages, representing the potential liability FPC could face because Debtor failed to pay subcontractors. (Claim file 46). The amount of FPC’s claim has since been reduced, and FPC is now claiming $28,427.72 in attorneys’ fees for breach of contract and set-off damages. (Adv.Rec. 78, 87).
10. Whitlock answered the complaint asserting affirmative defenses, a counterclaim and a erossclaim. Whitlock contends that it holds a priority interest in the funds. (Adv. Rec. 5). In its counterclaim and crossclaim Whitlock alleges that Debtor breached its contract with FPC by failing to pay all subcontractors timely. (Id.). Whitlock argues that it has a perfected construction lien claim against FPC’s property, and therefore, has superior rights to funds FPC owes Debtor in the amount of its Claim of Lien. (Id.).
11. On November 15, 1995, Whitlock amended its counterclaim and erossclaim asserting that the $3,799.54 portion of its Claim of Lien is a valid lien pursuant to Florida’s mechanics’ lien law. (Adv.Rec. 27). Trustee moved for dismissal of Whitlock’s counter*991claim pursuant to FRCP 12(b)(6) and Fed. R.Bankr. 7012. (Adv.Rec. 8). This Court however found that the Trustee did not meet his burden in proving insufficiency of Whit-lock’s counterclaim, and denied Trustee’s Motion to Dismiss Whitlock’s Counterclaim. (Adv.Rec. 18).
12. FPC' answered the Trustee’s complaint, asserting that Debtor failed to provide FPC with Contractor’s Final Affidavit as required under Fla.Stat. § 713.06(3)(d), and which is a condition precedent to distribution of final payment pursuant to the contract. (Adv.Rec. 6). Also, in answering Whitlock’s crossclaim, FPC asserts as an affirmative defense that it is not required to pay attorneys’ fees, costs and interest associated with Whitlock’s enforcement of its lien rights. (Adv.Rec. 24).
13. On December 1, 1995, Whitlock moved for summary judgment on its cross-claim against FPC and partial summary judgment on Counts I and II of Trustee’s complaint. (Adv.Rec. 32). FPC also moved for summary judgment seeking set-off, attorneys’ fees, and sought to deposit the funds it holds into the Court’s registry. (Rec. 34). Trustee moved for partial summary judgment on the issue of whether Whitlock can obtain a construction lien on the $3,799.54 portion of its Claim of Lien. (Adv.Rec. 38). On January 19, 1996, this Court issued an Order denying both Trustee’s motion for summary judgment and defendant FPC’s motion for partial summary judgment. (Adv. Rec. 51). The Order also denied in part and granted in part defendant Whitlock’s motion for summary judgment, directing FPC to pay Whitlock $14,756.15 out of the funds. (Id,.). The $14,756.15 amount paid to Whitlock consists of the $12,106.00 portion of its Claim of Lien and $2,650.15 in interest for the periods up to August 10, 1995. (Trustee Ex. 9).
14. On January 19,1996, Whitlock served FPC and Trustee with Request for Admissions, which was filed with the Court on January 21,1996. (Adv.Rec. 53). FPC timely responded to Whitlock’s request for admissions on February 2, 1996. (Adv.Rec. 54). However, this Court entered an Order Striking Trustee’s Response to Whitlock’s Request for Admissions. (Adv.Rec. 71).
15. The trial was held on March 6, 19.96. The parties subsequently submitted briefs outlining their arguments.
16. The Trustee argues that the $3,799.54 portion of Whitlock’s Claim of Lien is not lienable under Florida’s mechanics’ lien law. (Adv.Rec. 72). Trustee argues that Florida Statute section 713.05 requires that work must be performed for the charges to fall within the parameters of the construction lien law. (Id.). Trustee, however, concedes that defendant Whitlock may be entitled to some attorney’s fees, but not the $30,723.00 amount requested because Whitlock’s attorneys advised the client not to accept a settlement offer and chose to prolong this litigation. (Id.). Trustee also seeks attorneys’ fees of $8,863.00 for 74.4 hours of work. (Id.).
17. Whitlock argues that the $3,779.54 portion of its Claim of Lien is for extra work performed as a part of the original A & A-Whitlock contract, and was approved and accepted by FPC’s representatives. (Adv. Rec. 74). Whitlock also asserts that it is entitled to prejudgment interest on the total $15,905.54 amount of the construction lien. (Id.).
18. Whitlock further argues that it is entitled to attorneys’ fees and costs because it is the prevailing party under Florida law on the construction lien claim, and it is mandatory that the “prevailing party” is granted attorneys’ fees pursuant under Florida Statute § 713.29. (Id.).
19. FPC argues that it too is entitled to attorneys’ fees for breach of contract and set-off damages. (Adv.Rec. 76). FPC takes the position that, because Debtor failed to submit a Contractor’s Final Affidavit and pay its subcontractors, FPC was forced to defend the lien action and Whitlock’s crossclaim at substantial cost. (Id.). FPC also contends that Whitlock’s and Trustee’s claim are payable, if at all, from the funds. (Id.). FPC further argues that the only issue in this proceeding is whether Whitlock is entitled to the $3,799.54 portion of its Claim of Lien and attorneys’ fees, costs and interest in the amount of $30,723.00, and this dispute is solely between Trustee and Whitlock. (Id.).
*99220. Trustee, however, argues that FPC is not entitled to attorneys’ fees as breach of contract and set-off damages because fees incurred by FPC is a business expense, and an award of fees to FPC would diminish the funds. (Adv.Rec. 72).
21. FPC offered to settle the Whitlock’s claim for $22,872.18 as of February 20, 1995, inclusive of attorneys’ fees, costs and interests. (Whitlock Ex. 8). On May 4,1995, the Trustee made an offer of judgment in full settlement of the claim for Whitlock of $15,-106.00 inclusive of attorneys’ fees, but exclusive of statutory interest and taxable costs. (Trustee Ex. 4). On August 3,1995, Trustee, on behalf of Debtor, submitted a Contractor’s Final Affidavit, which did not include the $3,799.54 of Whitlock’s Claim of Lien. (Trustee Ex. 9). In a letter to the Trustee’s attorney dated January 19, 1996, Whitlock made a settlement offer in the amount of $27,500.00. (Whitlock’s Ex. 12). On March 6, 1996 FPC stipulated that Whitlock holds a valid and perfected construction lien against FPC’s property in the amount of $15,905.54, the full amount of Whitlock’s Claim of Lien. (Whitlock Ex. 14).
CONCLUSIONS OF LAW
This proceeding seeks to resolve the issues of Whitlock’s entitlement to the $3,799.54 portion of its $15,905.54 Claim of Lien; Whit-lock’s request for attorneys’ fees, costs and prejudgment interest; FPC’s request for damages in the form of attorneys’ fees for Debtor’s alleged breach of contract and set-off; and Trustee’s action for turnover and request for attorneys’ fees. The Court will address each issue.
I. The $3,799.54 Portion of Whitlock’s Claim of Lien
Although FPC has stipulated that Whitlock has a valid perfected mechanics’ lien against its property for the $3,799.54 portion of Whitlock’s $15,905.54 Claim of Lien, the Trustee nevertheless contends these charges are not lienable extras under Florida’s construction lien law. Section 713.01(10) of the Florida Statute defines “extras” as “labor, services or materials for improving real property authorized by the owner and added to or deleted from labor, services or materials covered by a previous contract between the same parties.” Fla. Stat. § 713.01(10) (1996). The test for determining whether extras are lienable under Florida’s mechanics’ lien law is whether work was performed (i) in good faith; (ii) within a reasonable time; (iii) pursuant to the terms of the contract; and (iv) is necessary to finish the job. Swedroe v. First American Inv. Corp., 565 So.2d 349, 353 (Fla.Dist.Ct.App.1990) (citing Century Trust Co. of Baltimore v. Allison Realty Co., et al., 105 Fla. 456, 468, 141 So. 612, 612 (1932)).
In this proceeding, the Trustee challenges the validity of Whitlock’s lien for $3,799.54 on the grounds that these charges are not lienable because no work was actually performed. The charges are for hours Whit-lock’s workers lost due to equipment failure; use of a air compressor; and freight to replace a damaged compressor. (Whitlock’s Ex. 18, at 16-23). The Court concludes that Whitlock should be compensated for hours lost due to equipment failure because those hours represent a loss incurred that may have deprived Whitlock of other employment or contractual opportunities. Further, services actually provided pursuant to the “A & A — Whitlock” contract were done in good faith, within a reasonable time, pursuant to the terms of the contract, and were necessary to finish the job. Moreover, FPC consented to the extra charges. Therefore, Whitlock has a valid mechanics’ lien for the $3,799.54 portion of its Claim of Lien, and is entitled to be paid this amount from the funds.
II. Whitlock’s Request for Attorneys’ Fees, Costs, and Prejudgment Interest
The Court now turns to Whitlock’s request for attorneys’ fees, costs, and prejudgment interest. Whitlock seeks the total sum of $36,614.77 from the funds, and amount sought include $30,723.00 for attorneys’ fees, $543.50 for costs, and prejudgment interest of $1,548.73. (Whitlock’s Brief at 24). The Court will first address the issue of attorneys’ fees and costs.
*993
a. Attorneys’Fees and Costs
Whitlock contends that it is entitled to attorneys’ fees because it is the prevailing party in the mechanics’ lien claim. To obtain attorneys’ fees and costs in a mechanics’ lien claim, section 713.29 of the Florida Statutes provides that:
[T]he prevailing party shall be entitled to recover a reasonable fee for the services of his attorney for trial and appeal, to be determined by the court, which shall be taxed as part of his costs, as allowed in equitable actions.
Fla.Stat. § 713.29 (1995). The “prevailing-party” is the litigant who has recovered an amount exceeding that which was earlier offered in settlement of the claim. C. U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla.1985). The offering party has the burden to show that the offer was in fact made, and made in good faith. Id. The purpose of this rule is to encourage settlement of disputes before the parties resort to litigation and discouraging dilatory or obstructive tactics. Id. at 1179. Under section 713.29, the Bankruptcy Court must factually determine whether a bona fide settlement offer was made and unequivocally refused. Miscott Corp. v. Zaremba Walden Co., 848 F.2d 1190, 1192 (11th Cir.1988). Thus, the Court must therefore determine if Whitlock will recover the amount in excess of the amount earlier offered in settlement of the claim.
The mechanics’ hen claim in this proceeding is essentially the Trustee seeking a determination regarding the validity of the $3,799.54 portion of Whitlock’s Claim of Lien against the funds FPC holds for Debtor. (Whitlock Ex. 16). On March 6, 1996, FPC stipulated that Whitlock holds a valid and perfected construction lien against FPC’s property in the amount of $15,905.54, the full amount of Whitlock’s Claim of Lien. (Whitlock Ex. 14). However, prior to the stipulation, in a letter to the attorney for the Trustee, FPC offered to settle Whitlock’s claim for $22,872.18 as of February 20, 1995, inclusive of attorneys’ fees, costs and interests. (Whitlock Ex. 8). The Trustee, on May 4, 1995, made an offer of judgment for $15,-106.00 inclusive of attorneys’ fees, but exclusive of statutory interest and costs. (Trustee Ex. 4). In letter to the Trustee’s attorney dated January 19, 1996, Whitlock made a settlement offer in the amount of $27,500.00. (Whitlock’s Ex. 12). The Court concludes that bona fide settlement offers were made among the parties and were unequivocally refused. At the conclusion of this proceeding, Whitlock’s recovery will consist of the full amount of its construction lien claim, attorneys’ fees, costs and prejudgment interest, totalling over $27,500.00, including amounts recovered in order granting partial summary judgment. Therefore, Whitlock is the prevailing party because it will recover an amount exceeding that which was earlier offered in settlement of the claim. The Court now turns the amount of attorneys’ fees Whitlock should be awarded.
Bankruptcy judges have a wide latitude in determining the amount of attorneys’ fees to be awarded for services performed in connection with a bankruptcy proceeding, but must employ requisite standards and procedures in awarding attorneys’ fees. American Benefit Life Ins. Co. v. Baddock (In re First Colonial Corp. of Am.), 544 F.2d 1291, 1298 (5th Cir.1977).1 To determine the amount of compensation awarded, the court should consider the following twelve factors:
(1) The time and labor required;
(2) The novelty and difficulty of the questions;
(3) The skill requisite to perform the legal service properly;
(4) The preclusion of other employment by the attorney due to acceptance of the case;
(5) The customary fee;
(6) Whether the fee is fixed or contingent;
(7) Time limitations imposed by the client or other circumstances;
(8) The amount involved and the results obtained;
(9) The experience, reputation, and ability of the attorneys;
(10)The “undesirability” of the case;
*994(11) The nature and length of the professional relationship with the client;
(12) Awards in similar cases.
American Benefit Life Ins. Co., 544 F.2d at 1298-99 (noting that these factors are useful when awarding attorneys’ fees authorized by statute). The judge should employ the following procedure when applying these factors:
(1) Determine the nature and extent of services provided by the attorney;
(2) Assess the value of those services; and
(3) Explain the basis of the award.
Neville v. Eufaula Bank & Trust Co. (In re U.S. Golf Corp.), 639 F.2d 1197, 1201 (5th Cir.1981).
The nature of the. services provided by Whitlock’s attorneys involved negotiations of settlements during and prior to the commencement of the main case and this proceeding and representation of Whitlock throughout this proceeding. The extent of the legal services provided to Whitlock include, but are not limited to, review of the complaint, filing of answer asserting affirmative defenses, crossclaim and counterclaim, legal research, preparing and defending summary judgment motion, telephone conferences with FPC and Trustee’s attorneys, preparing affidavits and stipulations and representing Whitlock at trial. (Whitlock Ex. 19).
In assessing the value of Whitlock’s attorneys’ services, the Court considers expert testimonies given at trial and affidavits submitted by the parties regarding reasonable and customary attorneys’ fees. Although Whitlock’s attorneys represented their client in a competent manner, the request for $30,-723.00 in attorneys’ fees is excessive and should be reduced. The Court concludes that the reasonable amount of attorneys’ fees and costs that should be award to Whitlock’s attorneys should be $18,489.00 in fees and $303.00 in costs.
In explaining the basis of this award of attorney’s fees and costs, the Court examines the billing records and affidavits submitted by Whitlock’s attorneys. The billing records show that the attorneys and paralegals rendered 250 hours of professional services to Whitlock for fees totalling $28,697.50:
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(Whitlock Ex. 19; Whitlock’s Second Amended Second Aff., Ex. A). The Court awards Whitlock attorneys’ fees as follows:
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The attached exhibit “1” shows the hours that are included in Whitlock’s award of attorneys’ fees. The letter “A” placed at right side of each page of exhibit “1” shows the hours that are included in the amount of attorneys’ fees awarded. Hours that are left blank were not included in the award of attorneys’ fees.
Whitlock also submitted a costs summary totaling $543.50 in costs. (Whitlock Ex. 20). The Court concludes that only $303.00 for the services of an abstract company and a title company should be awarded, and is directly related to this adversary proceeding. Other itemizations shown on the costs summary are associated with the state court case, the filing fees for the state court case, and the filing fees motion for relief from the automatic stay. (Id.).
The Court concludes that this is a simple complaint for turnover of property of the estate. The 250 hours of time and labor expended on this case were beyond the scope of what was actually needed. The use of two lawyers was unnecessary. The initial amount in controversy was only $15,905.54, and ultimately only $3,799.54 was actually disputed. This proceeding presents no novel or difficult questions. No special expertise was required to perform the required legal services. Attorneys were not precluded from taking on other cases due to the acceptance of this case. For these reasons, the Court concludes that the amount of attorneys’ fees and costs that should be awarded to Whit-lock’s attorneys should be limited to $18,-489.00 in attorneys’ fees and $303.00 in costs, payable from the funds FPC holds for Debt- *995or. The Court now turns to the issue of prejudgment interest.
b. Prejudgment Interest
The Florida Supreme Court has held that prejudgment interest on principal owed on a mechanics’ lien claim can be awarded if it is shown that the amount owed was wrongfully withheld under the law. Florida Steel Corp. v. Adaptable Dev., Inc., 503 So.2d 1232, 1236 (Fla.1986). Money owed is wrongfully withheld if it is determined that the amount owed should have been paid. Id. at 1237.
In this proceeding, Whitlock’s Claim of Lien for $15,905.54 should have been paid. Whitlock is therefore entitled to the interest on the principal amount of the mechanics’ lien claim. Whitlock should therefore be awarded the $1,548.73 prejudgment interest it requested.
III. FPC’s Request For Breach of Contract Damages
FPC argues that it should receive $28,427.72 in attorneys’ fees for breach of contract and set-off damages.2 FPC asserts that the Trustee admits Debtor breached the general contract because certain facts are deemed admitted by the Trustee as a result of this Court’s striking of Trustee’s Response to Whitlock’s Request for Admission. This Court has held that central facts in dispute are not deemed admitted. See Whitaker v. Belt Concepts of Am., Inc. (In re Olympia Holding, Inc.), 189 B.R. 846, 853 (Bankr.M.D.Fla.1995) (citing Pickens v. Equitable Life Assur. Soc’y of the U.S., 413 F.2d 1390, 1393 (5th Cir.1969)). Whether Debtor has breached the general contract is a central fact in dispute and is not deemed admitted by Trustee. Therefore, FPC cannot rely solely on the Trustee’s deemed admissions to prove that Debtor breached the general contract, and that actual damages resulted.
Pursuant to the terms of the general contract, Debtor agreed to abide by all applicable laws of the State of Florida. (FPC Ex. 1, ¶20). Section 713.06(3)(d)(l) provides, in part, that:
(d) When final payment under a direct contract becomes due to the contractor: 1. The contractor shall give to the owner an affidavit stating ... the amount due.... The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his lien under this Chapter. ...
Fla.Stat. § 713.06(3)(d)(l) (1995). This adversary proceeding commenced on March 15, 1995, and a Contractor’s Final Affidavit was filed on August 3, 1995. (Adv.Rec. 1; Trustee Ex. 9). Much of this litigation could have been avoided had FPC received a Contractor’s Final Affidavit timely, allowing it to disburse funds to subcontractors that Debtor owed money. Therefore, Debtor breached the contract by failing to file a timely Contractor’s Final Affidavit in accordance with Florida’s mechanics’ lien statute.
In proving damages, FPC asserts that Debtor’s breach of contract resulted in .the company incurring $28,427.72 in attorneys’ fees. The Eleventh Circuit addresses *996the issue of awarding attorneys’ fees in an interpleader action in Chase Manhattan Bank v. Mandalay Shores Co-op. Hous. Ass’n, Inc. (In re Mandalay Shores Co-op. Hous. Ass’n, Inc.), 21 F.3d 380, 383 (11th Cir.1994) remanded, 191 B.R. 229 (M.D.Fla. 1995). The Court of Appeals suggests three reasons that justify attorneys’ fees in an interpleader actions are:
(1) An interpleader action often yields a cost-efficient resolution of a dispute in a single forum, rather than a piece-meal litigation;
(2) The stakeholder in the asset often comes by the asset innocently and in no way provokes the dispute among the claimants; and
(3) Fees for the stake holder typically are quite minor and therefore do not greatly diminish the value of the asset.
Id. However, attorneys’ fees are not justified when “a stakeholder’s interpleader claim arises out of the normal course of business.” Id.
In this proceeding, granting FPC attorneys’ fees is justified. Being a named defendant in a bankruptcy proceeding is not an ordinary component FPC’s business. This interpleader action yielded a cost-efficient resolution of this proceeding because separate proceedings against each defendant was avoided. However, the fees requested by FPC are not minor, and would materially diminish the funds. Therefore, utilizing the principles outlined in American Benefit Life Ins., Co., 544 F.2d at 1298-99 and Neville, 639 F.2d at 1201, the Court concludes that reasonable attorneys’ fees for FPC is $13,-682.44. This amount should be paid from the funds FPC currently holds for Debtor.
The Court turns to affidavits and billings records submitted by FPC in explaining its award of attorneys’ fees. FPC’s billing record shows legal services rendered were as follows:
Billing Rate Amount
Gary M. Schaaf 166.1 $135.00 $22,423.50
Henry A. Stein 19.7 $200.00 $ 3,940.00
Victoria H, Carter 1.1 $180.00 $ 198.00
Sub-Total 196.1 $26,561.50
Disbursements made by Firm + $ 1,856.22
Total $28,417.72
(Adv.Ree. 77, 78, Ex. A). The Court awards FPC attorneys’ fees as follows:
Billing Rate Amount
Gary M. Schaaf 74.5 $135.00 $10,057.50
Henry A. Stein 11.5 $200.00 $ 2,300.00
Victoria H. Carter .5 $180.00 $ 90.00
Sub-Total 86.5 $12,447.50
Disbursements made by Firm + $ 1,234.94
Total $13,682.44
The attached exhibit “2” shows the hours that are included in FPC’s award of attorneys’ fees. The letter “A” placed at right side of each page of exhibit “2” indicates the time included in the amount of attorneys’ fees awarded. Hours that are left blank were not included in the award of attorneys’ fees. Finally, the Court turns to the issues of turnover of property of the estate along with Trustee’s request for attorneys’ fees.
IV. Turnover of Funds to the Trustee & Request for Attorneys’ Fees
Pursuant to 11 U.S.C. § 542(b), the trustee seeks the turnover of funds FPC currently holds and is owed to Debtor. Section 542(b) states, in part, that:
[A]n entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or an order of, the trustee ...
11 U.S.C. § 542(b). FPC currently holds $67,343.05 as final payment to Debtor under the general contract between FPC and Debt- or for construction improvements to FPC’s leasehold property. This amount is property of estate. After Whitlock is paid $24,140.27 for attorneys’ fees, costs, interests and liena-ble extras, and FPC retains $13,682.44 for attorneys’ fees, the remaining sum of $29,-520.34 should be turned over to the Trustee for the benefit of the estate pursuant to section 542(b) of the Bankruptcy Code.
Trustee also requested $8,363.00 in attorneys’ fees. (Trustee Ex. 12). The Court finds that no payment of attorneys’ fees should be awarded at this time. However, Trustee’s attorney may seek attorneys’ fees at the closing of the estate.
CONCLUSION
The Court will enter a separate order consistent with these findings of fact and conclusions of law.
*997EXHIBIT “1” TO FINDINGS OF FACT AND CONCLUSIONS OF LAW
The letter “A” denotes the hours that are included in the award of attorneys’ fees.
PRIVILEGED AND CONFIDENTIAL FOR SETTLEMENT PURPOSES ONLY
Kirschner, Main, Petrie, Graham, Tanner & Demont Post Office Box 1559 Jacksonville, Florida 32201-1559
March 14, 1995
INVOICE #W1000
Ms. Kathryn Whitlock
Whitlock Industrial Painting Co., Inc.
830 River Country Estates Glen St. Mary, FL 32040
RE: Whitlock v. State of Florida, et al.
Professional Services Rendered Through 3/14/95
FEES:
Sep.-16-93 Extended conference with client regarding factual and legal 2.60 TGH A issues involved in dispute with FPL; review contract, changes orders and other documents provided by client; review Chapter 713 regarding ability to obtain contract and information regarding retainage; prepare demand for copy of contract and statement of account to FPL; prepare and finalize claim of lien; letter to Clerk of Alachua County Court regarding filing of claim of lien.
Nov-17-93 Receive and review letter from client regarding contact with 0.50 TGH FPL inspector; telephone calls to Ms. Whitlock regarding contact by FPL, case status and prospects for payment.
Nov-18-93 Telephone call from Ms. Whitlock regarding demand for state- 0.50 TGH ment of account received from FPL; receive and review FPL November 15,1993 correspondence; telephone call to Ms. Whitlock regarding,nature, scope and extent of response required.
Nov-24-93 Receive and review documents from Ms. WThitlock responsive 0.40 TGH to FPL’s request for information and documentation; telephone call to Ms. Whitlock regarding additional documents available and/or required.
Nov-29-93 Assemble documents; prepare response and demand letter to 0.60 TGH A FPL pursuant to FPL’s request for information and documentation.
Dec-02-93 Telephone call to Mr. Gallagher at FPL regarding claims 0.30 TGH A package and Whitlock’s response to FPL’s demand letter.
*998Dec-15-93 Extended telephone call Ms. Whitlock regarding status of 0.30 TGH negotiations with FPL, response of FPL to recent submission and case status generally.
Jan-17-94 Telephone call from Ms. Whitlock regarding status of FPL 0.20 TGH negotiations and disputes.
Feb-03-94 Letter to Mr. Gallagher at FPL regarding status of FPL’s 0.30 TGH A analysis of Whitlock’s documents and of FPL’s intention to settle Whitlock claim.
Feb-24-94 Telephone call from Ms. Whitlock regarding any response by 0.20 TGH FPL to recent correspondence, case status and necessity of filing suit to preserve lien rights.
Mar-18-94 Research elements of quantum meruit; research Whitlock’s 2.30 TGH A ability to claim quantum meruit claim against parties in privity and parties not in privity vis-a-via mechanic’s lien statute.
Apr-8-94 Research ability to assert oral contract count versus written 1.80 TGH A contract count regarding factual scenario where unsigned proposal and changes orders are submitted, and parties act upon proposals as if they are the contract between the parties; research existence of written versus oral contract under the scenario presented in FPL case.
Apr-28-94 Begin drafting of four count complaint against State of Florida, 1.30 TGH A FPL and A & A Welding.
Apr-28-94 Revise and finalize proposed four count complaint against all 2.60 TGH A parties; prepare notice of lis pendens; dictate letter to Kathryn Whitlock regarding case status, necessity of filing complaint, review of proposed complaint; prepare civil cover sheet; prepare summons and make arrangements for filing and service of process.
May-11-94 Prepare, revise and finalize interrogatories and requests for production to State of Florida, FPL and A & A Welding. 3.80 TGH A
May-13-94 Letter to Ms. Whitlock regarding case status and filing of 0.40 TGH complaint; receive, review and calendar return of service for Florida.
May-23-94 Receive, review and calendar return of service for FPL; re- 0.90 TGH ceive, review and calendar return of service for A & A Welding; telephone call to Ms. Whitlock regarding case status, time for answering and anticipated trial date; letter to Ms. Whitlock regarding status.
Jun-02-94 Telephone call from Mr. Reischmann (FPL) regarding Whit- 0.20 TGH lock lien, anticipated payment and timing thereof.
Jun-06-94 Receive and review Reischmann (FPL) correspondence of June 3; receive and review FPL answer; dictate letter to Ms. Whitlock regarding case status. 0.80 TGH
Jul-28-94 Receive and review A & A Welding answer. 0.30 TGH A
Aug-09-94 Letter to Ms. Whitlock regarding case status. 0.20 TGH
*999Aug-03-94 Telephone call from Ms. Whitlock regarding case status, negó- 0.20 TGH tiations with FPL for payment and anticipated time for receipt of payment funds.
Aug-16-94 Receive and review FPL “ten day notice of intent to pay 0.60 TGH A lienors”; telephone call to Ms. Whitlock regarding same; letter to WTiitlock regarding FPL notice.
Sep-01-94 Telephone call from Mr. Fowler (A & A attorney) regarding 0.20 case status, FPL’s notice of intent, A & A’s ability to be paid and status of circuit court action. TGH
Sep-27-94 Receive and review Mr. Hines correspondence to Charles 0.40 Grant dated September 27, 1994; telephone call to Ms. Wdiit-lock regarding same. TGH A
Oct-04-94 Telephone call to Mr. Hines regarding case status, FPL expo- 0.20 sure and WTiitlock entitlement. TGH
Oet-14-94 Arrangements for and preparation of notice of hearing on 0.30 Plaintiffs motion for summary judgment. TGH A
Oct-17-94 Review pleadings files to determine status of service on Florida 0.60 and lack of response; prepare motion for default; telephone call from Pat Fowler (A & A attorney) regarding case status, expectations of payment and related topics. TGH A
Oct-18-94 Telephone call from Pat Fowler regarding any payment made 0.20 by FPL and ease status generally. TGH
Oet-20-94 Letter to Mr. Hines (FPL) regarding hearing on motion for 0.20 summary judgment. TGH A
Oct-27-94 Receive and review default order; letter to Ms. Whitlock 0.20 regarding case status. TGH
Nov-15-94 Receive and review bankruptcy clerk notice regarding Ameri- 0.30 can Fabricators’ bankruptcy; letter to Ms. Whitlock regarding same. TGH
Dec-16-94 Review pleadings files; prepare proposed affidavit for Ms. 1.40 WThitlock’s signature in support of Plaintiffs motion for summary judgment; letter to Ms. WThitlock regarding same. TGH A
Dec-23-94 Prepare notice of filing; prepare Plaintiffs Motion for Sum- 0.50 mary Judgment. TGH A
Dec-28-94 Telephone call from Pat Fowler regarding Plaintiffs Motion 0.30 for Summary Judgment, effect on A & A Welding, expectations of payment, status of bankruptcy action and related topics. TGH A
Jan-04-95 Telephone call from Mr. Gleson at State of Florida regarding 0.40 relationship between Florida and FPL, existence of lease agreement, documents responsive to request for production and related topics. TGH A
Jan-09-95 Letter to Mr. Gleson, State of Florida, regarding case status, 0.20 Plaintiffs discovery to Florida and related topics. TGH A
*1000Jan-12-95 Telephone call from Mr. Saxton (FPL attorney) regarding 0.40 TGH entitlements of Whitlock, expected payment and bankruptcy complications.
Jan-13-95 Telephone call from Mr. Saxton regarding negotiations with 0.20 TGH Trustee and Plaintiffs motion for summary judgment.
Jan-16-95 Receive and review Saxton correspondence regarding case 1.10 TGH A status and negotiations with Trustee; review entire file pursuant to Mr. Saxton’s request; prepare calculations and statement of position regarding amounts due to Whitlock; letter to Mr. Saxton regarding same.
Jan-17-95 Prepare notice of cancellation of hearing on motion for sum- 0.30 TGH A mary judgment; letter to Mr. Gleson.
Jan-20-95 Telephone call to Ms. Whitlock regarding case status, expecta- 0.30 TGH tion of payment, negotiations with Trustee and FPL position regarding same.
Jan-27-95 Letter to Mr. Saxton regarding status of negotiations with 0.40 TGH Trustee.
Feb-04-95 Receive and review Saxton January 31st correspondence; tele- 0.40 TGH phone call to Ms. Whitlock regarding same.
Feb-07-95 Review files; prepare two proofs of claim for filing in American 2.00 TGH A Fabricators bankruptcy action; extended telephone call from Mr. Perry, Trustee’s attorney regarding Whitlock’s entitlement to payment and amount thereof; telephone call from Mr. Perry regarding specifies of lien rights of Whitlock, all regarding lien foreclosure and validity, Trastee exposure; begin research requested by Mr. Perry.
Feb-08-95 Prepare calculations for Mr. Perry, at Mr. Perry’s request; 0.60 TGH letter to Mr. Perry regarding Whitlock’s entitlement.
Feb-21-95 Telephone call from Mr. Perry (Trustee attorney) regarding 0.20 TGH case status and amounts due to Whitlock.
Mar-01-95 Conference with Mr. Kolar regarding research required, case 0.70 status and issues needing resolution regarding Whitlock entitlement to payment from Trustee and/or FPL. TGH
Mar-01-95 Review complaint and facts of case; research regarding Flori- 1.90 da construction lien law; conference with G. Heekin regarding settlement proposal. ESK A
Mar-03-95 Calculate current amount due; research regarding Florida 0.90 construction lien law; telephone conference with Robert Perry regarding Whitlock claim. ESK A
Mar-06-95 Conference with G. Heekin regarding status of case. 0.20 ESK
Mar-09-95 Preparation of letter to Robert Perry 0.60 ESK
Mar-10-95 Preparation of letter to Robert Perry. 1.20 ESK
Mar-14-95 Preparation of letter to Robert Perry. 1.00 ESK
*100103/05/96
Whitlock Industrial Painting Co., Inc.
830 River Country Estates
Glen St. Mary, Florida 32040
Attn: Kathryn Whitlock
litl3968
vs. American Fabricators
Professional Services Rendered 3/15/95 through 2/29/96
Mar-21-95 Review complaint; prepare memorandum to G. Heekin re- 0.40 ESK garding same; telephone conferences with Robert Perry, opposing counsel.
Mar-22-95 Review bankruptcy turnover complaint; research regarding 1.80 ESK A bankruptcy procedure; research regarding Florida construction lien law, corporate status of defendants; review documents furnished by client.
Mar-22-95 Secretary of State research regarding Florida Power Corporation per E. Kolar. 0.50 MM
Mar-24-95 Telephone call to Secretary of State regarding Florida Power 0.20 MM Corporation being a municipal agency; telephone call with CT Corporation regarding order articles of incorporation for Florida Power Corporation.
Mar-28-95 Research regarding private construction bond; telephone calls 0.90 ESK with Florida Power Corporation regarding corporate status, bond; review notice of commencement; research regarding Alachua County public records; obtain copies of bond; conference with G. Heekin regarding settlement.
Mar-29-95 Telephone conferences with North Florida Notifiers, Kathryn 2.50 ESK Whitlock, Reva Bond regarding public records; preparation of letter to Reva Bond regarding request for ownership and encumbrance search; research regarding private construction payment bond.
Apr-04-95 Review computer docket search, payment bond. 0.90 ESK
Apr-04-95 Computer research with clerk’s office (circuit court) regarding 0.90 MM American Fabrication, Buffalo Tank Corporation, A & A Welding and Tri-State Contractors.
Apr-06-95 Review ownership and encumbrance search, lease notices of 2.40 ESK commencement; telephone calls with Brad Saxton, Mike Tes-sitore regarding status of case, settlement with bankruptcy court; preparation of letter to Mike Tessitore regarding same; telephone call with Robert Perry regarding stay of state court action; preparation of response to bankruptcy adversary proceeding.
*1002Apr-07-95 Preparation of answer to trustee’s complaint; research re- 2.10 ESK A garding availability of attorneys’ fees for pursuing construction lien claim in bankruptcy proceeding; telephone conference with Mike Tessitore regarding communicating objection to Florida Power.
Apr-10-95 Telephone conference with Rodney Gaddy regarding objection 1.10 ESK A to Florida Power’s interpleading funds in bankruptcy action; preparation of memorandum to file regarding same; telephone conference with Ron Bergwerk, counsel for American Fabricators regarding extension of time to file answer; preparation of letter to Bergwerk regarding same; telephone conference with Kathryn Whitlock regarding status of case, evidence establishing change order.
Apr-11-95 Telephone conference with Henry Stein regarding claim, set- 0.40 ESK A tlement; preparation of facsimile to Henry Stein regarding same.
Apr-21-95 Telephone conference with counsel for Florida Power regard- 0.40 ESK ing possible settlement conference on April 24.
Apr-22-95 Telephone conference with Florida Power counsel Henry Stein 0.90 ESK regarding Whitlock’s claims, possible settlement with the Trastee; preparation of letter to Stein and Robert Perry regarding same.
Apr-26-95 Telephone calls with Henry Stein, Robert Perry regarding 0.30 ESK settlement of action.
Apr-27-95 Telephone confei-ence with Robert Perry and Henry Stein 0.70 ESK regarding settlement; preparation of answer, affirmative defenses and counterclaim.
Apr-28-95 Preparation of answer and affirmative defenses to Trustee’s 3.00 ESK A complaint; preparation of counterclaim; preparation of motion to lift automatic stay or for adequate protection.
May-01-95 Preparation of motion to lift automatic stay. 0.10 ESK A
May-04-95 Preparation of motion to lift automatic stay and supporting 2.30 ESK A memorandum.
May-05-95 Review debtor’s motion to dismiss counterclaim, offer of judgment from debtor. 0.20 ESK A
May-08-95 Telephone conference with bankruptcy court regarding motion 0.30 ESK to lift automatic stay; preparation of motion to withdraw motion to lift automatic stay from adversary proceeding; prepare motion to lift automatic stay in main bankruptcy proceeding.
May-09-95 Preparation for pretrial conference in bankruptcy adversary 0.40 ESK proceeding.
May-10-95 Prepare for pretrial conference; attend pretrial conference for 1.80 ESK A bankruptcy adversary proceeding; conference with opposing attorneys regarding settlement.
May-10-95 Attend pre-trial conference. 1.30 CSM
May-15-95 Retrieve Bankruptcy docket. 0.30 ENW
*1003May-15-95 Research regarding lifting automatic stay; research regarding 0.50 ESK A service on all interested parties.
May-16-95 Research regarding lifting automatic stay to allow construe- 1.80 ESK tion hen action to proceed.
May-17-95 Telephone calls with Alachua County Court, Robert Perry and 1.00 ESK Pat Fowler regarding status conference, bankruptcy stay; research regarding lifting automatic stay.
May-18-95 Research regarding lifting automatic stay. 0.20 ESK
May-24-95 Preparation of letter to Henry Stein regarding information for 0.20 ESK stipulation.
May-25-95 Research regarding assertion of counter claim against trust- 0.80 ESK A ee’s adversary proceeding complaint.
May-26-95 Preparation of memorandum of law in support of Whitlock’s 4.40 ESK A counterclaim; preparation of stipulation for evidentiary hearing; telephone calls with Henry Stein and Robert Perry regarding stipulation; research regarding prerequisites for contractor to claim a lien; preparation of letter to Henry Stein regarding stipulation; review letter from Henry Stein, preparation of memorandum to Geoff Heekin regarding evidence needed for evidentiary hearing; obtain certified copies of claim of lien, documents showing date of filing of Whitlock’s construction lien action.
May-30-95 Research regarding admission of evidence in bankruptcy 1.70 ESK A court; preparation of affidavit of Tim Whitlock; research regarding motion to lift automatic stay; telephone conference with Gary Shaaf regarding stipulation.
May-31-95 Preparation of affidavit of Jim Whitlock; preparation of stipu- 5.50 ESK A lation for evidentiary hearing; telephone calls with Kathryn Whitlock, Pat Fowler, Gary Schaaf, and Robert Perry regarding stipulation; research regarding introduction of evidence at bankruptcy hearing.
Jun-01-95 Preparation of stipulation of facts, affidavit of Florida Power; 6.90 ESK A telephone conferences with Robert Perry, Bob Stein, Pat Fowler and Wayne Compton regarding stipulation; research regarding trustee’s lack of interest in Florida Power’s property.
Jun-02-95 Research regarding lifting automatic stay on property in 6.70 ESK A which debtor does not have an interest; preparation of stipulation, affidavit of Florida Power, affidavit of Alachua County Title and Abstract; telephone conference with opposing counsel Pat Fowler, Wayne Compton and Henry Stein regarding stipulation and affidavit of Alachua County Title; obtain title search of property.
Jun-04-95 Preparation of exhibits and exhibit list for bankruptcy hear- 3.70 ESK A ing; preparation of argument for bankruptcy hearing and outline of possible testimony; research regarding interest of debtor in Florida Power’s property.
*1004Jun-05-95 Preparation for evidentiary hearing; meet with Kathryn and Jim Whitlock regarding proposed testimony; meet with opposing counsel regarding stipulation, affidavit and exhibit lists; attend evidentiary hearing; meeting with opposing counsel regarding settlement; conference with G. Heekin regarding settlement. 4.20 ESK A
Jun-05-95 Post-hearing meeting with Mr. and Mrs. Whitlock regarding results of hearing, effect on future case processing, issues remaining to be litigated and prospects of recovery. 0.80 TGH
Jun-07-95 Research regarding motion for summary judgment and motion for reconsideration of an order denying Whitlock’s motion to lift automatic stay. 0.40 ESK A
Jun-09-95 Preparation of memorandum to G. Heekin regarding possible actions in bankruptcy court. 0.50 ESK
Jun-21-95 Review memorandum from Geoff Heekin regarding notice to general creditors. 0.20 ESK
Jun-22-95 Research regarding amending proof of claim. 0.30 ESK
Jun-28-95 Review notice to creditors; research regarding amended proof of claim; preparation of amended proof of claim. 0.50 ESK A
Jun-29-95 Research regarding adequate protection of security interest. 1.00 ESK A
Jul-05-95 Research regarding adequate protection of secured claim. 0.30 ESK
Jul-07-95 Preparation of amended proof of claim. 0.20 ESK
Jul-10-95 Research regarding adequate protection and amended proof of claim. 0.50 ESK
Jul-12-95 Research regarding adequate protection, motion for summary judgment, preparation of amended proof of claim; review pending motions by trustee to dismiss. 1.90 ESK A
Jul-13-95 Review bankruptcy pleadings; telephone conference with Kathryn Whitlock; preparation of memorandum to G. Heekin regarding same and future bankruptcy hearings. 0.30 ESK
Jul-19-95 Attend hearing on trustee’s motion to dismiss; conference with opposing counsel regarding same. 0.60 ESK A
Jul-20-95 Order Bankruptcy docket. 0.20 ENW
Jul-24-95 Conference with Pacific Photo regarding docket sheet (.1); travel to pacific photo regarding same (.5). 0.60 ENW
Jul-25-95 Telephone conference with Pat Fowler, Esq. regarding proposed stipulation; preparation of stipulation between Whitlock and A & A Welding; preparation of letter to Pat Fowler regarding same. 1.00 ESK A
Jul-26-95 Preparation of stipulation between Whitlock and A & A Welding regarding Whitlock’s non-objection to notice of intent to compromise. 0.50 ESK A
Jul-31-95 Telephone conference with Pat Fowler regarding stipulation. 0.20 ESK A
*1005Aug-02-95 Telephone calls with Pat Fowler regarding stipulation; preparation of proposed objection; prepare revised stipulation and settlement agreement with A & A Welding; preparation of motion for summary judgment. 1.70 ESK A
Aug-03-95 Preparation of motion for summary judgment, affidavit in support of summary judgment and affidavit of attorneys’ fees. 1.70 ESK A
Aug-04-95 Preparation of affidavit of Jim Whitlock in support of summary judgment; preparation of letter to Jim Whitlock regarding same. 0.60 ESK A
Aug-11-95 Preparation of motion for summary judgment; research regarding summary judgment in bankruptcy. 0.70 ESK A
Aug-14-95 Preparation of motion for summary judgment. 1.70 ESK A
Aug-15-95 Preparation of motion for summary judgment; research regarding construction lien statute. 0.80 ESK
Aug-16-95 Preparation of motion for summary judgment. 1.90 ESK
Aug-17-95 Preparation of motion for summary judgment. 0.40 ESK
Aug-18-95 Preparation of affidavit in support of attorneys’ fees and motion for summary judgment. 0.60 ESK A
Aug-21-95 Preparation of motion for summary final judgment; preparation of interrogatories to defendant Florida Power corporation. 2.20 ESK A
Aug-30-95 Prepare attorneys’ fee affidavit; go over case with attorney Frank Lonegro. 0.50 ESK
Sep-28-95 Telephone conference with H. Stein regarding response to interrogatories; prepare letter to Stein regarding same. 0.20 ESK
Oct-09-95 Review pleading binder; preparation of motion for summary judgment in anticipation of answers to interrogatories. 0.30 ESK
Oct-11-95 Telephone call with G. Schaaf, counsel for Florida Power regarding answers to interrogatories from Florida Power. 0.20 ESK A
Oct-13-95 Review proposed Florida Power interrogatory answers; telephone call with G. Schaaf s office regarding same. 0.40 ESK A
Oeb-17-95 Prepare case management statement, order to appear by telephone (Alachua County State construction lien case). 0.20 ESK
Oct-20-95 Review proposed interrogatory answers from Florida Power; prepare letter to G. Schaaf regarding motion to compel. 0.20 ESK
Oct-23-95 Prepare letter to Kathryn Whitlock regarding settlement offer; prepare letter to G. Schaaf regarding late discovery responses; prepare motion to appear by telephone, pretrial statement and order to appear by telephone in state pretrial conference. 0.50 ESK
Oct-24-95 Conference with G. Heekin regarding status of case, summary judgment motion; prepare letter to state court Judge regarding pending bankruptcy action. 0.70 ESK A
*1006Oct-25-95 Conference with G. Heekin regarding responses to discovery, 2.00 summary judgment motion; Westlaw research regarding effect of bankruptcy stay on ability to enforce construction hen against non-debtor entity, other state law on subcontractor’s right to proceed against non-debtor owner when contractor files bankruptcy petition. ESK
Oct-26-95 Research regarding motion for summary judgment, review 0.80 interrogatory answers from Florida Power; telephone conference with H. Stein regarding pretrial conference. ESK A
Oct-27-95 Telephone calls with K. Whitlock, G. Schaaf regarding settle- 3.10 ment, final contractors affidavit; request amended interrogatory answers from Schaaf; prepare motion for summary judgment, notice of filing interrogatory answers; research regarding summary judgment. ESK A
Oct-30-95 Telephone calls with H. Stein regarding settlement pretrial 1.60 conference; telephone call with state court regarding pretrial conference; review contractor’s final affidavit; prepare letters to H. Stein, Gary Schaaf regarding objection to contractors final affidavit; prepare summary judgment motion. ESK A
Oct-31-95 Telephone conference with G. Schaaf regarding settlement, 3.40 amended interrogatory answers; prepare motion for summary judgment; research regarding entitlement to summary judgment, set-off against debtor contractor. ESK A
Nov-01-95 Prepare motion for summary judgment; prepare exhibits to 1.30 motion; telephone calls with court regarding pretrial conference. ESK A
Nov-02-95 Prepare motion for summary judgment, review pleadings; 1.40 research regarding dismissal of counts of complaint requesting turnover; prepare appendix of cases. ESK A
Nov-03-95 Prepare letter to Gary Schaaf, Florida Power’s counsel, re- 0.20 garding answering Whitlock’s crossclaim. ESK A
Nov-06-95 Prepare motion for summary judgment, appendix of cases. 0.30 ESK
Nov-08-95 Research regarding bankruptcy court jurisdiction over Whit- 1.20 lock’s claim against Florida Power; review Ponoroff article on construction claims in bankruptcy court. ESK
Nov-10-95 Review answer of Florida Power; prepare amended cross- 2.40 claim, stipulation allowing amendment; telephone calls with G. Schaaf regarding same; prepare letter to G. Schaaf; review contract between Florida Power and American Fabricators furnished by Florida Power. ESK A
Nov-14-95 Telephone calls with G. Schaaf regarding amended crossclaim 0.70 against Florida Power; prepare amended crossclaim. ESK
Nov-15-95 Prepare amended crossclaim, motion for summary judgment. 0.50 ESK A
Nov-28-95 Review answer of Florida Power. 0.30 ESK A
Nov-29-95 Research regarding subject matter jurisdiction of bankruptcy 2.70 court, abstention and withdrawal of reference; prepare motion for summary judgment; prepare notice of filing affidavit in support of summary judgment. ESK A
*1007Nov-30-95 Prepare motion for summary judgment; research regarding abstention, withdrawal of reference. 3.10 ESK A
Dec-01-95 Prepare notice of filing affidavit in support of summary judgment; prepare affidavit of costs, notice of filing; review motion for summary judgment of Florida Power. 1.10 ESK A
Dec-04-95 Prepare affidavit of costs; review Florida Power’s summary judgment motion. 0.50 ESK A
Dec-06-95 Conference with G. Heekin regarding rescheduling hearings. 0.20 ESK
Dec-08-95 Prepare affidavit of costs. 0.20 ESK
Dec-18-95 Review Florida Power’s memo in opposition to summary judgment. 0.20 ESK A
Dec-20-95 Review Trustee’s motion for partial summary judgment; research regarding asserting construction lien for delay damages and damaged equipment. 1.10 ESK A
Dec-28-95 Research regarding owner’s approval of extras, extra charges for delay damages for response to Trustee’s motion for partial summary judgment. 1.70 ESK A
Jan-02-96 Research regarding memo in opposition to Trustee’s motion for partial summary judgment. 1.60 ESK
Jan-03-96 Prepare for and attend hearing on motion to set for trial; research regarding response to Trustee’s motion for partial summary judgment; research regarding acceptance of extra charges by owner, incorporation of extra work in contract price. 3.10 ESK A
Jan-04-96 Research regarding lienability of extra work items claimed by Whitlock; prepare memo of law in response to Trustee’s motion for partial summary judgment. 3.40 ESK A
Jan-05-96 Prepare memo of law in response to Trustee’s motion for partial summary judgment; research regarding cases cited in Trustee’s memo, summary judgment procedure. 1.60 ESK A
Jan-08-96 Telephone call with bankruptcy clerk regarding hearing time. 0.10 ESK
Jan-09-96 Conference with G. Heekin regarding filing memo in response to Trustee’s motion for partial summary judgment. 0.20 ESK
Jan-09-96 Extended telephone conference from Ms. Whitlock regarding ease status, hearing on January 11,1996, evidence to be presented, etc. 0.50 TGH
Jan-10-96 Pull federal case from Westlaw. 0.10 JD
Jan-10-96 Conference with G. Heekin regarding hearing on parties’ 0.60 ESK motions to dismiss; prepare for hearing on motions to dismiss.
Jan-10-96 Research re attorneys fees being added as affecting offer of 3.60 TGH A judgment versus tendered amount; research regarding viability of trustee’s offer of judgment to Whitlock; review all pleadings and begin preparation of outline for hearing on various summary judgment motions filed by FPC, trustee and Whitlock.
*1008Jan-11-96 Conference with G. Heekin regarding hearing on parties’ 4.80 ESK motions for summary judgment; prepare for hearing; calculate amounts due on principal of claim; attend hearing; conference with R. Perry and G. Schaaf regarding possible stipulations; conference with G. Heekin regarding stipulations, trial strategy; prepare proposed order for release of $14,756, letters to opposing counsel regarding same; prepare memo to G. Heekin regarding stipulations; request name of court reporter recording hearing on motion to lift automatic stay.
Jan-11-96 Finish review of all mechanic’s lien research, preparation of 4.60 TGH outline of arguments regarding various motions; review all research regarding burden of proof on various motions and presumptions regarding lack of opposing evidence; meet with clients regarding case status, hearing and procedures; attend and argue hearings on all pending motions; post hearing conference with Mrs. Whitlock regarding case status, future work required and trial issues.
Jan-12-96 Telephone call with G. Schaaf regarding order granting in 0.90 ESK part Whitlock’s motion for summary judgment; prepare revised order; conference with G. Heekin regarding trial strategy, proposed stipulation; memo to G. Heekin regarding same.
Jan-16-96 Telephone calls with R. Perry, G. Schaaf regarding settle- 2.40 ESK A ments and order granting Whitlock’s motion for summary judgment; prepare letter to R. Perry regarding settlement; calculate amount due on claim; conference with G. Heekin regarding settlement amount; review admissions of Florida Power; prepare memo to G. Heekin regarding same; prepare requests for admissions.
Jan-17-96 Prepare settlement letter to R. Perry, Gary Schaaf; research 1.30 ESK A regarding attorneys’ fees; telephone call with R. Perry regarding revised order; prepare letters to R. Perry, G. Schaaf regarding revised order.
Jan-18-96 Conference with G. Heekin regarding trial strategy; prepare 1.60 ESK request for admissions, interrogatories and requests for production to Florida Power and Trustee.
Jan-19-96 Telephone call with Pat Fowler regarding conversation with 2.70 ESK A subcontractor; prepare requests for admissions, interrogatories and requests for production to Florida Power and the Trustee; conference with G. Heekin regarding same.
Jan-22-96 Review Proctor order regarding partially granting Whitlock’s 0.40 ESK A motion for summary judgment; prepare letter to Gary Schaaf regarding names of witnesses needed for trial; telephone call with Pat Fowler regarding same.
Jan-23-96 Review Perry response to settlement offer; telephone calls 0.70 ESK with R. Perry, Gary Schaaf regarding settlement.
Jan-24-96 Research regarding location of witnesses. 0.30 ESK
Jan-25-96 Telephone call with Pat Fowler- and Andrew Allen regarding 0.70 ESK testimony of A & A Welding & Fabrication, Inc.’s representatives at trial; conference with G. Heekin regarding same; prepare memo to G. Heekin regarding same.
*1009Jan-26-96 Conference with G. Heekin regarding witnesses and documents needed for trial. 0.30 ESK
Jan-29-96 Review documents furnished by Kathryn Whitlock; telephone call with Gary Schaaf regarding settlement funds; telephone call with Pat Fowler. 0.50 ESK
Jan-31-96 Prepare subpoena to A & A, stipulation. 0.30 ESK A
Feb-01-96 Review correspondence from Florida Power; endorse check to client; conference with G. Heekin regarding status of case; prepare proposed stipulation; telephone calls to Pat Fowler and Gary Schaaf regarding same. 0.40 ESK
Feb-02-96 Telephone conference with G. Schaaf and Pat Fowler regarding witnesses needed for trial. 0.60 ESK
Feb-05-96 Prepare proposed stipulation for transmittal to R. Perry; telephone conference with K. Whitlock regarding change order signed by Kevin Hill. 1.60 ESK A
Feb-06-96 Prepare stipulation for trial; telephone conference with G. Schaaf regarding stipulation. 0.40 ESK A
Feb-07-96 Research regarding issuing subpoena to K. Hill; prepare subpoena to K. Hill. 0.60 ESK
Feb-09-96 Telephone conference with R. Perry regarding stipulation; and with G. Schaaf regarding same; meeting with R. Shidler; letter to G. Schaaf regarding same; telephone conference with Pat Fowler regarding deposition of Andrew Allen; conference with G. Heekin regarding deposition of Allen, introduction of testimony of J. Whitlock, subpoena of K. Hill. 1.20 ESK
Feb-12-96 Schedule deposition of A. Allen, telephone conference with G. Schaaf, R. Perry regarding same; review Florida Power’s responses to requests for admissions. 0.70 ESK A
Feb-13-96 Telephone conference with K. Hill regarding change order; prepare letter to K. Hill regarding same; prepare subpoena for K. Hill; telephone conference with P. Fowler regarding deposition of Allen and Hill. 0.70 ESK
Feb-15-96 Telephone conference with G. Schaaf; interview R. Shidler regarding Whitlock’s extra charges; conference with G. Hee-kin regarding subpoenaing witnesses for trial. 0.60 ESK
Feb-16-96 Prepare notice of deposition of Andrew Allen; telephone conference with Robert Perry, Gary Schaaf regarding witnesses needed for trial proposed stipulation among parties; prepare motion for telephonic deposition of Kevin J. Hill; prepare subpoenas for R. Gaddy and R. Shidler; research regarding service of subpoena outside district, taking telephone deposition. 2.70 ESK A
Feb-19-96 Review stipulation from Trustee; Telephone conference with Gary Schaaf regarding stipulation. 0.50 ESK A
*1010Feb-20-96 Conference call with G. Schaaf and R. Perry regarding possi- 0.70 ESK A ble stipulation telephone deposition of K. Hill.
Feb-21-96 Research regarding use of deposition at trial; telephone call 1.10 ESK with K. Hill regarding change order; review stipulation for other needed information; Telephone calls with clerk regarding court records, deposition of K. Hill; prepare notice of withdrawal of motion for telephonic hearing; conference with G. Heekin regarding information needed at trial.
Feb-22-96 Telephone calls with G. Schaaf regarding proposed stipulation; 1.40 ESK research regarding issues left for trial, admissions made by Florida Power, Trustee.
Feb-23-96 Review admissions made by Florida Power in interrogatory 2.30 ESK A answer; review admissions made by Trustee in interrogatory answers; Prepare stipulation regarding telephone deposition of Florida Power representatives; Telephone calls with G. Schaaf, R. Bergwerk regarding same; Telephone call with P. Fowler regarding outstanding discovery; conference with G. Heekin regarding proposed stipulation for trial; telephone call with G. Schaaf regarding same, production of documents from Florida Power; Prepare letter to G. Schaaf regarding same.
Feb-23-96 Print Bankruptcy Docket and adversary docket. 0.20 JD
Feb-26-96 Telephone conference with P. Fowler regarding documents 1.40 ESK A from A & A; conference with G. Heekin regarding establishing elements of construction lien action with trial; telephone conference with G. Schaaf regarding deposition of R. Shidler, production of documents from Florida Power; review documents from A & A.
Feb-27-96 Review proposed amended answer and counterclaim of Florida 1.90 ESK A Power; telephone conference with C. Schaaf regarding same; review late response to request for admissions from Trustee; prepare motion to strike late response; research regarding time to respond under Federal Bankruptcy Code 7036; review and prepare proposed stipulation with Florida Power and pretrial brief.
Feb-28-96 Telephone conference with G. Schaaf regarding proposed stip- 4.00 ESK A ulation; review interrogatory answers of Trustee, Trustee’s response to request for admissions; prepare motion to strike Trustee’s untimely response to request for admissions; research regarding motion to strike, requests for admissions; prepare trial brief.
Mar-04^-96 Telephone call with G. Schaaf regarding stipulation; prepare 5.70 ESK A exhibit list and exhibits for trial; research regarding discretion of court to allow amendment of untimely response to request for production; research regarding presenting evidence at trial contrary to stipulation or admission; conference with G. Heekin regarding stipulation with Florida Power; prepare revises stipulation with Florida Power; review pleadings and determine needed exhibits at trial; review transcript at hearing on motion to lift automatic stay to determine factual admissions by parties; telephone calls with J. Settem-brini, F. Lonegro and T. Ray regarding obtaining expert witness on fees; prepare outline of expert testimony on fees.
*1011Lawyers Hours Amount Billing Rate
T. Geoffrey HeeMn 42.80 $ 7,062.00 ' $165
Erie S. Kolar 176.20 18,501.00 105
Charles S. McCall 1.30 136.50 105
Paralegals
Elizabeth N. Wilson 1.10 71.50 65
June Daniels 0.30 19.50 65
Mario Mann 1.60 104.00 65
Totals 223.30 $25,894.50
Exhibit B
Date
HOURS
Mar-07-96 Prepare proposed findings of fact and post trial brief; telephone conference with R. Perry regarding same, evidence at trial. .90 ESK A
Mar-08-96 Prepare proposed findings of fact and post trial brief; telephone conference with G. Schaaf requesting attorney fee summary; prepare proposed order striMng Trustee’s late response to request for admissions. .80 ESK
Mar-11-96 Prepare proposed findings of fact and conclusions of law; research regarding required independence of attorney fee expert, disqualification of biased expert testimony. 1.0 ESK
Mar-12-96 Prepare proposed findings of fact, memorandum of law; research regarding procedure on proving reasonable attorneys’ fees in construction lien case, trial exhibits; telephone conference with G. Schaaf regarding trial exhibits; prepare proposed order on motion to strike Trustee’s late response; letter to Judge re: same. 2.7 ESK
Mar-13-96 Telephone conference with R. Perry regarding proposed order; prepare letter to Judge Proctor enclosing proposed order on Whitlock’s motion to strike Trustee’s late answer to request for production; computer research regarding disqualification of attorney fee testimony, issues needed for proposed conclusions of law, effect of stipulation and admissions. 1.9 ESK
Mar-21-96 Prepare proposed findings of fact; Obtain exhibit lists and other documents from Bankruptcy Court. 1.3 ESK
Mar-22-96 Prepare proposed findings of fact and conclusions of law. .2 ESK
Mar-25-96 Prepare proposed findings of fact and conclusions of law; research regarding expert testimony on attorneys’ fees in construction lien action. 3.9 ESK
Mar-26-96 Prepare proposed findings of fact and conclusions of law; research regarding standard for bankruptcy court’s determination of attorneys’ fees; telephone conference with G. Schaaf; obtain documents from bankruptcy court. 4.6 ESK
*1012Date HOURS
Mar-27-96 Prepare proposed findings of fact, conclusions of law; 4.2 ESK research regarding whether bankruptcy court required to apply substantive law of Florida for determining attorneys’ fees in construction lien case.
Apr-1-96 Prepare final judgment; telephone call with G. Schaaf 1.0 ESK regarding same; prepare proposed findings of fact and conclusions of law.
Apr-2-96 Conference with G. Heekin regarding proposed findings of fact and conclusions of law. .2 ESK
Apr-3-96 Prepare proposed findings of fact and conclusions of law; telephone call with G. Schaaf regarding same. 1.6 ÉSK
Apr-4-96 Prepare second affidavit of attorneys’ fees, proposed 2.4 ESK A findings of fact and conclusion of law; telephone conference with G. Schaaf regarding arguments; prepare post trial affidavit of attorneys’ fees.
★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★
Lawyer Hours Billing Rate Amount
Eric S. Kolar 26.70 $105.00 $2,803.50 F:/USER/KWEST/EKOLAR/WHITLOCK/BILL
WHITLOCK COSTS SUMMARY — CONSTRUCTION LIEN ACTION
9/17/93 Service of Process $ 18.00
9/17/93 Recording Claim of Lien $ 6.00
10/05/93 Service of Process $ 15.00
5/10/94 Filing fee (state court — Alachua County) $ 85.50
5/12/94 Clay County Sheriffs Dept, for service of process $ 12.00
5/12/94 Ex-Cel Investigations for service of process $ 29.00
5/12/94 Capital Area Process Service for service of process $ 15.00
5/02/95 Services provided by Chicago Title Insurance Company $ 178.00 A
5/05/95 Filing fee (motion to lift automatic stay) $ 60.00
6/14/95 Services provided by Alachua County Abstract Company $ 125.00 A
TOTAL COSTS $ 543.50
EXHIBIT “2” TO FINDINGS OF FACT AND CONCLUSIONS OF LAW
The letter “A” denotes the amounts that are included in the award of attorneys’ fees.
March 1,1996
Florida Power Corp.
3201 34th Street So.
P.O. Box 14042
St. Petersburg, FL 33733
*1013Billing Period: 02/01/96 — 02/29/96 TRANSACTION DETAIL
Matter: 010162 Prod: HAS
FL Power Re: Buffalo Tank
Re: American Fabricators, Inc.
Client: 20016
Florida Power Corp.
For Disbursements Incurred:
11/19/06 Reimbursement for Cab Fares in Jacksonville— $ Gary Sehaaf O © CO LQ
A 04/24/95 Westlaw research — Henry Stein O o CO
04/30/95 18 — Pages/Fax charges for billing period O o
05/02/95 Federal Express to Clerk of Court, US Bankruptcy Court, Middle District © o
05/09/95 Westlaw research — Susan Ahearn © © i — 1
A 05/10/95 Travel Expense Reimbursement for Gary Sehaaf in Jacksonville Re: Pre-Trial: Airfare — $398.; Cab fare(s) — $49.; Airport parking — $8.; Meal(s)_9 © Tp O tP
13.00 05/15/95 Federal Express to Clerk of the Court, U.S. Bankruptcy Court
05/31/95 38 — Pages/Fax charges for billing period
05/31/95 Long Distance telephone charges for the billing period
25.00 A 06/05/95 Gas reimbursement re: Henry Stein’s trip to and
133.88 A from Jacksonville re: bankruptcy hearing 06/05/95 Reimbursement for Lodging for Henry Stein in
98.00 A Jacksonville re: bankruptcy court hearing 06/05/95 Reimbursement for Henry Stein’s Airfare to Jack-
sonville re: bankruptcy court hearing
06/15/95 Westlaw charges — Suzanne Goodwin O
06/30/95 Long Distance telephone charges for the billing-00 TP
period
06/30/95 39 — Pages/Fax charges for billing period o lO O
10/17/95 PACE Messenger Service delivery to Florida Power (Audio Visual) o © T — I
16.50 10/31/95 33 — Pages/Fax charges for billing period
18.00 11/13/95 Federal Express to Eric S. Kolar
97.50 11/14/95 Westlaw Research charges
13.00 11/15/95 Federal Express to Eric Kolar, Esq.
23.00 11/28/95 Federal Express
6.00 11/30/95 12 — Pages/Fax charges for billing period
13.00 01/09/96 Federal Express
13.00 01/09/96 Federal Express
13.00 01/18/96 Federal Express
13.00 01/18/96 Federal Express
13.00 01/19/96 Federal Express
11.00 01/31/96 22 — Pages/Fax charges for billing period
438.76 02/07/96 Check #2439 to Gary M. Sehaaf; disbursement
for: USAir flight to Jacksonville and Omni Hotel
on 1/11/96 for hearing on motion for summary
judgment _
1612.18 Total Disbursements Incurred $
For Professional Services Rendered:
04/06/95 HAS Telephone conference w/Mr. Gaddy re: assignment 0.30 $ 60.00
*10141.30 260.00 A 04/06/95 HAS Research construction lien law re: perfection of liens by subs & right of owner to make direct payments when no contractor’s affidavit given-— right to withhold final payment if contractor (Buffalo) refuses to give contractor’s affidavit as potential defense in trustee’s action
1.80 0.00 A 04/07/95 HAS Initial conference with Michelle Webb, Mary Gray & PJT; review file; telephone conference w/trustee atty re: settlement (NO CHARGE)
0.20 40.00 A 04/07/95 HAS Letter to trustee atty re: extension
1.80 0.00 04/07/95 PJT Meeting w/Florida Power and HAS re: strategy and case overview (NO CHARGE)
0.50 100.00 A 04/11/95 HAS Telephone conference w/Eric Kolar at Whitlock re: settlement status
0.20 40.00 04/11/95 HAS Telephone conference w/Michelle reporting on conference w/Whitlock atty.
80.00 A 04/11/95 HAS Review materials sent by Erie Kolar O O
220.00 04/13/95 HAS Review final analysis of Orlando firm (.8); telephone conference w/Michelle re: claim of LaSalle (.2); telephone conference w/atty for trustee (.1) O i-H t-H
0.40 80.00 A 04/25/95 HAS Telephone conference w/Pat Fowler atty. for A & A
0.20 40.00 A 04/25/95 HAS Telephone conference w/Eric Kolar atty. for Whit-lock
0.30 60.00 04/27/95 HAS Telephone conference w/Eric Kolar re: position of Whitlock and possible compromise as well as stay of state court action
40.00 04/27/95 HAS Telephone conference w/Michelle Webb re: status o CM
220.00 A 04/27/95 HAS Analysis $60,000 claim of stock alloys (.8) and telephone conference w/Robert Perry re: violation of automatic stay (.3) o rH
60.00 A 04/27/95 HAS Review answer docs just faxed by A & A counsel o CO o
140.00 A 04/27/95 HAS Draft answer for Fla. Power o to
94.50 A 05/01/95 GMS Prep, re: pretrial conference in Jacksonville o t— o
108.00 A 05/02/95 GMS Receive and review A & A answer (.2); receive and review Whitlock answer and crossclaim and prep (.6) o CO o
0.60 81.00 05/03/95 GMS Scheduling re: pre-trial (.2); review docs re: case history (.4)
1.40 189.00 05/05/95 GMS Conference w/HAS re: background in prep for pre-trial (.8); review file pleadings and case law re: Whitlock claims (.6)
1.80 243.00 05/07/95 GMS Review file and Bankruptcy case law and prep for pre-trial
0.50 90.00 A 05/08/95 VHC Analysis of Mechanics Lien issues for GMS at request of HAS
2.10 283.50 05/09/95 GMS Prep for pre-trial and strategy review w/HAS (.3); review TriState answer (.2); receive and review Whitlock motion for relief from stay (.4); review consent to juris form and Perry Motion to Dismiss Whitlock crossclaim (.3); prep for pre-trial and trip to Jacksonville (.9)
5.20 702.00 A 05/10/95 GMS Prep for pre-trial including review of Whitlock and Stock Alleys pleadings and prep of outline (1.9); attend pre-trial in Jacksonville and conference w/counsel for A & A, Whitlock, TriState re: potential mode of settlement, conference w/Kolar re: settlement re: Whitlock suit (1.6); review of lien case law provided by Kolar re: fees and costs and review bankruptcy case law re: assets of *1015estate and priority of claims in light of lien issues, right to withhold funds from final payment to contractor (1.5); prep re: strategy for Whitlock suit (.2); (No travel time — 6 hours — charged)
05/11/95 GMS Telephone call w/Gaddy’s office re: pre-trial is- 1.10 sues (.2); prep re: Whitlock filings (.9) 148.50
05/11/95 HAS Telephone conference w/GMS re: bankruptcy 0.30 hearing in FI Power — Buffalo Tank 60.00
05/12/95 GMS Receive and review Whitlock motion withdrawing 0.20 and purporting to reassert motion to lift stay 27.00
05/15/95 GMS Telephone call w/Gaddy re: pre-trial and strategy 0.30 for stipulation 40.50
05/18/95 GMS Receive and review order to show cause and order 0.80 re: motion to lift stay and prep re: response 108.00 A
05/25/95 GMS Receive and review amended motion to lift stay 0.40 and prep re: response 54.00 A
05/26/95 HAS Review correspondence from Eric Kolar — draft 0.80 letter to Kolar re: attys fees and FPC position 160.00
05/26/95 HAS Telephone conference w/Michelle Webb re: status 0.30 report on matter and upcoming hearing 60.00
05/30/95 GMS Receive and review Kolar letter re: trustee’s offer 1.80 (.2); prep re: hearing dates (.2); telephone conference w/Kolar re: hearing on motion to lift stay (.3); telephone conference w/HAS and Michelle Webb re: strategy and status of motions (.4); telephone call w/Perry re: upcoming hearings and strategy (.3); second telephone conference w/HAS and Michelle Webb re: June 5 hearing (.4) 243.00 A
05/30/95 HAS Telephone conference w/Miehelle Webb re: status 0.30 and facts needed to prep stip of facts 60.00
05/30/95 HAS Check construction lien law re: definition of when 0.60 attys fees are collectable as part of enforcement of claim 120.00 A
05/31/95 GMS Telephone call w/Kolar re: status of info 0.20 27.00
05/31/95 HAS Meeting w/Michelle Webb at FPC 0.30 60.00
06/01/95 HAS Telephone conference w/Kolar re: info he needs 0.50 for stipulation for bankruptcy judge 100.00 A
06/01/95 HAS Additional telephone conference w/Kolar re: my 0.30 comments to his amended stipulation 60.00
06/01/95 HAS Telephone conference w/Michelle Webb re: affida- 0.50 vit (.3); telephone conference w/Rodney Gaddy re: affidavit (.2) 100.00
06/02/95 HAS Review & revise stip of facts (.3); review case law 1.80 in prep for hearing Monday (.9); telephone conference w/Miehelle Webb re: affidavit and stip (.2); telephone conference w/Eric Kolar (.4) 360.00 A
06/02/95 GMS Conference w/HAS re: Buffalo Tank hearing on 1.30 Whitlock (.4); telephone conferences w/Kolar re: hearing strategy (.6); telephone call w/HAS re: strategy (.3) 175.50 A
06/05/95 HAS Appearance before Judge Proctor in Jacksonville 1.70 340.00 A
06/05/95 HAS Meeting w/all counsel 0.60 120.00 A
06/05/95 HAS Meeting w/Trustee’s counsel 0.40 80.00 A
06/05/95 HAS Travel to and from Jacksonville (NO CHARGE) 8.50 0.00
06/05/95 GMS Telephone conference w/HAS re: hearing out- 0.50 come (.3); telephone call w/Webb re: hearing (.2) 67.50
06/08/95 GMS Review proposed order denying Whitlock motion 0.40 54.00 A
06/15/95 GMS Receive and review order denying motion to lift 0.10 stay 13.50
*10160.50 06/16/95 HAS Telephone call from Michelle Webb (.2); telephone conference w/Bergwerk re: trustees motion to dismiss (.3) 100.00 A
0.40 06/26/95 HAS Several telephone calls to trustee’s counsel re: affidavit 80.00
0.20 07/17/95 GMS Receive and review Trustee’s Notice of Intent to Compromise A & A and Tri-State claims 27.00 A
1.30 07/19/95 GMS Telephone conference w/HAS re: Trustee’s notice of intent to compromise (.3); telephone call w/Bergwerk’s office re: contractor’s affidavit (.1); telephone call w/Bergwerk re: Trustee’s notice and contractor’s affidavit (.3); telephone conference w/Gaddy and Webb (.2); prep memo to HAS re: status (.4) 175.50 A
0.90 08/03/95 GMS Review finding of facts re: motion to dismiss Whitlock counterclaim (.2); prep re: settlement in bankruptcy and effect under Fla. law (.7) 121.50 A
08/07/95 VHC Research on deposit issue at GMS request 108.00 O © ©
08/08/95 GMS Review contractor’s affidavit and attached letter from TriState (.4); conference w/HAS re: lien law issue and compromise issue (.2); research re: effect of contractor’s affidavit (.4); telephone call w/Bergwerk re: stipulation (.3) 175.50 A O CO rA
08/10/95 GMS Prep re: settlement stip 40.50 A © co ©
08/24/95 GMS Receive and review Whitlock interrogatories (.3); prep re: stip w/receiver (.3) 81.00 A o © o
1.40 08/26/95 GMS Review contractor’s affidavit re: stip (.3); review Judge Proctor findings of fact (.5); review pleadings and Whitlock counterclaim and crossclaims re: prep for stip (.6) 189.00 A
1.10 08/28/95 GMS Review stip of Bergwerk in prep for settlement (.3); prep re: completion of settlement among parties (.6); receive and review court order approving A & A Tri-State settlement (.2) 148.50 A
1110 08/29/95 GMS Research 713, Fla.Stat., in prep for settlement w/trustee 148.50 A
1.00 08/30/95 GMS Continued review of Chapter 713 re: settlement strategy (.8); review file re: Nemco decision (.2) 135.00
0.40 09/01/95 GMS Telephone call w/Bergwerk’s office re: payoffs (.1); research re: mechanics lien law (.3) 54.00
1.20 09/03/95 GMS Research re: Mechanic’s Lien law and notes re: strategy concerning payment of Whitlock 162.00
1.10 09/05/95 GMS Telephone call to Bergwerk (.1); conference w/HAS re: Motion for Summary Judgment strategy and settlement (.3); draft Motion for Summary Judgment (.7) 148.50
09/25/95 GMS Letter to Gaddy re: status to o o o <N O
09/27/95 GMS Revise letter to Gaddy re: Motion for Summary Judgment and strategy cn o o o ^ ©
0.40 54.00 A 09/28/95 GMS Prep re: response to interrogatories from Whit-lock
0.30 40.50 A 09/29/95 GMS Review Kolar letter re: interrogatories (.1); review file re: interrogatories (.2)
1.50 202.50 A 09/30/95 GMS Review of pleadings and attachments and prep re: responses to Whitlock interrogatories (1.2); prep re: Motion for Summary Judgment (.3)
0.20 27.00 10/03/95 GMS Telephone conference with Gaddy re: payoff and Motion for Summary Judgment (.2)
0.20 27.00 10/09/95 GMS Conference with Gaddy re: responses to interrogatories (.2)
*101710/10/95 GMS Message from Perry re: payments (NC); Telephone conference with Gaddy re: interrogatories and payments (.1); telephone with Webb’s office (NC); telephone call to Perry’s office (NC) 0.10 13.50 A
10/11/95 GMS Telephone conference with Perry re: terms of settlement with A & A, TriState and Whitlock (.3); Telephone conference with Michelle Webb re: interrogatories (.3); review Whitlock interrogatories and prep re: responses (.6); telephone conference with Kolar re: settlement possibilities and discovery due (.2) 1.40 189.00 A
10/12/95 GMS Telephone conference with Michelle Webb re: answers to interrogatories (.3); prep re: Kolar offer letter and drafting responses to interrogatories (.8); telephone conference with Webb re: payment figures (.3); revising answers to interrogatories (.7); review Buffalo Tank contract and amendments (.4) 2.50 337.50
10/13/95 GMS Prep re: interrogatory responses to Kolar and prep for execution (1.2) 1.20 162.00 A
10/16/95 GMS Telephone conference with Rodney Gaddy re: interrogatories (.1) 0.10 13.50
10/17/95 GMS Prep re: interrogatory responses and Kolar settlement proposal (.5); Receive and review Circuit Court order scheduling case management conference and prep re: response (.2) 0.70 94.50
10/18/95 GMS Telephone call to Michelle Webb re: interrogatories (NC) Telephone conference with Webb re: interrogatory answers and Kolar letter (.3); Investigate state court scheduling matter (.3) 0.60 81.00
10/20/95 GMS Prep re: entry of appearance, cancellation of hearing (.3) 0.30 40.50
10/23/95 LMB Prepare notice of serving answers to Whitlock’s interrogatories (.2) 0.20 10.00
10/24/95 GMS Receive letter from Kolar (NC); Letter to Kolar re: Interrogatories (.2) 0.20 27.00
10/25/95 GMS Telephone conference with Perry’s office (NC); Telephone conference with Perry re: status of settlement (.2) 0.20 27.00
10/27/95 GMS Receive and review Request by Fowler re: Case Management Conference (.1); Telephone conference with Kolar re: settlement possibilities and Motion for Summary Judgment (.3) 0.40 54.00
10/30/95 GMS Receive and review Kolar letter objecting to contractor’s final affidavit and conference with HAS (.3) 0.30 40.50
10/30/95 HAS Review correspondence to and from Eric Kolar re: settlement offer (.3); review proceedings in state court Whitlock action before hearing on Nov. 1 (.6) 0.90 180.00
10/31/95 GMS Review Kolar case management report and letter to judge in state action (.2); Review correspondence from Bergwerk and Perry (.3); Telephone conference with Bergwerk (.3); Telephone Conference with Kolar re: settlement possibility (.5); Conference with HAS re: status (.2) 1.50 202.50 A
11/01/95 HAS Telephone conference w/GMS & Rodney Gaddy (.2); meeting w/GMS re: options to summary judgment (.3) 0.50 100.00
*10181.50 202.50 11/01/95 GMS Review Kolar case law re: mechanic s lien law m bankruptcy (.8); telephone conference w/Gaddy and HAS (.2); receive and review Whitlock notice of filing (.2); conference w/HAS re: Kolar and Bergwerk positions, Motion for Summary Judgment (.3)
0.10 13.50 11/02/95 GMS Telephone call w/Miehelle Webb re: Kolar requests
0.40 54.00 11/07/95 GMS Telephone call w/Kolar re: cross claim responses (.2); telephone call w/Webb re: Kolar requests (.2)
2.40 324.00 11/08/95 GMS Letter to Kolar re: interrogatory supplement and Motion for Summary Judgment (.3); prep and draft answer and affirmative defenses to cross-claim (1.7); revise letter to Kolar (.4)
11/09/95 HAS Revise responses to crosselaim o o d OO o
11/09/95 GMS Receive and review Kolar letter and telephone call to Kolar in response o o CNJ o
0.40 54.00 11/10/95 GMS Telephone conference w/Kolar re: answer and amended crossclaim (.3); telephone call w/Michelle Webb re: Kolar issues (.1)
1.30 175.50 11/13/95 GMS Letter from Webb re: Buffalo Tank contract (.1); receive and review drafts from Gaddy (.2); receive and review Kolar letter and proposed amended crossclaim (.7); review complete Buffalo Tank contract (initial) (.3)
2.80 378.00 11/14/95 GMS Review general conditions to contract and contract between Buffalo Tank and Whitlock (.4); prep re: production of complete contract to Kolar (.2); conference w/HaS re: stipulation on amended crossclaim (.2); telephone conference w/Kolar re: strategy, stipulations and Motion for Summary Judgment (.6); research re: lien law in bankruptcy proceedings (1.4)
3.10 418.50 11/15/95 GMS Continue research re: Motion for Summary Judgment issues under 713 and bankruptcy code (1.8); review Bergwerk correspondence re: stipulation and payments to A & A and TriState (.5); telephone call to Bergwerk (.1); telephone calls w/Bergwerk and Kolar re: status (.7)
60.00 A 11/16/95 HAS Meeting w/GMS re: Whitlock cross claim o CO d
310.50 A 11/16/95 GMS Draft answer and affirmative defenses to amended crossclaim (1.2); prep and draft re: Motion for Summary Judgment (1.1) o CO od
1.20 162.00 11/17/95 GMS Receive letter from Bergwerk w/AAA estoppel letter (.2); continued prep re: Motion for Summary Judgment (1.0)
1.10 148.50 A 11/18/95 GMS Review amended complaint and exhibits thereto (.5); draft & revise Motion for Summary Judgment (.6)
54.00 A 11/20/95 GMS Prepare Motion for Summary Judgment o Xfi
418.50 A 11/25/95 GMS Continue drafting and revisions to Motion for Summary Judgment o 1-1
1.90 256.50 A 11/27/95 GMS Final revisions to Motion for Summary Judgment (.7); conference w/HAS re: claim for fees (.2); letter to Gaddy re: Motion for Summary Judgment and status (.4); telephone call w/Perry re: answers to amended crossclaim (.3); revisions to answer (.3)
0.80 108.00 11/28/95 GMS Prep re: telephonic hearing and draft motion
*10190.60 12/01/95 GMS Receive and review verified motion (.2); telephone call w/Gaddy (.2); prep filing of motion (.2) 81.00
0.20 12/04/95 GMS Receipt and initial review of Whitlock Motion for Summary Judgment 27.00
1.30 12/05/95 GMS Receive and review order rescheduling hearing on motion to set trial (.1); review Whitlock Motion for Summary Judgment and prep re: response (1.2) 175.50 A
1.60 12/06/95 GMS Prepare response to Whitlock Motion for Summary Judgment 216.00 A
0.40 12/07/95 GMS Receive and review Whitlock affidavit and attachments 54.00 A
0.50 12/11/95 GMS Receive and review notices of hearing re: Motion for Summary Judgment motions and review re: proper motions (.2); review Whitlock affidavit of costs (.3) 67.50 A
1.80 12/12/95 GMS Draft memo in opposition to Whitlock Motion for Summary Judgment (1.6); prep re: obtaining docs from Perry for A & A and Whitlock 243.00 A
0.90 12/13/95 GMS Prepare memo in opposition to Whitlock Motion for Summary Judgment 121.50 A
2.60 12/14/95 GMS Revise and draft memo in opposition to Whitlock Motion for Summary Judgment 351.00 A
0.60 12/18/95 GMS Review fees affidavit and conference w/HAS (.2) 1 prep re: hearing on notice for summary judgment (.4) 81.00
0.90 12/20/95 GMS Receipt and initial review of Trustee’s Motion for Summary Judgment (.5); telephone call w/Perry’s office re: Motion for Summary Judgment (.2); telephone call w/Perry re: hearing on Motion for Summary Judgment (.2) 121.50
0.40 12/28/95 GMS Receive and review notice of filing attys fees affidavit and notice of hearing re: Motion for Summary Judgments (.2); prep re: payments to A & A and TriState (.2) 54.00
0.30 12/29/95 GMS Review docs from A & A and TriState re: payoffs and releases 40.50
01/02/96 GMS Prep for hearing on motion to set for trial 01/03/96 GMS Attend telephonic hearing on motion to set for trial (.3); telephone call w/Rodney Gaddy re: hearing (.2); prep re: hearing issues (.2) 121.50 A 94.50 A o o © ©
1.80 01/04/96 GMS Telephone call w/Kolar re: releases to A & A and TriState (.2); prepare releases (1.3); letters to counsel for A & A and TriState (.3) 243.00
0.70 01/05/96 GMS Prep for hearing in Jan. on Motion for Summary Judgment and discussion with Henry Stein (.3); telephone call w/Pat Fowler re: releases (.2); review re: releases, status (.2) 94.50 A
0.30 01/08/96 GMS Receive and review order scheduling trial (.1); prep re: hearing in Jax (.2) 40.50
2.50 01/10/96 GMS Review of Whitlock Motion for Summary Judgment and FPC response in prep for hearing and discussion w/Henry Stein (.7); continued notes re: pending Motion for Summary Judgments in prep for hearing (1.8); travel to Jacksonville (3.0 — NO CHARGE) (1.8 (3.0 — NO CHARGE) 337.50 A
4.30 01/11/96 GMS Prep for hearing, prepare argument and notes (1.3); attend hearing (2.4); conference w/Berg-werk, Perry, Kolar and Heekin re: settlement 580.50 A *1020possibilities (.4); telephone call w/Webb re: hearing (.2); travel to Tampa (2.8 — NO CHARGE)
1.40 189.00 A 01/12/96 GMS Receive and review Kolar proposed order (.3); telephone call w/Kolar re: revisions (.3); fax revisions to Kolar (.3); conference w/HAS re: hearing and proposed order (.2); further revisions to order (.3)
1.30 175.50 01/16/96 GMS Telephone call w/Rodney Gaddy re: status (.1); revise cover letter and stipulation (.7); telephone call w/Kolar re: proposed order and status of stipulation (.5)
1.10 148.50 A 01/17/96 GMS Telephone call w/Kolar re: proposed order (.3); receive and review Kolar letter re: supplemental answers to interrogatories and prep (.2); conference w/Gaddy re: letter to Kolar and Perry and stipulation (.3); revise Perry/Kolar letter (.3)
1.00 135.00 A 01/18/96 GMS Rec message re: Perry approval of stip and prep re: Perry and Kolar execution (.2); prep re: interrogatory responses requested by Kolar and discussion w/Henry Stein (.8)
1.80 243.00 A 01/23/96 GMS Receive and review final proposed order (.2); telephone call w/Robert Perry re: settlement (.2); telephone call to Kolar re: stipulation (.1); telephone call w/Kolar re: stipulation issues and settlement (.5); receive and review Perry proposed order on dismissal of A & A and TriState (.1); receive and review Kolar letter re: settlement w/Trustee (.3); second telephone call w/Perry re: Kolar telephone call (.3); telephone call w/Gaddy’s office re: check (.1)
0.70 94.50 01/25/96 GMS Telephone call w/Gaddy re: $14K and settlement issue (.2); status telephone call w/Michelle Webb (.2); review of Kolar/Perry correspondence (.3)
0.30 40.50 A 01/26/96 GMS Receive and review stipulation executed by Perry (.1); receive and review Kolar letter re: witnesses and Kolar letter re: rejection of stipulation and Kolar letter to Perry re: offer (.2)
0.50 67.50 A 01/29/96 GMS Receive and review Perry letter re: consent order and prep re: response (.2); telephone call w/Kolar re: check (.1); telephone call w/Gaddy’s office re: check (.1); telephone call w/Kolar re: witnesses (.1)
0.20 27.00 01/31/96 GMS Telephone call w/Rodney Gaddy’s office re: $14K cheek and witness issues
0.30 40.50 02/01/96 GMS Telephone call w/Kolar’s office re: stipulation (.1); telephone call w/Kolar re: witnesses and stipulation (.2)
0.40 54.00 02/02/96 GMS Telephone call w/Rodney Gaddy re: potential stipulation (.1); telephone call w/Perry re: settlement (.2); telephone call w/Kolar re: witnesses (.1)
1.00 135.00 02/04/96 GMS Prep and revise status memo re: litigation status in prep for settlement session
27.00 02/05/96 GMS Revisions to status memo o 03 ©
310.50 A 02/06/96 GMS Receive and review Kolar stipulation and notes (.4); telephone call w/Kolar re: stipulation (.2); compare stipulation to original FPC version (.7); telephone call w/Perry re: stipulation (.4); revise status memo re: stipulation (.4); telephone call w/Kolar re: Schidler interview (.2) o CO 03
*102102/07/96 GMS Prep and drafting re: response to Whitlock re- 2.40 quest for production (1.0); prep and drafting re: response to Whitlock request for admissions (1.4) 324.00
02/09/96 GMS Receive and review Kolar letter re: stipulation 0.50 and attachments (.2); telephone call to Kolar’s office (.1); telephone call w/Kolar re: stipulation, Perry revisions and depos (.2) 67.50
02/13/96 GMS Telephone call w/Kate in Rodney Gaddy’s office 0.40 re: Schidler interview (.2); telephone call w/Rodney Gaddy re: Schidler interview and status of claims (.2) 54.00
02/14/96 GMS Prep re: Schidler deposition/interview, review 0.30 complaint 40.50 A
02/15/96 GMS Telephone call w/Gaddy’s office (.1); telephone 1.20 call w/Schiedler re: Kolar interview (.3); attend telephonic interview of Schidler (.5); telephone call to Perry re: stip (.1); telephone call w/Perry re: stipulation revisions (.2) 162.00
02/16/96 GMS Telephone conference w/Kolar and Perry re: stip- 0.40 ulation ■ 54.00
02/16/96 HAS Review stips and counterstipos; meeting w/GMS 1.10 re: strategy for closing 220.00
02/19/96 GMS Telephone conference w/Kolar re: stip (.3); re- 1.30 eeive and review Perry version of stip and notes re: revisions (1.0) 175.50
02/20/96 GMS Telephone conference w/Kolar re: changes to stip- 0.60 ulation (.3); revisions in light of Kolar call (.3) 81.00
02/21/96 GMS Telephone call w/Kolar re: stipulation and Heekin 0.20 review 27.00
02/22/96 GMS Return Kolar call 0.10 13.50
02/23/96 GMS Telephone conference w/Kolar re: stipulation and 0.70 interviews of FPC witnesses (.4); second conference w/Kolar re: rejection of stip and discovery (.3) 94.50 A
02/25/96 GMS Prep re: production of docs to Whitlock, review 1.40 response to request (1.0); review Schidler inspection report (.4) 189.00
02/26/96 GMS Telephone call w/Rodney Gaddy re: production 2.10 (.3); telephone call w/Kolar re: status of discovery and trial (.2); review Motion for Summary Judgments and answer re: claims raised for trial and case law (.4); draft amended answer and counterclaim (.8); draft motion for leave to amend (.4) 283.50
02/27/96 GMS Telephone call w/Rodney Gaddy re: discovery and 1.70 issues at trial (.3); telephone call w/Kolar re: testimony stipulation (.3); prep for trial re: issues (.3); revise motion for leave to amend and counterclaim (.8) 229.50
02/28/96 GMS Telephone call w/Kolar re: amendment and re- 0.20 maining claims 27.00
02/29/96 GMS Prep re: attorney’s fee affidavits (.3); receive and 1.70 review Kolar stipulation and notes (.3); telephone call w/Dingles office re: teleconference (.1); draft responsive stipulation (.3); fax letters to Gaddy and Kolar (.1); receive and review Kolar motion to strike Trustee’s admissions (.1); telephone eonfer-229.50 A *1022ence w/Gaddy re: trial (.2); telephone conference w/Dingle re: background (.2); telephone call w/Kolar re: stip (.1) _
Total Professional Services $20118.50
Recapitulation
Hours for $ 3,940.00 At 200.00 per hour HAS worked o O
0.00 135.00 PJT o CO
15,970.50 135.00 GMS o CO
198.00 180.00 VHC o H
10.00 50.00 LMB o w
Hours $20,118.50 For Professional Services
1,612.18 For Disbursements Incurred
Total $21,730.68
IRS # 59-3152214
May 21,1996
Florida Power Corp.
3201 34th Street So.
P.O. Box 14042
St. Petersburg, FL 33733
Billing Period: 04/01/96-04/30/96
TRANSACTION DETAIL
Matter: 010162 Prod: HAS
FL Power Re: Buffalo Tank
Re: American Fabricators, Inc.
Client: 20016
Florida Power Corp.
For Disbursements Incurred:
02/29/96 31 — Pages/Fax charges for billing period $15.50
02/29/96 Long Distance telephone charges — February 12.82
03/26/96 Westlaw research 71.67
03/31/96 18 — Pages/Fax charges for billing period 9.00
03/31/96 Westlaw research charges in February 54.02
03/31/96 Long Distance telephone charges for the billing period
04/02/96 Check # 2584'to Statewide Reporting Service; dis-42.48 A
bursement for: transcript of motion hearing
Total Disbursements Incurred $244.04
For Professional Services Rendered:
02/29/96 GMS Prep re: attorney’s fee affidavits (.3); receive and review Kolar stipulation and notes (.3); telephone call w/Dingles office re: teleconference (.1); draft responsive stipulation (.3); fax letters to Gaddy and Kolar (.1); receive and review Kolar motion to strike Trustee’s admissions (.1); telephone conference w/Gaddy re: trial (.2); telephone conference w/Dingle re: background (.2); telephone call w/Ko-lar re: stip (.1) 1.70 $229.50
*1023GMS 2.30 Telephone call w/Gaddy’s office re: scheduling for trial (.2); prep for trial re: stipulations and factual issues, testimony (1.9); telephone call w/Kolar (.2) 03/01/96 310.50
GMS 3.80 Review case law relevant to attys fee and breach of contract issues (1.2); review contract re: breaches and notes (.9); prep notes for trial re: fees and breach issues (.9); review attys fees detail in prep for argument (.8) 03/03/96 513.00
GMS 1.20 Telephone calls w/Kolar re: stipulation and matters at trial (.3); conference w/HAS re: arguments at trial (.2); revise stipulation (.3); prep re: attys fee affidavits, revisions (.4) 03/04/96 162.00
GMS 4.20 Receive and review Trustee’s interrogatories answers (.3); prep case law, direct exam, notes for opening and closing for trial (2.8); receive and review Whitlock trial brief (.4); review applicable provisions of 713 (.4); review pending motions (.3) 03/05/96 567.00 A
GMS 6.10 Prep for trial (.3); travel to Jax (NO CHARGE); conference w/Gaddy and Bailey re: trial strategy (.5); attend trial (5.0); travel to St. Pete (NO CHARGE); conference w/HAS re: trial and prep re: filings with court (.3) 03/06/96 823.50
GMS 0.20 Telephone call w/court re: hearing time on motion to amend 03/07/96 27.00 A
Telephone call w/Kolar re: post trial considerations 03/08/96 o o lO o o
Receive and review proposed order on motion to strike admissions 03/11/96 o o o o
GMS 0.10 13.50 Receive and review order striking Trustee’s responses to admissions 03/18/96
GMS 0.40 54.00 Conference w/Bailey re: memoranda prep for Judge Proctor and prep re: memoranda 03/21/96
GMS 2.30 310.50 Draft re: trial brief in light of court rulings, initial draft with preliminary revisions 03/24/96
GMS 2.60 351.00 Draft of trial brief and revisions (2.1); telephone calls w/Kolar re: exhibits and claims at trial, briefing strategy (.5) 03/25/96
GMS 4.70 634.50 Complete drafting and revisions to trial brief (3.5); telephone calls w/Kolar re: expert and exhibits (.3); research re: standard for attys fees as contract damages and failure to file contractor’s affidavit (.9) 03/26/96
GMS 2.30 310.50 Receive and review Kolar exhibit list (.2); revise trial brief (.4); draft findings of fact and conclusions of law (1.7) 03/27/96
GMS 1.20 162.00 Telephone conference w/Kolar re: trial brief and findings of fact for court (.4); prep re: findings of fact and conclusions of law (.8) 04/01/96
GMS 2.50 337.50 Revisions to trial brief (.8); draft supplemental affidavit re: attorney’s fees (.6); draft notices of filing (.3); draft findings of fact and conclusions of law (.8) 04/02/96
GMS 1.20 162.00 Telephone call w/Kolar re: attorney’s fee updates (.4); draft trial brief (.8) 04/03/96
GMS 1.90 256.50 Continued drafting and revisions re: trial brief, findings of fact and conclusions of law, and affidavits 04/04/96
GMS 3.30 445.50 A Final drafting and revisions to trial brief, notice of filing affidavit, Schaaf affidavit, notice of filing findings, findings of fact and conclusions of law, notice of filing judgment, judgment and attachments to all (2.8); telephone call w/Kolar re: judgment (.3); receive and review Kolar judgment (.2) 04/05/96
*102404/10/96 GMS Telephone call w/Bankruptcy clerk re: affidavits 2.40 (.2); receive and review Trustee’s brief and findings of fact (.8); review case law cited in Trustee’s brief (.7); review of Whitlock brief (partial); research re: attys fee issue in light of Trustee’s case authority (•V) 324.00
04/12/96 GMS Receive and review Whitlock post trial brief and 2.70 findings of fact (1.4); review ease law from Trustee’s brief re: effect of admissions (1.3) 364.50 A
04/16/96 GMS Telephone call w/Bailey re: post trial brief and 0.10 possible response 13.50
Total Professional Services $6453.00
Recapitulation
At 135.00 per hour GMS worked 47.80 Hours for $ 6,453.00
For Professional Services 47.80 Hours $ 6,453.00
For Disbursements Incurred 244.04
Total $ 6,697.04
IRS # 59-3152214
. Fifth Circuit decisions before 1981 are binding precedent in the Eleventh Circuit.
. Although FPC's argument for set-off damages in the form of attorneys' fees was somewhat muddled, its trial brief points the Court's attention to the indemnification language in the general contract to support an award of set-off damages. (FPC’s Brief at 9). The general contract provides that: "The Contractor [Debtor] shall indemnify and save harmless, the Corporation from all claims by the subcontractors, laborers and materialmen of the Contractor for labor and material furnished under this Contract." (FPC Ex. 1). The Contract further states that if Debtor fails to provide FPC with evidence that all persons owed money have been paid, "an amount will be retained from money due the Contractor ... to liquidate the claims.” {Id.). Contracts, under Florida law, are construed according to their own clear and unambiguous terms. Cueto v. John Allmand Boats, Inc., 334 So.2d 30, 32 (Fla.Dist.Ct.App.1976) cert. denied, 341 So.2d 290 (Fla. 1976).
According to the general contract's own clear and unambiguous terms, the contract simply allows FPC to pay subcontractors from the funds due the general contractor. Funds FPC paid out to subcontractors are not from FPC's personal account, but from funds owed to Debtor. To allow FPC to obtain set-off for funds paid from monies owed to Debtor would be tantamount to FPC retaining Debtor’s services at a discounted rate. Therefore, FPC is not entitled set-off based on the indemnification language in the general contract because it suffered no out-of-pocket loss. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492365/ | OPINION
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
This is an action brought by Sharon Steel Corporation (“Debtor”) against Turner Steel Service Center, Inc. (“Turner”) under 11 U.S.C. § 547 to recover an alleged preferential transfer. Prosecution of this action has been unnecessarily delayed and made unnecessarily complicated by counsel for the Debt- or’s dilatory actions.
By Memorandum and Order dated March 27, 1996, a monetary sanction was imposed upon the Debtor and/or Debtor’s counsel and we directed that payment be made “forthwith.” We further ordered that Debtor would not be allowed to admit any exhibits at trial as none were disclosed in its pretrial statement. An evidentiary hearing was fixed for May 15,1996.
On May 13, 1996, Turner filed a RENEWED MOTION TO DISMISS due to Debtor’s and Debtor’s counsel’s failure to comply with our March 27 Order. Turner has subsequently advised the Court that Debtor’s counsel delivered a check in the amount of $1,000 in compliance with the March 27 Order on May 15,1996.
Trial proceeded on May 15 and the matter is ripe for decision.
*139
Discussion
To avoid a transfer as preferential the Debtor must prove: (1) that the transfer was a transfer of the Debtor’s interest in property; (2) to or for the benefit of a creditor; (3) on account of the Debtor’s antecedent debt; (4) made during the 90 day period preceding the Debtor’s filing for bankruptcy relief, or if the creditor is an “insider,” made within the year preceding the filing; (5) made while the Debtor was insolvent; (6) which enabled the creditor to receive more than it would receive in a Chapter 7 distribution. 11 U.S.C. § 547(b). The Debtor has the burden of proof. 11 U.S.C. § 547(g). The Debtor is aided by a presumption: in an action to recover a preference the Debtor is presumed to have been insolvent on, and during, the 90 days preceding the filing of the petition. 11 U.S.C. § 547(f).
As its witness, the Debtor called Richard A. Glover (“Glover”), one of the Debtor’s four remaining employees. During the 90 days prior to the Debtor’s bankruptcy filing date (the “Preference Period”), Glover worked in the credit department, analyzing and collecting some of the more difficult receivables. Glover never worked on the Turner account.
During the Preference Period, the Debtor sold steel to Turner and Turner supplied the Debtor with processing of certain steel as a service. It was not unusual for the Debtor to set up an agreement to exchange services for the Debtor’s steel. The Debtor received Turner’s services and small amounts of cash from Turner.
Glover was unable to determine the status of the various transactions on Turner’s account from the Debtor’s books and records.
After abandoning his efforts at reconciling the Turner account from the Debtor’s books and records, Glover “discovered” certain letters (“Letters”) from Turner to the Debtor in the Debtor’s accounts receivable and accounts payable files. Glover testified that he located 18 such Letters describing how to “contra” or offset Turner invoices against Sharon invoices. Glover testified that there were 15 contras taken during the Preference Period and three after the bankruptcy filing date (the “Filing Date”); that he took the information from those Letters and compiled it on spread sheets to determine Turner’s “idea of where the account was;” and from that spread sheet analysis, Glover communicated that he could reconcile to a portion of the preference amount originally sought from Turner.
Debtor’s counsel attempted to inquire of Glover as to the amounts indicated on the Letters and the amount Glover was able to reconcile to. The Court sustained the Defense’s objection to such testimony. The Letters were not in evidence. There was no foundation laid for the reliability or admissibility of the Letters. Glover’s testimony would have gone to the contents of the Letters which were unavailable due to counsel’s failure to attach them to the Plaintiff’s pretrial statement. Fed.R.Civ.P. 16(f), 37(b)(2)(B). The testimony would have been hearsay evidence and is prohibited by Fed. R.Evid. 1002. The attempt to have the witness testify about information that he did not know of his own personal knowledge and about records that are not available is prohibited.1 Middleby Corp. v. Hussmann Corp., 1993 WL 151290 (N.D.Ill.1993).
We are left with a situation where we have no evidence of the amount of steel shipped by the Debtor to Turner during the Preference Period and no evidence of the amount of payments and services Turner provided to the Debtor during the Preference Period. We also have no knowledge of the status of the account between the Debtor and Turner at the commencement of the preference period.
Debtor’s counsel attempted to fill in the gaps in the testimony with an offer of proof. This “evidence” is inadmissible. The Complaint will be dismissed. An appropriate Order will be entered.
ORDER
This 10 day of July, 1996, in accordance with the accompanying Opinion, it shall be, *140and hereby is, ORDERED that the within Complaint is DISMISSED.
. Our pretrial scheduling order required a copy of any exhibits to be offered in evidence to be attached to the pretrial statement. Debtor attached no exhibits. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492524/ | [Cite as State v. Nelson, 2022-Ohio-4170.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
STATE OF OHIO : JUDGES:
:
: Hon. W. Scott Gwin, P.J.
Plaintiff-Appellee : Hon. Patricia A. Delaney, J.
: Hon. Craig R. Baldwin, J.
-vs- :
: Case No. 2021CA00112
:
TAHI ANTONIO NELSON :
:
:
Defendant-Appellant : OPINION
CHARACTER OF PROCEEDING: Appeal from the Stark County Court of
Common Pleas, Case No. 2020CR0921
JUDGMENT: AFFIRMED
DATE OF JUDGMENT ENTRY: November 22, 2022
APPEARANCES:
For Plaintiff-Appellee: For Defendant-Appellant:
KYLE L. STONE D. COLEMAN BOND
STARK COUNTY PROSECUTOR 116 Cleveland Ave. NW
Canton, OH 44702
TIMOTHY E. YAHNER
110 Central Plaza South, Suite 510
Canton, OH 44702-1413
Stark County, Case No. 2021CA00112 2
Delaney, J.
{¶1} Defendant-Appellant Tahi Antonio Nelson appeals his September 20, 2021
conviction and sentence by the Stark County Court of Common Pleas. Plaintiff-Appellee
is the State of Ohio.
FACTS AND PROCEDURAL HISTORY
Indictment
{¶2} On July 27, 2020, the Stark County Grand Jury indicted Defendant- Appellant
Tahi Antonio Nelson on one count of Murder, an unclassified felony in violation of R.C.
2903.02.(A)/(D) and R.C. 2929.02(B), with a firearm specification per R.C.
2941.145(A); and one count of Having a Weapon Under Disability, a third-degree felony
in violation of R.C. 2923.13(A)(2)(B).
{¶3} Nelson entered a plea of not guilty to the charges. He waived his right to a
jury trial on the second count.
Jury Trial
{¶4} A jury trial on the murder count began on September 7, 2021. The following
facts were adduced at trial.
The Relationship between the Victim and Nelson
{¶5} The victim in this case was R.R., a 42-year-old woman and mother of four
adult children. R.R.’s mother testified that R.R. had been in an off-and-on-again romantic
relationship with Nelson for approximately ten years. R.R. purchased her first home in
March of 2019, which was located on Coventry Boulevard in Canton, Ohio. R.R. lived
alone, but in late 2019, Nelson moved into the Coventry Boulevard home with R.R.
Stark County, Case No. 2021CA00112 3
R.R. and Nelson were at the Brick City Bar
{¶6} A security guard for the Brick City Bar testified that he saw R.R. and Nelson
at the bar on March 7, 2020. The security guard testified that weapons are not permitted
in the bar. Before patrons can enter the bar, the security guard searches them for
weapons.
{¶7} A female witness who knew both Nelson and R.R. testified that she saw
them together at the Brick City Bar in the late evening hours on March 7, 2020. The
witness observed that Nelson appeared to be drunk while at the bar, but not out of control.
Nelson’s ex-girlfriend was also at the bar, and it appeared to the witness that R.R. was
upset by her presence.
{¶8} Brick City Bar usually closes at 2:00 a.m. On March 7, 2020, daylight
savings time began at 2:00 a.m., moving the clocks forward to 3:00 a.m. Before the bar
closed, Nelson got into a verbal argument with a bar employee, after which bar security
asked Nelson to leave the bar. The female witness convinced Nelson to leave the bar and
she walked out of the bar with Nelson and R.R. Before they left the bar, R.R. paid her bar
bill with her credit card. The credit card receipt showed the time was 1:57 a.m. The female
witness saw R.R. and Nelson get into R.R.’s car, a Saturn Vue, with R.R. in the driver’s
seat and Nelson in the passenger’s seat.
R.R. Found Dead in Her Car
{¶9} Officer Robert Huber with the City of Canton Police Department was working
the midnight shift on March 7, 2020. At 3:23 a.m. on March 8, 2020, Officer Huber was
dispatched to the 2300 block of Harmont Avenue in Canton, Ohio. The 2300 block of
Harmont Avenue was approximately four to five minutes away from the Brick City Bar and
Stark County, Case No. 2021CA00112 4
a half-mile from Coventry Boulevard. A witness had called 911 after he found R.R.
slumped over the driver’s seat of her vehicle, which was stopped in the middle of Harmont
Avenue. The witness observed the body in the stopped vehicle between 3:15 and 3:23
a.m.
{¶10} Upon Officer Huber’s arrival to the scene, he observed a Saturn Vue sitting
directly in the northbound lane of the 2300 block of Harmont Avenue. The vehicle’s lights
were on, but the brake lights were not illuminated. All the vehicle’s doors were shut. Officer
Huber approached the driver’s side and the driver’s side door was locked. He walked
around the front of the car and saw a bullet hole in the front windshield. He approached
the passenger’s side door and found it was unlocked. He opened the passenger’s side
door and observed R.R. unconscious in the driver’s seat, with a large volume of blood
coming from the back of her head and pooling on the floorboard. Officer Huber checked
her vitals and determined she was not breathing and there was no movement in her chest.
{¶11} While looking inside the vehicle, Officer Huber noticed the vehicle was still
in drive, but the ignition was off, and the keys were in the ignition. The passenger’s seat
was reclined in a far back position. There was a green neon sock on the ground outside
the car and a matching green neon sock inside the car, leading Officer Huber to believe
that someone else had been in the passenger seat of the car and knocked the sock out
of the car. There was no space in the backseat of the car for someone to sit because it
was covered in personal items.
{¶12} Officer Huber then noticed a spent shell casing on the passenger floorboard
of the vehicle. The spent shell casing was collected as evidence. Upon examination, the
Stark County, Case No. 2021CA00112 5
spent shell casing found on the passenger floorboard was determined to be manufactured
by Aguila and .380 caliber.
{¶13} DNA swabs were taken from the vehicle and the car keys. Fingerprints were
also pulled from the interior of the car.
{¶14} The bullet hole in the windshield was examined and determined to have
been caused by a bullet shot from a firearm inside the vehicle.
Autopsy Evidence
{¶15} The Stark County Coroner determined R.R.’s cause of death was a
homicide. R.R. had been shot in the back of the head, with the bullet traveling through
her skull and brain, stopped by the sphenoid bone at the bottom of the base of her brain.
Because of R.R.’s hair, it could not be determined how far the muzzle was from R.R.’s
head when she was shot.
{¶16} The bullet was recovered and preserved as evidence.
Bullets and a Gun found at R.R.’s Home
{¶17} On March 8, 2020, detectives with the City of Canton Police Department
informed R.R.’s mother that R.R. had died. R.R.’s mother told the detectives that Nelson
was R.R.’s boyfriend. R.R.’s mother provided the detectives with a key to R.R.’s home
after they informed her they were going to get a search warrant for the home.
{¶18} The detectives obtained a search warrant for R.R.’s home and requested
SWAT assistance in executing the warrant. The detectives had attempted to contact
Nelson as a person of interest and could not locate him. When they entered the home,
the officers found it was very cluttered. They collected two cell phones as a result of the
Stark County, Case No. 2021CA00112 6
search but there wasn’t any useful evidence on the cell phones. The officers returned the
house keys to R.R.’s mother.
{¶19} R.R.’s mother took responsibility of R.R.’s home. R.R.’s children and
mother visited the home after R.R.’s death. On April 6, 2020, R.R.’s mother attempted to
clean her daughter’s house for the first time after her daughter’s death. While she was
cleaning R.R.’s bedroom, R.R.’s mother found a plastic bag on the ground, in the corner
of the room next to a dresser. She looked in the bag and found three boxes of bullets.
She put the bag back where she found it and called the police. The police came and
collected the plastic bag containing the three boxes of bullets.
{¶20} On April 12, 2020, R.R.’s mother and child were doing yardwork at R.R.’s
home. While R.R.’s mother was using an edger around a shed in the backyard, she
discovered a gun partially sticking out from under the shed. R.R.’s mother got a plastic
grocery bag and used the bag to pick up the gun. She placed the plastic bag containing
the gun in R.R.’s garage. Because it was Sunday, R.R.’s mother waited until Monday to
call the police to report the gun. The police came and collected the plastic bag and gun.
Analysis of the Gun and Bullets
{¶21} The bag containing three boxes of bullets found by R.R.’s mother in R.R.’s
bedroom was determined to contain .380 caliber bullets manufactured by Aguila.
{¶22} The gun found under the shed at R.R.’s home was determined to be a .380
caliber Jimenez semiautomatic firearm. It was tested and found to be operable. There
was a spent shell casing still inside the chamber of the gun, which was not properly
ejected from the weapon the last time it was fired. The gun contained a cartridge
Stark County, Case No. 2021CA00112 7
magazine with four live rounds, all .380 caliber. Two of the rounds were manufactured by
Aguila and the other two rounds were manufactured by TulAmmo.
{¶23} The .380 Jimenez firearm found under the shed was compared to the spent
shell casing located on the floor of R.R.’s vehicle. The spent shell casing was identified
as being manufactured by Aguila and .380 caliber. Larry Mackey with the Canton Stark
County Crime Laboratory opined to a reasonable degree of scientific certainty that the
spent shell casing recovered from the floorboard of R.R.’s vehicle was fired from the .380
Jimenez semiautomatic firearm recovered from under the shed of R.R.’s home. Mackey
also opined to a reasonable degree of scientific certainty that the bullet recovered from
R.R.’s brain was also fired from the .380 Jimenez firearm found under the shed of R.R.’s
home.
Nelson Found Hiding in a Shower
{¶24} The detectives attempted to contact Nelson by telephone, but they could
not reach him. R.R.’s mother said that Nelson did not contact her or attend R.R.’s funeral
services. On May 14, 2020, a Canton City police detective responded to a call at an
apartment regarding an unrelated female suspect. He searched the apartment upon
permission of the occupant and discovered Nelson in the bathroom shower, wearing
shorts and slides. The bathroom lights were off, the shower curtain was closed, and no
water was running.
DNA Analysis
{¶25} When R.R.’s body was discovered, the police swabbed the interior of R.R.’s
vehicle and car keys for DNA. The DNA standards for R.R., Nelson, and the Stark County
Coroner were obtained for testing. It was necessary to obtain the DNA standard for the
Stark County, Case No. 2021CA00112 8
Stark County Coroner because he touched the keys in the ignition of R.R.’s car. The car
keys were tested using a DNA analysis that showed a major profile matching R.R.’s
standard; however, there was more than one DNA profile observed. The Stark County
Coroner was excluded as being a major contributor. The testing showed there was male
DNA on the car keys, but the minor DNA data was not sufficient for comparison purposes.
The DNA analysis of the swab taken from the right interior door handle of R.R.’s vehicle
showed that R.R. was the major contributor.
{¶26} The .380 Jimenez firearm found at R.R.’s home was swabbed for DNA. In
choosing to swab the gun for DNA, this destroyed any latent fingerprints on the gun. R.R.’s
DNA was found on the sight of the .380 Jimenez firearm. Male DNA was found on the
gun, but Nelson could not be included or excluded as the donor of the sample recovered
because the material collected was insufficient for comparison.
Jury Verdict
{¶27} At the close of the State’s case, counsel for Nelson moved for acquittal
based on Crim.R. 29. The trial court denied the motion. Nelson then rested and renewed
his Crim.R. 29 motion, which the trial court denied.
{¶28} The jury returned its verdict, which found Nelson guilty of murder and the
accompanying firearm specification.
Sentencing Hearing
{¶29} The trial court held the sentencing hearing on September 15, 2021. Nelson
had waived his right to a jury trial as to Count Two, having a weapon under disability.
Considering the evidence presented at the trial, the trial court found Nelson guilty on
Count Two.
Stark County, Case No. 2021CA00112 9
{¶30} The trial court sentenced Nelson to 15 years to life in prison on Count One,
with an additional three years in prison for the firearm specification, to be served
consecutively to the sentence in Count One. The trial court next sentenced Nelson to 36
months in prison on Count Two, to be served consecutively to the sentences in Count
One and the firearm specification. In total, Nelson was sentenced to 21 years to life in
prison. The sentence was journalized via sentencing entry filed on September 20, 2021.
{¶31} It is from this conviction and sentence that Nelson now appeals.
ASSIGNMENTS OF ERROR
{¶32} Nelson raises three Assignments of Error:
{¶33} “I. THE STATE FAILED TO PRESENT SUFFICIENT EVIDENCE TO
SUSTAIN A CONVICTION AGAINST THE APPELLANT, AND THE CONVICTION MUST
BE REVERSED.
{¶34} “II. THE APPELLANT’S CONVICTION IS AGAINST THE MANIFEST
WEIGHT OF THE EVIDENCE PRESENTED, AND MUST BE REVERSED.
{¶35} “III. APPELLANT’S RIGHTS UNDER THE EIGHTH AND FOURTEENTH
AMENDMENTS TO THE UNITED STATES CONSTITUTIONS [SIC] WERE VIOLATED
AS HE WAS DENIED APPELLATE REVIEW OF HIS SENTENCE UNDER R.C. 2953.08,
AS SUBSECTION (D)(3) UNCONSTITUTIONALLY PROHIBITS REVIEW OF A
SENTENCE IMPOSED FOR MURDER.”
Stark County, Case No. 2021CA00112 10
ANALYSIS
I. and II. Manifest Weight and Sufficiency of the Evidence
{¶36} In his first and second Assignments of Error, Nelson contends his
convictions were against the sufficiency and manifest weight of the evidence. We
disagree.
{¶37} The legal concepts of sufficiency of the evidence and weight of the evidence
are both quantitatively and qualitatively different. State v. Thompkins, 78 Ohio St.3d 380,
1997-Ohio-52, 678 N.E.2d 541, paragraph two of the syllabus. The standard of review for
a challenge to the sufficiency of the evidence is set forth in State v. Jenks, 61 Ohio St.3d
259, 574 N.E.2d 492 (1991) at paragraph two of the syllabus, in which the Ohio Supreme
Court held, “An appellate court's function when reviewing the sufficiency of the evidence
to support a criminal conviction is to examine the evidence admitted at trial to determine
whether such evidence, if believed, would convince the average mind of the defendant's
guilt beyond a reasonable doubt. The relevant inquiry is whether, after viewing the
evidence in a light most favorable to the prosecution, any rational trier of fact could have
found the essential elements of the crime proven beyond a reasonable doubt.”
{¶38} In determining whether a conviction is against the manifest weight of the
evidence, the court of appeals functions as the “thirteenth juror,” and after “reviewing the
entire record, weighs the evidence and all reasonable inferences, considers the credibility
of witnesses and determines whether in resolving conflicts in the evidence, the jury clearly
lost its way and created such a manifest miscarriage of justice that the conviction must
be overturned and a new trial ordered.” State v. Thompkins, supra, 78 Ohio St.3d at 387,
678 N.E.2d 541. Reversing a conviction as being against the manifest weight of the
Stark County, Case No. 2021CA00112 11
evidence and ordering a new trial should be reserved for only the “exceptional case in
which the evidence weighs heavily against the conviction.” Id.
{¶39} Nelson was convicted of murder in violation of R.C. 2903.02(A), which
states, “No person shall purposely cause the death of another or the unlawful termination
of another's pregnancy.” R.R.’s cause of death was a gunshot wound to the head. Based
on the manner of R.R.’s homicide, Nelson was also convicted of a firearm specification
under R.C. 2941.145(A) and having weapons while under disability, in violation of R.C.
2923.13(A)(2)(B).
{¶40} Nelson argues the State did not present any physical evidence or
eyewitness testimony linking him to the murder of R.R. The State presented only
circumstantial evidence to the jury and asked them to infer that Nelson committed the
murder of R.R. with the .380 Jimenez semiautomatic pistol.
{¶41} There was no DNA or fingerprint evidence connecting Nelson to the murder
of R.R. While the interior of R.R.’s vehicle and the .380 Jimenez firearm were swabbed
for DNA, there was insufficient material to include or exclude Nelson as a donor of the
DNA samples recovered. Male DNA was recovered from the vehicle but was not identified
as belonging to Nelson. The police were unable to test the .380 Jimenez for fingerprints
because they swabbed the weapon for DNA. R.R.’s vehicle was dusted for fingerprints,
but they were not usable.
{¶42} The evidence presented to the jury in this case was largely circumstantial.
It is well-settled that circumstantial evidence has the same probative value as direct
evidence. State v. Jenks, supra. In this case, the circumstantial evidence presented to
Stark County, Case No. 2021CA00112 12
the jury was sufficient to support the conviction of murder and the resulting conviction for
the firearm specification and having weapons while under disability.
{¶43} R.R.’s mother testified that R.R. and Nelson had been in relationship for ten
years. After R.R. purchased her home on Coventry Boulevard in 2019, Nelson was living
with her in the home. A bag containing three boxes of .380 caliber bullets were found in
R.R.’s bedroom. A .380 Jimenez semiautomatic firearm was found under the shed of
R.R.’s home.
{¶44} Two witnesses testified that they saw R.R. and Nelson together at the Brick
City Bar on March 7, 2020. A credit card receipt was presented that showed R.R. paid
her bar bill at 1:57 a.m. After Nelson was asked to leave the bar, a witness saw R.R. and
Nelson leave the Brick City Bar and get into R.R.’s vehicle. The witness saw that R.R.
was driving and Nelson was in the passenger seat.
{¶45} Eighteen to 26 minutes after R.R. paid her bill at the Brick City Bar, R.R.
was found dead in her vehicle between 3:15 a.m. and 3:23 a.m. on March 8, 2020.
Daylight Savings Time started at 2:00 a.m. on March 7, 2020. The vehicle was stopped
at the 2300 block of Harmont Avenue, which was approximately two miles or four to five
minutes from the Brick City Bar and half-mile from R.R.’s home on Coventry Boulevard.
The driver’s side door was locked, but the passenger side door was unlocked. The police
determined someone had been in the passenger seat of the vehicle because a green
sock was found inside the vehicle and the matching green sock was found outside the
passenger side of the vehicle. While Nelson was seen leaving the Brick City Bar with
R.R., Nelson could not be located directly after R.R.’s murder and was days later found
hiding in a bathroom shower.
Stark County, Case No. 2021CA00112 13
{¶46} The evidence established that one bullet was shot from the inside R.R.’s
vehicle and went through the windshield. A .380 caliber shell casing was found on the
passenger side floorboard of R.R.’s vehicle that was determined to have been fired from
the .380 Jimenez semiautomatic firearm found under the shed of R.R.’s home. The bullet
retrieved from R.R.’s body was determined to have been shot from the .380 Jimenez
semiautomatic firearm found under the shed of R.R.’s home. R.R.’s DNA was found on
the sight of the .380 Jimenez.
{¶47} The weight to be given to the evidence and the credibility of the witnesses
are issues for the trier of fact. State v. DeHass, 10 Ohio St.2d 230, 227 N.E.2d 212 (1967),
paragraph one of the syllabus. The jury as the trier of fact was free to accept or reject any
and all of the evidence offered by the parties and assess the witness's credibility. “While
the trier of fact may take note of the inconsistencies and resolve or discount them
accordingly * * * such inconsistencies do not render defendant's conviction against the
manifest weight or sufficiency of the evidence.” State v. Frye, 5th Dist. Richland No.
17CA5, 2017-Ohio-7733, 2017 WL 4176953, ¶ 47 quoting State v. Johnson, 5th Dist.
Stark No. 2014CA00189, 2015–Ohio–3113, 41 N.E.3d 104, ¶ 61, citing State v. Nivens,
10th Dist. Franklin No. 95APA09–1236, 1996 WL 284714 (May 28, 1996). The jury need
not believe all of a witness' testimony, but may accept only portions of it as true. Id.
{¶48} In this case, there was sufficient evidence to establish the elements of the
murder with a firearm specification and having weapons while under disability. We find
that this is not an “‘exceptional case in which the evidence weighs heavily against the
conviction.’” Thompkins, 78 Ohio St.3d at 387. Upon our review of the entire record in this
Stark County, Case No. 2021CA00112 14
matter, Nelson’s convictions were not against the sufficiency or the manifest weight of the
evidence.
{¶49} Nelson’s first and second Assignments of Error are overruled.
III. Appellate Sentence Review under R.C. 2953.08
{¶50} The jury convicted Nelson of violating R.C. 2903.02(A) and pursuant to R.C.
2903.02(A), “whoever violates [R.C. 2903.02(A)] is guilty of murder, and shall be punished
as provided in section 2929.02 of the Revised Code.” The trial court sentenced Nelson
pursuant to R.C. 2929.02(B)(1), which states, “[e]xcept as otherwise provided in division
(B)(2) or (3) of this section, whoever is convicted of or pleads guilty to murder in violation
of section 2903.02 of the Revised Code shall be imprisoned for an indefinite term of fifteen
years to life.”
{¶51} When reviewing felony sentences on appeal, this Court is statutorily limited
as to its consideration. R.C. 2953.08 governs appellate review of felony sentencing
guidelines. In this specific case where Nelson was convicted of murder, the relevant
statute as to appellate review states in pertinent part:
(A) In addition to any other right to appeal and except as provided in division
(D) of this section, a defendant who is convicted of or pleads guilty to a
felony may appeal as a matter of right the sentence imposed upon the
defendant on one of the following grounds:
***
(D)(3) A sentence imposed for aggravated murder or murder pursuant to
sections 2929.02 to 2929.06 of the Revised Code is not subject to review
under this section.
Stark County, Case No. 2021CA00112 15
{¶52} In his third Assignment of Error, Nelson contends his prison sentence is
unconstitutional because R.C. 2953.08(D)(3), which prohibits an intermediate level of
appellate review of sentences imposed for murder and aggravated murder, violates the
Eighth and Fourteenth Amendment to the United States Constitution. We note that at the
time of the authoring of this Opinion, the issue concerning the constitutionality of R.C.
2953.08(D)(3) is currently before the Ohio Supreme Court in State v. Grievous, 157 Ohio
St.3d 1502, 2019-Ohio-4768, 134 N.E.3d 1227 (discretionary appeal accepted). The
Supreme Court held oral arguments on December 7, 2021.
{¶53} This Court analyzed our statutory authority under R.C. 2953.08(D)(3) to
review a trial court’s imposition of a life sentence without parole for the offense of
aggravated murder in State v. Weaver, 2017-Ohio-4374, 93 N.E.3d 178 (5th Dist.), appeal
not allowed, 151 Ohio St.3d 1510, 2018-Ohio-365, 90 N.E.3d 950. We first held that we
were without statutory authority to review the sentence for aggravated murder:
The Eighth District Court of Appeals has cogently stated: “The General
Assembly's practice of treating sentencing for aggravated murder and
murder convictions differently from other felonies is longstanding.” State v.
Hollingsworth, 143 Ohio App.3d 562, 569, 758 N.E.2d 713 (8th Dist. 2001).
Furthermore, “[t]here is no constitutional right to appellate review of a
criminal sentence, so ‘the only right to appeal is the one provided by
statute.’” State v. Campbell, 8th Dist. Cuyahoga No. 103982, 2016-Ohio-
7613, 2016 WL 6575297, ¶ 14, citing State v. Akins, 8th Dist. Cuyahoga No.
99478, 2013-Ohio-5023, 2013 WL 6021459, ¶ 11.
Stark County, Case No. 2021CA00112 16
The Ohio Supreme Court has concluded that the pertinent language of R.C.
2953.08(D), supra, is unambiguous. See State v. Porterfield, 106 Ohio St.3d
5, 829 N.E.2d 690, 2005-Ohio-3095, ¶ 17. Thus, “[the language] ‘[a]
sentence imposed for aggravated murder or murder pursuant to section
2929.02 to 2929.06 of the Revised Code is not subject to review under this
section’ clearly means what it says: such a sentence cannot be reviewed.”
Id. Likewise, in State v. Patterson, 5th Dist. Stark No. 2012CA00098, 2013-
Ohio-1647, 2013 WL 1777258, an appeal of an aggravated murder
conviction, we reviewed the aforesaid statute and succinctly held as follows:
“Pursuant to R.C. 2953.08(D)(3) and case law interpreting this statute, this
Court is without statutory authority to review appellant's sentence on an
evidentiary basis.” Id. at ¶ 70.
(Footnote omitted). State v. Weaver, 2017-Ohio-4374, ¶ 18-19.
{¶54} We next held in Weaver that R.C. 2953.08(D)(3) did not violate the
defendant’s rights under the Equal Protection Clause of the Fourteenth Amendment to
the United States Constitution. State v. Weaver, 2017-Ohio-4347, ¶ 20. In State v. Blair,
4th Dist. Athens No. 18CA24, 2019-Ohio-2768, ¶ 42, the Fourth District Court of Appeals
agreed with our conclusion that R.C. 2953.08(D)(3) survived the constitutional challenge
predicated upon the Equal Protection Clause of the United States Constitution. See also
State v. Burke, 2016-Ohio-8185, 69 N.E.3d 774 (2nd Dist.), State v. Wilson, 4th Dist. No.
16CA12, 2018-Ohio-2700; State v. Austin, 7th Dist. Mahoning No. 16 MA 0068, 2019-
Ohio-1185. The Seventh District noted in State v. Austin that “[b]oth the Second and
Fourth Districts concluded that the severity of the crimes of murder and aggravated
Stark County, Case No. 2021CA00112 17
murder provide a rational basis for the separate statutory scheme, and recognized that
‘[t]he General Assembly's practice of treating sentencing for aggravated murder and
murder convictions differently from other felonies is longstanding.’ State v. Hollingsworth,
143 Ohio App.3d 562, 569, 758 N.E.2d 713 (8th Dist. 2001).” State v. Austin, 7th Dist.
Mahoning No. 16 MA 0068, 2019-Ohio-1185, ¶ 68. Pursuant to our decision in Weaver,
we find that R.C. 2953.08(D)(3) does not violate the Fourteenth Amendment.
{¶55} Nelson also contends that the Ohio and federal constitutional prohibitions
against cruel and unusual punishment under the Eighth Amendment mandate appellate
review of his sentence. Multiple appellate districts have determined that R.C.
2953.08(D)(3) is constitutional and does not constitute a violation of the Eighth
Amendment. State v. Grievous, 12th Dist. Butler No. CA2018-05-093, 2019-Ohio-1932;
State v. Gardner, 2022-Ohio-2725, 193 N.E.3d 1156 (12th Dist.); State v. Blair, 4th Dist.
Athens No. 18CA24, 2019-Ohio-2768; State v. Austin, 7th Dist. Mahoning No. 16 MA
0068, 2019-Ohio-1185; State v. Thomas, 11th Dist. Lake No. 2019-L-085, 2020-Ohio-
4635. We reach the same conclusion as our sister districts and find that the absence of
appellate review for Nelson’s sentence does not violate the Eighth Amendment.
{¶56} Nelson’s third Assignment of Error is overruled.
Stark County, Case No. 2021CA00112 18
CONCLUSION
{¶57} The judgment of the Stark County Court of Common Pleas is affirmed.
By: Delaney, J.,
Gwin, P.J. and
Baldwin, J., concur. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493994/ | OPINION ON DEBTOR JOHN JOSEPH FERNANDES’ MOTION TO VOLUNTARILY DISMISS HIS CHAPTER 13 CASE
BRUCE A. MARKELL, Bankruptcy Judge.
On April 16, 2005, debtors John Joseph Fernandes and Priscilla Fernandes filed a joint chapter 13 petition. On February 1, 2006, after being convicted in Nevada state court of embezzlement of $253,000 from his employer Stone Connection LLC, and after being ordered to pay Stone Connection $253,000 in restitution, John moved to voluntarily dismiss his chapter 13 case.1 Priscilla, however, wishes to remain a chapter 13 debtor.
*522Stone Connection objects to John’s dismissal. It claims that while the Bankruptcy Code allows joint petitions, 11 U.S.C. § 302, it does not specifically provide that a jointly filed case may be severed into its individual components. Stone Connection also alleges that the effort to sever is an impermissible and unavailing effort to insulate Priscilla from the legal consequences of John’s criminal actions.
In support of its opposition, Stone Connection cites to a chapter 11 case, Devers v. Bank of Sheridan (In re Devers), 759 F.2d 751 (9th Cir.1985), and to a chapter 7 case, In re Estrada, 224 B.R. 132 (Bankr.S.D.Cal.1998). Both Devers and Estrada indicate that cases under those chapters cannot be severed once joined, although Estrada recognized that when one of the spouses in a jointly-filed chapter 7 case dies, the surviving spouse may convert his or her case (but not the case for the deceased spouse) to one under chapter 13. 224 B.R. at 136-37.
Devers, Estrada, and Stone Connection each recognizes that Section 302 does not automatically consolidate estates. Rather, it provides for the coordinated administration of two presumably related cases. Devers, 759 F.2d at 753 n. 1; Estrada, 224 B.R. at 135. See also Ageton v. Cervenka (In re Ageton), 14 B.R. 833, 835 (9th Cir. BAP 1981). Put another way, an order of joint administration under Section 302 and Bankruptcy Rule 1015 does not mingle or mix the assets or claims of each estate with the other. As a result, the filing of a joint case does not, without more, affect whatever rights creditors such as Stone Connection have as against either spouse individually. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 321 (1977) (“A joint case will facilitate consolidation of their estates, to the benefit of both the debtors and their creditors, because the cost of administration will be reduced, and there will be only one filing fee.... [Joint administration], of course, is not license to consolidate in order to avoid other provisions of the title to the detriment of either the debtors or their creditors. It is designed mainly for ease of administration”); S.Rep. No. 989, 95th Cong., 2nd Sess. 32 (1978) (same).
Here, unlike Devers and Estrada, the debtors filed under chapter 13. That fact invokes substantial policy concerns in favor of granting debtor’s motion. Unlike the result for debtors under either chapter 7 or chapter 11, most courts hold that chapter 13 debtors enjoy the absolute right to dismiss their case at any time. 11 U.S.C. § 1307(b) (“On request of the debt- or at any time, if the ease has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.”) (emphasis supplied).2 See also Nash v. Kester (In re Nash), 765 F.2d 1410, 1413 (9th Cir.1985) (“Under § 1307(b), a debtor has an absolute right to dismiss a Chapter 13 petition.”); Croston v. Davis (In re Croston), 313 B.R. 447, 451 (9th Cir. BAP 2004). See generally 4 Keith M. Lundin, Chapter 13 Bankruptcy § 330.1 (3d ed.2004); 5 Norton Bankruptcy Law & Practice 125.4 (William L. Norton, Jr., ed.2005). This grant of the absolute right to dismiss protects “the congressional intent that chapter 13 be completely voluntary.” 8 Collier On Bankruptcy ¶ 1307.03[1] (Alan Resnick & Henry Summers, eds., 15th rev. ed.2006).
*523Since joint administration under Section 302 does not consolidate estates, and since chapter 13 debtors essentially enjoy an absolute right to dismiss, it follows that either debtor in a jointly administered case may exercise the rights given by Section 1307(b). As a result, John should be allowed to dismiss his case.
Stone Connection claims that severance will create insurmountable hurdles to confirmation of Priscilla’s plan. But that is Priscilla’s choice (since she did not oppose the dismissal) and Priscilla’s burden. Such considerations are irrelevant to John’s election to dismiss his case.
This opinion shall constitute the court’s findings of fact and conclusions of law pursuant to Rule 7052. A separate order shall be entered in accordance with Rule 9021.
. All agree that the restitution award would be a nondischargeable debt as to John. See 11 U.S.C. § 1328(a)(3).
. The debtor's motion was originally made under Section 1307(c), but the debtor correctly contends his reply brief that "Debtor is also eligible to dismiss under Section 1307(b) and such relief is also warranted in this case.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493995/ | *524OPINION
FRANK L. KURTZ, Bankruptcy Judge.
In this case, the trustee filed an objection to the debtors’ claim of exemptions. The debtors filed a response, stating that the trustee’s objection was not timely delivered or mailed to the debtors and the debtors’ attorney. The facts are undisputed. The first meeting of creditors was held on January 27, 2006. The trustee’s objection to the debtors’ claim of exemptions was filed on February 26, 2006. On April 24, 2006, the trustee mailed a copy of the objection to the debtors’ attorney. It would appear from the record that a copy of the objection was never served on the debtors.
The question before the court is whether a trustee’s objection to a debtor’s claim of exemptions is timely when the objection was filed on the 30th day and served on the 87th day after the conclusion of the first meeting of creditors. Inteidm Federal Rule of Bankruptcy Procedure 40031 establishes the procedure whereby the trustee may object to the debtor’s claim of exemptions and whereby the debtor may challenge the trustee’s objection. The strict 30-day time period stated in Rule 4003(b) is meant to provide the debtor with timely notice that the trustee objects to the debtor’s claimed exemption. For that reason, the coux’t holds that the trustee’s objection to the debtor’s claim of exemptions must be delivered or mailed to the debtor and the debtor’s attorney within 30 days after the conclusion of the first meeting of creditors. Because the trustee’s objection was not delivered or mailed to the appropiiate parties within the 30-day period, the trustee’s objection is dismissed.
When a debtor files a bankruptcy petition, all of the property in which the debtor has an interest becomes property of the bankruptcy estate. 11 U.S.C. § 541(a). The debtor, however, may remove property from the estate through the exemption process. 11 U.S.C. § 522(b). The debtor is required to file a list of property that the debtor claims as exempt. 11 U.S.C. § 522(l). Unless a party in interest files a timely objection to the debtor’s claim of exemptions, the property claimed as exempt on such list is deemed exempt. Taylor v. Freeland & Kronz, 503 U.S. 638, 643, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). If a party in interest, including a trustee, objects to the debtor’s claim of exemptions, the objecting party shall follow the procedure set forth in Rule 4003.
In relevant part, Rule 4003 provides as follows:
(1) Except as provided in paragraph (2), a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 3kl(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later. The court may, for cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request for an extension.
(2) An objection to a claim of exemption based on § 522(q) shall be filed before the closing of the case. If an exemption is first claimed after a case is reopened, an objection shall be filed before the reopened case is closed.
*525(3) Copies of the objections shall be delivered or mailed to the trustee, the person filing the list, and the attorney for that person.
(Emphasis added.) Rule 4003(b) states that an objection to a claim of exemptions may be filed only within 30 days after the conclusion of the first meeting of creditors. It further states that copies of the objection shall be delivered or mailed to the debtor and the debtor’s attorney.
This dispute between the debtor and the trustee is a contested matter. Rule 4003, Advisory Committee Notes; In re Strat-ton, 106 B.R. 188, 191 n. 6 (Bankr.E.D.Cal. 1989). Contested matters generally are governed by Federal Rule of Bankruptcy Procedure 9014, which provides that relief shall be requested by motion and which further provides that the affected party shall be given reasonable notice and opportunity for hearing. Significantly, the rule states that the motion shall be served in the manner provided for service of a summons and complaint by Federal Rule of Bankruptcy Procedure 7004. Here, the trustee’s notice which was mailed to the debtors’ attorney did not constitute service upon the debtors nor did it comply with Rule 7004.
Rule 9014, however, does not apply to objections to exemptions under Rule 4003(b) because Rule 4003(b) specifies the manner in which an objection to the claim of exemptions shall be served. In re Shuman, 78 B.R. 254, 256 (9th Cir. BAP 1987); In re Hawthorne, 326 B.R. 1, 5 (Bankr.D.D.C.2005). In short, Rule 4003(b), as the specific rule dealing with objections to exemptions, controls service of such an objection, not Rule 9014(b). Consequently, the pertinent rule here allows for delivery or mail notice, rather than requiring service of process. In this case, service of the objection to the debtor’s claim of exemptions, as to the debtors’ attorney, was complete upon mailing on April 24, 2006. Federal Rule of Bankruptcy Procedure 9006(e).
Rule 4003(b) is clear that the objection must be filed within the 30-day time limit. The rule is also clear that the objection must be delivered or mailed to the debtor and the debtor’s attorney. What is less clear, and at issue here, is what happens when the objection is timely filed but not delivered or mailed to the debtor and the debtor’s attorney for some time thereafter — outside the 30-day time limit. There is another issue that the court does not decide: What is the consequence of the trustee’s failure to deliver or mail a copy of the objection to the debtors?
The trustee argues that there is no time line because Rule 4003 does not specify a time for the service of the objection. The trustee notes that Rule 4003 is derived from former Bankruptcy Rule 403. Under Rule 403, the trustee had 15 days from the date of the trustee’s qualification to file a report, which could include an objection to the debtor’s claim of exemptions. The debtor could object to the trustee’s report, provided the debtor objected within 15 days after the filing of the report. Obviously, it was important that the debtor be notified regarding the filing of the report. Consequently, Rule 403 mandated that the trustee forthwith deliver or mail copies of the report to the debtor and the debtor’s attorney.
Rule 4003 changes the thrust of the former rule by making it the burden of the debtor to list the debtor’s exemptions and the burden of the trustee to raise objections, in the absence of which the property claimed as exempt shall be exempt. Moreover, the date from which the debtor is required to respond to the trustee’s objection runs from a different date, the date of the conclusion of the first meeting of creditors, not from the date that the trustee’s *526report is filed. As a result, Rule 4003 no longer requires the trustee to “forthwith mail or deliver copies of the trustee’s report to the debtor” and simply requires that copies of the objection shall be delivered or mailed to the debtor and the debt- or’s attorney. Here, the trustee argues that the changes in the form and language of the rule indicate that his obligation to deliver or mail a copy of his objection to the debtors and the debtors’ attorney is less time sensitive.
The trustee also observes that the Bankruptcy Court for the Eastern District of Washington utilizes electronic filing. Therefore, he argues that the debtors’ attorney either received, or could have received, electronic notice that the trustee had filed an objection to the debtors’ claimed exemptions. A diligent debtor’s attorney, the trustee argues, should have been motivated by this electronic notice to investigate the trustee’s objection to the debtors’ claimed exemptions. The problem with this contention is that Rule 4003(b) specifically requires notification to the debtor and the debtor’s attorney by delivery or mail. The rule does not provide for electronic notification. Moreover, while our court has established a mechanism by which attorneys can receive electronic notice of the filing of documents, the local rules pointedly do not authorize service by this means.
There are a number of other possible answers to this legal question. The court could interpret Rule 4003(b) as requiring the trustee to deliver or mail a copy of the trustee’s objection within a reasonable period of time. The benefit of such a rule is its flexibility — the court would have the discretion to look at the circumstances of each case and decide each case based upon those circumstances. The problem with such an interpretation is that it injects uncertainty into Rule 4003(b). Normally, strict and specific guidelines for the filing and delivery of documents work best. More importantly, a rule employing flexibility does not comport with Rule 4003(b)’s rigid 30-day time limit. The purpose behind Rule 4003(b) has been summarized as follows: “Rule 4003(b) was meant to provide the debtor with timely notice that the trustee or other interested party objects to the debtor’s claimed exemption.” In re Spenler, 212 B.R. 625, 630 (9th Cir. BAP 1997). If timely notice is the purpose behind Rule 4003(b), how can the court interpret the rule as having no time line or a flexible time line in the delivery or mailing of the objection? Timely notice is accomplished by serving the objection, not by filing it. The requirement is hardly onerous. Here, trustee could have completed service of the objection by simply placing the document in the mail on the 30th day. Rule 9006(a), (e).
Alternatively, the court could interpret Rule 4003(b) as requiring the trustee to deliver or mail a copy of the trustee’s objection to the appropriate parties within the same 30-day period as the requirements for filing, i.e., the objection must be filed and delivered or mailed within the 30-day period. In the court’s opinion, this bright line rule has much to recommend it. The rule is clear. Additionally, this interpretation is consistent with the drafters’ elimination of the “forthwith” language that previously existed in Rule 403. Because the trustee is obligated to deliver or mail the objection within the 30-day period, the rule no longer requires the “forthwith” language. Under the current rule, the trustee’s objection must be delivered or mailed within the 30-day period.
If you think about it, why would a trustee file an objection and not deliver or mail it to the debtors and the debtors’ attorney? The court cannot think of a good reason *527for what amounts to a secret or undisclosed objection to a claim of exemptions. Conversely, the reasons for disclosing the objection are immediately evident. A strict construction of the 30-day time limit for delivering or mailing an objection to the appropriate parties provides finality for the parties with respect to the property claimed as exempt — the same reason for the rule requiring that the objection be filed within the 30-day period. And, a rule allowing transmittal of the objection outside the 30-day period could effectively undermine the rule’s strict time limit. As stated in Stoulig v. Traina, 169 B.R. 597, 601 (E.D.La.1994), aff'd, 45 F.3d 957 (5th Cir.1995): “If this Court were to ignore the 30-day time limitation of Rule 403(b), debtors would remain suspended in limbo awaiting action by the trustee or creditors to file objections to the debtor’s claim for exemptions. Such a result would contravene the well-established principle that bankruptcy proceedings in general and Rule 4003(b) in particular are designed to efficiently settle bankrupt estates.”
Case law addressing the issue before the court is limited. As far as the court can determine, there are two cases, both written by the same judge. The cases are In re Kjerstad, 56 B.R. 260 (Bankr.D.S.D.1984) and In re Hilmoe, 56 B.R. 262 (Bankr.D.S.D.1985). In Kjerstad, the trustee timely filed an objection to the debtor’s claimed exempt property but failed to serve a copy of the objection on the debtor and the debtor’s counsel for more than 2 months thereafter. The court disallowed the trustee’s objection, ruling that Rule 403 required the trustee to deliver or mail his objection within the initial 15-day period. The court reasoned that its holding was compelled by both the policy behind the rule and its actual language. The court identified finality as the policy behind the rule — the parties to the bankruptcy required a quick determination as to the scope and identity of exempt property. Also, the court focused on the rule’s use of the word “forthwith,” which the court held obligated the trustee immediately to mail or deliver a copy of the objection to the debtor and the debtor’s attorney.
One year later, the same court addressed the same issue on similar facts but with a new bankruptcy rule — Rule 4003. In Hilmoe, the trustee timely objected to the debtor’s exemptions but failed to comply with the rule that required that a copy of the trustee’s objection would be delivered or mailed to the debtor and the debt- or’s attorney. Applying Rule 4003(a), the court ruled that the trustee must file and deliver or mail copies of the objection to claimed exemptions within 30 days of the meeting of creditors. The court explained “[t]he Trustee’s failure to promptly serve the debtor and his attorney derogates the requirements of the Rules and undermines the purpose of limiting the time when an objection may be made. Requiring parties in interest to file and serve objections to claimed exemptions within thirty (30) days of the meeting of creditors or any amendments to the list of exemptions allows the debtor to seek a prompt determination of his right to exemptions, and, consequently, furthers the ‘fresh start’ policy behind the Code.” Hilmoe, 56 B.R. at 263. In Hilmoe, the court relied more upon the policy of finality and less upon the language of the court rule.
Issues concerning Rule 4003 have arisen in two other contexts. In Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), the Supreme Court considered what happens if a trustee fails to object to a debtor’s claim of exemptions within the 30-day period. The court held that a trustee cannot contest the validity of a claimed exemption after the 30-day period had expired, even if the debtor *528has no colorable basis for claiming the exemption. This case provides support for the strict construction of Rule 4003, based upon the policy of finality for the parties with respect to the property claimed as exempt.
There is also a line of cases that address the issue as to whether a court could extend the 30-day period for filing an objection to an exemption, if the court failed to rule on a timely motion to extend before the expiration of the period. The courts generally said “no” — adopting a bright line rule that the court must act within the 30-day period. In re Laurain, 113 F.3d 595 (6th Cir.1997); Stoulig, 45 F.3d 957. In response to Stoulig and Laurain, Rule 4003(b) was amended to permit the court to grant a timely request for an extension, even if the court fails to rule before the expiration of the 30-day period. Significantly, the amended rule continues to require a timely objection, i.e., an objection filed within the 30-day period. Again, we see the courts adhering to a strict construction of the rule based upon the policy of finality.
Based upon this authority, the court holds that the trustee’s objection to the debtor’s claim of exemptions must be delivered or mailed to the debtors and the debtor’s attorney within the same 30-day period as the requirement for filing. In this case, the facts regarding the date of the first meeting of creditors and the date when the trustee’s objection was delivered or mailed to the debtors and the debtors’ attorney are undisputed. The trustee’s objection was not delivered or mailed to the appropriate parties within the 30-day period. Accordingly, the trustee’s objection to the debtors’ claim of exemptions is dismissed. Under the holding in Taylor, the trustee is barred from contesting the validity of the claimed exemptions.
In view of the court’s decision, the court need not address the remaining issue as to the consequence of the trustee’s failure to deliver or mail a copy of the objection to the debtors.
. Interim Rule 4003 implements the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Rule 4003 was amended, on an interim basis, effective October 17, 2005. 2005 U.S. Order 42 (C.0.42). The changes are not relevant to the disposition of this case. Hereafter, the court will refer to Rule 4003(b). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493996/ | ORDER
JOYCE BIHARY, Bankruptcy Judge.
This Chapter 13 case came before the Court on May 9, 2006 on the Chapter 13 Trustee’s motion to reconvert this case to a case under Chapter 7 and on the reset hearing on confirmation of debtor’s Chapter 13 plan (Docket # 59). Daniel L. *553Gibbs appeared for the Chapter 13 Trustee. Debtor and debtor’s counsel, Stanley Kakol, were present, as was Lynn Wood, who appeared on behalf of Washington Mutual Bank, F.A. (“Washington Mutual”). After hearing arguments of counsel and carefully considering the record of this case, the Court concludes that debtor has not proposed a confirmable plan in this case and it is appropriate to grant the motion to convert this case back to a case under Chapter 7. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (L).
This case has been pending for more than a year. The debtor has had three lawyers. Although the debtor has assets with which creditors could be paid if the assets were liquidated, the debtor has attempted to retain those assets by proceeding under Chapter 13. The problem is that debtor has not been able to propose a confirmable plan and has not been able to keep plan payments current with the Chapter 13 Trustee. Unfortunately, this case has run its course and must be reconverted back to a Chapter 7 case so that the Chapter 7 Trustee can proceed to liquidate some of the assets and pay creditors.
This case began as a Chapter 7 case filed by the debtor through counsel James Morton on April 5, 2005. Edwin K. Palmer was appointed as the Chapter 7 Trustee. Attorney Sehyler Elliott filed a notice of appearance on behalf of the debtor on May 31, 2005, but Mr. Elliott sought permission to withdraw as counsel, and the Court entered an Order on July 11, 2005 granting Mr. Elliott’s motion to withdraw as counsel.
The debtor filed a pro se motion to convert his case to a Chapter 13 case in June of 2005, and that matter came on for hearing on July 13, 2005. The debtor was present at the hearing, but was not represented by counsel at that time. The Court entered an Order on July 18, 2005, giving the debtor until August 13, 2005 to file the required schedules, statement of financial affairs, and a Chapter 13 plan. The Order provided that if the papers were filed, then the Court would consider whether the debtor was qualified to proceed under Chapter 13. The debtor filed schedules and a Chapter 13 plan in August of 2005, but the line in the plan for the amount of the plan payment was left blank. On August 17, 2005, debtor filed a letter indicating that he was in the process of seeking new counsel to represent him.
At a hearing on September 27, 2005, scheduled on debtor’s motion to convert the case from Chapter 7 to Chapter 13 and on the United States Trustee’s request for an extension of time in which to file an objection to discharge, the debtor appeared with a new attorney, Stanley Kakol. James Bone was present as the Chapter 13 Trustee, and James Morawetz was present representing the United States Trustee. Counsel announced that a consent order would be presented on the United States Trustee’s request for an extension of time to file an objection to discharge, and debtor’s new counsel requested a reset of the hearing on debtor’s motion to convert the case to a Chapter 13 case. The Court granted the request, and debtor’s motion to convert the case to a Chapter 13 was reset for October 11, 2005.
At the October 11, 2005 hearing, Stan Kakol appeared on behalf of the debtor. After hearing from Mr. Kakol and other counsel present, the Court concluded that the motion to convert to a Chapter 13 could be granted and directed Mr. Kakol to prepare an order granting the motion to convert. However, Mr. Kakol failed to submit the order, and on November 14, 2005, the Court entered an Order directing Mr. Kakol to either submit the order con*554verting the case within five days or the Court would deny the motion to convert. Mr. Kakol finally prepared the order of conversion, and the Court entered the Order on December 2, 2005 granting debtor’s motion to convert the case to one under Chapter 13.
The confirmation hearing was then set by order dated December 2, 2005, for February 7, 2006, giving debtor and counsel two months to file and fund a confirmable plan. At the February 7, 2006 hearing, neither debtor nor debtor’s counsel appeared. The Chapter 13 Trustee announced that the confirmation hearing should be reset for February 14, 2006, indicating that debtor might be reconverting the case to a case under Chapter 7 rather than seeking confirmation of a chapter 13 payment plan.
At the February 14, 2006 hearing, Mr. Kakol appeared with the debtor, and the Chapter 13 Trustee was present. When the calendar was called, the parties announced that they were ready to proceed. However, when the matter was reached, the Chapter 13 Trustee announced that he had met with Mr. Kakol and the debtor and had agreed to another reset confirmation hearing, because debtor had indicated that he would be surrendering certain properties in Mississippi to the appropriate taxing authority and that there was a possibility that the case would be reconverted to a case under Chapter 7. The Chapter 13 Trustee further announced that he intended to file his own motion to reconvert the case back to a case under Chapter 7.
The Chapter 13 Trustee filed the instant motion to reconvert the case back to Chapter 7 on February 22, 2006. The primary ground for the Chapter 13 Trustee’s motion to reconvert the case is the allegation that unsecured creditors will receive more in a Chapter 7 liquidation than they will under the Chapter 13 plan proposed by the debtor. See 11 U.S.C. § 1325(a)(4). The reset confirmation hearing and the Chapter 13 Trustee’s motion to reconvert the case back to a case under Chapter 7 were set for March 23, 2006. Three days before the hearing, debtor filed amendments to the Chapter 13 plan and some amended schedules. Paragraph 1 of the amendment to the plan set the payments from the debtor to the Chapter 13 Trustee at $1,887.00 per month.
Throughout the case, Washington Mutual has sought relief from the automatic stay on property located at 8576 Timber-lake Trail, Riverdale, Georgia (the “Property”). Early in the case, on May 9, 2005, Washington Mutual filed a motion, and the Chapter 7 Trustee and Washington Mutual had entered into a consent order in August of 2005 giving the Chapter 7 Trustee ninety (90) days to sell the Property, recognizing that there was equity in the Property which could be used to pay unsecured creditors. On October 19, 2005, Washington Mutual filed an affidavit to the effect that the 90 days had passed and the Chapter 7 Trustee had not filed a motion to sell the Property. Washington Mutual sought an order granting relief from the automatic stay. However, since debtor had requested a conversion of the case to Chapter 13 with the understanding that the arrearage would be paid to Washington Mutual through a Chapter 13 plan, the automatic stay was not lifted.
On February 13, 2006, Washington Mutual filed a motion for an entry of an order granting it relief from the automatic stay, and the matter was set for a hearing on February 28, 2006. Debtor and Mr. Kakol appeared at that hearing and Washington Mutual was represented by Lynn Wood. The parties entered into an interim consent order on March 2, 2006, requiring debtor to pay $2,800.00 to counsel for *555Washington Mutual by March 14, 2006. The Order further provided that if the payment was not made, the case would be converted back to a case under Chapter 7 and the Chapter 7 Trustee would have until April 15, 2006, to file a pleading indicating whether the Trustee had any interest in the Property. Finally, the Order provided that the debtor must have a confirmable plan by the reset confirmation date of March 23, 2006 and that if a con-firmable plan was not proposed by the reset confirmation date, then the Court may enter an order converting the case to a case under Chapter 7.
The case came back before the Court on March 23, 2006 on the Chapter 13 Trustee’s motion to convert the case back to a Chapter 7, the confirmation hearing, and Washington Mutual’s motion for relief from the automatic stay. James Bone appeared for the Chapter 13 Trustee, both debtor and his wife appeared, along with counsel Stanley Kakol, and Lynn Wood appeared for Washington Mutual. Washington Mutual announced that the debtor paid the $2,800.00 pursuant to the Court’s Order entered on March 2, 2006, but the Chapter 13 Trustee announced a substantial delinquency in plan payments totaling some $4,612.00. The Trustee also announced additional objections to plan confirmation including debtor’s failure to produce income tax returns for 2003 and 2004. Washington Mutual objected to plan confirmation, arguing that the plan was not feasible as the debtor was unable to make both mortgage payments and the plan payments. Washington Mutual also announced a post-petition mortgage payment delinquency in excess of $8,000.00.
Debtor’s counsel argued that debtor’s wife now had additional income, that few creditors had filed claims, and he asked for yet another reset date. Mr. Kakol stated that the bar date for filing claims was set for April 18, 2006, and that while there was a large amount of scheduled unsecured debt in the case, few creditors had filed claims as of March 23, 2006. He asked to have the pending matters reset until after the April 18, 2006 claims bar date and represented that his client would be able to make a “substantial dent” in the $4,612.00 owed in plan payments to the Chapter 13 Trustee. The Court allowed the matter to be reset one more time, advising counsel and the debtor that debt- or must make the monthly mortgage payments to Washington Mutual and that debtor must cure the delinquent plan payments. The Court reset the matter for May 9, 2006, and advised Mr. Kakol to file a report one week prior to May 9, 2006, setting out the status of how many claims were filed, the status of the tax returns, and an explanation of how the debtor was going to make the required delinquent plan payments.
On April 4, 2006, the Court entered an Order pursuant to the March 23, 2006 hearing requiring debtor to resume regular monthly mortgage payments to Washington Mutual and requiring the debtor to make all payments to the Chapter 13 Trustee in a timely manner. The Order further provided that the debtor must have a confirmable plan by the reset confirmation date of May 9, 2006, and that if a confirma-ble plan was not proposed by the reset confirmation date, then the Court could enter an order converting the case to a Chapter 7 case.
At the May 9, 2006 hearing, Daniel Gibbs, counsel for the Chapter 13 Trustee, announced that the plan payments were still delinquent and that of the payments that had come due, debtor had only paid $1,049.00, leaving a deficiency of $8,386.00. Mr. Gibbs renewed the request that the case be' converted to Chapter 7 where a greater amount would be paid to unse*556cured creditors. Debtor’s counsel had not filed a status report one week prior to the continued hearing as previously directed by the Court.
Debtor’s counsel Mr. Kakol asked for still more time to prepare a new plan with a lower monthly payment of some $1,190.00 instead of the $1,887.00 he had proposed and filed just a few weeks earlier on March 20, 2006. He also represented that the debtor had $2,200.00 available to pay the Chapter 13 Trustee toward the delinquent plan payments. Counsel for the Chapter 13 Trustee and for Washington Mutual objected strenuously to any additional reset hearings or giving debtor any more time to propose a workable plan. They argued in favor of reconverting the case to a Chapter 7 liquidation.
The economics of this case are such that there is significant equity in debtor’s property. The debtor’s assets include a residence, some antique cars, and some real property in Mississippi. It appears that creditors could be paid a substantial portion of their claims in a Chapter 7 case if a trustee liquidated some or all of the non-exempt assets. The debtor had hoped to keep his assets and pay the creditors in a Chapter 13 plan, and the Court has given the debtor several opportunities and sufficient time to propose a confirmable plan. The case is now over one year old, and the debtor has still not filed and proposed a confirmable plan, nor is he current with the Chapter 13 Trustee on the plan that is on file. Given the inability of the debtor to propose a confirmable plan, the history of this case, and the assets available, the Chapter 13 Trustee’s motion to reconvert the case to one under Chapter 7 is well-taken and must be granted.
It is important to note that on March 23, 2006, Mr. Kakol asked for another reset hearing on confirmation and on the motion to reconvert so that he could review claims filed after the April 18, 2006 bar date and then propose a feasible amended plan. Notwithstanding this request, which was granted, Mr. Kakol did not meet with his client after the April 18, 2006 bar date and in fact did not meet with his client until the date of the reset hearing on May 9, 2006. The debtor made no effort to file an amended plan prior to the May 9, 2006 hearing and did not bring the payments current prior to the hearing. Mr. Kakol stated that the reason he did not file an amended plan is because he planned to file one objection to a claim of some $4,000.00. He argued that he should not have to propose or fund a plan until all claims are filed, the bar date has passed, and the debtor has filed and obtained a ruling on his objection to the one claim. This argument is fallacious. The Bankruptcy Code does not give a debtor the luxury of waiting to propose and fund a plan. The Chapter 13 plan is to be filed within fifteen (15) days after the filing of a petition or after conversion to Chapter 13, and funding is to begin thirty (30) days after the plan is filed. See Rule 3015(b) of the Federal Rules of Bankruptcy Procedure and 11 U.S.C. § 1326(a).
Debtor’s counsel is also mistaken to the extent he argues that the confirmation hearing should not be held until the Court has ruled on the one objection he filed on May 9, 2006, to a $4,000.00 claim. In this district, as in the majority of districts, the Court schedules confirmation hearings in Chapter 13 cases prior to the bar date for filing claims. This has been the standard procedure in the Northern District of Georgia for at least the past seventeen (17) years.1 The key rationale for this procedure is to allow creditors to be paid sooner, as the Chapter 13 Trustee cannot make *557distributions until a plan is confirmed. 11 U.S.C. § 1326(a)(2). While there may be special circumstances in which the court continues a confirmation hearing in order to adjudicate a significant claim, there are no such special circumstances here.
In this case, unsecured claims have been filed in the amount of some $64,788.00. The debtor has assets that, if liquidated, could pay creditors a substantial portion, if not all, of these claims. The debtor is not current with the Chapter 13 Trustee and has not proposed a feasible Chapter 13 plan. Although counsel continued to ask for more time at the May 9, 2006 hearing, there was no indication that debtor has the ability to fund a plan with monthly payments. Accordingly, the Chapter 13 Trustee’s objection to confirmation is sustained, the Chapter 13 Trustee’s motion to reconvert the case to a Chapter 7 case is granted, and the Chapter 13 Trustee shall turn over all funds on hand to the Chapter 7 Trustee. Debtor and debtor’s counsel are directed to work with the Chapter 7 Trustee to liquidate property of the estate so that the creditors can be paid.
. While some courts in the past may have scheduled confirmation hearings months after *557the case was filed so as to allow the parties time to review filed claims, whatever flexibility courts had with regard to scheduling confirmation hearings in Chapter 13 cases arguably has been eliminated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA”). Prior to BAPCPA, § 1324 of the Bankruptcy Code provided simply that the court shall hold a hearing on confirmation of the plan, but it did not say when the hearing should be held. BAPCPA added new subsection (b) to § 1324, requiring the confirmation hearing to be held not earlier than 20 days and not later than 45 days after the date of the meeting of creditors under § 341(a). Under Rule 3002 of the Federal Rules of Bankruptcy Procedure, with some exceptions, the bar date for filing proofs of claim in Chapter 13 cases is 90 days after the first date set for the meeting of creditors under § 341. Thus, the bar date for filing claims is 90 days after the first date set for the § 341 meeting of creditors, and a confirmation hearing is to be held between 20 and 45 days after the meeting of creditors. While it is possible in a given case that a § 341 meeting would be held, as opposed to "first set”, late enough so that the confirmation hearing could take place after the bar date, it is clear that Congress now intends confirmation hearings to be scheduled and held prior to the claims bar date. The case at bar is a pre-BAPCPA case, but the amendment to § 1324 demonstrates the lack of merit in counsel’s argument that confirmation hearings should take place only after all objections to claims have been heard. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493997/ | MEMORANDUM OPINION
GUIN, District Judge.
This cause is before the court on Motion for Rehearing by Appellee SAIIA Construction, LLC, (doc. 10). Having considered the submissions of counsel, the previous ruling of the court, and the applicable law, the court finds that this motion is due to be denied. The adjudication of the lien perfection at issue must be litigated in the Circuit Court of Cullman County, Alabama, where it was originally filed.
The requirements for lien perfection have been unchanged for almost one hundred years. In Sorsby v. Woodlawn, the Alabama Supreme Court relied on the 1907 Code of Alabama when it stated that “[t]he lien the material man or mechanic acquires is by virtue of the statutes only, and the requirements of the statutes as to acquiring and enforcing [the lien] must be pursued, else it is lost or does not exist. The lien is not property nor is it a right in or to the property; it is neither a jus in re nor a jus ad rem. It is simply a right to charge the property which it affects with the payment of a particular debt.” Sorsby v. Woodlawn, 202 Ala. 566, 81 So. 68, 70 (Ala.1919)(emphasis added).
Under Alabama law, a mechanic or ma-terialman must: (1) provide statutory notice to the owner, Ala.Code § 35-11-210 (1975);1 (2) file a verified statement of lien in the probate office of the county where the improvement is located, Ala.Code § 35-11-215; and (S) file suit to enforce the lien in the circuit or district court in which the property is located. Ala.Code § 35-ll-220(1975)(emphasis added). The party against whose property the lien is sought is afforded full due process and “in all respects, the pleadings, practice and proceedings as in ordinary civil actions.” Ala.Code § 35-11-222 (1975).2 Judgment must be taken before the lien is enforceable. Ala.Code § 35-11-224 (1975)(Issues; finding or verdict; judgment generally); Ala.Code § 35-11-225(1975)(Judgment by default); Ala.Code § 35-11-226 (1975)(En-forcement of judgments).
Merely giving notice and filing a statement of lien are not sufficient to perfect a lien. Filing a Statement of Lien does not perfect the lien. SAIIA’s taking its lien action to judgment in the state court is the only way it can perfect its lien. The Bankruptcy Court has no jurisdiction to declare the lien perfected, and, without perfection, the lien is but an inchoate claim. After perfection, of course, the Bankruptcy Court has the power to determine the relative priority of this lien.
Jurisdiction for the third and final necessary step for perfection is in the circuit court of the county in which the property is located. Ala.Code § 35-11-220 (1975). This judicial proceeding must be afforded the property owner and any others who may hold an interest in the property, such as mortgagees. Otherwise, liens could be filed and perfected against one’s property without any opportunity to defend against *856it. Further, the hearing is required by statute to be held by the circuit court3 in the county in which the property is located.4
SAIIA attempted to make an end run around the required third step by filing the involuntary bankruptcy petition before the lien perfection suit in Cullman County had been litigated to judgment. This tactic is impermissible under the law of Alabama. If SAIIA wishes to have its lien, it must fully comply with all of the statutory requirements of the state law for lien perfection or “else it is lost.” See, Sorsby, 202 Ala. 566, 81 So. 68, 70 (Ala.1919).
As discussed in the original opinion issued by this court, mandatory abstention applies, not to the bankruptcy petition but to the lien perfection. The Appellee again argues in its Motion for Rehearing that the final factor of mandatory abstention is not met — that the action can be timely adjudicated. SAIIA, who now complains of the unsubstantiated possibility of undue delay, caused the suit in Cullman County to be stayed by filing the involuntary bankruptcy petition. The case will be returned to the Cullman court for adjudication. A presumption attaches that the state court will handle the matter expeditiously, and no evidence has been proffered to overcome this presumption. The court has nothing before it to show nor does it have any independent judicial knowledge of a quagmire in the courts of Cullman County.
The court reasserts its finding that the Bankruptcy Court should have exercised discretionary abstention under the circumstances of this ease. The factors considered in whether to abstain by discretion militate overwhelmingly in favor of abstention in this case, particularly because the debtor has been dismissed from the state proceeding. See, In re Perfect Home, LLC, 231 B.R. 358 (Bankr.N.D.Ala.1999). Most significantly, the Bankruptcy Court should have evaluated the train of events for signs of blatant forum shopping. The Bankruptcy Court’s failure to abstain was an abuse of discretion.
A further issue is the certified question by the Bankruptcy Court to the Supreme Court of Alabama pursuant to Rule 18 of the Alabama Rules of Appellate Procedure concerning the sufficiency of the Statement of Lien filed by SAIIA. The Statement lacks a notary acknowledgment that the Statement was verified under oath as required by the statute. The affiant states within the body of the Statement that it is verified under oath, but it is not. The Statement is deficient on its face by the literal terms of the statute. The statute itself supplies the form for verification before a notary. The form used in the case at bar is quite different and by no means compliant. The record does not show why simple copying of the form prescribed by statute did not take place. Because the Bankruptcy Court could find no controlling precedent as to whether the Statement fell within the ambit of substantial compliance, it submitted the certified question to the Alabama Supreme Court.
The perfection of SAIIA’s lien will now be the subject of active litigation in a state *857court and no longer before a federal court. Certified questions may be sent to the Alabama Supreme Court only by certain federal courts but not by state courts. Ala. R.App. P. 18. Consequently, as part of the Order issued with this Opinion, the Bankruptcy Court will be ordered to withdraw the question.
The appellee has requested oral argument on their Motion for Rehearing. By making a blatantly false statement to the court in their motion, counsel came perilously close to having sanctions invoked upon them. In their motion, they stated, “Under the general rule, ‘[o]ral argument shall be allowed in all cases.’ Fed. R. Bankr.P. 8012.” Appellee Motion for Leave, p. 2 (bracket in original). The rule states, “Oral argument shall be allowed in all cases unless the district judge or the judges of the bankruptcy appellate panel unanimously determine after examination of the briefs and record, or appendix to the brief, that oral argument is not needed. Any party shall have an opportunity to file a statement ivhy oral argument should be allowed.” Fed. R. Bankr.P. 8012. A sizeable and significant omission. Counsel failed to make any statement explaining why oral argument would be helpful to the court. The court found the briefs, the record, and the law to be sufficient for its decision. The request for oral argument will be denied.
Accordingly, a separate order will be entered denying Appellee’s motion for oral argument and for rehearing.
ORDER
This cause is before the court on Motion for Rehearing by Appellee SAIIA Construction, LLC (doc. 10). Having considered the submissions of counsel, the previous ruling of the court, and the applicable law, the court finds that this motion is due to be denied.
Accordingly, in conformity with the Memorandum Opinion filed contemporaneously herewith, the court hereby ORDERS the Motion for Rehearing by Appellee SA-IIA Construction, LLC, be and hereby is DENIED.
The court FURTHER ORDERS that the motion for oral argument contained within the Motion for Rehearing is hereby DENIED.
. Section 35-11-210 provides the notice requirements for contractors other than the original contractor.
. Section 35-11-222 also outlines the required contents of the complaint.
. If the amount in controversy is $50.00 or less, the district court in the county where the property is located has jurisdiction. Ala.Code § 35-11-220 (1975).
. Common sense reasons abound, for this jurisdictional requirement, not the least of which is facilitating the opportunity to inspect the property, if required. As in this case, lien disputes often center around work done that result in visible changes to the property, and inspections are often required. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493998/ | ORDER PURSUANT TO THE MANDATE ENTERED BY THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA, FORT MYERS DIVISION ON MARCH 10, 2006
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER before this Court is pursuant to the mandate issued by the United States District Court for the Middle District of Florida, Fort Myers Division (District Court) on March 10, 2006, in the above-captioned Adversary Proceeding. The District Court entered its Order remanding the matter to this Court to consider and determine whether or not the failure of the Trustee to timely file his Notice of Appeal was due to “excusable neglect.”
BRIEF RECAP OF THE EVENTS LEADING TO THE MATTER UNDER CONSIDERATION
In order to highlight the key points controlling the issue before this Court, it is appropriate to briefly recap the events preceding and leading up to the mandate issued by the District Court.
The Debtor, Steve A. Clapper & Associates of Florida (the Debtor) filed its Voluntary Petition under Chapter 11 of the Bankruptcy Code on August 11, 1999. On November 17, 1999, the Chapter 11 case was converted to a Chapter 7 liquidation *884case, and Thomas S. Heidkamp (Heid-kamp) was appointed as the Chapter 7 Trustee for the Debtor’s Estate. Prior to the commencement of this Adversary Proceeding, Heidkamp resigned and was replaced by Angela Stathopoulos (Trustee), who is currently the acting Trustee for the estate of the Debtor.
On July 17, 2000, Capitol Indemnity Corporation (Capitol) filed a Complaint setting forth three claims in three separate counts. In Count I, Capitol seeks the return of funds currently held by the Trustee, which were payments made in connection with a construction project referred to as the Forced Main Project. In Count II of the Complaint, Capitol seeks the return of the funds currently held by the Trustee obtained from the Harbor Boulevard Project., In Count III, Capitol seeks a declaration by this Court that the funds in question are not property of the Debtors estate and that this Court declare that Capitol is entitled to all monies recovered by the Trustee.
On January 10, 2001, the Trustee and Capitol filed cross Motions for Summary Judgment (Doc. Nos. 11 and 12). This Court on February 20, 2001, entered its Order Denying Motion for Summary Judgment by Plaintiff and Motion for Summary Judgment by Defendant and scheduled a pretrial conference. The Trustee moved for rehearing and reconsideration of this Court’s February 20, 2001, Order denying the Trustee’s Motion for Summary Judgment. On June 19, 2001, this Court entered its Order Denying Capitol’s Motion for Summary Judgment and granted the Trustee’s Motion for Summary Judgment as to Counts I and II of the Complaint, on the basis that the Debtor performed the work and submitted its payment request prior to the owners’ declaration of default, and entered a Final Judgment on the same.
On June 29, 2001, Capitol filed its Notice of Appeal of the Summary Judgment Order in the District Court, citing 28 U.S.C. § 158(a)(1). On May 5, 2003, the District Court reversed this Court’s Order and granted Summary Judgment in favor of Capitol on Counts I and II of the Complaint (Doc. No. 31). The Trustee appealed the District Court’s Order to the United States Court of Appeals for the Eleventh Circuit (Eleventh Circuit). On August 18, 2003, Capitol moved to dismiss the appeal on the grounds that the Eleventh Circuit lacked jurisdiction since this Court’s Summary Judgment Order was not an appeal-able order. Capitol’s argument was based on the fact that this Court had not ruled on Count III of the Complaint. The Eleventh Circuit granted Capitol’s Motion, the appeal was dismissed on jurisdictional grounds and the Trustee’s Motion for Rehearing and Reconsideration was denied. In an attempt to perfect the Final Judgment, the parties stipulated to the entry of a Final Judgment. On May 4, 2004, this Court entered the Agreed Final Judgment (Doc. No. 39). The Final Judgment preserved the appellate rights of the parties and included the dismissal of Count III of the Complaint so that the jurisdictional issue which previously existed was now cured.
On June 2, 2004, twenty-nine (29) days after this Court entered its Final Judgment in favor of Capitol, the Trustee filed a Notice of Appeal (Doc. No. 41) and on June 9, 2004, this Court entered its Order Dismissing the Appeal for Untimeliness (Doc. No. 42). On June 15, 2004, the Trustee filed its Motion for Reconsideration and/or Review of this Court’s Order Dated June 9, 2004 Dismissing Appeal for Untimeliness and Motion for Extension to File Notice of Appeal (Doc. No. 45). In due course this Court heard oral arguments of counsel on Trustee’s Motion for *885Reconsideration and Motion for Extension of Time. On July 30, 2004, this Court entered its Order Denying Trustee’s Motion for Reconsideration and/or Review of this Court’s Order Dated June 9, 2004 Dismissing Appeal for Untimeliness and Motion for Extension to File Notice of Appeal (Doc. No. 48). On August 9, 2004, the Trustee filed its Notice of Appeal (Doc. No. 50).
On August 17, 2004, the appeal was docketed by the District Court. On July 21, 2005, the District Court affirmed this Court’s June 9, 2004 Order Dismissing Appeal for Untimeliness. The District Court also affirmed this Court’s Order Denying Trustee’s Motion for Reconsideration and/or Review of this Court’s Order Dated June 9, 2004 Dismissing Appeal for Untimeliness and Motion for Extension to File Notice of Appeal. On June 22, 2005, the District Court entered its Judgment in favor of Capitol.
The Trustee appealed the District Court’s Order of July 21, 2005, to the Eleventh Circuit. On November 25, 2005, the Eleventh Circuit entered its Order remanding the matter back to the District Court. On March 19, 2006, the District Court entered its Order vacating its Order of July 21, 2005 and remanded the matter to this Court to consider the sole remaining issue of whether or not the Trustee’s tardiness in filing the Notice of Appeal was due to “excusable neglect.”
In due course this Court heard argument of counsel in support of and in opposition to the claim of the Trustee of excusable neglect. Counsel for the Trustee conceded that the failure to file the Notice of Appeal within 10 days as required by Fed. R. Bankr.P. 8002(a) was based on his misunderstanding of the relevant Rule, and he incorrectly assumed that an appeal in a bankruptcy ease is govern by the thirty-day rule, which governs appeals from the District Court to the Court of Appeals. This Court is satisfied that the decision was a deliberate choice, albeit incorrect, and was not due to any extenuating circumstances which were beyond the control of counsel for the Trustee.
It cannot be gainsaid that an appeal from the Bankruptcy Court to the District Court is governed by Fed. R. Bankr.P. 8002(a), which provides that a “notice of appeal shall be filed with the clerk within 10 days from the entry of the judgment, order, or decree appealed from.... ” Fed. R. Bankr.P. 8002(a). Rule 8002 further provides that the bankruptcy judge may extend the time for filing a notice of appeal, but the request to extend the time “must be made before the time for filing a notice of appeal has expired.” Fed. R. Bankr.P. 8002(c). If the request to extend the time for filing an appeal is not made within ten days of the entry of the order, but is made within twenty days from the expiration of the time to file a notice of appeal, then the bankruptcy judge may still grant the extension but only “upon a showing of excusable neglect.” Fed. R. Bankr.P. 8002(c).
In determining whether the Trustee’s failure to timely file her Notice of Appeal within the ten-day period set forth in Rule 8002(a) constitutes excusable neglect, this Court is guided by the Supreme Court’s decision in Pioneer Investment Serv. Co. v. Brunswick Assoc., 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). The Court in Pioneer analyzed “excusable neglect” within the provisions of Fed. R. Bankr.P. 9006(b). The Eleventh Circuit has held that Pioneer applies in determining “excusable neglect” under the similar provisions of Rule 4(a)(5) of the Federal Rules of Appellate Procedure, thus it appears that Pioneer is equally relevant in an analysis of Rule 8002(c)(2). See Advanced Es*886timating System, Inc. v. Riney, 77 F.3d 1322, 1324 (11th Cir.1996).
Counsel for the Trustee admitted that he believed the thirty-day rule applied and, therefore, he did not file the Trustee’s Notice of Appeal based on his misunderstanding of Fed. R. Bankr.P. 8002(a). Misunderstanding of the rules governing appeals in Bankruptcy does not constitute “excusable neglect.” In re Dayton Circuit Courts #2, 85 B.R. 51, (S.D.Ohio 1988); Maryland Casualty Co. v. Conner, 382 F.2d 13 (10th Cir.1967). See also Pioneer at 507 U.S. 380, 113 S.Ct. at 1496-97. In addition, filing the notice was within the reasonable control of the Trustee’s counsel. See Pioneer at 507 U.S. 380, 113 S.Ct. at 1499 (noting that an attorney is the client’s agent and, thus, the client bears the consequences of the attorney’s acts or omissions). Accordingly, Trustee’s counsel’s misunderstanding of the law cannot constitute “excusable neglect.” Thus, this Court is satisfied that without excusable neglect, the Trustee’s Notice of Appeal was untimely filed.
Based on the foregoing, this Court is satisfied that counsel’s failure to timely file a notice of appeal on behalf of the Trustee does not come within the meaning of “excusable neglect” for purposes of Bankruptcy Rule 8002(c) and, therefore, the Order Denying Trustee’s Motion for Reconsideration and/or Review of this Court’s Order entered on July 30, 2004, Dismissing Appeal for Untimeliness and Motion for Extension to File Notice of Appeal is affirmed.
Accordingly, it is
ORDERED, ADJUDGED, AND DECREED that the Order Denying Trustee’s Motion for Reconsideration and/or Review of this Court’s Order entered on July 30, 2004, Dismissing Appeal for Untimeliness and Motion for Extension to File Notice of Appeal (Doc. No. 48) be, and the same is hereby, affirmed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492367/ | ORDER DENYING MOTION TO OVERRULE UNITED STATES TRUSTEE RE ELECTION OF CHAPTER 7 TRUSTEE
BRETT J. DORIAN, Bankruptcy Judge.
The motion of creditor Cleo M. Foran to overrule the United States Trustee regarding the election of a Chapter 7 trustee came on for hearing on June 20, 1996. Present were Michael Abril for movant Cleo M. Foran, John Carlson for trustee Randell Parker, Leonard Welsh for the debtors and Carol Mills for the United States Trustee. The motion, supported by creditor American Express, requests that the refusal of the U.S. Trustee to recognize the attempt by Michael Abril to vote on behalf of Cleo M. Foran on the election of a trustee without a written proxy as required by FRBP 2006 be overruled and that Joseph F. Etienne be deemed the elected trustee. Alternatively the motion *326requests that the court order a new election for trustee.
It appearing to the court that FRBP 2006 takes precedence over the more general provisions of FRBP 9010(a), and it further appearing that the U.S. Trustee is not the official custodian of the court’s files and cannot be charged with determining whether or not a given attorney has or has not filed an appearance in a ease, and it further appearing that the meeting held pursuant of 11 U.S.C. § 341(a) is not a court hearing but is rather a proceeding conducted by or on behalf of the U.S. Trustee in a facility maintained by the United States Department of Justice and not the Bankruptcy Court, and there being no showing that creditors will be prejudiced by the continued service of Randell Parker as trustee or better served by Joseph F. Etienne, and the court finding that just cause does not exist to require the holding of a further election,
IT IS ORDERED that the motion is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492368/ | MEMORANDUM DECISION ON DEBTOR’S MOTION FOR PARTIAL SUMMARY JUDGMENT
A. JAY CRISTOL, Chief Judge.
THIS MATTER came before this Court for hearing on June 6, 1996, on the Plaintiff/Debtor, Phyllis Cohen’s, Motion for Partial Summary Judgment, pursuant to Bankruptcy Rule 7056 and Rule 56 F.R.Civ.P., with respect to Count I of the Complaint regarding'the United States Internal Revenue income taxes for 1983, 1991 and 1992. Upon reviewing the arguments of counsel at hearing, the Motion, the Opposition of the United States, the Reply, the Deposition and Additional Documents, the pleadings and affidavits filed in the main case, and being otherwise fully advised, this Court makes the following determination.
BACKGROUND:
1. On October 15, 1992, (the “Petition Date”), the Debtor filed a petition for relief under Chapter 7. The Debtor’s schedules listed federal tax liabilities for 1980 and 1983. The 1980 tax liability was listed as secured in the amount of $60,000.00, and unsecured non-priority in the amount of $1,696,278.00. The 1983 tax liability was listed as unsecured non-priority in the amount of $757,727.10. Neither of these liabilities were listed as *384disputed, contingent, or unliquidated.1 The case was converted to a case under Chapter 11 on April 9,1993.
2. On or after June 7, 1993, the Defendant, United States of America, Internal Revenue Service, (the “IRS”), filed a proof of claim in this ease. This proof of claim listed only 1980 as being totally secured in the amount of $1,566,470.11. The secured amount listed $331,521.06 tax, $355,376.38 penalties, and $879,572.67 interest. Said claim states: “[t]he debtor is indebted to the United States in the sum of $1,566,470.11 as of the petition date...” and “[n]o security interest is held, except for the secured claims listed ... above.”
3. On or after August 13, 1993, the IRS filed an amended proof of claim. This proof of claim again listed 1980 as being totally secured in the amount of $1,566,470.11, with $331,521.06 tax, $355,376.38 penalties, and $879,572.67 interest. This amended claim added 1991 and 1992 as unsecured priority taxes, in the estimated amounts of $25,000.00 and $2,588.00, respectively. Said amended claim states: “[t]he debtor is indebted to the United States in the sum of $1,594,058.11 as of the petition date...,” “[this claim] amend[s] and supercede[s] Proof of Claim dated 06/07/93 ... ”, “debtor has failed to file this [1991 and 1992] return[s] ...,” and “[n]o security interest is held, except for the secured claims listed ... above.”
4. No amount was included in either the original claim or the amended claim for 1983, either as secured, priority or unsecured general.2
5. The Debtor filed this adversary proceeding on or before August 26,1993, disputing all income tax liabilities for the years 1979, 1980, 1981, 1982, 1983,1984, 1985,1986, 1987,1988,1989,1991 and 1992, and requesting a determination of the extent, validity and priority of any and all tax hens for those years.3 The IRS made no claim for any tax liabilities due for the years 1979, 1981, 1982, 1984, 1985, 1986, 1987, 1988, or 1989, either by proof of claim or pleading, alleged only by pleading (not by proof of claim) a liability for 1983, and made no secured claim for any tax lien other than 1980.
6. By agreed Order entered February 26, 1996, the parties stipulated that the only issues remaining for this Court to decide are: (a) whether there is reasonable cause to abate the failure to pay penalty for 1980 and the interest on that penalty; (b) whether the federal tax lien attaches to post-petition after-acquired property of the Debtor for discharged tax liabilities; and (c) whether 1983, 1991 and 1992 are valid tax liabilities of the Debtor.
7. By agreed Order entered March 27, 1996, the IRS conceded that the federal tax lien does not attach to post-petition after-acquired property of the Debtor upon entry of discharge or confirmation of a Plan.
8. The IRS filed an Opposition to the Motion at bar only with respect to the 1983 tax liability. At the June 6,1996 hearing, on the record the parties advised the Court that the IRS conceded that the estimated 1991 and 1992 tax liabilities listed on the IRS proof of claim were not valid tax liabilities of the Debtor.4 The remaining issue with re*385spect to this Motion for Partial Summary Judgment is whether there is any amount due for 1983 tax liabilities from the Debtor.5
FACTS:
9. In 1988 or before, the IRS received an unsigned 1983 joint Form 1040 income tax return, purporting to be that of Barry and Phyllis Cohen. The tax ($264,904) on this unsigned “return” was not assessed until July 30, 1990. Among other items of income and deductions, this alleged return includes a net loss on Schedule E from “Barrister Equipt Assoc” in the amount of $10,471.00. By letter dated June 4, 1990, the IRS requested Barry and Phyllis Cohen to declare under penalties of perjury that the joint 1983 “return ... was true, correct and complete.” By letter dated June 11, 1990 to the IRS, Phyllis Cohen, through her attorney, denied that she had filed any 1983 joint return with Barry Cohen.
10. On or before August 10, 1990, the IRS received a signed Form 1040 income tax return for 1983 from Barry Cohen. Among other items of income and deductions, this return includes a net loss from Schedule E in the amount of $10,471.00.
11. On or before March 13, 1991, the IRS received a Form 1040 income tax return, purported to be that of Phyllis Cohen for 1983. This return does not include any income or deductions from any schedule E partnership, nor from “Barrister Equipt Assoc.” By letter dated July 5, 1991, the IRS advised Mrs. Cohen that the “return [she] originally filed is not immediately available,” and requested that she send a “newly signed copy of [her] 1983 return.”
12. The IRS, by letter dated May 10, 1995, denied a claim for refund for the individual (not joint) income tax liability of Phyllis Cohen for 1983 in the amount of $31,-829.00.
13. On March 4, 1996, the IRS sent Barry and Phyllis Cohen, a Notice of Deficiency for joint 1983 tax liabilities, alleging adjustments for “Barrister Equipment Series 152”, Penalty for Failure to File, and Negligence Penalties for a joint return. The additional tax in the amount of $2,095 was assessed on March 4,1996.
14. On July 7, 1992, the IRS applied $21,-806.82 to the alleged joint liability for 1983 assessed against Barry and Phyllis Cohen received from the sale of a condo in Fort Lauderdale. The IRS has maintained during the course of this Bankruptcy that this IRS collection action caused Mrs. Cohen to file the Bankruptcy.
15. The Debtor contends: first, that the proofs of claim filed and amended by the IRS supercede the scheduled 1980 and 1983 tax liability and that therefore, the liability for 1983 is zero; and, second, that, even if the “claim” for 1983 were valid based on the scheduled amount, there is no valid assessment, nor valid tax liability due from Phyllis Cohen for 1983.
16. The IRS maintains two arguments in opposition to summary judgment and in support of the validity of the 1983 tax liability. *386Each argument hinges on the Debtor’s listing of the 1983 tax liability in the bankruptcy schedules as being determinative that the claim is a valid tax claim. First, the IRS alleges that the IRS proof of claim did not need to include 1983 because the bankruptcy schedules listed a 1983 liability, and did not schedule it as “disputed, contingent, or unliquidated.” 6 Second, the IRS claims that by listing a 1983 liability on her bankruptcy schedules, Mrs. Cohen effected a “ratification and adoption” by her of the 1983 heretofore unsigned joint tax liability. Neither argument can withstand scrutiny.
DISCUSSION:
This Court must determine whether, as a matter of law, there is no valid claim for tax liabilities due and owing the United States, Internal Revenue Service for 1983.
SUMMARY JUDGMENT
A motion for summary judgment pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure is appropriate when there exists no genuine issue as to any material fact and a decision may be rendered as a matter of law. The party moving for summary judgment, has the burden of demonstrating that no genuine issue as to any material fact exists, and that the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). Rule 56(c) of the Federal Rules of Civil Procedure (as applicable pursuant to Rule 7056, Fed.R.Bankr.P.) provides that summary judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” This standard has been interpreted by the Supreme Court to mean: “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The motion must be granted if the Court is satisfied that no real factual controversy is present, so that the remedy can serve “its salutary purpose in avoiding a useless, expensive and time-consuming trial where there is no genuine, material fact issue to be tried.” Lyons v. Board of Education, 523 F.2d 340 (8th Cir.1975).
The standard for ruling on summary judgment motions “mirrors the standard for a directed verdict under Federal Rules of Civil Procedure 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict.” Anderson v. Liberty Lobby, Inc., supra, 477 U.S. at 250, 106 S.Ct. at 2511. The non-moving party opposing a motion for summary judgment may not simply rest upon mere allegations or denials of the pleadings. After the moving party has met its burden of coming forward with proof of the absence of any genuine issue of material fact, the non-moving party must make a sufficient showing to establish the existence of an essential element to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp., supra, 477 U.S. at 324, 106 S.Ct. at 2553.
Finally, this Court, after applying the law as set forth above and considering the facts as set forth in the pleadings, motions, and exhibits thereto, must conclude that there is no genuine issue of material fact at issue and that Plaintiff, Phyllis Cohen, is entitled to judgment as a matter of law.
NO VALID CLAIM FOR 1991 AND 1992
The IRS conceded that their amended proof of claim inappropriately listed estimated liabilities for 1991 and 1992 based on the allegation that the Debtor had failed to file returns for those years. It is uncontested that the Debtor filed, and the IRS received the tax returns for 1991 and 1992, and that any and all tax liability for those years has *387been paid in full.7 Therefore, the IRS is barred from collecting any additional taxes from the Debtor for 1991 and 1992.
NO VALID CLAIM FOR 1983
The IRS argument that the proof of claim, as amended, which omitted any liability due and owing for 1983, does not super-cede the Debtor’s scheduled tax debt for 1983, and thus the 1983 amount scheduled is a valid tax claim of its own, is a creative argument. The District Court did not rule on this issue, but noted that the 1983 liability is not undisputed, as the IRS contends because the Debtor filed this adversary proceeding, and further noted that the IRS produced no evidence of a 1983 tax liability. Cohen v. United States, 191 B.R. 482 (Bankr. S.D.Fla.1995).
It is undisputed that (1) the Debtor listed tax liabilities due for 1980 and 1983 in the amounts of $1,756,278.00 and $757,727.10, respectively; and (2) the IRS proof of claim as amended, lists only 1980, 1991 and 1992, and does not list any liability for 1983. The IRS has failed for three years to come forward and amend their claim (both as to 1991 and 1992, as well as 1983). Rather, they have chosen to file a claim for 1980,1991 and 1992, yet, rely only on the scheduled 1983 tax liability. The IRS has never hesitated to come before this Court with an amended proof of claim including additional tax periods, as well as different types of tax. Amendments are permitted where the original claim provides notice of the existence, nature and amount of the claim, and the creditor’s intent to hold the Debtor liable. In re International Horizons, 85-1 USTC P 9212 (11th Cir.1985); Walsh v. Lockhart Associates, 339 F.2d 417 (5th Cir.1964). This Court has generously allowed amendments, even to add corporate income tax liabilities to claims originally listing only employment taxes. In re F.C.M., Corp., 63 AFTR 2d 89-1277 (Bankr.S.D.Fla.1988).
Pursuant to B.R. 3001(f), “a proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.” Pursuant to B.R. 3003(c)(4), “a proof of claim executed and filed in accordance with these rules shall supersede any scheduling of that claim or interest pursuant to Section 521(1) of the Code.”
The first argument of the IRS is that the filing of the proof of claim by the IRS did not supercede the 1983 amount scheduled, pursuant to B.R. 3003(e)(4), because 1983 was not included on the proof of claim, and therefore was a totally different claim. This argument flies in the face of the plain language in the proof of claim itself which states that: “[t]he Debtor is indebted to the United States in the sum of $1,566,470.11 as of the petition date ...,” and “[n]o security interest is held, except for the secured claims listed in [the secured portion] above ...” Both 1980 and 1983 amounts are for income tax, the IRS had filed federal tax hens for both years, the Debtor listed 1980 as partially secured and 1983 as unsecured, neither was listed as disputed, contingent or unliquidated. The IRS argument that the 1980 amount was included on the proof of claim to correct the listed claim to be fully secured fails because the 1983 amount was not listed as secured at ah. In short, the IRS argument is wholly unsupported by the facts at bar.
The IRS cites two cases in support of the proposition that the “failure to file a proof of claim for the 1983 claim” merely fixes the allowable amount of the claim for distribution at the amount in the schedules. Their own authority is to the contrary. Unlike the IRS in this case, the defendant in In re Malkove & Womack, Inc., 134 B.R. 965 (Bankr. N.D.Ala.1991), did not file any proof of claim for rejection damages. Thus, the damages were limited to the amount scheduled by the Debtor. In the second case, In re Candy Braz, Inc., 98 B.R. 375 (Bankr.N.D.Ill.1988), the State of Illinois filed a late proof of claim, and amended it two years later. The Court correctly found that the amended claim, even though untimely, superceded the Debtor’s scheduled liability, which was in a higher amount than the late-filed and amended *388proof of claim. Supra. In a more recent ease, the Court held that the filing of a secured claim by a creditor superceded any scheduled unsecured claim for that creditor. In re Pennave Properties Assoc., 165 B.R. 793 (Bankr.E.D.Pa.1994). In short, a claim filed by the creditor controls.
In this case, a proof of claim was filed by the IRS and there is no reason for this Court to consider that claim as being anything other than all pre-petition tax liabilities. The claim of the IRS is what it says it is—the debt to the United States as of the petition date, and supercedes the scheduled liabilities, including and without limitation, 1980 and 1983.8
NO VALID TAX LIABILITY FOR 1983
An alternative basis for disallowing any claim for 1983, even if the claim were valid based on the scheduled amount, which it is not, is that there is no evidence that any tax is due from the Debtor for 1983. The District Court noted that the IRS has produced no evidence of their claim. In re Cohen, supra. That is still the case. As noted previously, the IRS, as the non-moving party opposing this motion for summary judgment may not simply rest upon mere allegations or denials of the pleadings. After the Debtor has met its burden of coming forward with proof of the absence of any genuine issue of material fact, the IRS must make a sufficient showing to establish the existence of an essential element to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp., supra, 477 U.S. at 324, 106 S.Ct. at 2553. The IRS has simply not made any showing of the existence of a 1983 tax liability of Phyllis Cohen.
The IRS admits there is no signed joint income tax return for Barry and Phyllis Cohen for 1983, and that the unsigned return was “processed.” However, no authority is cited upon which this Court can rely that allows the conversion of this apparent invalid assessment of an unsigned joint tax liability to a valid assessment simply by listing a liability on bankruptcy schedules. No such authority has been found by this Court.
There is no explanation by the IRS for the failure to assess these taxes against Barry Cohen pursuant to the signed individual 1983 Form 1040 return received by the IRS in August 1991. That signed individual return of Barry Cohen, together with Phyllis Cohen’s immediate denial of any joint return, simply cannot be turned into a valid verified joint tax liability by listing a 1983 tax liability on her Bankruptcy schedules.
The Internal Revenue Code is clear—a return is not a valid return unless it is signed and verified. I.R.C. Sections 6061, 6065. Treas.Reg. Section 1.6061-l(a) requires that “each individual shall sign the income tax return ...” An unsigned return is no return at all. Vaira v. Commissioner, 52 T.C. 986,1969 WL 1731 (1969).
In order for the 1983 joint liability to be valid as to Phyllis Cohen, even if the return were signed by Barry Cohen, which it was not, Phyllis Cohen would have had to knowingly and voluntarily affix her signature on the joint return, or at the very least, intend to file a joint return. The IRS cannot substitute something else for verification, not even the signature of an agent. Warmack v. Commissioner, 64 T.C.Memo 1992-431; Dixon v. Commissioner, 28 T.C. 338, 1957 WL 1046 (1957); Pierce v. United States, 75 AFTR 2d 95-2467, 184 B.R. 338 (Bankr. N.D.Iowa 1995); United States v. Lee, 186 B.R. 539 (S.D.Fla.1995).
In this case, the IRS documents not only show that Mrs. Cohen did not sign or verify any joint 1983 liability, the IRS was specifically advised prior to assessment that she disavowed the joint liability. And, the IRS received a signed married filing separately return from Barry Cohen with substantially all of the same income and deduction items as the unsigned joint “return.” The joint assessment for 1983, has no valid basis, ei*389ther in fact or in law, for assessment against Mrs. Cohen.9
By its own admission, prior to July 5,1991, the IRS received an individual Form 1040 from Phyllis Cohen for 1983, and misplaced that return. The IRS has failed to come forward with any evidence to support any tax due from that filed return. The only evidence in the record of tax paid for 1983 is a denied claim for refund dated May 10, 1995, for the individual (not joint) income tax liability of Phyllis Cohen for 1983 in the amount of $31,829.00, and a payment of $21,805.82 credited to the joint 1983 assessment.
The IRS received a 1983 unsigned joint return sometime in 1988. They subsequently received individual returns from both Barry and Phyllis Cohen — and yet chose to pursue a joint liability based on an unsigned return. They have enforced collection on that assessment and vigorously pursued Mrs. Cohen in this Court for that joint liability. The only conceivable reason for the IRS to fail to amend their proof of claim in this case was fear of being subject to Internal Revenue Code Section 7430 damages for filing a claim which they knew to be frivolous. In re Brickell Investment, 73 AFTR 2d 94-2304, 1993 WL 735789 (Bankr.S.D.Fla.1993).10
Neither the facts, the law, nor equity justify any finding other than that the IRS proof of claim superceded the 1983 scheduled debt to the IRS. The IRS failed to make a sufficient showing to establish the existence of an essential element to their case. It is thus not necessary to disallow the claim for 1983 for any other reason, than that the proof of claim filed by the IRS supercedes any scheduled income tax liabilities and precludes collection as to any other pre-petition tax liabilities.
WHEREFORE, it is
ORDERED as follows:
1.Plaintiffs Motion for Partial Summary Judgment is GRANTED;
2. The priority claim of the IRS for 1991 and 1992 in the estimated amounts of $25,000 and $2,588, respectively is stricken and disallowed, there is no tax due from Phyllis Cohen for the years 1991 and 1992, and the IRS is barred from collecting any tax from Phyllis Cohen for 1991 and 1992; and
3. The claim of the IRS for 1983 in the scheduled amount of $757,727.10 is superceded by the IRS proof of claim, and the amount of tax due from Phyllis Cohen for the year 1983 is zero, any and all taxes due from Phyllis Cohen are deemed paid for 1983, any proposed assessment is barred, the federal tax lien for 1983 is unenforceable as to Mrs. Cohen, and the IRS is barred from collecting any tax from Phyllis Cohen for 1983.
4. A Final Order will be entered reflecting these findings.
DONE AND ORDERED.
. The Debtor’s schedules also listed tax liabilities due to the State of New York for 1979, 1980 and 1984. The 1980 liability was listed as disputed. The liabilities for all of these years were disputed through an Adversary Proceeding filed by the Debtor. The Court entered Final Judgment in favor of the Debtor, determining no tax liabilities were owed by the Debtor to the State of New York.
. Both the Debtor's schedules and the IRS proofs of claim were signed under penalties of perjury.
. In prior Motions for Partial Summary Judgment filed by the IRS, this Court found that it had no jurisdiction to determine the 1980 tax because of a previous decision of the United states Tax Court. The Court retained jurisdiction to determine whether there is reasonable cause to abate the failure to pay penalty and interest on that penalty for 1980. The Court also found that the federal tax lien for 1980 is valid to the extent that the claim for 1980 is allowed.
.With respect to IRS counsel’s allegation in the Opposition to this motion of "insufficient knowledge and information" to respond to the claim for "unfiled returns" for 1991 and 1992, it is inconceivable that the IRS could legitimately respond with insufficient knowledge at such a late date in this proceeding. The IRS cannot and does not deny that these returns were filed and processed on or before November 1992 and November 1993, respectively. Furthermore, con*385trary to their procedures, they did not amend the proof of claim upon knowledge of and/or receipt of the filed returns. Since August 1993 to the present, both in this Court and the District Court, the IRS has maintained that these "estimated” amounts are valid tax liabilities of Phyllis Cohen because she failed to file returns for those years. (Had the IRS simply looked at their own transcripts of account and returns on file, they would have known, and certainly should have known, that their position had absolutely no basis in law or in fact.) The proof of claim as amended and filed under penalties of perjury was false as to 1991 on the day it was filed. The proof of claim as to 1992, according to the procedures of the IRS, should have been amended upon receipt of the 1992 return in November 1993, which was prior to the Answer filed in this case. In addition, from 1993 through the present, any and all pleadings filed by the IRS in both this Court and the District Court claiming that the 1991 and 1992 estimated liabilities are valid tax claims against Mrs. Cohen for failure to file returns could be subject to Rule 11 sanctions.
As to lack of sufficient knowledge, since August 26, 1993, the IRS has had the opportunity and obligation to obtain the necessary documents to support the proof of claim filed in this case, which was put at issue by the filing of this adversary proceeding. Insufficient knowledge on the part of the IRS at this juncture in this proceeding is simply unacceptable.
. If this Motion for Summary Judgment is granted, the remaining issue to be tried is whether there is reasonable cause to abate the penalty for failure to pay and the interest on that penalty for 1980.
. The IRS maintains that they filed a claim for 1980 to correct the listing of 1980 as partially unsecured.
. The position maintained by the IRS since 1993 with respect to 1991 and 1992 has no substantial justification.
. By failing to list any other liabilities, the claim bars collection of all pre-petition tax years, including those at issue in this adversary proceeding—1979, and 1981 through 1992.
. The Notice of Deficiency dated March 4, 1996 for additional penalties due to an assessed deficiency of $2,095.00 for disallowance of a loss due to Barrister Equipment Series likewise does not appear to be a liability of Phyllis Cohen, as that loss was included on the separate return filed by Barry Cohen and received by the IRS in 1990. Nonetheless, if there were, in fact a joint tax return, it appears that Mrs. Cohen could have an innocent spouse defense to this assessment. And, the IRS has made no attempt to amend their claim for this proposed general unsecured dischargeable penalty.
. The IRS position with respect to 1983 has no substantial justification. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492369/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Plaintiffs Motion for Summary Judgment, Defendant’s Memorandum in Opposition, and the Plaintiffs Response. This Court has reviewed the arguments of counsel, exhibits, as well as the entire record of the case. Based upon that review, and for the following reasons, the Court finds that the Plaintiffs Motion for Summary Judgment should be denied.
FACTS
An involuntary bankruptcy petition was filed against Turkeyfoot Concrete, Inc., (hereafter the “Debtor”) on June 10, 1994. On August 23, 1994, the Debtor was adjudged bankrupt. Plaintiff is the Trustee in this Chapter 7 Bankruptcy. In his Complaint and Motion for Summary Judgment, the Plaintiff claims that the Defendant, Sylvester Material Company, owes the bankruptcy estate the sum of Thirty Thousand Dollars ($30,000) as the result of a preferential transfer. Defendant admits receiving a payment in this amount in June of 1993, as the result of a judgment awarded to Defendant against the Debtor and Arthur D. Williams, the owner and principal officer of the corporation. However, Defendant argues that the payment was not preferential because Debtor was not insolvent at that time. The Plaintiff insists that the Debtor was indeed insolvent at that time.
In his Motion, the Plaintiff points to three exhibits to show that the Debtor was insolvent at the time of the transfer. These *508exhibits are not certified, and are only accompanied with an unnotarized affidavit of the Plaintiff stating that they are, “true and accurate to the best of my belief and knowledge.” ' The first such exhibit purports to be a copy of a letter from a Certified Public Accounting firm, with accompanying financial statements of the Debtor for the year ended September 30, 1991. The next exhibit purports to be an income tax return for the Debtor for the year ending April 30, 1991. Plaintiff’s third exhibit purports to be an income tax return for the Debtor for the year ending April 30,1992.
Plaintiff claims that these exhibits show that Debtor’s financial situation was in sufficiently poor condition that' Debtor’s insolvency at the time of the transfer can be inferred. Defendant argues that the exhibits are not authenticated properly, that Debtor was not in fact insolvent, and that a number of events after the date of the transfer are what led to the Debtor’s insolvency.
LAW
The Bankruptcy Code provides in pertinent part:
11 U.S.C. § 101. Definitions
In this title—
(32) “insolvent” means—
(A)with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation, exclusive of—
(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity’s creditors; and
(ii) property that may be exempted from property of the estate under section 522 of this title[.]
11 U.S.C. § 547. Preferences (b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title
(f) For 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.
The Bankruptcy Rules provide in pertinent part:
Rule 7056. Summary Judgment
Rule 56 F.R.Civ.P. applies in adversary proceedings.
The Federal Rules of Civil Procedure provide in pertinent part:
Rule 56. Summary Judgment
(c) The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions of 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.
The Federal Rules of Evidence provide in pertinent part:
Rule 803. Hearsay Exceptions; Availability of Declarant Immaterial
The following are not excluded by the hearsay rule, even though the declarant is available as a witness:
(6)Records of regularly conducted activity.
A memorandum, report record, or data compilation, in any form, of acts, events, *509conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness. The term “business” as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit.
DISCUSSION
Proceedings to determine, avoid, or recover preferences are core proceedings pursuant to 28 U.S.C. Section 157. Thus, this ease is a core proceeding.
A movant will prevail on a motion for 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 a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 320, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In order to prevail, the movant must demonstrate all elements of the cause of action. R.E. Cruise, Inc. v. Bruggeman, 508 F.2d 415, 416 (6th Cir.1975). Thereafter, the opposing party must set forth specific facts showing there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). See In re Bell, 181 B.R. 311 (Bankr.N.D.Ohio 1995), for a more thorough discussion of the law regarding summary judgment.
The only contested issue for purposes of the present Motion is the issue of the Debtor’s insolvency at the time of the transfer. Section 547(b)(3) provides that the Debtor must be insolvent at the time of the transfer for the transfer to be preferential. It is clear from a reading of § 547 that the Trustee will bear the burden of proof at a trial of Debtor’s insolvency. That is, because § 547(f) expressly states that the burden of proving insolvency shifts to the transferee when the transfer occurred within 90 days of the filing of the bankruptcy petition, the converse is equally true. That is, because the alleged preferential transfer in this case occurred more than 90 days prior to the petition date, the burden will be on the Trustee.
The Trustee’s Motion for Summary Judgment fails for a lack of credible evidence supporting his proposition that the Debtor was insolvent at the time the transfer was made. Federal Rule of Civil Procedure (hereafter “FRCP”) 56(c) provides that the evidence used to support a Motion for Summary Judgment be of the type provided for in that section. Included in that Rule is a provision for the use of affidavits, and it is implied that supporting documentation may accompany such affidavits. This does not mean, however, that a moving party can satisfy his burden by signing his own name to an affidavit that merely states that the documents are accurate as far as he knows. There must be some basis for the affiant’s belief. Though it is uncontroverted that the evidence put forth in a Motion for Summary Judgment may not necessarily be of the type admissible at trial, it must nevertheless prove that there is no genuine issue of fact, and that the movant 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). These documents fail to do so because they are not supported by any credible witness who could possibly testify to their truth and veracity, as they predate the Trustee’s tenure as administrator of the Estate.
Further, even if the Court were to accept the use of a Trustee’s affidavit to authenticate financial records before the Trustee was appointed, the Court would note that it was not notarized. Further, none of the docu*510ments even bear the signature of the Debtor or an accountant. Finally, these tax returns were handwritten, and could merely have been worksheets not actually filed.
The Trustee argues that these documents were kept in the ordinary course of business, and are therefore admissible under Federal Rule of Evidence (hereafter “FRE”) 803(6). This Court disagrees with this application of FRE 803(6). This Rule provides that such business documents, which are hearsay because they were prepared by a stream of an out of court declarants, will be excepted from the hearsay rule and allowed as admissible evidence if they are otherwise properly admissible. This does not mean that they may be accepted over objection if the proper foundation has not been laid. The Trustee or any proponent of business documents must show that they are what they purport to be, usually through a “custodian or other qualified witness” who can testify that this was a document prepared in the ordinary course of business. FRE 803(6). Further, FRE expressly contains the caveat, “unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.” The Trustee has simply failed to authenticate these documents.
Even if the documents were properly authenticated, they would not likely satisfy the Trustee’s burden. Regarding the financial statements and letter from the accountant, these documents not only predate the alleged preferential transfer by two years, but also fail to show that the Debtor was insolvent at that time. Section 101(32) of the Bankruptcy Code clearly states that the debtor is “insolvent” when its assets, at fair market value, exceed it liabilities. In re Perry, 158 B.R. 694 (Bankr.N.D.Ohio 1993), In re Mangold, 145 B.R. 16 (Bankr.N.D.Ohio 1992). This has been called the “balance sheet” test. Id. As of September 1991, if these financial statements are to be believed, the Debtor’s assets still exceeded its liabilities, and the Debtor was therefore not insolvent. The same is true of the balance sheet portion of the purported 1991 tax return.
The only document that could possibly show that the Debtor was insolvent at the time of the transfer was the balance sheet portion of the Debtor’s purported 1992 tax return. As mentioned previously, only this one schedule shows that the Debtor’s assets exceed liabilities. The valuation of these assets, however, is not shown to be at fair market value, but rather at book value. It is commonly accepted that book value, which is usually the price paid for the property at acquisition less accumulated depreciation, does not likely bear any relation to the asset’s fair market value. Indeed, this would be quite a coincidence. An asset’s depreciation for tax purposes is usually done in a manner which facilitates the greatest tax savings the fastest. This method may have little to do with the actual declining fair market value of the asset.
For all these reasons, the Trustee’s Motion will be denied. 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 Motion for Summary Judgment of John J. Hunter, Trustee, be, and is hereby, DENIED.
It is FURTHER ORDERED that this case be set for Trial on May 20,1996 at 10:00 A.M. in Courtroom No. 2, Room 119, United States Courthouse, 1716 Spielbusch Avenue, Toledo, Ohio.
It is FURTHER ORDERED that on, or before May 13, 1996 at 4:00 P.M., the parties shall submit to the Court and to each other, lists of witnesses, lists of exhibits, and pretrial briefs stating the arguments the parties intend to make at trial, and the legal authority upon which the parties intend to rely. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492370/ | ORDER ON UNITED STATES TRUSTEE’S OBJECTION TO PROPOSED DISTRIBUTION AND TO TRUSTEE COMPENSATION, APPLICATION OF TRUSTEE FOR COMPENSATION AND APPLICATION FOR ALLOWANCE OF ATTORNEY’S FEE FOR ATTORNEY FOR TRUSTEE
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is an objection to the proposed Order Allowing Administrative Expenses, Authorizing Disbursements and Directing Payment of Dividends. The Objection is filed by Donald F. Walton, Acting United States Trustee (US Trustee).
The facts relevant to the Objection under consideration as they appear from the record are as follows:
Robert E. Keller, Jr. (Debtor) filed his voluntary Petition for Relief under Chapter 7 on September 18, 1989. In due course, V. John Brook, Jr. (Trustee) was appointed the Trustee in charge of the administration of *631the Debtor’s estate. The case was originally noticed as a no dividend case pursuant to F.R.B.P. 2002(e). However, ultimately assets were available for liquidation which were in fact liquidated by the Trustee. On January 23, 1995, the Trustee submitted his Preliminary Report for the US Trustee’s review. On March 9, 1995, the US Trustee filed the Preliminary Report with the Court, together with the Trustee’s Fee Application. On May 22, 1995, the Court issued Notice of the Preliminary Report and Notice of Surplus Funds which advised creditors of the availability of funds to pay dividends and of the opportunity to file proofs of claims.
The Trustee’s Proposed Order Allowing Administrative Expenses, Authorizing Disbursements and Directing Payments of Dividends provides as follows:
ADMINISTRATIVE EXPENSES PRINCIPAL INTEREST TOTAL
John Brook, Trustee $1171.25 $573.10 $1744.35
John Brook, Attorney Fee $1000.00 $34.46 $1034.46
Clerk’s Charges $200.00 $200.00
PRIORITY CLAIMS
None
UNSECURED CLAIMS
Community Arts Chiropractic Clinic $1254.23 $613.71 $1897.94
Thelma Fudge $5352.89 $2619.21 $7972.10
Theresa Todd & Mutual insurance $12,500 $1044.17 $13544.17
SURPLUS TO THE DEBTOR
None
TOTAL $21,478.37 $4,884.65 $26,363.02
As it appears from the foregoing, the Trustee in his Proposed Order of Distribution applied funds to pay interest on his commission paid pursuant to § 326 and to his fees for professional services rendered to himself. The surplus funds ordinarily would be returned to the Debtor pursuant to § 726(a)(6). The Trustee computed the interest on his commission from the date he was appointed. He computed the interest on his request for compensation for legal services from the date he filed his Fee Application.
The Objection filed by the US Trustee is directed to the propriety of paying interest on the Trustee’s commission and on the attorney fees in a surplus case. In support of the U.S. Trustee’s Objection is a long line of cases which held that trustees and other professionals are only entitled to interest in a surplus case from the date the Court enters an order awarding the fees, not from the date of the appointment or the date the professionals filed their Applications for Allowance. In re Riverside-Linden Inv. Co., 945 F.2d 320 (9th Cir.1991) aff'g In re Riverside-Linden Inv. Co., 99 B.R. 439 (Bankr. 9th Cir. BAP 1989); In re Chiapetta, 159 B.R. 152 (Bankr.E.D.Pa.1993); In re Motley, 150 B.R. 16 (Bankr.E.D.Va.1992); In re Commercial Consortium of California, 135 B.R. 120 (Bankr.C.D.Cal.1991). These decisions were based on the interpretation by the courts of the reference in the subclause which authorizes payment of interest on claims, § 726(a)(5), to claims paid under § 726(a)(1), which in turn refers to claims specified in § 507 and § 503(b). There is hardly any question that administrative expenses allowed pursuant to § 503(b) cannot be paid without court approval. Thus, no professional is entitled to any compensation until the court enters an order awarding the compensation sought as a cost of administration.
A literal interpretation of § 726(a)(5) produces uncontemplated results as to interest *632allowable to attorneys and trustees, whose administrative expenses arise subsequent to filing. For instance, if the attorney for the Trustee is not employed until two years into the administration of the case it would, in effect, permit the attorney to earn interest on those fees when he did not perform any work. Equally, the Trustee would be encouraged to delay the administration of the estate to allow the accrual of interest in a surplus case.
Further, the Trustee had no cognizable right to payment upon his appointment, other than his entitlement to a statutory allowance of $60. It is conceivable that the Trustee could receive no allowance of fees, as his compensation is to be based solely on the amount he distributes to parties in interest. For this reason, the Trustee is not entitled to interest on his fees computed from the date of his appointment.
This Court is not unmindful that in the case of In re Glados, Inc., Case No. 83-2049-8B7 (September 30, 1992), the Honorable Thomas E. Baynes, Jr., of this Court held that in a surplus case, the Trustee is entitled to compute the interest on his commission from the date of his appointment and on professional fees from the date the Application to be retained was filed. Glados was affirmed in the District Court, sub nom. US Trustee v. Fishback, Case No. 93-1905-CIV-T-23 (May 5,1995). This decision is currently pending on appeal before the United States Court of Appeals for the Eleventh Circuit, Case No. 95-2849.
While this Court is in agreement with the position adopted by the US Trustee and sustains the Objection to the Proposed Distribution, it is appropriate to approve the proposed distribution to the allowed claims, but withhold any payment of interest to the Trustee, either on his commission or on his fee award, until the right to interest calculation urged by the Trustee is resolved by the Eleventh Circuit.
This leaves for consideration the determination of reasonable compensation to be awarded to the Trustee in his dual capacity. The record reveals that none of the funds available for distribution were the result of sales, other liquidation of estate assets, or litigation conducted by the Trustee. The only funds were from a settlement of a state court litigation accomplished by the non-bankruptcy attorney. The Fee Application of the Trustee fails to disclose any significant legal problems and the services rendered were limited to representing the estate’s interest in the state court litigation. In light of the foregoing, this Court is satisfied that the Trustee’s commission allowable under § 326 shall be $500.00 and the reasonable fee for his services as an attorney shall be $750.00.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED the objection to the proposed Order Allowing Administrative Expenses, Authorizing Disbursements and Directing Payment of Dividends filed by Donald F. Walton, Acting United States Trustee, be, and the same is hereby sustained in part and overruled in part. It is appropriate to approve the proposed distribution to the allowed claims, but withhold any payment of interest to the Trustee, either on his commission or on his fee award, until the right to interest calculation urged by the Trustee is resolved by the Eleventh Circuit. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee’s commission allowable under § 326 shall be $500.00, and the reasonable fee for his services as an attorney shall be $750.00. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee shall make distribution of all funds on hand in conformity with this Order, with the exception of the amount retained.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492371/ | OPINION
HAGAN, Bankruptcy Judge:
Appellant, Wells Fargo Bank (‘Wells Fargo”) filed this action for collection of a promissory note in the Superior Court of California, Orange County, against the maker, Chronometrics Financial Inc. (“Chron-Financial”), and its guarantors: Richard E. Job (the “Debtor”), Chronometrics, Inc. (“Chronometrics”), Chronometrics Manufacturing (“Chron-Manufaeturing”) and Eugene J. Albertini (“Albertini”). Albertini was the president and principal shareholder of Chronometrics, Chron-Financial and Chron-Manufacturing. The Debtor was a minor shareholder of the corporations.
After the Debtor filed his chapter 11 petition, the defendants removed the action to U.S. Bankruptcy Court for the Central District of California. The bankruptcy court granted summary judgment in favor of the defendants, and later awarded defendant Albertini his attorney fees. Wells Fargo timely appealed both orders.
*765The appeals were consolidated on June 8, 1994, and on October 20, 1995, we entered an order affirming the bankruptcy court’s determinations. Wells Fargo filed a motion for rehearing on October 30, 1995. On December 27, 1995, we granted a rehearing of the award of attorneys fees,2 but denied the motion as to the award of summary judgment.3
FACTUAL BACKGROUND
The facts relating to Albertini’s representation of himself and the other defendants are as follows:
Albertini is an attorney and the surviving partner of Albertini and Gill. Albertini and various associates employed by him represented the Debtor and the other defendants both in state court and after the removal to bankruptcy court.
Once summary judgment was awarded to the defendants, Albertini filed a motion for attorneys’ fees and costs pursuant to a clause in the promissory note at issue. He requested that the fees be awarded to him alone, and not apportioned between the defendants on the grounds that he alone had incurred them:
Given the tremendous financial drain upon his resources from the Fresno Case and that Chronometrics and Chronometrics Financial had been owned largely by me personally and were no longer in existence by 1988, I did not feel I could bill Job for any of the services performed on the case and I never did so, nor did he ever pay any portion of the billing for the within action (had Job been forced to retain separate counsel herein, because Wells Fargo successfully moved to disqualify me, he would have had to pay for representation herein, which he could not afford to do at that time). Moreover, in September of 1991, Job filed for protection under the United States Bankruptcy Code, Chapter 11, and there was thus a stay in effect as to him in this action; Wells Fargo thereafter, in reality, pursued only me ... As noted, neither Chronometrics nor Chronometrics Financial were in existence any longer by the time Wells Fargo filed its suit, so there was certainly no payment of fees from them. There is thus no basis to apportion the fees incurred; they were all incurred an borne solely by myself.
Declaration of Eugene J. Albertini in Support of Motion, for Costs, Expenses, and Reasonable Attorneys’ Fees, January 26, 1994, ¶ 10.
Wells Fargo contended before the bankruptcy court that the $379,972.25 in attorney’s fees requested by Albertini were excessive, but did not contend that Albertini was not entitled to his reasonable fees and costs.
DISCUSSION
On appeal, Wells Fargo first raised the argument that Albertini was not entitled to an award of attorney’s fees because he represented himself.
Generally, an appellate court will not consider arguments not first raised before the district court unless there were exceptional circumstances. Villar v. Crowley Maritime Corp., 782 F.2d 1478, 1483 (9th Cir. 1986). The specific “exceptional circumstances” that this circuit has identified are as follows: (1) review is necessary to prevent a miscarriage of justice; (2) a new issue arises while an appeal is pending because of a change in the law and (3) the “issue presented is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed.” Bolker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir.1985).
Briggs v. Kent (In re Professional Inv. Properties of America), 955 F.2d 623, 625 (9th Cir.1992), cert. denied 506 U.S. 818,113 S.Ct. 63, 121 L.Ed.2d 31 (1992); See also Trattoria v. Lansford (In re Lansford) 822 F.2d 902, 905 (9th Cir.1987) (applying rule to bankruptcy proceeding).
Wells Fargo contends its new defense to the award of attorneys’ fees should be considered on appeal because the issue is purely a matter of law which arose on appeal due to a change in the law.
The defense did arise as the result of a new California Supreme Court decision. At *766the time Albertini filed his motion for attorneys fees, the California Courts of Appeal had held that any attorney who represents himself is entitled to his reasonable fees and costs under California Code of Civil Procedure § 1717.4 See, Leaf v. City of San Mateo, 150 Cal.App.3d. 1184, 198 Cal.Rptr. 447 (1984). Renfrew v. Loysen, 175 Cal.App.3d 1105, 222 Cal.Rptr. 413 (1985). After we took this case under advisement, the California Supreme Court overruled Renfrew v. Loysen, and held that an attorney who represents himself is not entitled to an award of attorney’s fees under § 1717. Trope v. Katz, 11 Cal.4th 274, 45 Cal.Rptr.2d. 241, 902 P.2d 259 (Cal.Supp.Ct.1995).
Nevertheless, Albertini contends that the Trope v. Katz case is not new law because the California Supreme Court had previously held in Patterson v. Donner, 48 Cal. 369 (Cal.Sup.Ct.1874), that attorneys acting pro se could not be awarded attorney’s fees pursuant to the statutory § 1021. The California Supreme Court summarized the previous attorney’s fee law in Trope v. Katz. It noted that California has followed the “American rule” that each party to a lawsuit must pay his own attorney’s fees. Trope v. Katz, 11 Cal.4th at 278-279, 45 Cal.Rptr.2d at 244-245, 902 P.2d at 262-263. The California legislature codified this rule in 1872. See California Code of Civil Procedure § 1021. However, § 1021 provided that awards of attorneys’ fees could be made upon “agreement, express or implied of the parties.”
As early as 1874, the California Supreme Court held that the contractual exception to § 1021 did not allow an award of attorneys fees to a plaintiff attorney who had represented himself through-out the litigation. Patterson v. Donner, supra. In 1968 the California Legislature replaced § 1021 with § 1717. Although § 1717 also provides a contractual exception to the American Rule, the language of section 1717 differs substantially from the former § 1021. In addition the new section broadened the contractual exception to include the award of attorneys’ fees to the prevailing party regardless of whether he or she is the party specified in the contract.
After the passage of § 1717, the California Supreme Court suggested in dicta that it intended to overrule its earlier ban on the award attorneys’ fees to persons representing themselves:
[T]he logic of past decisions that do not allow an attorney to recover fees when he appears on his own behalf is unclear. Although such an attorney does not pay a fee or incur any Financial [sic] liability therefor, to another, his Time [sic] spent in preparing and presenting his case is not somehow rendered less valuable because he is representing himself rather than a third party. Accordingly, it would appear he should be compensated when he represents himself if he would otherwise be entitled to such compensation.
Consumers Lobby Against Monopolies v. Public Utilities Com., 25 Cal.3d 891, 915 n. 13, 160 Cal.Rptr. 124, 138 n. 13, 603 P.2d 41, 55 n. 13 (Cal.Sup.Ct.1979) (holding that non-attorney representing himself before the Public Utilities Commission was entitled to attorney fees because, Public Utilities Commission rules allowed him to represent himself and the non-attorney’s efforts resulted in a $400,000.00 fund to be distributed for the benefit of the public).
Relying on the dicta in Consumers Lobby, the California Courts of Appeal in Leaf v. City of San Mateo, and Renfrew v. Loysen, held that pursuant to California Civil Code § 1717 attorneys representing themselves were entitled to their reasonable fees and costs. Until 1995, the California Supreme Court never construed § 1717. Consequently, Leaf and Renfrew remained good law until the Trope v. Katz decision.
The Trope v. Katz decision was entered while this appeal was pending. Thus, *767the claim that Albertini was not entitled to any attorneys’ fees arose while this appeal was pending. Further, the factual record has been fully developed below, and the issue is one of law only. Accordingly, we will entertain Wells Fargo’s new defense.
Wells Fargo contends that because Albertini represented himself, he is not entitled to an award of attorney fees. Albertini contends that Trope v. Katz should not be applied retroactively. Generally, judicial decisions are given retroactive effect. Waller v. Truck Insurance Exchange, Inc., 11 Cal.4th 1, 23-24, 44 Cal.Rptr.2d 370, 382, 900 P.2d 619, 631 (Cal.Sup.Ct.1995) (“Courts of Appeal routinely consider newly published ease law that was not available until after entry of judgment in the trial court.”); Newman v. Emerson Radio Corporation, 48 Cal.3d 973, 978-979, 258 Cal.Rptr. 592, 595, 772 P.2d 1059, 1062 (Cal.Sup.Ct.1989) (judicial decisions are generally applied retroactively, while statutes are generally only applied prospectively). The mere fact that a California Supreme Court overruled a consistent line of court of appeals cases is not sufficient in and of itself to justify “nonretroaetivity in the absence of compelling additional reasons.” Neuman v. Emerson Radio Corp., 48 Cal.3d at 986, 258 Cal.Rptr. at 601, 772 P.2d at 1067.
The courts may decline to apply judicial decisions to pending cases, “where a subsequent change in a procedural rule would work to bar a cause of action filed in reliance of the former rule.” Newman v. Emerson Radio Corp., 48 Cal.3d at 990, 258 Cal.Rptr. at 603, 772 P.2d at 1070. However, although the Trope v. Katz ruling would bar recovery of attorney’s fees, the bar is substantive rather than procedural.
Other exceptions to the general rule of retrospective application focus on “the extent of reliance by litigants of the former rule.” Newman, 48 Cal.3d. at 989, 258 Cal. Rptr. at 603, 772 P.2d at 1070 (citing, Peterson v. Superior Court, 31 Cal.3d, 147, 152, 181 Cal.Rptr. 784, 642 P.2d 1305 (Cal.Sup.Ct. 1982)).
The most compelling example of such reliance occurs when a party has acquired a vested right or entered into a contract based on the former rule, and we [the California Supreme Court] are more reluctant to apply our decisions retroactively in those cases.
Newman, 48 Cal.3d. at 989, 258 Cal.Rptr. at 603, 772 P.2d at 1070.
Clearly, Albertini did not enter into the loan agreement at issue here in reliance on his ability to obtain attorneys’ fees for his pro se representation of himself in the event either he or the bank sued. Further exception must also be considered in light of the foreseeability of a change in the law. Here, not all of the Appellate Districts had ruled on the issue, there remained Supreme Court decisions stating to the contrary. Accordingly, we conclude the Trope v. Katz decision should be applied retroactively.
In the alternative, Albertini contends that Trope v. Katz is distinguishable because he also represented not only himself, but also the other defendants. However, the attorneys’ fees were, at Albertini’s request awarded to Albertini alone, and not to any of the other defendants. Further, Albertini stated in his declaration that he had not charged the other defendants for his representation. The fact Albertini did not bill the other defendants is critical because the California Supreme Court based its decision on strict statutory construction of the words “incur” and “attorney fees”:
[B]y its terms section 1717 applies only to contracts specifically providing that attorney fees “which are incurred to enforce that contract” shall be awarded to one of the parties or to the prevailing party, [italics omitted.] To “incur” a fee, of course, is to “become hable” for it (Webster’s New Internat.Dict. (3d ed.1961) p. 1146), i.e., to become obligated to pay it. It follows that an attorney litigating in propria persona cannot be said to “incur” compensation for his time and his lost business opportunities.
---- Similarly, Webster’s defines the word “fee” as “compensation often in the form of a fixed charge for professional service or for special and requested exercise of talent or of skill.” (Webster’s New *768Internat.Dict., supra, p. 883; see also 5 Oxford English Diet. (2d ed. 1989) p. 797 [“fee” denotes “a payment,” such as the “remuneration paid or due to a lawyer, a physician, or (in recent use) any professional man, a director of a public company, etc. for an occasional service”].) Accordingly, the usual and ordinary meaning of the words “attorney’s fees,” both in legal and in general usage, is the consideration that a litigant actually pays or becomes hable to pay in exchange for legal representation. An attorney litigating in propria persona pays no such compensation.
Trope v. Katz, 11 Cal.4th at 280, 45 Cal. Rptr.2d at 245-246, 902 P.2d at 263-264.
In this case, the other defendants were not contractually obligated to pay Albertini. Thus they cannot be said to have incurred, i.e. become hable for attorney fees. Further, even if the other defendants had incurred attorney’s fees, the order on appeal awards the fees to Albertini. Thus the remaining defendants’ right, if any, to attorney fees is not before us.
Next, Albertini contends that Trope v. Katz should be distinguished because in Trope the law firm appearing pro se was the plaintiff, and he appeared pro se as a defendant. However, it is not logical to suggest the words “to incur attorney’s fees” would have a different meaning where a pro se htigant defended rather then prosecuted a case.
Albertini also contends that Trope should not be apphed in this case because he was forced by economic circumstances to litigate the case. However, many if not most pro se litigants are forced to do without an attorney because of economic circumstances. No economic hardship exception to the rule applies to nonattorneys. To allow a hardship exception to attorneys would result in different treatment of attorneys and nonattorneys. As explained by the California Supreme Court, such an exception would conflict with the statutory purpose of § 1717:
The statute was designed to establish mutuality of remedy when a contractual provision makes recovery of attorney fees available to only one party, and to prevent the oppressive use of one-sided attorney fee provisions, [citations omitted]. If an attorney who is the prevailing party in an action to enforce a contract with an attorney fee provision can recover compensation for the time he expends litigating his case in propria persona, but a nonattorney pro se litigant cannot do so regardless of the personal and economic value of such time simply because he has chosen to pursue a different occupation, every such contract would be oppressive and one-sided.
Trope v. Katz, 11 Cal.4th at 285, 45 Cal. Rptr.2d at 249, 902 P.2d at 267.
Next, Albertini contends that he did not represent himself, but that his firm Albertini & Gill represented him. In light of the fact that Albertini & Gill is an unincorporated business owned since Gill’s death, solely by Albertini, this argument is frivolous. Albertini is Albertini & Gill and Albertini & Gill is Albertini. No distinction can be made between them.
Having failed to demonstrate that he is entitled to the entire award of attorney’s fees, Albertini contends that he did incur fees owed to his associates, and that at a minimum these fees should be compensated. Wells Fargo contends that Trope v. Katz precludes this argument because the law firm of Trope and Trope necessarily used its employees to litigate the case. However, it is not clear from the opinions in Trope v. Katz whether the law firm had any employees other than its partners.
Further, the California Supreme Court specifically declined to determine whether a party could be awarded attorneys fees for representation by in house counsel:
Finally, Trope & Trope contends that the application of Patterson and Sten in this context would conflict with the “developing body of law” on the question whether a litigant can recover attorney fees if he was represented by in-house counsel. (See Garfield Bank [v. Folb], supra, 25 Cal. App.4th 1804, 31 Cal.Rptr.2d 239 [ (1994) ].) It reasons that if we hold that a litigant cannot recover attorney fees unless actually paid or became liable to pay consideration in exchange for legal repre*769sentation, it would mean that a litigant represented by in-house counsel could not recover such fees because it paid its attorney a salary rather than a fee. The conclusion does not necessarily follow, because an argument can be made that in such circumstances the salary is the functional equivalent of the fee. Resolution of that question, however, must await another day: we have no occasion in this case to decide whether a litigant represented by in-house counsel can or cannot recover “reasonably attorney’s fees” under section 1717, and nothing in our opinion should be read as endorsing or precluding such an award.
Trope v. Katz, 11 Cal.4th at 291, 45 Cal. Rptr.2d at 253, 902 P.2d at 271.
Likewise, it can be argued that the fact Albertini paid his associates a salary rather than a fee in exchange for legal services is the “functional equivalent of a fee.” However, as stressed by the California Supreme Court, dicta is not binding on future cases. In the binding portion of Trope v. Katz, the court held that pursuant to section 1717, the fee must be “incurred to enforce that contract.” (emphasis added). Albertini has incurred an obligation to pay his associates, but that duty arises out of the fact that he hired them to work for his firm, not because he specifically hired them to represent him in this litigation. Therefore the salary he pays his associates cannot be said to have been incurred to enforce the promissory notes. The fact that Albertini choose to divert his associates from work for his clients to work for himself does not change his obligation to his associates and therefore does not cause him to have incurred attorney’s fees to his associates. Accordingly, as he has not “incurred” attorneys’ fees, Trope v. Katz precludes an award of attorneys’ fees to Albertini.
CONCLUSION
Pursuant to the California Supreme Court’s recent decision in Trope v. Katz, we reverse the bankruptcy court’s order awarding defendant Albertini attorneys’ fees for representation of himself. We affirm the bankruptcy court’s order as to costs.
. BAP No. CC-94-1505.
. BAP No. CC-94-1177.
. California Code of Civil Procedure § 1717 provides:
In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in additional to other costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492373/ | ORDER
WILLIAM L. STOCKS, Chief Judge.
This case came before the court on May 28,1996, for hearing upon Debtor’s motion to file amended/supplemental pleading. Debtor appeared at the hearing but did not offer any evidence or oral arguments in support of the motion. Having reviewed the motion to file amended/supplemental pleading and the contents of the official file, the court finds and concludes as follows:
FINDINGS OF FACT
1. The motion to file amended/supplemental pleading was filed by the Debtor pursuant to Rule 15 of the Federal Rules of Civil Procedure and Bankruptcy Rule 7015 and apparently seeks leave of court to file an amended objection to the claim of the Internal Revenue Service in this case.
2. On January 23, 1996, Debtor filed an objection to the proof of claim of the Internal Revenue Service.
3. On April 30, 1996, the court held a hearing upon Debtor’s objection to the proof of claim of the Internal Revenue Service.
4. On May 8, 1996, the court entered an order overruling the Debtor’s objection to the proof of claim of the Internal Revenue Service.
5. The motion now before the court was filed on May 10,1996, after the court already had ruled upon the Debtor’s earlier objection to the proof of claim of the Internal Revenue Service.
CONCLUSIONS OF LAW
6. An objection to a proof of claim is a contested matter within the meaning of Bankruptcy Rule 9014. Bankruptcy Rule 7015, which incorporates Rule 15 of the Federal Rules of Civil Procedure, is not one of the Bankruptcy Rules which apply with respect to contested matters pursuant to Bankruptcy Rule 9015. Debtor, therefore, is not entitled to proceed under Bankruptcy Rule 7015 in order to file an amended or supplemental objection to the claim of the Internal Revenue Service.
7. Even if Debtor’s motion to amend pursuant to Rule 7015 were appropriate, the motion is not timely because the court already had ruled on the objection which Debt- or seeks to amend when the motion was filed. Moreover, a debtor is not entitled to utilize the filing of amended or supplemental objections in order to file successive and repeated objections to the claim of a creditor. The filing of such successive and repeated objections, even if based on different grounds, is unduly burdensome and prejudicial to creditors who are subjected to such tactics. In the present ease Debtor failed to show any valid reason why all of his grounds for objection could not have been included in his first objection to the claim of the Internal Revenue Service and it would be prejudicial and unduly burdensome to the Internal Revenue Service now to permit the Debtor to amend and thereby file successive objections requiring additional hearings and additional and unnecessary loss of time and expense.
*9108. Debtor’s motion sets forth additional grounds for objection which Debtor apparently seeks to raise in the proposed amended/supplemental objection. None of these grounds for objection which Debtor seeks to include in an amended or supplemental pleading constitute legal and valid grounds for objecting to the claim of the Internal Revenue Service. Because of the legal insufficiency of the proposed amended/supplemental pleading, no valid purpose would be served by allowing the Debtor to file an amended or supplemental objection to the claim of the Internal Revenue Service.
9. The Debtor failed to establish any grounds or basis for permitting the filing of an amended or supplemental objection to the proof of claim of the Internal Revenue Service.
10. The Debtor’s motion to file amended/supplemental pleading should be overruled.
Now, therefore, it is ORDERED, ADJUDGED AND DECREED that the Debt- or’s motion to file amended/supplemental pleading shall be, and the same hereby is, overruled and denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492375/ | MEMORANDUM AND ORDER RE JOINT MOTION FOR SUMMARY JUDGMENT PURSUANT TO FED. R.BANKR.P. 7056 ARISING OUT OF THE DEBTOR’S ORIGINAL AND AMENDED COMPLAINT TO DETERMINE DISCHARGEABILITY OF CERTAIN DEBTS UNDER 11 U.S.C. § 523(a)(7) COMBINED WITH NOTICE OF THE ENTRY THEREOF
DAVID S. KENNEDY, Chief Judge.
This action is before the court on a joint motion filed by the plaintiff, the above-named chapter 7 debtor, Chestine L. Clayton (“Ms. Clayton”), and the defendant, Tennessee Department of Safety (“Department”), seeking summary judgment pursuant to Fed.R.Bankr.P. 7056 and arises out of Ms. Clayton’s original and amended complaint to determine the dischargeability under 11 U.S.C. § 523(a)(7)1 of certain statutory fees under Tenn.Code Ann. § 55-12-129, infra, imposed as a precondition to the reinstatement or *31reissuance of a Tennessee driver’s license to her.2
By virtue of 28 U.S.C. § 157(b)(2)(I) this is a core proceeding; and the court has jurisdiction under to 28 U.S.C. §§ 1334 and 157(a) and Miscellaneous District Court Order No. 84-30 entered on July 11, 1984. The following shall constitute the court’s findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052.
The relevant background facts are not in dispute and may be briefly summarized as follows. Ms. Clayton filed an original chapter 13 petition on June 30, 1994; and on August 25, 1994, the court signed an order confirming her chapter 13 plan. On November 27, 1995, Ms. Clayton voluntarily converted her chapter 13 case to a case under chapter 7 of the Bankruptcy Code by filing a “Notice of Conversion” in accordance with 11 U.S.C. § 1307(a) and Fed.R.Bankr.P. 1017(d). Subsequently, Ms. Clayton filed this adversary proceeding under 11 U.S.C. § 523(a)(7) seeking a judicial determination that certain traffic tickets owed to the City of Memphis Court Clerk and the resulting $465.00 in statutory fees required by the Department under Tenn.Code Ann. § 55-12-129, are dischargeable.3
The Department asserts in its answer to the complaint and in support of its motion for summary judgment that the statutory fees imposed by Tenn.Code Ann. § 55-12-129 are not “claims” as defined in 11 U.S.C. § 101(5) or “debts” as defined in 11 U.S.C. § 101(12). The Department states, inter alia, that it has no right to enforce the payment of the statutory fees by obtaining a judgment against Ms. Clayton. The Department strongly contends that the fees in question are not “claims” or “debts” under the Bankruptcy Code and essentially are unaffected by this bankruptcy case. Somewhat alternatively, the Department argues that if such fees are “claims” or “debts” under the Bankruptcy Code, they are nondischargeable in a chapter 7 case by virtue of 11 U.S.C. § 523(a)(7).
There are two issues that the court must address in resolving the parties’ joint motion for summary judgment. The initial inquiry is whether the fees required to be paid by virtue of Tenn.Code Ann. § 55-12-129 are prepetition “claims” or “debts” under the Bankruptcy Code such that they are eligible to be discharged at all in a chapter 7 case. The second inquiry is: if the statutory fees do constitute “claims” or “debts” under the *32Bankruptcy Code are such claims or debts dischargeable or are they nondischargeable debts for “fines, penalties, or forfeitures” payable to a “governmental unit” under 11 U.S.C. § 523(a)(7)?4
There are no genuine issues of material fact which are in dispute here and the issues are ripe for disposition by summary judgment. See, for example, Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); 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).
As noted earlier, the Department strongly contends that the fees it is statutorily bound to collect prior to the issuance or reinstatement of a suspended or revoked driver’s license pursuant to Tenn.Code Ann. § 55-12-129 are not “claims” or “debts” as contemplated under the Bankruptcy Code and are not proper subjects for consideration under 11 U.S.C. § 523(a)(7). The Department principally relies on a District Court opinion from the Eastern District of Pennsylvania styled In re Geiger, 143 B.R. 30 (E.D.Pa.1992) aff'd without opinion, 993 F.2d 224 (3d Cir.1993). In Geiger, the District Court reversed the Bankruptcy Court’s decision and held that the Pennsylvania equivalent of the Tennessee statutory fee was not a “debt” under 11 U.S.C. § 101(12). The Pennsylvania District Court reasoned that although the term “debt” is to be broadly construed, in its opinion it was not broad enough to include the Pennsylvania statutory fee.
11 U.S.C. § 101(12) defines the term “debt” as “liability on a claim.” The term “claim” is statutorily defined in 11 U.S.C. § 101(5), infra, 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 term “claim” is coextensive with the term “debt.” Pennsylvania Dep’t of Pub. Welfare v. Davenport (In re Davenport), 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). It is emphasized that the Supreme Court has countenanced an extraordinarily expansive reading of the term “debt” in Johnson v. Home State Bank (In re Johnson), 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) and in Pennsylvania Dep’t of Pub. Welfare v. Davenport (In re Davenport), 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). See also In re Adams, 106 B.R. 811, 817 (Bankr.D.N.J.1989) (citing H.R.Rep. No. 595, 95th Cong. 1st Sess. 309 (1977)).
With all due respect to the Geiger opinion, this court nonetheless finds that the term “claim” or “debt” under the Bankruptcy Code is broad enough to encompass the contingent or unmatured “fees” imposed by Tenn.Code Ann. § 55-12-129. By fashioning a single definition of “claim” in the Bankruptcy Code, the Congress intended to adopt the broadest available definition of that term. In re Udell, 18 F.3d 403 (7th Cir.1994). “Claim,” as the plain language of section 101(5) of the Bankruptcy Code states, includes a contingent and unmatured “right to payment” whether statutory, contractual, consensual, or otherwise. 11 U.S.C. § 101(5)(A). Compare Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985).5
*33Specifically, 11 U.S.C. § 101(5) provides that “ ‘claim’ means—
“(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; or
“(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.”
The statutory fee in question is a contingent or unmatured “right to payment” which becomes actually due and payable to the Department when, and only if, a person requests that a Tennessee driver’s license be reissued or reinstated. An indemnification or guaranty situation is, for example, somewhat analogous. In an indemnification or guaranty setting there is a right to payment contingent upon the occurrence or nonoecur-rence of a specified event. In In re Hemingway Transport, Inc., 954 F.2d 1 (1st Cir.1992), the First Circuit held that the term “claim” is broad enough to encompass an unliquidated, contingent right to payment under a prepetition indemnification agreement even though the triggering contingency does not occur until after the filing of the petition under the Bankruptcy Code.
In support of its position that the statutory fees are not “claims” or “debts” under the Bankruptcy Code, the Department states that it may not actively attempt to collect the fees from persons seeking the reinstatement of a driver’s license and if the debtor never seeks a reinstated driver’s license, the statutory fee or “right to payment” is never triggered. The bankruptcy court in In re Bill, 90 B.R. 651 (Bankr.D.N.J.1988) responsively observed:
“the right to a money judgment is only one procedural device for compelling payment; ... the threat of loss of a driver’s license is undoubtedly a more effective collection device than the threat of a money judgment.”
Id. at 655.
Finding that the Department holds a contingent statutory “claim” which is due and payable by Ms. Clayton as a precondition of reinstatement of a Tennessee driver’s license, the $465.00 fees required by TeNN.Code Ann. § 55-12-129 are “debts” as contemplated by the broad definition under the Bankruptcy Code. Under the circumstances the Department has a “right to payment.” Once this contingency is removed, the Department’s “right to payment” clearly exists and the licensee (here Ms. Clayton) must pay the statutory fee. Simply stated, the Department has a “claim” against Ms. Clayton as contemplated under the extraordinarily broad definition created by the laws of the United States Congress relating to bankruptcy.
The court must now determine whether the statutory fees are dischargeable “debts” under 11 U.S.C. § 528(a)(7) or whether they constitute a “fine, penalty, or forfeiture” payable to a “governmental unit” such that they should be excepted from Ms. Clayton’s general discharge by virtue of section 523(a)(7).
A “fee” is defined as a “charge fixed by law for services of public officers or for use of a privilege under control of government.” Blaok’s Law Dictionaey 553 (5th ed. 1979). In contrast, “[t]he word ‘penalty’ is broader than the word ‘fine’ which is always a penalty; whereas a penalty may be a fine or it may designate some other form of punishment.” Black’s Law Dictionary 759 (4th ed. 1957). Penalty is defined as “[a] punishment; a punishment imposed as a consequence of *34the commission of an offense. Also money recoverable by virtue of a statute imposing a payment by way of punishment.” Black’s Law Dictionary 1290 (4th ed. 1957). “Penalty” is “an elastic term with many different shades of meaning” but is most commonly used to mean pecuniary punishment. Id.
This court finds that the “fees” provided for in Tenn.Code Ann. § 55-12-129 constitute a “penalty” under 11 U.S.C. § 523(a)(7). The $65.00 statutory fees here arise if a driver has been convicted of reckless driving, driving while unlicensed, driving on a suspended or revoked license, driving an unregistered vehicle, driving with revoked registration, failing to stop after a traffic accident, refusing to submit to a drug or alcohol test, or vehicular homicide, failure to satisfy a forfeiture of bail not vacated, or failure to pay a fine or penalty to a violations bureau for any of the above offenses. Tenn.Code Ann. § 55-12-115.
Several factors support the proposition that the fees required by Tenn.Code Ann. § 55-12-129 are “penalties” under 11 U.S.C. § 523(a)(7). First, the underlying offenses lend great weight to the determination that such statutory fees are penal sanctions for wrongdoing.6 The statutory fees are imposed upon a conviction for offenses ranging from driving without a license to vehicular homicide. Second, there is not a single reinstatement fee, but rather each offense carries a separate and distinct $65.00 fee. If the $65.00 reinstatement fee were akin to an administrative charge or a true fee, it is more likely that it would be a single fee. This cumulative characteristic of the reinstatement fees supports the proposition that the fees indeed are in the nature of “penalties” as contemplated under 11 U.S.C. § 523(a)(7).
Additionally, the court finds that the subject restoration fees are not payable to the Department as “compensation for actual pe-euniary loss.” This is dictated primarily by the cumulative characteristics of the fees and by the fact that they are imposed after underlying convictions. It does not appear that the Department would expend significantly more resources in reinstating a driver’s license to a person who owes one $65.00 reinstatement fee as opposed to a person who owes six $65.00 reinstatement fees. For these reasons this court finds that the statutory fees are not payable to the Department as compensation for actual pecuniary loss.
For a “debt” to be nondischargeable under 11 U.S.C. § 523(a)(7) not only must it be a debt for a “fine, penalty, or forfeiture,” but it must be a debt payable to and for the benefit of a “governmental unit” and “not compensation for actual pecuniary loss.” The Bankruptcy Code defines a “governmental unit” as the “United States; State; Commonwealth; District; Territory; municipality; foreign state, department, agency, or instrumentality of the United States, ... [or] a State....” 11 U.S.C. § 101(27) (emphasis added). A “legislative charter, a governmental purpose, and an active interaction between the entity and the State are some of the characteristics of a governmental unit.” In re Kent, 190 B.R. 196, 204 (Bankr.D.N.J.1995). Defendant, Tennessee Department of Safety, satisfies the requirements to be considered a “governmental unit” under the Bankruptcy Code. The Tennessee Department of Safety is a department of the State of Tennessee and fits within the plain language of the definition provided in 11 U.S.C. § 101(27).
By way of summary, the court finds that the contingent fees created and imposed by Tenn.Code Ann. § 55-12-129 are “claims” or “debts” under the broad definitions in the Bankruptcy Code. These “debts,” however, are debts for a “penalty” and are payable to *35a “governmental unit,” but “not for actual pecuniary loss;” and therefore, they are non-dischargeable debts in this chapter 7 ease by virtue of 11 U.S.C. § 523(a)(7).
Based on the foregoing,
IT IS THEREFORE ORDERED AND NOTICE IS HEREBY GIVEN THAT the' parties’ joint motion for summary judgment is granted consistent with the foregoing. That is, the contingent statutory “debts” owed by Ms. Clayton to the Department in this chapter 7 case are nondischargeable penalties under 11 U.S.C. § 523(a)(7) and must be paid as one of the three preconditions to the Department’s reissuance of a Tennessee driver’s license to Ms. Clayton.
. 11 U.S.C. § 523(a)(7) provides that a discharge under section 727 of the Bankruptcy Code does not discharge an individual from any debt—
"To the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and it not compensation for actual pecuniary loss, other than a tax penalty—
"(A) relating to a tax of a kind not specified in paragraph (1) of this subsection; or
“(B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition.”
. Ms. Clayton's complaint also named the City of Memphis Court Clerk as an additional defendant and sought a judicial determination that certain traffic tickets were dischargeable under 11 U.S.C. § 523(a)(7). Defendant, City of Memphis Court Clerk, failed to appear at a scheduled pretrial conference and also failed to answer the debtor’s complaint. On July 23, 1996, after notice and opportunity for hearing and there being no opposition, the court granted the debtor's written motion for default judgment pursuant to Fed.R.Bankr.P. 7055. But compare, for example, In re Wilson, 31 B.R. 191 (Bankr.W.D.Tenn.1983); In re Gallagher, 71 B.R. 138 (Bankr.N.D.Ill.1987); and In re Stevens, 184 B.R. 584 (Bankr.W.D.Wash.1995). As such, the only issues remaining to be decided in this adversary proceeding center around the dischargeability of the statutoiy "fees” payable to the Department as a pre-condition, among others, to the reissuance of a driver’s license to Ms. Clayton.
. Tenn.Code Ann. § 55-12-129 is styled “Fees for reinstatement of license and registration” and provides as follows:
"Whenever a license or registration is suspended or revoked and the filing of proof of financial responsibility is made a prerequisite to reinstatement of such license or registration, or both, or to the issuance of a new license or registration, or both, no such license or registration shall be reinstated or a new license or registration issued unless the licensee or registrant, in addition to complying with the other provisions of this chapter, pays to the commissioner a fee of fifty dollars ($50.00). Only one (1) such fee shall be paid by any one (1) person, irrespective of the number of licenses and registration privileges to be then reinstated or issued to such person. A sixty-five dollars ($65.00) restoration fee shall be paid, however, for each and every suspension or revocation action requiring such fee. Fees paid pursuant to this chapter shall be expendable receipts to be used only by the commissioner towards the cost of administering the provisions of this chapter. From each fee of sixty-five dollars ($65.00) received in accordance with the provisions of § 55-10-306, the commissioner shall make a payment of ten dollars ($10.00) for the furnishing of a completed report of each conviction resulting in a suspension or revocation, including forfeiture of bail not vacated, or payment of a fine or penalty, for one (1) or more of the offenses enumerated in § 55-12-115(a). [Acts 1977, ch. 446, § 29; T.C.A. § 59-1279; Acts 1980, ch. 817, § 6; 1980, ch. 868, § 3; 1986 ch. 842, §§ 25-27.]"
. It is parenthetically noted that in Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971), the Supreme Court held that a State would frustrate the Congressional policy of a fresh start for a debtor if it were permitted to refuse to renew a driver's license because a tort judgment resulting from an automobile accident had been unpaid as a result of a discharge in bankruptcy. 11 U.S.C. § 525 is styled “Protection against discriminatory treatment” and codified the result of Perez v. Campbell.
In In re Norton, 867 F.2d 313 (6th Cir.1989), the Sixth Circuit held, inter alia, that the provisions of the Tennessee Financial Responsibility Act, Tenn.Code Ann. §§ 55-12-101 et seq., 55-12-106, and 55-12-106(15), requiring every driver found to be financially irresponsible to pay the statutory fees, provide proof of insurance, and successfully pass a new driver’s test as preconditions to the reissuance of a driver's license did not violate the antidiscrimination prohibition contained in 11 U.S.C. § 525(a). See also Duffey v. Dollison, 734 F.2d 265 (6th Cir.1984).
It is expressly noted that the instant action concerns itself only with 11 U.S.C. § 523(a)(7) and not with 11 U.S.C. § 525(a).
. In Ohio v. Kovacs the Supreme Court addressed whether contingent environmental cleanup obligations are prepetition debts and held that *33the debtor's obligation to clean up a hazardous waste site pursuant to a state court injunction indeed was a “debt” as contemplated in the Bankruptcy Code. The Court noted, however, that a bankruptcy discharge does not shield the debtor from prosecution for having violated the state environmental laws or for civil contempt for not performing his prepetition obligations under the injunction. Here, a discharge of the statutory fees would not, ipso facto, shield Ms. Clayton (or others similarly situated) from prosecution for the underlying offense(s) giving rise to such fees. As the Supreme Court stated in Ohio v. Kovacs: "Finally, we do not question that anyone in possession of the site — whether it is [the debtor] or another ... — must comply with the environmental laws of the State of Ohio." 469 U.S. at 285, 105 S.Ct. at 711.
. It is noted that in Kelly v. Robinson (In re Robinson), 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), the Supreme Court held that a criminal restitution obligation is a "debt” that may not be discharged in a chapter 7 case because it is a "fine” or "penalty” which is non-dischargeable under 11 U.S.C. § 527(a)(7). Compare the Supreme Court's holding in Pennsylvania Dep’t of Pub. Welfare v. Davenport (In re Davenport), 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990), that a criminal restitution obligation arising from a criminal prosecution and enforceable by the state through revocation of the debtor’s probation is a “debt” that may be discharged in a chapter 13 case. See 11 U.S.C. § 1328(a). In 1990 the Congress responded and legislatively reversed In re Davenport by amending 11 U.S.C. § 1328(a) to expressly provide that criminal restitution debts are not dischargeable in chapter 13 cases. 11 U.S.C. § 1328(a)(3). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492376/ | ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
MARY D. SCOTT, Bankruptcy Judge.
This Cause came before the Court upon defendant’s Motion for Summary Judgment, filed on February 17, 1995, to which the plaintiff responded on March 8, 1995. In this adversary proceeding, the debtor seeks recovery, pursuant to section 547 of the Bankruptcy Code, of a $19,530 rental payment made during the ninety days prior to the filing of the petition in bankruptcy. The *52defendant asserts that the new value exception prohibits the debtor from recovering the transfer. 11 U.S.C. § 547(c)(4). The basic legal issue, whether occupancy of the leased premises constitutes new value under section 547(c)(4) of the Bankruptcy Code, has been addressed by this Court in the case Southern Technical Colleges v. Graham Properties, Inc., slip op., AP No. 94-4092 (Bankr.E.D.Ark. Mar. 16, 1995), motion for reconsideration granted, (Bankr.E.D.Ark. Apr. 13, 1995).
The Court finds that, upon application of its opinion in Graham, there are no material issues of fact remaining in this case such that the motion for summary judgment should be granted. Although the plaintiff asserts that there are issues of fact as to the value of the leased premises and whether defendant exercised forbearance, these assertions do not preclude summary judgment. First, there is no demonstration that there is a genuine dispute as to the rental value of the premises! The lease provides for a rate of $19,530 per month and there is nothing to contradict defendant’s evidence that that is the value of the premises. Secondly, the arguments regarding forbearance are not material in light of Graham because the lessor did not merely forebear from asserting rights, but in fact gave value in the form of the rental space.
In the instant case, the debtor seeks recovery of $19,530 which was paid in early March 1992 in payment of rent due for February 1992. Plaintiff paid no further rent, and filed for relief under the Bankruptcy Code in April 1992. Accordingly, defendant gave unsecured new value in the form of occupancy of the premises for the months of March and the majority of the Month of April. Since the value of these two months is clearly in excess of preference sought by plaintiff, the motion for summary judgment should be granted. See Southern Technical College v. Graham, AP No. 94-4092. Accordingly, it is
ORDERED that judgment will be entered in favor of defendant.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492377/ | MEMORANDUM-OPINION
J. WENDELL ROBERTS, Chief Judge.
This matter is before this Court on the Trustee’s Objection to the Debtor’s claimed exemption of severance pay received from the Debtor’s former employer, NTS Corporation (“NTS”). Having fully reviewed the briefs filed by both parties, this Court sustains the Trustee’s Objection for the reasons set forth below.
FACTS
The Debtor, Richard Kenneth Johnson (“Debtor”), was previously employed by NTS. On June 9, 1994, Debtor notified NTS that he wished to resign. Pursuant to NTS’s request, however, Debtor remained with NTS until July 31, 1994. Approximately two weeks later, on August 15, 1994, Debtor filed for protection under Chapter 7 of the Bankruptcy Code. Thereafter, on November 21, 1994, Debtor reached an agreement with NTS regarding a “separation package” (Debtor’s April 20, 1995 Affidavit). Debtor has indicated that pursuant to the terms of that agreement, he has received severance payments of $10,833.33 per month and will continue to receive payments up to the sum of $130,000.00.
LEGAL DISCUSSION
Debtor seeks to exempt the severance payments received from NTS as “earnings” under K.R.S. 427.010(2). This Court has previously addressed this precise issue in In re Edward & Judith Taber, Bankruptcy No. 94-33441(3)7. In Taber, the debtor’s employer agreed to pay the debtor’s salary for six weeks following his resignation, as well as to pay the debtor two lump-sum payments equal to 20 weeks of his current base salary. This Court held that those severance payments did not qualify as “earnings” for the purposes of exemption under K.R.S. 427.010(2). The term “earnings” is defined by K.R.S. 427.005(1) as meaning:
Compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.
This Court held in Taber that severance pay simply does not fit within the scope of this definition. See also In re Dennison, 84 B.R. 846 (Bankr.S.D.Fla.1988) (Court held a $10,-000.00 lump-sum severance payment to a former professional football player was property of his estate and not exempt as wages).
Debtor distinguishes the case at bar from our earlier Taber decision on the basis that the severance payments in this case “were periodic, not in lump-sum” (Response at 1). He argues that periodic payments should be treated as “earnings” under K.R.S. 427.005. This Court rejects Debtor’s distinction of the Taber decision. The debtor in Taber received his severance payments in two forms: (1) periodic payments made over a six week *156period; and (2) two lump-sum payments. This court did not distinguish between the two forms of severance pay received by the debtor. Rather, this Court held that none of the severance pay received by the debtor qualified as “earnings” under K.R.S. 427.005 for the purposes of exemption in K.R.S. 427.010(2). Taber, 94-33441(3)7 at 3.
Debtor furthermore cites Pallante v. International Venture Investments, Ltd., 622 F.Supp. 667 (D.C.N.D.Ohio 1985), for the proposition that periodic payments should be treated differently from lump-sum payments. However, Pallante involved periodic payments made pursuant to an “early retirement” program. The debtor in the Pallante case was seeking an exemption of those payments under 15 U.S.C. § 1673(a), which is identical to the Kentucky exemption statute relied upon by Debtor, K.R.S. 427.010(2). The term “earnings” for purposes of 15 U.S.C. § 1673(a) is defined by § 1672(a), which is likewise identical to K.R.S. 427.005(a). Periodic payments made “pursuant to a pension or retirement program,” as were involved in the Pallante ease, are expressly included within the definition of “earnings,” as defined by 15 U.S.C. § 1672(a) and K.R.S. 427.005(a). Thus, periodic retirement payments are distinguishable from periodic severance payments, the latter of which are conspicuously omitted from the definition of “earnings” to be exempted under K.R.S. 427.010(2).
Thus, in accordance with Taber, infra, this Court holds that Debtor’s severance pay does not qualify as “earnings” under K.R.S. 427.005 for purposes of exemption pursuant to K.R.S. 427.010(2).
CONCLUSION
For the above stated reasons, the Court by separate Order sustains the Trustee’s Objection to the Debtor’s claimed exemption of severance pay received from the Debtor’s former employer, NTS Corporation, and furthermore orders that the funds be turned over to the Trustee.
ORDER
Pursuant to the attached Memorandum-Opinion,
IT IS HEREBY ORDERED that the Trustee’s Objection to the Debtor’s claimed exemption of severance pay received from the Debtor’s former employer, NTS Corporation, be, and hereby is, SUSTAINED.
IT IS FURTHER HEREBY ORDERED that the funds received by the Debtor as severance from NTS Corporation be turned over to the Trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492378/ | ORDER
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE came before the Court upon the trial on the merits of the Objection to Confirmation of Plan and Motion to Dismiss, filed by First USA Bank on February 22, 1996. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 1334. *174This is a “core proceeding” within the meaning of 28 U.S.C. § 157(b) as exemplified by 28 U.S.C. § 157(b)(2)(L).
The creditor First USA Bank (“bank”) objects to confirmation of the plan on the grounds that it is receiving insufficient payment under the plan and that the plan is filed in bad faith. Specifically, the bank believes that it should be separately classified to receive full payment. The Chapter 13 trustee stated that he would object to any plan with such a provision. The bank further requests that the case be dismissed or reconverted to a Chapter 7 case. The former Chapter 7 trustee objects to dismissal as not being in the best interest of the creditors.
This case was originally filed under Chapter 7 of the Bankruptcy Code, but, less than one month after the Court determined the debt to the bank to be nondischargeable,1 the debtors moved to convert the case to one under Chapter 13, which motion was granted on December 12, 1995. The plan before the Court at the time of trial,2 provides for a monthly payment to the Chapter 13 trustee of $582 for a period of thirty-six months. Although the bank would prefer to be in a separate class, because its debt was determined to be nondischargeable in the original Chapter 7 case, and be paid an amount greater than the other unsecured creditors, Groves v. LaBarge (In re Groves), 39 F.3d 212 (8th Cir.1994) would prohibit such a provision.
The bank argues that the case should be dismissed or converted based upon the debtors’ bad faith. The Eighth Circuit has set forth guidance on the issue of good faith in the Chapter 13 setting. See Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346 (8th Cir.1990) (en banc). LeMaire sets forth several factors, modified irom the factors initially stated in In re Estus, 695 F.2d 311, 316 (8th Cir.1982),3 advising that that good faith depends upon,
[Wjhether the debtor has stated his debts and expenses accurately; whether he has made any fraudulent misrepresentation to mislead the bankruptcy court; or whether he has unfairly manipulated the Bankruptcy Code.
LeMaire at 1349. The Eighth Circuit reaffirmed the “totality of the circumstances” test and set forth the “particularly relevant” factors to be applied in light of the purposes of Chapter 13:
The type of debt sought to be discharged and whether the debt is nondischargeable in Chapter 7, and the debtor’s motivation and sincerity in seeking Chapter 13 relief.
Id. at 1349. The Court file in this case, the testimony and demeanor of the debtor husband, and the documentary evidence submitted indicate that the debtors’ motivations in seeking Chapter 13 are not made in good faith within the meaning of the Bankruptcy Code.
The debtors filed this ease under Chapter 7 in August 1994, but did not seek to convert the case until November 1995, after the Court determined one of their largest debts to be nondischargeable. The debtor husband asserts that he had wanted to file under Chapter 13, in order to pay all of his debts, but that his former attorney counseled against such action, and, it was only when new counsel was hired that he was able to take action to convert the case.4 The Court does not give credence to this explanation in light of the actual timing of events. Debtors’ former counsel abandoned the case in the Spring of 1995, whereupon, on June 13, 1995, the Court directed the debtors to obtain new *175counsel by a date certain. John Purtle, current counsel, signed and filed a pleading on behalf of the debtors as early as June 14, 1995. Trial of the nondischargeability complaint was held in October 17, 1995, after which the Court entered judgment in favor of the bank, on October 30, 1995. It was not until after the entry of this judgment, and over five months after hiring of new counsel, that the debtors sought to convert the case. Accordingly, it does not appear that the true reason for conversion to Chapter 13 was a long-held desire to pay debts, but rather, the entry of the nondischargeability order, which would require them to pay a particular unsecured debt.
Secondly, bad faith is demonstrated by the debtors’ plan under which they retain land and other assets by “redeeming” the property, without making any payments. The plan contains the following unusual provision:
There is surplus property in the hands of the debtor. This consists of his household furniture which is valued at $2400.00 and a house and 3.5 acres. This 3.5 acres is described in the schedules of the debtor filed with this plan. The debtor values the house and 3.5 acres at $6500.00. This totals $8900 for these two items. Use the surplus from the monthly payments to redeem these two items.
Although the Court, under its independent duty to examine whether confirmation is appropriate, closely questioned the debtor husband regarding this provision, the explanations were unsatisfactory. The examination reveals that the debtors will neither be “redeeming”5 the property, nor making any payments to creditors in an amount equal to the value of this property, although such is implied by the provision. Thus, although this provision duplicitously appears to provide for payments equaling the value of the property to be made to the creditors, this provision merely provides that the debtors keep their nonexempt assets with a claimed value of $8900.
The debtors sought to pay their debts only after one of their unsecured debts was determined to be nondisehargeable. In addition to the fact that the conversion to Chapter 13 was made after this nondischargeability determination it was also made at a time when they were faced with losing a tract of land on which they house their adult daughter. See In re McCall, 195 B.R. 911 (Bankr.E.D.Ark.1995). The explanations of why the case was converted are not credible. Finally, the provision of the plan which appears to provide for payments in lieu of liquidation constitute an unfair manipulation of the Bankruptcy Code. In view of these factors, the Court finds that the plan is not filed in good faith. However, in light of the debtors’ asserted desire to pay all their debts, the Court will not dismiss this case at this juncture. The Court deems it appropriate to permit the debtors to either amend their plan to propose to pay all of their unsecured debt by extending the term of the plan and increasing payments or re-eonvert the case to a case under Chapter 7. Accordingly, it is
IT IS ORDERED that, within twenty (20) days of entry of this Order, the debtors shall amend their plan to pay all of the unsecured debt, in full, or convert this case to a case under Chapter 7 of the Bankruptcy Code.
IT IS SO ORDERED.
. The nondischargeable debt is just one of numerous credit card debts. All of the unsecured debt, totaling nearly $60,000, is credit card debt. Only First USA filed a complaint to determine dischargeability and was successful after a trial on the merits.
. The debtors subsequently amended their plan pursuant to settlements with the Chapter 7 and 13 trustees.
. The Estus factors were subsumed by the addition of section 1325(b) of the Bankruptcy Code in 1984. LeMaire, 898 F.2d at 1349.
. A lack of disposable income on the face of the debtors' original schedules indicated that the debtors would not have been in a position to propose any plan, much less a feasible one. However, these schedules were incorrect inasmuch as the debtors admitted during the hearing that they neglected to reveal the debtor wife's income.
. There is no such concept as redeeming property over a period of time. Under Arkansas law, a redemption is made by a lump-sum payment. The Bankruptcy Code provision relevant to redemption, section 722, is inapplicable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492379/ | MEMORANDUM ORDER
FRANK W. KOGER, Chief Judge.
This matter is before the Court on the final chapter of Jane Anne Ratcliffs complaint for determination of dischargeability of debt under 11 U.S.C. § 523(a)(6). In a prior order this Court lifted the automatic stay for the purpose of allowing Jane, the ex-wife of the debtor, to proceed with her pending tort action against the debtor in the Circuit Court of Morgan County, Missouri. This Court reserved ruling on the issue of dischargeability of debt pending the resolution of the Morgan County lawsuit. That action was tried on June 5, 1996. At the conclusion of trial, the jury rendered a verdict in favor of Jane. The jury awarded Jane $100,000 actual damages and $125,000 punitive damages. Jane now requests that the Court rule that the entire $225,000 award is nondischargeable.
Section 523(a)(6) of the Bankruptcy Code excepts from discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” In this case, the debtor admittedly shot Jane in the leg, however, he contended that he was defending himself and his father and that he shot Jane in self defense. Jane insisted that she discharged a 22 rifle because she was trying to frighten a dog and get the dog off her premises. The jury was given a self defense instruction tendered by the debtor, Instruction Number 7, and was further instructed as follows in Instruction Numbers 6, 8 and 9, respectively:
Instruction No. 6
Your verdict must be for Plaintiff if you believe:
First, Defendant intentionally shot Plaintiff, and
Second, Defendant thereby caused Plaintiff bodily harm.
Unless you believe that Plaintiff is not entitled to recover by reason of Instruction No. 7.
Instruction No. 8
If you find in favor of Plaintiff Jane Anne Ratcliff, then you must award plaintiff such sum as you believe will fairly and *187justly compensate plaintiff for any damages you believe she sustained and is reasonably certain to sustain in the future as a direct result of the occurrence mentioned in the evidence.
Instruction No. 9
If you find the issues in favor of Plaintiff, and if you believe the conduct of Defendant as submitted in Instruction No. 6 was outrageous because of Defendant’s evil motive or reckless indifference to the rights of others, then in addition to any damages to which you find Plaintiff entitled under Instruction No. 8, you may award Plaintiff an additional amount as punitive damages in such sum as you believe will serve to punish Defendant and to deter Defendant and others from like conduct. (Emphasis added.)
Although not raised by Jane in support of her assertion that the state court judgment is nondisehargeable, the Court determines that this situation is ripe for the application of collateral estoppel. All the elements of collateral estoppel have been met here. See In re Miera, 926 F.2d 741, 743 (8th Cir.1991).
There is no question that the jury award of actual damages in the amount of $100,000 for the debtor’s shooting of Jane is nondisehargeable as a willful and malicious injury under 11 U.S.C. § 523(a)(6). See In re LeMaire, 898 F.2d 1346, 1347-48 (8th Cir.1990). The debtor admitted that he shot Jane. The jury was instructed to render a verdict in Jane’s favor if the jurors found that the debtor intentionally shot Jane and thereby caused her bodily harm and if the jury did not believe the debtor’s theory of self defense.
However, the jury award of punitive damages in the sum of $125,000 does not pass muster under the willful and malicious standard of section 523(a)(6). It is true that section 523(a)(6) does not distinguish between debts that are compensatory in nature and those which are punitive. Miera, 926 F.2d at 745. “The language of section 523(a)(6) is directed at the nature of the conduct which gives rise to the debt, rather than the nature of the debt.” Id. At first blush, it would appear that the punitive damages award should be nondisehargeable just because the punitive damages award stemmed from the debtor shooting Jane in the leg. A comprehensive examination of the jury instructions reveals that although the actual damages award stemmed from the debtor’s intentional shooting of Jane, which was willful and malicious conduct, the punitive damages award could have stemmed from either the debtor’s evil motive, which for purposes of this order the Court will presume means willful and malicious behavior, or the debtor’s reckless indifference to the rights of others. The jury was given a choice to award punitive damages based upon either the debtor’s willful and malicious conduct or his reckless indifference. The Eighth Circuit Court of Appeals has clearly stated that reckless conduct “is not malicious within the meaning of [11 U.S.C. § 523(a)(6) ].” In re Geiger, 93 F.3d 443, 444 (8th Cir.1996). See also Cassidy v. Minihan, 794 F.2d 340, 344 (8th Cir.1986) (At the most, the debtor’s conduct reflected a reckless disregard for the risks involved, therefore, the debt is dischargeable).
The circumstances herein are distinguishable from the situation that confronted the Eighth Circuit in In re Miera. In Miera, the Eighth Circuit ruled that both the award for actual damages and the award for punitive damages were nondisehargeable under 11 U.S.C. § 523(a)(6). However, in that case the jury was instructed that to find civil battery the plaintiff must have shown an intentional and unpermitted contact by the defendant, and that to award punitive damages the jurors must have found that the acts of the defendant showed a “willful indifference” to the rights of the plaintiff. The Eighth Circuit upheld the bankruptcy court’s determination that “‘under the unique circumstances which were found by the Minnesota state courts’ ” the term “willful indifference” was the full and effective equivalent of malice. Miera, 926 F.2d at 744. In Miera, in affirming the lower court’s holding that the state court judgment implicitly contained a finding of malice, the Eighth Circuit expressly stated that “Congress did not intend to apply a ‘reckless disregard’ standard to *188determine nondischargeability under section 523(a)(6).” Id.
Here, because the punitive damages portion of the award may have been premised on recklessness rather than willful and malicious conduct, the award of punitive damages must be considered a dischargeable debt. See In re Hartman, 100 B.R. 46, 50-51 (D.Kan.1989).
Conclusion
Based on the above discussion, Jane Anne Ratcliffs complaint to determine discharge-ability of debt under 11 U.S.C. § 523(a)(6) is DENIED IN PART AND GRANTED IN PART. The actual damages award in the amount of $100,000 is NONDISCHARGEABLE. The punitive damages award in the amount of $125,000 is DISCHARGEABLE.
The foregoing Memorandum Order constitutes Findings of Fact and Conclusions of Law as required by Fed.R.Bankr.P. 7052.
So ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492380/ | MEMORANDUM OPINION
MARTIN V.B. BOSTETTER, Chief Judge.
The successor trustee, Kevin R. Huennekens, in this Chapter 7 proceeding, moves this Court for reconsideration of our August 15, 1995 order dismissing the adversary proceeding filed by the former trustee, Richard A. Bartl. Notwithstanding that the motion for reconsideration is nearly one year old, it was timely filed. Even more ironic is that although we dismissed this action as time barred nearly one year ago, it must now be reinstated. At the outset we note that it is the exception when circumstances such as those present in this case warrant reconsideration. However, in this case, the combination of a complicated procedural history, hearings before two courts and failure of the parties to proceed properly require us to reconsider our previous ruling and reinstate this proceeding.
I. BACKGROUND.
On May 26, 1993, Francis R. Dove (“debt- or”), filed a voluntary petition for relief under Chapter 7 which was assigned to this Court. Richard A. Bartl (the “former trustee”) was appointed trustee at the conclusion of the debtor’s § 341 meeting on July 1, 1993. The former trustee filed a Report of No Distribution and the Chapter 7 case was closed by order of this Court on May 19, 1994. On that same date, the debtor filed a petition under Chapter 11 which was assigned to Judge Tice.
On March 20, 1995, Lan Tran, a creditor in the debtor’s Chapter 7 case, filed a motion to reopen the case alleging that the debtor had failed to schedule certain assets. That motion, along with a motion to dismiss or con*344vert filed by the United States trustee was set for hearing before Judge Mitchell. At the hearing on the motion to reopen, the former trustee joined in Lan Tran’s motion. The former trustee represented to the Court that he intended to pursue an avoidance action against Patricia Greene, the sister of the debtor, based on his belief that unscheduled assets had been transferred to her by the debtor prior to the date of the petition. On June 18, 1995, Judge Mitchell entered an order granting Lan Tran’s motion to reopen the Chapter 7 case. Judge Mitchell entered a separate order dismissing the Chapter 11 ease.
On June 23, 1995, the former trustee filed an adversary complaint under §§ 544, 547 and 548 of the Bankruptcy Code against Greene seeking to avoid certain transfers made to her by the debtor. On July 26, 1995, Greene filed a motion to dismiss the adversary proceeding contending that the former trustee lacked standing to bring the action because he had not been reappointed as trustee in the reopened ease. Greene further alleged the adversary proceeding was time barred pursuant to § 546(a)(1) of the Code. The former trustee did not file a written response, but appeared at the hearing and argued the matter.
On August 15, 1995, this Court entered an order granting Greene’s motion to dismiss with prejudice. Ruling from the bench, we found that the former trustee did not have standing to pursue the adversary proceeding since he had not been reappointed in the reopened ease. Because the order reopening the case did not direct that a trustee be appointed we dismissed the complaint. We further found that the complaint was time barred pursuant to § 546(a)(1) of the Code and the doctrine of laches.
On September 12, 1995, Lan Tran filed a motion before Judge Mitchell requesting that the Court amend its June 13th order to direct the United States trustee to appoint Richard Bartl as the Chapter 7 trustee in the reopened case. Judge Mitchell properly declined to reappoint Richard Bartl as the trustee, and instead amended the order nunc pro tunc June 13, 1995 directing the United States trustee to appoint a trustee to serve in the reopened Chapter 7 case.
Prior to the September 12th hearing before Judge Mitchell, the former trustee filed a timely motion to reconsider this Court’s August 15th order dismissing the adversary proceeding. The motion to reconsider was originally set for hearing on September 26, 1995, and continued as a matter of course on the Court’s docket when the former trustee was not reappointed as the trustee in the reopened case. On December 27, 1995, Kevin R. Huennekens (“successor trustee”) was appointed successor trustee in the reopened case pursuant to Judge Mitchell’s September 12th order. In the meantime, Greene filed a suggestion of mootness as to the former trustee’s motion for reconsideration on the grounds that he was not reappointed. Following argument by the parties on June 14, 1996, we took the matter under advisement.
II. DISCUSSION.
The purpose of a motion for reconsideration “is to allow the court to reevaluate the basis for its decision. [Such motions] are appropriate when the court has made an error in interpreting the facts or law or when there has been a significant change in the law or facts since the submission of the issue to the court.” Keyes v. National R.R. Passenger Corp., 766 F.Supp. 277, 280 (E.D.Pa.1991); Above the Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D.Va.1983). Only if the moving party presents new facts or clear error of law which compel a change in the court’s ruling will a motion to reconsider be granted. State of N.Y. v. U.S., 880 F.Supp. 37 (D.D.C.1995). After carefully reviewing the entire record in this case and considering the complicated procedural history, we find that this case presents both a significant change in the facts and, consequently, an error in applying the law.
1. Trustee’s Standing.
Section 350(b) of the Bankruptcy Code allows a bankruptcy court to reopen a case “to administer assets, to accord relief to the debtor, or for other cause.” Rule 5010 of the Federal Rules of Bankruptcy Procedure provides that a trustee shall not be appointed *345by the United States trustee in a reopened case unless the court determines that a trustee is necessary to protect the interest of creditors and the debtor or to insure efficient administration of the ease. Therefore, in the interest of judicial economy, a trustee will not be appointed in a reopened case unless the United States trustee or a party in interest makes such a request. See Fed.R.Bankr.P. 5010 advisory committee note.
It is clear from the transcript of the hearing on the motion to reopen the case that it was contemplated by the parties and determined by Judge Mitchell that a trustee would be necessary to prosecute any potential preference or fraudulent conveyance claims.1 In his ruling from the bench granting the motion to reopen, Judge Mitchell stated:
Under section 350(b) of the Bankruptcy Code a case may be reopened in the Court in which such ease was closed to administer assets, to accord relief to the debtor and for other cause. It has been alleged that there is a — and not seriously denied— that there is a potentially preferential transfer here, a transfer that occurred within the preference period. There are some arguments that could be addressed at the trial of this matter on the improvement of position tests and there may be an issue which apparently the trustee still has to determine as to whether, even if the transfer was preferential, that there would be sufficient recovery to justify the expense of bringing a ease.
But I’m mindful here that the clock is running very quickly on the trustee’s statute of limitations for bringing such a ease. I don’t think in connection with the motion to reopen that the trustee has to prove that a preferential transfer existed, only that there is reasonable cause to believe that a preferential transfer existed. That the transfers took place, and that they took place within the preference period is undisputed. The real question gets us down to the nitty gritty details which are, I think, properly resolved in connection with a preference action, if one was brought. Accordingly, I’m going to grant the motion to reopen case no. 93-12280.
Tr. of June 13, 1995 at pp. 23-24.
Following Judge Mitchell’s ruling, the parties inadvertently failed to formally request the appointment of a trustee in the reopened case. As a result, the order entered on June 13, 1995 reopening the ease did not direct the United States trustee to appoint a Chapter 7 trustee. Judge Mitchell later corrected the order “nunc pro tunc” June 13, 1995 to reflect that a trustee be appointed. Although our ruling that the former trustee did not have standing was correct, the subsequent correction of Judge Mitchell’s June 13, 1995 order “nunc pro tunc” is a “significant change in fact” which warrants reconsideration of our ruling.
With the June 13th order in effect on the date the complaint was filed, even though the former trustee lacked standing to prosecute this action, dismissal is not mandated by the Rules. Federal Rule of Civil Procedure 17(a), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7017, states in pertinent part:
No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.
Fed.R.Bankr.P. 7017(a). Thus, upon finding that the former trustee lacked standing, we were not required to immediately dismiss the trustee’s action on that basis. Rule 7017 gives the Court discretion to wait to dismiss *346the action until after a reasonable time has passed in which the former trustee has an opportunity to have himself reappointed or to have a successor trustee appointed. See Sturgeon State Bank v. Perkey (In re Perkey), 194 B.R. 846, 848 (Bankr.W.D.Mo.1996).
Upon entry of Judge Mitchell's September 12th order directing that a trustee be appointed “nunc pro tunc” June 13, 1995, dismissal on the grounds that the former trustee lacked standing was no longer appropriate. Section 325 makes automatic the substitution of a successor trustee without the effect of abatement of any action pending at the time the vacancy in the trustee’s office occurs. See 11 U.S.C. § 325. Rule 2012 implements section 325 of the Bankruptcy Code. Fed.R.Bankr.P. 2012 advisory committee note. Rule 2012(b) provides that when a trustee ceases to hold office during the pendency of a case under the Code, the successor is automatically substituted as a party in any pending action, proceeding, or matter. Fed.R.Bankr.P. 2012(b). According to Collier on Bankruptcy, Rule 2012 is self-executing:
Substitution of the successor for the removed trustee is automatic. The successor trustee, upon appointment, becomes the party (as opposed to the predecessor) in any pending suit or other matter. While notice of substitution should be given to other parties to any such suit and to the court, leave to substitute need not be sought since such substitution occurs as a matter of law. During the time the trustee’s office is vacant prior to the naming of a successor, there is no abatement of any suit or other matter to which the trustee is a party.
8 Lawrence P. King, Collier’s on Bankruptcy, ¶ 2012.03 (15th ed. 1996).
Here, the successor trustee was appointed on December 27, 1995. Consequently, applying Rules 7017 and 2012, the successor trustee was automatically substituted as the real party in interest in the adversary proceeding from the date the complaint was filed. To find otherwise would be to give no effect to Judge Mitchell’s order correcting the June 13th order.
2. Statute of Limitations under § 546(a).
In our dismissal order, we also found that the former trustee’s complaint was barred by the statute of limitations contained in § 546(a) of the Bankruptcy Code. Upon examination of the case law in this Circuit concerning when the statute of limitations begins to run, we reconsider our ruling as an error of law.
Section 546(a) establishes the relevant limitations period for the Successor Trustee’s claim against the defendant under section 547 and 548. At the time these proceedings were commenced, section 546(a) stated:
An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of—
(1) two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title; or
(2) the time the case is closed or dismissed.
11 U.S.C. § 546(a).2
In In re Maxway, the Fourth Circuit Court of Appeals concluded that the two-year statute of limitations for bringing an avoidance action does not begin to run until the “appointment” of one of the trustees specified in § 546(a)(1). The Fourth Circuit stated:
[W]hen a debtor files a voluntary petition for relief under Chapter 7, the United States trustee appoints an interim trustee pursuant to 11 U.S.C.A. § 701 (West 1993). See 11 U.S.C.A § 301 (West 1993). Yet, the two-year limitations period for filing an avoidance action does not begin to run until a permanent trustee is selected pursuant to 11 U.S.C.A. § 702 (West 1993). See 11 U.S.C.A. § 546(a)(1); see also Kroh v. T.R.M. Mfg. (In re Conco Bldg. Supplies, Inc.), 102 B.R. 190 (9th Cir. BAP *3471989). Generally, interim trustees assume the limited role of performing administrative functions and preserving the assets of the estate. See 4 Lawrence P. King, Collier on Bankruptcy, ¶ 701.01 (15th ed. 1994). Thus, they are not as likely as § 702 trustees to commence avoidance actions.
Maurice Sporting Goods, Inc. v. Maxway Corporation (In re Maxway Corp.), 27 F.3d 980, 984 (4th Cir.), cert. denied, — U.S. -, 115 S.Ct. 580, 130 L.Ed.2d 495 (1994); see also General Electric Capital Auto Lease, Inc. v. Broach (In re Lucas Dallas, Inc.), 185 B.R. 801, 805 (9th Cir. BAP 1995) (holding that two-year statute of limitations for bringing fraudulent transfer proceedings does not begin to run until election or qualification of permanent trustee at creditor’s meeting); Grella v. Zimmerman (In re Art & Co., Inc.), 179 B.R. 757 (Bankr.D.Mass.1995) (citing Maxway and noting that the overwhelming majority of courts have ruled that the two-year statute of limitations for avoidance actions begins to run on the date that the trustee is designated permanent trustee); Styler v. Conoco, Inc. (In re Peterson Distributing, Inc.), 176 B.R. 584 (Bankr.D.Utah 1995) (same).
In this ease, the former trustee was appointed the permanent trustee by operation of law at the § 341 meeting of creditors that was held on July 1, 1993. See 11 U.S.C. § 702(d). This adversary proceeding was filed on June 23, 1995, less than two years after the appointment of the former trustee. Thus, under the position announced by the Fourth Circuit, this avoidance action was timely filed.
3. Application of The Doctrine of Laches.
Having concluded that § 546(a)(1) does not bar this action, we recognize that the doctrine of laches is inapplicable. The general rule with regard to the doctrine of laches and avoidance claims is that laches does not operate to bar an otherwise timely avoidance claim because § 546(a) provides a specific statutory time limitation for bringing the action. See Mancuso v. Continental Bank Nat’l Assoc. Chicago (In re Topcor, Inc.), 132 B.R. 119, 126 (Bankr.N.D.Tex. 1991); see also Gross v. Petty (In re Petty), 93 B.R. 208, 212 (9th Cir. BAP 1988); Freedom Ford, Inc. v. Sun Bank and Trust Co. (Matter of Freedom Ford, Inc.), 140 B.R. 585, 587 (Bankr.M.D.Fla.1992). As discussed above, this avoidance action was timely filed within the limitations period imposed by § 546(a). Therefore, the action is not barred by laches as a matter of law.
CONCLUSION.
Accordingly, for the reasons stated, this Court’s order of August 15, 1995 dismissing this adversary proceeding with prejudice must be vacated.
. We also note that it is well established that the right to invoke a fraudulent conveyance action under section 544 or 548 of the Bankruptcy Code belongs solely to the trustee or debtor-in-possession as the representative of the estate. See Sturgeon State Bank v. Perkey (In re Perkey), 194 B.R. 846, 848 (Bankr.W.D.Mo.1996); see also NBD Bank, N.A. v. Fletcher (In re Fletcher), 176 B.R. 445, 453 (Bankr.W.D.Mich.1995); Gerken v. Harris (In re Auxano, Inc.), 87 B.R. 72, 72 (Bankr.W.D.Mo.1988) (“An action before the Court to set aside a fraudulent transfer must be in the name of the bankruptcy estate as the real party in interest.”)
. Section 546(a) was amended by the Bankruptcy Reform Act of 1994, H.R. 5116, Pub.L. No. 103-394. However, section 702 of the Act specifies that the amendment to section 546(a) applies only to cases commenced after the date of enactment, October 22, 1994. Section 702, Pub.L. No. 103-394. This bankruptcy case commenced prior to the date of enactment, therefore, we must apply the preamendment version of section 546(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492381/ | OPINION
VOLINN, Bankruptcy Judge:
OVERVIEW
The principal of a chapter 11 debtor in possession used estate funds to open a securities account with appellee stockbrokerage firm in the debtor’s name and used the account for his personal benefit without first seeking or obtaining bankruptcy court approval. The account provided a VISA debit card secured by the funds and securities in the account. Appellee debited the account for amounts paid against purchases made with the card. The chapter 7 trustee appointed after conversion of the case brought an adversary proceeding to recover from the stockbrokerage firm the amounts debited against the account. The bankruptcy court granted the stoekbrokerage’s cross-motion for summary judgment and dismissed the trustee’s complaint. We AFFIRM.
FACTS AND PROCEEDINGS BELOW
The Dominion Corporation filed a voluntary chapter 11 petition on January 30, 1992. A chapter 11 trustee was appointed September 2, 1992. The case was converted to chapter 7 on October 30, 1992, and Mohamed Poonja, plaintiff below and appellant here, was appointed chapter 7 trustee.
Until the appointment of the chapter 11 trustee and the subsequent conversion of the case, Dominion was operated as debtor in possession by William L. Johnson, its president and secretary. On February 25, 1992, Johnson caused Dominion to open a “Schwab One Account” (the account) with appellee Charles Schwab & Co., Inc., a stockbroker-age firm. The account had two features: a brokerage account, consisting of a cash account and a margin and short account, and a bank account with a VISA debit card and checking privileges.
The customer was authorized to write checks or use the VISA debit card with third parties to pay for goods and services. Charges so made would be debited against the cash and securities in the brokerage account. In the event of an overdraft, Schwab was authorized to advance credit against securities in the account up to permissible margin limits.
Because Schwab is not a bank, the banking services provided with the account were furnished under an agreement between Schwab and Bank of America (B of A). B of A would issue the VISA card to a Schwab customer and clear charges made with the card with VISA USA, Inc. and VISA International. Schwab in turn maintained a “clearing account” at B of A. B of A would pay merchants or intermediate banks for charges and credit itself for the daily total against the clearing account. Schwab would then post corresponding debits to the individual customers’ accounts.
*412Between February and August, Johnson deposited nearly $50,000 of estate funds into the account and then spent it all. He purchased some $2,000 worth of securities and-subsequently sold them at a slight loss. In the main, however, his purchases, which included limousine services, hotel accommodations, and airline tickets, were for his personal benefit and were not approved by the bankruptcy court. After B of A credited itself in Schwab’s clearing account for these expenditures, Schwab debited Dominion’s account. The cash in the account was sufficient to satisfy all checks and debit card transactions save one: at one point, Johnson created an overdraft of some $800, which Dominion satisfied by selling securities in the account. By the time a trustee was appointed, the account was exhausted and stood overdrawn by about $600.
In February 1994, the trustee filed an adversary proceeding to recover the diverted funds, naming Schwab, B of A, Johnson, and merchants providing goods and services that Johnson paid for through the account. The trustee contended that Schwab’s debiting of Dominion’s account to credit such amounts to its own use made Schwab the initial transferee of unauthorized and avoidable postpetition transactions under § 549 and therefore liable to the estate under § 550(a)(1). On cross-motions for summary judgment, Schwab contended it was not a transferee at all, but merely a conduit for the funds. The bankruptcy court agreed, dismissing the trustee’s complaint against Schwab and this appeal follows.1
STANDARD OF REVIEW
Summary judgments are reviewed de novo, as are the bankruptcy court’s conclusions of law. In re Florida, 164 B.R. 636, 639 (9th Cir. BAP 1994).
ISSUE PRESENTED
Whether an entity that maintains accounts for customers is a transferee for purposes of § 550 when it credits itself from the customer’s account for payments it has made upstream in the clearing procedure for charges made by the customer.
DISCUSSION
Pursuant to the Bankruptcy Code,211 U.S.C. § 549,3 the trustee may avoid a transfer of estate property not authorized by any provision of the Code or by the bankruptcy court that occurs after the commencement of the case. All of the transfers at issue here, totalling some $50,000, were unauthorized, and all occurred after commencement of the case.
When a transfer is avoidable, § 550(a)4 provides that the trustee may recover the avoided property — or its value — for the benefit of the estate from the initial *413transferee and the entity for whose benefit the transfer was made, and from any subsequent transferees, both “immediate and mediate.” This chain of potentially liable parties is cut off by a subsequent transferee who takes for value and in good faith. The initial transferee and the entity for whose benefit the transfer was made, however, are held strictly liable to the trustee. In re Bullion Reserve of N. Am., 922 F.2d 544, 547 (9th Cir.1991); In re Presidential Corp., 180 B.R. 233, 236 (9th Cir. BAP 1995). Even where he has taken in good faith and for value, the only recourse for an initial transferee is a general unsecured claim in the bankruptcy under § 502(h). The initial transferee is held to be in the best position to evaluate the transaction and protect itself (and collaterally, the estate) from unauthorized transfers of property out of the estate. Id. at 237 (citing Bonded Fin. Servs. v. European Am. Bank, 838 F.2d 890, 892-93 (7th Cir.1988)).
The Code defines “transfer” broadly, to mean “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption.” § 101(54). However, the Code does not define what a transferee is. The absence of a definition for “transferee” and the harsh result of an overly literal approach to § 550 give rise to the “conduit” defense to avoidance liability.
The defense first arose in Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966), and the Code has legislated the exception in § 542(c).5 The accepted definition of “transferee” was developed in Bonded Fin. Servs. v. European Am. Bank, 838 F.2d 890 (7th Cir.1988), which established the “dominion” or “control” test:
Although the Bankruptcy Code does not define “transferee,” and there is no legislative history on the point, we think the minimum requirement of status as a “transferee” is dominion over the money or other asset, the right to put the money to one’s own purposes. When A gives a cheek to B as agent for C, then C is the “initial transferee;” the agent may be disregarded.
Bonded Fin., 838 F.2d at 893.
The conduit is merely a facilitator. It does not assert sufficient control over the funds passing through its hands to be considered a transferee of the transfer, even though a routine commercial exchange — the payment for goods by check, for example, or a charge made on a debit card in an account such as the one at issue here — can be viewed as a series of transfers rather than a simple one-step transaction. To this end, courts are admonished to “step back and evaluate a transaction in its entirety to make sure that their conclusions are logical and equitable.” Bullion Reserve, 922 F.2d at 549 (quoting In re Chase & Sanborn Corp., 848 F.2d 1196, 1199 (11th Cir.1988)).6 An entity does not have dominion or control unless it is “free to invest the whole [amount] in lottery tickets or uranium stocks.” Bonded Fin. at 894. While this latter test is at the outer extreme, its essential reference to the element of unfettered control has been adopted by the Ninth Circuit and the BAP. Bullion Reserve at 549; Presidential at 236.
The parties focus on the transfer of funds out of the account.7 The trustee con*414tends this transfer went to Schwab, and that was the end of it; it is technically correct that when Schwab received the funds, it was under no obligation to transfer them to anyone else. The trial court applied the conduit theory:
[I]t doesn’t seem to me that 549 is aimed at regulating how the debtor processes its money in terms of whatever transactions it gets at. It seems that this is not a real loan where the debtor is basically incurring debt, and getting money by incurring debt that the Court and — or the creditors have not approved.
It’s not going on and making investments or buying things out of the ordinary course of business by using this card. This is just sort of a neutral vehicle to do things that are authorized or unauthorized, but ... 549 is not aimed at getting transactions that merely involve the handling of debtor’s money, of turning it from one form into another where it’s still cash.
Transcript of Proceedings, May 26, 1995 at 11:11-23.
The trustee raises two objections to the court’s application of the conduit defense in Schwab’s favor: the defense has not been nor should be adopted by this Circuit, and in any event, would not apply to the circumstances and structure of the transactions at issue. We take each in turn.
The trustee is not correct as to applicability of the conduit defense in the Ninth Circuit. For instance, the Ninth Circuit has held that “for purposes of section 550, a bank is not the equivalent of a client who has an account at the bank.” In re California Trade Technical Schools, Inc., 923 F.2d 641, 649 (9th Cir.1991) (citing Bonded Financial).
To support the contention that the conduit theory is unavailable, the trustee urges the plain language of the statute be applied, citing United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). However, in an earlier case, more on point, the Supreme Court ruled that the language of § 70d(5),8 § 550’s predecessor under the former Bankruptcy Act, was not to be strictly applied when to do so would be inequitable. The court there stated, “Yet we do not read these statutory words with the ease of a computer. There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction.” Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966). The court then reversed a judgment which held a bank liable for paying on a check drawn on the bankrupt’s account after the filing of a bankruptcy petition, when the bank had no notice of the bankruptcy.
The trustee also attempts to distinguish the structure of the instant transactions from those to which the conduit defense clearly applies: simple checking transactions. To this end, he points to various differences: 1) the account contract granted Schwab a lien on funds and securities in the account to secure its payment for charges; 2) a bank’s ability to charge-back checks in the event of insufficient funds; 3) the “automatic” and “instant” payment through ATM debit cards as opposed to the somewhat longer time period involved here. These distinctions are not dispositive. The lien on account funds came into play only once (concerning the $800 overdraft) and thus is not pertinent to review. Too, this lien was part of the transaction establishing the account, which, as indicated, the parties have not attacked. Similarly, a bank’s charge-back capability would not have come into play as the account was functionally solvent as to all the charges *415made. And, finally, the timeliness of the clearing process is not material. Banks often take several days to clear the checking process.
The trustee’s arguments all go to creating a creditor-debtor relationship between Schwab and the debtor. In reality, however, the type of account as created sought to avoid placing Schwab in a creditor position. Although Schwab was itself debited before debiting Dominion in response, these events in reality were computer file transfers which automatically transferred funds committed to Schwab by the debtor for the purpose of payment of the debits against Schwab by the bank for the debtor’s purchases. Thus, the intended and actual transfers ran from Dominion to Johnson and then from Johnson to his purveyors of goods and services. Schwab and the bank were intermediaries or conduits.
Although the trial court did not actively investigate or rule on the issue, Schwab raises the point that Johnson is the initial transferee of the funds in the account. This is a correct assessment of Ninth Circuit law. In a case factually similar to the present facts, In re Dietz, 94 B.R. 637 (9th Cir. BAP 1988), aff'd on other grounds, 914 F.2d 161 (9th Cir.1990), the Panel affirmed the bankruptcy court’s finding that the debtor was the initial transferee of estate funds which he misappropriated by depositing the funds in a secret bank account. The Panel looked to the Code’s definition of “transfer,” and, noting its broad application, determined that a transfer for purposes of § 549 did not necessarily require a transfer out of the estate, but could encompass an intra-estate transfer as well. The Panel stated, “although the checking account may have been property of the estate for purposes of § 541, such a determination would not preclude a finding that the debtor had ‘transferred’ property of the estate by secretly opening an account and depositing estate funds which he inappropriately used_” Id. at 642-43. See also In re Nordic Village, Inc., 915 F.2d 1049, 1055 n. 3 (6th Cir.1990), rev’d on other grounds, 503 U.S. 30, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992).
CONCLUSION
Sehwab was a conduit, not a transferee. Johnson impermissibly spent estate funds. His manner of doing so was functionally equivalent to withdrawing cash from the estate’s account and spending it. In order to prevent inequity, liability for misappropriation of estate funds should be attributed to the responsible party, not to an innocent intermediary.
The judgment is AFFIRMED.
. The trustee sought, but the court denied certification for appeal of the judgment under Fed.R.Civ.P. 54(b). Subsequently, the court disposed of the remaining claims against the remaining defendants. The order is now final and reviewable. Fadem v. United States, 42 F.3d 533 (9th Cir.1994).
. Unless otherwise stated, references to "sections” and "rules” will refer to the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., and Federal Rules of Bankruptcy Procedure 1001-9036.
. [T]he trustee may avoid a transfer of properly 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. § 549(a).
. (a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from-—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
(b) The trustee may not recover under section (a)(2) of this section from—
(1) a transferee that takes for value, including satisfaction or securing a present antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such transferee.
*413liu.s.c. § 550.
.Section 542(c) provides in pertinent part that, with certain exceptions not relevant here:
an entity that has neither actual notice nor actual knowledge of the commencement of the case concerning the debtor may transfer property of the estate, or pay a debt owing to the debtor, in good faith ... to an entity other than the trustee, with the same effect as to the entity making such transfer or payment as if the case under this title concerning the debtor had not been commenced.
11 U.S.C. § 542(c).
. " ‘Transferee’ is not a self-defining term; it must mean something different from ‘possessor’ or ‘holder’ or ‘agent’. To treat ‘transferee’ as ‘anyone who touches the money' and then to escape the absurd results that follow is to introduce useless steps; we slice these off with Occam's Razor and leave a more functional rule." Bonded Fin., 838 F.2d at 894. [Occam’s Razor: “the philosophic rule that entities should not be multiplied unnecessarily.” Webster’s Third New International Dictionary 1969.]
. The parties do not regard Johnson’s initial funding of the account to be an avoidable trans*414fer under this section. Most likely, they considered that this activity was authorized under § 363 as use of estate property in the ordinary course of business, although a debtor in possession (particularly a construction company) does not ordinarily open a margin account with a stockbroker. To be sure, the funds placed in the account nominally remained estate property; Johnson provided Schwab with the appropriate corporate warrantees to establish the account in Dominion’s name. Johnson didn’t tell Schwab that Dominion was in chapter 11, and Schwab didn’t ask.
. Section 70d(5) of the former Bankruptcy Act provided, with exceptions not relevant here, that “No transfer by or in behalf of the bankrupt after the date of bankruptcy shall be valid against the trustee." Section 70(d)(5), 52 Stat. 882, 11 U.S.C. § 101(d)(5), repealed by Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 98 Stat. 2549. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492384/ | OPINION
DAVID A. SCHOLL, Chief Bankruptcy Judge.
A INTRODUCTION
Presently before this court is a motion for summary judgment (“the Motion”) of MID-LANTIC BANK, N.A. (“the Movant”) in its favor as to the Complaint for Money (“the Complaint”) brought against the Movant in the above-captioned adversary proceeding, (“the Proceeding”) in which PENNSYLVANIA FOOTWEAR CORPORATION (“the Debtor”) and “ARTHUR P. LIEBERSOHN, As Chapter 7 Bankruptcy Trustee” (“the Trustee”), are the Plaintiffs.
The Complaint alleges the Movant’s failure to have certain real estate owned by the Debtor removed from a February 21, 1992, sheriffs sale list, per a forbearance agreement between the parties. The Complaint demands, as damages, uncollected rents and compensation for a steep reduction in the market value of the real estate arising from the Movant’s alleged breach of the forbearance contract.
The Motion is based on the contention that the Complaint, not having been filed until March 12, 1996, is time-barred under even the longest possibly applicable statute of limitations. Finding that the applicable statute of limitations is four years; that the Plaintiffs have properly alleged (if not proven) March 4, 1992, as the date of discovery of the Debtor’s cause of action; and that a recitation of the claims set forth in the Complaint in a summarily-dismissed counterclaim to the Movant’s unsuccessful motion to dismiss this case filed on March 4, 1992, appears to constitute a “proceeding ... timely commenced” within the pertinent Pennsylvania “savings statute,” 42 Pa.C.S. § 5535(a)(1), the Motion is denied.
B. FACTUAL AND PROCEDURAL HISTORY
On December 14, 1995, the Debtor filed the underlying voluntary Chapter 7 bankruptcy case pro se, by Joel Karpo (“Joel”), its President and only officer. On January 17, 1996, the Movant filed a motion not only to dismiss this case, but also to preclude the Debtor from re-filing another similar bankruptcy ease within the next 180 days. In support of the 180-day filing bar, the Movant alleged that the Debtor, per Joel, had filed previous cases on June 17, 1994; January 1, 1995; and June 15, 1995, all of which, like the instant case, had stayed a sheriffs sale of the Debtor’s Maple Plaza Shopping Center, located at 4233 Edgmont Avenue, Brookhaven, Pennsylvania 19015 (“the Property”), scheduled by the Movant in execution on its foreclosure judgment, and all had been dismissed when the Debtor failed to file the Schedules. A hearing was scheduled on the motion to dismiss (“the MTD”) on February 13, 1996. Possibly the imposing nature of the MTD spurred Joel to engage Mark S. Karpo, Es*538quire (“Mark”), apparently a relative, as the Debtor’s counsel for the first time.
The parties agreed to a continuance of the February 13 hearing until March 5, 1996. Then, on March 4, 1996, the Debtor, per Mark, filed all necessary Schedules and an answer to the MTD with a counterclaim (“the CC;” the entire pleading is referenced as “the Answer & CC”). The Answer & CC properly addressed all the averments to the MTD and further, in the CC portion, alleged basically the same facts and requested the same relief as is alleged and requested in the Complaint, as described at pages 538-40 infra.
On March 12, 1996, the Debtor, per Mark as in all of its subsequent pleadings, filed the instant Proceeding, naming the Trustee as a co-plaintiff with the Debtor. The trial was scheduled on April 30, 1996. On April 11, 1996, the Movant filed an answer to the Complaint (“the Answer”) and a demand for a jury trial. The Answer admitted an averment that the Proceeding is core, which in our view constitutes express consent for us to determine it. See In re St. Mary Hospital, 117 B.R. 125, 131 (Bankr.E.D.Pa.1990). The trial was mutually continued until June 25, 1996.
The next developments were spurred by a colloquy with interested counsel at a hearing of June 13, 1996, to show cause why the case should not be dismissed because the Debtor failed to appear at the meeting of creditors on February 7, 1996. In light of Joel’s condition as a double amputee of both of his legs due to a severe diabetic condition, the Debtor was permitted, in an order of that date, to answer written interrogatories in lieu of appearance by Joel at the meeting of creditors. However, we also noted that, on June 12, 1996, the Movant had filed the Motion before us. We therefore entered an Order of June 14, 1996, allowing the Debtor until July 5, 1996, to answer the Motion, and, when both parties consented to our conducting the duly-requested jury trial of the Proceeding, see 28 U.S.C. § 157(e), we set back the potential jury trial until July 25, 1996. We also entered, with the parties’ concurrence, an order appointing Bruce E. Hartman, Esquire, as a mediator (“the Mediator”), pursuant to our court-authorized mediation program, to attempt to avoid the cost and necessary efforts potentially needed to conduct a jury trial.
Briefs were timely filed. On July 15, 1996, we entered an order allowing the Mediator to go forward when both parties waived a potential conflict; permitting the Movant to file a reply brief by July 19, 1996;1 requesting the Movant to reconsider its jury demand; and re-establishing the July 25, 1996, trial date as a date for a conference.
As a result of that conference, upon withdrawal of the Movant’s jury demand, we allowed the Debtor until August 1, 1996, to file a counter-reply brief; scheduled a status hearing to receive a further report from the Mediator on August 22, 1996; and, in the event of his lack of success in reaching a resolution, scheduled the trial before this court on a must-be-tried basis on September 12, 1996. We have decided that issuing this Opinion denying the Motion may assist the parties and the Mediator in reaching an amicable resolution of the Proceeding.
The facts surrounding the Complaint began on May 29, 1981, when Lincoln Bank, the predecessor to Continental Bank, which is in .turn the predecessor of the Movant, loaned the Debtor $200,000, evidenced by, inter alia, a mortgage (“the Mortgage”) against the Property. Apparently payments under the obligation were made until October 1990, when the Debtor defaulted. The Movant then initiated a foreclosure proceeding against the Property, and it was listed for a sheriffs sale on April 19, 1991.
On April 18, 1991, the parties entered into a written Forbearance Agreement (“the 1st Forbearance”), executed on May 8, 1991. Pursuant to the terms of the 1st Forbearance, the Debtor made a lump-sum payment to the Movant of $38,000 in consideration for which the Movant agreed to stay the sheriffs *539sale of the Property for a period of four months to allow the principals of the Debtor to actively market the sale of the Property. However, the 1st Forbearance further provided that, if the sale of the Property did not take place at the conclusion of the four-month period, the Property would be relisted for a sheriffs sale or the Debtor would be required to pay all outstanding principal and interest on the debt to the Movant.
During this four-month period, any and all rents due and payable to the Debtor from its (apparently four) tenants leasing space at the Property were to be assigned to the Movant by Joel to be applied against the Mortgage. An assignment of rents to the Movant was also provided by the Debtor under the terms of the 1st Forbearance, and shortly thereafter the tenants were notified of the assignment in writing by both parties.
The Debtor failed to sell the Property and did not make the required payment to the Movant within the four-month period. Therefore, in October 1991, the Movant proceeded with foreclosure and the Property was relisted for a sheriffs sale on December 20, 1991. The exact details of the events thereafter are stated less than clearly by the parties and appear to be disputed in several respects.
The parties agree that in December, prior to the December 20, 1991, sheriffs sale, by some type of agreement, the Property was taken off the sheriffs sale list. It appears that, during December, there were discussions between Anthony D. Reagoso, Esquire (“Reagoso”), and Joseph Higgins, Esquire (“Higgins”), on behalf of the Movant and the Debtor, respectively, regarding the postponement of the December 20, 1991, sheriffs sale. There was also a conversation between Reag-oso and Joel which appears to have occurred on December 19, 1991. All of these discussions ultimately resulted in an agreement (“the 2nd Forbearance”) whereby the Mov-ant promised that the Property would be taken off the sheriffs sale list in exchange for the Debtor’s promise to pay the Movant the proceeds from the anticipated sale (“the Transaction”) of two other properties which the Debtor owned, located at 13 East Maple Avenue and 15 East Maple Avenue, Brookha-ven, Pennsylvania (“the Other Properties”).
These discussions resulted in a number of writings, none of which individually make the details of the 2nd Forbearance perfectly clear, but which collectively enable us to understand the basic features of that agreement. First, there is a letter dated December 10, 1991, from Reagoso to Higgins, stating that the Movant should provide a more definite projected date of when the Transaction would close. As evidenced by a responsive letter from Higgins to Reagoso dated December 11, 1991, the Transaction was supposed to take place on or before January 31, 1992. Next, there is a letter dated December 16, 1991, from Reagoso to the Delaware County Sheriffs Office requesting that the Property be taken off the December 20, 1991, list, and re-listed for the February 1992 sheriffs sale list. Finally, there is a letter dated February 4, 1992, from Reagoso to Higgins referring to the conversation that Reagoso had with Joel on December 19, 1991, which resulted in the 2nd Forbearance.
However, there is some dispute as to when the Property was to be re-listed for a sheriffs sale in the event that the Debtor did not comply with the terms of the 2nd Forbearance. The Debtor contends that the Movant agreed not to relist the Property for at least six months, and that the Movant did not inform the Debtor that the Property was re-listed on the February 1992 sheriffs sale list. Joel, in an Affidavit responsive to the Motion, states that “at no time prior to March 4, 1992, did I have any knowledge or reason to believe that the [Property] was either listed for, or sold at, sheriff sale on February 21, 1992.” The Movant, on the other hand, contends that the December sheriffs sale was originally postponed by agreement of counsel until February 21, 1992, so that the Debtor could complete the Transaction.
Nevertheless, in a February 4, 1992, letter from Reagoso to Higgins, which the Debtor contends represents the writing containing all of the details of the 2nd Forbearance, there is no mention of the February 21, 1992, sheriffs sale. The letter states that “[i]f the shopping center is not sold within six months of the date of the [Transaction, and/or [the *540Debtor] does not come up with the required amount of cash, the [Property will be sheriffs sold.” Further, at the deposition of Reagoso, among an abundance of “I can’t recall” answers, Reagoso stated that he did not recall having a conversation with Joel in December 1991, let alone informing Joel that the sheriffs sale was postponed until February 1992.
In any event, on February 14, 1992, Reag-oso spoke with Higgins regarding the Transaction pertaining to the Other Real Estate, and Higgins represented that the Transaction would now close by June 1992 at the latest. The Debtor contends that, during this conversation, there was no mention of the February 21, 1992, sheriff sale. The Movant, on the other hand, contends that, on February 14, 1992, Reagoso agreed only to postpone the February 21, 1992, sheriffs sale to allow the Debtor additional time to sell the Other Properties. The Movant alleges that this agreement is separate and distinct from the 1st Forbearance.
Although there is uncertainty over the terms of the 2nd Forbearance, the Movant does admit that, through its inadvertence, the Property was erroneously never taken off the February 21, 1992, sheriffs sale list, and, unbeknownst to the Movant, the Property was sold to a third party for $1,000. The Movant also admits that it first learned that the Property was sold at the February 21, 1992, sheriffs sale on March 4, 1992, when Reagoso received a phone call from a third party notifying him of the sale. On that same day, upon learning this information, Reagoso notified Joel of the sale by telephone. The Debtor contends that the March 4, 1992, telephone call from Reagoso was the first notice which the Debtor received that the Property had been sold and that the Property had even been listed on the February 21, 1992, sheriffs sale list.
On March 5, 1992, the Movant filed a Petition to Set Aside the Execution Sale of the Property (“the Petition”) in the state court, the Court of Common Pleas of Delaware County (“the CCP”). The Petition was opposed by the third-party sheriffs sale purchaser, and an ongoing dispute ensued until July 13, 1993, when the CCP granted the Petition.
The Complaint sets forth a breach of contract claim against the Movant arising out of these events. The Debtor alleges that the Movant’s failure to cause the Property to be taken off the February 21, 1992, sheriffs sale list was a direct breach of the 2nd Forbearance contract with the Debtor. The Debtor further alleges that, in March 1992, due to the dispute over the Property’s ownership, the Movant directed tenants of the Property to cease submitting rent payments assigned to the Movant, and to hold onto their rent payments. The result of this directive was that allegedly no further rent payments were collected by the Movant or applied against the Debtor’s Mortgage. Also, it is alleged that, due to the cloud on the Property’s title, the Debtor was unable to further market the Property; and that, due to the ownership dispute, no repairs or maintenance were made to the Property, and it fell into a dilapidated condition as a result of roof leaks of which the Movant was aware.
Since the Movant’s alleged contractual breach caused the ownership dispute, the Complaint avers that the Movant had a duty to maintain the Property in the same condition as it was in prior to the Movant’s breach. The Debtor therefore seeks damages of $160,000 for the decline in the Property’s market value and $195,200 on account of uncollected rents from the Property, plus costs, expenses and reasonable attorney fees.
C. DISCUSSION
1. The Standards for Ruling on a Motion for Summary Judgment
Federal Rule of Civil Procedure (“F.R.Civ.P.”) 56(c), which applies in adversary proceedings, pursuant to Federal Rule of Bankruptcy Procedure (“F.R.B.P.”) 7056, provides in pertinent part that a summary judgment
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
*541We recently issued a Report and Recommendations (“the Report”) supporting a partial grant of a motion for summary judgment in a non-core proceeding, which was ultimately approved and adopted by the district court, in In re Joshua Hill, Inc., 199 B.R. 298 (E.D.Pa.1996). Therein, we discussed at length the standards for summary judgment, with special emphasis on limitations issues which were raised in that matter. There, we described the applicable standards as follows, at 308-09:
The general standards for ruling on a motion for summary judgment, from two different perspectives, were presented by us in two decisions arising from the same ease, reported as In re Rosco Investors, L.P., 1996 WL 107503 (Bankr.E.D.Pa. March 6, 1996) (motion, for partial summary judgment denied) (“Rosco II”) and In re Rosco Investors, L.P., 1995 WL 728605 (Bankr.E.D.Pa. Dec. 5, 1995) (motion for partial summary judgment granted in large part) (“Rosco I”). In Rosco I, we noted that:
“[t]he Supreme court has recently issued several decisions interpreting F.R.Civ.P. 56. Celotex Corp. 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); and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). ‘These eases convey the distinct, if not explicit, message that summary judgment is not “a disfavored procedural shortcut.”’. M. Nelkon, One Step Forward Two Steps Back: Summary Judgment After Celotex, 40 HASTINGS L.REV. 53, 53 (1988) (quoting Celotex, supra, 477 U.S. at 327, 106 S.Ct. at 2555). In particularly Celotex, the Court emphasizes the consequences of the failure of the party opposing a summary judgment motion to recognize that he ‘may not stand on the allegations of his pleadings.’ 6 J. MOORE, FEDERAL PRACTICE, ¶ 56.22[2], at 56-767 (2d ed. 1988). Thus, the Court states, in Celotex, that ‘the plain language of Rule 56(a) mandates the entry of summary judgment after adequate time for discovery and upon motion,’ against a party who fails to make a showing sufficient to establish ‘that there is a genuine issue as to any material fact which is an element essential to that party’s case.’ 477 U.S. at 32 [106 S.Ct. at 2385-86].”
However, in Rosco II, quoting In re Price, 1994 WL 142373, at *3-*4 (Bankr.E.D.Pa. April 12, 1994), we cautioned that
“‘[i]n ruling on a motion for summary judgment, our function is not to weigh the evidence, ... but rather to determine whether there is any genuine issue as to any material fact. See Sctdllachi v. Flying Dutchman Motorcycle Club, 751 F.Supp. 1169 (E.D.Pa.1990). The evidence of the nonmoving party is to be assumed correct, and all reasonable inferences therefrom are accrued to the benefit of the nonmoving party. Berner Int’l Corp. v. Mars Sales Co., 987 F.2d 975, 978 (3d Cir.1993); and In re Asbestos School Litigation, 768 F.Supp. 146, 149 (E.D„Pa.1991). Summary judgment is to be entered only if, in spite of the foregoing, the court deems that the mov-ant is entitled to relief as a matter of law....
“ While the Supreme court has recently stated that summary judgment is not to be regarded as ‘a disfavored procedural shortcut,’ Celotex Corp. v. Catrett, 477 U.S. 317, [327] 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986), courts have consistently been cautious in granting summary judgment. Earlier, the Supreme Court stated that “Rule 56 should be cautiously invoked to the end that parties may always be afforded a trial where there is a bona fide dispute of facts between them.” Associated Press v. United States, 326 U.S. 1, 6, 65 S.Ct. 1416, 1418, 89 L.Ed. 2013 (1944). More recent decisions of the Court of Appeals have characterized summary judgment as ‘ “ ‘a drastic remedy,’ ” ’ Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir.1981), quoting Ness v. Marshall, 660 F.2d 517, 519 (3d Cir.1982), in turn quoting Tomalewski v. State Farm Insurance Co., 494 F.2d 882, 884 (3d Cir.1974)). This court has also similarly characterized the summary *542judgment procedure. See In re Leedy Mortgage Co., 76 B.R. 440, 445 (Bankr.E.D.Pa.1987); In re American International Airways, Inc., 74 B.R. 691, 696 (Bankr.E.D.Pa.1987); and In re H & H Beverage Distributors, Inc., 65 B.R. 243, 244 (Bankr.E.D.Pa.1986).’ ”
We conclude from the foregoing that the necessity to resolve any genuine issue of material fact in order to resolve an issue precludes the entry of summary judgment on that issue. However, we must further note that, in determining whether there is any genuine issue as to any material fact, an issue is considered “genuine” only if there is sufficient evidence for a jury to find in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 [106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202] (1986). A dispute is “material” if it might affect the outcome of the action under the governing law. Id. at 248 [106 S.Ct. at 2510]. The non-moving party must set forth “specific facts showing that there is a genuine issue for trial,” id. at 256 [106 S.Ct. at 2514], in response to the movant’s assertions. We note that, while Moore states that “summary judgment may be particularly appropriate as to statute of limitations issues,” 6 J. MOORE, FEDERAL PRACTICE, ¶56.17[58], at 56-606 (2d ed. 1995-96), the text further cautions that, “when ... a genuine issue of material fact remains, especially as to the time the action accrued, a motion for summary judgment on the basis of the statute of limitations should be denied.” Id. at 56-609 to 56-610.
2. The Debtor Could Quite Conceivably Establish that the Complaint Is Not Time-Barred, and Therefore the Motion for Summary Judgment Must Be Denied.
Applying the foregoing principles to the Movant’s contention that summary judgment should be granted because the Debtor’s Complaint is time-barred, we must focus on the general question of whether there exists an issue of material fact which must be resolved before we can determine whether the statute of limitations expired before the filing of the Complaint. If we determine that an issue of material fact exists which is relevant to this issue, then we must also determine (1) if the Complaint is time-barred as a matter of law by deciding which limitations statute applies; and (2) if the Complaint was tolled by the applicable state law “savings statute.”
In this sequence of issues, the Debtor must first provide sufficient evidence for a jury to find that the statute of limitations period began to run on the Complaint no sooner than March 4, 1992, under the discovery rule. However, survival of the claims in the face of the statute of limitations would also mandate our finding the following: (1) that the four-year statute of limitations, pursuant to 42 Pa.C.S. § 5525(8), is the applicable limitations period; (2) that the statute of limitations was tolled by the Pennsylvania savings statute, 42 Pa.C.S. § 5535(a), when the Debt- or filed its Answer & CC with this court on March 4, 1996; and (3) that the statute of limitations did not expire prior to March 4, 1996, the date of the filing of the Answer & CC.
a. The Debtor Has Provided Sufficient Evidence to Permit Us to Conclude that the Statute Began to Run on March k, 1992.
In our Joshua Hill Report, supra, at 310, we explained that the limitations period begins to run on a claim concerning which the “discovery rule” applies as follows:
The statute of limitations begins to run “when the cause of action arises, as determined by the occurrence of the final significant event necessary to make a claim suable.” Mack Trucks, Inc. v. Bendix-Westinghouse Automotive Air Brake Co., 372 F.2d 18, 20 (3d Cir.1966), cert. denied, 387 U.S. 930 [87 S.Ct. 2053, 18 L.Ed.2d 992] (1967). However, in order to maintain an action, a plaintiff must reasonably be expected to know of the existence of that action. The so-called “discovery rule” provides that the statute begins to run as soon as the plaintiff has discovered or, in exercising reasonable diligence, should have discovered, the injury in question and its cause_ Thus, if, through an affirmative act of fraud or concealment, a defendant causes a plaintiff to relax his vigilance or to deviate from his right of injury, *543then the statute will be tolled until the plaintiff knows, or through reasonable diligence should know, of the claim....
The Third Circuit Court of Appeals, in discussing the discovery rule, has recently stated that “[t]he discovery rule tolls the running of a statute of limitations until ‘the plaintiff knows, or reasonable should know: (1) that he has been injured, and (2) that his injury has been caused by another party’s conduct.’ ” In re TMI, 89 F.3d 1106, 1116 (3d Cir.1996), quoting Cathcart v. Keene Industrial Insulation, 324 Pa.Super. 123, 136, 471 A.2d 493, 500 (1984) (en banc).
In applying the foregoing principles to the facts presented, we easily conclude that the discovery rule applies. The parties do not dispute that there was an agreement not to sell the Property at a sheriffs sale until some time after June 1992, even though the date and details of same are disputed. The Movant further admitted that, through its inadvertence, the Property was sold at the February 21, 1992, sheriffs sale, thus conceding its breach of that agreement. The sheriffs sale of the Property on February 21, 1992, under the facts alleged by the Debtor, would constitute an injury to the Debtor caused by the Movant’s failure to have the Property taken off the sheriffs sale list. Thus, February 21, 1992, is the date of the event that begins the running of the statute of limitations.
However, the Debtor contends that it did not become aware of the injury in question, ie., the sale of the Property, until March 4, 1992, when Reagoso telephoned Joel with such information. The Debtor further contends that it was not even aware that the Property had been listed for a sheriffs sale on February 21, 1992. The Movant further alleges that it made the Debtor aware that the Property was listed for a sheriffs sale on February 21, 1992, either in December 1991, in the conversation between Reagoso and Joel, or on February 14, 1992, in a conversation between Reagoso and Higgins. Finally, the Movant also contends that the Debtor was bound to know of the February listing as a matter of law, because it was part of a court record, citing Mengel v. New Tripoli Nat’l Bank, 156 Pa.Super. 434, 438, 40 A.2d 859, 862 (1945). Thus, it argues, the discovery rule cannot apply because the Debtor did not use reasonable diligence by taking account of court records indicating that the Property remained on the February 21, 1992, sheriffs sale list.
We reject the Movant’s contentions for several reasons. First, we believe that the Movant reads the relevant Mengel language far too broadly. In that case, a junior creditor of the debtor complained because a property was sold in execution of a senior creditor’s claim without his having received any notice of the sale. However, that creditor was aware that the sale had been stayed in the prior month without immediately obtaining a new date. 156 Pa.Super. at 435-36, 40 A.2d at 861. The creditor therefore clearly had an expectation that the sale would be rescheduled, and the court simply held that it was the creditor’s responsibility to ascertain the precise new sale date.
By way of contrast, the Debtor has presented evidence that it reasonably believed that the Property would not be listed prior to June 1992, which is at worst a dispute as to a material fact. Further, assuming arguendo that the Debtor was aware of a possible sale prior to June 1992 at some point, the Movant admits that, on February 14, 1992, in a conversation with Higgins, Reagoso agreed to have the Property removed from that list. Although the details of this conversation are disputed, it appears that the Debtor could quite easily establish that it reasonably relied on this information, especially based on the prior dealings between the parties on this subject. Thus, not verifying that the Property was taken off the list does not preclude the use of the discovery rule. Since the Movant itself was apparently surprised that the Property was sold on February 21, 1992, and admittedly did not learn otherwise until March 4, 1992, it can hardly be deemed unlikely for the Debtor to establish that it was similarly unaware of the sheriffs sale until advised of same by Reagoso on March 4, 1992. We therefore find that the Debtor may well be able to establish that the statute did not begin to run until March 4, 1992.
*544b. The Four-Year Limitations Period Pursuant to Jp2 Pa.C.S. § 5525 Is the Applicable Limitations Statute.
As part of our original Joshua Hill Report, supra, and especially in the Memorandum in support of denial of a motion for reconsideration (“the Memorandum”), at 310-11, 312, 315-16, 316-17, 324-28, we did an extensive analysis of several of the Pennsylvania statutes of limitations. Relevant to the case before us is the discussion on the four-year statute, pursuant to 42 Pa.C.S. § 5525, which provides as follows:
§ 5525. Four year limitation
The following actions and proceedings must be commenced within four years:
(1) An action upon a contract, under seal or otherwise, for the sale, construction or furnishing of tangible personal property or fixtures.
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(8) An action upon a contract, obligation or liability founded upon a writing not specified in paragraph (7) [relating to actions on bonds], under seal or otherwise, except an action subject to another limitation specified in this subchapter.
In the Report and Memorandum, id. at 308-10, 326-28, we concluded that contractual claims, though relative to real estate transactions, are generally subject to the four-year limitation period found in § 5525(8), even in the face of the plaintiffs’ vigorous contention, in Joshua Hill, that the five-year period set forth in 42 Pa.C.S. § 5526(2) applied because that statute makes reference to actions regarding specific performance of contracts relevant to real estate.
The claims set forth in the instant Complaint are based solely upon an alleged breach of a contract by the Movant, as the result of which the sale of the Debtor’s Property occurred. Specifically, the Debtor contends that the breached contract is the 2nd Forbearance, the details of which are contained in the February 4, 1992, letter from Reagoso to Higgins. Although this letter does not clarify the details of the agreement to the same degree as the duly-signed 1st Forbearance, the letter does clearly represent that the Movant would not re-list the Property for a sheriffs sale for six months. We believe that this signed letter could satisfy the “writing” requirement in § 5525(8), and could overcome any statute of frauds defense which the Movant might assert.
The Movant, on the other hand, contends that the applicable statute of limitations is 42 Pa.C.S. § 5524, which limits the time for bringing an action “for waste or trespass of real property” and for any action based on negligence or other tortuous conduct to two years, citing principally In re Shields, 148 B.R. 783, 786-87 (Bankr.E.D.Pa.1993); and Bednar v. Marino, 435 Pa.Super. 417, 425-26, 646 A.2d 573, 577-78 (1994).
Shields was an action to set aside a sheriffs sale, but it was brought on the basis that the sale constituted a fraudulent conveyance. 148 B.R. at 786-87. No claims sounding in contact were asserted. Similarly, Bednar involved the wrongful sale of the plaintiffs personal property. However, that action was instituted by a tenant against a landlord and involved a pure conversion claim. Id., 435 Pa.Super. at 425, 646 A.2d at 578. The specific statute of limitation referenced by the Bednar court, as the Debtor points out, was 42 Pa.C.S. § 5524(3), which relates to “[a]n action for taking, detaining or injuring personal property” (emphasis added). The instant Proceeding involves real estate. By way of contrast, no claim referencing any contract between the parties, as is in issue here and triggers § 5525(8), was asserted by the Bednar plaintiff.
The instant action, sounding in contract, is therefore clearly within the broad scope of § 5525(8). This is not an action asserting “waste,” which has been defined as “spoil or destruction committed in houses or other corporal hereditaments,” McCullough v. Irvine’s Executors, 13 Pa. 438, 440 (1850), committed by a party in rightful possession of the premises affected. 78 AM.JUR.2d 395, 397 (1975). The instant claims of the Debtor arise from an alleged breach of the parties’ contract in letting the February 21, 1992, sheriffs sale take place. No “spoil or destruction” of the Property at the direct hand of the Movant is alleged, nor is there any contention that the Movant was rightfully or *545otherwise in possession of the Property at the time of the alleged injury to the Debtor.
The Movant also contends that the only agreement between the parties regarding its forbearance from the February 21, 1992, sale occurred in the February 14, 1992, telephone conversation between Reagoso and Higgins, and therefore there is no writing on which to base the parties’ alleged contract. Without purporting to finally decide the issue of whether any such contract is enforceable, we conclude that the Debtor has provided sufficient evidence to support its contention that the February 4, 1992, letter from Reagoso to Higgins represents a requisite written me-morialization of the 2nd Forbearance to preclude summary judgment against it on this basis. Furthermore, after sorting through the many different allegations presented by each of the parties, we easily conclude that there are genuine issues of material fact as to what constituted the contract in issue which are unresolved to render a disposition on the basis of F.R.B.P. 7056 inappropriate here.
e. A March k, 1996, Filing Was Timely If the Statute of Limitations Did Not Begin to Run Until March 1, 1992.
The Debtor filed with this court and served on Movant the Answer & CC described at pages 537-38 supra, on March 4, 1996, which is of course exactly four years after March 4, 1992. The Movant has not addressed the issue of whether a March 4, 1996, filing would be timely if we were to find that the applicable limitations period began to run on March 4, 1992, since it argues that limitations began to accrue as of February 21, 1992, and that no filing sufficient to toll the statute was filed until March 12, 1996. Our conclusions that the March 4 dates may both be appropriate prompts us to address that issue here.
The Third Circuit Court of Appeals, in a case in which it borrowed the applicable Pennsylvania state law statute of limitations, has concluded that the statute of limitations expires on the anniversary date of the event in issue. Monkelis v. Mobay Chemical, 827 F.2d 937, 938 (3d Cir.1987). In Monkelis the measuring date to begin the running of the statute of limitations was April 11, 1980, the last day of the plaintiffs employment. The court concluded that, assuming a six-year state limitation period applied, the statute of limitations did not expire until April 11, 1986. Id.
The Monkelis court stated that, “[i]n determining the final date of the limitations period, we follow the method of calculation used in [F.R.Civ.P.] 6(a) at least in non-diversity cases.” Id. Rule 6(a) provides, in pertinent part, that,
[i]n computing any period of time prescribed or allowed by these rules, by the local rules of any direct court, by order of court, or by any district court, by order of court, or by any applicable statute, the day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, ... (emphasis added).
Rule 6(a) is incorporated in its entirety into the federal bankruptcy proceedings by the terms of F.R.B.P. 9006(a).
Another ease dealing with the computation of the last day on which to file a timely claim, and one that deals specifically with a Pennsylvania statute of limitations, is Perrine v. Heishman, 253 F.Supp. 68 (M.D.Pa.1966). In Perrine the plaintiff filed a complaint claiming damages for injuries suffered in a Pennsylvania accident that occurred on February 28, 1964. The court, in applying a two-year Pennsylvania statute of limitations, concluded that the last day for the plaintiff to have brought this action was February 28, 1966. Id. at 69. In making this determination, the court stated that “[i]n computing the time in which the action must be brought, in Pennsylvania, the day on which the cause of action arose is omitted and the last day of the period is included,” citing Tellip v. Home Life Ins. Co., 152 Pa.Super. 147, 150, 31 A.2d 364, 365 (1943).
Since we are applying Pennsylvania state-law limitations, we also look to Pennsylvania state court cases interpreting Pennsylvania statutes of limitations to determine how to compute time under Pennsylvania law. In Williams v. Medical College of Pennsylvania, 381 Pa.Super. 418, 424-27, 554 A.2d 72, *54674-76 (1989), the court, in applying the two-year limitations period of 42 Pa.C.S. § 5524(2), held that the two-year period expired on August 29, 1986, for an injury that occurred on August 29, 1984. Id. In reaching this conclusion, the court relied upon 1 Pa.C.S. § 1908, which provides, in pertinent part, as follows:
Computation of Time. When any period of time is referred to in any statute, such period in all cases, ... shall be computed so as to exclude the first and include the last day of such period ...
Therefore, pertinent Pennsylvania law, as embodied in 1 Pa.C.S. § 1908, is consistent with F.R.B.P. 9006(a), incorporating F.R.Civ.P. 6(a). Consequently, if the Debtor can establish, that limitations did not begin to run until March 4, 1992, and if the filing of the Answer & CC on March 4, 1996, tolls the running of the statute, limitations would not bar the Proceeding.
d. The Pennsylvania Savings Statute, 42 Pa.C.S. § 5535, Applies Under These Circumstances.
Perhaps the most difficult issue raised by the Motion is whether the Pennsylvania savings statute, 42 Pa.C.S. § 5535(a), which provides as follows, applies under these circumstances:
(a) Termination of prior matter.
(1) If a civil action or proceeding is timely commenced and is terminated, a party, or his successor in interest, may, not withstanding any other provision of this sub-chapter, commence a new action or proceeding upon the same cause of action within one year after the termination and any other party may interpose any defense or claim which might have been interposed in the original action or proceeding.
(2) Paragraph (1) does not apply to:
(i) An action to recover damages for injury to the person or for the death of an individual caused by the wrongful act or neglect or unlawful violence or negligence of another.
(ii) An action or proceeding terminated by a voluntary nonsuit, a discontinuance, a dismissal for neglect to prosecute the action or proceeding, or a final judgment on the merits.
The pertinent language of the statute on which we must focus our attention is “[i]f a civil action or proceeding is timely commenced.” We must then decide whether the Answer & CC filed by the Debtor on March 4, 1996, in this court was a “civil action or proceeding” within the meaning of § 5535(a). We have found very little case law within our jurisdiction interpreting the scope of § 5535(a)(1), and we have only found one case, introduced to us by the Debtor in its counter-reply brief, factually similar to the case before us.
The Third Circuit Court of Appeals has explained the purpose of § 5535(a) as a statute that “reflects a legislative determination of the Commonwealth’s policy regarding limitations when a suit is dismissed. It provides that in most instances where the dismissal is for a reason unrelated to the merits, limitations will not bar a new suit instituted by the plaintiff within a year.” Stinson v. Kaiser Gypsum Co., 972 F.2d 59, 63 (3d Cir.1992). We interpret this pronouncement to mean that § 5535 should be read broadly. However, the Stinson court does not provide us with any guidance as to what constitutes a “civil action or proceeding” or as to how broadly the “civil action or proceeding” language should be read.
The factually-similar case, Johnstone v. Hershowitz, 1990 WL 161098 (E.D.Pa. October 18, 1990), is a short decision adopting an unpublished United States Magistrate’s Report and Recommendation applying § 5535 to an improperly-filed motion. The pro se plaintiff in that case filed a “Motion for Recovery of Property” against the United States within the two-year Pennsylvania statute of limitations, 42 Pa.C.S. § 5524. The motion was denied without prejudice “for the reason that the avenue to relief pursued by the plaintiff — a motion filed within the framework, and under the docket number, of his criminal case — was not the proper route.” Id. at *1. The plaintiff subsequently filed a proper complaint, essentially repeating the allegations of the “Motion for Return of Property.” Id. The Magistrate found, and the district court- adopted that finding, that *547the “Motion for Return of Property’’ was a “civil action” within the meaning of § 5535(a). Id. However, the discussion of the application of § 5535 in this decision is limited to less than one full sentence and the ultimate conclusion is based on the Magistrate’s unpublished analysis. It is therefore only the ultimate conclusion, and not helpful reasoning, which we can draw from this decision.
Although we could not find any relevant legislative history interpreting the scope of § 5535, we did note an Official Source Note to § 5535 stating, “Subsection (a) ... [is] patterned after New York Civil Practice Law and Rules § 205” (“the N.Y. Law”). By citing to the N.Y. Law, the Pennsylvania legislature apparently intended that the Pennsylvania savings statute be interpreted similarly to the N.Y. Law.
The N.Y. Law begins with the language “[i]f an action is timely commenced ...” There is a substantial body of New York case law interpreting the purpose and scope of the N.Y. Law, and we will review same as guidance in interpreting the scope of § 5535.
All of the eases interpreting the N.Y. Law make it clear that the statute should not be narrowly construed. The Second Circuit Court of Appeals has on several occasions interpreted the N.Y. Law to be a very liberal statute. Thus, in Graziano v. Pennell, 371 F.2d 761, 763 (2d Cir.1967), the court stated that
[t]he obvious purpose of CPLR § 205(a) and its counterparts in many other states is to prevent the general statute of limitations from barring recovery because a court has ordered a timely action to be terminated for some technical defect that can be remedied in a new one.
Also, we note that Graziano quotes, at id., the following characterization of the N.Y. Law by then-judge Cardozo in Gaines v. City of New York, 215 N.Y. 533, 539, 109 N.E. 594, 596 (1915):
The statute is designed to insure the diligent suitor the right to a hearing in court till he reaches a judgment on the merits. Its broad and liberal purpose is not to be frittered away by any narrow construction. The important consideration is that, by invoking judicial aid, a litigant gives timely notice to his adversary of a present purpose to maintain his rights before the courts.
See also Producers Releasing Corp. De Cuba v. Pathe Industries, Inc., 184 F.2d 1021, 1023 (2d Cir.1950), also quoting Gaines, supra.
The Pennsylvania savings statute was enacted in 1976, subsequent to the Graziano and Producers Releasing Corp. eases, which make it clear that the N.Y. Law is to be construed liberally and broadly. It seems likely, from this history, that the Pennsylvania legislature intended that § 5535(a) should likewise be read liberally and broadly.
The case law interpreting the N.Y. Law focuses on the notice to the adverse party of the plaintiffs cause of action within the limitations period. See Graziano, supra, 371 F.2d at 763; and Producers Releasing Corp., supra, 184 F.2d at 1021. Further in Harris v. United States Liability Ins. Co., 746 F.2d 152, 154 (2d Cir.1984), the court stated:
In applying the statute, New York courts are properly concerned, not with the “technicalities of the form of relief originally requested,” but with whether the defending party was fairly notified of the subject of the dispute within the limitations period.
We do not read these cases as holding that any type of notice to the adverse party of the cause of action within the limitations period will enable a party to invoke § 5535(a). Otherwise, a letter or a telephone conversation could be held to stop the running of a statute of limitations, which we do not believe should be the ease. Instead, the proper reference is to a pleading filed in the court of appropriate jurisdiction over the claim. Cf. In re Wilbert Winks Farm, Inc., 114 B.R. 95, 97 (Bankr.E.D.Pa.1990) (only a document filed in the bankruptcy court will constitute an “informal proof of claim” sufficient to preclude the running of an applicable bar date for filing claims). However, we note that we consider the type of notice provided by the document purporting to “save” the plaintiff from a limitations period is a factor to be considered in determining whether § 5535(a) can be invoked.
*548In the case before us, the Movant and this court were properly served with the Debtor’s Answer & CC on March 4, 1996. In the CC, the Answer & CC alleged quite clearly the facts of the cause of action set forth in the Complaint, which constituted sufficient notice to the Movant of the Debtor’s claims in this Proceeding.
However, sufficient notice alone will not be enough to enable a party to invoke § 5535(a). There must be a “civil action or proceeding” which provides the notice. The Debtor utilizes the heading of a “counterclaim” in that portion of the Answer & CC in which it states its claims against the Movant. In interpreting the phrase “an action is timely commenced” under the N.Y. Law, New York courts have frequently found that counterclaims are within the scope of this language. See Gross v. Newburger, Loeb & Co., Inc., 103 Misc.2d 417, 426 N.Y.S.2d 667, 672-73 (Nassau Co. Sup.Ct.1980), modified, 85 A.D.2d 709, 445 N.Y.S.2d 830 (1981); Russo v. Iacono, 73 A.D.2d 913, 423 N.Y.S.2d 253, 254 (1980); Cahoes Housing Authority v. Ippolito-Lutz, Inc., 65 A.D.2d 666, 409 N.Y.S.2d 811, 812 (1978), aff'd, 49 N.Y.2d 961, 428 N.Y.S.2d 948, 406 N.E.2d 803 (1980); and Lebrecht v. Orefice, 199 Misc. 1025, 105 N.Y.S.2d 318, 320 (1st Dept., App.Term, Sup.Ct.1951). In Lebrecht, which was decided prior to the enactment of § 5535, the court held, at id., in reference to a predecessor of the N.Y. Law, that
[t]o hold that the interposition of a counterclaim is not the commencement of an action within the meaning of Section 23, C.PA., would tend to discourage a defendant from interposing a counterclaim in accordance with the policy of the law since by counterclaiming he might lose rights which he would possess if instead he commenced a separate action against the plaintiff. In the absence of language indicating a legislative intent that Section 23, supra, shall be inapplicable to counterclaims, this court is of the opinion that Section 23 applies equally to complaints and counterclaims, since for all practical purposes the counterclaim is the same as a complaint.
We have not found any legislative history indicating the scope of § 5535, and thus we have not found any language indicating a legislative intent that § 5535 should not apply to counterclaims. We therefore agree with the principle that § 5535(a) should apply to counterclaims.
In its initial brief, the Debtor provided us with one case, from yet another jurisdiction, supporting its position that counterclaims are within the scope of § 5535(a), Cale v. Jones, 176 Ga.App. 865, 338 S.E.2d 68 (1985). This case tends to support the same conclusion, and the Movant has not cited, nor have we located, a case holding to the contrary as to the effect of the filing of a counterclaim on a savings statute in any jurisdiction.
Although we conclude that § 5535 applies to claims raised in counterclaims, the case before us presents a slightly different scenario that has not been addressed by the New York courts. The Debtor in our case claims to have filed an Answer & CC containing a “counterclaim.” However, what we believe that the Debtor actually filed was an improper “cross-motion.” In In re Summit Airlines, Inc., 94 B.R. 367, 369 (Bankr.E.D.Pa.1988), aff'd, 102 B.R. 32 (E.D.Pa.1989), we stated that:
[a] “cross-motion,” unless itself accompanied with all of the adornments required by B.R. 9014 and Local Bankruptcy Rule 9014.1, is never a proper pleading. For unless it is filed with such enclosures, its presentation deprives other interested parties of the notice and opportunity to respond to which they are entitled as to any motion which is properly filed on its own.
In our March 5, 1996, order we dismissed what the Debtor referred to as a “counterclaim” as an improper pleading, because we believed that was properly characterized a “cross-motion.” Further, even if the Answer & CC had been in the form of an adversary proceeding, we noted that the Trustee was improperly not named as a party plaintiff in a claim made on behalf of a Chapter 7 estate. See, e.g., Krank v. Utica Mutual Ins. Co., 109 B.R. 668, 669 (E.D.Pa.), aff'd, 908 F.2d 962 (3d Cir.1990); and Cain v. Hyatt, 101 B.R. 440, 441-42 (E.D.Pa.1989). The question is whether these rather significant deficiencies preclude our assessment of the An*549swer & CC as a pleading sufficient to give rise to § 5585(a).
At this juncture, we note a distinction between the statutory language used in the N.Y. Law and that appearing in § 5535(a). The N.Y. Law only references an “action” as a necessity to trigger that savings statute, while § 5535(a) uses the terms “civil action or proceeding.” “Proceeding” is a term that is defined more broadly than “action.” See BLACK’S LAW DICTIONARY 1083-84 (5th ed. 1979) (“Term ‘proceeding’ may refer not only to a complete remedy but also to a mere procedural step that is part of a larger action or special proceeding” ... It also includes “[a]n action ... the entire course of an action at law or suit in equity from the issuance of the writ or filing of the complaint until the entry of a final judgment, or may be used to describe any act done by authority of a court of law and every step required to be taken in any cause by either party.... ‘Proceeding’ means any action, hearing, investigation, inquest, or inquiry ... in which, pursuant to law, testimony can be compelled to be given.”).
It therefore appears that the Pennsylvania legislature made not only a conscious decision to pattern the Pennsylvania savings statute after the New York savings statute, but also it intended to make the Pennsylvania saving statute even broader by using the statutory language “civil action or proceeding” rather than simply using the term “action.” Moreover, the term “proceeding” in § 5535 is obviously not meant in the sense of an “adversary proceeding,” or a “case within a case,” in the bankruptcy court. Rather, what was intended was a generic use of the term “proceeding,” which applies to any procedural steps, measures, or actions arising in a case. Although it was an improper pleading which possibly did not constitute the filing of an “action,” we find it very difficult to conclude that the Answer & CC of the Debtor in issue did not fit within the broad definition of a “proceeding” which appears in § 5535(a).
We also make note of a recent Third Circuit Court of Appeals opinion dealing with facts reminiscent of Johnstone, addressing a somewhat similar problem regarding the running of a statute of limitations, McDowell v. Delaware State Police, 88 F.3d 188 (3d Cir.1996). In that case, the pro se plaintiff filed with the clerk of the district court a pleading denominated as a “Motion for Compensation,” of which the Court stated “[i]n substance, if not form, appeared to be intended as a complaint.” Id. at 189. The plaintiff had filed this “Motion for Compensation” within the two-year limitations period, but minus the applicable filing fee, and he did not file an application to proceed in forma pau-peris until some fourteen months later, outside of the limitations period. Id. at 190.
The McDowell court agreed with the district court’s conclusion that the filing of this document' constituted a “complaint” filed within the limitations period. Id. at 191. However, that court did not agree with the district court’s dismissal of the complaint merely because the plaintiff did not file his request to proceed in forma pauperis in a timely fashion. Id.
Although McDowell did not address a situation involving a savings statute, it did provide some guidance as to how the court would handle the situation before us. The court focused on two factors, which are both clearly satisfied in our case, stating “[n]ota-bly, the improperly captioned complaint was served on the defendants and alleged sufficient facts to put defendants on notice of McDowell’s claims.” Id. at 192. The Debt- or, in our ease, properly served the defendant and the court on March 4,1996, with its Answer & CC, containing five pages of facts which were almost identical with the language of the Complaint filed on March 12, 1996.
The Debtor’s final argument, which we consider to be supported to some degree by McDowell, references 42 Pa.C.S. § 5503, which provides, in pertinent part, as follows:
Commencement of matters
(a) General Rule. A matter is commenced for the purposes of the chapter when a document embodying the matter is filed in an office authorized....
The Debtor argues that it filed a document, the Answer & CC, with an office authorized to accept a complaint, the Clerk of the Bank*550ruptcy Court. Although the pertinent language that we are focusing on in § 5535 is “a civil action or proceeding” not “a matter is commenced,” the conclusion in McDowell, by interpreting the document filed in a broad sense, lends additional support to the Debt- or’s argument.
We must also note that just because the Answer & CC was an improper pleading and the Trustee was erroneously omitted as a party to the Answer & CC do not preclude the invocation of § 5535(a) as to that document. We believe that these sorts of defects are exactly the types of procedural deficiencies leading to termination of a matter which fall within the broad scope of § 5535(a). Again, we look to the Third Circuit Court of Appeals’ interpretation of the purpose of § 5535, which is that, “[i]n most instances where the dismissal is for a reason unrelated to the merits, limitations will not bar a new suit ...” Stinson, supra, 972 F.2d at 63. Clearly, our dismissal of this improper pleading was not related to its underlying merits. Also, the dismissal did not fall within either of the two exceptions listed in § 5535(a)(2), supra, ie., the ease in issue is not a personal injury action and the Answer & CC was not dismissed for failure to prosecute it, which would have taken the claims outside of the scope of § 5535(a)(1).
The Second Circuit Court of Appeals, in addressing the N.Y. Law’s predecessor, stated that “[w]here the parties to the second action are identical in interests with the parties to the first, Section 23 applies; thus a trustee in Bankruptcy may be joined as co-plaintiff with the bankrupt in the second action.” Producers Releasing Corp., supra, 184 F.2d at 1023. In Carrick v. Central General Hospital, 51 N.Y.2d 242, 434 N.Y.S.2d 130, 133, 414 N.E.2d 632, 635 (1980), interpreting the N.Y. Law, the court stated that “[t]he fact that the prior action was so defective as to be ‘tantamount to no suit whatsoever’ simply does not preclude the use of that remedial provision to revive an otherwise time-barred cause of action, provided of course that a prior timely action, however flawed, actually was commenced ...” We find these decisions, though not binding on us, to be persuasive in characterizing the Answer & CC filed as giving rise to application of § 5535(a).
The Movant cites a few cases, notably Cardio-Medical Associates, Ltd. v. Crozer-Chester Medical Center, 721 F.2d 68, 77 (3d Cir.1983); Sabo v. Parisi, 583 F.Supp. 1468, 1471 (E.D.Pa.1984); and In re Fricker, 192 B.R. 388, 392 (Bankr.E.D.Pa.1996), in support of an argument that § 5535 is not available to the Debtor because F.R.Civ.P. 41(b) precludes its invocation. In this regard, the Movant argues that our Order of March 5, 1996, dismissing the Answer & CC as an improper pleading operated as an adjudication upon the merits of the claims contained therein, pursuant to F.R.Civ.P. 41(b), because our order did not specify that the dismissal was without prejudice or that the order was not an adjudication upon the merits. Therefore, the Movant concludes that, because there has been an adjudication upon the merits, the savings statute is not available under § 5535(a)(2)(ii).
We do not agree with the Movant’s reasoning, and we reject this argument. In our March 5, 1996, Order, we dismissed the Answer & CC as an improper pleading and further stated that any claims against the Movant must be prosecuted by the Trustee. We do not think that this language in any way indicates that this dismissal was with prejudice or that it was a dismissal on the merits of the claims stated therein. We again find support in Johnstone, supra, at *1, where the court found that the denial of the “Motion for Recovery of Property” filed by the plaintiff as an improper pleading constituted its dismissal without prejudice, and did not constitute a dispositive adverse adjudication of the sort which § 5535(a)(2)(ii) states is excluded from the tolling effect of § 5535(a)(1).
The cases cited by the Movant are inappo-site. Neither Cardio-Medical nor Fricker involved nor discussed savings statutes. Cardio-Medical addressed only the issue of whether the plaintiffs were able to revive their previously-waived right to a jury trial after their original complaint was dismissed. 721 F.2d at 76-77. Fricker involved a situation where a prior identical proceeding filed in an earlier bankruptcy ease was dismissed *551for failure to prosecute. This court nevertheless refused to dismiss a subsequent complaint in a later bankruptcy case on the basis of res judicata. 192 B.R. at 394-95. The instant Answer & CC was summarily dismissed because it was not a proper pleading, not because of neglect or the failure of the Debtor to prosecute it.
The Pennsylvania savings statute therefore applies, and we conclude that the Debtor could overcome the bar of the applicable four-year statute of limitations under its terms.
D. CONCLUSION
An Order denying the Motion at issue will therefore be entered.
ORDER
AND NOW, this 14th day of August, 1996, upon consideration of the Defendant’s Motion for Summary Judgment (“the Motion”) in its favor in the above-captioned proceeding (“the Proceeding”), and after careful review of the parties’ various briefs, it is hereby ORDERED AND DECREED as follows:
1. The Motion is DENIED.
2. A further report on the status of the mediation of the Proceeding remains scheduled on
THURSDAY, AUGUST 22, 1996, at 9:30 A.M.
and shall be held in Bankruptcy Courtroom No. 4 (Room 3620), Third Floor, United States Court House, 601 Market Street, Philadelphia, PA 19106.
3. The trial of this proceeding remains scheduled on a must-be-tried basis before this court on
THURSDAY, SEPTEMBER 12, 1996, at 9:30 A.M.
and shall be held in Bankruptcy Courtroom No. 4 (Room 3620), Third Floor, United States Court House, 601 Market Street, Philadelphia, PA 19106. Counsel are attached for trial on this date.
4. A status hearing on the Debtor’s main case, to be attended by the Trustee, will also be conducted on the date of the trial, because any recovery by the Debtor in the Proceeding would apparently render this ease an asset case.
. We were unaware at that time that the Movants had officiously and improperly filed an unsolicited reply brief on that day, July 15, 1996. See In re Jungkurth, 74 B.R. 323, 325-26 (Bankr.E.D.Pa.1987), off d sub nom. Jungkurth v. Eastern Financial Services, Inc., 87 B.R. 333 (E.D.Pa.1988). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492385/ | OPINION
VOLINN, Bankruptcy Judge:
The debtor, Barbara Turner, claimed that the California Department of Real Estate (DRE) violated the anti-discrimination provisions of Section 525(a)1 by suspending her *695real estate license after it paid a claim out of the state’s real estate recovery fund to individuals with a nondischargeable claim against the debtor. The court below dismissed the debtor’s complaint for failure to state a claim upon which relief can be granted and the debtor appeals. We affirm.
BACKGROUND FACTS2
The debtor, Turner, was a real estate agent in California. She and Philip Wire owned a real estate partnership which, in an effort to finance a residential condominium development in Palo Alto, California, solicited a $50,000 loan from Barbara Runser and John Boldt. In a state court trial, a jury found that during negotiations', Turner repeatedly misled Runser and Boldt.
After Turner defaulted on the loan, Runser and Boldt sued Turner and Wire in state court for fraud. Wire settled with the plaintiffs for $18,000. The suit against Turner was tried before a jury.' The jury found Turner guilty of fraud and awarded general damages of more than $85,000 and punitive damages of $125,000; the court awarded nearly $75,000 in attorney’s fees. In March, 1989, the court awarded a total judgment of approximately $265,000 (which included an $18,000 credit for the plaintiffs’ settlement with Wire). Turner appealed and the California court of appeals upheld the judgment. The California Supreme Court and the U.S. Supreme Court denied her petitions for cer-tiorari.
Turner filed a chapter 11 petition in September, 1989, which was later converted to chapter 7. Upon a motion by Runser and Boldt, the bankruptcy court found that the state court judgment was nondischargeable. Turner appealed to the BAP, which found that only the compensatory portion of the judgment and the attorney’s fees were non-dischargeable, and reversed and remanded for a determination whether the punitive damages were nondischargeable. According to Turner, on remand, the court found that the punitive damages were dischargeable.
Runser and Boldt applied to the DRE for reimbursement from the California Real Estate Recovery Program, a state program designed to provide compensation to individuals who have been defrauded by a real estate licensee. Under this program, an applicant who obtains a final judgment in state court against a real estate licensee on the grounds of fraud, misrepresentation, deceit or conversion of trust funds may apply to the DRE for payment from the Recovery Account for the uncollected portion of his or her judgment against the licensee. If the Recovery Account pays the applicant, the licensee’s license is automatically suspended until the licensee reimburses the Recovery Account. CaLBus. & Prof.Code at § 10475.3 The statutory scheme allows for notice to the licensee, a chance for the licensee to oppose the motion and a right to seek judicial review by petitioning the superior court for a writ of mandamus. See Id. at §§ 10471-10472.
The DRE, which had not sought relief from the automatic stay,4 paid Runser and *696Boldt the statutory maximum of $20,000. Under state law, the payment resulted in a partial assignment of the fraud judgment to the DRE. Cal.Bus. & Prof.Code § 10479.5 Payment from the Recovery Account also automatically resulted in the suspension of Turner’s real estate broker’s license. The DRE’s memorandum in support of its motion to dismiss, filed below, states that Turner opposed the DRE’s actions and unsuccessfully sought a writ of mandamus from the superior court but does not explain her claimed basis for the writ. Turner has not claimed that the DRE failed to follow the proper statutory procedures and the DRE has made no attempt to collect the debt.
In this action, Turner, acting in propria persona, alleged that the DRE discriminated against her in violation of Section 525(a), when it suspended her license.6 In her complaint, Turner alleged that prior to the payment by the DRE, Wire paid Runser and Boldt an amount that fully satisfied the non-dischargeable portion of Turner’s debt to them and, therefore, any debt she still would owe to Runser and Boldt has been discharged.7 Turner argues that the DRE did not fully investigate whether Runser and Boldt had been paid, and that if it had, it would not have paid Runser and Boldt or suspended her license.
The DRE moved to dismiss under Fed.R.Civ.P. 12(b)(6), arguing that Turner had failed to state a claim under which relief could be granted. Following a hearing, the court dismissed the complaint without leave to amend, stating that:
I believe that — to the extent that I previously indicated — that the — any complaint that the DRE made a payment that wasn’t supposed to be made and, in fact, that the claimants were paid twice, is something that really has to be taken up with the DRE and it doesn’t belong here. And there is no allegation that this payment was made — or, rather, the license suspension has occurred because you haven’t paid a debt that is dischargeable.
Turner appeals.
ISSUES
Whether the court erred when it dismissed Turner’s complaint without leave to amend under Fed.R.Civ.P. 12(b)(6).
STANDARD OF REVIEW
The dismissal of the debtor’s amended complaint without leave to amend under Fed.R.Civ.Pro. 12(b)(6) for failure to state a cognizable claim under Section 525(a) is a legal question, and this court reviews the decision de novo. Kruso v. International Telephone and Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989). Although the bankruptcy court’s dismissal order does not specify the deficiencies in Turner’s complaint, this Panel can affirm the dismissal on any basis supported by the record. In re Prize Frize, Inc., 150 B.R. 456, 461 n. 11 (9th Cir. BAP 1993).
DISCUSSION
Section 525 prohibits a government agency from suspending a license solely because a licensee “is or has been a debtor” under federal bankruptcy law or “has not paid a debt that is dischargeable.” See In re Walker, 927 F.2d 1138 (10th Cir.1991) (hold*697ing that a Utah statute similar to the California statute here violates the Supremacy Clause to the extent that it revokes a debt- or’s real estate license for failure to reimburse the state fund for a debt discharged in bankruptcy). Under Walker, if Turner’s debt to Runser and Boldt had been found to be dischargeable, the DRE would be in violation of Section 525(a). The DRE distinguishes this case from Walker, however, arguing that a significant portion of Turner’s debt was found to be nondischargeable. Turner responds, and the court must accept for purposes of determining whether summary judgment is appropriate, that her debt to Runser and Boldt had been satisfied by Wire prior to any payment by the DRE and, therefore, at the time the DRE made payment she did not have a nondischargeable debt. Turner argues that the DRE violated Section 525(a) when it paid Runser and Boldt because any monies owing to Runser and Boldt were dischargeable and that the bankruptcy court is the proper forum to hear her arguments.
No Ninth Circuit or BAP easelaw has articulated the essential elements of a claim under Section 525(a). However, the statute specifically provides that a governmental unit may not suspend or refuse to renew a license because the licensee “has not paid a debt that is dischargeable” in the bankruptcy.
When the DRE paid Runser and Boldt, it was assigned a portion of a nondis-chargeable debt. The debt continued to be nondischargeable in its hands: “The assignee of a claim takes the claim with all rights attendant, and therefore the nondischargeable character of the debt in the hands of the original claimant is transferable.” In re Florida, 164 B.R. 636, 640 (9th Cir. BAP 1994). Turner has not alleged that the DRE suspended her license for her refusal to pay a debt that is dischargeable. Turner acknowledges that the Recovery Account paid only the nondischargeable portion of Runser and Boldt’s debt. Instead, Turner alleges that the DRE suspended her license for failure to pay a debt that was satisfied prior to payment. Turner’s argument confuses the existence of a debt with dischargeability of the debt. The DRE’s debt may have been satisfied, but it was not discharged. Therefore, the DRE did not suspend Turner’s license for a failure to pay a discharged debt.
Assuming arguendo that Turner’s allegations as to satisfaction are true, the DRE’s suspension of her license for failure to pay a non-existent debt may be unwarranted. But, as the court below stated, that is not “an issue that implicates the bankruptcy.”8
Turner contends, however, that the bankruptcy court is the proper forum to determine whether the debt owed by Turner has been paid, relying on MSR Exploration, Ltd. v. Meridian Oil, 74 F.3d 910, 914 (9th Cir.1996).9 In MSR Exploration, the Ninth Circuit determined that state malicious prosecution claims for events taking place in the bankruptcy court are governed by federal law. The court was concerned that “[t]he threat of later state litigation may well interfere with the filings of claims by creditors and other necessary actions that they, and others, must or might take within the confines of the bankruptcy process” and that “[wjhether creditors should be deterred, and when, is a matter unique to the flow of the bankruptcy process itself.” MSR Exploration, 74 F.3d at 916. In this case, however, such a circumstance is not present.
CONCLUSION
Because satisfaction of the debt is irrelevant for purposes of Section 525(a), the court properly refused to hear evidence that the *698debt was satisfied. This conclusion eneom-passes Turner’s contention that the court should not have dismissed her case before requiring the DRE to comply with her discovery requests. Since the court properly determined that there were no facts Turner could prove that would give her relief under Section 525(a), discovery was irrelevant.
AFFIRMED.
. Unless otherwise stated, all references to "sections”, "§” and "rules” refer to the U.S. Bankruptcy Code, 11 U.S.C. § 101 etseq.
Section 525(a) states in pertinent part: "a governmental unit may not deny, revoke, suspend or refuse to renew a license ... [of] a person that is *695or has been a debtor under this title ... solely because such ... debtor is or has been a debtor under this title, ... or has not paid a debt that is dischargeable in the case under this title.”
. Some of the facts regarding prior bankruptcy proceedings are taken from in In re Turner, BAP No. NC-91-2123-RJAs (9th Cir. BAP 1992). Although the disposition in that case was unpublished, a court may take judicial notice of its own opinions, whether published or not. Scott v. Angelone, 771 F.Supp. 1064, 1068 (D.Nev.1991); Latta v. Western Inv. Co., 173 F.2d 99, 103 (9th Cir.1949).
. Cal.Bus. & Prof.Code § 10475 reads in pertinent part: "Should the commissioner pay from the Recovery Account any amount in settlement of a claim or toward satisfaction of a judgment against a licensed broker or salesperson, the license of the broker or salesperson shall be automatically suspended upon the date of payment from the Recovery Account. No broker or salesperson shall be granted reinstatement until he or she has repaid in full, plus interest at the prevailing legal rate applicable to a judgment rendered in any court of this state, the amount paid from the Recovery Account on his or her account.” (West 1987).
.In an earlier bankruptcy proceeding in Judge Tchaikovsky’s court, Ms. Turner sought an injunction to prevent the DRE from paying Runser and Boldt and from suspending her license, alleging that those actions by the DRE would violate the automatic stay. Following a hearing, Judge Tchaikovsky denied the application for injunction and dismissed the action.
. Cal.Bus. & Prof.Code § 10479 provides in pertinent part: "When, the commissioner has paid from the Recovery Account any sum to the judgment creditor, the commissioner shall be subro-gated to all of the rights of the judgment creditor and the judgment creditor shall assign all of his or her right, title, and interest in the judgment to the commissioner and any amount and interest so recovered by the commissioner on the judgment shall be deposited to the Recovery Account.” (West 1987).
. Ms. Turner initially filed four counts against the DRE. Three counts alleged damages for the DRE’s alleged violation of the automatic stay. The bankruptcy court dismissed these counts without leave to amend, stating that it would be improper for the court to question Judge Tchaikovsky’s decision to let the DRE proceed. Ms. Turner did not appeal the dismissal of the three counts. The bankruptcy court also dismissed the fourth count with leave to amend. The dismissal of the amended and refiled fourth count is at issue here.
.Her complaint read: “[t]he compensatory damages portion of the debt for which the Department of Real Estate paid $20,000 from the Recovery Fund has been paid; any unpaid portion is dischargeable.”
. The court told Ms. Turner that: "if you believe that Mr. Wire has fully satisfied your obligation, take it up with the Superior Court, and take it up with the Department, but not here under a relief from stay theory.... [I]f your real complaint is the Department wrongfully paid money because Boldt and Runser were paid, take it up with the Department in a proper forum.”
. In MSR Exploration, a debtor brought a malicious prosecution action against several oil companies that had filed a claim against the debtor in bankruptcy. The debtor had objected to the claim, but did not seek sanctions, attorney’s fees or any other remedy in the bankruptcy court. Instead, the debtor waited until its, reorganization plan was confirmed and substantially consummated before bringing a state malicious prosecution claim in the district court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492388/ | MEMORANDUM OPINION
MARK W. VAUGHN, Bankruptcy Judge.
Walter and Sharon Jensen d/b/a S & W Construction (“Debtors”), filed an objection in this case to the proof of claim filed by the Internal Revenue Service (“IRS”). Upon conversion of their Chapter 11 ease to Chapter 7, the Chapter 7 trustee advised the Court that he intended to prosecute the matter. The parties object to the IRS’s proof of claim in the amount of $149,665.50. The IRS’s proof of claim has been amended to $159,405.39 since trial of this matter on November 6,1995.
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
Facts
The Debtors first filed Chapter 11 bankruptcy on March 5, 1990. (Bk. No. 90-10310-YAC.) During the course of that case, the Debtors filed a motion to determine the amount of the IRS’s claim. (Ct.Doe. No. 152.) The IRS had filed a proof of claim in the amount of $85,502.08. (Agreed Statement of Facts (“Facts”) ¶ 1.) On February *78, 1991, the Court disallowed, in part, the proof of claim filed by the IRS and found that the IRS had a claim in the amount of $38,546.32. (Ct.Doc. No. 165; Facts ¶ 4.)
Under the Debtors’ confirmed plan of reorganization, the Debtors were to make five annual payments of $6,709.26 by November 29th of each year from 1991 through 1995, in order to satisfy the IRS’s claim. (Facts ¶ 5.) The Debtors made payments of $6,709.26 on September 24, 1991, and $6,709.26 on May 14, 1992. (Facts ¶7.) As the result of an IRS levy, the Debtors were also credited with a payment of $24,870.24 on August 1, 1994, which went toward their total tax liability existing at that time. (Facts ¶ 7.)
Shortly after the IRS levy, on August 16, 1994, the Debtors filed their second Chapter 11 case. (Bk. No. 94-11963-MWV.) This case was filed before the 1994 and 1995 payments under the Debtors’ confirmed plan were due. The IRS filed a proof of claim in the Debtors’ second bankruptcy case in the amount of $149,665.50. (Proof of Claim No. 26.) This proof of claim includes the balance of what remains unpaid of the $85,502.08 first proof of claim, certain penalties and interest associated with this unpaid balance, and taxes which have accrued since March 5, 1990, the date the Debtors first filed bankruptcy. (Facts ¶ 9.) The parties agree that $22,-065.80 in interest and $2,244.63 in penalties and additions to tax have accrued against the unpaid balance of the $85,502.08 proof of claim between February 8, 1991, the date of the Court’s ordering disallowing, in part, the IRS’s claim, and August 16,1994, the date of the Debtors’ second petition. (Facts ¶ 10.)
During the course of the Debtors’ second bankruptcy it came to light that the IRS never received notice, in accordance with Bankruptcy Rule 7004, of the Debtors’ objection to the IRS’s proof of claim in the first bankruptcy, and only received actual notice of the Court’s February 8, 1991, order disallowing its claim, in part, on June 30, 1992, after requesting a copy from the Debtors’ prior counsel. (Facts ¶¶3 and 6.) As a result, on June 28, 1995, the Court vacated its February 8, 1991, order. (Ct.Doc. No. 163.) The Court gave the Debtors the opportunity to reassert their objection to the IRS’s claim filed in the first bankruptcy, but the Debtors chose not to do so. The parties agree that $8,544.29 in interest and $1,074.62 in penalties and additions to tax have accrued on the unpaid balance of the IRS’s proof of claim between June 30, 1992, and August 16, 1994. (Facts ¶ 11.)
On July 7, 1995, shortly after the Court vacated its February order, the Debtors’ second bankruptcy case was converted to Chapter 7. On November 6, 1995, the objection to the IRS’s claim was tried in this Court.
Discussion
In their objection, the Debtors outlined several grounds for objecting to the proof of claim filed by the IRS. The Debtors:
1) disputed certain penalties and interest including those related to income taxes allegedly assessed on May 25,1987;
2) generally objected to the penalties and interest assessed;
3) alleged that the IRS has not given proper credit for payments made during their first Chapter 11 case;
4) alleged that the IRS has collected several thousand dollars in receivables which have not been property accounted for despite their requests; and
5) alleged that the IRS continues to collect certain receivables despite the bankruptcy filing.
At the trial, however, the Debtors limited their evidence and argument to a general objection to the interest and penalties which accrued since the February 8, 1991, order on the $85,000 claim. The . Debtors no longer contest the amount of tax liability or the computational accuracy of the tax, penalties and interest asserted in the IRS’s proof of claim.
The issue before the Court, then, is whether the prepetition claim of the IRS for penalties and interest which accrued from February 8, 1991, to August 16, 1994, on the tax liabilities remaining from the IRS’s proof of claim in the first bankruptcy should be allowed. A properly executed and filed proof of claim constitutes prima facie evidence of the validity and amount of a claim. Fed.R.Bankr.P. 3001(f). In this case, the Debt*8ors concede that the IRS’s proof of claim accurately states the outstanding liabilities for tax, interest, and penalties. (Facts ¶ 12.) The Debtors urge the Court to reduce or eliminate the amount of $2,244.63 in penalties and additions to tax and $22,065.80 in interest on the grounds that there was “reasonable cause” for nonpayment and that the Debtors acted in “good faith” in relying on the February 8, 1991 order. Alternatively, the Debtors argue that the IRS should be equitably estopped from collecting penalties and additions to tax in the amount of $1,074.62 and interest in the amount of $8,544.29 which accrued from June 30, 1992, the date the IRS received actual notice of the Court’s February order, to August 16, 1994, the date of the second petition. The IRS, on the other hand, argues that no statutory exceptions exist for the elimination of the prepetition interest and penalties and the equitable power of the Court cannot be used to eliminate them.
The Debtors suggest that the Court use 26 U.S.C. § 6664(e)(1) by analogy to eliminate the penalty portion of the claim. Section 6664(c)(1) provides that “[n]o penalty shall be imposed under this part with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.”1 The IRS’s regulations explain that the “Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of the experience, knowledge and education of the taxpayer.... Rebanee on an information return, professional advice or other facts ... constitute reasonable cause and good faith if, under all the circumstances, such rebanee was reasonable and the taxpayer acted in good faith.” 26 C.F.R. § 1.6664-4(b). Section 6651 of the Tax Code provides that additions to tax should not be imposed if the taxpayer’s failure to pay the tax is “due to reasonable cause and not due to willful neglect.” 26 U.S.C. § 6651.
In this case, the Debtors rebed on the February 8, 1991, order disabowing the IRS’s claim, in part, when they drafted their plan of reorganization which included payment of the IRS’s claim in the amount of $33,546.32. While it is true that the Debtors did not properly serve the IRS with notice of their objection to its claim, the Debtors had no reason to bebeve after the order was entered that it would later be vacated. The Court finds that the Debtors acted reasonably and in good faith in relying on the Court’s order especiaby given the IRS’s regulation that rebanee on “professional advice” constitutes reasonable cause and good faith. The Court also finds that the Debtors’ failure to pay the full tax habihty was due to reasonable cause and not due to willful neglect. Accordingly, using its powers under 11 U.S.C. §§ 105 and 505, the Court disabows the penalty and addition to tax portion of the IRS’s claim in the amount of $2,244.63. This is the amount that accrued from the date of the February 8,1991, order to the date of the August 16,1994, bankruptcy filing.
The Debtors also argue that the IRS is estopped from cobecting the prepetition interest portion of its claim. The traditional elements of equitable estoppel are:
1) the party to be estopped knows the facts;
2) the party intends that its conduct wib be acted on or must so act that the party invoking estoppel has a right to bebeve it is so intended;
3) the party invoking estoppel must be ignorant of the true facts; and
4) the party must detrimentahy rely on the former’s conduct.
United States v. Hemmen, 51 F.3d 883, 892 (9th Cir.1995). When a party seeks to invoke equitable estoppel against the government, there must also be a showing that the agency engaged in “affirmative conduct going beyond mere neghgence” and that “the pubbe’s interest wib not suffer undue damage” as a result of the appbeation of this doctrine. Id.; see Office of Personnel Man*9agement v. Richmond, 496 U.S. 414, 421, 110 S.Ct. 2465, 2470, 110 L.Ed.2d 387 (1990) (“Our own opinions have continued to mention the possibility, in the course of rejecting estoppel arguments, that some type of ‘affirmative misconduct’ might give rise to estoppel against the Government.”).
Applying this standard to the facts of this ease, the Court finds that the IRS was aware on June 30, 1992, that the Bankruptcy Court had disallowed its claim in part. While the IRS failed to notify the Court or the Debtors at that time that it lacked of notice of the hearing on the Debtors’ objection to its claim, the Court is unable to find that the IRS’s silence is an affirmative act that would give rise to estoppel against the IRS. Accordingly, the interest portion of the claim is allowed.
As further support of its holding, the Court notes that the Debtors never reasserted their original objection to the IRS claim filed in the first bankruptcy. In addition, it is difficult to obtain a finding that the government is equitably estopped. According to the Supreme Court, the “Courts of Appeals have taken our statements as an invitation to search for an appropriate case in which to apply estoppel against the Government, yet we have reversed every finding of estoppel that we have reviewed.” Richmond, 496 U.S. at 422, 110 S.Ct. at 2470.
Conclusion
The penalty and addition to tax portion of the IRS’s claim in the amount of $2,244.63 is disallowed. The balance of the IRS’s claim is allowed. This opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion.
. The penalties under "this part” are those imposed by 26 U.S.C. § 6662, a section dealing with accuracy related penalties. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492390/ | MEMORANDUM OPINION
STEPHEN A. STRIPP, Bankruptcy Judge.
This is the court’s decision on a motion by plaintiff Steven Teitelman (hereinafter “trustee”) to compel defendant Alfred Dale, Jr. (hereinafter “Mr. Dale”) to continue with his testimony at a deposition in this adversary proceeding. After the initial day of testimony, Mr. Dale refused to answer most additional questions on the grounds of his Fifth Amendment privilege against self-incrimination. The trustee argues on this mo*23tion that Dale waived that privilege by his prior testimony, and seeks to compel the continuation of testimony. This court has jurisdiction under 28 U.S.C. §§ 1334(b), 157(a) and 151. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A); (E) and (O). The following shall constitute the court’s findings of fact and conclusions of law.
FINDINGS OF FACT
A & L Oil Co., Inc. (hereinafter “A & L” or “the debtor”) filed a petition for relief under chapter 11 of title 11, United States Code (hereinafter “Bankruptcy Code” or “Code”) on October 26, 1995. Shortly thereafter, the court directed the appointment of a chapter 11 trustee and Steven Teitelman was appointed. On March 14, 1996, the trustee filed an adversary proceeding against Alfred Dale, Jr., Veronica Dale and Dale Petroleum Corp. (collectively “the Dales”) alleging that they converted property of the debtor. The debtor was a wholesale distributor of gasoline to service stations. Dale Petroleum Corp. delivered gasoline for the debtor. The verified complaint alleges that the Dales converted payments for 47 loads of gasoline, totaling approximately $353,000.00, by failing to turn the payments over to the debtor. In addition to recovery of that, the complaint seeks to enjoin transfer of the Dales’ assets.
In connection with the adversary proceeding, counsel for the trustee commenced an examination of Mr. Dale by deposition under Fed.R.Bankr.P. 2004 on March 13, 1996. Mr. Dale was represented by Guy R. Wilson, Esq. At the examination, Mr. Dale produced many corporate and personal documents, including bank statements, canceled checks, various certificates of title, financial statements of Dale Petroleum, tax returns and insurance policies. He also testified about numerous business and personal matters, including his employment relationship with A & L, his and Dale Petroleum’s loan arrangement with the debtor, the diversion of oil deliveries to Wally’s Gulf using Dale Petroleum as a conduit, and the assets and operations of Dale Petroleum. Mr. Dale testified freely without asserting a Fifth Amendment privilege.
After Mr. Dale testified for several hours, the examination ended and was scheduled to continue on March 20, 1996. Mr. Wilson contacted the trustee’s counsel shortly before the March 20th examination was scheduled to begin and informed her that Mr. Dale would not be attending because Mr. Wilson had not heard from his client. Thereafter, Steven Skoller, Esq. contacted the trustee’s attorney and told her that he now represented the Dales and agreed to produce Mr. Dale on April 11, 1996.
On April 11, 1996, Mr. Dale appeared with his attorney at the continued Rule 2004 examination and asserted the Fifth Amendment privilege to almost all questions asked by the trustee’s attorney. Mr. Dale has refused to submit to any further examination. On or about June 12, 1996, the trustee filed this motion to, inter alia, compel Alfred Dale to continue with a Rule 2004 examination and for a determination that he has waived his Fifth Amendment privilege against self-incrimination.1 The trustee alleges that Mr. Dale waived his right to assert the privilege because he failed to assert it at the examination on March 13, 1996.
Mr. Dale contends that he can assert the privilege because it has not been waived. Mr. Dale argues that he did not knowingly and intelligently waive his Fifth Amendment right by testifying at the March 13, 1996 examination because he was never informed by his attorney that he had such a right. Moreover, he asserts that he only became aware of possible criminal ramifications after he completed his testimony.
CONCLUSIONS OF LAW
The Fifth Amendment provides in pertinent part that “[n]o person ... shall be compelled in any criminal case to be a witness against himself....” U.S. Const. amend. V. The privilege against self-incrimi*24nation may be invoked whether the response would itself support a criminal conviction or the response would provide a link in the chain of evidence required to prosecute. Hoffman v. United States, 341 U.S. 479, 486, 71 S.Ct. 814, 818, 95 L.Ed. 1118 (1951). The privilege applies to both civil and criminal matters. Kastigar v. United States, 406 U.S. 441, 444, 92 S.Ct. 1653, 1656, 32 L.Ed.2d 212 (1972). The witness can refuse to testify in a civil proceeding if his testimony can incriminate him or her in a future criminal matter. Lefkowitz v. Turley, 414 U.S. 70, 77, 94 S.Ct. 316, 322, 38 L.Ed.2d 274 (1973). The Fifth Amendment privilege extends to bankruptcy proceedings. McCarthy v. Arndstein, 266 U.S. 34, 45 S.Ct. 16, 69 L.Ed. 158 (1924); In re Martin-Trigona, 732 F.2d 170, 175 (2d Cir.1984), cert. denied, 469 U.S. 859, 105 S.Ct. 191, 83 L.Ed.2d 124 (1984).
It is the court’s duty to decide whether a witness’ silence is justified and to require him to answer if it appears that the witness is improperly asserting the privilege. Hoffman, 341 U.S. at 486, 71 S.Ct. at 818. The witness must have reasonable cause to apprehend a real danger of incrimination to validly assert the privilege. Id. “To sustain the privilege, it need only be evident from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result.” Id. at 486-87, 71 S.Ct. at 818.
In the present case, the trustee is not arguing that Mr. Dale has improperly asserted the privilege. In fact, the trustee’s counsel believed that the debtor’s disclosures at the March 13, 1996 examination created a threat of prosecution because she told Mr. Wilson at the end of the deposition that she would be forwarding the matter to the U.S. Trustee’s Office for criminal referral. Instead, the trustee claims that Mr. Dale has waived his right to assert the privilege because he has already provided incriminating testimony at the deposition on March 13, 1996. The issue for this court to decide is whether Mr. Dale has lost his right to assert the Fifth Amendment privilege against self-incrimination regarding the matters which were the subject of his March 13th deposition.
The privilege against self-incrimination may be lost unless it is invoked. Garner v. United States, 424 U.S. 648, 653, 96 S.Ct. 1178, 1181-82, 47 L.Ed.2d 370 (1976); Rogers v. United States, 340 U.S. 367, 371, 71 S.Ct. 438, 440-41, 95 L.Ed. 344 (1951). Waiver is only one of several manners in which the privilege may be lost. Garner v. United States, 424 U.S. at 654 n. 9, 96 S.Ct. at 1182 n. 9. It is well settled that “[t]he [Fifth] Amendment speaks of compulsion. It does not preclude a witness from testifying voluntarily in matters which may incriminate him. If, therefore, he desires the protection of the privilege, he must claim it or he will not be considered to have been ‘compelled’ within the meaning of the Amendment.” Minnesota v. Murphy, 465 U.S. 420, 427, 104 S.Ct. 1136, 1142, 79 L.Ed.2d 409 (1984) (quoting United States v. Monia, 317 U.S. 424, 427, 63 S.Ct. 409, 410-11, 87 L.Ed. 376 (1943)). Once a witness voluntarily reveals incriminating facts, that individual may not invoke the privilege to avoid disclosing the details of those facts. Rogers, 340 U.S. at 373, 71 S.Ct. at 442. Thus, the witness must disclose those details which are relevant to the incriminating facts previously revealed. Id.
Although the Fifth Amendment privilege against self-incrimination may be waived by a witness’ prior statements, a testimonial waiver will not be lightly inferred. Smith v. United States, 337 U.S. 137, 150, 69 S.Ct. 1000, 1007, 93 L.Ed. 1264 (1949). Accordingly, the court must indulge every reasonable presumption against finding testimonial waiver. Emspak v. United States, 349 U.S. 190, 198, 75 S.Ct. 687, 692, 99 L.Ed. 997 (1955).
Research has not discovered any opinion from the U.S. Court of Appeals for the Third Circuit or from the District of New Jersey setting forth any test for determining whether a testimonial waiver has occurred. The Second Circuit, however, has promulgated a two-prong test. Klein v. Harris, 667 F.2d 274, 287 (2d Cir.1981). Mr. Dale argues that *25the Klein test should be adopted. In Klein, the court determined that:
... [a] court should only infer a waiver of the fifth amendment’s privilege against self-incrimination from a witness’ prior statements if (1) the witness’ prior statements have created a significant likelihood that the finder of fact will be left with and prone to rely on a distorted view of the truth, and (2) the witness had reason to know that his prior statements would be interpreted as a waiver of the fifth amendment privilege against self-incrimination.
Id. A number of bankruptcy courts have adopted this test when determining whether a witness has waived the privilege. See e.g., In re Donald Sheldon & Co., Inc., 193 B.R. 152, 162 (Bankr.S.D.N.Y.1996); In re Werer, 1992 WL 167625, Civ.A. No. 91B10816 at *3 (Bankr.N.D.Ill. July 7, 1992); Matter of Scarfia, 104 B.R. 462, 463-64 (Bankr.M.D.Fla.1989), appeal denied, 129 B.R. 671 (M.D.Fla.1990); In re Mudd, 95 B.R. 426, 429-30 (Bankr.N.D.Tex.1989); In re Hulon, 92 B.R. 670, 673-74 (Bankr.N.D.Tex.1988); In re Wilson, 50 B.R. 701, 703 (Bankr.E.D.Tenn.1985).
Analysis of Klein and the cases which follow it in the light of the Supreme Court eases on loss of the privilege, however, leads this court to conclude that Klein improperly adds elements to the Supreme Court test. As previously noted, the Supreme Court stated flatly in Rogers that “... where criminating facts have been voluntarily revealed, the privilege cannot be invoked to avoid disclosure of the details.” Id., 340 U.S. at 373, 71 S.Ct. at 442. The Supreme Court jurisprudence on this issue has not subsequently limited the holding of Rogers by finding a loss of the privilege, as in Klein, only where the witness’ prior statements have created a significant likelihood that the finder of fact will be left with a distorted view of the truth.
The second prong of the Klein test creates a similar problem. It holds that a waiver of the privilege will be found only if the witness had reason to know that his prior statements would be interpreted as such a waiver. The Supreme Court has held, however, that “an individual may lose the benefit of the privilege without making a knowing and intelligent waiver.” Garner, 424 U.S. at 654 n. 9, 96 S.Ct. at 1182 n. 9 (citing Schneckloth v. Bustamonte, 412 U.S. 218, 222-27, 93 S.Ct. 2041, 2045-48, 36 L.Ed.2d 854 (1973)). This court therefore concludes that Klein erred as well in requiring that the witness have reason to know that his statements would be interpreted as a waiver for a loss of the privilege to be found. Reliance on Klein enabled Mr. Dale to argue in this case that because his prior counsel allegedly wasn’t knowledgeable in criminal law and failed to advise him of the privilege, it wasn’t lost. If that was the test, loss of the privilege by means other than a waiver might never be found. As noted above, however, Gamer held that a privilege can be lost without .waiver. And one of the ways in which it can be lost is by voluntarily revealing criminating facts. Rogers, supra. This court therefore declines to follow Klein.
The court must determine whether Mr. Dale has voluntarily revealed criminating facts, because if he did not, the privilege against self-incrimination wasn’t lost. Mr. Dale testified in his deposition that he was involved in a practice in which gasoline purchased by the debtor was delivered to a service station with the sale proceeds diverted to a third party. March 13, 1996 depos. trans. 70:1-75:12. The verified complaint in this ease asserts that from 1993 through 1995 the Dales converted approximately $353,-000.00 in this manner. The defendants’ counsel acknowledged at the hearing on July 2, 1996 that the allegations regarding the scheme in question could if proven constitute the crime of theft by deception, N.J.S.A. 2C:20-4, theft by failure to make proper disposition of property received, N.J.S.A. 2C:20-9, and possibly other forms of theft. The court agrees and therefore concludes that the facts as to which Dale testified may be incriminating. Since he voluntarily revealed those facts, the court holds that he lost the privilege against self incrimination and he may not invoke it to avoid disclosure of the details. Rogers, 340 U.S. at 373, 71 S.Ct. at 442.
CONCLUSION
For these reasons, the trustee’s motion to compel Mr. Dale to continue to testify re*26garding the matters in question is granted. The trustee shall submit an order to that effect within seven days under D.N.J.Bankr.Ct.R. 4(c).
. The examination on March 13, 1996 was under Fed.R.Bankr.P. 2004 because it was conducted before this adversary proceeding was filed. The testimony which the trustee now seeks is actually under Fed.R.Bankr.P. 7030, however, because it relates to matters which are the subject of an adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492392/ | MEMORANDUM-OPINION
J. WENDELL ROBERTS, Chief Judge.
This matter is before the Court upon the Motion to Dismiss filed by the Defendants, Frank J. Hobaek and Dolores Y. Hoback, Debtors in this Chapter 7 case.- The motion seeks dismissal of The Ohio Casualty Insurance Company’s (“Ohio Casualty”), Motion to Set Aside the Order of Discharge. The issue is whether Plaintiffs received notice of the bankruptcy.
FACTS
The Debtors, Frank and Dolores Hoback, previously operated certain health spas doing business under the name of Women’s Workout World/New Woman Health and Fitness Center. A state statute required Hobacks to post a surety bond for the protection of the health spa members. Ohio Casualty, as surety on the bonds, issued a $50,000 bond on behalf of the spa operating at 6801 Dixie Highway and a $50,000 bond on behalf of the spa located at 176 Hurstbourne Lane. Frank and Dolores Hobaek each personally agreed to indemnify Ohio Casualty for any loss it sustained on said bonds.
Both spas ultimately went out of business and many of the members contacted the Attorney General’s office seeking reimbursement for the membership fees they had paid. On July 21, 1994, the Attorney General submitted a $62,159.35 claim to Ohio Casualty under the bond issued on behalf of the spa located on Hurstbourne Lane. On the same day, the Attorney General submitted a $49,-999.36 claim to Ohio Casualty under the bond *30issued on behalf of the spa located on Dixie Highway. Ohio Casualty asked Frank Ho-back to verify the accuracy of the information set forth within the respective bond claims submitted by the Attorney General. By letter dated August 16,1994, Hobacks’ attorney advised that the Hobacks were not able to address the accuracy of the information set forth within said claims.
Ohio Casualty admits that subsequent to the Attorney General’s submission of the claims, it was apprised by the Hobacks’ attorney, John Ford, that the Hobacks had filed personal bankruptcy. Attorney Ford, in a letter dated August 5,1994 and received by Ohio Casualty on August 8, 1994, stated that Ohio Casualty had been listed as an unsecured creditor under Schedule F of the Bankruptcy Petition. The letter further advised Ohio Casualty that the Petition had been filed on May 5, 1994. While Ohio Casualty carefully avoids stating when it contacted the Bankruptcy Court, it states the Clerk informed it that Ohio Casualty had, in fact, been designated as a creditor and that notices had been sent to it. Additionally, the Clerk advised that notices had been sent to Ohio Casualty regarding the 11 U.S.C. § 341 First Meeting of Creditors held June 10, 1994. The § 341 meeting notice designated August 9, 1994 as the last day to file a nondischargeability complaint.
Ohio Casualty does not dispute that the notices were sent. It tenders, however, the affidavit of a claims supervisor to the effect that “to his knowledge neither he nor anyone else at Ohio Casualty received any notice.” Ohio Casualty argues that the failure to receive the notice prevented it from having the opportunity to object to the discharge of Hobacks’ obligation to reimburse Ohio Casualty for the amount it was required to pay under the respective bonds.
Ohio Casualty admits that it has not yet had the opportunity to fully investigate the facts and circumstances surrounding the bond claims and cannot, at this point, state that there has been any conduct on the part of the Hobacks which would cause their indebtedness to Ohio Casualty to be considered nondischargeable under 11 U.S.C. § 523. Likewise, Ohio Casualty cannot specifically state that its investigation will ultimately demonstrate the existence of facts which would cause their indebtedness to Ohio Casualty to be considered nondischargeable. Ohio Casualty only states that there are certain facts which raise a question as to whether the Hobacks’ debt is nondischargeable. Therefore, Ohio Casualty requests that it be allowed to investigate its possible claims against the Debtors and file a late nondis-chargeability complaint.
LEGAL ANALYSIS
Rule 9006(e) of the Federal Rules of Bankruptcy Procedure provides for service by mailing and the common law has long recognized a presumption that an item properly mailed was received by the addressee. Hagner v. United States, 285 U.S. 427, 52 S.Ct. 417, 76 L.Ed. 861 (1932). The presumption arises upon proof that the item was properly addressed, had sufficient postage, and was deposited in the mail. Simpson v. Jefferson Standard Life Insurance Co., 465 F.2d 1320, 1323 (6th Cir.1972).
The Clerk of the Bankruptcy Court sent Ohio Casualty the Notice of the Creditors’ Meeting and an Order of Discharge of the Debtors. The Clerk’s records show that the mailings were not returned and Ohio Casualty does not challenge the validity of the address used. Based upon these facts a presumption of receipt arose in this case.
The presumption of receipt of a pleading is however, a rebuttable presumption. In re Messics, 159 B.R. 803 (Bkrtcy.N.D.Ohio 1993). In determining whether the presumption can be rebutted a Court must consider all of the facts and circumstances to determine whether it is more likely that the notice was received or that it was lost in the mail.
The leading case on this issue is In re Yoder Co., 758 F.2d 1114, 1118 (6th Cir.1985). In that case, the Sixth Circuit stated that the “testimony of non-receipt, standing alone, would be sufficient to support a finding of non-receipt; such testimony is therefore sufficient to rebut the presumption of receipt.” Id.
The broad language of this opinion has been interpreted in a narrow fashion. See, *31In re Monroe Distributing, Inc., 176 B.R. 458 (Bkrtcy.N.D.Ohio 1995) (“[T]he facts of Yoder reveal that there was a real question as to whether the bar date notice was in fact mailed to the creditor”). In re Messics, 159 B.R. 803 (Bkrtcy.N.D.Ohio 1993) (discussing facts and circumstances test) and In re Morelock, 151 B.R. 121 (N.D.Ohio 1992) (discussing credibility test). See also, In re Eagle Picher Industries, Inc., 175 B.R. 943 (1994).
The present case does not present the same situation as Yoder. To gain the protection of Yoder, detailed evidence of a party’s failure to receive notice must be presented. In Yoder, the creditor presented evidence that 1) its name did not appear on the mailing matrix; 2) two other similar creditors did not receive the same notice; and 3) that there was no record of whether the creditors’ address was on the labels used to mail the notice. Yoder involved far more than a simple claim of non-receipt.
To allow a simple denial of receipt, standing alone, to rebut the presumption would be to destroy the presumption entirely. There has been no “indication in other Sixth Circuit opinions that Yoder’s categorical language on presumption will be given expansive reading. To do so ... would vitiate the effectiveness of notice given by mail and preclude the finality required for the administration of bankruptcy cases.” In re Messics, 159 B.R. at 806.
In this case, there is no proof of non-receipt other than the affidavit of a claims supervisor. However, there is substantial evidence that Ohio Casualty had notice of the Debtors’ bankruptcy prior to the final day for filing nondischargeability complaints. A July 29, 1994 letter from Ohio Casualty to Attorney Ford admits that Attorney Ford had told Ohio Casualty that Ho-backs had filed a bankruptcy petition. Furthermore, Attorney Ford told Ohio Casualty in an August 5, 1994 letter that the bankruptcy petition had been filed on May 5,1994 at 1:39 p.m. This letter was received by Ohio Casualty, it admits, on August 8, 1994. These letters are not direct proof of whether or not notice was received from the Court, but they are, however, proof that Ohio Casualty was aware of the bankruptcy action. Such actual knowledge imposes upon a creditor the obligation to make reasonable inquiry regarding the relevant bankruptcy bar dates and deadlines. In re Cover, 97 B.R. 375, 379 (Bkrtcy.S.D.Ohio 1989). The final date for filing nondischargeabihty actions was August 9, 1994. Even if the Court determined that notice was not received from the Court Clerk, Ohio Casualty would be barred because the evidence shows that it failed to act to protect its rights in a timely fashion.
In this case, the Court finds the affidavit of Ohio Casualty to be insufficient to rebut the presumption of receipt of the notice. The mere denial of receipt being the only evidence offered, the presumption of receipt stands. Thus, this Court finds that Plaintiffs’ complaint was not timely and the lateness was without reasonable excuse. The Defendants’ Motion to Dismiss is granted by separate Order.
ORDER
Motion having been made, and the Court being sufficiently advised,
IT IS HEREBY ORDERED AND ADJUDGED that the Motion To Set Aside Order Discharging Debtors filed by THE OHIO CASUALTY INSURANCE COMPANY in the above-styled action is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492393/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This proceeding came before the Court on plaintiffs Motion for Summary Judgment as to Defendant Structural Services, Inc.; Debt- or’s Objection to Claim 2 filed by Structural Services, Inc.; and a pretrial conference. After a consolidated hearing on May 8, 1996, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. On July 24, 1992, plaintiff executed a promissory note and mortgage in favor of Wallace and Frances Reagan, encumbering real property in Marion County, Florida. (File Doe. 2). The Reagans recorded the note and mortgage in the Public Records of Marion County, Florida on July 28, 1992. (File Doc. 2).
*582. On November 29, 1994, plaintiff executed a loan agreement for rehabilitation of the property. Through the loan agreement, Marion County, Florida secured a junior mortgage on the property and properly recorded the document in the Public Records of Marion County, Florida on January 31, 1995. (File Doc. 2).
3. On April 27, 1995, defendant Structural Services, Inc. recorded a mechanic’s lien on the property in the Public Records of Marion County, Florida. (File Doc. 2).
4. On July 26, 1995, the Circuit Court for Marion County, Florida entered Summary Final Judgment of Foreclosure in favor of the Reagans. (File Doc. 2). The judgment scheduled the foreclosure sale for August 24, 1995.
5. On August 3, 1995, subsequent to the entry of the foreclosure judgment but prior to the sale, plaintiff filed for relief under Chapter 13 of the Bankruptcy Code.
6. On October 19, 1995, plaintiff filed a complaint to determine the extent of the liens held by Marion County, Florida and Structural Services, Inc. (File Doc. 2).
7. On November 9, 1995, plaintiff moved to consolidate her objection to claim 2 filed by Structural Services, Inc. with this adversary proceeding. The Court granted the motion on December 13, 1995. (File Docs. 11 and 13).
8. This Court entered a default judgment against Marion County, Florida on February 13, 1996. (File Docs. 17 and 18).
9. On March 18, 1996, plaintiff filed a motion for summary judgment as to defendant Structural Services, Inc., alleging that Structural’s mechanic’s lien was extinguished by the state court’s final judgment of foreclosure and that no genuine issue of material fact existed for adjudication. (File Doc. 19).
CONCLUSIONS OF LAW
The primary issue before the Court is whether the entry of the Summary Final Judgment of Foreclosure in favor of the Rea-gans extinguished the mechanic’s lien held by Structural Services, Inc. (defendant).
Defendant argues that its Hen was not extinguished by the entry of the final judgment. Rather, defendant argues that the foreclosure is not made final until the clerk of court issues a certificate of title following the sale of the property. Because plaintiff filed her bankruptcy petition prior to the foreclosure sale, defendant argues that the finahty of the foreclosure has been postponed and that its Hen has not been extinguished.
Summary judgment is available only when no triable issues of fact exist and when the movant is entitled to summary judgment as a matter of law. Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56. When considering a summary judgment motion, the Court must construe the facts in the Hght most favorable to the nonmovant. Mercantile Bank & Trust Co. v. Fidelity and Deposit Co., 750 F.2d 838, 841 (11th Cir.1985).
Under Florida law, a mechanic’s Hen may be discharged “[b]y recording in the clerk’s office the original or a certified copy of a judgment or decree of a court of competent jurisdiction showing a final determination of the action.” Fla.Stat. ch. 713.21(5) (1995). An order or judgment becomes final when aU judicial labor in the matter is complete. Pruitt v. Brock, 437 So.2d 768 (Fla. 1st DCA 1983).
If a junior mortgagee is not joined as a party in an action to foreclose a senior mortgage, the junior mortgagee retains a right of redemption which it may exercise until the certificate of title is issued. Akeley v. Miller, 264 So.2d 473 (Fla. 3rd DCA 1972). “However, a junior mortgagee who is made a party to a foreclosure action brought by a senior mortgagee has his rights determined by the entry of the final judgment.” Glendale Federal Savings and Loan Association v. Guadagnino, 434 So.2d 54 (Fla. 4th DCA 1983). See also Credithrift, Inc. v. Knowles, 556 So.2d 775 (Fla. 1st DCA 1990) (holding that a junior mortgagee’s right of redemption was extinguished by entry of final judgment of foreclosure of senior mortgage).
Although the debtor, as mortgagor, could retain and exercise a right of redemption prior to the issuance of the certificate of title, this right does not extend to a junior mort*59gagee such as the defendant. First National Bank of Live Oak v. Federal Land Bank of Columbia, 470 So.2d 54 (Fla. 1st DCA 1985), review denied First National Bank of Live Oak, Florida v. Federal Land Bank of Columbia, 484 So.2d 8 (Fla.1986).
This Court has held that a “mortgage recorded before the notice of commencement or claim of lien is superior to the lien.” Grant v. Davis (In re CJW Limited, Inc.), 172 B.R. 675, 686 (Bankr.M.D.Fla.1994).
The Reagans executed and recorded their mortgage prior to defendant’s mechanic’s lien. Defendant was joined as a party in the foreclosure of the Reagan mortgage. The foreclosure action conclusively adjudicated the rights of all lienholders in the property. Thus, upon entry of the summary final judgment of foreclosure, defendant’s rights in the property were determined and its lien was extinguished.
The Court finds that plaintiffs objection to claim 2 filed by defendant should be sustained. Defendant’s claim in the amount of $2,243.89 is disallowed because it was extinguished by the foreclosure of the senior mortgage. Additionally, the Court finds it appropriate to award summary judgment in favor of plaintiff because no genuine issue of material fact exists and plaintiff is entitled to summary judgment as a matter of law.
The Court will enter a judgment consistent with these findings of fact and conclusions of law.
JUDGMENT
This proceeding came before the Court on plaintiffs Motion for Summary Judgment as to Defendant Structural Services, Inc.; Debt- or’s Objection to Claim 2 filed by Structural Services, Inc.; and a pretrial conference. Upon findings of fact and conclusions of law separately entered, it is
ORDERED:
1. Summary judgment is entered in favor of the plaintiff, Peggy Joan Acosta, and against the defendant, Structural Services, Inc.
2. Debtor’s objection to claim 2 filed by Structural Services, Inc. is sustained. Claim 2 in the amount of $2,243.89 is disallowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492394/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This proceeding came before the Court on a complaint to determine the extent, validity or priority of defendant’s lien; debtor’s objection to claim 1 filed by defendant; and defendant’s motion for relief from the automatic stay. After a hearing on May 13,1996, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. Plaintiff and Richard N. Kanea (Ka-nea) were married on April 10, 1992. At the time of the marriage, the couple resided in Providence, Rhode Island.
*612. On May 15, 1992, plaintiff and Kanea executed and delivered to Southtrust Bank of Central Florida (Southtrust) a mortgage secured by real property in Marion County, Florida.
3. The Southtrust mortgage was signed by both plaintiff and Kanea. The Southtrust mortgage also bears the signature and seal of a notary public. The notary acknowledgment, however, does not indicate whether the notary knew Kanea or plaintiff or requested identification from them. [Plaintiff Ex. 5].
4. The Southtrust mortgage was accompanied by a promissory note dated May 15, 1992, for the principal sum of $37,000 executed by Kanea. Plaintiff did not sign the promissory note. The Southtrust note and mortgage were originally recorded in Book 1835, page 1137 of the Public Records of Marion County, Florida.
5. Subsequent to the first recording of the Southtrust mortgage, Kanea and South-trust modified the note and mortgage to reflect a change in the execution date from May 15,1992 to May 18,1992. In addition, a driver’s license number and Kanea’s initials were inserted in the notary acknowledgement on the mortgage. The date of the notary acknowledgement was unchanged. The Southtrust note was also modified and both documents were re-recorded in Book 1841, page 500 of the Public Records of Marion County, Florida.
6. Southtrust Bank of Central Florida assigned the mortgage and note to Federal Mortgage Association on May 18, 1992. [Plaintiff Ex. 1],
7. Plaintiff and Kanea utilized the proceeds from the Southtrust mortgage to construct a home on the Marion County property.
8. On August 24, 1993, Plaintiff and Ka-nea executed and delivered to First Indiana Bank (defendant) a note and mortgage in the principal amount of $25,600. The defendant’s mortgage and note were also secured by the Marion County property and both documents were recorded in Book 1954, page 1782 of the Public Records of Marion County. [Plaintiff Ex. 3,4].
9. Paragraph 7 of defendant’s mortgage authorized defendant to “pay for whatever is necessary to protect the value of the Property and [defendant’s] rights in the property.” [Plaintiff Ex. 3]. Any expense incurred by defendant under this provision became an additional debt owed by the borrowers, plaintiff and Kanea. [Plaintiff Ex. 3],
10. Subsequent to their execution of defendant’s mortgage, plaintiff and Kanea divorced. By quit claim deed dated November 10, 1995, Kanea transferred the Marion County property to Plaintiff. [Defendant Brief at 3].
11. Federal Mortgage Association instituted foreclosure proceedings against the Southtrust mortgage in the Circuit Court for Marion County, Florida. Defendant filed a counterclaim and a erossclaim in that foreclosure proceeding, seeking to protect its junior mortgage on the property. [Defendant Brief at 3, 4].
12. On April 13, 1995, defendant purchased the senior Southtrust mortgage from Federal Mortgage Association for $39,959.40. [Defendant Brief at 4].
13. On October 18, 1995, plaintiff filed for relief under Chapter 13 of the Bankruptcy Code. On November 13, 1995, defendant filed a proof of claim in the amount of $64,-904.20, representing the combined total of both mortgages. Defendant amended its proof of claim on January 29, 1996 to attach supporting documents. [Proof of Claim 1].
14. On November 16, 1995, plaintiff filed this adversary proceeding, seeking a judgment that the Southtrust mortgage is invalid and unenforceable against the property and a determination of the extent, validity, or priority of defendant’s lien.
15. On November 24, 1995, defendant filed a motion for relief from the automatic stay to complete a foreclosure action against plaintiff in the Circuit Court of Marion County, Florida. [File Doc. 15]. By order dated December 19, 1995, this Court awarded defendant adequate protection in the amount of $252.09 per month. [File Doe. 29].
16. On December 22, 1995, plaintiff filed an objection to defendant’s proof of claim. [File Doe. 31].
*6217. On January 31, 1996, defendant filed a second motion for relief from stay to continue a foreclosure proceeding against the Southtrust mortgage instituted in the Circuit Court of Marion County, Florida. [File Doc. 42],
18. On February 26, 1996, plaintiff and defendant filed a joint stipulation to consolidate the trial of this adversary proceeding, the hearing on defendant motion for relief from stay, and the hearing on plaintiffs objection to defendant’s proof of claim. By order dated February 27, 1996, this Court consolidated the hearings. On April 4, 1996, and May 13, 1996, the Court received evidence relevant to the three matters.
CONCLUSIONS OF LAW
The primary dispute in this proceeding revolves around the following issue: whether pursuant to the mortgage agreement between plaintiff and defendant, defendant was authorized to purchase the Southtrust mortgage to protect defendant’s interest in the mortgaged property.
Plaintiff argues that the Southtrust mortgage was invalid and therefore posed no threat to defendant’s interest in the property. Plaintiff further argues that because defendant’s interest in the property could not be harmed by the foreclosure of the invalid Southtrust mortgage, defendant’s purchase of the Southtrust mortgage was unnecessary and not authorized by the mortgage agreement between plaintiff and defendant. Thus, plaintiff suggests that defendant may not hold plaintiff liable for the cost of the purchase of the Southtrust mortgage.
A. Southtrust mortgage was supported by an existing debt
Plaintiff first argues that the South-trust mortgage is invalid because it is not supported by an existing obligation. Plaintiff predicates this argument on case law which states that under Florida law, “there can be no mortgage unless there is a debt to be secured thereby or some obligation to pay money.” Nelson v. Stockton Mortgage Company, 100 Fla. 1191, 130 So. 764, 766 (1930).
The original Southtrust mortgage was executed and notarized on May 15, 1992. Plaintiff suggests that Kanea’s subsequent modification of the Southtrust mortgage and note, which changed the execution date on both documents from May 15, 1992 to May 18, 1992, created a discrepancy between the execution date of the mortgage and the date of the notary acknowledgement on the mortgage because the date of the notarization remained unchanged. Generally, when such a discrepancy occurs, plaintiff argues, the date of the notarization controls. Moody v. Hamilton, 22 Fla. 298 (1886).
Thus, plaintiff suggests that the date of the mortgage is May 15, 1992, while the date of the Southtrust note is May 18, 1992. Because the note is dated later than the mortgage, it could not serve as the underlying debt for the mortgage. Plaintiff argues that the Southtrust mortgage, unsupported by an underlying debt, is invalid and posed no threat to defendant’s rights in the property.
Modifications to a mortgage do not invalidate the mortgage unless such modifications are material and fraudulent. Peacock v. Farmers and Merchants Bank, 454 So.2d 730, 735 (Fla. 1st DCA 1984). See also Palomares v. Ocean Bank of Miami, 574 So.2d 1159, 1160 (Fla. 3rd DCA 1991) (holding that the change of the date on a promissory note which did not affect the date of interest accrual was neither fraudulent nor material).
Kanea modified the execution dates of both the Southrust mortgage and the Southtrust note from May 15, 1992 to May 18, 1992. The modifications did not alter the rights of the parties under the documents and no evidence has been produced to prove that the modifications were fraudulently motivated. Because the dates of both documents were modified to correspond with one another, it appears to the Court that the note was intended to serve as the underlying obligation of the Southtrust mortgage.
Although the date of the original notarization was not changed to match the modified execution date, such an error is technical in nature and should not be permitted to defeat the validity of the Southtrust mortgage. Edenfield v. Wingard, 89 So.2d *63776 (Fla.1956). Generally, the law abhors forfeitures of agreed contracts. It is undisputed that plaintiff and Kanea executed the Southtrust mortgage to secure the South-trust note. The modification of the note and mortgage were neither material nor fraudulent. The discrepancy between the date of the original mortgage notarization and the modification date is a technical error which does not invalidate the mortgage. Thus, the Southtrust mortgage and note bear the same execution date and the mortgage cannot be invalidated for lack of an underlying debt.
B. Southtrust mortgage was valid and properly recorded
Plaintiff next argues that the South-rust mortgage is invalid and non-recordable because the notary acknowledgment on the mortgage is defective. By statute, a mortgage must be recorded to be valid. Fla.Stat. ch. 695.01 (1995). To be recorded, a mortgage must be either witnessed or notarized. Fla.Stat. ch. 695.03 (1995). Florida Statutes Ch. 695.09 provides statutory guidelines for notarization:
No acknowledgement or proof shall be taken ... by any officer ... unless he knows, or has satisfactory proof, that the person making the acknowledgement is the individual described in, and who executed, such instrument or that the person offering to make proof is one of the subscribing witnesses to such instrument.
Id.
In this case, the notary acknowledgment on the original Southtrust mortgage did not indicate whether the notary knew plaintiff or Kanea, or whether the notary asked them for identification. When Kanea modified the Southtrust mortgage and note, he added his drivers license number to the notary acknowledgment. The date of the acknowl-edgement was not changed.
Plaintiff argues that the original South-trust mortgage was invalid because the omission of identification information invalidated the notarization. Plaintiff further argues that the modification failed to cure the defective notarization because a notary may not amend the certificate of acknowledgement without re-acknowledgement by the parties. Robinson v. Bruner; 94 Fla. 797, 114 So. 556, 559 (1927).
The Florida Supreme Court, however, although requiring re-acknowledgement in some cases, has long held that if the intention of the parties to a mortgage is clear from the document when construed as a whole, clerical and technical errors should be disregarded. Summer v. Mitchell, 29 Fla. 179, 10 So. 562 (1892). Other Florida courts have held that a defective notary acknowl-edgement does not eliminate the obligations of the parties signing a mortgage. Raymar Development Corporation v. Barbara, 404 So.2d 813, 814 (Fla. 2d DCA 1981) (holding that “[t]he liability of the parties to mortgage, inter se, is not affected by the absence of notarization or the other forms of proof of execution permitted by section 695.03, Florida Statutes.”). Additionally, courts have generally held that parties who sign a mortgage in the absence of fraud or duress are estopped from denying the validity of the mortgage due to a technical defect. Harris v. Walbridge, 488 So.2d 881 (Fla. 1st DCA 1986).
In this ease, the omission of party identification from the notary acknowledgment is a clerical error which does not affect the rights or obligations of the parties to the Southtrust mortgage. Plaintiff and Kanea evidenced their intentions to be bound by the mortgage by their signature and did so in the absence of duress or fraud. Plaintiff is es-topped from denying the validity of the mortgage. The Southtrust mortgage, construed as a whole, is valid and was properly recorded.
C. Plaintiff alienated her homestead interest
Plaintiffs final argument is that the defective notarization on the Southtrust mortgage prevented plaintiff from alienating her homestead interest in the property. The Florida Constitution provides that homestead property remains subject to contract obligations relating to the purchase or improvement of the property. Fla. Const. art. X, § 4. The Florida Constitution also provides that an owner of homestead real estate may *64alienate the homestead interest by mortgage if joined by a spouse. Fla. Const. art. X, § 4(c).
In this ease, plaintiff signed the mortgage with Kanea without duress or fraud. Plaintiff’s signature evidences her intent to alienate her homestead interest regardless of the insufficiency of the notary acknowledgement. The mortgage proceeds were used to construct the home that is claimed as homestead and the property remains subject to the Southtrust mortgage.
D. Conclusion
Plaintiff and Kanea signed the Southtrust mortgage in the absence of fraud or duress. By their signatures, the parties evidenced their intent to alienate their homestead interest and be bound by the terms of the mortgage. Although the notary acknowledgment was incomplete, such a technical omission does not invalidate the Southtrust mortgage.
Kanea’s modifications to the mortgage were neither fraudulent nor material and the mortgage was clearly supported by the Southtrust note. The Southtrust mortgage, as rerecorded was valid and properly recorded. The foreclosure of the Southtrust mortgage posed a threat to defendant’s interest in the property, and defendant was within its rights to purchase the Southtrust mortgage to preserve its rights in the property.
The Court finds that plaintiffs objection to claim 1 filed by defendant should be overruled because plaintiff is required to reimburse defendant for the purchase of the Southtrust mortgage. The Court also finds that defendant holds a valid lien against plaintiffs property in the amount of its filed claim. The Court will deny defendant’s motion for relief from stay without prejudice to having the motion brought before the Court at the confirmation hearing scheduled in this case for September 24, 1996. | 01-04-2023 | 11-22-2022 |
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