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https://www.courtlistener.com/api/rest/v3/opinions/8494795/ | MEMORANDUM DECISION REGARDING MOTIONS FOR SUMMARY JUDGMENT
WILLIAM T. THURMAN, Chief Judge.
This matter came before the Court on cross motions for summary judgment to determine the dischargeability of a debt pursuant to §§ 523(a)(5) and 523(a)(15) of the Bankruptcy Code.1 The Court conducted a hearing on this matter on April 9, 2012, in which Shane Keppner appeared on behalf of plaintiff Ina Marie Newman (“Newman”) and David Leta appeared on behalf of the debtor/defendant Neldon P. Johnson (“Johnson” or the “Debtor”). At the conclusion of the hearing, the Court took this matter under advisement to determine whether either party should prevail as a matter of law in this discharge-ability proceeding.
After careful review of the statutory authority, the case law, and the parties’ briefs and arguments, the Court issues the following Memorandum Decision.2
I. JURISDICTION AND VENUE
This Court has jurisdiction over the subject matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Venue is appropriate under 28 U.S.C. § 1408. Notice of the hearing on these cross motions is found to be appropriate and adequate.
II. PROCEDURAL BACKGROUND AND FINDINGS OF FACT
Johnson filed for chapter 7 bankruptcy relief on January 20, 2011. On April 25, 2011, the Debtor initiated an adversary proceeding, 11-02395, and sought declaratory relief requesting the Court find any debt owed to Newman to be dischargeable. Also on April 25, 2011, Newman initiated this adversary proceeding, 11-02393. Newman’s complaint alleged nondischarge-ability under §§ 523(a)(5) and (15) and denial of discharge under § 727(a)(2) and (5). On June 2, 2011, Newman filed a motion to consolidate the adversary proceedings. After a hearing, the Court granted that motion, and entered a consolidation order on September 8, 2011. On May 25, 2011, Johnson filed a motion to dismiss Newman’s complaint. On July 28, 2011, the Court entered an order: (i) denying Johnson’s motion to dismiss as to the §§ 523(a)(5) and (15) causes of action; (ii) granting the motion to dismiss as to the § 727(a)(2) cause of action; and (iii) finding that the complaint failed to adequately plead a cause of action under § 727(a)(5) but granting Newman leave to file an amended complaint on the § 727(a)(5) claim. On August 8, 2011, as allowed by the Court’s order of July 28, 2011, Newman filed an amended complaint, alleging three causes of action, including: (i) non-dischargeability under § 523(a)(5); (ii) nondischargeability under § 523(a)(15); and (iii) denial of discharge under § 727(a)(5)(the “Amended Complaint”). On January 31, 2012, Newman filed her motion for summary judgment to determine the debt nondischargeable pursuant *451to § 523(a)(15). On February 24, 2012, Johnson filed his motion for summary judgment on the first two causes of action alleged in Newman’s Amended Complaint, the dischargeability of the debt under §§ 523(a)(5) and 523(a)(15). Neither party requested summary judgment on the § 727(a)(5) claim, and that claim remains to be tried.
The Court finds there is no genuine issue as to the following material facts. Newman and Johnson took a trip together on May 3, 1964, in which it appears their intentions were to get married. However, car troubles prevented them from making it to their destination, and the parties returned home. In 1965, the parties participated in a religious wedding ceremony. However, at no time did the parties obtain a marriage license. On July 20, 2000, Newman filed a divorce action in the Utah Fourth District Court (the “State Court”) against Johnson. Newman’s complaint alleged that “[t]he parties are wife and husband, having been married on May 3, 1964 in Arizona.” Johnson’s answer to the divorce complaint admitted this fact. The parties entered into a stipulation regarding the division of marital property. On June 6, 2001, the State Court entered Findings of Fact and Conclusions of Law granting the parties a divorce, stating that “[t]he petitioner and respondent were married on May 3,1964.”
The State Court also entered an Amended Decree of Divorce (the “Divorce Decree”), memorializing the parties’ stipulation on June 27, 2001. The stipulation and subsequent Divorce Decree granted to Newman two pieces of real property, a Smith Barney account, and an obligation to pay from Johnson $2,800,000 as a property settlement. The property settlement required Johnson to pay Newman $8,333.33 per month, commencing July 1, 2001, with a balloon payment for the balance due on July 1, 2006, secured by a note and trust deed on the real and personal property and inventory of the U-Check Company, which had previously been owned by both parties. The Divorce Decree also granted to Johnson an interest in the U-Check Company, stock in International Automated Systems (IAS), and all patents, patents pending, and ideas that he had created. The parties dispute the exact amount paid by Johnson to Newman following the divorce decree, but it was no more than $100,000.
Approximately six years later, in October of 2007, Johnson filed a Motion to Vacate the Divorce Decree alleging a lack of subject matter jurisdiction of the State Court due to the fact that the parties were never legally married (the “Motion to Vacate”). The State Court found that while the parties “had never actually been married” in the thirty-seven years prior to the divorce, Johnson had taken the position that they were married in the divorce proceedings, and thus the Utah Supreme Court case Caffall v. Caffall, 5 Utah 2d 407, 303 P.2d 286 (1956)3 was controlling. The State Court found that Johnson’s Motion to Vacate was an attempt to avoid his obligations to Newman, that Johnson’s actions when taken altogether constituted bad faith, and that Johnson was “estopped from attacking the Amended Decree, despite any lack of subject matter jurisdiction.” Johnson appealed the decision to the Utah Supreme Court. The Utah Supreme Court issued a decision on May 7, *4522010, stating that while the parties “never took steps to have their marriage legally recognized” before the divorce proceedings, the State Court had subject matter jurisdiction to issue the divorce decree. Johnson v. Johnson, 234 P.3d 1100, 1101 (Utah 2010). In doing so, the Utah Supreme Court also stated, “[w]e therefore overrule our holding in Caffall and hold that because courts of general jurisdiction have the authority to adjudicate divorces, we will not invalidate a divorce decree on the grounds that the right involved in the suit did not embrace the relief granted.” Id. at 1103-04 (quotations omitted). The Court found that because the State Court had subject matter jurisdiction to enter the divorce decree, Johnson “cannot collaterally attack it.” Id. at 1104.
III. DISCUSSION
A. Summary Judgment Standard
A motion for summary judgment will be granted if the pleadings, admissions on file, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Pleadings must be liberally construed in favor of the party opposing summary judgment. Harman v. Diversified Med. Invs. Corp., 488 F.2d 111, 113 (10th Cir.1973). When a moving party’s motion for summary judgment is made and supported as provided in this rule, the nonmoving party’s response must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e). A fact is material if it may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Disputes as to non-material facts are not important and do not bar the entry of summary judgment. Kaiser-Francis Oil Co. v. Producer’s Gas Co., 870 F.2d 563 (10th Cir.1989). If the nonmoving party’s evidence is “merely col-orable, or is not significantly probative, there is insufficient evidence and summary judgment may be granted.” Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505. On a motion for summary judgment the court cannot evaluate credibility nor can it weigh evidence. National American Ins. Co. v. American Re-Insurance Co., 358 F.3d 736, 742-43 (10th Cir.2004).
It is under this standard that the Court considers the cross motions for summary judgment in this case. The one modification to the foregoing is that because these are cross motions for summary judgment, the principle of some deference to the “opposing party” is somewhat diluted as both parties are the “opposing party.” As noted above, the Court’s ruling is limited to whether summary judgment is appropriate in favor of Newman on the second cause of action in her Amended Complaint, nondischargeability under § 523(a)(15), and whether summary judgment is appropriate in favor of Johnson on the first and second causes of action in Newman’s Amended Complaint, nondischargeability under § 523(a)(5) and (15).
B. Positions of the Parties
Newman argues that summary judgment should be granted in her favor under § 523(a)(15) for a number of reasons. She argues that the Rooker-Feldman doctrine and the doctrine of collateral estoppel prevent this Court from retrying the issue of whether the parties were legally married because Johnson admitted in his State Court answer that the parties were married on May 3, 1964, and because the Divorce Decree under which the debt is owed from Johnson contained a finding of fact that the parties were married on May 3, 1964. Newman further argues that *453even if these doctrines do not apply, under Utah state law, the parties are married. She argues that the parties have a “marriage by estoppel” under the Caffall decision. She also argues that marriage without a license is voidable, not void, under Utah law and is therefore valid.
Johnson argues that summary judgment should be granted in his favor because the parties were never legally married. His argument is premised upon a fairly strict reading of the code sections in question. He argues that §§ 523(a)(5) and (15) only apply to the specific parties named therein, that Newman is not his “former spouse,” and that because neither party was the legal spouse of the other, Newman does not qualify for the exceptions in § 528. He denies that the Rooker-Feldman doctrine is applicable because the Bankruptcy Court has jurisdiction to determine dis-chargeability, and the State Court determined the validity of the Divorce Decree, not whether the debt was dischargeable. He argues that collateral estoppel applies in his favor because the State Court and Utah Supreme Court stated explicitly in their decisions that the parties were never legally married. He also argues that under the Defense of Marriage Act (“DOMA”), 1 U.S.C. § 7 and 28 U.S.C. § 1738C, the parties do not fall under the definition of “spouse” applicable to federal statutes, and therefore, the debt owed to Newman does not fall under the exceptions to discharge.
C. Dischargeability Standard
Section 523(a)(15) makes nondischargeable any debt owed “to a spouse, former spouse, or child of the debtor and not of the kind described in [§ 523(a)(5) ] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.” Section 523(a)(15) “refer[s] to nonsupport debts that the debtor incurred in connection with a separation agreement.” In re Wodark, 425 B.R. 834, 838 (10th Cir. BAP 2010). Section 523(a)(5) makes non-dischargeable any debt owed for a “domestic support obligation.” Section 101(14A) defines a “domestic support obligation” as one that is “owed to or recoverable by (i) a spouse, former spouse or child of the debt- or or such child’s parent, legal guardian, or responsible relative; or (ii) a governmental unit” that is “in the nature of alimony, maintenance, or support,” that is established by “a separation agreement, divorce decree, or property settlement agreement ... [or] an order of a court of record” and that is “not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily.”
A number of decisions from the United State Supreme Court (the “U.S. Supreme Court”), the Tenth Circuit Court of Appeals (the “Tenth Circuit”), and the Bankruptcy Appellate Panel for the Tenth Circuit are helpful in this analysis. The Tenth Circuit has held that “exceptions to discharge are to be narrowly construed, and because of the fresh start objectives of bankruptcy, doubt is to be resolved in the debtor’s favor.” In re Sandoval, 541 F.3d 997, 1001 (10th Cir.2008) (quoting In re Kaspar, 125 F.3d 1358, 1361 (10th Cir.1997)). The burden of proving that a debt falls within a statutory exception is on the party opposing discharge. In re Black, 787 F.2d 503, 505 (10th Cir.1986). Because the purpose of bankruptcy is to provide the debtor a “fresh start,” statutory exceptions to discharge have been “narrowly limited to those areas in which ‘Congress evidently concluded that the creditors’ interest in recovering full payment of debts ... outweighed the debtors’ interest *454in a complete fresh start.’ ” In re Jones, 9 F.3d 878, 880 (10th Cir.1993) (quoting Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). However, “certain competing public policy interests, such as familial obligations, will trump the ‘fresh start policy.’ ” In re Merrill, 252 B.R. 497, 503 (10th Cir. BAP 2000); see also Matter of Crosswhite, 148 F.3d 879, 881 (7th Cir.1998) (“That policy of protecting and favoring the debtor is tempered ... when the debt arises from a divorce or separation agreement.”).
D. The Rooker-Feldman Doctrine
Newman argues that the Rook-er-Feldman doctrine bars this Court from determining that she is not Johnson’s “former spouse” for the purposes of deciding whether her debt is nondischargeable under § 523(a)(15) and implicitly that the strict reading of the relevant Bankruptcy Code sections leads to an absurd result. The Rooker-Feldman doctrine holds that “ ‘a party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in [federal] court, based on the losing party’s claim that the state judgment itself violates the loser’s federal rights.’ ” Knox v. Bland, 632 F.3d 1290, 1292 (10th Cir.2011) (quoting Johnson v. De Grandy, 512 U.S. 997, 1005-06, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994)). The Rooker-Feldman doctrine arises from two cases where the U.S. Supreme Court found that lower federal courts were precluded from exercising appellate jurisdiction over final state court judgments because only the U.S. Supreme Court has the authority to review such judgments. In Rooker, the U.S. Supreme Court reasoned:
If the [state court] decision was wrong, that did not make the judgment void, but merely left it open to reversal or modification in an appropriate and timely appellate proceeding. Unless and until so reversed or modified, it would be an effective and conclusive adjudication. Under the legislation of Congress, no court of the United States other than this court could entertain a proceeding to reverse or modify the judgment for errors of that character. To do so would be an exercise of appellate jurisdiction.
Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16, 44 S.Ct. 149, 68 L.Ed. 362 (1923) (citations omitted). The Court went on to say that “an aggrieved litigant cannot be permitted to do indirectly what he no longer can do directly.” Id. at 416, 44 S.Ct. 149. In Feldman, decided sixty years later, the U.S. Supreme Court found that if the claims brought before a lower federal court were “inextricably intertwined with the state court’s denial in a judicial proceeding,” the federal court was precluded from hearing those claims. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 483, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). The Rooker-Feldman doctrine is “confined to cases of the kind from which the doctrine acquired its name: cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indust. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). It does not supplant alternative preclusion doctrines available to the federal courts in reviewing state court judgments. Id.
The Court determines that it is barred from determining that Newman is not Johnson’s “former spouse” under the Rooker-Feldman doctrine. The Rooker-Feldman doctrine is applicable in this proceeding as Johnson is effectively asking the Court for an appeal of the Divorce Decree. In Utah, it is impossible to obtain *455a divorce decree without a finding that the parties were married. Thus, the issue of whether the parties were married was “inextricably intertwined” with the Divorce Decree judgment. For this Court to determine that Newman and Johnson are not former spouses would create an absurdity of Utah law where one could have a “divorce decree” without the parties being legal spouses.4 The Utah courts have rejected that result twice now, both in the State Court’s denial of Johnson’s Motion to Vacate and the Utah Supreme Court’s decision in Johnson v. Johnson. Johnson attempted to collaterally attack the determinations of the Divorce Decree in the State Court and was unsuccessful. Although the Utah Supreme Court stated it was overruling Caffall, it did not set aside the State Court’s findings. That part of the Utah Supreme Court’s holding was very narrow. Accordingly, Johnson cannot now collaterally attack the very same issues before this Court under Rooker-Feldman.
Further, to clarify, Johnson argues that because the State Court did not decide dischargeability, and only this Court may do so, the Rooker-Feldman doctrine does not apply. The distinction here is that the Court determines it is obligated to apply state law decisions on previously decided issues in the process of determining dis-chargeability. When the Court applies the rulings of the State Court, nondischarge-ability follows.
Because there is a final state court decision in which an essential element of the judgment was implicit that the parties were former spouses, this Court cannot now determine that the parties are not “former spouses.” Therefore, this Court determines that it is barred by Rooker-Feldman from determining the parties are not “former spouses” for purposes of determining dischargeability, and as there is no dispute that a valid divorce decree exists, the debt falls within the exception to discharge under § 523(a)(15).
E. Collateral Estoppel
The Court further determines that even if the Rooker-Feldman doctrine is not applicable, Johnson is collaterally estopped from arguing that Newman is not his “former spouse.” Collateral estoppel precludes this Court from relitigating an issue in federal court has already been litigated in state court. San Remo Hotel, L.P. v. City and County of San Francisco, Cal., 545 U.S. 323, 336, 125 S.Ct. 2491, 162 L.Ed.2d 315 (2005). The Tenth Circuit has explained the purpose of collateral es-toppel, stating, “[collateral estoppel, or issue preclusion, is designed to prevent needless relitigation and bring about some finality to litigation. Collateral estoppel bars a party from relitigating an issue once it has suffered an adverse determination on the issue, even if the issue arises when the party is pursuing or defending against a different claim.” Moss v. Kopp, 559 F.3d 1155, 1161 (10th Cir.2009) (citations omitted). There are four elements to collateral estoppel under Utah law: “(1) The issue decided in the prior adjudication must be identical to the one presented in the action in question; (2) there must be a final judgment on the merits; (3) the party against whom the plea is asserted must be a party in privity with a party to the prior adjudication; and (4) the issue in the first action must be completely, fully, and fairly litigated.” Gomes v. Wood, 451 F.3d 1122, *4561132 (10th Cir.2006) (citing Career Serv. Review Bd. v. Utah Dep’t of Corr., 942 P.2d 933, 938 (Utah 1997)).
All four elements of collateral estoppel are satisfied by the State Court Divorce Decree. First, the issue decided in the prior adjudication, namely whether the parties were married, is identical to the one presented in the action in question. As noted above, the State Court had to make a finding that the parties were married in order for the parties to obtain the Divorce Decree, so the issue of whether the parties were legal spouses was already adjudicated. Second, the State Court’s Findings of Fact and Conclusions of Law and Divorce Decree are final and valid state court judgments that have never been overturned.5 Third, the parties are identical to those in the divorce proceedings. Fourth, there is no dispute that the issue was fully and fairly litigated.
The Court finds- that Johnson does not dispute that the Divorce Decree exists and remains valid. He argued at the hearing on these motions that the Divorce Decree may even be a basis upon which Newman may file a general unsecured claim in the main bankruptcy case. He does not dispute that the State Court found in its Findings of Fact and Conclusions of Law that the parties were married. He does not dispute that the time to appeal that judgment has run. Therefore, there is no dispute that a valid final state court judgment exists that contains as an essential implicit part of its ruling that the parties were “former spouses.” Consequently, under collateral estoppel, this Court will not relitigate the issue of whether the parties were married. Because this Court finds that a valid Divorce Decree exists and that Johnson is estopped from arguing that Newman is his “former spouse,” the debt clearly falls within the exception to nondis-chargeability found in § 523(a)(15).
Until 2006, Johnson took the position throughout the divorce proceedings that Newman was his legal spouse. To allow him to take a different position to avoid what were determined by the State Court to be marital obligations now, after the time period for Newman to file an application to obtain marital status under Utah Code § 30-1-4.5 has run, would violate equitable estoppel principles.6 Additionally, it would run counter to the es-toppel principles set forth in the Utah Supreme Court decisions of Johnson v. Johnson, 234 P.3d 1100, 1104 (Utah 2010) (finding that Johnson “cannot collaterally attack” the Divorce Decree) and, to the extent it is controlling, Caffall v. Caffall, 5 Utah 2d 407, 303 P.2d 286, 286 (1956) (finding that “[i]t would be a travesty on justice if the defendant could now say that because he was not legally married he cannot be held for [his support obligation].”). In the interest of comity, and in order to extend deference to the Utah courts’ decisions, this Court determines *457that collateral estoppel is appropriate in this matter.
The concept and principle of judicial estoppel is also applicable here. This principle was adopted by the Tenth Circuit in the case of Johnson v. Lindon City Corp., 405 F.3d 1065, 1069 (10th Cir.2005) (“ ‘[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.’ ”) (quoting Davis v. Wakelee, 156 U.S. 680, 689, 15 S.Ct. 555, 39 L.Ed. 578 (1895)).7 Where Johnson took the position of being legally married and thus created a “spouse” relationship in the divorce pleadings, he is judicially es-topped from changing that position in the current subsequent legal proceeding before this Court. This is especially true as Newman would be prejudiced by such a change in his position.
Johnson further argues that the definition of “spouse” under § 523(a)(15) and (5) is controlled by DOMA and that Newman is not his spouse under that federal statute.8 The Court recognizes that in the absence of a state court ruling that the parties were spouses, the definition of “spouse” in DOMA would be controlling. However, because the State Court found, and the Utah Supreme Court impliedly affirmed in its choice not to invalidate the parties’ Divorce Decree, that the parties were “spouses” under Utah law, principles of preclusion apply. Consequently, it is unnecessary for this Court to determine whether the parties are spouses, and DOMA is inapplicable to this proceeding.
Finally, at oral argument, Johnson argued that should this Court find that Newman was Johnson’s spouse under the facts of this case, the Court would be establishing an inappropriate precedent. Johnson argued that under equal protection principles, this Court would also have to find in other cases that same sex partners were “spouses” even though such partners have not obtained a marriage license or other legal approvals of their arrangement without the benefit Utah law granting them the ability to obtain a legal marriage. The factual scenario before the Court is distinguishable as in this case there is a State Court judgment clearly finding that the parties were married and implicitly spouses under Utah law. In the interest of comity, this Court is giving deference to that State Court decision. Johnson’s scenario raises a plethora of issues, but none of them are present here. The Court is narrowly determining the issues in this case based on the facts of this case alone.
F. The Nature of the Debt Controls
Another principle that guides this Court’s decision is set forth in the Tenth Circuit decision, In re Miller, 55 F.3d 1487 (10th Cir.1995). In Miller, the Tenth Circuit found that although a guardian ad litem for a child was not a “spouse, former spouse or child” of the debtor, guardian ad litem fees were nondischargeable under § 523(a)(5). Id. The Tenth Circuit rea*458soned that “form should not be placed over substance and that it is the nature of the debt that controls, not the identity of the payee.” Id. at 1490. This logic was recently found applicable to § 523(a)(15) actions by the Bankruptcy Appellate Panel for the Tenth Circuit. See In re Wodark, 425 B.R. at 837-38 (“What matters in a § 523(a)(15) case is (1) the nature of the debt; and (2) whether the debt was incurred in the course of a divorce or separation.”). This Court concludes that to find that Newman’s debt is not within the purview of § 523(a)(15) would be to place form over substance in contravention of the guidance provided by the Miller decision. Therefore, the Court believes it is appropriate to find that the nature of Newman’s debt is of the type that is covered by § 523(a)(15) and is nondischargeable.
IV. CONCLUSION
Based on the foregoing, the Court determines that Newman has carried her burden on her motion, that she has prevailed in showing that the obligation in question falls within the narrow exceptions to discharge articulated by the Tenth Circuit in Sandoval, 541 F.3d at 1001, and that while her position may not be strictly that of a spouse or former spouse under DOMA, the State Court and the Utah Supreme Court’s decisions have a preclusive effect on this Court. Accordingly, Newman’s motion for summary judgment should be granted on the second cause of action in her Amended Complaint. Johnson’s motion for summary judgment should be denied. The § 727(a)(5) claim will proceed in accordance with the Court’s October 7, 2011 Order Governing Scheduling and Preliminary Matters. A separate order will accompany this Memorandum Decision.
. Unless otherwise stated, the reference to Sections shall apply to Title 11 of the United States Code.
. The Memorandum Decision shall constitute the Court’s findings and conclusions as allowed by Fed.R.Civ.P. 52, incorporated into this proceeding by Fed. R. Bankr.P. 7052.
. In Caffall, the Utah Supreme Court found that even though two parties were never legally married, where Mr. Caffall participated in a divorce action brought by Ms. Caffall and did not resist Ms. Caffall’s application for divorce, Mr. Caffall was estopped from attacking the validity of the divorce decree in order to avoid his responsibility to support the couple's children.
. “AH statutes must be construed in the light of their purpose. A literal reading of them which would lead to absurd results is to be avoided when they can be given a reasonable application consistent with their words and with the legislative purpose.” Haggar Co. v. Helvering, 308 U.S. 389, 394, 60 S.Ct. 337, 84 L.Ed. 340 (1940).
. The State Court findings may have been factually incorrect, but it is not for this Court to correct final determinations from the state courts. The state appellate courts are the proper forum to address those issues. See Reed v. Allen, 286 U.S. 191, 201, 52 S.Ct. 532, 76 L.Ed. 1054 (1932) (stating there is a "general and well-settled rule that a judgment, not set aside on appeal or otherwise, is equally effective as an estoppel upon the points decided, whether the decision be right or wrong.”).
. Under Utah law, one method for becoming a legal spouse in the state of Utah is to obtain a statutory marriage pursuant to § 30-1-4.5 of the Utah Code. Under that section, a marriage may be solemnized by "a court or administrative order” that determines the parties have fulfilled the requirements of the statute. Utah Code Ann. § 30-1-4.5. Such an order must be obtained within one year of the termination of the relationship. Id.
. The Tenth Circuit has also found that judicial estoppel principles are applicable in bankruptcy proceedings. See Eastman v. Union Pacific R. Co., 493 F.3d 1151 (10th Cir.2007).
. DOMA states that "[i]n determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife.” 1 U.S.C. § 7. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494796/ | ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S PARTIAL MOTION FOR SUMMARY JUDGMENT
WILLIAM S. SHULMAN, Bankruptcy Judge.
This matter came before the Court on the Plaintiffs’ motion for partial summary judgment for claims under § 523 based on collateral estoppel. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. After due consideration of the pleadings, evidence, briefs and argument of the parties, the Court makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
I. BACKGROUND
The Debtor, Lynn Pecundo Dunn, was the second wife of Joseph F. Dunn, Sr. (“Mr. Dunn”), who is now deceased. The individual Plaintiffs in this adversary proceeding are Mr. Dunn’s sons from his first marriage. Prior to the Debtor’s bankruptcy filing, the Plaintiffs brought an action against the Debtor in the Circuit Court for Santa Rosa County, Florida related to the Joseph F. Dunn Revocable Trust (“the Trust”). The circuit court’s findings of fact and conclusions of law are the basis for the Plaintiffs’ motion for summary judgment under the doctrine of collateral estoppel. The following is a summary of the circuit court’s findings of fact and all paragraph references in this order are to the state court’s order of January 28, 2009:
The Debtor met Mr. Dunn in May 2001. The Debtor had two previous marriages and was married to her third husband when she began seeing Mr. Dunn. The Debtor was 27 years younger than Mr. Dunn, who was 73 at the time that they met. She was living on unemployment checks and undergoing financial hardship. The circuit court found that the Debtor “intentionally lied to [Mr. Dunn] by stating that she was pregnant for the purpose of inducing him to become further entangled into her fiscally motivated web of deceit and manipulation.” Para. 20. In June *4612001, the Debtor moved into a house owned by Mr. Dunn.
In September 2001, the Debtor and Mr. Dunn formed a corporation called Joe Dunn and Associates, Inc. The court found that the Debtor contributed no funds to the formation of the corporation despite her testimony to the contrary. The corporation operated solely in Florida, and the Debtor paid herself a salary from this corporation even after she moved to San Francisco in 2003. The court found that Joe Dunn and Associates, Inc. was not formed for any legitimate purpose. Para. 23(c).
While Lynn Dunn was living in California, some of Mr. Dunn’s sons invited Mr. Dunn to live with them. When Lynn Dunn found out about these offers, she told him by telephone that his sons would not take care of him, that they wanted to put him in a home, and that only she could take care of him. Para. 25. Mr. Dunn married Lynn Dunn in May 2003 in San Diego, California with none of Mr. Dunn’s children in attendance.
In 1993, Mr. Dunn established the Joseph F. Dunn Revocable Trust, which originally provided that each of his sons were to receive 20% of the Trust’s assets upon Mr. Dunn’s death. There were two validly executed amendments to the Trust in 1998 and 2002. However, after Mr. Dunn married Lynn Dunn, the third amendment to the Trust on August 28, 2003 made substantial changes to the distribution scheme. It specifically excluded sons, Joseph Jr., Michael and Richard, and included Lynn Dunn as a 50% beneficiary, James Dunn as a 20% beneficiary, Raymond Dunn as a 20% beneficiary, with the remaining interests to the Naval Air Museum Foundation and the University of West Florida Foundation. The fourth amendment to the Trust occurred in July 2004, removed Raymond Dunn as a beneficiary and increased James Dunn’s share to 40%. The Trust held multiple properties at the time that Lynn Dunn and Mr. Dunn met. After Mr. Dunn became involved with Lynn Dunn, several warranty deeds were created to sell or transfer property from the Trust. The number of properties transferred increased dramatically when Mr. Dunn was hospitalized in 2004 and continued until his death on November 9, 2006.
In July 2003, Mr. Dunn loaned his son Raymond $30,000.00; Mr. Dunn had loaned money to his sons in the past and had never required them to sign a contract or agree to payment terms. After Mr. Dunn was hospitalized in February 2004, Lynn Dunn told Raymond Dunn to immediately begin making payments on the loan, and to sign a contract agreement to payment terms and interest. Para. 32-32. She also began to move Mr. Dunn’s assets into her sole control in February 2004, which included having Mr. Dunn’s sons’ names removed from the joint checking account. Para. 560).
Mr. Dunn gave each of his sons an interest in a house in 2002. After Mr. Dunn married Lynn Dunn, an attorney contacted each son by letter demanding that the property be given back to Mr. Dunn. When James Dunn asked his father about the return of the property, he was told that Lynn Dunn said it would be easier to have the return handled by an attorney. Para. 56(g)(ii).
II. STATE COURT ACTION
As stated above, the Plaintiffs brought an action against the Debtor in the Circuit Court for Santa Rosa County, Florida regarding the Joseph F. Dunn Revocable Trust (“the Trust”). The complaint included counts for (1) breach of fiduciary duty (count III); (2) rescission of trust amendments (count IV); (3) rescission of warran*462ty deeds (count V); (4) constructive trust (count VI); and (5) exploitation of the elderly (count VII).1 After a week long bench trial in January 2009, the state court issued an order on the various counts. The court denied count III for breach of fiduciary duty on grounds that the Plaintiffs failed to present evidence on the durable power of attorney given to Lynn Dunn from Mr. Dunn and failed to show that Lynn Dunn was in a fiduciary relationship with Mr. Dunn. Para. 46^47. On count IV for the rescission of the third and fourth amendments to the trust, the court found that the Plaintiffs proved “by clear and convincing evidence, that the third and fourth amendments to ‘the Trust’ were not a result of [Mr. Dunn’s] will but a result of manipulation, exploitation and undue influence by [Lynn Dunn] over [Mr. Dunn]”, and were therefore null, void and without effect. Para. 56(k), order para. 1-2. The court also found that all warranty deeds executed from October 2005 to Mr. Dunn’s death were void due to Mr. Dunn’s incompetence. In addition, all deeds executed from Mr. Dunn’s hospitalization in 2004 to the time of his death were the product of Lynn Dunn’s undue influence and were void. Para. 58-59. As to count VI for constructive trust, the court found that “all properties sold from ‘the Trust’ from May 2001 to [Mr. Dunn’s] death were caused by Lynn Dunn’s undue influence over a vulnerable adult due to her confidential relationship with Joseph F. Dunn, Sr. Joseph F. Dunn, Sr. relied on her implied promise to sell the property for the benefit of ‘the Trust.’ This was to the detriment of [Mr. Dunn] and ‘the Trust’. All proceeds of the sale of those properties still retained by [Lynn Dunn] are held in constructive trust for the benefit of ‘the Trust’.” Para. 63.
For the last count VII for exploitation of the elderly, the court examined § 415.102(7)(a) Florida Statute (2008), which provides that exploitation occurs when a person in a position of trust with an elderly person “knowingly, by deception or intimidation, obtains or uses, or endeavors to obtain or use, a vulnerable adult’s funds, assets, or property with the intent to temporarily or permanently deprive a vulnerable adult of the use, benefit, or possession of the funds, assets, or property for the benefit of someone other than the vulnerable adult.” The court found that Lynn Dunn was in a position of trust and confidence as required by the statute. Para. 68. The court noted that deception “is defined by the statute as ‘a misrepresentation or concealment of a material fact relating to services rendered, disposition of property, or the use of property intended to benefit a vulnerable adult’ § 415.102(5) Fla. Stat. (2008).” Para. 69. The court found that “Lynn Dunn, through misrepresentation and concealment, obtained and used Joseph F. Dunn, Sr.’s funds, assets and property with the intent to permanently deprive him of the benefit and possession of said property for the Defendant’s benefit. Lynn Dunn exploited the decedent from May, 2001 until his death.” Para. 70. The court entered an order in favor the Plaintiffs and against the Debtor for $1,069,470.00 for compensatory damages on January 28, 2009, and reserved jurisdiction to award punitive damages and attorney fees and costs to the Plaintiffs. The order also declared the third and fourth amendments to the Trust to be null and void, as well as approximately thirteen warranty deeds. The order held that certain interest and profits from properties remaining with Lynn Dunn were held in *463trust for the Trust. Finally, the order required Lynn Dunn to give an account of all monies obtained by her since 2001.
On September 15, 2009, the state court entered a final judgment in favor of the Plaintiffs for $1,069,470.00 in compensatory damages and $250,000.00 in punitive damages, which totals $1,319,470.00.
CONCLUSIONS OF LAW
The Plaintiffs filed their motion for partial summary judgment under Rule 56 of the Federal Rules of Civil Procedure, as adopted by Bankruptcy Rule 7056. Rule 56 provides that summary judgment must be entered if the evidence presented shows “no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The moving party has the initial burden of proof to show that there are no genuine issues of material fact. Cox v. Administrator U.S. Steel & Carnegie, 17 F.3d 1386, 1396 (11th Cir.1994). The nonmoving party must then show that an issue of fact exists. Id. The court must view the evidence in a light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).
The Plaintiffs maintain that there are no genuine issues of material fact because those issues were decided in the state court proceeding, and this Court is bound by the state court’s findings under the doctrine of collateral estoppel. This doctrine prohibits the re-litigation of issues that have been necessarily decided in a previous proceeding. In re McDowell, 415 B.R. 601, 607 (Bankr.S.D.Fla.2008) (citations omitted). Collateral estoppel applies to state court judgments in nondis-chargeability actions in bankruptcy. Id., citing Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). When the prior judgment was entered by a state court, the collateral estoppel law of the state must be used to determine its preclusive effect. In re St. Laurent, 991 F.2d 672, 676 (11th Cir.1993) (citations omitted). Under Florida law, collateral estoppel applies when the parties and issues are identical and the issues are “fully litigated and determined in a contest which results in a final decision of a court of competent jurisdiction.” Department of Health and Rehabilitative Services v. B.J.M., 656 So.2d 906, 910 (Fla.1995). For a dischargeability proceeding, the burden of persuasion in the discharge proceeding should not be significantly heavier than the burden of persuasion in the initial action. In re Bush, 62 F.3d 1319, 1322 (11th Cir.1995); Grogan, 498 U.S. at 291, 111 S.Ct. 654. The standard of proof in a discharge-ability proceeding under § 523(a) is a preponderance of the evidence. Grogan, 498 U.S. at 291, 111 S.Ct. 654.
The parties do not dispute that the parties are identical in the state court proceeding and the present action, or that the issues were fully litigated to a final decision in a court of competent jurisdiction. They also do not dispute that the Plaintiffs proved their state court action by at least a preponderance of the evidence. They disagree on whether the issues tried in the state court involving the rescission of trust amendments, the rescission of warranty deeds, constructive trust and exploitation of the elderly are identical to the issues presented in the present action for nondis-chargeability under § 523(a)(2)(A) and (a)(4). The Plaintiffs maintain that the state court’s finding of deception under the statutory definition of exploitation of the elderly matches the definition of false representation and false pretenses under § 523(a)(2)(A) and larceny under *464§ 523(a)(4). The Debtor asserts that the state court action was based on undue influence and exploitation of the elderly rather than actual fraud or false representation as required by § 523(a)(2)(A). In addition, the Debtor argues that the state court made no finding of justifiable reliance by Mr. Dunn. According to the Debt- or, the state court findings did not address larceny or theft which could be found non-dischargeable under § 523(a)(4).
The Plaintiffs’ first cause of action falls under § 523(a)(2)(A), which prohibits a debtor from discharging a debt for money or property obtained by “false pretenses, a false representation, or actual fraud, ... ”. To prevail under § 523(a)(2)(A), a creditor must show that: (1) the debtor made a false statement; (2) with the purpose and intent to deceive the creditor; (3) the creditor relied on the representations; (4) the creditor’s reliance was justifiable; and (5) the creditor sustained a loss as a result of the representation. Fuller v. Johannessen (In re Johannessen), 76 F.3d 347, 350 (11th Cir.1996). The elements for fraudulent concealment or suppression are essentially the same, except that the first requirement is suppression of a material fact rather than misrepresentation. In re Lichtman, 388 B.R. 396, 410 (Bankr.M.D.Fla.2008).
Comparing the elements of § 523(a)(2)(A) with the state court’s findings regarding exploitation of the elderly under Florida law, it is clear that the state court addressed the same issue in its ruling. Section 523(a)(2)(A) requires a false representation and “deception” as defined by Florida Statute § 415.102(5) is “a misrepresentation or concealment of a material fact.” As to the second element of § 523(a)(2)(A) requiring purpose and intent to deceive the creditor, the state court held that Lynn Dunn, through misrepresentation and concealment, obtained and used Mr. Dunn’s assets with the intent to permanently deprive him of those assets. Skipping the final element of § 523(a)(2)(A), it is apparent from the state court’s ruling that the estate and the remaining plaintiffs sustained a loss as result of Lynn Dunn’s misrepresentations given the amount of the judgment and the number of properties that were transferred from the Trust.
The third and fourth elements of § 523(a)(2)(A) require the creditor to show that he relied on the debtor’s misrepresentation and that the reliance was justifiable. Lynn Dunn argues that the state court made no finding of justifiable reliance and therefore the Plaintiffs cannot prevail under collateral estoppel. However, justifiable reliance is a subjective standard which allows “a plaintiff to rely unequivocally on a representation or promise made by a debtor, without investigating the truth of the representation or promise, unless the statement is patently false.” In re Meyer, 296 B.R. 849, 862 (Bankr.N.D.Ala.2003) citing FCC National Bank v. Gilmore (In re Gilmore), 221 B.R. 864, 874 footnote 10 (Bankr.N.D.Ala.1998); Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995); In re Vann, 67 F.3d 277, 283 (11th Cir.1995). “Justifiable reliance is determined according to an individual standard, based on the creditor’s own abilities and knowledge, or the knowledge that he should have from the facts that are available to him.” In re Wilken, 377 B.R. 927, 933 (Bankr.M.D.Fla.2006) citing Vann, 67 F.3d at 283. The state court found that Mr. Dunn was a vulnerable person, and that Lynn Dunn had undue influence over him regarding selling property from the Trust. It also found that Mr. Dunn relied on Lynn Dunn’s implied promise to sell the property for the benefit of the Trust, and the reliance was to his detriment. Para. 63. In light of the state *465court’s findings, this Court finds that the state court action determined that Mr. Dunn justifiably relied on Lynn Dunn’s misrepresentations. Therefore, the Court finds that the previous state court action determined the factual issues related to dischargeability under § 523(a)(2)(A), and that Lynn Dunn is collaterally estopped from denying that the judgment entered by the state court is nondischargeable. As a result, there are no genuine issues of material fact, and the Plaintiffs are entitled to summary judgment for their cause of action under § 523(a)(2)(A).
The Plaintiffs also allege that its cause of action under 11 U.S.C. § 523(a)(4), which prohibits discharge a debt resulting from larceny. Larceny under this section is “a felonious taking of another’s personal property with intent to convert it or deprive the owner of the same.” In re Hosey, 355 B.R. 311, 323 (Bankr.N.D.Ala.2006) quoting Weinreich v. Langworthy (In re Langworthy), 121 B.R. 903, 907-908 (Bankr.M.D.Fla.1990) (citation omitted). The Court notes that larceny refers to the taking of personal property, and thus would not apply to the taking of real property. However, there were funds taken from Mr. Dunn’s account which could be covered by § 523(a)(4). While the state court found that Lynn Dunn took Mr. Dunn’s property with intent to deprive him of it, there was not sufficient evidence to show that Lynn Dunn’s acquisition of the property was a felonious taking of the property as required by § 523(a)(4). Therefore, this Court must deny the Plaintiffs’ motion for summary judgment under the cause of action under § 523(a)(4).
Based on the foregoing, the Court finds that the Plaintiffs’ motion for summary judgment as to dischargeability pursuant to 11 U.S.C. § 523(a)(2)(A) is due to be granted on the basis of collateral estoppel and the debt owed to the Plaintiffs by the Debtor should be declared nondischargeable. The Court also finds that the Plaintiffs’ motion for summary judgment should be denied as to § 523(a)(4). Therefore, it is hereby
ORDERED that the Plaintiffs’ motion for summary judgment is GRANTED pursuant to 11 U.S.C. § 523(a)(2)(A), and a separate judgment shall be entered in the amount of ONE MILLION THREE HUNDRED NINETEEN THOUSAND FOUR HUNDRED SEVENTY AND NO/ 100 DOLLARS ($1,319,470.00) in favor of the Plaintiffs and against the Defendant, Lynn Pecundo Dunn; and it is further
ORDERED that the Plaintiffs’ motion for summary judgment pursuant to 11 U.S.C. § 523(a)(4) is DENIED.
. The state court had previously dismissed count I for annulment and count II for declaratory judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494797/ | ORDER DENYING MOTION TO DEEM PROOFS OF CLAIMS TIMELY FILED
K. RODNEY MAY, Bankruptcy Judge.
THIS CASE came on for hearing on April 4, 2012, for consideration of MSMC Venture, LLC’s Motion to Deem Its Proofs of Claims Filed Timely (Doc. No. 29) and supplements thereto (Doc. Nos. 39, 40 and 41). For the reasons stated orally and recorded in open court on May 16, 2012, which shall constitute the decision of this Court, as supplemented herein, the Motion is denied and the claims of MSMC Venture, LLC are disallowed in their entirety.
BACKGROUND
Daniel David Stone (“Debtor”), through counsel, filed his voluntary Chapter 13 petition with the Court on September 29, 2011. On October 4, 2011, a Notice was issued to all creditors, including MSMC, setting the claims bar date for February 13, 2012 (Doc. No. 7).
On February 14, 2012, counsel for MSMC filed four proofs of claims for various debts totaling $671,108.38.1 Accompanying the late-filed claims, MSMC’s counsel also filed the underlying Motion requesting that the Court consider the claims timely filed. The Debtor timely objected to each of the claims as time barred.
In support of its Motion, MSMC has offered two arguments as to why the Court should permit its claims. First, MSMC suggests that the equitable powers *467granted pursuant to section 105(a) permit the Court to authorize late filed claims outside of the Bankruptcy Rules. Alternatively, MSMC suggests that the untimely filing of the claims constitutes excusable neglect and should therefore be allowed pursuant to Bankruptcy Rule 9006(b)(1). Unfortunately, the plain language of the Bankruptcy Code and the accompanying Bankruptcy Rules forbids the Court from utilizing either of these proffered bases for relief.
DISCUSSION
Pursuant to Bankruptcy Rule 3002(c), proofs of claims are considered timely in a Chapter 13 case if filed within 90 days of the first date set for the meeting of the creditors. Additionally, there are six exceptions within Rule 3002(c) which permit a claim to be deemed timely even if it is filed after the 90 day deadline. See Fed. R.Bankr.P.3002(c). None of the aforementioned exceptions apply in this instance. As such, under the plain language of section 502(b)(9), the Court should deny MSMC’s claim as tardily filed. See 11 U.S.C. § 502(b)(9); In re Jensen, 333 B.R. 906 (Bankr.M.D.Fla.2005).
In relevant part, section 502(b)(9) states that a tardily filed claim that has been objected to shall not be allowed by the Court unless otherwise permitted under the Federal Rules of Bankruptcy Procedure. See 11 U.S.C. 502(b)(9). Given the somewhat Draconian result in the present instance, it is important to briefly highlight the history of section 502(b)(9). As Judge Glenn has previously summarized:
Section 502(a)(9) was added to the Bankruptcy Code by the Bankruptcy Reform Act of 1994 (§ 213(a), Pub.L. 103-394) to address the issue of late filed claims. Prior to this amendment, untimely filing was not provided by the statute as an exception to the allowance of a claim. The requirement for timely filing was contained in the rules, in substantially the form that it exists today. Courts were divided on the treatment of late filed claims in Chapter 13 cases. Some courts allowed late filed claims in Chapter 13 cases, since there was no statutory basis for disallowing such claims. See In re Hausladen, 146 B.R. 557 (Bankr.D.Minn.1992). Other courts barred untimely claims. See In re Zimmerman, 156 B.R. 192 (Bankr. W.D.Mich.1993). The majority of courts at the time concluded that untimely claims were barred in Chapter 13 cases. See In re Marsiat, 184 B.R. 846, 849 (Bankr.M.D.Fla.1994).
The Bankruptcy Reform Act of 1994 added § 502(a)(9) to provide untimely filing as a statutory basis for disallowance of a claim. “The amendment to section 502(b) is designed to overrule In re Hausladen, 146 B.R. 557 (Bankr. D.Minn.1992), and its progeny by disallowing claims that are not timely filed.” (HR Rep 103-835, 103rd Cong., 2nd Sess. 48 (Oct. 4, 1994), 1994 U.S.C.C.A.N. 3340; 140 Cong. Rec. H10768 (Oct. 4, 1994), U.S. Code Cong. & Admin. News 1994, pp. 3340, 3357). In re Jensen, 333 B.R. at 908-09.
Together, the clear language of section 502(b)(9); the express Congressional intent behind its enactment; and prior precedent make it clear that the Court is precluded from invoking section 105(a) in this instance. As such, in light of the Debtor’s objection, the Court may not excuse the tardiness of the filing unless such tardiness is forgiven under the Federal Rules of Bankruptcy Procedure. See 11 U.S.C. § 502(a)(9).
MSMC suggests that Rule 9006(b)(1) should apply to permit the Court to hold that the tardily filed claim constituted excusable neglect. However, *468Rule 9006(b)(1) is expressly subject to 9006(b)(3). See Fed. R. Bankr.P. 9006(b)(1) (“[ejxcept as provided in paragraphs (2) and (3) of this subdivision ... ”)• The express language of Rule 9006(b)(3) states that “the court may enlarge the time for taking action under Rule ... 3002(c) ... only to the extent and under the conditions stated [within Rule 3002(c) ].” See Fed. R.Bankr.P. 9006(b)(3). As such, the “excusable neglect” standard of 9006(b)(1) does not apply to Chapter 13 cases. Because Rule 3002(c) was applicable in setting the claims bar date, and none of the six exceptions contained therein are applicable in this instance, MSMC’s neglect in failing to timely file its claim may not be excused. See e.g. In re Jensen, 333 B.R. at 910; In re McNeely, 309 B.R. 711 (Bankr.M.D.Pa.2004); In re Brogden, 274 B.R. 287 (Bankr.M.D.Tenn.2001).
Rule 3002(c) is an “uncompromising deadline,” which, together with section 502(b)(9), operates as a “strict statute of limitations” as to a late claim if it is objected to by the Debtor. See In re Window,, 284 B.R. 644, 646 (Bankr.E.D.Tenn.2002) (“[bjankruptcy courts are therefore without the authority to extend the deadline and allow an untimely filed proof of claim”). Accordingly, it is
ORDERED that:
1. MSMC Venture, LLC’s Motion to Deem Its Proofs of Claims Filed Timely is denied.
1. Claims Nos. 4, 5, 6 and 7 filed by MSMC Venture, LLC are hereby stricken and disallowed in their entirety.
DONE and ORDERED.
. Claim No. 4 for $277,668.92 partially secured (First Mortgage on 1237 Bermar Street, Fort Myers, FL — $3,000 secured); Claim No. 5 for $283,059.52 partially secured (First Mortgage on 1017 Brenton Avenue, Lehigh Acres, FL — $61,649 secured); Claim No. 6 for $51,140.39 unsecured (Second Mortgage on 1237 Bermar Street, Fort Myers, FL); and Claim No. 7 for $59,239.55 unsecured (Second Mortgage on 1017 Brenton Avenue, Le-high Acres, FL). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494798/ | MEMORANDUM OPINION GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
KAREN S. JENNEMANN, Chief Judge.
Iryna Hrachova, the plaintiff, together with her daughter, Zhanna, moved from the Ukraine to the United States in response to the debtor/defendant’s ad seeking a wife. Denver Cook promised to support the plaintiff and her daughter and signed the necessary Immigration Form-864 “Affidavit of Support.” After a short marriage and a later divorce, plaintiff obtained a judgment of approximately $100,000 against the debtor pursuant to the Affidavit of Support.1 She now seeks summary judgment in this adversary proceeding that the judgment is a “domestic support obligation” under Bankruptcy Code Section 101(14A)2 and is excepted from discharge pursuant to Section 523(a)(5). The debtor opposes summary judgment arguing the earlier divorce decree resolved all support issues and the later judgment under the Affidavit of Support is not enforceable. The Court will grant summary judgment in favor of the plaintiff finding that the judgment is an enforceable final order and is a non-dis-chargeable domestic support obligation.
Plaintiff was born in the Ukraine and has a daughter from a previous marriage.3 Defendant, a Florida resident, placed an advertisement in a Ukrainian newspaper in 1999, seeking a Russian wife. Plaintiff responded to the ad and started a relationship with defendant over the internet.4 Shortly thereafter, plaintiff entered the United States on a fiancé visa, and the couple wed in September 2000.5
As a precondition to plaintiffs immigration to the United States, defendant executed an Affidavit of Support — Immigration Form 864 on behalf of plaintiff and plaintiffs daughter, Zhanna.6 By signing the Affidavit, defendant agreed to “provide the sponsored immigrant(s) whatever support is necessary to maintain the sponsored immigrant(s) at an income that is at least 125 percent of the Federal poverty guidelines.”7 The purpose of the Affidavit of Support is to prevent otherwise inadmissible immigrants from becoming a public burden by requiring a sponsor to support them.8
*471The marriage between plaintiff and defendant soon ended.9 The parties filed for divorce in January 2001.10 On May 31, 2002, the state court in Lake County, Florida entered a final dissolution of marriage and awarded plaintiff $29,467.64 in alimony.11 The dissolution of marriage did not address the Affidavit of Support.
After the divorce, plaintiff, who holds degrees in homeopathy treatment and linguistic science from a Ukrainian university, obtained her green card to work in the United States and received permanent resident status.12 Despite her qualifications, plaintiff struggled to obtain consistent employment in the United States for a variety of reasons. Defendant completed his alimony obligation under the state court divorce decree in July 2004, at which time he stopped paying any support to plaintiff and her daughter.13
In February 2009, plaintiff filed a complaint in the United States District Court for the Middle District of Florida demanding that defendant perform his support obligations under the Affidavit of Support. The complaint sought support payments in arrears from 2001 through the time of the complaint.14 In a non-jury trial, a magistrate judge in the district court entered a judgment of $103,197.44 (the “District Court Judgment”) in favor of plaintiff based on defendant’s failure to make payments under the Affidavit of Support from August 2001 forward.15 Defendant also was ordered to pay plaintiff a continuing amount of “125 percent of the current federal poverty level until such time as the obligation expires by law.” 16
When the debtor failed to make payments as directed in the District Court Judgment, plaintiff requested and received a writ of garnishment against defendant.17 Debtor, in response, filed this voluntary Chapter 7 bankruptcy.18 Plaintiff then filed this adversary complaint and motion for summary judgment seeking a determination that district court judgment debt is a domestic support obligation under § 101 (14a) and is not dischargeable under § 523(a)(5) of the Bankruptcy Code.19
A court will grant summary judgment under Rule 56 “when the evidence, viewed in the light most favorable to the nonmov-ing party, presents no genuine issue of *472material fact and compels judgment as a matter of law in favor of the moving party.”20 Plaintiff seeks summary judgment as to dischargeability of the judgment debt owed by defendant as a “domestic support obligation.” In a Chapter 7 bankruptcy, a debtor receives a discharge of most debts to obtain a “fresh start.”21 But, a debt arising from a domestic support obligation is deemed non-dischargeable.22
Defendant does not object to the classification of the debt as a domestic support obligation. Rather he argues the District Court Judgment is invalid because the court lacked jurisdiction to hear plaintiffs complaint seeking enforcement of the Affidavit of Support. Specifically, defendant argues the state divorce court definitively settled all matters of support, and the Rooker-Feldman Doctrine and res judica-ta barred the district court from hearing plaintiffs complaint.23
The District Court Judgment is Valid.
The District Court Judgment is valid and enforceable. Review of a final, appealable district court decision rests exclusively with the court of appeals in the jurisdiction of the district court.24 In this case, the Eleventh Circuit Court of Appeals has exclusive jurisdiction to review the District Court’s Judgment, regardless of the basis for the appeal.25 The time to file a notice of appeal of a district court judgment in the Eleventh Circuit is 30 days.26 The district court entered its order in favor of plaintiff on November 4, 2009, and defendant received notice of the judgment along with a checklist of the appeals process. Defendant however never appealed the judgment, which specifically found the state divorce court did not consider or resolve the debtor’s financial support obligations under the Affidavit of Support.27 He now is forever barred from questioning the validity of the District Court Judgment, which is now irretrievably final and enforceable.28
*473
The Affidavit of Support is a Non-Dis-chargeable Domestic Support Obligation under 11 U.S.C. § 523(a)(5).
A domestic support obligation is defined in § 101(14A) as a debt owed to or recoverable by a spouse, former spouse, or child of the debtor, in the nature of alimony, maintenance, or support, whether or not so designated.29 The debt must have been established on or before the date of the bankruptcy by reason of a separation agreement, divorce decree, property settlement, order of court record, or determination of non-bankruptcy law.30
Courts determining domestic support obligation look at the substance of the agreement creating the obligation as to whether it constitutes alimony, maintenance, or support, largely disregarding what the agreement is called.31 A “simple inquiry as to whether the obligation can be legitimately characterized as support, that is, whether it is in the nature of support” is all that is required.32 A debt is “in the nature of support” if, at the time the debt was created, the parties intended the obligation to function as support.33 “All evidence, direct or circumstantial, which tends to illuminate the parties subjective intent is relevant.”34 The key in determining whether a debt is a non-dischargea-ble domestic support obligation under § 523(a)(5) is the intent of the parties.35
Clearly the intent of the plaintiff and defendant in signing the Affidavit of Support was to comply with the mandate in 8 U.S.C. § 1182 and to guarantee future support for the plaintiff, an otherwise inadmissible immigrant, at no less than 125 percent of the poverty level until the Affidavit of Support terminated by law.36 The intent of the government, a party to the Affidavit of Support, was to ensure plaintiff was adequately supported so as not to *474become a public burden.37 When plaintiff married defendant and arrived in the United States, she was not employable as a United States citizen, and for years she lacked the ability to earn a wage above the poverty level.38 Defendant swore he had the ability to support plaintiff in the United States as required by United States immigration law and agreed to provide “whatever support is necessary” to maintain plaintiff at or above 125 percent of the poverty level.39 The intent of the parties in signing the Affidavit of Support, in this case as reflected in the name of the agreement, clearly was to support plaintiff financially until she was able to support herself and avoid becoming a drain on the public benefit system.
To allow defendant now to discharge this obligation would contravene the purpose of § 523 of subordinating a debtor’s fresh start to the more compelling interest of requiring debtors to pay all legitimate domestic support obligations.40 This seemingly harsh outcome is mitigated by the fact that defendant specifically sought out a foreigner to bring to the United States to marry. In doing so, defendant accepted the responsibilities of the arrangement along with its benefits. The Affidavit of Support is non-dischargeable debt under § 523(a)(5), and plaintiffs Motion for Summary Judgment is granted.
DONE AND ORDERED.
. 8 U.S.C. § 1183a.
. All references to the Bankruptcy Code are to 11 U.S.C. § 101 etseq.
. Doc. No. 1 Exhibit A. Plaintiff brings this motion on her own behalf and on behalf of her daughter, Zhanna.
. Doc. No. 1 Exhibit A (hereinafter the "District Court Opinion” posted as Doc. No. 44 in Case No. 5:09-cv-00095-TBS).
. Id.
. 8 U.S.C. § 1182(a)(4)(B)(2) & § 1183a. Doc. No. 1 Exhibit B.
. Affidavit of Support, Form 1-864 at 4.
. 8 U.S.C. § 1182(a)(4); Affidavit of Support Form in Doc. 1 Exhibit B.
. The District Court opinion outlines the marital problems that led to the divorce, including domestic abuse allegations, none of which are necessary to the determination of this proceeding.
. District Court Opinion at 3.
. District Court Opinion at 4.
. District Court Opinion at 4.
. District Court Opinion at 4.
. District Court Opinion at 4. Plaintiff testified that from 2001 to 2009, her income had never exceeded 125 percent of the poverty level.
. District Court Opinion at 11.
. District Court Opinion at 11. The obligation expires upon the occurrence of one of five conditions: "1) the sponsor's death, 2) the sponsored immigrant’s death, 3) the sponsored immigrant becoming a U.S. citizen, 4) the sponsored immigrant permanently departing the U.S., or 5) the sponsored immigrant being credited with a total of 40 qualifying quarters of work.” Cheshire, v. Cheshire, 2006 WL 1208010 at *4 (M.D.Fla. May 4, 2006) (citing 8 U.S.C. § 1183a(a)(2); 8 C.F.R. § 213a.2(e)).
. Doc. No. 15, Exhibit B.
. The district court stayed all proceedings, administratively closed the case, and referred the dischargeability issue to this Court. Doc. No. 1 Exhibit C.
. Doc. Nos. 1 and 14.
. Fed.R.Civ.P. 56(a). OneBeacon America Ins. Co. v. Catholic Diocese of Savannah, 2012 WL 1939104, *3 (11th Cir.2012) (citing Brown v. Sec'y of State of Fla., 668 F.3d 1271, 1274 (11th Cir.2012)).
. 11 U.S.C. § 727. In re Chauncey, 454 F.3d 1292, 1295 (11th Cir.2006).
. 11 U.S.C. § 523(a)(5); In re Benson, 441 Fed.Appx. 650, 651 (11th Cir.2011).
. Doc. No. 21.
. 28 U.S.C. §§ 1291; 1292(c).
. 28 U.S.C. § 1292(c).
. Fed. R.App. Pro. Rule 4(a)(1)(A) (as adopted by the Eleventh Circuit Court of Appeals).
. District Court Opinion at 4.
. As noted, the district court specifically found the state court never addressed plaintiff's Affidavit of Support. As such, res judica-ta does not bar plaintiff's cause of action because the same cause of action was not involved in the district court case and the state court divorce proceeding. See Ragsdale v. Rubbermaid, 193 F.3d 1235, 1238-39 (11th Cir. 1999) (noting that a claim is barred by res judicata only if there is a final judgment on the merits, the decision was rendered by a court of competent jurisdiction, the parties are identical in both suits, and the causes of action are the same). The Rooker-Feldman Doctrine, which prohibits lower federal courts, including bankruptcy courts, from reviewing final state court judgments, also does not apply for the same reason, that the state court judgment did not address the Affidavit of Support. See Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 1521-23, 161 L.Ed.2d 454 (2005). Defendant cites two cases in which the lower court did specifically address an affidavit of support, which prevented federal review of the same issue. In In re Schwartz, the First Circuit BAP found the bankruptcy court lacked jurisdiction to the extent an affidavit of support was submitted to the divorce court. 409 B.R. 240, 246-49 (1st Cir. BAP 2008). Similarly, in In re Davis, a federal district court was precluded from hearing an affidavit of support claim because the state court, under specific instructions from the Ohio Court of Appeals, specifically ruled on the affidavit *473of support. In re Davis, 499 F.3d 590 (6th Cir.2007). Neither situation is applicable to this case. Moreover, the Court disagrees with Schwartz to the extent it requires a party to include a claim under an affidavit of support in a divorce proceeding or lose its rights to enforce it under res judicata. Schwartz, 409 B.R. at 249. Divorce is not listed as an event that terminates a sponsor’s obligations under and affidavit of support, which may continue indefinitely and may be claimed long after a divorce proceeding has concluded. Cheshire, 2006 WL 1208010, at *5.
. 11 U.S.C. § 101(14A).
. Id. Emphasis added.
. Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir.2001) (citing In re Harrell, 754 F.2d 902, 904 (11th Cir. 1985)).
. Cummings, 244 F.3d at 1265.
. Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir.2001). Key indicators of a domestic support obligation include the "intent of the parties or the state court in creating the obligation, and the purpose of the obligation in light of the parties’ circumstances, particular financial circumstances, at that time.” Sampson v. Sampson (In re Sampson), 997 F.2d 717, 725-26 (10th Cir. 1993).
. Cummings v. Cummings, 244 F.3d 1263, 1266 (11th Cir.2001) (citing In re Brody, 3 F.3d 35, 38 (2d Cir. 1993)).
. Cummings v. Cummings, 244 F.3d 1263, 1266 (11th Cir.2001).
. Five, and only five, conditions terminate a sponsor’s obligation under an Affidavit of Support: 1) the sponsor’s death, 2) the sponsored immigrant’s death, 3) the sponsored immigrant becoming a U.S. citizen, 4) the sponsored immigrant permanently departing the U.S., or 5) the sponsored immigrant being credited with a total of 40 qualifying quarters of work. Cheshire, 2006 WL 1208010, at *4 (citing 8 U.S.C. § 1183a(a)(2), (3); 8 C.F.R. § 213a.2(e)). At the time of the district court's ruling, none of these conditions had been satisfied.
. Shumye v. Felleke, 555 F.Supp.2d 1020, 1023 (N.D.Cal.2008) (noting "A Form 1-864 is a legally enforceable contract between the sponsor and both the United States Government and the sponsored immigrant.”).
. District Court Opinion at 4-9.
. Affidavit of Support, Doc. No. 1 Exhibit B.
. In re Stewart, 190 Fed.Appx. 147, 149 (3d Cir.2006). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494799/ | OPINION AND ORDER
SUSAN D. BARRETT, Chief Judge.
Before the Court is a Motion for Relief from Stay filed by Stonemark Management, Inc., d/b/a Governor’s Place Apartments (“Stonemark”) regarding the lease of Apt. D-3, 3211 Wrightsboro Road, Augusta, Georgia (“the Apartment”). Stone-mark seeks relief from the stay in order to take possession of the Apartment rented by Barbara Ann Paul (“Debtor”). Stone-mark obtained a pre-petition judgment and writ of possession of the Apartment on March 6, 2012. Thereafter, Debtor filed for bankruptcy relief on March 12, 2012. In her petition, Debtor did not certify that Stonemark had a pre-petition judgment of possession.
At the hearing held on Stonemark’s motion for relief, the Court inquired whether under 11 U.S.C. § 362(b)(22) the automatic stay was in effect against Stonemark’s eviction proceeding since Stonemark had a pre-petition judgment for possession of the Apartment. After a colloquy with the parties, the Court gave the parties an opportunity to brief the issue. Debtor argues in a post-hearing brief that the pre-petition judgment was not based upon any-monetary default and therefore § 362(b)(22) and § 362(i) are inapplicable and Debtor was not required to file a certification. In her brief, Debtor cites the case of In re Griggsby, 404 B.R. 83 (Bankr.S.D.N.Y. 2009) for the proposition that § 362(i) is applicable only where the pre-petition judgment is based upon a monetary default of a debtor and therefore § 362(Z) does not apply in this case because Stone-mark’s judgment was based on a non-monetary default. In its response, Stonemark disagrees with Debtor’s analysis and legal conclusions.
After reviewing the relevant statutory language and case law, I find that 11 U.S.C. § 362(i) is not applicable to a non-*476monetary default; however, I conclude 11 U.S.C. § 362(b)(22) still excludes Stone-mark’s eviction proceeding from the protection of the automatic stay.
Section 362(b)(22) provides:
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay&emdash;
(22) subject to subsection (Z), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor ....
11 U.S.C. § 362(b)(22)(emphasis added). Where a lessor has obtained a pre-petition judgment for possession, the lessor is free to continue an eviction proceeding notwithstanding Debtor’s filing of a bankruptcy petition. 11 U.S.C. § 362(b)(22); see In re Griggsby, 404 B.R. at 90 (“[CJongress provided in § 362(b)(22) that a prepetition judgment of possession obtained by a lessor for any reason keeps the stay from automatically being triggered by the filing of a bankruptcy petition.”). In the current case, it is undisputed that Stonemark obtained a pre-petition judgment, therefore 11 U.S.C. § 362(b)(22) excludes the eviction proceeding from the automatic stay.
The “reason” for the pre-petition judgment becomes important only when deciding whether Debtor is able to take advantage of the thirty day “safe harbor” provision of 11 U.S.C. § 362(Z). Section 362(Z) states:
(Z)(l) Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that&emdash;
(A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and
(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.
11 U.S.C. § 362(Z).
As the Griggsby court explains § 362(b)(22) is the applicable statute where a lessor has obtained a pre-petition judgment of possession. The safe harbor exception of § 362(Z) is a limited exception to § 362(b)(22) and is unavailable to a debtor where the reason for the pre-petition judgment is non-monetary. In re Harris, 2011 WL 2038757 *2 (Bankr. D.S.C. May 24, 2011)(“Where the default that gave rise to the eviction is not a monetary default, the exception of § 362(b)(22) to the imposition of the stay is immediate and § 362(Z) does not provide even a short term 30 day stay.”); In re Griggsby, 404 B.R. at 88 (same). The Griggsby court compared 11 U.S.C. § 362(b)(22) and (Z) with § 362(b)(23) and (m):
Congress provided in § 362(b)(22) that a prepetition judgment of possession obtained by a lessor for any reason keeps the stay from automatically being triggered by the filing of a bankruptcy petition. With respect to § 362(Z), Congress’s focus was clearly upon allowing *477the stay to be reinstated if state law permits a cure of a monetary default; no mention is made of a non-monetary default. Sections 362(b)(23) and 362(m) provide a means for a lessor to terminate the automatic stay based upon alleged drug use or ‘property endangerment.’ Sections 862(b)(23) and 862(m) presuppose that a lessor did not obtain a prepetition judgment of possession.
In re Griggsby, 404 B.R. at 90 (emphasis added). In Griggsby, the lessor had obtained a pre-petition judgment based upon property endangerment and the court held that the debtor could not reinstate the stay pursuant to § 362(Z) because of the non-monetary nature of the judgment of possession. In re Griggsby, 404 B.R. at 88-90.
Similarly, in the current case, according to Debtor the pre-petition judgment was obtained for non-monetary reasons, therefore Debtor is unable to avail herself of the safe harbor of § 362(l). Pursuant to § 362(b)(22), the automatic stay is not in place and Stonemark may proceed with the dispossession of the Debtor.
Debtor argues § 362(b)(23) and (m) are the relevant statute and therefore, the lessor, Stonemark should have filed the certification, not Debtor. Section 362(b)(23) and (m) are not applicable in this case because Stonemark has a pre-petition judgment of possession. See In re Griggsby, 404 B.R. at 90 (section 362(b)(23) and (m) presupposes the lessor has not obtained a judgment pre-petition). Because Stonemark has a pre-petition judgment, it was not required to file a certification pursuant to 11 U.S.C. § 362(m) and its failure to do so does not bar relief being granted.
Furthermore, to the extent the pre-petition judgment was based upon a monetary default,1 Debtor’s failure to file the required certification pursuant to § 362(i) precludes Debtor from taking advantage of this safe harbor provision. See 11 U.S.C. § 362(Z); In re Harris, 424 B.R. 44 (Bankr.E.D.N.Y.2010); In re Plumeri, 434 B.R. 315 (S.D.N.Y.2010); In re Tucker, 2005 WL 5607595 (Bankr.N.D.Ga. Nov. 18, 2005).
Finally, Debtor disputes the factual basis Stonemark asserted to obtain its pre-petition judgment. Any such challenges should be asserted in the court issuing the judgment and handling eviction, not the bankruptcy court. See e.g., In re Griggsby, 404 B.R. at 92 (debtor must return to state court to reinstate the landlord-tenant relationship).
For these reasons, I find Stonemark’s continuation of any eviction proceedings against the Debtor in connection with its pre-petition judgment are not stayed by the provisions of the automatic stay. To the extent necessary “cause” exists pursuant to § 362(d)(1) to lift the automatic stay.
It is therefore ORDERED that Stone-mark’s motion for relief from stay is GRANTED.
. At times, the parties have indicated the pre-petition judgment was for a monetary default. For the reasons set forth in this opinion, given the facts and circumstances of this case, regardless of whether the pre-petition judgment was for monetary or non-monetary default, the stay does not apply. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493406/ | ORDER DENYING MOTION TO DISMISS CLAIMS UNDERLYING SUBCLASS 2
MARGARET A. MAHONEY, Chief Judge.
This matter is before the Court on Defendant HomeSide Lending, Inc.’s motion to dismiss from this case any and all claims that underlie subclass 2 of the class certified by this Court on June 5, 2001. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b) and the Court has the authority to enter a final order. For the reasons indicated below, the Court is denying the motion to dismiss.
FACTS
On June 5, 2001, the Court certified the following class in this case:
Subclass 1. All bankruptcy debtors who have filed a Chapter 13 petition on or after January 1, 1994(1) who had proofs of claim filed in their cases by Defendant Home-Side which (a) did not disclose postpetition/preconfirmation fees at all, (b) did not disclose them with sufficient specificity, or (c) did not include these fees in the arrear-age claims; (2) who had these fees collected or posted to their accounts in some way by Defendant HomeSide after filing bankruptcy; and (3) in whose cases Defendant HomeSide did not file a specific application for these fees which was approved by the United States Bankruptcy Court.
Subclass 2. All bankruptcy debtors who have filed a Chapter 13 petition on or after January 1, 1994(1) who had proofs of claim filed in their eases by Defendant Home-*732Side; (2) who had these fees collected or posted to their accounts in some way by Defendant HomeSide after filing bankruptcy; and (3) where the bankruptcy work was referred from, and/or directed in whole or in part by, LOGS Financial Services, Inc., and LOGS was paid a fee by the attorney to whom the bankruptcy work was referred.
LAW
HomeSide objects to the certification of subclass 2 and seeks dismissal of the claims that underlie it pursuant to Fed. R.Bankr.P. 7008, 7012 and 7010(b).
1.
Under Fed.R.Bankr.P. 7008 a claim should be dismissed if it does not contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” HomeSide alleges that the complaint does not make any “reference, either direct or indirect, to the administrative fees implicated by the Subclass 2 definition.” Motion at p. 2. HomeSide also alleges that the complaint does not do two other things required by Rule 8 — articulate any legal or equitable theory of recovery for the subclass or make a demand for relief.
The plaintiff asserts that this is untrue. The issue of the LOGS fees is simply a subset of the issue of fees in general. The complaint alleges the fees assessed postpe-tition are not reasonable, authorized or allowable and/or their assessment against the debtor is a violation of bankruptcy law.
The Court concludes that the complaint sufficiently alleges that fees assessed by HomeSide may be unreasonable, unauthorized or unallowable or may be a violation of bankruptcy law. Those allegations encompass what this Court understands the plaintiffs theory to be about LOGS fees. Sheffield is asserting that the attorneys fees or referral fees may be improper. These allegations fold into Counts 1 and 4 and have theories of recovery stated and demands for relief. Precision is not required under the notice pleading standard. Roe v. Aware Woman Center for Choice, Inc., 253 F.3d 678, 683 (11th Cir.2001) (“[T]he liberal ‘notice pleading’ standards ... do not require that a plaintiff specifically plead every element of a cause of action.”). If the Court has discerned what plaintiff is alleging, HomeSide must be able to do so as well.
The main ease cited by HomeSide does not support dismissal of this claim. Roe v. Aware Woman Center for Choice, Inc., 253 F.3d 678, 683 (11th Cir.2001) required a plaintiff to amend her complaint to include an allegation that the defendant had a motive to intimidate her. Her complaint lacked any statement about motive and motive was a required element of her cause of action. Even so, the court stated that an amendment would “not be a difficult matter.” Id. at 684. Notice pleading requires only general statements. The complaint in this case contains enough notice. No required element of plaintiffs case is missing. It alleges that fees were unreasonable, unauthorized, unallowable or violations of bankruptcy law. The fee of LOGS, if passed through to the debtor, is encompassed in the complaint.
2.
HomeSide also seeks dismissal under Fed.R.Bankr.P. 7012(b) because the requirements of Fed.R.Bankr.P. 7010 are not met. Rule 7010(b) states that “each claim founded upon a separate transaction or occurrence and each defense other than denials shall be stated in a separate count or defense whenever a separation facilitates the clear presentation of the matters set forth.” HomeSide asserts that the issue of administrative fees is not set forth in the complaint and it is founded on a separate transaction or occurrence. Shef*733field asserts that these fees are part of the attorneys fee charged to debtors and the pleadings do cover it. This is not like the “shotgun” complaint in Anderson v. District Board of Trustees of Central Florida Community College, 77 F.3d 364 (11th Cir.1996). There are not numerous counts all with broad allegations of violation of wide swaths of federal and state law. Nor is it like Veltmann v. Walpole Pharmacy, Inc., 928 F.Supp. 1161 (M.D.Fla.1996) in which numerous defendants were all lumped together in the same counts. The Court concludes that Rule 10(b) has not been violated. As the Court understand the allegation, it is encompassed in the claim that attorneys fees are unreasonable, unauthorized or unallowable or are a violation of bankruptcy law. No separate count is necessary.1
IT IS THEREFORE ORDERED that the motion of HomeSide Lending, Inc. to dismiss claims underlying subclass 2 is DENIED.
. HomeSide counsel stated in his oral argument on this motion that no class was certified for Count 1 of the complaint. The Court does not read its orders to date to so state. The class certification order dated December 29, 2000 only stated that if reasonability was the only issue as to a fee, e.g., if the fee was properly disclosed, the Court would not consider the issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493407/ | ORDER AND JUDGMENT REVOKING THE DISCHARGE OF MICHAEL SHANE OVERTON
MARGARET A. MAHONEY, Chief Judge.
This matter is before the Court on the complaint of the trustee, Lonnie L. Mixon, to revoke the discharge of the debtor, Michael Shane Overton. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b) and the Court has the authority to enter a final order. For the reasons indicated below, the Court is granting the trustee’s complaint and revoking the discharge of Michael Shane Overton.
The trustee filed this adversary to revoke the discharge of Mr. Overton on June 25, 2001. The trustee certified that a summons and a copy of the complaint were mailed to Mr. Overton on June, 29 2001. Mr. Overton has defaulted by failing to respond or appear.
THEREFORE, IT IS ORDERED AND ADJUDGED that the discharge of Michael Shane Overton is revoked. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493408/ | ORDER GRANTING JUDGMENT TO CHRYSLER FINANCIAL CORPORATION
MARGARET A. MAHONEY, Chief Judge.
This matter came before the Court for trial the week of December 10, 2001. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b) and the Court has the authority to enter a final order. For the reasons indicated below, the Court is granting a judgment in favor of the defendant, Chrysler Financial Corporation, L.L.C.
FACTS
Michael Powe filed a chapter 13 bankruptcy case on March 12, 1998. He had a 1994 Plymouth Grand Voyager vehicle secured by a loan to Chrysler Financial Corporation (“CFC”). CFC was listed as a creditor of Powe in his schedules. Powe valued his vehicle at $15,000 and listed CFC’s claim at $14,000. On April 14,1998, CFC filed a proof of claim listing a total debt owed by Powe of $11,878.13. There was a handwritten notation at Box 5 of the claim that read “Includes $225.00 Atty fees.” Powe was in default on his loan prepetition. Also on April 14, 1998, Chrysler filed an objection to the debtor’s plan which stated “As an over-secured creditor, Chrysler’s proof of claim includes $225.00 in reasonable attorney fees to which Chrysler is entitled both under the terms of the Loan Documents and the Bankruptcy Code.” The objection to con*737firmation was settled and Chrysler withdrew its objection to the plan. Chrysler and Powe agreed Chrysler would be paid $14,580 over the life of the plan at $250 per month in full satisfaction of all amounts due.
Irvin Grodsky, the debtor’s attorney, stated that attorney fees were never discussed with the attorney for Chrysler. Powe and Grodsky were only concerned about the affordability of the monthly payment.
This adversary case was filed on July 1, 1999. In July 2000, Powe defaulted for the first time postpetition on his plan payments. The Court held a hearing on August 2, 2000, at which time Chrysler and Powe settled the matter. The Court indicated that Chrysler was entitled to an attorneys fee and costs. Chrysler stated that it struggled with how to word the order in regard to the settlement because it usually did not assess additional fees against a debtor for a relief from stay motion. Powe’s counsel was unaware of Chrysler’s position. The order presented to the Court requested a $225.00 attorneys fee and disclosed that it was the same fee included in Chrysler’s proof of claim as part of the $14,580. The Court entered the order on August 15, 2000. On December 6, 2001, Powe surrendered the car to Chrysler after again becoming delinquent.
Mr. Powe is employed by the Mobile Public Schools and has a master’s degree in business. He attended part of the trial in this suit, although not all of it. He has not read any of the pleadings or discovery in the case other than his own deposition. He has a very general understanding of the case.
Theresa Moore Ballard was Theresa Moore throughout most of her case.1 She filed her chapter 13 case on September 18, 1998. She had a loan to Chrysler Financial Corporation secured by a 1994 Plymouth Voyager van.
She listed her debt to Chrysler in her schedules at $7,600. Chrysler filed a proof of claim for $8,220 which stated that it “includes attorney’s fees of $225 and pre-computted (sic) interest of 8.75.” The claim form was signed and filed by a paralegal in the office of Dreher, Langer & Tomkies of New Orleans, Louisiana.
Chrysler did not object to Moore’s plan and it was confirmed on March 22, 1999. Chrysler subsequently filed a motion for relief from stay that indicated Moore had failed to provide information about insurance on the vehicle. The motion was denied based upon Moore maintaining insurance. A second relief from stay motion was filed by Chrysler when Moore fell behind in her plan payments. Moore caught up the payments and Chrysler dismissed the motion. On January 18, 2001, Moore paid off her chapter 13 plan and subsequently received a discharge.
This payoff occurred after a meeting on the same day with her bankruptcy counsel and class action counsel about the possibility of Moore joining this suit. At payoff, she was aware she was paying Chrysler’s attorneys fees as well. However, in order to obtain a discharge, Moore had to pay off the entire balance owed to the chapter 13 trustee. On January 19, 2001, Moore moved to intervene in the suit.
Chrysler paid the Dreher law firm a flat fee of $275 for all of its services in the Moore bankruptcy case. Local counsel was paid $300 for two appearances at relief from stay hearings. The Dreher firm, not Chrysler, paid those fees.
*738Moore attended part of the trial, but not all of it. She has not read any of the pleadings in the case. She understands the nature of the lawsuit in very general terms only.
CHRYSLER PRACTICES
Chrysler has had an ever increasing number of chapter 13 cases filed by debtors who claim Chrysler as one of their creditors. In 1996, about 5, 000 chapter 13 cases nationwide involved Chrysler. In 2001, 12,000 cases involved Chrysler. Since 1994, an average 5,000 cases per year involving Chrysler debt have been filed (or 40,000 cases). Chrysler estimates that about 20% of chapter 13 debtors completed their plans and got a discharge ( or 9,000 cases) since 1994.
Since at least 1994, Chrysler has hired an ever decreasing number of law firms to handle its bankruptcy cases nationwide. In 1996, there were 134 firms used by Chrysler. In 1996, that number had contracted to 24. As of January 1, 2002, there were 19 firms. Firms submit bids for the work and, at this time, firms that are chosen work on flat fees — one charge for all work required in a case. That fee varies depending upon the part of the country served. Flat fees have lowered Chrysler’s costs of handling bankruptcy matters and have lowered the fees charged to debtors overall.
The attorneys must follow the Bankruptcy Performance Standards established
by Chrysler. However, the standards do not state whether or when counsel may or should request attorneys fees or costs in chapter 13 cases. The standards do not require that disclosure of fees (if requested) be made in any particular form. In fact, Chrysler’s designated corporate representative, Richard Engel, did not know before the commencement of this suit that outside counsel were adding postpetition fees to some claims despite his extensive bankruptcy experience at Chrysler.
Chrysler did not receive copies of proofs of claim from counsel. The company kept track of each debtor’s debt based upon its own internal numbers. If money was received from a debtor in excess of what Chrysler’s records showed was owed, Chrysler credited the funds to an interest income category. There is no way that Chrysler knows if this money is an attorneys fee or interest income. Attorneys fees claimed in a proof of claim are paid if the chapter 13 case is paid in full.
CHRYSLER’S OUTSIDE COUNSEL PRACTICES
Because the Bankruptcy Performance Standards did not address the issue of attorneys fees, outside counsel for Chrysler have taken varied approaches to disclosure of their postpetition flat fees. In some cases, the fee was included with a notation on the claim form such as “includes attorneys fees of $225,2 $290,3 *739$325,4 $410,5 $315-350 and other sums”.6, 7 In still other cases, fees were disclosed as postpetition attorneys fees.8 In others, attorneys fees were only included in a claim after a court order was entered specifically approving the fees.9 In other cases, where Chrysler was unsecured or undersecured, no attorneys fee was added.10 In some cases, no fees were disclosed and Chrysler indicated it was fully secured.11,12
Chrysler called a number of witnesses to describe each firm’s particular practice in regard to attorneys fee claims in proofs of claim. The practices are briefly cata-logued below.
Oklahoma' — According to Ms. Patsy Brown, an attorney with Michael L. Loyd and Associates, her firm put an attorneys fee of $100-400 in proofs of claim when *740Chrysler was oversecured or there was a co-debtor, depending upon services provided. Loyd & Associates represented Chrysler from 1985 or 1987 through February 10, 1997. On some claim forms, there was a line item for “amount of attorneys fees for representation in bankruptcy.” She used that line to disclose fees in the Western District of Oklahoma where the trustee required use of that form. Otherwise she includes the fees in item 4 on the official form as “attorneys fees.” 13 She generally had a conversation with attorneys in the Eastern and Northern Districts of Oklahoma about her fees.14 Debtors should know “attorneys fees” on claims filed were postpetition fees if item 5 is checked. New Jersey, Pennsylvania and Delaware — According to Mr. David Lyons, his firm, Lyons, Doughty & Veldhuis, P.C., represented Chrysler on and off for the last 25 years. His firm’s representation ceased in August 2001. His firm was paid $820 as a flat fee for all services (“cradle to grave”) in each chapter 13 case. At one point, the proofs of claim he filed for Chrysler stated “contractual attorneys fees” or “fees” were charged.15 Later when he used the official form, he included *741attorneys fees by stating “atty fees.” Mr. Lyons only requested attorneys fees when he filed an objection to confirmation. He indicated he was charging attorneys fees in the objection to the plan.16 In some cases in which an objection was filed, the attorneys fee was eliminated as part of an agreement as to the value of the vehicle. That agreement was memorialized by a consent order or an announcement on the record. It is possible some proofs of claim filed by Lyons contained a postpetition attorneys fee but did not disclose it.17 In fact, some of the proofs of claim included attorney’s fees based on the Chrysler contract that allowed fees to be charged as a percent of the unpaid balance. He was never paid more than $320, however; he used the number merely as a negotiating tool.
Michigan — Darrell Chimko of Shermeta, Chimko & Adams represented Chrysler for the last eight years in the Eastern and Western Districts of Michigan. His firm receives a $250 flat fee for cradle to grave services in each case.18 In the Eastern District of Michigan-Detroit, the trustee directs that the total amount of the claim be placed in Box 4. The creditor then attaches a sheet that includes only the amount of the claim without attorneys fees. He requests attorneys fees only in a situation where Chrysler is oversecured. Sometimes he lists “attorneys fees” on the face of the proof of claim.19 However, he tries to do whatever the trustee requires. According to Chimko, any Michigan attorney knows “attorneys fees” claimed on a proof of claim form are postpetition fees.
Kentucky and Indiana — Allen Morris of Stites and Harbison represented Chrysler personally from 1993 or 1994 to 1996 and his firm represented it before that. He handled Chrysler work on a flat fee basis of $190-210 in the Southern District of Indiana (New Albany) and the Western District of Kentucky (Louisville). In all other divisions and districts, the fee was higher due to travel. His flat fee only covered work up to confirmation of a plan. The attorneys fee is included in the proof of claim as “plus attorneys fee and interest.” The fee is added to all claims in which Chrysler believes it is oversecured. A debtor would know the fee is a postpetition fee because the box in item 5 is not checked on the proof of claim and the attachment that his firm did for proofs of claim showed it.20 Some claims did not list the attorneys fee on the face of the claim, only in the attachment.21
Illinois — James S. Cole of the Riezman & Blitz firm has represented Chrysler in all three districts in Illinois from 1993 to present and since mid-2001 also in Missouri, Iowa, Kansas, Nebraska, Minnesota, Wisconsin, North Dakota and South Dakota. He charges a flat fee of $300 for cradle to grave services in Illinois cases and $288 for Missouri cases. His firm flies proofs of claim requesting attorneys fees if Chrysler is oversecured or there is a co-debtor. His firm also includes fees when a debtor files bankruptcy very shortly after purchasing a car. For many years, Cole indicated attorneys fees were added only in an attachment to the proof of claim. Now his firm states “attorneys fees” on *742the face of the claim too.22 Since his firm cannot be in each location, they hire local counsel for individual appearances and pay them per appearance.
Alabama, Mississippi and Louisiana— Ms. Deidre Cherry and Ms. Robin DeLeo testified about the Dreher, Langer & Tomkies firm’s representation of Chrysler in Alabama, Mississippi and Louisiana. Ms. DeLeo at the Dreher firm and at her previous firm represented Chrysler from June 1996 to June 2001. Ms. Cherry, of counsel to the Dreher firm, assisted in that work. Their policy was to charge postpetition attorneys fees to the debtor if Chrysler was oversecured. The claim was placed on the proof of claim form in box 5 23 as “includes $225 of attys fees” or “includes attys fees of $225.”24 At some point after the commencement of this suit, the Dreher firm started placing “includes $225 of postpetition attys fees” ( emphasis added) on the form in the Southern District of Alabama only. Each claim form had a Chrysler computer screen attached which showed the prepetition balance owed on the account (until 1998) or, after that, a form that stated what principal, interest, and attorneys fees were owed. Ms. Cherry, as required by Ms. DeLeo, sent letters to debtors’ counsel when Chrysler’s treatment in a plan was inadequate. The letters always made reference to the $225 attorneys fee. Ms. Cherry generally had a follow up call with each debtor’s attorney in which she mentioned the fee. Generally, paralegals in the firm signed the proofs of claim with Ms. DeLeo’s signature after 1998. Before that, paralegals signed the proofs of claim in their own names. The change occurred because questions about claims were always directed to the signer of the form and Ms. DeLeo wanted all questions to come to her. In the relief from stay order in Powe that reiterated that a $225 attorneys fee was charged for all services in a case, including the motion for relief from stay, the order was drafted as it was to insure that it was clear the only attorneys fee being charged to Powe was $225. Local counsel were paid by the Dreher firm itself, not Chrysler, if local counsel was necessary.
California — Roger Efremsky, an attorney at Efremsky & Nagel in California, has represented Chrysler since February or March 1996 in the Northern and Eastern Districts of California as second tier counsel under the Cooksey & Cooksey firm. He has a direct relationship with Chrysler but his fees are paid through the Cooksey firm. The present cradle to grave fee he charges is $400. His policy is to include attorneys fees in proofs of claim if Chrysler is oversecured and he has to file an objection to the plan, a motion for relief from stay or a motion to assume (if the debtor has a lease). In all cases, any fees Efremsky includes are specifically approved in a court order of some type. He has only included an attorneys fee in a proof of claim in 63 of approximately 780 chapter 13 cases he has handled since 1996.
CHRYSLER ATTORNEY PRACTICES FROM VIEWPOINT OF DEBTORS’ COUNSEL AND CHAPTER 13 TRUSTEE
Four chapter 13 debtor lawyers testified in this case, Eric Schwab of Sacramento, California, and Irvin Grodsky, Melissa Wetzel and Larson Edge of Mobile, Ala*743bama. Schwab reviews all secured and priority proofs of claim filed in his cases. He is aware that Richard Efremsky sometimes charges postpetition attorneys fees when Chrysler is oversecured. The fees are approved in court orders. He believes a flat fee charge by attorneys for creditors like Chrysler is fair and cheaper than “a la carte” fees. His own fee is a set amount as well that can be subject to increase.
Irvin Grodsky, Larson Edge and Melissa Wetzel do not review all proofs of claim. They do not have the time due to the size of their practices. It has never been the standard procedure in this district. Grod-sky does not object to the concept of a flat fee as long as there is disclosure. If the chapter 13 office alerted Grodsky that a claim might be defective, he would look at it carefully. He also relies on his knowledge of how attorneys in this court practice and what they typically do. Once he did examine Chrysler’s proof of claim in the Powe case, he would never have thought it included an attorneys fee. Edge does not usually review proofs of claim when they are received. Wetzel handles the mail and reviews any claims received. As far as the claim in Moore’s case, he cannot tell if the fee included is pre— or postpetition and he did not have a practice of calling creditors’ counsel about such fees before this suit. He does now. Edge believes $225 is a reasonable fee for this case in light of the relief from stay motion filed. He thought that the fee was for prepetition work. Wetzel does not recall seeing the Chrysler proof of claim in the Moore case, but if she did, she would have assumed it was a prepetition fee.
The chapter 13 trustee from Sacramento, California and Reno, Nevada testified. He assumes that fees shown in a proof of claim are prepetition fees if not otherwise specified due to the timing of filing of the petition and proof of claim. He does not find flat fees to be unreasonable per se, and in fact believes they can be beneficial to debtors since hourly charges are usually higher. Mr. Johnson believes fee disclosures can be made other than in a proof of claim such as in letters and a stipulation between counsel. However, bankruptcy judges are more interested in reviewing postpetition fees than prepetition. Johnson also would object to a flat fee charged by a creditor that included a fee for filing a relief from stay motion if the fee request was made before the motion was filed.
LAW
There are six motions pending in this case that require a ruling in conjunction with this final judgment. They are:
1. Chrysler’s motion to dismiss, as moot, the claims of plaintiff Michael F. Powe and to dismiss the class claims for injunctive relief (docket entry no. 181).
2. Chrysler’s motion in limine (docket entry no. 182) — (denied orally on record with findings and conclusions to follow).
3. Chrysler’s motion for judgment to be entered in favor of defendant and against plaintiffs and class members after the conclusion of the plaintiffs’ evidence (docket entry no. 186).
4. Chrysler’s motion for judgment to be entered in favor of defendant and against plaintiffs and class members after the conclusion of all evidence, or in the alternative, should this Court rule in favor of plaintiffs and class members and against CFC, motion to allow CFC to amend its proofs of claim (docket entry no. 187).
5. Chrysler’s motion for decertification of class, or in the alternative, for amendment of the Court’s class action order to limit the class to this district (docket entry no. 188).
*7446. Chrysler’s motion to require plaintiff to propose a plan for class notice (docket entry no. 177).
There are several other issues pending: the Court’s ruling on Chrysler’s objections to plaintiffs’ exhibits 110 and 111 and Chrysler’s oral motion at trial to narrow class to exclude closed cases, cases outside two-year statute of limitations and cases with arbitration clauses. The Court will address each of these matters.
A. Chrysler’s Motion to Dismiss, as Moot, the Claims of Michael F. Powe and to Dismiss the Class Claims for Injunctive Relief
Chrysler moves for dismissal of Powe’s claims because his vehicle was repossessed on December 6, 2001, and he will never pay the $225 attorneys fee included in Chrysler’s proof of claim. Powe therefore has no standing to sue Chrysler. The motion also alleges that Moore voluntarily paid its claim, including the $225 attorneys fee and her case is closed. Moore therefore has no standing to sue. Since both class representatives at the time of trial lacked standing, the case should be dismissed.
Powe and Moore assert that even if their claims are moot, the mootness occurred after certification and should not dictate that the case be dismissed. The mootness of their claims resulted from the length of time this ease has taken to resolve.
The Court concludes that Powe and Moore’s situation is similar to the situation of Claude and Terry Noletto in their class action case against NationsBanc Mortgage Corporation. The Nolettos’ case was converted to chapter 7 after the case was filed and NationsBanc Mortgage Corporation argued that the case should be dismissed due to mootness. The Court concluded that dismissal was not appropriate. [Mjootness should not bar a case when the Court has taken a long period of time to determine whether class certification is appropriate. Graves v. Walton County Bd. of Education, 686 F.2d 1135 (5th Cir.1982); Comer v. Cisneros, 37 F.3d 775 (2d Cir.1994). In this [the Noletto] case, at the time was ease was filed, the Nolettos were in chapter 13 and were proper plaintiffs ... The Court delayed the certification hearing to deal with jurisdictional issues and to allow discovery. Other cases focus on whether the plaintiffs claim was a viable one when the plaintiff moved for class certification. Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124 (3d Cir.2000). The Nolettos moved for class certification at the filing of this case. Their claim was a viable one then and was only mooted later. Other cases discuss mootness which may occur when the harm dissipates during the normal time required for resolution of the controversy, i.e., trial and appeals. Sosna v. Iowa, 419 U.S. 393, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975) ... The U.S. Supreme Court has held that a plaintiff whose claim is mooted “due to an occurrence other than a judgment on the merits [ ]” ... does not lose his right to press the class certification claim. U.S. Parole Commission v. Geraghty, 445 U.S. 388, 402, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980).
Noletto v. Nationsbanc Mortgage Corp., 281 B.R. 36 (Bankr.S.D.Ala.2000).
Powe and Moore’s claims are like Noletto’s claim. They became moot after the filing of the case and after class certification. Therefore, the case remains viable. As to Powe individually, his claim became moot involuntarily. His auto was repossessed when he could not make payments. Moore’s claim is not moot. She paid the attorneys fee at issue. She is due *745a refund of the fee if the Court grants judgment to plaintiffs. Her payment was involuntary in the sense that she had no choice but to pay to receive her discharge. This action remains pending as her request for consideration of allowance of Chrysler’s claim.
The fact that a case was closed does not extinguish bankruptcy court jurisdiction. The Court incorporates its rulings in Slick v. Norwest Mortgage, Inc. (In re Slick) and Dean v. First Union Mortgage Corp. (In re Dean) on this issue. Slick v. Norwest Mortgage, Inc. (In re Slick), — B.R. -, 2002 WL 1404753 (Bankr.S.D.Ala. May 10, 2002); Dean v. First Union Mortgage Corporation (In re Dean), — B.R. -, 2002 WL 1404747 (Bankr.S.D.Ala. May 10, 2002).
Finally, to the extent either or both of Powe’s and Moore’s cases are moot, the Court would grant plaintiffs leave to appoint another class representative. There are other appropriate members of the class.
B.Chrysler’s Motion in Limine
The Court has already denied this motion orally on the record. Chrysler asserted that the Court should exclude from the record any evidence of the unreasonableness of Chrysler’s attorneys fees for the reasons listed in its motion and any evidence as to punitive damages. The plaintiffs asserted that the Court had indicated that the unreasonableness of fees would be at issue in its June 1 and July 27, 2001 orders. Plaintiffs argue that a remedy-punitive damages-cannot be excluded from consideration by a motion in limine. Such a motion’s purpose is to limit evidence only.
The Court concluded that the motion was due to be denied because the issue of the reasonableness of the fees had been raised by the plaintiffs and the Court had indicated on its rulings of June 1 and July 27, 2001 that evidence of the propriety of any specific fee could be addressed at trial. The Court concluded that preclusion of a remedy was not properly addressed in a motion in limine. Only evidentiary issues can be covered. E.g., Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc., 2001 WL 1673258 (C.D.Cal.2001) (dicta). There are cases that do preclude remedies through a motion in limine however. The Cayuga Indian Nation of New York, The Senecar-Cayuga Tribe of Oklahoma v. Cuomo, 1999 WL 509442 (N.D.N.Y.1999); Dalton v. Wal-Mart Stores, Inc., 1996 WL 435146 (D.N.H.1996). This Court recognizes the existence of this case law but disagrees with it. In any event, the Court concluded that the reasonableness of fees was a proper issue for the Court.
C. Chrysler’s Motion for Judgment to be Entered in Favor of Defendant and Against Plaintiffs and Class Members After the Conclusion of Plaintiffs’ Evidence
Chrysler alleges that plaintiffs’ evidence does not sustain their burden of proving there is a class to whom relief should be granted. Resolution of this motion necessarily entails the Court’s review of the evidence in plaintiffs’ case and the application of the law to it. The Court’s reasoning as to this motion is below. For the reasons stated below, this motion is denied.
D. Chrysler’s Motion for Judgment at the Conclusion of All Evidence
Chrysler alleges that plaintiffs did not sustain their burden of proof when the evidence is viewed after completion of trial. Resolution of this motion necessarily entails the Court’s review of all of the evidence and the application of the law to *746it. For the reasons stated in the subparts below, this motion is granted.
E. Chrysler’s Motion for Decertification of the Class, or in the Alternative, For Amendment of the Court’s Class Action Order to Limit the Class to This District
Chrysler asserts that the class certified by this Court on July 27, 2001 should be decertified because this Court has no jurisdiction over the case; there is no commonality or typicality among class members; this is not properly a Rule 23(b)(2) case; many of the class members have arbitration agreements in their contracts; and no notice has been given to class members. Resolution of this motion necessarily entails the Court’s review of the evidence and the application of the law to it. For the reasons stated below, the motion is granted to the extent of limiting the class to debtors in the Southern District of Alabama as to the reasonableness of a specific fee.
F. Chrysler’s Motion to Require Plaintiff (sic) to Propose a Plan for Class Notice
Chrysler asserts that the plaintiffs should be required to give notice to class members in this case. First, Chrysler asserts, although the class was certified as a Rule 23(b)(2) class, it is really a Rule 23(b)( 3) class and therefore notice is required. Second, notice is necessary when the class representatives’ interests are different than the other class members. Since Powe and Moore have claims in which injunctive relief is not appropriate and, as to Powe, no damages are appropriate, many other class members’ claims are distinct from the class representatives’ claims. Third, proposed amendments to Rule 23(b)(2) would require notice to class members. Fourth, Chrysler wants notice given to insure that all class members are bound by the judgment due to res judicata. Plaintiffs assert that the Rule 23(b)(2) classification is proper as explained in this Court’s prior rulings. The main relief sought is injunctive.
The Court is not inclined to revisit its certification issue now. Since the trial was held, the issue is essentially moot anyway. Also, the Court concludes, upon review of its earlier opinions, that Rule 23(b)(2) certification was proper for the reasons stated in the opinions which are incorporated by reference. In re Noletto, 281 B.R. 36 (Bankr.S.D.Ala.2000); In re Sheffield, 281 B.R. 24 (Bankr.S.D.Ala.2000); In re Slick, Case No. 98-14378, Adv. No. 99-1136, order granting class certification motion (Bankr.S.D.Ala. December 29, 2000); In re Miller, Case No. 97-12807, Adv. No. 99-1137, order granting class certification motion (Bankr.S.D.Ala. December 29, 2000); In re Powe, 281 B.R. 336 (Bankr.S.D.Ala.2001).
G.Trial Issues
There were numerous issues raised in the trial of this case. Chrysler’s relationship to its debtors varied from that of the mortgage lender creditors’ relationship to their debtors described in two other opinions that the Court is issuing contemporaneously with this one. Slick v. Norwest Mortgage, Inc. (In re Slick), — B.R. ——, 2002 WL 1404753 (Bankr.S.D.Ala. May 10, 2000); Dean v. First Union Mortgage Corp. (In re Dean), — B.R. -, 2002 WL 1404747 (Bankr.S.D.Ala. May 10, 2000). In those cases the Court is awarding judgment for the classes. Chrysler’s situation differs in several important respects. First, Chrysler’s entire claim is being paid through the chapter 13 plan or *747is being discharged.25 Second, Chrysler’s attorneys disclosed that attorneys fees are being charged by indicating that fact on the proofs of claim.
Two evidentiary objections were taken under advisement by the Court in conjunction with the trial of this case. Chrysler objected to admission of plaintiffs’ Exhibits 110 and 111. Exhibit 110 was a draft of the expert witness report of Jan Johnson, the Chapter 13 trustee from the Eastern District of California. Exhibit 111 was a draft of the report of Alex Gray, an attorney that represented Chrysler in Mobile in the Powe case. The Court concludes the documents are relevant and they are admitted. Even if the Court excludes them from evidence, the outcome of the case remains the same.
There are ten issues that need to be addressed in this ruling. They are:
1. Jurisdiction
2. Adequacy of disclosure
8.Reasonableness of fees
4. Reconsideration of claims
5. Amendment of claims
6. Standing of Powe and Moore
7. Private rights of action under § 105
8. Class decertification
9. Arbitration clauses
10. Incentive fees
1. Jurisdiction
Chrysler asserts that this Court does not have jurisdiction to hear this case. For the reasons stated in In re Noletto, 244 B.R. 845 (Bankr.S.D.Ala.2000), the Court concludes that it does have jurisdiction. The U.S. District Court of the Northern District of Alabama has recently issued a thoughtful opinion concluding that its bankruptcy court also has jurisdiction to consider a class action suit. Bank United v. Manley (In re Manley), 273 B.R. 229 (N.D.Ala.2001). This Court adopts its reasoning as well. This Court concludes that there is clearly no obstacle to this Court ruling on issues involving debtors in this district. The defendant does not dispute this exercise. It is debtors’ cases beyond this district as to which a question has been raised. As to those cases, the District Court certainly has jurisdiction if this Court does not. If this Court is held to be without jurisdiction over this case, the Court reports and recommends to the District Court that it adopt these findings and conclusions pursuant to Fed. R. Bankr.P. 9033.
2. Adequacy of Disclosure
Bankruptcy Code Section 506(b) states: To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
The plaintiffs assert that secured creditors must file applications seeking approval of any fees sought under this section. Otherwise, without such an application and a court order specifically approving the fees, the fees cannot be charged to the debtor. Chrysler asserts no application and no specific disclosure is necessary.
The Court has ruled in other cases that some disclosure of a postpetition/preconfirmation fee is required. Slick *748v. Norwest Mortgage, Inc. (In re Slick), — B.R. -, 2002 WL 1404753 (Bankr.S.D.Ala. May 10, 2002); Dean v. First Union Mortgage Corp. (In re Dean), — B.R. -, 2002 WL 1404747 (Bankr.S.D.Ala. May 10, 2002). In prior rulings in similar cases, the Court has ruled that postpetition/preconfirmation attorneys fees must be included in a creditor’s proof of claim or an application for compensation or the fees cannot be collected from a debtor and are discharged. Id.
This case is different from the Slick and Dean cases cited above. In those cases, the creditor, a mortgage lender, did not disclose a fee at all. In Slick, the fees were not even added to the mortgage balance reflected in the proof of claim. In Dean, the Court believes that the fees were added to the balance owed but in no manner separately itemized. In this case, Chrysler’s attorneys did disclose the attorneys fees charged in varying ways. What manner of disclosure is adequate?
As stated in other opinions incorporated in this one by reference, the reason postpetition/preconfirmation fees need to be disclosed and added to the proof of claim is that debtors have a right to cure all preconfirmation arrearages, costs and fees through payments in their chapter 13 plans. See Rake v. Wade, 508 U.S. 464, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993); Telfair v. First Union Mortgage Corp., 216 F.3d 1333 (11th Cir.2000); Slick v. Norwest Mortgage, Inc. (In re Slick), — B.R. -, 2002 WL 1404753 (Bankr.S.D.Ala. May 10, 2002); Dean v. First Union Mortgage Corp. (In re Dean), — B.R. -, 2002 WL 1404747 (Bankr.S.D.Ala. May 10, 2002). Debtors should be able to fully pay all costs during the bankruptcy so that, postdischarge, they are completely current on their obligations or have fully paid debts to be satisfied during the bankruptcy case. Fees to be charged to debtors as part of a secured creditor’s claim in a case are to be “reasonable.” 11 U.S.C. § 506(b). A debtor needs to be able to discern if the fees he is paying are reasonable. Unless a debtor has notice of the fees, he cannot make that determination.
When this case was commenced, the Court believed that the reasonableness standard for judging pre— and postpetition attorneys fees might be different. Prepetition fees were “reasonable” for § 506(b) purposes if reasonable under state law and/or allowed by the parties’ contract. Bankruptcy court scrutiny of those fees was more limited. See, e.g., In re Carey, 8 B.R. 1000 (Bankr.S.D.Cal.1981); In re Schriock Constr. Inc., 176 B.R. 176 (Bankr.D.N.D.1994), rev’d 104 F.3d 200 (8th Cir.1997). On December 17, 2001, the Eleventh Circuit Court of Appeals issued an en banc decision that held that the reasonableness standard for pre— and postpetition fees is the same. Welzel v. Advocate Realty Investments, Inc. (In re Welzel), 275 F.3d 1308 (11th Cir.2001). PreWelzel, a disclosure that a fee was pre— or postpetition made a difference in the scrutiny a debtor and his attorney might apply to that fee. Welzel leveled the standard in this circuit and concluded that four other circuits had ruled similarly. First W. Bank & Trust v. Drewes (In re Schriock Constr., Inc.), 104 F.3d 200 (8th Cir.1997); Blackburn-Bliss Trust v. Hudson Shipbuilders, Inc. (In re Hudson Shipbuilders, Inc.), 794 F.2d 1051 (5th Cir.1986); In re 268 Ltd., 789 F.2d 674 (9th Cir.1986); Unsecured Creditors’ Comm. 82-00261 C-11A v. Walter E. Heller & Co. S.E., Inc. (In re K.H. Stephenson Supply Co.), 768 F.2d 580 (4th Cir.1985).
Therefore, whereas Powe and his counsel might have objected to hourly rates or types of service rendered or time expended when the fee was postpetition, but not prepetition, that dichotomy has been ruled *749baseless in Welzel. Therefore, if a creditor discloses that an attorneys fee has been charged regardless of whether Chrysler discloses the fee is prepetition or postpetition, that disclosure is sufficient because the review will be the same. Therefore, the Court’s concern is that there is sufficient notice and description of all fees to put a debtor and all other interested parties on notice that a fee has been charged and a review may be warranted.
Chrysler’s attorneys, to the extent the Court could determine from the evidence, always stated at least that an “attorneys fee” was being charged if Chrysler was oversecured or otherwise entitled to a fee. The attorney may not have indicated clearly that the fee was pre— or postpetition but the fact that a fee was disclosed is sufficient according to Welzel. There may have been instances where a fee was charged to a debtor but not disclosed. However, the plaintiffs bore the burden of proving that was the case and the Court has no concrete evidence of nondisclosure. The attorneys who testified all indicated that a fee was only charged when Chrysler was oversecured or there was a co-debtor. No proof of claim indicated otherwise. At most, from the Court’s review of the evidence, nondisclosure is a very infrequent event, if it happened at all.
3. Reasonableness of Fees
If the fees were adequately disclosed as the Court is ruling they were, the only way the fees would not be payable is if they are unreasonable per 11 U.S.C. § 506(D) or are postconfirmation fees. Telfair v. First Union Mortgage Corp., 224 B.R. 243 (Bankr.S.D.Ga.) aff'd, 216 F.3d 1333 (11th Cir.), cert. denied, 531 U.S. 1073, 121 S.Ct. 765, 148 L.Ed.2d 666 (2001). Plaintiffs assert that the fees are unreasonable on several grounds. Attorneys are not necessary to file proofs of claim at all and there should be no attorneys fee for ministerial services. The fiat fees charged may overcompensate Chrysler in some cases. Flat fees are per se unreasonable. Also, the flat fee includes charges for postconfirmation work. Chrysler asserts that the reasonableness of the fees is not one of the issues certified for class status. Furthermore, the fees are reasonable. Chrysler also asserts that reasonability is a determination each bankruptcy court should make itself based upon the particular facts of each case in question. Once a reasonableness determination is necessary all commonality of the class certified in this case is gone and no class ruling is appropriate except for debtors in this district.
The Court concludes that all of the issues plaintiffs raise about Chrysler’s fees do raise issues personal to each case or district that make a blanket ruling by one court impossible. Once the nondisclosure hurdle is jumped, one court cannot deal with the variations among courts and regions. Unlike the cases in which there was no disclosure of fees to debtors, this case raises issues of prevailing local rates charged by attorneys, work required by chapter 13 trustees preconfirmation, breakdown of flat fees between pre— and postconfirmation work, allowance of additional fees for relief from stay, and motions and other local legal culture issues. As Chrysler evidence showed, courts have unique ways of processing chapter 13 cases that are geared to the particular district. Size of district and docket, number of trustees, computer systems and prior judicial ruling all influence how chapter 13 claims are handled. This Court cannot impose a cookie cutter fee structure on all districts for this reason. Upon hearing the evidence, the Court concludes that there is insufficient commonality to main*750tain a class as to what is an appropriate fee except as to debtors in this district.
As to fees in this district, the Southern District of Alabama, the evidence presented showed that a $225 flat fee is charged for all work done on Chrysler’s behalf in a chapter 13 case in this district. The charge is imposed at the filing of the case. In some cases, Chrysler may need to do no more than file a proof of claim. In other cases, an objection to confirmation and/or a motion for relief from stay will be needed. Charging a flat fee of $225-275 is not inappropriate or unfair. See In re Geraci, 138 F.3d 314 (7th Cir.1998) (debtors’ attorneys fees set at a presumptively reasonable flat fee); Schueler v. Roman Asphalt Corp., 827 F.Supp. 247 (S.D.N.Y.1993); In re Haskew, 2001 WL 589043 (Bankr.D.Idaho 2001); In re McMullen, 273 B.R. 558 (Bankr.C.D.Ill.2001). In fact, several witnesses opined that overall the flat fee resulted in reduced cost to debtors as evidenced by the falling fees over the past five years or more charged by Chrysler’s outside counsel. When the fee is charged for all work, not just filing of a proof of claim, there is no question that it is a reasonable fee. In Powe and Moore’s cases, relief from stay was necessary. A fee of $225-275 is reasonable for the stay motion alone. This Court allows a $350 fee in cases where there is no flat fee arrangement. The Court concludes the fees as charged in this district are reasonable.
As this case has proved, preparing and filing a proof of claim is not a simple task. In many instances legal issues need to be considered at that time. Is the creditor oversecured? Is there a co-debt- or? What is the district’s policy on the proper manner to file a proof of claim? Are there prepetition fees or costs and, if so, should some or all of them be added to the claim? The act of filing a proof of claim is not always a ministerial act. If a creditor does not intend to ever claim any fees or costs and wishes to only claim the prepetition principal balance and accrued interest, the preparation and filing of the claim might be as ministerial and no counsel needed. In most situations, however, any attorney may properly be used to file a proof of claim if a reasonable fee is charged.
4. Reconsideration of Claims
Plaintiffs (and the Court) have termed this adversary as a request for reconsideration of claims pursuant to 11 U.S.C. § 502(j) as to those class members whose claims have been allowed or dealt with in a confirmed chapter 13 plan. In re Powe, 281 B.R. 336, order denying debtor’s motion to strike Chrysler’s amended motion to strike, denying defendant’s motion for summary judgment and granting debt- or’s motion for class certification (Bankr.S.D.Ala. June 1, 2001). Section 502(j) allows a claim to be reconsidered “for cause.” Id. The reconsidered claim “may be allowed or disallowed according to the equities of the case.” Id. Chrysler asserts that reconsideration is a remedy that should not be freely allowed, particularly if the reconsideration will prejudice Chrysler. Orders allowing claims and orders confirming plans should be accorded res judicata effect. In re Justice Oaks II, Ltd., 898 F.2d 1544 (11th Cir.1990). Since the Court is not disallowing any fee of Chrysler in this district to the extent it is a flat fee of $275 or less for all work in each chapter 13 case, there is no need for the Court to reconsider the claims and the plaintiffs’ request for reconsideration is denied.
5. Amendment to Claims
Chrysler asserts that if there is a deficiency in the proofs of claim it filed, it *751should be allowed to amend the claims. Since the Court is concluding that Chrysler’s proofs of claim were appropriate as filed, there is no need to address this issue.
6. Standing of Powe and Moore
This issue was addressed in Part A above. If Powe is not a party with standing due to his voluntary surrender of his vehicle without payment of any fee, the Court concludes that a substitute plaintiff as class representative should be allowed. The length of time this case pended before trial caused the mootness of his claim. Moore also was a proper class representative at the time of certification. Her claim was mooted by payment of her entire chapter 13 plan debt in full. This debt included Chrysler’s secured claim and fees. As with Powe, the length of time this case has lasted caused this situation. In order to obtain a discharge, Moore had to pay all of her plan debt. Her claim is not mooted by this payment. She would still be owed a return of the fee if the Court had found the fee, or any part of it, to be disallowa-ble.
7. Private Right of Action Under Section 105
This Court has already ruled that a private right of action does exist under 11 U.S.C. § 105. Bessette v. Avco Financial Services, Inc., 230 F.3d 439 (1st Cir.2000); In re Tate, 253 B.R. 653 (Bankr.W.D.N.C. 2000)
8. Class Decertification
Chrysler asks the Court to decertify the class it constituted on July 27, 2001. It asserts that Rule 23(b)(2) certification is improper, multidistrict certification is improper, the Rule 23(a) standards are not met, and there are other limitations on the class even if it was appropriately certified. Based upon the evidence, the Court agrees that the multi-district class is inappropriate for the issue remaining after the Wel-zel decision — the reasonableness of fees charged. Since that is the sole remaining issue, the class lacks commonality. The amounts of the fees vary; the proof of claim forms vary; the confirmation process varies; the creditor’s attorneys’ practice vary. Commonality requires that “there are questions of law or fact common to the class.” Fed. R. Bankr.P. 7023(a)(2). Other than as to proofs of claim filed in this district, there is no commonality among the class members. As to debtors in the Southern District of Alabama, the class requirements are met. The Court still concludes that a Rule 23(b)(2) class was appropriate. Although no relief is being accorded debtors in this district because the Court has concluded the fees are reasonable, the class will be bound by the result.
9. Arbitration Clauses
Chrysler asserts that many of the loan agreements of debtors who are a part of the class of debtors in the Southern District of Alabama and nationwide were precluded from being members of any class due to arbitration agreements in their contracts. The Court does not need to reach this issue.
10. Incentive Fees to Class Representatives
This issue is moot since there is no recovery for the class.
IT IS ORDERED that defendant, Chrysler Financial Corporation, L.L.C. is awarded a judgment with this Order. Chrysler is instructed to submit a judgment for the Court’s signature within 30 days of this order.
. Ms. Moore married about the time she paid off her chapter 13 case. Since her file is labeled Theresa Moore, the Court will call her that in this opinion.
. Plaintiffs’ Exhibits 91-95, 108, 106, Tab 1, 104, Tab 5, proofs of claim of Dreher, Langer & Tomkies, L.L.P. and Draper & Culpepper (at least one proof of claim stated no amount. It just stated it included "Attorneys Fees”); Exhibit 104, all tabs disclose that attorneys fees are assessed and most state amounts.
. Plaintiffs’ Exhibit 114, Tab 3, Proof of claim of Hale, Headrick, Dewey, Wolf, Golwen, Thornton & Chance PLLC. (Ark., E.D.N.C., M.D.N.C.), Plaintiffs’ Exhibit 104, Tab 2,Hale, Headrick, Dewey, Wolf, Golwen, Thornton & Chance PLLC. (lists fees as "attorneys fees”) (Ark., Miss., Va., N.C. and S.C.) Tab 3, Porter & Hedges (S.D.Tex.) (all state attorneys fees charged, some claims state amount.); Plaintiffs' Exhibit 114, Tabs 5-8, (W.D.N.C., S.C., E.D.Tenn., E.D.Va., W.D.Va.) (states amount and " attorney fees”); Tabs 9-10, Riezman Berger PC (states amount and " attorneys fees”) (Ill.); Tab 11, 12, 13 & 14, Mapother & Mapother (Ky., Ind.) (includes amount and "attorney fees”); Tab 15, Kim Wilson (Utah) *739(includes amount and "legal fees"); Tab 16 & 17, Lyons, Doughty & Veldhuis ( N.J., Del.) (no amount but states "attorney fees”); Tab 18-21, Dreher, Langer & Tomkies, L.L.P. (Miss., La.) (includes amount and "ATTY FEES" or " attorney fees”); Tab 22, P. Michael Richardson (N.D.Tenn.) (includes amount and “attorneys’ fee”); Tab 23, David E. Drexler (W.D.Tenn.) (includes amount and "attorney fee”).
. Plaintiffs’ Exhibit 104, Tab 4, Shermeta, Chemko & Adams (E.D.Mich.).
. Plaintiffs’ Exhibit 104, Tab 3, Porter & Hedges (S.D.Tex.).
. Plaintiffs’ Exhibit 104, Tab 7, Engel, Hair-son & Johanson, P.C. (N.D.Ala.) (no amount but states "attorney fees” included); Tab 8, Kim Wilson (Utah) (no amount but states "includes legal fees”); Tab 9, Lyons, Doughtry & Veldhuis (N J. and Pa.) (no amount but states includes "attys fees”); Tab 10, Holland & Knight (N.D.Ga.) ("$275 attorney fees”); Tab 11, Riezman & Blitz, P.C. (Ill.) ($300 "atty. fees” or "attorney fee” or "atiy’s fee” or "attorney’s fees”); Tab 12, Steven D. Lipsey (E.D.Tenn.) ($250 "Atty fee”); Tab 13, Stiles & Harbison (W.D.Ky.) ($190-200 “attorney fees”) (S.D. Ill. and E.D. Ky.) (no amount but states "attorney's fees” or "atty fees”); Tab 15, George Rigely (W.D.Tex.) ($150 "atty. fee "); Tab 17, Michael L. Loyd & Assoc. (E.D. Okla. and W.D. Okla.) ($200-350 "attorney fees”); Tab 18, Carlton Fields (S.D.Fla.) (no amount but states "attorneys' fees”).
. Plaintiffs’ Exhibit 104, Tab 6, Mapother & Mapother (Ind., Ky., Ohio).
. Exhibit 106, Tab 3, Michael L. Loyd & Associates (W.D.Okla.); Debtor’s Exhibit 106, Tab 2 and Exhibit 116, Tab 7 proof of claim of M. Michael Richardson (M.D.Tenn.); Exhibit 106, Tab 4, Dysart Taylor Lay Cotter McMoni-gle, P.C. (E.D.Mo.); Exhibit 106, Tab 3, Michael L. Loyd & Associates (W.D.Okla.).
. All of Efremsky & Nagel fees (E.D.Ca.) per Roger Efremsky testimony. Plaintiffs' Exhibit 104, Tab 1.
. Plaintiffs' Exhibit 105, Tab 1, Hale, Head-rick, Dewey, Wolf, Golwen, Thornton & Chance PLLC. (Districts in Ark., S.C., Tenn., and Va.); Exhibit 105, Tab 2, Porter & Hedges (S.D.Tex.); Tab 3, Shermeta, Chimko & Adams, P.C. (E.D.Mich.); Tab 4, Dreher, Lan-ger & Tomkies (W.D.La.); Tab 5, Stone & Hinds, P.C. (M.D.Tenn.).
. Plaintiffs’ Exhibit 113, Tabs 1-10, Hale, Headrick, Dewey, Wolf, Golwen, Thornton & Chance PLLC. (Ark., Miss., N.C., S.C.); Plaintiffs’ Exhibit 103, Tab 1, Cooksey, Howard, Martin & Toolen (C.D.Calif.); Tab 2, Efrem-sky & Nagel ( E.D. Calif.); Tab 3, Hale, Head-rick, Dewey, Wolf, Golwen, Thornton & Chance PLLC. (Ark., Miss., N.C., S.C.); Tab 4, Porter & Hedges (S.D.Tex.); Tab 5, Shermeta, Chemko & Adams, P.C. (E.D. Mich, and W.D. Mich.); Tab 8, Engel, Hairston & Johanson, P.C. (N.D.Ala.); Tab 9, Snow, Christensen & Martineau (Utah); Tab 11, Stone & Hinds, P.C. (E.D.Tenn.): Tab 12, George Rigeley (W.D.Tex.); Tab 13, Michael Richardson; Tab 14, Michael Loyd & Assoc.
. Some proofs of claim were not clear about fees charged. Plaintiffs' Exhibit 103, Tab 6, Dreher, Langer & Tomkies, L.L.P. (claim lists $225 on line for "amount of arrearage and other charges at time case filed”); Tab 7, Mapother & Mapother (claim lists $640.68 on line for “ amount of arrearage and other charges at time case filed”); Tab 10, Reizman & Blitz, P.C. (Ill.) (claim lists $225 or $300 on line for "amount of arrearage and other charges at time case filed”).
. Plaintiffs' Exhibit 104, Tab 17.
. When the Court prevented certain testimony of Chrysler attorneys, Chrysler made an offer of proof with each Chrysler attorney witness about conversations each Chrysler attorney had with debtors' counsel in their jurisdictions. The proof offered was that debtors’ counsel acknowledged to Chrysler’s counsel that they understood Chrysler was charging an attorneys fee and that Chrysler’s attorneys fee was a postpetition fee. The Court concluded that the testimony was hearsay. Chrysler stated that they only wanted to introduce the statements to show acknowledgments of the postpetition nature of fees were made by debtors' counsel, not that the fees were postpetition fees or not. The acknowledgments were out of court statements by nonparties (debtors' counsel). Although Chrysler alleged that the testimony was not made to prove the truth of the statements, the Court sees no other purpose for which it could be relevant. It was important to Chrysler to prove that debtors or their attorneys knew of Chrysler fees and knew that the fees were postpetition and, knowing that, that the debtors did not object to Chrysler’s claims. Chrysler did not need to prove the state of mind or motives of its own attorneys. Using the acknowledgments of debtors’ counsel to show Chrysler attorneys thought debtors' counsel understood the fees would have been proper for this purpose. But using the statements to prove debtors had knowledge of Chrysler’s fees is a different matter. The parties who made the acknowledgment must testify so the meaning of their statements can be plumbed. Chrysler cited two cases to the Court that are relevant. U.S. v. Lynn, 608 F.2d 132 (5th Cir.1979) held that the out of court statements of a defendant used to show the reason for a victim's state of mind — fear— were admissible for that purpose. As stated in this case, the defendant’s knowledge was not relevant to the notice and adequate disclosure issue. In U.S. v. Parry, 649 F.2d 292 (5th Cir.1981), out of court statements the defendant made to his mother were admissible to show defendant's knowledge. Again, that is the opposite of the use of the statements of debtors’ counsel by Chrysler. See Weaver v. Tech Data Corp., 66 F.Supp.2d 1258 (M.D.Fla.1999). If the Court were to admit the evidence to show that Chrysler’s attorneys thought debtor’s counsel knew of Chrysler’s fees and the fees’ postpetition nature, the Court would consider that fact irrelevant. The test of adequate notice is what the debtors and their counsel in fact knew or should have known. E.g., Christopher v. Kendavis Holding Co. (In re Kendavis Holding Co.), 249 F.3d 383, 386 (5th Cir.2001) (" 'an elementary and fundamental requirement of due process ... is notice reasonably calculated ... to aprise interested parties of the pendency of the action’ ... a potential litigant who knows about a legal proceeding usually has adequate notice.”) (quoting from Mullane, supra); In re Marino, 195 B.R. 886, 893 (Bankr.N.D.Ill.1996) ("a creditor who knows of the proceeding but has not received formal notice should be prevented from standing back and allowing the bankruptcy action to proceed.”). 249 Fed.R.Evid. 803(3).
.Plaintiffs’ Exhibit 105, Tab 9.
. Plaintiffs’ Exhibit 37.
. Plaintiffs’ Exhibit 113, Tab 14, claims 2 and 4.
. This fee has decreased from $350 to $325 to $250 over the years.
.Plaintiff’s Exhibit 104, vol. 4 and 5.
. Plaintiff's Exhibit 104, vol. 8, Tab 13, # 103360, 103354, 103383.
. Plaintiff's Exhibit 104, vol. 8, tab 13, # 103357.
. Plaintiff’s Exhibit 104, vol. 7, tab 11.
. It was placed in Box 5 at least from 1998 to 2001.
.The flat fee that the Dreher, Langer firm was paid for Alabama cases was $ 275, but for consistency sake, the firm only requested a $225 fee in proofs of claim.
. In several cases in 2002 not involving Chrysler, the Court has seen auto loans of six or seven years. These loans are like mortgage loans in that they survive the life of the plan and are paid directly to the creditor, except for arrearages. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493410/ | ORDER AMENDING ORDER DENYING DEBTOR’S MOTION TO STRIKE CHRYSLER’S AMENDED MOTION TO STRIKE, DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEBTOR’S MOTION FOR CLASS CERTIFICATION
MARGARET A. MAHONEY, Chief Judge.
It has come to the Court’s attention that the Court misspoke in the conclusion of the Order Denying Debtor’s Motion to Strike Chrysler’s Amended Motion to Strike, Denying Defendant’s Motion for Summary Judgment and Granting Debt- or’s Motion for Class Certification dated June 1, 2001. The Court stated:
For most of the same reasons as the prior cases of Noletto, Sheffield, Slick, Miller and Harris had summary judgment denied and class certification granted, this case also is an appropriate, viable case. The case will proceed to *868trial roughly in tandem with the other cases.
The Court should have stated, and now amends the order to so read:
For most of the same reasons as the prior cases of Noletto, Sheffield, Slick, Miller and Harris had summary judgment motions denied or granted and class certification granted or denied, this case is a viable case. The case will proceed to trial roughly in tandem with the other cases.
THEREFORE, IT IS ORDERED that the Order Denying Debtor’s Motion to Strike Chrysler’s Amended Motion to Strike, Denying Defendant’s Motion for Summary Judgment and Granting Debt- or’s Motion for Class Certification dated June 1, 2001, is amended as stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493411/ | ORDER DEFINING CLASS DEFINITION
MARGARET A. MAHONEY, Chief Judge.
This matter is before the Court for definition of the class. This Court has jurisdiction to hear this case pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. *900§ 157(b)(2) and the Court has the authority to issue a final order. Based upon the submissions received from the parties, the Court defines the class as shown below.
IT IS ORDERED that the class is defined as follows:
All bankruptcy debtors who have filed a Chapter 13 petition on or after January 1, 1994(1) who had proofs of claim filed in their cases by the Defendant which (a) did not disclose postpetition/precon-firmation fees at all, (b) did not disclose them with sufficient specificity, or (c) did' not include these fees in the arrearage claims; (2) who had these fees collected or posted to their accounts in some way by the Defendant after filing bankruptcy; and (3) in whose cases the Defendant did not file a specific application for these fees which was approved by the United States Bankruptcy Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493412/ | ORDER
MARGARET A. MAHONEY, Chief Judge.
This matter is before the Court on the motion of Washington Mutual Finance, L.L.C. to require debtor to comply with § 521(2) of the U.S. Bankruptcy Code. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b) and the Court has the authority to enter a final order. For the reasons indicated below, this Court finds that the debt to Washington Mutual Finance, L.L.C. is unsecured and § 521(2) of the Bankruptcy Code does not apply.
FACTS
Robert E. O’Connor filed for chapter 13 bankruptcy relief on August 6, 2001. Pri- or to filing, Mr. O’Connor took out a loan with Washington Mutual Finance, L.L.C. to purchase an engagement ring. Mr. O’Connor gave the ring to his fiancé. Since that time the ring has been in the possession of his fiancé who has since married Mr. O’Connor. Mr. O’Connor was not married when he filed bankruptcy. Mr. O’Connor did not list the ring as part of his personal property in his schedules, but listed the debt to Washington Mutual Finance.
LAW
The threshold issue is whether the engagement ring should be considered property of Mr. O’Connor’s bankruptcy estate. Section 541 of the Bankruptcy Code states that “property of the estate” includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” Washington Mutual claims that the ring is property of O’Connor’s estate and that the debt to Washington Mutual is secured by the ring. The issue is whether Mr. O’Connor can lose or give away possessions of collateral and have the debt then become unsecured, at least as it relates to him.
*908The case law is clear that if the ring had been taken involuntarily from the debtor it would not be property of the bankruptcy estate and could not support a secured claim. In In re Elliott, 64 B.R. 429 (Bankr.W.D.Mo.1986), the court held that although the creditor might have a secured claim in the property, it did not have a secured claim in the bankruptcy estate. In the Elliott Case, the debtor and her fiancé purchased an engagement ring set and then the flaneé disappeared, taking the rings with him without the debtor’s permission. Id. at 430. The Elliott court found that although the security interest continued in the rings, for the creditor to have a secured claim against the debtor the collateral must be available to secure the creditor’s right to payment. Id. The Elliott court found that the security interest survived the ring pursuant to Kan. Stat. Ann. § 84-9-306(2) which provides: “[A] security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party ...” If the creditor had a secured claim, it would only be “to the extent of the value of [the secured] creditor’s interest in the estate’s interest in such property.” Id. at 431. In the Elliott case the court found that the estate’s interest in the collateral was zero. Id. Therefore, there was no secured claim. Alabama has adopted an identical provision. See Ala.Code § 7-9-306(2) (1975).1 The logic of the Elliott case applies in Alabama as well.
This case is different than the Elliott case, however. The ring was not taken from the debtor involuntarily, but was voluntarily given to debtor’s flaneé who later became debtor’s wife. However, eases have held that even where the collateral was voluntarily transferred the creditor “must pursue its remedies as a secured creditor against the party who is currently in possession of the collateral and not the debtor’s estate.” In re Garrison, 95 B.R. 461 (Bankr.E.D.Ky.1988); see also In re Pitcock, 208 B.R. 862 (Bankr.N.D.Tex.1997) (“Once the collateral was completely spent, the Bank could no longer assert a secured claim to the pasture rents.”); In re Byrd, 92 B.R. 238, 239 (Bankr.N.D.Ohio 1988) (“This Court does not find the reasoning in Elliott to be dependent on the Debtor’s voluntariness in surrendering the collateral ... [S]ince the debtor is no longer in possession of the collateral, the creditor simply has an unsecured claim for purposes of payment in a Chapter 13 plan.”) Garrison, 95 B.R. at 462. The creditor would only have a secured claim to the extent of the estate’s interest in the property. The ring was not in the debtor’s possession at the time of filing and remains in the possession of a third party, debtor’s wife. The estate’s interest in the ring is zero. If the transfer were fraudulent or malicious then perhaps the obligation would be nondischargeable under § 523 of the Bankruptcy Code. There has been no such allegation in this motion and an adversary proceeding would be necessary to raise such an issue.
THEREFORE IT IS ORDERED that the motion of Washington Mutual Finance, L.L.C. to require debtor to comply with § 521(2) of the U.S. Bankruptcy Code is DENIED.
. Ala.Code § 7-9-306(2) (1975) is repealed effective January 1, 2002. Alabama has replaced that provision with Ala.Code § 7-9A-315(a) which has similar wording. Regardless of which statute is controlling in this matter, this Court finds that the result would be the same. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493618/ | ORDER SUSTAINING DEBTORS’ OBJECTION TO CLAIM
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Heard on the Chapter 13 Debtors’ objection to the claim of Chase Manhattan Mortgage Corporation (“Chase”). Chase, an oversecured creditor, is owed a pre-petition arrearage of $14,844 under its Note. At issue is what rate of interest should apply to Chase’s pre-petition ar-rearage claim under the Plan — the contract rate of 8.5%, or some other rate? Upon consideration of the arguments, analysis of the cases in which this question has been addressed, and based on the facts of this case, I conclude that the contract rate does not govern, and that the Federal Treasury Bill rate as of the date of confirmation of the Debtor’s plan should apply to Chase’s pre-petition claim. See In re Porter, 1998 WL 272874 (Bankr.D.Vt. 1998).
FACTS
John and Michelle Gomes own real estate in Lincoln, Rhode Island, and on July 14, 1994, they obtained a mortgage from Chase and executed a promissory note in the original principal amount of $130,624, with interest of 8.5% per annum. On October 29, 2002, the Gomeses filed their Chapter 13 case and on November 12, 2002, Chase timely filed a proof of claim including both pre and post-petition ar-rearages. The Debtors objected to Chase’s claim and at the confirmation hearing on December 19, 2002, their Plan was confirmed. The Debtors’ objection to Chase’s claim was heard on March 18, 2003, the parties have filed post hearing memoranda, and the matter is ready for disposition.
DISCUSSION
If the Note and Mortgage were executed after October 22, 1994, there would be no room for dispute, and the result would be governed by 11 U.S.C. § 1322(e). See H.R.Rep. No. 103-835, at 55 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3364; Pub.L. No. 103-394 § 702(b)(2)(D). However, because the instant Note was executed in July 1994, this case is controlled by Rake v. Wade, 508 U.S. 464, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993),1 where the Supreme Court held that “§ 1322(b)(5) authorizes a debtor to cure a default on a home mortgage by making payments on arrearages under a Chapter 13 plan, and that where the mortgagee’s claim is oversecured, § 506(b) entitles the mortgagee to preconfirmation interest on such arrearages.” 508 U.S. at 472,113 S.Ct. 2187.
*508While §§ 506(b) defines the extent of an oversecured creditor’s claim, treatment of that claim is governed by §§ 1325(a)(5).... Section 1325(a)(5) requires [a] Creditor to receive the present value of the arrearage paid under the plan “as an element of ‘allowed secured claim provided for by the plan.’ ” Rake v. Wade, supra at 475[, 113 S.Ct. 2187]. “Present value” includes an “appropriate amount of interest to compensate [Creditor] for the decreased value of the claim caused by the delayed payments.” Id., at 472, fn. 8[, 113 S.Ct. 2187].
Porter, 1998 WL 272874 at *2. Because Chase is entitled to be compensated only for the decrease in value of its pre-petition claim caused by the delay in payment of the arrearage under the Chapter 13 Plan, the question is how should that compensation be calculated? Judge Conrad held in Porter that the rate paid on a United States Treasury Bill with a maturity equivalent to the payment schedule under the plan is adequate compensation for any delay in payment. Id. I agree, but would add that where the creditor is oversecured and the asset is not traditionally a depreciating asset, there is no reason to add a “risk premium” to this calculation. Going even further, Judge Conrad held in Porter where the collateral was the debtor’s automobile, that there was no entitlement to a risk premium.
It must be remembered that this interest is not designed to compensate Chase for interest under the promissory note. Chase has already included interest at the contract rate (plus late fees) as part of its arrearage claim. The problem is that under Rake, Chase would be allowed to charge interest on interest. The Debtors’, whose confirmed plan is for 36 months, submit that the current three year Treasury Bill rate (4.25%) should apply to Chase’s arrearage claim, and I agree. Accordingly, the Debtors’ objection to claim is SUSTAINED
Enter judgment consistent with this order.
. Section 1322(e) abrogated the holding in Rake v. Wade, and essentially put a stop to the collection by oversecured creditors of interest on top of interest. See 140 Cong. Rec. H10,-770 (Oct. 4, 1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493619/ | OPINION
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
William G. McKissick (“Debtor”) filed a voluntary Petition under Chapter 11 of the Bankruptcy Code on August 30, 2002 (“Filing Date”). The deadline for fifing proofs of claim was fixed as February 13, 2003 (“Bar Date”). Before the Court is the MOTION OF CIT GROUP, INC. TO FILE PROOF OF CLAIM PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 9006(b)(1). CIT seeks authority to file a late proof of claim. Debtor opposes the Motion. A non-evi-dentiary hearing was held on May 5, 2003. Based on the non-disputed facts of record and the argument of counsel, we entered an Order dated May 14, 2003 which granted CIT an enlargement of time until June 2, 2003 to file its proof of claim. Debtor subsequently filed a Notice of Appeal and a Motion for Leave to Appeal which are pending before the United States District Court. We write to amplify upon the basis for our decision.
Facts
On January 6, 2003, CIT filed a Motion for Relief from Stay (“Motion”). In its response to CIT’s Motion, Debtor admits the following facts:
1. CIT, through its predecessor in interest, entered into several Conditional Sales Agreements (“Agreements”) with the Debtor whereby Debtor agreed to purchase certain equipment from various third parties and agreed to make periodic payments for that equipment to CIT.1
2. Debtor defaulted on his obligations under these Agreements and CIT agreed to a revised schedule of payments.2
3. Debtor defaulted several times thereafter on the revised payment schedules.
4. CIT repossessed four trailers.
*5375. On or about March 4, 2002, CIT sent its notice of intent to sell this equipment.3
6. Debtor sought to redeem the equipment prior to sale. Debtor filed a Complaint in Equity against CIT Group Inc., formerly known as Newcourt Financial USA, Inc. in the Court of Common Pleas of Venango County, Pennsylvania. On April 1, 2002, Debtor obtained an ex parte injunction prohibiting CIT from selling the equipment. Debtor sought an accounting of the amount due CIT.
7. CIT promptly provided Debtor with all information that he claimed to need in order to obtain financing to redeem the collateral.
8. In May, 2002, Debtor advised CIT that it was still attempting to obtain financing.
9. Debtor determined in late June, 2002, that refinancing could not occur and notified CIT that refinancing proceeds would not be available to redeem the equipment.
10. Debtor filed his bankruptcy case on August 30, 2002.
11. Debtor is aware that CIT is a creditor in the bankruptcy case.
In Schedule D, Creditors Holding Secured Claims, Debtor lists seven (7) separate obligations to:
New Court Financial (CIT)
PO Box 71521 Chicago, IL 60694-1521
In its Statement of Affairs, Debtor lists the repossession by CIT. The name and address of the creditor is shown as:
CIT Group (New Court)
1769 Paragon Drive Suite # 100, Memphis, TN
38132
Debtor’s Petition includes a Creditor Matrix (“Matrix”). The Matrix fists New Court Financial, PO Box 71521, Chicago, IL 60694-1521 as a creditor. The Matrix makes no reference to CIT Group or CIT as a creditor.
The date for fifing a Proof of Claim was fixed as February 13, 2003 by notice issued by the Clerk of the Bankruptcy Court (“Clerk”). The “Notice of Chapter 11 Bankruptcy Case, Meeting of Creditors, & Deadlines” containing the bar date was mailed and served by the Clerk upon the persons and entities which appeared on the Matrix provided to the Clerk by Debt- or’s counsel. The Matrix did not designate CIT as a creditor. It did designate New Court Financial (CIT), PO Box 71521, Chicago, IL 60694-1521. Debtor asserts, and we accept as true, that this was the address where Debtor sent all periodic payments until Debtor ceased making regular payments in September, 2001.
On October 29, 2002, Debtor was directed by ORDER FOR SERVICE OF CLARIFYING NOTICE OF BAR DATE to “not less than thirty (30) days before the Bar Date for fifing proofs of claim, give to each creditor and each party who has filed a written request for notices, a written notice containing the information shown on the form of NOTICE TO CREDITORS, attached hereto.”
The NOTICE TO CREDITORS was mailed by Debtor’s counsel on January 20, 2003. A copy went to CIT Group, Inc., care of its counsel of record:
CIT Group, Inc.
C/O Keith E. Whitson, Esquire
*538Schnader, Harrison, Segal & Lewis, LLP
120 Fifth Avenue, Suite 2700
Pittsburgh, PA 15222-3001
Debtor failed to comply with the October 29, 2002 Order. The NOTICE TO CREDITORS was mailed less than 30 days before the February 13, 2003 Bar Date.
On March 10, 2003, Debtor filed a Complaint (the “Complaint”) seeking various relief against CIT Group, Inc. In Count II of the Complaint, at ¶ 2, Debtor identifies the Defendant as CIT Group, Inc., a corporation located at 1540 West Fountainhead Parkway, Tempe, AZ with a mailing address of PO Box 27248, Tempe, AZ 85285-7785. By Order dated April 16, 2003, the pending Complaint and the Motion for Relief from Stay were resolved by consent order. The parties specifically left open the issue presented by the within motion, i.e., whether CIT was entitled to an enlargement of time for filing a proof of claim.
Discussion
In a Chapter 11 case, “[t]he Court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed.” Fed.R.Bankr.P. 3003(c)(3). “[W]hen an act is required or allowed to be done at or within a specified period by these rules or by a notice thereunder or by order of court, the court for cause shown may at any time in its discretion. . .(2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.” Fed. R.Bankr.P. 9006(b).
The period for performance of the act to be done, the filing of a proof of claim, expired on February 13, 2003. CIT filed the present motion on April 2, 2003. Since the motion was filed “after the expiration of the specified period,” we must determine if CIT’s failure to file a proof of claim was due to excusable neglect.
“Our discussion of the issue of ‘excusable neglect’ must start with a review of Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993).” In re O’Brien Environmental Energy, Inc., 188 F.3d 116, 125 (3d Cir. 1999). In Pioneer, “The Supreme Court addressed excusable neglect in the context of Fed.R.Bankr.P. 9006(b)(1), governing the enlargement of time for filing proofs of claim in bankruptcy case.” In re Orthopedic Bone Screw Products Liability Litigation, 246 F.3d 315, 322 (3d Cir.2001).
In Pioneer, the Supreme Court determined that a Chapter 11 creditor was entitled to file its proof of claim after the deadline set by the bar date because its failure to file timely was the result of “excusable neglect” within the meaning of Rule 9006. 507 U.S. at 398-99, 113 S.Ct. 1489. In so holding, the Court explicitly rejected the argument that excusable neglect applies only to those situations where the failure to comply is a result of circumstances beyond the creditor’s reasonable control. Id. at 388, 113 S.Ct. 1489. It acknowledged that the mere use of the word “neglect” encompassed “omissions caused by carelessness,” but took comfort in the fact that parties would still be deterred from ignoring court ordered deadlines since the neglect must be “excusable.” Id. at 395, 113 S.Ct. 1489. It stated that determining whether neglect is excusable is an “equitable” determination that “tak[es] account of all relevant circumstances surrounding the party’s omission.” Id. Such an equitable determination, it reasoned, is consistent with the policies underlying Chapter 11, as “Chapter 11 provides for reorganization with the aim *539of rehabilitating the debtor and avoiding forfeitures by creditors.” Id. at 389, 507 U.S. 380,113 S.Ct. 1489,123 L.Ed.2d 74. “In overseeing this.. .process, the bankruptcy courts are necessarily entrusted with broad equitable powers to balance the interests of the affected parties, guided by the overriding goal of ensuring the success of the reorganization.” Id. To make the excusable neglect determination, the Court listed four factors for courts to consider: “the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” Id. at 395,113 S.Ct. 1489.
Under the facts of Pioneer, the Court noted that the failure to file on time was inadvertent and in good faith, as counsel was not aware of the bar date. It found that there was no danger of prejudice to the debtor or the administration of judicial proceedings, as the claim, though untimely, was accounted for in the reorganization plan and was filed prior to the plan’s effective date. Finally, the Court found relevant that notice of the bar date “was outside the ordinary course” in that it was not, as it should be, “prominently announced and accompanied by an explanation of its significance.” Id. at 398, 113 S.Ct. 1489. Instead, the “inconspicuous placement” of the deadline-a single sentence in a boilerplate document, that, according to its title, related to a creditor’s meeting— “left a ‘dramatic ambiguity’ in the notification.” Id. For these reasons, the Court found that there was excusable neglect and allowed the late filing.
O’Brien Environmental Energy, 188 F.3d at 128.
We will address each of the four factors in turn: 1) prejudice to the Debtor, 2) length of the delay and its potential impact on judicial proceedings, 3) the reason for the delay, and 4) whether the movant acted in good faith.
Prejudice
The Debtor and CIT were involved in litigation prior to the bankruptcy filing and have continued to litigate within the bankruptcy case. Debtor is and has been throughout the course of this case fully aware of the nature and amount of CIT’s claims. CIT’s claim is not a surprise.
Debtor directs our attention to the case of In re Freeport Kitchen Foods, Inc., 1996 WL 761437 (Bankr.W.D.Pa. Dec.19, 1996). Freeport Kitchen involved a debtor that had elected small business treatment under § 1121(e). The Court noted:
In Pioneer Investment the creditor was found to have acted in good faith and there was no danger of prejudice to the debtor and no adverse impact on judicial administration. Id. at 397, 113 S.Ct. at 1499. In the instant case the disclosure statement explained the dispute over Distributors’ claim and estimated the difference in distribution if the claim was allowed versus if it was not. The creditors voted to accept the plan and this court confirmed it. Thus, there is no prejudice in this regard. We acknowledge that the delay was minimal (one week). However, in small business cases, deadlines for debtors to file and secure acceptance of their disclosure statement and plan are shorter than in chapter 11s wherein debtors have not elected small business treatment. 11 U.S.C. § 1121(e). As a practical matter, in negotiating small business plans, debtors and creditors must be able to rely upon the claims filed by the bar *540date in order to satisfy the stringent time requirements for confirmation.
Freeport Kitchen, 1996 WL 761437 at *3.
Debtor has not elected small business treatment and is not subject to the strict timelines for filing a disclosure statement and plan. A disclosure statement and plan have yet to be filed. This case is not nearing conclusion and allowance of the claim will cause no prejudice to the administrative processing of the case.
Debtor posits that it will be prejudiced by the late filing of CIT’s claim as its unsecured claim will approximate 75% of the unsecured debt which may impair the ability of the Debtor to win affirmative votes from the other members of the class of unsecured creditors.
This is not a case where Debtor has negotiated a plan, sought creditor approval, and obtained confirmation of a plan. See In re Eagle Bus Mfg., Inc., 62 F.3d 730 (5th Cir.1995); In re Pettibone Corp., 162 B.R. 791 (Bankr.N.D.Ill.1994). In re Freeport Kitchen Foods, Inc., 1996 WL 761437 (Bankr.W.D.Pa. Dec.19, 1996). CIT is fifing its claim in plenty of time for inclusion in any plan that Debtor has yet to negotiate and file, solicit acceptances, and obtain confirmation.
It cannot be maintained that unsecured claimants that timely filed proofs of claim are more deserving of remedy, for purposes of equity, that tardy claimants with similar claims, presuming the failure to file on time was excusable. By excluding CIT, other unsecured creditors would receive what is essentially a “windfall,” compromised by some portion of any distribution that would be owed to CIT. The loss of a windfall is not prejudicial. See In re Orthopedic Bone Screw Products Liability Litigation, 246 F.3d 315, 324 (3d Cir.2001); In re Cendant Corporation PRIDES Litigation, 235 F.3d 176, 184 (3d Cir.2000).
If CIT’s claim is permitted to be filed late, the Debtor and other interested parties are in the same position as if the proof of claim had been filed on time. In re Papp Int'l., Inc., 189 B.R. 939, 945 (Bankr. D.Neb.1995).
The facts of record lead us to conclude that there is no prejudice in allowing CIT to file its proof of claim.
Length of Delay
The Bar Date was February 13, 2003. CIT filed its Motion on April 3, 2003, seven (7) weeks later. During that seven weeks, Debtor and CIT were actively negotiating other issues. The delay did not impair balloting on a proposed plan or the disclosure statement and/or the confirmation process. The delay in fifing is minimal and causes no effect on the judicial process. See Chemetron Corp. v. Jones, 72 F.3d 341, 350 (3d Cir.1995) (remanding to determine excusable neglect where motion to file late claim occurred two years after plan was confirmed); In re Eagle Bus Mfg. Inc., 62 F.3d 730, 740 (5th Cir.1995) (finding excusable neglect where delay was six to eight months).
Reason for Delay
Prior to the bankruptcy fifing, Debtor was involved in litigation with CIT. Debtor was aware that CIT was a creditor. On its Statement of Financial Affairs, Debtor fisted the address of those at CIT most intimately familiar with the Debtor and the repossession of the vehicles. However, on its Matrix, Debtor fisted the creditor as Newcourt and used the post office box remittance address for payments. The address on the Matrix was not designed to provide notice to those at CIT most intimate with the case.
For purposes of this Motion, we accept that Newcourt timely received the “Notice of Chapter 11 Bankruptcy Case, Meeting *541of Creditors, & Deadlines” mailed by the Clerk to those on the Matrix. Likewise, counsel for CIT was aware of the bankruptcy case and was mailed, albeit late, the Clarifying Notice of Bar Date on January 20, 2003.
While it is certainly relevant that the delay in this case was due in part to the lack of care on the part of CIT through Newcourt and its counsel, “the concept of excusable neglect clearly anticipates this, i.e., neglect on the part of the one seeking to be excused.” In re O’Brien Environmental Energy, Inc., 188 F.3d at 128 citing Pioneer, 507 U.S. at 388, 113 S.Ct. 1489. Thus, CIT’s actions are not determinative to the inquiry. O’Brien at 128-29.
An examination is also essential to a determination of whether CIT’s neglect was excusable. Id.; See also Chemetron Corp. v. Jones, 72 F.3d 341, 350 (3d Cir. 1995) (stating that the district court erred in failing to consider the debtor’s role in the creditor’s delay).
Debtor shares in the blame for the delay in this case. Despite its awareness that CIT was a creditor, Debtor failed to list CIT on the Matrix. Debtor failed to timely serve the Clarifying Notice of Bar Date. We conclude that this factor weighs in favor of the relief requested by CIT.
Good Faith
There is no evidence that CIT acted in bad faith. Debtor, in its response to the within Motion, admits that CIT is acting in good faith.
Conclusion
Upon consideration of the applicable tests — prejudice, length of delay, reason for delay, and good faith as well as the facts of this case and the equitable nature of the determination as outlined in Pioneer and O’Brien — we find that the motion of CIT Group, Inc. to File Proof of Claim Pursuant to Fed.R.Bankr.P. 9006(b)(1) must be granted. An appropriate Order was entered on May 14, 2003.
. The Conditional Sales Agreements attached to the Motion reveal that the predecessor in interest is Newcourt Financial USA, Inc. ("Newcourt”).
. A revised schedule was provided for each separate loan. Each document is on CIT Group letterhead which bears an address of 1769 Paragon Dr., Ste. 100, Memphis, TN 38132 and each is signed by the Debtor and a representative on behalf of Newcourt.
. The notice is on CIT letterhead. It shows CIT's physical address as 1540 W. Fountainhead Pkwy., Tempe, AZ 85282 and a mailing address of PO Box 27248, Tempe, AZ 85285-7248. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493620/ | MEMORANDUM OF DECISION
DUNCAN W. KEIR, Bankruptcy Judge.
Before the court is the United States Trustee’s Motion to Dismiss with Prejudice (the “Motion to Dismiss”), asserting that the Debtor has improperly filed this chapter 11 reorganization case for the sole purpose of creating unreasonable delay to creditors. In support of dismissal, the United States Trustee points to prior bankruptcy cases that were filed by Debtor on his own behalf or on behalf of his fourteen year old son.1 At a hearing held on April 29, 2003 (the “Hearing”), Debtor, by counsel, argued that the case was filed for the bona fide reason of reorganization of his finances, though he acknowledged that his sole goal in filing this case was to save his residence which has been the subject of a foreclosure action in the Circuit Court for Montgomery County, Maryland. At the Hearing, the parties acknowledged the undisputed facts concerning the foreclosure action and at the invitation of the court the Debtor and holder of the deed of trust note (“Mortgagee”)2 submitted post-hearing briefs on the legal issues.
For the reasons stated herein, this court finds cause to dismiss this Chapter 11 ease. The Debtor’s attempt to “reorganize” the mortgage debt and to save the residence is precluded by the consequences of final orders entered by the Circuit Court for Montgomery County in the foreclosure case, which rights cannot be resuscitated in this bankruptcy case, nor the orders of the state court collaterally attacked herein.
Subsequent to the dismissal of the prior bankruptcy cases, a foreclosure action was prosecuted by the trustee(s) (hereinafter referred to as the (“DOT Trustee”)) under a deed of trust securing a loan to Ocwen Federal Savings Bank. A foreclosure sale was conducted and the property “struck down” to the highest bidder who executed a contract to purchase. That Initial Bid Purchaser was Debtor herein, Joel D. Joseph.3 The foreclosure sale was ratified *556by order of the Circuit Court. Under the terms of the sale, the Initial Bid Purchaser was required to complete the sale within ten days of ratification, however, Initial Bid Purchaser failed to perform under the purchase contract and defaulted thereupon. Upon the Initial Bid Purchaser’s contract default, the Circuit Court entered an order to resell the property at the risk of the defaulted Initial Bid Purchaser. A subsequent re-auction of the premises occurred and the property was struck down to a new third-party buyer.
As explained by this court in In re Denny, 242 B.R. 593, 596 (Bankr.Md.1999), after the initial auction sale, Mortgagor had no further right to redeem the property by payment of the debt secured by the deed of trust. Instead Initial Bid Purchaser acquired equitable title to the property at the conclusion of the auction, subject to the ratification by the Circuit Court. Id. at p. 597, fn. 4 (citing Merryman v. Bremmer, 250 Md. 1, 241 A.2d 558, 563-64 (1968)). Thus in the instant case, at the conclusion of the auction the debtor lost all rights held as Mortgagor in the property, that could be reorganized in a subsequent bankruptcy case, subject only to restoration of such rights had ratification been denied, Denny, swpra. However, ratification was granted by the Circuit Court and thus restoration of Mortgagor’s rights did not occur.
Nonetheless, Debtor asserts (without providing explicit analysis), that upon the default by Debtor as Initial Bid Purchaser, and an order by the Circuit Court empowering the DOT Trustee to resell at the risk of Initial Bid Purchaser, there were rights either restored to Debtor as Mortgagor or otherwise appertaining to Debtor in this bankruptcy case. The Debtor’s assertions are incorrect. The failure by Debtor as Initial Bid Purchaser to pay the contract purchase price and thereby acquire legal title did not restore any rights to Debtor as Mortgagor. The failure of performance by Bid Purchaser had no effect as to the terminated rights of the Debtor as Mortgagor.4
Nevertheless, Debtor also occupied the position of Initial Bid Purchaser and so this court must analyze the rights of Initial Bid Purchaser to ascertain whether that status caused Debtor to hold rights in the property at the time of the petition in bankruptcy. As stated above and in the In re Denny decision, upon being the successful bidder at the initial auction sale, Initial Bid Purchaser became a contract purchaser holding equitable title with a right to obtain legal title upon performance of the contract. Denny, 242 B.R. at 596-97. See also Union Trust Co. v. Biggs, 153 Md. 50, 56, 137 A. 509, 512 (1927); In re DeSouza, 135 B.R. 793, 795 (Bankr.D.Md.1991). Subsequently, when Initial Bid Purchaser failed to pay the purchase price as provided for under the terms of the contract, that default terminated Initial Bid Purchaser’s rights as holder of equitable title. From the point of default forward, Initial Bid Purchaser could no longer enforce the contract against the seller (DOT Trustee) but remained liable for any breach of contract damages caused by Initial Bid Purchaser’s default. Md. R. 14-305(g) (“If the purchaser defaults, the court, on application and after notice to the purchaser, may order a resale at the risk and expense of *557the purchaser or may take any other appropriate action.”).
A subsequent re-auction of the premises in accordance with the Circuit Court’s order was conducted. A third party purchaser was the high bidder and, as a consequence of such bid, became the holder of equitable title from the point at which the gavel fell in that auction. Debtor has filed exceptions to ratification of that second sale. However, the grant or denial of ratification of the re-sale will not restore to the Debtor any in rem interest in the property. Such a determination will solely impact the potential liability of the Debtor for damages for failure to perform the first auction contract. The Circuit Court must determine whether the exceptions have merit.
From the analysis set forth herein-above, this court concludes that Debtor held no interests in the property which could be reorganized in this bankruptcy case, at the time that the petition in this case was filed. As the sole purpose of this Chapter 11 case was a further attempt to fend off foreclosure and keep the property for Debtor and Debtor’s family, no legitimate purpose exists for this case to continue forward. This case should be dismissed for cause as a result of the lack of legitimate goal and purpose for its existence.
In addition, the facts demonstrate both the objective futility of this case, as well as the subjective wrongful intent of the Debtor in filing it. After the failure of Debtor’s first case, Debtor improperly filed a case in the name of Debtor’s minor son in an attempt to circumvent the bar against refiling imposed by Congress under 11 U.S.C. § 109(g). After the dismissal of that second case and after the foreclosure described above, Debtor has filed this case in an attempt to spring board back into rights no longer held by Debtor. For the reasons set forth in the case of Carotin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), this ease is to be dismissed for reason of Debtor’s bad faith. An Order in conformity with this ruling will be entered.
. Debtor previously filed Case No. 00-17953, which was dismissed, subject to a bar against a new bankruptcy case filing for 180 days. Debtor, being barred from re-filing, and in an attempt to stop a foreclosure of the residence, filed a case in the nan* of his son, Case No. 01-21293, In re Alex Singer Joseph. The case of Alex Singer Joseph was dismissed upon the court finding that it was a constructive violation of 11 U.S.C. § 109(g).
. The only other secured creditor (other than the mortgagee) is DaimlerChiysler Services North America LLC, which has already been granted relief from stay in this case as to its lien upon a motor vehicle.
Debtor scheduled only one unsecured creditor that holds a debt greater than $605.00. That creditor, KC Company, had commenced a collection action in state court prior to the filing of the bankruptcy and has communicated to the Office of the United States Trustee the position that it prefers to pursue its rights as a creditor outside of the bankruptcy case and therefore supports the dismissal.
.Because Debtor was both the mortgagor of the property and the Initial Bid Purchaser at *556the first auction sale, he shall be referred to as “Mortgagor” or "Initial Bid Purchaser,” where applicable, to delineate the separate rights of these two different legal parties in the foreclosure process.
. Citing Merryman, supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493625/ | MEMORANDUM OPINION AND ORDER
JERRY W. VENTERS, Bankruptcy Judge.
The issue presently before the Court in these three Chapter 7 proceedings is whether the creditors claiming a security interest in the Debtors’ vehicles have properly perfected their hens in those vehicles, so that the hens would be superior to the hypothetical hen of the Chapter 7 Trustee. The Chapter 7 Panel Trustee, Norman E. Rouse (“Trustee”), pointing to recent statutory changes in Missouri, contends that the only way to perfect a hen on a motor vehicle in Missouri is for the secured creditor to file a “notice of hen” with the Mis*880souri Department of Revenue pursuant to the provisions of Mo.Rev.Stat. §§ 301.600(2) and 301.620(2). The Trustee then asserts that the creditors are not entitled to relief from the automatic stay to allow them to repossess the Debtors’ vehicles in these cases because they have not filed a “notice of lien,” and thus their liens are not perfected.
The Court held hearings in all three cases in Carthage, Missouri, on June 26, 2003, and took the matters under advisement. After reviewing the arguments of counsel and considering the relevant law, the Court is convinced that the Trustee’s position is not well taken and that his objections to granting the relief requested by the secured creditors should be overruled. Accordingly, the creditors’ motions for relief from the automatic stay of 11 U.S.C. § 362(a) will be granted, no objections being filed by the Debtors.1
I. BACKGROUND
There is no dispute over the facts in these three cases, and the facts can be briefly stated.
In the McFarlane case, No. 03-30194, the Debtors, Jeremy Logan McFarlane and Heather Dawn McFarlane (“McFar-lanes”), purchased a 2001 Dodge Stratus automobile on or about December 30, 2000, and granted WFS Financial (“WFS”) a security interest in the automobile. The required paperwork was promptly and timely filed and WFS had its lien noted on the certificate of title. On February 21, 2003, the McFarlanes filed this Chapter 7 bankruptcy case, and on May 14, 2003, WFS filed a motion for relief from the automatic stay of 11 U.S.C. § 362(a) so that it could repossess and liquidate the automobile.
In the Featherston case, No. 03-30454, the Debtor, Stephen Edward Featherston (“Featherston”), purchased a 1997 Ford F-150 pickup on or about September 22, 2001, and granted WFS a security interest in the truck. WFS promptly and timely filed the necessary paperwork with the Department of Revenue and its lien was duly noted on the certificate of title. On April 10, 2003, Featherston filed this Chapter 7 bankruptcy proceeding, and on May 15, 2003, WFS filed its motion for relief, seeking leave to repossess and liquidate the truck.
Finally, in the Rogers case, No. 03-30548, the Debtors, Charles Keith Rogers and Teresa Marie Rogers (“Rogerses”), bought a 2001 Hyundai automobile on or about October 20, 2001, and granted Hyundai Motor Finance Company (“Hyundai Finance”) a security interest in the automobile. Hyundai Finance promptly and timely filed the necessary paperwork with the Department of Revenue and its lien was duly noted on the certificate of title. On April 30, 2003, the Rogerses filed this Chapter 7 case, and on May 15, 2003, Hyundai Finance filed its motion for relief, seeking leave to repossess and liquidate the car.
In all three cases, it is agreed, the secured creditors did not file a notice of lien as provided in Mo.Rev.Stat. §§ 301.600(2) and 301.620(2). It is, however, undisputed that — with the exception of the nonfiling of a notice of hen — the secured creditors undertook ah the steps necessary, under the provisions of §§ 301.600 to 301.660, to have their liens timely noted on the Debtors’ *881certificates of ownership. Also, in all three cases, the Debtors did not object to the secured creditors’ Motions for Relief.
II. DISCUSSION
The purpose of a certificate of ownership law is to establish a reliable system for giving notice of encumbrances to potential purchasers or creditors. Meeks v. Mercedes Benz Credit Corp. (In re Stinnett), 257 F.3d 843, 845 (8th Cir. 2001) (citing Hoffman v. Associates Commercial Corp. (In re Durette), 228 B.R. 70, 72-74 (Bankr.D.Conn.1998)). The advantage of having uniform certificate of ownership laws is that a potential creditor need look only to one place — the certificate of ownership — to discover prior security interests. Uhle v. Parts & Trucks (In re Paige), 679 F.2d 601, 603 (6th Cir.1982). In this manner, a certificate of ownership serves the same purpose as a financing statement under Article 9 of the Uniform Commercial Code in that it provides a method of secured financing. In re Males, 999 F.2d 607, 612 (2nd Cir.1993). Unlike Article 9, which was promulgated to ameliorate the harshness of secret non-possessory liens, certificate of ownership laws also serve to deter crime associated with collateral that is highly mobile. Larry T. Bates, Certificates of Title in Texas Under Revised Article 9, 53 Baylor L.Rev. 735, 736 (2001). See also Uniform Motor Vehicle Certificate of Title and Anti-Theft Act § 6(c)(1); Rev. Stat. Mo. § 301.210 (stating that a sale without a transfer of the certificate of ownership is fraudulent and void).
Under Missouri law, an applicant cannot obtain a certificate of ownership to a vehicle without first informing the director of revenue as to any liens or encumbrances secured by that vehicle. Mo.Rev.Stat. § 301.190. Regarding perfection, the two sections of the Missouri statutes that are at issue here ahe §§ 301.600 and 301.620. In relevant part to the issue raised, they provide:
Liens and encumbrances, how perfected — effect of on vehicles and trailers brought into state — security procedures for verifying electronic notices
1. [A] lien or encumbrance on a motor vehicle ... is not valid against subsequent transferees or lienholders of the motor vehicle ... who took without knowledge of the lien or encumbrance unless the lien or encumbrance is perfected as provided in sections 301.600 to 301.660.
2. Subject to the provisions of section 301.620, a lien or encumbrance on a motor vehicle ... is perfected by the delivery to the director of revenue of a notice of a lien in a format as prescribed by the director of revenue.... The notice of lien is perfected as of the time of its creation if the delivery of such notice to the director of revenue is completed within thirty days thereafter, otherwise as of the time of the delivery. A notice of lien shall contain the name and address of the owner of the motor vehicle or trailer and the secured party, a description of the motor vehicle or trailer, including the vehicle identification number, and such other information as the department of revenue may prescribe. A notice of lien substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading....
Mo.Rev.Stat. § 301.600 (2003).
Duties of parties upon creation of lien or encumbrance, violation, penalty
If an owner creates a lien or encumbrance on a motor vehicle or trailer: (1) The owner shall immediately execute the application, in the space provided therefor on the certificate of ownership *882or on a separate form the director of revenue prescribes, to name the lien-holder on the certifícate, showing the name and address of the lienholder and the date of the lienholder’s security agreement, and cause the certificate, application and the required fee to be delivered to the director of revenue;
(2) The lienholder or an authorized agent ... shall deliver to the director of revenue a notice of lien as prescribed by the director accompanied by all other necessary documentation to perfect a lien as provided in section 301.600;
(4) Upon receipt of the documents and fee required in subdivision (3) of this section, the director of revenue shall issue a new certificate of ownership containing the name and address of the new lienholder, and shall mail the certificate as prescribed in section 301.610_
Mo.Rev.Stat. § 301.620.
Prior to 1999, the stated method to perfect an interest in a motor vehicle was to have that interest noted on the debtor’s certificate of ownership. Mo.Rev. Stat. § 301.600 (1998). The Trustee argues that, as a result of amendments to these statutory provisions in 1999, the only way to perfect a lien on a motor vehicle in Missouri at this time is for the secured creditor to file a notice of lien with the Department of Revenue. Counsel for the secured creditors contend, on the other hand, that the filing of a notice of lien is an additional means of protection for a secured creditor outside of the certificate of title law. A review of recent case developments and Missouri’s comprehensive statutory coverage of motor vehicle financing lead this Court to conclude that the notice of lien provision in Mo.Rev.Stat. § 300.600 is not the only method to perfect a security interest in a motor vehicle. Instead, in this Court’s view, the notice of lien procedure is a method to protect a secured creditor’s security interest in a motor vehicle for a limited time, until the secured creditor or the vehicle owner files the necessary documents to perfect the hen.2
A. Recent Case Developments — In Re Beasley
Under Missouri law, if a creditor perfects a security interest in a motor vehicle within thirty days of its creation, the date of perfection relates back to the date the security interest was created. Mo.Rev. Stat. § 301.600(2). A trustee in bankruptcy, however, may avoid a security interest as a preferential transfer if the security interest was created within ninety days of fifing a petition, and if the security interest was perfected more than twenty days after the debtor took possession of the motor vehicle. 11 U.S.C. § 647(c)(3)(B). Under the former certificate of ownership laws of Missouri, some creditors had a difficult time complying with the twenty-day limitation, which resulted in trustees in bankruptcy filing actions to avoid their liens as avoidable preferences. Fidelity Financial Services, Inc. v. Fink (In re Beasley), 522 U.S. 211, 212-13, 118 S.Ct. 651, 139 L.Ed.2d 571 (1998). Creditors have difficulty perfecting their liens on a certificate of ownership within the twenty-day statutory period for a variety of reasons. See, e.g., In re Tressler, 771 F.2d 791, 793 (3rd Cir.1985) (lack of diligence by the Pennsylvania Department of Transportation); Russell v. Quality Auto City, Inc. (In re Hermann), 271 B.R. 892, 895 (Bankr. *883D.Wyo.2001) (failure of debtor to timely pay fees and refusal of county to issue a title until all fees were paid); In re Jarvis, 242 B.R. 172, 174 (S.D.Ill.1999) (delay in delivery of mail); Westenhoefer v. Chrysler Credit Corp. (In re Williams), 208 B.R. 882, 883 (Bankr.E.D.Ky.1997) (delay in receiving paperwork from an auto auction).
In apparent response to this difficulty, the Trustee asserts that the Missouri General Assembly amended Mo.Rev.Stat. § 301.600 in 1999 to allow a lender to temporarily perfect its lien by simply filing a “notice of hen” with the director of revenue. Information included in the notice of Hen consists of the name and address of the owner and secured party, a description of the motor vehicle, and the motor vehicle identification number. Mo.Rev.Stat. § 301.600(2). Thus, in an apparent reaction to Beasley, the notice of hen statute provided the creditor with a more expeditious method of perfecting its interest. This comparative quickness ameliorated the harshness of the twenty-day statutory period for perfecting hens under § 547(c)(3)(B) of the Bankruptcy Code because the creditor was not dependent on the actions of third parties or the debtor, and the creditor was able to maintain control of the transaction.
B. Missouri’s Statutory Scheme for Motor Vehicle Financing
A review of the mechanics of motor vehicle hen creation, under the exclusive provisions of the Mo.Rev.Stat. §§ 301.600— 301.660, when combined with the backdrop of Beasley, convinces this Court that filing a notice of hen is not the exclusive method to perfect an interest in a motor vehicle in Missouri. Several grounds support this conclusion.
First, after the Missouri General Assembly amended its motor vehicle hen laws in 1999, two sets of papers exist: the “apph-eation,” which is part of the certificate of ownership, and the “notice of lien.” The appheation — which is located on the certificate of ownership or on a separate form prescribed by the director of revenue— requires the owner of the motor vehicle to provide information concerning the identity of the lienholder and the date of the security agreement. Mo.Rev.Stat. § 301.620(1). Because the appheation is physically located on the certificate of ownership, it also contains a description of the motor vehicle and the vehicle identification number. The owner then delivers the ap-pheation to the director of revenue and pays a processing fee.3 § 301.620(1). Similarly, the notice of hen requires the secured party to provide the identity of the owner and secured party, and a description of the motor vehicle, including the vehicle identification number. The secured party also dehvers the notice of hen to the director of revenue. § 301.600(2). Thus, both sets of paper contain identical information and both sets of paper are sent to the director of revenue. The Court can discern no reason why one set of documents — the notice of lien — delivered to the director of revenue would be the only method of perfection when a second set of documents — the appheation — contains the same information and is also submitted to *884the director of revenue.4
Second, elsewhere within Mo.Rev.Stat. §§ 301.600 — 301.660, repeated references are made to the certificate of ownership when addressing a lien on a motor vehicle. See § 301.600(3) (noting that for a lien to secure future advances both the notice of lien and certificate of ownership must state “subject to future advances”); § 301.600(4)(2)(a) (providing that a perfected security interest noted on a certificate of title in a foreign state is recognized in Missouri as a perfected security interest); § 301.600(4) (stating that when a vehicle is moved into Missouri the lien may be perfected by filing a notice of lien) (emphasis added); § 301.620(3) (noting that the owner shall ensure that a subordinate lienholder is recorded on the application for title); § 301.630(2) (allowing an assignee to perfect its interest and have the assignment noted on the certificate of ownership); § 301.640(1) (providing that upon the satisfaction of any lien the lien-holder is required to release the lien or encumbrance on the “certificate or a separate document”). These repeated references detailing the importance of the certificate of ownership demonstrate that having an interest noted thereon remains an integral part of motor vehicle financing even after the 1999 amendments to § 301.600.
Third, a review of the legislative amendments to Missouri’s motor vehicle lien perfection statutes reinforces the conclusion that the General Assembly did not intend to eradicate a creditor’s right to perfect an interest by complying with the certificate of ownership laws. After the General Assembly added the “notice of lien” provisions in 1999, Chapter 301 was amended in 2000, 2001, and again in 2002. A.L.1999 H.B. 795, A.L.2000 S.B. 896, A.L.2001 H.B. 738 merged with S.B. 186, A.L.2002 H.B. 2008 merged with S.B. 895. In these amendments, the General Assembly never eliminated any of the references to the certificate of ownership provisions outlined above.
Fourth, the Trustee’s argument that a notice of lien is the only method to perfect a security interest in a motor vehicle ignores the defining characteristic of certificate of ownership laws. A certificate of ownership serves the dual purpose of providing a method for theft prevention and secured financing. The added security of a certificate of ownership law distinguishes it from an Article 9 transaction, which was merely intended to ameliorate the harsh effects of non-possessory secret liens. Larry T. Bates, Certificates of Title in Texas Under Revised Article 9, 53 Baylor L.Rev. 735, 736 (2001). The Trustee’s argument would effectively remove perfection from certificate of ownership laws and create a system more consistent with Article 9. Maintaining a lien on the certificate of ownership would only be a prophylactic measure to help deter theft. Because a thief cannot convey good title, the motor vehicle financier would have less incentive to ensure the owner complies with the certificate of title law knowing that its central filing with the director of revenue is proper notice to potential transferees.
Fifth, the Court is mindful of the need to provide stability and certainty *885when considering the established method of creating an enforceable security interest so that lenders are encouraged not to be overly cautious about extending credit. “Unless the legislature has plainly insisted on a technical prerequisite to the perfection of a security interest, courts should be slow to recognize such procedural obstacles.” In re Load-It, Inc., 860 F.2d 393, 396 (11th Cir.1988).
Accordingly, the Court finds that the notice of lien provision in Mo.Rev.Stat. § 301.600 is not the exclusive method of perfecting a security interest in a motor vehicle; rather, a creditor may perfect its interest by either filing a notice of lien or by having its interest noted on the certificate of ownership. The Court reaches this conclusion because: 1) in an apparent reaction to Beasley, the General Assembly amended Mo.Rev.Stat. § 301.600 in 1999 to give motor vehicle financiers greater flexibility to timely perfect their liens so that those liens would not be avoided by a trustee in bankruptcy as a preferential transfer; 2) a notice of lien statute serves as a shield to protect motor vehicle financiers against the inherent dangers of delay associated with the certificate of ownership method of perfection; 3) both the application for a certificate of ownership and the notice of lien contain the same information and both are delivered to the director of revenue; 4) Chapter 301 makes repeated references to the certificate of ownership when addressing the existence of motor vehicle liens; 5) none of the references to the certificate of ownership provisions outlined here was eliminated by subsequent amendments to Chapter 301; 6) reverting solely to a notice of lien method of perfection does not support the underlying philosophical differences between certificate of ownership laws and Article 9 of the Uniform Commercial Code; and 7) the Court is reluctant — considering the long history in Missouri of perfecting motor vehicle liens by having the interest noted on the certificate of ownership and the general purposes of a certificate of ownership law — to overturn a long-standing method of perfection in the absence of a clear and unambiguous indication by the General Assembly that a drastic change was intended.5 Therefore, the Court concludes that the notice of lien provisions promulgated by the General Assembly provide a short-term fix to the problems associated with delays in having a lien noted on a motor vehicle certificate of ownership, and that the General Assembly never intended to eliminate the certificate of ownership as a method of hen perfection.
III. ORDER
Therefore, it is
ORDERED that WFS Financial’s Motion for Relief from the Automatic Stay against Jeremy Logan McFarlane and Heather Dawn McFarlane (Document #9), Case No. 03-30194, is GRANTED. It is
FURTHER ORDERED that WFS Financial’s Motion for Relief from the Automatic Stay against Stephen Edward Featherston (Document # 6), Case No. 03-30454, is GRANTED. It is
FURTHER ORDERED that Hyundai Motor Finance Company’s Motion for Relief from the Automatic Stay against *886Charles Keith Rogers and Teresa Marie Rogers (Document # 7), Case No. 03-30548, is GRANTED. It is
FURTHER ORDERED that the Trustee’s Objection to the enumerated Motions for Relief are OVERRULED.
. The Court has jurisdiction over these questions pursuant to 28 U.S.C. §§ 157 and 1334. These matters are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(G) and (K). This Memorandum Opinion and Order constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052, made applicable to these proceedings by Fed. R. Bankr.P. 9014(c).
. The Court need not reach the question of whether a lien on a motor vehicle would be validly perfected if nothing more than a "notice of lien” is filed with the director of revenue. In the present case, the secured creditors timely filed the necessary paperwork to put their lienholder status on the certificate of ownership.
. The owner ostensibly controls the certificate of ownership and the law requires the owner to "immediately execute the application” so that the director of revenue may note the secured party’s lien on the certificate of ownership. Mo.Rev.Stat. § 301.620(1). It would indeed be a rare for a creditor to relinquish control of the certificate of ownership and allow the purchaser to file the "application” and pay the processing fee on his or her own time. A failure by the owner to name the lienholder on the application for title is a class A misdemeanor. Mo.Rev.Stat. § 301.620(5).
. It may well be that an application for a certifícate of ownership constitutes substantial compliance with the requirements of the notice of lien statute, in which case the motor vehicle financier may be unwittingly perfected pursuant to both the notice of lien and certificate of ownership provisions. See Mo.Rev. Stat. § 301.600(2) (providing that "[a] notice of lien substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.”). In light of our holding today, the Court does not find it necessary to address this issue.
. In the absence of any legislative history in Missouri, the Court must attempt to divine the General Assembly’s intention from the statutory language and the historical context in which statutes are written and amended. Such divination is not always easy. Considering the latent ambiguity in Mo Rev. Stat. §§ 301.600 and 301.620, the Trustee’s arguments are certainly understandable. The Court hopes that future amendments to these provisions will provide greater clarity so that similar litigation may be avoided. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493626/ | ORDER RE: TRUSTEE’S OBJECTION TO CLAIM OF EXEMPTION AND MOTION FOR TURNOVER OF NON-EXEMPT PROPERTY
HOWARD R. TALLMAN, Bankruptcy Judge.
This case comes before the Court on Trustee’s Objection to Claim of Exemption and Motion for Turnover of Property of the Estate and the Debtor’s Response thereto. The Court will sustain the Trustee’s objection and grant the motion for turnover.
A court will not disturb a debt- or’s claim of exemption unless a timely objection is made by an interested party. 11 U.S.C. § 522(i); see also Taylor v. Freeland & Kronz, 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). It is the Trustee’s burden in this case to demonstrate that the exemption is improperly claimed. Fed. R. Bankr.P. 4003(c). The Court construes the exemption statutes broadly in favor of debtors, so that the statutes may achieve their purpose. Finance Acceptance Company v. Breaux, 160 Colo. 510, 419 P.2d 955, 957-58 (1966) (“The whole spirit of these acts is such that it was intended to protect the exempt property from all manner of coercive process of the law ... ”); Rutter v. Shumway, 16 Colo. 95, 26 P. 321, 323 (1891); Jones v. Olson, 17 Colo.App. 144, 67 P. 349, 350 (1902) (“The homestead law should be and is liberally construed ... ”). Nonetheless, the Court is constrained by the clear language of the statute, United States v. Ron Pair Enters., Inc., 489 U.S. 235, 240-41, 109 S.Ct. 1026, 1029-30, 103 L.Ed.2d 290 (1989), and it cannot pound a square peg in a round hole to attain the objective which the Debtor is hoping for in this case.
The Court finds that the Trustee has met her burden to prove that the exemption claimed by the Debtor in this case is improper.
At her § 341 meeting, the Debtor disclosed to the Trustee that she had received an income tax refund for the year 2002 in the amount of $3,816.00. She modified her claim of exemptions to include that refund and claimed it to be exempt under Colo. Rev.Stat. § 13-54-102(l)(o) which allows a debtor to exempt “[t]he full amount of any federal or state earned income tax credit refund.” Colo.Rev.Stat. § 13-54-102(l)(o). The actual amount of credit claimed for adoption expenses on Debtor’s 2002 income tax return is $3,431.00.
The issue for the Court is whether the $3,816.00 income tax refund received by the Debtor for the tax year 2002 is exempt property where the Debtor claimed an adoption expense credit on her tax return in the amount of $3,431.00 and where Colorado’s exemption statute provides an exemption for a refund of state or federal earned income tax credit.
In 2000, the legislature amended Colo.Rev.Stat. § 13-54-102 to, among other changes, include an exemption for those debtors who receive a refund of their claimed earned income credit. The Earned Income Credit is a particular program “for certain people who work and have earned income under $34,178.” In*896teRnal Revenue SERVICE, Dep’t of the TreasuRY, PUBLICATION 596, Earned Inoome Credit (EIC) at 1 (2002). The tax credit available to certain taxpayers under this program is based upon the amount of earned, income and is calculated as a percentage of that income. 26 U.S.C. § 32. The Earned Income Credit is unique. It is a refundable credit that may result in a refund that is greater than the amount of withholding tax paid by the worker during the tax year. Congressional Research Service, The Earned Income Tax Credit: A Growing Form of Aid to Low-income Workers at 1 (1993) (“The [Earned Income Tax Credit] is the only tax credit that yields a grant when a filer’s credit exceeds income tax liability”).1
In contrast to that program is the credit for adoption expenses which is available to taxpayers with a modified AGI [adjusted gross income] of less than $190,000.00 and the credit is based upon the amount of certain expenses relating to the adoption of a child. Internal Revenue Servioe, Dep’t of the Treasury, InstruCtions for Form 8839 at 1 (2003). Importantly, the credit available for adoption expenses, like most other credits, is limited to the amount of the taxpayer’s tax liability. 26 U.S.C. § 23(b)(4). Thus, it is not refundable.
The very structure of the Debtor’s tax form bears this out. Lines 45 through 53 of the form relate to various credits which may be applied against Debtor’s tax liability. Debtor claimed her adoption credit on line 51. The Earned Income Credit appears in an entirely different place, in the “Payments” section on fine 64 where no credit is claimed because Debtor does not qualify for that credit. As a function of including a refundable credit such as Earned Income Credit in the “Payments” section of the form, it is possible to get a refund of that credit even when tax liability is $0 or there was no withholding tax paid during the year.2
Debtor’s position is that since earned income is an element of qualifying for the credit for adoption expenses, it must be an earned income tax credit which qualifies for exemption under the statute. But, contrary to Debtor’s position, earned income is not an element of eligibility for the adoption expense credit at all. The income eligibility for that credit is based on AGI. 26 U.S.C.A. § 23. A taxpayer’s AGI need not include any earned income whatever and could be comprised entirely of unearned income sources such as interest, dividends, and capital gains. Internal Revenue Service, Dep’t of the Treasury, Form 1040, U.S. Individual Inoome Tax Return at 1, (2002).
*897The Court must conclude that the statutory language in Colo.Rev.Stat. 13-54-102 means precisely what it says and refers to the very unique tax credit program which is based upon earned, income. It does not create a generic exemption for all tax credits which use income as a qualifying factor. To accept Debtor’ construction of the statute would create an anomaly within the exemption statute. It would greatly expand the exemption to include taxpayers with very substantial income. The Court believes that, if the state legislature had intended such a result, it could have easily provided an exemption for all refunds based upon any state or federal tax credit. It did not do so. It chose the use the far more limited language of “earned income tax credit refund.” At the federal level, there is only one Earned Income Credit. Consistent with the remainder of the exemption statute, that credit is targeted at persons of modest means. The Court would be stretching the statutory language of Colo.Rev.Stat. 13 — 54—102(l)(o) beyond all recognition to try to include within that language a credit such as the credit for adoption expenses. Consequently, it is
ORDERED that Trustee’s Objection to Claim of Exemption is hereby SUSTAINED; it is further
ORDERED that Trustee’s Motion for Turnover of Property of the Estate is hereby GRANTED. Debtor shall turn over to the Trustee the non-exempt property detañed in Trustee’s Motion.
. Since this report was written, another refundable credit has been added. That is the $600.00 additional child tax credit.
. For the purposes of this decision, it is not necessary to parse the language of the statute too finely. However, the Court does observe that the statute exempts an "earned income tax credit refund.” But under no circumstances can the Debtor even get a refund of her adoption expense credit. The only function of a non-refundable credit such as the adoption expense credit is to reduce the taxpayer’s tax liability. In Debtor's case, after application of her adoption credit and a child care credit, she was able to reduce her tax liability to $0. Consequently, Debtor’s tax refund consists solely of refunded withholding tax and the new refundable additional child tax credit. Had the Debtor qualified for an Earned Income Credit, it would have been claimed on her tax form under the "Payments” section along with the amount of taxes withheld, other tax payments made and the other refundable credit. Thus, it seems to the Court, the only amounts that a taxpayer can actually get a refund of would have to be the amounts listed under that "Payments” section of the tax form. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493627/ | ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
STEVEN H. FRIEDMAN, Bankruptcy Judge.
THIS CAUSE came before the Court upon consideration of the Plaintiffs Motion for Summary Judgment, filed by Patricia Dzikowski (the “Trustee”). On May 22, 2003, the Trustee filed her Motion for Summary Judgment and both a memorandum of law and her affidavit in support thereof. Subsequently, on June 17, 2003, Shirley Ann Massaline and Anthony L. Massaline (collectively the “Debtors”) filed Defendant’s Response and Opposition to Plaintiffs Motion for Summary Judgment (“Response”). On June 5, 2003, the Trustee filed her Reply to Defendants’ Response (“Reply”). Thereafter, on June 27, 2003, the parties filed their Joint Stipulation of Facts. Having considered the Motion for Summary Judgment, the Response, the Reply, and the stipulation of facts, and for the reasons discussed below, the Plaintiffs Motion for Summary Judgment is granted.
On January 22, 2001, the Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code. On May 8, 2001, the Debtors received their discharge. Thereafter, on March 12, 2003, the above captioned adversary proceeding was commenced with the Trustee’s filing of her Complaint to Revoke Debtors’ Discharge. On May 22, 2003, the Trustee filed her Motion for Summary Judgment stating that there is no genuine issue of any material fact and claiming that the Trustee is entitled to summary judgment as a matter of law because the Debtors failed to comply with this Court’s July 26, 2001 Order Directing Turnover, thereby constituting grounds for revocation of the Debtors’ discharge under 11 U.S.C. § 727(d).
Findings of Fact:
At the Debtors’ Section 341 meeting of creditors, the Trustee learned that the Debtors had received an income tax refund for the 2000 tax year in the amount of $3,622.00. The Debtors’ interest in the tax refund was not disclosed on their bankruptcy schedules, and the Debtors did not claim their interest in the refund as exempt. On June 19, 2001, the Trustee filed her Motion to Compel Turnover pursuant to 11 U.S.C. § 542(a), which requires that an entity in custody, possession or control of property of the estate, which the trustee may use, sell or lease under § 363, turn *922such property over to the trustee for administration on behalf of the estate. 11 U.S.C. § 542(a). Subsequently, on July 26, 2001, the Court entered its Order Directing Turnover (the “Turnover Order”), which directed the Debtors to turn over to the Trustee the full amount of the tax refund immediately upon entry of the order. The Debtors did not appeal the Turnover Order, nor did they seek a rehearing on or reconsideration of the Turnover Order. To date, the Debtors have failed to comply with the Turnover Order. Therefore, due to this failure to comply with the Turnover Order, the Trustee initiated the instant adversary proceeding seeking to revoke the Debtors’ discharge. The period of time within which the Trustee may seek to revoke the Debtors’ discharge as set forth in 11 U.S.C. § 727(e) has not lapsed.
Conclusions of Law:
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1384,157(b)(1) and 157(b)(2)(I). This is a core matter in accordance with 28 U.S.C. § 157(b)(2)(I).
Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056, provides that “the judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on fule, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” F.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-8, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), Rice v. Branigar Org., Inc., 922 F.2d 788 (11th Cir.1991); In re Pierre, 198 B.R. 389 (Bankr.S.D.Fla. 1996). Rule 56 is based upon the principle that if the court is made aware of the absence of genuine issues of material fact, the court should, upon motion, promptly adjudicate the legal questions which remain and terminate the case, thus avoiding delay and expense associated with trial. See United States v. Feinstein, 717 F.Supp. 1552 (S.D.Fla.1989). “Summary judgment is appropriate when, after drawing all reasonable inference in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the non-moving party.” Murray v. National Broad. Co., 844 F.2d 988, 992 (2d Cir.1988).
The legal standard governing the entry of summary judgment has been articulated by the United States Supreme Court in Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In Anderson, the Supreme Court stated that the standard for summary judgment mirrors the standard for directed verdict under Federal Rule of Civil Procedure 50(a), which provides that the trial judge must direct a verdict if there can be but one reasonable conclusion as to the verdict. Id. at 250, 106 S.Ct. 2505. The Court explained that the inquiry under summary judgment and directed verdict are the same: “whether the evidence presents sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52, 106 S.Ct. 2505.
In order to defeat a motion for summary judgment under this standard, the non-moving party must do more than simply show that there is some doubt as to the facts of the case. Id. at 252, 106 S.Ct. 2505. Rule 56 must be construed not only with regard to the party moving for summary judgment but also with regard to the non-moving party and that party’s duty to demonstrate that the movant’s claims have no factual basis. Id. “The mere existence *923of a scintilla of evidence in support of the [non-moving party’s] position will be insufficient; there must be evidence on which the jury could find for the [non-moving party].” Id. Thus, the non-moving party must establish the existence of a genuine issue of material fact and may not rest upon its pleadings or mere assertions of disputed fact to prevent a court’s entry of summary judgment. See First Nat Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); In re Pierre, 198 B.R. 389 (Bankr.S.D.Fla. 1996).
Sub judice, the Trustee seeks to revoke the Debtors’ discharge pursuant to 11 U.S.C. § 727(d), which provides: “On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if ... (3) the debtor committed an act specified in subsection (a)(6) of this section.” 11 U.S.C. § 727(d). Subsection (a)(6)(A) provides that the court shall grant the debtor a discharge, unless “the debtor has refused in the case to obey any lawful order of the court, other than to respond to a material question or to testify.” 11 U.S.C. § 727(a)(6)(A). Numerous authorities have held that debtors must be denied a discharge under 11 U.S.C. § 727(a)(6)(A) if they act in violation of, or in contempt of, court orders. See In re Jones, 966 F.2d 169,172-174 (5th Cir.1992) (affirming a summary judgment order denying a discharge on the grounds that the debtor violated a court order); Kershaw v. Behm, 81 B.R. 897, 902 (Bankr.M.D.Tenn. 1988) (finding that the bankruptcy court has complete discretion to find a violation of its order to be so serious as to require denial of discharge); In re Davenport, 147 B.R. 172, 181 (Bankr.E.D.Mo.1992) (finding that debtor’s failure to obey a lawful court order warranted the denial of the debtor’s discharge); In re Dreyer, 127 B.R. 587, 598-599 (Bankr.N.D.Tex.1991) (holding that because there was no evidence that debtor ever complied with a bankruptcy court order requiring him to furnish information within 10 days of the order, the debtor’s discharge should be denied for failure to obey a lawful order of the court); In re Powers, 112 B.R. 184,191 (Bankr.S.D.Tex.1989); and In re Richardson, 85 B.R. 1008, 1011, 1021 (Bankr. W.D.Mo.1988) (holding that “the sanction [of denial of discharge] should be applied for each and every violation [of bankruptcy court orders].”).
In the instant case, the Debtors violated this Court’s Turnover Order, which directed the Debtors to turn over to the Trustee funds in the amount of $3,622.00 immediately upon entry of the order. The Debtors never appealed the order, and to this day, have failed to comply with the order. Accordingly, it is
ORDERED that
(1) The Plaintiffs Motion for Summary Judgment is granted.
(2) The Discharge of Debtors issued by the Court on May 8, 2001 is revoked. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493448/ | OPINION AND ORDER ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the motion of the United States of America, the defendant, herein for summary judgment. The plaintiffs opposed the motion, and the defendant filed a reply memorandum.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this district. This is a core matter which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(I).
The plaintiffs are the debtors in the underlying bankruptcy case. They filed a petition for relief under chapter 7 of the Bankruptcy Code on April 13, 2001, and received a discharge on or about August *64113, 2001. After their case was closed, the plaintiffs filed a motion to reopen in order to bring a proceeding to determine whether their remaining federal income tax liabilities for tax years 1995 and 1996 had been discharged. On October 26, 2001, the Court reopened their case.
The plaintiffs commenced this adversary proceeding against the Commissioner, Internal Revenue Service. By separate order, the Court dismissed the Commissioner of Internal Revenue and substituted the United States of America as the proper defendant. The United States timely answered the complaint and the parties submitted a joint pretrial order.
Bankruptcy Rule 7056 states that Rule 56 of the Federal Rules of Civil Procedure applies in adversary proceedings. That rule provides in relevant part that a defendant party may, at any time, move, with or without supporting affidavits, for summary judgment. When such a motion is made and supported as provided in this rule, the adverse party must set forth specific facts showing that there is a genuine issue for trial. If the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law, the Court shall grant summary judgment.
The defendant supported its motion for summary judgment with the affidavit of Gary R. Shuler, Jr. Mr. Shuler is an attorney employed by the Office of Chief Counsel for the Internal Revenue Service. The plaintiffs did not file or serve any opposing affidavits and their response to the summary judgment appears to be a legal argument.
The pleadings and the affidavit of Mr. Shuler, together with their attachments, establish the following undisputed facts:
1. The debtors obtained an extension of time until October 15, 1996, to file their 1995 federal income tax return. They further executed on December 15, 1998, a consent form extending the time for the Internal Revenue Service to assess additional income taxes for the 1995 tax year until December 31, 2000.
2. The plaintiffs filed a joint 1995 federal income tax return showing a total tax due of $7,672. Based on withholdings of $7,855, the plaintiffs claimed a refund of $183. The Internal Revenue Service assessed the plaintiffs’ 1995 income tax liability at $7,672, credited their withholdings of $7,855, and issued a refund check to the plaintiffs for the $183.
3. The plaintiffs filed a joint 1996 federal income tax return on or before April 15, 1997. This return showed a total tax due of $6,358 and total withholdings of $8,206. The plaintiffs claimed a refund of $1,848. Following receipt of the plaintiffs’ 1996 return, the Internal Revenue Service assessed the plaintiffs’ tax liability at $6,358, credited them with $8,206 in with-holdings, and applied the resulting $1,848 overpayment to the plaintiffs’ 1993 tax liability.
4. The Internal Revenue Service later determined that the correct tax liability of the plaintiffs for tax years 1995 and 1996 exceeded the amounts shown on the plaintiffs’ returns. On August 19, 1999, the Internal Revenue Service sent the plaintiffs a notice of deficiency for tax years 1995 and 1996. The notice of deficiency informed the plaintiffs that they owed a deficiency of $5,162 for 1995 and $3,738 for 1996.
5. The plaintiffs challenged the notice of deficiency by filing a timely petition with the United States Tax Court on November 19, 1999. The tax court proceeding has not been resolved and remains pending.
*642Title 11, United States Code, Section 523(a), provides in pertinent part:
A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(A) of the kind and for the periods specified in ... section 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed....
11 U.S.C. § 523(a)(1)(A).
Section 507(a)(8)(A) includes federal income taxes for which a timely, non-fraudulent return was filed that were not assessed before the commencement of a bankruptcy case, but which are assessable under applicable law or by agreement after the commencement of such case. The plaintiffs contend that the additional taxes for 1995 and 1996 were never assessed and are no longer assessable because the time period for making an assessment had already expired before they filed their chapter 7 petition.
The undisputed facts and applicable law do not support the plaintiffs’ argument. Section 6501 of the Internal Revenue Code limits the assessment of any tax to a period within 3 years after the return was filed unless before the expiration of the 3 years, the parties had consented in writing to an extension. Moreover, Section 6503(a) suspends the running of this statute of limitations for any period during which the Internal Revenue Service is prohibited from making an assessment and for 60 days thereafter.
There can be no question that the notice of deficiency was mailed to each of the plaintiffs within 3 years of the date they filed their 1996 return. It is also clear that the notice of deficiency was mailed within 3 years of the date the plaintiffs consented in writing to the extension of time for the Internal Revenue Service to make an assessment for the 1995 tax year. Therefore, the Court concludes as a matter of law that the statute of limitations for making an assessment had not expired when the Internal Revenue Service mailed its notice of deficiency.
Once the notice of deficiency was mailed, 26 U.S.C. § 6513 restricted the Internal Revenue Service from making an assessment for 90 days. Because the plaintiffs then filed their petition for redetermination during this 90-day period, the statute further bars the making of the assessment until the decision of the Tax Court becomes final. Therefore, contrary to the plaintiffs’ argument, the statute of limitations for the assessment of the additional taxes for 1995 and 1996 will not run until 60 days after the final decision by the Tax Court.
The Court, thus, concludes as a matter of law that the $5,162 deficiency for 1995 and the $3,738 deficiency for 1996 remain assessable for purposes of 11 U.S.C. § 523(a)(1)(A)(iii). See In re Bracey, 77 F.3d 294 (9th Cir.1996) (per curiam). Accordingly, these amounts were not discharged by the order of discharge issued on or about August 13, 2001. See id. at 295-96.
Based on the foregoing, the motion of defendant United States of America for summary judgment is GRANTED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493449/ | Order Sustaining Chapter 7 Trustee’s Objection to Debtor’s Claim of Exemptions
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS CASE came before the Court on June 28, 2002 for a hearing on Chapter 7 trustee John E. Venn, Jr.’s objection to debtor William B. McRae’s claim for exemption of property held in tenancy by the entireties. This Court has jurisdiction pursuant to 28 U.S.C. §§ 151 and 157(a). This is a core matter under 28 U.S.C. § 157(b)(2)(B). The following findings of fact and conclusions of law are presented in accordance with Federal rule of Bankruptcy Procedure 7052.
Facts and Procedural History
The debtor filed his voluntary petition for relief under Chapter 7 of the Bankruptcy Code on December 20, 2001. The debtor’s wife did not join in the petition. Total scheduled assets are $687,750.93. Total scheduled liabilities are $1,241,862.98, of which $515,993.35 is for secured claims. The couple’s homestead property is in Marianna, Florida. They also have a home and two parcels of land in North Carolina. The debtor’s Schedule C claims $381,130.00 in exemptions for property held by the entireties. The bulk of entireties exemption is for the North Carolina properties and their contents, and the Florida homestead contents in excess of the Florida constitutional exemptions.
The amended schedules list two pre-petition creditors with claims against Mr. and Mrs. McRae: MBNA America for $15,876.59 and Canon USA for $15,445.84. The MBNA debt of $15,194.55 was actually paid pre-petition from Margaret McRae’s *707personal investment account.1 On February 25, 2002, post petition, Mrs. McRae settled the Canon debt by paying $9,401.99 from her personal checking account.
I. Discussion:
The debtor’s claim for exemption is based on the current lack of joint creditors who can enforce claims against the entire-ties assets. The Chapter 7 trustee’s objection to the exemption is based on the presence of joint debts on the date the case was filed.2 Thus, the question presented is whether the elimination of the final joint (Canon) debt post-petition prevents the administration of the entireties property.
A. Florida and North Carolina, Both Having1 Opted-Out of the Federal Exemptions of § 522(d), Recognize a TBE Exemption in the Absence of Joint Creditors
The commencement of a case under Title 11 of the United States Code creates an estate comprised of all property in which the debtor has a legal or equitable interest at the time of filing. 11 U.S.C. § 541(a). Property held in tenancy by the entirety is property of the estate when one of the spouses files bankruptcy. In re Geoghegan, 101 B.R. 329, 330 (Bankr.M.D.Fla.1989). An individual debtor may exempt property from the bankruptcy estate by claiming exemptions authorized under § 522 of the Bankruptcy Code, subject to any limitations placed by his State under the opt-out provision of § 522(b)(1). Florida has opted out of § 522(d) under Florida Statute § 222.20; In re Ciccarello; 76 B.R. 848, 850 (Bankr.M.D.Fla.1987). North Carolina has also opted out of the exemption scheme provided by Bankruptcy Code, so bankruptcy debtors in North Carolina depend on state law both for substance and for procedure. N.C.G.S. § 1C-1601(f); In re Pinner, 146 B.R. 659, 660 (Bankr.E.D.N.C.1992).
Both states recognize the estate of tenancy by the entireties. See Hunt v. Covington, 145 Fla. 706, 200 So. 76 (1941); Combs v. Combs, 273 N.C. 462, 160 S.E.2d 308 (1968). “An estate over which the husband and wife have absolute disposition ... [and they hold] as one person ... is not subject to execution for the debt of the husband.” Hunt at 77. “Individual creditors of a husband and wife can not reach entireties property upon a judgment against either the husband or wife alone.... ” Grabenhofer v. Garrett, 260 N.C. 118, 131 S.E.2d 675 (1963). The Code also allows debtors to claim exemptions under § 522(b)(2)(B) for property held in tenancy by the entireties to the extent that such interest is exempt from process under applicable non-bankruptcy (state) law. Ciccarello at 850; In re Woolard, 13 B.R. 105, 107 (Bankr.E.D.N.C.1981). There are no value limitations to the TBE exemption under either state law. However, creditors holding claims jointly against the husband and wife may reach TBE property, to the extent of the joint debt, under both state schemes. See Ciccarello at 850; see Woolard at 107. In bankruptcy, TBE property exposed to joint debt is property of the estate subject to administration by the Chapter 7 trustee. Id.
This Court previously addressed the issue of a married, sole-filing debtor claim-*?mg TBE exemptions in In re Boyd, 121 B.R. 622 (Bankr.N.D.Fla.1989). In Boyd, the married debtor filed a sole voluntary petition under Chapter 7. He claimed the TBE exemption for the couple’s interest a condominium held jointly between the married parents and their daughter, and also for the couple’s primary residence. In addition to these Florida properties he also claimed an exemption for real and personal property in Georgia owned by the couple as joint tenants with rights of sur-vivorship. There were joint creditors, although none of the joint creditors filed a claim. The question presented was whether the administration of the TBE property was limited to payment of joint debt or if the TBE property could be used to satisfy all of the obligations of the bankruptcy estate. Relying on Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133 (1931), I held that as long as the conditions of § 363(h)3 were met, that “the debtor’s portion of his. equity in the property could be used to satisfy his creditors according to the bankruptcy distribution scheme” of § 726 of the Code. Boyd at 625.
Subsequently, Boyd’s counsel advised this Court that the debtor had reaffirmed all his joint debts, and there were no joint creditors holding allowable unsecured claims. Following my denial of a motion for rehearing, the debtor appealed my ruling. In an unpublished opinion, the District Court partially reversed the Bankruptcy Court ruling, holding that since there was no longer any joint debt, the opinion regarding administration of the TBE assets was advisory.
B. TBE Property Not Exempted From Property of the Bankruptcy Estate is Available for the Administration of Joint Debts that Existed on the Date of the Petition
The unpublished District Court opinion did not address the merits of the projected distribution of TBE property outlined in the Bankruptcy Court’s published Boyd opinion. Thus, the distribution scheme for TBE property of the estate as delineated by Boyd is unchallenged in this District. The TBE exemption extends only as far as
any interest in property which the debt- or had, immediately before the commencement of the case, an interest as a tenant by the entirety ... to the extent that such interest ... is exempt from process under applicable nonbankruptcy law.
11 U.S.C. § 522(b)(2)(B).
The TBE exemption, like all exemption rights, was fixed at the date of the petition. See Myers v. Matley, 318 U.S. 622, 626-28, 63 S.Ct. 780, 87 L.Ed. 1043 (1943); White v. Stump, 266 U.S. 310, 312-13, 45 S.Ct. 103, 69 L.Ed. 301 (1924); In re Dolen, 265 B.R. 471, 487, n. 4 (Bankr.M.D.Fla.2001). As stated in White v. Stump,
[T]he point of time which is to separate the old situation from the new in the bankrupt’s affairs is the date when the *709petition is filed.... When the law speaks of property which is exempt and of rights to exemptions it of course refers to some point in time. In our opinion, this point in time is the one as of which the general estate passes out of the bankrupt’s control, and with respect to which the status and rights of the bankrupt, the creditors and the trustee in other particulars are fixed.
266 U.S. at 313, 45 S.Ct. 103. Thus, the post-petition payment of the Canon debt by the debtor’s wife cannot create an exemption that did not exist on the date of the petition.
Courts should not allow a TBE exemption if a joint creditor existed on the date of the petition. See In re Anderson, 132 B.R. 657, 659-660 (Bankr.M.D.Fla.1991). A joint creditor in existence at the time of the filing of the petition can obtain favorable process, and can pursue the joint debt. Id. In this case, there was joint debt non the date of the petition, and there were TBE assets available for the satisfaction of the joint debt on the date of the petition. The TBE assets, to the extent of the joint debt, are not exempt from process, and are subject to bankruptcy administration.
C. Non-Exempt TBE Property of the Estate Must be Administered According to the Distribution Scheme of § 726
There is no separate classification for joint debt in the distribution priorities outlined by section 726 of the Code. There is no special priority for the party who initiated the assault on the TBE exemption. See Boyd at 625. Permitting the trustee to liquidate TBE property in accordance with § 363(h) would contradict the creation of a special sub-class of joint creditors solely entitled to the proceeds from the sale of the TBE assets. Id. The joint unsecured claims are of equal rank to the other unsecured claims pursued exclusively against the debtor.
II. Conclusion
The Chapter 7 trustee shall administer $15,445.84 of TBE assets, the amount equal to the joint debt on the date of the petition. The debtor’s portion of his equity in those TBE assets can be used to satisfy the creditors and the administrative expenses pursuant to the priorities of § 726. Therefore, it is
ORDERED AND ADJUDGED that the Chapter 7 trustee’s objection to the debt- or’s claim of exemption in property held in tenancy by the entirety is hereby SUSTAINED.
. December 18, 2001, two days before the Chapter 7 petition was filed.
. The use of the non-filing wife’s personal funds to resolve the joint debts immediately pre-and-post-petition is the basis for the Chapter 7 trustee’s separate adversary complaint to avoid the transfers, and will not be addressed here.
. "Under the Bankruptcy Code property only partially owned by the estate may be sold. As in this case, when the Debtor owns an undivided interest in property as a joint tenant the trustee may sell both the estate's interest and the interest of the co-owner if all four of the conditions of § 363(h) of the Bankruptcy Code are met. First, partitioning the property between the estate and the co-owner must be impracticable. Second, the estate's pro rata interest in the proceeds from a sale of the entire property must be significantly greater than the amount that would be realized if only the estate's undivided interest were sold. Third, sale of the entire property must benefit the estate more than it will harm the co-owner. Fourth, the property must not be used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.” Boyd at 625. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493450/ | ORDER GRANTING TRUSTEE’S OBJECTION TO EXEMPTIONS AND DENYING TRUSTEE’S MOTION TO STRIKE SECOND AMENDMENT TO SCHEDULES
STEVEN H. FRIEDMAN, Bankruptcy Judge.
THIS MATTER came before the Court on July 13, 2002 upon the Trustee’s Objection to Exemptions and Motion to Strike Second Amendment to Schedules. The Trustee asserts that the Debtor’s claim of exemptions exceeds the $1,000.00 personal property exemption. The Trustee also asserts that the Debtor’s Second Amendment to Schedules was filed in bad faith and should be stricken. The Court, having considered the Trustee’s Objection to Exemptions and the Trustee’s Motion to Strike Second Amendment to Schedules, and for the reasons set forth below, sustains the Trustee’s Objection to Exemptions and denies the Trustee’s Motion to Strike Second Amendment to Schedules.
Factual and Procedural Background
This case was commenced on March 21, 2001, with the Debtor’s filing of his voluntary chapter 7 petition. On June 16, 2000, and prior to the filing of this case, the Debtor met with Douglas Mars and Patricia Mars to handle Douglas Mars’s automobile personal injury matter. The Debt- or filed a lawsuit on behalf of Mr. and Mrs. Mars and performed some discovery prior to the filing of the instant bankruptcy. On February 2, 2001, the Debtor, on behalf of the Marses, arranged to have the law firm of Montgomery and Larson litigate the Marses’ case, which was settled for $800,000 on or before May 14, 2001. Pursuant to the contingency fee agreement and the Consent to Referral of Case Agreement, the Debtor is entitled to a referral fee, based on the amount of the settlement, of $30,000. Montgomery and Larson is holding in trust the $30,000 allocated to the Debtor as his fee.
Objection to Exemptions
When the Debtor filed his chapter 7 petition, a bankruptcy estate was created. Pursuant to 11 U.S.C. § 541(a), the estate is comprised, inter alia, of “all legal or equitable interests of the debtor in property as of the commencement of the case”, subject to certain specific exceptions. The Ninth and Fifth Circuits have addressed the issue of how contingency fees for legal representation that began pre-petition and continued post-petition are to be handled in bankruptcy. See In re Jess, 169 F.3d 1204 (9th Cir.1999); Turner v. Avery, 947 F.2d 772 (5th Cir.1991). The Court agrees with the analysis of the Ninth and Fifth Circuits. Specifically, this Court agrees with the Court in Jess, that the correct approach is to determine:
whether any postpetition services are necessary for obtaining the payment at issue. If not, the payments are entirely “rooted in the pre-bankruptcy past” and the payments will be included in the estate. If some postpetition services are necessary, then courts must determine the extent to which the payments are attributable to the postpetition services and the extent to which the payments are attributable to prepetition services. That portion of the payments attributable to postpetition services will not be property of the estate.
In re Jess at 1208 (quoting In re Wu, 173 B.R. 411, 414-15 (9th Cir. BAP 1994)). According to Jess, the threshold determination is whether the performance by the Debtor of any of his postpetition services was a prerequisite to his obtaining the $30,000 referral fee.
*726Upon the Debtor’s referral of the Mars litigation to Montgomery and Larson, the Debtor’s sole involvement in the ease was maintaining some telephone contact with Patricia Mars. The Debtor did not speak with Mr. Mars, nor did the Debtor consult with Mr. Mars regarding the settlement. Additionally, the Debtor did not participate in discovery, appear at any deposition or client conferences, nor did the Debtor appear at mediation. Thus, although the Debtor did file the complaint initiating the Mars litigation, he served solely in an advisory capacity to Mr. and Mrs. Mars after he referred the case to Montgomery and Larson. Once the Debtor referred the Mars litigation to Montgomery and Larson, Montgomery and Larson performed all aspects of the litigation. The Debtor’s services were not necessary for obtaining the payment at issue. Therefore, the Debtor’s portion of the contingency fee is entirely “rooted in the pre-bankruptcy past”, and the entire payment of $30,000 must be included in the estate. Because none of the Debtor’s postpetition services were necessary for Montgomery and Larson’s achieving a settlement of the Mars matter, this Court need go no further in analyzing the extent to which the payment is attributable to the postpetition services and the extent to which the payment is attributable to prepetition services.
On the Debtor’s Schedule C, he claims various items of property as exempt under Article X, Section 4(a)(2) of the Florida Constitution, including cash in the amount of $10.00, proceeds of his Bank of America Checking Account (account number 1441566637) in the amount of $118.00, household furnishings totaling $250.00, office furnishings and equipment totaling $250.00, proceeds of his Lind-Waldock Account (account number 576535) in the amount of $33.35, and proceeds of his ED & F Man International Account (account number 28992) in the amount of $33.32. The total of these exemptions is $694.67. Because the Florida Constitution allows the Debtor a personal property exemption of $1000.00, he is entitled to claim an additional $305.33 of personal property as exempt. Therefore, although the entire referral fee of $30,000.00 is property of the estate, the Debtor may claim an amount up to $305.33 of the referral fee as exempt.
Motion to Strike Second Amendment to Schedules
The Trustee asserted that Debtor’s Second Amendment was filed in bad faith because it was filed over a year after the Debtor filed his bankruptcy petition and because it lists the Debtor’s Contingency Fee Contract as an asset which should have been disclosed in the initial bankruptcy filing. However, pursuant to Bankruptcy Rule 1009(a), a Debtor has a general right to amend his schedules and may do so at any time before the case is closed. Therefore, the Debtor’s Second Amendment to Schedules is permissible. Accordingly, it is
ORDERED that
(1) the Trustee’s Objection to Exemptions is sustained.
(2) the Trustee’s Motion to Strike Second Amendment to Schedules is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493451/ | MEMORANDUM OF DECISION AND ORDER
ALLAN L. GROPPER, Bankruptcy Judge.
The Fishel Company (“Fishel”) has moved for relief from the automatic stay of § 362 of the Bankruptcy Code to file lawsuits in California and Oregon against one or more of the Debtors. Fishel asserts that it has already obtained construction and mechanic’s hens (“Liens”) on leasehold interests of the Debtors by virtue of its supply of labor, materials and equipment for the installation of an innerduct from Sacramento, California to Portland, Oregon. It further alleges that it has recorded such liens but that under California and Oregon law it is necessary to file suit within 90 and 120 days, respectively, in order for the encumbrances to continue. Fishel says it seeks only to file complaints in the required lawsuits, called hereafter “Continuation Actions,” and that the Continuation Actions should thereafter remain stayed pursuant to § 362.
These Debtors have many creditors who similarly claim to hold mechanic’s and/or construction hens and who are faced with State statutes that require the filing of a Continuation Action within a specified period after the recordation of the hen. Last week this Court heard the motion of Manuel Brothers Incorporated (MBI), another creditor claiming to hold a mechanic’s hen on property in California, who sought relief from the stay to file a similar Continuation Action to continue and/or enforce its alleged hen. In response to MBI’s motion, the Debtors pointed out that MBI’s concern was misplaced as a consequence of §§ 546(b) and 108(c) of the Bankruptcy Code. These sections, the Debtors argued, *762compel creditors to perfect and maintain liens that relate back in time through notice instead of filing enforcement actions that would otherwise be in violation of the automatic stay. Section 546(b)(1)(B) subjects the rights and powers of a trustee or debtor in possession to any generally applicable law that “provides for the maintenance or continuation of perfection of an interest in property to be effective against an entity that acquires rights in such property before the date on which action is taken to effect such maintenance or continuation.” Section 546(b)(2) then provides that if such law:
(A) requires seizure of such property or commencement of an action to accomplish such perfection, or maintenance or continuation of perfection of an interest in property; and
(B) such property has not been seized or such an action has not been commenced before the date of the filing of the petition;
such interest in such property shall be perfected, or perfection of such interest shall be maintained or continued, by giving notice within the time fixed by such law for such seizure or such commencement.
Section 362(b)(3) permits action under § 546(b) by providing that it is not a violation of the automatic stay for a creditor to “maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b).” No relief from the stay would be necessary as MBI and other creditors could preserve their claims through the filing of notice.
In addition to the protections of §§ 546(b)(2) and 362(b)(3), § 108(c) further tolls the period under applicable nonbank-ruptcy law for “commencing or continuing' a civil action in a court other than a bankruptcy court on a claim against the debtor” until the later of (i) the end of such period, including any suspension thereof occurring on or after the commencement of the case, or (ii) 30 days after notice of the termination or expiration of the automatic stay.
Based on these statutory provisions and relevant case law, the Court agreed with the Debtors that the claims of MBI and other holders of alleged mechanic’s and/or construction liens on property of the Debtors would be protected and preserved without the need to seek or obtain relief from the automatic stay to file Continuation Actions. To the extent the filing of a Continuation Action would constitute an act “for the maintenance or continuation of perfection of an interest in property,” within the meaning of §§ 546(b) and 362(b)(3), preservation of the claims could be accomplished by the transmittal of a notice.1 Indeed, the purpose of § 546(b) is to “protect, in spite of the surprise intervention of a bankruptcy petition, those whom State law protects by allowing them to perfect their liens or interests,” through post-petition notice on liens recorded prior to the bankruptcy petition.2 To the extent that a filing of a Continuation Action was something more that the “maintenance or continuation of perfection,” and constituted *763the “enforcement” of a lien — and therefore might not be within the purview of §§ 546(b) and 362(b)(3) — it was stayed by virtue of § 362(a) and the time period for commencement of such action was tolled under § 108(c).3
It appears to this Court that the requirement of the filing of a Continuation Action is within the purview of § 546(b), and that holders of alleged mechanic’s liens can preserve their rights by notice without putting debtors to the burden and expense of litigation and motions for relief from the automatic stay. The word “perfection” as used in § 546(b) is not defined in the Bankruptcy Code (or in the Uniform Commercial Code, for that matter), and it would give the term “perfection” a narrow reading to hold that the filing of a Continuation Action is not an act intended to continue the “perfection” of an interest in property. There is ample precedent for the proposition that where the filing of an enforcement action is required to preserve a lien under State law, § 546(b) allows, and indeed compels, creditors to give notice to a debtor instead of filing suit.4 As for the Continuation Action itself, an alleged Hen-holder, who provided § 546(b) notice, would be fully protected by virtue of the fact that § 108(c) tolls the time for prosecuting the suit.5
In order to resolve the MBI motion and to forestall other applications seeking relief from the stay for the same reason, this Court suggested that the Debtors submit an order, acceptable to MBI and of general applicability, to set a precedent that would apply to all holders of alleged mechanic’s and/or construction liens. Such an order has been entered, and it reiterates that § 546(b) preserves the claims of creditors who provide notice of their Hens and that § 108(c) tolls the time for prosecuting an enforcement action for such creditors. Its provisions seem to provide full protection to Fishel, except for one caveat.
Fishel at the return of this motion argued that, unHke MBI, it asserts Hens on property leased by the Debtors rather than owned by them, and that its Continuation Actions would have to be brought against third-party property owners, as well as the Debtors. Accordingly, Fishel contended that it would not be protected by bringing actions against the owners alone, because a State Court judge might find that the Debtors are necessary parties and that the third-party actions are insufficient because of the absence of the Debtors. Second, Fishel argued that an order permitting the filing of an action and then staying that action could not prejudice the Debtors and that similar orders have been entered in other bankruptcy cases.
Fishel’s second reason for seeking relief from the automatic stay has no validity. The “similar” orders that Fishel presented to the Court at oral argument modified the stay in those eases upon consent and stipulation of aH the parties.6 It may indeed *764have been practical for debtors in those cases to consent to relief from the stay to permit the filing of an action but not its prosecution. A debtor can rarely, if ever, be faulted for choosing the most economical way of resolving a dispute. But where, as here, a debtor is faced with multiple lienholders and dozens of alleged liens, it is not necessarily economical for a debtor simply to consent to the relief sought by the creditor and, perhaps, be prejudiced by the cost of unnecessary motion practice.
Fishel’s other argument is that its rights against the third-party owners of the property encumbered by the alleged liens might be impaired by virtue of the fact that a State court might find that a suit against the owners alone was insufficient and lacked a necessary party (one of the Debtors), thereby finding cause to dismiss the claims. At oral argument it was alleged that such a situation had occurred. This Court has been unable to find any support in the Declaration of Patrick W. Wade, dated October 22, 2001, that a State Court had ignored Federal law or the Supremacy Clause of the Constitution in such manner.7
On the other hand, Fishel’s rights against the owners do not appear to be protected by § 546(b). Moreover, there is some uncertainty as to whether Fishel could sue the owners. In Valley Transit Mix of Ruidoso, Inc. v. Miller, the Tenth Circuit held that § 362(a) applied to stay a mechanics’ lien foreclosure claim against the owners of property leased by a debt- or.8 The court further found that § 108(c) tolled such claims against the nondebtor parties as well as the debtor, where the debtor was a necessary party to the action.9 Although such a holding would fully protect Fishel, Valley Transit is not necessarily the law of this circuit and the owners are not before this Court at this point and are not bound by the results of this motion. This creates some uncertainty for Fishel.
Any decision on a motion for relief from the stay includes a balancing of the harm to the debtor against the harm to the creditor from a continuation of the stay.10 The only apparent disadvantages to the Debtors from affording Fishel the limited relief it seeks are the costs of this motion and the burden created by the filing of suits in State courts that will name one or more of the Debtors, require some attention, and by their very existence raise the possibility of a bifurcation of issues among different courts. These harms can be offset, first, by permitting the Debtors to move for payment by Fishel of their costs in connection with the instant motion and State court litigation that is highly likely to *765be unnecessary. In other words, although this Court will not prejudge the results of such motion and Fishel can argue against the imposition of costs, to the extent Fishel obtains only a comfort order, Fishel, in fairness to the Debtors and their other creditors, should pay for it.
The harm to the Debtors can be secondarily compensated by holding Fishel strictly to its representations on this motion. It states that it seeks only a modification of the automatic stay that would give it the opportunity to file a lawsuit and then leave it stayed. Joinder of one or more of the Debtors would permit Fishel to file its action against the nondebtor owners without greatly prejudicing the Debtors.11
For the reasons stated above, Fishel is granted limited relief from the automatic stay, pursuant to § 362(d)(1) of the Bankruptcy Code, solely in order to file one or more actions in State court in order to continue and/or enforce its alleged liens against one or more of the Debtors as well as one or more third parties, and to cause process to be served on all defendants named in such suit(s), including the Debtors, but absent further order of this Court, neither Fishel nor any other party to such suit(s) may proceed further, and the automatic stay of § 362(a) of the Bankruptcy Code remains in full force and effect as to any such further action. In light of the time periods said to be applicable under State law, to the extent of the limited relief from the stay granted to Fishel herein, the 10-day stay period under Rule 4001(a)(3) of the Federal Rules of Bankruptcy Procedure is hereby waived, and this order is effective immediately. Without prejudging the issue, the Debtors have leave to move the Court for an order requiring Fishel to pay their costs, including reasonable attorneys fees, in connection with this motion and any proceedings resulting from the modification of the stay provided for herein. Notice of this order shall be provided by Fishel to all parties to the suit(s) authorized above.
IT IS SO ORDERED.
. Village Nurseries v. David Gould (In re Baldwin Builders), 232 B.R. 406, 410-411 (9th Cir. BAP 1999); Roofing Concepts, Inc. v. Kenyon Industries, Inc. (In re Coated Sales, Inc.), 147 B.R. 842, 846 (S.D.N.Y.1992); Christopher Ryan v. Grayson Service, Inc. (In re Rincon Island Limited Partnership), 253 B.R. 880, 889 (Bankr.C.D.Cal.2000); In re Sampson, 57 B.R. 304, 307 (Bankr.E.D.Tenn.1986).
. H.R.Rep. No. 595, 95th Cong. 1st Session 371-372 (1977), U.S.Code Cong. & Admin.News 1978, 5963, 6327-6328, reprinted in 3 Collier on Bankruptcy ¶546.03[1], at 546-20 (Lawrence P. King, ed., 15th ed. rev. 2000).
. In re Baldwin Builders, 232 B.R. at 412-413; Morton v. National Bank of New York City (In re Joan Morton), 866 F.2d 561, 564 (2nd Cir.1989); In re Rincon Island, 253 B.R. at 884; Robert H. Bowmar, Mechanic’s Liens: Creation, Perfection or Enforcement in the Face of a Stay, 1993 Hofstra Prop. L.J., 153, 180-183 (1993); see Skywark v. Isaacson, 202 B.R. 557, 563 (S.D.N.Y.1996) (citing Morton, 866 F.2d at 564).
. In re Baldwin Builders, 232 B.R. at 412; In re Coated Sales, 147 B.R. at 845-846; In re Rincon Island, 253 B.R. at 884.
. In re Petroleum Piping Contractors Inc., 211 B.R. 290, 307 (Bankr.N.D.Ind.1997); see Bowmar, Mechanic’s Liens, at 183.
. Wade Decl., Ex. C, (Order on Motion for Relief from Stay by North Coast Electric Company, In re Hood Lumber Company, No. *764397-36565 (Bankr.D. Or. filed Aug. 27, 1997) (entered upon stipulation of the parties)) and Ex. D, (Order on Motion for Relief By Specialty Constructors, Inc., In re Springfield Forest Products, L.P. No. 697-65993 (Bankr.D. Or. filed Nov. 18, 1997) (entered upon consent)).
.Wade Deck ¶ 4, 7 (stating in both cases that all parties consented to the entry of an order granting limited relief from the stay); see id. Ex. C, (Order on Motion for Relief from Stay by North Coast Electric Company, In re Hood Lumber Company, No. 397-36565 (Bankr.D. Or. filed Aug. 27, 1997)); id. Ex. D, (Order on Motion for Relief By Specialty Constructors, Inc., In re Springfield Forest Products, L.P. No. 697-65993 (Bankr.D. Or. filed Nov. 18, 1997)).
. 928 F.2d 354, 356 (10th Cir.1991) (holding that § 362 precludes foreclosure actions against the owner of property "when a debtor has a 'leasehold' or 'possessory' interest in the property and the debt sought to be satisfied out of the property is that of the debtor”).
. Id.
. 3 Collier on Bankruptcy ¶ 362.07[3][f], at 362-95 (Lawrence P. King, ed., 15th ed. rev. 2000).
. See In re Petroleum Piping, 211 B.R. at 309 (finding that a modification of the stay to join the debtor as nominal party causes little prejudice to the debtor when compared with the hardship continuing the stay might cause the lien holder). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493452/ | DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Defendant’s Motion for Summary Judgment, Memorandum in Support, and the Plaintiff/Debtors’ Response thereto. The sole issue raised by these materials concerns whether the Plaintiff/Debtor’s federal tax obligation for the year 1996 is dischargeable. As it pertains to this issue, the gravamen of the Parties’ dispute centers around whether the Debtors actually filed their 1996 tax return. The following facts, which are not in dispute, are relevant to this issue:
The Debtors had taxable income for the 1996 tax year.
The IRS prepared, without any assistance, a Substitute for Return for the Debtors for the 1996 tax year.
The JRS sent notice to the Debtors that they had a tax deficiency of $17,234.00 for the 1996 tax year; at no time did the Debtors petition the United States Tax Court to challenge this deficiency.
On November 9, 1998, the Debtors were assessed for their 1996 tax year deficiency; included in this assessment were statutory penalties and interest.
On April 4, 2001, the Debtors filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. Thereafter, on August 13, 2001, the Debtors filed a Complaint to determine the dischargeability of their tax obligations for the years 1996 and 1997. After discussing the matter, the Parties agreed that the Debtors’ tax liability for the year 1997 was nondis-chargeable as the due date of this tax return fell within the three-year provision contained in 11 U.S.C. § 507(a)(1)(A).
In support of its position that it never received a tax return from the Debtors for the 1996 tax year, the Defendant submitted an affidavit to the Court wherein it was stated that no record of any such tax return exists. In response, the Debtors, although ostensibly maintaining that they did file a federal tax return for 1996, acknowledged that they “cannot [actually] prove that they filed their 1996[tax] return.” (Plaintiffs Response to Defen*861dant’s Motion for Summary Judgment, at Pg- !)•
LEGAL DISCUSSION
Under 28 U.S.C. § 157(b)(2)(I), a determination as to the dischargeability of a particular debt is a core proceeding. Thus, this matter is a core proceeding.
This cause comes before the Court upon the Defendant’s Motion for Summary Judgment. The standard for summary judgment is set forth in Fed.R.Civ.P. 56, which is made applicable to this proceeding by Bankruptcy Rule 7056, and provides for in pertinent part: A movant will prevail on a motion for summary judgment 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 judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In order to prevail, the movant must demonstrate all the elements of the cause of action. R.E. Cruise, Inc. v. Bruggeman, 508 F.2d 415, 416 (6th Cir.1975). Thereafter, upon the movant meeting this burden, the opposing party may not merely rest upon their pleading, but must instead set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 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, 586-88, 106 S.Ct. 1348, 1856, 89 L.Ed.2d 538 (1986).
There exists a general presumption that an honest debtor who seeks bankruptcy relief is entitled to receive a discharge of all his or her debts. See, e.g., Farrington v. Lincoln (In re Farrington), 118 B.R. 871, 873-74 (Bankr.M.D.Fla.1990); Nelson v. Peters (In re Peters), 106 B.R. 1, 3 (Bankr.D.Mass.1989). Excep tions to this rule, however, exist for certain kinds of tax debts. Specifically, relevant to this case is § 523(a)(l)(B)(i), which provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(i) was not filed[.]
(emphasis added). The underlying purpose of this exception to discharge is self-evident: A taxing authority should not be precluded from recovering unpaid taxes by the convenient method of a debtor simply failing to file a return.
As it pertains to the applicability of § 523(a)(l)(B)(i), the Debtors rely upon the case of Crawley v. United States (In re Crawley), 244 B.R. 121 (Bankr.N.D.Ill.2000), which held that a tax return need not be filed prior to an assessment by the IRS in order to qualify as a return for purposes § 523(a)(l)(B)(i). In coming to this decision, the court in In re Crawley rejected the Sixth Circuit’s approach, laid out in United States v. Hindenlang (In re Hindenlang),1 that after assessment the filing of a tax return can serve no tax purposes, and thus cannot qualify as the filing of a tax return within the meaning of the Bankruptcy Code. The difficulty, however, the Court has with the Debtor’s position is that even if the facts of this case could be distinguished from the Sixth Cir-*862euit’s decision in In re Hindenlang, the circumstances present in In re Crawley are clearly inapposite to the circumstances present in this case. In particular, in the instant case, unlike the situation in In re Crawley, there exists a clear dispute as to whether the Debtors even filed a tax return. Thus, resolution of the issue at hand necessarily requires the Court to determine whether there exists sufficient evidence, for purposes of § 523(a)(l)(B)(i), to find that the Debtors “filed” a tax return.
The term “filed,” as it is used in § 523(a)(l)(B)(i), is not defined in the Bankruptcy Code. In the absence of such a definition, the Sixth Circuit has held that it is appropriate to look to applicable tax law to determine the proper definition of such a word. United States v. Hindenlang (In re Hindenlang), 164 F.Sd 1029, 1032-33 (6th Cir.1999), cert. denied, 528 U.S. 810, 120 S.Ct. 41, 145 L.Ed.2d 37 (1999). As it applies to tax law, it has been held that, in line with the Supreme Court’s decision in United States v. Lombardo,2 a tax return will be deemed to be filed on the date the return is actually delivered to and received by the IRS. Young v. Internal Revenue Service (In re Young), 230 B.R. 895, 897 (Bankr.S.D.Ga.1999); Woodworth v. United States (In re Woodworth), 202 B.R. 641, 644 (Bankr.S.D.Fla.1996). This rule is known as the physical delivery rule.
For purposes of documents sent to the IRS, however, two statutory exceptions exist to the physical delivery rule. These exceptions are codified in paragraphs (a)(1) and (c) of § 7502 of the Internal Revenue Code which provide, in relevant part, that:
(a) General rule.—
(1) If any ... document required to be filed, or any payment required to be made, within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws is, after such period or such date, delivered by the United States mail to the agency, officer, or office with which such ... document is required to be filed, or to which such payment is required to be made, the date of the United States postmark stamped on the cover in which such ... document, or payment, is mailed shall be deemed to be the date of delivery or the date of payment, as the case may be.
(c) Registered and certified mailing; electronic filing.—
(1) Registered mail. — For purposes of this section, if any such return, claim, statement, or other document, or payment, is sent by United States registered mail—
(A) such registration shall be prima facie evidence that the return, claim, statement, or other document was delivered to the agency, officer, or office to which addressed, and
(B) the date of registration shall be deemed the postmark date.
Stated in simpler terms, under the first exception to the physical delivery rule set forth in paragraph (a)(1) of § 7502, when a document is received by the IRS after the filing deadline, the postmark stamped on the document is deemed to be the date of delivery. By comparison, under paragraph (c) of § 7502, a certified or registered mail receipt operates as prima facie evidence that a document mailed to the IRS was actually delivered, and the date of certification or registration is then deemed to be the postmark date.
It is self-evident, however, that the above statutory exceptions to the phys*863ical delivery rule only apply when there exists proof of a postmark; that is, when some proof of the actual mailing of the document to the IRS exists. On the other hand, in a situation such as this, where a taxpayer seeks to establish, in the absence of a postmark, that they actually mailed a tax document to the IRS, the protections of § 7502 are not applicable. See Miller v. United States, 784 F.2d 728, 730 (6th Cir.1986) (§ 7502 does not apply when the IRS does not receive the document and the document is not sent by registered mail). To ameliorate the potential harshness which could arise if the exceptions to the physical delivery rule were entirely limited to those provisions contained in § 7502, some courts have held that § 7502 is merely a nonexclusive “safe harbor” provision, and therefore a taxpayer is permitted to present circumstantial proof of timely mailing, such as by affidavits or oral testimony.3 In the context of documents mailed to the IRS, however, such an approach was squarely rejected by the Sixth Circuit Court of Appeals in Miller v. United States, wherein the Court stated that “the only exceptions to the physical delivery rule available to taxpayers are the two set out in section 7502.” 784 F.2d 728, 730-31 (6th Cir.1986). As a result, in the Sixth Circuit, § 7502 provides the exclusive means by which a taxpayer may prove that a tax return is filed. Id. This rule, although it has been criticized on the grounds that it allows sloppiness by the IRS, has on several occasions been reiterated by the Sixth Circuit Court of Appeals. Surowka v. United States, 909 F.2d 148 (6th Cir.1990); Carroll v. Commissioner of Internal Revenue, 71 F.3d 1228 (6th Cir.1995); Thomas v. United States, 166 F.3d 825, 831 fn. 9 (6th Cir.1999).
Therefore, in this ease, since the Defendant has offered evidence that it did not receive the Debtors’ 1996 tax return and the Debtors have not been able to produce a registered mail receipt to the contrary, the Court must find that, as a matter of law, the Debtors did not file their 1996 tax return. Accordingly, in accordance with § 523(a)(1)(B)®, it is the holding of this Court that the Debtors are forbidden by law from receiving a discharge on any tax liability that was due for the 1996 tax year. In reaching the conclusions found herein, the Corut has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the 1996 federal tax obligation of the Debtors, Dale Crump and Deborah Crump, be, and is hereby, determined to be a NONDISCHARGEABLE DEBT.
. 164 F.3d 1029, 1032-33 (6th Cir.1999), cert. denied, 528 U.S. 810, 120 S.Ct. 41, 145 L.Ed.2d 37 (1999)
. 241 U.S. 73, 36 S.Ct. 508, 60 L.Ed. 897 (1916).
. See, e.g., Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir.1990). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493453/ | MEMORANDUM DECISION OVERRULING KELLOGG MARINE, INC.’S OBJECTION TO THE CONFIRMATION OF THE DEBTOR’S CHAPTER 13 PLAN
DOROTHY EISENBERG, Bankruptcy Judge.
This contested matter concerns an objection filed by Kellogg Marine, Inc. (“Kel*136logg”) to confirmation of Joseph A. Ochs’ (the “Debtor’s”) Chapter 13 plan on the basis of 11 U.S.C. § 1325(a)(3). According to Kellogg, the Debtor’s plan was not filed in good faith due to his allegedly fraudulent prior conduct with Kellogg. For the reasons set forth below, Kellogg’s objection is overruled and there is no bar to the Debtor confirming a properly filed Chapter 13 plan. The following constitutes the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. FACTS
Prepetition, the Debtor was the president of Thrift Mart Marine (“Thrift Mart”), a marine supply store located 701 Middle Country Road, Selden, New York. On or about January 13, 1996, the Debtor, as president of Thrift Mart, completed a credit application prior to opening a credit account with Kellogg, a marine goods wholesaler. In addition to this credit application, the Debtor, in his capacity as President of Thrift Mart, executed a Sales Contract (the “Contract”) and also executed a guarantee, personally guaranteeing any debt on the account of Thrift Mart (the “Guarantee”). Pursuant to the Contract, the Debtor and Thrift Mart agreed that title to all goods sold on credit would remain in Kellogg until payment by Thrift Mart was complete. The Debtor and Thrift Mart agreed to payment terms pursuant to the Contract. In addition, should the account be referred to an attorney for collection, the costs of collection would be paid in addition to the balance owed.
On October 27, 2000, the Debtor received notice from the owner of the property upon which Thrift Mart operated that the Thrift Mart lease would not be renewed in January, 2001. Pursuant to an order placed in November, 2000, $20,590.49 of marine goods were ordered by Thrift Mart and delivered from Kellogg between January 29, 2001 and March 12, 2001. No payments were made by Thrift Mart for these shipped goods. On March 18, 2001, an advertisement appeared in Newsday announcing a public auction of marine and boating trailer supplies, to take place on March 19, 2001 at the Thrift Mart premises. Included in the auction were goods shipped by Kellogg for which Thrift Mart had not made payment. Prior to the scheduled auction, an employee of Kellogg unsuccessfully tried to contact Thrift Mart, and thereafter, Kellogg discovered that Thrift Mart was no longer operating. At or about the same time, the Debtor obtained employment as a boat salesman.
On April 17, 2001, Kellogg commenced a civil action against Thrift Mart and the Debtor, seeking judgment against Thrift Mart and the Debtor for goods sold by Kellogg. The Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on June 11, 2001. Kellogg is listed as an unsecured creditor on Schedule F of the Debtor’s petition. Kellogg filed a claim in the amount of $20,590.49 for goods sold to the Debtor. The Debtor lists a total of $230,695.39 in unsecured debt, inclusive of the claim of Kellogg. A large portion of the unsecured debt appears to be based on the Debtor’s guarantees of Thrift Mart’s obligations. The Debtor’s Chapter 13 plan was filed on June 11, 2001, and was amended on September 27, 2001. The Debtor filed a second amended plan on July 23, 2002, which reflects a downward modification in plan payments due to the Debtor’s change in employment from boat salesman to employee at Network Educational Tech. Under the second amended plan, the Debtor is to make 60 monthly payments, with monthly payments in the amount of $583 for the first three months, $747 for the next seven months and $326 for the 48 remaining months. The Debtor’s plan as amended contem*137plates payments totaling $22,626. Unsecured creditors filing timely proofs of claim are to receive a pro rata distribution. The Debtor estimates that unsecured creditors will receive approximately 8% on their claims.
On September 30, 2001, Kellogg filed an objection to Confirmation of the Debtor’s Chapter 13 Plan, claiming only that the debt owed to Kellogg is nondischargeable under sections 523(a)(2) and (a)(6) of the Bankruptcy Code, and therefore the Debt- or’s plan was not filed in good faith. The Debtor filed a reply on September 25, 2001, and the Court took testimony from the Debtor on June 20, 2001. The Debtor testified that he retained an auction firm to schedule an auction of the inventory and equipment in Thrift Mart’s possession because he was unable to obtain credit from Bombardier Capital (“Bombardier”), which had been providing financing for the boat trailers sold by Thrift Mart. According to the Debtor, without financing from Bombardier, Thrift Mart could no longer sell boat trailers which had provided Thrift Mart with a major source of income.
Thrift Mart quickly retained an auctioneer and the Debtor testified that Thrift Mart auctioned inventory worth $115,000 plus computer equipment. According to the Debtor he expected to obtain a return of $35,000 to $40,000 and planned on repaying creditors of Thrift Mart, which were owed an aggregate of approximately $125,000, a portion of what was owed to each of them. Instead of receiving the expected amounts from the auction, Thrift Mart received approximately $15,000, which could cover only a fraction of its debt. The auction proceeds were used to pay outstanding New York State sales tax, payroll obligations, professional fees and ongoing expenses for the store.
As a result of the paltry returns garnered from the auction, Thrift Mart had insufficient funds to repay Kellogg, Bombardier, which was owed over $75,000 or any other remaining creditor. A majority of the creditors of Thrift Mart had personal guarantees from the Debtor, and after closing the store, the Debtor filed this petition under Chapter 13 of the Bankruptcy Code. The Court found the Debt- or’s testimony to be truthful and credible as to the events and circumstances surrounding the auction and the decision to file this petition.
DISCUSSION
Pursuant to section 1325(a)(3) of the Bankruptcy Code, the Court shall confirm a plan under Chapter 13 if, inter alia, it “has been proposed in good faith and not by any means forbidden by law.” The Bankruptcy Code does not define what constitutes good faith, and the Court must make its own determination with regard to whether the Debtor’s plan was proposed in good faith. In re Corino, 191 B.R. 283, 288 (Bankr.N.D.N.Y.1995) (citing, inter alia, In re Smith, 848 F.2d 813, 819 (7th Cir.1988); and In re Schaitz, 913 F.2d 452 (7th Cir.1990)). A number of courts have noted that it is the plan which must be proposed in good faith, not that the debts be incurred in good faith. In re Klevorn, 181 B.R. 8, 10 (Bankr.N.D.N.Y.1995); In re Schaitz, 913 F.2d at 455-456. The Court of Appeals for the Second Circuit has determined that a finding of good faith requires “honesty of intention” by the debtor in question. Johnson v. Vanguard Holding Corp. (In re Johnson), 708 F.2d 865, 868 (2d Cir.1983).
In view of the fact that “good faith” is not defined in the Bankruptcy Code, various courts have employed a totality of circumstances test to determine whether a plan has been proposed in good faith, which requires an inquiry into all relevant circumstances of a case to determine whether “the proposed plan constitutes an *138abuse of the provisions, purpose or spirit of Chapter 13.” In re Wilheim, 29 B.R. 912, 914 (Bankr.D.N.J.1983). The factors which courts have employed to make such a determination include:
(1) the probable duration of the plan,
(2) the frequency of bankruptcy filing,
(3) the accuracy of the bankruptcy papers,
(4) the debtor’s motivation and sincerity of Chapter 13 filing,
(5) the creditors,
(6) the circumstances of incurring debt,
(7) the nature and quantity of unsecured debt,
(8) if the debt was otherwise nondis-chargeable,
(9) the amount of attorneys fees,
(10) the burden of administration,
(11) special circumstances like medical costs,
(12) the debtor’s degree of effort,
(13) the debtor’s ability to earn,
(14) the debtor’s employment history and likelihood of future raises,
(15) the percentage of debt repayment,
(16) the amount of proposed payments,
(17) the amount of budget surplus,
(18) the general tests of “fundamental fairness”, “totality of circumstances” and “honesty of intention.”
In re Sutliff, 79 B.R. 151, 153 (Bankr.N.D.N.Y.1987) (citing Nelson v. Easley (In re Easley), 72 B.R. 948, 950-55 (Bankr.M.D.Tenn.1987); Neufeld v. Freeman, 794 F.2d 149, 152 (4th Cir.1986); and In re Makarchuk, 76 B.R. 919, 922-24 (Bankr.N.D.N.Y.1987)).
In sum, courts undertake a broad inquiry to determine “ ‘whether or not under the circumstances of the case there has been an abuse of the provisions, purpose or spirit of [the chapter] in the proposal.’ ” In re Sutliff, 79 B.R. at 154 (citing Kitchens v. Georgia Railroad Bank & Trust Co. (In re Kitchens), 702 F.2d 885, 888 (11th Cir.1983)). In this case, the Debtor owes approximately $230,695.39 in unsecured obligations and he proposes to pay the unsecured claims approximately 8% over five years. The Debtor’s current monthly net income is $2100, and his monthly expenses are $1766.94. Of the $333.06 in excess income per month, the Debtor plans to devote $326 per month to the plan payments. Although an 8% payout to unsecured creditors is not substantial, the Debtor does appear to be devoting all of his excess income to the plan at the cost of foregoing monthly entertainment and clothing expenses and by keeping his medical costs to $15 per month. The Court cannot conclude that the Chapter 13 plan as amended has been proposed in bad faith. See In re Metz, 820 F.2d 1495, 1498 (9th Cir.1987) (Chapter 13 plan which requires debtor to apply all projected disposable income to plan payments, yet provides for no payment to unsecured creditors does not warrant a finding the plan was submitted in bad faith per se).
In scrutinizing the Debtor’s motivation and sincerity in filing the Chapter 13 petition, the Court is obligated to review the debts the Debtor is seeking to discharge and to determine whether the timing of the filing or any other factor indicates an attempt to abuse the provisions of Chapter 13 of the Bankruptcy Code. In doing so, the Court can take into consideration the fact that Kellogg asserts that its debt is nondischargeable under section 523(a)(2) and/or (6) of the Bankruptcy Code. The Debtor’s overall unsecured debt reflects poor financial management in that approximately 90% of the debt is comprised of credit card debt. The *139debt owed to Kellogg by virtue of the Debtor’s personal guaranty would most likely be dischargeable in a Chapter 7 case because there is insufficient evidence that the Debtor intended to defraud Kellogg by inducing Kellogg to sell the goods to Thrift Mart. The Debtor’s testimony at the evi-dentiary hearing, which the Court found to be credible, supports a finding that the Debtor sold the goods purchased from Kellogg with the intent of repaying creditors as much as possible, but that the sale did not generate sufficient funds to repay Kellogg. The Debtor did not apply the funds collected from the sale to repay his own personal obligations, but used the funds to repay creditors of Thrift Mart. In addition, although Kellogg asserts that the Debtor converted Kellogg’s goods, no evidence was produced at the evidentiary hearing that Kellogg retained a perfected security interest in the goods once they were shipped to Thrift Mart. Under New York law, the filing of appropriate UCC-1 financing statements is required to evidence that a party has been granted a security interest in goods. Furthermore, the fact that Thrift Mart received a notice of cancellation of its lease, without more, is not dispositive on the issue of fraud vis-a-vis Kellogg. There is no evidence that the Debtor never intended to repay Kellogg or that the Debtor fraudulently induced Kellogg to ship goods to Thrift Mart. Without such a finding, Kellogg would not prevail in an action against the Debtor pursuant to § 523(a)(2) of the Bankruptcy Code.
Likewise, no evidence was adduced that the Debtor acted willfully or maliciously to injure Kellogg in requesting shipment of goods from Kellogg. Without a finding of intent to harm or defraud Kellogg, any cause of action against the Debtor pursuant to § 523(a)(6) would fail as well.
Even if the debt owed to Kellogg was deemed to be nondischargeable, this would not, in this case, be sufficient to result in denial of confirmation of the Debtor’s plan. Cases which find that the existence of one debt is sufficient to make a finding that the debtor in question violated section 1325(a)(3) usually concern a debt which dwarfs the other unsecured debts and which involves criminal conduct. In the case of In re Sotter, 28 B.R. 201 (Bankr.S.D.N.Y.1983), the Bankruptcy Court found that a debtor, who was a bank branch manager and pled guilty to making false statements to induce a federally insured bank to issue loans, did not file his petition under Chapter 13 in good faith. The court looked at a variety of factors, and based its decision mainly on the existence of the claim of the bank which was reduced to a civil judgment. As the court noted:
When the genesis of the major obligation sought to be wiped out under a Chapter 13 plan is rooted in criminal conduct, the courts must be more circumspect in weighing the crucial issue of good faith. This point was emphasized by the Sixth Circuit in the Memphis Bank & Trust Company case, supra, [v. Whitman,] 692 F.2d [427] at page 432 [(6th Cir.1982)] as follows:
‘We should not allow a debtor to obtain money, services or products from a seller by larceny, fraud or other forms of dishonesty and then keep his gain by filing a Chapter 13 petition within a few days of the wrong.’
28 B.R. at 204.
Other courts have recognized that the debtor’s decision to file the Chapter 13 petition must be seen as part of an overall scheme to avoid paying a debt procured by fraud. “The nature of the debt itself cannot preclude a Chapter 13 filing unless the debt was fraudulently incurred without any intention of repayment because of an anticipated abuse of the Chapter 13 pro*140cess.” In re Chase, 43 B.R. 739, 743-44 (D.Md.1984) (citing Margraf v. Oliver, 28 B.R. 420 (Bankr.S.D.Ohio 1983)).
In the case before this Court, there has been no finding that the Debtor fraudulently induced Kellogg to ship goods to Thrift Mart with the intention of never repaying Kellogg, or that the filing of this petition is all part of a scheme by the Debtor to dispose of one of his largest obligations. Rather, it appears that the Debtor intended to have an auction sale of goods conducted at Thrift Mart to repay creditors, including Kellogg, and that the sale fell short of his expectations. The Debtor is making an attempt to repay the unsecured creditors in this case despite his meager income.
All the remaining factors considered fail to sustain a finding that this petition was filed in bad faith. The Debtor is proposing a plan over five years when he could have only dedicated three years’ worth of his disposable income to a plan, and this is the Debtor’s first filing. The Debtor is not seeking to prefer one creditor over the other creditors, and overall, the Debtor’s demeanor at the hearing supports a finding that the petition was not filed in bad faith. For the foregoing reasons, this Court finds that the Debtor has complied with section 1325(a)(3) of the Bankruptcy Code and this petition was filed in good faith.
CONCLUSION
1. The Bankruptcy Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334.
2. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A) and (L).
3. Based on the evidence presented, including the testimony and demeanor of the Debtor, the Court concludes that the Debtor did not intend to defraud Kellogg when Thrift Mart accepted Kellogg’s merchandise for resale after January, 2001.
4.The Debtor’s Chapter 13 plan complies with 11 U.S.C. § 1325(a)(3) in that the plan has been proposed in good faith and is not by any means forbidden by law. The Debtor’s decision to file a petition for relief under Chapter 13 was not part of a larger scheme to defraud Kellogg, but was the result of the Debtor’s poor financial situation.
Settle an order in accordance with this decision within ten (10) days hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493455/ | ORDER RE APPLICATION FOR PAYMENT OF ADMINISTRATIVE EXPENSE CLAIM
PAUL J. KILBURG, Chief Judge.
The pending Application for Payment of Administrative Expense Claim filed by AgriProcessors, Inc. was heard on July 9, 2002. Attorney Jeff Courter represented AgriProcessors. Renee Hanrahan appeared as Chapter 7 Trustee. Attorney Lynn Wickham Hartman appeared for objector Iowa Quality Beef Supply Network, L.L.C. After hearing arguments of counsel, the Court took the matter under advisement. The time for filing briefs has now passed and this matter is ready for resolution. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B).
STATEMENT OF THE CASE
Debtor Tama Beef Packing, Inc. filed a Chapter 11 petition on November 8, 2001 which was eventually converted to Chapter 7. The only asset of value to the bankruptcy estate was Debtor’s lease of real property with the City of Tama. Early in the case, the City sought rejection of the lease. Instead, Trustee attempted to market the lease. AgriProcessors, Inc. was, initially, the only interested party. It made an offer to Trustee for assignment of Debtor’s rights in the lease. The City urged the Court and Trustee to reject the offer. Subsequently, Iowa Quality Beef made a higher offer which was ultimately accepted by Trustee and approved by the Court.
AgriProcessors seeks allowance of an administrative claim of approximately $47,000 for expenses arising from its pursuit of the lease assignment. This amount includes legal fees and expenses of $36,700, environmental engineering fees and expenses of $7,100, accounting fees of $2,300 and travel costs of $800. AgriProcessors argues that these amounts are fair and reasonable and were necessary as part of its due diligence and lease negotiations. It asserts that but for its offer to Trustee, the lease would have been rejected and no assets would have remained in the bankruptcy estate. AgriProcessors argues that its involvement in the case ultimately generated $153,000 from Iowa Quality Beef, the successful lease assignee, for the benefit of the estate. Absent this payment by Iowa Quality Beef, it asserts, the estate would have been valueless.
Trustee supports AgriProcessors’ request for an administrative priority claim. She states that if AgriProcessors had not made an offer for assignment of the lease, there would have been no other offers. AgriProcessors was the only potential buyer. Prior to its offer, Iowa Quality Beef and the City of Tama were engaged in *276outside negotiations and refused to deal with Trustee.
Trustee states that the bankruptcy estate holds $153,025 in its bank account. Trustee fees and fees and expenses for Trustee’s attorney will total approximately $40,000. Trustee makes a preliminary estimate that other priority claims, including wage claims and taxes, will total $60,000 to $65,000. Debtor’s Schedule E, however, lists total priority claims of $180,298. Unsecured claims total approximately $15 million.
Iowa Quality Beef objects to AgriPro-cessors’ request for an administrative claim. It states it objects on behalf of wage earners who will be its future employees. Iowa Quality Beef understood that its $153,000 payment to the bankruptcy estate for assignment of the lease would go to pay wage earner claims. It asserts that AgriProcessors was acting in its own self-interest in making a bid to purchase Debtor’s lease with the City of Tama. Iowa Quality Beef argues expenses incurred relating to AgriProcessors’ pursuit of the lease do not qualify for administrative expense status.
ADMINISTRATIVE EXPENSE CLAIM
Administrative expenses are priority claims, the allowance of which may diminish the recovery of creditors and other claimants. In re Flight Transp. Corp. Sec. Litig., 874 F.2d 576, 581 (8th Cir.1989). For this reason, priority statutes such as § 503(b) are strictly and narrowly construed. Id.
Section 503(b)(1)(A) gives administrative priority to “the actual, necessary costs and expenses of preserving the estate.” When making a determination under § 503(b)(1)(A), courts consider whether (1) the expense arose from a transaction with the estate, and (2) whether it benefit-ted the estate in some demonstrable way. In re Williams, 246 B.R. 591, 594 (8th Cir. BAP 1999). The claimant has the burden to demonstrate, by a preponderance of the evidence, that the expenses provided a tangible benefit to the bankruptcy estate. Id. The main policy behind granting administrative expense priority only to “actual, necessary” costs and expenses is to provide an incentive for creditors to continue or commence doing business with an insolvent entity. Id.
The key issue is whether the transaction was beneficial to the estate, not whether the creditor should be compensated for a loss it incurred during the case. In re Ramaker, 117 B.R. 959, 962 (Bankr.N.D.Iowa 1990). Incidental benefit to the estate or extensive participation in the case, standing alone, is not a sufficient basis for administrative priority status. In re Van Dyke, 1994 WL 881855, at *4 (Bankr.N.D.Iowa June 10, 1994) (Hoyt, J.); see also In re Midway Airlines, Inc., 221 B.R. 411, 447-48 (Bankr.N.D.Ill.1998). The reasoning under § 503(b)(1)(A) is that “parties subjected to loss and expense as a result of the administration of a bankruptcy estate are entitled to be made whole as a matter of fundamental fairness and should be allowed an administrative claim to implement that result.” In re Hildebrand, 205 B.R. 278, 286 (Bankr.D.Colo.1997) (relying on In re G.I.C. Government Sec., Inc., 121 B.R. 647, 649 (Bankr.M.D.Fla.1990), analyzing Reading Co. v. Brown, 391 U.S. 471, 483, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968)). The conduct involved must be “actual, necessary” and in an effort to “preserve the estate.” Hildebrand, 205 B.R. at 286.
In In re O’Brien Envtl. Energy, Inc., 181 F.3d 527, 532 (3d Cir.1999), an unsuccessful bidder at the sale of a debtor’s assets sought break-up fees and expenses. The court considered whether the claimant *277was entitled to receive an administrative priority claim for such expenses under § 503(b)(1)(A). Id. The court noted the claimant must “carry the heavy burden of demonstrating that the costs and fees ... provided an actual benefit to the estate and that such costs and expenses were necessary to preserve the value of the estate assets.” Id. at 533. Benefit to the estate could be found if assurance of a break-up fee in the circumstances promoted more competitive bidding or induced a bidder to research the value of the debtor resulting in a dollar figure on which other bidders can rely. Id. at 537.
In In re Communications Management & Info., Inc., 172 B.R. 136, 143 (Bankr.N.D.Ga.1994), the court considered whether efforts of employees of the purchaser of the debtor’s assets and other expenses incurred in relation to the purchase were entitled to administrative priority under § 503(b)(1)(A). The court concluded “[a] purchaser of estate assets will not be compensated for its time and effort in accomplishing the purchase of the assets.” Id. The court found certain related services of marketing, collecting accounts receivable and assisting in recovery of assets of the debtor were compensable. Id. at 144. Services performed to assist in the purchaser’s intended acquisition of the debtor were not compensable by the estate. Id.
Likewise, in In re Williams, 165 B.R. 840, 841 (Bankr.M.D.Tenn.1993), the court concluded that services which indirectly, incidentally, or tangentially benefit the estate do not qualify for the administrative expense priority. Attorney services performed solely for the purpose of facilitating the client’s purchase of the debtor’s business were not “actual, necessary” costs and did not qualify for administrative expense priority. Id. at 842; In re American 3001 Telecommunications, Inc., 79 B.R. 271, 273 (Bankr.N.D.Tex.1987) (finding attorney fees of party which proposed unsuccessful plan of reorganization by which it would acquire assets of debtor were not entitled to payment from the estate as administrative expense claim). In Wolf Creek Collieries Co. v. GEX Kentucky, Inc., 127 B.R. 374, 381 (N.D.Ohio 1991), the court found that one factor to consider in a § 503(b)(1)(A) analysis is whether the claimant was acting in its own self-interest, rather than the estate’s, when it incurred expenses for which it claims administrative priority.
The facts and rationale of In re Frog & Peach, Ltd., 38 B.R. 307, 309-10 (Bankr.N.D.Ga.1984), have a strong correlation with this case. In that case, the court discussed whether an unsuccessful bidder for the debtor’s assets should be entitled to an administrative claim for attorney fees and expenses. The claimant argued that its initial offer attracted the interest of the successful purchaser and encouraged competitive bidding. Id. at 308. The court concluded that such expenses did not fall within any of the defined categories of § 503(b). Id. at 308. Refusing to grant an administrative priority to the claimant, the court expressed its reluctance to open a potential floodgate of claims of outsiders which are not specifically authorized under § 503(b). Id. at 310. Furthermore, the court observed that had the debtor not been involved in a bankruptcy proceeding, the claimant would have certainly absorbed the costs of attorney’s fees and expenses arising from its unsuccessful bid. Id.
CONCLUSIONS
The Court concludes that AgriProcessor’s claim for attorney fees and other expenses is not entitled to administrative expense priority. There is no dispute that the expense arose postpetition from a transaction with the estate. The attorney *278fees and other expenses arose in connection with AgriProcessor’s attempt to acquire the assignment of Debtor’s lease with the City. This occurred after Debtor’s case converted from Chapter 11 to Chapter 7.
However, the expenses incurred by AgriProcessors do not constitute actual, necessary costs and expenses of preserving the'- bankruptcy estate. AgriProces-sors has the burden to prove its claim is entitled to administrative priority under § 503(b)(1)(A), which this Court must strictly and narrowly construe. AgriPro-cessors has not shown that it was subjected to loss as a result of the administration of the bankruptcy estate. Had there been no bankruptcy estate, AgriProcessors would certainly expect to absorb the costs and expenses arising from an unsuccessful bid for the assignment of a lease such as Debtor’s.
The bankruptcy estate incidentally bene-fitted from AgriProcessors’ pursuit of Debtor’s lease with the City. The Court agrees it is probable that, without Agri-Processors’ initial offer to Trustee, Iowa Quality Beef would not have negotiated with Trustee and the lease would have been considered worthless and abandoned from the bankruptcy estate. This incidental benefit to the estate, however, does not entitle AgriProcessors to an administrative priority claim.
The fees and expenses set out in Agri-Processors application were incurred for the benefit of AgriProcessors alone. These costs arose as a result of AgriPro-cessors’ interest in purchasing Debtor’s sole asset and its attorney’s efforts on its own behalf. Section 503(b)(1)(A) does not authorize payment from the estate for such costs incurred by an interested party during the case in relation to the purchase of Debtor’s lease interests. AgriProces-sors did not incur the costs in order to preserve the bankruptcy estate. The costs arose from its attempt to obtain an asset from the bankruptcy estate.
The Court must strictly construe § 503(b)(1)(A). AgriProcessors’ fees and expenses from its pursuit of an assignment of Debtor’s lease with the City do not qualify for priority under that statute.
WHEREFORE, the Application for Payment of Administrative Expense Claim filed by AgriProcessors, Inc. is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493456/ | OPINION
CLARK, Bankruptcy Judge.
Richard Alvin and Pamela Marie Bennett (“Debtors” or “Petitioners”), by and through their attorney, Jennie Deden Behles (“Behles”) of J.D. Behles & Associates, P.C. (“Behles Firm”), appealed an “Order Granting Motion to Reconsider and Order Reaffirming Prior Order on Disqualification” (“Reconsideration Order”) entered by the Honorable James S. Starzynski, Bankruptcy Judge for the United States Bankruptcy Court for the District of New Mexico (“Judge Starzyn-ski”). The Reconsideration Order expressly incorporates Judge Starzynski’s previous “Order Denying Debtors’ Motion for Disqualification of Bankruptcy Judge and Motion Pursuant to 28 U.S.C. Section *311455” (“Disqualification Order”) and his related “Memorandum Opinion on Debtors’ Motion for Disqualification of Bankruptcy Judge and Motion Pursuant to 28 U.S.C. Section 455” (“Memorandum Opinion”). In the Disqualification Order and the Reconsideration Order, Judge Starzynski refused to recuse himself from the Debtors’ Chapter 12 case.
This Court treated the Petitioners’ Notice of Appeal as a Petition for Writ of Mandamus (“Petition”), because such a Petition is the proper avenue to seek review of an interlocutory order involving a Judge’s refusal to recuse him or herself from a case or proceeding. See, e.g., Nichols v. Alley, 71 F.3d 347, 350 (10th Cir.1995) (per curiam); Lopez v. Behles (In re American Ready Mix, Inc.), 14 F.3d 1497, 1499 (10th Cir.), cert. denied, 513 U.S. 818, 115 S.Ct. 77, 130 L.Ed.2d 31 (1994). The United States trustee (“UST”) has responded to the Petitioners’ Petition. For the reasons stated below, the Petition is DENIED.
I. Background
The Behles Firm and the Debtor Petitioners both requested that Judge Star-zynski recuse himself from the Debtors’ Chapter 12 case. These requests were based on allegations related to Judge Star-zynski’s actions in an unrelated bankruptcy case, In re K.D. Company, 254 B.R. 480 (10th Cir. BAP 2000) (“KD Case”), and his actions in the Debtors’ Chapter 12 case. Set forth below is a history of the relevant facts related to the KD Case and the Debtors’ Chapter 12 case that we have been able to ascertain from the record, a summary of the Behles Firm and the Debtors’ motions for disqualification and the allegations against Judge Starzynski, and a brief summary of the disqualification proceedings below.
A. The KD Case
In 1996, K.D. Company, Inc. (“KD”) filed a petition seeking relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Mexico. The bankruptcy court approved the Behles Firm as KD’s bankruptcy counsel, and during its employment it was paid at least a portion of its fees and costs as an administrative expense. At some point, the Behles Firm withdrew as KD’s bankruptcy counsel and Judge Starzynski, who at this time had not been appointed as a Bankruptcy Judge, and his law firm, Francis & Starzynski, P.A. (“Francis Firm”), were employed as successor bankruptcy counsel to KD. As KD’s counsel, the Francis Firm received a portion of its requested fees and costs as an administrative expense.
In November 1997, a stipulated order was entered in the KD Case, over the objections of the Behles Firm, allowing Martin Raft, a real property lessor (“Raft”), an administrative expense against KD. KD did not pay Raft’s administrative expense claim prior to or at the time of the confirmation of its plan. Rather, a plan was confirmed in the KD Case allowing Raft to seek pro rata disgorgement from entities whose administrative expenses were paid by KD in the Chapter 11 case if the reorganized KD was unable to pay all administrative expense claims in full.
Reorganized KD ultimately determined that it could not pay its administrative expense claims in full. Thus, in 1999, Raft commenced an action against, among others, the Behles Firm and the Francis Firm, seeking disgorgement of administrative expenses that KD had paid to them (“Raft Disgorgement Action”). When the Raft Disgorgement Action was filed, Judge Starzynski had been appointed as a Bankruptcy Judge. The Francis Firm or Judge Starzynski or both asserted claims against *312co-defendants in the Raft Disgorgement Action, including the Behles Firm, claiming that, if administrative expenses were to be reallocated to afford Raft and other administrative claimants a pro rata distribution, it was entitled to disgorgement from its co-defendants because it had been paid less than its proportionate share of administrative expenses.
Other than the Behles Firm, all of the defendants in the Raft Disgorgement Action either defaulted or settled with Raft. Furthermore, the Francis Firm or Judge Starzynski or both settled with all of the co-defendants, other than the Behles Firm, and at least some of the co-defendants agreed that they were required to pay the Francis Firm or Judge Starzynski or both (“Starzynski Settlement Payment”). In February 2000, just prior to a trial to determine whether the Behles Firm was required to disgorge some of the fees that it had been paid, any claim that Judge Starzynski or the Francis Firm or both might have had against the Behles Firm was waived.
At the trial,1 Judge Starzynski served as a witness for Raft and was subpoenaed by the Behles Firm. The bankruptcy court eventually entered a judgment in favor of Raft against the Behles Firm, requiring the Behles Firm to disgorge $40,000 in fees (“Raft Judgment”). The Raft Judgment was appealed to this Court by the Behles Firm. See In re KD Company, 254 B.R. 480 (10th Cir. BAP 2000). We affirmed the bankruptcy court’s judgment against the Behles Firm, holding that the bankruptcy court did not err in barring the Behles Firm’s collateral attack of the confirmation order in KD’s Chapter 11 case or in its interpretation of KD’s binding confirmed plan. We also concluded that the bankruptcy court did not err in ordering disgorgement pursuant to the terms of the confirmed plan in the KD Case, despite any argument by the Behles Firm that such a remedy was “incredibly rare.” Id. at 482.
B. Judge Starzynski’s Actions Related to the Behles Firm’s Employment in the Debtors’ Chapter 12 Case and the Behles’ Firm’s Recusal Motion
In March 2000, after Judge Starzynski or the Francis Firm or both had waived claims against the Behles Firm in the Raft Disgorgement Action, the Debtors filed a petition seeking relief under Chapter 12 of the Bankruptcy Code. Judge Starzynski, who had been a Bankruptcy Judge since August 1998, was assigned to the case. The Behles firm promptly applied to represent the Debtors in their Chapter 12 case (“Employment Motion”). Attached to the Employment Motion was an “Attorney Client Agreement,” signed by the Debtors. No objections were filed to the Employment Motion.
On June 1, 2000, Judge Starzynski entered an order, which had been submitted by the Behles Firm in conjunction with the Employment Motion, approving the Behles Firm’s employment without conducting a hearing (“Employment Order”). The form of the Employment Order was modified by Judge Starzynski sua sponte to reduce the hourly rates disclosed in the Attorney Client Agreement of various Behles Firm professionals. Judge Starzynski ordered, however, that the Behles Firm could request higher rates in the future. He also stated that the Behles Firm was “authorized to be paid 75% of fees and 100% of costs on a monthly basis, if sufficient funds *313exist to make that practicable.” Employment Order, in Petitioners’ Appendix at 52.
On June 12, 2000, the Behles Firm filed a “Contingent Motion to Withdraw from Representation” (“Withdrawal Motion”), representing that it wanted to withdraw from the Debtors’ Chapter 12 case due to its inability to obtain employment in accordance with the terms of its Employment Motion. On the same day, the Behles Firm moved to set aside the Employment Order (“Employment Set Aside Motion”), stating that it had an unconditional right to set its rates, the bankruptcy court had approved higher rates for other firms of like experience in Chapter 11 cases, and that the risks involved in representing debtors in possession,. as apparent from the KD Case, require higher rates.
The next day, June 18, 2000, the Behles Firm filed a motion requesting that Judge Starzynski recuse himself from the Debtors’ Chapter 12 case (“Behles Recusal Motion”), contending that the Employment Order had been entered without a hearing and improperly modified the terms of the Attorney Client Agreement even though no objections to it were filed. Furthermore, the Behles Firm stated:
[I]t may be that the Court from its own recent experience in the practice of law may harbor a predisposition on these matters; and under the doctrine in Liteky v. U.S., 510 U.S. 540, 545-555[, 114 S.Ct. 1147, 127 L.Ed.2d 474] (1994) if that predisposition toward reducing hourly rates to the range charged by the Judge prior to his elevation to the bench, this would be significant and warrant recusal under what is sometimes the Extra Judicial Source Doctrine. The question here under Liteky might be merely the matter of degree, ie., it’s the Court’s predilection in this regard is beyond the normal and acceptable.
Behles Recusal Motion at 2, in Petitioners’ Appendix at 81.
C. Judge Starzynski’s Actions Related to Cash Collateral Orders and the Dismissal of the Debtors’ Chapter 12 Case, and the Debtors’ Recusal Motion
On March 29, 2000, approximately twenty days after they filed their Chapter 12 petition, the Debtors filed a motion seeking permission to use cash collateral (“Cash Collateral Motion”). On the same day, the Debtors moved to shorten the notice time on the Cash Collateral Motion. Two days later, on March 31, 2000, Judge Starzynski entered an order granting the motion to shorten time, and set a hearing on the Cash Collateral Motion for April 12, 2000. Several responses and objections to the Cash Collateral Motion were filed. After a hearing, Judge Starzynski entered an order granting the Cash Collateral Motion on April 18, 2000.
On May 9, 2000, the Debtors filed another motion seeking permission to use cash collateral (“Second Cash Collateral Motion”), but they did not seek to shorten the notice time. Responses and objections were filed to the Second Cash Collateral Motion. A preliminary emergency hearing on the Second Cash Collateral Motion was commenced on May 25, 2000, and continued until May 26, 2000. At the conclusion of the hearing, Judge Starzynski set an evidentiary hearing for June 12, 2000. He also authorized the Debtors, in part based on a stipulation, to use a portion of cash collateral for specific utilities and repairs.
On June 5, 2000, the Debtors filed a motion to extend the time to file a Chapter 12 plan until June 12, 2000 (“Plan Extension Motion”). No notice of hearing was filed with the Plan Extension Motion. Rather, it was filed later by the Debtors, on June 14, 2000.
*314On June 12, 2000, the Behles Firm filed a proposed Chapter 12 plan for the Debtors.2 No notice of confirmation hearing was filed at that time or within five days of the filing of the plan. See N.M. Bankr.Ct. L.R.2082-1.
Also on June 12, 2000, Judge Starzynski held an evidentiary hearing on the Second Cash Collateral Motion. At the conclusion of the hearing, he ordered the parties to file briefs, and indicated his intent to decide the matter by no later than June 26 or 27, 2000. Despite this statement of intent, Judge Starzynski did not enter an order on the Second Cash Collateral Motion on or before June 26 or 27th.
On July 11, 2000, after the Behles Recu-sal Motion was filed, Judge Starzynski entered a sua sponte “Order to Show Cause Why Case Should Not Be Dismissed” (“OSC”). The OSC stated that the Behles Firm had obtained a confirmation hearing date, but it had not filed with the court a notice of hearing related to that date; thus, it appeared as if the hearing date that had been scheduled on the court’s calendar had not been noticed to creditors and parties in interest in the Debtors’ case, and that the Debtors were in violation of the court’s Local Rule 2082-1. Furthermore, with no notice of confirmation hearing on file, it appeared impossible for the Debtors to comply with the 20 day notice of hearing requirement for the confirmation of a plan set forth in Fed. R. Bankr.P.2002(a)(8) and 11 U.S.C. § 1224, mandating that a confirmation hearing be concluded within 45 days of the filing of a Chapter 12 plan, which, in the Debtors’ case, was scheduled to expire on July 27, 2000.
One day later, on July 12, 2000, a hearing was held on the Plan Extension Motion, and, twenty days notice having elapsed from the June 14, 2001 notice date without objection, the Motion was granted by Judge Starzynski. Thus, the untimely filing of the Debtors’ plan on June 12, 2000, was approved. Although there is no transcript of this hearing in the record, the Debtors and Behles make much of the fact that Judge Starzynski did not inform them at the hearing about his entry of the OSC the day prior. Even assuming that this is true, the Debtors and Behles must have known about the OSC at the hearing or shortly thereafter, because on that same day, July 12, 2000, the Debtors filed a Response to the OSC and moved to extend the time to hold a confirmation hearing (“Confirmation Extension Motion”). The Debtors did not move to shorten the notice time on the Confirmation Extension Motion, and the notice of hearing served on parties interest allowed parties until August 4, 2000 to file objections thereto.
On July 19, 2000, a hearing on the OSC was held. Judge Starzynski ordered the parties to brief the issues raised by the OSC by August 4, 2000. No briefs were filed on that date. See Bankruptcy Court Docket Sheet, in Petitioners’ Appendix at 10-12. At the OSC hearing, he also set a hearing on the confirmation of the Debtors’ plan for August 22, 2000.
On August 16, 2000, the Debtors filed an amended notice of hearing on their Confirmation Extension Motion, stating that the amended notice had been served on July 22, 2000, and objections to the Confirmation Extension Motion were due by August 14, 2000. No objections to the Confirmation Extension Motion were filed. The amended notice of hearing allegedly was filed because Judge Starzynski purportedly sent letters to the Debtors or the Behles Firm stating that the first notice of hearing was improperly served (“Alleged *315Faulty Service Letters”). These Alleged Faulty Service Letters are not part of the appellate record, and there is nothing in the bankruptcy court’s docket to indicate that such Letters exist.3
On August 18, 2000, the Debtors filed a motion seeking to disqualify Judge Star-zynski from their case (“Debtors’ Recusal Motion”) on six grounds. First, the Debtors argued that Judge Starzynski had promised to make a final decision on the Second Cash Collateral Motion, which was vital to the confirmation of their plan, by June 26 or 27, 2000, and he had not yet issued a decision. Second, they stated that Judge Starzynski had issued the OSC at a time when he had just granted the Plan Extension Motion approving the late-filing of their plan, and when he had not yet ruled on their Confirmation Extension Motion, which was filed in response to the OSC. Third, the Debtors maintained that Judge Starzynski’s Alleged Faulty Notice Letters were offensive. In particular—
While the Court may in some matters take certain positions sua sponte, it seems that the Court, by its letters, is soliciting support of its position that the Debtors’ Plan should be dismissed by soliciting objections to the Debtors’ Motion for Extension of Time and by soliciting briefs in support of its Show Cause Order.
Debtors’ Recusal Motion at 3, in Petitioners’ Appendix at 100. Fourth, the Debtors complained that, despite a request, a hearing had not been set on the Behles Firms’ Withdrawal Motion, Employment Set Aside Motion, and Behles Recusal Motion, thus making it difficult to know whether they were to be assisted by counsel. Fifth, as in the Behles Recusal Motion, the Debtors alluded to Judge Starzynski’s alleged bias against Behles and the Behles Firm based on the events in the KD Case. Finally, sixth, the Debtors made allegations related to “a case called Miller,” id. at 101, but no document from the Miller case is included in the record on appeal for this case.
On August 22, 2000, at the time scheduled for the hearing on the confirmation of the Debtors’ proposed plan, Judge Star-zynski held a hearing on the Behles Firm’s Withdrawal Motion, Employment Set Aside Motion and Behles Recusal Motion, and on the Debtors’ Recusal Motion (collectively, the “Employment and Disqualification Motions”). At that time, Judge Starzynski set an evidentiary hearing on the Employment and Disqualification Motions, and the confirmation hearing was rescheduled. A notice of hearing on the Employment and Disqualification Motions was served.
On or about October 26, 2000, an order was entered by Judge Starzynski confirming the Debtors’ Chapter 12 plan. Prior to confirming the Debtors’ plan, Judge Star-zynski never entered any orders on the outstanding portion of the Second Cash Collateral Motion, the Confirmation Extension Motion, or the OSC. But, the Debtors acknowledge that the Second Cash Collateral Motion was resolved at their confirmation hearing and, thus, was no longer pending. Affidavit of Debtors ¶ 6, in Petitioners’ Appendix at 146. Furthermore, by confirming the plan Judge Star-zynski implicitly granted the Confirmation Extension Motion, which sought an exten*316sion of time in which to hold the confirmation hearing.4 Given its confirmation of the plan, the issues raised in the OSG were moot.5
On October 31, 2000, the UST objected to the Behles Recusal Motion and the Debtors’ Recusal Motion (collectively, the “Recusal Motions”), arguing that the Behles Firm and the Debtors did not make specific allegations that would allow a reasonable person to believe that Judge Star-zynski was biased. Following the UST’s objection, Judge Starzynski requested briefs and affidavits to be filed related to the Recusal Motions.
D. The Allegations Against Judge Starzynski in Documents Filed in Support of the Recusal Motions
In January 2001, the Behles firm and the UST filed memorandums of law discussing the procedures that they thought should be employed by Judge Starzynski in determining the Recusal Motions. The Behles Firm did not file any affidavits in support of its Behles Recusal Motion. The Debtors, however, filed an affidavit in support of the Debtors’ Recusal Motion (“Debtors’ Affidavit”) and a document entitled “Affidavit Statements of Documentary Evidence Pursuant to Paragraph 1 of the Scheduling Order Entered by this Court” (“Supporting Pleading”). See Supporting Pleading at 1, in Petitioners’ Appendix at 133. The allegations made in these documents are summarized below.
1. The Debtors ’ Affidavit
a. Failure to Rule Issues. The Second Cash Collateral Motion involved monies that were crucial to the Debtors’ reorganization. While the Motion was ultimately resolved by stipulation at the confirmation hearing, Judge Starzynski’s failure to rule on the Motion jeopardized the Debtors’ pre-confirmation farming operations, because they “had to seek unsecured credit from suppliers on a short-term basis [and] do without many necessities.” Debtors’ Affidavit ¶ 7, in Petitioners’ Appendix at 146. Judge Starzynski’s failure to rule on the Second Cash Collateral Motion also “otherwise jeopardize [sic] [the Debtors’] ability to meet [their] farm plan to carry [them] through to confirmation.” Id.; see Debtors’ Affidavit ¶¶ 2-6, in Petitioners’ Appendix at 145-46. Judge Starzynski knew how deleterious his failure to rule on the Second Cash Collateral Motion was to the Debtors and, because they do not understand his failure to rule, he must have intended to cause their case to fail. Id. ¶ 8, in Petitioners’ Appendix at 146.
*317b. OSC Issues. The OSC was issued by Judge Starzynski to cause the failure of their case, because he issued it at a time when he knew, based on the Second Cash Collateral Motion, that the Debtors were cash poor, and it forced them “to expend ... additional sums to notice a Plan that the Court [may] not deem timely filed.Id. ¶ 9, in Petitioners’ Appendix at 146-47. The OSC was particularly worrisome to the Debtors because they had heard that Chapter 12 may not be extended by Congress and, if such an event were to occur, the dismissal of their case would leave them with no remedy. Id. ¶ 11, in Petitioners’ Appendix at 147.
c. Solicitation of Dismissal Issues. Based on two events, Judge Starzynski is claimed to have solicited support for the dismissal of the Debtors’ Chapter 12 case. First, Judge Starzynski ordered briefs on the Second Cash Collateral Motion, which the Debtors’ “counsel had to brief[,]” and “[i]t seemed to [the Debtors], [by ordering briefing,] the Court was advocating dismissal of [their] cser [sic] and soliciting support for its position rather than just dismissing its How [sic] Cause Order when no one supported dismissal.” Id. ¶ 10.6 In addition, the Alleged Faulty Notice Letters “solicited] objections in support of [the court’s] Show Cause Order to dismiss [the Debtors’] case. The language in the letters seemed very clear ... that the Court wanted [the Debtors’] case dismissed, and objections to [their] Motion to Extend the Time in which the Plan could be heard, filed.” Id. ¶ 12.
d. Employment of Counsel Issues. Judge Starzynski’s failure to immediately enter an order granting the Employment Motion and his subsequent reduction of the Behles Firms’ hourly rates in the Employment Order made the Debtors “very concerned about losing [their] case.” Id. ¶ 13, in Petitioners’ Appendix at 148. Furthermore, the fact that the Withdrawal Motion and Employment Set Aside Motion were never ruled on made the Debtors “concerned” about the Behles Firm’s “ability and desire to do everything in their power to get [their] case confirmed.” Id. ¶ 14.
e.KD Case Issues. The Debtors state:
[0]ur counsel advised us of the situation involving claims being made by the Judge against our counsel’s law firm in the KD. case. We were concerned that the Court’s adversary position in regard to our counsel would adversely affect our case. However, on the other hand, we were concerned to proceed in this court without a law firm we felt would fight for us since it was clear that the Court either did not care whether our Plan failed or even wanted our case to fail and be dismissed, and it actively worked in support of that position.
Id. ¶ 15.
2. The Supporting Pleading
In addition to the Debtors’ Affidavit, the Debtors filed the Supporting Pleading in support of their Recusal Motion, which, as noted above, is entitled “Affidavit Statements of Documentary Evidence Pursuant to Paragraph 1 of the Scheduling Order Entered by this Court.” See Supporting Pleading at 1, in Petitioners’ Appendix at 133. Although the Supporting Pleading is styled as an “Affidavit ... of Documenta*318ry Evidence!,]” it is not in any way an affidavit as it is not signed by the Debtors nor notarized. Rather, the Supporting Pleading is signed by Behles, and it states that the statements made therein are “in accord with the Rules and specifically Rule 9011_” Id. at 1, 11, in Petitioners’ Appendix at 133, 143. The Supporting Pleading, while purporting to contain “Documentary Evidence,” has no exhibits attached to it, but rather makes general references to papers in the KD Case and other bankruptcy cases apparently filed in the District of New Mexico. Finally, while the Supporting Pleading states that it is made by the Debtors, there are passages in the Pleading in which Behles refers to herself, thus indicating that it is her statement, not the Debtors’. See Supporting Pleading ¶ 36, in Petitioners’ Appendix at 141-42.
The Supporting Pleading makes numerous statements about Judge Starzynski’s alleged bias against Behles and the Behles firm, and his alleged improper behavior as a Judge. These statements, while not verified by the persons purporting to make them and not supported by any exhibits, are summarized as follows:
a.Actions Against Behles or the Behles Firm in the KD Case. The plan that Judge Starzynski prepared for KD in the KD Case, authorizing the Raft Disgorgement Action, was “unique” and was drafted, according to Judge Starzynski’s testimony in the Raft Disgorgement Action, without regard to Tenth Circuit law. Supporting Pleading ¶2, in Petitioners’ Appendix at 133. Although the Francis Firm was named as a defendant in the Raft Disgorgement Action, Judge Starzyn-ski asserted similar claims to those of Raft, and pursued, among others, the Behles Firm. These claims in the Raft Disgorgement Action “forever causes the appearance of impartiality.” Id. ¶ 38, in Petitioners’ Appendix at 142.
The Raft Disgorgement Action occurred after Judge Starzynski was appointed as a Bankruptcy Judge, and thus he recused himself in matters related to the Behles Firm’s fees, and in all contested or adversary matters in which Behles or the Behles Firm were involved. Judge Starzynski ultimately disclaimed any interest in any judgment that might be entered against Behles or the Behles Firm allegedly because of his inability to hear matters related to Behles or the Behles Firm. But, after waiving claims, he specifically requested permission continue to “participate in” in the Raft Disgorgement Action, and he testified on behalf of Raft in the Raft Disgorgement Action. Supporting Pleading ¶ 6, in Petitioners’ Appendix at 134. Judge Starzynski testified that he understood that KD refused to cooperate with the Behles Firm and the Behles Firm withdrew from representation because KD refused to meet the Behles Firm’s high demands for fees. See id. ¶¶ 1-7, 9-10, in Petitioners’ Appendix at 133-35.
b. Actions Against Others in the KD Case. Although Judge Starzynski disclaimed an interest in the Raft Judgment against the Behles Firm, an order approving a settlement between Raft, the Francis Firm and another law firm-defendant in the Raft Disgorgement Action expressly required that defendant to pay Judge Starzynski the Starzynski Settlement Payment. “This appeared to be, and was, a claim or attack by a sitting judge against attorneys practicing before his court which had to be tried by judges of that court.” Id. ¶ 8, in Petitioners’ Appendix at 135.
c. Judge Starzynski’s Fee Issues. Judge Starzynski, while in practice, never charged more than $200 per hour representing debtors, and it is difficult for him to understand others charging more than *319that amount. As a Bankruptcy Judge, Judge Starzynski has improperly contested Behles’ hourly rate on several occasions, including in the Debtors’ Chapter 12 case. In In re Miller, a case in which Behles represents or represented the debt- or, an order was entered by the bankruptcy court unilaterally reducing hourly rates of attorneys in the Behles Firm, including reducing Behles’ $225 hourly rate to $200 (“Miller Fee Order”). The Miller Fee Order was not served on Behles in time for her to object, and was in fact served to an incorrect address. It appears from the Supporting Pleading that the judge who entered the Miller Fee Order is Judge Starzynski. Id. ¶¶ 11-19, 23, in Petitioners’ Appendix at 135-38.
d. Defense of the Employment Motion and Attorney Client Agreement. In ¶¶ 19-22 and ¶ 29 of the Supporting Pleading, the Debtors defend the hourly rates charged by Behles and the Behles Firm, and denounce any action by a Judge to sua sponte reduce agreed hourly rates. Petitioners’ Appendix at 137-39.
e. Acts to Dismiss the Debtors’ Chapter 12 Case. Judge Starzynski attempted to dismiss the Debtors’ case sua sponte even though he knew that Chapter 12 may not be extended by Congress, and even though no creditor supported dismissal. He entered the OSC and did not inform Behles about the OSC at a hearing on the Plan Extension Motion held the following day. Judge Starzynski issued the OSC, but also delayed in nearly a month before allowing the late-filed plan by the Plan Extension Motion. In other cases, Judge Starzynski has not enforced the time limits for filing a plan under Chapter 12. Supporting Pleading ¶¶ 24-28, 30, in Petitioners’ Appendix at 138-140.
f. Court Administration. Judge Star-zynski’s delay in ruling on the Second Cash Collateral Motion made it very difficult for the Debtors. His actions in the Debtors’ case and in numerous other Chapter 11, 12, and 13 cases, presumably where Behles or a member of the Behles Firm served or serves as counsel, indicate that he does not understand the dynamics of the cases or the priorities to be attended in each case. Id. ¶¶ 31-33, in Petitioners’ Appendix at 140 — 41.
g. Alleged Faulty Notice Letters. The Supporting Pleading states the following regarding the Alleged Faulty Notice Letters:
Counsel [Behles] has practiced law thirty (30) years and in the [Debtors’] case is the first time that counsel has seen the Court send letters such as [the Alleged Faulty Notice Letters] to opposing counsel soliciting their participation on action taken by the Court sua sponte .... This solicitation of opposition to Debtors in a way other than as proposed in the Rules, i.e., setting a hearing and giving notice, gives a definite appearance that the Court is not being impartial, and can create no other appearance.
Id. ¶37, in Petitioners’ Appendix at 142; see id. ¶ 40, in Petitioners’ Appendix at 143.
h. Behles’s Statement. Based on the above statements, the following concluding statements are made, apparently by Behles personally, in the Debtors’ Supporting Pleading:
36. Counsel for Debtors has been forced to explain to Debtors in this case and other cases about the position of Starzynski in the K.D. case due to recusal and because she was concerned that for his obvious adversarial posture affected those client’s cases. The Court’s predilection to treat counsel differently than other counsel whether it is deleterious to counsel or her client, leads me *320to believe, as a reasonable person, that at least in appearance, the Court is not impartial, has created a conflict and may even appear to reflect personal bias.
38.... Behles has been told by several clients and prospective clients that other attorneys whom they have interviewed have informed them when they advise that person they also intended to interview Behles’s Firm, that it might not be a good idea to employ Behles’ firm in the matters in from of Judge Starzynski for this reason. This has occurred on three (3) occasions.
39. When I began to see the difficulties in [the Debtors’ case] in obtaining cash collateral hearings or cash collateral rulings, which are similar to the problems that had occurred in Miller, as well as the problems with the employment order, based on my experience with other clients cited above, I felt compelled to inform the [Debtors] about the K.D. matter because I felt that my presence in this case might be deleterious to their ability to reorganize before this court, or that it would appear so if they were to be told about the K.D. matter from another source, and that I might be considered remiss in my duty in not informing them of it.
Id ¶¶ 36-39, in Petitioners’ Appendix at 141-43.
E. Bankruptcy Court’s Disqualification Order, Memorandum Opinion, and Reconsideration Order
On June 25, 2001, Judge Starzynski entered his Disqualification Order and his 26 page Memorandum Opinion denying the Recusal Motions.7 He concluded that the fact that the Behles Firm was upset by the court’s refusal to give it “carte blanche” in charging fees did not demonstrate prejudice directed at the Debtors. Memorandum Opinion at 14, in Petitioners’ Appendix at 240. In so holding, Judge Starzynski set forth law demonstrating that he had a duty to assess professional fees in a Chapter 12 case, and that his reduction of the Behles Firm’s professionals’ hourly rates was not a showing of bias against the Debtors.
Furthermore, Judge Starzynski stated that his issuance of the OSC was not a disqualifying act. He correctly explained that the Chapter 12 process is different than the Chapter 11 process, and Chapter 12 imposes specific deadlines that must be followed. His entry of a sua sponte OSC did not indicate bias, and in fact, he set aside his OSC and gave the Debtors the benefit of Chapter 12 protection.
Finally, Judge Starzynski stated that, although he was in an adverse position to the Behles Firm in the KD Case, he disclaimed any interest in any recovery that would be awarded against the Behles Firm. This disclaimer was filed before the Debtors’ Chapter 12 case was filed. Thus, the KD Case, and the parties’ adverse relationship therein, had no bearing on the Debtors’ case.8
*321A Motion for Reconsideration of the Disqualification Order was filed. Judge Star-zynski subsequently entered his Reconsideration Order in which he granted the Motion for Reconsideration, but reaffirmed his previous Disqualification Order.
The Debtors filed a Notice of Appeal from Judge Starzynski’s Reconsideration Order, which incorporates the Disqualification Order and Memorandum Opinion. As noted above, we designated the Notice of Appeal as a Petition for Writ of Mandamus. As a court “established by Act of Congress,” we have jurisdiction over the Petition under 28 U.S.C. § 1651(a).
II. Mandamus Standard
As noted above, a petition for a writ of mandamus is the appropriate means of seeking review of a Judge’s refusal to disqualify him or herself from a case, such as the Disqualification Order and Reconsideration Order at issue in this case. Nichols, 71 F.3d at 350; American Ready Mix, 14 F.3d at 1499. Accordingly, although an order denying a motion to recuse typically is reviewed for abuse of discretion,9 the higher standard of review applicable to mandamus petitions governs in this case. Nichols, 71 F.3d at 350 (citing cases).
The issuance of a writ of mandamus is left to this Court’s discretion. Kerr v. United States Dist. Court, 426 U.S. 394, 403, 96 S.Ct. 2119, 48 L.Ed.2d 725 (1976). Mandamus is a drastic remedy, which is to be used only in extraordinary situations. Allied Chem. Corp. v. Daiflon, Inc., 449 U.S. 33, 34, 101 S.Ct. 188, 66 L.Ed.2d 193 (1980); Weston v. Mann (In re Weston), 18 F.3d 860, 864 (10th Cir.1994). “Mandamus ‘will issue only in those exceptional cases where the inferior court has acted wholly without jurisdiction or so clearly abused its discretion as to constitute a judicial usurpation of power.’ ” Pacificare of Okla., Inc. v. Burrage, 59 F.3d 151, 153 (10th Cir.1995) (quoting Kaiser Steel Corp. v. Frates (In re Kaiser Steel Corp.), 911 F.2d 380, 387 (10th Cir.1990)); accord Mallard v. United States Dist. Court, 490 U.S. 296, 309, 109 S.Ct. 1814, 104 L.Ed.2d 318 (1989), cited in Nichols, 71 F.3d at 350. Petitioners have the burden to show that their right to the writ of mandamus is clear and indisputable. Weston, 18 F.3d at 864.
III. Discussion
The disqualification of a Bankruptcy Judge is governed by Federal Rule of Bankruptcy Procedure 5004, which states: “A bankruptcy judge shall be governed by 28 U.S.C. § 455, and disqualified from presiding over the proceeding or contested matter in which the disqualifying circumstance arises or, if appropriate, shall be disqualified from presiding over the case.” Fed. R. Bankr.P. 5004(a). 28 U.S.C. § 455, in turn, states, in relevant part, that: “Any ... judge ... of the United States shall disqualify himself in any proceeding in which his impartiality might *322reasonably be questioned.” 28 U.S.C. § 455(a).
Under § 455(a), both a judge’s interest in or relationship to a case and his or her bias or prejudice against persons involved in a case “all [must] be evaluated on an objective basis, so that what matters is not the reality of bias or prejudice but its appearance. Quite simply and quite universally, recusal [is] required whenever ‘impartiality might reasonably be questioned.’ ” Liteky v. United States, 510 U.S. 540, 548, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994) (emphasis in original) (quoting 28 U.S.C. § 455(a)). This provision was enacted in 1974 “to promote public confidence in the integrity of the judicial process by replacing the subjective ... standard with an objective test.” Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 858 n. 7, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988), quoted in Nichols, 71 F.3d at 350; United States v. Cooley, 1 F.3d 985, 992 (10th Cir.1993).
In Liteky, the Court stated that § 455(a) is subject to an “extrajudicial source factor,” which at its base asserts that alleged bias or prejudice “ ‘must stem from an extrajudicial source [or a source outside the judicial proceeding at hand] and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case.’ ” 510 U.S. at 545 & n. 1, 555, 114 S.Ct. 1147 (quoting United States v. Grinnell Corp., 384 U.S. 563, 583, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966)). Under this factor, “judicial rulings alone almost never constitute a valid basis for a bias or partiality motion.” Id. at 555, 114 S.Ct. 1147. Also—
[0]pinions formed by [a] judge on the basis of facts introduced or events occurring in the course of the [case], or of prior proceedings, do not constitute a basis for a bias or partiality motion unless they display a deep-seated favoritism or antagonism that would make fair judgment impossible. Thus, judicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do not support a bias or partiality challenge. They may do so if they reveal an opinion that derives from an extrajudicial source; and they will do so if they reveal such a high degree of favoritism or antagonism as to make fair judgment impossible-Not establishing bias or partiality, however, are expressions of impatience, dissatisfaction, annoyance, and even anger, that are within the bounds of what imperfect men and women, even after having been confirmed as federal judges, sometimes display. A judge’s ordinary efforts at courtroom administration ... remain immune.
Id. at 555-56, 114 S.Ct. 1147 (emphasis omitted).
Further interpretation of § 455(a) by the United States Court of Appeals of the Tenth Circuit reveals that:
Under § 455, a judge should recuse if “a reasonable person, knowing all the relevant facts, would harbor doubts about the judge’s impartiality.” However, “factual allegations do not have to be taken as true,” and “[t]here is as much obligation for a judge not to recuse when there is no occasion ... to do so as there is ... to [recuse] when there is.” “A judge should not recuse ... on unsupported, irrational, or highly tenuous speculation.”
American Ready Mix, 14 F.3d at 1501 (citations omitted) (quoting Hinman v. Rogers, 831 F.2d 937, 938-39 (10th Cir.1987)(per curiam)); accord Switzer v. Berry, 198 F.3d 1255, 1257 (10th Cir.2000); *323United States v. Greenspan, 26 F.3d 1001, 1005 (10th Cir.1994); Cooley, 1 F.3d at 993-94. The reasonableness test is “limited to outward manifestations and reasonable inferences drawn therefrom. In applying the test, the initial inquiry is whether a reasonable factual basis exists for calling the judge’s impartiality into question.” Cooley, 1 F.3d at 993, cited in Nichols, 71 F.3d at 351. Thus, “[rjumor, speculation, beliefs, conclusions, innuendo, suspicion, opinion, and similar non-factual matters” are not grounds for disqualification under § 455(a). Id. (citing numerous cases). Furthermore, attempts to intimidate a judge do not ordinarily satisfy the requirements of § 455(a). Id.; accord Greenspan, 26 F.3d at 1006. Finally, § 455(a) “ ‘must not be so broadly construed that it becomes, in effect, presumptive, so that recusal is mandated upon the merest unsubstantiated suggestion of personal bias or prejudice.’ ” Cooley, 1 F.3d at 993 (quoting Franks v. Nimmo, 796 F.2d 1230, 1235 (10th Cir.1986) (further quotation omitted)), quoted in Switzer, 198 F.3d at 1258; Nichols, 71 F.3d at 351.
Based on these standards and the facts of this case as discussed above, Judge Starzynski in no way abused his discretion in denying the Recusal Motions, and the Petitioners have not shown that they are entitled to a writ of mandamus. In fact, our review of the record indicates that Judge Starzynski acted with the utmost professionalism and in every way within the bounds of applicable law in the Debtors’ case. It appears to us that, given the confirmation of the Debtors’ Chapter 12 plan and its consequent resolution of the pending motions and the OSC, the Petitioners do not have a real interest in Judge Starzynski’s recusal. Rather, his recusal appears to have been fueled by Behles or the Behles Firm or both to further attempt a collateral attack of the judgment against it in the KD Case, see KD Co., 254 B.R. at 482, and to improperly aid the Behles Firm in obtaining the fees and expenses it desires to be awarded in the Debtors’ case. We will address the issues raised by the Recusal Motions below.
The Debtors, in the Debtors’ Recusal Motion and supporting Debtors’ Affidavit, complain about Judge Starzynski’s failure to rule on their Second Cash Collateral Motion and his issuance of the OSC. Related to the OSC is Judge Starzynski’s alleged solicitation of support for the dismissal of the Debtors’ case through the OSC and the Alleged Faulty Notice Letters. None of these complaints are grounds for disqualification under § 455(a) because, first and foremost, they do not arise from events outside of the Debtors’ case. Liteky, 510 U.S. at 544, 555, 114 S.Ct. 1147. Instead, they are all tied to Judge Starzynski’s administration of the Debtors’ case, which ultimately concluded with the Debtors successfully obtaining confirmation and post-confirmation modification of their Chapter 12 plan. Moreover, the Debtors’ claims would not lead a reasonable person, knowing all of the relevant facts, to harbor any doubts about Judge Starzynski’s impartiality. American Ready Mix, 14 F.3d at 1501; Hinman, 831 F.2d at 939. In particular, as noted above, the Debtors’ Chapter 12 case was not, contrary to their fears, dismissed, but rather their plan was confirmed. The confirmation of their plan was accompanied by a stipulation resolving the Second Cash Collateral Motion. The confirmation order also mooted the OSC (if it was still pending), which had, for the reasons stated by Judge Starzynski in his Memorandum Opinion, been properly issued under applicable law. The Alleged Faulty Notice Letters are not part of the appellate record, *324and, therefore, we do not know if they exist and cannot evaluate their propriety.
The Debtors also claim that Judge Star-zynski should have recused himself from their case because they felt that he wanted their case to fail and Behles was the only person fighting for them. On the other hand, they had been advised by Behles that Judge Starzynski was biased against her due to the KD Case. Debtors’ Affidavit ¶ 15, in Petitioners’ Appendix at 148. As stated above, the facts in this case would not lead a reasonable person to believe that Judge Starzynski wanted the Debtors’ case to fail and, in fact, he confirmed their Chapter 12 plan.
The Debtors’ real complaint is Judge Starzynski’s alleged bias against Behles as a result of the KD Case. This complaint, along with the complaints made by Behles in the Behles Recusal Motion, are not grounds for disqualification under § 455(a). While there are numerous allegations made against Judge Starzynski, summarized above, there is absolutely no evidence as to his purported bias. The Debtors testify in the Debtors’ Affidavit that Behles told them that Judge Starzyn-ski was biased against them, and based on his handling of their case, they thought it must be true. This is not evidence of bias, and is not substantiated by the record. Behles did not submit any evidence at all in support of the Behles Recusal Motion. Instead, she apparently relied on the Debtors’ Affidavit and the Supporting Pleading, which she filed in support of the Debtors’ Recusal Motion, but signed under Fed. R. Bankr.P. 9011. In the Supporting Pleading there are a variety of statements made about the KD Case and Judge Star-zynski’s poor treatment of Behles and other counsel in administering bankruptcy cases in his district, all of which are detailed above. All of these statements are unsubstantiated rumor, speculation, belief, opinion and suspicion, and a reasonable person would not consider Judge Starzyn-ski biased based on them. Cooley, 1 F.3d at 993, cited in Nichols, 71 F.3d at 351. This is especially true when the allegations are examined in conjunction with Judge Starzynski’s administration of the Debtors’ Chapter 12 case, and the fact that he waived any claim that he or the Francis Firm may have had against the Behles Firm in the Raft Disgorgement Action several years ago.10 Judge Starzynski’s handling of the Debtors’ ease also does not indicate that any feeling of hostility that he may have toward Behles or the Behles Firm is of “such a high degree of ... antagonism as to make fair judgment impossible.” Liteky, 510 U.S. at 555, 114 S.Ct. 1147. In fact, any hostility that he might have toward Behles, evidence of which is not in the record, did not result in any prejudice to the Debtors.
Other than unsubstantiated statements, the only other set of allegations of bias are based on Judge Starzynski’s treatment of the Behles Firms’ Employment Motion in the Debtors’ Case. Judge Starzynski’s approval of the Behles Firm’s employment in the Debtors’ Chapter 12 case based on lower hourly rates than had been request*325ed by the Firm in the Employment Motion, however, is not grounds for recusal under § 455(a). To the extent that Judge Starzynski’s Employment Order can be viewed as an adverse ruling against the Debtors or the Behles Firm,11 such rulings are not grounds for disqualification under § 455(a). Liteky, 510 U.S. at 555, 114 S.Ct. 1147; American Ready Mix, 14 F.3d at 1501. The Debtors’ “concerns” about their ability to get their case confirmed in light of Judge Starzynski’s purportedly hostile Employment Order were proved to be a nonissue when their plan was confirmed. Judge Starzynski’s Employment Order would not lead a reasonable person to question his impartiality. In fact, the complaints related to Judge Starzynski’s treatment of the Behles Firm’s employment are not valid because they are based on a misconception or lack of knowledge of the law governing the employment and compensation of bankruptcy professionals, and the policy behind that law — to protect vulnerable debtors from overreaching. We need not reiterate the well-known applicable law, because it was very aptly set forth by Judge Starzynski in his Memorandum Opinion.
Frankly, we are baffled as to why Behles chose the Debtors’ Chapter 12 case as a forum to air her problems with Judge Starzynski. Any bias that Judge Starzyn-ski may have against her or her Firm, while not apparent from the record, cannot be used as a basis for alleging bias against the Debtors in their case especially when there is nothing to show that the Debtors were in any way prejudiced by Judge Star-zynski’s handling of their case. See, e.g., In re Cooper, 821 F.2d 833, 840 (1st Cir.1987); FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 576 n. 13 (7th Cir.1989), cert. denied, 493 U.S. 954, 110 S.Ct. 366, 107 L.Ed.2d 352 (1989); Davis v. Board of School Comm’rs, 517 F.2d 1044, 1050-51 (5th Cir.1975), cert. denied, 425 U.S. 944, 96 S.Ct. 1685, 48 L.Ed.2d 188 (1976); In re Shuma, 124 B.R. 446, 449-50 (Bankr.W.D.Pa.1990). As noted above, given the confirmation of the Debtors’ plan, the only reason that we can discern for the present Petition is that the Behles Firm is concerned about the fees that it will be awarded in this case if Judge Starzynski remains the assigned Judge. Any problem with future compensation that Judge Starzynski may or may not approve in this case, however, should be resolved by way of appeal, not through baseless recusal motions. See generally In re Wyslak, 94 B.R. 540, 545 (Bankr.N.D.Ill.1988) (counsel’s request for recusal based on sua sponte fee reduction is baseless, because Bankruptcy Judges have a duty to adjust fees and “[n]o objective litigant could reasonably conclude that these practices give rise to questions about impartiality.”)
IV. Conclusion
For the reasons stated above, we do not have a definite and firm conviction that Judge Starzynski made a clear error of judgment in refusing to recuse himself from the Debtors’ Chapter 12 case and, in fact, given the state of the record, he had a duty not to recuse himself because there was no reason from him to do so. Because the Petitioners have failed to demonstrate that Judge Starzynski abused his discretion in denying the Recusal Motions, much less that his abuse of discretion was tantamount to a judicial usurpation of power, *326they are not entitled to mandamus relief. Accordingly, their Petition is DENIED.
. The trial was presided over by the Honorable Robert D. Martin, Bankruptcy Judge, Western District of Wisconsin.
. On July 10, 2000, the Behles Firm filed a modified Chapter 12 plan for the Debtors.
. When the Petitioners refer to these Alleged Faulty Notice Letters in their Brief, there are either no cites to the record, or they cite to page 83 of their Appendix, which includes a copy of the OSC, or a cite to page 97 of their Appendix, which contains a copy of the amended notice that was filed in response to the Alleged Faulty Notice Letters. Petitioners’ Brief at 3 (citing Petitioners’ Appendix at 97, which contains the amended notice), 7 (citing to Petitioners' Appendix at 83, which contains the OSC).
. The Debtors later sought to set aside the confirmed plan and to modify the confirmed plan. The confirmed plan was modified by an order entered on April 27, 2001.
. No order was ever entered disposing of the OSC. In his Memorandum Opinion, however, Judge Starzynski states that he set aside the OSC and informed the parties of this action by a letter dated August 18, 2000, which was faxed to Behles several hours prior to the filing of the Debtors' Recusal Motion. His letter, which is not part of this Court’s record and which is not entered on the docket sheet in the Debtors’ case, apparently told the Debtors that they were entitled to the benefit of Chapter 12 "in part because no creditors had supported the dismissal and in part because the Court preferred to decide the issues on the merits.” Memorandum Opinion at 25, in Petitioners' Appendix at 251. Regardless of the contents of this letter, which the Debtors apparently do not dispute inasmuch as they have not mentioned it or included it in the record herein, the OSC was obviously moot at the time that Judge Starzynski confirmed the Debtors' Chapter 12 plan. He would not have confirmed the plan if there were outstanding issues as to whether the case should be dismissed for failure to timely set a confirmation hearing as required under 11 U.S.C. § 1224.
. The Debtors also state that, other than their brief, no other briefs on the Second Cash Collateral Motion were filed. Debtors’ Affidavit ¶ 10, in Petitioners' Appendix at 147. This is inaccurate. The United States Department of Agriculture and New Mexico Bank & Trust each filed papers on June 19, 2000. Bankruptcy Court Docket Sheet at 9, in Petitioners’ Appendix at 9.
. Although the title to the Disqualification Order and the Memorandum Opinion refer only to the Debtors' Recusal Motion, the text of both documents makes clear that Judge Star-zynski also was ruling on the Behles Recusal Motion.
. The Debtors and the Behles Firm argued that a Judge other than Judge Starzynski *321should consider the Recusal Motions. In his Memorandum Opinion, Judge Starzynski disagreed with this position, and very thoroughly explained that he had the authority to consider the Recusal Motions. Neither the Debtors nor the Behles Firm contests this ruling in the Petition, and, therefore, we will not address it herein.
. Under this standard of appellate review, we are not to disturb the trial court's decision unless we have " 'a definite and firm conviction that the [trial] court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.’ ” Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir.1994) (quoting McEwen v. City of Norman, 926 F.2d 1539, 1553-54 (10th Cir.1991)) (further quotation omitted).
. The Petitioners state that Judge Starzynski regularly recused himself in matters in which Behles appeared prior to their Chapter 12 case. There is no record on this allegation. While Judge Starzynski might have recused himself in matters prior to his or the Francis Firm's claim waiver in the Raft Disgorgement Action, this fact is irrelevant in light of the fact that the claim waiver had taken place when the Debtors filed their case. Furthermore, it appears that Judge Starzynski no longer recuses himself in Behles Firm matters, because Behles makes much of his alleged mistreatment of her and the Behles Firm in other cases-cases that were not included in the record on appeal in this case.
. Judge Starzynski expressly stated in the Employment Order that, although he would approve fees at the lower hourly rates he designated, the Behles Firm could apply for higher rates in the future if the case would support the payment of such fees. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493457/ | ORDER ON EMERGENCY MOTION FOR TURNOVER AND MOTION FOR SANCTIONS
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration in this Chapter 13 case is an Emergency Motion for Turnover and Motion for Sanctions filed by Anel and Rebecca Martinez (Debtors). The Motion was filed September 10, 2001, and was set for preliminary hearing October 9, 2001, at 1:30 p.m.
In their Motion, the Debtors contend that they filed their Petition for Relief in this Court under Chapter 13 on August 27, 2001; that Easy Finance, Inc., (Easy Finance) was duly notified by the Court of the filing; that Easy Finance was properly listed as a creditor on Schedule D; that Easy Finance was also notified of the filing “... by the undersigned attorney and via the attached letter transmitted by facsimile.” However, no letter was attached to the Motion filed with the Court.
On August 27, 2001, Easy Finance repossessed a 1995 Ford Escort automobile owned by the Debtors. Counsel for the Debtors contends that he contacted Easy Finance telephonically on August 28, 2001, demanded the return of the automobile and Easy Finance refused to return the vehicle, citing the Debtors’ default on the contract.
Based on the foregoing, the Debtors seek an order from this Court directing Easy Finance to surrender and turn over the 1995 Ford Escort automobile forthwith. In addition, they also seek an award of sanctions for punitive damages, actual damages incurred daily by the repossession, and an award of attorney’s fees in connection with this matter. In defense of the Motion, counsel for Easy Finance contends that once the automobile was repossessed the ownership of the vehicle passed *327to the repossessor, even though no formal title was actually transferred, citing Fla. Stat. 819.22, 28 or 28. Counsel also relies on the case of In re Kalter, 257 B.R. 93 (M.D.Fla.2000).
In Kalter, Senior District Judge George C. Young, having construed the reach and scope of this same statute and the Security Interest governed by the Uniform Commercial Code in chattels in general, concluded that while the UCC grants the secured party the right to repossess the collateral upon default, it contains no language concerning the passage of title, unlike the Florida Statute which does.
The Statute under consideration is entitled 319.28 Transfer of ownership by operation of law. In Subclause (b) it provides:
(b) In case of repossession of a motor vehicle or mobile home pursuant to the terms of a security agreement or similar instrument, an affidavit by the party to whom possession has passed stating that the vehicle or mobile home was repossessed upon default in the terms of the security agreement or other instrument shall be considered satisfactory proof of ownership and right of possession.
Therefore, once a vehicle is repossessed the ownership interest in the automobile of the Debtors is extinguished, notwithstanding the fact that there was no formal title certificate issued pursuant to Fla. Statutes Section 319.22, 23, or 28.
There is no doubt that this Statute radically changes the previously held generally accepted view that, notwithstanding a repossession of a vehicle, the Debtor retains ownership until the vehicle is sold and the creditor who repossessed the automobile has an absolute duty under Section 542 of the Code to turn over the automobile to the Debtor provided, however, that the Debtor is able and willing to furnish adequate protection of the collateral to the repossessing creditor.
This Court cannot ignore the reach and the scope of this Statute as construed by the District Court in Kalter and, therefore, the only remaining question is, was the automobile in question repossessed before or after the fifing of the Chapter 13. This is so because if the automobile was repossessed after fifing, the repossession was clearly a violation of the automatic stay imposed by Section 362 which, among others, prohibits to enforce any claim against the property of the estate (Section 362(a)(2)) and prohibits any act to obtain possession of property of the estate or to exercise control over property of the estate (Section 362(a)(3)).
In the present instance the automobile was repossessed the very same day the Petition was filed. The record reveals that the Petition was filed on August 27, 2001, at 2:40 p.m. There is nothing in this record at this time that indicates when the automobile was repossessed. This being the case, it is crucial to determine the time of the repossession. Once that is established, it will determine the rights to the collateral of the Debtors and the repossessing creditors by virtue of Fla.Stat. 319.28(b).
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that ruling on the Emergency Motion for Turnover and Motion for Sanctions filed by the Debtors be, and the same is hereby, deferred pending an evidentiary hearing to determine the precise time the automobile was repossessed. If the Debtors can establish by acceptable proof that the car was, in fact, repossessed after the commencement of the case, this Court will consider at the same hearing what adequate protection the Debtors should furnish as condition for the turnover, and what other relief they may be entitled to, *328including Sanctions pursuant to Section 362(h).
Hearing before the undersigned shall be scheduled on December 5 2001, in at 2:30 pm, in the United States Bankruptcy Court, Ft. Myers Federal Budding and Federal Courthouse, Room 4-117, Courtroom D, 2110 First Street, Ft. Myers, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493458/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration in this chapter 7 case is a challenge of the dis-chargeability of certain debts of Eli Baron (Debtor). The claims of non-discharge-ability are set forth in a two count complaint filed by Mary Armbruster Baron (Ms. Baron), the former spouse of the debtor. Her claim in Count I is based on the allegation that certain monetary obligations imposed on the Debtor by the Final Judgment of Dissolution of Marriage (Final Judgment) are in the nature of support, thus excepted from the discharge pursuant to 11 U.S.C. § 523(a)(5). While the obligations are not specified in the Complaint, it refers to a Mediation Agreement, which was incorporated into the Final Judgment. Ms. Baron asserts in Count II that the non-specified obligations *330are also non-dischargeable pursuant to 11 U.S.C. § 523(a)(15). The Debtor filed a Motion to Dismiss the claim in Count II, which was granted by this Court with the entry of an Order on June 26, 2001. With respect to Count I, the Debtor filed his Answer and basically contended that the claim is within the protection of the general discharge. On October 18, 2001, the Debtor filed a Motion for Summary Judgment, which was countered by the same Motion by Ms. Baron.
On January 4, 2002, this Court granted in part and denied in part the Motions for Summary Judgment and ruled that the following obligations imposed on the Debt- or are non-dischargeable pursuant to § 528(a)(5) of the Bankruptcy Code.
(1) All payments of child support and related support as set forth in the Mediation Agreement, paragraph 3;
(2) payment of alimony as referenced in paragraph 4 of the Mediation Agreement; and
(3) the obligation to purchase a home for Ms. Baron as referenced in paragraph 1 of the Mediation Agreement.
With respect to the other obligations that Ms. Baron seeks a determination that the same are non-dischargeable, this Court denied summary judgment and scheduled the remaining issues for trial.
In the Order on the Motions for Summary Judgment, this Court found that the Mediation Agreement provides as follow:
(1) Debtor shall purchase a home for Ms. Baron free and clear of any liens for a purchase price not less than $450,000.00 or in the alternative, if the home is not purchased, to pay the same amount to Ms. Baron (Paragraph 1 of the Mediation Agreement);
(2) The Debtor shall pay Ms. Baron an unspecified amount of temporary support which amount however, was fixed by the circuit court until the home was purchased or the amount of $450,000 was paid if the home was not purchased (Paragraph 1 of the Mediation Agreement);
(3) Paragraph 3 of the Mediation Agreement required the Debtor to pay detailed obligations for child support of $3,000 per month per child until each child reached the age of 18 or is between age 18 and 19 and still in high school, up to graduation or the 19th birthday whichever last occurs. In addition, the Debtor was required to pay sums necessary for clothing, medical, and dental insurance; preschool and school expenses; and college education, tuition, room and board, fees, books, supplies, and reasonable transportation. Finally, in order to assure that these obligations were met, the Debtor was required to maintain life insurance in an amount sufficient to provide the necessary support for the children as set forth above.
(4) Paragraph 4 of the Mediation Agreement entitled “Alimony,” required that Debtor to pay to Ms. Baron non-modifiable permanent alimony of $1,000.00 per month which shall terminate only upon her re-marriage or death, the Debtor’s death or 13 years from the date of the Mediation Agreement, whichever occurs first. The Mediation Agreement provided that these obligations shall start at once when Ms. Baron moves in the house or receives the $450,000 in the alternative but in no event not later than 6 months from the date of the Mediation Agreement. The alimony shall, be deductible to the Debtor and taxable to Ms. Baron.
*331(5) Paragraph 8 of the Mediation Agreement entitled “Equitable Distribution,” required the Debtor to:
(a) pay to Ms. Baron any tax refund if any for the year 1992 based on claimed net operation loss by the Debtor. In the event there is no tax refund or if the Debtor did not file for a refund that Debtor is required to pay Ms. Baron the net operating loss of $477,231; on July 1, 1997 $239,615; and on July 1, 1998, the same amount.
(b) pay to Ms. Baron as equitable distribution the sum of $500,000 with interest at the rate of 4% per an-num for 5 years in the following manners (1) $2,000 for the principal within six months from the date of the agreement or closing the residence to be purchased if not purchased the payment of $450,000 whichever occurs first. (2) On January 1, 1997 for the principal reduction annual payments $50,000 each year until the entire $500,000 is paid plus accrued interest. If there is still an amount remaining unpaid the balance shall be paid in full plus interest.
(6) Lastly, Paragraph 9 of the Mediation Agreement provides that Debtor shall not attempt to discharge any of these obligations owed to Ms. Baron.
Plaintiffs Exh. 1.
The Court also found that the Affidavit by the Debtor indicated that he made the following payments to Ms. Baron: (1) “$500,000 pursuant to the Mediation Agreement as another distribution of assets, not as support,” Paragraph 13 of Affidavit of Debtor; (2) $205,000 [sic] proceeds of the sale of Lot 36 went to Ms. Baron “as a distribution of assets, not as support,” Paragraph 14 of Affidavit of Debtor; and (3) $933,314 proceeds from the sale of condominium Unit 402 as “another distribution of marital assets, and not for support,” Paragraph 15 of the Affidavit of Debtor. The Affidavit filed by Ms. Baron did not acknowledge any payments referenced by the Debtor. In light of the foregoing, this Court was unable to determine whether these monies should be credited against any of the nondischargeable obligations.
The precise issues before this Court are the following: (1) whether or not the obligations as set forth in Paragraph 8 of the Mediation Agreement entitled “Equitable Distribution” are non-dischargeable and (2) whether or not any of the payments set forth in the Affidavit of the Debtor should be credited against the non-dischargeable obligations. At the duly scheduled trial, Ms. Baron and her divorce attorney, Mr. Lombardo testified. The Debtor neither attended nor testified at the trial.
Based on the record and the testimony adduced at the trial, this Court finds as follows. Ms. Baron and the Debtor were married in 1984 and divorced in 1995, although the divorce proceedings were initiated in 1993. They have three children from their marriage. The Debtor was an “entrepreneur developer,” whose corporations owned and operated several hotels, golf course communities, and a corporate jet. Apparently the Debtor was very successful, as the Debtor and Ms. Baron enjoyed a very expensive lifestyle.
As part of the marriage dissolution proceedings, Ms. Baron and the Debtor entered into the Mediation Agreement. As referenced above, the Mediation Agreement directs the Debtor to make certain alimony payments and child support payments; supply Ms. Baron with a house; and provide for other “equitable” payments to Ms. Baron. Moreover, the Mediation Agreement specifically states as *332follows: “The Husband [Debtor] further acknowledges that the Wife’s [Ms. Baron’s] support needs and those of the children are being partially met by the equitable distribution award.” See Paragraph 9 of the Mediation Agreement.
At the trial, Ms. Baron introduced into evidence a series of pleadings filed in the state court divorce proceedings which show that the Debtor failed to abide by the terms of the Mediation Agreement (see Plaintiffs Exhs. 3 - 10). Specifically, the Debtor failed to provide Ms. Baron with a house and therefore, by Order of the Circuit Court, the Debtor was ordered to pay Ms. Baron the sum of $800,000 in lieu of the original sum of $450,000. See Plaintiffs Exh. 5. Thereafter, the Circuit Court entered another Order approving a stipulation and modification to the original Mediation Agreement where Ms. Baron acknowledged receipt of $215,000 from the Debtor as a credit towards the $800,000 payment for the house and where the Debtor again agreed to secure a house in the amount of $450,000, with the balance owed (of $135,000) to be paid to Ms. Baron. This Order was entered on April 22, 1992. See Plaintiffs Exh. 6.
The record reflects that after the modification, the Debtor failed to secure a home for Ms. Baron and failed to make the equitable distribution payments to Ms. Baron pursuant to Paragraph 8(b) of the Mediation Agreement. Therefore, Ms. Baron secured a Final Judgment against the Debtor on February 11, 1998 in the amount of $1,413,919, which amount represented “all sums due the Former Wife for equitable distribution and provision of residences pursuant to the Final Judgment of Dissolution of Marriage as modified.” See Plaintiffs Ex. 7, paragraph 2. The Final Judgment was recorded in the Public Records of Collier County, Florida.
After the entry of the Final Judgment, it appears that there were two subsequent “Stipulation and Agreement” entered into by the Debtor and Ms. Baron regarding the disposition of certain houses in order to satisfy the outstanding obligation due to Ms. Baron regarding the housing of Ms. Baron and the children. See Plaintiffs Exhs. 9 and 10. It is without dispute that on September 3, 1999, the Debtor paid the sum of $500,000 to Ms. Baron as partial satisfaction of the Final Judgment.
Finally, with respect to the remaining “payment” of $933,314, the testimony of Ms. Baron is persuasive. In the Affidavit of the Debtor, the Debtor states that Ms. Baron received the sum of $933,314 from the sale of a condominium. However, the testimony of Ms. Baron and the documents submitted into evidence by Ms. Baron reflect that Ms. Baron netted the sum of $155,820 from the sale of the condominium. See Plaintiffs Exhs. 13 and 14.
Ms. Baron seeks to except from the general discharge certain obligations under the divorce proceeding based on 11 U.S.C. § 523(a)(5), which provides as follows:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that—
(B) such debt includes a liability designated as alimony, maintenance, or *333support unless such liability is actually in the nature of alimony, maintenance, or support.
11 U.S.C. § 523(a)(5).
Federal law determines the question of whether a given debt is in the nature or support. In re Strickland, 90 F.3d 444 (11th Cir.1996). When determining dischargeability of a debt owed to a former spouse pursuant to a divorce decree, a court’s task is to determine what function the award was intended to serve, regardless of the manner within which the debt is designated. A court must look beyond the decree’s language to the intent of the parties and to the substance of the obligation to determine the true nature of the obligation. In re Sampson, 997 F.2d 717 (10th Cir.1993).
Courts generally agree that in considering whether or not a provision in a divorce decree is in fact alimony, maintenance or support, it is proper to consider the following factors:
(1) whether the obligation under consideration is subject to contingencies such as death or remarriage;
(2) whether the payment was fashioned in order to balance disparate incomes of the parties;
(3) whether the obligation is payable in installments or in a lump sum;
(4) whether there are minor children involved in the marriage requiring support;
(5) the respective physical health of the spouse, and the level of education;
(6) whether, in fact, there was a need for support at the time of the circumstances of the particular case;
(7) whether the obligation imposed is enforced by contempt proceedings (alimony or by levy and execution, or just a money judgment); and
(8)whether the obligation is fixed and final (no alimony) or subject to readjustment, either upward or downward, depending on the changed circumstances of the parties.
In re Bowsman, 128 B.R. 485, 487 (Bankr.M.D.Fla.1991).
Additionally, courts accord a deference to the express intention of the parties stated in the stipulation entered into at the time of the stipulation as executed concerning the nature of the obligation. Cummings v. Cummings, 244 F.3d 1263 (11th Cir.2001); In re Gianakas, 917 F.2d 759 (3d Cir.1990). The burden to prove this intent is by a preponderance of the evidence. Cummings, supra.
In Cummings, the Eleventh Circuit held that although the factors cited above are relevant to a court’s inquiry but that “the touchstone for dischargeability under § 523(a)(5) is the intent of the parties. In determining whether a particular obligation is in the nature of support, ‘[a]ll evidence, direct or circumstantial, which tends to illuminate the parties subjective intent is relevant.’ ” Cummings, supra at 1266 (citations omitted). Similar to the facts in this case, in Cummings, the state court indicated that some of the portion of the “equitable distribution” was to function as support to the spouse. And, the Eleventh Circuit went on to note “because a property division often achieves the same goal as a support obligation, state courts do not rigidly distinguish between the two.” Cummings, supra at 1266 (citations omitted).
Counsel for the Debtor argues that the Mediation Agreement is a contract, and under Florida law is subject to interpretation like any other contract. Specifically, a court must first examine the natural and plain meaning of the language of the contract. See Key v. Allstate Insurance Company, 90 F.3d 1546 (11th Cir.1996). In *334this instance, counsel for the Debtor argues that the plain meaning of “Equitable Distribution” is just that, equitable distribution. However, the Debtor fails to acknowledge that he also plainly states the following in Paragraph 9 of the Mediation Agreement “The Husband [Debtor] further acknowledges that the Wife’s [Ms. Baron’s] support needs and those of the children are being partially met by the equitable distribution award.”
In light of the foregoing, this Court must determine whether or not the obligations arising under the label “Equitable Distribution” are in actuality in the nature of “alimony, maintenance or support.” With respect to the various factors, this Court makes the following determinations. With respect to factors (1), (4), (7) and (8), the Mediation Agreement provided that the alimony portion of $1,000, which is not in dispute, would terminate upon certain events, i.e., wife’s remarriage, wife’s death, husband’s death, etc., that the alimony was “non-modifiable permanent alimony,” and that the Husband waived any right to have the alimony adjusted downward. The Mediation Agreement also provided, in paragraph 8(c) that a default by the Debtor in payments under the Equitable Distribution section would result in nullifying and canceling the non-modifiable provision of the alimony obligation (emphasis supplied). Although it appears that Section 8(c) refers to any payment of the equitable distribution would tie into the alimony section of the Mediation Agreement, it appears that the parties were contemplating the $500,000 as additional support, since the majority of section 8(c) refers to the $500,000 payment. Section 23 of the Mediation Agreement provides that a judgment or other enforcement proceeding could result against any party who defaults under the agreement. With respect to factor (2), the testimony of Ms. Baron reflects that during her marriage with the Debtor she devoted her time to raising the children and did not engage in any meaningful employment. With respect to factor (3), the IRS reimbursement was to be in two lump sum payments, while the $500,000 payment was to be in monthly payments of $2,000 and $50,000 payments annually. With respect to factor (5), the health of the spouse appeared to be fine and the level of education was not discussed at trial. With respect to factor (6), Ms. Baron’s testimony was that she needed support from the Debtor, as she did not appear to have any meaningful employment. Finally, this Court is satisfied that it was the intent of the parties that a portion of the Equitable Distribution be in the nature of support, and therefore, non-dischargeable, based on paragraph 9 of the Mediation Agreement and the unrebutted testimony of Ms. Baron.
Moreover, in the present instance, just like in Cummings, the relevant portion of the Mediation Agreement dealing with the $500,000 obligation described as equitable distribution, also indicates to some respect, that it might be in the nature of support. In the absence of any contravening evidence by the Debtor, this Court is satisfied that the entire award of $500,000 (referenced in Paragraph 8(b) of the Mediation Agreement) is deemed to be support, and thus within the exception of § 523(a)(5) of the Code. Ms. Baron admits that the Debt- or made one payment of $50,000 against the $500,000 due and therefore, the outstanding balance is $450,000, plus interest.
However, with respect to the tax refund, this Court determines that those sums were in the nature of an equitable distribution, as Ms. Baron admits in her testimony that those funds were the only “property” that could be divided between the Debtor and Ms. Baron, and therefore *335this Court is satisfied that the same are dischargeable.
With respect to the credits and the housing issue, this Court is satisfied that the Debtor’s failure to provide the initial house at $450,000 or payment in lieu of the house, coupled with the various binding agreements and orders entered in the divorce proceeding, that the Debtor in fact agreed to the higher number of $800,000 for payment of a house to Ms. Baron. Additionally, this Court is satisfied that based on the record, the $215,000 payment and the $500,000 payment should be a credit for the Debtor against the outstanding balance owed on the $800,000, leaving a balance owed of $334,270, according to Plaintiffs Exh. 14. However, this Court is satisfied that the $155,820 payment from the sale of the condominium should be applied against the outstanding balance on the home obligation, and therefore, the amount owed to Ms. Baron with respect to the home obligation is $178,450.
Finally, this Court is satisfied that the attorneys’ fees and costs, as rendered by a Final Judgment for Attorney Fees and Costs, in the principal amount of $155,000, plus applicable interest at the interest rate as prescribed under Florida law, is also non-dischargeable.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the following obligations are found to be in the nature of support and therefore nondischargeable:
a. The $800,000 owed for the house less the credits referenced above, leaving a balance of $178,450, pursuant to Paragraph 1 of the Mediation Agreement, as subsequently modified;
b. Payment in the amount of $500,000 to Ms. Baron, less $50,000 credit, for a total of $450,000 in principal, plus interest at 4% pursuant to Paragraph 8(b) of the Mediation Agreement; and
c.Attorneys’ fees and costs as set forth in the Final Judgment for Attorney Fees and Costs, in the principal amount of $155,000, plus applicable interest at the interest rate as prescribed under Florida law.
It is further
ORDERED, ADJUDGED AND DECREED that the IRS obligation, as set forth in Paragraph 8(a) of the Mediation Agreement is found not to be in the nature of support and therefore is discharged. It is further
ORDERED, ADJUDGED AND DECREED that a separate final judgment shall be entered in favor of Ms. Baron and against the Debtor with respect to the obligations found to be nondischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493459/ | MEMORANDUM-DECISION AND ORDER
ROBERT E. LITTLEFIELD, Jr., Bankruptcy Judge.
There are two matters before the court: creditor’s motion to preclude and debtor’s motion for damages pursuant to 11 U.S.C. § 362(h). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and 1334(b).
BACKGROUND
The facts of this case taken verbatim from the parties’ stipulation of facts dated
November 2,1998, are as follows:
1)On June 17,1995, M & T financed the debtor’s purchase of a certain 1990 Plymouth Voyager automobile (the “vehicle”).
2) M & T obtained and perfected a lien against the vehicle.
3) As of June 8, 1998, the Debtor was in default of his obligation to M & T and the balance owed to M & T was $8765.99 with arrears of $4995.80.
4) On June 8, 1998, M & T repossessed the vehicle.
5) The debtor filed a petition for relief pursuant to § 1301, et seq., of the United States Bankruptcy Code on June 10, 1998.
6) The debtor listed M & T as a creditor in his schedules.
7) On June 11, 1998, M & T sent, and prior to June 25, 1998 the debtor presumptively received, notice that the vehicle would be sold unless redeemed.
8) On June 14, 1998, the Clerk’s Office of the United States Bankruptcy Court caused the Notice of Chapter 13 Bankruptcy Case Meeting of Creditors & Deadlines to be served upon all creditors listed in the debtor’s petition, including M&T.
9) M & T’s notice was mailed to P.O. Box 767, Buffalo, New York 14240.
10) M & T received notice of the bankruptcy filing on June 18,1998.
11) On June 25, 1998, the vehicle was sold at auction for the sum of $1500.00 pursuant to a direction by M & T.
12) Neither the debtor nor debtor’s counsel contacted M & T at any time prior to June 25,1998.
Previously, in an oral decision, rendered on February 11, 1999, this court determined that:
1) The vehicle in question was property of the estate;
2) By selling the car post-petition, M & T exercised control over property of the estate as prohibited by 11 U.S.C. § 362(a)(3); '
*3723) The deliberate selling of the vehicle justified an award of actual damages;
4) The actual damages, if any, would be determined via a future evidentiary hearing; and
5) Punitive damages were not appropriate.
The damages hearing was conducted on July 19, 1999. Pursuant to the testimony offered and exhibits received from that hearing, the court additionally finds that the debtor purchased a 1995 Oldsmobile to replace the wrongfully sold 1990 Voyager. The purchase price for said vehicle was $5,420, financed at 11%, resulting in a monthly payment of $177 per month. This corresponds to a loan term of 36 months.
Post-trial briefs were submitted by the parties and the matter was fully before the court on December 1,1999.
I. MOTION TO PRECLUDE
The scheduling order issued in this matter on February 11, 1999 required all discovery to be completed by May 10, 1999 and all motions to be made returnable on or before June 17,1999.
According to M & T’s counsel, discovery requests were served on the debtor’s counsel on May 11, 1999. Apparently, debtor’s counsel did not comply to the extent M & T’s counsel desired.1 Notwithstanding the scheduling order’s prohibition of motion practice after June 17th, M & T’s counsel filed a motion on July 7, 1999 and made it returnable July 19, 1999, requesting a preclusion order.
This court appreciates the frustration of creditor’s counsel, however, if the debtor and/or his counsel were evading or ignoring legitimate discovery, the proper response would have been a timely motion to compel or preclude. However, it is difficult to countenance discovery that begins one day after the court’s deadline. Litigants that fail to heed scheduling order deadlines do so at their own risk. In the present case, discovery requests were untimely as was the motion to preclude. As such, the motion to preclude is denied.
II. DAMAGES
11 U.S.C. § 362(h) provides:
An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
As to damages, whether under §§ 105, 362(h), or 524(a)(2), the standard is basically the same. Once a party has proven that he has been damaged, he needs to show the amount of damages with reasonable certainty. Matthews v. United States, 184 B.R. 594, 600 (Bankr.S.D.Ala.1995) (citations omitted). However, courts have recognized that damages from mental anguish can be difficult to prove. Matter of Flynn, 169 B.R. 1007 (Bankr.S.D.Ga.1994), rev’d on other grounds, 185 B.R. 89 (S.D.Ga.1995).
While some courts have refused to award damages under section 362(h) because the debtor faded to introduce any medical evidence, other courts have imposed a less stringent standard when it is clear that the debtor suffered some appreciable emotional harm as a result of the *373stay violation. Flynn, at 1021-22. See also In re Fisher, 144 B.R. 237 (Bankr.D.R.I.1992); In re Wagner, 74 B.R. 898 (Bankr.E.D.Pa.1987); In re Davis, 201 B.R. 835 (Bankr.S.D.Ala.1996). This court agrees with the rational of the above cases and finds that emotional distress damages can be awarded against creditors for violation of the automatic stay. In addition, this court concurs with District Judge Na-gle, in affirming the Bankruptcy Court, that in the appropriate case, this may be done without the necessity of medical testimony. In re Flynn, supra, 93. See also In re Ghostlaw, Case No. 96-15146 (Bankr.N.D.N.Y. August 14, 1998).
In his post-trial brief, debtor’s counsel argues for damages based on:
1) Actual economic loss;
2) Inconvenience and emotional distress; and
3) Attorney’s fees.
A) Actual Economic Loss
Debtor’s counsel argues, “[that the amount of] actual damages for the economic loss suffered by the debtor with regard to his purchase of an inferior car is clear.” (Debtor’s post-trial brief p. 3.) Debtor’s counsel calculates “an additional expense of approximately $4,000 to replace his vehicle.” (Debtor’s post-trial brief p. 4.) The formula to arrive at this number apparently is the cost of the Oldsmobile [purchase price of $5,420 plus finance charges of $967 = $6,387] minus the debtor’s version of value of the Voyager [$2,200] leaving damages of $4,187. The court assumes that this is the “approximately $4,000” figure referred to by debtor’s counsel. The problem with this methodology is that it fails to factor in that the debtor now has a 1995 vehicle instead of a 1990 vehicle. Obviously, they are not comparable cars; the voyager is a different make, model and is five years older.
Additionally, at trial the debtor offered conflicting testimony as to his version of actual economic loss regarding the vehicle. On cross-examination, when asked if he lost money, the debtor testified that he thought he lost about $3,000. (Tr. 30.) However, when asked specifically about any dollar loss suffered he replied, “I have no dollar loss but it’s just that [I’d] rather have the Voyager.” (Tr. 30.)
The projected value of the 1990 Voyager was $2,200 in the proposed chapter 13 plan. Presumably, the 1995 Oldsmobile was worth the. purchase price of $5,420 when acquired in 1998; there is no evidence to the contrary before the court. Therefore, the debtor has not suffered a “loss” in becoming the owner of the 1995 vehicle.
Where the debtor did suffer a loss was the cost of acquiring the 1995 Oldsmobile. The finance charge for the Oldsmobile will ultimately be $967.84 when the debtor receives a clear title in 2001. The proposed interest rate for the 1990 Voyager in the chapter 13 plan was 6.5%. Obviously, because the car was repossessed and the plan provision regarding the Voyager became moot, we will never know what interest rate would have been approved under the relevant Second Circuit precedent.2 However, in this court’s experience and opinion, 7.5% would not have been unreasonable. In any event, under no circumstance3 would the interest rate have been as high as the 11% the debtor was required to expend for the 1995 Olds*374mobile. Unfortunately, there is absolutely no analysis of the debtor’s proposed plan involving the Voyager, i.e., when M & T would have commenced receiving payments, when the debt would have been satisfied and what the projected finance charge would have been.
Under a worst case scenario, if M & T received no payments for the term of the plan due to unexpected administrative expense, missed debtor plan payments, plan payments refunded to the debtor, etc., the finance charge would have been $825 [$2,200 x 7.5% x 5 years] pursuant to a simple interest theory. Thus, the additional cost to the debtor in acquiring the Oldsmobile is $142 [$967 finance charge for the Oldsmobile minus $825]. The debtor also testified that the total cost to borrow a vehicle large enough to transport his family on certain occasions was “about $500.” (Tr. 25.) The debtor’s testimony was credible; he is entitled to recover that cost from the creditor as part of his actual economic loss suffered as a result of the stay violation.
In summary, the court awards Mr. Alberto $642 in actual economic damages based upon the testimony and exhibits offered to the court.
B) Inconvenience and Emotional Distress
The debtor testified to at least five examples of emotional distress caused by the stay violation:
1) Due to the stay violation, his family was left with one car for a period of 45 days with the attendant “disruption” and “family turmoil.” (Tr. 14,15.)
2) The accompanying embarrassment in asking on multiple occasions to borrow appropriate transportation. (Tr. 17.)
3) The need for two vehicles to transport his entire family on trips after the Voyager was repossessed. (Tr. 12.)
4) The inability to take his entire family to visit relatives in New York City without borrowing an additional vehicle because his wife’s car “cannot make the trip to New York.” (Tr. 11.)
5) The necessity for additional employment to help pay for the 1995 Oldsmobile. (When asked on direct if he was current on the Oldsmobile, he replied, ‘Tes, because of my part-time job I got.” (Tr. 11.))
Also, on redirect, the following exchange took place:
Q. And in order to pay for the second car you had to get a second job?
A. Yes, four hour part-time job, 20 hours a week part-time job.
Q. Where is that?
A. At the Fleet Bank, cleaning the bank.
Q. And you got that job because you had to pay for this new car?
A. Yes. (Tr. 86.)
The task the court must struggle with is how to compensate the debtor for this distress. Although not quantified in exact dollars, the proof established that damage was done and should be compensated nonetheless. Matthews, supra. at 601. This is especially true with the need for the second job entailing 20 additional hours per week. The 1995 Oldsmobile was financed over 3 years: this results in 3,120 hours of additional employment. Obviously, the debtor will be compensated for this work, but it is work he neither wanted nor needed until the stay violation occurred. It represents additional time away from his family and additional stress for a man who has already undergone heart surgery. (Tr. 8.)
While the within case does not reach the audacity of the creditor’s actions in In re Carrigan, 109 B.R. 167 (Bankr.W.D.N.C. *3751989) (creditor visiting debtor at 9:00 P.M. on a Sunday evening using foul and abusive language) or Wagner, supra (entering debtor’s residence at night and threatening physical harm), this debtor deserves compensation for the situation he has been thrust into. The court finds that an additional $500 should be paid to the debtor to balance the equities.
C) Attorney’s Fees
Debtor’s counsel requests $4,000 in fees for services provided to the debtor that were necessitated by the creditor’s stay violation. However, most of the work represented by these fees would have been eliminated if debtor and debtor’s counsel had taken a different course of action prior to the bank’s sale of the vehicle. The debtor testified that he contacted his attorney on June 9th, one day after the repossession of the Voyager. The petition was filed on June 10th. The court’s docket indicates that a motion to compel turnover was filed on June 25th and made returnable on July 9th; the affidavit of service shows M & T was served on June 24th via regular mail. There is insufficient testimony in the record presented for the debtor to overcome the presumption in stipulated fact number 7.4 The court assumes that the debtor did not realize the importance of the notice or that it was overlooked in the course of everyday life. In any event, the court finds that the debtor received notice of the June 25th sale but never forwarded that notice to his attorney. Yet even without notice of a specific sale date, it would have been more reasonable, in this court’s opinion, for debtor’s counsel to have immediately contacted the bank directly to endeavor to arrange for the return of the vehicle or; failing that, requesting the court to hear a turnover motion on shortened notice. If that had been done, the court would, at the very least, have stayed any sale of the vehicle pending a determination of the motion. This is no way condones or lessens the transgression of M & T, however, debtor’s counsel is only entitled to reasonable attorney fees.
This case involved three phases:
1) The turnover motion;
2) The § 362(h) motion; and
3) The damages trial.
1) The Turnover Motion
The court cannot make any award of fees for this phase of the case. To file a turnover request 15 days after commencing the case and make it returnable 31 days after the repossession and then ultimately withdraw it after a number of adjournments is not reasonable for § 362(h) fee reimbursement purposes. It simply was too little, too late.
2) The § 362(h) Motion
This time is compensable for debtor’s counsel. The futile attempt to obtain turnover of the Voyager did not negate the necessity to go forward and respond to Mr. Meola’s thesis that no stay violation existed due to the 11th Circuit’s ruling in In re Lewis, 137 F.3d 1280 (11th Cir.1998). This involved research, oral argument and an appeal.5
Based on this court’s experience, the testimony and exhibits offered, the court finds nine hours at $195/hour or $1,755 to *376be a reasonable fee for preparing, researching and arguing the motion.
3) The Damages Trial
The attorney time attendant with the damages trial is speculative at best. If an expedited hearing had been brought and the car not sold, the damages trial, if any, would have been on a much smaller scale. If the parties could not have fully stipulated, a question of fact might have existed as to attorney fee time. However, most of the discovery, trial preparation and actual trial time would have been greatly reduced.
The court finds under the circumstances that 3 hours at $195/hour or $585 will adequately compensate debtor’s counsel for this aspect of the work. The total attorney’s fees awarded thus amounts to $2,340.
In summary, the court awards $642 in actual economic damages, $500 for emotional distress and $2,340 for attorney’s fees.
It is so ORDERED.
. M & T's counsel asked for a detailed itemization and breakdown of all damages. Ultimately, he received the requested data with the exception of an itemization of the $4,000 debtor's attorney’s fee. (Tr. 4.) Creditor's counsel then orally requested that the Court "preclude any evidence and testimony of attorney fees in this case.” (Tr. 4.) Notwithstanding this request, during the trial, M & T’s counsel further objected to testimony by the debtor regarding any damages.
. In re Valenti, 105 F.3d 55 (2d Cir.1997).
. Valenti, supra, requires a present value factor of the current Treasury Bill rate plus up to 3 risk points. At no time since the filing of the petition has the Treasury Bill rate plus risk factors approached 11%.
. According to the stipulation, the debtor presumptively received notice of the bank's intention to sell the vehicle prior to the sale date.
. M & T’s appeal was dismissed by the BAP as being interlocutory. No mention was made by debtor’s counsel regarding work on this appeal, therefore, no compensation is awarded. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493461/ | Opinion Regarding Motions for Summary Judgment
STEVEN W. RHODES, Chief Judge.
I.
On March 6, 2000, the plaintiffs filed this adversary proceeding complaint to determine the validity of their asserted lien in funds held by the trustee, Kenneth Nathan. At the initial status conference on April 15, 2002, the Court requested that the parties stipulate to uncontested facts and file motions for summary judgment. The plaintiffs filed such a motion for partial summary judgment and the trustee’s response also requested partial summary judgment.
In 1993, the plaintiffs sold six motels to the debtor. The debtor executed promissory notes totaling $9,328,000 and signed security agreements for each of the motels. The plaintiffs were granted a security interest in all present and future “rents, issues, income, revenue, receipts, fees and profits” from the motels.
In February 1998, the debtor defaulted on the notes. In July 1998, the parties entered into a forbearance agreement. During this time, the debtor maintained a checking account at Comerica Bank. In August of 1998, the debtor made four transfers from the Comerica account to Richard Jankowski totaling $650,000. On September 23, 1998, $649,975 of the $650,000 was deposited into a Michigan National Bank savings account titled “Richard M. Jankowski ITF Gerald Jan-kowski.” The remaining $25 was deposited into a Michigan National Bank checking account under the same name.
On January 12, 1999, the debtor filed its chapter 11 petition. On March 8, 1999, $263,251.38 of the $650,000 was transferred to an account of the debtor-in-pos*453session The case was converted to a chapter 7 on August 31, 2001.
The present motions do not address all of the legal issues pertinent to whether the plaintiffs had a properly perfected security interest in the $263,251.38 on the date the bankruptcy was filed. Rather the parties have addressed this single issue — whether the estate’s recovery of the $263,251.38 terminated whatever security interest the Plaintiffs might have had in those funds when the case was filed.
II.
The plaintiffs contend that because they had a pre-petition security interest in the funds when the funds were in the debtor’s Comerica operating account, pursuant to M.C.L. § § 440.9315(l)(a), their security interest continued in the funds when they were transferred to Jankowski, and it continued in the portion of the funds that was returned to the debtor’s estate post-petition. The plaintiffs assert that the estate’s recovery of the funds as a preference did not destroy their security interest.
The trustee contends that Jankowski returned the funds to the estate because the transfer was clearly an avoidable preference. The trustee contends that the plaintiffs do not have a security interest in Chapter 5 recoveries unless the post-petition financing order so provides.
III.
The parties have not stipulated that the plaintiffs had a properly perfected security interest in the funds when they were in the debtor’s Comerica operating account. However, for purposes of this motion, the Court will assume that they did.
The plaintiffs primarily rely on In re Amtron, Inc., 192 B.R. 130 (Bankr.D.S.C.1995). There, the IRS had a hen on ah of the debtor’s assets, including patent rights. The debtor transferred the patents and subsequently filed bankruptcy. The trustee avoided the transfer as fraudulent. The IRS argued that its lien continued in the recovered patents. The court agreed, stating:
[T]he Trustee’s fraudulent conveyance action does not cleanse or otherwise void the tax hen that had attached to Am-tron’s property rights. The trustee’s right to maintain [an avoidance] action is by virtue of the “strong arm” provisions of 544(a) of the code and is brought on behalf of an unsecured creditor or bona fide purchaser for value from the debtor, and not brought on behalf of the debtor, but once a property comes back into the estate, it is available to marshal among unsecured creditors, subject first to the right of payment of secured creditors with perfected hens on the property.... The Trustee’s argument that the tax hen cannot attach to recovered property is irrelevant because the tax hen had already attached weh before the bankruptcy.
Id. at 132-33. See also Official Unsecured Creditors’ Comm. v. Northern Trust Co. (In re Ellingsen MacLean Oil, Co.), 98 B.R. 284, 291 (Bankr.W.D.Mich.1989) (“[T]o hold that secured parties lose their prepetition lien as to the proceeds of preferential transfers would be contrary to the intent of Congress.”); In re Figearo, 79 B.R. 914 (Bankr.D.Nev.1987) (Any property recovered by the trustee is subject to the creditor’s security interest that existed at the time the debtor transferred the property and continued in the property after the transfer.); Mitchell v. Rock Hill Nat’l Bank (In re Mid-Atlantic Piping Prods. of Charlotte, Inc.), 24 B.R. 314, 325 (Bankr.W.D.N.C.1982) (The creditor’s security interest extends to the proceeds of any recovery by the Trustee of inventory which may have been preferentially transferred by the Debtor at any time while the *454creditor held a valid security interest in such inventory.).
The trustee primarily relies on Mellon Bank v. Glick (In re Integrated Testing Prods. Corp.), 69 B.R. 901 (D.N.J.1987), in support of his position that the plaintiffs do not have a security interest in the funds. There, Mellon Bank loaned the debtor $600,000. As security for the loan, the debtor granted to Mellon a security interest in all of the debtor’s then existing or thereafter acquired accounts, contract rights, inventory, and general intangibles, as well as any proceeds. The debtor filed for Chapter 11, which was subsequently converted to Chapter 7. In the Chapter 7 proceeding, the trustee successfully filed several preference actions against creditors and was able to recover in excess of $50,000.00. Mellon then filed a complaint and sought to obtain the amounts recovered by the trustee in the preference actions, claiming that the amounts recovered were proceeds or general intangibles, and thus subject to the security agreement.
The court assumed that the money paid to the creditors, and later recovered by the trustee, was cash proceeds in which Mellon did have a security interest. The court then framed the issue as whether the security interest extends to those funds recovered by the trustee. Mellon argued that the amounts paid to the other creditors were proceeds in which it had a perfected security interest because the debtor received an intangible in exchange: a right to recover these amounts as a preference if it were to file for bankruptcy. The court rejected Mellon’s argument, concluding that the right to bring a preference action belongs to the trustee alone, acting on behalf of all creditors. The court stated,
[T]o allow [Mellon] to claim these preferences would frustrate the policy of equal treatment of creditors under the Code and would contradict the plain meaning of section 551 of the Bankruptcy Code. Consequently, [Mellon] should not be entitled to the preference proceeds to the detriment of the estate even though the funds originally might have been subject to [Mellon’s] security interest.
Id. at 905. See also Lease-A-Fleet v. University Cadillac, Inc. (In re Lease-A-Fleet), 152 B.R. 431, 438 (Bankr.E.D.Pa.1993) (Proceeds of preference action are not subject to creditor’s prepetition security interest.); In re Tek-Aids Indus., Inc., 145 B.R. 253, 256 (Bankr.N.D.Ill.1992) (Because the Trustee’s right to recover for the preferential transfers did not arise prepet-ition, the proceeds derived from the preference actions are not subject to the Bank’s prepetition security interest.).
The Court concludes that the cases relied upon by the trustee fail to consider the creditor’s pre-petition perfected security interest.
In a very well reasoned opinion, the court in Barber v. McCord Auto Supply, Inc. (In re Pearson Indus., Inc.), 178 B.R. 753 (Bankr.C.D.Ill.1995), stated:
Without question, any property recovered by the trustee as a result of an avoided transfer must be distributed to creditors in their order of priority to the extent the estate has equity in the property recovered. At issue, is whether the collateral, subject to [the creditor’s] properly perfected security interest in the hands of [the pawnbroker], was extinguished by the trustee’s recovery of the property, or its value under 11 U.S.C. § 550. The resolution of this issue requires interpretation of 11 U.S.C. § 552(a) which provides in relevant part as follows:
(a) [Property acquired by the estate or by the debtor after the commencement of the case is not subject to any lien resulting from any security agree*455ment entered into by the debtor before the commencement of the case.
As previously stated, the purpose of 11 U.S.C. § 552(a) is to avoid the postpetition application of an otherwise valid after-acquired property clause in a security agreement. The statute allows the estate to acquire new property with estate assets free of the security interest. Applying § 552(a) to avoid a security interest in property recovered through the trustee’s avoiding powers appears to go beyond what the statute was designed to accomplish. In any event, the crucial question is whether the avoidance of a fraudulent transfer under 11 U.S.C. § 548 and recovery of the property under 11 U.S.C. § 550 constitutes an acquisition of property by the estate within the meaning of 11 U.S.C. § 552(a).
This court holds that such an avoidance and recovery of property by the trustee is not equivalent to a postpetition acquisition of property by the estate as contemplated by 11 U.S.C. §§ 552(a) or 541(a)(7).
It is this court’s opinion that the estate’s interest in the transferred property was acquired upon commencement of the case. 11 U.S.C. § 541(a)(3). The transferee merely held voidable title to the transferred property. See 11 U.S.C. § 548(c). The successful exercise of the trustee’s avoiding power causes the affected transfer to become void, allowing the trustee to recover the property under 11 U.S.C. § 550. Any property recovered by the trustee was subject to [the creditor’s] security interest at the time the debtor transferred the property to [the pawnbroker] and continued in the property after the transfer.
In summary, where a secured creditor has an independent claim against a third party to recover property transferred by a debtor to the third party, that claim cannot be cut off by a trustee’s exercise of the Code’s avoiding powers to recover the property and will have priority over a trustee’s claim to the property arising out of the exercise of the avoiding powers. However, where the secured creditor has no independent claim to the property which is subject to the trustee’s avoiding powers and could not recover it from the third party, the secured creditor cannot improve its position because of the trustee’s exercise of the avoiding powers and assert an additional claim by claiming it from the trustee who recovered it from the third party by exercising the avoiding powers.
Id. at 764 (emphasis added). See also Young & Bohm, Preferences and Fraudulent Transfers, 787 PLI/Comm 751 (1999):
There is a growing consensus among courts — particularly in the best reasoned decisions — that rejects both the simplistic view that a blanket prepetition security interest automatically attaches to any avoidance recovery, and the equally simplistic view that a pre-petition security interest wall never attach to avoidance recoveries. According to these courts, a prepetition lien or security interest will attach to an avoidance recovery if, but only if, what is recovered is clearly identifiable as the collateral itself or as the proceeds of prepetition collateral, and if the creditor’s security interest would be enforceable against the transferee outside of bankruptcy.
787 PLI/Comm at 886.
The Court adopts the reasoning of the court in Pearson Indus. If the plaintiffs had a properly perfected security interest in the funds when they were in the Comer-ica account, and if the transfer of those funds to Jankowski did not extinguish that security interest, such that the plaintiffs *456had an independent right to recover those funds outside of bankruptcy, their security interest continues in the funds even after they were recovered by the trustee in an avoidance action, or by any other method.
Accordingly, the plaintiffs’ motion for partial summary judgment is granted. The trustee’s request for summary judgment is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493462/ | Opinion Regarding Motion to Dismiss or, in the Alternative, for Summary Judgment or Partial Summary Judgment
STEVEN W. RHODES, Chief Judge.
This matter came before the Court on a motion to dismiss or, in the alternative, for summary judgment or partial summary judgment filed by defendant Qwest Communications. The plaintiffs filed an objection. The Court conducted a hearing on July 29, 2002, and took the matter under advisement. The Court now concludes that res judicata bars the plaintiffs’ claims. Accordingly, Qwest’s motion is granted.
I.
On January 5, 1998, Qwest and Apex Global Information Services (AGIS) entered into a contract entitled Capacity IRU Purchase Agreement, pursuant to which Qwest agreed to provide AGIS with use of its fiber optic network. AGIS and Qwest also entered into related agreements entitled Collocation and Interconnection Agreement and Private Line Services Agreement, both dated January 5, 1998.
On February 25, 2000, AGIS filed its chapter 11 petition. The Creditors Committee was appointed on March 29, 2000. On April 12, 2000, the Court entered an order authorizing the employment of the firm of Jackier, Gould, Bean, Upfal & Eiz-elman, P.C. as counsel for the Committee.
On April 24, 2000, AGIS conducted an auction of substantially all of its assets. Telia Internet, Inc. was the successful bidder. The sale did not include the IRU Agreement. AGIS had rejected the IRU Agreement by order dated April 10, 2000.
On June 26, 2000, AGIS filed its Combined Plan and Disclosure Statement. The plan was confirmed August 9, 2000. Pursuant to the terms of the plan, McTe-via & Assoc, was appointed as Liquidating Agent to conduct the liquidation of AGIS’s assets, consummate the plan and administer the bankruptcy case post-confirmation.
On June 30, 2000, Qwest filed a proof of claim alleging a secured claim of $310 million. On May 1, 2001, the Liquidating Agent filed an objection to Qwest’s proof of claim. On September 7, 2001, Qwest filed a motion to withdraw its proof of claim. A stipulated order authorizing Qwest’s withdrawal of its claim was entered November 2, 2001.
On March 29, 2002, the Liquidating Agent and the Committee filed this adversary complaint against Qwest alleging breach of contract and fraud.
II.
Qwest contends that because the plan and disclosure statement failed to disclose the potential cause of action against Qwest, the plaintiffs are barred by res judicata from bringing those claims now. Qwest asserts that had it known that the plaintiffs were going to bring suit against it, it would not have dismissed its $310 million proof of claim, which it is now barred from pursuing.
Qwest further asserts that the complaint is barred by the doctrine of judicial estop-pel because the debtor specifically represented in its schedules that it did not have any contingent or unliquidated claims and reaffirmed that representation in its plan and disclosure statement. Qwest also argues that the complaint should be dismissed for failure to state a claim because *459the plaintiffs have not stated a claim for breach of contract.
The plaintiffs contend that their claims against Qwest were preserved in both the plan and the order confirming the plan. The plaintiffs also rely on language in the stipulated order withdrawing Qwest’s proof of claim, which, they assert, confirms that the Liquidating Agent may seek affirmative relief against Qwest. The plaintiffs also contend that res judicata does not apply because the Committee and Liquidating Agent are not in privity with the debtor.
The plaintiffs contend that the doctrine of judicial estoppel does not apply because the plaintiffs were not the proponents of the plan and therefore cannot be said to have taken a position in the plan which is inconsistent with their position taken now. The plaintiffs further argue that the debt- or’s rejection of the IRU Agreement does not bar their breach of contract claims.
III.
Pursuant to 11 U.S.C. § 1141(a), the effect of plan confirmation is to bind all parties to the terms of a plan of reorganization. Still v. Rossville (In re Chattanooga Wholesale Antiques, Inc.), 930 F.2d 458, 463 (6th Cir.1991). “Confirmation of a plan of reorganization by the bankruptcy court has the effect of a judgment by the district court and res judicata principles bar relitigation of any issues raised or that could have been raised in the confirmation proceedings.” Id.
[A] claim [is] barred [by the res judicata effect of] prior litigation if the following elements are present: (1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their “privies”; (3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action.
Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 880 (6th Cir.1997). See also Browning v. Levy, 283 F.3d 761 (6th Cir.2002).
The first requirement is met here. As a general rule, the “[cjonfirmation of a plan of reorganization constitutes a final judgment in bankruptcy proceedings.” Sanders Confectionery Prods., Inc. v. Heller Fin. Inc., 973 F.2d 474, 480 (6th Cir.1992). See also Browning, 283 F.3d at 773.
The plaintiffs argue that the second requirement is not satisfied because the Liquidating Agent and the Committee were not in privity with the debtor. However, the plaintiffs were themselves parties to the bankruptcy proceeding prior to confirmation, thus this is a “subsequent action between the same parties.” Accordingly, the second requirement is satisfied.
The Court also notes that the Committee was actively involved in proposing the plan. A review of the fee application for the attorney for the Committee indicates that approximately 65 hours were billed for services related to the plan. Further, the fee application specifically states, “Applicant played a central role in negotiating and drafting the terms of the Plan and Confirmation Order[.]” (See First and Final Application of Jackier, Gould, Bean, Upfal & Eizelman, filed September 22, 2000, at 5.)
As to the third requirement, the Court concludes that because the plaintiffs’ claims are related to the chapter 11 bankruptcy proceeding, they should have been raised before plan confirmation. See e.g., Browning, 283 F.3d at 773. Because the claims should have been raised, they are precluded unless they were specifically reserved in the plan of reorganization or in the confirmation order. D & K Props. *460Crystal Lake v. Mut. Life Ins. Co., 112 F.3d 257, 260 (7th Cir.1997); Browning, 283 F.3d at 774 (“Res judicata does not apply where a claim is expressly reserved by the litigant in the earlier bankruptcy proceeding.”).
Recognizing this, the plaintiffs assert that four provisions reserve its claim. First, the plaintiffs rely on the following reservation of claims in the plan:
All of the Debtor’s Claims are expressly preserved for the benefit of the creditors, and the proceeds of the Debtor’s Claims shall be disbursed under this Plan. The Committee shall retain and may enforce any and all of the Debtor’s Claims in the name of the Debtor.
See Plan at ¶ 1.6.3(c).
However, “a general reservation of rights does not suffice to avoid res judica-ta.” Brouming at 774. A similar reservation of claims was found insufficient by the Browning court, which stated:
[The debtor’s] blanket reservation was of 'little value to the bankruptcy court and the other parties to the bankruptcy proceeding because it did not enable the value of [the debtor’s] claims to be taken into account in the disposition of the debtor’s estate. Significantly, it neither names [the defendants] nor states the factual basis for the reserved claims. We therefore conclude that [the debt- or’s] blanket reservation does not defeat the application of res judicata to its claims against [the defendants].
Id. at 775.
Accordingly, the Court concludes that the general reservation of rights in the plan is insufficient.
Second, the plaintiffs also rely on the following language in the plan:
Qwest is claiming a security interest in the assets of the Debtor. Debtor contends that Qwest’s security interest, if any, is limited to a purchase money security interest in the right of use of optical transmission capacity on the Qwest system. Debtor and Qwest are attempting to reach a negotiated settlement of their differences, but, faffing that, Debtor will commence an adversary proceeding to determine this matter.
See Plan at ¶ III. D.
This language specifically states that an adversary proceeding to determine Qwest’s claim will be filed only if the debt- or and Qwest fail to reach a settlement regarding the claim. It makes no mention of a claim by the debtor against Qwest for breach of contract and fraud. Moreover, the debtor and Qwest did reach a settlement and Qwest withdrew its claim. Accordingly, the Court concludes that this language does not reserve the plaintiffs’ claims against Qwest.
Third, the plaintiffs rely on this language in the confirmation order:
Qwest Communications Corporation (“Qwest”) has filed a proof of claim in the amount of $310,000,000, a portion of which claim Qwest asserts is secured. Debtor and the Committee dispute Qwest’s claim. The Liquidating Agent shall reserve the sum of $4,000,000 from the funds in the estate to be held in reserve on account of Qwest’s asserted secured claim. This $4,000,000 sum shall be held in reserve pending (a) further order of a court of competent jurisdiction, or (b) written consent of Qwest to the release of all or any portion of such funds. In addition, the Liquidating Agent shall reserve from any interim distribution to holders of unsecured non-priority claims an amount sufficient to make a pro rata distribution to Qwest on account of its asserted claim, until such claim has been allowed or disallowed *461pursuant to (a) further court order or (b) agreement of Qwest and the Liquidating Agent.
(See Confirmation Order at ¶ 8.)
Like the language in the plan, this provision in the confirmation order only addresses Qwest’s claim against the debtor, which has been withdrawn. It makes no mention of a separate claim by the debtor against Qwest. Accordingly, it does not support the plaintiffs’ position.
Finally, the plaintiffs rely on this language in the stipulated order withdrawing Qwest’s proof of claim:
Qwest’s proof of claim is withdrawn with prejudice. Accordingly, Qwest shall not be entitled to any distribution from Debtor’s bankruptcy estate. However, the parties agree, and it is hereby ordered, that Qwest shall not be precluded from raising by counterclaim or affirmative defense any of the issues set forth in its Proof of Claim as a defense to any affirmative relief sought or obtained by the Liquidating Agent on behalf of the Debtor’s bankruptcy estate against Qwest, provided, however, that in no event shall any such counterclaim entitle Qwest to any affirmative recovery from the Debtor’s estate, even if the amount of such counterclaim exceeds the amount of the Liquidating Agent’s claims against Qwest.
(See November 2, 2001, Claim Withdrawal Order at ¶ 1.)
Although this language suggests that the Liquidating Agent may assert a claim against Qwest, the plaintiffs fail to explain how this stipulation can act to revive a claim previously barred by res judicata. Accordingly, the Court must conclude that the plan and confirmation order do not specifically reserve the plaintiffs’ claim against Qwest.
The final element of res judicata, that there be an identity of claims, is satisfied if “the claims arose out of the same transaction or series of transactions, or whether the claims arose out of the same core of operative facts.” Micro-Time Mgmt Sys., Inc. v. Allard & Fish, P.C. (In re Micro-Time Mgmt. Sys., Inc.), 1993 WL 7524, at *5 (6th Cir. Jan.12, 1993).
Here, the plaintiffs’ allegation in their complaint that Qwest’s breach of the IRU Agreement led to the debtor’s bankruptcy clearly establishes the required “identity of claims.” See Sure-Snap Corp. v. State Street Bank and Trust Co., 948 F.2d 869, 875 (2d Cir.1991) (Identity of claims exist between an earlier Chapter 11 bankruptcy proceeding and a post-confirmation claim by the debtor that alleged that the actions of one of its creditors “forced [the debtor] into bankruptcy.”).
Accordingly, the Court concludes that the elements of res judicata are satisfied with respect to the plaintiffs’ claims against Qwest.
Because the Court concludes that res judicata bars the plaintiffs’ claims, it is not necessary to address Qwest’s other arguments.
An order dismissing the adversary proceeding will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493463/ | MEMORANDUM OPINION STAYING PARTIES AND COUNSEL FROM PURSUING STATE COURT ACTION AND SCHEDULING SHOW CAUSE HEARING
MARILYN SHEA-STONUM, Bankruptcy Judge.
On July 11, 2001, Republic Technologies International, LLC (“RTI”) filed a Complaint initiating this adversary proceeding. Through its Complaint, RTI seeks a declaratory judgment that the automatic stay in effect in its main chapter 11 case also act to stay a pending state court lawsuit brought by William and Marjorie Maley against non-debtor third party former managers of RTI, Mark Miller (“Miller”) and Ken Knaga (“Knaga”)(the “Maley Lawsuit”). During a pre-trial conference held in this matter on March 19, 2002, a briefing schedule was established for the parties to address whether the action against the debtor in possession’s former employees who may be entitled to indemnification by the debtor in possession represents an “end run” around the automatic stay.1 Thereafter, the following pleadings were filed: (1) “Republic Technologies International, LLC’s Brief in Support of Automatic Stay Under Fed. R. Bankr.P. 9011[sic] and Bifurcated Issue” [docket # 24]; (2) “Defendants’ Reply to Republic *485Technologies International, LLC’s Brief in Support of Automatic Stay Under Fed. R. Bankr.P. 9011[sic] and Bifurcated Issue” [docket # 29].
The Maleys contend that under Ohio law they are permitted to file a state court lawsuit direetly against Miller and Knaga in their capacity as supervisors. RTI contends that the Maleys misread applicable Ohio case law. In addition RTI contends that the Maleys violated the automatic stay by filing the Maley Lawsuit.
This proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this District on July 16, 1984. It is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) over which this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b). The following constitutes this Court’s conclusions of law pursuant to the undisputed facts in this matter and Fed. R. Bankr. P. 7052.
A. BACKGROUND
The following background facts are not disputed by the parties to this adversary proceeding.
1. William Maley (“Maley”) was employed by RTI at its Lorain, Ohio operations facility from February 7, 2000 until his termination from employment on October 23, 2000.
2. At all times during Maley’s employment, Mark Miller (“Miller”) was the Area Manager for RTI and Maley’s indirect supervisor.
3. At all times during Maley’s employment, Kenneth Knaga (“Knaga”) was a human resources manager for RTI having some responsibilities at the Lorain Facility, but not as Maley’s supervisor.
4. Miller was separated from his employment with RTI in September 2001 and Knaga was separated from his employment with RTI in March 2001.
5. On April 2, 2001, RTI and several subsidiaries commenced their reorganization cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. RTI and its filing subsidiaries continued in possession of their property and operated and managed their businesses as debtors in possession, pursuant to §§ 1107 and 1108 of the Bankruptcy Code.
6. On April 17, 2001, Maley initiated the Maley Lawsuit in the Court of Common Pleas for Lorain County, Ohio against RTI, Knaga and Miller alleging that the three defendants participated in or caused Mr. Maley’s termination from RTI without just cause in violation of Ohio’s age discrimination statute, Ohio Rev.Code § 4112, and public policy. The Maleys and their counsel stated in the Complaint that “RTI has filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code, a matter pending in the U.S. Bankruptcy Court in Akron, Ohio.”
7. A First Amended Complaint was filed in the Maley Lawsuit on May 21, 2001. The First Amended Complaint added Marjorie Maley’s name and address in the caption as a plaintiff and removed RTFs name and address from the caption as a defendant.
8. On July 11, 2001, RTI filed its Complaint for Declaratory Judgment Extending Automatic Stay to Postpetition Lawsuit Pending in the Court of Common Pleas for Lorain County, Ohio. Adv. Pro. 01-5122.
9. RTI maintains and pays for a “Directors, Officers and Private Company Liability Insurance Policy” which includes employment practices liability coverage, underwritten by National Union Fire Insurance Company of Pittsburgh, Pennsylvania (the “Insurance Policy”). *486The Insurance Policy remains in effect. Its application to this litigation is yet to be determined.
10. On October 31, 2001, the Maleys through their counsel filed a Proof of Claim against “Republic Technologies International, LLC,” checking the box labeled “Personal injury/wrongful death” and adding, under “Other,” “wrongful termination of employment,” and claiming $2,000,000, the same amount demanded in the Maley Lawsuit.2 Proof of Claim # 2531.
11. On May 9, 2002, Maley’s deposition was taken, a copy of which was supplied to the Court. Appendix Binder in Support of Automatic Stay, [Docket No. # 25], Ex. A.
B. DISCUSSION
1. Violation of the Automatic Stay
Section 362 of the Bankruptcy Code reads, in pertinent part:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of-
(1) the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced against the debtor that arose before the commencement of the case under this title ....
By the wording of their own Complaint it is clear the Maleys’ counsel knew that RTI had filed its bankruptcy petition prior to filing their case. The Maley Lawsuit was filed on April 17, 2001, naming RTI as the first party defendant and alleging in ¶ 5 that:
Maley was employed by Republic Technologies International (“RTI”) in the City of Lorain, Lorain County, Ohio from February 7, 2000 to October 23, 2000. Maley was an employee within the meaning of Chapter 4112 of the Ohio Revised Code, R.C. § 4112.01(A)(1),(2). RTI has filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code, a matter pending in the U.S. Bankruptcy Court in Akron, Ohio. (Emphasis added).
There can be no doubt that the filing of the Maley Lawsuit was a willful3 violation of the automatic stay. 11 U.S.C. § 362(a)(1) prohibits the commencement or continuation of a judicial proceeding against debtors. None of the explanations or excuses posed by the Maleys’ counsel to explain away the language acknowledging the bankruptcy filing by RTI are plausible or credible.4
*4872. Maleys’ Cause of Action for Age Discrimination and Proof of Claim
This adversary proceeding appears to raise an issue as to which there is no reported precedent. Debtors are protected from litigation with respect to alleged age discrimination while the automatic stay operates in this case. Citing Genaro v. Central Transport, Inc. (1999), 84 Ohio St.3d 293, 703 N.E.2d 782, which recognizes the possibility of several liability of supervisors/managers for discrimination pursuant to Ohio Rev.Code § 4112, Maley and his wife have proceeded with state court litigation against the two individuals who informed Maley of his separation from RTI. The precise question is under what circumstances, if any, can the DIP employer seek recognition or extension of the stay for the benefit of such supervisory personnel. Because the individual defendants are themselves no longer employed by RTI, a frequently used rationale for extending the stay, interfering with their contribution to the reorganization process, is not a factor in this case. The Court will identify principles and procedures for dealing fairly with all parties.
This Court is not purporting to decide the state court litigation or the factual issues in that case. There would be no issue preclusion effect of this opinion because the Court is not deciding those matters properly before the state court. But where, as here, individuals, such as Miller and Knaga, who have also lost their employment, will be in the position of having to defend litigation without their former co-defendant employer, there are compelling reasons for this Court to consider (1) whether plaintiffs’ action in filing the amended complaint is an “indirect” violation of the automatic stay and (2) whether and under what circumstances § 105 should be employed to extend the automatic stay. In short, because the Maleys’ counsel have chosen to read Genaro so expansively and erroneously, it is appropriate for the bankruptcy court to consider at what point the pursuit of the individuals in the state court action is an attempt to skin the automatic stay cat with another scalpel.
The Maleys allege that Knaga and Miller have personal liability under Ohio Rev. Code § 4112 for allegedly discriminating against Maley by terminating his employment at RTI. They also demand, through their Proof of Claim, $2,000,000 from RTI for “Personal injury/wrongful death” and “wrongful termination of employment.”
At his deposition taken on May 9, 2002, Maley testified that he had never met Knaga until the day he was terminated, Maley deposition,5 p. 25, 1. 14-17, and that Miller was never his direct supervisor, acknowledging that Miller was “the area manager,” p. 27, 1. 13-20. He further testified that neither Miller nor Knaga ever evaluated him or reviewed his work, p. 37, 1. 7-18. He stated he believed that Knaga was one of the RTI managers who made the decision to terminate him “be*488cause he was there” in the conference room when Maley was terminated, p. 48,1. 2, and decided that Miller was another RTI manager who terminated him because “I worked in his area,” p. 49, 1. 2. He testified that he did not know who actually decided to terminate his employment, p. 47, 1. 6-10, and stated “I don’t know why I was terminated,” p. 50, 1. 10-11. Maley further stated that the person who was retained in the function for which he also had responsibility had already been working in that position at the time he was transferred into the area, p. 52, 1. 7-21, and that his age was “approximately thirty,” p. 41, 1. 10. Maley testified that RTI did not hire anyone to replace him, p. 53, 1. 2-5.
During the deposition he read part of paragraphs six and seven of his complaint which stated “Knaga participated in and caused termination of Maley’s employment,”(¶ 5), and “Miller participated in and caused the termination of Maley’s employment.” (¶ 6). When asked if he had any facts, other than those stated above, to support his allegations, he stated “I don’t have any other facts.” P. 52,1. 5-6.
In paragraph ten of his complaint Maley alleged “RTI further represented to Ma-ley, orally and in writing, that if he accepted RTI’s offer, Maley would be employed at RTI for a minimum of two years.” (¶ 10). However, at his deposition Maley testified that the term of two years was only used in relation to his relocation package which stated that if he terminated his employment within two years, he was expected to reimburse RTI for the cost of his relocation. P.34, 1. 9-13. He further acknowledged that “[the document] didn’t say anything else beyond that about a two-year employment duration.” P. 35, 1. 7-10. RTI never asked him to reimburse the funds it paid for his relocation. P. 36, 1.13-14.
In paragraph eighteen of his complaint Maley alleged, inter alia, that “as a direct and proximate result of defendants’ unlawful, invidious, willful, and malicious acts of discrimination, Maley has suffered humiliation, severe emotional distress ...” When asked if he had any facts other than those stated above to support these allegations he stated “I am not in possession of any other facts.” P. 54,1.14-15.
When asked to “describe all facts that support your claim that Mark Miller engaged in acts of discrimination against you,” Maley replied “Mark Miller was aware of my age at the time I interviewed with him.”6 P. 60, 17-22. He testified that he “couldn’t recall any derogatory remarks about [his] age made by Miller.” P. 62, 1. 6-16. He also stated he believed Miller and Knaga were acting within the scope of their responsibilities when they terminated him. P. 81, 1. 14-22; p. 82, 1. 2-9.
When asked “Is Republic Technologies International also responsible for whatever it takes to make you whole?”, Maley answered that RTI was “equally responsible for the wrong against me.” P. 120, 1. 11-17.
Against these facts, the question for this Court is further refined to be whether the pursuit of an action against former management employees is stayed under § 362(a) or should be stayed under § 105 when (1) there is no evidence of personal animus by those individual managers against the plaintiff and (2) the reason that the plaintiffs cite for singling them out as defendants is that each was present when he received the news of his termination and one was his indirect supervisor. This requires consideration of Ohio law on *489which the plaintiffs rely in their state court action.
In Barker v. Scovill, Inc. (1983), 6 Ohio St.3d 146, 451 N.E.2d 807, the Ohio Supreme Court adopted the analytic framework established by the United States Supreme Court in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). The court held:
In order to establish a prima facie case of age discrimination ... in an employment discharge action, plaintiff-employee must demonstrate (1) that he was a member of the statutorily-protected class, (2) that he was discharged, (3) that he was qualified for the position, and (4) that he was replaced by, or that his discharge permitted the retention of, a person not belonging to the protected class. Defendant-employer may then overcome the presumption inherent in the prima facie case by propounding a legitimate, nondiscriminatory reason for plaintiffs discharge. Finally, plaintiff must be allowed to show that the rationale set forth by defendant was only a pretext for unlawful discrimination.
Barker, paragraph one of syllabus. In Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 105 S.Ct. 613, 83 L.Ed.2d 523 (1985), the Supreme Court held that “the McDonnell Douglas test is inapplicable where the plaintiff presents direct evidence of discrimination.” Id. at 121, 105 S.Ct. 613, (citing International Brotherhood of Teamsters v. United States, 431 U.S. 324, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977)). “The shifting burdens of proof set forth in McDonnell Douglas are designed to assure that the ‘plaintiff [has] his day in court despite the unavailability of direct evidence.’” Id., (citing Loeb v. Textron, Inc., 600 F.2d 1003, 1014 (1st Cir.1979)).
In Ohio a plaintiff may bring an action for age discrimination by providing either direct or indirect evidence of such discrimination. Mauzy v. Kelly Services, Inc. (1996), 75 Ohio St.3d 578, 664 N.E.2d 1272; Kohmescher v. Kroger Co. (1991), 61 Ohio St.3d 501, 575 N.E.2d 439. An employee may establish a prima facie case of direct age discrimination by presenting evidence showing that the employer more likely than not was motivated by discriminatory intent. Mauzy at 587, 664 N.E.2d 1272. In Price Waterhouse v. Hopkins, 490 U.S. 228, 109 S.Ct. 1775, 104 L.Ed.2d 268 (1989), the Supreme Court held:
The man must do or fail to do something in regard to employment. There must be some specific external act, more than a mental act. Only if he does the act because of the grounds stated in the bill would there be any legal consequences.
Id. at 262,109 S.Ct. 1775.
It appears from their pleadings that the Maleys have misconstrued Ohio law regarding the circumstances under which a cause of action for age discrimination may be brought directly against a supervisor or manager. In Genaro v. Central Transport, Inc. (1999), 84 Ohio St.3d 293, 703 N.E.2d 782, the Court answered a specific question of state law certified to it from the District Court. The specific question was: “For purposes of Ohio Rev.Code Ann.[Chapter] 4112, may a supervisor/manager be held jointly and/or severally hable with his employer for his conduct in violation of [R.C. Chapter] 4112 (emphasis added)?” Following its analysis the Court held that:
Based upon the foregoing, we believe that the clear and unambiguous language of R.C. 4112(A)(1) and (A)(2) as weh as the salutary antidiscrimination purposes of R.C. Chapter 4112, and this Court’s pronouncements in cases involving workplace discrimination, all evidence that individual supervisors and managers are accountable for their own discriminatory conduct occurring in the *490workplace environment. Accordingly, we answer the certified question in the affirmative and hold that for purposes of R.C. Chapter 4112, a supervisor/manager may be held jointly and/or severally liable with the employer for discriminatory conduct of the supervisor/manager in violation of R.C. Chapter 4112.
Genaro at 300, 703 N.E.2d 782.
The holding in Genaro is that there must be some “discriminatory conduct” by the supervisor or manager. See also Price Waterhouse at 257, 109 S.Ct. 1775, supra. The Court in Genaro further held that individual supervisors or managers “are accountable for their own discriminatory conduct occurring in the workplace environment,” and that “a supervisor/manager may be held jointly and/or severally liable with the employer for discriminatory conduct of the supervisor/manager.” Id. at 300, 703 N.E.2d 782. Genaro requires that some conduct or actions be undertaken by the supervisor that were discriminatory. The Maleys contend that in Genaro the Supreme Court of Ohio held that the McDonnell Douglas test can be applied without any discriminatory actions or conduct on the part of the supervisor/manager. They appear to believe that they can apply the McDonnell Douglas test to impute to supervisors or managers such discriminatory actions or course of conduct if there is evidence that a statistical or indirect case may be proven under McDonnell Douglas7 The Ohio Supreme Court did not so hold in Genaro. Genaro clearly requires individual actions or a course of conduct on the part of the supervisor or manager that rises to the level of discrimination before a plaintiff can claim against that supervisor or manager individually for the purposes of Ohio Rev.Code § 4112.8
From the facts adduced at Maley’s deposition there appears to be no evidence of discriminatory acts or any discriminatory course of conduct on the part of Miller or Knaga. In addition, the Maleys allege no facts on which to base such a cause of action against RTI as well. The Maleys have produced no evidence of “discriminatory conduct,” or any discriminatory actions taken by Miller or Knaga. The Maleys rely simply on the fact that the individual defendants informed Maley that his employment was terminated. Proof of individual conduct which constitutes discrimination is the only basis under which Ohio law would permit the Ma-leys to hold Miller and Knaga individually accountable in state court under Genaro. Maley never saw Knaga before the day of his termination. Maley stated that Miller was never his direct supervisor, had never evaluated him or reviewed his work, and had never made any remarks about his age.
The Maleys’ counsel have misread Genaro. The Ohio Supreme Court has never held that the burden shifting analysis of McDonnell Douglas is applicable in a case where there was no discriminatory conduct or action engaged in by the supervisor/manager. That is not the holding of Genaro. The court finds that this miscon*491struction of Genaro by the Maleys’ counsel is an attempt to reach RTI through their state court action against Miller and Kna-ga. Maley admits that Miller and Knaga were acting within the scope of their employment. Under Ohio law these defendants, if held liable, would assert a claim for indemnification against RTI. Ohio Rev. Code § 1701.13(E), see also State ex rel. Greater Cleveland Regional Transit Authority, et al. v. Griffin, 62 Ohio App.3d 516, 519, 576 N.E.2d 825 (1991). These undisputed facts demonstrate that the Ma-leys, through their counsel, seek to “end run” around the automatic stay and to continue the initial violation of the automatic stay which occurred with filing their lawsuit against RTI after it filed its chapter 11 petition. Because this holding appears to be one of first impression, the Court will also address an alternative basis for providing protection to Miller and Kna-ga from the harassment that would ensue from allowing the Maleys’ to continue to prosecute the amended complaint.
3. Section 105
Section 105 of the Bankruptcy Code reads, in pertinent part:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out 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 of implement orders or rules, or to prevent an abuse of process.
“The legislative history of § 105 makes clear that stays under that section are granted only ‘under the usual rules for the issuance of an injunction.’ ” Commonwealth Oil Ref. Co. v. U.S. EPA (In re Commonwealth Oil Ref. Co.), 805 F.2d 1175, 1188-89 (5th Cir.1986). The four prerequisites to the issuance of a preliminary injunction are:
(1) a substantial likelihood that the mov-ant will prevail on the merits; (2) a substantial threat that the movant will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to the movant outweighs the threatened harm an injunction may cause the party opposing the injunction; and (4) that the granting of the injunction will not disserve the public.
Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 765 (5th Cir.1995), see also American Imaging Servs. Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.,), 963 F.2d 855, 858 (6th Cir.1992). In applying this standard, “[i]t is important to recognize that the four considerations applicable to preliminary injunctions are factors to be balanced and not prerequisites that must be satisfied ... These factors simply guide the discretion of the court; they are not meant to be rigid and unbending requirements.” Eagle-Picher at 859.
As to the first factor, RTI is no longer operating. A sale of the majority of its assets has closed. Accordingly, on the undisputed facts of the matter now before the Court, initial focus on the third and fourth prongs is most appropriate. In doing so, it is also appropriate to note the developments in the main case since this adversary proceeding was filed. Despite RTFs intensive effort to develop a business plan that would permit it to emerge from its chapter 11 cases as an operating entity, the economic conditions in the U.S. steel industry in general resulted in management seeking a buyer or buyers for the operating assets as a going concern. As a result of those efforts, several smaller sales and one major sale of various components of RTI’s numerous operations were *492approved by the Court pursuant to 11 U.S.G. § 363(b). All of those sales had closed by last month. As a result of those transactions, approximately 2,600 individuals who had been employed by RTI are now employed by the purchasers, but over the course of the chapter 11 case, close to 2,000 RTI employees lost their jobs.
When one views the Maleys’ pursuit of the individual defendants in their state court lawsuit against this backdrop, the harm that could ensue to managers who had the unenviable duty to inform individuals that their employment was being terminated becomes apparent. Still RTI initiated this adversary proceeding and is the movant. Now that it has ceased operations, one might ask what further potential irreparable harm to itself it could identify. The question must be viewed in the context of the principal-agent relationship of entities experiencing economic difficulties that may result in a chapter 11 filing. A corporate entity can only act through its officers and authorized employees. When a principal has directed an agent to take action on its behalf and the agent has done those acts within the scope of the agent’s authority, failure of the principal to seek protection against claims of personal liability of the agent for those actions could lead to management paralysis. The Maleys seek to proceed with a statistically based lawsuit against management employees who themselves lost their jobs in the process of RTI’s difficult efforts to survive in the harsh economic realities that have confronted the U.S. steel industry. At the time this adversary proceeding was commenced, RTI was continuing to evaluate what positions would have to be eliminated to create any chance of the overall operations continuing as a going concern.
The harm to the Maleys in enjoining pursuit of Knaga and Miller based upon the misreading of Genaro by the Maleys’ counsel is greatly outweighed by the obligation that RTI owes to all of its management employees who have participated in the downsizing of its operations during the chapter 11 ease. That is true not only because the Maleys’ have little chance of succeeding in the state court action, but also because allowing the pursuit of that action would set the stage for any individual who is within a protected class and who lost employment during RTI’s downward cycle to pursue the management employee who delivered the discharge notice or served as a supervisor.
Failure to enjoin the Maley lawsuit would likewise disserve the public. It is the harsh reality that, in companies struggling to survive, downsizing of the workforce can be critical. Failing to take such steps can doom any chance of survival for any part of the struggling entity. The timing and efficacy of such processes could be diluted if management employees charged with implementing such programs must fear the prospect of being a sole defendant in an indirect discrimination case.
C. CONCLUSION
Based on the foregoing and pursuant to § 105, to the extent that the Maleys pursuit of the lawsuit against Knaga and Miller does not come within the ambit of § 362(a), this Court now stays the Maleys and the Maleys’ counsel from proceeding in state court and orders that the Maleys and their attorneys are enjoined from proceeding in the state court action until further Order from this Court. The Maleys will be given 21 days from the entry of this Opinion and Order to show cause why that injunction should not continue for the du*493ration of RTI’s bankruptcy proceeding.9
IT IS SO ORDERED.
. In addressing that question, both parties were to assume that the individual named defendants might have a claim against RTI for indemnification with respect to the costs of defending the Maley Lawsuit.
. The Proof of Claim was not signed by the Maleys, but by their counsel. No supporting documents were attached to the claim and to date RTI has not filed an objection.
. The Code does not define the term "willful” but it has been interpreted to mean simply acting intentionally and deliberately while knowing of a pending bankruptcy. Republic Technologies International, LLC v. Maley, 275 B.R. 508, 522 (Bankr.N.D.Ohio 2002)(citing Cuffee v. Atlantic Bus. & Cmty. Dev. Corp. (In re Atlantic Bus. & Cmty. Corp.), 901 F.2d 325, 329 (3rd Cir.1990)). Section 362(h) is not applicable to corporate debtors, but Fed. R.Civ.P. 11 and Fed. R. Bankr.P. 9011 are separate bases for examining the conduct of Maleys’ counsel. The Rule 11 issues are for the state court to address. This Court appropriately examines pleadings filed with this Court under Rule 9011. In particular, the subsequent denial by the Maleys' counsel that they knew of the RTI chapter 11 filing in mid-April is shown to be conclusively false by their own pleading.
.The posturing of the Maleys' attorneys in pleadings filed in this adversary proceeding as to the wording of the Complaint raises an issue under Fed. R. Bankr.P. 9011. The wording of the complaint that was filed has been alleged, in various pleadings and at vari*487ous times, as being due to 1.) a clerical error, 2.) the fact that the Maleys were unaware of the filing, 3.) the fact that several drafts of the Complaint were circulating and the wrong draft was filed, and 4.) that defendants’ counsel only learned that RTI had filed a few weeks after RTI's filing. None of these premises can excuse the fact that the Maleys’ counsel plainly knew that RTI had sought bankruptcy protection including that provided by the automatic stay. The Federal Rules of Procedure and the Bankruptcy Rules do permit pleading in the alternative but do not countenance the inconsistent and erroneous presentation of known facts.
. For ease in reading, all references to the Maley Deposition will be to the page and line of the deposition, without identifying the deposition each time.
. This statement undercuts the Maleys claim because he was hired by RTI.
. The Maleys reading of Genaro would lead to the illogical result that, if the prongs of the McDonnell Douglas test could be met, any supervisor or manager who merely informed an employee that his or her employment is to be terminated could be held individually liable in a cause of action for age discrimination.
. Federal District Courts in Ohio have held, following Genaro, that "individual supervisors and managers are accountable for their own discriminatory conduct occurring in the workplace environment.” McCormick v. Kmart Distrib. Ctr., 163 F.Supp.2d 807, 820 (N.D.Ohio 2001), see also Sublett v. Edgewood Universal Cabling Systems, Inc., 194 F.Supp.2d 692, 698 (S.D.Ohio 2002).
. The court will not deal at this time with the possibility of a violation of Fed. R. Bankr.P. 9011 or the issue of the willful violation of the automatic stay. However, the Court retains jurisdiction to deal with those issues at a later date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493464/ | OPINION
RANDOLPH J. HAINES, Bankruptcy Judge.
Tim Monahan (“Monahan”) objects to confirmation of Edward Murin’s (“Murin”) proposed Chapter 13 plan and requests the Court deny confirmation and either convert to Chapter 7 or dismiss the case with prejudice with a 180 day bar against the refiling of any other bankruptcy petition pursuant to 11 U.S.C. § 109(g).1
For the reasons stated below, the Court concludes that real property held by husband and wife in joint tenancy with right of survivorship is separate property and not community property under Arizona law. Consequently a deed of trust granted by one spouse, not joined by the other spouse, may be effective to impose a hen on that spouse’s entire interest after a divorce. Because Murin’s plan fails to treat Monahan’s claim as a secured claim, confirmation must be denied.
Background Facts
The following facts are undisputed.
Monahan and Murin entered a joint venture/partnership agreement to purchase some real property. Monahan financed the project and advanced over $50,000 towards the purchase and construction of improvements. Murin was to manage the project and perform most of the construction work. Instead of using Monahan’s funds for property improvements, however, Murin embezzled and diverted the funds for his own personal use and to pay living expenses. As a result, there were no funds available to make the mortgage payments and the property was lost in foreclosure.
Murin wrote Monahan a letter acknowledging his debt and agreeing to fully reimburse him. From this agreement, a promissory note and deed of trust were created to provide security for the repayment of the debt. The collateral securing the debt under the deed of trust was Murin’s interest in his residence. Murin signed both documents, but his wife (“Mrs. Murin”) refused to sign them because she and Mu-rin were in the process of a divorce.
Murin and his wife had purchased their house as joint tenants with right of surviv-orship along with a third party, Frank Murin, in September of 1995. The joint tenancy deed language specifically states the house was conveyed to “Frank A. Mu-rin, a widower, Edward F. Murin and Kathy Murin, husband and wife not as tenants in common and not as a community property estate, but as joint tenants with right of survivorship.” All three parties signed an Acceptance of Joint Tenancy (Deed) affirming their intention to accept the conveyance as joint tenants with right of survivorship.
Murin defaulted on his note to Monahan, and Monahan initiated a trustee’s sale of Murin’s house. Before Murin’s house could be sold, he filed a Chapter 13 bankruptcy petition which stayed the trustee’s sale.2
*590Some time after Murin’s note and deed of trust were executed, and prior to this case, Mr. and Mrs. Murin got divorced. Apparently Murin wound up with the house in the divorce, but the record does not reflect what interest he obtained or how and when he obtained it.
Parties’ Arguments
Murin argues that Monahan’s claim is unsecured and that the lien did not attach to Murin’s home pursuant to Arizona Revised Statutes § 33-452 because Mrs. Mu-rin did not sign the deed of trust. “A conveyance or incumbrance of community property is not valid unless executed and acknowledged by both husband and wife .... ” Ariz.Rev.Stat. Ann. (“A.R.S.”) § 33-452 (West 2000). Monahan responds that any defect in Murin’s deed of trust was later cured, when he became divorced, by the doctrine of after-acquired title, pursuant to A.R.S. § 33-703(B). That statute provides: “Title acquired by the mortgagor subsequent to the execution of the mortgage inures to the mortgagee as security as if acquired before the execution.”3 Murin replies that an early Arizona Supreme Court opinion held that “a contract made by one spouse which attempts to incumber community realty, where the other party to the contract knows of the marriage, and that the property affected by the contract was acquired during cover-ture, is void and not merely suspended .... ” Rundle v. Winters, 38 Ariz. 239, 298 P. 929, 933 (1931). Murin agues that Run-dle should apply in this case to invalidate Monahan’s deed of trust, but Monahan argues that Rundle is distinguishable because it applies only to community property, not to property held in joint tenancy. Murin responds that the existence of a joint tenancy deed does not mean the house was not held as community property and subject to the doctrine of Rundle.
Legal Analysis
This case raises two issues: first, whether real property taken by husband and wife as joint tenants with right of survivor-ship is community property under Arizona law; and second, whether the doctrine of Rundle extends to property taken by husband and wife as joint tenants.
Murin admits that a joint tenancy deed was created and accepted, but argues that it does not mean the house was not held as community property. Although the assumption under Arizona law is that all property acquired by either spouse during marriage is community property, the presumption can be rebutted with clear and convincing evidence. A.R.S. § 25-211; Bender v. Bender, 123 Ariz. 90, 597 P.2d 993, 996 (Ct.App.1979). “This presumption can be overcome by evidence that the parties agreed to hold the property as joint tenants, such as a deed showing that the spouses took title to property as joint tenants.” Hanf v. Summers (In re Summers), 278 B.R. 808, 811 (9th Cir. BAP 2002). “The right of husband and wife to hold property as joint tenants in derogation of our community property statutes has been recognized by this court provided it clearly appears the spouses have agreed that the property should be taken in that manner.” Collier v. Collier, 73 Ariz. 405, 242 P.2d 537, 540 (1952).
In Summers, the husband and wife purchased real property and took title as joint tenants along with a their adult daughter. Summers, 278 B.R. at 810. All three parties were named individually on the deed as joint tenants and all three *591signed as accepting the interest as joint tenants. Id. Those facts are nearly identical to Murin’s situation: Murin and his wife took title as joint tenants with a third party relative; all three were individually listed on the deed as joint tenants; and all three signed the deed accepting the property as joint tenants. The Summers court recognized that spouses may acquire property as joints tenants, not as community property (regardless of any additional third party joint tenants), and affirmed the bankruptcy court’s holding that the property is a joint tenancy property. Id. at 814. “[Wjhen a husband and wife with community funds take title to property as joint tenants, the form of conveyance destroys the presumption that the property is community and that, consequently, the joint tenancy stands as such, the interest of each spouse being separate property ....” Id. at 811 (quoting 15A Am.Jur. 2D Community Property § 56 (2000)).
In 1995, the Arizona Legislature amended Arizona Revised Statutes § 33-431, making it possible for a husband and wife to take property as community property with right of survivorship. At the time Murin and his wife acquired their home on September 7, 1995, the option to take it as community property with right of survivorship was available, but they agreed instead to take it as joint tenants. The Court therefore finds and concludes that the property was held in joint tenancy, not as community property.
Murin relies solely on the Rundle doctrine to support his argument that the deed of trust he granted to Monahan was void without his wife’s signature. The question is whether that holding would be extended by Arizona courts to joint tenancy property. The Rundle court did not give any policy rationale to support its holding that a contract made by one spouse that encumbers community real property is forever void, and not merely suspended should the contracting spouse later acquire valid separate title. Rundle, 298 P. at 933. Moreover, the Rundle holding has been generally ignored in Arizona and other states for the past half century. The closest authority relying on Rundle is a 1942 New Mexico Supreme Court opinion, which similarly failed to provide any strong policy analysis supporting its result, but instead relied heavily on statutory interpretation. Jenkins v. Huntsinger, 46 N.M. 168, 125 P.2d 327 (N.M.1942).
The interest in protecting the non-contracting spouse’s share of the community real property seems to be the only possible policy argument supporting the Rundle doctrine. But that policy has no application subsequent to divorce where the spouse’s interest was protected by the divorce court.4
Rather, the more sound policy seems to be that of the dissenting justice in Jenkins — even though a conveyance is not immediately effective, it can still be regarded as an agreement or contract to convey, which courts of equity5 should enforce once the statutory prohibition is no longer effective (la, the couple is no longer married). Jenkins, 125 P.2d at 335-36. “[Tjhere is no merit in the contention that if a transfer or conveyance of a husband without his wife’s joining, would be void and of no effect, then a contract to make such transfer or conveyance would likewise be void and of no effect.” Id. at 336. To further support his dissent, the justice cit*592ed a Washington Supreme Court opinion holding that “where a person when conveying land by deed has no title and after-wards acquires title, it inures to the con-veyee, though the original deed be void.” Id. at 337, quoting Gough v. Center, 57 Wash. 276, 106 P. 774, 775 (1910). This is the basic philosophy of the doctrine of after-acquired property that Arizona has adopted by statute. A.R.S. §§ 33-703(B) & 33-806(A).
Further, there are no policy reasons supporting the extension of Rundle to spouses’ non-community property. A court has no reason to intervene and protect a spouse’s interest in property that is not shared by the community after a divorce, especially when the spouses have taken unequivocal steps to exempt the property from the protection of community property laws (i.e. contracting to accept property as joint tenants). It appears from the deed of trust that Murin intended to give Monahan a lien against the entire house, not just against his interest. Absent the overriding protection of community property law, a court of equity should give effect to that intent.
Consequently the Court finds and concludes that Monahan has a valid and unavoidable hen against the Debtor’s house. Monahan’s objection to Murin’s plan must therefore be sustained, as it fails to treat Monahan’s claim as secured.
With regard to Monhan’s motion to dismiss with prejudice pursuant to § 109(g), the Court finds Monahan failed to establish either of the two elements required under § 109(g). Subsection (1) does not apply because Monahan has not shown that Murin willfully failed “to abide by the orders of the court, or to appear before the court in proper prosecution of the case.” Subsection (2) also does not apply because Monahan has not shown that Murin “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.”
Conclusion
Monahan’s claim is a secured claim.
Accordingly,
IT IS ORDERED denying confirmation of the Chapter 13 Bankruptcy Plan;
IT IS FURTHER ORDERED allowing Debtor 30 days to file an amended Plan that provides for Monahan’s secured claim. If the Debtor fails to do so, Monahan may lodge an order of dismissal without prejudice.
. Except as otherwise noted, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330.
. Murin's first bankruptcy case was dismissed for failure to comply with the standing Chapter 13 procedure order entered by the court. Murin later filed a second Chapter 13 bankruptcy petition, initiating this case.
. A.R.S. § 33-806(A) accomplishes the same result, in virtually identical language, for deeds of trust.
. Indeed, it may not apply even during the marriage to the separate property joint tenancy interests, but we need not reach that issue on these facts.
. Bankruptcy courts are courts of equity. Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493466/ | MEMORANDUM OF DECISION ON MOTION TO DISMISS
ALAN H. W. SHIFF, Chief Judge.
On December 21, 2001, the plaintiff chapter 7 trustee, Richard M. Coan, commenced this adversary proceeding against Meryl Diamond, Ltd. (“Diamond”), by filing a one count complaint, alleging that it received a $35,000 preferential transfer. 11 U.S.C. § 547(b).1 On March 22, 2002, the trustee filed an amended complaint which added a second count, alleging that the same transaction constituted a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B).2 On March 25, 2002, Diamond filed the instant motion to dismiss the second count, see Rule 7012(b), *651F.R.Bankr.P., because it was time barred by the applicable statute of limitations. Code section 546(a)(1) provides in relevant part that “an action or proceeding under section ... 548 ... of this title may not be commenced after ... 2 years after the entry of the order for relief....”. Here, the order for relief entered on December 28, 1999. For the reasons that follow, the motion is granted.
The purpose served by statutes of limitations generally is “ ‘that there may be, at some definitely ascertainable period, an end to litigation,’ ” United States v. Gordon, 78 F.3d 781, 787 (2nd Cir.1996) (quoting Reading Co. v. Koons, 271 U.S. 58, 65, 46 S.Ct. 405, 70 L.Ed. 835 (1926)). Actions commenced after an applicable statute of limitations has run are vulnerable to dismissal, unless, as claimed here, the action relates back to the date of the original complaint. Rule 15(c)(2) F.R.Civ.P, made applicable by Rule 7015, F.R.Bankr.P., provides that “an amendment of a pleading relates back to the date of the original pleading when ... the claim ... asserted in the amended pleading arose out of the conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading.” The policy served by the relation back procedure is to permit the amendment of a pleading to amplify what has been alleged, not to establish a new predicate for the relief sought. See Conteh v. City of New York, 2001 WL 736783, *3, 2001 U.S.Dist. LEXIS 8851, *8 (S.D.N.Y. June 28, 2001). Notice pleading is intended to give litigants a fair opportunity to assess the allegations that they will confront at trial and to limit the claims against them to what has been pleaded. Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir.1988) (cited in Chambers v. Time Warner, Inc., 282 F.3d 147, 154-155 (2nd Cir.2002)).
The issue here is whether adequate notice of the fraudulent transfer claims alleged in the amended pleading had been given to Diamond by the preference allegations in the original complaint. See e.g., Wilson v. Fairchild Republic Co., Inc., 143 F.3d 733, 738 (2nd Cir.1998). (The pertinent inquiry “is whether the original complaint gave the defendant fair notice of the newly alleged claims.”). It was not.
Even if the result is the same, i.e., the avoidance of a transfer, an amendment cannot relate back if different facts are essential to reach that conclusion. See e.g., Ansam Assoc. v. Cola Petroleum, Ltd., 760 F.2d 442, 446 (2nd Cir.1985). So, while both the original and amended pleadings identified the same parties, date and amount of the transfer, there was no allegation in the original pleading, claiming Gantos received a preferential transfer, which would put Diamond on notice of the amended claim that Gantos received a fraudulent transfer, i.e., “less than reasonably equivalent value”. The statutory basis and available defenses are different.
Accordingly, the motion is granted, Count Two of the amended complaint is DISMISSED, and IT IS SO ORDERED.
. Code section 547(b) provides that
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....
. Code section 548(a)(1)(B) provides
(a)(1) 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—
(B)(i) received less than reasonably equivalent value in exchange for such transfer or obligation; and
(ii)(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 debtor 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. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493468/ | DECISION
JAMES E. SHAPIRO, Bankruptcy Judge.
Bruce A. Lanser, chapter 7 trustee in this case (“trustee”), filed a motion for *739summary judgment seeking to disallow claim no. 2248 of Charles Coleman. Coleman is a former employee of the debtor, ANR Advance Transportation Company, Inc. He filed a proof of claim in the sum of $8,750,000 for unlawful termination of employment based upon his contention of discrimination and retaliation by the debtor. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).
Coleman began working for a company known as Advance Transportation Company in 1977 as a city truck driver delivering freight in and around the Chicago, Illinois area. In November of 1995, Advance Transportation Company merged with ANR Freight Systems, Inc., forming ANR Advance Transportation Company, Inc. (hereafter “debtor,” “company,” or “employer”). Coleman continued to work for the company until December 26, 1997, when he was terminated upon grounds of alleged dishonesty in connection with a work-related injury.
On or about July 29, 1997, Coleman injured his left shoulder at work. This resulted in some time lost from work. On or about October 13, 1997, Coleman, while at work, further aggravated his shoulder injury. He remained continuously absent from work until November 25, 1997, when he showed up for work and presented the company with a work-release slip obtained from his treating physician, Dr. Harvey L. Echols. The company directed Coleman to submit all of his medical records to substantiate his claim of a work-related injury and informed him that he would not be permitted to return to work until this information was first obtained. After numerous requests by the company, on December 16, 1997, Coleman finally provided Dr. Echols’ complete treatment notes. These notes revealed that Coleman was not seen or treated by Dr. Echols until November 21, 1997 — which was several weeks after Coleman first reported to Thomas J. Madigan, the company terminal manager, that he was being treated by Dr. Echols. As a result of this discrepancy, Coleman’s employment was terminated on December 26,1997.
Coleman, who is African-American, claims that he was terminated as a result of race discrimination under Title VII of the Civil Rights Act of 1964 and disability discrimination under the Americans With Disabilities Act (“ADA”). He also asserted that the company fired him in retaliation for his previous actions in filing a complaint in 1990 with the Equal Employment Opportunity Commission (“EEOC”).
The debtor disputed Coleman’s allegations as to its reasons for his termination. In its letter of discharge to Coleman dated December 26, 1997, the debtor specifically set forth that its grounds for termination were based upon Coleman’s dishonesty. The debtor contended that Coleman had repeatedly told company officials that he was being treated by Dr. Echols, but in fact, the records showed that he was not seen by Dr. Echols until November 21, 1997 — four days before Coleman presented his work-release slip. The debtor further stated that this misrepresentation, together with Coleman’s failure to cooperate in promptly providing his medical records, caused it to conclude that Coleman had been dishonest resulting in his termination from employment. The debtor denied that race discrimination, disability discrimination, or retaliation played any part in its decision to terminate Coleman’s employment.
In November of 1998, Coleman filed a civil lawsuit, No. 98-C-7599, in the United States District Court for the Northern District of Illinois, Eastern District, against the debtor and against Coastal *740Corporation.1 This civil suit was filed before the debtor’s bankruptcy. The involuntary petition in bankruptcy against the debtor was filed on February 2, 1999 by certain creditors in the United States Bankruptcy Court in Delaware. On March 3, 1999, the Delaware bankruptcy court entered an order for relief under chapter 7 and ordered venue of this case to be transferred to the United States Bankruptcy Court for the Eastern District of Wisconsin, where it is now pending.
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 7056 of. the Federal Rules of Bankruptcy Procedure, summary judgment is appropriate where the pleadings and affidavits establish that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986).
The policy of the summary judgment procedure is to dispose of factually unsupported claims or defenses, to serve judicial economy, and to avoid unnecessary litigation. Cloutier v. U.S., 19 Cl.Ct. 326 (1990); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Rule 56(e) of the Federal Rules of Civil Procedure states, in part:
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleading, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
Unquestionably, there is bad blood between Coleman and his former employer which has existed over a long period of time. Coleman’s employment with the company was terminated on at least seven different occasions before this latest termination on December 26,1997. The circumstances as to his reinstatement after each of the prior terminations are absent from the record. In any event, Coleman insists that the real reason for his latest termination on December 26, 1997 was discrimination and retaliation. Coleman, however, failed to provide any affidavits or other documents to support these allegations. The trustee, on the other hand, provided persuasive affidavits — in particular, that of Thomas J. Madigan, the former terminal managér for the debtor at the Bedford Park, Illinois terminal where Coleman had been working — which refute the allegations contained in Coleman’s proof of claim. Coleman only presents mere suspicions, and mere suspicions are not sufficient to withstand a motion for summary judgment. As noted in In re Hensley, 201 B.R. 494, 499 (Bankr.S.D.Ohio 1996):
In short, a movant may challenge the opposing party to “put up or shut up” on a critical issue, and if after being afforded a sufficient time for discovery the respondent does not “put up,” summary judgment is proper.
*741Coleman has failed to “put up” any response to the trustee’s summary judgment motion, by affidavit or otherwise, and failed to create a triable issue of fact.
Recently, the Seventh Circuit in Salvadori v. Franklin School Dist., 293 F.3d 989, 996 (7th Cir.2002) declared:
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.... The mere existence of an alleged factual dispute is not sufficient to defeat the summary judgment motion. To successfully oppose the motion, the non-movant must present definite, competent evidence in rebuttal.
In Komel v. Jewel Cos., 874 F.2d 472, 473 (7th Cir.1989), and Dale v. Chicago Tribune Co., 797 F.2d 458, 464-65 (7th Cir.1986), the Seventh Circuit proclaimed that, in a federal discrimination case, a defendant is entitled to summary judgment where the plaintiff fails to establish a prima facie case of discrimination. The plaintiff must present specific facts to refute an employer’s explanation for terminating the plaintiffs employment. Komel, 874 F.2d at 473.
Disability discrimination requires a showing (1) of disability within the meaning of the ADA, (2) that claimant is qualified to perform the essential functions of the job (with or without a reasonable accommodation), and (3) that claimant suffered an adverse employment action because of such disability. Moore v. J.B. Hunt Transport, 221 F.3d 944, 950 (7th Cir.2000); Byrne v. Board of Educ., 979 F.2d 560, 563 (7th Cir.1992).
Racial discrimination requires that claimant present direct evidence of such discrimination or, in the alternative, show that (1) he belongs to a protected class, (2) performed his job satisfactorily, (3) suffered an adverse employment action, and (4) his employer treats similarly situated employees outside of his protected class more favorably. Contreras v. Suncast Corp., 237 F.3d 756, 759 (7th Cir.2001), citing Stockett v. Muncie Indiana Transit System, 221 F.3d 997, 1000-01 (7th Cir.2000).
Coleman failed to present specific facts of disability or racial discrimination. Coleman’s allegations of retaliation are based solely upon his claim that his discharge was due to a complaint he filed with the EEOC in 1990, which occurred more than seven years before his last termination. The Seventh Circuit recently found in Franzoni v. Hartmarx Corp., 300 F.3d 767 (7th Cir.2002), that a 6 month gap in time was too long of a period to establish a causal link of retaliation.
Although Coleman appears pro se, he is no stranger to the litigation process. He participated in numerous proceedings in the course of this case and has also appeared as a litigant in other forums. Attorneys and laymen must abide by deadlines fixed by a court. Here, the court, in its scheduling order dated April 16, 2002, specified that a response to a summary judgment motion must be filed within 30 days from the date of service of such summary judgment motion.
The trustee furnished verification that, on July 6, 2002, Coleman received the trustee’s motion for summary judgment together with the supporting affidavits, brief, and proposed findings of fact. Coleman was required to file his response by August 5, 2002. On August 22, 2002, Coleman filed with the court certain documents labeled “Answer to Trustee’s Motion for Summery [sic] Judgment” and “Motion for Voluntary Withdrawal Dissmisal [sic].” If *742these documents are intended by Coleman to be construed as Coleman’s response to the summary judgment motion, they are untimely — having been filed 17 days past the deadline set by this court — and are stricken from the record.
The Seventh Circuit in Downs v. Westphal, 78 F.3d 1252, 1257 (7th Cir.1996), declared:
... being a pro se litigant does not give a party unbridled license to disregard clearly communicated court orders. It does not give the pro se litigant the discretion to choose which of the court’s rules and orders it will follow, and which it will wilfully disregard. “Although civil litigants who represent themselves (‘pro se’) benefit from various procedural protections not otherwise afforded to the attorney-represented litigant ... pro se litigants are not entitled to a general dispensation from the rules of procedure or court-imposed deadlines.” Jones v. Phipps, 39 F.3d 158, 163 (7th Cir.1994).
Furthermore, nothing in Coleman’s documents, untimely filed on August 22, 2002, contain any specific facts showing that there is a genuine issue for a trial. Coleman’s failure to respond to the trustee’s motion for summary judgment by affidavits or as otherwise provided in Rule 56(e) of the Federal Rules of Civil Procedure, and his reliance solely upon his own con-clusory statements and self-serving assertions contained in his proof of claim, are insufficient to withstand the trustee’s summary judgment motion. See Hall v. Bodine Elec., 276 F.3d 345, 354 (7th Cir.2002) (“It is well settled that conclusory allegations .... without support in the record, do not create a triable issue of fact.”) The court is satisfied, based upon the current record, that Coleman’s termination was not prompted by any discrimination or retaliation. Instead, Coleman’s termination was based upon the company’s well-founded belief of Coleman’s dishonesty in connection with his work-related injury.
Whether Coleman was in fact dishonest is not the critical issue. The relevant question here is whether the company formed a legitimate belief that Coleman was dishonest which, in turn, caused his discharge, even if the company’s belief may have been inaccurate. In Flores v. Preferred Technical Group, 182 F.3d 512, 516 (7th Cir.1999), the court stated that an employer need only supply an honest reason, not necessary a reasonable one, for termination. There is ample evidence in the record of this case to support the company’s belief of Coleman’s dishonesty which led to his discharge. There is also a lack of evidence to support a conclusion that the company was attempting to manufacture an excuse to fire him. See Franzoni v. Hartmarx Corp., 300 F.3d 767 (7th Cir.2002) (“... pretext requires more than a showing that the business decision was ‘mistaken, ill considered, or foolish,’ ... so long as the employer ‘honestly believed’ the reason given for the action, pretext has not been shown.”)
The court concludes that the trustee’s motion for summary judgment is appropriate and is GRANTED.
. Coastal Corporation is the holding company of ANR Freight Systems, Inc., which had merged with Advance Transportation Company in November of 1995. Coastal Corporation was joined as a defendant under a theory of successor interest. Eventually, Coastal Corporation was dismissed from this lawsuit on its motion for summary judgment. Because of the automatic stay under 11 U.S.C. § 362 upon the filing of the involuntary bankruptcy petition, Coleman has not pursued the civil suit against the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493469/ | MEMORANDUM OPINION2
JUDITH K. FITZGERALD, Chief Judge.
In the matter before us Debtor’s former counsel misappropriated $620,000 in proceeds from the sale of Debtor’s real estate. The question we must answer is whether the purchaser who paid the purchase price or the mortgagee bears the loss. Specifically, the mortgagee, Dollar Bank, argues that, although the order confirming the sale in this case provided that the liens on the property were transferred to the proceeds, the hens remained on the property until the proceeds were turned over to Dollar Bank. Because the proceeds were not paid to Dollar Bank at the closing, Dollar Bank contends that its lien was never divested and the purchaser, Maronda Homes, Inc., must pay it. There is no factual dispute.
Facts
On or about August 10, 2001, Debtor entered into an Asset Purchase Agreement with J. Castellucci Enterprises & Associates for three parcels of real estate located in Westmoreland County for a purchase price of $620,000. See Exhibit A to Maronda Homes, Inc.’s, Statemexxt of Position Concerning Sale of Real Estate and Status of Dollar Banks’ Divested Liens, Dkt. # 101. Castellucci Enterprises has a longstanding relationship with Maronda Homes whereby Castellucci Enterprises seeks suitable property on behalf of Maronda, enters into appropriate contracts, and then assigns its purchase rights to Maronda. Paragraph 10.6 of the Asset Purchase Agreement provided that it would bind the parties “and their respective successors, assigns and heirs; provided, however, that a party hereto shall assign its rights or delegate its duties under this Agreement with notice to the other party as to whom the assignees are.” Exhibit A to Maronda’s Statement of Position.
The sale hearing was held on November 16, 2001, at which time Maronda’s president, Ronald W. Wolf, was present. Although the order confirmed the sale to Castellucci Enterprises, during the hearing it was made clear that Maronda was taking an assignment, would be the actual purchaser, and would pay the balance due at closing.3
The court entered an order approving the sale on November 16, 2001. Dkt. # 74. The order provided that the sale was “free and clear of all mortgages, hens, claims and encumbrances”. It further provided that “the mortgage liens held by Dollar Bank ... are divested from the real estate being sold via this order and shifted to the fund derived from the sale.” The order detailed how the proceeds would be distributed and that closing was to occur by December 3, 2001. On or about November 27, 2001, Debtor notified parties that the closing would occur on November 30, 2001. Dollar Bank received this notice. On November 27, 2001, Dollar Bank provided a payoff letter to Debtor. On November 29, 2001, Debtor wrote to Dollar Bank disputing the payoff amount on the basis that the legal fees charged by the Bank were excessive. Debtor advised the Bank that it would xnake no distribution to the Bank *101unless the Bank agreed to accept payment of principal and interest in full satisfaction of its claim. Dollar Bank refused to waive any part of its claim but agreed to accept payment of principal and interest without prejudice to its right to pursue the balance of its claim. Dollar Bank did not, however, attend the closing on November 30, 2001.
At the closing Debtor’s former counsel acted as escrow agent in accordance with the court’s November 16, 2001, order confirming the sale. Paragraph 5 of the order detailed how proceeds were to be distributed and included a provision that the balance of Dollar Bank’s mortgaged] would be paid. See Dkt. # 74 at ¶ 5. The order further provided at subparagraph G that “All remaining funds shall be held in escrow by Debtor’s Bankruptcy counsel, ..., to be distributed by way of the Debt- or’s future Chapter 11 Plan of Reorganization.” Dkt. # 74 at ¶ 5G. Deeds were delivered on November 30 and recorded on December 11 with a certified copy of the November 16 order which provided that the transfers were free and clear of liens and that Dollar Bank’s mortgage liens were divested. Dollar Bank was informed that the closing had occurred and sent Debtor’s former counsel a letter dated December 4, 2001, confirming its willingness to accept payment of principal and interest without prejudice to its remaining claim for attorney’s fees.
On December 11, 2001, at Dkt. # 75, Debtor filed an Objection To Claim of Dollar Bank To Authorize Payment of Allowed Claim From Closing Proceeds. On December 17, 2001, at Dkt. # 76 (Motion # 01-7263), Dollar Bank filed a Motion To Enforce Order Authorizing Debtor’s Sale of Property and Requiring Payment of Dollar Bank. (Motion No. 01-7373M). Also on December 17, 2001, at Dkt. # 77, Debtor filed its Report Of Sale. On January 2, 2002, Dkt. # 78, Dollar Bank filed an Objection to Report of Sale. Dollar Bank’s motion to enforce the sale order, while not naming a respondent, asked the court to
order the Debtor to immediately pay Dollar Bank all amounts to which it is entitled under its loan documents, including principal, interest through the date of payment, and all fees and expenses payable under the governing documents (including legal fees incurred in connection with the presentation of this motion) and, pending such payment, to order that the Bank’s mortgage lien continues to encumber the Property.
Motion of Dollar Bank, FSB to Enforce Order Authorizing ... Sale ...., Motion No. 01-7373, Dkt. # 76. The motion was not served on Maronda nor was the notice of hearing scheduled for February 13, 2002. At the February 13th hearing, the court entered an oral order requiring Debtor’s former counsel to distribute principal and interest through November 30, 2001, to Dollar Bank. Debtor’s former counsel was required to submit a written order memorializing this oral order by February 28, 2002, and was directed to escrow an amount sufficient to cover the disputed portion of Dollar Bank’s claim. No such order was filed, no payment was made, and no funds were escrowed. In early March, 2002, the United States initiated several forfeiture proceedings involving assets of Debtor’s former counsel. This court scheduled a status conference on this bankruptcy case for April 12, 2002. In the meantime, Dollar Bank filed a Supplement to Motion No. 01-7373. This was the first document to be served on Maronda. Maronda filed a response to the Supplement stating that to the extent Dollar Bank was seeking payment from the proceeds of sale, Maronda had no objection but, if Dollar Bank was asserting that its *102liens attached to the real estate, the order of November 16, 2001, provided otherwise.
Although not served with the order scheduling the status conference for April 12, Maronda became aware that it was to be held but, from information available to it, Maronda believed that the only matter to be discussed at the status conference was the future progress of the case in light of problems generated by the conduct of Debtor’s former counsel. At the April 12th status conference, Dollar Bank submitted a proposed order to the court providing that its mortgage liens remained attached to the real estate. Maronda learned of the proposed order and filed Motion No. 02-2507 requesting a hearing on Motion No. 01-7373, Dollar Bank’s Motion To Enforce Order Authorizing ... Sale of Property and Requiring Payment .... 4 The hearing on Dollar Bank’s motion was held on May 16, 2002.
Dollar Bank’s position is that its mortgage liens were never divested because Dollar Bank was not paid at closing. Dollar Bank also asserts that it was Maronda’s responsibility to make sure that Dollar Bank was paid from the proceeds of sale. In Dollar Bank’s objection to Maronda’s motion requesting a hearing with respect to Motion No. 01-7373, Dkt. # 104, Dollar Bank argues, inter alia, that Maronda is asking this court to amend its November 16, 2001, order.5 Maronda’s motion does not request that relief. Furthermore, no amendment to the order is required. The order clearly divested the liens from the property and imposed them on the proceeds of sale without condition. Proceeds were disbursed at the closing on November 30, 2001. Dollar Bank did not receive its share of the proceeds at closing because Dollar Bank did not appear at the closing and did not act to stay the closing or seek other relief from the court. The fact that Dollar Bank did not receive funds at closing does not establish that its liens were not divested on November 16. Dollar Bank argued at the May 16th hearing that Maronda is liable for the misconduct of Debtor’s former counsel because former counsel was, in effect, Maronda’s agent, making Maronda the principal. In this regard Dollar Bank cites In re Arrow Mill Development Corp., 185 B.R. 190 (Bankr. D.N.J.1995). That case involved rent payments that were placed in escrow pending resolution of a dispute between a shopping center tenant and a chapter 11 debtor. The court held that rent payments did not become estate property because the condition that would have vested title in the debtor as the escrow grantee never occurred. (That condition was an arbitration award allowing for retroactive adjustment.) Id. at 194. Thus, the escrow funds in Arrow Mill never became estate property. In Arrow Mill the grantor of funds, although not in possession of the funds, held the legal title. In the case before us, the funds in the hands of Debtor’s former counsel were subject to creditors’ liens— those same liens that, before issuance of the order confirming the sale, had attached to Debtor’s real estate. Once this court entered the order confirming the sale, the liens were divested from the real estate and attached solely to the funds. The fact that the funds disappeared through the escrow agent’s misconduct does not undo the effect of the sale confirmation order. Furthermore, there was no condition precedent to the liens attaching to the proceeds.
Dollar Bank also cites Zaremba v. Konopka, 94 N.J.Super. 300, 228 A.2d 91 (1967), where a contract for sale of real *103estate provided for a down payment and was contingent on the purchasers getting a mortgage. When the real estate agent embezzled the down payment, the purchasers waived the contingency in part. The court held that the loss was to be borne by the purchasers who had at least equitable title to the escrowed down payment. The court stated as the “general rule” that, between buyer and seller, the loss falls on the one who owns the property at the time of the loss. Pennsylvania law provides that Debtor as mortgagor is deemed to have transferred the property subject to the mortgage to the mortgagee in fee simple upon the condition that, if the mortgagor repays the debt on time, the mortgagee will reconvey the property. See Commerce Bank v. Mountain View Village, Inc., 5 F.3d 34 (3d Cir.1993). Accordingly, even before the bankruptcy and the sale Dollar Bank held the defeasible fee interest in Debtor’s real estate. When the order confirming the sale was entered Dollar Bank’s interest in the real estate was transferred to the proceeds of the sale and divested from the real estate. At the time of the closing the funds subject to Dollar Bank’s lien were available to Dollar Bank which, from and after the entry of the sale confirmation order, “owned” the funds. Thus, even under the cases Dollar Bank cites, Dollar Bank bears the risk of loss, not Maronda.
We reach the same conclusion with respect to Asher v. Herman, 49 Misc.2d 475, 267 N.Y.S.2d 932 (N.Y.Sup., 1966), Angell v. Ingram, 35 Wash.2d 582, 213 P.2d 944 (1950), and Hildebrand v. Beck, 196 Cal. 141, 236 P. 301 (1925), upon which Dollar Bank relies. Asher v. Herman was an action by purchasers to recover the amount of money deposited with an escrow agent who embezzled the funds. Under the facts of Asher the sellers were never entitled to the funds because they never had a title which the buyers were obliged to accept. Under those circumstances, the money in escrow was at all times the property of the buyers, who bore the risk of loss. In Angell v. Ingram, although the escrow agent was the agent of the seller, the buyers also made him their agent for purposes of making payment when conditions were performed. When the agent absconded, the conditions had not been performed and the court held that the agent had been holding the money as buyer’s agent. However, title to the property did not pass because conditions of the escrow had not been complied with and purchasers would have to give the sellers the amount that had been entrusted to the escrow agent (less certain amounts that had been paid for seller’s benefit). In Hildebrand v. Beck, the escrow agent was instructed by the seller that a deed was to be delivered to the buyer when the purchase price was paid to the escrow agent for the seller’s account. The buyer authorized the escrow agent to use the deposit when the escrow agent secured a title guaranty. The court held that if, before the title guaranty was obtained by escrow agent, the agent embezzled the deposit, it was the buyer’s money that was lost. None of these cases apply to the situation before us. None of the cases cited by Dollar Bank deal with bankruptcy court orders confirming sales and divesting liens.
Dollar Bank also cites Friedman v. Parkway Baking Co., 147 Pa.Super. 552, 24 A.2d 157 (1942), which dealt with an employer’s liability for his employee’s fraudulent conduct and B.J. McAdams, Inc. v. Boggs, 439 F.Supp. 738 (E.D.Pa. 1977), which concerned summary judgment with respect to an employee’s breach of fiduciary duty. See also Robert Howarth’s Sons v. Boortsales, 134 Pa.Super. 320, 3 A.2d 992, 994 (1939), wherein the court quoted Mechem on Agency: “It may also *104happen that, while the agent’s fraud alone would not under the circumstances involve the principal, the latter himself may, by some culpable act or omission of his own, so supplement or assist the agent’s act as to charge the principal with the consequences”. Even assuming, which we do not, that Maronda was Debtor’s former counsel’s principal, Dollar Bank makes no allegation that Maronda committed a “culpable act or omission”. Dollar Bank cites Bachman v. Monte, 326 Pa. 289, 192 A. 485 (1937), where the issue was whether the insurer conspired with the insured to defeat liability by persuading the insured to stay away from a trial. The court discussed various aspects of the law governing principals’ liability for conduct of their agents and, while we agree that the general principles of law discussed exist, none of them apply to the case before us. Dollar Bank further cites In re Oyster Bay Cove, Ltd., 161 B.R. 338 (Bankr.E.D.N.Y.1993), affirmed 196 B.R. 251 (E.D.N.Y.1996), for the proposition that Maronda is obligated to pay Dollar Bank under this court’s order. Oyster Bay is inapplicable to the matter before us. The court in Oyster Bay noted that
The Order which approved the Trustee’s application to sell the property free and clear of all liens, claims encumbrances and rights of others of whatever kind or nature ..., with such liens to attach to the proceeds of the sale of the property, means that the property was to have been sold free and clear of liens against the property, i.e. mortgage liens, judgment liens, etc., which could attach to the proceeds. The language does not indicate that the property is to be sold free and clear of non-monetary restrictions of record which run with the land.
Id. at 342. In the matter before us there are no nonmonetary restrictions at issue. We find that none of the eases cited by Dollar Bank support its theory that Maronda is liable to it for the proceeds of sale misappropriated by Debtor’s former counsel, or that Dollar Bank’s liens remain attached to the property. The order specifically transferred the liens to proceeds and there were, in fact, proceeds to which the liens attached. This is not a case in which the sale failed to close or one in which no proceeds were generated. Thus, although the court expected Dollar Bank to be paid at closing and did not expect an attorney who was an officer of this court to abscond with the money, nonetheless, payment to Dollar Bank was not a condition of the transfer of the Ken to proceeds. The creation of the fund was all that was needed to effect the transfer of the Ken.
In Neale v. Dempster, 179 Pa. 569, 36 A. 338, 340 (1897), the agreement of sale provided that
if $1,000 per acre should be paid by the purchaser, the vendors should release from the Ken of the mortgage any portion of the land which the purchaser should ask and describe. The money was paid. The land was described. The release was executed. Because the money was part of the purchase money of the land, and because the release of the mortgage extinguished the purchase money debt as to that land, the bond also, for the same debt, was incapable of enforcement against that particular land.
DoKar Bank asserts that this case stands for the proposition that “only payment entitles a debtor to satisfaction of a mortgage”. Brief of Dollar Bank, FSB in Opposition to Motion of Maronda... Requesting a Hearing..., Dkt. # 105 at 10. Dollar Bank is not asserting that Debtor is liable for the missing funds but that Maronda as purchaser is liable. This case is inapposite to the instant situation where the Kens were divested from the real estate, transferred to the proceeds, and paid, in full, by the buyer.
*105Dollar Bank cites Leedom v. Spano, 436 Pa.Super. 18, 647 A.2d 221 (1994), where the court held that buyers could not rely on a forged mortgage release to assert bona fide purchaser status. Again, this case is neither relevant to nor dispositive of the matter before us. Thus, whereas Dollar Bank has made an admirable effort searching for cases apposite to the situation before the court, it has not found its goal.
The court in In re Riverside Investment Partnership, 674 F.2d 634 (7th Cir.1982), stated that “ [generally, in a ‘free and clear’ sale, the liens are impressed on the proceeds of the sale and discharged at the time of sale.” Id. at 640. In the matter before us the order confirming the sale explicitly provided that the hens were divested from the property and attached to proceeds. There were no conditions to the effect of that order. Likewise, there were no conditions to the effect of the sale confirmation order in this case.
In Bartholomew v. Loreno, 49 Pa. D. & C.3d 70, 1987 WL 55838 (No. 199 C.D., Pa.Com.Pl., Mercer County, October 22, 1987) (No. 199 C.D.1987), the court held that a real estate agent may be liable to a purchaser for return of a deposit if the agent held the deposit as escrow agent for the benefit of the buyer and seher until consummation of the sale. The position of the real estate agent in Bartholomew is similar to that of Debtor’s former counsel in this case, not Maronda. This case does not support Dollar Bank’s assertion that the lien was not divested from the real estate.
In short, the cases Dollar Bank cites do not support its position. An order by a bankruptcy court confirming a sale free and clear of liens, and which states no conditions to the divestment of the liens from the real property and the transfer to the proceeds of sale as substitute collateral, effects a transfer to a purchaser who pays the sale amount. In this ease, Maronda is such a purchaser. That Debtor’s former counsel misappropriated the funds does not result in resurrection of the liens that were divested. A closing was held and the record indicates that funds were available for distribution to Dollar Bank at that time. Dollar Bank failed to appear at the closing. Nonetheless the closing went forward and the deed to the buyer was issued and recorded. Maronda owns the property free and clear of Dollar Bank’s mortgage lien.
An appropriate order will be entered.
ORDER DENYING DOLLAR BANK’S MOTION TO ENFORCE ORDER AUTHORIZING DEBTOR’S SALE OF PROPERTY AND REQUIRING PAYMENT OF DOLLAR BANK
AND NOW, this 11th day of October, 2002, for the reasons expressed in the foregoing Memorandum Opinion, it is ORDERED, ADJUDGED, and DECREED that Dollar Bank’s Motion To Enforce Order Authorizing Debtor’s Sale of Property and Requiring Payment of Dollar Bank (Motion No. 01-7373M) is DENIED.
It is FURTHER ORDERED that Maronda Homes, Inc.’s, request for a hearing, filed at Motion No. 02-2507, is moot, the hearing having already been held.
ORDER SETTING STATUS CONFERENCE ON DEBTOR’S OBJECTION TO CLAIM OF DOLLAR BANK AND ON DOLLAR BANK’S OBJECTION TO REPORT OF SALE
AND NOW, this 11th day of October, 2002, it is ORDERED that a status conference on Debtor’s Objection To Claim of Dollar Bank To Authorize Payment of Allowed Claim From Closing Proceeds (Dkt. No. # 75) and Dollar Bank’s Objection to *106Report of Sale (Dkt. No. # 78) will be held on October 25, 2002, at 9:30 a.m., Courtroom A, 54th Floor, U.S. Steel Tower, 600 Grant Street, Pittsburgh, Pennsylvania.
. The court's jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.
. Hand money of $100,000 had been paid before the sale.
. On December 17, 2001, at Dkt. # 77, Debtor filed its Report Of Sale.
. The court has heard the motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493470/ | MEMORANDUM DECISION ON MOTION FOR SUMMARY JUDGMENT
DOROTHY EISENBERG, Bankruptcy Judge.
Before the Court is a motion by the plaintiff, Prudential Securities Credit Corp., LLC (“Prudential” or “Plaintiff’), seeking partial summary judgment against defendant Don DeFoor, Esq. (“DeFoor” or “Defendant”) on the grounds of negligence per se based on alleged violation of the Georgia “Good Funds” statute, see Ga. Code Ann. 44-14-13(c). Also pending is a cross-motion for summary judgment by defendant DeFoor seeking dismissal of Plaintiffs complaint. The Court heard oral arguments for both sides on this motion on June 11, 2002 and the Court granted both parties permission to submit additional papers on or before June 21, 2002. The Court has considered thoroughly all submissions, evidence, and arguments relating to this matter, and the decision rendered herein reflects such consideration. The following constitutes the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
FACTS
Island Mortgage Network, Inc. (“Island Mortgage”) is a mortgage broker that originated mortgage loans and was regularly engaged in the sale of notes and mortgages in the secondary mortgage market. National Settlement Services, Inc. (“National Settlement”) assisted Island Mortgage in the settlement process of mortgage closings. National Settlement is a Delaware Corporation which is a wholly-owned subsidiary of Action Abstract, Inc. (“Action Abstract”). Action Abstract is a New York Corporation, and is wholly owned by Robert Kniekman, a director of AppOnline.com (“AppOnline”), one of the Debtors in this Court. National Settlement’s registered office is at 1209 Orange Street, Wilmington, Delaware. As of June 8, 2000, National Settlement was not registered to do business with the Secretary of State of Georgia. As of June 8, 2000, Island Mortgage was a lender approved by the United States Department of Housing and Urban Development (“HUD”), and was authorized to conduct business in the state of Georgia.
In June 2000, Kelly Carruth, Pamela Carruth and Larry Koon (“Borrowers”), took out a loan to be funded by Island Mortgage (“Carruth-Koon Loan”) in the amount of $98,853 in connection with a real estate transaction involving the purchase of a parcel of property located at 34 Fortuna Court, Douglasville, Georgia (“Property”). Defendant DeFoor was designated by Island Mortgage as the settlement agent for this loan closing.
On June 6, 2000, National Settlement, on behalf of Island Mortgage, issued an uncertified check payable to DeFoor in the amount of $98,853 to fund the Carruth-Koon Loan (the “June 6th Check”). Two days later, on June 8, 2000, the closing on the purchase of the Property took place. Borrowers made and executed a promissory note (“Note”) in the amount of $98,000 secured by a mortgage on the Property in favor of Island Mortgage. Despite receiving the June 6th Check in an amount sufficient to cover the amount of the note and other closing costs two days prior to the closing, DeFoor had not presented the *184June 6th Check for payment or deposit as of June 8, 2000.
At the closing, DeFoor disbursed settlement funds on behalf of Island Mortgage and executed a HUD-1 Settlement statement in which he certified that: “[t]he HUD-1 Settlement Statement which I have prepared is a true and accurate account of the funds which were (I) received, or (ii) paid outside closing, and the funds received have been or will be disbursed by the undersigned as part of the settlement of this transaction.” (Exh. 3 to Doherty Affidavit). In addition, Stewart Title Guaranty Company issued a title policy to “Island Mortgage Network, Inc” insuring the mortgage at the closing. Neither the HUD-1 Settlement Statement nor the Note and Mortgage loan package disclosed the fact that Island had not funded the Carruth-Koon Loan. In fact, DeFoor’s Settlement Statement provided to HUD is inaccurate. He did not receive funds outside of the closing, and those funds were not the funds that were disbursed by him as part of the settlement of that transaction. They were funds distributed from his escrow account funded by other unknown parties.
Shortly after the Carruth-Koon closing, DeFoor forwarded a “loan package” for the Carruth-Koon Loan to Island Mortgage, which included the original executed Note and Mortgage and the HUD-1 Settlement Statement. On or about June 20, 2000, Plaintiff purchased the Carruth-Koon loan, including, without limitation, the Note and Mortgage the Borrowers had executed.
A careful review of the1 June 6th Check does not reveal the exact date that DeFoor deposited the check, but it does reflect that the June 6th Check was stamped with the date of June 15, 2000, and June 16, 2000. (Exh. 4 to Doherty Affidavit). The June 6th Check also reveals that it was stamped with the legend “Payment Stopped” and “Do Not Present Again.” On June 19, 2000, DeFoor received notice from Island that it had stopped payment on the June 6th Check due to a “funding number mix-up” (see ¶ 6 DeFoor Affidavit). Thereafter, on June 19, 2000, National Settlement issued another uncertified check payable to DeFoor in the amount of $90,853.18 (the “June 19th Check”). The earliest discernable date stamped on the June 19th Check is June 22, 2000. The June 19th Check was also stamped with the legend “Payment Stopped” and “Do Not Present Again.” (Exh. 4 to Doherty Affidavit).
Based on a review of the June 6th Check, the Court concludes that it was not deposited by DeFoor until at least seven (7) days after the closing and distribution of funds for the Carruth-Koon Loan.
On October 12, 2001, Prudential commenced this adversary proceeding against Stewart Title Guaranty Company, Mortage.com., Inc., d/b/a Online Capital, Defoor, Kelly Carruth, Pamela Carruth and Larry Koon seeking, inter alia: 1) entry of a declaratory judgment that Prudential is the holder in due course of the Carruth-Koon promissory note purchased from Island Mortgage and therefore that Prudential has rights in the note and is entitled to all the proceeds from the note free from any claims the defendants have or will assert; and 2) damages from DeFoor for negligently and/or fraudulently closing the loan that Prudential purchased by closing the loan (and more specifically, disbursing loan proceeds) prior to receiving good funds from the lender.
On April 15, 2002, Prudential filed a Motion for Partial Summary Judgment against DeFoor on the grounds of negligence per se as DeFoor’s actions at the Carruth-Koon closing were in violation of Ga.Code Ann. 44-14-13(c) (the “Georgia *185Good Funds Statute”). On May 4, 2002, DeFoor filed a Cross-Motion for Summary Judgment dismissing Prudential’s complaint and submitted a Memorandum of Law in support. On June 4, 2002, Prudential submitted a Reply Memorandum of Law in Support of Motion for Partial Summary Judgment and in Opposition to DeFoor’s Cross-Motion for Summary Judgment. On June 7, 2002, DeFoor submitted a Reply Affirmation in Support of its Cross-Motion for Summary Judgment to which Prudential submitted Supplemental Memorandum of Law in Support of its Partial Summary Judgment Motion.
DISCUSSION
As a preliminary matter, the Court is aware that Prudential has several pending adversary proceedings in which it asserts it is a holder in due course of mortgage notes purchased from Island Mortgage. Some of these adversary proceedings also involve allegations that certain defendants violated “Good Funds” statutes existing in certain states. In addition, other parties have either purchased or financed mortgage notes from Island Mortgage where Island Mortgage has failed to provide the initial funding, and various adversary proceedings are pending in this Court to determine the rights of these parties. Some of these adversary proceedings also involve “Good Funds” statutes existing in various other states. Given that each adversary proceeding pending in this Court involving these issues turn on their own unique set of facts and circumstances, the findings contained in this decision may or may not be binding in any other adversary proceeding unless this Court specifically makes such findings.
The “purpose of summary judgment is to ‘pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial’.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting Fed.R.Civ.P. 56 advisory committee’s note). The Court “must determine whether there is a genuine issue of material fact and whether the moving party is entitled to judgement as a matter of law.” Warren v. Crawford, 927 F.2d 559, 561 (11th Cir.1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986)). In the case at bar, as both parties seek summary judgment and as confirmed to the Court at oral argument that there are no disputed issues of material fact, the Court can decide the issues presented as a matter of law.
DeFoor’s Violation of the Georgia Good Funds Statute
At oral argument, DeFoor conceded that he had not deposited the loan proceeds check when he disbursed the proceeds of the Carruth-Koon loan and furthermore did not have “good funds” when he disbursed those proceeds.1 In defense of his conduct DeFoor argues two points. First, he claims that the Georgia Good Funds statute does not require that he deposit the loan proceeds check before disbursing the proceeds. Second, he argues that he was entitled to two statutory exceptions contained in the Georgia Good Funds Statute that permit the disbursement of funds that are not “collected funds.” The Court is thus faced with a matter of statutory construction which is solely a question of law. See City of Buchanan v. Pope, 222 Ga.App. 716, 476 S.E.2d 53, 55 (1996) (interpretation of statute is question of law for the court to decide).
*186The Court will first address whether DeFoor was required to deposit the checks issued by National Settlement on behalf of Island Mortgage in connection with the funding of the Carruth-Koon loan prior to disbursement of settlement funds to Borrowers. It is axiomatic that if a statute is plain and unambiguous, we must give its words their plain and ordinary meaning, except for words which are terms of art or have a particular meaning in a specific context. See Holmes v. Chatham Area Transit Authority, 234 Ga.App. 42, 44 505 S.E.2d 225, 227 (1998). Furthermore, “in interpreting statutes, courts must look for the intent of the legislature and construe statutes to effectuate that intent.” Dismer v. Luke, 228 Ga.App. 638, 639, 492 S.E.2d 562 (1997).
The Georgia Good Funds Statute states, in relevant part:
Except as otherwise provided in this Code section, a settlement agent shall not cause a disbursement of settlement proceeds unless such settlement proceeds are collected funds. Notwithstanding that a deposit made by a settlement agent to its escrow account does not constitute collected funds, the settlement agent may cause a disbursement of settlement proceeds from the escrow account in reliance on such deposit under any of the following circumstances:
.... (2) The deposit is either a check or draft issued by a lender approved by the United States Department of Housing and Urban Development (HUD);
(3) The deposit is a check issued by a lender qualified to do business in Georgia. ..
See Ga.Code Ann. 44-14-13(c). (Emphasis added).
The Georgia Good Funds Statute was enacted to promote two objectives: 1) to ensure that loan closings would be consummated quickly and efficiently, and 2) to minimize the risk of loan checks being dishonored. Indeed, the need for the statute stemmed from real estate attorneys who, in the frenetic and fast-paced nature of residential closings, often would not wait until deposited loan checks had been cleared and instead disbursed “uncollected” funds from their escrow accounts. In re Amendment to the Integration Rule, Article XI, Rule 11.02(1), 467 So.2d 702, 703 (Fla.1985) (Florida also enacted a Good Funds statute similar to Georgia’s statute). This conduct was not only regarded as unethical, due to the possibility of disbursing money from the attorney’s other clients accounts if the loan checks had not cleared, but also could potentially lead to the situation as in the case at hand, where the attorney had advanced his own funds on behalf of Island Mortgage in anticipation of a loan check that ultimately did not clear, and a resulting dispute over the rights to the mortgage and note that were subsequently sold to an alleged bona fide purchaser. See Cary S. Griffin Real Estate Closings & Collected Funds-Do They Go Hand in Hand?, 11 JUN S.C. Law. 41, 43 (2000). The statute primarily aims to minimize dishonor of checks by establishing a general rule that only “collected” funds may be disbursed. However, t-he Georgia Good Funds Statute does contain certain exceptions to this general rule which permit certain “uncollected funds” such as a cashier’s check, a check issued by a lender qualified to do business in Georgia, or a check issued by a HUD approved lender, to be disbursed on the theory that these funds, although uncollected, are issued from credit-worthy lenders and have minimal risk of being dishonored. See Disbursements Upon Deposit of Funds Provisionally Credited To Trust Account, 1995 WL 917073 (N.C.St.Bar, 1995) (Interpretation of North Carolina statute similar to the Georgia Good Funds *187Statute). With an understanding of the legislature’s purpose in enacting the Georgia Good Funds Statute, we turn to the wording of the statute.
It is clear from the plain meaning of the Georgia Good Funds Statute that, at a minimum, the deposit of the loan checks must occur prior to their disbursement. Indeed, we need only look to the tense of the verbs describing the acts of deposit and the disbursement of the loan proceeds. The first part of the sentence under subsection (c) of the statute describes the actual deposit of the settlement funds in the past tense (“made”) whereas the funds, which are described as not “being collected funds”, are alluded to in the present tense (“does not constitute collected funds”) and the remainder of the sentence permits these settlement funds, which are “uncollected”, to be disbursed on reliance of the prior deposit. In order for this sentence to have any meaning, the deposit must occur prior to the disbursement of the funds. This approach is also consistent with the general intent of the Georgia Good Funds Statute. The primary purpose of the statute is to minimize the risk of dishonor of loan checks while also accommodating the fast-paced nature of residential closings. By encouraging the deposit of the check at the earliest possible time prior to disbursement, the statute minimizes the risk of check dishon- or by reducing the gap in time between disbursement of the settlement funds and the clearing of those funds in the escrow account.
Prudential’s arguments advocate adherence to the plain meaning of the Georgia Good Funds Statute. DeFoor, on the other hand, claims that the settlement agent is not required to deposit the loan proceeds prior to the closing. DeFoor argues that subsection (d) of the Georgia Good Funds statute, which requires the lender to deliver the loan funds at or before the loan closing, makes it implausible that the settlement agent could deposit the funds simultaneously with the receipt of the funds from the lender at the closing. Indeed, under this reading of the statute, it would seem that if the lender delivered the funds at the closing, the settlement agent would have no other option than to proceed with disbursement of the funds at the closing and then subsequently deposit the loan proceeds check. The statute talks about loan proceeds or funds, not uncertified checks, which are merely a promise to pay. The settlement agent could require the lender to wire transfer the funds or send a bank check, which would avoid any of these issues. DeFoor points to the HUD-1 Settlement Statement, which certifies that the settlement agent has received or will be “paid outside closing” funds from the lender and has disbursed or will disburse the funds after the closing, as further indication that the settlement agent is not required to deposit loan proceeds prior to their disbursement at the closing.
As counsel for plaintiffs articulate, these arguments would have merit were it not for the distinction between “loan closing” and disbursement of loan proceeds. Indeed, the Georgia Good Funds Statute provides two definitions for both terms. Section (a)(5) of the Georgia Good Funds Statute states:
“ ‘Loan closing’ means the time agreed upon by the borrower and the lender when the execution and delivery of the loan documents by the borrower occurs.” See Ga. Code Ann. 44-14-13(a)(5).
Section (a)(3) states:
“ ‘Disbursement of settlement proceeds’ means the payment of all proceeds of the transaction by the settlement agent to the persons entitled thereto.” Ga.Code Ann. *18844^-14 — 13(a)(3). Loan closings can and do occur prior to disbursement of the loan proceeds. An example of this can be found in a consumer’s right to rescind a non-purchase money mortgage loan transaction secured by a mortgage on the consumer’s principal residence for a period of three business days after the closing. 12 CFR § 226.23(a) (2001). Another section of the same statute provides that the lender shall disburse no money until the rescission period, three days after the closing, has expired. Furthermore, this reading of the Georgia Good Funds Statute does not conflict with subsection (d) of the Statute or the HUD-1 Settlement Statement provisions. Even if the lender delivers the settlement funds at closing, the settlement agent can proceed with the closing and deposit the check after closing but prior to disbursing the funds. The court notes that the statute speaks of settlement proceeds, not uncertified checks, which are merely a promise to pay.
A close look at the plain meaning of the statute reflects that it speaks to the disbursement of settled proceeds pursuant to a deposit from the lender. It does not mention “the closing.” The second exception to this rule requires that there is a deposit of a check or draft, and then indicates which persons would qualify for the exceptions in a case where a deposit is made. In this case, there was no deposit made prior to the disbursement of funds.
In the case at bar, DeFoor actually deposited the June 6th check on June 15, 2000, at least nine days after the loan closing, and disbursement took place. Had DeFoor deposited the check earlier, even before the closing, it is possible that the present controversy could have been avoided altogether. The Georgia Good Funds Statute, like the Good Funds statutes adopted in other states, places the burden of obtaining good funds and the risks associated with a failure to obtain these funds on the settlement agent, unless certain specific facts exist to exempt the transaction from this requirement. See Guardian Title Agency, LLC v. Matrix Capital Bank, 141 F.Supp.2d 1277, 1281 (D.Colo.2001) (The Colorado Good Funds Statute ensures that the party responsible for the real estate closing has the burden of ensuring that good funds are being disbursed). It is clear that DeFoor violated the Georgia Good Funds Statute by depositing the June 6th Check issued by National Settlement on behalf of Island on June 15, 2000.
The Court’s holding today is specifically limited to the particular facts of this case; namely, that DeFoor waited nine days after the receipt of the June 6th Check and seven days after the Carruth-Koon loan closing and his disbursement of settlement funds, to deposit the June 6th Check. Whether DeFoor would have violated the Georgia Good Funds Statute had he deposited the June 6th Check only one or two days after he disbursed the funds at the closing, in light of the absence of any prior judicial interpretation of the Georgia Good Funds Statute, is a matter that this Court does not address today. This Court also refuses to speculate as to whether other factors not before this Court would have changed the outcome of this decision.
Prudential as Party in Interest
DeFoor claims that he owed no legal duty to Prudential under the Good Funds Statute because there was no attorney-client relationship between DeFoor and plaintiff that gave rise to a duty. See Legacy Homes v. Cole, 205 Ga.App. 34, 421 S.E.2d 127 (1992), Huddleston v. State, 259 Ga. 45, 376 S.E.2d 683 (1989). Defendant essentially invokes a rule of “no privity-no liability”. However, DeFoor does not dispute that he delivered documents to Island Mortgage which certified that 1) the loan *189had been closed, 2) the loan funds had been issued by National Settlement on behalf of Island Mortgage, 3) the loan funds had been disbursed to Borrowers, 4) that the loan was secured by a mortgage, 5) that a first and valid lien on the subject property had been executed. There is also no dispute that Prudential relied on these certifications in purchasing the loan package from Island Mortgage.
Before turning to relevant case law, a review of the Georgia Good Funds Statute is essential. Section (e) of the Georgia Good Funds Statute states that “Any party violating this Code section shall be liable to any other party suffering a loss due to such violation for such other party’s actual damages plus reasonable attorney’s fees.” Section (a)(8) defines the term “party” or “parties” to mean the “seller, purchaser, borrower, lender and settlement agent, as applicable to the subject transaction.” In this ease, DeFoor acted as the settlement agent, the Carruths and Koon were the borrowers and Island Mortgage acted as the lender. Therefore, it is clear that DeFoor could be liable to the Borrowers under the terms of the Georgia Good Funds Statute as they qualify as “parties.” Prudential, on the other hand, was not a borrower, lender, seller or purchaser of the Real Estate. It purchased the Carruth-Koon loan and was assigned the note and mortgage. As such, it stands in the shoes of Island Mortgage as holder of the mortgage and the note in question. Therefore, it would appear that Prudential is excluded from bringing an action against DeFoor under the Georgia Good Funds Statute. However, the Georgia Good Funds Statute may be interpreted to include a party such as Prudential under certain circumstances, pursuant to Georgia case law.
Recent case law in Georgia has established that where a settlement agent knows that an assignment of a loan package is to follow a loan closing, the settlement agent will be held liable for any damages proximately resulting from any negligence in connection with their work relating to the closing. See First Financial Savings & Loan Association v. Title Insurance Company of Minnesota, 557 F.Supp. 654, 660 (N.D.Ga.1982). This liability will attach even for certifications not made directly to the third party. In First Financial, two closing agent attorneys were alleged to have been negligent in conducting real estate loan closings because they certified that the loans had been closed, loans were secured by deeds, and that the loan funds advanced by the lender (“Heritage”) had been properly disbursed and a first and valid lien on the property had been created, when in fact these certifications were not true at the time they were made and did not subsequently become true. Id. At 659. In fact, after sending the loan package to the lender, the lender sold the loans to a third party, First Financial, yet the drafts advanced by the lender were dishonored when presented to the banks by the closing attorneys. The Court held that the closing attorneys, although they did not deal directly with First Financial, were nonetheless liable for negligence in conducting the closing if they knew that the loans would be assigned to another party at the time of the closing. Furthermore, there was no requirement that the closing attorneys know the specific identities of the assignees of the loan packages. Id. The rationale for extending the right to recover to those not in privity with the defendant is that the third party “is in a limited class of persons known to be relying upon [the] representations...” Id. (quoting Travelers Indemnity Co. v. A.M. Pullen & Co., 161 Ga.App. 784, 786-787, 289 S.E.2d 792 (1982)).
*190Based on the case law above, the Court would be inclined to find that the Georgia Good Funds Statute applies to Prudential if DeFoor had knowledge as of the closing date that the Carruth-Koon loan was to be sold to a third party. In the case at bar, it is not clear whether DeFoor knew that the loan package would be assigned to a third party. As a result, although DeFoor violated the Georgia Good Funds Statute, he may not be liable to Prudential for the negligence resulting from his conduct in connection with the closing unless it can be shown that he knew that the Carruth-Koon loan package was to be assigned to a third party. A subsequent hearing shall be scheduled for this issue.
Exceptions to Compliance with Georgia Good Funds Statute
Prudential’s motion for partial summary judgment asserts a second, additional basis for violation of the Georgia Good Funds Statute. Subsections (c)(2) and (c)(3) of the statute permit a settlement agent to disburse uncollected funds if the deposit is a check issued by a lender approved by HUD or a lender qualified to do business in Georgia, respectively. See Ga.Code Ann. 44-14-13(c). Prudential argues that even if the statute does not require the settlement agent to deposit the settlement funds prior to their disbursement, DeFoor violated the statute because the entity who “issued” the checks, National Settlement, is neither a HUD-approved lender nor qualified to do business in Georgia. DeFoor counters this argument and asserts that although National Settlement issued the checks, National Settlement and Island are the same entity for purposes of the Good Funds Statute, and that Island Mortgage was the true lender and National Settlement only functioned as a conduit to disburse the loan funds to DeFoor. There was no evidence to support a finding of fact by this Court as to the exact relationship between Island Mortgage and National settlement as represented by DeFoor, and therefore, the Court will not decide that issue without a fact finding hearing.
As this Court interprets the Georgia Good Funds Statute, in order for the settlement agent to possibly benefit from the limited circumstances in which he can disburse uncollected funds, the exceptions to the rule, he must first deposit the check received prior to their disbursement before the exception can be addressed.
As a result, this Court does not need to reach arguments advanced by both sides on whether subsections (c)(2) and (c)(3) of the Georgia Good Funds Statute apply under the facts of this case, as it is clear that DeFoor violated the Georgia Good Funds Statute. The issue of whether Prudential is entitled to obtain damages against DeFoor under the Georgia Good Funds Statute shall be addressed at a further hearing.
CONCLUSION
1. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(b). This adversary proceeding is not a core proceeding but is otherwise related to the Debtors’ substantively consolidated case.
2. Prudential motion for partial summary judgment is granted in part. DeFoor’s deposit of the June 6th Check nine days after receipt and seven days after the Carruth-Koon closing and disbursement of funds constitutes a violation of the Georgia Good Funds Statute.
3. The Court does not reach the issue of whether the issuance of the June 6th Check by National Settlement falls within any of the exceptions to the requirement that good funds be disbursed at the real estate closing because the Georgia Good Funds Statute requires that the funds in question be deposited prior to disburse*191ment of funds before any such exception could apply.
4. Prudential may be permitted to seek damages against DeFoor for his failure to comply with the Georgia Good Funds Statute if sufficient evidence exists that DeFoor knew that the Carruth-Koon loan package was to be assigned to any third party.
5. A factual hearing will be held on November 25, 2002 at 10:00 a.m. to determine if Prudential has standing to pursue this cause of action on its own behalf and thereafter to determine the rights of either party to the cross motion to dismiss.
. "Good funds” or "collected funds” means funds "deposited, finally settled and credited to the settlement agent’s escrow account.” Ga.Code Ann. 44-14-13(a)(2). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493471/ | ORDER ALLOWING MOTION TO RECONSIDER AND DENYING MOTION FOR RELIEF FROM ORDER DENYING SANCTIONS
A. THOMAS SMALL, Bankruptcy Judge.
Pending before the court is debtor Country Lake Enterprises, Inc.’s motion to reconsider the court’s prior order of August 22, 2002, in which the court granted relief from the automatic stay to secured creditors, Alfred Ray Patton and Clifford M. Harris. Also pending is its motion for relief from the court’s prior order of July 22, 2002, which denied the debtor’s request for sanctions against Patton and Harris. A hearing was held in Raleigh, North Carolina on September 24, 2002. For the reasons that follow, the motion to reconsider the order of August 22, 2002, will be allowed. The motion to reconsider the order of July 22, 2002, will be denied.
Country Lake Enterprises, Inc. (“Country Lake”) owned 170 acres of real property in Fuquay-Varina, North Carolina, subject to a deed of trust in favor of Patton and Harris. The deed of trust secured a note in the amount of $895,000. Country Lake defaulted on the note and Patton and Harris began foreclosure proceedings. The foreclosure sale was held on March 14, 2002, and Patton and Harris were the successful bidders. No party filed an upset bid, and the ten-day upset bid period appeared to expire on Monday, March 25, 2002, at 5:00 p.m. Prior to and on March 25, the parties engaged in a series of last-minute communications in hopes of reaching an agreement with respect to the property. They did not do so, and at 5:22 p.m. on March 25, Country Lake filed a petition for relief under chapter 11 of the Bankruptcy Code. Thereafter, the parties proceeded under the assumption that the petition had been filed after the close of business on the last day of the upset period, though the potential legal ramifications of the date and particularly the time of filing were vigorously contested.
The substitute trustee’s deed was delivered to Patton and Harris on May 3, 2002, and filed on May 6, 2002. Country Lake subsequently contended that the delivery and filing of the trustee’s deed violated the automatic stay, and sought sanctions against Patton and Harris. In its order of August 22, 2002, the court found that the petition was filed after the close of business in state courts on March 25, 2002, and that the foreclosure sale therefore became *225final prior to the filing of Country Lake’s petition. However, the court concluded that Country Lake did retain some interest in the property until the deed was delivered. The order held that the trustee’s deed was void because it was delivered and recorded in violation of the stay. While sanctions against the substitute trustee might be appropriate, the court held, there was no basis on which to hold Patton and Harris responsible for the violation. They subsequently filed a motion seeking relief from the stay. The court lifted the automatic stay to allow Patton and Harris to complete their foreclosure based on the assumption that Country Lake had no remaining interest in the property.
On August 30, 2002, Country Lake filed a notice of an appeal of this court’s order of August 22, 2002. In the motion, the debtor also sought a stay of the order of August 22, 2002, pending appeal. This court denied the motion for stay but did permit a temporary stay of the order, until September 6, 2002, to permit the debtor to seek a stay from the district court. Country Lake received an extension of the stay, until September 16, 2002, from the district court. In a supplemental statement of issues on appeal, filed September 9, 2002, the debtor raised — for the first time — the argument that its equity of redemption right actually had not expired on March 25, 2002. Instead, the debtor claimed that the upset bid period could not expire on March 25 because that date is Greek Independence Day, which is recognized in North Carolina as a legal holiday. N.C. Gen.Stat. § 103-4(3a) (2001).
In an order dated September 13, 2002, Judge Boyle allowed the “Debtor-Appellant’s Emergency Motion to Remand Case to Bankruptcy Court for Reconsideration of Order(s) Appealed From” and remanded the matter to this court for reconsideration of the order of August 22, 2002. In re Country Lake Estates, Inc., Order No. 5:02-MC-41-BO (E.D.N.C. Sept. 13, 2002). The district court stated that it “makes no decision regarding the validity of the debt- or-appellant’s argument for reconsideration.” Id.
Country Lake raised its Greek Independence Day argument for the first time on appeal. WTiether this court should now consider the issue is within the court’s discretion. See, e.g., Holland v. Big River Minerals Corp., 181 F.3d 597, 605-06 (4th Cir.1999), cert. denied, 528 U.S. 1117, 120 S.Ct. 936, 145 L.Ed.2d 814 (2000) (discussing general rule that appellate court will not consider issue raised for the first time on appeal, and noting that whether district court may consider issue in subsequent proceedings is generally within discretion of court). Because the statute speaks so directly to the issue before the court, the court elects to excuse the lack of timeliness and to address Country Lake’s new argument. In light of the various stays extended throughout the course of this matter, consideration of this issue now will not cause undue hardship to the other affected parties.
The state statute applicable to upset bids, North Carolina General Statute § 45-21.27, specifically provides that if the tenth day of the upset bid period is a legal holiday, the necessary deposit and notice may be filed on the following day. Id. § 45-21.27(a) (2001). Whether the clerk’s office is open or closed on these holidays is irrelevant for purposes of determining the date on which the upset period ends, because the statute makes clear that the upset bid period may not end on a legal public holiday. Id. In the case at hand, because March 25 is Greek Independence Day, the upset period expired at the normal close of business on March 26, 2002, by which time Country Lake had filed its *226bankruptcy petition. Under the plain language of the statute, Country Lake still has rights in the real property and the property still is part of the debtor’s estate.
The debtor also requests that the court grant relief from its Order Denying Debt- or’s Motion for Sanctions, entered on July 22, 2002. The court concluded in that order that Patton and Harris were not responsible for the delivery and recording of the trustee’s deed, which was in violation of the automatic stay. The court has no basis on which to change that conclusion. Moreover, the court’s new finding with respect to the expiration of the upset bid period at the close of business on March 26 rather than on March 25 provides no new grounds on which to find that Patton and Harris should be subject to sanctions. Until September 9, 2002, when he filed a supplementary statement of issues to be considered on appeal, even Country Lake’s own counsel proceeded under the assumption that the upset bid period concluded on March 25, 2002. The court also takes notice of the fact that in North Carolina Greek Independence Day is not as well-known or at least not as universally celebrated as most of the other legal holidays listed along with it, such as Christmas and Thanksgiving. The legal holidays recognized in North Carolina contain some dates that may not be well-known, such as the Anniversary of the Signing of the Halifax Resolves on April 12 and the Anniversary of the Mecklenburg Declaration of Independence on May 20, but for purposes of the foreclosure statute, those lesser-known holidays have the same effect as the Fourth of July.
For the foregoing reasons, the debtor’s Emergency Motion for Reconsideration of Order Granting Relief from Automatic Stay is ALLOWED. The court’s order of August 22, 2002, to the extent that it grants relief from the automatic stay to Patton and Harris, is VACATED. The automatic stay is REIMPOSED with respect to the 170 acres of real property at issue in this matter. The debtor’s Motion for Relief from Order Denying Sanctions is DENIED. A separate order will deal with Patton and Harris’ request for relief from the stay and the adequate protection that they must receive.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493472/ | MEMORANDUM OPINION
RONALD BARLIANT, Bankruptcy Judge.
The Trustee of the T & M Enterprises, Inc., bankruptcy estate moved for summary judgment on the cross claim asserted by Raymond and Lillian Perham, the sellers of T & M. The Trustee contends that she has rightfully retained as property of the bankruptcy estate $73,500 paid under an installment note made and delivered by the buyers of T & M, and that the sellers are barred by the doctrines of waiver, estoppel, and laches from attempting to recover those funds.
The buyers, David P. Muller and Piotr L. Wisniewski, also moved for summary judgment on the sellers’ two count counterclaim. They join the Trustee’s contention that the $73,500 collected by the Trustee is property of the bankruptcy estate. The buyers also contend that they are not liable to the sellers’ for $8,478.32 in attorneys fees under an indemnification clause of the sales agreement. For the reasons set forth below, summary judgment is granted in favor of the Trustee and the buyers.
FACTS
On November 26, 1996, Raymond and Lillian Perham (“sellers”), the principals of T & M Enterprises, Inc., entered into an agreement to sell T & M Enterprises to buyers David P. Muller and Piotr L. Wisniewski (“buyers”). The agreement was executed by the buyers, the Perhams, and T & M Enterprises. The agreed purchase price was $127,500. Of this amount, $40,000 was due at the closing and the remaining $87,500 was payable in monthly installments pursuant to an installment note. The note was executed between the buyers and the Perhams, and provided for monthly payments to begin on May 1, 1997. T & M Enterprises was not a party to the note.
On April 18, 1997, T & M Enterprises filed a voluntary bankruptcy petition, and Pamela S. Hollis was thereafter appointed as the Chapter 7 Trustee. The Debtor’s bankruptcy petition lists the Sales Contract as an asset of the Debtor with a current market value of $19,762.41. Additionally, the Debtor’s Statement of Financial Affairs lists “All assets sold to David Muller and Piotr Wisniewski on November 26, 1996 along with a covenant not to compete for $127,500” as a transfer within a year prior to the commencement of the bankruptcy case. It also states that Lillian Perham received $25,000 from the $40,000 down payment in November of 1996 as a “withdrawal from a partnership or distribution by a corporation.”
The agreement states that the purchase price of $127,500 should be allocated to include good will, use of the business name, telephone number and inventory. Agreement at ¶ 4. The agreement also provides that the sellers should remain as consultants to T & M for three years and prohibits the sellers from competing with the buyers for ten years after the closing date. Id. at ¶¶ 5, 8.
The Debtor’s assets were subject to substantial federal tax liens, and at the Debt- or’s § 341 meeting the Debtor’s principal or the Debtor’s counsel represented to the Trustee that the T & M bankruptcy was filed to stop collection actions by the IRS. Hollis Aff. at ¶ 6. The Trustee also in*259formed the Debtor’s counsel that if the T & M bankruptcy was not dismissed, she would be required to collect the installment payments due from the sale of the Debtor’s assets and maintain the bankruptcy as an open asset case. Id. at ¶ 7. In December 1997, the Bankruptcy Court authorized the Trustee to make an interim payment of $4,500 to the IRS pursuant to the Trustee’s motion. Id. at ¶ 8.
The installment payments pursuant to the terms of the note and agreement became due only after the date that T & M filed for bankruptcy and the Trustee has collected the installment payments since June 1997 as property of the T & M bankruptcy estate. Id. at ¶ 9. The buyers, however, have refused to pay the $13,500 balance of the note on the ground that the sellers breached the sales agreement.
PROCEDURAL HISTORY
The Trustee commenced this proceeding by filing a complaint against the buyers for the outstanding $13,500 balance due under the installment note. The buyers answered the complaint by admitting the payments were due the estate, but alleging that they have no obligation to pay because the Debtor materially breached the sales agreement. The buyers then filed a counterclaim against the Debtor and the sellers (Perhams) seeking damages for breach of contract.
The Trustee then answered the buyers’ counterclaim stating that the Trustee had insufficient information about the breach of contract claims and asserted as affirmative defenses that (1) the estate has no liability to the buyers and (2) the buyers’ failure to take any action against the Per-hams to enforce their personal responsibilities operated as a waiver. Therefore, the buyers are barred by the doctrines of estoppel and laches to seek damages from the Trustee and the bankruptcy estate. The buyers denied these affirmative defenses.
The sellers then filed two pleadings. One contains the sellers’ answer and affirmative defenses to the buyers’ counterclaim, and the sellers’ counterclaim against the buyers. In their answer, the Perhams admitted that they received $40,000 at closing; however, they have not received any payments thereafter. The sellers also deny that they breached the sales agreement with the buyers. Furthermore, the sellers assert affirmative defenses based on the doctrines of estoppel, waiver, and laches, and that the buyers have failed to pay the Perhams according to the terms of the agreement. The counterclaim alleges that (1) the sellers are personally entitled to the $87,500 plus interest from the buyers due under the installment note; and (2) the sellers are entitled to recover $8,478.32 plus interest for attorneys’ fees relating to a transaction known as the DeBruyn project that the sellers were required to pay pursuant to a retainer agreement entered into among T & M, the buyers, and the lawyers.
The second pleading filed by the sellers is a cross-claim against the Trustee alleging that the Trustee is wrongfully holding $73,500 in payments made by the buyers to the Trustee pursuant to the installment note. The sellers request that the $73,500 plus interest be turned over to them. The Trustee denied that she was wrongfully holding the property of the sellers. The Trustee also asserted affirmative defenses stating that the bankruptcy schedules list the sales agreement as property of the estate, and that the Perhams are now barred by the doctrines of laches and estoppel from claiming that the proceeds from the sale belong to them individually. Furthermore, the Perhams’ failure to abide by the terms of the agreement was a breach of contract and a waiver or release *260of their rights, if any, under the agreement.
The Trustee has now moved for summary judgment against the sellers requesting that the Court find that the money collected by the Trustee pursuant to the installment note is property of the T & M bankruptcy estate. The buyers joined in the Trustee’s motion for summary judgment against the sellers in their response to the Trustee’s motion for summary judgment. The buyers also moved for summary judgment against the sellers’ counterclaim claiming that the money collected by the Trustee pursuant to the installment note is property of the estate. They also contend that only the Perhams benefitted from the legal fees that were paid to the attorneys retained by the buyers, and therefore the buyers are not obligated to reimburse the sellers for $8,478.32 in legal fees. The Perhams failed to file a timely response, and their motion to reset the briefing schedule was denied. This opinion addresses both the Trustee’s and the buyers’ motions for summary judgment.
DISCUSSION
Standard for Summary Judgment
Under Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056, summary judgment may be granted if the pleadings, depositions, answers to interrogatories, admissions and any affidavits show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The standards applied by this Court are set out in 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); In re Walker, 232 B.R. 725, 729-30 (Bankr.N.D.Ill.1999) and In re Fultz, 232 B.R. 709, 717-18 (Bankr. N.D.Ill.1999).
$73,500 Paid to the Trustee by the Buyers
The Perhams asserted a cross claim against the Trustee requesting that the Trustee turn over the $73,500 that was collected under the installment note and a counterclaim seeking $87,500 from the buyers pursuant to the note. Both the Trustee and the buyers moved for summary judgment requesting that the Trustee be allowed to retain the $73,500 as property of the estate. The buyers also moved for summary judgment against the Perhams’ counterclaim, joining in the Trustee’s motion for summary judgment that the money paid to and being held by the Trustee is property of the estate. Based on the doctrines of waiver, estoppel and laches, summary judgment is granted both in favor of the Trustee and the buyers.
1. Waiver
The Perhams’ failure to assert a claim, prior to this proceeding, to the money that they now allege is due them operates as a waiver. Waiver is the “intentional relinquishment or abandonment of a known right.” Sethness-Greenleaf, Inc. v. Green River Corp., 65 F.3d 64, 67 (7th Cir.1995). “[A] waiver of contractual rights can be implied as well as express-implied from words or actions inconsistent with the assertion of those rights.” Cole Taylor Bank v. Truck Ins. Exch., 51 F.3d 736, 739 (7th Cir.1995). The Perhams were aware that the Trustee had been collecting the installment payments pursuant to the note since the payments became due in May of 1997, and they never asserted a claim to that money until they filed their counterclaim and cross claim in this proceeding in March 2001. Furthermore, at the § 341 meeting in 1997, the Trustee *261informed the Perhams and their counsel that if the T & M bankruptcy was not dismissed that, in her capacity as bankruptcy trustee, she would be required to collect the installment payments. Hollis Aff. at ¶ 7. Thus, the Perhams knew in 1997 that if the bankruptcy case continued that the Trustee would collect the installment payments. The Perhams’ knowledge that the Trustee was collecting the payments and their failure to initiate any legal action against the Trustee for almost four years is inconsistent with their current claim and therefore operates as a waiver of their right to the payments.
Moreover, the Debtor’s Statement of Financial Affairs, signed by Lillian, states that the Debtor transferred all of its assets to David Muller and Piotr Wisniewski on November 26, 1996 along with a covenant not to compete for $127,500. Additionally, in the section entitled “Withdrawals from a Partnership or Distributions by a Corporation” the schedule states that Lillian Per-ham received $25,000 from the down payment paid by the buyers for the assets of the company and the covenant not to compete. The agreement states that $40,000 was to be paid at the closing, $25,000 of which was paid by the Debtor to Lillian Perham as disclosed on the statement. The Perhams never asserted any claim for the remaining $15,000. Lillian’s current claim is inconsistent with the Debtor’s Statement of Financial Affairs that she signed. For that additional reason, the Court finds that she waived the claim she is now asserting.
2. Estoppel
In addition, the doctrine of estoppel precludes the Perhams from claiming entitlement to the funds both against the Trustee and the buyers. “A false representation that reasonably induces detrimental reliance is a classic basis for estoppel.” DeVito v. Chi. Park Dist., 270 F.3d 532, 535 (7th Cir.2001). “When a person apparently adopts a position which reasonably misleads someone into detrimental reliance, that person can be estopped from avoiding that position, regardless of the intent of his actions, if to hold otherwise would have an unjust effect.” LaSalle National Bank v. General Mills Restaurant Group, Inc., 854 F.2d 1050, 1053 (7th Cir. 1988) (quoting Northern Trust Co. v. Oxford Speaker Co., 109 Ill.App.3d 433, 439, 65 Ill.Dec. 113, 440 N.E.2d 968).
The bankruptcy petition disclosed that Lillian Perham received $25,000 of the $40,000 paid at the closing, and that the Debtor sold its assets for $127,500. There is no indication that the $25,000 was insufficient consideration for the covenant not to compete that was also part of the deal. So far as could be gleaned from the schedules, while Ms. Perham may have been entitled to $25,000 for the covenant not to compete, the remainder of the sale proceeds belonged to the estate. Relying on this information, the Trustee informed the Debtor’s principals and their counsel that she was required, in her capacity as bankruptcy trustee, to collect the installment payments. Hollis Aff. at ¶ 7. Thus, the Trustee relied on Ms. Perham’s signature indicating that the payments due under the note belonged to the estate. The Trustee’s reliance has caused her to incur costs including the employment of professionals and the filing of an adversary proceeding against the buyers to recover the outstanding balance due under the note. Therefore, the Perhams are now estopped from asserting a contrary position to the one asserted on the petition and relied upon by the Trustee to her detriment, and they are not entitled to recover the payments being held by the Trustee.
Similarly, the Perhams are estopped from asserting a claim against the buyers for the payments due under the note. The *262buyers have made all monthly installment payments (except the remaining $13,500 which is in dispute), in good faith, to the Trustee in fulfillment of their obligation under the note. The buyers relied on the Perhams signing of the bankruptcy petition and the Trustee’s representation that she would collect the payments due under the note. It would be inequitable to require the buyers to pay any additional money to the Perhams when the buyers have already made the payments to the Trustee. The Perhams are therefore es-topped from recovering any money from the buyers.
3. Laches
The equitable doctrine of laches also bars the Perhams’ claim. Because the Perhams’s cross claim is an equitable action, seeking the Trustee to turnover specific funds, it is appropriate to apply the equitable doctrine of laches. Moreover, a recent Seventh Circuit opinion stated that laches may be used as a defense “regardless of whether the suit is at law or in equity, because, as with many equitable defenses, the defense of laches is equally available in suits at law.” Teamsters and Employers Welfare Trust of Ill. v. Gorman Brothers Ready Mix, 283 F.3d 877, 881 (7th Cir.2002)(citing Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 822 (7th Cir. 1999)). Thus, laches may even be appropriate to apply to the Perhams suit at law against the buyers.
One Federal District Court explained the doctrine of laches as follows:
According to BLACK’S LAW DICTIONARY (5th Ed.), the “doctrine of laches is based upon the maxim that equity 'aids the vigilant and not those who slumber on their rights.” The doctrine of laches is designed to promote diligence and prevent enforcement of a stale claim. Dismissal of a claim on the grounds of laches requires that there be (1) unreasonable and unexcused delay in bringing the claim, and (2) material prejudice to the defendant as a result of the delay. To establish a laches defense, both of the above prongs must be met. Only then can the Court weigh the delay and prejudice to determine whether justice requires that the claim be barred. When applying the doctrine of laches to bar a claim, the period of delay is measured from when the claimant had actual notice of the claim, or, would have reasonably been expected to inquire about the subject matter.
Vance v. U.S., 965 F.Supp. 944, 946-47 (E.D.Mich.1997) (internal quotation marks and citations omitted). See also, Hot Wax, Inc., 191 F.3d at 820 (stating the requirements for laches are (1) unreasonable lack of diligence and (2) prejudice arising therefrom).
In this case, both requirements necessary to invoke the doctrine of laches have been satisfied. First, the Perhams were informed at the § 341 meeting in 1997 that the Trustee was going to collect the installment payments. Yet, for almost four years, the Perhams never even attempted to recover the money from the Trustee until they were brought into this case. Knowing the Trustee was collecting the payments for four years and failing to take any legal action at all to attempt to recover the funds, coupled with the Trustee’s and buyers’ reliance on the Perhams position, satisfy the first prong of the laches test as an unreasonable or unexcused delay.
Furthermore, if the Perhams were to prevail and recover the funds, the Trustee would be materially prejudiced by the Per-hams’ delayed claim. If this Court were to require the Trustee to turnover the funds to the Perhams, the Trustee would likely attempt to challenge the Perhams’ entitlement to the funds as a fraudulent transfer prohibited by § 548 of the Bankruptcy Code. Section 548(a)(1) allows the Trustee “to avoid any transfer of an interest of the *263debtor 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.” Since the sale took place within one year prior to the filing of the petition, the Trustee could have pursued a fraudulent transfer claim under § 548.
The petition states that Ms. Perham already received $25,000 of the $40,000 paid at closing, and now the Perhams are trying to recover the remainder of the $127,500 purchase price. But if the Debtor sold “all of its assets” for $127,500 and the Perhams are entitled to collect all of the proceeds from the sale, then the Trustee could claim that the Debtor gave up all of its assets and did not receive equivalent value for those assets. At best, the Debtor would have received $15,000 (the remainder of the $40,000 which was paid at the closing and not distributed to Ms. Perham) for all of its assets, while the balance of the purchase price would be paid to the Perhams. Therefore, the Trustee would have a claim under § 548(a)(l)(B)(i) that by transferring all of its assets to the buyers, the Debtor “received less than a reasonably equivalent value in exchange for such a transfer.”
However, § 546(a)(1)(A) of the Bankruptcy Code requires the Trustee to assert a fraudulent transfer claim under § 548 within two years after the order for relief. Since the Perhams waited almost four years after the note payments became due to attempt to recover those payments from the Trustee, § 546 now prevents the Trustee from challenging the Perhams’ entitlement to the funds under § 548. If this Court were to require the Trustee to turnover the note payments to the Perhams, the Trustee would be required to raise equitable tolling to justify the two-year deadline set forth in § 546. Equitable tolling “permits a plaintiff to sue after the statute of limitations has expired if through no fault or lack of diligence on his part he was unable to sue before, even though the defendant took no active steps to prevent him from suing.” Singletary v. Continental Ill. Nat’l Bank & Trust Co., 9 F.3d 1236, 1241 (7th Cir.1993). Requiring the Trustee to raise and prove equitable tolling would materially prejudice the Trustee when the problem only arose due to the Perhams’ failure to even attempt to recover the funds in a timely manner.
Similarly, the buyers may also rely on the doctrine of laches as a defense against the Perhams. As explained above, the doctrine may be applied in suits at law. Gorman Brothers, 283 F.3d at 880. Furthermore, “if a plaintiff does something that reasonably induces the defendant to believe he won’t be sued and the defendant’s ability to defend himself against the plaintiffs suit is impaired as a result, the plaintiff can be barred by the defense of laches from suing.” Gorman Brothers, 283 F.3d at 882. “Laches is thus a form of equitable estoppel rather than a thing apart.” Id. The buyers made the payments to the Trustee; in good faith, but under the Perhams present theory, the buyers cannot asset those payments as a defense.
Therefore, because no issues of material fact are in genuine dispute, the Trustee’s motion for summary judgment is granted based on the doctrines of waiver, estoppel, and laches. Similarly, the buyers’ motion for summary judgment on this issue is granted for the same reasons. Thus, the funds collected and retained by the Trustee are property of the estate, and neither the buyers nor the Trustee are obligated to make any payments to the Perhams.
$8,478.32 of Legal Fees Arising from the DeBruyn Project
Count II of the Perhams’ counterclaim against the buyers seeks reimbursement for $8,478.32 in legal fees, related to the DeBruyn Project, paid by the Perhams *264to the law firm of Fuchs & Roselli, Ltd. The Perhams claim that an indemnification clause in the agreement and a retainer agreement between T & M and Fuchs & Roselli obligate the buyers to pay the fees. The buyers moved for summary judgment against the Perhams because the Perhams were the only beneficiaries of the legal services performed by Fuchs & Roselli. The buyers were not even parties to the suit, and Fuchs & Roselli never even attempted to seek payment from the buyers in relation to the DeBruyn Project. Muller Aff. at ¶ 8.
The Perhams claim against the buyers for $8,478.32 for reimbursement of attorneys’ fees is not subject to the indemnification clause of the agreement. Paragraph 19(a) of the agreement states that the buyers indemnify the sellers for “[a]ny and all damages, losses, claims, or expenses asserted by any party, creditor, or governmental authority for anything done, omitted to be done -or arising out of the conduct by the buyer, after the date of closing.” (emphasis added). Mr. Perham asked Mr. Muller only for permission to use the T & M Enterprises, Inc., name to assist him in obtaining the bid for the Debruyn project which led to the law suit and subsequent payment of attorneys fees at issue. Muller Aff. at ¶ 3. Although Mr. Perham agreed to pay $30,000 to Mr. Muller as a royalty fee for the use of the T & M name, Muller Aff. at ¶ 4, neither the buyers nor their business, Muller Exteriors/T & M Enterprises, Inc. ever performed any work on the DeBruyn project or received any payments or income relative to the project. Id. at ¶ 6. The Per-hams’ claim has nothing to do with “conduct by the buyer” and is therefore not covered by the indemnification clause of the agreement. Therefore, because there is no dispute as to any material facts, summary judgment is granted in favor of the buyers on the sellers’ claim for reimbursement.
CONCLUSION
Based on the doctrines of waiver, estoppel and laches, the Trustee’s motion for summary judgment, joined by the buyers’ motion for summary judgment, is granted. Thus, the Trustee may retain the proceeds she has collected pursuant to the installment note as property of the T & M Enterprises, Inc. bankruptcy estate, and the buyers have no obligation make any payments to the Perhams. Furthermore, the buyers’ motion for summary judgment on the indemnification claim is granted. Therefore, the buyers are not responsible to pay $8,478.32 arising from the DeBruyn project because the law suit did not arise from conduct of the buyers.
The Trustee will submit a form of order in accordance with this opinion within 7 days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493475/ | *461
AMENDED MEMORANDUM ORDER
JERRY VENTERS, Bankruptcy Judge.
This matter comes before the Court on the Trustee’s Objection to Debtors’ Claim of Exemptions (Document # 7) filed by the Trustee, Norman Rouse (“Trustee”), on July 1, 2002. The Debtors, Michael and Jeri Smith (“Debtors”), filed a Response to the Motion (Document # 8) on July 3, 2002. On July 25, 2002, a hearing was held on this matter at the Jasper County Courthouse in Carthage, Missouri, and the Court took the matter under advisement. The Court has reviewed the file and the pleadings and the relevant case law and is now prepared to rule.1
The facts are undisputed and can be briefly stated. The Debtors operated a used car dealership called “Twisted Metal” in Lamar, Missouri. In the operation of the business, Michael Smith would purchase wrecked vehicles from auto auctions and would repair and rebuild them, and would then sell them, generally for prices in the $1,200.00 to $1,500.00 range. The rebuilt cars were usually sold to buyers with bad credit. The Debtors would require a down payment of $300.00 or $400.00 on a vehicle, and would take a promissory note for the balance owed, secured by a lien on the vehicle. Jeri Smith worked as bookkeeper, salesperson, and collection manager for the business.
In their bankruptcy schedules, the Debtors scheduled accounts receivable of $37,300.00, which consisted of the numerous unpaid notes for auto loans that the Debtors had financed through the business. The Debtors claimed $33,570.00 of the receivables as exempt property pursuant to Mo. Rev. Stat. § 525.030(2)(A).2 In their Response to the Trustee’s Objection, the Debtors asserted that “the notes receivable are a result of profit generated by the debtors from their used cars (sic) operation. As such, the receivables are income of the debtors in that these assets are the sum and substance of all of their work and skill.” At the hearing, the Debtors expanded their argument to claim the accounts receivable were a result of their combined personal services and as such are entitled to be exempt as earnings under the statute.
Missouri law does, indeed, provide an exemption for the earnings of an individual. Section 525.030.2 states, in relevant part:
The maximum part of the aggregate earnings of any individual for any workweek, after the deduction from those earnings of any amounts required by law to be withheld, which is subjected to garnishment may not exceed (a) twenty-five percentum, or (b) the amount by which his aggregate earnings for that week, ..., exceed thirty times the federal minimum hourly wage ..., or, (c) if the employee is the head of a family ..., ten percentum, whichever is less .... The term “earnings” as used herein means 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.
*462Mo. Rev. Stat. § 525.030(2). (emphasis added)
Earlier this year, the Court had an opportunity to examine whether a debtor attorney’s accounts receivable from her law practice constituted earnings for personal services in In re Butler, 2002 WL 215503 (Bankr.W.D.Mo.2002). In that case, the Chapter 13 Trustee objected to the debtor’s exemption of accounts receivable for legal services rendered. The Court held that the accounts receivable were in fact attributable to the debtor’s personal services provided to her clients and as such were exempt pursuant to § 525.030. See also Parsons v. Union Planters Bank (In re Parsons), 280 F.3d 1185 (8th Cir.2002).
In the present case, unlike in Butler and Parsons, the Debtors did not obtain these accounts receivable for personal services performed directly for their customers. Instead, the Debtors used their efforts to restore automobiles, which they then resold to the public. The Debtors did not provide a personal service to anyone; they provided a product — used automobiles with financing — to their customers. The case at bar is analogous to In re Mahoney, 100 B.R. 472 (Bankr.E.D.Mo.1989), in which the court held that an inventor receiving periodic payments from the sale of a device invented by the debtor was not entitled to an exemption pursuant to § 525.030 because the payments were not compensation for personal services. While expressing empathy for the debtors, the court concluded that the statute could not be extended to include those individuals that “expend their own time and energy creating a new product.” Id. at 474. Likewise, this Court will not extend the statute to include accounts receivable that are merely fruits of a business transaction, not the result of personal services provided by the Debtors to their customers.
It is noteworthy that, in their Response to the Trustee’s Objection, the Debtors argued that the assets were notes receivable, not accounts receivable, and that they represented the profits of the Debt- or’s used car business. These admissions come closest to the truth and take the assets yet another step away from inclusion in the statute’s definition of earnings. On the facts before the Court, it is clear that the notes held by the Debtors are, indeed, notes receivable and that they do, indeed, represent some of the profits (albeit unrealized) earned by the Debtors from the sale of vehicles through their used car lot. They are clearly not earnings that come within the parameters of § 525.030.2.
Finally, even if the notes receivable could be characterized as earnings, the Court could not find that the entire $33,570.00 claimed as exempt by the Debtors under § 525.030.2 could be exempted as earnings. The notes represent the balance of the sales prices of the vehicles after crediting the buyers for all payments made; they do not represent solely the labor of the Debtors in repairing and rebuilding the vehicles. Quite obviously, the notes would encompass amounts that were expended by the Debtors for the purchase of the wrecked autos and for parts that were necessary in putting the cars in operating condition. The Debtors have made no attempt to break out what portion of the notes receivable is attributable to their labor and what portion is attributable to these other costs. Accordingly, the claim to an exemption under § 525.030.2 would not be allowable — at least not in its entirety — in any event.
While exemption statutes are to be liberally construed, thereby according favorable consideration to the debtors, Murray v. Zuke, 408 F.2d 483, 487 (8th Cir. 1969), the Court must apply the statute as *463it is written. It is clear that notes receivable or accounts receivable that are generated from the sale of used automobiles are not earnings for personal services as defined by Mo. Rev. Stat. § 525.030.2.
Therefore, it is
ORDERED that the Trustee’s Objection to Debtor’s Claim of Exemptions (Document # 7) be and is hereby SUSTAINED.
. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and the Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334.
. There is no such subsection in the statute. It appears the exemption is claimed pursuant to § 525.030.2. The Debtors claimed $950.00 of the receivables as exempt under other state statutory provisions which have not been challenged by the Trustee. Inexplicably, the Debtors did not claim the balance of $2,780.00 in receivables as exempt under any statutory provision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493476/ | CARL L. BUCKI, Bankruptcy Judge.
Innumerable are the instances in which attorneys agree to hold funds in escrow, for the benefit of clients or as an accommodation in anticipation of a settlement of disputes. The issue now before this court is whether the escrow holder enjoys an implied right to compensation from the corpus of the account.
Saul D. Moshenberg, the debtor herein, is a former attorney who was previously convicted of grand larceny and scheming to defraud. In 1994, Moshenberg commenced a state court action seeking an accounting and a distribution of the assets of his prior law partnership with Jeffrey H. Morris. Representing Morris was Donn A. DiPasquale, who successfully negotiated a settlement of the action in 1995. Pursuant to the stipulation of settlement, the litigants agreed that DiPasquale would *533hold certain funds in escrow for the benefit of four partnership creditors. The stipulation then provided that upon payment of those obligations, “the balance of said funds shall be transferred by Donn A. DiPasquale, Esq., to the Ontario County Department of Probation to further satisfy and/or reimburse Moshenberg’s criminal victims pursuant to Moshenberg’s obligations to pay said restitution as set forth in an Order of the County Court Justice
Moshenberg filed his petition for relief under chapter 7 of the Bankruptcy Code on December 17, 1998, subsequent to his settlement with Morris but before DiPasquale had fully distributed the escrowed funds. Wishing to effect a distribution of those funds to the Probation Department for Ontario County, Moshenberg commenced the present adversary proceeding to determine rights to the escrow. Defendants include Moshenberg’s chapter 7 trustee, the unpaid partnership creditors for whose benefit the escrow was established, a judgment creditor that had asserted a lien on the escrowed funds, the bank at which the funds were deposited, the Ontario County Probation Department, Morris, and DiPasquale. Certain of the defendants have failed to answer, and as to them, the plaintiff has taken a default judgment. The remaining litigants have now reported to the court that they have settled all claims against the escrow, other than the claim of Donn A. DiPasquale in his capacity as escrow agent.
By letter dated November 19, 2001, Donn A. DiPasquale itemizes the services that he performed as escrow agent, and asks that the value of those services be allowed as a first charge against the escrow. Altogether, he alleges to have committed 8.8 hours to services having a value of $1,672. To this allowance, the chapter 7 trustee has specifically objected. Because all interested parties have otherwise agreed to a distribution of the escrow, this court may now appropriately resolve this last competing claim to the available funds.
Moshenberg and Morris created the present escrow pursuant to terms of the stipulation of settlement dated November 29, 1995. That stipulation made no provision for the payment of compensation to DiPasquale, for any services rendered as escrow agent. Rather, as quoted above, it precisely identified the parties to whom the entire balance of funds were to be paid. Without any express authorization for payment of his expenses, DiPasquale now apparently asserts some type of implied authorization for an allowance. The nature of an escrow, however, belies any such implication.
The Seventh Edition of Black’s Law Dictionary defines escrow to include “property delivered by a promisor to a third party to be held by the third party for a given amount of time or until the occurrence of a condition, at which time the third party is to hand over the document or property to the promisee.” The essence of an escrow is that the escrowed item or asset is to be held protectively, and is to be released without alteration or diminishment, upon satisfaction of the stated conditions for its release. Of course, the parties may properly specify that such conditions include the payment of escrow expenses. Without such a provision, however, the escrow agent has no right to payment from the escrow account. Miller v. J.A. Keeffe, P.C., 276 A.D.2d 757, 715 N.Y.S.2d 423 (2nd Dep’t.2000).
The law in New York is well stated by New York Jurisprudence 2d:
A depositary or escrow agent has no lien upon the fund or property as compensation for services or expenses in connection with the escrow. His or her position is entirely different from one *534who by his or her labor enhances or protects the value of property and thereby is entitled to a possessory lien either by statute or common law; the escrowee is only a custodian and does nothing but hold the property.
55 N.Y. Jur. 2d Escrows § 17 (2002).
DiPasquale may well be entitled to receive compensation for his services as escrow agent. Plaut v. HGH Partnership, 59 A.D.2d 686, 398 N.Y.S.2d 671 (1st Dep’t 1977). Rather in dispute is the proper source of that compensation. In the stipulation of settlement that created the escrow, Morris agreed that upon satisfaction of the stated conditions, he would “direct his attorney, Donn A. DiPasquale, Esq., to pay or release” the funds held in escrow. Arguably, therefore, DiPasquale must look to his client for payment of any expenses as escrow agent. That, however, is an issue not now before this court, but a matter between Morris and DiPasquale. Nonetheless, this court is satisfied that DiPasquale has no valid right to recover his expenses from the escrow. Accordingly, his request for an allowance for fees is denied.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493477/ | AMENDED MEMORANDUM OPINION
DOUGLAS O. TICE, Jr., Chief Judge.
This Memorandum Opinion amends the previous opinion entered on the court’s docket on April 3, 2002, for the purpose of noting the interest of defendants Charles E. Terek, Trustee, and Beneficial Mortgage Co. of Virginia, which parties defaulted in answer to the complaint.
Trial was held on February 4, 2002 on plaintiffs complaint to determine the validity, priority, or extent of a lien on defendants’ property. The court took the matter under advisement and now finds that the omission of Goldie J. Gilmore’s signature from the deed of trust was due to a mutual mistake of fact. The deed of trust *803should be reformed to reflect the parties’ original intent to bind Ocwen and Mervin and Goldie Gilmore under the deed of trust. Ocwen’s interest will thereby be secured and will take priority over the trustee’s interest in the debtors’ home.
FACTS
In December 1998, Mervin B. Gilmore and Goldie J. Gilmore, who are husband and wife, signed a contract to purchase real property located at 4901 Old Logging Circle, Prince George, Virginia. The Gil-mores intended to finance their purchase by a loan from Ocwen Financial Services, Inc. Although their purchase agreement indicated that the parties would take title jointly, only Mr. Gilmore applied for the loan because Mrs. Gilmore had a poor credit history. Ocwen approved Mr. Gilmore’s loan application in January 1999.
Settlement of the purchase took place on January 29, 1999, at which time Mr. Gilmore signed a number of closing documents that were presented to him by the settlement agent. Among the documents signed by Mr. Gilmore were a purchase money promissory note in the principal amount of $121,500.00 payable to Ocwen and the purchase money deed of trust. The deed of trust contained a prominent notation on the first page that he Mr. Gilmore is “Joined by His Spouse Goldie J. Gilmore.”1 However, on the signature page of the deed of trust, only Mr. Gilmore’s name was typed under a signature line. Mr. Gilmore executed the deed of trust over his typed name, but Mrs. Gilmore did not execute the document. Mrs. Gilmore did, however, sign the settlement statement under the “Borrower” signature line along with Mr. Gilmore.- The settlement statement acknowledges that the proceeds of the loan were applied to the purchase price of the property.
At settlement fee simple title to the property was conveyed to the Gilmores as tenants by the entirety with right of survivorship by a deed from I.J. Benesek, Jr., Inc., a Virginia corporation. The deed and deed of trust were duly recorded on February 3, 1999, in the Clerk’s Office of the Circuit Court of Prince George, Virginia, in Deed Book 466, page 411 (deed) and page 414 (deed of trust).
In April 1999, the Gilmores took out a second deed of trust loan from Beneficial Mortgage Co. of Virginia. Beneficial is a beneficiary of a duly recorded second deed of trust dated April 14, 1999. Charles E. Terek, trustee under this deed of trust and Beneficial were named as defendants in Ocwen’s complaint. However, neither of these parties filed an answer to the complaint, and the clerk has entered default against them. Neither of these parties appeared at trial.
In June 1999, Mr. Gilmore defaulted on the Ocwen promissory note. After Mr. Gilmore failed to cure the default, Ocwen initiated foreclosure proceedings.
As it prepared to foreclose on the property, Ocwen discovered for the first time that Mrs. Gilmore had not signed the deed of trust. Ocwen directed the original settlement agency to have Mrs. Gilmore correct the omission, but she declined to do so. Shortly after the foreclosure proceedings began, the Gilmores filed this chapter 13 petition.
The court’s findings of fact incorporate the purchase agreement, the deed of trust and the deed, presented to the court as plaintiffs exhibits A, D and F.
POSITION OF THE PARTIES
Ocwen Financial asserts that its claim is fully secured and that the omission of Mrs. *804Gilmore’s signature was based on a mutual mistake of fact. Ocwen argues that the parties intended for Ocwen to have a fully-secured interest in the property and that the purchase money deed of trust should be reformed to reflect their intent at the time the agreement was made. In the alternative, Ocwen argues that the error was a unilateral mistake that was induced by debtors’ fraudulent conduct and that the deed of trust should be reformed.
Debtors contend that the loan by Ocwen was unsecured because the deed of trust was not properly executed. Debtors base their contention on the fact that the property was conveyed in tenancy by the entirety, which prohibits a spouse from conveying property held in tenancy by the entirety if not joined by the other spouse. Because the debt to Ocwen was unsecured, Ocwen’s debt may not be favored over the debts of other unsecured creditors. Such preferential treatment would violate 11 U.S.C. § 1322.2 The debtors also claim that Ocwen would be permitted to receive more than it would if this case were filed under chapter 7, which would violate 11 U.S.C. § 1325(a)(4).3
CONCLUSIONS OF LAW
Reformation is an equitable remedy that is appropriate where parties to a written contract have reached a meeting of the minds as to certain terms, but the agreement does not reflect their original intent as to those terms. See Lawyers Title Ins. Co. v. Golf Links Dev. Corp., 87 F.Supp.2d 505, 512 (W.D.N.C.1999). Reformation is warranted where the disconnect between the parties’ original intent and the resulting agreement is based on mutual mistake or where the mistake of one party was induced by the fraudulent conduct of the other. See United Va. Bank v. Robert L. Cleveland, Jr. (In re Cleveland), 53 B.R. 814, 817 (Bankr. E.D.Va.1985). The effect of reformation is to implement the terms of the agreement that were originally intended and reform the contract to reflect the parties’ original agreement.
The burden of proof in a reformation case is on the moving party to “put forward evidence of such a clear, convincing and satisfactory character so as to leave no reasonable doubt in the mind of the court.” Id; see also Barclays *805Am./Mortgage Corp. v. Wilkinson (In re Wilkinson), 186 B.R. 186, 190 (Bankr. D.Md.1995) (holding that the movant must prove mistake “clearly and beyond a reasonable doubt”).
Mutual Mistake of Fact
Ocwen’s primary argument is that the deed of trust does not reflect the parties’ intent at the time of the settlement and should be reformed. Ocwen contends that the deed of trust, containing only Mr. Gilmore’s signature, does not match the deed, containing the signatures of both spouses, due to a mutual mistake of fact that existed at the time of settlement.
The basic facts in this case are undisputed. The Gilmores entered into an agreement to purchase property in tenancy by the entirety on the condition that they receive third party financing.4 Mr. Gilmore secured financing on the property from Ocwen and indicated to Ocwen that the property would be held in tenancy by the entirety. Ocwen provided financing to the Gilmores with the express understanding that the property would be held jointly with his wife.5 Prior to settlement, all parties were clear that the property was to pass in tenancy by the entirety.
The facts leave no doubt to the court that the Gilmores intended to grant a security interest in their home to Ocwen. At hearing, Mrs. Gilmore stated that she would have signed the deed of trust if she had been asked to do so. Mrs. Gilmore’s willingness to be bound absent Ocwen’s negligence is evidence of her intent to sign the deed of trust and convey a security interest to Ocwen.
The settlement agent testified that he closed the loan and disbursed the proceeds before he received the deed and failed to compare the deed to the deed of trust. The debtors argue that his failure to secure both parties’ signatures on the deed of trust prevented any transfer from taking place because both spouses must consent to any conveyance of property held in tenancy by the entirety.
Ocwen may have been negligent in securing Mrs. Gilmore’s signature, but that alone is not sufficient to defeat its claim of a mutual mistake. “ ‘Negligence on the part of one party [which induces the mistake] does not preclude a finding of mutual mistake.’ In other words, the fact that the mistake arises because the party who is seeking the reformation supplied the incorrect information does not make the mistake unilateral.” Lawyers Title Ins. Co. v. Golf Links Dev. Corp., 87 F.Supp.2d 505, 512 (W.D.N.C.1999) (quoting Metropolitan Prop. & Cas. Ins. v. Dillard, 126 N.C.App. 795, 487 S.E.2d 157, 159 (1997)).
The movant has met its burden of proof that there was a mutual mistake of fact. The facts clearly indicate that the Gil-mores knew and intended that the loan from Ocwen would be secured by their property and that Ocwen intended to take a security interest in exchange for financing the purchase of the home.
Accordingly, the court finds that grounds for reformation exist, and the deed of trust will be reformed, retroactive to the settlement date, to add Goldie J. Gilmore as a grantor.
*806
Unilateral Mistake
The court does not find sufficient evidence to support Ocwen’s alternate theory of unilateral mistake induced by fraud or improper conduct by the Gilmores. Ocwen made no showing that the debtors acted fraudulently or in bad faith. The error in this case is due to mistake of fact by both parties at the time of settlement.
Improper Execution of Deed of Trust
Debtors assert that Ocwen is an unsecured creditor and may not be given preference over any other unsecured creditor. Debtors claim that because the property was held in tenancy by the entirety and conveyed by only one party, the deed of trust was not properly executed. The court is unpersuaded by this argument. Having found that the debtors did intend to convey a security interest to Ocwen and that grounds for reformation do exist, the court disposes of debtors’ argument without further discussion.
Second Deed of Trust of Beneficial Mortgage Co. of Virginia
Beneficial Mortgage Co. of Virginia, who holds a second deed of trust on debtors’ property, defaulted in answer to the complaint and failed to appear at trial. Its interest will be subordinate to Ocwen’s interest under the reformed deed of trust.
Interest of Debtors’ Trustee In Bankruptcg
Any interest of the trustee will be subordinate to Ocwen’s reformed first deed of trust.
A separate order will be entered.
. Plaintiff's Exhibit D, Deed of Trust, p. 1.
. (a) The plan shall'—
(1) provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan;
(2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim; and
(3) if the plan classifies claims, provide the same treatment for each claim within a particular class.
(b) Subject to subsections (a) and (c) of this section, the plan may—
(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims....
. (a) Except as provided in subsection (b), the court shall confirm a plan if—
(4)the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title [11 USCS §§701 et seq.] on such date....
. "A tenancy by the entirety 'is essentially a joint tenancy, modified by common law theory that husband and wife are one person.' " U.S. v. Jacobs 306 U.S. 363, 370, 59 S.Ct. 551, 83 L.Ed. 763 (1939). Neither party has the right to transfer or encumber the property without the consent of the other. See id..; see also Barclays Am./Mortgage Corp. v. Wilkinson 186 B.R. at 190.
. Exhibit D, Deed of Trust, p. 1. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493478/ | ORDER
PAUL J. KILBURG, Chief Judge.
On June 27, 2002, the above-captioned matter came on for trial. Plaintiff Fairfax State Savings Bank appeared through its loan officer Kevin Slater, with Attorneys Thomas McCuskey and Jonathan Kopecky. Debtor Joe Layne McCleary appeared with Attorney Michael Mollman. Evidence was presented after which the Court took the matter under advisement. The deadline for the filing of briefs has now passed and this matter is ready for resolution. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
STATEMENT OF THE CASE
Debtor/Defendant filed a Chapter 7 petition on June 4, 2001 in which Fairfax State Savings Bank (the “Bank”) was listed as a creditor. On August 3, 2001, the Bank filed the pending complaint to determine dischargeability of a debt owed to it by Debtor/Defendant. In its complaint, the Bank alleges fraud by Debtor in its relationship with the Bank. The Bank asserts that by reason of the “false and fraudulent statements of Debtor”, Debtor’s obligation to the Bank should be determined to be nondischargeable. The complaint does not specify upon which exception to discharge it relies under § 523 in asserting that this obligation is nondischargeable. After completion of discovery, the parties were directed to submit a joint pretrial statement. Each party filed a separate pretrial statement. Under legal contentions, the Bank asserts:
As a result of representations made by Defendant McCleary in writing, which were materially false regarding his financial condition, Plaintiff extended credit or renewed credit. The Plaintiff, as the creditor here, relied upon the representations of the Defendant *881MeCleary with respect to the status of his financial condition.
This language closely tracks that of 11 U.S.C. § 523(a)(2)(B). Therefore, at the beginning of trial, it appeared that the Bank was relying upon § 523(a)(2)(B). Debtor’s answer does not refer to a specific code section nor does his pretrial statement set out any reference to a specific code section. Debtor denies all of the Bank’s legal contentions and states: “Further, the Defendant at no time intended to mislead Plaintiff and there was no fraud or misrepresentations made by the Defendant to the Plaintiff.” Thus, the Bank appeared to be relying upon § 523(a)(2)(B). It was unclear what code section Debtor believed applied to this case.
After trial, the parties were allowed to submit post-trial briefs. The Bank’s brief, filed July 19, 2002, does not analyze this case under § 523(a)(2)(B) as defined in the pretrial statement. Instead, it analyzes the case under the five elements of fraud ordinarily associated with § 523(a)(2)(A). Debtor filed his post-trial brief on July 26, 2002. Debtor’s brief is largely a denial of any wrongdoing but, to the extent it focuses on § 523, it also applies § 523(a)(2)(A). Because of this inconsistency in pleading a theory of the case, the Court is not certain which section the parties intend to apply. Because of this, the Court will examine both sections to determine which section to apply.
FINDINGS OF FACT
Debtor Joe Layne MeCleary has educational training as a municipal engineer with experience in construction. He has been involved in the construction business for over ten years. He started Quality “1” Construction, Inc. (Quality “1”) in February of 1998.
Debtor had a prior relationship with Mercantile Bank (“Mercantile”) where he dealt primarily with loan officer Loras Goedken. After Mercantile was purchased by Firstar Bank, it modified its loan policy and no longer made commercial loans in amounts less than $500,000. Smaller loans were needed by Quality “1”. As a result, Goedken advised Debtor to try to obtain other financing. Sometime prior to November 15, 1999, Debtor contacted Kevin Slater, a loan officer with Plaintiff Fairfax State Savings Bank, in hopes of securing business loans for Quality “1”.
Slater testified for the Bank. He graduated from the School of Banking in Iowa City and later attended the Graduate School of Banking in Madison. He is currently enrolled in the MBA program at the University of Iowa and has been employed in the banking industry for the last 10-15 years. Debtor testified that the primary reasons Slater made loans to Quality “1” were Debtor’s expertise, the number of job contracts held by Quality “1”, and the fact that Quality “1” had numerous opportunities to do construction work for municipalities. Debtor advised Slater of several jobs that Quality “1” had bid.
Slater contacted Goedken at Mercantile to confirm that Mercantile had issued loans to Quality “1” in the past. Goedken informed Slater that Quality “1” had a loan outstanding with Mercantile in the amount of $182,000, with a due date of June 2000. Goedken apparently informed Slater that even though Quality “1” had occasionally been late with payments, its loans were not considered high risk.
In addition to relying on the comments made by Goedken, Slater relied on certain financial documents in making the decision to loan money to Quality “1”. These documents are:
(1) a 1998 Tax Return,
(2) Profit and Loss Statement (As of August 1999),
*882(3) Depreciation Schedule (Through year ending 1998),
(4) Equipment List (November 1999),
(5) Asset Listing Report (As of November 1998), and
(6) Cash Flow Statement (1999).
The parties dispute whether Debtor provided these documents to Slater before the loans were made. Debtor testified that his accountant or business manager at the time may have provided these documents to Slater. In any event, they came into possession by the Bank and were produced by the Bank as exhibits at trial. These exhibits do not provide substantial information upon which to determine the fair market value of Debtor’s equipment. The Equipment List shows only the cost. The Depreciation Schedule and Asset Listing-Report list the cost of each piece of equipment with its accumulated depreciation. These also show that some of the equipment had been put into service as early as February 1998.
In addition to comments made by Goedken and the documents described above, Slater apparently relied on oral comments made by Debtor. Slater testified that Debtor orally asserted that he was the owner of a majority of the equipment listed in the various documents.
Debtor signed two promissory notes on behalf of Quality “1” on November 15, 1999, totaling $257,000.00. He also signed a security agreement for Quality “1” which provided the Bank a security interest in all of its equipment, accounts and most of the titled vehicles. Debtor individually signed a continuing, unlimited guaranty on November 15, 1999, guaranteeing personal responsibility for these loans from the Bank to Quality “1”. The Bank filed a UCC statement covering the equipment on December 6, 1999. Quality “1” forwarded a cashier’s check for $182,000.00 to Mercantile Bank to pay off its loan and eliminate Mercantile’s security interest.
At no time did Slater obtain a traditional financial statement from Debtor. He testified that he did not do so because Mercantile had assured him there was adequate collateral. He also testified that at no time prior to the November 1999 loans did he conduct a UCC check. Slater testified that he did not obtain all of the titles to the vehicles nor did he receive a notice of termination of the financing statements from Mercantile. As of the time of trial, it was not clear whether Mercantile retained security interests in any of this property.
In late 1999 and early 2000, Quality “1” began to experience severe business reversals. Several contracts did not generate a profit. Additionally, a project in Williams-burg, Iowa ran into cash flow problems. As a result, Debtor did not make any payments to the Bank. Still, in February 2000, the Bank allowed Debtor to sign two additional promissory notes totaling $35,000.00.
The grievances lodged by the Bank are of several varieties. The Bank contends Debtor did not own all of the property listed on the documents obtained by the Bank. It alleges the values provided on the financial documents was exaggerated. It asserts that trade debt existed which was not made known to the Bank. The Bank asserts that Debtor sold encumbered property without notifying the Bank and without applying the proceeds to the Bank’s loans. Finally, it asserts that Debtor did not notify the Bank of a lawsuit involving a concrete supplier.
While certain of the allegations are contested, it is undisputed that Debtor failed to disclose that Quality “1” was behind in payments to a supplier and that it was in danger of being sued. Debtor was in arrears to supplier Hawkeye Ready Mix in the amount of $5,937.43 in late 1999. Sla*883ter did not learn of this supplier’s potential action against Quality “1” until after the loans were finalized.
Eventually, the Bank obtained an order of replevin on August 11, 2000, in Iowa District Court. This forced termination of the business operations of Quality “1”. The notes owed to the Bank by Quality “1” totaled $292,000. The value of the equipment the Bank obtained on replevin amounted to $10,000.
CONCLUSIONS OF LAW
While it is unclear which section of 523(a)(2) is intended by the parties to apply in this case, it is clear that the Bank seeks to have Debtor’s loan obligations found nondischargeable under one or both alternatives of § 523(a)(2). Exceptions to discharge must be “narrowly construed against the creditor and liberally against the debtor, thus effectuating the fresh start policy of the Code. These considerations, however, are applicable only to honest debtors.” In re Van Horne, 823 F.2d 1285, 1287 (8th Cir.1987). The pertinent part of 11 U.S.C. § 523(a) provides:
A discharge under ... this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; [or]
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv)that the debtor caused to be made or published with intent to deceive;
Section 523(a)(2)(A) or Section 523(a)(2)(B)
The Court must first determine which code section is applicable. It is well established that § 523(a)(2)(A) is intended to apply in cases of false pretenses or actual fraud. The drafters of the 1978 amendments to the Code intended that false financial statements would be addressed separately. This separate treatment was codified in § 523(a)(2)(B). To avoid any doubt that false financial statements were to be treated separately, Congress added language to § 523(a)(2)(A) which provides that this code section applies to all types of fraud “other than a statement respecting the debtor’s ... financial condition”. False representations involving statements respecting a debtor’s, financial condition are to be dealt with exclusively under § 523(a)(2)(B). The elements are, in substantial respects, different from those under § 523(a)(2)(A).
Case law has consistently and unanimously held that paragraphs (A) and (B) of § 523(a)(2) are mutually exclusive. The Court must, therefore, examine what is actually alleged and proven in this case to determine which of these subsections apply in the present context. It is clear from any fair reading of the Bank’s complaint, the Bank’s evidence, and the Bank’s briefs, that a business relationship existed between the Bank and Debtor. The Bank alleges that Debtor provided false financial information respecting his financial condition upon which the Bank relied to its detriment in granting Debtor credit. This ease is completely centered around Debt- or’s financial condition.
*884The only aspect of § 523(a)(2)(A) which requires examination is whether the allegations involved in this case constitute the type of “statements” which are excluded from treatment under § 523(a)(2)(A). Some courts have held that such statements are limited to balance sheets showing the debtor’s net worth. See, e.g., In re Olinger, 160 B.R. 1004, 1009 (Bankr.S.D.Ind.1993); In re Mercado, 144 B.R. 879, 885 (Bankr.C.D.Cal.1992). Other courts have construed the phrase more broadly. In re Van Steinburg, 744 F.2d 1060, 1060-61 (4th Cir.1984) (holding an equipment list which the debtor submitted to secure a loan to be a statement in writing respecting his financial condition sufficient to satisfy § 523(a)(2)(B)). The court in Van Steinburg held that
Congress did not speak in terms of financial statements. Instead it referred to a much broader class of statements— those respecting a debtor’s ... financial condition. A debtor’s assertion that he owns certain property free and clear of other liens is a statement respecting his financial condition. Indeed, whether his assets are encumbered may be the most significant information about his financial condition.
Id. at 1061.
This latter interpretation has been followed by courts in the Eighth Circuit. See, e.g., In re Kerbaugh, 162 B.R. 255, 261 (Bankr.D.N.D.1993) (stating “the writing required by § 523(a)(2)(B) is sufficiently broad enough to include any statement made by the Debtor, not just formal financial statements and documents in a bank or commercial setting”); see also, Kloven v. Ramsey, 1993 WL 181309, *2 (D.Minn.Apr. 22, 1993) (stating that a statement respecting the debtor’s financial condition is one concerning the debtor’s overall financial health, net worth, or ability to generate income); In re Long, 774 F.2d 875, 877 (8th Cir.1985) (stating that Debtor’s misrepresentations as to the value of its inventory are “statements in writing respecting the debtor’s or an insider’s financial condition”).
The record indicates Slater considered six documents when determining whether to extend credit. These are:
(1) a 1998 Tax Return,
(2) Profit and Loss Statement (As of August 1999),
(3) Depreciation Schedule (Through year ending 1998),
(4) Equipment List (November 1999),
(5) Asset Listing Report (As of November 1998), and
(6) Cash Flow Statement (1999).
Documents 1, 2 and 6 each demonstrated Debtor’s ability to generate income. Documents 3, 4 and 5 provided Slater with some insight regarding Debtor’s assets, their value and encumbrances. These documents qualify as statements “respecting the debtor’s financial condition.”
Slater testified regarding oral statements by Debtor regarding his financial condition. Debtor told Slater about bids on numerous jobs that were at the time outstanding. Slater testified Debtor told him that he owned a majority of his business equipment. The Bank received information, orally, from Goedken at Mercantile Bank concerning its banking relationship with Debtor. Clearly, these are statements “respecting the debtor’s financial condition” under § 523(a)(2)(B). However, for reasons discussed later, they do not constitute a basis for an exception from discharge under § 523(a)(2)(B).
It is the ultimate conclusion of this Court, for the reasons set out in this opinion, that § 523(a)(2)(A) does not apply because all statements the Bank received involved Debtor’s financial condition. For *885the reasons set out in the statement of the case, the Court will examine the elements of § 523(a)(2)(B) with regard to the six written documents on which the Bank relied when extending credit to Debtor.
11 U.S.C. § 523(a)(2)(B)
The elements of § 523(a)(2)(B) require that: (1) the false financial statement is a writing respecting the debtor’s financial condition; (2) the financial statement is materially false; (3) the debtor intended to deceive; and (4) the creditor reasonably relied on the statement. In re Foley, 156 B.R. 645, 648 (Bankr.D.N.D. 1993). The Bank must prove each of these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). The Court will apply these elements to the initial loans made in November of 1999 totaling $257,000, as well as the subsequent $35,500 loans made in February of 2000.
THE INITIAL LOANS
(1) Statement as a Writing Respecting Debtor’s Financial Condition.
The first element under § 523(a)(2)(B) requires application of a two-prong test. The first prong evaluates the existence of a written document. The second prong focuses on the content of that document. Kerbaugh, 162 B.R. at 262. An objecting creditor who relies on a debtor’s oral misrepresentations of his or her financial wherewithal will not be entitled to a nondischargeability determination under § 523(a)(2)(B). Id. at 261.
Slater testified concerning financial data received by him from Debtor in both oral and written form. Only written statements respecting Debtor’s financial condition are considered under § 523(a)(2)(B). Thus, oral assertions allegedly made by Debtor will not be considered in determining dischargeability under § 523(a)(2)(B).
Written statements need not be physically prepared by a debtor to satisfy the writing requirement of § 523(a)(2)(B). Id. at 262. The writing requirement is satisfied if the written statement was signed, adopted and used, or caused to be prepared by, the debtor. Id.
The six documents relevant here were provided to Slater sometime before the November 1999 loans were made. Debtor testified that although he did not personally furnish these documents to Slater, it was likely that his accountant or business manager had done so. Given the nature of these documents, they were either used by Debtor or prepared for operational purposes. This Court concludes that this is sufficient to satisfy the first element of § 523(a)(2)(B).
(2) Materially False Statement.
The concept of “materiality” within the context of § 523(a)(2)(B) includes objective and subjective components. In re Dammen, 167 B.R. 545, 551 (Bankr.D.N.D.1994). Objectively, a statement is materially false if it “paints a substantially untruthful picture of a financial condition by a misrepresentation of the type which would normally affect the decision to grant credit.” In re Dygert, 2000 WL 630833, *8 (Bankr.D.Minn. May 11, 2000). It is well established that writings with pertinent omissions can readily constitute a statement that is materially false for purposes of § 523(a)(2)(B). Dammen, 167 B.R. at 551; In re Bundy, 95 B.R. 1004, 1008 (Bankr.W.D.Mo.1989). The relevant subjective inquiry, although not dis-positive, is whether the complaining creditor would have extended credit had it been apprized of the debtor’s true situation. Kerbaugh, 162 B.R. at 262.
*886The Bank asserts that the financial documents provided by Debtor to Slater were materially false in that they omitted outstanding obligations and did not accurately reflect the ownership and value of business equipment. First, the Bank claims that Debtor did not disclose his outstanding accounts with several suppliers. Specifically, Slater testified that Debtor failed to disclose that he owed $6,000 to Hawkeye Ready Mix, Inc. Correspondence from Hawkeye Ready Mix, Inc. informed Debtor that he was not only behind, but “significantly past due.” Debtor testified that it was not unusual for contractors to be behind to their suppliers.
It is true that silence under certain circumstances can constitute an untruthful statement. However, after carefully evaluating this record, it is the conclusion of this Court that Debtor’s silence on this issue does not, in and of itself, constitute a substantially untruthful assertion of Debt- or’s financial condition. A $6,000 balance on an outstanding’ account is not large when compared to Debtor’s net expenditures. The Profit and Loss Statement shows that Debtor had incurred roughly $448,000 in expenses as of August 1999. Given the size of the loan, Debtor’s net expenditures, and Slater’s eagerness to help Debtor build his business, this Court cannot conclude that Slater’s decision to approve the loan would be affected by knowledge of this outstanding account.
Second, Slater testified that Debt- or’s financial documents provided to the Bank failed to disclose a “good majority” of the lease obligations on the equipment. Both the Depreciation Schedule and Asset Listing Report delineate the accumulated depreciation for each piece of equipment. Although Debtor did not provide Slater with the details of his ownership or leasehold interests in equipment, the absence of this information alone does not provide a substantially untruthful depiction of Debt- or’s financial condition. The complained of inaccuracies were readily apparent from the face of the documents. The Profit and Loss Statement shows expenses for equipment rental. Such provisions indicate that Debtor employed alternative methods of financing for different pieces of equipment. It is the opinion of this Court that a cursory review of this document should have put Slater on notice as to potential outstanding lease obligations. Based on the foregoing, this Court concludes that these omissions do not make the financial documents materially false.
(3) Creditor’s Reasonable Reliance.
For a debt to be excepted from discharge under § 523(a)(2)(B), the creditor’s reliance on false written statements must satisfy a two-part inquiry by demonstrating that its reliance was both actual and reasonable. Dammen, 167 B.R. at 552. The record indicates that Slater actually relied, at least in part, on the financial documents in making the November 1999 loans to the Debtor.
The issue in this case is whether that reliance was reasonable. A determination of reasonableness is based upon the totality of the circumstances. First Nat’l Bank v. Pontow, 111 F.3d 604, 610 (8th Cir.1997). Among other things, a court may consider whether there were any “red flags” that would have alerted an ordinarily prudent lender to the possibility that the representations relied upon were not accurate; and whether even minimal investigation would have revealed the inaccuracy of the debtor’s representations. Id.
Slater testified the general procedure of Fairfax State Savings Bank is to have the prospective debtor fill out a financial statement listing assets and liabilities. The Bank reviews those financial *887statements to ascertain the net worth of the individual. It next secures the necessary collateral. The Bank generally asks the debtor’s spouse be a signatory on the loan. It also conducts a credit check.
The record reveals that Slater did not follow the Bank’s normal procedures in granting Debtor loans. He did not require Debtor to fill out a financial statement or require Debtor’s spouse to be a signatory. Slater relied upon the six written documents. Under § 523(a)(2)(B), the Court disregards oral statements upon which Slater says he relied, such as the conversations with Mercantile Bank and Debtor. This Court finds that Slater’s reliance on Debtor’s six financial documents was not reasonable.
The Profit and Loss Statement and 1998 Tax Return depicted Debtor’s ability to generate income. Unlike a formal financial statement or balance sheet, which details an entity’s assets and liabilities, these documents merely provide a history of Debtor’s profitability. They give no indication as to whether Debtor had any significant outstanding liabilities. The absence of a financial statement listing Debtor’s liabilities made it impossible for Slater to accurately assess Debtor’s net worth. Case law supports the notion that “a facially incomplete financial statement, which does not contain sufficient information to present the true financial condition of the debtor, would not by itself support a claim of reasonable reliance.” In re Lippert, 84 B.R. 612, 617 (Bankr.D.Minn. 1988).
It was the Bank’s general procedure to loan up to 80% of the value of collateral. Slater relied on the Depreciation Schedule, Asset Listing Report, and Equipment List documents when determining the value of the equipment. Each of these documents valued the equipment at “cost.” Slater agreed that “cost” meant the price Debtor paid for it, rather than the fair market value. In addition, the Depreciation Schedule and the Asset Listing Report show that some of Debtor’s equipment had been put into service as early as February 1998. Although both documents list the accumulated depreciation for the equipment, it is unreasonable to assume that the actual value of the equipment had subsequently declined at a similar rate. Given the magnitude of the loan, it was not reasonable to grant approval without first verifying the existence of the equipment and procuring an appraisal to determine fair market value.
Both the Depreciation Schedule (For Year Ending 1998) and the Asset Listing Report (As of November 1998) were nearly a year old. Reliance on stale financial documents is not reasonable under Eighth Circuit case law. See, Jones, 31 F.3d at 661 (stating that where a creditor relied on an eight month old financial statement and never inquired as to whether the statement actually reflected the debtor’s current financial situation, the creditor failed to show reasonable reliance). As a whole, these documents do not amount to the type of financial statements that any creditor could reasonably rely upon without some further inquiry and verification. No reasonable lender would be able to discern Debtor’s financial wherewithal based solely on the financial documents presented.
No traditional financial statement was ever obtained from Debtor. Slater testified that he did not do so because he relied upon statements from Goedken at Mercantile Bank that Debtor had adequate collateral. In relying upon the representation of Mercantile, Slater made certain assumptions about the remainder of the financial data provided which may or may not have been consistent with Debtor’s true financial picture.
*888The Bank does not really assert that the financial documents provided were inaccurate, in and of themselves. It appears that each document is a more or less accurate reflection of what it is purported to represent. However, the Bank asserts that, when taken in its entirety, the information provided is incomplete and misleading. There is no doubt that the financial information provided has gaps and is incomplete. It is also true that certain allegations of misconduct by Debtor have substantial credibility. Nevertheless, this conduct by Debtor occurred well after any representations were made concerning his financial condition which is the true focus of this litigation.
When viewed in its entirety, the record is most accurately interpreted, in this Court’s opinion, by concluding that the Bank relied to a substantial extent on representations made by Debtor’s previous lender. Having been reassured by Debt- or’s prior lender, the Bank deviated from its normal practice of seeking complete financial documentation and drew conclusions which may not have been warranted if the documents had been viewed with a more critical eye. Nevertheless, when the entire record is evaluated, there is little evidence to support the conclusion that Debtor generated the confused financial information. The Bank, in this case, abandoned its normal financial disclosure procedures, it relied upon financial information provided by a third party, and it showed a lack of critical curiosity about the documents that were produced. Many, if not all, of the grievances made by the Bank at this time could have been easily remedied by obtaining a full financial statement in the beginning. Under all of these circumstances, this Court must conclude that any reliance upon the information provided by Debtor was not reasonable. Based on all of these facts, this Court must conclude that the Bank has failed to establish reasonable reliance as defined in § 523(a)(2)(B).
(4) Intent to Deceive.
Discharge is barred under § 523(a)(2)(B) only if, among other things, the debtor acted with the intent to deceive. Jones, 31 F.3d at 661. Courts have held that a creditor can establish intent to deceive by proving reckless indifference to or reckless disregard of the accuracy of the information in a debtor’s financial statement. In re Johnson, Adv. 95-6074KW, slip op. at 6 (Bankr.N.D.Iowa Feb. 12, 1996). This Court has stated that “intent can be gleaned from surrounding circumstances.” In re Capps, Adv. 93-2106KD, slip op. at 3 (Bankr.N.D.Iowa Nov. 24, 1993); In re Walderbach, No. L92-00780C, Adv. No. 92-1135LC, slip op. at 8 (Bankr. N.D.Iowa Aug. 31, 1993). Some factors persuasive on the issue of intent to deceive include “whether the debtor was intelligent and experienced in financial matters, and whether there was a clear pattern of purposeful conduct.” Capps, slip at 5; Walderbach, slip at 8-9; see also In re Joyner, 132 B.R. 436, 442 (D.Kan.1991) (considering the omission of significant liabilities as strong evidence of intent to deceive).
As to the information the Bank received regarding Debtor’s finances, the record does not support a finding of recklessness or actual intent to deceive. While Debtor did not offer to present a current and complete financial statement, neither did the Bank request one. The Bank was content with the limited information it received about Debtor’s financial picture. Debtor’s failure to provide more relevant and accurate information cannot be interpreted as an intent to deceive in these circumstances. Based on the entire record, the Court concludes the Bank has *889failed to prove Debtor had the requisite intent to deceive under § 523(a)(2)(B)(iv).
THE SUBSEQUENT LOANS
Debtor testified that he ran into problems with the Williamsburg project in the spring of 2000. The Bank loaned an additional $35,500 to Debtor on February 15, 2000 for operating costs. Again, Slater did not require Debtor to submit a financial statement. He continued to rely on the previous incomplete and out-of-date financial documents along with a Cash Flow Statement for 1999. Under all the circumstances of this case, such reliance is unreasonable under § 523(a)(2)(B). This Court must conclude that the debt arising from the loans made February 15, 2000 is also dischargeable.
CONCLUSION
This Court concludes that § 523(a)(2)(A) does not apply to this case since the allegations relate solely to financial documents. The conduct alleged lies solely within the purview of § 523(a)(2)(B). In examining this record in its entirety, it is the conclusion of this Court that the Bank has not established by a preponderance of evidence each and every element required to be proven under 11 U.S.C. § 523(a)(2)(B) when applied to both the November 15, 1999 and February 15, 2000 loans. Accordingly, the Bank’s complaint requesting that Debtor’s loans be excepted from discharge under § 523(a)(2)(B) must be denied.
WHEREFORE, 11 U.S.C. § 523(a)(2)(A) is not applicable in these circumstances.
FURTHER, the Bank has failed to prove all the elements of § 523(a)(2)(B).
FURTHER, for all the reasons set forth herein, Plaintiff Fairfax State Savings Bank’s complaint to determine discharge-ability of debt under 11 U.S.C. § 523(a) is DENIED.
FURTHER, Debtor’s obligations to Fairfax State Savings Bank are DISCHARGED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493479/ | ORDER RE: COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT
PAUL J. KILBURG, Chief Judge.
The above-captioned matter came on for trial on July 30, 2002 on Plaintiffs’ Complaint Objecting to Discharge. Plaintiff Zio Johnos, Inc. was represented by attorney Renee Hanrahan. Debtor/Defendant Ramon K. Ziadeh, d/b/a R.L.Z. Construction, was represented by attorney Michael Mollman. After presentation of evidence and arguments of counsel, the Court took the matter under advisement. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
STATEMENT OF THE CASE
Plaintiff Zio Johnos Inc. filed its complaint to determine dischargeability on August 13, 2001. Plaintiff seeks to except a debt from discharge under § 523(a)(2)(A) for fraud or false representations, § 523(a)(4) for fraud in a fiduciary capacity, or § 523(a)(6) for willful and malicious injury by the debtor to another entity.
Plaintiff’s claim arises out of a default judgment entered in favor of Plaintiff and against DefendanUDebtor in the Iowa District Court for Johnson County in the amount of $18,760.85 in actual damages. The petition, amended petition, and motion for summary judgment were premised on Debtor’s breach of contract, fraudulent misrepresentations, and conversion. The Iowa District Court granted Plaintiff summary judgment on November 1, 2000. Judgment was entered December 1, 2000.
FINDINGS OF FACT
In early 2000, Zio Johnos planned to open a restaurant in Iowa City, Iowa. Elie Khairallah, Vice President of Zio Johnos, Inc., needed a general contractor to remodel the property. Mr. Khairallah entered into a series of negotiations with Debtor in which Debtor represented that he was a knowledgeable and experienced general contractor. Debtor further represented that he was licensed, insured, and bonded. These negotiations resulted in a written contract for remodeling work. The contract provided that Debtor act as General Contractor for the project. This position made Debtor responsible for all aspects of the job, including the hiring and payment of subcontractors. The parties dispute whether the contract obligated Debtor to pay the plumbing costs owed to A’Hearn Plumbing & Heating.
Debtor informed Mr. Khairallah that he needed $26,000 up front to cover the cost of the materials for the job. Debtor told Mr. Khairallah that the money paid by Mr. Khairallah would be administered through a separate checking account and would only be used for the Zio Johnos project. Debtor did open a business checking account at Bank Iowa with the initial funds from the Zio Johnos project.
In addition to the initial payment of $26,000, the agreement between the parties stipulated that Zio Johnos would pay Debtor an additional $3,000 per week when the job began. These periodic payments were to cover labor and materials supplied *897by both Debtor and the subcontractors. Throughout the duration of the Zio Johnos project, Debtor apparently had no other construction projects nor any other source of income.
Mr. Khairallah testified that in March of 2000, Debtor told him that he needed $30,000 to pay A’Hearn and other workers. Mr. Khairallah gave Debtor the $30,000 which was deposited into the Zio Johnos project checking account. Several days later, Debtor informed Mr. Khairallah that everyone had been paid. Debtor made similar assurances to Mr. Khairallah prior to the April 28, May 16, and May 31, 2000 progress payments.
The record establishes that Debtor misappropriated funds earmarked for the Zio Johnos project. The bank statement and copies of checks written after the $30,000 deposit show that Debtor used funds to make non-business expenditures. These expenditures included:
Investment in stock market $ 5,100.00
Bedroom furniture 1,073.98
Bedding 460.69
House and Auto Insurance 745.00
Central City Athletic Club 10.00
Lawn care 85.05
Utilities 593.54
House Payment 1,000.00
Veterinary Services 139.41
Meals/Groceries/Handimart 296.07
Miscellaneous 254.56
Kirklands 109.94
Haircuts 55.00
Toy Store ' 144.76
Paintball Gun 258.20
Wal-Mart 894.61
Credit Card Companies 860.18
$12,080.99
The evidence suggests, however, that Debtor did pay some of the subcontractors. From the $30,000 payment, Debtor made payments to Elie Shaheen, McCallum’s Electrical Services, Cedar Rapids Tile & Marble, and Menards. Debtor did not, however, make payments to A’Hearn Plumbing, A.P.C. Emmert, Kelly Heating and Air Conditioning, or Yates & Yates. All of these unpaid subcontractors, except for Kelly Heating and Air Conditioning, subsequently filed mechanic’s hens on the building being remodeled. These liens caused Plaintiff to be in violation of its lease agreement. In order to remove these liens Plaintiff was forced to pay these subcontractors a total of $18,760.85.
Plaintiff seeks to have the entire amount of the judgment issued by the Iowa District Court excepted from discharge. Debtor’s brief asserts that only the funds used for personal expenditures should be excepted from discharge since Debtor used a portion of the funds towards the project.
§ 523(a)(2)(A)
Plaintiff asks for a finding that this debt is nondischargeable pursuant to § 523(a)(2)(A). This section provides in pertinent part:
(a) A discharge under section 727 ... does not discharge an individual debtor from any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by- — •
(A) false pretenses, a false representation, or actual fraud, other than a *898statement respecting the debtor’s or an insider’s financial condition.
11 U.S.C. § 523(a)(2)(A) (2002).
Plaintiff must prove the elements of its claim under § 523(a) by a preponderance of evidence. Grogan v. Garner, 498 U.S. 279, 285, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Exceptions to discharge must be “narrowly construed against the creditor and liberally against the debtor, thus effectuating the fresh start policy of the Code. These considerations, however, ‘are applicable only to honest debtors.’ ” In re Van Horne, 823 F.2d 1285, 1287 (8th Cir. 1987).
In the Eighth Circuit, a creditor proceeding under § 523(a)(2)(A) must prove the following elements: (1) the debt- or made representations; (2) at the time made, the debtor knew them to be false; (3) the representations were made with the intention and purpose of deceiving the creditor; (4) the creditor justifiably relied on the representations; and, (5) the creditor sustained the alleged injury as a proximate result of the representations having been made. In re Ophaug, 827 F.2d 340, 342 n. 1 (8th Cir.1987), as modified by Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995) (holding that “§ 523(a)(2)(A) requires justifiable, but not reasonable, reliance”).
Plaintiff has satisfied the first three elements of § 523(a)(2)(A). The Court finds that Debtor knowingly made false representations, intending that Plaintiff rely on them. Debtor told Mr. Khairallah that the $30,000 progress payment would be used to pay subcontractors. Although Debtor paid several subcontractors, the evidence demonstrates that Debtor used a substantial portion of these funds on personal expenditures. Moreover, Debtor repeatedly reassured Mr. Khairallah that everyone involved with the project had been paid. These acts demonstrate Debtor’s intent to deceive Plaintiff and induce it to rely on the misrepresentations.
The fourth element is satisfied. Plaintiff justifiably relied on Debtor when making these progress payments. Debtor held himself out as being a knowledgeable and experienced general contractor who had previously performed this type of work. Plaintiff had no way of knowing that Debt- or would not follow through with his contractual obligation to pay the subcontractors.
The final element under § 523(a)(2)(A) is also proven. Debtor’s fraud is the proximate cause of Plaintiffs damages. Had Debtor not fraudulently represented to Mr. Khairallah that he would perform as a general contractor and would pay subcontractors accordingly, Plaintiff would not have advanced him the money for labor and materials. Therefore, Plaintiff has proven all of the necessary elements under § 523(a)(2)(A) to except its claim from discharge.
§ 523(a)(4)
The Bankruptcy Code provides that an individual debtor in a Chapter 7 case is not discharged from any debt “for fraud or defalcation while acting in a fiduciary capacity....” 11 U.S.C. § 523(a)(4). To prevent the discharge of debt under § 523(a)(4), it is incumbent upon Plaintiff to establish the following two elements: (1) that a fiduciary relationship existed between Debtor and Plaintiff; and (2) that Debtor committed fraud or defalcation in the course of that fiduciary relationship. See In re Montgomery, 236 B.R. 914, 922 (Bankr.D.N.D.1999).
With regard to the first element, whether a relationship is a fiduciary relationship within the meaning of section 523(a)(4) is a question of federal law. In re Cochrane, 124 F.3d 978, 984 (8th Cir. *8991997), cert. denied, 522 U.S. 1112, 118 S.Ct. 1044, 140 L.Edüd 109 (1998). The fiduciary relationship must be one arising from an express or technical trust. In re Long, 774 F.2d 875, 878 (8th Cir.1985). Merely labeling a relationship a “trust” is insufficient to create fiduciary capacity under the bankruptcy code. In re Herndon, 277 B.R. 765, 769 (Bankr.E.D.Ark.2002). With reference to § 523(a)(4), the Eighth Circuit Court of Appeals has stated that “[i]t is the substance of a transaction, rather than the labels assigned by the parties, which determines whether there is a fiduciary relationship.” Long, 774 F.2d at 878-79. A mere contractual relationship is less than what is required to establish the existence of a fiduciary relationship. Werner v. Hofmann, 5 F.3d 1170, 1172 (8th Cir.1993).
Bankruptcy courts regularly look to state law to determine whether a fiduciary capacity exists. In re Long, 774 F.2d 875, 878 (8th Cir.1985); In re Kondara, 194 B.R. 202, 208 (Bankr.N.D.Iowa 1996). “The ‘technical’ or ‘express’ trust requirement is not limited to trusts that arise by virtue of a formal trust agreement, but includes relationships in which trust-type obligations are imposed pursuant to statute or common law.” In re Cook, 263 B.R. 249, 255 (Bankr.N.D.Iowa 2001). State law is therefore important in determining whether a party has acted in a fiduciary capacity. Id.
Under Iowa law, a trust has been defined as “a fiduciary relation with respect to property, subjecting the person by whom the property is.held to equitable duties to deal with the property for the benefit of another person, which arises as the result of a manifestation of intention to create it.” State v. Caslavka, 531 N.W.2d 102, 105 (Iowa 1995). This definition of trust imposes a requirement that there be “some objective manifestation of an intention to create the relationship as defined in the quoted definition.” Id. A fiduciary relationship cannot be assumed without an objective manifestation of intent to create it. Id. One indicia of a trust relationship is the requirement of a separate bank account for the receipt and holding of trust funds. In re Pehkonen, 15 B.R. 577, 581 (Bankr.N.D.Iowa 1981).
In State v. Galbreath, 525 N.W.2d 424 (Iowa 1994), the plaintiffs entered into a construction contract with a roofing contractor in which the plaintiffs were required to tender a down payment for materials. The contractor did not perform the work and did not return the down payment. The State charged Galbreath with a violation of Iowa Code § 714.1(2) (1991), which provides, in pertinent part, that a person commits theft when the person [mjisappropriates property which the person has in trust, or property of another which the person has in the person’s possession or control ... by using or disposing of it in a manner which is inconsistent with or a denial of the trust or of the owner’s rights in such property.... Id. at 426.
The court in Galbreath stated “that in the' context of an ordinary construction contract, cash advanced as a down payment will not qualify as ‘property of another’ because title and possession are transferred from the owner to the contractor— not in trust — but outright.” Id. at 427. Furthermore, Galbreath rejected the conclusion of a Washington appellate court in State v. Joy, 121 Wash.2d 333, 851 P.2d 654, 659 (1993), that, if a contract suggests that funds tendered by a buyer will be used to purchase specifically described materials, it is a breach of a trust to use the funds for other purposes. Galbreath, 525 N.W.2d at 426. The court concluded that “while perhaps satisfying, [the outcome in Joy] can only be reached through a legal *900fiction of converting an unconditional transfer to a transfer in trust.” Id.
In the instant case, Plaintiff cannot point to an express written agreement or an Iowa statute that establishes a fiduciary relationship. The proposals submitted by Debtor did not impose an express or technical trust. The proposals did not require Debtor to use these funds to pay subcontractors. Moreover, the evidence presented does not indicate that Debtor was required to open a separate business checking account. Finally, Debtor’s mere assertions that he would use the funds provided by Plaintiff for materials and supplies does not suffice to create a fiduciary relationship. Because Plaintiff cannot show the existence of an express or technical trust, this Court concludes that the relationship between Debtor and Plaintiff was merely contractual. Accordingly, § 528(a)(4) does not prevent discharge of Debtor’s debt.
§ 523(a)(6)
Section 523(a)(6) provides that debts for “willful and malicious injury by the debtor to another entity” can be excepted from discharge. 11 U.S.C. § 523(a)(6). “[N]ondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). A willful and malicious conversion is an “injury” under § 523(a)(6). In re Ewing, No. 92-11343LC, Adv. No. 92-1231LC, slip op. at 6 (Bankr.N.D.Iowa Nov. 3, 1993); In re Holtz, 62 B.R. 782, 785 (Bankr.N.D.Iowa 1986).
In his post trial brief, Debtor acknowledges that he converted Plaintiffs funds to his personal use and he had no right to do so. He agrees the Court should enter judgment under a conversion theory. As such, the elements of § 523(a)(6) are deemed proven and the debt is nondischargeable as arising from willful and malicious conversion. Debtor makes this admission to the extent of $10,145.83 in damages. Plaintiff asserts the entire amount of the state court judgment, $18,760.85, should be excepted from discharge.
DAMAGES
Ordinarily, in a dischargeability proceeding, a state court judgment is res judicata as to the validity and amount of the debt. In re Mason, 175 B.R. 299, 303 (Bankr.W.D.Mo.1994). This holds true even when the judgment was entered by default. In re Sullivan, 122 B.R. 720, 723 (Bankr.D.Minn.1991). The bankruptcy court’s job in a nondischargeability case is to determine the dischargeability of a debt. In re Hauser, 72 B.R. 165, 167 (Bankr. D.Minn.1985).
The court in In re Kemp, 234 B.R. 461, 466 (Bankr.W.D.Mo.1999), aff'd in part and rev’d in part on other grounds, 242 B.R. 178 (8th Cir. BAP 1999), stated that “this Court cannot ignore the state court’s judgment. To do so would not only violate the principles of res judicata, but quite possibly the Rooker-Feldman doctrine, which precludes a federal court from engaging in impermissible appellate review of state court decisions.” In In re Goetzman, 91 F.3d 1173, 1177 (8th Cir.1996), the court held that
an examination of the [debtors’] respective claims leads to the conclusion that the federal claims are inextricably intertwined with the state court decision. The heart of the state court proceedings was a determination of the amount [debtors] owed to [plaintiff]. The [debtors] themselves brought the declaratory judgment action to determine the amount owed under the mortgage.... *901This attempted relief is exactly what is barred by the Rooker Feldman doctrine.
See also, In re Ferren, 227 B.R. 279, 288 (8th Cir. BAP 1998); In re Hatcher, 218 B.R. 441, 447-48 (8th Cir. BAP 1998).
In this case, however, only a portion of the state court judgment may be attributable to conduct which underlies the nondischargeable debt. The evidence presented does not indicate which portion of Plaintiffs state court judgment is based on breach of contract, fraudulent misrepresentation, or conversion. Somewhat analogous facts occurred in In re Cornner, 191 B.R. 199, 206 (Bankr.N.D.Ala.1995). In Comner, the court found that a judgment previously entered against the debtor in a state court fraud action was not res judicata as to the amount of debt to be excepted from discharge. Id. The state court judgment was based on two separate transactions between debtor and the judgment creditor, only one of which triggered a statutory exception to discharge. Id. Additionally, the plaintiff failed to establish which portion of the judgment was based on breach of contract and which was based on fraud. Id.
Similarly, the state court judgment here is not res judicata as to the amount of the debt to be excepted from discharge. The amount of the state court judgment which is nondischargeable must be determined. The damages award for the breach of contract claim are dischargeable. The issue is the appropriate amount of damages to apportion to the fraudulent misrepresentation and conversion claims. The appropriate amount of damages can be gleaned from the bank statement and the checks written by Debtor. Debtor misappropriated $12,080.99 of Plaintiffs funds for non-business expenditures. As such, this Court concludes that $12,080.99 of the debt is nondischargeable.
WHEREFORE, Plaintiff Zio Johnos’ complaint to except debt from discharge under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(6) is GRANTED.
FURTHER, Plaintiffs claim to except debt from discharge under 11 U.S.C. § 523(a)(4) is DENIED.
FURTHER, the amount of Plaintiffs Iowa District Court judgment that is nondischargeable is $12,080.99, plus interest.
FURTHER, judgment shall be entered accordingly in favor of Plaintiff Zio Johnos, Inc. and against DefendanVDebtor Ramon K. Ziadeh. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493480/ | ORDER RE COMPLAINT TO DETERMINE DISCHARGEABILITY
PAUL J. KILBURG, Chief Judge.
This matter came before the undersigned for trial on September 4, 2002. Plaintiff Citibank South Dakota/Universal, N.A. was represented by attorney Mark Reed. Debtor/Defendant Glenda Leinen, formerly known as Glenda Meseck, was represented by attorney Brian Peters. After the presentation of evidence and argument, the Court took the matter under advisement. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
STATEMENT OF THE CASE
Citibank holds a claim against Debtor for credit card debt. It seeks to except its claim from discharge for fraud pursuant to 11 U.S.C. 523(a)(2)(A). Debtor denies she had the intent to defraud when she incurred the credit card charges.
*904FINDINGS OF FACT
The relationship between Citibank and Debtor began in the Fall of 2000 when Debtor received unsolicited offers to open credit card accounts. Citibank is a creditor based upon credit card accounts 5424-1804-3785^1323 (“Account No. 1”) and 5424-1803-1956-2416 (“Account No. 2”).
Ms. Lacy Carroll, an account specialist, testified for Citibank. Citibank engages in a pre-screening process for potential account holders through a third-party. This third-party source contacts credit bureaus and compiles lists of potential customers for Citibank. Citibank then sends the qualified customers unsolicited offers to open credit card accounts. Ms. Carroll testified that Citibank contacts the credit bureaus again after the application has been received to see if the customer is still in good standing. Citibank re-evaluates the customer’s standing with the credit bureaus on a monthly basis.
Debtor was employed as a full-time plant laborer at Farmland Foods, Inc. in Dennison, Iowa earning $11.40 per hour. She worked at this plant for 13 years before voluntarily terminating her employment on June 16, 2000. She moved to Dubuque, Iowa to get away from her abusive ex-husband.
Farmland Foods, Inc. operated a plant in Dubuque, Iowa which closed shortly before Debtor’s relocation. Debtor felt that as an experienced laborer she would not have a problem getting a job at this plant when it reopened. She testified that she was under the impression that the Dubuque plant would reopen in the near future.
Debtor remained unemployed until the middle of August 2000. A property settlement from Debtor’s divorce proceedings provided her with support while she was between jobs. As part of the divorce settlement Debtor received a 401(k) distribution on March 21, 2000 and a retirement distribution in July of 2000 from Farmland Foods, Inc. These distributions totaled $43,922.96. Debtor testified that she paid approximately $25,000 toward outstanding credit card debt. The $25,000 payment, however, was not sufficient to completely satisfy all of Debtor’s outstanding credit card obligations. Debtor cured a deficiency on an automobile loan in the amount of $2,000 and cured a deficiency on her home for real estate taxes in the amount of $10,000. She stated that she spent the remainder of her retirement distribution on a wedding for her daughter which cost approximately $9,500. By August 2000, these funds were exhausted.
Debtor resumed employment in the middle of August, 2000 in a part-time position at a Pizza Hut earning $5.40 per hour. Her hourly wage was subsequently increased to $6.75 per hour after she informed her employer that she was having financial difficulties. Schedule I shows Debtor’s pre-petition net monthly income from Pizza Hut as $859. Schedule J shows Debtor’s pre-petition monthly expenses as $1,245. These monthly expenses do not take into account Debtor’s credit card obligations which total $643.14 per month.
Debtor opened Account No. 2 in November, 2000. According to Ms. Carroll’s testimony, Debtor was able to open Account No. 2 because Debtor was in good standing with the credit bureau. This account had a credit limit of $4,000. Debtor used a convenience check in the amount of $3,800 on November 13, 2000. She testified that the $3,800 convenience check was used to pay medical bills, fill the propane tank, pay OWI charges, purchase a wood stove, and pay November, December, and January’s rent. Debtor testified that she wanted to pay rent in advance so that she would not have to worry about this obligation.
*905On November 22, 2000, Debtor made cash advances which totaled $150. These expenditures along with subsequent finance charges left Debtor with a $3998.25 balance on the account as of December 8, 2000. Late fees, additional finance charges, and a final cash advance of $40.00 on February 8, 2001 caused the account balance to exceed the credit limit; On January 8, 2001, Debtor was credited with an $83.00 payment on Account No. 2. No other payments were made on this account. At the time Citibank filed its complaint, the balance due and owing on Account No. 2 was $4,248.23.
Debtor opened Account No. 1 in December of 2000. According to Ms. Carroll’s testimony, it is standard practice for Citibank to issue multiple accounts to customers. Ms Carroll testified that Debtor had remained in good standing with the credit bureau prior to Citibank issuing Account No. 1. Ms. Carroll stated that the $3,800 balance transfer made by Debtor on Account No. 2 did not raise any “red flags” since these types on transfers were common in the credit card industry. Moreover, the numerous charges made by Debt- or on Account No. 2 were not unusual given the time of year.
Debtor testified that she opened this account because she thought “it would help her get some things before she got on at Farmland Foods, Inc.” Debtor made twenty (20) purchases on Account No. 1 between December 19, 2000 and January 3, 2001 which totaled $1,683.56. She testified that a majority of these expenditures were for Christmas presents. On January 4, 2001, Debtor used a convenience check to draw $800 against Account No. 1 for dental bills. These expenditures along with subsequent finance charges left Debtor with a $2394.95 balance on the account as of January 12, 2001. This account had a credit limit of $2,500.
Debtor made two (2) more purchases on January 14, 2001 and January 22, 2001 which totaled $79.90. Debtor further took a cash advance of $30.00 against Account No. 1 on February 8, 2001. These expenditures and subsequent late fees caused the account balance to exceed the credit limit. Debtor has not made any payments on this account. At the time Citibank filed it’s complaint, the balance due and owing on Account No. 1 was $2,663.18.
The record shows that Debtor had accepted other offers for credit cards and exceeded the credit limits on those accounts around the time she entered into the agreements with Citibank. Debtor’s AT & T Universal credit card account was opened in November of 2000. Debtor made expenditures totaling $3,479.98 from November 11, 2000 to November 20, 2000 on that account. Debtor testified that a majority of these expenditures were related to Christmas presents. Debtor stated that she had a big family and that it was not unusual for her to spend this amount on Christmas presents. The credit limit on this account was $5,000. As of November 20, 2000, Debtor’s AT & T account balance was $4,001.24. From November 22, 2000 to December 12, 2000 Debtor purchased additional Christmas presents and a birth stone for her daughter. These expenditures caused Debtor’s balance with AT & T to increase to $4,952.76.
Moreover, the account statement from Associates National Bank shows that Debtor had a balance of $2,147.57 as of November 2, 2000. The credit limit on this account was $2,000. Debtor had an outstanding balance of $2,548.12 on her account with Bank of America as of November 7, 2000. The credit limit on this account was $2,500. On December 8, 2000 Debtor went over her credit limit on one of her two Capital One accounts. Debtor had an outstanding balance of $9,504.60 on a *906Household Finance Corporation account as of November 11, 2000.
Debtor’s total outstanding debt as of October 2000 was approximately $4,700. By the end of November, Debtor’s debt load approximated $18,201.53. Debtor testified that she believed she would be able to cover the minimum payments on this debt as soon as she began working at Farmland Foods, Inc. In the middle of February Debtor realized she would not be able to make these payments. As such, Debtor first met with bankruptcy counsel near the end of February 2001 and filed her Chapter 7 petition on March 21, 2001.
CONCLUSIONS OF LAW
Citibank asserts its claim is nondischargeable under § 523(a)(2)(A). Section 523(a)(2)(A) excepts a debt from discharge if it is obtained by “false pretenses, a false representation, or actual fraud.” Five elements must be satisfied before a debt will be excepted from discharge under § 523(a)(2)(A). The elements are: (1) the debtor made false representations; (2) the debtor knew the representations were false at the time they were made; (3) the debtor made the representations with the intention and purpose of deceiving the creditor; (4) the creditor justifiably relied on the representations, Field v. Mans, 516 U.S. 59, 72, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995); and (5) the creditor sustained the alleged injury as a proximate result of the representations having been made. In re Van Horne, 823 F.2d 1285, 1287 (8th Cir. 1987).
Exceptions to discharge are to be narrowly construed against the objecting creditor and liberally viewed in favor of the debtor. In re Miller, 228 B.R. 237, 240 (Bankr.W.D.Mo.1998). Most credit card cases turn on whether the debtor misrepresented the intent to repay and whether the creditor justifiably relied on that representation. In re Ellingsworth, 212 B.R. 326, 332-33 (Bankr.W.D.Mo. 1997). Universal Bank must prove the elements of § 523(a)(2)(A) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 290, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
INTENT TO REPAY
Bankruptcy law provides that the use of a credit card constitutes an implied representation to the card issuer that the cardholder has the intention to pay the charges incurred. In re Weiss, 139 B.R. 928, 929 (Bankr.D.S.D.1992). Once the law implies this representation, the first three elements of the § 523(a)(2)(A) test interlock. In re Walker, Adv. No. 98-9117 W, slip op. at 4 (Bankr.N.D.Iowa Dec. 15, 1999). In credit card debt, the first three elements of nondischargeability for fraud are met by showing that the debtor did not have the intent to repay the charges incurred. In re McVicker, 234 B.R. 732, 737 (Bankr.E.D.Ark.1999).
“Because direct proof of intent (i.e., the debtor’s state of mind) is nearly impossible to obtain, the creditor may present evidence of the surrounding circumstances from which intent may be inferred.” In re Moen, 238 B.R. 785, 790 (8th Cir. BAP 1999). Some of the circumstances courts consider to determine intent include: (1) the length of time between the charges and the bankruptcy filing; (2) whether the debtor consulted an attorney about filing bankruptcy before the debtor made the charges; (3) the number of the charges made; (4) the amount of the charges; (5) the financial condition of the debtor at the time of the charges; (6) whether the charges exceed the limit on the account; (7) whether the debtor made multiple charges on one day; (8) whether the debtor was employed; (9) what the debtor’s prospects were for employment; *907(10) the debtor’s financial sophistication; (11) whether there was a sudden change in the debtor’s buying habits; and (12) whether the debtor purchased luxuries or necessities. In re Pickett, 234 B.R. 748, 755 (Bankr.W.D.Mo.1999). The factors enumerated are nonexclusive; none is dis-positive, nor must a debtor’s conduct satisfy a certain number in order to prove fraudulent intent. In re Grause, 245 B.R. 95, 101-02 (8th Cir. BAP 2000). Instead, the creditor must show that on balance, the evidence supports a finding of fraudulent intent. Id. at 102.
A number of these factors are present in this case and convince this Court that Debtor did not have the intent or ability to repay Citibank. Debtor was unable to secure a job at the Farmland Foods Dubuque plant. Debtor testified that she was under the impression that the Dubuque plant was scheduled to reopen in the near future and that the plant would be in need of someone with her experience. In mid August of 2000, Debtor found replacement work of less than 40 hours per week at Pizza Hut. Debtor went from making $11.40 per hour at the Dennison plant to making $6.75 per hour.
Debtor incurred the charges to Account No. 1 and Account No. 2 at the time she was employed at Pizza Hut. She incurred nearly $20,000 in total credit card debt between November of 2000 and January of 2001. Of that amount she incurred $6,911.13 of debt on her Citibank accounts. Debtor’s pre-petition net monthly income from Pizza Hut totaled $859, while her pre-petition monthly expenses totaled $1,245. These monthly expenses are underestimated in that they do not take into account Debtor’s credit card obligations. Debtor could not rely on the proceeds from her 401 (k) distribution and her retirement distribution because those proceeds had been exhausted as of August 2000.
It is the opinion of this Court, that Debt- or’s prospects for immediate employment at the Dubuque plant were less than assured at the time she moved to Dubuque. The fact that Debtor sought other employment is evidence of her uncertainty as to when the Dubuque plant would officially reopen. It is evident that Debtor incurred credit card charges at a time when she was in dire financial condition. Debtor’s testimony further supports this notion. She testified that she sought a raise from Pizza Hut because she was having financial difficulties. Based on the evidence presented, this Court must conclude that Debtor’s employment prospects and financial condition support the conclusion that she did not have the intent to repay.
Moreover, the record indicates that Debtor accrued more than $20,000 in total credit card charges over a period of less than five months immediately before her bankruptcy filing. Debtor exceeded the credit limit on several of her accounts, and multiple charges were made on a number of days. Debtor spent several thousand dollars on Christmas presents and prepaid her December and January rent. Although Debtor testified that she has a large family and usually spent this much on Christmas presents, these expenditures suggest Debtor deliberately “loaded up” in contemplation of bankruptcy. This Court finds that such expenditures were exorbitant given the state of Debtor’s affairs.
Finally, Debtor was credited with an $83 payment on Account No. 2. No other payments were made on Account No. 1 or Account No. 2. Debtor testified that she believed she would be able to cover the minimum payments on this debt as soon as she began working at Farmland Foods, Inc. A mere profession of intent to repay, however, is not sufficient if Debtor is not *908credible as to her intent. In re Pickett, 234 B.R. 748, 756 (Bankr.W.D.Mo.1999).
When all factors are considered, this Court is convinced that Debtor did not have the intent or ability to repay the debts she was incurring with Citibank. Thus, the first three elements of § 523(a)(2)(A) are satisfied by a preponderance of the evidence.
JUSTIFIABLE RELIANCE
The Supreme Court in Field v. Mans, 516 U.S. 59, 72, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995), held that § 523(a)(2)(A) requires justifiable reliance. The Court notes: “Justification is a matter of the qualities and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than the application of a community standard of conduct to all cases.” Id. at 70, 116 S.Ct. 437. In In re Feld, 203 B.R. 360, 370 (Bankr. E.D.Pa.1996), the court considered justifiable reliance in the credit card context. The court concluded that the Supreme Court in Field implicitly accepts as justifiable the extension of credit where the card use does not send up any red flags. Id. Thus, following an initial credit check that uncovers no problems, if a cardholder’s use is consistent with past use, and the cardholder is paying the minimum charge and staying within credit limits, reliance on the cardholder’s implied representation of intent to repay will generally be justifiable. Id.
Citibank receives lists of potential customers from a third party source. Citibank conducts the initial credit check to see if the potential customer meets Citibank’s qualifications. Citibank then sends a unsolicited offer for credit to these potential customers. The record shows that a cursory look at Debtor’s financial situation around the time of the credit applications would not have alerted Citibank to her increasingly dire financial condition.
According to Ms. Carroll, there were no grounds for concern about Debtor’s ability and intent to repay. Not only had Debtor stated her annual income as $25,000 on the credit card applications, but Debtor remained in good standing on her credit report prior to the issuance of either account. Ms. Carroll testified that the activity on Account No. 2 would not have raised any “red flags.” She stated that the $3,800 balance transfer made on Account No. 2 was a common occurrence in the credit card industry and the numerous charges were not unusual given the time of year.
According to its witness, Citibank typically checks or reviews a borrower’s credit bureau scores every month while the account is open. In this instance, Debtor exceeded her credit limit in a matter of weeks. Under these circumstances, Citibank had no indication that representations made by Debtor were false or misleading and the creditor had no warning it had been deceived so that it could have made an investigation to determine the true facts.
Based on the foregoing, the Court believes that Citibank justifiably relied to its detriment on Debtor’s representations when it extended the credit at issue. As such, this Court concludes that Citibank has met all the requirements of § 523(a)(2)(A).
CONCLUSION
When the Debtor used her charge accounts during the relevant period, she represented an intention to repay Citibank. Debtor knew the representation was false when she made it. Debtor’s purpose in making the representation was to induce Citibank to extend credit when she had no intention of repaying that obligation. Citi*909bank justifiably relied to its detriment in the sums of $2,663.18 charged to Account No. 1 and $4,248.23 charged to Account No. 2. Therefore, a total of $6,911.41 owed by Debtor to Citibank is excepted from discharge.
WHEREFORE, Plaintiff Citibank’s complaint to determine dischargeability pursuant to § 523(a)(2)(A) is GRANTED.
FURTHER, Citibank has proven that Debtor intended to defraud and that it justifiably relied on misrepresentations under § 523(a)(2)(A).
FURTHER, judgment is entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493481/ | OPINION
BLUEBOND, Bankruptcy Judge.
After obtaining an order from the bankruptcy court that established a procedure for the treatment of reclamation claims in its chapter 112 case, the debtor (appellant MicroAge, Inc.) entered into negotiations and eventually a stipulated settlement with a vendor (appellee ViewSonic Corporation) who had made a timely reclamation demand for goods that it asserted were worth $947,886.16. The order approving that settlement granted ViewSonic an “allowed reclamation administrative priority claim” for $574,024.90.
When MicroAge failed to pay Viewsonic’s allowed administrative claim in a timely manner under its confirmed chapter 11 plan of reorganization, ViewSonic brought a motion to compel payment of the claim. MicroAge responded by filing (1) an adversary complaint against ViewSonic for avoidance of $2,329,700.56 in allegedly preferential transfers and (2) an opposition to Viewsonic’s motion to compel in which MicroAge attempted to rely on 11 U.S.C. § 502(d).
The bankruptcy court held that § 502(d) cannot be used to bar payment of an administrative claim and ordered payment of Viewsonic’s claim. MicroAge filed a timely appeal of this order.
For the reasons discussed below, we disagree with the bankruptcy court’s conclusion that § 502(d) does not apply to administrative claims. However, because we agree that, on the facts of the instant case, § 502(d) is inapplicable, we nevertheless AFFIRM the bankruptcy court’s order compelling payment of Viewsonic’s allowed administrative claim.
I. FACTS
The relevant facts are not in dispute. On April 13, 2000, MicroAge, Inc., and certain of its subsidiaries and affiliates, including Pinacor, Inc. (collectively, “MicroAge”), filed voluntary chapter 11 petitions. Five days later, on April 18, 2000, ViewSonic Corporation (“ViewSonic”) *916served a reclamation demand for goods sold to MicroAge on credit that ViewSonic contends were worth $947,886.16.
On April 28, 2000, ViewSonic filed a “Complaint for: Reclamation of Goods; Turnover; Preliminary Injunction” against MicroAge. In its complaint, ViewSonic sought either the return of its reclaimed goods or an administrative priority claim for the value of the goods.
On the same date, MicroAge filed its “Motion for Order Denying Reclamation in Kind, Granting Administrative Claim in Lieu of Reclamation and for Approval of Procedure for Allowing Such Claims Pursuant to 11 U.S.C. § 546(c).” On May 17, 2000, ViewSonic filed a limited objection to MicroAge’s motion in which ViewSonic noted that MicroAge’s motion had misstated the time period for which goods may be reclaimed. ViewSonic did not otherwise oppose the relief requested by MicroAge’s April 28, 2000 motion.
On May 23, 2000, the bankruptcy court entered its “Order Approving Motion for Order Denying Reclamation in Kind, Granting Administrative [sic] and for Approval of Procedure for allowing Such Claims Pursuant to 11 U.S.C. § 546(c).” In this order, the bankruptcy court denied requests for reclamation in kind and created a procedure pursuant to which MicroAge and creditors who served timely written reclamation demands were to enter into negotiations in an effort to agree upon the amount of an administrative claim to be allowed to the creditor in lieu of its right to reclaim goods. In the event that the parties were able to agree upon the amount of the administrative claim to be allowed, the order provided that the stipulation could be approved by the bankruptcy court without further notice or opportunity for hearing if no party in interest objected to the terms thereof within a period of 10 days after service of a written stipulation outlining the proposed settlement.
On June 26, 2000, MicroAge filed an answer to Viewsonic’s complaint and settlement negotiations ensued, as contemplated by the bankruptcy court’s May 23, 2000 order. These negotiations eventually produced a settlement that was memorialized in a stipulation filed with the bankruptcy court on or about September 21, 2001 (the “Settlement Stipulation”). Pursuant to the Settlement Stipulation, View-sonic was to receive an “allowed reclamation administrative priority claim” for $574,024.90 and Viewsonic’s adversary complaint was to be dismissed with prejudice. On October 29, 2001, the bankruptcy court entered an order approving the Settlement Stipulation and dismissing View-sonic’s adversary complaint with prejudice.
In the interim, the bankruptcy court confirmed a chapter 11 plan under which MicroAge, Inc. and certain of its subsidiaries and affiliates were substantively consolidated. The plan required MicroAge to pay allowed administrative claims within 10 days after the effective date of the plan.
When MicroAge failed to pay Viewsonic’s allowed administrative claim in a timely manner, ViewSonic filed motions to compel MicroAge to pay this claim (the “Motion to Compel”) on March 22, 2002 and April 2, 20023.
MicroAge responded by filing, on April 12, 2002, an adversary complaint against ViewSonic to avoid and recover $2,329,700.56 in allegedly preferential transfers and, on April 26, 2002, an opposition to the Motion to Compel. In its opposition to the Motion to Compel, MicroAge argued that, by virtue of the provisions of 11 U.S.C. § 502(d), MicroAge should not *917be required to pay Viewsonic’s allowed administrative claim unless and until MicroAge’s preference claims against View-sonic had been fully and finally resolved and ViewSonic had returned the full amount of any transfers found to be preferential.
The bankruptcy court conducted a hearing on the Motion to Compel on April 30, 2002 and took the matter under submission. On May 9, 2002, the bankruptcy court issued its “Under Advisement Decision Re: ViewSonic Corporation’s Motion for Order Directing Payment of Administrative Claim” (the “Memorandum of Decision”). In its Memorandum of Decision, the bankruptcy court rejected MicroAge’s argument that § 502(d) applied and concluded that MicroAge should be required to pay Viewsonic’s allowed administrative claim. On May 20, 2002, MicroAge filed its Notice of Appeal. On May 30, 2002, the bankruptcy court entered an order consistent with the Memorandum of Decision directing MicroAge to pay Viewsonic’s allowed administrative claim.
II.ISSUE
Whether the bankruptcy court erred in granting Viewsonic’s motion to compel payment of Viewsonic’s administrative claim.
III.STANDARD OF REVIEW
Whether 11 U.S.C. § 502(d) applies to administrative priority claims generally and, if so, whether MicroAge may rely on this section to defeat payment of an allowed administrative claim on the undisputed facts of this case are conclusions of law reviewed de novo. See Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231, 1233 (9th Cir.2002) (statutory interpretation is a question of law subject to de novo review).
IV.DISCUSSION
A. The Bankruptcy Court’s Holding
Although it refused to permit MicroAge to rely on § 502(d) to defeat Viewsonic’s administrative claim, the bankruptcy court acknowledged that the “plain language” of the section seemed applicable: the administrative claim asserted by ViewSonic qualifies as a “claim” within the meaning of § 101(5) of the Bankruptcy Code; and ViewSonic is an “entity” that MicroAge contends is the transferee of a transfer that may be avoided under § 547 who has not yet returned the transfer. Notwithstanding the plain language of these sections, the bankruptcy court refused to permit MicroAge to rely on § 502(d) to defeat the Motion to Compel on the ground that such a “rigid reading of the statute does violence not only to the overall structure of sections 501 and 502, but also to section 546.” Memorandum of Decision, p. 2 at lines 9-12.4
Following the holdings of Judges Walrath and Walsh of the District of Delaware in In re Lids Corp., 260 B.R. 680 (Bankr. D.Del.2001) and Camelot Music, Inc. v. MHW Advertising and Public Relations, Inc. (In re CM Holdings, Inc.), 264 B.R. 141 (Bankr.D.Del.2000), the bankruptcy court concluded that sections 501 and 502 apply only to claims for which proofs of claim must be filed. Entirely separate procedures set forth in § 503 of the Bank*918ruptcy Code govern the treatment of requests for payment of expenses of administration. Therefore, with the exception of certain post-petition claims that § 502 expressly provides shall be allowed or disallowed as if they were prepetition claims,5 only prepetition claims are subject to the provisions of § 502.
The bankruptcy court also reasoned that the nature of Viewsonic’s administrative claim would make the application of § 502(d) even more problematic in the instant case. Because ViewSonic received an administrative claim “in exchange for the surrender of substantive reclamation rights under section 546” [.Memorandum of Decision, p. 3 at lines 1-2] that would not have been subject to § 502(d), permitting MicroAge to apply § 502(d) to defeat the payment of Viewsonic’s administrative claim would undermine the protections that the Bankruptcy Code attempted to afford to reclaiming creditors.
Lastly, the bankruptcy court noted that, because the return of an avoidable transfer would increase the amount of a creditor’s prepetition claim, it makes sense to require the return of that transfer before permitting a court to liquidate the allowed amount of the creditor’s prepetition claim. In the bankruptcy court’s view, this is the underlying purpose of § 502(d). As this rationale does not apply in the context of an administrative claim, which must be paid before any distributions are made on account of prepetition claims, there is no reason for § 502(d) to apply when the claim to be allowed or disallowed is an expense of administration.
As discussed in more detail below, there are a number of problems with the above analysis. Nevertheless, the bankruptcy court reached the right result on the facts of this case — namely, that MicroAge should not be permitted to rely upon § 502(d) to avoid having to pay Viewsonic’s allowed administrative claim. Accordingly, this result is affirmed on alternate grounds.
B. Can 11 U.S.C. § 502(d) Be Raised as a Defense to a Request for Payment of An Administrative Claim?
No court within the Ninth Circuit has published an opinion on this issue. However, a number of bankruptcy courts in other circuits have analyzed this issue under the Bankruptcy Act and/or the Bankruptcy Code and have reached inconsistent results. For the reasons discussed below, we believe that the better analysis is that § 502(d) may be raised in response to the allowance of an administrative claim.
1. Arguments Based on Statutory Construction
Nothing in the plain language of § 502(d) limits its application to prepetition claims. Section 502(d) by its terms applies to “any claim” of an entity that received an avoidable transfer, and the definition of a “claim” in § 101(5) is sufficiently broad to include requests for payment of expenses of administration.6 Further, there is no introductory language in § 502 that limits the application of the subsections that follow to claims for which *919proofs of claim must be filed or prepetition claims.
ViewSonic asserts that the term “claim” as used in § 502(d) should be read to exclude requests for payment of expenses of administration, but such a narrow construction of the term “claim” finds no support in the language of the Bankruptcy Code itself. To the contrary, various provisions of the Bankruptcy Code reveal that Congress viewed expenses of administration as merely one specialized type of claim. See, e.g., 11 U.S.C. § 346(e) (referring to a “claim allowed under section 502(f) or 503 of this title”), 11 U.S.C. § 348(d) (excluding from certain treatment outlined in the section “any claim allowable under section 503(b)”) and 11 U.S.C. § 365(n)(l)(B)(i) (referring to “any claim allowable under section 503(b) of this title”). Similar references appear in Bankruptcy Code §§ 546(b)(2)(A), 726(b), 726(c)(1) and (2), 1226(a)(1) and 1326(a)(2). Moreover, in numerous sections of the Bankruptcy Code, when Congress intended to exclude administrative claims from the application of a section, Congress explicitly did so. See, e.g., 11 U.S.C. § 348(d) (excepting claims allowable under § 503(b)), 11 U.S.C. § 752(a) (excepting claims of the kind specified in § 507(a)(1)), 11 U.S.C. § 1123(a)(1) (same) and 11 U.S.C. § 1326(b)(1) (same). The fact that Congress chose not to include similar language in § 502(d) suggests that Congress did not mean to exclude administrative claims from the application of this section.
2. Arguments Based on the Legislative History
The legislative history of the section lends further support to the conclusion that § 502(d) applies to administrative claims. Courts interpreting the precursor to § 502(d), § 57g of the Bankruptcy Act, had applied its provisions to administrative claims, and the adoption of § 502(d) was not intended as a departure from existing law. H.R.Rep. No. 95-595, at 354 (1977); S.Rep. No. 95-989, at 65 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6309-6310, 5787, 5851 (“Subsection (d) is derived from present law”). The normal rule of statutory construction is that, if Congress intends for legislation to change the interpretation of a judicially-created concept, it makes that intent specific. Midlantic Nat’l Bank v. New Jersey Dept. of Envtl. Protection, 474 U.S. 494, 501, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986). No changes of law or policy should be interpreted from changes of language in revision of a statute unless the intent to make a change is clearly expressed. Committee of Unsecured Creditors v. Commodity Credit Corp. (In re K.F. Dairies, Inc.), 143 B.R. 734, 736 (9th Cir. BAP 1992). As no such intent was expressed, § 502(d), like its predecessor § 57g, should be applied to administrative claims.
Section 57g provided that, “[t]he claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments or encumbrances, void or voidable under this title, shall not be allowed unless such creditors shall surrender such preferences, liens, conveyances, transfers, assignments or encumbrances.” Law of July 1, 1898, ch. 541, § 57g, 30 Stat. 560 as amended (repealed 1979). Although the term, “creditor,” is defined in the Bankruptcy Code in such a way as to exclude administrative claimants,7 the same was not true under the Bankruptcy *920Act. Under the Bankruptcy Act, the term, “creditors,” included holders of all types of claims of whatever character against the debtor or its property. See City of New York v. New York, N.H. & Hartford R. Co., 344 U.S. 293, 295-96, 73 S.Ct. 299, 97 L.Ed. 333 (1953); Gardner v. New Jersey, 329 U.S. 565, 572-73, 67 S.Ct. 467, 91 L.Ed. 504 (1947). Therefore, it is particularly significant that, when Congress drafted § 502(d), it made the section applicable not to claims of creditors, but to any claim of an entity,8 thereby preserving the breadth of the section’s application.
Therefore, of the various opinions that have been written on this issue, the ones that interpret § 502(d) in the same manner that courts had interpreted § 57g are the more persuasive. In Tidwell v. Atlanta Gas Light Co. (In re Georgia Steel, Inc.), 38 B.R. 829 (Bankr.M.D.Ga.1984), for example, a preference defendant sought to use an administrative claim as a setoff in an adversary proceeding to avoid a preferential transfer. The bankruptcy court refused to permit the setoff, on the ground that § 502(d) requires the recipient of a transfer that is avoidable under § 547 to return that transfer in its entirety before the transferee’s claim may be allowed. In so doing, the bankruptcy court in Georgia Steel noted that, “[t]he fact that Atlanta Gas’ claim is for an administrative expense has no bearing.” Georgia Steel, 38 B.R. at 839. As support for this conclusion, the bankruptcy court explained that, “[s]everal courts have addressed this issue under section 57g of the Bankruptcy Act” and have held that “even if a claim was for a priority administrative expense, section 57g precluded allowance of the claim until the repayment of preferential transfers.” Id. at 839-40 (citing, among other cases, Weber v. Mickelson (In re Colonial Services Co.), 480 F.2d 747 (8th Cir.1973) and Hudson Feather & Down Products, Inc. v. B & B Assocs., Inc. (In re Hudson Feather & Down Products, Inc.), 22 B.R. 247 (Bankr.E.D.N.Y.1982)).
In Colonial Services, the Eighth Circuit held that § 57g barred the allowance of an administrative claim for post-petition services until the claimant had returned a preferential transfer that he had received. According to the Eighth Circuit, “the plain, unequivocal language of the statute mandates surrender of a voided preference before a claim can be allowed, even if the claim is a priority claim.” Colonial Services, 480 F.2d at 749 (citations omitted).
In Hudson Feather, B & B Associates filed an administrative claim for $10,499.50 for commissions due under a sales agency agreement. The debtor responded by filing an objection and asserting a “counterclaim” for $16,000 based on B & B’s receipt of an allegedly preferential transfer. The claimant responded that § 57g should not apply to an administrative claim. The court in Hudson Feather rejected this argument and, following the reasoning of Colonial Services, held that § 57g applied to administrative as well as prepetition claims. See Hudson Feather, 22 B.R. at 252-53. See also Irving Trust Co. v. Frimitt, 1 F.Supp. 16 (S.D.N.Y.1932) (refusing to permit claimant to offset administrative claims against a fraudulent transfer because to do so would subvert § 57g, which requires transferees of avoidable transfers to surrender their transfers in full before their claims may be allowed); In re Bob Grissett Golf Shoppes, Inc., 50 B.R. 598, 607 (Bankr.E.D.Va.1985) (“The *921language of section 502(d) is mandatory.... [T]he Court must condition allowance of any claim for administrative rent upon the Landlord’s disgorging of the unauthorized and avoidable post-petition transfers.”).
Congress is presumed to have known at the time it drafted § 502(d) that courts had interpreted § 57g in such a way as to be applicable to administrative claims. In the absence of a clear expression from Congress that it intended to alter existing law in this area, § 502(d) should be given a similarly broad application under the Bankruptcy Code.
Judges Walrath and Walsh found evidence of a Congressional intent to exclude administrative claims from the application of § 502(d) by negative implication. In CM Holdings, Judge Walsh looked at portions of § 502 that require certain types of post-petition claims to be allowed under § 502(a), (b) or (c), or disallowed under § 502(d), as if they had arisen prepetition,9 and other instances in which the Bankruptcy Code explicitly excludes expenses of administration from treatment afforded to other types of claims, and found in these provisions a Congressional intent to treat post-petition claims differently from prepetition claims — even where the text of the Bankruptcy Code does not so specify.10 See CM Holdings, 264 B.R. at 157-58.
In In re Lids, Judge Walrath cited this reasoning with approval and restated the proposition more succinctly. According Judge Walrath, “Congress’ inclusion of five post-petition claims to which section 502(d) expressly applies (none of which are applicable here) demonstrates that section 502(d) does not apply” to other types of post-petition claims that are not specifically mentioned anywhere in § 502. Lids, 260 B.R. at 683-84. While the structure of these code sections does provide some evidence of Congressional intent, the evidence of such intent is, at best, ambiguous, and therefore is not sufficiently clear to overcome the presumption that Congress intended to leave existing law unchanged.
3. Arguments Based on The Policy Behind § 502(d)
The bankruptcy court in the instant case also reasoned that § 502(d) should not be applied to administrative claims because the policy that led to adoption of the section would not be served by its application in this context. According to Judge Case, it makes sense to apply § 502(d) to a prepetition claim because the return of an avoidable transfer affects the amount of the prepetition claim. As a result, it would be premature for the bankruptcy court to determine the amount of a prepetition claim until the avoidable transfer had been returned. When the claim to be allowed is an administrative claim, however, this reasoning does not apply. The return of an avoidable transfer does not affect the amount of an administrative claim. Therefore, according to Judge Case, there is no justification for the application of § 502(d) to an administrative claim.
*922However, ease and finality of calculation is not the only policy objective served by the operation of § 502(d). According to the bankruptcy court in In re Mid Atlantic Fund, Inc., 60 B.R. 604 (Bankr.S.D.N.Y.1986), “[t]he purpose of Code § 502(d) is to preclude entities which have received voidable transfers from sharing in the distribution of the assets of the estate unless and until the voidable transfer has been returned to the estate.” Id. at 609. According to the Fifth Circuit, “[sjection 502(d) is designed to assure an equality of distribution of the assets of the bankruptcy estate not create penalties for asserting a setoff right.” Campbell v. United States (In re Davis), 889 F.2d 658, 662 (5th Cir.1989). Or, as the court put it in Hudson Feather, “[g]ood reasons can be found in the concern of the bankruptcy laws for the future viability of a debtor for requiring surrender of preferences, whatever the immediate economic effect, and whoever benefits therefrom.” Hudson Feather, 22 B.R. at 253.
In the view of the Fifth Circuit in Davis, according to the legislative history and the policy behind § 502(d), “the section is intended to have the coercive effect of insuring compliance with judicial orders.” Davis, 889 F.2d at 661. In the Davis case, the issue was whether the Internal Revenue Service could be compelled to pay tax refunds due the estate before litigation concerning the extent of a debtor’s tax liability to the Service had been resolved. The district court had disallowed the Service’s claims pursuant to § 502(d) when the Service failed to pay refunds due the estate within 5 days after the debtor’s liability to the Service had been adjudicated. Reversing this result, the Fifth Circuit held that § 502(d) was designed to be triggered only “after a creditor has been afforded a reasonable time in which to turn over amounts adjudicated to belong to the bankruptcy estate.” Davis, 889 F.2d at 662. As the Fifth Circuit found that the Service had not been given a reasonable time to pay amounts due, it refused to apply § 502(d) to bar allowance of the Service’s claims.
Why should a transferee who is obligated to return an avoidable transfer to the estate be permitted to further deplete the estate’s resources by receiving payment of a claim of any kind without first being required to return the avoidable transfer? If the objective behind § 502(d) is to encourage transferees to return avoidable transfers to the estate, that objective would be best served by applying § 502(d) to transferees of both administrative and prepetition claims.
Courts who have rejected the application of § 502(d) to administrative claims have relied in part on their perception that it would be detrimental to a debtor’s reorganization efforts for administrative claims to be subject to § 502(d). In Lids, for example, the court expressed concern as to the “devastating effects” that the extension of § 502(d) to administrative claims could have on a debtor’s ability to reorganize. According to the court in Lids, “[i]f trade vendors felt that a preference could be used to prevent the payment of their administrative claims, they would be extremely reluctant to extend post-petition credit to a chapter 11 debtor.” Lids, 260 B.R. at 684. But how realistic is this concern? 11 No one has suggested that an administrative claimant should be exempt from suit under the avoiding power sec*923tions of the Bankruptcy Code. Any creditor that has received an avoidable transfer may find itself compelled to return that transfer, whether it does business with the reorganized debtor or not. Doing business with the debtor does not increase this risk, it merely provides another source of repayment for the estate in the form of an offset against, or the disallowance of, an administrative claim if the vendor is later found to have such liability under an avoiding power theory.12
C. Should MicroAge be Permitted to Raise § 502(d) as a Defense to Payment of Viewsonic’s Administrative Claim in the Instant Case?
Although the bankruptcy court erred when it held that § 502(d) does not apply to claims for expenses of administration generally, the bankruptcy court was nevertheless correct in its conclusion that § 502(d) is unavailable on the specific facts of this case. MicroAge raised this argument too late: section 502(d) should have been raised as an affirmative defense before the bankruptcy court entered an order allowing Viewsonic’s claim. Now that the claim has been allowed, MicroAge may not raise § 502(d) as a bar to payment.
The bankruptcy court entered an order establishing a procedure for resolving disputes concerning reclamation claims on May 23, 2000. For at least the next year, MicroAge and ViewSonic were engaged in negotiations concerning the amount of the administrative claim that ViewSonic would be entitled to assert. These negotiations eventually produced the Settlement Stipulation, which was approved by the bankruptcy court by order entered October 29, 2001.
Paragraph 1 of that order provides that, ‘ViewSonic shall have an allowed reclamation administrative priority claim in the amount of $574,024.90.” Order Authorizing and Approving Settlement of View-sonic Corporation’s Reclamation Claim (Oct. 29, 2001), at 1. MicroAge first raised an argument' based on § 502(d) in response to Viewsonic’s motion to compel payment of an administrative claim that the bankruptcy court had already allowed. On these facts, MicroAge cannot rely on § 502(d) to defeat the allowance of View-sonic’s administrative claim. Allowed claims are beyond the reach of § 502(d).
In In re Service Plastics, 1997 WL 657119, 1997 Bankr.LEXIS 1667 (Bankr. N.D.Ill.1997), Cameo, the defendant/transferee, attempted to obtain summary judgment against the reorganized debtor in a preference action on the ground that the action had not been brought by a deadline set forth in the debtor’s confirmed plan of reorganization. In response, the reorganized debtor argued, among other things, that Cameo’s claims against the estate should be disallowed pursuant to § 502(d) even if the reorganized debtor’s preference action was time-barred. Although the court agreed that, ordinarily, a debtor may *924raise § 502(d) as a defense to the allowance of a claim even after the statute of limitations for commencing avoiding power actions has run, the court in Service Plastics held that, on these facts, it was too late for the reorganized debtor to raise § 502(d) to defeat the allowance of Cameo’s claim because Cameo’s claim had already been allowed:13 “Cameo’s claim is an allowed claim, which is no longer subject to a challenge by Service Plastics. Service Plastics is precluded by the Plan from raising any defenses, including those in § 502(d) to Cameo’s proof of claim.” Service Plastics, 1997 WL at 10.
If MicroAge had not completed its analysis of avoiding power actions at the time it entered into the Settlement Stipulation and wanted to reserve for a later date the ability to assert rights under § 502(d), it should have included appropriate language in the stipulation to this effect. It did not do so. Instead, MicroAge expressly agreed that Viewsonic’s administrative claim should be allowed for an amount certain, and the court entered an order making such an allowance. On these facts, MicroAge waived whatever right it would otherwise have had to raise § 502(d) to defeat the allowance of Viewsonic’s administrative claim. That claim has already been allowed. MicroAge cannot now avoid paying that allowed claim by raising a defense under § 502(d).14
V. CONCLUSION
Cases interpreting the precursor to § 502(d), § 57g of the Bankruptcy Act, routinely interpreted this section as applicable to post-petition or administrative claims. As we lack clear evidence of a Congressional intent to depart from this interpretation, § 502(d) should be interpreted in a manner that is consistent with case law decided under the Bankruptcy Act and should be applied to administrative claims.
Nevertheless, the bankruptcy court did not err in refusing to apply § 502(d) on the facts of this case. Section 502(d) may not be used to defeat an administrative claim that has already been allowed.
Accordingly, we AFFIRM the bankruptcy court’s order requiring MicroAge to pay Viewsonic’s allowed administrative claim.
. Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. For reasons that are unclear, this motion was filed twice.
. In light of this ruling, the bankruptcy court noted that it was unnecessary for the court to decide whether the mere allegation that the claimant had received a preferential transfer would suffice to create a defense under § 502(d) or whether the debtor needed to obtain a judgment avoiding the transfer before it could rely on § 502(d). Memorandum of Decision, p. 3 at note 1. As we agree that § 502(d) is inapplicable in the instant case, there is no need for us to reach this issue either.
. See, e.g., 11 U.S.C. §§ 502(f) ("gap" claims in an involuntary case), 502(g) (rejection damage claims), 502(h) (claims arising from the recovery of property under §§ 522, 550 or 553) and 502(i) (claims for post-petition taxes that are entitled to priority under § 507(a)(8)).
. 11 U.S.C. § 101 (5)(A) provides that the term, "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 ....” 11 U.S.C. § 101(5)(A).
. According to § 101(10) of the Bankruptcy Code, a "creditor” is an entity that holds (1) a claim against the debtor "that arose at the time of or before the order for relief concerning the debtor,” (2) a community claim or (3) one of a specified list of post-petition claims. See 11 U.S.C. § 101(10).
. Pursuant to § 101(15), the term "entity” includes "person, estate, trust, governmental unit, and United States Trustee.” Section 101(15) does not impose any limitations on the types of claims that one must assert in order to qualify as an entity. 11 U.S.C. § 101(15).
. More specifically, Judge Walsh identified §§ 502(e)(2) (claims for reimbursement or contribution that become fixed after the commencement of the case), 502(f) (claims that arise during the "gap” period in an involuntary case), 502(g) (rejection damage claims), 502(h) (claims arising from the recovery of property under §§ 522, 550 or 553) and 502(i) (post-petition priority tax claims of the kind referenced in § 507(a)(8)).
. In CM Holdings, the bankruptcy court found further support for its conclusion that § 502(d) should not apply to administrative claims because the holder of an expense of administration does not qualify as a "creditor” under § 101(10). See CM Holdings, 264 B.R. at 158. However, the term "creditor” does not appear anywhere in § 502(d).
. And, of course, it goes without saying that, even if this concern were well-founded, it would be inappropriate for a bankruptcy court to refuse to apply an otherwise mandatory provision of the Bankruptcy Code simply because application of the section might adversely impact the debtor in possession's ability to reorganize.
. Although § 502(d) contemplates the return of an avoidable transfer in its entirety, rather than merely an offset of a portion of an avoidable transfer against amounts that would otherwise be due the claimant, when § 502(d) is applied to an administrative claim against a solvent estate, the difference between a traditional setoff and the application of § 502(d) may have little practical significance, as amounts due in both directions are likely to be paid at the rate of 100 cents on the dollar. Rather than go through the exercise of exchanging checks for the full amount due in each direction, the parties are likely to agree voluntarily to net out the amount of the preference against the administrative claim. See Bob Grissett Golf Shoppes, 50 B.R. at 607 (applying the provisions of § 502(d) to a landlord’s administrative rent claim, but noting that, as a practical matter, the court would offset the amount of the avoidable transfer against the amount that would otherwise be allowed as administrative rent).
. The plan of reorganization confirmed in Seivice Plastics contained a deadline for the filing of objections to claims, which had passed. As a result, Cameo's claim had been deemed allowed due to the reorganized debt- or’s failure to file a timely objection to Cameo’s claim.
. The record on appeal does not reflect whether the deadline for filing objections to claims has passed in the instant case. If it has not, it is worthy of note that, pursuant to § 502(j) of the Bankruptcy Code, a claim that has been allowed or disallowed may be reconsidered for cause, according to the equities of the case. Of course, MicroAge has not sought reconsideration of the allowance of Viewsonic’s claim, and, were it to do so, the bankruptcy court might well conclude that the equities of the case do not weigh in favor of the granting of such a motion. If it is later called upon to weigh the equities of this case, the bankruptcy court might wish to consider, among other factors, MicroAge’s delay in asserting rights under § 502(d) and the fact that ViewSonic received an allowed administrative claim as a substitute for rights of reclamation that would not have been affected by the operation of § 502(d). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493482/ | *2Second Memorandum re Homestead Exemption
ALAN JAROSLOVSKY, Bankruptcy Judge.
Chapter 7 debtor Donald Kelley moved out of his residence at 901 South Main, Angel’s Camp, California, in 1995. After that time, he resided in rental property in Napa, California. He essentially used the Angel’s Camp property as a storage shed and had no incidents of residence in Angel’s Camp. For about five years after Kelley left Angel’s Camp, his property was vacant; since 2000, he has rented the property to a cousin.
Kelley filed his bankruptcy petition on March 8, 2002. He originally claimed the property as exempt under California’s “automatic” homestead law, Code of Civil Procedure § 704.710 et seq. The trustee objected on the ground that Kelley did not reside on the property when he filed. The court sustained the objection. Kelley then amended his schedules to claim the property exempt under California’s “declared” homestead law, Code of Civil Procedure § 704.910 et seq. The court must now rule on the same facts but different applicable law.
Under California law, a declared homestead is very resilient. Once a valid homestead is established and a declaration of homestead is recorded, it can be abandoned only in the manner prescribed by law. 37 Cal.Jur.3d, Homesteads, § 54. Under California law, a homestead can be abandoned only if the debtor has recorded a declaration of abandonment, records a new declaration of homestead on a different property, executes a conveyance of the homestead, or abandons the homestead by implication by establishing another residence as his principal dwelling. CCP §§ 704.960, 704.980, 704.990; Webb v. Trippet (1991), 235 Cal.App.3d 647, 652, n. 2, 286 Cal.Rptr. 742.
Kelley has not recorded a declaration of abandonment of the homestead, nor recorded a new declaration of homestead on a different property. In order to abandon a homestead by conveyance, there must be a transfer of title; a lease is not such a conveyance. 37 Cal.Jur.3d, Homesteads, § 57, note 9 and accompanying text. Thus, Kelley’s homestead exemption remains valid unless he has abandoned it by implication.
A homestead may be abandoned by implication under California law in two circumstances. First, implied abandonment occurs when the debtor has purchased a new residence because the automatic homestead exemption applies to the new residence. This is not the case here, as Kelley is a renter in Napa, not a property owner. Second, a homestead may be abandoned by implication where the debt- or has shown no intention of using the property as a personal residence. Webb v. Trippet, 235 Cal.App.3d at 652, 286 Cal.Rptr. 742.
All of the facts in this case compel a finding that Kelley had no intention of using the property as anything more than a storage shed. He has not lived on the property for seven years. He rented the property to another. He depreciated the property in his tax returns. He moved from Angel’s Camp because he could not make a living there. His entire deposition testimony is consistent with complete abandonment of the Angel’s Camp property as a residence. While no single factor controls in every case, all of the factors in this case lead the court to the conclusion that Kelley had abandoned his homestead by implication.
The court has intentionally avoided applying In re Anderson, 824 F.2d 754 (9th *3Cir.1987), to this analysis. Fifteen years after its issuance, the rule in that case remains unclear. On the one hand, the court in Anderson specifically noted that continued residency is not a requirement for a valid declared homestead exemption, 824 F.2d at 757, and is often cited for that proposition. On the other hand, it seems to say later on the same page and following pages that 1983 changes in California law altered this rule. The court notes that subsequent state court decisions such as Webb v. Trippet have avoided any mention of Anderson.1 Treatises on the subject treat Anderson as inconsistent with California law to the extent it holds that continued residency is required for a valid declared homestead exemption. See, e.g., 37 Cal.Jur.3d, Homesteads, § 31 note 2.
The court concludes that notwithstanding anything in Anderson continued residency is not a requirement for a valid California declared homestead exemption. However, the court will sustain the trustee’s objection in this case because the court finds that Kelley abandoned his homestead by implication. Counsel for the trustee shall submit an appropriate form of order.
. The court in Webb v. Trippet specifically found error in the ruling of the trial court that continued residency was required. This case was handed down four years after Anderson.
Anderson involved debtors who attempted to exempt a prior residence with a recorded declaration of homestead even though they had subsequently purchased and currently resided in another home. Instead of ruling that homestead law had changed, a better way to reach the same result would be to find, consistent with Webb v. Trippet, that purchase of the second residence constituted abandonment by implication of the declared homestead. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493483/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This proceeding is before the Court upon the Complaint of Plaintiff, Westminster Associates, Ltd., seeking damages against Defendant, Orkin Exterminating Company, Inc., arising from (i) Defendant’s failure to properly protect the Plaintiffs apartment complex from subterranean termites, and (ii) Defendant’s failure to honor the repair guarantees which it issued to Plaintiff.
Upon the evidence presented, the Court makes the following findings of fact and conclusions of law:1
Findings of Fact
1. Plaintiff is the owner of a 216 unit apartment complex located at 7350 Blanding Boulevard which consists of 22 residential buildings, a clubhouse, two tennis courts and a pool area (T20). The buildings are wood frame over a monolithic slab.
2. In February of 1977, Defendant was hired to protect the apartment complex from subterranean termites (T38). The parties entered into 23 Subterranean Termite Agreements (Agreements), and Defendant provided Plaintiff with 23 Lifetime Termite Damage Guarantees (Guarantees) pursuant to the Agreements (T39).
3. Defendant’s employee, Lee Henry, conducted an inspection of the property prior to the February 1977 contracting. He prepared a graph showing pre-existing termite activity in the corner of one building (T702, 865, P41).
4. In 1982, U.S. Shelter Corporation sold the Plaintiff apartment complex to Westminster Associates Limited. A wood destroying organism report was required in connection with the proposed sale, and Defendant was called upon to conduct the inspection. The inspection, conducted by the same Lee Henry who graphed the * property 5 years prior, revealed the existence of live subterranean termites or ter*43mite damage in 17 of the 23 buildings, and the presence of moisture causing conditions throughout the complex (Pll). Henry reported:
As you can see by this report, the apartment complex has a lot of moisture. This is caused by the fact that when it rains, water penetrates through the stucco walls. The water also runs off the roof onto the upper patios and where the concrete has cracked, it seeps into the roof area of the utility and storage rooms, causing extensive moisture rot. As long as this problem exists, it is impossible to control subterranean termites. (Pll).
5. Testimony was received that the Defendant later “cleared” the property (presumably after the above mentioned problems had been remedied by the seller) which allowed the sale to proceed (T498, 523, 529).2 Mark Werner, the purchaser of the complex, testified that he would not have closed the transaction without Defendant’s clearance (T497-498, 529).
6. Following the 1982 transaction, Defendant continued to invoice Plaintiff for renewal of the Guarantees, and Plaintiff routinely paid for the renewals (T594-595). In addition, Defendant inspected the property annually from at least 1977 to 1999 and prepared inspection reports following each visit (P28-40). According to Defendant, the purpose of the annual inspections was to “help us ensure your current protection remains effective” (P21). The inspection reports were typically sent to Plaintiff with the invoices for renewal of the Guarantees. There was never any indication on the invoices or inspection reports that there was a persistent termite problem on the property or any problem with the property’s condition (P28-40). In fact, a review of the reports shows that “none” was routinely checked or circled in the section called “Evidence [of termites] Found.”
7. Regardless, termite swarms occasionally appeared on the property; Defendant was called and the infestation was treated (T514-515, 517-519, 570, 611-612, 960, 981). Plaintiff produced witnesses that testified that Defendant never notified the owner that there was a continuing termite infestation at the apartment complex. (T497-502, 512, 667, 981). The Defendant’s reports — stating it found no continuing evidence of termites — back up this assertion.
8. By the late 1990s, HUD, the first mortgage holder, issued several deficiency reports requiring that certain items of maintenance be immediately addressed at the complex (D31, 36). The complex also received several citations from the State of Florida and the City of Jacksonville for building code violations (D60, 62). The owner of the property testified that the problems noted by HUD, the state, and the City were all timely addressed and cured (T553, 611).
9. In late 1996, the owner of complex determined that it needed a complete overhaul. Building 4 (sometimes referred to as Building 5) was chosen as a prototype for the remodeling, and renovations to that building commenced in 1997 (T572). During the course of the renovation, some termite damaged wood was discovered and replaced (T514). Defendant was subsequently called to treat the building and to provide a price for retreating the entire complex, if needed, after the planned remodeling took place. After observing the remodeled Building 4, Defendant quoted $13,502 to retreat the entire complex, and made several suggestions for preserving the termite barrier should the property be *44retreated (T515-516, P12). Defendant did not, however, advise the Plaintiff that the current conditions at the complex or the remodeling of Building 4 would in any way void the repair bonds (P12).
10. In 1998, the first mortgage holder declared a default under the loan documents and initiated administrative foreclosure proceedings (D34). On June 25,1998, Plaintiff filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
11. During the course of the reorganization, Plaintiff was able to locate two investors, Forrest Bowen and Terrell Rhye, who had the resources to renovate the property and refinance the mortgage. Bowen, Rhye, and Werner prepared a plan for renovating the property, and obtained various quotes for the accomplishment of the renovations. This renovation plan, which contemplated $759,000 in exterior improvements, is described in the Plaintiffs disclosure statement and included painting, stucco and wood repair, vinyl siding, new landscaping, gutter replacements, additional lighting, and new fencing around the pool and tennis courts (P19). The plan did not include removal of the stucco from the buildings or significant structural repairs (T28). The plan contemplated that the buildings would be surfaced with vinyl.
12. Renovations on the property commenced during the Chapter 11 case and prior to confirmation of Plaintiffs plan of reorganization. Extensive termite damage was discovered in Building 1 and Defendant was contacted. Defendant visited the property briefly, but evidently failed to take any further action (T46, P23).
13. After discovering extensive termite damage in several more buildings, Plaintiff decided that it was more cost effective to strip the stucco finish from all of the buildings as the work progressed so that the full extent of the wood damage could be observed and remedied (T48-49, 1019). Evidently, Defendant was invited to be present during the entire renovation, but declined (T24, 46-47, 215-216).
14. Plaintiff hired an entomologist, Dr. Maxi P. Nolan, III, to be present on site as the repairs progressed. Dr. Nolan and his assistant spent 400-500 hours over 18-24 months observing the renovations and sampling damaged wood as it was replaced (T211). According to Dr. Nolan, the termite infestation at Plaintiffs complex was “the worst he had ever seen” in his 17 years of studying termites (T214-215, 1083-1084).
15. Defendant sent its expert entomologist, Dr. Joseph Maulden, to inspect the property. Dr. Maulden spent a little over 3 hours on the property observing one “open” building (Building 15) and another building which was nearing completion (Building 18) (T751-752).
16. Termite damage was found in all of the buildings at the complex, with the exception of the clubhouse (P26).
17. Plaintiff alleges that the total cost of remediating the termite infestation and wood damage was $2,578,105.89 (P17). Plaintiff alleges it also suffered $160,132 in lost revenues due to tenant relocation during the remediation process (P13), and an additional $328,367 in costs directly related to Defendant’s “dereliction of duty.” Thus, Plaintiff seeks damages in the amount of $2,913,274.65
18. Plaintiffs plan of reorganization was confirmed on August 30,1999.
Conclusions of Law
Plaintiff asserts that the presence of termites throughout the apartment complex is in and of itself is prima facie evidence that Defendant failed to properly protect Plaintiffs apartment complex from *45subterranean termites. Plaintiff argues that Defendant’s failure was three-fold: (1) that it failed to lay a proper termite barrier around the perimeters of each building; (2) that it failed to treat the property for subterranean termites after the initial application, and; (3) that Defendant failed to make adequate investigations each year when it inspected the property. Plaintiff contends that Defendant’s breach of these obligations proximately caused the termite damage on the property. Plaintiff also argues that Defendant breached its contractual obligation to repair the damage.
Defendant argues that it is relieved of liability because: (1) Plaintiffs routine replacement of shrubbery and air conditioning units around the apartment units over a 25 year period effectively destroyed the termite barrier it installed; (2) plumbing repairs and slab leaks over 25 years compromised the barrier; (3) the barrier was compromised because soil accumulated around the base of the buildings; (4) trees and tree roots grew near the buildings also decreasing the effectiveness of its treatments, and; (5) there was stucco to ground contact around the buildings and that contact concealed termite problems.
This Court finds that, had Defendant been properly inspecting and retreating the property prior to 1999, the termite infestation and reasons for it could have been addressed at a much earlier point and the consequential damages minimized. Further, Defendant could have refused to renew coverage after any of the annual inspections but failed to do so. Thus, Defendant’s initial arguments regarding liability fail.
Liability disclaimers contained in Agreements
Next, the Defendant argues that it cannot be found liable because of numerous disclaimers and liability limitations which are printed on the back of the Agreements. However, a Florida Statute prevents Defendant from making this argument as it applies to those disclaimers.
Relevant Florida Statute
In 1982, the Florida legislature enacted § 482.227(2), Florida Statutes, to protect consumers from hidden disclaimers in pest control contracts. The statute provides:
A disclaimer indicating that no guarantee or warranty is offered under the contract must appear in conspicuous type on the face of the contract.
Plaintiff argues that Defendant’s Agreements do not comply with this statute because the disclaimers in this case do not appear in conspicuous type, nor on the face of the Agreement and thus are unenforceable as a matter of law.
Defendant has argued, however, that the statute is inapplicable to the subject Agreement because § 482.227(2) was not enacted until 1982, five years after the initial Agreement was signed, and because to find otherwise would impair an existing contractual obligation.
Plaintiff counters that a new contract was formed each time the Agreement was renewed. To bolster this argument, Plaintiff submits case law regarding the renewal of insurance policies. Where a statute affecting insurance coverage is enacted after the issuance of the underlying policy, any renewal of the policy after the effective date of the statute is deemed to be subject to the intervening statute. See e.g., Metropolitan Property & Liability Ins. Co. v. Gray, 446 So.2d 216, 218 (Fla. 5th DCA 1984) (“It is generally held that the renewal of a contract of insurance constitutes the making of a new contract for the purpose of incorporating into the policy changes in the statute regulating insurance contracts ... [Ljitigation rarely arises concerning whether statutes in ef*46feet on the renewal date are applicable to the policy. It is generally accepted that they are”).
The evidence is uncontroverted that Defendant offered to renew the Agreement each year conditioned on (i) the property receiving a favorable inspection, and (ii) receipt of payment. The Court notes that Defendant did in fact renew these guarantees. Defendant’s suggestion that § 482.227(2) is inapplicable is therefore without merit.
Alternatively, Defendant’s purported contractual defenses that are articulated on the back of the Agreements fail on the evidence presented. Each disclaimer will now be discussed.
Conducive conditions
Defendant first points out that General Terms and Conditions, Paragraph 11 provides that if moisture or structural conditions conducive to subterranean termites are found to exist at the subject property after its initial treatment, then Defendant shall be relieved of any liability for damage repair. Paragraph 11 provides:
If moisture and or structural conditions which are conducive to subterranean termites are subsequently found to exist, Defendant shall be relieved of any and all liability for damage repairs.
Defendant asserts that such conditions existed at Plaintiffs apartment complex and that Plaintiff was aware of those conditions. Defendant points out that in 1982, when the complex’s current owners were in the process of purchasing the property, it conducted a thorough inspection of the property and a report was generated demonstrating termite infiltration and the existence of conditions which could lead to excess water infiltration at the property. Defendant argues that because Plaintiff was made aware of the problems, but failed to remedy them, it cannot be held liable for any termite damage found.
As previously discussed, this Court received testimony that after said report was issued, the Defendant “cleared” the property (presumably after the above mentioned problems had been remedied by the seller) which allowed the sale to proceed. Mark Werner, the purchaser of Plaintiff, testified that he would not have closed the transaction without Defendant’s clearance. There is no evidence to the contrary. Further, the Court finds that Defendant did not provide sufficient proof that moisture or structural conditions caused subterranean termites to enter the Plaintiffs buildings.
Additionally, Defendant knew of the property’s condition when it inspected it annually from 1977 to 1999, when it prepared a wood destroying organism report in 1982, when stucco to ground contact became an area of concern in the industry during the 90s, and in 1997 following a special inspection associated with the potential remodeling. The cracked stucco, clogged gutters, wood or stucco to ground contact, improper drainage, soil accumulation, the presence of trees too close to the buildings, landscaping, missing wood trim and other items of deferred maintenance that Defendant points out should have been observable to Defendant’s trained professionals when they were at the property.
Plaintiff points out that any uncured “conditions conducive” could have been brought to the owner’s attention after the 1982 report was issued.3 No evidence was *47presented that Defendant ever told the owner that it would not honor the guarantees due to any conditions which existed on the property until after the claim was made. Instead, Defendant continued to bill the property, conduct annual inspections, and collect premiums year after year as if the Agreement was still in place.
“A valid condition may be waived by a promisor, if, after its defective performance, he continues to recognize the existence of the contract, or if he retains its benefits for a reasonable time after he knows or should have known that the performance was defective.” Pan American Distributing Co. v. Sav-A-Stop, Inc., 124 So.2d 753, 755 (Fla. 1st DCA 1960). Estoppel is based on “the acceptance and retention of benefits by one having knowledge or notice of the facts of benefits from a contract ... which he might have rejected or contested ... [I]t precludes one who accepts the benefits from repudiating the accompanying or resulting obligation.” Doyle v. Tutan, 110 So.2d 42, 47 (Fla. 3rd DCA 1959).
Defendant argues that it routinely alerted Plaintiff to the presence of termite activity in written treatment tickets dated in, among other years, 1983, 1987, and 1989. However, as previously discussed, the annual inspection reports showed no evidence of a continuing infestation. Accordingly, Paragraph 11 of the Terms and Conditions does not preclude the Defendant’s liability.
Pre-existing damage
Defendant next argues that Paragraph 1 of the Terms and Conditions defeats Plaintiffs claims. That paragraph provides:
It is agreed that under this contract, Defendant is not responsible for the repair of visible damage existing as of the date of this contract except as such damage as described on the Graph and Specifications and for which a specific charge for the repair of same is made. It is possible that damage may, as of the date of this contract, exist in unexposed areas of the structure or in areas which are inaccessible to visual inspection. For this reason Defendant cannot guarantee that the damage disclosed by visual inspection of the premises (and which is indicated on the Graph and Specifications) represents the entirety of the damage which may exist as of the date of the initial treatment. It is specifically understood, therefore, that Defendant shall not be responsible for the repair of any damage which existed in areas or structural members which were not accessible for visible inspection as of the date of this contract.
As a threshold matter, there was apparently little visible damage present when the parties contracted, or else it would have been described on the “Graph and Specifications” referenced in the disclaimer.
The question thus arises as to whether the stucco siding prevented the discovery of any “pre-existing damage” when Defendant undertook responsibility for protecting the property. Defendant’s entomologist, Dr. Joseph Maulden, agreed that there were no impediments to Defendant conducting an examination behind the exterior surfaces as had been done in 1982. The 1982 report covered areas both visible to the naked eye and behind the outer wall coverings. If termite infestation and preexisting wood damage could be discovered behind the walls in 1982, then certainly it could have been discovered and reported to the owner in the inspections which occurred thereafter. Defendants’ defense of concealed damage therefore lacks merit.
Modifications to Building 4
Defendant next contends that the structural modifications to Building 4 in *481996 voided the warranties pursuant to Paragraph 4 of the Terms and Conditions. This paragraph provides:
This agreement covers the premises diagramed on the attached Graph and Specifications as of the date of actual treatment, and in the event the premises are structurally modified, altered, or otherwise changed after date of initial treatment, this agreement shall terminate unless a prior written agreement shall have been entered into between the owner and the company to reinspect the premises, provide additional treatment, and/or adjust the annual renewal fee.
Here, the evidence is that only one building, Building 4, was remodeled in 1996. Werner testified that there was no disturbance of the barrier in connection with the renovation, nor any structural modifications to the budding. Further, the Plaintiff proffered testimony showing that Defendant was aware of the remodeling, visited the site, and thereafter continued its repair guarantees — including its contracts on Building 4. If there were a problem created by the remodeling, Defendant should have spoken. Any defense as found in this clause is thus waived.
Structural defects and water leakage
Lastly, Defendant contends that structural and mechanical defects resulting in water intrusion into the units voids the contract. This defense is premised on Paragraph 2 of the Terms and Conditions, which provides:
Structural and mechanical defects which result in water leakage in interior areas or through the roof, or exterior walls of the premises may destroy the effectiveness of treatment, thereby permitting infestation to continue after the date of initial treatment. If such a condition is discovered, it is agreed that the customer will be responsible for making such repairs as are necessary to correct the structural or mechanical defect, and Defendant will upon completion of said repairs, provide additional treatment deemed necessary by the company to control the infestation in the area.
Plaintiff argues that this clause is not a defense but rather a declaratory statement. This Court agrees thus find that this paragraph does not preclude Defendant’s liability in any way.
In sum, this Court finds that Florida Statutes Section 482.227 prevents Defendant from arguing that its defenses found on the back of the Agreements absolve it from liability. This Court further finds that even if Florida Statutes 482.227 does not apply to the contractual disclaimers at issue, Defendant cannot repudiate liability based on those defenses for the reasons articulated above.
On a more pragmatic level, this Court finds that Defendant’s attempt to completely deny responsibility for any of the termite damage to Plaintiffs complex troubling. For 25 years, Defendant collected renewal premiums and fees for termite treatment. No evidence was produced that Defendant ever informed the Plaintiff that coverage under the repair bonds was in jeopardy. Defendant cannot now argue that coverage was terminated long ago or was never in effect.
Exclusions found in Guarantees
Live termite presence
The Guarantees at issue provide that Defendant is obligated to make repairs where, “at the time of discovery of the new damage, the damaged areas are infested with live subterranean termites.” Dr. Nolan did not observe active termites in seven of Plaintiffs buildings (Buildings 3, 6, 12, 13, 14, 21 and the Clubhouse). Thus, Defendant argues that Plaintiff can*49not recover damages based on repairs to those buildings.
However, Dr. Nolan testified that he observed recent termite damage to the buildings in question and that other evidence of active termites existed even if he did not actually observe any active termites. There is no contradictory evidence in the record. Thus, this Court accepts Plaintiffs expert’s opinion that he observed evidence of active termites at the time the damage was discovered in the buildings at issue.
Preexisting damage
A prerequisite to recovery under the Guarantees is that Plaintiff must establish that the termite infestation occurred after the issuance of the Guarantees. At the inception of the relationship, ' Defendant prepared a graph showing existing termite infestation in the corner of one building. Plaintiff argues that the only logical conclusion which can be drawn from this evidence is that the subsequent termite destruction in that building, and in the remaining buildings, occurred after 1977. Dr. Nolan, who inspected the termite damaged wood at the property, testified that no more than 5% of the termite damage on the property occurred prior to 1977.
However, Defendant’s expert testified that 10% to 20% of the termite damage occurred prior to 1977. The two experts used different theories to explain their respective opinions. Between the two, Dr. Nolan’s testimony is the more credible given his extensive familiarity with the Plaintiffs infestation and the extended time he spent at the site.
Therefore, the Court finds that Defendant was contractually obligated to repair 95% of the allowed expenses attributable to termite damage at the Plaintiffs apartment complex.4
$100,000 limitation
Defendant argues that the Guarantees specifically and expressly limit Defendant’s liability for damage repairs to an amount which “shall in no event exceed $100,000 aggregate loss.” Defendant argues that the parties executed a single Agreement and thus there is a single $100,000 aggregate damage cap, and that cap limits Plaintiffs allowable damages to $100,000.
Plaintiff, however, correctly points out that at the inception of the parties’ relationship, Defendant issued 23 Agreements and Guarantees and that each of the was separately numbered, identified by building, and invoiced every year through the year 2000.
The Court further notes that Wayne Górecki, Defendant’s corporate representative, repeatedly referred to the Guarantees as “contracts.” Also, as late as 1999, Defendant confirmed in writing that the contracts were still in effect. Based on this evidence as well as the fact that there were 23 separate Agreements and Guarantees issued and renewed annually, this Court finds that the $100,000 damage cap applies to each of Plaintiffs buddings.
This Court notes that Plaintiff asserts that no damage cap applies to any of the buildings. Plaintiff argues that damages for breach of Defendant’s inspection obligations, initial treatment obligation, and its subsequent retreatment obligations are not limited by any contractual restriction. A review of the Agreements and Guarantees does not support this assertion.
*50285 BANKRUPTCY REPORTER
DAMAGES
In Florida, contract law provides that an award of damages in a breach of contract action is intended to place the injured party in the position he or she would have been in had the breach not occurred. Sharick v. Southeastern University of Health Sciences, Inc., 780 So.2d 136, 139 (Fla. 3rd DCA 2000).
In real property cases, the measure of damages flowing from a breach of contract are the greater of the diminution in value of the real property or the repair costs, or a combination of both. Bisque Assoc, of Fla., Inc. v. Towers of Quayside No. 2 Condo. Assoc., Inc., 639 So.2d 997, 999 (Fla. 3rd DCA 1994).
The Plaintiff claims the following expenses are attributable to the repair and replacement of damage caused by subterranean termites:
Damage Repair Costs
Exterior Paint $ 24,963.32
Replacement of Storage Room Doors 41,744.56
Removal of Stucco and Wood 864,269.61
Replacement of Original Stucco 1,249,499.83
Replacement of Windows & Doors 48.340.00
Sealant on Rear Balcony Decks 23.416.00
Installation of Gutters and Downspouts 27,131.25
Re-installation of Electrical Items 22.500.00
Removal and Replacement of Landscaping 118,830.00
Reparation of Lawn Irrigation System 18.600.00
Reparation/Replaeement of Drywall 77.644.00
Reparation/Alteration of Turret Section 7,500.00
Replacement of Rear Patio Roof Section 37,360.32
Replacement of Front Entrance Canopy(s) 16.307.00
TOTAL $2,578,105.89
(PI V)
As a threshold matter, damages are awarded when the Plaintiff is able to prove them with reasonable certainty. Hutchison v. Bilodeau, 553 So.2d 304, 306 (Fla. 1st DCA 1989)(“[I]t is sufficient that there be a reasonable basis for computing damages even if the results may be only approximate”). The Court does not accept that all of the categories of Plaintiffs claimed damages are recoverable.
Interest and investigation costs
Plaintiff attempts to recover interest on repair loans and consulting fees. Plaintiff also argues that it is entitled to additional damages because of a reduced occupancy rate during the time of repairs; Plaintiff alleges that the vacancy rate at the apartment complex increased considerably as a result of the repair project.
The Defendant correctly notes, however, that its Guarantee limits the kind of damages that Plaintiff may recover to “structural and contents damage,” and damages for lost rents, interest, investigation and other costs may not be recovered. Thus, the consulting fees are not recoverable, nor are lost rents. Even if this were not the case, the lost rent would not be recoverable.
In order to recover lost profits, a claimant must show damages with reasonable certainty, and that the damages flowed as a natural and proximate result of the wrongful conduct alleged. Royal Typewriter Co. v. Xerographic Supplies Corp., 719 F.2d 1092, 1105 (11th Cir.1983).
Plaintiff did not introduce sufficient evidence that reduced occupancy rates were the result of termite damage repair. Additionally, Plaintiffs evidence does not establish the kind of “stability and regularity” with regard to occupancy rates that Florida courts require as a basis for an award of lost profits. Belcher v. Import Cars, Ltd., Inc., 246 So.2d 584, 587 (Fla. 3rd DCA 1971). Plaintiffs Disclosures to this Court report occupancy rates in the several years preceding the renovation that fluctuated by more than ten percent. Those rates are not sufficiently stable “as to give its past record of profits some probative value as indicating the *51probable subsequent profits.” Id. Thus, Plaintiff is not entitled to recover lost rents. Plaintiff also seeks an additional $55,000 that it argues is necessary to retreat the property for termites (102). Because Defendant has a contractual obligation to retreat the property, this amount is recoverable by Plaintiff.
Specific items of structural damage
Clubhouse
Dr. Nolan found only fungi damage at the Clubhouse and did not testify that there was termite damage there. Plaintiff argues that this charge is nevertheless recoverable because the Clubhouse was the last budding repaired and given the extensive termite damage found in all prior buddings investigated, it was prudent to remove the stucco from this budding as wed. This Court disagrees and holds that expenses related to the Clubhouse are not recoverable.
Stucco removal
Defendant contends that ad the stucco in the other buddings did not need to be completely removed to determine the extent of the termite and wood related damage. Its construction consultant, Diane Mucha, testified that a band should have been cut around the base of the buddings to determine where termites had breached the barrier, and that the stucco should have been removed only as a last resort.
Plaintiff counters that: (1) inspection bands and windows had in fact been cut around the bottoms of all buddings except Budding 1 prior to removing the stucco, just as she advocated, and; (2) that the decision to remove the stucco on all buddings was made only after termite damage was found in all buildings inspected, and after determining that it was more cost effective to remove the stucco than to attempt piecemeal patching.
Because Plaintiffs expert was present for a much longer time during the repairs and renovations, and made a great deal of first hand observations, this Court gives his testimony greater weight. With the exception of the Clubhouse, his Court finds that the stucco removal charge is recoverable.
Stucco replacement
Plaintiff seeks $1,249,499.23 for the replacement of the stucco siding on the Plaintiffs buddings. This expense was not borne by the Plaintiff, however, because stucco was never installed.5 Instead, Plaintiff sided the buddings in vinyl, which cost $591,000.6
Defendant contends that Plaintiff is not entitled to the stucco replacement cost not only because the stucco was not installed, but also because the renovation plan developed prior to the discovery of the termite damage contemplated a vinyl exterior.
Although there is testimony that Plaintiff could not afford to install new stucco, there is also testimony that Terrell Rhye, Plaintiffs new primary investor, regularly added vinyl siding when he renovated apartments. Defendant further provides evidence that Plaintiff wanted the budding to have a new look. On the stand, Rhye stated, “[I] typicady come into a project and put vinyl siding on the buddings to give a project and immediate and dramatic upgrade in its cosmetic appearance.” *52There was additional testimony that by 1999, the Plaintiff considered the apartments’ “look” — its original condition — to be dated.
Plaintiff, however, argues that the higher stucco replacement cost is recoverable. Plaintiff notes that under the restoration rule, damages for wrongful injury to property are generally measured by the value of the costs of repairing or restoring the property to its original condition. However, this Court cannot ignore the potential for a windfall in this case and further notes that the case law Plaintiff cites is not on point.
The instant case presents a unique issue because a less expensive fix is not necessarily a less valuable fix. Plaintiff chose a $591,000 vinyl repair instead of the $1,249,499.93 stucco replacement, but failed to introduce competent evidence that the less expensive repair reduced the value of the building. Moreover, the evidence does not support the proposition that the stucco was even subjectively more valuable to Plaintiff. Thus, the difference between the vinyl replacement and the estimated cost to side the buildings with stucco is not recoverable.
Painting and replacement of Tudor trim
Plaintiff also argues that recoverable damages include the cost to replace the Tudor look wood banding and trim on the exterior of the Plaintiff buildings. Like the installation of the stucco itself, this trim was not replaced and is not planned to be replaced. As discussed, the Defendant proffered evidence that the new owners considered the Tudor look dated.
Again, to award more than the actual cost of repairs to Plaintiff would be to give it a substantial windfall and this Court refuses to do so.
Wood replacement
Defendant next argues that the wood replacement costs set forth in Boyer’s report were excessive or exaggerated.
Defendant’s construction consultant, Diane Mucha, stated that some wood replacement costs could have been avoided by adding new wood to deteriorated wood rather than replacing the entire wood plank. Plaintiffs expert, Bowyer, testified that, in most cases, when the siding was removed, Plaintiff discovered that the structural two-by-fours were completely deteriorated and had to be replaced. Because Bowyer was present during renovations, and Mucha was not, this Court finds Bowyer’s testimony more credible on this issue.
Mucha also said that replacement of wood around the storage rooms and window and door frames might not have been necessary. Plaintiffs expert argues that window frames and door jams had to-be replaced because the removal of wood by termites has caused the doors and window frames to deteriorate. Again, because Plaintiffs expert was present during the restoration project, but Defendant’s was not, this Court finds Bowyer’s testimony to be the more compelling of the two and will not second guess Plaintiffs allocation of these damages to Defendant.
High wood replacement cost
Mucha testified that, using R.S. Means testing, Plaintiffs wood replacement costs were overstated. However, because this Court is determining actual damages after-the-fact, it finds Mucha’s cost estimates less probative than the expenditures Plaintiff paid for the repairs.
Moisture damage to wood
Defendant also argues that the wood replacement damages should be reduced to compensate for wood rot due to excessive moisture. Defendant’s argu*53ment is premised on the testimony of Dr. Maulden, who based his opinion primarily on his observation of photographs showing black staining on some of the wood planks photographed at the site.
Plaintiff contends that Dr. Maulden erroneously discounted the replacement costs everywhere wood rot was present— even if the timber showed both wood rot due to fungus and termites and contends that as long as termite damage was present which jeopardized structural integrity, the timber should have been replaced and taxed as an item of damage. Additionally, Dr. Nolan testified that one can not make an accurate finding of moisture damage in wood based on the observation of photographs because in this case the felt backing behind the stucco had adhered to or stained many of the wood timbers. Plaintiff points out that Dr. Maulden stated that it is possible that moisture carried or introduced by termites themselves could have been sufficient enough to establish fungi on otherwise sound and dry wood.
This Court finds that Plaintiff provides sufficient evidence to support an award of wood replacement costs where the wood showed termite damage as well as wood rot due to excessive moisture.
Wood that did not appear in summary reports
Defendant also argues that Plaintiff overstated its wood damage figures by including wood which was not depicted on Dr. Nolan’s summary reports. However, Bowyer testified that his damage reports included the replacement of damaged wood depicted on the more detailed field notes— rather than only the summaries — prepared by Dr. Nolan. This Court finds those wood replacement charges recoverable.
Doors, stairs, decks, etc.
Defendant also objects to charges for the painting of doors, stairs, etc; replacement of storage room doors; replacement of certain glass doors and windows; and the sealing of rear balcony decks because, inter alia, termite damage to these items were not reported in Dr. Nolan’s summaries. Upon review of the testimony by Plaintiffs experts, the Court is satisfied that Plaintiff satisfactorily explains how these charges are linked to the termite damage and allows those expenses.
Installation of gutters and downspouts
Bowyer’s Report includes charges to replace guttering on many of the Plaintiffs buildings. There is no dispute that termite damage did not impact the facia areas of the buildings where the gutters hung. Plaintiff claims that Defendant is hable for gutter replacement because the gutters would have to be replaced if the stucco were replaced. However, Defendant proffered ample evidence regarding the poor and, in some instances, inoperable condition of the gutters. This charge is not recoverable.
Irrigation system
Like the gutters, there is also no evidence that the irrigation system was damaged by termites; workers or work activity during renovation damaged the irrigation system. In his deposition, Richard Haines, the relevant subcontractor, testified that when his crew broke components of the irrigation system they generally made the repairs to the system themselves. This cost is not recoverable.
Miscellaneous construction expenses
Defendant argues that it should not be responsible for the light fixture replacements, landscaping, interior drywall, door repairs, and window repairs reflected in Bowyer’s amended cost summary report. The Court finds, based on the testimony of Bowyer, that the replacement of these items was necessitated by the scope of the repair project and the natural*54ly occurring damage associated with any project of this magnitude. Thus, these expenses are recoverable.
Finally, Defendant has made a general attack on Plaintiffs claim by suggesting that the claim is nothing more than an attempt to have Defendant pay for the renovation of the apartment complex. However, Defendant’s responsibilities are not diminished because the termite infestation was discovered in the course of planned renovations. The Court again notes that Defendant had the option to be present during the repair project and to participate in the repair decision making process.
Conclusion
The Court will enter a separate final judgment awarding Plaintiff damages of $1,863,600.10.7
_ATTACHMENT_
Revised Add Vinyl Subtract Subtract Subtract Total
Building Claim Siding Stucco Irrigation Gutter Recoverable
Number Amount Installation Replacement Repairs Replacement Claim
J._118,026.31 25,695.65 66,340.06 1,200_1/525_74,856.90
_2_112,393.06 25,695.65 47,945.01 1,400_1/525_87,419.70
_3_123,987.18 25,695.65 66,340.06 1,400_1/524_80,419.77
_4_110,218.98 25,695.65 66,340.06 1,200_1/524_66,850.57
J>_125,685.95 25,695.65 66,340.06 1,000_925_83,116.54
_6_107,446.27 25,695.65 55,957.86 1,000_N/A_76,184.06
_7_148,979.46 25,695.65 75,720.3 N/A_N/A_98,954.81
_8_159,374.67 25,695.65 75,720.3 N/A_N/A_100,000 1
_9_98,195.25 25,695.65 41,636.60 1,200_2,333.5_78,720.8
_10_80,768.48 25,695.65 36,578.83 N/A_R100_68,785.3
_11_105,975.31 25,695.65 54,557.86 1,000_925_75,188.1
12_98,245.93 25,695.65 41,636.60 1,200_2,333.5_78,771.48
JB_95,521.05 25,695.65 41,636.60 1,200_2,333.5_76,046.6
_14_96,691.13 25,695.65 41,636.60 1,150_2,333.5_77,266.68
_138,965.85 25,695.65 47,945.01 N/A_1/720_100,000 2
_16_133,885.49 25,695.65 47,945.01 N/A_N/A_100,000 3
17_108,754.29 25,695.65 54,517.85 N/A_1100_78,832.09
_18_111,659.48 25,695.65 54,517.85 N/A_N/A_82,837.28
J9_104,648.45 25,695.65 54,517.85 1,200_925_73,701.25
20_102,968.80 25,695.65 54,517.85 1,000_925_72,181.60
_21_109,309.97 25,695.65 47,945.01 1,200_1,719.25 84,141.36
22 159,605.10 25,695.65 87,393.1 1,500 2,080 94,327.65
*55Total All Buildings $1,808,600.10
Plus Cost of Retreatment $55,000
Grand Total $1,863,600.10
JUDGMENT
This proceeding is before the Court upon the Complaint of Westminster Associates, Ltd., seeking damages against Or-kin Exterminating Co., Inc. Upon findings and fact and conclusions of law separately-entered, it is ORDERED:
Judgment is entered in favor of plaintiff, Westminster Associates, Ltd., and against defendant, Orkin Exterminating Co., Inc., for $1,863,600.10 for all of which let execution issue.
. This Court's job was made more difficult and time consuming because both parties misrepresented the evidence when citing to the transcript.
. The actual clearance letter or second WDO Report was not entered into evidence.
. Defendant’s billing letters plainly state that the inspector would discuss with the owner any problems he or she may have found on the property that contribute to termite infestation. Any defense based on laches or a statute of limitations must also fail.
. Evidently, Plaintiff has reduced its requested damage figures by 5%. Thus, those figures will serve as the basis for this Court's damage calculation.
. The renovation work at the Plaintiff Apartments is completed.
. The cost of the vinyl siding was $591,000 according to Bowyer, or $480,000 according to Bowen. The Court will use. Bowyer’s figure because he is the designated construction consultant.
. Attached is a breakdown of allowable charges.
. There were $109,350.02 in covered repairs but the $100,000 damage cap applies.
. There were $114,996.49 in covered repairs but the $100,000 damage cap applies.
. There were $111,636.13 in covered repairs but the $100,000 damage cap applies. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493484/ | MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On October 11, 2002, the court held a hearing regarding the Motion of Zlatava Davidova, Trustee of LET, a.s. to Reconsider the Court’s Memorandum Opinion and Order dated August 21, 2002. At the conclusion of the hearing, the court took the matter under advisement. After considering the evidence presented at the August 7, 2002 trial, the parties’ briefs, stipulations and oral arguments, as well as applicable statutory and case law, the court makes the following findings of fact and conclusions of law.
Procedural History
On November 27, 2000, Ayres Aviation Holdings, Inc., Ayres Corporation, and the Fred Ayres Company filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code (“Code”). These cases have been administratively consolidated. On February 8, 2001, First National Bank of South Georgia (“Plaintiff’) filed this adversary proceeding in the Ayres Aviation Holdings, Inc. (“Debtor”) case. Plaintiff requested a determination of the validity, priority, and extent of liens and competing interests in two General Electric aircraft engines, serial no. GE-E-685998 (“998 engine”) and serial no. GEE-685002 (“002 engine”).
Only Debtor, Zlatava Davidova, Trustee of LET, a.s. (“Movant”) and GATX Capital Corporation (“GATX”) were named as defendants in the original complaint.1 Gen*336eral Electric Company (“General Electric”) was later added as a defendant. In its answer, Debtor asserted cross-claims and counterclaims and requested a determination of the validity, priority, and extent of liens and competing interests in a L610 G aircraft, serial no. 970301 (“L610-301 aircraft”), in addition to the two General Electric engines. Debtor also sought the determination of its avoidability of these interests and authority as trustee to dispose of these assets. In response to Debt- or’s cross-claim, GATX sought, among other things, relief from the automatic stay.
On May 17, 2002, the court held a Final Pre-Trial Conference in this adversary proceeding. At the hearing, the court approved and adopted the pre-trial order submitted by the parties. The parties raised the issue of which law should govern the validity, priority, and extent of liens in the subject property. After considering the parties’ briefs on this issue, the court found that the law of the Czech Republic was controlling as to this issue. Because GATX admitted that it did not have a perfected security interest under Czech Republic law, the court granted the parties’ motion to strike the responsive pleadings of GATX.
On August 7, 2002, the court conducted a trial on Plaintiffs complaint to determine the validity, priority, and extent of hens or competing interests in the L610-301 aircraft and the two General Electric engines. On August 21, 2002, the court issued its Memorandum Opinion and accompanying order regarding these issues. After stating that the Movant did not meet her burden to prove substantive Czech Republic law on the issues before the court, the court held: 1) General Electric was the title owner of the 998 engine, free and clear of any encumbrances from Debtor, GATX, Movant, and Plaintiff; 2) The Bill of Sale between LET, a.s. and Debtor transferred ownership in the 002 engine to Debtor and Plaintiff had a valid perfected security interest in the 002 engine; 3) The Bill of Sale also transferred ownership of the L610-301 aircraft to Debtor, thus it was part of Debtor’s bankruptcy estate; 4) GATX’s Motion for Relief from the Stay was denied.
FINDINGS OF FACT
Many of the pertinent facts are not disputed. Debtor is a corporation organized under the laws of the State of Florida. Fred P. Ayres is the sole shareholder of the Debtor corporation. Formed in 1991, LET, a.s. (“LET”) is a legal entity organized under the laws of the Czech Republic. Both LET and Debtor were in the business of manufacturing aircraft. LET manufactured the type L610 G aircraft.
In 1997, LET and General Electric entered into a contract (“LET/GE Contract”) whereby General Electric would supply and sell CT7-9 engines to LET which would, among other things, manufacture L610 G aircraft. (See General Electric’s Ex. 1). The LET/GE Contract was to be effective during the Development Phase, which included the time until the L610 G aircraft with the CT7-9 engine was certified by the United States Federal Aviation Administration (“FAA”). (See id., art. 1, para. G). Specifically,, the LET/GE Contract provided that General Electric would supply LET with two CT7-9 engines during the development phase. These “Engines will be bailed (loaned at no charge) for the duration of the LET L610G Development Program, as per terms of Exhibit D, Bailment Agreement, herein.” (Id., Ex. *337C, para. C.4). LET and General Electric entered into the above referenced Bailment Agreement on June 3, 1997. (See id, Ex. D). The Bailment Agreement defines “Bailed Property” as property General Electric provided pursuant to Exhibit C. (Id, cl. 1).
LET manufactured the L610-301 aircraft in the same year. Installed in this aircraft were two General Electric Model HE CT7-9D engines, the 998 and 002 engines. The L610-301 aircraft and the two General Electric engines are the property at issue in this adversary proceeding. General Electric does not dispute that LET purchased the 002 engine from General Electric for a purchase price of $750,400.00. (See Pre-Trial Order, Ex. “A”, para. 7; see also PL’s Exs. 11 & 12). Accordingly, General Electric claims no interest in the 002 engine.
On May 13, 1997, this aircraft was registered with the Civil Aviation Authority Register of the Czech Republic (“Czech Aircraft Register”), Register No. 4770, with LET designated as its owner. (See LET Ex. I).2 Also, the Civil Aviation Authority issued the L610-301 aircraft a Special Certificate of Airworthiness, No. ZO1Z-4770/4, in the experimental aircraft category. (See id).
On or about August 11, 1998, Debtor acquired approximately 93% of the outstanding shares of stock of LET. The management structure of LET after Debtor’s acquisition consisted of a Board of Directors and two Procurators. (See PL’s Ex. 13). Mr. Ayres held the position of Chairman of the Board of Directors and also served as one of the two Procurators. While Mr. Ayres made most of the decisions for LET, Mr. Ayres testified that he never attended any of the meetings held by the Board of Directors.
Based on the “Companies Register maintained by the Regional Court in Brno.,” (“Register”) at least two directors are required to act for or on behalf of LET. (See id). As to the authority of the Procurators, the Register provides:
Each Procurator is authorised [sic] to act for and on behalf of the Company severally within the scope of the Procuration granted. Each of the Procurators is authorised [sic] to perform legal acts in writing for and on behalf of the Company LET, a.s., severally by attaching his signature and the word “Procurator” to the written or printed style of LET, a.s. (Id).
On May 19, 2000, Mr. Ayres, on behalf of “LET Aeronautical Works,”3 executed a Bill of Sale, Assignment and Conveyance (“Bill of Sale”). (See PL’s Ex. 1). Mr. Ayres signed the Bill of Sale as “Chairman.” (See id). The Bill of Sale purported to memorialize a sale of the L610-301 aircraft with the attached 998 and 002 engines from LET to Debtor. As consideration for this purchase, Mr. Ayres testified that Debtor and Ayres Corporation, Debtor’s affiliate, transferred avionics and cash to LET in 1999 and 2000.
Also on May 19, 2000, Mr. Ayres, on behalf of Debtor, entered into a loan agreement with Plaintiff in which Plaintiff loaned $200,000.00 to Debtor. (See PL’s Exs. 2 & 5). In exchange for these funds, Debtor executed a document purporting to grant Plaintiff a security interest in the 002 and 998 engines. (See PL’s Ex. 6). On May 22, 2000, Plaintiff filed a UCC-1 *338financing statement in the Superior Court of Dougherty County. (See Pl.’s Ex. 10). On July 17, 2000, Plaintiff recorded its security interest in the two engines with the FAA. (See Pl.’s Ex. 8). Debtor and Plaintiff have stipulated that as of the date of the trial, the principal amount by which Debtor is indebted to Plaintiff is $200,125.00 plus $45,261.60 in interest which continues to accrue contractually at $63.92 per day.
On or about August 30, 2000, liquidation proceedings were initiated against LET under the laws of the Czech Republic. Movant is the trustee of the estate of LET. As stated above Debtor filed bankruptcy on November 27, 2000 and this adversary proceeding was filed on February 8, 2001.
The trial of this adversary proceeding was held on August 7, 2002. On the morning of the trial, Movant filed with the court and hand delivered to all parties a letter by Thomás Richter, a Czech Republic attorney. The letter contained both English translations of relevant sections of Czech Republic law and Mr. Richter’s opinions on those provisions. However, Movant never tendered the opinion letter as evidence nor did Movant object when Plaintiff asserted that the court could not consider the letter. Movant did submit a post-trial brief in support of her argument that the court should consider Mr. Richter’s letter pursuant to Federal Rule of Civil Procedure 44.1 (“Rule 44.1”), despite the fact that the letter was not offered as evidence at trial. As explained in the August 21, 2002 Memorandum Opinion, the court did not consider the pre-trial opinion letter in rendering its decision as to the validity, priority, and extent of liens and competing interests in the L610-301 aircraft and the two General Electric engines.
Movant has asked the court to reconsider its August 21, 2002 Memorandum Opinion and Order pursuant to Federal Rule of Civil Procedure 59(e) (“Rule 59(e)”). Movant contends the court was incorrect when it reasoned that she did not met her burden on proving substantive Czech Republic law and held that the Bill of Sale between Debtor and LET was valid and effective.
Movant urges that under Rule 44.1, the court may consider any relevant source of foreign law whether or not submitted by a party or admissible as evidence. Therefore, the court should have considered both the pre-trial opinion letter and the post-trial brief submitted by Movant. Additionally, there is no requirement that the documents be submitted as evidence at trial.
Further, the fact that the pre-trial opinion letter was authored by Movant’s co-counsel does not prevent the court from considering it. When opposing counsel argues only about the probative weight of an opinion letter rather than submitting a contradicting opinion letter, he does so at his own risk. Once the court considers the substantive Czech Republic law, it should hold that the Bill of Sale was ineffective.
Plaintiff contends that the pre-trial opinion letter had to be tendered as evidence or the court cannot consider it. Rule 44.1 relaxes the rules for proof of foreign law but it does not eliminate the requirement that an opinion letter regarding foreign law must be tendered as evidence. A party can insist on consideration of proof only to the extent that evidence was given to the court during trial.
The court can conduct its own research but it is not required to do so. Accordingly, the court can consider the English translations of Czech Republic law but it cannot and should not consider the opinions expressed by Movant’s co-counsel, who prepared the pre-trial opinion letter. The cases cited by Movant do not require a different outcome than the one already reached by this court. The Motion to *339Reconsider does not allow Movant to submit the pre-trial opinion letter as evidence for the court to consider.
Further, at trial Movant never objected to the court’s not considering the pre-trial opinion letter, asked the court to consider it, or asked the court to reopen evidence. Thus, Movant waived any right to object to the court’s failure to consider the pre-trial opinion letter.
Finally, even if the court does consider the pre-trial opinion letter and the later filed documents,4 they are inadequate to prove Czech Republic law. Only the portions of Czech Republic law deemed to be relevant by Movant have been submitted. If there are areas of foreign law not proven by the party bearing the burden, the court should assume there is no substantive difference from United States (“U.S.”) law. The translated sections offer no basis under which the court can rule that the Czech Civil Aviation Act invalidates a good faith purchaser for value simply because it was not registered with the appropriate Czech Republic aviation authority. Nor do the provisions deal with the 002 engine that is also subject to this adversary proceeding.
Mr. Kennedy, as Trustee of Debtor, argues that the transfer of the L610-301 aircraft satisfies both U.S. and Czech Republic law. The use of “LET Aeronautical Works” in the Bill of Sale does not invalidate the transfer, nor does the absence of the price term make the Bill of Sale defective. Movant’s argument that the transaction is avoidable under the Czech Bankruptcy and Composition Act is unfounded. Therefore, the court was correct in its Memorandum Opinion and Order dated August 21, 2002 and Movant’s Motion for Reconsideration should be denied.
CONCLUSIONS OF LAW
Pursuant to Rule 59(e), applicable to Bankruptcy proceedings under Federal Bankruptcy Rule 9023 (“Bankr. Rule 9023”), this court has been asked to reconsider its Memorandum Opinion and Order dated August 21, 2002. (Fed. BankrR. 9023). A court is given great latitude in deciding whether to reconsider its own opinion. See Florida Association of Rehabilitation Facilities, Inc. v. State of Florida Department of Health and Rehabilitative Services, 225 F.3d 1208, 1216 (11th Cir.2000) (standard of review for the Court of Appeals regarding the disposition of a motion for reconsideration is abuse of discretion).
In deciding whether to alter or amend a judgment, courts look at four factors: “1) whether the judgment was based upon a manifest error of fact or law; 2) whether the movant presents newly discovered or previously unavailable evidence; 3) whether the amendment is necessary to prevent manifest injustice; and 4) whether an intervening change in controlling law has occurred.” Clancy v. Employers Health Insurance Company, 101 F.Supp.2d 463, 464 (E.D.La.2000). The issue before this court involves a multimillion dollar aircraft and two engines, each worth hundreds of thousands of dollars. There is no question that there would be “manifest injustice” if this court came to the wrong legal conclusion as to which entity owned the L610-301 aircraft and the two General Electric engines.
*340
I. Rule kh-1
Under controlling Eleventh Circuit law, “[w]hen analyzing foreign law, the district court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence.” Trinidad Foundry and Fabricating, Ltd. v. M/V K.A.S. Camilla, 966 F.2d 613, 615 (11th Cir.1992)(emphasis added). The court in Kalmich v. Bruno, 553 F.2d 549 (7th Cir.1977), considered an inadmissible opinion letter that was not offered until the motion to alter judgment was filed with the court. Kalmich, 553 F.2d at 555. While not controlling over this court, the Kalmich case is further support for the argument that Rule 44.1, applicable to Bankruptcy proceedings under Federal Bankruptcy Rule 9017 (“Bankr. Rule 9017”), gives courts wide discretion to consider any relevant material when determining an issue of foreign law.
The cases cited by Plaintiff are not persuasive as to the issue of Rule 44.1 and proving foreign law. The court in Bernard v. Gulf Oil Corporation, 841 F.2d 547 (5th Cir.1988), was dealing with the U.S. Civil Rights Act of 1964. Bernard, 841 F.2d at 549. Therefore, Rule 44.1 regarding proving foreign law was not applicable. Another case cited by Plaintiff deals with Rule 44.1 only in a footnote and does not hold that proof of foreign law must be submitted as evidence before the court can consider it. See Ackermann v. Levine, 788 F.2d 830, 838 (2d Cir.1986).
This court held that Czech Republic law was controlling as to the issue before it. Upon reconsideration, the court will consider all relevant sources of Czech Republic law submitted by the parties. Therefore, the court finds that it can and should consider Mr. Richter’s letter, Mr. Zeman’s letter, and the certified English translations of relevant Czech Republic law submitted to the court by Movant. Additionally, the court will consider the information submitted by Mr. Kennedy regarding the Czech Republic Commercial Code and Bankruptcy & Composition Act. However, the court will afford little weight to the information on Czech Republic law submitted by Mr. Kennedy given that its authority and accuracy were not shown.
II. L610-301 Aircraft
In sum, Movant submitted eight sections of relevant Czech Republic law: 1) Three sections from the Czech Civil Aviation Act 49/Í997, sections 4, 5(a) and 5(b); 2) Three sections from the Czech Bankruptcy and Composition Act 329/1991, sections 14, 15 and 28(1); 3) Two sections from the Czech Commercial Code 513/1991, sections 409 and 448. (See Doc. 66).
A. Czech Civil Aviation Act
Section 4 explains the Czech Aircraft Register and lists required information to place an aircraft on the Czech Aircraft Register. (See Doc. 66). This section has little relevance to the issue before the court except for (2)(e). This sub-section requires a description of any security interests, called a charge in the English translation, “over the aircraft and its parts, as well as spare parts to the aircraft and its parts.” (See id.). The court points to this section only to show that Czech Republic law does distinguish between the aircraft and its parts. Therefore, the court will not assume the use of the word “aircraft” in a Czech Republic statute necessarily includes the aircraft’s parts or more specifically the aircraft’s engines. Further, nothing in this section invalidates a transfer of ownership in an aircraft or its parts for any reason.
Section 5(a) is irrelevant because the statute only refers to the registration of a security interest over an aircraft, not its *341parts. (See id.). While there is a dispute as to Plaintiffs security interest in the 002 engine, no party is claiming a security interest in the L610-301 aircraft. Only the ownership of the L610-301 aircraft is disputed.
Section 5(b) is by far the most relevant section. Specifically, the English translation for 5(b)(1) states “The transfer of ownership title to, and charge over, an aircraft shall take effect upon the registration thereof in the aircraft register.” (See id.). It is undisputed that the transfer of ownership of the L610-301 aircraft from LET to Debtor was never registered on the Czech Aircraft Register.
It is hard to believe that an aircraft must be registered in the Czech Republic to effectuate the transfer of ownership when the aircraft is presumptively being moved to the U.S., as it was purchased by Debtor, a U.S. corporation. It is unclear to the court what interest the Czech Republic would have in such an aircraft once ownership is purportedly transferred to a foreign corporation seeking to operate the aircraft in another country. However, Section 5(b)(1) of the Czech Civil Aviation Act is clear on its face. The transfer of ownership of an aircraft takes effect upon the transfer being registered on the Czech Aircraft Register. (See id.). Additionally, both Mr. Richter’s and Mr. Zeman’s opinions are consistent with this conclusion. (See id.). Without contrary authority from the adverse parties, the court cannot find that the Bill of Sale is effective as to the L610-301 aircraft.
B. Czech Bankruptcy & Composition Act and Czech Commercial Code
Without Section 5(b)(1) of the Czech Civil Aviation Act, Movant’s argument would not have been successful. The other Czech Republic law provisions submitted to the court are not helpful to her argument.
Section 14(f) of the Czech' Bankruptcy and Composition Act is inapplicable to the issue before the court. (See Doc. 66). This section refers to transactions that take place during the two months prior to the entity filing for bankruptcy protection. (See id.). LET entered bankruptcy in the Czech Republic on August 30, 2000, three and a half months after the Bill of Sale for the L620-301 aircraft and the two General Electric engines.
Section 15 of the Czech Bankruptcy and Composition Act invalidates certain types of transfers that occur during the six months immediately prior to a bankruptcy filing. (See id.). While this disputed transaction took place during that time frame, it does not fit under any of the six categories of avoidable transactions in 15(l)(a-f). Even if the transaction were to fit into one of these avoidable transaction categories, Movant has not pursued such an action in the Czech Republic. Nor has she proved the elements of such an avoidable transaction to this court.
Further, if foreign law is not sufficiently proven by the party carrying the burden, then the court is to apply forum law. See Riffe v. Magushi, 859 F.Supp. 220, 223 (S.D.W.Va.1994). Since Movant did not establish the applicable Czech Republic statute of limitations for such an action, the court must apply forum law. Therefore, pursuant to the Code, it is assumed that it is too late for Movant to pursue one of these actions. See 11 U.S.C. § 546(a).
Section 28(1) of the Czech Bankruptcy and Composition Act does not seem applicable to the issue before the court. (See Doc. 66).
Section 409 of the Czech Commercial Code requires that contracts for the sale of *342good requires a price term unless “it follows from the negotiations of the purchase contract that the parties intended to conclude the purchase contract without specifying the price.” (See id.). The Bill of Sale does not include a price term. (See Pl.’s Ex. 1). However, from the terms of the Bill of Sale, “The Seller, in return for valuable consideration, the receipt and sufficiency of which is hereby acknowledged ...,” it is clear that not only was the price term agreed upon for the aircraft, LET stipulated to the sufficiency and receipt of the price when Mr. Ayres signed on behalf of LET. (Id.)
Section 448 of the Czech Commercial Code spells out how to determine the price term if one was not set in the contract and if the parties had agreed to leave the price term open. (See Doc. 66). Since the court finds that the price term was agreed upon, this code section is inapplicable to the issue before the court.
III. 998 Engine
The court will not change its conclusion that the 998 engine is the property of General Electric. The submitted relevant material on Czech Republic law does not alter the court’s reasoning that the 998 engine was subject to the bailment agreement between General Electric and LET. Therefore, as stated in the August 21, 2002 Memorandum Opinion and Order, LET did not own the 998 engine.
TV. 002 Engine
The Bill of Sale purported to transfer ownership of the L610-301 aircraft, the 998 engine, and the 002 engine from LET to Debtor as separate items. (See PL’s Ex. 1). Unlike the requirement that transfers of aircraft ownership be recorded on the Czech Aircraft Register to be effective, there was no such law presented to the court that requires the same for aircraft parts or specifically aircraft engines. Movant did not provide to the court any substantive Czech Republic law or interpretations of the Czech Civil Aviation Act which establish that the transfer of ownership of an aircraft engine must be registered on the Czech Aircraft Register to be effective. Section 4 of the Czech Civil Aviation makes the distinction between an aircraft and its parts. (See Doc. 66). Further, Section 5(b) only requires transfers of aircraft ownership be registered on the Czech Aircraft Register. This section does not mention transfers of ownership in aircraft parts. Thus, the court concludes that Czech Republic law does not require transfers of ownership in aircraft engines to be recorded on the Czech Aircraft Register for the transfer to be effective.
Conclusion
Based on the foregoing, the court finds that the Bill of Sale is invalid as to the L610-301 aircraft and the 998 engine. However, the Bill of Sale is valid as to the 002 engine. Therefore, the court concludes the following:
1) The Bill of Sale between LET and Debtor did not transfer ownership in the L610-301 aircraft to Debtor. The aircraft is not part of Debtor’s bankruptcy estate but belongs to Movant;
2) General Electric is the title owner of the 998 engine, free and clear of any claims or encumbrances of Debtor, Movant, GATX, and Plaintiff;
3) The Bill of Sale between LET and Debtor did transfer ownership in the 002 engine to Debtor. Debtor’s pledge of the 002 engine to Plaintiff as collateral is valid. Plaintiff has a valid perfected security in*343terest in the 002 engine. See generally 49 U.S.C. § 44107; O.C.G.A. § 11-9-310 (2002); and
4) The motion of GATX for relief from stay is denied.
An order in accordance with this Memorandum Opinion will be entered.
. The court notes that John Flanders Kennedy, the appointed Chapter 11 trustee in this *336case, is the actual party in interest for Debtor. LET, a.s. is a Czech Republic entity involved in a liquidation proceeding in the Czech Republic. Likewise, Zlatava Davidova, the trastee for LET, a.s. in its liquidation proceeding, is the actual party in interest for LET.
. At trial, however, Mr. Ayres testified that the registration with the Civil Aviation Authority of the Czech Republic “has nothing to do with ownership.”
. Mr. Ayres testified that LET, a.s. and LET Aeronautical Works were the same company.
. In addition to her post-trial brief, Movant submitted in support of her Motion to Reconsider an additional document with an opinion letter from Peter Zeman, a disinterested Czech Republic attorney, which contained additional Czech Republic law translations and Mr. Zeman's legal opinion, and certified English translations of eight Czech Republic law provisions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493485/ | ORDER DENYING MOTION FOR RELIEF FROM STAY
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Heard on the motion of HomEq Servicing Corporation (“HomEq”) for relief from the automatic stay, and for leave to file an action in state court to reform HomEq’s mortgage on the Debtors’ principal residence. HomEq acknowledges that its mortgage is not in default and is fully enforceable and valid, but complains that it does not contain the conventional statutory power of sale1 which under Rhode Island law allows foreclosure without first having to go through a judicial proceeding. HomEq alleges that the absence of a power of sale is the result of mutual mistake, but offers nothing to suggest that the mortgage is anything other than a valid arm’s length transaction.
The Debtors argue that the mortgage was negotiated, drafted, and executed with HomEq’s predecessor-in-interest, that there is no mutual mistake, and that allowing the bank to proceed with this action will prejudice the Debtors and creditors to the extend that money available to fund the plan would have to be diverted to defend a lawsuit of, at best, questionable merit.
While it is unclear under which Code provision HomEq seeks relief, I assume it is Section 362(d)(1) which allows relief from stay “for cause.” This is the assumption because none of the specific elements of Section 362(d)(2) are even alleged in the Motion.2
The statute does not define “cause”; but, generally speaking, “cause” is said to exist when the harm that would result from a continuation of the stay would outweigh any harm that might be suffered by the debtor or the debtor’s estate if the stay is lifted. In re Turner, 161 B.R. 1, 3 (Bankr.D.Me.1993). Determining whether “cause” exists requires a fact intensive inquiry that must be made on a case by case basis. In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir.1990).
Peerless Ins. Co. v. Rivera, 208 B.R. 313, 315 (D.R.I.1997). While there is no local guidance the Seventh Circuit has adopted a three-part test to determine if cause exists to lift the stay and allow a creditor to commence or maintain a state court action against a debtor. See In re Fernstrom Storage and Van Co., 938 F.2d 731, 735 (7th Cir.1991). Under Fernstrom, cause is determined by inquiring whether:
a) Any great prejudice to either the bankrupt estate or the debtor will result from continuation of the civil suit,
*347b) the hardship to the [non-bankrupt party] by maintenance of the stay considerably outweighs the hardship to the debtor, and
c) the creditor has a probability of prevailing on the merits.
Id.
Using this test, HomEq has failed to establish cause under Section 362(d)(1), or under any part of the Code. Also, the Debtors and the Chapter 13 Trustee are justly concerned over the cost associated with the litigation contemplated by the creditor if the stay is lifted, and HomEq has not alleged any prejudice by the continuance of the stay.
As for the merits of the dispute, the likelihood that the creditor will prevail is remote. To reform an agreement or to excuse performance due to mutual mistake, “it must appear that by reason of a mistake, common to the parties, their agreement fails in some material respect correctly to reflect their prior completed understanding.... A mutual mistake is one common to both parties wherein each labors under a misconception respecting the same terms of the written agreement sought to be canceled.” Dubreuil v. Allstate Ins. Co., 511 A.2d 300, 302-03 (R.I.1986) (citations omitted); see also Gray v. Water Street Corp. (In re American Shipyard Corp.), 220 B.R. 734, 737 (Bankr.D.R.I.1998), and the creditor is required to prove mutual mistake by clear and convincing evidence. Vanderford v. Kettelle, 75 R.I. 130, 64 A.2d 483, 489 (1949). The mortgage in question was drafted and negotiated by the creditor’s assignor, the Debtors disavow any notion of mutual mistake, and the creditor has alleged no facts upon which a reformation of the mortgage might be based. This is a no brainer which should not have been filed. The Motion for Relief from Stay is DENIED, and the Debtors are allowed their costs and expenses.
Enter judgment in accordance with this Order.
. See R.I. Gen. Laws § 34-11-22.
. Neither Section 362(d)(1) nor (d)(2) are mentioned in the papers, and the Movant makes only the most general reference to Section 362. This alone requires denial of the motion, but in addition, for the substantive reasons discussed herein, relief is denied because of HomEq's failure to establish a prima facie basis for relief. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493486/ | DECISION & ORDER
JOHN C. NINFO, II, Chief Judge.
BACKGROUND
On August 23, 2002, Nelson L. Betances (the “Debtor”) filed a petition initiating a Chapter 7 case. On the Schedules and Statements required to be filed by Section 521 and Rule 1007, the Debtor indicated that: (1) he owned a residence at 195 Merlin Street, Rochester, New York (“Merlin Street”), which had a current market value of $44,500.00; (2) Wells Fargo Home Mortgage, Inc. (‘Wells Fargo”) held a first mortgage against Merlin Street which had an unpaid balance of $46,963.00 (the Wells Fargo Mortgage”); and (3) Homecomings Financial held a second mortgage against Merlin Street which had an unpaid balance of $30,516.00.
On September 7, 2002, a notice of an October 1, 2002 Section 341 Meeting of Creditors was mailed to all of the Debtor’s creditors, including Wells Fargo. The notice also indicated that Kenneth W. Gordon, Esq. (the “Trustee”) had been appointed as the Chapter 7 Trustee in the Debtor’s case.
On September 9, 2002, Wells' Fargo filed a Motion for Relief from the Automatic Stay (the “Stay Motion”), utilizing the Court’s mandatory default procedure.1 The Motion was made returnable on September 18, 2002.
The Stay Motion indicated that: (1) the Wells Fargo Mortgage was three months in arrears for a total arrearage of $1,744.42; (2) the market value of Merlin Street, based upon the current tax assessment, was $56,425.00; and (3) there was exempt equity of approximately $8,000.00 over and above the balance of approximately $48,000.00 due on the Wells Fargo Mortgage.
On September 10, 2002, the Trustee interposed Opposition to the Stay Motion that was based upon the failure of Wells Fargo to supply the documents which the Court, by a July 31, 2002 letter to the Panel of Chapter 7 trustees for the Rochester Division of the Western District of New York agreed must be supplied to the trustee in connection with any stay motion filed in a Chapter 7 case that was made *359returnable prior to the initial 341 meeting (the “Required Documents”).2
These Required Documents, where the property in question is mortgaged real property, are, as described by the Panel of trustees:
1. Cover Sheet;
2. Appraisal, comparative valuation, copy of full assessment, and from the year of or before the case was filed;
3. Copy of filed deed — showing ownership at time of filing;
4. Copy of filed mortgage(s);
5. Current statement of balance of mortgage from mortgagee, not attorney affidavit.
DISCUSSION
Until recently, there was only an occasional stay motion filed with the Court in a Chapter 7 or 13 case that was made returnable before the initial 341 meeting. In those occasional cases, the Court and the parties generally adjourned the hearing on the motion until the next regularly scheduled motion calendar after the 341 meeting, so that the Trustee could conduct the meeting and make a determination as to whether: (1) the asset which was the subject of the motion should be administered in a Chapter 7 case because there was significant equity in the asset; or (2) the Trustee otherwise had a valid defense to the motion, such as a failure to properly perfect a hen.
At this time, the Panel of Chapter 7 trustees has advised the Court that: (1) there has been a substantial increase in the number of stay motions in Chapter 7 cases with a return date before the initial 341 meeting; (2) when they do not receive the Required Documents which provide them with the type of information they require and receive at the 341 meeting, the trustees are forced to file unnecessary protective opposition to the motions and appear at the return date, which also creates unnecessary additional work for the Court and the Bankruptcy Court Clerk’s Office.3
Although it would be best for the trustees and the efficient operation of the Court and the Bankruptcy System if routine Chapter 7 and 13 stay motions were made returnable on the next regularly scheduled motion calendar after the initial 341 meeting, a secured creditor may have business reasons for filing a stay motion and making it returnable prior to the 341 meeting. In that event, in a Chapter 7 or 13 case, the secured creditor must factor into its business decision: (1) the need to provide the trustee with the Required Documents; and (2) the fact that obtaining and supplying the Required Documents may make the motion more expensive.
So that the Bankruptcy System in the Rochester Division of the Western District of New York can be administered more efficiently and effectively, for stay motions in Chapter 7 and 13 cases filed after November 30, 2002 where the return date is made before the initial 341 meeting, the Court will deny the stay motion without prejudice if: (1) the Required Documents are not supplied to the trustee at least one week prior to the return date; and (2) the *360trustee has notified the Court that he did not receive the Required Documents.
CONCLUSION
Since the Wells Fargo Stay Motion was filed prior to November 30, 2002, and the Trustee has indicated that he has no opposition to the Motion, the Stay Motion is in all respects granted.
IT IS SO ORDERED.
. A wide variety of motions that are routinely brought before the Court, including stay motions in Chapter 7 and 13 cases, are governed by its default procedures. The default procedure for Chapter 7 and 13 stay motions requires the filing of: (1) a detailed cover sheet; (2) copies of mortgage or lien documents; and (3) proof of lien perfection. The cover sheet requires an equity analysis with the market value of the property in question to be established by one of a number of enumerated acceptable proofs, such as an appraisal or, in the case of real property, a tax assessment. The default procedure requires an opposing party to file written opposition not later than three business days prior to the return date of the motion, or the matter is stricken from the Court's motion calendar.
. The Court's July 31, 2002 letter advised the Panel of Chapter 7 trustees that: (1) they could distribute copies of the letter to mortgagee attorneys; and (2) the Court would write a decision on this issue when a premature stay motion was filed where the Required Documents were not supplied.
. The Court's motion calendar is an attorney-driven calendar, in that attorneys choose their own return date from among the Court's periodically published motion days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493487/ | ORDER DISMISSING CHAPTER 11 CASE
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This case came before the Court for a status conference pursuant to 11 U.S.C. § 105(d) on September 10, 2002, at 9:30 a.m. The Court scheduled such a status conference so that it could issue orders prescribing limitations and conditions as it deemed appropriate in order to ensure that the case would be handled expeditiously and economically by the Debtor.
I.Case Proceedings
On July 1, 2002, the Court entered an Order Dismissing Debtor’s Chapter 11 case pursuant to 11 U.S.C. § 1112(b). Debtor had failed to submit monthly operating reports and make payment of the quarterly fees due to the Office of the U.S. Trustee. On July 12, 2002, the Debtor filed a Motion for Reconsideration and Request for the Court to Vacate the July 1, 2002, Order. The basis for that motion was that the Debtor had obtained counsel to represent it and that it was in a position to prepare a good faith plan to pay its creditors. On July 24, 2002, the Court entered an Order granting Debtor’s Motion for Reconsideration and Request for Court to Vacate Order and ordered Debt- or’s proposed counsel to: (1) take action to reschedule the § 341 creditors’ meeting with the Office of the U.S. Trustee; (2) submit and file the required monthly operating reports; (3) file his application to be employed; and (4) take appropriate action to review the petition and schedules and make amendments as needed. The Order further scheduled the status conference for September 19, 2002, at 9:30 a.m. Subsequently, the Court rescheduled the status conference to September 10, 2002, due to a conflict in the Court’s schedule.
II. Status Conference
On September 10, 2002, counsel for the U.S. Trustee appeared at the status hearing. Debtor and Debtor’s counsel failed to appear.1 During the status hearing, counsel for the U.S. Trustee stated that the required monthly operating reports had not been filed by the Debtor. Counsel for the U.S. Trustee also stated that the requisite quarterly fee payments had not been paid by the Debtor as previously ordered by this Court.
III. Conclusion
Based upon the foregoing case history and representations made by the Office of the U.S. Trustee at the status hearing, the Court finds that the Debtor, Victoria Trav*394el & Tours, Inc., has failed to properly prosecute its Chapter 11 proceeding. The Court further finds that the Debtor has failed to comply with its prior orders. Therefore, the Court finds cause to dismiss this Chapter 11 proceeding. Based upon the foregoing, the Court hereby Orders that the within case be, and it hereby is dismissed.
IT IS SO ORDERED.
. At 9:35 a.m., on September 10, 2002, Debt- or’s counsel contacted a judicial assistant at the Court by telephone and stated that he was unable to appear at the status hearing due to health reasons. He also stated that he had received no cooperation from Victoria Travel & Tours, Inc. regarding the Chapter 11 case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493488/ | ORDER
JOHN S. DALIS, Chief Judge.
RCF Technologies, Inc. d/b/a RCF Seals & Couplings, Inc. (hereinafter “Debtor”) objects to the secured status of the claim of Rubbercraft Corporation of California, LTD (hereinafter “Rubber-craft”) on the grounds that Rubbercraft’s judgment was never perfected by recording on the general execution docket in the county where the Debtor is located. Because Georgia law requires that a judgment be recorded before a lien is created and enforceable against third parties, the Debtor’s objection is sustained.
The facts are not in dispute. On January 27, 2000, Rubbercraft filed suit in the United States District Court for the Central District of Californiá and obtained a default judgment against the Debtor in the amount of $161,250.96. The judgment was registered in Georgia by filing a certified copy with the clerk of the District Court for the Southern District of Georgia on April 20, 2001. A writ of execution was issued by the District Court of the Southern District of Georgia. Believing the Debtor was located in Vidalia, Georgia, Rubbercraft filed suit in the Superior Court of Toombs County to domesticate the judgment. However, the court informed Rubbercraft that the Debtor was located in Montgomery County, Georgia. The action was transferred to Montgomery County. Prior to an order being entered, the Debtor filed this Chapter 11 bankruptcy case on June 2, 2001. Rubbercraft timely filed a proof of secured claim in the amount of $159,967.47. The Debtor filed an objection to the claim’s secured status on March 27, 2001.
Under O.C.G.A. § 9-12-80, a lien begins on the date of entry of a judgment of a Georgia court and attaches to all property of the defendant subject to other exceptions in the Code. Nationsbank v. Gibbons, 226 Ga.App. 610, 487 S.E.2d 417, 419 (1997). The Debtor argues that under O.C.G.A. § 9-12-81(b) Rubbercraft does not have an enforceable hen because it failed to record its lien in the general execution docket of Montgomery County, Georgia where the Debtor is located. Under Georgia law, in order for a judgment to become an enforceable lien as against third parties acting in good faith and without notice, the execution must be entered upon the execution docket. O.C.G.A. § 9-12-81(b)*5331. In order for a judgment to be a lien upon the personal property of the defendant the execution issuing thereon must be entered upon the general execution docket in the county where the judgment was obtained. Bradley v. Booth, 62 Ga.App. 770, 9 S.E.2d 861 (1940). Rubber-craft was unable to perfect its lien in Montgomery, County, Georgia and therefore its hen is invalid.
Rubbercraft argues that under 28 U.S.C. § 1962 and § 1963 it has a valid lien on all property of the Debtor as of April 20, 2000, which is the date the California judgment was registered in the Southern District of Georgia. Section 1962 states:
every judgment rendered by a district court within a State shah be a lien on the property located in such State in the same manner, to the same extent and under the same conditions as a judgment of a court of general jurisdiction in such State, and shah cease to be a hen in the same manner and time... Whenever the law of any State requires a judgment of a State court to be registered, recorded, docketed or indexed, or any other act to be done, in a particular manner, or in a certain office or county or parish before such hen attaches, such requirements shall apply only if the law of such State authorizes the judgment of a court of the United States to be registered recorded, docketed, indexed or otherwise conformed to rules and requirements relating to judgments of the courts of the State. (Emphasis Added).
Under 28 U.S.C. § 1963, a judgment rendered in any other federal court may be registered in any other district and the judgment shall have the same effect as a judgment of the district court where it was registered and may be enforced in hke manner. It is obvious from the language of the statutes that Rubbercraft’s registered judgment must be treated as an original judgment in the state of Georgia and that local law controls. See United States v. Palmer, 609 F.Supp. 544, 548-49 (E.D.Tenn.1985) (treating a Texas judgment registered in Tennessee as an original judgment rendered in Tennessee).
While it is true that Rubbercraft has a valid judgment with the same effect as a judgment entered by a United States district court in Georgia, in order for the lien to attach and be enforceable as against third parties, the judgment must be recorded in the general execution docket. Section 1962 states that “whenever the law of any State requires a judgment of a State court to be registered, recorded, docketed or indexed, or any other act to be done... before such lien attaches, such requirements shall apply only if the law of such State authorizes the judgment of a court of the United States to be registered recorded, docketed, indexed or otherwise conformed to rules and requirements relating to judgments of the courts of the State.” Under O.C.G.A. § 9-12-81(b), any money judgment obtained in the county of defendant’s residence in either a state or federal court in Georgia must be entered into the general execution docket in order to create a lien upon the property. Because *534Rubbercraft failed to perfect within Montgomery County, Georgia, its claim is a general unsecured claim.
It is therefore ORDERED that the Debtor’s Objection to Claim is SUSTAINED. The claim is allowed as general unsecured.
. O.C.G.A. § 9-12-81(b) states in pertinent part:
As against the interest of third parties acting in good faith and without notice who have acquired a transfer or lien binding the property of the defendant in judgment, no money judgment obtained within the county of the defendant’s residence in any court of this state or federal court in this state shall create a lien upon the property of the defendant unless the execution issuing thereon is entered upon the execution docket. When the execution has been entered upon the docket, the lien shall date from such entry. (Emphasis Added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493489/ | MEMORANDUM AND ORDER ON DEBTORS’ MOTION TO REOPEN
LAMAR W. DAVIS, Jr., Bankruptcy Judge.
Jack H. Barfield, Jr., and Doris Barfield (“Debtors”) filed a Chapter 7 case on April 22, 1994, in which no assets were available for distribution to unsecured creditors. They received a discharge on August 9, 1994, and the case was closed on August 15, 1994. On March 12, 2002, Debtors filed a motion requesting this Court to reopen their case for the purpose of amending their schedules to add Interstate General Government Contractors, Inc. (“IGGC”) as a creditor. IGGC objected, and this Court heard testimony and oral argument at a hearing held on May 15, 2002. The Court, pursuant to its jurisdiction in this matter under 28 U.S.C. § 157(b), makes the following Findings of Fact and Conclusions of Law in accordance with the directives of Bankruptcy Rule 7052(a).
FINDINGS OF FACT
IGGC obtained a pre-petition judgment for approximately $20,000.00 in 1992. When Debtors filed their Chapter 7 petition, they did not list IGGC as an unsecured creditor on Schedule F. They included IGGC, however, on their Statement of Financial Affairs under the category “suits, executions, garnishments, and attachments” as a suit to which they “are or were a party within one year immediately preceding the filing of this bankruptcy case.” Mr. Barfield testified that he listed IGGC’s claim as a pending lawsuit because IGGC had not then attempted to take any property in satisfaction of the judgment debt at the time Debtors filed their case.
The judgment was granted to IGGC as a result of a contract dispute based on Mr. Barfield having terminated IGGC asa subcontractor. Mr. Barfield had answered IGGC’s civil action with “a letter” but did not have an attorney. After their discharge in bankruptcy, Debtors purchased some real estate, and IGGC sought to attach a lien to that property to satisfy the judgment. Mr. Barfield testified that he believed the debt had been discharged until he received a notice that IGGC had revived the judgment.
Debtors attorney asserted that because the claim existed prior to their filing and because they believed they had properly disclosed IGGC in their petition, the case should be reopened for the purpose of adding the claim. IGGC, having had no opportunity during the pendency of the case to make an analysis to determine whether there was issue as to non-dischargeability under 11 U.S.C. § 727, asserts that the eight-year delay between the closing of the case and the filing of the motion to reopen has prejudiced IGGC. On that basis, IGGC opposes reopening.
CONCLUSIONS OF LAW
Issues with respect to a determination of whether to reopen a bankruptcy case are addressed to the sound discretion of the bankruptcy court, guided by the bankruptcy statute and equitable considerations. E.g., In re Garrett, 266 B.R. 910, *561912 (Bankr.S.D.Ga.2001) (noting that cases so stating are numerous).
In Garrett I ruled that, notwithstanding some uncertainty concerning the scope of the Eleventh Circuit decision in Samuel v. Baitcher (In re Baitcher), 781 F.2d 1529 (11th Cir.1986), the sole test for determining whether to reopen a case to schedule an omitted claim is whether the original omission occurred in good faith and was not the result of the debtor’s intentional design. Under this view, the question of harm or prejudice to the creditor is not a factor. That concept permeated many older cases, but is relevant only if the act of reopening of the case automatically results in discharge of the claim that is added tardily. As Baitcher, Stark v. St. Mary’s Hospital (In re Stark), 717 F.2d 322 (7th Cir.1983), and other opinions demonstrate, the older cases adopted that view of reopening vis a vis dischargeability.
Garrett articulated the better view that reopening does not automatically result in discharge. Because the discharge-ability issue is still ripe for determination under § 523(a)(3), the act of reopening a case does not result in the type of “harm or prejudice” to the creditor that Baitcher anticipated. I explained in Garrett:
The Eleventh Circuit articulated a good faith test as a prerequisite to reopening and dischargeability in the case of In re Baitcher. In Baitcher the court suggested that even in a “no asset” case a discharge of a non-fraud debt is denied when debts are omitted from debtor’s schedules as a result of fraud or intentional design on the part of the debtor .... Baitcher acknowledged that the Seventh Circuit decision of In re Stark, 717 F.2d 322 (7th Cir.1983), permitted a debtor to reopen a case to add an omitted debt so as to permit a previously unscheduled debt to be encompassed in a debtor’s discharge, but distinguished Stark, because it held there was “no evidence of fraud or intentional design” in the debtor’s omission of the debt. The Eleventh Circuit then ruled that if a debtor’s actions suggest that there was intentional design or fraud in the omission of a creditor from the schedules the result would be different. The Stark court apparently held the view — no longer the majority — that the decision whether to reopen was also dispositive of the dischargeability question, but the narrow holding in Stark was whether the debtor should be allowed to reopen. The Eleventh Circuit accepted the Stark principle, while distinguishing it on its facts. Baitcher thus established that, in the Eleventh Circuit, good faith is a threshold debtors must satisfy in order to receive a discharge, but it is less clear whether it held lack of good faith would be a direct bar to dischargeability en-grafted into Section 523, or only a bar to reopening under Section 350, and thus, it believed, an indirect bar to discharge-ability. In fact, Baitcher observed that although the creditor’s dischargeability complaint might be difficult to sustain under Section 523(a), that issue would never be “reached if it is concluded the original mission was not inadvertent but by intentional design,” implying that the case should not be reopened in the first instance.
Which begs the question: Does all of this matter? Isn’t the result the same whether Baitcher is construed to require the debtor show that debts were omitted in good faith as an element of either a Section 350 reopening motion or a Section 523 dischargeability complaint?
The answer is no. If the good faith test applies only to Section 523, then Baitcher has added a nondischargeable category (bad faith omission from the *562schedules of a nonfraud claim) that Congress never adopted. If it applies to Section 350, the case cannot be reopened and dischargeability remains unadjudicated. However, debtors have the right to plead a bankruptcy discharge as an affirmative defense to an action on the debt in state court. The state courts have concurrent jurisdiction to determine dischargeability, at least after the case is closed. O.C.G.A. § 9-ll-8(c) states in relevant part that in pleadings “a party shall set forth affirmatively [a] discharge in bankruptcy” as a defense.
Thus, if in a closed “no-asset” case, a non-fraud claim is unscheduled and later sued upon, the debtor may plead Section 523(a)(3) as a defense in the court where the suit is brought. What Baitcher does is deny the debtor’s right to reopen and obtain a federal forum, if the omission was made through design or fraudulent intent. This right may or may not be valuable. It may deprive debtor of what is viewed as a more specialized, and perhaps more sympathetic, forum to litigate this question, or it may not. Whatever the practical effect, the federal forum is lost to the debtor who failed to establish good faith in omitting the debt from debtor’s schedules. The sine qua non of bankruptcy is full disclosure and the granting of relief to honest but unfortunate debtors. Under Baitcher, those who fail the test are not entitled to reopen their case and obtain a determination, in the bankruptcy forum, of entitlement to a discharge under Section 523.
In re Garrett, 266 B.R. at 913-16 (internal citations omitted).
Here, pursuant to my holding in Garrett, the reopening test is met if Debtors show that the omission occurred in good faith and was not the result of any intentional design. Although Debtors were clearly at fault for failing to list IGGC as a judgment creditor in the bankruptcy schedules, so as to provide notice of the Chapter 7 case, Debtors’ disclosure of the claim in their Statement of Financial Affairs as a pending lawsuit evidences a lack of fraudulent intent. “Intentional design is evidenced by a blatant disregard of a known duty, deception, lack of honesty and good faith.” In re Wilkins, 185 B.R. 624, 626 (Bankr.M.D.Fla.1995). Debtors’ believed they had listed IGGC’s claim and that the debt had been discharged. Their failure to properly list that claim was negligent; however, no intentional design or fraudulent intent has been alleged or is apparent.
I conclude, therefore, that because Debtors did not fraudulently omit IGGC’s claim in their no-asset Chapter 7 case, Debtors may reopen their case for the purpose of adding IGGC’s claim. To be clear, the question of dischargeability is unresolved. Debtors are allowed 45 days to file a complaint under § 523 if they so choose. If not, the case will be closed at the expiration of that time.
ORDER
Pursuant to the foregoing Findings of Fact and Conclusions of Law IT IS THE ORDER OF THIS COURT that Debtors’ Motion to Reopen their case is GRANTED. Chapter 7 Case Number 94-40687 is hereby REOPENED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493491/ | OPINION
WILLIAM Y. ALTENBERGER, Bankruptcy Judge.
Gail L. Casey (CASEY) was one of the Debtor’s principals. As the Debtor’s President, she signed the Debtor’s Bankruptcy petition and schedules. Although she was listed as a codebtor on a bank loan to the Debtor, she was not originally listed as a creditor in the schedules. She was listed on the mailing matrix and received notification of the commencement of the Debt- or’s case, the first meeting of creditors, and the claims bar date. ' She testified on behalf of the Debtor at the first meeting of creditors.
The claims bar date, expired on April 9, 1998. On December 14, 1998, she filed a proof of claim. The Trustee objected to her claim as being late filed. She contends that when the Debtor filed she believed the bank loan had been made to the Debt- or with her personal guaranty, when in fact the Bank made the loan to her with the money going to the Debtor, and when the true nature of the loan was discovered, she filed the proof of claim.
The Trustee is correct that § 726 of the Bankruptcy Code, 11 U.S.C. § 726, controls and that CASEY’s claim was late filed. The time for filing a claim in a Chapter 7 case cannot be extended where proper notice of the claims bar date is given. Untimely filed claims are allowed and paid in accordance with the priorities set out by § 726(a). Under § 726(a)(2)(C), a late filed claim shares with timely filed claims if:
(i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and
(ii) proof of such claim is filed in time to permit payment of such claim....
It is knowledge of the bankruptcy case, and not knowledge of a particular claim, that is key under § 726(a)(2)(c).
In this case, CASEY had knowledge of the bankruptcy case in time to file a proof of claim, but didn’t. The fact that she legally misconstrued the relationship between herself, the Debtor and the Bank does not excuse her late filing. She had all the information involving the loan at her disposal. Just as any arms length creditor, she had the responsibility to determine the exact legal relationship and file a proof of claim within the claims bar date. Furthermore, her argument is specious in that regardless of whether she made the loan direct or merely guaranteed it, she had a claim against the Debtor that had to be filed within the claims bar date.
Her reliance on the cases cited by her is misplaced in that the issue in those cases was whether a creditor had “notice or actual knowledge” of the bankruptcy in time to file a claim. CASEY did receive notice and she failed to act.
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. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493492/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW; AND JUDGMENT
THOMAS B. DONOVAN, Bankruptcy Judge.
The above-captioned adversary proceeding came on for trial before me on January 30, 2002. Jeffrey C. Krause, a member of Stutman, Treister & Glatt Professional Corporation, appeared on behalf of Plaintiff, David S. Karton, a Law Corporation (“Karton”). Jeffrey Hagen, a member of Hagen & Hagen, appeared on behalf of defendant, Dr. William Russell Dougherty (“the Debtor”). Having considered the arguments of counsel, the evidence submitted prior to the trial, the testimony at trial, and this court’s records in the above-captioned case under Title 11 and the above-captioned adversary proceeding, and good cause appearing,
NOW, THEREFORE, I make the following findings of fact and conclusions of law:
Findings of Fact
1. The Debtor is the debtor in the above-captioned case under chapter 7. The Debtor commenced this case under Title 11 by filing a voluntary chapter 13 petition on October 4, 1999 (the “Petition Date”). The Debtor converted his case from a case under chapter 13 to a case under chapter 7 on April 12, 2000 (the “Conversion Date”).
2. Karton is a creditor of the Debtor and obtained the entry of a superior court default judgment for a recovery against *721the Debtor of in excess of $80,000 on August 11, 1998 (the “Karton Judgment”). The Debtor has filed motions to vacate the Karton Judgment, but the superior court has not vacated the Karton Judgment.
3. The claim that is the subject of the Karton Judgment is for legal services Karton provided to the Debtor. Karton represented the Debtor in connection with his marital dissolution proceeding and other matters, including assisting the Debtor in obtaining a loan. Because the Debtor could not obtain such a loan directly, the Debtor’s parents, Harry and Mary Dougherty (the “Debtor’s Parents”), obtained a loan secured by a deed of trust on their principal residence with the understanding that the Debtor’s Parents would loan the proceeds of that loan (the “Loan Proceeds”) to the Debtor. A true and correct copy of a letter relating to this loan and the uses of the Loan Proceeds is attached to the Joint Pré-Trial Stipulation (the “Stipulation”). That letter is dated October 28, 1998 and was countersigned by the Debtor on November 11,1998.
4. Prior to the Petition Date, the Debt- or maintained checking account number 0645-600-529 at the branch of the Wells Fargo Bank located at 433 N. Camden Drive, Beverly Hills, California 90212 (the “Original Checking Account”). Based on the services provided by Karton to the Debtor and the payments the Debtor had previously made to Karton drawn on the Original Checking Account, Karton had actual knowledge of the existence of the Original Checking Account. The Debtor knew that Karton was aware of the existence of the Original Checking Account at all relevant times.
5. During December 1998, the Debtor’s Parents delivered to the Debtor a check funding the loan from the Debtor’s Parents to the Debtor (the “Loan”). The Debtor deposited the Loan Proceeds into a new account, account number 6495-097115 (the “Loan Proceeds Account”). The Debtor opened the Loan Proceeds Account at a different Wells Fargo branch than the Original Checking Account. The Debtor used the Loan Proceeds Account to pay some of the costs of renovating his home and other living expenses. The Debtor did not inform Karton that he had opened the new Loan Proceeds Account, and the Debtor made no payments to Karton from the Loan Proceeds Account.
6. On August 27,1999, Karton caused a writ of execution to enforce the Karton Judgment (the “Writ”) to be levied against both an account held by Karton for the Debtor and the Original Checking Account. The levying officer received approximately $56,000 as a result of levying the Writ on both accounts (the “Levied Cash”).
7. During the chapter 13 case the Debtor asserted that Karton’s lien on the Levied Cash was avoidable as a preference under 11 U.S.C. § 547(b). If the Debtor were able to recover the Levied Cash, he told me and Karton during the chapter 13 proceedings that he intended to use it to complete the renovation of his principal residence, which he claimed as exempt. Because the Debtor’s chapter 13 plan was never confirmed, the Debtor never brought the preference action and the Levied Cash remains sequestered.
8. At some point between the levy on the Levied Cash and the close of business on August 30, 1999, the Debtor delivered to his accountant William Davidson checks made payable to the Debtor and asked Davidson to open a client trust account for the Debtor (the “Trust Account”). Davidson opened the Trust Account on August 31, 1999. At no time prior to the levy of the Writ on the Levied Cash had the Debt- or delivered any checks or money to Davidson to hold in trust for the Debtor. *722Prior to that date the Debtor had maintained and personally managed the Original Checking Account, using Quicken software for that purpose.
9. From and after the opening of the Trust Account through the Conversion Date, all checks the Debtor received were delivered to Davidson, who deposited them into the Trust Account. No additional deposits were made into the Original Checking Account after the levy of Karton’s Writ.
10. Davidson paid from the Trust Account only those bills that the Debtor expressly instructed him to pay. Davidson did not prepare a budget for the Debtor or exercise independent discretion or judgment in determining which checks to write on the Trust Account.
11. The balance in the Trust Account on the Petition Date was $12,540. Neither this balance nor the existence of the Trust Account was disclosed in either (a) the Schedules of Assets and Liabilities or Statement of Financial Affairs filed by the Debtor’s original bankruptcy counsel, Speros Maniates, on October 19, 1999 (collectively the “Original Schedules”), or (b) the Amended Schedules of Assets and Liabilities or Statement of Financial Affairs filed by Mr. Hagen on November 22, 1999 (the “Amended Schedules”). The court takes judicial notice of the Debtor’s Original Schedules, Amended Schedules, and all declarations filed by the Debtor in his bankruptcy case.
12. The Debtor established the Trust Account with the actual intent to hinder, delay, or defraud at least one creditor, that is, Karton. The Debtor has admitted that he established that account to hinder and delay the enforcement of the Karton Judgment. The Debtor compounded this misconduct by then concealing the establishment of the Trust Account and by making intentional fraudulent transfers into that account.
13. The Debtor did not sign his Original Schedules, but he acknowledged in a declaration filed with this court on November 22, 1999 and on cross-examination at trial that he authorized Mr. Maniates to sign the Original Schedules on his behalf.
14. On November 10, 1999, Karton filed a motion to dismiss the Debtor’s chapter 13 case, alleging it was improperly filed as a case under chapter 13, and a motion for relief from the automatic stay. Both motions were premised in part on (a) the amount of the non-contingent, liquidated, unsecured debts reflected in the Original Schedules and the debt limits set forth in 11 U.S.C. § 109(e) for qualification as a chapter 13 debtor; and (b) the inaccuracies contained in the Original Schedules. The Debtor opposed those motions contending, in part, that the errors contained in the Original Schedules were the responsibility of Mr. Maniates. The Debtor did not amend the Original Schedules until after Karton filed his motions to dismiss and for relief from the automatic stay which brought many of the Debtor’s errors in the Original Schedules to my attention.
15. The Debtor’s Parents filed a proof of claim prior to the conversion of the Debtor’s case from chapter 13 to chapter 7. It was in the amount of $100,000, and stated “per agreement with Debtor, as reduced from $227,000,” which was the amount of the debt set forth in the Debt- or’s Original Schedules. The Debtor and his counsel asked the Debtor’s Parents to reduce their claim, and asserted the reduction in opposition to Karton’s motion to dismiss the Debtor’s chapter 13 case for lack of eligibility under 11 U.S.C. § 109(e). The Debtor’s counsel prepared the Debt- or’s Parents’ $100,000 proof of claim. The Debtor had actual knowledge that the Debtor’s Parents were going to file that *723proof of claim. The Debtor asserted the reduction in the amount of the Debtor’s Parents’ claim in successfully opposing Karton’s motion to dismiss his chapter 13 case. The Debtor, and the Debtor’s counsel filed pleadings and made representations to me and Karton that the Debtor’s Parents’ claim had been so reduced by mutual agreement with the Debtor. They did not tell me at the time or disclose to Karton that any condition was imposed on that reduction.
16. The Debtor’s Parents’ second proof of claim was filed after the Conversion Date and was asserted in the amount of $227,150. The Debtor has not objected to the increased claim amount or asked his parents to withdraw the second proof of claim. The Debtor now asserts that the reduction of the Debtor’s Parents’ claim before the Conversation Date was conditioned on his confirmation or consummation of a chapter 13 plan. This condition was concealed from Karton and me prior to the Conversion Date.
17. The Debtor’s marital dissolution decree from the superior court established his obligations for spousal support and child support on an ongoing basis. The decree expressly provides for an increase in both spousal support and child support equal to a total of 25 percent of the amount by which the Debtor’s income exceeds $17,000 per month. The Debtor knew of these provisions at all relevant times.
18. The Debtor had at least two meetings with Eric Alcorn, an authorized representative of the University of Southern California (“USC”), during the week immediately before and after the Petition Date. USC was the Debtor’s employer at the time. Mr. Alcorn informed the Debtor in those meetings that his future monthly paychecks would be no more .than approximately $16,250 per month, commencing in November 1999, including money payable to the Debtor from a rapidly declining surplus account (“Surplus”) maintained for the Debtor’s benefit by USC and which the Debtor did not disclose in his Original Schedules or Amended Schedules. The Debtor received no more than $16,250 in income from USC in any month after October 1999. No representative of USC informed the Debtor he would be permitted to draw more than $16,250 per month at anytime after October 8, 1999. As a result of this and all other evidence offered by the Debtor, I conclude that he had no basis for stating under oath in the Amended Schedules that his income would be nearly $21,000 per month. The Debtor’s efforts at trial to persuade me to the contrary were unconvincing. Even if the Debtor had been able to persuade me that his income had increased to $21,000 per month, his support obligations would have increased as a result by $978 per month, consuming the $850 per month the Amended Plan proposed to pay unsecured creditors over the 60-month life of the Amended Plan. The Debtor intentionally overstated his income and understated his support and income tax obligations in the Amended Schedules.
19.The Debtor disclosed no accounts receivable in the Amended Schedules even though he actually received and collected checks for at least $4,200 from prepetition accounts during the chapter 13 case. After the Petition Date the Debtor delivered each of these checks to Davidson for deposit into the Trust Account and spent the proceeds from these checks on his personal post-petition expenses. Neither these receivables nor their collection, nor the payments made on the Debtor’s behalf by Davidson were disclosed in the Original Schedules, the Amended Schedules, or any other pleading filed with this court, except in response to discovery in this lawsuit.
*72420. Records relating to his accounts receivable were not maintained by the Debt- or personally. Those records were maintained by his assistant at USC. The Debtor never asked anyone at USC for a complete listing of the receivables owing to him, either as related to his employment at USC or as part of his process of completing the Original Schedules or the Amended Schedules, or at any other time.
21. The Debtor owned an interest in Hydrotech Surgical, Inc. (“HSI”) on the Petition Date. The interest in HSI is not listed in the Original Schedules and is listed in the Amended Schedules with a value of “NONE.” On December 31, 1999 the Debtor received a check in the amount of $2,965.17 as a distribution from HSI (the “HSI Distribution”). The Debtor deposited the HSI Distribution in the Trust Account and spent it on his personal living expenses. The Debtor’s receipt of the HSI Distribution was not disclosed in any pleading filed with this court prior to the Conversion Date.
22. The Amended Plan provided for distributions to unsecured creditors in the amount of $50,999 over a period of five years. The Amended Plan stated that unsecured creditors would receive $50,905 from a liquidation under chapter 7. The chapter 7 liquidation analysis did not include the funds in the Trust Account on the Petition Date, the Debtor’s receivables, the USC Surplus, the HSI Distribution, or any equity in the Debtor’s residence. It was also based on the Debtor’s overstated income and understated support and income tax obligations in the Amended Schedules and, therefore, was unreasonable and the Debtor’s Amended Plan therefore was infeasible.
23. The chapter 7 trustee later sold the Debtor’s residence for approximately $560,000, $100,000 more than the Debtor listed as the value of his home in the Amended Schedules.
24. The Debtor had at least a contingent right to require USC to deliver to him the USC Surplus as of the Petition Date if he did not use the USC Surplus by continuing to draw more than he was generating in fee income postpetition. The USC Surplus should have been disclosed in the Original Schedules and in the Amended Schedules.
25. The Amended Schedules contained the following errors and omissions: they (a) understated the Debtor’s spousal support and income tax obligations; (b) overstated the Debtor’s reasonably anticipated income; (c) omitted any reference to the Trust Account, the Debtor’s receivables, the USC Surplus, and the HSI Distribution; (d) understated (i) the value of the Debtor’s primary residence and the HSI Stock and (ii) the Debtor’s debt to the Debtor’s Parents; and (e) failed to disclose (if it was so) that the reduction in the Debtor’s debt to the Debtor’s Parents from $227,150 to $100,000 was subject to a condition that the Debtor would be able to achieve confirmation or consummation of a chapter 13 plan. At all times prior to the conversion of his case from chapter 13 to chapter 7, the Debtor had actual knowledge of those errors or omissions or he made them in reckless disregard of his obligation to accurately report the truth to his creditors and to the court. The misrepresentations were material. The Debt- or made these misrepresentations knowingly and fraudulently.
26. But for these intentional omissions and errors it would have been self-evident that the Debtor could not confirm a chapter 13 plan and the case could have been converted to chapter 7 or dismissed before the Debtor could have spent the proceeds of the accounts and other assets that he dissipated during the chapter 13 case. *725Looked at separately, at least some of the Debtor’s individual misstatements might be deemed to be minor and immaterial or not the result of fraudulent intent by the Debtor. Collectively, and in the context of the Debtor’s ongoing dispute with Karton, the errors related to material facts, were misrepresentations, and were made with an intent on the Debtor’s part to deceive Karton and the court.
27. The chapter 13 case, the original plan and the Amended Plan all were filed as part of a scheme to hinder, delay and defraud Karton by (a) obtaining a return of the $56,000 of Levied Cash in exchange for an agreement to pay creditors pursuant to a 5-year repayment plan; (b) investing that Levied Cash in the Debtor’s residence, which he claimed as exempt; and (c) then converting the Debtor’s case to a case under chapter 7 before making the payments to creditors under the plan. This is established from the facts that the Debtor had actual knowledge that his income was far less than he would have needed to maintain his promised payments under the plan or the Amended Plan, and the Debtor had no reasonable basis for believing his disposable income would increase to an amount sufficient to fund his promised payments thereunder before he would have defaulted. The Debtor made the above set forth multiple misrepresentations and omissions from the Original Schedules and the Amended Schedules as part of this scheme. Such misrepresentations and omissions were made knowingly and fraudulently.
28. The Debtor’s Parents’ $100,000 proof of claim was asserted fraudulently by the Debtor because it was designed and asserted by the Debtor to mislead me and creditors by concealing the intent that the Debtor asserted only much later that the reduction of their claim from $227,150 to $100,000 was conditioned on the confirmation or consummation of the Debtor’s chapter 13 plan. If this condition existed, as the Debtor now says it did, the Debtor’s concealment of the condition during the chapter 13 stage of his bankruptcy case was false, material, deceptive, reasonably and justifiably relied upon by Karton, and resulted in damage to Karton.
Conclusions of Law
29.Any of the foregoing findings of fact that is deemed to be a conclusion of law is hereby adopted as a conclusion of law; any of the following conclusions of law that is deemed to be a finding of fact is hereby adopted as a finding of fact.
30. The Debtor is legally responsible for the substantial inaccuracies and omissions in the Original Schedules. Under the circumstances herein, the filing of the Original Schedules requires denial of the Debtor’s discharge under 11 U.S.C. § 727(a)(4).
31. Because the Debtor established the Trust Account and the Loan Proceeds Account with the actual intent to hinder, delay, or defraud creditors, including without limitation Karton, the Debtor’s discharge must be denied under 11 U.S.C. § 727(a)(2)(A).
32. Taken collectively, the Debtor’s errors and omissions in the Original Schedules and Amended Schedules, and his decision not to disclose to me that the alleged reduction in the Debtor’s Parents’ claim was conditioned on confirmation of a chapter 13 plan, constitute (a) the knowing and fraudulent making of a false oath, and (b) the presentation or use of a false claim, within the meaning of 11 U.S.C. § 727(a)(4). Therefore, the Debtor’s discharge must be denied under 11 U.S.C. § 727(a)(4).
33. These findings of fact and conclusions of law render unnecessary any con*726elusion of law under 11 U.S.C. § 523(a)(2)(A) or (a)(6).
ORDER
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493493/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, Jr., Chief Judge.
Chipman-Union, Inc., Movant, filed on August 9, 2002, its Amended and Restated Motion for Determination of Tax Liability Under 11 U.S.C. § 505. Greene County, Georgia, Respondent, filed a response on August 27, 2002. Movant’s motion came on for a hearing on August 27, 2002. The Court, having considered the evidence presented and the arguments of counsel, now publishes this memorandum opinion.
Movant was a textile manufacturer. Movant operated facilities in Greene County, which were known as the Union Point Plant and the Bryan Scott Plant.
Movant had financial problems. An involuntary Chapter 7 case was filed against Movant on October 15, 2001. The Court entered an order for relief under Chapter 7 on November 8, 2001. The Court also entered an order converting Movant’s Chapter 7 case to a Chapter 11 case on November 8, 2001.
Movant is liquidating its assets and will not reorganize as a going concern. Movant has sold its Union Point Plant.1 Movant has employed Republic Textile Equipment Company to sell some of Movant’s remaining assets.
Movant’s equipment2 and inventory were subject to ad valorem taxation. O.C.G.A. § 48-5-3 (1999). Movant was obligated to file ad valorem tax returns by April 1 of each year. Movant was to “return” all equipment and inventory that it owned as of January 1. O.C.G.A. § 48-5-10, -18(a) (1999 & Supp.2002). Movant was to return its equipment and inventory at fair market value. O.C.G.A. § 48-5-6 (1999). Movant’s representative was to “solemnly swear” that the information on the return was true and correct. O.C.G.A. § 48-5-19 (Supp.2002).
*754Simply stated, Movant was obligated to file ad valorem tax returns by April 1. Movant was to return, at fair market value, the equipment and inventory that it owned on January 1.
Movant filed its 2001 ad valorem tax returns on May 10, 2001.3 Movant’s chief financial officer signed a Taxpayer’s Declaration, asserting that the “true market value” of Movant’s equipment was $8,866,450.4
Movant filed its 2002 ad valorem tax returns on March 13, 2002. Movant’s president signed a Taxpayer’s Declaration, asserting that the “true market value” of Movant’s equipment was $8,679,443.
The Taxpayer’s Declaration,5 which is part of the ad valorem tax return, provides as follows:
TAXPAYER’S DECLARATION
“I do solemnly swear that I have carefully read (or have had read) and have duly considered the questions propounded in the foregoing tax list, and that the value placed by me on the property returned, as shown by the list, is the true market value thereof; and I further swear that I returned, for the purpose of being taxed thereon, every species of property that I own in my own right or have control of either as agent, executor, administrator, or otherwise; and that in making this return, for the purpose of being taxed thereon, I have not attempted either by transferring my property to another or by any other means to evade the laws governing taxation in this state. I do further swear that in making this return I have done so by estimating the true worth and value of every species of property contained therein.”
The ad valorem tax returns require Movant to determine the “basic cost approach value” of its equipment. This requires Movant to determine the original cost and the economic life of the equipment. Movant then multiplies the cost times a depreciation factor.6 The result is the basic cost value. Should Movant believe that the basic cost value does not reflect fair market value, then Movant may list its estimate of value under a column titled Taxpayer Returned Value.
Movant reported the basic cost value of its equipment for 2001 as $8,866,450 and for 2002 as $8,679,443. Movant did not list different values in the column titled Taxpayer Returned Value.
Movant, in the motion before the Court, contends that the fair market value of its equipment on January 1 of 2001 and January 1 of 2002 was $1,296,000. Movant urges the Court to determine the value of its equipment to be $1,296,000. Movant notes that this would reduce its ad valorem tax obligations. Movant relies upon section 505(a) of the Bankruptcy Code,7 which *755provides, in relevant part, that the court may determine the amount or legality of any tax, whether or not previously assessed or paid.
Movant relies upon Mocco v. City of Jersey City (In re Mocco) 8 in which the Bankruptcy Court for New Jersey stated:
I. Bankruptcy Court Authority to Review Tax Assessments
The bankruptcy court has authority to adjudicate tax assessments of real property pursuant to 11 U.S.C. § 505(a) ....
Section 505 has been interpreted to permit the bankruptcy court to determine the amount of any tax, including real estate tax assessments. The ability of a bankruptcy court to determine any and all issues of tax liability of debtors, when there has been no prior determination by any state, judicial or judicial body, is well established in the Third Circuit. In determining such tax liabilities, section 505 grants a bankruptcy court broad discretionary powers.
A debtor’s failure to meet state procedural requirements (such as payment of tax obligation) or the lapse of time between a tax year and the time of the filing does not limit the applicability of 11 U.S.C. § 505. In permitting assessments of real estate taxes where state law procedural requirements are not met, the bankruptcy code through section 505, seeks to protect creditors from dissipation of an estate’s assets. Such dissipation could result if creditors are bound, by a tax judgment which a debt- or, due to-its ailing conditions, failed to contest.
Once beyond the state’s procedural requirements, the bankruptcy court must give full faith and credit to the substantive law of the state to answer the ultimate question of whether the taxes are legally due and owing.
222 B.R. at 455.
Thus, the Court must look to state substantive law to determine the value of Movant’s equipment for ad valorem tax purposes.
The Georgia Code provides, in part, as follows:
48-5-1. Legislative intent.
The intent and purpose of the tax laws of this state are to have all property and subjects of taxation returned at the value which would be realized from the cash sale, but not the forced sale, of the property and subjects as such property and subjects are usually sold except as otherwise provided in this chapter.
O.C.G.A. § 48-5-1 (1999).
Movant relies upon Georgia Department of Revenue Regulation 560-11-10-08, which provides, in part, as follows: *756560-11-10-.08 PERSONAL PROPERTY APPRAISAL.
(5) Valuation procedures.
The appraisal staff shall follow the provisions of this paragraph when performing their appraisals. Irrespective of the valuation approach used, the final results of any appraisal of personal property by the appraisal staff shall in all instances conform to the definition of fair market value in Code section 48-5-2 and this Rule.
(a) General procedures.
The appraisal staff shall consider the sales comparison, cost, and income approaches in the appraisal of personal property. The degree of dependence on any one approach will change with the availability of reliable data and type of property being appraised.
2. Selection of approach.
With respect to machinery, equipment, personal fixtures, and trade fixtures, the appraisal staff shall use the sales comparison approach to arrive at the fair market value when there is a ready market for such property. When no ready market exists, the appraiser shall next determine a basic cost approach value. When the appraiser determines that the basic cost approach value does not adequately reflect the physical deterioration, functional or economic obsolescence, or other wise is not representative of fair market value, they shall apply the approach or combination of approaches to value that, in their judgement, results in the best estimate of fair market value. All adjustments to the basic cost approach shall be documented to the board of tax assessors.
Ga. Comp. R. & Regs. 560-11-10-.08(5)(a)(2).
The regulations also provide:
1. Liquidation sales.
The appraisal staff should recognize that those liquidation sales that do not represent the way personal property is normally bought and sold may not be representative of a ready market. For such sales, the appraisal staff should consider the structure of the sale, its participants, the purchasers, and other salient facts surrounding the sale. After considering this information, the appraisal staff may disregard a sale in its entirety, adjust it to the appropriate level of trade, or accept it at face value.
Ga. Comp. R. & Regs. 560-11-10-•08(5)(d)(l).
Douglas Henry Diamond testified on behalf of Movant. Mr. Diamond is a sales engineer with Republic Textile Equipment Company, the company that is liquidating most of Movant’s remaining assets. Republic Textile is a brokerage company for textile equipment. Mr. Diamond also is vice president of Republic Associates, which is an appraisal company. Mr. Diamond testified that he has been in the appraisal business since 1994.9
Mr. Diamond testified that he first saw Movant’s equipment in February of 2002. Mr. Diamond’s appraisal report was admitted into evidence. The appraisal report lists a high value and a low value for Movant’s equipment.10 The appraisal report also fists the sales price for equipment that has been sold. Mr. Diamond testified that, in his opinion, the liquidation value of Movant’s equipment is $1.2 million. Mr. Diamond testified that liquidation value is not the same as “fire sale *757value.” Mr. Diamond testified that Movant’s equipment has not sold quickly and is part of a “specialized market.” Mr. Diamond testified that he believes that Movant’s equipment eventually will be sold for a total of $1.2 million.11 Mr. Diamond testified that Movant is not under duress to sell its equipment because Movant is not having to pay warehouse or storage fees. Mr. Diamond testified that the bank is willing to wait for a higher price.12
Mr. Diamond testified that, in determining the value of Movant’s equipment, he used the sales price for the equipment that has been sold. Mr. Diamond testified that he used the low values in his appraisal report for the remaining equipment because Movant is having a difficult time selling the equipment.13
Mr. Diamond testified that he had not been asked to offer an opinion as to the value of Movant’s equipment for 2000 or 2001.14 Mr. Diamond testified that the value of Movant’s equipment would not have radically or drastically changed between January 1, 2001, and when he first saw the equipment in February of 2002.15
Mr. Diamond testified that he did not know the value of the computer equipment listed on Movant’s ad valorem tax returns. Mr. Diamond testified that the computers were sold with the building prior to his employment.16
The Court notes that Mr. Diamond is a representative of the company that is liquidating Movant’s equipment. He did not see the equipment in 2000 or 2001. Mr. Diamond testified that he has not been asked to offer an opinion as to the value of the equipment for 2000 or 2001. Movant’s chief financial officer signed a Taxpayer Declaration in 2001 and Movant’s president signed a Taxpayer Declaration in 2002, valuing the equipment substantially higher than the value testified to by Mr. Diamond. Movant’s bankruptcy case was filed in October of 2001. Movant was liquidating its assets when Mr. Diamond first saw the equipment in February of 2002. From the evidence presented, the Court is not persuaded that Movant has carried its evidentiary burden for the Court to adjust the valuation that Movant reported in its 2001 and 2002 ad valorem tax returns. The Court is not persuaded by the testimony of Mr. Diamond. Thus, Movant’s tax returns with their declarations of value must stand.
The Court now turns to the second issue raised in Movant’s motion. Movant’s inventory was eligible for a 100 percent freeport exemption17 from ad valorem taxation.18 Movant had to file its freeport application by April 1, 2001, to receive the full exemption for 2001. Movant did not file its freeport application until May 10, 2001. Thus, Movant was entitled to a *758freeport exemption of only 58.33 percent for 2001.19
Movant urges the Court to excuse the failure to timely file its freeport application. Movant urges the Court to allow it to claim the full exemption for 2001. Movant offers no reason for not timely filing its freeport application.
In Rockdale County v. Finishline Industries, Inc. of Georgia,20 Finishline did not receive a freeport application from the county tax commissioner as it had in prior years. Finishline did not timely file a freeport application. Finishline, upon receipt of its tax bill in September, requested that the tax board accept its untimely freeport application. Finishline’s request was denied. The Georgia Court of Appeals stated:
The burden of timely filing the application for Freeport exemption lies with Finishline. Finishline’s failure to satisfy its burden of proving that it timely filed for such exemption, precludes its entitlement thereto. Applications for Freeport exemptions and personal property report forms are required by law to be furnished by the tax commissioner and filed by the date on which the tax commissioner closes the books. See OCGA § 48-5-48.1(a). This Court strictly enforces the required filing deadline.... Additionally, although the County is required to furnish the report forms, the tax code does not require that the County mail the report forms to taxpayers, or to insure delivery thereof if mailed. The County is required only to make such forms available. There is no evidence in the record that the forms were not available to Finishline by requesting them from the County....
... Finishline failed to comply with its statutory duty and, therefore, is not entitled to a Freeport tax exemption for tax year 1996.
518 S.E.2d at 722.
“Since the [freeport exemption] statute provides for an exemption from taxation, it must be strictly constructed.” Gwinnett County Board of Tax Assessors v. Makita Corp. of America, 218 Ga.App. 175, 460 S.E.2d 538, 539 (1995), cert. denied, (corporation deposited freeport application into corporation’s mailbox on last day to file application, application was received by county tax commissioner five days after deadline, corporation not entitled to freeport exemption).
In Committee for Better Government v. Black,21 the county had accepted untimely freeport applications in prior years. The Georgia Court of Appeals stated:
There is no express authority to grant an extension of time or to ignore the statutory waiver of exemption for failing to make a timely application.
We must disagree with the [lower] court’s holding that the Board was authorized to extend the period of time for accepting applications beyond the date on which the books for the return of taxes in the county were closed. State law establishes such date as a mandatory deadline and gives a local board of tax assessors no authority to extend it. Under the law, we thus hold that the defendants acted improperly in allowing untimely applications for freeport exemptions for 1993.
453 S.E.2d at 774.
Turning to the case at bar, the Court can find no statutory basis under state law *759to excuse an untimely filing of a freeport application. Movant has cited no legal authority under state law to support its position. The Court also notes that Movant has not offered any reason for not timely filing its freeport application.
The Court can only conclude that Movant cannot be excused from its failure to timely file a freeport application.
An order in accordance with this memorandum opinion will be entered this date.
. The sale included the real estate, furniture, fixtures, and some of the machinery and . equipment.
. Equipment includes fixtures, furniture, office equipment, computer hardware, production machinery, tools, and certain other personal property.
. Movant's 2001 ad valorem tax returns were filed 40 days late.
. Movant asserted that the fair market value of its equipment at the Bryan Scott Plant was $832,844 and at the Union Point Plant was $8,033,606. Movant does not contest the assessment value of its inventory.
. The Taxpayer's Declaration is identical to the declaration required by O.C.G.A. § 48-5-19(a) (Supp.2002).
. Ga. Comp. R. & Regs. 560-11-10-,08(5)(f)(4) (2002). The depreciation factor (or “composite conversion factor”) decreases each year during the economic life of the equipment.
. 11 U.S.C.A. § 505(a) (West 1993).
§ 505. Determination of tax liability
(a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any *755addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.
(2) The court may not so determine—
(A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under this title; or
(B) any right of the estate to a tax refund, before the earlier of—
(i) 120 days after the trustee properly requests such refund from the governmental unit from which such refund is claimed; or
(ii) a determination by such governmental unit of such request.
11 U.S.C.A. § 505(a) (West 1993).
. 222 B.R. 440 (Bankr.D.N.J.1998). See also City of Jersey City v. Mocco (In re Mocco), 2002 WL 31160138 (D.N.J. Sept.30, 2002).
. Transcript of Hearing held on August 27, 2002, p. 9 (hereinafter Tr. p__).
. The high value is generally 15% to 20% more than the low value.
. Tr. p. 11-13, 16.
. Tr. p. 17.
. Tr. p. 20.
. Tr. p. 18-19.
. Tr. p. 13-14.
. Tr. p. 15.
. "The purpose of the freeport exemption from ad valorem taxation, both as a constitutional provision and as to local referendum, was to promote and to keep local employment and economy high through maintaining or increasing manufacturing and commerce within Georgia counties.” Fulton County Tax Commissioner v. General Motors Corp., 234 Ga.App. 459, 507 S.E.2d 772, 777 (1998), cert. denied, (1999).
.See O.C.G.A. § 48-5-48.2(d) (1999); Greene County Exhibit 2 (showing 100% county exemption).
. O.C.G.A. § 48-5-48.1(a), (c)(2)(B) (1999).
. 238 Ga.App. 467, 518 S.E.2d 720 (1999), cert denied.
. 216 Ga.App. 173, 453 S.E.2d 772 (1995), cert. denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493494/ | MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On October 24, 2002, during the continuation of a confirmation hearing, the court heard Ashley Cooper McKenna’s and Edythe Dupree’s objections to Danny Lawrence Dupree’s proposed Chapter 13 Plan. At the conclusion of the hearing, the court took the matter under advisement and confirmation was continued to a future date and time. After considering the evidence presented at the confirmation hearing, the parties’ oral arguments and stipulations, as well as applicable statutory and case law, the court makes the following findings of fact and conclusions of law.
FACTS
On June 5, 2000, the Superior Court of Muscogee County (“Superior Court”) entered a final judgement in Danny Lawrence Dupree (“Debtor”) and Mrs. Dupree’s divorce action. On June 26, 2000, Debtor filed a motion for a new trial with the Superior Court. On August 14, 2000, a contempt action was filed against Debtor by Mrs. Dupree. On September 22, 2000, the Superior Court denied Debtor’s motion for a new trial. On October 19, 2000, Debtor was found in contempt of court in the Superior Court, ordered to pay a fine, and was incarcerated. Despite the contempt order, Debtor was released without paying the fine.
According to Debtor, also on October 19, 2000, his application for discretionary review of his denied motion for a new trial was filed with the Supreme Court of Georgia. However, at the October 24, 2002 confirmation hearing, Debtor offered into evidence only a faxed copy of a docket sheet for the discretionary application purportedly from the Supreme Court of Georgia. Opposing counsel objected to the exhibit and the objection was sustained. Debtor’s request was granted to hold open the record until the Monday, October 28, 2002 to give him the opportunity to submit a certified copy of the docket sheet, as well as time to submit a letter brief on the issues before the court. Debtor asked for and received one additional day, extending the deadline to Tuesday, October 29, 2002. Debtor failed to submit either a certified copy of the docket sheet from the Supreme Court of Georgia or a letter brief.
*761In 2001, after falling behind in child support payments, Debtor moved back in with Mrs. Dupree at her residence sometime during late spring or early summer. Mrs. Dupree had inherited the residence from her mother. Debtor paid no rent to Mrs. Dupree but assisted with the upkeep on the house and the yard. While it is disputed as to the level of assistance Debt- or provided to Mrs. Dupree, she did agree that Debtor did assist at times with the house and yard work. This arrangement went on for approximately seven months until December 2001.
Additionally, during this same time frame, Debtor began to care for the Debt- or and Mrs. Dupree’s minor child. Eventually, the child was removed from daycare and Debtor was the primary care giver for the child while Mrs. Dupree was at work. The reason why the child was removed from daycare is in dispute. However, both parties are in agreement that Mrs. Dupree did in fact take the child out of daycare which saved Mrs. Dupree $85 per week in child care costs.
Ms. McKenna objected to confirmation of Debtor’s proposed Chapter 13 plan. Ms. McKenna contends that she has a $250' non-dischargeable priority claim for attorney’s fees pursuant to the contempt order in Superior Court. Ms. McKenna objects to the proposed treatment of her claim in Debtor’s Chapter 13 plan.
Mrs. Dupree also objected to confirmation of Debtor’s proposed Chapter 13 plan. Mrs. Dupree contends she has a $2,900 non-dischargeable priority claim for back child support, not subject to the $1,500 offset as proposed in the plan. Mrs. Dupree objects to the proposed treatment of her claim in Debtor’s Chapter 13 plan.
Regarding the attorney’s fees awarded in the contempt order, Debtor asserts that pursuant to O.C.G.A. § 5 — 6—35(h) the Superior Court lacked jurisdiction to enter and enforce the contempt order because Debtor had filed his application for discretionary review with the Supreme Court of Georgia. O.C.G.A. § 5-6-35(h). Therefore, Debtor argues that Ms. McKenna’s claim is invalid.
Regarding the child support arrearage, at the confirmation hearing, Debtor orally agreed that he owes Mrs. Dupree $2,900 in back child support. However, Debtor alleges that he is entitled to a set-off on the amount for child care services rendered to Mrs. Dupree iii the year 2001. Debtor contends that new case law allows for equitable reduction of child support when both parents have come to an agreement as to the reduction. Debtor contends he and Mrs. Dupree came to an oral agreement that she would reduce the child support arrearage in exchange for his child care services. Additionally, he contends not only was the agreement reached, it was fully executed. Debtor provided the child care services which reduced Mrs. Dupree’s monthly expenses. Debtor contends that Mrs. Dupree accepted and encouraged this arrangement. In addition to the child care for their son, Debtor also took care of the house, the yard, and helped with Mrs. Dupree’s other two children. Debtor contends that both parties agreed to and benefitted from the arrangement.
Ms. McKenna contends that the Superi- or Court did not lose jurisdiction over Debtor and Mrs. Dupree’s divorce action merely because Debtor filed an application for discretionary review with the Supreme Court of Georgia. The application was for a discretionary review, not an appeal as of right. Trial court jurisdiction is not lost until the Supreme Court of Georgia grants the discretionary appeal. Additionally, the record was never sent up to the Supreme Court of Georgia. Therefore, the Superior Court never lost jurisdiction over the Duprees’ divorce case. Thus, the contempt *762order and attorney’s fees which were awarded in association with that order are valid. Ms. McKenna contends that she has an enforceable non-dischargeable priority claim which is not properly dealt with in Debtor’s proposed Chapter 13 plan.
Mrs. Dupree contends that even if courts allow parents to come to an independent agreement regarding child support, there was no agreement in this case. There was no agreement, oral or written, that Mrs. Dupree would off-set what Debt- or owed her in back child support for the child care services Debtor rendered while he was living at Mrs. Dupree’s home in 2001. Mrs. Dupree did not want to take the child out of daycare but did so only after Debtor failed to take the child to the daycare facility for a month or so. Additionally, Mrs. Dupree disputes how much Debtor assisted with work around the house and the yard. Therefore, absent an agreement, Debtor would not be entitled to an off-set even if the law is as Debtor suggests. Mrs. Dupree contends that she has an enforceable non-dischargeable priority claim for $2,900 which is not properly dealt with in Debtor’s proposed Chapter 13 plan.
CONCLUSIONS OF LAW
Debtor bears the burden to prove that his Chapter 13 plan is in conformity with the statutory requirements for confirmation. See generally In re Groves, 39 F.3d 212, 214 (8th Cir.1994); In re Hendricks, 250 B.R. 415, 420 (Bankr.M.D.Fla.2000). Ms. McKenna and Mrs. Dupree made objections to the treatment of their claims under Debtor’s proposed Chapter 13 plan. Debtor bears the burden to overcome the objections. If Debtors fails to do so, he must modify his Chapter 13 plan to provide for adequate treatment of Ms. McKenna’s and Mrs. Dupree’s claims.
According to O.C.G.A. § 5-6-35(h), the filing of an application for appeal acts “as a supersedas to the extent that a notice of appeal acts as supersedas.” O.C.G.A. § 5-6-35(h). A supersedas writ suspends the trial court’s power to execute a judgment that has been appealed. Black’s Law Dictionary 1437 (6th ed.1990). Under Georgia law, the Superior Court had no power to execute or enforce the contempt order against Debtor.
Typically, res judicata would prevent Debtor from attacking a state court judgment in the bankruptcy court. However, under Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939), inherent in the bankruptcy court’s equitable powers is the ability to look into the validity of any claim asserted against a debtor’s bankruptcy estate. Pepper, 308 U.S. at 305, 60 S.Ct. 238. Further, if the bankruptcy court determines that another court’s judgment is invalid, the judgment claim may be disallowed. See id. This concept has been followed in bankruptcy courts in other circuits, as well as in our own. See In re Kovalchick, 175 B.R. 863, 872 (Bankr.E.D.Pa.1994) (despite the doctrines of res judicata and collateral estoppel, a court may not be bound by another court’s judgment if it was rendered without proper jurisdiction); Reilly v. McCracken (In re Brickyard, Inc.), 36 B.R. 569, 573 (Bankr.S.D.Fla.1983) (state court judgment could be collaterally attacked because the state court lacked jurisdiction to render the judgment).
Debtor did not submit to the court a certified copy of the docket sheet from the Supreme Court of Georgia. In failing to do so, Debtor cannot prove that the Superior Court lacked jurisdiction to render the contempt order. Therefore, Ms. McKenna’s claim for $250 is valid and nondischargeable. The claim must be treated as such in Debtor’s Chapter 13 plan.
*763Regarding the child support arrearage off-set, Debtor failed to convince the court that he and Mrs. Dupree reached any agreement, oral or otherwise, that Debtor’s child support arrearage would be reduced while he stayed with Mrs. Dupree and cared for their minor child. Further, even if Debtor had proved such an agreement, he failed to show that this court has the power to amend a child support arrearage claim. As stated above, this court may have the equitable power to disallow a judgment claim if lack of jurisdiction is shown. However, Debtor has failed to prove that this court can go behind a valid state court judgment regarding child support to modify a child support arrearage. Therefore, Mrs. Dupree’s claim is valid and non-dischargeable for the full amount of $2,900. The claim must be treated as such in Debtor’s Chapter 13 plan.
Conclusion
The court finds that Debtor failed to prove that Ms. McKenna’s claim for attorney’s fees associated with the contempt order is invalid. Therefore, Ms. McKenna’s objection to confirmation of Debtor’s proposed Chapter 13 plan is sustained. Debtor is directed to modify his Chapter 13 plan to give proper treatment to Ms. McKenna’s claim in accordance with this Memorandum Opinion within 20 days.
Further, the court finds there was no agreement reached between Debtor and Mrs. Dupree to reduce the child support arrearage. Even if such an agreement had been proved, the court finds that Debtor has failed to meet his burden to prove that this court has the power to modify a claim for child support arrearage. Therefore, Mrs. Dupree’s objection to confirmation of Debtor’s proposed Chapter 13 plan is sustained. Debtor is directed to modify his Chapter 13 plan to give proper treatment to Mrs. Dupree’s claim in accordance with this Memorandum Opinion within 20 days.
An order in accordance with this Memorandum Opinion will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493496/ | ORDER ON DEBTOR’S APPLICATIONS FOR INTERIM COMPENSATION
ALAN H. W. SHIFF, Chief Judge.
Because this case is complicated by its relationship to a prior bankruptcy ease in the district of Delaware, a brief historical note is warranted in the analysis of the debtor’s instant application for interim compensation.
Scott Cable Communications, Inc., commenced a chapter 11 case in Delaware on February 14, 1996. On December 6, 1996, the Delaware Bankruptcy Court confirmed a plan, which, inter alia, treated certain holders of equity as holders of secured claims (“Jr. PIK” noteholders).
On October 1, 1998, Scott (hereafter the “debtor”) commenced a second chapter 11 case in this court and filed a so-called “prepackaged” liquidating plan, pursuant to which it sought authorization to sell assets, conditioned on the entry of a confirmation order. United States v. State Street Bank and Trust Co., et al. (In re Scott Cable Communications Inc.), 232 B.R. 558, 562-563 (Bankr.D.Conn.1999). On November 16, 1998, the Internal Revenue Service objected to confirmation for the reason that the plan constituted a tax avoidance scheme. The objection was sustained on December 11, 1998. In re Scott Cable Communications, Inc., 227 B.R. 596, 604 (Bankr.D.Conn.1998).1
On November 19, 1998, the IRS filed adversary proceeding 98-5104, for a determination that the Jr. PIK noteholders are holders of an equity interest or that their claims be equitably subordinated. On December 17, 1998, the defendant, State Street Bank, the indentured trustee for the Jr. PIK noteholders, filed a motion for summary judgment. The motion was granted on April 26, 1999, for the reason that the issue of secured status of the Jr. PIK noteholders was precluded by the res judicata effect of the Delaware Bankruptcy Court’s confirmation order. Id., 232 B.R. at 565 (Bankr.D.Conn.1999).
*2On March 9, 2001, the District Court reversed, holding that although “the IRS received both the Delaware Plan and Delaware Disclosure Statement,” and had filed notices of appearance in the Delaware bankruptcy proceeding, “it did not receive adequate notice ... that its pecuniary interests would be implicated.” In re Scott Cable Communications, 259 B.R. at 536, 538, 540 and 545 (D.Conn.2001). The adversary proceeding was remanded for further proceedings to give the IRS an opportunity to object to the consequences of the Delaware plan provisions that treated the Jr. PIK noteholders as holders of secured claims.
Delaware Proceeding.
On June 7, 2001, this court transferred AP 98-5104 to the Delaware Bankruptcy Court along with any administrative expense applications arising out of that proceeding after determining that that court is in the best position to construe its confirmation order in the context of the IRS’ challenge. See In re Scott Cable Communications, supra, 263 B.R. 6, motion for leave to appeal denied, Case no. 3:99-CV-918, (D.Conn. August 30, 2001) (AWT).
On March 4, 2002, Delaware bankruptcy judge Walsh overruled an objection by the IRS to the debtor’s motion to intervene. See United States v. State Street Bank (In re Scott Cable Communications), 2002 WL 417013 (Bankr.D.Del.).
The United States argues that Debtor is not entitled to intervene as a “party in interest” because it has no meaningful financial or other interest to protect in the adversary proceeding. I disagree. Although Debtor may not have a significant financial interest in the outcome of the adversary proceeding, it does have an interest and fiduciary duty, as debtor-in-possession, to ensure that the Estate’s assets are distributed in accordance with the proper legal and equitable priorities of the parties in interest. It also has an interest in the adversary proceeding because the outcome of the proceeding has the potential to disrupt Debtor’s current capital structure as established by the confirmation order entered in connection with Debtor’s prior reorganization case.
Id., 2002 WL 417013 at *3.
Proceeding in this court.
On April 4, 2002, the debtor filed a motion, to which the IRS objected, for a cash collateral carve out, so that, inter alia, it could pay any administrative expenses that were allowed by the Delaware Bankruptcy Court.2 See May 1, 2002 hearing record at 3:19. On July 18, 2002, the court overruled the IRS’ objection, observing that Judge Walsh’s March 4, 2002 order, which was not appealed, established the law of this case. The July 18 order also authorized a $829,400 carve out from the escrow fund to pay administrative expenses, subject to any further orders from this or the Delaware court. See In re Scott Cable Communications, 2002 WL 1988166 *1, n. 4 (Bankr.D.Conn.2002) appeal pending, Case no. 02-CV-1725 (D.Conn.) (AWT).3
On October 22, 2002, the debtor filed an application for $141,708.50 and $33,926.47 for the interim fees and expenses, respectively, of Akin, Gump. By separate applica*3tion, the debtor sought $21,304.50 and $2,350.77 for the interim fees and expenses, respectively, of Zeisler & Zeisler. The IRS objected for essentially same unpersuasive reasons it raised in opposition to the debtor’s motion for the cash collateral carve out, ie., that the debtor lacks standing to defend the Delaware adversary proceeding, has an actual conflict of interest, and is administratively insolvent. See May 1, 2002 hearing record at 2:44, 2:50, 3:42, 3:52, and December 3, 2002 hearing record at 11:02, 11:04, 11:12, 11:40, 11:46. On December 3, 2002, the Akin, Gump application was bifurcated, so that, consistent with the order transferring the adversary proceeding, see supra, slip op. at 3, the Delaware Bankruptcy Court would assess the fees and expenses incurred there, and this court would review only those matters as to which jurisdiction was retained.
Accordingly, IT IS ORDERED that subject to adjustment and disgorgement, Akin, Gump is allowed interim fees of $139,433.50 and expenses of $4,625.01, and Zeisler & Zeisler is allowed interim fees of $21,304.50 and expenses of $2,350.77. See 11 U.S.C. § 331; and
IT IS FURTHER ORDERED, that the effective date of this order shall be 30 days from this date without prejudice to any party to timely seek an extension for cause.
. On December 23, 1998, the debtor moved for permission to sell its assets free and clear of all interests with the interests to attach to the proceeds of the sale which were to be deposited into an interest bearing escrow account. See 11 U.S.C. § 363(f). The debtor's motion was granted on January 14, 1999, and the sale closed on February 12, 1999. As of April 26, 1999, approximately $30,291,296 remained in the escrow account, which is the sole remaining asset in this case. The Jr. PIK noteholders assert a security interest in the fund, and the IRS and others assert administrative claims in this case. See In re Scott Cable Communications Inc., supra, 232 B.R. at 563. See also docket items 27 and 116.
. The adversary proceeding is numbered 01-4605 in the Delaware Bankruptcy Court.
. Since there is no stay pending the appeal of the cash collateral order, this court retains jurisdiction to implement its terms. See In re Prudential Lines, Inc., 170 B.R. 222, 243 (S.D.N.Y.1994) (''[WJhile an appeal of an order or judgment is pending, the court retains jurisdiction to implement or enforce the order or judgment”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493497/ | MEMORANDUM OF DECISION BASED UPON TRIAL ON THE MERITS
COLLEEN A. BROWN, Bankruptcy Judge.
The plaintiff, Clare Creek (LeDuff) Kelsey (referred to herein as “the debtor”), has filed a Complaint seeking a final judgment of this Court determining that she is entitled to a discharge of the student loan obligations she owes to the defendants, based upon undue hardship pursuant to 11 U.S.C. § 523(a)(8). The parties have stipulated that this is a core proceeding and this Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. For the reasons set forth below, the Court holds that the subject student loans are dischargeable.
BACKGROUND
1. Procedural Background
On July 14, 1994, the debtor filed a voluntary petition for relief under chapter 7 of title 11 U.S.C. (“the Bankruptcy Code”). An Order Discharging the Debtor and a Final Decree were entered and the case was closed on November 8, 1994. On February 15, 2000, the debtor filed a Motion to Reopen Case in order to seek an undue hardship discharge of certain law school and post graduate student loans. The Court granted the motion on March 28, 2000 and the debtor initiated this adversary proceeding on June 1, 2000 by filing “Debtor’s Petition for Hardship Discharge” seeking a hardship discharge *134based solely upon 11 U.S.C. § 523(a)(8). In the petition, the debtor alleges that she is unable to maintain a minimal standard of living, that she suffers from psychiatric and emotional disabilities, and that she has made good faith efforts to repay her school loans. The debtor subsequently filed a motion to amend the initial pleading to conform with certain requirements of the Local Rules; that motion was unopposed and granted. The defendant, Educational Credit Management Corporation (“ECMC”), filed an Answer denying the allegations of the petition. In its Answer and Affirmative Defenses, the defendant, The Educational Resources Institute (“TERI”), likewise denied the material allegations of undue hardship and asserted a Counterclaim for payment of its loans and attorneys fees. The debtor filed an Answer to the Counterclaim opposing all relief requested by the defendants. Other named defendants have been voluntarily dismissed.
A succession of motions, protracted discovery disputes and related papers have been filed by the parties. On September 11, 2000, the debtor filed a Motion for Leave to Amend Complaint seeking certain non-substantive changes in the initial pleading, including a request to recast the pleading as an Amended Complaint rather than a “petition.” The motion was unopposed and granted, and the defendants each filed an answer to the debtor’s Amended Complaint for Hardship Discharge, with each defendant denying the material allegations of the Amended Complaint. While the Amended Complaint reconfigured the original allegations and the title of the pleading, the sole basis for relief remained the undue hardship discharge provisions of § 523(a)(8) of the Bankruptcy Code. There are no allegations of breach of contract or prayers for relief pursuant to Title IV of the Higher Education Act set forth in the Amended Complaint.
On January 4, 2001, the debtor filed a Motion for Summary Judgment. The Court denied the motion based upon a determination that genuine issues of material fact existed regarding, inter alia, the nature and extent of the debtor’s disability, her earning capacity and her good faith efforts to repay these student loans. A two-day non-jury trial commenced April 19, 2001, and this Court reserved judgment to further consider the evidence presented and applicable law.
2. The Undisputed Evidence
The salient facts in this matter focus on three distinct but critically interrelated sequences of events: the debtor’s education history, the debtor’s employment history and the debtor’s health history. In the interest of clarity, the three historical sequences are merged into a single chronology. Many pertinent facts relating to each of these sequences are generally not in dispute. See Joint Stipulation of Facts dated January 12, 2001 [dkt # 86-1] (referred to herein as “SF”), as adopted by the parties in their Joint Pretrial Statement filed April 14, 2001. What are in dispute, however, are first, the significance and reliability of the debtor’s work history, and second, the impact of the debtor’s health on both her ability to work and her efforts to repay the loans.
As of the date of the trial, Clare Creek (LeDuff) Kelsey was fifty years old, not married and had no dependents (SF 1). She owed student loans to the two defendants in an aggregate amount totaling just over $158,000 (referred to herein as “the student loan balance”) (SF 40, 69). The loans in question were incurred to defray the debtor’s law school and master’s degree educational costs and related expenses.
*135The debtor’s educational history is rather protracted. She began her undergraduate studies by taking part-time courses at a local community college and then at a small extension campus of the University of Michigan, where she had a pattern of signing up for two courses, going most of the way through the semester and then late in the semester dropping one or both of the courses (SF 8). In 1978, the debtor decided to go to college full-time and enrolled at the University of Nevada at Las Vegas (hereafter “UNLV”) where she financed a portion of her schooling with student loans (SF 9). In 1981, the debtor transferred to San Diego State University where she completed her bachelors’ degree in 1984, approximately six years after commencing her undergraduate studies (SF 11,13).
The debtor began law school in 1984 when she enrolled as a full-time student at the University of San Diego School of Law (hereafter “USD”) (SF 13). Ultimately, the debtor started law school three times, each time de novo (SF 14). She commenced her study in 1984, attended law school for one year, withdrew from school in the late fall or early winter, and then tried twice again over the next few years, never making it beyond the middle of the winter/spring semester (SF 14). Before beginning law school for the third and final time, the debtor sought counseling, and consulted with Diane Kulstad, MSW (SF 15). She was undergoing a separation from her second husband at this time (SF 15). Prior to her first meeting with Ms. Kulstad, the debtor had never heard of clinical depression (SF 16), and the debtor had never entertained the notion that she might have a mental or psychological impairment both because the concept was unknown to her and because of her tested high intelligence (SF 12). After beginning treatment with Ms. Kulstad, the debtor reentered law school in 1989 (SF 17). She attended classes primarily in the night class program because that curriculum required fewer credits per semester, as most of the night students had full-time day jobs (SF 19). The following spring — the third time she was a second semester law student at USD — the debtor was selected to write for law review (SF 17, 18). At USD, an invitation to write for law review was based upon grades; her invitation was based upon the fact that she was number seven in a class of 85 and hence in the top 10% of her class (SF 17). The debtor reportedly graduated from USD law school in 1993. The combined amount of the student loan balance allocable to the debtor’s law school education is stipulated to be approximately $ 76,290 as of January, 2001 (SF 43, 51, 55, 59, 63).
The debtor began her Master’s degree studies in 1993 when she moved to Vermont to attend the Master’s program in environmental law at the Vermont Law School (hereafter ‘VLS”) (SF 23). She earned her master’s degree cum laude from VLS in May, 1995. The combined amount of outstanding student loans allocable to debtor’s graduate education is stipulated to be approximately $ 81,725 as of January, 2001 (SF 43, 67).
The debtor filed a petition seeking relief under chapter 7 of the Bankruptcy Code in the summer of 1994. The parties have stipulated that the debtor “made it very clear to her attorney and at least one of the defendants in this action that she filed bankruptcy with the intent to be in a position when she came out of law school to get a good job and pay her student loans within ten years” (SF 25). The parties further stipulate that her attorney told her she had to schedule her student loans even though they were not dischargeable, which she did, and she scheduled $1,400 each month in student loan payments in her schedule J budget, which was to have dem*136onstrated that she was not seeking to discharge her student loans at the time (SF 26). Prior to re-opening her bankruptcy-case in February, 2000, to pursue her undue hardship discharge, the debtor had sought relief from her student loans through a disability discharge (SF 35). One of the lenders, USA Group, stipulated to a disability discharge of its student loans based upon papers submitted by the debtor and her psychiatrist (SF 36).
ECMC is the assignee of eight (8) loans distributed to the debtor (SF 38). The debtor has not attempted to negotiate any of the payment terms of these loans (SF 45). TERI is the guarantor of several student loans upon which the debtor had defaulted (SF 49-66). As between the two defendants, it is agreed that as of January, 2001, the debtor owes ECMC $69,309.56 (SF 40) and she owes TERI $88,708.41 (SF 69). The debtor has not made any payments on the subject student loans owed to either of the defendants (SF 70). According to the terms of the subject loans, TERI is also entitled to its reasonable attorneys fees and costs associated with the collections of its notes; those attorneys fees totaled $3,686.43 as of January 12, 2001 (SF 71, 72).
3. Trial Testimony
During the course of the two-day trial various witnesses were presented. The debtor’s treating psychiatrist, Dr. Christine Barney, testified at great length and with competency, clarity and objectivity as to the debtor’s past, present and reasonably anticipated future mental and emotional condition, and prognosis. She provided records to demonstrate that she has treated the debtor since November, 1993, that she has diagnosed the debtor with (1) complex mood disorder, (2) seasonal affect disorder (“SAD”), meaning that the debt- or’s condition is worse in the fall and winter, (3) major depressive episodes, and (4) bipolar mood disorder. Dr. Barney testified that during episodes of depression the debtor is unable to perform even basic self-care and does not eat or utilize proper hygiene when in that state. During such periods, the debtor sleeps excessively, her thoughts are scattered, she becomes socially isolated, and experiences recurrent thoughts of suicide. Dr. Barney explained that some of the debtor’s depressive episodes are precipitated by a sense of loss or abandonment; sometimes an episode is weather induced. Dr. Barney based her diagnosis of the debtor upon the data she collected during the debtor’s ongoing psychiatric treatments, the debtor’s family history, and Dr. Barney’s direct clinical observations of the debtor. She also pointed out that there is no definitive test that can confirm a brain disorder such as the type that she believes afflicts the debt- or.
Furthermore, Dr. Barney testified that the debtor’s condition is worsening and incurable. She stated that the debtor’s depression is a biologic illness and that the debtor’s ailment is neither voluntary, wilful nor contrived. Dr. Barney stated unequivocally at trial that the debtor will suffer from this serious depressive condition until death; that she has been symptomatic and depressed for over 20 years; that the disease is progressive and insidious; that it will render her unemployable for not less than two years; that it would take 3 — 5 years of optimal treatment to show any real improvement; and that the debtor would need ten years of uncontaminated employment success in order to sustain the level of pressure necessary to retain a typical $40,000 per year job. It was Dr. Barney’s expert opinion that normal functionality in a work setting — for full-time or sustainable part-time work — is not possible for the debtor at this time. She also pointed out that the depression symptoms *137are exacerbated when the debtor is under pressure. Dr. Barney confidently predicted that if the debtor were to return to work with an expectation that she could maintain herself and repay her student loans, that stress would cause the debtor’s health condition to get worse, she would undoubtedly fail to succeed in her work and equally undoubtedly would find herself in severe depression as a result of that failure. Dr. Barney made clear that the debtor’s health history demonstrates that financial pressure has consistently exacerbated the debtor’s symptoms and illness in the past.
Dr. Barney also testified credibly that the debtor will never be free from recurring depression in a sustained fashion. She stated that once a patient has had three severe depressive episodes the risk is more than 90% that she will have another one. The debtor has had more than three depressive episodes. Hence, Dr. Barney predicts that the debtor will suffer severe depressive episodes in the future; and that stress, pressure, and recurring failure all make the condition worse and cause the severe depressive episodes to occur with greater frequency.
Dr. Barney was also asked whether there was a way to heal the debtor so that she could return to work successfully. Dr. Barney responded that if time and money were no object, then perhaps more frequent treatments or more intensive therapy or vocational training might help, but even under those circumstances she would give no guarantee that the debtor would be able to maintain full-time employment. However, money is, and will likely remain, a commodity in short supply for the debt- or. Dr. Barney testified that even with optimal treatment, it would take 3 to 5 years for the debtor to achieve any real improvement. A history of frequent failure, according to Dr. Barney, despite reducing demands for each job, makes it more difficult for the debtor to succeed now. Dr. Barney also testified that there is a pattern of increasing severity regarding the debtor’s condition. If the debtor somehow managed to obtain a $40,000 per year job and then lost it, a failure of that magnitude would, in Dr. Barney’s opinion, place the debtor at serious risk of suicide. Dr. Barney testified that the student loans have been a source of stress for at least two years. In light of a pattern of adverse psychological events of increasing severity and the debtor’s demonstrated inability to maintain employment, Dr. Barney concluded that the debtor is confronted with substantial psychological, emotional and personality obstacles to vocational success. Furthermore, the parties have stipulated that Dr. Barney opines that the debtor’s condition is incurable, worsening with time such that there is no reason to believe that the debtor can return to work, and constitutes a condition that will persist until death (SF 3; see also SF 4-6).
Since 1993, the medications prescribed by Dr. Barney include Prozac and Effexor, which can assist with concentration as well as depressive and anxious symptoms. Although Effexor has caused Ms. Kelsey significant side effects, Dr. Barney stated that this remains an appropriate component of the debtor’s overall treatment because of its significant benefits in mitigating depression. When the debtor has ceased taking Effexor from time to time, she suffered a return of symptoms.
While Dr. Barney testified that it was within the realm of possibility that the debtor was exaggerating her symptoms, she concluded that it was unlikely under the circumstances. Overall, Dr. Barney has impressive professional credentials in her field of psychiatric expertise, ample direct experience with the debtor and the credibility to provide persuasive evidence *138in this proceeding. She testified in a competent, substantiated and straightforward manner. Her demeanor was professional and her responses appeared candid, well substantiated and sincere. For all of these reasons, the Court accords substantial weight to Dr. Barney’s testimony.
In addition to the testimony of her medical expert, the debtor herself provided lengthy testimony regarding her psychological, employment, financial, and family history. Her testimony was candid and compelling in support of the requested discharge. The debtor testified that she enrolled in the VLS Master’s program to improve her chances of gaining better employment in California and with the intention that upon graduation she would return to California and obtain a job at a particular firm which had an excellent environmental law department. However, the debtor admitted that she was concerned that her mental and emotional health might again interfere with her ability to complete a course of study.
It is stipulated that the debtor first consulted Dr. Barney in November, 1993 to obtain treatment which would allow her to function consistently and be at work or in class on time every day (SF 24). The debtor testified that Dr. Barney evaluated her and prescribed Prozac, a drug which the debtor had previously taken in San Diego, upon advice of a psychologist; and diagnosed her with severe depression among other mood disorders. The debtor explained that notwithstanding the medical care and prescribed medications, it took her two years to complete the VLS Master’s program, a program designed to be completed in twelve months. She testified that although she graduated from the program with high honors, this was because many of the students in the program did not have law degrees and for many of her classmates English was not their first language and hence, in her opinion, the competition was not impressive.
The debtor explained that upon her arrival in Vermont, in 1993, she commenced work at the Conservation Law Foundation in Montpelier, Vermont where she continued working through the winter and spring of 1994. She undertook major projects and ultimately received credit from VLS for this internship. However, she “botched” a project and her work was criticized as being mediocre in quality and taking too long to complete. As a result, her supervisor would not sponsor the debt- or for admission to the Vermont bar.
The debtor testified that in July, 1995 she took the New Hampshire bar exam because she had obtained a position in a New Hampshire law firm, VanDorn & Cullenberg, but learned in September, 1995 that she had not passed the bar exam. The law firm told her not to worry because she could take it again. Initially, she worked part-time at the VanDorn & Cullenberg firm because she was studying for the bar exam. The position paid $24,000 per year and she was paid on a salary basis. She testified that they expected her to work 50 hours per week. She found the work to be very demanding. She had cases involving sexual harassment and employment discrimination to handle on her own. The debtor testified that she made sufficient money to sustain herself, but had no extra money for payment of her various loans. She testified that loan payments on the subject student loans became due in October and December 1995. By December, 1995, she testified, she was feeling overwhelmed at the law firm, experiencing considerable stress and having difficulty balancing assignments. She noted that it was clear to her that she was going to be fired as tasks were increasingly being taken away from her. She felt that the same job pattern was happening at VanDorn & *139Cullenberg as had happened at the Conservation Law Foundation. When she was terminated from her position at VanDorn & Cullenberg at the end of January, 1996, they advised her that she had not been performing adequately or finishing tasks in a timely fashion. .The debtor testified that during the end of her tenure at VanDorn & Cullenberg, she maintained that she was not disabled even though she could no longer work full-time; she had concluded that if only she worked harder or was more congenial to the attorneys at the firm, then her actual or potential obstacles would disappear.
The debtor testified that after her termination from VanDorn & Cullenberg, she initially continued to study for the New Hampshire bar, but she determined that she could not mentally or emotionally handle the bar exam as a result of her depression, which was precipitated by both her job loss and the weather. Therefore, she did not retake the New Hampshire bar exam, and received unemployment benefits for six months. She testified that during this period of time she sent resumes to all attorneys in the Upper Valley telephone book. She was residing in Stafford, Vermont and sent resumes to all attorneys within a one-hour drive of her home. She testified that nothing came of her efforts, but she was certain that she sent them out, as such applications were required for continued unemployment benefits. She created the Public Interest Law Group, Ltd. in 1996. Her trial counsel incorporated this law group in both Indiana and Vermont, as First Line Legal Resources. The debtor testified that it was her idea to have law review students perform research and writing in order to fill the gap where an indigent person needs an answer as to whether a cause of action is feasible but does not have sufficient funds to afford to retain counsel.
In July, 1996, the debtor’s unemployment benefits terminated. Ms. Kelsey testified that to make ends meet, she undertook barter arrangements, house sitting positions, set up a public interest law group for her to do freelance research and kept in touch with VLS career services. In June or July 1996, the debtor assisted in writing a grant and helped set up a seminar at VLS and moved to a care-taking position for summer, 1996. She then moved to another care-taking position in fall of 1996, involving a house and animals, which lasted until the end of 1996. The sole source of income that she had during 1997 was income from her limited legal research, at $15/hour, and the care-taking position. Ms. Kelsey testified that this income did not generate enough money to pay her student loans. The debtor testified that she continued to send out resumes during the fall, 1997, and to let the attorneys that she had worked with locally know that she was available to accept additional work. She decided to study for the Vermont bar exam, which she accomplished in July, 1997. She managed to obtain limited legal projects from local counsel during this period and was notified that she had passed the Vermont bar in the fall of 1997.
Between fall, 1997 and fall, 1998, the debtor undertook intermittent research projects for a client, Mr. Shelley Palmer. In late summer of 1998, she performed her last “lawyerly” task, and the last job for which she made money, when she drafted a long letter to Shelley Palmer’s insurance company. The debtor testified that during November, 1998, she sent a letter to the defendants and other education loan creditors, through her legal counsel, seeking an informal discharge of the student loans. According to the debtor, she worked at manual labor, cleaning barn stalls from July 1999 to February, 2000, because it was the only way she had to earn money, *140though she acknowledges she solicited legal work as late as 1999 by sending resumes for her new business, FirstLine Legal Resources.
During the summer of 2000, a Vermont Supreme Court brief was filed in the case where the debtor had written the initial memorandum for Shelley Palmer. She accepted the client’s telephone calls and drafted the statement of facts for this legal brief during this summer. She testified that she wrote the statement of facts while her trial attorney herein, and then law associate, was out of state. During the course of drafting the statement of facts, she had great difficulty and hence sought and received an extension of time. The statement of facts was then due in early August, 2000. She testified that she never actually finished it and reportedly sent drafts to her appellate co-counsel, Attorney Paul Gillies, and he was dissatisfied with the drafts. Attorney Gillies then redrafted the facts and completed the brief “in a breakneck pace over the weekend” without the debtor’s assistance. Attorney Gillies signed the brief because he had to get it filed the day he finished it.
The debtor testified that she had a breakdown when she saw what Attorney Gillies had done in a single weekend. She also lost Shelley Palmer as a client because he apparently was very angry that an extension had to be obtained, and made it clear that he believed the need for an extension was all her fault. She claims that the breakdown was a reaction to the fact that under pressure she cannot produce anything. Ms. Kelsey testified that she formerly had been able to produce legal documents that were acceptable and then she would feel good. However, in this instance, although she knew these facts clearly and had a good relationship with the client, she still could not put together a good brief. She testified that this situation just confirmed what she had been trying to refute: that she would never be able to work as a lawyer. She testified that she had been very proud that she completed law school despite terrible obstacles, and was particularly pleased in light of the fact that neither of her parents finished college. She explained that she had never so deeply appreciated that “it was all gone” as she did that day. She has had suicidal episodes in the past but never as bad as the episode brought on by the failure to complete the brief.
She testified that she often felt manic level confidence in the summer, had unreasonable expectations of what she could do, and would forget how terrible she felt during winters. She testified that she went into a catatonic hibernation state lasting three weeks in August, 2000. In September 2000, one month after this breakdown, she signed two permanent and total disability certificates in an effort to extinguish her outstanding student loan obligations.
The debtor indicated that she finally figured out in the fall of 2000 that she could not “make it work.” During this time, she had been entered on an attorney list making herself available to perform freelance legal work. She had reportedly sent out a letter applying for a part-time law clerk job with an entity referred to as LRC on August 17, 2000. Defendants argue that this is the time when she claims that she was in a catatonic state. On September 21, 2000 she also applied for a non law job with another company, Morris-town. The debtor did perform limited legal work for LRC after she signed the total disability certificate. The debtor acknowledges that the application to LRC may have been inconsistent with the disability certificate. She testified that she was submitting resumes even at the same time she was applying for permanent total *141disability because she was seeking only part-time work and only on behalf of First-Line, with the assumption that she could obtain the legal work and have her co-counsel (and trial counsel herein) perform the services. She reports she had already sold everything she had, including furniture, and felt desperate at the time, and therefore solicited work which she knew or should have known she could not perform.
According to Ms. Kelsey, every time she tried to work full time, she failed and it had serious health consequences. The debtor emphasized that the disability certificates that she submitted to the defendants in August 2000 provided for the possibility that she might be able to engage in substantial income-earning activity at sometime in the future.
Since August, 2000, the evidence reflects that the debtor has had one major depression episode, in early February, 2001. The debtor testified that the episode had to do with the work she had done as a freelance researcher. She reportedly had been offered a free lance position with a Minneapolis online research agency — which should have been subject to her successful completion of a project, but they hired her without her having ever submitted the project. She testified that she failed several of the tasks and was overwhelmed by assignments that she knew she should have been able to handle. She claims that this shortcoming was significant because it had seemed to her like a very manageable job. She claims that she could take or turn down assignments depending on how she felt, sleep and work when she wanted, did not need insurance and did not need a wardrobe. The debtor testified that she was devastated when she could not do this freelance research work, which she thought was really just glorified paralegal work. They fired her in early February, 2001 and that was what caused her major breakdown that time. She testified that during this time she was also the sole “proprietor” of a business she started, Deja Vu Antiques, and had a rented space in a Barre, Vermont mall for approximately five months, which ended four or five months before trial and made virtually no money.
Pursuant to her trial testimony, the debtor acknowledged that certain disputed handwritten notes, identified as the defendants’ joint trial exhibit number 6, are indeed her notes. She claims that these notes were created in June, 2000 to assist her trial counsel and to reflect her legal research regarding certain dischargeability issues related to her disability. The defendants argue that these notes pre-date June, 2000, were possibly created sometime in 1995, and represent a carefully constructed scheme to concoct circumstances calculated to lead to a discharge of her student loans on falsified grounds of undue hardship. Interestingly, the Court notes that there is no reference in these notes to the 1998 case of In re Doherty, 219 B.R. 665 (Bankr.W.D.N.Y.1998), which is relied upon extensively by the debtor in these proceedings, although her legal research notes do reference an unfavorable 1994 student loan discharge case. She testified that she wrote these notes in June/July 2000 on the screen porch of the house where she currently resides. In providing detailed support for her contention, the debtor testified at length regarding the circumstances surrounding the creation of the handwritten notes and the related discussions with her trial counsel, who was residing at the same house at the time. She also testified that these notes were to reflect her state of mind as of when she was at VanDorn & Cullenberg, and were intended only to assist her counsel. The notes state that she wanted to stay at VanDorn & Cullenberg for one year or at least through the summer (a *142sunny time of year). She testified that even though these notes reflect that she was considering moving to California, it does not mean they were written in 1995. The debtor testified that she has always wanted to find a good job in California and relocate there, primarily because the weather there would diminish the symptoms of her weather related condition. Based upon the demeanor of the debtor while testifying as to the circumstances surrounding the creation and purpose of these handwritten notes, this Court rejects the contention that these notes demonstrate a scheme to fabricate the basis for the debtor’s undue hardship claim1.
In addition to the extensive testimony of the plaintiff and her treating psychiatrist, the Court also heard testimony from various legal practitioners regarding their professional interaction with the debtor and their perspectives on her legal skills. While the testimony of these attorney witnesses was often illuminating concerning the various shortcomings in the debtor’s legal career, it was ultimately inconclusive and did not completely confirm or refute the competing contentions of the parties regarding the plaintiffs work capabilities. Overall, however, the testimony of the attorneys tended to confirm the Court’s conclusion that the plaintiff suffers from significant debilitating conditions which impede her ability to perform the caliber of legal work that would be required for her to maintain a minimal life style and to pay her student loans.
It should be noted that in reaching its decision today, the Court has carefully considered and weighed the testimony of the defendants’ psychological witness, Mary E. Willmuth. The Court finds that Dr. Willmuth is certainly a qualified psychologist with impressive credentials, but that her testimony generally fails to refute the material testimony of Dr. Barney and is entitled to less weight. First, it should be noted that Dr. Willmuth is a licensed psychologist without the medical expertise of Dr. Barney, a licensed psychiatrist. As such, this Court finds that the testimony of Dr. Barney is more credible concerning existing and potential treatment of the debtor’s psychological and emotional disabilities with available pharmacological therapies. More significantly, Dr. Willmuth based her evaluation of the plaintiff upon an interview of approximately two hours in length, as opposed to Dr. Barney’s long term and in-depth observations and treatment of the debtor over a period of years. Most importantly, Dr. Willmuth’s testimony was not inconsistent with Dr. Barney’s essential conclusion, namely that the debtor suffers from a severe, long-term depressive disorder; and her testimony fails to refute a finding that requiring the debtor to pay her outstanding student loans under the circumstances would impose an undue hardship upon the debtor. Significantly, at the end of the day, Dr. Willmuth testified that indeed the plaintiff suffers from significant medical and emotional problems involving depression and mood disorder, that she will continue to suffer from this malady, that her depressive disorder is accompanied by a personality disorder that adversely effects her ability to work at optimum levels, and that she could not testify that the plaintiff is more likely than not to be able to main*143tain ongoing professional employment at a level sufficient to pay her outstanding loans. Moreover, while Dr. Willmuth testified that it was her opinion that the plaintiff is exaggerating her condition somewhat, either consciously or unconsciously, Dr. Willmuth testified that she was not convinced that the debtor is malingering.
ISSUE
The issue presented is whether the competent and credible evidence shows that the Second Circuit Brunner test is satisfied, thereby entitling the debtor to a discharge of the subject student loans.
DISCUSSION
The debtor seeks a final judgment discharging her student loan obligations owed to the defendants on the grounds that a preponderance of the evidence establishes that the debtor has met the test for establishing an undue hardship pursuant to § 523(a)(8) of the Bankruptcy Code and Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir.1987). (hereafter “the Brunner test”).
A debtor seeking an undue hardship discharge under § 523(a)(8) has the burden of proof that the requirements for discharge are met. See In re Doherty, 219 B.R. 665 (Bankr.W.D.N.Y.1998). To obtain an “undue hardship” discharge of her student loan obligations, the debtor must establish each prong of the three-prong test set forth in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir.1987). See In re Lehman, 226 B.R. 805 (Bankr.D.Vt.1998). Under Brunner, a debtor must establish (1) that the debtor cannot maintain, based upon her current income and expenses, a “minimal” standard of living if forced to repay the student loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the loan repayment period; and (3) that the debtor has made a good faith effort to repay the student loans. Brunner, 831 F.2d at 396. The three-prong Brunner test provides the definitive, exclusive authority that bankruptcy courts must utilize in this Circuit in deciding whether to grant a debtor an undue hardship discharge. See In re Lehman, supra. Moreover, Congress clearly intended to make a discharge of student loan obligations under § 523(a)(8) more difficult than that of other non-excepted debts. Brunner, 831 F.2d at 396; see also In re Saburah, 136 B.R. 246, 252 (Bankr.C.D.Cal.1992)(discussing legislative history and observing that “there is a strong public policy in favor of repaying student loans”).
This Court has reviewed the record in this instance in order to adhere to the congressional intent that student loan discharges should be more difficult than other non-excepted debts. Moreover, this Court closely scrutinizes claims for undue hardship based upon psychological or emotional disability due to the susceptibility of such claims to fabrication, exaggeration and fraud. Well qualified and substantiated expert testimony is essential. The demeanor and credibility of witnesses in testifying regarding the pertinent facts are also paramount considerations in resolving the plethora of factual disputes encountered in student loan discharge cases involving claims of psychological or emotional illness.
In this instance, the parties have stipulated that the debtor has satisfied the first prong of the Brunner test, thereby eliminating the need for the presentation of evidence on this point. See Joint Pretrial Statement filed April 16, 2001, at para. 3(e) [Dkt.# 189-1]. Regarding the *144second and third prong, the debtor has established by a preponderance of the evidence her entitlement to relief under § 523(a)(8) and the Brunner test. The debtor has shown both that she suffers from a serious and ongoing emotional and psychiatric disability which will make it unlikely that she will be able to repay the student loans at any point in the foreseeable future without undue hardship and that she has made good faith attempts to pay her student loans.
Although the defendants have unequivocally challenged the underpinnings and scope of Dr. Barney’s medical opinion and have raised issues regarding the validity and integrity of the debtor’s claim of disability, the preponderance of the credible and competent expert testimony favors the debtor on both points. The debtor’s depression and related emotional and psychological disorders are severe, debilitating, life threatening, longstanding and have continued to defy successful treatment over time. Moreover, it is clear that the debtor’s condition is exacerbated by her attempts to obtain and maintain gainful employment in her professional field as warranted by her advanced education, and at a level necessary to maintain a minimal standard of living while paying her outstanding student loans. Based upon the testimony of the debtor and her psychiatrist, it is more likely than not that the debtor’s debilitating condition will persist for a significant portion of the repayment period. Under the circumstances, the Court finds a credible risk of serious injury, including relapse and suicide, if the debtor is unable to discharge these debts and thus remains subject to future collection activity and compelled to seek and retain employment sufficient to repay these substantial debts. A debtor’s “fresh start” is fatally undermined if it comes at such a perilous price.
The Court must address the defendants’ suggestion that the debtor is malingering. Dr. Barney has persuaded the Court regarding the debtor’s good faith in experiencing and presenting symptoms of her disability claim to Dr. Barney and others, and her role in the development of Dr. Barney’s disability opinion. Furthermore, the debtor and her witnesses have persuaded the Court that her prior, current and reasonably anticipated future minimal standard of living are not machinations, self-serving or self-imposed for personal gain, but rather are credibly presented and documented, and her disability is involuntary and severe, thereby warranting the requested relief. See In re Lehman, 226 B.R. at 808; In re Saburah, 136 B.R. 246, 252 (Bankr.C.D.Cal.1992); In re Erickson, 52 B.R. 154 (Bankr.N.D.1985).
Regarding the third prong of Brunner, the debtor has also presented a credible explanation for her failure to tender payments on these remaining student loan obligations. The Court is persuaded by the debtor’s testimony that she experienced confusion as to the true holder of her student loan obligations based upon the successive transfer or assignment of her various student loans, and her payments on other prior undergraduate student loan obligations. Her lack of any payment on the defendants’ outstanding loans is attributable more to a good faith misunderstanding concerning the ultimate beneficiary of her prior loan payments combined with a continuing desperate financial situation, rather than any intentional financial ignorance or deliberate withholding of payment. It also appears from the evidence that the subject loans became due just prior to the debtor’s termination at VanDorn & Cullenberg and her subsequent breakdown. Once again, her demeanor while testifying on this important issue of her good faith is a compel*145ling consideration in the Court’s finding in this regard.2
In reaching its conclusion, this Court is determining and weighing the credibility and sufficiency not only of the evidence presented by the debtor in support of her undue hardship claim, but also the defendants’ arguments and evidence regarding their defenses to the debtor’s claim for a discharge of her student loan obligations. In so doing, while a close question, this Court nonetheless concludes that the debt- or has met her burden of proof on the merits of her claim and each prong of the Brunner test. Moreover, the defendants have fallen short in establishing their defenses to the undue hardship claim involving the challenged nature and extent of the debtor’s disability, her earning capability, her credibility and her good faith efforts to repay these loans. As indicated above, the parties have stipulated that the debtor cannot maintain, based upon her current income and expenses, a “minimal” standard of living if forced to repay her remaining student loans. By the greater weight of the credible evidence adduced by stipulation and at trial, this Court finds that it is more likely than not that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the loan repayment period and that the debtor has made a good faith effort to repay the student loans.
Based upon all the competent and credible evidence the debtor has shown by a preponderance of the evidence that she has satisfied the three elements of the Brunner test and refuted the defendants’ defenses thereto under § 523(a)(8). Therefore this Court grants final judgment in favor of the debtor, and deems the debtor’s subject student loans held by these defendants dischargeable under the particular circumstances of this case. Based on the foregoing, the counterclaim raised by TERI is denied.
. It should be noted that this Court did impose an evidentiary inference in favor of the defendants’ position based upon a finding of spoliation of evidence by the plaintiff in this regard, but still concluded that the notes do not establish an intent to defraud. The Court's ruling concerning the evidentiary inference and related matters is discussed more fully in its Memorandum of Decision Granting Defendants' Motion for Sanctions entered in conjunction with this final judgment.
. For cases discussing a financially distressed debtor’s entitlement to a discharge of student loans despite failure to initiate payments, see In re Clevenger, 212 B.R. 139 (Bankr.W.D.Mo.1997); In re Derby, 199 B.R. 328 (Bankr.W.D.Pa.1996); In re Hawkins, 187 B.R. 294 (Bankr.N.D.Iowa 1995); In re Reilly, 118 B.R. 38 (Bankr.D.Md.1990); In re Birden, 17 B.R. 891 (Bankr.E.D.Pa.1982); see also In re Sands, 166 B.R. 299 (Bankr.W.D.Mich.1994); cf. In re Boyd, 254 B.R. 399 (Bankr.N.D.Ohio 2000); In re Lehman, 226 B.R. at 808-809; In re LaFlamme, 188 B.R. 867 (Bankr.D.N.H.1995); In re Garrett, 180 B.R. 358 (Bankr.D.N.H.1995). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493498/ | MEMORANDUM OPINION
WILLIAM T. BODOH, Chief Judge.
Plaintiff Michael H. Holland and others, as Trustees of the United Mine Workers of America 1992 Benefit Plan (“Plaintiff’), filed a complaint on May 1, 2002 asking for declaratory and injunctive relief that would require Debtor-in-Possession/Defendant LTV Steel Company, Inc. and others (“Defendant”) to comply with 26 U.S.C. § 9711, the Coal Industry Retiree Health Benefit Act of 1992 (“the Coal Act”).
A detailed explanation of the procedural history of this adversary proceeding, which follows, is necessary to explain this Court’s findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.
PROCEDURAL HISTORY
On May 2, 2002, Plaintiff filed a motion to withdraw the reference, pursuant to 28 U.S.C. § 157(d). 1 On May 15, 2002, this Court received an acknowledgment from the United States District Court for the Northern District of Ohio in Youngstown (“District Court”) regarding the motion to withdraw the reference. On May 29, 2002, the District Court denied the motion to withdraw the reference. A copy of the District Court’s memorandum opinion and order (“District Court Order”) is attached hereto as Exhibit A and is incorporated by reference as if fully rewritten herein.
*165On May 31, 2002, in this Court, Plaintiff filed a notice of pending motion of preliminary injunction. A motion for a preliminary injunction was filed with the District Court on May 24, 2002 but was not filed with this Court until June 18, 2002. On June 3, 2002, Plaintiff filed an emergency motion for expedited consideration of the motion for a preliminary injunction. This motion was granted, and a hearing was held on June 4, 2002. Marilyn L. Baker, Esq., John R. Mooney, Esq., Elizabeth A. Saindon, Esq. and Joyce Goldstein, Esq. appeared on behalf of Plaintiff. Heather Lennox, Esq. and Richard F. Shaw, Esq. appeared on behalf of Defendant. David M. Fusco, Esq. appeared on behalf of the United Mine Workers of America. Philip J. Uher, Esq. appeared on behalf of JP Morgan Chase Bank.
At the June 4, 2002 hearing, a briefing schedule was set and this Court issued an order consolidating the motion for a preliminary injunction with a trial on the merits pursuant to Fed. R. Bankr. P. 7065 (“consolidated hearing”). Each party filed briefs with the Court on the issues of whether the Coal Act applies to Defendant and whether an injunction is appropriate. The consolidated hearing was held on June 19, 2002. Marilyn L. Baker, Esq., Elizabeth A. Saindon, Esq. and Joyce Goldstein, Esq. appeared on behalf of Plaintiff. John R. Woodrum, Esq., Jeffrey B. Ellman, Esq. and Richard F. Shaw, Esq. appeared on behalf of Defendant.
On June 19, 2002, pursuant to an oral motion to modify the automatic stay to permit the suit against Defendant, an order sustaining the motion was entered to the extent necessary to permit the proceeding to go forward. Stipulations of fact were filed, and this Court issued a partial ruling from the Bench, concluding that the Coal Act applies to Defendant.2 This Court reserved judgment on the issue of enforcement pending post-trial briefing by the parties. Both parties filed post-trial briefs. On July 12, 2002, Plaintiff filed a motion to strike or, in the alternative, to submit a reply to matters in Defendant’s brief that are outside the scope of the enforcement of the Coal Act. On October 1, 2002, this Court sustained Plaintiffs motion to submit a reply, and Plaintiff filed a reply on October 11, 2002.
While pleadings were filed and the consolidated hearing was held, Defendant had not yet filed a responsive pleading. On August 15, 2002, this Court issued an order directing that service be effected within twenty (20) days. Plaintiff filed a certificate of service with this Court on August 23, 2002, evidencing that service of the summons and a copy of the complaint were served on Defendant. Defendant filed an answer with this Court on September 17, 2002.
PRELIMINARY MATTERS
I. JURISDICTION
The District Court Order denied the motion to withdraw the reference, holding that “the Bankruptcy Court provides the most efficient and effective forum for resolving this dispute.” (District Court Order — Exhibit A at 7-8.) Despite this Court’s reluctance to exercise jurisdiction where a plain reading of 28 U.S.C. § 157(d) leads to the conclusion that jurisdiction in this case has not been conferred to this Court by Congress, nevertheless, this Court feels compelled to decide this case because of the prior District Court *166Order denying the motion to withdraw the reference.3
II.DEFENDANT’S ANSWER
The complaint in this case was filed on May 1, 2002. Defendant did not file an answer in this matter until September 17, 2002. This Court’s records did not include a certificate of service or other evidence of service of summons and a copy of the complaint on Defendant. There was no evidence of waiver of service by Defendant in the Court’s records.
Pursuant to Fed. R. Civ. P. 4(m), incorporated herein by Fed. R. Banicr. P. 7004(a), this Court directed that service be effected within twenty (20) days. Plaintiff filed a certificate of service with this Court on August 23, 2002. Defendant filed an answer with this Court on September 17, 2002. Having received an answer, the record is now complete.
III.PLAINTIFF’S NOTICE OF MOTION FOR PRELIMINARY INJUNCTION
Plaintiff filed a notice of motion for preliminary injunction with this Court after filing a motion for preliminary injunction with the District Court. The motion was not filed with this Court until the day before the consolidated hearing.
Federal Rule of Bankruptcy Procedure (Fed. R. Bankr. P.) 9005 adopts Federal Rule of Civil Procedure (Fed. R. Civ. P.) 61 regarding harmless error. It states, “[t]he court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties.”
In this case, Plaintiff filed an emergency motion for expedited consideration on June 3, 2002 on a matter that was not properly before this Court. This motion was granted, and a hearing was held on June 4, 2002. Defendant had notice of the motion for preliminary injunction as they were properly served a copy of it along with the notice of the pending motion for preliminary injunction before the hearing on June 4, 2002.
This Court, pursuant to Fed. R. Bankr. P. 9005, did disregard the procedural error as it did not affect the substantial rights of the parties. Defendant had notice of the appropriate motion. Moreover, Plaintiff corrected the error by properly filing a motion for a preliminary injunction before a hearing on the merits was held.
IV.DEFENDANT’S AFFIRMATIVE DEFENSES
Defendant pleads the following affirmative defenses: failure to state a claim upon which relief may be granted; the complaint is barred by equitable doctrines including waiver, laches, estoppel and unclean hands; Plaintiff did not satisfy mandatory equitable requirements for obtaining injunctive relief; none of the Defendants who are “related persons” to Defendant remain “in business” within the definition of 26 U.S.C. § 9701(c)(7) and this Court lacks jurisdiction to require Defendant to establish an individual employer plan under the provisions of either the Coal Act or the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. For the reasons that follow, all of Defendant’s affirmative defenses are overruled.
ISSUES
There are two issues pending before this Court. The first issue is whether the Coal *167Act applies to Defendant. The second issue is whether an injunction is appropriate.
I. THE COAL ACT APPLIES TO DEFENDANT
The history of the health care crisis in the coal industry and the events leading to the enactment of the Coal Act have been recounted in detail by various courts, including the Supreme Court and the United States Court of Appeals for the Sixth Circuit. See, e.g., Barnhart v. Sigmon Coal Co., Inc., 534 U.S. 438, 445-48, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002); E. Enters. v. Apfel, 524 U.S. 498, 504-11, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (plurality opinion); Blue Diamond Coal Co. v. Sec’y of Health and Human Servs. (In re Blue Diamond Coal Co.), 79 F.3d 516, 518-21 (6th Cir.1996); Barrick Gold Exploration, Inc. v. Hudson, 47 F.3d 832, 833-34 (6th Cir.1995); LTV Steel Co., Inc. v. Shalala (In re Chateaugay Corp.), 53 F.3d 478, 481-85 (2d Cir.1995); See also, Coal Comm’n Report: A Report to the Sec’y of Labor and the Am. People, November 1990 (analyzing the health care crisis in the coal industry and recommending solutions).4 A brief history is helpful to understand the nature of the instant case.
Beginning in 1946, coal miners received pension and health benefits pursuant to a series of employer-funded plans negotiated by the United Mine Workers of America (“UMWA”) and the Bituminous Coal Operators Association (“BCOA”). From 1974 through 1978, non-pension benefits were provided under two plans, the 1950 UMWA Benefit Plan and the 1974 UMWA Benefit Plan. In 1978, the UMWA and BCOA partially decentralized the scheme in the National Bituminous Coal Wage Act (“NBCWA”) by agreeing that each miner retiring after January 1, 1976 would receive health benefits pursuant to a plan created and funded by the miner’s last employer (“individual employer plan” or “IEP”) and that the 1974 UMWA Benefit Plan would provide health benefits to orphaned retirees and their families. These so-called “orphans” are those retirees whose last employer has gone out of business and/or is no longer providing health benefits. See E. Enters., 524 U.S. at 504-10, 118 S.Ct. 2131.
In the 1980s, the 1950 and 1974 UMWA Benefit Plans suffered serious financial difficulties. Numerous coal companies that signed the 1978 NBCWA attempted to avoid responsibility for contributing to health coverage for UMWA retirees. These companies sought to terminate their participation in the 1950 and 1974 UMWA Benefit Plans and to “dump” the retirees from their individual employer plans into the 1974 UMWA Benefit Plan. These companies also failed to pay into the 1950 and 1974 UMWA Benefit Plans and essentially dumped their contribution obligations on the remaining employers that continued to pay into the UMWA Benefit Plans. As a result, the funding bases eroded for the two UMWA Benefit Plans, the 1974 UMWA Benefit Plan incurred additional liabilities and the remaining signatories of the NBCWAs were required to pay higher contributions to finance coverage for retirees who had been abandoned by their former employers. See Id. at 510-11, 118 S.Ct. 2131.
An industry-wide commission was created and charged with the task of analyzing the retiree health care crisis and recommending solutions. See Id. at 511-12, 118 *168S.Ct. 2131; See also Coal Comm’n Report at 1. The November 5, 1990 Coal Commission report explained that the collective bargaining process was inadequate to provide a long-term solution and that legislation would be necessary to solve the crisis. The Coal Commission concluded that retired miners had legitimate expectations of receiving lifetime health benefits and that a statutory funding obligation should be imposed on current and former signatories to NBCWAs. Coal Comm’n Report at 1, 60. The Commission also concluded that the legislation should include mechanisms to prevent future dumping of retiree health obligations. Coal Comm’n Report at 60.
Congress responded by enacting the Coal Act. The Coal Act establishes a system whereby each coal operator that was or had been a signatory operator to a coal wage agreement would pay for the benefits provided to its own retirees and would share in the cost of providing benefits to orphaned retirees. The Coal Act contains three mechanisms for this purpose. First, it requires continuation of individual employer plans created pursuant to the 1978 NBCWA. See 26 U.S.C. § 9711(a). The second and third mechanisms are the Combined Fund and the 1992 Benefit Plan which are primarily financed through per beneficiary premiums payable by coal operators based on the number of individual beneficiaries attributed to them through assignment by the Secretary of Health and Human Services. See 26 U.S.C. §§ 9702(a), 9704, 9706, 9712.
The Combined Fund is not at issue in this case. It covers beneficiaries eligible for and receiving benefits from the UMWA 1974 Benefit Plan and the 1950 Benefit Plan as of July 20, 1992. See 26 U.S.C. § 9703(f). The 1992 Benefit Plan is essentially the new orphan plan required to provide health benefits to individuals not receiving benefits from either the Combined Fund or their employers’ individual employer plans. See 26 U.S.C. §' 9712(b)(2).
Plaintiff in this case, as Trustees of the United Mine Workers of America 1992 Benefit Plan, filed an adversary proceeding seeking to preclude Defendant from terminating retiree health care obligations under § 9711 of the Coal Act.
Section 9711 of the Coal Act is titled “[e]ontinued obligations of individual employer plans.” Section 9711(a) states:
The last signatory operator of any individual who, as of February 1, 1993, is receiving retiree health benefits from an individual employer plan maintained pursuant to a 1978 or subsequent coal wage agreement shall continue to provide health benefits coverage to such individual and the individual’s eligible beneficiaries which is substantially the same as (and subject to all the limitations of) the coverage provided by such plan as of January 1, 1992. Such coverage shall continue to be provided for as long as the last signatory operator (and any related person) remains in business.
Signatory operator is defined as “a person which is or was a signatory to a coal wage agreement.” 26 U.S.C. § 9701(c)(1). A related person may be a member of a controlled group of corporations, a business which is under common control, any other person who is identified as having a partnership interest or joint venture with a signatory operator and a successor in interest of any of these entities. See 26 U.S.C. § 9701(c)(2). Section 9701(c)(7) states that “[f]or purposes of this chapter, a person shall be considered to be in business if such person conducts or derives revenue from any business activity, whether or not in the coal industry.”
Stipulations of fact were filed by the parties in this case on June 19, 2002. *169Among other facts, Defendant admitted that it is a last signatory operator, as defined above. (See Stipulations of Fact, ¶ 4.) Defendant also admitted that prior to terminating its individual employer plan, it was providing health benefits to approximately 540 beneficiaries. (See Stipulations of Fact, ¶ 26.)
At the hearing, this Court decided that “the Coal Act applies to LTV.” (June 19, 2002 Transcript at 56.) This Court also decided that Defendant is “in business within the extremely broad statutory definition included in the Coal Act.” (Id. at 57.) As the Third Circuit Court of Appeals stated,
[t]he statutory definition of “in business” is broad, including within its scope not only (1) an entity that “conducts” business activity, but also (2) one who “derives revenue” from business activity. Because the “conducts” prong is provided for separately, the “derives revenue” prong does not require the party liable under the Coal Act to itself “conduct” a business activity. Otherwise, the “derives revenue” option would be surplus-age, which cannot have been Congress’s intent. By the statute’s own terms, then, someone other than the “signatory operator” may be the one engaging in the business activity.
Lindsey Coal Mining Co. v. Chater, 90 F.3d 688, 692 (3rd Cir.1996) (internal citations omitted). This Court finds this interpretation persuasive and so adopts it. Whether or not there is a profit is not a relevant determination when deciding whether or not a company is “in business” for purposes of the Coal Act. Because the applicable statutory language is so broad, Defendant is itself still in business. As evidence, Defendant is presently allocating the funds derived from the sale of its integrated steel business. This is conducting business, pursuant to the Coal Act’s definition. Defendant meets the Coal Act’s statutory elements, and so the Coal Act applies to Defendant.
II. INJUNCTIVE RELIEF
A. Injunctive Relief Under § 9711
Injunctive relief is available under § 9711. Absent injunctive relief, courts would have no enforcement mechanism to apply to this section. The goal of § 9711 of the Coal Act is to prevent the dumping of eligible beneficiaries. “[T]he principal problem with prior plans that the Coal Act was designed to remedy had been caused by coal operators ceasing business and ‘dumping’ those employees for whom they were obligated to provide benefits.” Holland v. Double G Coal Co., Inc., 898 F.Supp. 351, 355 (S.D.W.Va.1995).
Section 9711 requires that employers and former employers in the coal industry be directly responsible for the health care of their own retirees.
In the 1980s, many coal companies went out of business or otherwise ceased contributing to the funds, effectively dumping their retirees into the beneficiary populations and forcing the remaining, participating employers to shoulder increasingly large contribution obligations to pay not only for their own retirees but also for these newly “orphaned retirees.”
Blue Diamond Coal Co. v. Shalala (In re Blue Diamond Coal Co.), 174 B.R. 722, 724 (E.D.Tenn.1994), aff'd, Blue Diamond Coal Co., 79 F.3d at 516. An injunction is the most effective means by which to enforce § 9711.
The Supreme Court has stated, “where, as here, the statute’s language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ” United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) *170(quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)). Without injunctive relief, there would be no enforcement mechanism to apply to § 9711 of the Coal Act. Under the Coal Act, “[t]he potential for abusive dumping of retirees, so they would be supported by other operators, inherent in the multi-employer Plans, ... [was] excised.” Carbon Fuel Co. v. USX Corp., 891 F.Supp. 1186, 1197-98 (S.D.W.Va.1995). Moreover, “the Coal Act must be viewed as a rational legislative response to a crisis in coal retiree health benefits.” Blue Diamond Coal Co., 174 B.R. at 729.
On the basis of the plain language of the statute and the attendant legislative history, this Court holds that § 9711 is unambiguous evidence of Congress’ express intent to permit federal courts to issue injunctions. This Court concludes it has authority under § 9711 and the District Court Order to issue an injunction.
B. Permanent Injunction
Courts in this Circuit examine the following factors when determining the propriety of a permanent injunction:5 whether the plaintiff has prevailed on the merits of its claim, whether the plaintiff will suffer irreparable injury if the permanent injunction is not issued and whether the balance of equities weighs in favor of the entry of the permanent injunction. Earley v. Executive Bd. of United Transp. Union, 957 F.Supp. 997, 999-1000 (N.D.Ohio 1996). Plaintiff in this case has prevailed on the merits of its claim.
1. Irreparable Injury
The Supreme Court has stated that “the basis of injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies.” Sampson v. Murray, 415 U.S. 61, 88, 94 S.Ct. 937, 39 L.Ed.2d 166 (1974) (quoting Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 506-07, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959)). The concept of “irreparable injury” has been described as follows:
The key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.
Sampson, 415 U.S. at 90, 94 S.Ct. 937 (quoting Va. Petroleum Jobbers Ass’n v. FPC, 259 F.2d 921, 104 U.S.App.D.C. 106 (C.A.D.C.1958)).
Defendant argues that Plaintiff will not suffer loss or harm as a result of the termination of Defendant’s IEP and that no beneficiaries will suffer any loss or reduction in benefits. There is a provision in the Coal Act that provides for the transfer of beneficiaries to Plaintiff. See 26 U.S.C. § 9711(c)(1). This section, Defendant argues, is the mechanism that Congress established to guarantee benefits, which is why there is no harm to beneficiaries. This argument, however, is not persuasive.
While the beneficiaries may be receiving health and life insurance benefits, Plaintiff will be irreparably injured if the permanent injunction is not issued. Plaintiff is obligated to provide coverage to eligible beneficiaries once Defendant ceases providing health benefits pursuant to its IEP. Plaintiff must provide coverage to hundreds of new eligible beneficiaries without any corresponding contribution from De*171fendant. As aforementioned, it is this “dumping” of retiree health obligations that Congress attempted to alleviate upon passing the Coal Act. The Court finds persuasive Plaintiffs explanation of the repercussions of dumping.
As more retirees are eligible for coverage from the [1992] Plan without corresponding contributions, the remaining contributing employers must increase their contributions to the [1992] Plan in order to ensure the continued provision of the promised retiree health benefits. As the contribution burden increases, more and more employers will face further financial hardships which in turn creates more “orphan” retirees. Such a downward spiral will have profound effects on the structure that Congress created in the Coal Act.
(Plaintiffs Memorandum in Support of Motion for Preliminary Injunction attached to Plaintiffs Motion for a Preliminary Injunction at 14.)
The Sixth Circuit Court of Appeals has held that failure to make required contributions to a multi-employer plan constitutes irreparable injury. See Laborers Fringe Benefit Funds v. Northwest Concrete & Constr., Inc., 640 F.2d 1350, 1353 (6th Cir.1981). In that case, an employee benefit plan brought suit to recover contributions owed and to enjoin the defendant employer from failing to make contributions in the future. The Circuit Court held that the employer’s “continued violations of the [collective bargaining] agreements and ERISA will irreparably injure the Fund.” Id. Another court granted a motion for summary judgment which sought injunctive relief prohibiting defendant employer from failing to provide health care benefits to eligible retirees and their dependents on the grounds that a joint venture is a related person under the Coal Act, and is therefore liable. See Holland v. High Power Energy, 98 F.Supp.2d 741, 741 (S.D.W.Va.2000).
Money damages are not sufficient to remedy the injury in this case. Defendant argues that if Plaintiff can establish the amount and classification of its claims under the Coal Act, such claims will be satisfied in accordance with the priority scheme of the Bankruptcy Code. This argument, however, assumes that Defendant is no longer in business. We have already held that Defendant is in business and that § 9711 applies to Defendant. Thus, Defendant is obligated by § 9711 to provide health benefits to eligible beneficiaries.
Defendant also argues that they did not have the financing to fund a health benefits plan. This Court asked for post-trial briefs on that issue. After a thorough review of the record as a whole, including the transcript of the June 19, 2002 consolidated hearing, the post-trial briefs, relevant financing documents and applicable law, this Court concludes that this argument is not a defense to liability. Defendant remains liable under § 9711. Defendant’s lack of financing argument is an impossibility defense to compliance with § 9711. Impossibility is a defense in contract law. See United States v. General Douglas MacArthur Senior Village, Inc., 508 F.2d 377, 381 (2nd Cir.1974) (stating, “[i]n general, impossibility may be equated with an inability to perform as promised due to intervening events, such as an act of state or destruction of the subject matter of the contract”). This is not a contract dispute but rather is a statutorily mandated obligation. Impossibility is also a defense to civil contempt charges. See Hunter v. Magack (In re Magack), 247 B.R. 406, 410 (Bankr.N.D.Ohio 1999) (stating, “impossibility or an inability to comply with a judicial order is a valid defense to a charge of civil contempt”). This is likewise not a civil contempt proceeding but *172rather is a statutory obligation. Defendant’s lack of financing argument is not applicable.
Defendant’s argument that money damages in the form of a bankruptcy claim is appropriate, and Defendant’s impossibility arguments against compliance with § 9711 do not outweigh that Plaintiff will suffer irreparable injury if a permanent injunction is not issued.
2. Balance of Equities
This Court must determine whether substantial injury to others will result from injunctive relief. See Martin-Marietta Corp. v. Bendix Corp., 690 F.2d 558, 568 (6th Cir.1982). The Court there held that “[t]he irreparable injury appellants will suffer if their motion for injunctive relief is denied must be balanced against any harm which will be suffered by appellees as a result of the granting of injunctive relief.” Id. The balance of equities in this case weighs in favor of issuing the injunction.
Historically, a bankruptcy court is a court of equity. Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) (“courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity”); Pepper v. Litton, 308 U.S. 295, 304, 60 S.Ct. 238, 84 L.Ed. 281 (1939); Sec. & Exch. Comm’n v. United States Realty & Improvement Co., 310 U.S. 434, 455, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940); Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966).
As Senator John Glenn stated in support of passage of the Coal Act:
The goal of this package is fundamental: to ensure health care coverage to tens of thousands of retired coal miners and their families — not just because it’s a good idea, but because it’s a promise that we must keep^ — a promise to workers who lived up to their commitment to supply our nation’s energy needs.
The difficult part is determining'how to pay for it. The legislation before us today has changed significantly in this respect over the past year. The key difference is in how the bill will pay for so-called “orphan miners,” meaning those whose companies are out of business. Originally, the legislation included a broad industrywide fee in order to keep up with the ongoing health costs of these retirees. But this has been changed at the urging of the administration so that premium payments will be made only by those for whom the retirees worked.
This applies to companies that may no longer be in mining, such as LTV.
138 Cong. Rec. S18250 (daily ed. Oct. 8, 1992) (statement of Sen. Glenn) (emphasis added).
The public interest weighs strongly in favor of granting the injunction. Congress specifically declared that it is the policy of the Coal Act “to remedy problems with the provision and funding of health care benefits with respect to the beneficiaries of multi-employer benefit plans that provide health care benefits to retirees in the coal industry” and “to provide for the continuation of a privately financed self-sufficient program for the delivery of health care benefits to the beneficiaries of such plans.” 26 U.S.C. § 9701, Historical and Statutory Notes. Congress addressed the importance of retiree health benefits in the coal industry and concluded that it is in the public interest to insist that former employers bear the costs of providing benefits to their beneficiaries.
Moreover, issuing an injunction only imposes upon Defendant the burden that *173Congress determined is appropriate. To refrain from issuing the injunction would allow Defendant to dump their beneficiaries. This would be contrary to the clearly stated intent of the Coal Act. Congress included § 9711 in the Coal Act specifically to eliminate the ability of employers to dump their retirees.
Defendant argues that Plaintiff has a claim pursuant to § 97126 of the Coal Act, and Plaintiff will stand in line with other creditors to receive whatever payments will be available. Defendant argues that by issuing an injunction, the Court will violate the priorities scheme established by Congress in the Bankruptcy Code; providing health care benefits would grant a superpriority where none exists.
Defendant’s argument is not persuasive because money damages are not appropriate in this case. The payment of premiums under § 9712 does not alleviate the problem of dumping because § 9711 requires covered employers to maintain their own retiree health benefit plans to provide benefits directly to their retirees. In this respect, the Fourth Circuit Court of Appeals has held that, “[t]he Bankruptcy Code ... does not trump the clear intent of the Coal Act but simply effectuates treatment of any claims that may arise from its operation.” UMWA 1992 Benefit Plan v. Rushton (In re Sunny side Coal Co.), 146 F.3d 1273, 1279 (10th Cir.1998) (determining that “the two statutory schemes may be harmoniously construed”). Congress intended for § 9711 to alleviate the problem of dumping beneficiaries. An injunction is the only means by which to enforce § 9711. The relief sought by Plaintiff is required by statute. The equities weigh in favor of granting the injunction.
CONCLUSION
The Coal Act applies to Defendant, as Defendant meets the statutory elements. Pursuant to 26 U.S.C. § 9711 and the District Court Order, an injunction is the appropriate remedy in this case.
An appropriate order shall enter.
ORDER
For the reasons set forth in the Court’s memorandum opinion entered herein of even date, judgment is granted to Plaintiff on its complaint. Defendant’s affirmative defenses are overruled.
Defendant is hereby enjoined from taking any action which denies the provision of benefits mandated by 26 U.S.C. § 9711. Defendant shall provide health benefits coverage to such individuals and the individuals’ eligible beneficiaries which is substantially the same as (and subject to all the limitations of) the coverage provided as of January 1, 1992 and shall continue to provide such coverage so long as the last signatory operator (as defined in 26 U.S.C. § 9701(c)(1)) and any related person remains in business.
This order shall be binding upon Defendant to this action, its officers, agents, servants, employees and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order, and shall be effective immediately upon docketing by the Clerk. The Court finds that no sum of security is *174proper and thus none is required of Plaintiff as applicant.
IT IS SO ORDERED.
. All references to United States Code provisions refer to the 2002 version.
. Although findings, conclusions and a ruling were issued from the Bench, this opinion amplifies them and is intended to constitute the findings and conclusions underlying the formal order being entered simultaneously.
. This adversary proceeding is based on a sole cause of action found only in non-bankruptcy law, namely 26 U.S.C. § 9711, the Coal Act.
. A copy of the Coal Commission Report is attached as an exhibit to Plaintiff's motion for preliminary injunction.
. This Court combined the preliminary injunction with a trial on the merits, therefore the standard is that for a permanent injunction.
. Section 9712 is the provision of the Coal Act that requires the 1992 Benefit Plan to provide benefits to any person who but for enactment of the Coal Act would be eligible to receive benefits from the 1950 or 1974 Benefit Plans, based upon age and service, or with respect to whom coverage is required to be provided under § 9711 directly by an individual employer, but who does not receive such coverage. See 26 U.S.C. § 9712(b)(2)(A) and (B). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493499/ | MEMORANDUM OPINION
DAVID P. McDONALD, Bankruptcy Judge.
Plaintiff David Walls seeks summary judgment from the Court declaring that a state court judgment that he was awarded against Defendant James Russell Jones, Jr. is not dischargeable. The judgment arose from allegations of fraud and false representations surrounding the sale of a motor vehicle. The Court finds that the state court judgment was based on a finding of fraud and false representation and that the judgment is excepted from discharge under 11 U.S.C. § 523(a)(2)(A).1
JURISDICTION AND VENUE
This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409. PROCEDURAL BACKGROUND
On July 14, 2000, Debtor James Russell Jones, Jr. filed a voluntary petition seeking relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330. An order discharging Debt- or was entered on October 31, 2000.
Plaintiff David Walls received a judgment against Jones from the Circuit Court of St. Louis County on December 2, 1998. The court had found Jones guilty of fraud in the sale of a 1990 Corvette and awarded total damages in the amount of $98,076.87. Walls filed this adversarial proceeding on October 23, 2000, seeking a ruling that this judgment debt is not dischargeable under 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6). On March 15, 2001, Walls filed the present motion for summary judgment.
FINDINGS OF FACT
The following undisputed facts are established from the pleadings, briefs, and exhibits filed in this case:
1. Jones filed for relief under Chapter 7 of the Bankruptcy Code on July 14, 2000.
2. Jones formally did business as Mirage Motors Company and was engaged in the business of selling used automobiles. He was a dealer and distributor of used vehicles.
3. On or about October 9, 1995, Jones purchased a 1990 Chevrolet Corvette from Elco Chevrolet, Inc.
4. On or about March 4, 1996, Jones sold the vehicle to Rick Benz and certified that the mileage on the vehicle’s odometer reflected the actual miles of the vehicle.
5. On or about May 10, 1996, Rick Benz sold the vehicle to Plaintiff David Walls.
6. Walls filed a lawsuit against Jones in the Circuit Court of St. Louis County, State of Missouri, Cause No. 98CC-000178, alleging that Jones sold the car to Benz without revealing that the Corvette was salvaged and that Jones falsely represented that the mileage on the vehicle’s odometer was the actual mileage of the car. Walls alleged that Jones was guilty of common law fraud; a violation of the federal Odometer Act, 49 U.S.C. §§ 32701 et seq.; a violation of Missouri odometer statutes, R.S.Mo. § 407.521 and § 407.536; *191and a violation of the Missouri Unlawful Merchandise Act, R.S.Mo. § 407.020.
7. During the lawsuit, Jones failed to respond to the court’s discovery order. As a sanction the court struck Jones’ pleadings and entered judgment against Jones on the issue of liability on August 24, 1998.
8. On November 30, 1998, the case was called for trial on the issue of damages. Neither Jones nor his attorney appeared.
9. On December 2, 1998, after a trial in which Walls presented evidence of damages, the Circuit Court of St. Louis County entered a judgment in favor of Plaintiff and against Jones finding that:
(a) Jones d/b/a/ Mirage Motors purchased a vehicle that had a title previously branded “salvage” and “not actual miles;”
(b) Jones knew that the title to the vehicle had been “washed clean and did not have the required brands” and that Jones contracted to buy the vehicle at a discounted price due to the fact that the vehicle had a salvage history and mileage discrepancy;
(c) Jones knew that if he certified the miles as actual and failed to surrender the title to the Missouri Department of Revenue to be properly branded, that it would put all persons down the chain of title in a position to knowingly or unknowingly resell the vehicle to an unsuspecting buyer who would “get stuck with an unsafe and worthless vehicle;”
(d) Jones sold the vehicle to Rick Benz and Rick Benz sold the vehicle to Plaintiff and that Plaintiff was an unsuspecting buyer in the chain of title;
(e) Jones failed to disclose to Rick Benz in the title for the vehicle that the vehicle had a “salvage” title, was branded “unrebuildable” or that there was an “odometer discrepancy;”
(f) Jones certified that the mileage of the vehicle was actual mileage, knowing that it was not the actual mileage;
(g) Jones failed to have the vehicle inspected by the Missouri Highway Patrol and failed to give Rick Benz a Highway Patrol Inspection Certificate for the vehicle;
(h) Jones failed to surrender the vehicle title to the Missouri Department of Revenue with a statement setting forth all facts known to Jones about the vehicle;
(i) Jones failed to obtain a new title branded “not actual mileage,” “salvaged,” “junk” or “reconstructed;”
(j) Jones gave Rick Benz a title that did not indicate that the vehicle was “salvaged” or “junk” and did not indicate to Rick Benz that there was an odometer discrepancy;
(k) Jones intended and had reason to suspect that his representations would be repeated and communicated to an unsuspecting purchaser such as Plaintiff who would rely on such representations to his detriment;
(l) Jones concealed and failed to disclose on the title to all subsequent purchasers that the title history was branded “not actual mileage,” “salvaged” or “junk,” and thereby implicitly represented that such facts did not exist; and
(m) at no point in time did Jones have the salvaged vehicle inspected by the Missouri Highway Patrol and did not supply any buyer of the vehicle with a Highway Patrol Inspection Certificate in violation of R.S.Mo. § 301.190.
10.The state court judgment found for Walls and against Jones on all counts of Walls’ petition including common law fraud, a violation of the federal Odometer Act, a violation of the Missouri odometer statutes, and violation of the Unlawful *192Merchandising Practices Act. The court entered judgement as follows:
(a) for common law fraud, actual damages in the amount of $24,992.29;
(b) for violation of the “Federal Odometer Statute,” actual damages in the amount of $24,992.29 and treble actual damages in the amount of $74,976.87 and attorney’s fees in the amount of $23,100.00, for total damages of $98,076.87;
(c) for violation of the “Missouri Odometer Statute,” actual damages in the amount of $24,992.29 and treble actual damages in the amount of $74,976.87 and attorney’s fees in the amount of $23,100.00, for total damages of $98,076.87;
(d) for violation of the Unlawful Merchandising Practices Act, actual damages in the amount of $24,992.29 plus attorney’s fees in the amount of $23,100.00, for total damages in the amount of $48,092.29.
11. Walls was required by the state court to make an election of remedies and elected judgment under the federal Odometer Act. The total award under that Act was $98,076.87.
12. Jones filed a motion to set aside the judgment based on excusable neglect for his failure to respond to discovery or appear at trial. After a hearing, this motion was denied on March 22,1999.
13. The circuit court’s ruling declining to set aside its judgment was affirmed by the Missouri Court of Appeals on March 28, 2000.
14. At the time that Jones filed his bankruptcy petition, the total outstanding balance owed to Walls on the state court judgment was $98,076.87 plus interest at nine percent from December 2,1998.
Based on these undisputed facts, Wells seeks summary judgment declaring that his state judgment award against Jones is excepted from discharge.
LEGAL STANDARD
In considering whether to grant summary judgment, a court examines all of the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any .... ” Fed. R.Civ.P. 56(c). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Lynn v. Deaconess Medical Center, 160 F.3d 484, 486 (8th Cir.l998)(citing Fed.R.Civ.P. 56(c)). The party seeking summary judgment bears the initial responsibility of informing the court of the basis of its motion and identifying those portions of the affidavits, if any, or by citation to the pleadings, depositions, answers to interrogatories, and admissions on file which it believes demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When such a motion is made and supported by the movant, the nonmoving party may not rest on his pleadings but must produce sufficient evidence to support the existence of the essential elements of his case on which he bears the burden of proof. Id. at 324, 106 S.Ct. 2548.
DISCUSSION
Walls argues that he is entitled to summary judgment. He asserts that the undisputed facts establish that a Missouri court found that Jones committed fraud and determined the damages to be $98,076.87. A debt is excepted from discharge under 11 U.S.C. § 523(a)(2)(A) if it was obtained by false pretenses, a false representation or actual fraud. Walls ar*193gues that the state court’s finding of fraud and damages presumptively established a nondischargeable debt under § 523(a)(2)(A).
Jones does not dispute any facts in the case. His sole defense is that there is no evidence that he made any false representations to Walls or that he committed any actual fraud towards Walls. The finding of fraud in the state proceeding was based on Jones’ pleadings being stricken and not on a full trial of the merits on that issue.
Walls has asserted that the doctrine of res judicata applies to bar Jones from relitigating the issue of fraud in the present proceeding. The principles of res judicata (claim preclusion) generally apply to bankruptcy proceedings. Katchen v. Landy, 382 U.S. 323, 334, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). Claim preclusion will bar a subsequent suit when: “(1) the first suit resulted in a final judgment on the merits; (2) the first suit was based on proper jurisdiction; (3) both suits involved the same cause of action; and (4) both suits involved the same parties or their privies.” In re Anderberg-Lund Printing Co., 109 F.3d 1343, 1346 (8th Cir.1997) (quoting Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir.1983)). Furthermore, the party against whom res judicata is asserted must have had a full and fair opportunity to litigate the matter in the proceeding that is to be given preclusive effect. Plough v. West Des Moines Community Sch. Dist., 70 F.3d 512, 517 (8th Cir.1995). Res judicata, however, is not applicable in the present case as the claim adjudicated in state court did not involve determination of the dischargeability of debt under 11 U.S.C. § 523. See In re Donovan, 255 B.R. 224 (Bankr.D.Neb.2000).
The Court next considers whether collateral estoppel (issue preclusion) warrants summary judgment in favor of Walls. Collateral estoppel principles apply in discharge exception proceedings pursuant to § 523(a). Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Collateral estoppel is the legal doctrine which bars the relitigation of factual or legal issues that were determined in a prior court action. In re Miera, 926 F.2d 741, 743 (8th Cir.1991). When an issue related to a nondischargeability complaint may have already been decided by a state court judgment, the bankruptcy court looks to state law to determine the preclusive effect of that judgment. In re Scarborough, 171 F.3d 638, 641 (8th Cir.1999). Collateral estoppel will give a state court judgment preclusive effect in a bankruptcy proceeding if the judgment would preclude relitigation in other courts within the state. Id.
Missouri courts consider the following four factors to determine if an issue is subject to collateral estoppel: (1) the issues in the present case and the prior adjudication must be identical; (2) the judgment in the prior litigation must be on the merits; (3) the party against whom collateral estoppel is asserted must be the same party or in privy with a party in the prior litigation; and (4) the party against whom collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in the prior suit. Id. at 641-642 (quotations and citations omitted).
The facts of the case establish that the application of collateral estoppel to the present proceeding is appropriate. The issues of fraud and false representation concerning the title to the 1990 Corvette are identical in both the prior state case and the current challenge to dischargeability presently before the Court.
The Missouri Court of Appeals found that the circuit court’s judgment against Jones for fraud and odometer mis*194representation was a judgment on the merits. See PL’s Mot. Summ. J. Exhibit 1 at 4 n.2. The Court of Appeals recognized that when a pleading is stricken and a judgment of liability is entered as a sanction, such a judgment is deemed to be on the merits and not by default. Id. (citing In re Marriage of DeWitt, 946 S.W.2d 258, 261 (Mo.Ct.App.1997)(relying on Cotleur v. Danziger, 870 S.W.2d 234, 236 (Mo. banc 1994) when a party has filed a responsive pleading but then has failed to appear at the hearing on the case, the resulting adverse judgment is a judgment on the merits, not a default judgment)).
The party against whom collateral estoppel is being asserted, Jones, was the identical party in the prior litigation.
Finally, Jones was afforded a full and fair opportunity in the previous suit to litigate the issue of fraud or false representation. Although Jones’ liability was determined as the result of a sanction for failure to comply with the trial court’s order concerning discovery, Jones, through his counsel, was given every opportunity to attend the hearing on this issue but failed to do so. It is undisputed that on the day of the hearing for discovery sanctions, August 24, 1998, Walls’ counsel called Jones’ counsel and reminded him that the motion for sanctions was being called that day. Neither Jones nor his counsel attended the hearing.
The case was then reset for trial on November 30, 1998, to address the issue of damages. It is uncontested that Walls’ counsel sent Jones’ counsel notices of depositions which took place before the trial. Neither Jones nor his counsel attended the depositions. Nor did Jones or his counsel appear at the trial. After an adverse verdict was rendered against Jones, he filed a motion with the trial court to have the judgment set aside based on excusable neglect. The trial court denied Jones’ motion. It found that Jones’ failure to follow his case was inexcusable, even if his counsel had abandoned his case as Jones claimed. The appellate court affirmed the finding that Jones’ failure to appear at the various trial court proceedings, either personally or through counsel, did not constitute excusable neglect.
The Court finds that Jones was given every opportunity to fully and fairly litigate the accusations of fraud and false representation in the trial court. Two Missouri courts have found that Jones’ failure to attend trial court proceedings was inexcusable. Jones’ own negligent conduct should not allow him to relitigate the issue of fraud for which a Missouri court has found him liable. Consequently, the Court finds that all of the elements of collateral estoppel have been established in this case. Jones is collaterally estopped from relitigating the issues of fraud and false representation which form the basis of the state court judgment which Walls seeks to have declared excepted from discharge. Accordingly, the Court will grant summary judgment to Walls under 11 U.S.C. § 523(a)(2)(A).
Based on the resolution of this matter under 11 U.S.C. § 523(a)(2)(A) the Court need not address Walls’ motion under 11 U.S.C. § 523(a)(6).
An Order consistent with this Memorandum Opinion will be entered this date.
. The original Complaint asserted an exception to discharge under § 523(a)(4). The Complaint was amended by interlineation to substitute a claim under § 523(a)(2)(A) for § 523(a)(4). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493500/ | MEMORANDUM OPINION
DAVID P. MCDONALD, Chief Judge.
Plaintiff Regency Motors, Inc. filed this adversary proceeding to determine the dischargeability of a debt incurred from the sale of an automobile. Regency asserted that Debtors James and Shirley Barnes committed fraud when they sold the vehicle to Regency by failing to disclose the existence of a prior lienholder. Regency alleged that the debt is excepted from discharge under 11 U.S.C. § 523(a)(2)(A). After a trial on the merits, the Court finds that Regency failed to establish that Defendants acted fraudulently and, therefore, the debt is dischargeable.
Jurisdiction and Venue
This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409.
Procedural Background
On December 30, 1997, Debtors James Barnes and Shirley Barnes (collectively referred to as “the Barnes”) filed for bankruptcy relief under Chapter 13 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330. On February 2, 1999, that case was dismissed for a failure to make planned payments.
On June 30, 2000, the Barnes filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code. The first meeting of creditors was concluded on July 27, 2000. An order discharging the Debtors was entered on October 3, 2000.
Regency filed this adversary proceeding on September 1, 2000. Regency alleged that the Barnes committed fraudulent conduct during the sale of their 1995 Mitsubishi to Regency. Regency alleged that the Barnes purposely failed to reveal the presence of a lien on the vehicle. Regency obtained a state court default judgment in the amount of $25,000.00 based on fraudulent misrepresentation by the Barnes concerning the sale of the vehicle. Regency sought to have the debt incurred surrounding the purchase of the Barnes’ car to be declared excepted from discharge under 11 U.S.C. § 523(a)(2)(A). The Court tried this case on December 4, 2000.
Findings of Fact
The Court makes the following findings of fact based on the pleadings, stipulated facts, exhibits, and trial testimony:
*1971. On June 11, 1997, the Barnes purchased a 1995 Mitsubishi Galant from Christopher Chevrolet, Inc., d/b/a/ Auffenberg Chevrolet, for $16,641.95. Auffenberg arranged for the financing of $15,010.22 of the purchase price through AmeriCredit Financial Services, Inc. Auffenberg provided the Barnes with a title application indicating that AmeriCredit had a lien on the vehicle.
2. AmeriCredit had concerns over the loan and ultimately refused to finance the vehicle purchase and returned the financing documents with a lien release.
3. On July 1, 1997, Auffenberg rewrote the deal and directly financed $14,199.34 of the purchase price of the vehicle. A new financing agreement was entered between Auffenberg and the Barnes that day. Auffenberg provided the Barnes with a second title application. However, this second title application, dated July 1, 1997 and admitted at trial, again listed AmeriCredit as the sole lienholder.
4. On August 14, 1997, Auffenberg sent the Barnes a letter reminding them that AmeriCredit declined to finance the vehicle purchase. The letter stated that all payments on the loan should be sent directly to Auffenberg and that Auffenberg should be designated as the lienholder on the title to the vehicle.
5. On September 5, 1997, Auffenberg submitted the necessary documents to perfect its lien on the vehicle with the Missouri Department of Revenue. The Barnes, however, had not yet submitted a title application for the vehicle.
6. The Barnes did not submit their title application to the Department of Revenue until January 24, 1998. The application that Barnes submitted was the one prepared on June 11,1997 by Auffenberg. The lienholder section listed AmeriCredit as the lienholder. No other lienholder was listed on the application. A Department of Revenue employee discovered the lien release from AmeriCredit and placed a white-out label over AmeriCredit’s name on the application. Apparently due to the out of synch filings of Auffenberg’s lien and the Barnes’ application for title, the Department of Revenue issued an original certificate of title in the name of Shirley and James Barnes which failed to reflect that Auffenberg had a lien on the vehicle.
7. On December 30, 1997, several weeks before they submitted their application for title, the Barnes filed for bankruptcy relief under Chapter 13. Auffenberg was listed as a creditor in that filing. Auffenberg never filed a proof of claim in that case nor did Auffenberg seek a relief from stay. The case was ultimately dismissed on February 2, 1999, for a failure to make planned payments.
8. In February 1999, Auffenberg was notified of the dismissal of the Barnes Chapter 13 bankruptcy. Upon an inquiry with the Department of Revenue Auffenberg discovered that the title to the vehicle issued to the Barnes did not show Auffenberg’s lien.
9. The Barnes had defaulted on the loan from Auffenberg after making four payments and in February 1999 owed approximately $20,000.00 on the note.
10. On March 3, 1999, shortly after their Chapter 13 case was dismissed, the Barnes sold the vehicle to Plaintiff Regency Motors, Inc. for $4,500.00.
11. The Director of the Department of Revenue, by letter of March 11, 1999, asked the Barnes to return the title of the vehicle to the Department to allow it to be corrected to reflect that Auffenberg had a lien. By this date the Barnes had already sold the vehicle.
12. On March 13, 1999, Regency resold the vehicle to Schnell Reed for $9,995.00. *198The purchase of the vehicle was financed by Mercury Finance Company.
13. Reed submitted an application for title on the vehicle on April 14, 1999. The Department of Revenue informed Reed that Auffenberg had a prior lien on the car. Reed sought to expunge Auffenberg’s lien by pursuing administrative procedures with the Department of Revenue.
14. The Director of the Department of Revenue issued a decision on June 16, 1999, stating that Auffenberg had a first lien on the vehicle and that Mercury had a second lien. That decision was confirmed by the Missouri Administrative Hearing Commission on January 19, 2000. The Committee ordered the title to be issued showing both liens.
15. Reed demanded that Regency clear up the lien problem. On February 9, 2000, Regency paid Auffenberg $5,500.00 in exchange for Auffenberg’s lien release. Regency also paid Reed $430.00 as a settlement for a full release of all claims that Reed may have had against Regency for selling the vehicle without a clean title.
16. On May 11, 2000, Regency obtained a default judgment against the Barnes from the Circuit Court of St. Louis County, Missouri for the damages that Regency incurred to obtain clear title to the vehicle. Regency was awarded $7,000.00 in actual damages and $18,000.00 in punitive damages for a total default judgment award of $25,000.00.
17. On June 30, 2000, the Barnes filed for bankruptcy relief under Chapter 7 of the Bankruptcy Code. Both Regency and Auffenberg were listed in the creditor’s matrix. An order of discharge was entered on October 3, 2000.
18. Regency filed the present adversary proceeding on September 1, 2000. Regency’s Complaint sought to have any debt owed to it by the Barnes, including its $25,000.00 state court judgement 1, be declared excepted from discharge under 11 U.S.C. § 523(a)(2)(A).
19. At trial Regency sought damages in the amount of $9,930.00 which included the $5,500.00 paid to Auffenberg, the $430.00 paid to Reed, and $4,000.00 in attorney’s fees.
Discussion
The question in this case is whether the Barnes committed fraud or a fraudulent misrepresentation when they sold their 1995 Mitsubishi Galant to Regency. The key issue is whether the Barnes knowingly concealed the fact that Auffenberg Chevrolet had a lien on the car when the Barnes sold it to Regency. Regency asserted that they did and that 11 U.S.C. § 523(a)(2)(A)2 excepts from discharge any debt owed to it by the Barnes arising from the sale of the vehicle.
*199Congress did not define the terms used in § 523(a)(2)(A). The United States Supreme Court, however, has held that the terms of § 523(a)(2)(A) should be construed by incorporating the general common law of torts, that is the dominate consensus of common law jurisdictions rather than the law of any particular State. Field v. Mans, 516 U.S. 59, 71 n. 9, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995).
For a debt to be declared excepted from discharge under § 523(a)(2)(A) a creditor has to demonstrate that: (1) the debtor made representations; (2) which he knew were false; (3) he made them with the intention and purpose of deceiving the creditor; (4) the creditor relied on such representations; (5) the creditor sustained the alleged loss and damage as the proximate result of the false representations by the debtor. In re Ophaug, 827 F.2d 340, 342 n. 1 (8th Cir.1987).
Fraud implied by law will not suffice to create an exception to discharge, only actual fraud is contemplated by § 523(a)(2)(A). Id. Reduced to its essentials, in order for § 523(a)(2)(A) to be effectually invoked, a creditor must prove the debtor intended to deceive the creditor, the creditor justifiably relied on the debtor’s false representation, and that the false representation was material. Field, 516 U.S. at 68, 116 S.Ct. 437. The creditor must establish his case by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
At trial Regency and the Barnes presented testimony and written evidence concerning the disputed car sale. Two of the three elements of fraud, justifiable reliance and materiality, were not contested. The manager of Regency, Dominie Parolin, testified at trial that the Barnes presented a lien-free title to the Mitsubishi at the time that they sold the car to Regency. Regency relied on the title’s lien-free status in making its decision to purchase the car. The lack of a lien on the vehicle was a material issue in Regency’s decision to purchase the car.
The remaining issue, therefore, is whether the Barnes intended to represent to Regency that the vehicle was lien-free when they knew that representation was, in fact, false. Because direct proof of intent (i.e., the debtor’s state of mind) is nearly impossible to obtain, intent may be inferred from the circumstances surrounding the transaction at issue. In re Van Horne, 823 F.2d 1285, 1288 (8th Cir.1987)(abrogated on other grounds). When circumstantial evidence is introduced which allows an inference of the debtor’s intent to deceive, the debtor cannot overcome the inference by simply making an unsupported assertion of honest intent. Id. (citation and quotations omitted). The focus of the inquiry is on whether the debtor’s actions appear so inconsistent with his self-serving assertion of honest intent that the evidence leads the court to disbelieve the debtor. Id. at 1288. (citation and quotations omitted).
Regency’s manger, Parolin, testified that when the Barnes presented the title to Regency they did not mention that there was a lien on the vehicle. Parolin never inquired about a lien because the title did not show one.
Auffenberg’s office manager, Emlie Rae, testified that Auffenberg received notice that the Barnes had filed a Chapter 13 bankruptcy proceeding in December 1997. Auffenberg was listed as a creditor in that case. Rae testified that Auffenberg never filed a proof of claim in that case. She stated that Auffenberg never sought to receive any monthly payments under the Barnes’ Chapter 13 plan.
*200The Chapter 13 proceeding was dismissed in February 1999 over a year after it was filed. Auffenberg received notice of the dismissal and at that time discovered that they were not listed as a lienholder on the Barnes’ Mitsubishi. Auffenberg contacted the Missouri Department of Revenue to correct the oversight. Auffenberg authorized the vehicle to be repossessed on February 23,1999.
Rae testified that from the time that the Barnes filed their Chapter 13 proceeding until the date that they sold the Mitsubishi to Regency on March 3, 2000, Auffenberg never attempted to contact the Barnes concerning the disposition of the vehicle.
Regency claimed an intent to defraud existed because the Barnes should have known that a mistake had been made when the title was issued without Auffenberg listed as a lienholder. Regency asserted that the Barnes knew that they still owed Auffenberg money for the car and knew that Auffenberg would not waive a lien until the loan was paid in full. At a minimum, Regency claimed that the Barnes should have told Regency about the outstanding loan with Auffenberg.
Defendant Shirley Barnes testified that she and her husband listed Auffenberg as a creditor in their Chapter 13 proceeding. Auffenberg never filed a proof of claim. None of the Barnes’ payments under the Chapter 13 plan were allocated to Auffenberg nor was any payment made outside the plan to Auffenberg.
Shirley testified that two months after she and her husband filed for bankruptcy relief, they received a certificate of title from the Department of Revenue dated February 28, 1999. The title did not list a lienholder. The Barnes consulted with their Chapter 13 attorney, T.J. Mullin, concerning Auffenberg’s creditor position. Based on the facts that Auffenberg did not file a proof of claim and the title was issued without a lienholder, the Barnes concluded that Auffenberg had abandoned any interest in the vehicle.
Shirley testified that before she and her husband sold the car to Regency in March 1999, she called the Department of Revenue four times just to be sure that they had clear title to the car and that no lienholder was listed. She testified that she and her husband felt assured that the title to the car was clear when they sold it to Regency on March 3,1999.
After the Barnes sold the vehicle, the Barnes received a letter dated March 8, 1999, from the Department of Revenue stating that a mistake had been made and that Auffenberg should have been listed as a lienholder on the vehicle. The Barnes had already sold the car when they received this letter.
James Barnes testified that he called the Department of Revenue at least two times before he and his wife sold the car to ensure that there was not a lien on the vehicle. He stated that the reason he and his wife kept calling the Department of Revenue was that they could not believe that they actually had clear title to the vehicle. But upon consultation with their Chapter 13 attorney and repeated calls to the Department of Revenue the Barnes accepted that fact that they had clear title. He concluded that Auffenberg had abandoned its interest in the vehicle.
After their Chapter 13 proceeding was dismissed, Auffenberg never directly contacted the Barnes to demand payments on the car or to repossess the car. James testified, however, that between the time that Chapter 13 case was dismissed and before he sold the car to Regency a man came to the house “looking for the car.” The man said that he represented an agency (not Auffenberg). James told him that he had clear title to the car and the man *201left. The Barnes had been shopping the car around to sell it prior to the man’s visit and sold it a few days after his visit. James testified that he understood that he and his wife had clear title to the vehicle when they sold the car.
Regency presented circumstantial evidence in an attempt to prove that the Barnes intended to hide the existence of a lien on the vehicle. The Barnes responded with more that a mere assertion of good intent. They presented evidence which led them to believe that the car was lien-free.
The Court finds Shirley and James Barnes’ testimony to be creditable that they had a good faith belief that they had clear title to the car. Auffenberg’s failure to file a proof of claim or to seek a relief from stay in the Barnes’ Chapter 13 proceeding led the Barnes to conclude that Auffenberg had abandoned its claim to the Mitsubishi. The Barnes’ conclusion was reinforced when they received a clear title to the vehicle from the Department of Revenue two months after they filed their Chapter 13 proceeding. Their Chapter 13 attorney confirmed to them that they had clear title to the car even though they admitted that they owned Auffenberg a debt as evidenced on the creditor’s matrix filed in the ease.
The Barnes made repeated calls to the Missouri Department of Revenue and confirmed that there was no lien on the car. These calls acted to further reinforce the Barnes belief that Auffenberg had abandoned any claim in the vehicle and that they really had clear title to the car. Based on all of the evidence, the Court finds that the Barnes’ actions are not inconsistent with their assertion that they did not intend to defraud Regency. For a debt to be excepted from discharge under § 523(a)(2)(A) the creditor must establish that the debtor acted with intent to commit fraud. Such an intent was not established in this case.
Regency was listed as a creditor in the Barnes’ Chapter 7 proceeding filed on June 30, 2000. The Barnes’ debt in that proceeding was discharged on October 3, 2000. Consequently, any debt owed to Regency by the Barnes has been discharged.
An Order consistent with this Memorandum Opinion will be entered this date.
. The Court notes that Regency abandoned any claim to enforce the state court judgement. At trial Regency sought only to recover damages in the amount of $9,930,00 which included the $5,500.00 paid to Auffenberg, the $430.00 paid to Reed, and $4,000.00 in attorney's fees. In addition, the state court judgment was entered in default and as such had no preclusive effect to the present case. See In re Garner, 881 F.2d 579 (8th Cir.1989)(rev'd on other grounds)(res judicata does not apply to dischargeability proceedings and collateral estoppel does not attach when an issue is not actually litigated but rather the product of a default judgment). Based on the outcome of the present case, the state court judgement is not excepted from discharge under § 523(a)(2)(A).
. Section 523(a)(2)(A) excepts from discharge any debt "for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by -(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493502/ | MEMORANDUM OPINION
DAVID P. MCDONALD, Chief Judge.
In 1998, Plaintiff Robert J. Mogley received a state court judgment for fraudulent misrepresentation against Defendant-Debtor Lawrence J. Fleming. The judgment included an award of punitive damages in the amount of $225,000.00. Mogley filed this adversary proceeding to determine whether the judgment is excepted from discharge under 11 U.S.C. § 523(a)(2)(A). Fleming contends that the judgment, or at a minimum the punitive portion of the judgment, should be discharged. The Court finds that the state court judgment shall be given preclusive effect and the entire judgment is nondischargeable.
*214
JURISDICTION AND VENUE
This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409.
PROCEDURAL BACKGROUND
Plaintiff Robert J. Mogley sued his former attorney, Defendant-Debtor Lawrence J. Fleming, in the Circuit Court of the City of St. Louis, State of Missouri, for legal malpractice and fraudulent misrepresentation. Mogley received a judgment from the Circuit Court on April 30, 1998, in the amount of $58,000.00 on the legal malpractice claim and $3,000.00 in actual damages and $225,000.00 in punitive damages on the fraudulent misrepresentation claim. Fleming appealed the case to the Missouri Court of Appeals. On December 7, 1999, the appeals court reversed the trial court’s judgment on the malpractice claim but affirmed the judgment for fraud including the award for punitive damages. On March 21, 2000, the Supreme Court of Missouri denied Fleming’s application to transfer the case to that court.
On November 9, 2000, Fleming filed a voluntary petition seeking relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101, et seq. It is not disputed that Mogley’s judgment against Fleming in the amount of $3,000.00 in actual damages and $225,000.00 in punitive damages is a debt of the estate. On April 2, 2001, Mogley filed the present adversary proceeding to determine the dischargeability of that judgment. On July 19, 2001, the parties agreed to waive a trial of the matter and agreed to submit the case to the Court on stipulated facts and opposing briefs. On September 14, 2001, the ease was fully briefed and submitted.
FINDINGS OF FACT
The parties submitted a document titled “Stipulation of Facts” which merely lists all of the state court documents involved in the case, including: the jury instructions; the Circuit Court’s judgment; the Missouri Court of Appeals judgment; and the Missouri Supreme Court’s denial of transfer. The “stipulation” states that all of these documents are true and accurate and may be admitted into the record. The parties submitted copies of these documents for the record. The history of the state case is long and protracted. The pertinent facts of the ease, taken from the Missouri Court of Appeals decision and other stipulated documents, are as follows:
1) In 1981, Plaintiff Robert J. Mogley was offered early retirement from his employer, Chicago Title Insurance Company. In order to receive the early retirement benefits, Mogley had to agree to waive any claims he had against Chicago Title, including employment discrimination claims. He accepted the offer, but later, in 1982, Mogley attempted to sue the company for age discrimination in the United States District Court. Mogley was represented by Defendant Lawrence J. Fleming. The case was dismissed with prejudice and the Eighth Circuit affirmed the dismissal.
2) Three years later, in 1985, Mogley asked Fleming to file a wrongful termination case against Chicago Title. Fleming prepared a petition and told Mogley that the case was filed in Edwardsville, Illinois, at the Madison County Court. In the spring of 1986, Fleming gave Mogley a copy of the wrongful termination petition complete with a cause and division number. Mogley paid Fleming approximately $1,090.00.
3) When Mogley and his wife attended purportedly scheduled depositions of Chi*215cago Title employees, Fleming told the couple that Chicago Title had cancelled the depositions. After that incident, Fleming failed to respond to several of Mogley’s letters and phone calls. On July 3, 1989, Mogley went to the Madison County Courthouse and discovered that Fleming had never filed the wrongful termination petition.
4) Mogley sued Fleming for legal malpractice and for fraudulent misrepresentation in the Circuit Court of the City of St. Louis. Mogley’s wife testified at trial that Fleming told her that the case against Chicago Title had been settled for $280,000.00. She also testified that Fleming said that he had sent releases for the settlement and he gave her a Federal Express number for the mailing. She called Federal Express with the number given to her by Fleming and was told that there was no such mailing number at Federal Express.
5) On April 30, 1998, the jury entered a verdict for Mogley for $58,000.00 on the legal malpractice claim and in the amount of $3,000.00 in actual damages and $225,000.00 in punitive damages on the fraudulent misrepresentation claim. The Circuit Court entered a judgment for these amounts on the same day.
6) Fleming filed an appeal with the Missouri Court of Appeals alleging numerous infirmities with the trial court’s judgment. On December 7, 1999, the court of appeals reversed the judgment as to the malpractice claim but affirmed the judgment as to the fraudulent misrepresentation claim including the award of punitive damages on that claim.
7) The Supreme Court of Missouri denied Fleming’s application for transfer on March 21, 2000.
DISCUSSION
Mogley’s complaint asks the Court to determine whether his judgment against Fleming is nondischargeable under the 11 U.S.C. § 523(a)(2)(A) exception for fraud. In support of his claim, he offers the Missouri state court’s judgment for fraud. Fleming counters that the state court judgment should not be recognized due to constitutional violations by the trial and appellate courts. In the alternative, Fleming asserts that the punitive damages portion of the judgment must be reviewed under the willful and malicious standard of 11 U.S.C. § 523(a)(6) and that Mogley failed to establish the malicious prong of that analysis. The Court will first address Fleming’s arguments in favor of discharge-ability.
Rooker — Feldman Doctrine
Fleming argues that the state court judgment for fraud in this case should not be recognized. Fleming asserts that the state trial court failed to properly instruct the jury on the issue of punitive damages and that the trial court and the court of appeals erred in upholding the punitive damages award. Fleming alleges that the actions of the Missouri courts violated, among other things, the Eighth, Fifth, and Fourteenth Amendments to the United States Constitution and Article I, Sections 2, 3, 10, 15, 19, and 21 of the Constitution of the State of Missouri. In effect, Fleming is asking this Court to sit as a court of appeals to review the decisions issued by the Missouri courts in this case. This type of review is barred by the Rooker-Feldman doctrine.
The Eighth Circuit Court of Appeals has described how the Rooker-Feldman doctrine prevents the lower federal courts from reviewing state court decisions in Lemonds v. St. Louis County, 222 F.3d 488 (8th Cir.2000). The court stated that:
*216The Rooker-Feldman doctrine recognizes that, with the exception of habeas corpus petitions, lower federal courts lack subject matter jurisdiction over challenges to state court judgments. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 68 L.Ed. 362 (1923). Instead, federal jurisdiction to review most state court judgments is vested exclusively in the United States Supreme Court. See 28 U.S.C. § 1257; Feldman, 460 U.S. at 486, 103 S.Ct. 1303.
The Rooker-Feldman doctrine forecloses not only straightforward appeals but also more indirect attempts by federal plaintiffs to undermine state court decisions. Thus, a corollary to the basic rule against reviewing judgments prohibits federal district courts from exercising jurisdiction over general constitutional claims that are “inextricably intertwined” with specific claims already adjudicated in state court. See Feldman, 460 U.S. at 482 n. 16, 103 S.Ct. 1303; Fielder v. Credit Acceptance Corp., 188 F.3d 1031, 1034 (8th Cir. 1999); Neal v. Wilson, 112 F.3d 351, 356 (8th Cir.1997). A general federal claim is inextricably intertwined with a state court judgment “if the federal claim succeeds only to the extent that the state court wrongly decided the issue before it.” Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 25, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987) (Marshall, J., concurring). In such cases, “where federal relief can only be predicated upon a conviction that the state court was wrong, it is difficult to conceive the federal proceedings as, in substance, anything other than a prohibited appeal of the state-court judgment.” Id. The state and federal claims need not be identical. See In re Goetzman, 91 F.3d 1173, 1177 (8th Cir.1996).
Lemonds, 222 F.3d at 492—493.
In order for Fleming to prevail on his allegations that the Missouri state courts violated his constitutional rights, this Court must make a determination that the state trial and appellate courts wrongly decided the issues before them in the fraud case brought by Mogley. Such a review is exactly the kind of interference with the finality of state court decisions that the Rooker-Feldman doctrine bars. This Court is without jurisdiction to consider Fleming’s collateral attack on the decisions of the Missouri courts in this case. Federal jurisdiction to review these state court judgments is vested exclusively in the United States Supreme Court. Consequently, Flemings arguments attacking the validity of the state courts’ actions in this case will not be entertained.
Dischargeability under 11 U.S.C. § 523(a)(6)
Alternatively, Fleming argues that the punitive damages award of the state court judgment should be analyzed under the willful and malicious standard enunciated under 11 U.S.C. § 523(a)(6) to determine whether this award is dischargeable. A hint of support for this argument can be found in a footnote of a 1991 United States Supreme Court case which suggests that “[ajrguably, fraud judgments in cases in which the defendant did not obtain money, property, or services from the plaintiffs and those judgments that include punitive damages awards are more appropriately governed by § 523(a)(6).” Grogan v. Garner, 498 U.S. 279, 282 n. 2, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)(italics added).
Seven years later, however, the Supreme Court clearly rejected such an analysis and held that establishing an exception to discharge under § 523(a)(2)(A) *217automatically excepts from discharge all liability arising from fraud, including an award for punitive damages. Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). The Court specifically noted that in Grogan it left open the question of the proper analysis of the dischargeability of punitive damages awards in fraud cases. Id. at 217, 118 S.Ct. 1212. The decision in Cohen clearly holds that the Court does not impose a § 523(a)(6) analysis of punitive damages awards in a fraud claim. Rather, it simply held that if the fraud exception is established under § 523(a)(2)(A), then a punitive damages award based on the fraud is also automatically nondischargeable. Id. at 223, 118 S.Ct. 1212.
Fleming’s argument, therefore, that § 523(a)(6) controls the dischargeability analysis of a punitive damages award in a state court judgment for fraud is in direct conflict with the Supreme Court’s decision on the matter. A bankruptcy court need only determine whether a fraud exception under § 523(a)(2)(A) applies to a state court judgment. If it does, then the exception applies equally to any punitive damages award based on the fraud, no further analysis under § 523(a)(6) is necessary or warranted.
Consequently, Fleming’s argument that the punitive damages award of Mogley’s state court judgment should be discharged because it fails to meet the requirements under § 523(a)(6) is without merit. The punitive damages award of that judgment will not be discharged if the judgment is excepted from discharge under § 523(a)(2)(A). The Court now turns to the question of whether Mogley’s state court fraud judgment qualifies for an exception from discharge under § 523(a)(2)(A).
Discharge under 11 U.S.C. § 523(a)(2)(A)
Mogley seeks to have his state court judgment against Fleming for fraudulent misrepresentation declared to be non-dischargeable under § 523(a)(2)(A)1. Reduced to its essentials, in order for § 523(a)(2)(A) to be effectually invoked, a creditor must prove the debtor intended to deceive the creditor, the creditor justifiably relied on the debtor’s false representation, and that the false representation was material. Field v. Mans, 516 U.S. 59, 68, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). The creditor must establish his case by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
In the present case, a judgment against Fleming for fraudulent misrepresentation has been rendered by a Missouri state court. This Court must determine whether to give that judgment preclusive effect through the doctrine of collateral estoppel in determining if fraud has been established for purposes of the dischargeability action.
Collateral estoppel principles apply in discharge exception proceedings. Grogan, 498 U.S. at 285 n. 11, 111 S.Ct. 654. Collateral estoppel is the legal doctrine which bars the relitigation of factual or legal issues that were determined in a prior court action. In re Miera, 926 F.2d 741, 743 (8th Cir.1991). When an issue related to a nondischargeability complaint may have already been decided by a state *218court judgment, the bankruptcy court looks to state law to determine the preclusive effect of that judgment. In re Scarborough, 171 F.3d 638, 641 (8th Cir.1999). Collateral estoppel will give a state court judgment preclusive effect in a bankruptcy proceeding if the judgment would preclude relitigation in other courts within the state. Id.
Missouri courts consider the following four factors to determine if an issue is subject to collateral estoppel: (1) the issues in the present case and the prior adjudication must be identical; (2) the judgment in the prior litigation must be on the merits; (3) the party against whom collateral estoppel is asserted must be the same party or in privy with a party in the prior litigation; and (4) the party against whom collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in the prior suit. Id. at 641-642 (quotations and citations omitted).
The first factor asks whether the issues in the present case and the prior adjudication are identical. In order to establish fraud for purposes of § 523(a)(2)(A), a creditor must prove the following elements by a preponderance of the evidence: 1) the debtor made a representation; 2) the debtor knew the representation was false at the time it was made; 3) the representation was deliberately made for the purpose of deceiving the creditor; 4) the creditor justifiably relied on the representation; and 5) the creditor sustained the alleged loss as the proximate result of the representation having been made. Universal Bank. N.A. v. Grause (In re Grause), 245 B.R. 95, 99 (8th Cir. BAP 2000).
At the close of the state court trial, the jury was provided with instructions which directed the jurors to find that Fleming had committed fraud if the following elements were established: 1) Fleming represented to Mogley that Fleming had filed a wrongful termination suit on Mogley’s behalf, intending that Mogley rely on the representation in employing Fleming; 2) the representation was false; 3) Fleming knew that the representation was false; 4) the false representation was material to Fleming’s continued employment by Mogley; 5) Mogley relied on the representation by Fleming; and 6) as a direct result of the false representation Mogley was damaged. Based of these elements, the jury entered a verdict for Mogley against Fleming for the tort of fraud.
The Court finds that the elements of Mogley’s state court fraud action satisfy the elements for a finding of fraud under § 523(a)(2)(A). The first factor of the doctrine of collateral estoppel has therefore been satisfied in this case because the issues in the present case and the prior adjudication are identical. The Court also finds that the last three factors for the application of collateral estoppel are satisfied because the judgment from the prior litigation was on the merits, the party against whom estoppel is being asserted, Fleming, was the same party in the state court action and, finally, Fleming had a full and fair opportunity to litigate the issue in the prior suit.
Accordingly, the Court finds that, through the doctrine of collateral estoppel, Mogley has established the fraud exception to his state court judgment under § 523(a)(2)(A). Consequently, Mogley’s state court judgment, including the punitive damages portion, is excepted from discharge. See Cohen, 523 U.S. at 223, 118 S.Ct. 1212.
An Order consistent with this Memorandum Opinion will be entered this date.
. Section 523(a)(2)(A) provides an exception to discharge for any debt:
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider's financial condition.
11 U.S.C. § 523(a)(2)(A). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493503/ | MEMORANDUM OPINION
DAVID P. MCDONALD, Chief Judge.
This matter is before the Court on Debt- or Eric James Snyder’s Motion to Vacate; to Correct; for New Trial (Trial); to Alter or Amend; to Set Aside Orders of February 28, 2002 (Dissolution Opinion and Its Order; and the Confirmation Opinion and Its Order); Affidavit of Debtor; & Request for Change of Judge & Venue. Snyder’s motion was filed in response to the Court’s orders dismissing his bankruptcy petition and denying his motion to set aside state court dissolution proceedings. Based upon a review of the record the Court will deny Snyder’s motion in its entirety.
Snyder’s motion concerns two orders issued by the Court on February 28, 2002. The first order dismissed Snyder’s Chapter 13 petition. The second order denied Snyder’s motion to vacate a state court dissolution proceeding. Snyder claims that the proceeding was held in violation of the automatic stay. The Court will briefly address Snyder’s current motion. The Court will not restate the reasoning contained in its previous orders. Those orders clearly set forth the facts which led to the Court’s decisions.
At the outset, the Court notes that at the time Snyder filed his own bankruptcy *230petitions he was a licensed attorney who had appeared frequently before the bankruptcy bar. In filing petitions for his own bankruptcy, however, the Court finds that Snyder attempted to reap the benefits of bankruptcy without complying with the requirements of the system.
Violation of the Automatic Stay
The majority of Snyder’s current motion involves his claim that his wife violated the automatic stay in his case by attending a dissolution proceeding on October 19, 1999. Snyder claims that an automatic stay was in place because he had filed a bankruptcy petition under Chapter 13 on July 6, 1999. Snyder’s claim is without merit.
On July 6, 1999, Snyder and his wife, Jane Snyder, were scheduled to attend divorce a proceeding in the Circuit Court of St. Louis County Missouri. Snyder admits in his current verified motion that he filed for bankruptcy on July 6, 1999, in order to stop the dissolution proceeding. (Debtor’s Verified Mot. To Vacate ¶47)
When he filed his petition on July 6, 1999, he tendered a check drawn from Eric J. Snyder, P.C., Snyder’s legal practice account. The Bankruptcy Clerk’s Office file stamped a case number on Snyder’s petition and took his check. Snyder left the Court with a copy of his filed petition which reflected the assigned case number. Snyder states that he left the Bankruptcy Court and took his copy of the petition directly to the Circuit Court and successfully stopped the dissolution proceeding. (Debtor’s Verified Mot. To Vacate ¶ 13)
After Snyder left the Court, the Clerk’s Office determined that Snyder’s check was drawn from a personal account and was not an acceptable form of payment.1 Snyder’s petition was not processed. The case number was reassigned to another case. Snyder’s petition and check were returned to him by mail and he was informed that his method of payment of the filing fees was not acceptable. The Clerk’s Office later concluded that instead of returning the petition to Snyder, a better procedure would have been to process the petition in the Court’s system and issue a deficiency notice to Snyder informing him that he needed to make a valid payment of his filing fees within five days or else his case would be dismissed.
Snyder admits that his petition and check were returned to him in an envelope postmarked on July 7, 1999. (Debtor’s Verified Mot. To Vacate ¶ 7) After receiving the return of his petition and cheek, Snyder admits that he did not take any action until he filed a new and second petition on October 19, 1999. (Debtor’s Verified Mot. To Vacate ¶ 50) Snyder claims that although his petition and check were returned to him without being processed by the Court, the petition was deemed filed and he received the benefit of the automatic stay for three months until he filed his second, “safety net” petition on October 19, 1999. He claims that the dissolution proceeding held on October 19, 1999, was in violation of the automatic stay which arose from his July 6, 1999 filing.
Snyder’s claim is disingenuous and his actions belie his claim. Snyder used the file stamped copy of his petition to stop the dissolution proceeding on July 6, 1999. Yet when he received his notification that his filing was defective, he did nothing. A return of a petition and the tendered method of payment of the filing fee check is the ultimate form of a deficiency notice. Snyder, a bankruptcy practitioner, should have appreciated the obvious consequences *231of having his petition returned by the Court, that is, his petition was not effectively filed and he needed to act to correct the situation.
Instead, Snyder chose to do nothing. He had succeeded in stopping the divorce proceeding so he had achieved the goal of his filing for bankruptcy protection. Yet he continues to assert that his petition of July 6, 1999, was properly filed and that the automatic stay was in place on October 19, 1999, when the rescheduled dissolution proceeding was heard.
Snyder’s position is untenable. No one, particularly a bankruptcy attorney, could believe that his case was still alive and well when the petition and payment were returned by the Court. Snyder, an attorney well versed on the bankruptcy process, never questioned why his petition had been returned. Nor did he attempt to contact the Court to inquire why he did not receive a notice of the commencement of the case from the Clerk’s Office or a notice scheduling a section 341 meeting of creditors. The return of his petition and payment combined with his failure to receive the normal bankruptcy notices issued in a case clearly put Snyder on notice that his July 6, 1999, petition was not effectively filed. It became a non-existent case. To effect his filing, Snyder needed to contact the Court and correct his filing. Instead, he chose to do nothing.
It is undisputed that the Court records from July 6, 1999, through October 19, 1999, did not reflect any petition filed by Snyder on July 6, 1999. The Court concludes that when Jane Snyder attended the dissolution hearing on October 19, 1999, the automatic stay was not violated because there was no automatic stay was in place. She, her attorney, and the State Court Judge all acted in good faith.
On October 19, 1999, Jane Snyder attended the rescheduled dissolution proceeding. Snyder had notice of that hearing. On the same day, at 3:42 p.m., in a renewed effort to derail the proceeding, Snyder filed a second “safety net” petition by placing it in the Court’s dropbox.2 Snyder claims that he was unaware that the dissolution proceeding took place that day. (Debtor’s Verified Mot. To Vacate ¶ 25) Yet, Snyder also claims that the reason he filed his second petition on October 19, 1999, was because on the morning of that date his wife “opened the basement door and said that she was leaving” to attend the proceeding. (Debtor’s Verified Mot. To Vacate ¶ 51) He intended to file the second petition that morning to stop the dissolution proceeding but computer problems prevented him from filing until late afternoon. (Debtor’s Verified Mot. To Vacate ¶ 52)
In her response to Snyder’s motion to set aside the dissolution proceeding, Jane Snyder stated that the dissolution proceeding was completed before Snyder filed his second petition at 3:42 p.m. Jane Snyder appeared at Snyder’s Chapter 13 confirmation hearing on August 24, 2000, and again informed the Court that the dissolution proceeding was completed before 3:42 p.m. on October 19,1999.
Snyder’s motion repeatedly asserts that the dissolution proceeding on October 19, 1999, was held in violation of the automatic *232stay invoked on July 6, 1999. The Court has found that such a stay did not exist. In his previous motion to set aside the dissolution proceeding and in the present motion, Snyder does not deny that the dissolution proceeding was finished before he filed his “safety net” petition at 3:42 p.m. on October 19, 1999. He does not allege that he has any evidence to show that the proceeding on October 19, 1999, was not completed before 3:42 p.m. Nor does he assert that the automatic stay which arose upon the filing of his petition at 3:42 p.m. on October 19, 1999, was violated by the dissolution proceeding which was held on that date.
Dismissal of Snyder’s petition
Snyder asserts that his case was dismissed “because of the failure to confirm the plan.” (Debtor’s Verified Mot. To Vacate ¶ 59) Although the Court found Snyder’s Third Amended Plan could not be confirmed, this was not the basis of the Court’s dismissal of Snyder’s petition. The Court dismissed Snyder’s petition because he consistently failed to comply with the Court’s orders. In addition, he repeatedly misrepresented the status of matters resolved by the Court at earlier hearings. It appears that Snyder wanted to enjoy the benefits of the bankruptcy’s automatic stay but he refused to comply with the Court’s orders and the requirements to fully disclose his finances.
Snyder complains that he was being required to reveal “corporate” information. The record clearly reflects that Eric J. Snyder, P.C. was not a corporation in good standing and that any business that entity engaged in was in the guise of a sole proprietorship. See Southwestern Bell Media, Inc. v. Ross, 794 S.W.2d 706 (Mo.App.1990).
Snyder contends that he was blindsided by the Court’s dismissal of his bankruptcy petition. He claims that none of the parties moved to dismiss that case. (Debtor’s Verified Mot. To Vacate ¶ 82) This is not correct. Jane Snyder and Jesse Henderson both requested the Court to dismiss Snyder’s petition in them objections to the confirmation of Snyder’s Third Amended Plan. In addition, at the conclusion of the confirmation hearing held on August 24, 2000, the Court stated that it would determine whether the plan should be confirmed and whether the case should be dismissed. Snyder should not have been surprised that the dismissal of his case was a possibility.
The remainder of Snyder’s allegations and requests in his current motion have been reviewed and will be denied.
In its Order of February 28, 2002, the Court barred Snyder, under 11 U.S.C. § 109(g)(1), from refiling another petition for relief for 180 days from the date of that order. In light of Snyder’s motion to vacate that order which caused additional time to elapse until the Court could issue a ruling on Snyder’s motion to vacate, the Court will order that Snyder is barred, under 11 U.S.C. § 109(g)(1) from refiling another petition for relief for 180 days from the date of this order.
An Order consistent with this Memorandum Opinion will be entered this date.
. It turns out that this assessment was correct as is discussed in the Court's order of February 28, 2002, which denied Snyder's motion to vacate the dissolution proceeding.
. This second petition was processed the next day and was recorded as “filed" on October 20, 1999. On January 27, 2000, Snyder moved the Court to have the “filed” date of the petition changed to October 19, 1999, the day he put it in the drop-box. The Court granted that motion on February 9, 2000. Accordingly, the automatic stay became effective at 3:42 p.m. on October 19, 1999. Although the Court previously concluded that the petition was filed on October 20, 1999, a review of the file revealed the Court’s order granting the file date to be amended to October 19, 1999. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493504/ | MEMORANDUM OPINION
DAVID P. MCDONALD, Chief Judge.
Debtor’s attorney Lee R. Elliott filed a motion for contempt of court accusing Debtor’s former spouse, Linda Nolfo, and her attorney, Aaron Dubin of violating the automatic stay in this case. That motion was denied in a previous order. Linda Nolfo and Aaron Dubin asserted that the motion for contempt was filed in bad faith. They filed a motion for sanctions against Debtor and Elliott asserting that they violated Rule 9011 of the Federal Rules of Bankruptcy Procedure.1 Linda Nolfo and Dubin claim that the motion for contempt was filed for an improper purpose including to harass or to cause unnecessary delay or to needlessly increase in the cost of litigation. The Court finds that sanctions are not warranted in this matter.
JURISDICTION AND VENUE
This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a “core proceeding” pursuant to 28 U.S.C. §§ 157(b)(2)(A), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409.
PROCEDURAL BACKGROUND
On June 11, 1992, Debtor Louis Christopher Nolfo filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-1330. On September 3, 1992, Debtor’s counsel, Lee R. Elliott, filed a motion for contempt against Debtor’s former spouse, Linda K. Nolfo and her attorney, Aaron Dubin. The motion accused them of violating the automatic stay. In response, on September 24,1992, Linda Nolfo and Dubin filed a motion for sanctions against Debtor and Elliott asserting that the motion for contempt was aimed solely to harass which *237violated Rule 9011 of the Federal Rules of Bankruptcy Procedure.
The motion for contempt was heard and denied. The motion for sanctions was heard and taken under submission.
FACTUAL FINDINGS
The Court finds the following facts from the record and from evidence received at the hearing of this matter:
1. On February 15, 1991, after four years of dissolution proceedings, Louis and Linda Nolfo entered into a Separation Agreement and consented to a Decree of Dissolution.
2. The Decree of Dissolution divided the couple’s interest in real estate at 9853 Green Valley Drive (the Green Valley property). The Decree awarded Linda Nolfo a 77.5 percent interest in the property and Debtor a 22.5 percent interest.
3. After the Decree was entered, Debt- or filed motions to set aside the Decree. The motions were dismissed and Linda Nolfo was granted a sanction award of $500.00 and her attorneys’ fees associated with that litigation.
4. In the summer of 1991, Linda Nolfo caused an execution to issue against Debt- or’s remaining interest in the Green Valley property in an effort to collect the sanction and attorneys’ fees previously awarded. On August 27, 1991, a Sheriffs Sale was conducted of Debtor’s interest. Debtor’s counsel Lee Elliott attended the sale and placed the winning bid for his client Sharon Warnick (Warnick was Debtor’s girlfriend at the time and later married Debt- or). In September 1991, Warnick filed a lawsuit against Linda Nolfo seeking a partition of the Green Valley property. The result of that lawsuit is not in the Court’s record.
5. Debtor filed for bankruptcy relief under Chapter 7 on June 11,1992.
6. In August 1992, Linda Nolfo filed her own lawsuit seeking a partition of the Green Valley property. The case was titled “Petitioner’s Motion to Enforce Sale of Real Estate.” The style of the case listed Linda Nolfo as the petitioner and Louis Nolfo and Sharon Warnick as Respondents. Linda Nolfo filed a motion to tax costs to the Respondents for the cost of service.
7. On September 3, 1992, Lee Elliott filed a motion for contempt on behalf of Debtor. The motion alleged that Linda Nolfo and her attorney, Aaron Dubin, violated the automatic stay by filing the Motion to Enforce Sale of Real Estate and seeking costs all after Debtor had filed for bankruptcy relief.
8. At the time Debtor filed for bankruptcy in June 1992, he no longer had any clear interest in the Green Valley property. It had been sold at the Sheriffs Sale in August 1991. Debtor did not list the Green Valley property as an asset in Schedule A of his bankruptcy filing. However, Elliott asserted that Debtor had a lawsuit on appeal which challenged the validity of the Sheriffs Sale of the property and that therefore, Debtor still had an interest in the property which was protected by the automatic stay. The lawsuit was listed in Debtor’s Schedule B and Schedule C. The lawsuit was solely against Aaron Dubin.
9. On September 24, 1992, Linda Nolfo and Dubin filed a motion for sanctions against Debtor and Elliott asserting that the motion for contempt was aimed solely to harass which violated of Rule 9011 of the Federal Rules of Bankruptcy Procedure.
10. The Court held a hearing of the motion for contempt. The motion was denied.
*23811. The motion for sanctions was heard on and taken under submission.
DISCUSSION
Debtor and Linda Nolfo’s divorce was protracted and acrimonious. Their attorneys, Lee Elliott and Aaron Dubin, became immersed in the process and filed a series of contempt and sanction motions against each other in the several courts that were the forum for the Nolfos’ litigation. Before the Court is the last remaining issue in this bankruptcy case.
Under the Decree of Dissolution a piece of real estate known as the Green Valley property was divided between Linda Nolfo and Debtor. Linda Nolfo was granted a 77.5 percent interest in the property and Debtor was granted a 22.5 percent interest. As a result of a series of events, Debtor’s then girlfriend, Sharon Warnick, purchased Debtor’s interest in the property at a Sheriffs Sale of execution in August 1991. This made Warnick and Linda Nolfo joint owners of the property. War-nick then filed a lawsuit to partition the property in September 1991.
Debtor filed for bankruptcy relief in June 1992. At that time the Green Valley property was apparently still not partitioned because in August 1992, Linda Nolfo filed a lawsuit to enforce the sale of the property according to the terms of the Decree of Dissolution. The style of that lawsuit listed Linda Nolfo as the petitioner and Debtor and Sharon Warnick as the respondents. The text of the lawsuit also refers to Debtor as a respondent in the case. It does not state that the case is solely against Sharon Warnick.
Shortly after Linda Nolfo filed the suit, she submitted a motion seeking costs for the service of the suit. The motion did not specify that costs were sought only against respondent Warnick. If costs were awarded, the Court clerk would have awarded the costs against both respondents in the case, that is, Warnick and Debtor.
Based on Linda Nolfo’s lawsuit naming him as a respondent, Debtor filed his motion for contempt with this Court on September 3, 1992. He alleged that the suit on its face was pursuing a judgment against him and that, at a minimum, Linda Nolfo sought costs for service against him during the time that the automatic stay was in place.
On September 24, 1992, Linda Nolfo filed a motion for sanctions against Debtor and his attorney, Lee Elliott, for their alleged bad faith filing of the motion for contempt in this bankruptcy case.
A hearing on the motion for contempt was held on September 25, 1992. Linda Nolfo’s counsel Aaron Dubin acknowledged that he filed a lawsuit to enforce the sale of the Green Valley property after Debtor had filed for bankruptcy relief. He also acknowledged that Debtor was named as a respondent in the suit along with Warnick. But Dubin argued that he was not seeking any remedy against Debtor because he no longer had any interest in the Green Valley property. His interest had been sold to Warnick at the Sheriffs Sale. Dubin argued that Debtor was listed as a respondent in the case only because it was the style of the case in the divorce proceeding and he was trying to enforce the Dissolution Decree. Dubin asserted that suit was really only against Warnick and that his motion for costs was aimed only at War-nick and not at Debtor.
The Court notes that the text of Linda Nolfo’s lawsuit did not explicitly state that Debtor was only a nominal respondent and that no relief was sought against him. Nor did the motion for costs state that costs were sought only against Warnick and not against co-respondent Debtor. A court clerk carrying out a cost order would *239not be able to distinguish which respondent costs should be awarded against.
Because of Debtor’s apparent lack of interest in the property and the fact that Dubin established that he was not seeking relief against Debtor, the Court denied Linda Nolfo’s motion for contempt. Admittedly, Linda Nolfo’s lawsuit was not a model of clarity as to who was a party to the action. On the face of the pleading Debtor was made a respondent, both in the style of the case and in the text. Nothing in the text explicitly limited the proceeding to be one solely against the corespondent Warnick. The motion seeking costs, too, did not limit its request to a recovery only from Warnick. An award of costs would have been made against both named respondents, Warnick and Debtor. Dubin could easily have avoided any confusion in the matter by simply filing a motion for relief from this Court. He did not do so. The manner in which Dubin filed the suit was partially responsible for triggering the contempt motion filed by Debt- or and Elliott.
Linda Nolfo and Dubin filed a motion for sanctions against Debtor and his attorney Elliott accusing them of filing the contempt motion in bad faith. Linda Nolfo argued that because Debtor no longer had any interest in the Green Valley property, it was not part of the estate. She alleges that Debtor’s motion for contempt was therefore without merit. That motion was heard on November 9, 1992. As stated above, although the Court declined to find Linda Nolfo in contempt, her less than artful pleading and motion in state court was at least partially responsible for Debt- or’s colorable motion for contempt.
Debtor and Elliott are not free from blame for the contentious nature of this bankruptcy proceeding. Although the Green Valley property was no longer a real estate asset of Debtor’s estate, it was tangentially included in a lawsuit by Debt- or against Dubin. That lawsuit was on appeal at the time of the hearing of this matter. There was a very faint, distant, remote, and minuscule likelihood that the appeal result could resurrect Debtor’s interest in the property. Such a likelihood combined with Linda Nolfo’s inartful state pleading allows Debtor and Elliott to escape, by the finest whisker, sanctions in this matter.
Accordingly, the Court will deny Linda Nolfo and Aaron Dubin’s motion for sanctions against Debtor and Lee Elliott.
An Order consistent with this Memorandum Opinion will be entered this date.
. Although the motion was filed seeking sanctions under Rule 11 of the Federal Rules of Civil Procedure, the parties and the Court treated the motion as one under Rule 9011 of the Federal Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493506/ | MICHAEL J. KAPLAN, Bankruptcy Judge.
The exigencies of this case do not afford the Court the time to write a lengthy exposition of the narrow issue presented here. It has been well and thoroughly briefed and argued by counsel; the briefs and transcripts are public record. The Court writes on this narrow point because it is dispositive here, and has not been illuminated in the published cases.
Does 11 U.S.C. § 502(e)1 have any application at all to a contingent claim for contribution or reimbursement if the primary obligee has waived its claim against the debtor?
*604Stated otherwise, if D (a debtor) and C (a co-obligor, joint tortfeasor, etc.) are liable with each other to 0 (the obligee). But if 0 has waived any claim against D, does § 502(e) nonetheless command disallowance of C’s contingent claim against D for reimbursement or contribution upon C’s liability to 0? This Court answers in the negative; § 502(e) has no application at all to these facts.
Here 0 (the primary obligee) is the State of New York under CERCLA. The State sued C (the co-obligor Solvent Chemical (and others)), and C sued D for contribution and reimbursement under CERCLA.2
O and C settled upon terms by which C is remediating the polluted site. And in the settlement 0 (the State) waived all claims against even the non-settling parties like this Debtor. Why it did so is not known to this Court, and is not relevant, at least in the absence of any claim of fraud, collusion or equitable conduct. (None of these are alleged here.) But if the Court were to guess why the State would waive claims against non-settling parties, it would guess that C, the settling party, insisted on that waiver to be sure that C will be able to pursue D and all other CERCLA PRPs unimpeded by defenses like that asserted here and defenses that might be unique to governmental claims.3
The Debtors here insist that § 502(e) requires disallowance of the co-obligors’ claims here because (in their view) the text *605and the policy of the statute punish a coobligor who fails to “fix” the otherwise contingent reimbursement/contribution claim before the reorganization court is asked to disallow it. To that point, the Court does not necessarily disagree. And this result is not dependent, the Debtors claim, on whether O’s claim is or is not a filed claim or even on whether 0 waived any claim against D. Again, the Court does not necessarily disagree, up to a point.
It is the very last “even” that goes too far. Rule 3005 offers a process by which a co-obligor may file a claim on behalf of O in order to “fix” it. The availability of that process may well validate these Debtors’ arguments as to claims by O that are not filed, but are still extant. Truly the Code might punish a co-obligor who lets the Rule 3005 opportunity to file O’s claim for O, pass by.
But it seems to the Court that the well-worn principle that a “contingent” claim for contribution or reimbursement becomes “fixed,” and thus not contingent, when or to the extent that the co-obligor pays that primary claim,4 must produce the same result when D’s liability to O has been “waived” by O as against D.
In other words, because the co-obligor may obtain a just participation or distribution in the reorganization case by paying off O in full, the result should be no different if O has waived any claim against D. As to the creditors of D— the very entities for whose benefit §§ 502, 509 and Rule 3005 exist — there is no difference. These provisions are an elegant mechanism by which Congress has achieved its stated goal of dealing with all claims against a debtor, “contingent or non-contingent.”5
Once O has released D, C’s claims for contribution or reimbursement stand on their own, free of § 502(e).
And the Court so rules. The objections are denied as to Solvent (and ICC). As to the claimants who did not oppose the Debtor’s Objections, the claims will be disallowed because (as argued by the Debtors) those claimants are co-defendants, not third party plaintiffs, and, consequently, § 502(e) applies fully when one views Solvent and ICC as a new “O.”
SO ORDERED.
. (e)(1) Notwithstanding subsections (a), (b) and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of *604an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that—
(A) such creditor’s claim against the estate is disallowed;
(B) such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution; or
(C) such entity asserts a right of subrogation to the rights of such creditor under section 509 of this title.
(2) A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition.
. There are many cases extending the reach of § 502(e) to CERCLA, for example: Syntex Corp. v. The Charter Company (In re Charter Co.), 862 F.2d 1500 (11th Cir.1989); Juniper Dev. Group v. Kahn (In re Hemingway Transp., Inc.), 993 F.2d 915 (1st Cir.1993); Dant & Russell, Inc. v. Burlington Northern Railroad (In re Dant & Russell, Inc.), 951 F.2d 246 (9th Cir.1991); In re New York Trap Rock Corporation, 153 B.R. 648 (Bankr.S.D.N.Y.1993); In re Eagle-Picher Industries, Inc., 144 B.R. 765 (Bankr.S.D.Ohio 1992). But none of those .cases address the narrow point regarding a release of the debtor by the Plaintiff State. Cases most suggestive of the correct result deal with payment to the primary obligee. Some non-CERCLA cases clearly speak to the non-applicability of 502(e) where there has been payment to that obligee. For example, In re Ecco D’Oro Food Corp., 249 B.R. 300 (Bankr.N.D.Ill.2000). In re Microwave Products of America, Inc., 118 B.R. 566 (Bankr.W.D.Tenn.1990); In re Banner Iron Works, 69 B.R. 548 (Bankr.E.D.Mo.1987); In re Friendship Child Development Center, Inc., 164 B.R. 625 (Bankr.D.Minn.1992); In re Early & Daniel Industries, Inc., 104 B.R. 963 (Bankr.S.D.Ind.1989). See also, H. Rept. No. 95-959 p. 354, U.S.Code Cong. & Admin.News, 1978, pp. 5963, 6266 (Subsection (e) ... requires disallowance of a claim for reimbursement or contribution of a codebtor, surety or guarantor of an obligation of the debtor, unless the claim of the creditor on such obligation has been paid in full) (emphasis added); Cong. Rec. (Sept. 28, 1978) p. H 11094 (section 509(c) of the House amendment subordinates both a claim by way of subrogation or a claim of the assured party until the assured party’s claim is paid in full.) ( emphasis added).
. One can imagine the concerns one might have about "sharing” a claim with a state. E.g., are punitive damages awardable?
. See Footnote 2, above.
. See, H. Rept. No. 95-595, p. 309, U.S.Code Cong. & Admin.News, 1978, pp. 5963, 6266 (“By this broadest possible definition [of a claim], and by the use of the term throughout the title 11 ... the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy court.”); H. Rept. No. 95-595, p. 354, U.S.Code Cong. & Admin.News, 1978, pp. 5963, 6310 ("Subsection (c) requires the estimation of any claim liquidation of which would unduly delay the closing of the estate, such as a contingent claim ... [and] that all claims against the debtor be converted into dollar amounts.”) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493507/ | DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
ROBERT E. GERBER, Bankruptcy Judge.
In this adversary proceeding under the umbrella of the jointly administered Adelphia Communications Corporation chapter 11 cases — brought by plaintiff ML Media Partners, L.P. (“ML Media”), against defendants Adelphia Communications Corp. (“Adelphia”), Century Communications Corp. (“Century”), Century/ML Cable Venture (“the Cable Venture”), and Highland Holdings . (“Highland”) — -the Court has before it cross-motions for summary judgment, based on conflicting interpretations of the Leveraged Recapitalization Agreement (the “Recap Agreement”) that those parties entered into in December 2001, which required, among other things, for the payment, subject to adjustments, of $275 million (the “Put Payment”) to ML Media to buy out ML Media’s share of the Cable Venture.1
*608Plaintiff ML Media seeks a determination, as a matter of law, that the date for the payment by the Cable Venture of the Put Payment was accelerated from the September 30, 2002 date under which the Put Payment otherwise would be due (assuming that the Recap Agreement is enforceable, a matter that Adelphia, Century and the Cable Venture dispute, based on contentions that the Recap Agreement was a fraudulent conveyance) to one or another of June 7, 2002 or July 1, 2002,2 and that the date for payment by Adelphia and Highland of the Put Payment (which was due one business day after the due date for the Cable Venture, in the event the Cable Venture failed to make payment) was accelerated to June 10, 2002, or July 2, 2002, respectively. The defendants Adelphia, Century, Cable Venture and Highland seek a determination, as a matter of law, that the date was not accelerated.
For the reasons that follow, the Court determines that it cannot grant any of the motions as a matter of law, and that if these matters remain relevant,3 they can be determined only with the assistance of parol evidence and after trial. The Court can and does find, as a matter of law, that, assuming that the Recap Agreement is enforceable, payment by the -Cable Venture was due on September 30, 2002 (and payment by Adelphia, Century and Highland was due on October 1, 2002, one day later), and that, having failed to make payment, each of the Cable Venture, Adelphia, Century and Highland is now in default.4 The Court grants summary judgment to that extent, but only that extent; it is otherwise denied. The Court’s analysis in these respects follows.
Facts
The bulk of the facts underlying this controversy are not in dispute. However, for the reasons set forth in the discussion below, the Court does not regard those facts as determinative in either side’s favor. While the Court believes that ultimately the interpretation of the Recap Agreement requires resort to extrinsic evidence as to which there are disputed issues of fact, it first lays out the undisputed facts by way of background.
Parties
ML Media is a limited partnership that was organized as a joint venture between RP Media Management and ML Media Management, Inc.; it is the owner of a 50% interest in defendant Cable Venture, which is a joint venture and hence has the characteristics in law, at least in most respects, of a partnership. Century, which was acquired by Adelphia in 1999 and is now a wholly owned and controlled indirect subsidiary of Adelphia (the parent debtor in Adelphia’s jointly administered chapter 11 cases), is the owner of the other 50% interest in the Cable Venture. The Cable Venture, directly or through the ownership of stock, owns and operates two *609cable television systems in Puerto Rico (the “Systems”). Adelphia has had management control over the Systems owned by the Cable Venture, and has received a management fee, pursuant to a management agreement, for its efforts; though ML Media contends that Adelphia forfeited its right to continue as manager, Adelphia has continued to serve as manager. Disputes arose between ML Media and Adelphia and Century with respect to the management of the Cable Venture, leading to the filing of two adversary proceedings that are now before this Court.
Highland is a general partnership composed of John Rigas and members of his family (together, the “Rigas Family”), who were (and so far as the record reveals, still are) major stockholders of Adelphia, and, until May 23, 2002; were officers and directors of Adelphia and many Adelphia subsidiaries.
The Removed Actions
Century, another of the Debtors in the Adelphia chapter 11 cases — in fact, the first of what are now the Adelphia debtors to file a petition in this Court — -removed this and another state court action from the commercial part of the Supreme Court of the State of New York (Hon. Ira Gammerman, J.S.C.) to this Court.
The first of the two removed actions (the “Initial Action”),5 which was commenced in March 2000, was brought by ML Media against Century, Adelphia, and Arahova Communications, Inc. (“Arahova”), another Adelphia subsidiary and another of the Debtors in these cases. The action that now comprises this adversary proceeding6 ■ — the second of the two removed actions, which involves an agreement under which claims in the Initial Action were settled— was initially brought by ML Media against the Cable Venture, Adelphia and Highland. Upon amendment of the complaint after removal to this Court, Century was named as a defendant in this action as well. As described above and below, this action involves the “Recap Agreement,” a “Leveraged Recapitalization Agreement,” dated December 13, 2001, which, if its terms had been fully performed, would have settled the Initial Action. This action (“the Recap Agreement Action”) was filed in state court on June 12, 2002, two days after Century filed its petition with this Court. The next day, June 13, 2002, Century removed both the Initial Action and the Recap Agreement Action to this Court.7 The Recap Agreement
The parties settled the Initial Action, in which a number of findings adverse to Adelphia had been made by Justice Gammerman, by executing the Recap Agreement. The parties to the Recap Agreement were ML Media, the Cable Venture, Century, Adelphia, and Highland.8
Under the terms of the Recap Agreement, the Cable Venture obligated itself to redeem ML Media’s share of the Cable Venture (the “ML Media Share”) on September 30, 2002 subject to acceleration (the “Closing Date”), as discussed below, for a price, subject to upward adjustments, of $275 million.9 Highland obligated itself *610to arrange for the Cable Venture to obtain up to $300 million of debt financing in order to finance the redemption of the ML Media Share,10 with, Highland, Adelphia and Century jointly and severally liable to provide the Cable Venture with sufficient funds to pay interest on any indebtedness incurred in connection with the redemption financing.11
However, the Recap Agreement further provided that Adelphia was required to purchase the ML Media Share, on the next business day after the Closing Date if the Cable Venture failed to close on its obligation to buy out the ML Media Share for any reason.12 As further security for the sums that would have to be paid to ML Media under the Recap Agreement, ML Media was granted a security interest in Century’s 50% interest in the Cable Venture.13
Acceleration Events under the Recap Agreement
The September 30 Closing Date in the Recap Agreement was subject to acceleration for a number of reasons (“Acceleration Events”), two of which ML Media has asserted to have taken place. The Recap Agreement provisions providing for those Acceleration Events are the backdrop for the cross-motions for summary judgment here.
(a) Change of Control Provisions
With respect to the provisions giving-rise to the first of the argued Acceleration Events, referred to in shorthand as “the Change of Control Provisions,” two sections of the Recap Agreement, taken together, would give ML Media the right to redemption prior to September 30. Section 3.3 of the Recap Agreement provided, in relevant part:
Acceleration of the Closing Date. Notwithstanding the provisions of section 3.1 [providing for a September 30, 2002 Closing Date, subject to rights on the part of Adelphia or Highland to close earlier], the closing of the redemption or purchase under this agreement shall be held on the tenth business day after the occurrence of any of the following events ... (“the Accelerated Closing Date”)
(a) the closing of any Transaction referred to in section 2.2(a).
Recap Agmt. § 3.3(a) (emphasis added).
Thus, a new, earlier, Closing Date for the redemption of the ML Media Share would occur 10 days after the “closing” of a “Transaction” referred to in Section 2.2(a).
“Closing” as used in § 3.3 was not defined, but § 2.2(a) included, in its relatively lengthy language, a definition of “Transaction.” Section 2.2(a) provided, in relevant part:
The purchase price provided for in section 2.1 shall be subject to increase if (i) pursuant to a transaction initiated or an agreement executed prior to the Closing Date, there is any change in control of Adelphia (i.e., any transaction that results in control of Adelphia by any individual, entity or group other than the Rigas family).... Promptly after execution of the agreement or agreements relating to any transaction referred to in this section 2.2(a) (refenvd to as the “Transaction”), Adelphia shall give Seller notice of the Transaction or proposed Transaction and shall furnish to Seller *611complete and accurate information with respect to the terms of the Transaction or proposed Transaction, together with copies of all agreements and other documents executed in connection with the Transaction.
(Emphasis added; references to types of transactions not alleged to be relevant are omitted).
In connection with widely reported allegations as to mismanagement of Adelphia by members of the Rigas family, and allegations as to responsibility for transactions under which Adelphia became liable for borrowings for the benefit of Rigas family members (“Co-Borrowing Agreements”), Adelphia and members of the Rigas family entered into an agreement, dated May 23, 2002 (the “May 2002 Rigas Family Agreement”), whose interpretation and significance the parties dispute. It provided, in part:
1. The Rigas Family members (John Rigas, Tim Rigas, James Rigas and Michael Rigas, collectively with the entities directly or indirectly owned or controlled thereby, the “Rigas Family”) will resign immediately from the Board of Directors of Adelphia. The Rigas Family members may designate two non-family members to be appointed to the Board until the earlier of December 31, 2006, the sale of the Family Cable Operations, or the repayment of the Rigas Family’s obligations.
2. All Rigas Family members resign as officers of Adelphia effective immediately-
3. All Stock owned by the Rigas Family will be placed in a voting trust until all obligations of the Rigas Family to the Company for loans, advances, or borrowings under the co-borrowing agreements or otherwise are satisfied....
The May 2002 Rigas Family Agreement further provided for a considerable array of additional matters, many of which would take place in the future. It further stated:
13. The parties agree, intending to be legally bound, to the foregoing. The parties acknowledge that the implementation of this agreement will require the preparation and execution of definitive documentation and the approval, consent or other action of third parties. The parties will act in good faith and use their commercially reasonable efforts, separately and in cooperation with each other, to implement this agreement. To the extent the parties are not able to agree on definitive documentation of this agreement, the parties agree to submit to binding arbitration pursuant to the rules of the American Arbitration Association to resolve the terms of the definitive documentation of - this agreement.
A press release issued by Adelphia, upon which ML Media relies, provided, in part, that a special committee of Adelphia’s “Board announced today that the Rigas family ... has agreed to relinquish control of the Company....”14
It has not been asserted that the stock was put into the contemplated voting trust on or about May 23, 2002. Nor, so far as the record reflects, was that done thereafter. Indeed, at least as of the time of oral argument on the motion, negotiations as to the underlying documentation with respect to that arrangement were still underway. Among the agreements allegedly still being negotiated, drafted and executed in order to implement the May 2002 Rigas Family Agreement were the “(a) voting trust agreement, setting forth the terms that will govern operation of the Voting Trust and (b) a security and pledge agreement, setting forth the terms that will *612govern the anticipated pledge of the Rigas Stock.”15
While it appears to be undisputed that if the requirements of §§ 3.3 and 2.2(a) were satisfied, there would be an acceleration of the Closing Date (and hence the duty, under the Recap Agreement, to proceed with the redemption of the ML Media Share), the parties are in dispute, based on differing readings of §§ 3.3 and 2.2(a), as to whether the acceleration provisions were triggered as a consequence of the execution of the May 2002 Rigas Family Agreement, or events that took place on or about that day. ML Media argues that a change of control took place at that time, and that the Closing Date was accelerated to ten business days later, June 7, 2002.16 In that event, Adelphia’s obligation to purchase ML Media’s interest in the event that the Cable Venture failed to redeem ML Media’s share would be accelerated, in ML Media’s view, to June 10, 2002.17
The defendants dispute that there was such a change of control on May 23— asserting in particular that there was no closing of a “Transaction” — and thus dispute that there was then an acceleration as a consequence of these provisions.
(b) Cross-Default Provisions
The second Acceleration Event that has been alleged to exist in this action is based on provisions in the Recap Agreement that could provide for acceleration if Adelphia or any of its subsidiaries had a payment default on any indebtedness in excess of $50 million.18 The Recap Agreement provided, in § 3.3(b) for acceleration upon certain events. In a single spaced block paragraph, quoted here in full, it provided for acceleration upon:
the occurrence with respect to (i) any indebtedness of Adelphia or its subsidiaries for borrowed money in excess of $50,000,000, (ii) any incurred pursuant to sections 8.3(a)(ii) or 8.8, or (iii) the Senior Secured Notes referred to in section 8.15 of either (i) a payment default (and continuation of such payment default until the expiration of any applicable grace period), or (ii) any other default (and continuation of such default until the expiration of any applicable grace period) and the receipt of notice from the lenders that as a result-of such default the lenders have taken or intended to take any action to accelerate the indebtedness or otherwise pursue their rights and remedies with respect to the indebtedness.
Recap Agreement § 3.3(b).
This “cross-default” provision, providing in substance for the acceleration of the time to make the Put Payment after a payment default on other indebtedness, is subject to dispute as to its interpretation — ■ focusing on the lack of a showing that Adelphia or any of its subsidiaries received any “notice from the lenders that as a result of such default the lenders have taken or intended to take any action to accelerate the indebtedness or otherwise pursue their rights and remedies with re*613spect to the indebtedness.” 19
Without dispute, payment defaults on other indebtedness occurred on May 15, 2002, and Adelphia’s grace periods to cure such defaults expired without cure on June 17, 2002.20 Based on the language quoted above, ML Media argues that the Closing Date was thus accelerated to July 1, 2002; and that Adelphia, in turn, became obligated to redeem the ML Media Share on July 2, 2002.21 The defendants do not dispute the underlying defaults, and there is no material issue of disputed fact in this regard. However, the defendants contend that ML Media has failed to take into account permitted cure periods, which would exist under their (but not ML Media’s) reading of the Recap Agreement. The issue turns on whether the clause providing for cure periods at the end of § 3.3(b) related only to non-payment defaults, or related to both payment and nonpayment defaults.
(c) Other Relevant Provisions
If there was no Acceleration Event, the duties on the part of the defendants to redeem the ML Media Cable Venture Share matured, under the Recap Agreement, on September 30 and October 1, respectively.22 There is no dispute as to that fact.
Discussion
I.
Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories and admissions on file, together with 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.” Fed. R.Civ.P. 56 (made applicable to this adversary proceeding by Fed. R. Bankr.P. 7056). The moving party bears the initial burden of showing that the undisputed facts entitle the movant to judgment as a matter of law. Rodriguez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir.1995); Singer Co. B.V. v. Groz Beckert KG (In re Singer Co. N.V.), 262 B.R. 257, 262-263 (Bankr.S.D.N.Y.2001) (“The initial burden rests on the moving party to demonstrate the absence of a genuine issue of material fact ... ”). Then, if the movant carries this initial burden, the nonmoving party must set forth specific facts to show that there are triable issues of fact, and cannot rely on pleadings containing mere allegations or denials. Fed.R.Civ.P. 56(e). See also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Kittay v. Peter D. Leibowits Co. (In re Duke & Benedict, Inc.), 265 B.R. 524, 529 (Bankr.S.D.N.Y.2001) (“[T]he nonmoving party must set forth specific facts that show triable issues, and cannot rely on pleadings containing mere allegations or denials”).
In this connection, it is well settled that the court should not weigh the evidence or determine the truth of any matter, and must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (summary judgment is appropriate “[wjhere the record taken as a whole could not lead a rational trier of fact *614to find for the nonmoving party”); Virgin Atlantic Airways Limited v. British Airways PLC, 257 F.3d 256, 262 (2d Cir.2001); Lovejoy-Wilson v. NOCO Motor Fuel, Inc., 263 F.3d 208, 212 (2d Cir.2001) (“We [ ] constru[e] the evidence in the light most favorable to the non-moving party”). A fact is 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, 91 L.Ed.2d 202 (1986). An issue of fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.
II.
There appears to be no material difference between the parties with respect to the rules of contractual interpretation to be followed, or the means by which those rules are applied on summary judgment motions.
Under New York law, “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.” CIBC World Markets Corp. v. TechTrader, Inc., 183 F.Supp.2d 605, 610-611 (S.D.N.Y.2001) (Buchwald, J.) (“TechTrader”),23 quoting W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 566 N.E.2d 639 (1990). When the terms of a written contract are ambiguous, however, a court may turn to evidence outside the four corners of the document to ascertain the intent of the parties. TechTrader, 183 F.Supp.2d at 611, quoting Scholastic, Inc. v. Harris, 259 F.3d 73, 82 (2d Cir.2001); Curry Rd. Ltd. v. K Mart Corp., 893 F.2d 509, 511 (2d Cir.1990).
When the language of a contract is ambiguous and there exists relevant extrinsic evidence of the parties’ actual intent, summary judgment is precluded. TechTrader, 183 F.Supp.2d at 611, citing Mellon Bank, N.A. v. United Bank Corp. of N.Y., 31 F.3d 113, 116 (2d Cir.1994); Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094 (2d Cir.1993). “Whether or not a writing is ambiguous is a question of law to be resolved by the courts.” TechTrader, 183 F.Supp.2d at 611, quoting W.W.W. Assocs. at 162, 565 N.Y.S.2d 440, 566 N.E.2d 639.
Therefore, the Court must decide at the threshold whether the Recap Agreement is ambiguous with respect to the matters in controversy. See TechTrader, 183 F.Supp.2d at 611. Under New York law:
[A] word or phrase is ambiguous when it is capable of more than a single meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.
TechTrader, 183 F.Supp.2d at 611, quoting Shepley v. New Coleman Holdings Inc., 174 F.3d 65, 70 (2d Cir.1999) (with TechTrader having omitted quotation marks and citations in Shepley). However, if *615contractual terms have a definite and precise meaning and are not reasonably susceptible to differing interpretations, they are not ambiguous. TechTrader, 183 F.Supp.2d at 611, citing Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir.1992).
Ill
A.
The first matter at issue is whether an Acceleration Event took place as a consequence of a change of control. Each of ML Media, on the one hand, and Adelphia and Century, on the other, contends that it is correct on this issue as a matter of law. For the reasons stated, the Court subscribes to neither view.
As noted above in connection with the facts, an Acceleration Event would take place if, but only if, there were a “closing” on a “Transaction.” Without dispute, from May 23, 2002 onward, members of the Rigas Family ceased to be officers or directors of Adelphia, but they did not cease to be shareholders of Adelphia, with the ability, should they choose to exercise it, to use their voting power in connection with the membership of Adelphia’s board of directors.
Whether or not there was a “closing” on a “Transaction” within the meaning of the May 2002 Rigas Family Agreement would of course turn on whether the events in question satisfied that dual requirement. The applicability of that language is easy to understand in the context of the closing of a sale of corporate stock, or of a merger, where the ability to choose directors would thereafter be forfeited, but it is hardly as clear in the context of an event under which incumbency of directors is given up, but the ability to exercise the power to select directors in the future is at least temporarily retained.
Adelphia and Century argue, with some force, that for “Transaction” to have a meaning in the context in which it was used, it must have been something that contemplated a “closing” (even if, or perhaps especially if,24 “closing” was not defined), and that there has been no contention here that there was such a closing, in at least some of the ways by which it is commonly used. They argue two things as a consequence: (1) there was not the required closing, and (2) there was not the required “Transaction” either. Their contention is supported, to more than a modest degree, by the language in the Recap Agreement providing for the duty to give the Seller ML Media notice not just of a “Transaction,” but of a “proposed Transaction” (section 2.2(a), emphasis added), “[pjromptly” following the execution of the agreement or agreements relating to it. That suggests (though it does not compel the conclusion) that at least some agreements would not, by themselves, constitute the “Transaction,” but would instead provide the underpinnings of the “proposed *616Transaction” as to which the “closing” would take place later. The Adelphia/Century position may further be bolstered by the parties’ relatively unusual means of agreement as to mechanisms for resolving disagreement in the event of an inability to agree on future implementing documentation (including by arbitration), as set forth in paragraph 13 of the May 2002 Rigas Family Agreement — -as it underscores the parties’ recognition of the need to resolve further issues of importance in the future.
Yet ML Media argues, hardly frivolously, that corporations act through their boards of directors, and that when the Rigas Family members resigned from the board (and, though the Court regards this as less significant, as officers), they relinquished the ability to exercise control over Adelphia affairs, especially as compared and contrasted to their ability before the May 2002 Rigas Family Agreement was executed.25 And ML Media offers an alternate plausible construction — that “Transaction” turns on a result: it is a “transaction” that results in control of Adelphia by any individual, entity, or group other than the “Rigas family.” See § 2.2(a) (emphasis added). While the Court has some concerns that this proposed construction fails sufficiently to take into account the additional requirement for a “closing” of any Transaction, the Court is not inclined to reject ML Media’s contention out of hand.
The additional contractual requirement in the Recap Agreement for a “closing” distinguishes this case from TechTrader, with whose statements of the law of contract interpretation, as previously noted, this Court fully concurs. TechTrader, like this case, had a contract to which consequences would attach upon a Transaction, but the Recap Agreement here, unlike the agreement in TechTrader, has the additional requirement of a “closing.” Additionally, in TechTrader, a closing on the additional financing, which led to the issuance of new stock and associated changes in the membership of Techtrader’s board (ie., a closing in the traditional sense) did take place — and indeed it was the transaction that was the subject of that closing that resulted in the change of control. The TechTrader court was there not faced with the requirement for a “closing,” and if it had been faced with such a requirement, it would have found it; both of those matters, which permitted the TechTrader court to grant summary judgment there, are missing, or arguably missing, in this case.
In this Court’s view, the language in the Recap Agreement is ambiguous in its application to anything other than a transaction accompanied by a closing in the traditional sense (e.g., a disposition of stock or a merger), which would undisputedly result in the loss of the ability to control corporate affairs. Both sides’ positions, in this Court’s view, are at least reasonable, and parol evidence will be necessary to assist the Court in resolving the ambiguity— determining what “closing,” “Transaction” and “control” were intended to mean — and in particular, determining the extent, if any, to which “change of control” was intended to focus on Rigas Family Members exercising control in fact; sitting on the board of directors; having the ability to choose the membership of the board; or *617some other possibility.26 The Court does not rule out the possibility that it might ultimately make a determination of whether or not a change of control took place based on its own independent analysis, as did the TechTrader court, but it believes that a determination based on what the parties intended in that regard is preferable.27
The Court is not now in a position to conclude that either side’s position is correct as a matter of law, and both side’s motions for summary judgment are accordingly denied.
B.
A second asserted basis for summary judgment in ML Media’s favor is its contention that an Acceleration Event took place by reason of Adelphia’s payment defaults on other indebtedness.
Without dispute, payment defaults on other indebtedness occurred on May 15, 2002, and Adelphia’s grace periods to cure such defaults expired without cure on June 17, 2002. However, it likewise is not disputed that the requisite “receipt of notice” of actions or intentions to take action to accelerate, or otherwise to pursue rights and remedies, never took place.28 Whether there was an Acceleration Event under such circumstances turns, once again, on the construction of the Recap Agreement, and, in particular, whether the requirement of “receipt of notice” was intended to relate to each of clauses (i) and (ii), or just clause (ii).
• The relevant contractual language, as contractual language so often appears in corporate documents, appears in lengthy, prolix, single-spaced form, without any apparent effort to make it readable, or, more importantly, clear. By separating the key clauses, the Recap Agreement could have been made more comprehensible, and, more importantly, capable of judicial construction without resort to parol evidence. For instance, it could have been drafted, if intended to conform to ML Media’s interpretation, as follows (changing only the formatting, and not the words):
the occurrence with respect to (i) any indebtedness of Adelphia or its subsidiaries for borrowed money in excess of $50,000,000, (ii) any incurred pursuant to sections 8.3(a)(ii) or 8.8, or (iii) the Senior Secured Notes referred to in section 8.15 of either
(i) a payment default (and continuation of such payment default until the expiration of any applicable grace period), or
(ii) any other default (and continuation of such default until the expiration of any applicable grace period) and29 the receipt of notice from the lenders that as a result of such default *618the lenders have taken or intended to take any action to accelerate the indebtedness or otherwise pursue their rights and remedies with respect to the indebtedness.
Likewise, it could have been drafted, if intended to conform to the interpretation offered by Adelphia, Century and the Cable Venture, as follows (once more, changing only the formatting and not the words):
the occurrence with respect to (i) any indebtedness of Adelphia or its subsidiaries for borrowed money in excess of $50,000,000, (ii) any incurred pursuant to sections 8.3(a)(ii) or 8.8, or (iii) the Senior Secured Notes referred to in section 8.15 of either
(i) a payment default (and continuation of such payment default until the expiration of any applicable grace period), or
(ii) any other default (and continuation of such default until the expiration of any applicable grace period)
and30 the receipt of notice from the lenders that as a result of such default the lenders have taken or intended to take any action to accelerate the indebtedness or otherwise pursue their rights and remedies with respect to the indebtedness.
Unfortunately, it was not drafted in either fashion, and the Court does not regard the failure to include a comma after the second item in the list (i.e., after the parenthesis following “grace period” in subsection (ii)) as conclusive in determining contractual intent; lists not infrequently leave off the final comma.
It may be that requirements for notice of intention to resort to remedies are more common in connection with non-payment defaults than payment defaults; or, as ML Media suggests, by means of a rhetorical question in its reply,31 that it is significant that the parenthetical requiring continuation of the default until the expiration of any applicable grace period appears in each of clauses (i) and (ii) (and suggests, impliedly, that the parties knew at least one means to assure that a clause would be understood to apply to each); or, most persuasively, that there was no reason to distinguish between payment and non-payment defaults except for the reason ML Media argues,32 but these are matters ill-suited to determination on summary judgment. Creditors not infrequently wish to exercise their own remedies when obligations to other creditors (of any kind) go into default, and the words “such default” in the last clause could reasonably have been intended to apply to both types of default. While it may be that upon a full evidentiary record, ML Media will ultimately prevail on the matter, the Court cannot rule in ML Media’s favor now as a matter of law.
C.
Additionally, each of the Cable Venture, Adelphia and Century argues that the Recap Agreement may be unenforceable as a fraudulent conveyance.33 The Cable Venture argues, for instance, that it may be inferred that the purpose of *619the Recap Agreement is “to give the Rigas family ... control over defendant Cable Venture in a transaction where ...
(i) Cable Venture pays an inflated price of $275 million for ML Media’s 50-per-cent equity interest, given the fact that the highest bid for Cable Venture was $460 million (internal citations omitted [Dunstan Aff. at ¶ 3]), and which amount would render Cable Venture unable to pay its creditors (Dunstan Aff. at ¶ 4) (ii) Cable Venture receives nothing in return; (iii) Century gives up one fifth of its 50-percent interest in Cable Venture; and (iv) Highland obtains a 60-percent interest in Cable Venture, for which it pays nothing.”34
The Court is not sure whether the requisite showings for a fraudulent conveyance could ultimately be made (a matter that may turn, inter alia, on evidentiary showings with respect to the value of the underlying cable properties, and debtor insolvency, and/or statutory substitutes therefor),35 but it regards contentions as to fraudulent conveyance to be sufficient to warrant the denial of summary judgment for this reason as well — though without prejudice to reconsideration or a renewed summary judgment motion after fraudulent conveyance allegations have been fleshed out, and any necessary discovery with respect to that matter has been concluded.
D.
The Cable Venture also contends that it raised material issues of disputed fact with respect to whether representations and warranties made by ML Media were true.36 While the Court has some uneer*620tainty as to whether the Cable Venture’s fraudulent conveyance and related contentions could be elevated into the breaches of representations and warranties it claims, the Court does not need to address these matters, as it has concluded that summary judgment must at this juncture be denied in most respects in any event.37
Conclusion
Accordingly, summary judgment is granted to the extent of determining that assuming that the Recap Agreement is enforceable, payment by the Cable Venture was due on September 30, 2002 (and payment by Adelphia, Century and Highland was due on October 1, 2002, one day later), and that, having failed to make payment, each of the Cable Venture, Adelphia, Century and Highland is now in default.38 It is otherwise denied.
SO ORDERED.
. The issues addressed here follow those discussed in the Court's opinion on ML Media's motion to dismiss, for abstention and for remand, discussed in ML Media Partners, LP v. Century/ML Cable Venture (In re Adelphia *608Communications Corp.), 285 B.R. 127 (Bankr.S.D.N.Y.2002).
. ML Media's position is based on two separate provisions of the Recap Agreement, discussed in detail below.
. The Court says "if those matters remain relevant” because assuming that the Recap Agreement is enforceable, payment to ML Media is now overdue in any event.
.Three of those entities, Century, Adelphia and the Cable Venture, are, at least at this juncture, debtors under the Bankruptcy Code, and by this finding the Court does not intend also to address rights any of them might have to cure its default(s) under the Recap Agreement, or the claim(s) ML Media might have in the event of a failure to cure. ML Media filed a related motion to compel assumption or rejection by Century of the Recap Agreement, and the Court's ruling on that motion will be forth coming as soon as practicable.
. Adv. Proc. No. 02-2543 (previously Supreme Court, New York Co., Index No. 601298/00).
. Adv. Proc. No. 02-2544 (previously Supreme Court, New York Co., Index No. 602155/02).
. Thereafter, the Cable Venture filed its own chapter 11 petition, making it too a debtor in this Court. ML Media has disputed the propriety of that filing, however, and has moved to dismiss it, under Bankruptcy Code section 1112(b), for cause.
. Recap Agmt at page 1.
. Recap Agmt at § 2.1.
. Recap Agmt at § 8.8(a).
. Recap Agmt at § 8.8(b).
. Recap Agmt at § 1.2.
.Security and Pledge Agreement at pages 1-2.
. Press Release, dated May 23, 2002.
.Highland's Disputed Fact Statement at ¶ 4 and Brown Aff. at ¶¶ 4-5; Debtors’ 7056-1 Statement at ¶¶ 8-9; and Cable Venture's 7056-1 Statement at ¶¶ 12-13. Highland also argues that the resignations of the Rigas Family were pursuant to an executory contract which has yet to be assumed or rejected by Adelphia. Highland's Disputed Fact Statement at ¶¶ 12-13.
. First Amended Complaint in Adv. Proc. No. 02-2544 ("Amended Complaint”) at ¶¶ 5-6.
. Amended Complaint at ¶ 6.
. Recap Agmt at § 3.3(b).
. See Cable Venture's Statement of Disputed Facts at ¶ 15, quoting Dunstan Aff. at ¶ 2.
. The details, which were confirmed by written stipulation dated September 23, 2002, are not critical to determination of the instant motions.
. Amended Complaint at ¶ 7.
. Recap Agmt at § 1.2.
. As is apparent from the discussion that follows, the Court fully concurs with the statements in TechTrader with respect to the legal principles to be applied with respect to motions for summary judgment involving contractual interpretation, and finds the Tech-Trader discussion to be as capable, and concise, as any such discussion could be with respect to such matters. Accordingly, the Court adopts the TechTrader discussion of such matters wholesale. Ultimately, however, the Court finds the relevant contractual language here to be sufficiently different from that in TechTrader as to make summary judgment in this case inappropriate. The reasons for finding TechTrader to be distinguishable are discussed below.
. It is arguable, but not wholly clear, that with "closing” not having been specially defined, it was intended to be used in accordance with its common meaning — an event at which the parties “close” and operative documents are, if not also signed at that time, exchanged and/or delivered. See, e.g., J. Downes & J.E. Goodman, Dictionary of Finance and Investment Terms (6th Ed.); it provides, as one of the definitions of "close”:
[Tío consummate a sale or agreement. In a real estate closing, for example, rights of ownership are transferred in exchange for monetary and other considerations. At a loan closing, notes are signed and checks are exchanged. At the close of an underwriting detail, checks and securities are exchanged
(emphasis deleted). See also the definition of "closing” in Black’s Law Dictionary (7th Ed. 1999) ("The final meeting between the parties to a transaction, at which the transaction in consummated”).
. Another point ML Media makes is less persuasive: its contention that Adelphia's 8-K, when stating that members of the Rigas Family "agreed to relinquish control,” Adelphia acknowledged the change of control — or, stating it more precisely (as we would have to do in order to find an Acceleration Event), acknowledged the "closing” of a "Transaction” for a change of control. The "agreed to” preceding “relinquish control” is equally capable of being understood to contemplate future activity, and/or a future "closing.”
. Needless to say, as in any contractual interpretation dispute, parties’ undisclosed intentions will not be relevant, and the Court will need evidence from which a joint intent can be determined.
. ML Media argued in its opening brief (at page 15) that TechTrader should be dispositive here, and that "[a]s that case holds, a 'change of control' can occur when there is a change in the make-up of the Board of Directors, without regard to whether there is a change in the stock ownership.” (Emphasis added). TechTrader supports that view, but this Court believes that the relevant question here is (in addition to whether there was a "closing”) whether the requisite change of control necessarily did occur.
. Cable Venture’s Statement of Disputed Facts at ¶ 15 quoting Dunstan Aff. at ¶ 2.
. Better yet, with changes of words, it could have been drafted to provide at the point of the footnote reference, "with respect to any other default,” or to provide a few words down, instead of "such default,” "such other default.”
. Better yet, with changes of words, it could have been drafted to provide at the point of the footnote reference, "with respect to either kind of default.”
. See ML Media Reply at 14.
. Id.
. See, e.g., Cable Venture's Statement of Disputed Facts at ¶ 9.
. Id. citing Recap Agreement at ¶¶ 1.1, 2.1, 2.2, 8.8, 8.11 and the Stengel Aff. at ¶ 5.
. The Court is, however, puzzled by ML Media's seemingly overly broad assertion, as argued by ML Media in its Reply (at page 11), that "Courts will not examine the adequacy of consideration.” In the context of determining whether or not there has been a fraudulent conveyance, inquiry of that nature would appear to be entirely appropriate. If, as is possible, ML Media meant to say something else and its catch line was simply overly broad, ML Media can clarify its position at such time as fraudulent conveyance allegations are analyzed on their merits. At such time ML Media can likewise argue the fact, assuming it is turns out to be true, that the Joint Venture has no adversely affected creditors.
. They included:
4.1Authority of the Seller: Seller and its general partner each has the full power and authority to enter into and perform this agreement in accordance with its terms and the execution, delivery and performance of this agreement by [ML Media] and its general partner each have been duly authorized by all necessary partnership action of [ML Media] and its general partner, as appropriate. Seller is not bound by any contractual or other obligation that would be violated by its execution, delivery or performance of this agreement. This agreement constitutes the valid and binding obligation of [ML Media] enforceable against it in accordance with its terms.
4.2 No Conflicts. Subject to the receipt of the consents and approvals referred to in sections 8.1 and 8.2, the execution, delivery and performance of this agreement by [ML Media] and the sale of [ML Medians Interest by [ML Media] pursuant to this agreement will not violate any provision of law applicable to Seller, ... and will not result in the creation of any lien, charge of encumbrance upon [ML Media's] Interest or any of the assets or proprieties of [the Cable Venture],
4.3 Ownership of the Interest. Immediately prior to the closing [ML Media] will be on record and beneficial Interest free and clear of any claim, lien, security interest or other encumbrance, and at the closing [Cable Venture] will receive good and valid title to [ML Media’s] Interest, free and clear, of any claim, lien, security interest or other encumbrance....
. For the same reason, the Court does not need now to address Highland's contention that it would be inappropriate or unjust to subject Highland to summary judgment when Adelphia or Century might thereafter assume the Recap Agreement.
. This is a different issue than that as to whether ML Media would have a claim for alleged loss at the earlier time of Century's and Adelphia's filing dates, see Bankruptcy Code 502(a)(1), and/or for rejection damages if it were to turn out that the Recap Agreement is an executory contract that has not been assumed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493508/ | ORDER GRANTING AMENDED MOTION TO DISMISS WITH PREJUDICE
CHARLES M. CALDWELL, Bankruptcy Judge.
This order addresses the Chapter 13 Trustee’s (“Trustee”) Amended Motion to Dismiss with Prejudice and the Memorandum Contra of Magnus Duruji (“Debtor”). The Trastee asserts that the Debtor has abused the bankruptcy system by failing to prosecute his three bankruptcy cases, and the Trustee seeks dismissal with a six-month bar to any subsequent filing. The Debtor opposes the dismissal only to the extent that it would prejudice his right to file bankruptcy in the future. The Court has determined that this case should be dismissed with prejudice for a period of six months. A brief history will illustrate the bases for this decision.
After being detained by the United States Immigration Service for nearly six months, the Debtor discovered that the majority of his assets had been lost. To rebuild his life, the Debtor began operating D J Slammers Carry Out Restaurant in May 2001. Due to a lack of working capital and employee theft, however, the Debt- or sought bankruptcy relief. On June 28, 2001, the Debtor, with Mr. Louis F. Kort (“Mr. Kort”) as counsel, filed his first chapter 13 case (01-57636). On August 21, 2001, the Trustee filed a recommendation, noting issues regarding feasibility, the lack of rental income disclosure, and a budget for real estate taxes and insurance. On September 19, 2001, the Trustee filed a revised recommendation, noting many of the same issues. The Debtor’s first case was dismissed, without confirmation, on September 27, 2001, for lack of payment.
On October 5, 2001, eight days after the first chapter 13 case was dismissed, the Debtor, with Mr. Kort again as counsel, filed his second chapter 13 case (01-61747). The filing did not include schedules, a statement of affairs, or a plan. On October 30, 2001, the Debtor filed a Motion for Leave to File Schedules, Statement of Financial Affairs, and Plan Instanter and Out of Rule, along with the schedules, a statement of financial affairs, and plan. Neither the Debtor’s statement of financial affairs, nor the schedules, disclosed the existence of a second restaurant, Freedom Café, opened during the first case.
On November 13, 2001, the Trustee filed a recommendation noting, among other things, the Debtor’s need to provide tax returns for the past three years, proof of separate business and personal accounts, *712and verification of automobile and real estate insurance. At some point during the pendency of this second case, the Debtor’s new restaurant began to experience problems. The Debtor’s wife became ill, and there was employee theft. The second chapter 13 case was dismissed on February 7, 2002, again due to the Debtor’s payment default.
On February 14, 2002, seven days after the dismissal of the second case, the Debt- or filed a Motion for Reconsideration, along with a Request for an Expedited Disposition. At 9:00 a.m. on February 15, 2002, the Court held an expedited hearing. The Trustee declined to agree to the reinstatement of the case, due to the Debtor’s inability to bring plan payments current, and the Motion for Reconsideration was not granted. Subsequently, at 12:04 p.m. on February 15, 2002, the Debtor filed his third and instant chapter 13 case (02— 51794), with Mr. Kort again as counsel. The petition did not include a statement of financial affairs, schedules, or a plan. An Application to Pay Filing Fee in Installments, which did not contain the Debtor’s signature, was filed along with the petition. On March 18, 2002, the Trustee filed a Motion to Dismiss, due to the Debtor’s failure to file the required schedules and a plan.
The Debtor failed to appear at the March 20, 2002, meeting of creditors scheduled in the instant case, and failed to make the first statutory payment. On March 26, 2002, the Trustee filed an Amended Motion to Dismiss with Prejudice, asserting want of prosecution of the case, and abuse of the bankruptcy system. On April 8, 2002, the Debtor filed a Memorandum Contra objecting to the dismissal, only to the extent that it would be with prejudice.
This third case was scheduled for confirmation at 2:00 p.m. on May 13, 2002; however, at 1:48 p.m., only twelve minutes prior to the confirmation hearing, the Debtor filed a Notice of Conversion to Chapter 7, along with the statement of financial affairs and schedules. A chapter 7 trustee was appointed on May 14, 2002. On May 28, 2002, only fifteen days after the Debtor converted the case to chapter 7, the Court entered an Order Converting Case to a Case Under Chapter 13, at the request of the Debtor. The record indicates that the Debtor and Mr. Kort assumed that the restaurants could continue to operate under chapter 7, contrary to section 721 of the Code.
An Order Proposing the Dismissal of Bankruptcy Petition for Failure to Pay Filing Fees was entered on May 28, 2002. This Order required the Debtor to pay $138.75 within ten days of its entry. Approximately a month later, on June 26, 2002, the Debtor paid the balance of the filing fee. The Debtor filed a plan, amended schedules, and statement of financial affairs on June 28, 2002, almost thirty days after conversion to chapter 13. The Debt- or’s plan provided for a 1 percent dividend with an initial payment of $5.00, and $130.00 per month thereafter.
The July 3, 2002, 9:30 a.m. rescheduled meeting of creditors was not held due to the Debtor’s late arrival. The Debtor testified that in the process of traveling to the meeting of creditors, he was informed that an employee would be unable to open one of the restaurants. After opening, the Debtor arrived late for the meeting of creditors. The Trustee declined the Debt- or’s request to allow the meeting of creditors to go forward. According to the Trustee, allowing the meeting to proceed after the scheduled time would have disrupted and delayed the docket.
The Trustee’s Amended Motion to Dismiss with Prejudice was heard at the Debtor’s September 17, 2002, confirmation *713hearing. The Debtor testified that in an effort to comply with the Trustee’s recommendations, he submitted his tax returns for the past three years to his attorney, but failed to establish separate business and personal accounts. The Debtor has made only one payment to the Trustee. He finds no further need to continue to make payments because the house he wished to retain has been lost. The Debt- or testified that he is currently working with his creditors outside of bankruptcy.
The Court’s analysis must begin with the fundamental concept that the bankruptcy process is designed to provide a financial fresh start to debtors acting in good faith. In re Pike, 258 B.R. 876, 880-881 (Bankr.S.D.Ohio 2001). Debtors have a statutory duty to attend the meeting of creditors, pay filing fees, file the statements of financial affairs, schedules and plans, and must adhere to all policies and the spirit of the United States Bankruptcy Code (“Code”). 11 U.S.C. §§ 343 and 521; Fed. R. Bankr.P. 1006, 1007, 4002; In re Earl, 140 B.R. 728, 734 (Bankr.N.D.Ind. 1992).
Section 1307(c) of the Code authorizes bankruptcy courts to dismiss chapter 13 cases for “cause.” Once a dismissal determination has been made, the Court has the discretion to bar any future filings for a period of sixth months or longer, pursuant to sections 109(g)(1) and 349(a) of the Code. See generally, Kathleen P. March and Jennifer Hildebrandt, “Is Bankruptcy a Solution or a Way of Life: When Are Multiple Bankruptcies Permitted, When Are Multiple Bankruptcies Prohibited?”, 25 Cal. Bankr.J. 104 (1999) (the authors provide a detailed analysis of variety of multiple filing situations, and the appropriate judicial response). The party moving for the dismissal bears the burden of proof under section 1307(c). In re Alt, 305 F.3d 413, 420 (6th Cir.2002); In re Herrera, 194 B.R. 178, 187 (Bankr.N.D.Ill.1996).
Courts have held that a lack of good faith is “cause” for the dismissal of a case. In re Herrera, at 187-188; In re Love, 957 F.2d 1350, 1354 (7th Cir.1992); In re Eisen, 14 F.3d 469, 470 (9th Cir. 1994). A debtor displays “good faith” by complying with their statutory duties. In re Freeman, 224 B.R. 376, 379 (Bankr. S.D.Ohio 1998). In determining whether a debtor has filed a case in good faith, the court must consider the totality of the circumstances surrounding the filing, including the timing of the filing arid the plan proposed. In re Herrera, at 187. As noted by one commentator, the “good faith” concept is a “... gatekeeping device, ... (that) protects the jurisdictional integrity of the bankruptcy courts and denies access to undeserving debtors.” David S. Kennedy, “Treatment of Bad Faith and Abusive Filings in Individual Bankruptcy Cases and Related Matters,” 9 J. Bankr.L. & Proc. 391, 393 (2000).
The bankruptcy court may dismiss a case with prejudice if the debtor willfully fails to, “abide by the orders of the court,” or if the debtor fails to, “appear before the court in proper prosecution of the case.” 11 U.S.C. § 109(g)(1). A court may find that a debtor has willfully failed to abide by its orders or prosecute the case, if the prior filing history includes a repeated pattern of dismissals and filings without a demonstration of a change in circumstances. In re Pike, at 882-883; In re Nelkovski, 46 B.R. 542, 544-545 (Bankr. N.D.Ill.1985).
The Court will dismiss this case with prejudice for several reasons. First, the Debtor has filed three chapter 13 petitions since June 28, 2001. None of the Debtor’s cases have been confirmed, and he has failed to file the requisite schedules *714and statement of affairs, or otherwise prosecute his cases in a timely manner. Second, the Debtor’s first two chapter 13 cases were dismissed for failure to make payments. The Debtor has only made one payment of $5.00 in the instant case. Third, the Debtor’s statement of financial affairs and schedules filed in the second case did not disclose the existence of the additional restaurant.
Fourth, in the instant case, the Trustee requested proof of separate business and personal accounts, and copies of tax returns for the past three years. To date, the Debtor has not provided the Trustee with this information. Finally, the Debtor failed to appear at the March 20, 2002, meeting of creditors, and failed to timely appear at the July 3, 2002, rescheduled meeting of creditors in the instant case.
All of these factors lead the Court to conclude that the Debtor has no appreciation of the significance of the remedy he has invoked and the resultant duties. The record demonstrates that the Debtor has consistently acted in an untimely manner, and in some instances has only responded after threat of dismissal.
For these reasons, the Court has concluded that the Debtor has not acted in good faith, and has failed to prosecute his multiple cases. His efforts have only served to stay creditor collections and impose an administrative burden upon the bankruptcy system, while failing to come forward with a viable plan of reorganization. Further, because the Debtor has failed to comply with the information requests from the Trustee, it is not clear whether all assets and liabilities have ever been fully disclosed.
Accordingly, the Trustee’s Amended Motion to Dismiss With Prejudice is GRANTED.
It is further ORDERED that the Debt- or shall be precluded from filing another bankruptcy case under any chapter and anywhere for a period of 180 days from entry of this Order. 11 U.S.C. §§ 109(g)(1), 349(a) and 1307(c).
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493509/ | OPINION
GERALD D. FINES, Chief Judge.
This matter having come before the Court on a Motion to Compel Response to Discovery Request and Motion for Leave to File Amended Complaint; the Court, having heard arguments of counsel and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Findings of Fact
On May 17, 2002, Plaintiff, Ross Johnson, filed a Complaint to Determine Dischargeability alleging that a debt due from the Defendant/Debtor to the Plaintiff was non-dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(6). In his Answer to Complaint to Determine Dischargeability, filed on June 17, 2002, the Debtor admitted paragraph 16 of the Plaintiffs Complaint to Determine Dischargeability, which stated:
16. Between July of 2001, when Plaintiff made the foregoing payment demand and request for information about accounts receivable, and February 14, 2002, when the Debtor filed this bankruptcy proceeding, the Debtor knowingly caused accounts receivable which secured the aforesaid indebtedness to Plaintiff to be converted and used for purposes other than payment upon said secured indebtedness.
Given that the Defendant/Debtor admitted paragraph 16 of the Complaint to Determine Dischargeability, the only issues for trial in this matter concern whether the Debtor intended to cause injury to the Plaintiff, and, if so, the amount of damage caused.
On August 26, 2002, Plaintiffs attorney served upon Defendant’s attorney a Request for Production of Documents. Despite repeated requests from Plaintiffs attorney, as of the date of hearing on this matter, the Defendant has failed to turn over the majority of the documents requested, offering as an excuse that said documents were destroyed by individuals now occupying the building where he previously conducted business.
In his Motion to Compel Response to Discovery Request filed on November 7, 2002, and the Supplement to Motion to Compel Response to Discovery Requested filed on November 26, 2002, the Plaintiff requests that the Defendant/Debtor be compelled to supply a copy of each of the remaining items listed in the Request for Production of Documents which have not yet been furnished by a specific date, and that sanctions be imposed against the Defendant, pursuant to Rule 7037(a)(4) of the Federal Rules of Bankruptcy Procedure, for the Defendant/Debtor’s continued failure to respond to the Request for Production of Documents.
A review of the record of this adversary proceeding and the explanations offered by the Defendant/Debtor for his failure to fully comply with the Request for Production of Documents made by the *737Plaintiff lead the Court to conclude that the Defendant/Debtor has not made a good faith effort to supply records and documentation requested. As such, the Court finds it appropriate to sanction the Defendant/Debtor, under the authority of Rule 7037 of the Federal Rules of Bankruptcy Procedure and Rule 9011 of the Federal Rules of Bankruptcy Procedure, in the amount of $500 as and for attorney’s fees for Plaintiffs attorney. This sanction represents time which has been required to be spent by Plaintiffs attorney to acquire documents from the DefendantDebtor which should have been voluntarily supplied. The Court further finds that the DefendantDebtor should be directed to fully cooperate with all of Plaintiffs efforts to obtain documents and financial information pertaining to the DefendantDebtor’s business affairs, including, but not limited to, obtaining information from financial institutions which the DefendantDebtor used in the conduct of his business. The Court further finds that the DefendantDebtor should use every effort to produce documents which he may still have in his possession and to use every effort to obtain documents which may continue to be stored in the building in which he previously conducted business. Failure of the DefendantDebtor to make every effort to comply with the Plaintiffs discovery requests may result in further sanctions, including, but not limited to, entry of a default judgment pursuant to Rule 7037(b) of the Federal Rules of Bankruptcy Procedure.
Turning to the Motion for Leave to File Amended Complaint filed by the Plaintiff, on November 26, 2002, the Court finds that, in his Motion, the Plaintiff seeks to file an amended complaint adding two additional counts objecting to the DefendantDebtor’s discharge in bankruptcy pursuant to the provisions of 11 U.S.C. §§ 727(a)(3) and (5). In considering the Plaintiffs Motion, the Court finds that it must be denied. Pursuant to Rule 4004 of the Federal Rules of Bankruptcy Procedure a complaint objecting to the debtor’s discharge under 11 U.S.C. § 727(a) must be filed no later than 60 days after the date of the first date set for the meeting of creditors under 11 U.S.C. § 341(a), and that date is clearly designated in the Order for Relief sent to all creditors upon the filing of the bankruptcy under Chapter 7 of the Bankruptcy Code. In the instant case, the time period within which complaints under 11 U.S.C. § 727(a) can be filed has long passed. Pursuant to Rule 4004(b), the time to file a complaint objecting to discharge may only be extended where a motion has been filed prior to the expiration of the time period requesting such an extension. There being no such motion in this case, the Court has no choice but to deny the Plaintiffs Motion for Leave to File Amended Complaint. The Court would further note that the filing of an complaint to determine dischargeability under 11 U.S.C. § 523(a), within the proper time frame, cannot be used to relate back a late filing under 11 U.S.C. § 727(a). Therefore, the Plaintiff is left to litigate only his present Complaint under 11 U.S.C. § 523(a)(6).
ORDER
For the reasons set forth in an Opinion entered on the 19th day of December 2002;
IT IS HEREBY ORDERED that:
A. The Motion to Compel Response to Discovery Request filed by the Plaintiff on November 7, 2002, is ALLOWED, with the DefendantDebtor directed to make every effort to cooperate with and comply with the requests for documentation and information previously made by the Plaintiff;
B. Sanctions are entered against the DefendantDebtor for his failure to cooper*738ate in the Plaintiffs discovery requests in the amount of $500 to be paid to Plaintiffs attorney as and for attorney’s fees within 15 days of the date of this Opinion and Order;
C. Deliberate failure on the part of the Defendant/Debtor to fully cooperate and comply with discovery requests of the Plaintiff following the date of this Opinion and Order may result in further sanctions, including, but not limited to, the entry of a default judgment pursuant to the provisions of Rule 7037 of the Federal Rules of Bankruptcy Procedure;
D. The Motion for Leave to File Amended Complaint filed by the Plaintiff on November 26, 2002, is DENIED; and,
E. A telephone conference call will be held in this matter on January 14, 2003, at 8:30 a.m., to determine the status of discovery proceedings in this matter and to schedule a new trial date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493510/ | DECISION AND ORDER
ROSS W. KRUMM, Chief Judge.
The issue before the court is whether a Chapter 11 debtor has standing to sue a plan proponent for failure to perform under the terms of a confirmed plan. For the reasons that follow, the court holds that a proponent of a confirmed plan is bound by its terms and that a debtor aggrieved by a plan proponent’s non-performance has standing to seek redress in the bankruptcy court.
BACKGROUND
On May 30, 1996, Shenandoah Realty Partners (hereinafter Debtor) filed a voluntary Chapter 11 petition under Title 11 of the United States Code. Nearly four years later, a corrected modified third amended plan of reorganization (hereinafter Plan) was proposed and filed in open court by Ascend Healthcare, Inc. (hereinafter Ascend). The court confirmed Ascend’s the Plan on March 10, 2000.
The Plan consisted of eleven articles detailing the plan of reorganization and specifying the respective responsibilities of the Debtor and Ascend. Article III of the Plan, for example, requires the Debt- or to preform its various statutory duties and those required under the Plan. Article V states that Ascend “shall acquire the Acquired Assets through a bond replacement or payoff.” Specifically, Ascend was to tender $2,292,450.00 to bondholders in the form of cash and new bonds. The payoff was scheduled to occur within ninety days of confirmation. Tied to this asset acquisition, the Plan provided that, upon confirmation, Ascend “shall deposit ... an earnest money deposit of One Hundred Thousand and no/ 100 ($100,000.00)” with the trustee for the bondholders. The Plan specifically retained jurisdiction in the bankruptcy court “to enforce the provisions of this plan.”
In response to the failure of Ascend to fulfill its obligations under the Plan, the Debtor entered into a contract with Smith/Packett Med-Com (hereinafter Smith/Packett) for the purchase of the Debtor’s assets for $1,475,434.00. The court entered an order approving the sale of assets to Smith/Packett. Prior to consummating the sale with Smith/Packett, the Debtor filed this adversary proceeding.
In its amended complaint the Debtor sets forth three causes of action based on the allegation that Ascend refused or failed to perform its obligations under the Plan. In the first cause of action, the Debtor alleges that its “real personal property” [sic] is unique and requests the court to find Ascend in default under the Plan and to order Ascend to specifically perform, i.e., close on the purchase of the Debtor’s assets.1 Apparently, in the alternative, the Debtor seeks to recover $1,145,540.00, the difference between the asset purchase *869price under the Plan and the contract price for the same with Smith/Packett. Lastly, the Debtor seeks the unpaid $100,000.00 earnest money deposit as its third cause of action.
Ascend filed a motion to dismiss for failure to state a claim upon which relief can be granted, under Federal Rules of Civil Procedure Rule 12(b)(6).2 Essentially, Ascend argues that Debtor lacks standing to seek recovery for the difference in the Plan price for the asset purchase and the contract price, and that the Debtor has no standing to seek recovery of the unpaid earnest money deposit.3 In short, the Debtor has no enforceable interest in either the difference in the Plan and contract price for the sale of assets or in the unpaid earnest money because those funds were to be paid to or deposited with third parties not the Debtor.
DISCUSSION
The issues before the court are two-fold: (1) whether Ascend is bound by the terms of the Corrected Modified Third Amended Plan of Reorganization and (2) whether the Debtor has standing to bring suit upon Ascend’s failure to perform under the confirmed plan.
The Effect of the Plan on Ascend
Section 1141 of the Bankruptcy Code addresses the effect of confirmation of a reorganization plan. In relevant part, § 1141(a) states
The provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.
The unmistakably clear terms of the statute bind debtors and creditors to the plan. *870The questions remains, however, as to the effect of a confirmed plan on third party plan proponents like Ascend.
In 1984, the District Court for the Northern District of New York stated “[t]he general rule is that a confirmed plan of reorganization is binding on the debtor and other proponents of the plan.” In re Garsal Realty, Inc. (Garsal Realty, Inc. v. Troy Sav. Bank), 39 B.R. 991, 994 (N.D.N.Y.1984). This pronouncement was repeated by the Tenth Circuit when it undertook to determine whether a Chapter 7 trustee has a cause of action based on a failed Chapter 11 reorganization. The trustee brought suit against a proposed participant of a plan of reorganization who was not a creditor and who was not a plan proponent or party in interest. Paul v. Monts, 906 F.2d 1468, 1469 (10th Cir. 1990).4
In Paul v. Monts, the debtor’s confirmed plan contemplated that Travenca, a third party, would assume certain outstanding loans of the debtor and would provide $2,500,000.00 of new capital to the debtor. In exchange for such, Travenca would be given stock, title to certain property, and a lease. After the plan was confirmed the parties disagreed as to their respective responsibilities under the plan. The bankruptcy court eventually determined that the debtor did not implement the terms of the plan and converted the case to a Chapter 7 liquidation proceeding. The Chapter 7 trustee then filed a declaratory judgment action to determine if any defendants breached their obligations under the plan.
The court first addressed whether the terms of the confirmed plan bound Travenca, a third party. The court quoted the general rule from Garsal and recognized that neither “proponents of the plan” nor “parties in interest” have been defined in reported eases.5 Id. at 1471-72. The court rejected the trustee’s assertion that a mere third party participating in a plan was bound by the terms of that plan. In other words, the Tenth Circuit implicitly held that Travenca was not a proponent of the plan or a party in interest; therefore, Travenca was n.ot bound by the plan.6 Travenca would not be bound unless it agreed to be bound by the plan or until it became a party in interest by acquiring property under the plan. See Quarles v. Smith, 1997 WL 578707, *6, 1997 U.S. Dist. LEXIS 13992, *15 (WD.Va.1997) (discussing Paul v. Monts).
Despite a finding that 11 U.S.C. 1141(a) did not bind Travenca, the court ultimately held that the Bankruptcy Code did not preempt an action against Travenca under general contract law. The court stated that the remedies provided within the *871bankruptcy Code were not exclusive and that redress may be sought through a breach of contract action premised on the plan of reorganization. Paul v. Monts, 906 F.2d at 1474 & 1476.
In the instant case, the court believes that Ascend is bound by the terms of the Plan. Ascend is a proponent of a plan as that term is understood by this court. Under the facts here, the court need not rely on case law to interpret “proponent of the plan.” Ascend proposed the Plan here and even defined itself as the “Proponent.” Under the rule announced in Garsal and repeated in Paul v. Monts, both the Debt- or and Ascend are bound by the Plan.
It is generally accepted that a confirmed plan is essentially a binding contract. Indeed, a confirmed plan substitutes the obligations of the plan for the debtor’s pre-confirmation debts. See In re Page, 118 B.R. 456, 460 (Bankr.N.D.Tex. 1990) (“The plan becomes a binding contract between the debtor and the creditors and controls their rights and obligations.”) (citation omitted). Ascend is unable to escape its obligations under the Plan.
Debtor’s Standing to bring Suit for Default Under the Plan
As mentioned above, the Debtor’s suit alleges that Ascend failed to comply with the terms of the Plan. Although Ascend is bound by the terms of the Plan, it challenges the Debtor’s standing to bring this suit. Ascend contends that the proceeds from the asset purchase were payable to the bondholders, not the Debtor; thus, the Debtor has no legally enforceable interest in these proceeds. Similarly, Ascend asserts that the Debtor lacks standing to enforce payments (the earnest money deposit) the Plan requires Ascend to make to the bondholders’ trustee.
The doctrine of standing arises from the constitutional requirement that federal courts hear actual cases and controversies. Standing ensures that plaintiffs have a sufficient stake in the outcome of a dispute. In order to meet the minimal constitutional requirements of standing, a plaintiff must demonstrate (1) injury in fact, (2) traceability, and (3) redressability. See Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984); Friends for Ferrell Parkway v. Stasko, 282 F.3d 315, 320 (4th Cir.2002).
Even if a plaintiff satisfies the constitutional requirements for standing, there are prudential standing requirements a plaintiff must meet as well. These “judicially self-imposed limits on the exercise of federal jurisdiction,” are based on a desire to preserve the proper role of courts in a democratic society. Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). In cases where a plaintiff alleges violations of a statutory right, the standing issue is “whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). Another prudential limitation on standing is the third party standing rule which “normally bars litigants from asserting the rights or legal interests of others in order to obtain relief from injury to themselves.” Warth v. Seldin, 422 U.S. 490, 509, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).
As statutory authority to bring its suit the Debtor cites 11 U.S.C. § 1142 and Bankr.R. 3020. 11 U.S.C. § 1142 entitled “Implementation of the Plan” provides
(a) Notwithstanding any otherwise applicable nonbankruptcy law, rule, or reg*872ulation relating to financial condition, the debtor and any entity organized or to be organized for the purpose of carrying out the plan shall carry out the plan and shall comply with any orders of the court.
(b) The court may direct the debtor and any other necessary party to execute or deliver or to join in the execution or delivery of any instrument required to effect a transfer of property dealt with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan.
Bankruptcy Rule 3020 provides that the court may issue any order necessary to the administration of the estate.
Ascend appears to be contending the neither the Bankruptcy Code nor Virginia contract law recognize the Debtor’s standing to sue Ascend for obligations it owes to third parties under the Plan.7 In support of its position that standing is lacking, Ascend cites Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972) and In re Sports Accessories, Inc., 1987 WL 37009 (4th Cir.1987) (unpublished disposition).
In Caplin, the Supreme Court held that a trustee in a reorganization under the Bankruptcy Act does not have standing to assert, on behalf of persons holding debentures issued by the debtor, claims of misconduct by the indenture trustee. Allegedly, the indenture trustee negligently or intentionally failed to prevent the debtor from violating the terms of the indenture, i.e., maintain a specific asset-liability ratio. The apparent cause of action against the indenture trustee was based on a violation of the indenture and of the Trust Indenture Act of 1939, 15 U.S.C. § 77aaa et seq.
The Court rejected the trustee’s assertion of these claims for three reasons. One, the Court stated that nowhere in the reorganization statutory scheme is the trustee given responsibility to sue “third parties on behalf of debenture holders.” Caplin, 406 U.S. at 428, 92 S.Ct. 1678. The Court also noted that the section of the Act outlining the trustee’s rights and duties does not enable it to collect money not owed to the estate. Two, the Court was troubled that the debtor was unable to make a claim against the indenture trustee because of the doctrines of in pari delicto and subrogation. The debtor was as much at fault as the indenture trustee for the harm suffered by creditors. Third, and finally, the Court disfavored the inconsistencies and complications that may ensue by allowing suits to be brought by trustees on behalf of debenture holders and by debenture holders individually. For these reasons the Court concluded that Congress did not invest the trustee with standing to sue an indenture trustee on behalf of debenture holders.
The court believes Caplin is readily distinguishable from the matter here. In Caplin the trustee was attempting to sue, on behalf of creditors, a third party for violating provisions of the Trust Indenture Act. The case did not involve a plan proponents’s failure to comply with a confirmed plan. Here, the Debtor is not asserting a claim, on behalf of creditors, against Ascend for violating some independent statute; rather, the Debtor is alleging that *873Ascend defaulted under the Plan by, inter alia, not paying certain obligations of the Debtor to its creditors. In Caplin, the debtor’s reorganization was not directly stymied by the actions of the indenture trustee. Here, Ascend’s failure to fulfill the terms of the Plan, leaves the Debtor with large outstanding obligations which would have been otherwise reduced by full compliance with the terms of the Plan.
In In re Sports Accessories, Inc., supra, the Fourth Circuit held that a bankruptcy trustee lacked standing to pursue, on behalf of aggrieved creditors, what appears to have been a professional malpractice claim. The trustee brought a suit against the accounting firm of the debtors for knowingly preparing materially false financial statements that creditors would rely on when making decisions to extend credit. The court’s analysis began with the following statement: “Generally, trustees in bankruptcy are unauthorized to sue third parties on behalf, or for the benefit, of the creditors of the bankrupt estate.” In re Sports Accessories, Inc., 1987 WL 37009 at *1. The court further recognized that the bankrupt estate had no interest in the suit and that no portion of the recovery would be payable to the bankrupt estate or enhance its assets in any way. Id.
This case is not helpful primarily because it does not discuss the impact of a plan proponent’s default under a confirmed plan. The Sports Accessories holding that a trustee cannot sue a third party who, acting on a debtor’s behalf, provides services that harm creditors, but does not directly hamper the debtor’s ability to effectuate the terms of a confirmed plan, does not help Ascend’s position that the instant Debtor lacks standing to bring this suit. Ascend is a proponent of a plan and is bound by the terms of the Bankruptcy Code to comply with the terms of the Plan. Moreover, Ascend’s compliance with the Plan would clearly benefit the bankrupt estate by paying the Debtor’s outstanding obligations to bondholders as provided for in the confirmed plan.
The Debtor is clearly bound by the Plan, as is Ascend. The Debtor’s standing to enforce the terms of the Plan vis-a-vis Ascend derives from the parties being mutually bound to fulfill their respective obligations under the Plan. Among other things, Ascend agreed to acquire certain assets and to pay preconfirmation obligations the Debtor owed to bondholders. In return, the Debtor agreed to sell assets to Ascend and to comply with the terms of the Plan. The Plan worked as a contract between the parties. When viewed through the eyes of the Debtor, the action here is not an attempt to collect funds on behalf of third parties (the bondholders); on the contrary, the Debtor is seeking to ensure that Ascend pays obligations the Debtor owes to third parties. Furthermore, the Plan contemplated that this court would retain jurisdiction to enforce the terms of the Plan. The court finds that the Debtor has standing to bring suit to enforce these binding obligations.
Ascend also contends that under Virginia law actions grounded in contract must be brought by the promisor or the promisee, since they are the parties in whom the legal interest is vested. As a general proposition this is true, but Ascend’s position ignores the widely understood and accepted doctrine of intended third party beneficiaries. Under Virginia law “the third party beneficiary doctrine is subject to the limitations that the third party must show that the parties to the contract clearly and definitely intended it to confer a benefit upon him.” Professional Realty Corp. v. Bender, 216 Va. 737, 739, 222 S.E.2d 810, 812 (1976). Here, by the terms of the Plan (or by the terms of *874the contract), Ascend obligated itself to purchase the Debtor’s assets and to pay $2,292, 450.00 to bondholders of the Debt- or. The benefits derived by the Debtor from Ascend’s performance are obvious and beyond the need for explanation. Clearly the Debtor was intended to directly benefit from Ascend’s fulfilling the requirements of the Plan.8
CONCLUSION
Based on the foregoing analysis, the court holds that Ascend, a proponent of a confirmed Chapter 11 plan, is bound by the terms of the plan. The court also holds that the allegations in the amended complaint, taken as true, sufficiently establish the Debtor’s standing to bring the instant action.
Accordingly, it is
ORDERED:
That the Motion to Dismiss Amended Complaint For Failure to State a Claim upon which Relief can be Granted is DENIED.
. Specifically, the Debtor requested the following relief in the first cause of action set forth in the amended complaint:
Wherefore the Plaintiff/Debtor prays that this court enter an Order determining the Defendant to be in default under the confirmed plan and to be required to specifical*869ly perform the terms of the confirmed plan and close on the purchase of the assets of the debtor and be granted such other relief as it [sic] fit and proper (emphasis added).
This prayer for relief is not altogether pellucid. For example, it is not clear whether the Debtor desires Ascend to specifically perform every obligation under the "terms of the confirmed plan” and to "purchase ... the assets” or whether the Debtor seeks to have Ascend specifically perform by purchasing the assets. The former reading would be redundant since the purchase of assets are terms under the Plan. Thus, in order to avoid redundancies and in light of the allegations made in support of this cause of action, the court will treat the prayer for relief as requesting only specific performance regarding the purchase of assets. Under this interpretation, the court need not address the first cause of action since the assets of the Debtor have already been purchased by another entity, Smith/Packett.
. Rule 12(b)(6) of Fed.R.Civ.P. is made applicable to adversary proceedings per Bankr.R. 7012. Accordingly, the allegations in the amended complaint are taken as true for the purposes of this motion.
. In its motion to dismiss, Ascend reiterates numerous allegations in the amended complaint and argues that the Debtor lacks standing to bring those claims. Specifically, Ascend purports to discuss paragraphs 4A through 4H in the amended complaint; however, the aforesaid allegations are actually located in paragraphs 3A through 3H of the amended complaint. The court notes that the Debtor has not clearly requested relief based on all the allegations in paragraphs 3A through 3H, but instead has limited its prayer for relief thusly: 1) specific performance regarding the asset purchase; 2) damages to the extent that the contract price for the sale of assets to Smith/Packett is less than the Plan price; and 3) $100,000.00 for the unpaid earnest money deposit. The court need not consider the arguments raised by Ascend that do not touch upon the Debtor's allegations upon which relief has been specifically requested, e.g., the assumption of certain leases.
. See also United States Trustee v. Craige (In re Salina Speedway), 210 B.R. 851 (10th Cir. BAP 1997) (stating rule that proponents are bound by a confirmed plan).
. While analyzing the definition of "parties in interest,” the Tenth Circuit discussed the generally accepted definition of "interest” and what it means to "acquire property under the plan.” This analysis is not applicable to the matter sub judice since the disposition of the matter here does not depend on whether Ascend is a party in interest or a party that acquired property under the plan. As will be shown, Ascend is undisputably the proponent of the Plan and is bound by the Plan in that respect.
.Ascend's characterization of Travenca as a plan proponent is incorrect. See Defendant's Response to "Plaintiffs Memorandum in Opposition” at 2. The Tenth Circuit describes Travenca as a "third party investor” and a plan "participant.” Paul v. Monts, 906 F.2d at 1469, 1471 & 1474. The court points out that the debtor filed the plan. Id. at 1470. Travenca never signed the plan nor submitted to the jurisdiction of the bankruptcy court. Id. at 1471 n. 3.
. Ascend does not appear to be arguing that the Debtor lacks standing under the minimal constitutional requirements. Ascend failed to even suggest that injury-in-fact, traceability, or redressability are lacking. In a memorandum in support of dismissal Ascend states "[djoes the Debtor have standing to enforce the monetary obligations of Ascend to third parties under the Plan.” Defendant's Memorandum of Law in Support of Motion to Dismiss at 3.
. The court recognizes that any recovery the Debtor may acquire at the conclusion of this adversary proceeding would need to be disbursed to the parties as contemplated by the Plan. For instance, if the Debtor succeeds on its claim to recover the difference in the price for the sale of assets paid by Smith/Packett and the price Ascend was to pay under the Plan, then the Debtor would be required to pay those funds to the bondholders as contemplated by the Plan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493511/ | Memorandum of Decision
JAMES B. HAINES, JR., Chief Judge.
This matter is before me on remand from the district court for a determination whether application of the Maine Severance Pay Statute to a 1998 collective bargaining agreement between the plaintiffs and their employer, Carleton Woolen Mills, Inc. (“Carleton”), results in an unconstitutional impairment of contract.
Background
Plaintiffs filed their complaint in state court in August 2000. The defendant, Allied Textile Companies, PLC (“Allied”), invoking federal jurisdiction as a consequence of Carleton’s bankruptcy filing, removed the matter to this court. See 28 U.S.C. § 1452. The complaint alleges that Carleton violated the Maine Severance Pay Statute, 26 M.R.S.A. § 625-B (West 1988 & Supp.2002), and that Allied is liable as a statutorily-designated responsible party.1
1. The Initial Summary Judgment Ruling
Following several months of pretrial skirmishing, Allied moved for partial summary judgment on April 4, 2001. In its motion, Allied sought to bar the claims of certain subclasses of plaintiffs.2 After a brief delay to allow the Maine Attorney General to intervene for the purpose of defending the constitutionality of the Sev*9erance Pay Statute, see 28 U.S.C. § 2403(b), I ruled from the bench on October 16, 2001. I denied summary judgment on some of the grounds Allied asserted in this and in the Douglass case, but with regard to the Severance Pay Statute I determined that, in order to avoid declaring the statute unconstitutional, I would apply it prospectively only, to contracts entered into after its effective date.3 E.g., State v. L.V.I. Group, 1997 ME 25, ¶ 8, 690 A.2d 960 (1997) (when possible, statutes should be construed to preserve their constitutionality). Because the collective bargaining agreement in force at the time of the alleged layoffs was entered into before the effective date of the statute, I ruled the version of the statute applicable to plaintiffs’ claims would be the pre-1999 version.4 This in turn meant that the safe harbor provision of that statute, 26 M.R.S.A. § 625-B(3)(B) (West 1988) (providing that employees with contracts for severance pay benefits were not eligible to recover under the statute), insulated Allied from liability because the 1998 CBA does contain a severance benefit.5
Because my ruling applied to all unionized employees, this case ended when I entered judgment on January 9, 2002. Plaintiffs appealed.
2. The District Court Ruling
On appeal, the district court ruled that applying the Severance Pay Statute as amended in 19996 does not implicate the issue of retroactivity because the focus *10should not be on the execution of the 1998 CBA (i.e., prior to the 1999 amendment), but rather on the “operative event” that gave rise to the cause of action (i.e., the “termination” of a “covered establishment” under the Severance Pay Statute). Memorandum of Decision and Order (Carter, J.) at 10 (citing Liberty Mutual Ins. Co. v. Superintendent of Ins., 1997 ME 22, 689 A.2d 600, 602 (1997)). The district court concluded that the operative event was the final termination of operations at the Carleton plant.
Although the parties disagree as to when exactly the Carleton plant ceased operating, there is no question that it occurred after the Severance Pay Statute’s 1999 amendment became effective.7
The district court remanded the case for a determination whether the 1999 amendment unconstitutionally impairs the contractual rights and obligations of the parties to this suit when applied to the claims of those union personnel laid off in 1999 and 2000 as the Carleton plant closed.
Discussion
Under the version of the Severance Pay Statute that was in effect when the 1998 CBA was negotiated and entered into between plaintiffs and Carleton there would be no statutory liability (for either Carleton or Allied) because the statute’s safe harbor provision extended to “an express contract providing for severance pay [.] ...” 26 M.R.S.A. § 625-B(3)(B) (West 1988). The 1998 CBA is such a contract. See supra notes 3-5. The 1999 amendment, however, established a minimum severance benefit below which even “express contracts” may not go. In other words, postAl999, the safe harbor extends only to “express contracts” that provide for severance pay “that is equal to or greater than the severance pay required by” statute. 26 M.R.S.A. § 625-B(3)(B) (West Supp.2002). The parties agree that if the posN1999 statute is applied (as was mandated by the district court’s ruling, absent a constitutional impairment), Allied faces the prospect of statutory liability to Carleton’s former employees.
1. Allied’s Argument
Allied argues that under Supreme Court and First Circuit jurisprudence the Maine Severance Pay Statute’s 1999 amendment unconstitutionally impairs its contractual relationship with the plaintiffs. Citing Parker v. Wakelin, 123 F.3d 1, 4-5 (1st Cir.1997), Allied asserts that the 1999 amendment to 26 M.R.S.A. § 625-B(3)(B) (“Mitigation of severance pay liability”): (i) substantially impairs a contractual relationship, (ii) without a legitimate public purpose, and (iii) in an unreasonable and inappropriate fashion.
Allied contends that, despite the fact that the 1998 CBA was between plaintiffs and Carleton, it nonetheless has standing to assert the constitutional impairment issue as a result of: (i) the existence of a contract (as opposed to status as a party to the contract) that previously provided it a defense to Severance Pay Statute liability, and (ii) the provisions of the statute itself.
2. Plaintiffs’ Argument
Plaintiffs principally contend that Allied lacks standing to raise the impairment of contract issue. They posit that since Allied is not a party to the 1998 CBA, it has no obligations or rights under the contract. Thus, the 1999 amendment can affect no rights or obligations to which Allied can lay claim. They emphasize the distinction *11between, on the one hand, Allied’s statutory liability, and on the other, the absence of any contractual interest (belonging to Allied) that warrants constitutional protection.
3. Standing
I agree with plaintiffs that Allied is without standing to raise the Contract Clause as a defense to its liability under the Maine Severance Pay Statute.8
The Contract Clause of the United States Constitution states that “No state shall ... pass any ... Law impairing the Obligation of Contracts.... ” U.S. Const, art. I, § 10, cl. 1. Contract Clause analysis requires consideration of, first, whether a change in state law results in “ ‘a substantial impairment of a contractual relationship.’” General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 2722, 57 L.Ed.2d 727 (1978)). The “substantial impairment” inquiry has three components: “whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.” Romein, 503 U.S. at 186, 112 S.Ct. 1105. In the event all three elements are satisfied, the court must then consider “whether the impairment is nevertheless justified as ‘reasonable and necessary to serve an important public purpose.’ ” Parker v. Wakelin, 123 F.3d 1, 5 (1st Cir.1997) (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 25, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92 (1977)).
Normally, the first two prongs of the substantial impairment analysis are “unproblematic.” Romein, 503 U.S. at 186, 112 S.Ct. 1105. As in Romein and Parker, however, there is no need in this case to consider the question of impairment or substantiality, “because the [Defendant] fail[s] to demonstrate the existence of a contractual relationship protected by the Contract Clause.” Parker, 123 F.3d at 5. Allied has not cited, and independent research has failed to reveal, a single case that bestows upon non-parties to a contract standing to raise the Contract Clause as a defense to statutory liability.
Allied relies heavily on language in several Contract Clause cases that refers to a “contractual relationship,” as if somehow that language extends constitutional protection beyond the parties to a contract. I am unconvinced. To begin, such third-party standing would swallow prudential limitations inherent in the standing requirement itself. Moreover, every one of the cases Allied cites, although discussing the contractual “relationship,” involved a claim by a party to the contract. See Romein, 503 U.S. at 186-87, 112 S.Ct. 1105 (employment contracts entered into after collective bargaining between petitioners and respondents); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978) (pension contract between appellant and its employees); Houlton Citizens’ Coalition v. Town of Houlton, 175 F.3d 178, 190-91 (1st Cir. 1999) (local ordinance prevented one of several co-plaintiffs from fulfilling contrac*12tual obligations); McGrath v. Rhode Island Retirement Board, 88 F.3d 12, 19-20 (1st Cir.1996) (assuming without deciding that an offer of a retirement plan to petitioner/employee by state has contractual significance for purposes of the Contract Clause); see also Parker, 123 F.3d at 5, 9 (plaintiffs failed to “demonstrate the existence of a contractual relationship” and thus there was “no plausible contract clause claim[,]” where plaintiffs failed to show that state statute gave rise to contract rights between them and state). The reason this is so seems perfectly clear. “The Contracts Clause prohibits a state legislature from amending any law in a way that works a substantial impairment of contractual obligations previously undertaken.” McGrath, 88 F.3d at 17 n. 6 (emphasis added). In other words, what the Contract Clause protects is the rights and obligations of contracting parties, those holding rights to benefits, or undertaking defined obligations, under a bargain they have struck.
Although Allied received an incidental benefit (safe harbor protection from a Severance Pay Statute claim) as a result of the 1998 CBA between plaintiffs and Carleton under the version of the statute then in effect, it was not a benefit for which Allied bargained.9 Moreover, Allied incurred no obligations under the 1998 CBA.10 Allied’s potential liability to the plaintiffs is solely a result of state law.
Allied asserts that the statute itself confers it with Contract Clause standing. It argues that since it is an “employer” within the meaning of the statute, it is entitled to all “contractual defenses under the Statute as if it were the contracting party.” Although I agree that Allied is entitled to all statutory defenses available to an employer under the statute, that is a far cry from entitling it to contractual defenses, and constitutional standing, where, as here, it is not a contracting party. Statutory liability, in and of itself, does not confer contractual defenses. The leap is not one I am prepared to make.11
Allied further attempts to bolster its argument arguing that its role is akin to that of a chapter 7 trustee under the Bankruptcy Code. It asserts that the statutory framework of the Code gives a trustee standing to assert Contract Clause defenses in the place of a debtor. Thus, Allied argues, because it is lassoed within the statute’s definition of “employer,” it *13stands in the shoes of Carleton here, “akin to a Chapter 7 trustee.” To begin, as a Chapter 7 debtor, Carleton has its own trustee. It is not Allied. See Case No. 00-10214 United States Bankruptcy Court, District of Maine, docket entry no. 127, Sept. 22, 2000.
Moreover, Allied’s analogy holds no water. A chapter 7 trustee is required by the Bankruptcy Code to “collect and reduce to money the property of the estate.” 11 U.S.C. § 704(1). “Property of the estate” under the Code is all-encompassing, 11 U.S.C. § 541(a); Davis v. Cox (In re Cox), 274 B.R. 13, 23 (Bankr.D.Me.2002), and it specifically includes legal claims, Howe v. Richardson, 193 F.3d 60, 61 (1st Cir.1999). See generally 11 U.S.C. § 323(a) (“[t]he trustee in a case under this title is the representative of the estate”); 11 U.S.C. § 323(b) (providing that “[t]he trustee ... has capacity to sue ... and be sued”); Fed. R. Bankr.P. 6009 (“[w]ith or without court approval, the trustee ... may ... defend any pending action or proceeding by or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal.”). Thus under the statutory framework of the Bankruptcy Code the trustee succeeds to the debtor’s rights in property, be it a couch, a cause of action, or a defense that belongs to the debtor as a result of a contract to which the debtor is a party. For all intents and purposes the trustee acts as the debtor in those circumstances.12
Here, Allied does not stand in Carleton’s shoes. By including Allied within the statutory definition of “employer,” without excluding other parties that may also meet the definition, the statute imposes liability wholly independent of the liability of another. Indeed, I have no doubt that, if they chose (and assuming Carleton was not bankrupt), plaintiffs here could have brought suit against both Carleton and Allied.13
A final point deserves mention: The parties vigorously disagree over the significance of a First Circuit decision, Mercado-Boneta v. Administracion del Fondo de Compensacion al Paciente, 125 F.3d 9 (1st Cir.1997). Mercado-Boneta was a malpractice action brought by a patient’s representative against a doctor and the doctor’s liability insurer. Mercado-Bone-ta, 125 F.3d at 10-11. The doctor also claimed over against the insurer. Id. The insurer, a public entity created by the Puerto Rican Legislature, was abolished by the Legislature prior to the time the plaintiff brought suit. Id. In the district court, “[b]oth [patient and doctor] moved for reconsideration of the dismissal of [the insurer] on the grounds that [the abolishing legislation], as interpreted by the district court, violated the Contract Clause of *14the United States Constitution.” Id. at 11. Citing Romein, 503 U.S. 181, 112 S.Ct. 1105, 117 L.Ed.2d 328, the First Circuit ruled that the patient had no standing “to assert a Contract Clause claim, as he holds no contractual relationship with [the insurer].” Mercado-Boneta, 125 F.3d at 12 n. 5.
Allied would distinguish Mercado-Bone-ta on the ground that there “is no evidence that the Puerto Rican statute treated the third party plaintiff as a party to the contract for purposes of the statute.” Defendant’s Reply Brief, at 3-4. Likewise, however, there is “no evidence” here that the Maine Legislature treated Allied as a party to the 1998 CBA. What is crystal clear, however, is that the Legislature imposed statutory liability on parent corporations of covered establishments. But only as a party to the collective bargaining contract would Allied be provided protection from intervening state law under the Contract Clause of the U.S. (or Maine) Constitution.14
Conclusion
Because Allied is without standing to raise the Contract Clause of the United States Constitution as a defense to its statutory liability under the Maine Severance Pay Statute, 26 M.R.S.A. § 625-B (West 1988 & Supp.2002), and because the district court has mandated application of the Severance Pay Statute as it existed after the 1999 amendments, Alllied’s motion for summary judgment, based on its Contract Clause argument, is DENIED.15
. Carleton has been a wholly-owned subsidiary of Allied since 1994. See infra note 4; State v. L.V.I. Group, 1997 ME 25, ¶¶ 12-13, 690 A.2d 960 (upholding the constitutionality of the statute's definition of "employer”).
. This case deals only with union employees; there is also pending a companion case, Douglass et al v. Allied Textiles Companies PLC, Adv. Proc. No. 00-1049, that deals with non-union personnel. Douglass is currently stayed pending a resolution of the instant matters.
. The union plaintiffs and Carleton entered into collective bargaining agreements in 1995 (the "1995 CBA”) and 1998 (the "1998 CBA”). The term of each was 3 years. The Severance Pay Statute was amended in April, 1999, effective October 1, 1999. Although there is a dispute as to the exact date that operations at Carleton ceased, there is no dispute that it was after the effective date of the 1999 amendment to the Severance Pay Statute, or that the 1998 CBA was in effect.
. The Severance Pay Statute in effect in 1998, when the 1998 CBA was negotiated and entered into, provided that:
Any employer who relocates or terminates a covered establishment shall be liable to his employees for severance pay at the rate of one week’s pay for each year of employment by the employee in that establishment. The severance pay to eligible employees shall be in addition to any final wage payment to the employee and shall be paid within one regular pay period after the employee’s last full day of work, notwithstanding any other provisions of law.
26 M.R.S.A. § 625-B(2) (West 1988). "Employer” is defined in the statute as "any person who directly or indirectly owns and operates a covered establishment. For purposes of this definition, a parent corporation is considered the indirect owner and operator of any covered establishment that is directly owned and operated by its corporate subsidy.” 26 M.R.S.A. § 625-B(l)(C) (West 1988). There is no dispute that Carleton Woolen Mills qualifies as a "covered establishment” under the statute.
The Severance Pay Statute contains a safe harbor for employers: Under the pre-1999 version of the statute employers will not be liable if "[t]he employee is covered by an express contract providing for severance pay; ... or [the] employee has been employed by the employer for less than 3 years.” 26 M.R.S.A. § 625-B(3)(B) and (D) (West 1988). Under the Severance Pay Statute in effect after the 1999 amendment, however, the safe haven applied only if "[t]he employee is covered by an express contract providing for severance pay that is equal to or greater than the severance pay required by this section. ...” 26 M.R.S.A. § 625-B(3)(B) (West Supp. 2002) (language added by amendment emphasized).
. The 1995 CBA contained a severance benefit for union workers of $150 for each year worked. The 1998 CBA contained a similar benefit of $275 for each year of service for each union worker with more than one year of seniority.
. In other words, with a significantly more limited safe harbor provision that now requires a minimum level of benefits. See 26 M.R.S.A. § 625-B(3)(B) (West Supp.2002).
. The parties contend that the Carleton plant finally terminated operations sometime between December 29, 1999, and May 15, 2000. In my ruling of October 16, 2001, I determined that material factual issues exist as to the exact date.
. The Maine Constitution provides that the "Legislature shall pass no ... law impairing the obligation of contracts....” Me. Const, art. I, § 11. The Maine Supreme Judicial Court has held that the Contract Clause of the Maine Constitution "tracks the language of the cognate federal provision,” and therefore the state courts are to "give consideration to relevant decisions of the federal courts in determining” its meaning. Clark v. Rust Eng’g Co., 595 A.2d 416, 419 (Me.1991). I will focus my analysis on the United States Constitution and the federal court decisions interpreting it as the state provision is pari materia. Id.
. Defendant makes no claim that it somehow gains standing as an intended beneficiary of the contract between plaintiffs and the Carleton. Indeed, it specifically disavows any contractual rights or obligations under either the 1995 or the 1998 collective bargaining agreements. See Motorsport Eng'g, Inc. v. Maserati SPA, 316 F.3d 26, 2002 WL 31857366, at *3 (1st Cir. Dec.20, 2002) (recognizing that third-party beneficiaries to a contract are not liable for the performance of the signatories to the contract, nor do they have any contractual obligation to either). Thus, I need not consider whether third-party beneficiary interests could uphold a Contract Clause challenge.
. Illustrative of this point: In the absence of the Severance Pay Statute (and barring corporate veil-piercing), Allied would have no severance liability to the plaintiffs, whereas Carleton, which signed the contract, most certainly would.
. I understand that this point raises the prospect of a potentially anomalous result under state law. Conceivably, a "statutory employer” situated similarly to Allied, and without a bankrupt subsidiary “direct employer,” might be exposed to statutory liability in circumstances where the subsidiary's severance pay liability would be limited by contract and the pre-1999 safe harbor (assuming the subsidiary could mount a successful Contract Clause challenge to the 1999 amendment’s operation). However, that is a different case than the one before me. I do not agree that Allied’s standing in this case can be substantiated by hypothetical or conjecture.
. In both its "Memorandum of Points and Authorities in Support of Defendant’s Renewed Motion for Summary Judgment” and "Defendant's Reply to: (I) the Attorney General’s Brief in Support of the Maine Severance Pay Statute; and (II) Plaintiffs’ Opposition to Defendant's Motion for Summary Judgment,” (hereafter "Defendant's Reply Brief”)Allied cites In re Garrison, 108 B.R. 760 (Bankr.N.D.Okla.1989), for the proposition that chapter 7 trustees have standing to litigate Contract Clause defenses as the representative of creditors who were parties to the contract at issue. Although Allied failed to cite relevant subsequent authority, Walker v. Mather (In re Walker), 959 F.2d 894, 899-900 (10th Cir.1992) (repudiating Garrison on grounds other than whether the trustee has standing to raise the Contract Clause as a defense to exemption claims under state law), the analysis is in any event unhelpful to it, because it is not a statutory representative of any party. The Severance Pay Statute imposes liability on Allied directly.
. Although Plaintiffs surely are limited to one recovery, the statute imposes separate liability for that recovery on more than one party.
. Today's determination leaves it unnecessary to consider the question whether, if Allied had standing, the Contract Clause would operate in its favor.
. I will leave for discussion by the parties Judge Carter’s observation regarding the potential that the third-shift Plaintiffs’ claims might be revived by today’s ruling. See Memorandum of Decision and Order (Carter, J.) at 15, n. 10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493512/ | MEMORANDUM AND ORDER
GERTNER, District Judge.
I have reviewed the First Circuit’s decision, In re Calore Express Co., 288 F.3d 22 (1st Cir.2002), and the parties’ submissions regarding the appropriate disposition of this ease. I have concluded that because the bankruptcy estate originally at issue in this case no longer exists, bankruptcy jurisdiction no longer exists over this case'— either in the bankruptcy court or before me in the posture of a bankruptcy appeal. Accordingly, if it wishes to proceed in the courts, the government should file a new suit for restitution in any federal district court with subject-matter and personal jurisdiction over this matter, including this one.1 The present case is hereby DISMISSED for lack of subject-matter jurisdiction.
*169I. THE FIRST CIRCUIT’S DECISION
In reviewing the First Circuit’s decision in this case, the recurring and resounding theme is the insufficiency of the record to support the bankruptcy court’s decision and this Court’s affirmance of that decision. E.g., 288 F.3d at 28 (“We reverse the entry of judgment against the government, because the bankruptcy court could not draw the legal conclusions it did without developing facts to support them .... Our decision today does not guarantee the government success on its restitution claim if and when a court better develops the facts involved in this case.”); id. at 49 (“[T]he underlying theme remains that it is not clear on the present record that the government’s inaction was unreasonable or inappropriate.”); id. at 49 (“On the present record, the bankruptcy court’s decision can stand on none of the grounds it gave .... ”). In other words, the First Circuit found that the bankruptcy court’s ruling was insufficiently supported by the record, and thus unwarranted at this stage — not that it was necessarily or ultimately incorrect.
Accordingly, it seems clear to me that, before judgment can enter one way or the other, the record on the waiver issue warrants further development before a court. The question then remains: which court?
II. BANKRUPTCY JURISDICTION
As the Supreme Court and numerous circuits have made it abundantly clear, 28 U.S.C. § 1334(b) provides comprehensive jurisdiction to the bankruptcy courts “so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.” Celotex Corp. v. Edwards, 514 U.S. 300, 308, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)); see also H.R.Rep. No. 95-595, at 43-48 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6004-6010. Accordingly, when considering the issue of “related to” jurisdiction over a matter under 28 U.S.C. § 1334(b), as the Supreme Court has explained:
‘The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.... An action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.’ ...
But whatever test is used, ... bankruptcy courts have no jurisdiction over proceedings that have no effect on the debt- or.
Celotex, 514 U.S. at 308 n. 6, 115 S.Ct. 1493 (quoting Pacor, 743 F.2d at 994, and noting that all circuits except the Second and the Seventh have followed Pacor).
Viewed in this light, I cannot agree with Fleet that the bankruptcy court now has “related to” jurisdiction in this matter. Both the case law and the legislative history make it clear that the lodestar of bankruptcy jurisdiction is the effect of a given action on a bankruptcy estate; thus, where there is no estate, the only logical conclusion is that there is no bankruptcy jurisdiction. Put another way, there are two dimensions on which to assess “related to” jurisdiction: substantive and temporal. A matter may be unrelated to a bankruptcy estate because it substantively has no impact on that estate, or it may be unrelated because the estate does not exist anymore. Either way, if a given dispute is unrelated to a bankruptcy estate, a bankruptcy court (or a district court sitting in the capacity of hearing a bankruptcy ap*170peal) has no subject-matter jurisdiction over that dispute.
Accordingly, because the bankruptcy estate of Calore Express has been entirely disposed of, I hold that there is no longer bankruptcy jurisdiction over this matter. If the government wishes to proceed with a restitution suit, it will be required to do so in a court of general jurisdiction. At that time, the court may resolve the issue of how best to address the government’s concerns about prejudice drawing from the bankruptcy court’s decision, including issues of the burdens of proof and interest rates on the debtor’s tax liabilities.2
III. CONCLUSION
This case is hereby DISMISSED for lack of subject-matter jurisdiction. The government is welcome to file suit for restitution in any court with appropriate jurisdiction.
SO ORDERED.
ORDER OF DISMISSAL
For the reasons set forth in the accompanying Memorandum and Order of the same date, this case is hereby DISMISSED for lack of subject-matter jurisdiction.
SO ORDERED.
. If the government so desires, it is welcome to list the new case as a "related case” to the bankruptcy appeal and have it assigned to me.
. While the judge to whom the case is drawn will have to make his or her own decision, the government's concerns, articulated in note 13 of its brief, about the propriety of suit in this district are not wholly convincing. Even if Judge Rosenthal of the bankruptcy court is a witness in this case, it is not at all clear that this will create a conflict of interest or any other problem with every single judge on the district court serving as the trier of fact. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493513/ | MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
The outcome of this adversary action hinges to a large extent on who owns certain assets, some of which debtor Douglas Fryer transferred to third parties within one year of the filing of debtors’ bankruptcy petition and others of which were under his control as of the filing.
Plaintiff Seedling Landscaping & Design Inc. (hereinafter “Seedling”) asserts that the assets in question were owned either by it or by debtors. If the assets were owned by it, Seedling seeks an order directing debtors to return to it the assets still under their control. If any of the assets were owned by debtors, Seedling contends that debtors transferred and/or concealed the assets with intent to defraud their creditors and, as a consequence, they either should be denied a discharge or their case should be dismissed with prejudice.
For reasons set forth in this memorandum opinion, we will enter a judgment in favor of debtors and against Seedling.
-FACTS-
The facts of this case are sketchy at best.
Debtor Douglas Fryer began working for Seedling prior to December of 1999, when Seedling was under the control of Robert Keenan, the deceased brother of Charles Keenan.
Charles Keenan took over control of Seedling from his brother in December of 1999 and acquired all of its shares of stock in April of 2000. He turned Seedling’s day-to-day operations over to debtor Douglas Fryer after the acquisition was consummated.
Debtor Douglas Fryer left Seedling in September or October of 2000 and went to work for Marion Hill Construction. He took certain vehicles and equipment with him when he left. After a few months he left the employ of Marion Hill Construction. What he did after that is not indicated in the record.
*197Within one year of debtors’ bankruptcy filing, debtor Douglas Fryer transferred to Marion Hill Construction several of the vehicles he took with him when he left Seedling. The vehicles in question were a 1981 International dump truck, a 1978 GMC pickup truck, and a 1999 Winston trailer. Debtor Douglas Fryer also transferred to other third parties certain other vehicles he took with him when he left Seedling. For instance, he sold a 1987 Ford Ranger to an individual and traded in a 1977 Stakeboy for a trailer and a 1980 Dresser high-lift for a Volvo tractor.
Debtor Douglas Fryer also retained possession and control of certain other items when he left Seedling — e.g., a computer, a pressure washer, a generator, and a welder. These items were still under his control on July 10, 2001.
Debtors filed a voluntary joint chapter 7 petition on July 10, 2001. The schedules accompanying the petition disclosed assets with a total declared value of $16,375.00 and liabilities totaling $44,365.79. None of the above-identified assets debtor Douglas Fryer took with him when he left Seedling were listed on the schedules as estate assets. Moreover, none of the above transfers were identified in debtors’ statement of financial affairs.
Seedling commenced this adversary action by filing a complaint on November 20, 2001. The matter was tried, at which time both sides were given an opportunity to offer evidence on the issues in the case.
- DISCUSSION-
The legal theory under which Seedling has proceeded in this case as well as the relief it seeks are not obvious.
In its woefully abbreviated complaint, Seedling lists in paragraph 4 various assets which debtors did not disclose on their bankruptcy schedules. It asserts that debtors committed bankruptcy fraud by failing to disclose these assets on their schedules and/or any transfers thereof. Seedling asks in its prayer for relief that debtors be ordered to return any property under their control which belongs to it and that their bankruptcy case be dismissed with prejudice.
Seedling asserts in its pretrial stipulation that debtors committed bankruptcy fraud by failing to disclose as assets on their bankruptcy schedules the various items listed in paragraph 4 of its complaint and/or by failing in their statement of financial affairs to disclose any transfers thereof. Seedling identifies three issues which it claims must be decided: (1) whether debtors committed bankruptcy fraud by failing to disclose these items as assets or by failing to disclose any transfers thereof; (2) whether debtors are in possession of Seedling’s property; and (3) whether debtors’ case should be dismissed for fraudulent acts and/or conveyances.
As was indicated in the prefatory remarks of this memorandum opinion, we understand Seedling as requesting an order directing debtors to return to Seedling any of its assets which are under their control. If any of the items listed in paragraph 4 of the complaint are debtors’ assets, Seedling requests that debtors’ bankruptcy case be dismissed with prejudice or that they be denied a discharge for transferring certain of those assets to third parties within a year of the bankruptcy filing and for failing to disclose those transfers as well as those assets which they retained.
Whose Assets Were They?
Seedling first asserts that the items listed in paragraph 4 of its complaint are its property and requests an order directing debtors to return them to Seedling.
*198Seedling, which unquestionably had the burden of proving whose assets they were, has not established to our satisfaction whose assets any of the items listed in paragraph 4 of its complaint were. We found the testimony of Charles Keenan, who testified that they belonged to Seedling, not helpful in this regard.
Time and again at trial, Charles Keenan conceded on cross-examination that he did not know whether Seedling had purchased any of the items in question. He could testify from personal knowledge only that the items were on site when he took over control of Seedling in December of 1999, and that certain of the vehicles on the list were covered by Seedling’s insurance policy. Without something more, such testimony in our estimation does not suffice to establish that any of the items in question belonged to Seedling when debtor Douglas Fryer left Seedling and took them with him to Marion Hill Construction.
It is not possible to determine what transpired prior to Charles Keenan’s assumption of Seedling’s reins in December of 1999. When Charles Keenan took over control from his now deceased brother, Seedling’s affairs were in considerable disarray. Seedling’s books and records, which it failed to establish had been taken by debtor Douglas Fryer, were never found. So deficient was Charles Keenan’s testimony, we are not able to say one way or the other whether specific items listed in paragraph four of the complaint were Seedling’s assets or debtors’ assets. In light of this, we must deny Seedling’s request for an order directing debtors to turn over to it any of the items listed in paragraph 4 of the complaint which are under their control.
Should Debtors Be Denied A Discharge?
With certain enumerated exceptions, § 727(a) of The Bankruptcy Code provides that a debtor shall receive a discharge. It provides in part as follows:
(a) The court shall grant the debtor a discharge, unless — ....
(2) the debtor, with intent to hinder, delay, or defraud a creditor, ... has transferred ... [or] concealed ...— (A) property of the debtor, within one year before the date of the filing of the petition ....
11 U.S.C. § 727(a)(2)(A).
Although Seedling has not expressly so asserted, the language it employs in characterizing debtors’ conduct closely tracks the language of § 727(a)(2)(A). Proceeding out of an abundance of caution, we will consider whether, based on the evidence adduced at trial, debtors should be denied a discharge in accordance with § 727(a)(2)(A).
Section 727(a) should be construed liberally in favor of a debtor in bankruptcy and against a party objecting to the debtor’s discharge. Applying one of the exceptions to discharge is an extreme measure and must not be undertaken lightly. Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir.1993).
A party objecting to a debtor’s discharge bears the initial burden of proving that the case falls within one of the exceptions found at § 727(a). They must prove facts essential to that particular exception. Meridian Bank v. Alten, 958 F.2d 1226, 1232 (3d Cir.1992).
The exception to discharge found at § 727(a)(2)(A) is comprised of two basic components: an act (e.g., a transfer or concealment); and an improper motive (i.e., a subjective intent to hinder, defraud, or delay a creditor). Rosen, 996 F.2d at 1531. The objecting party must establish the presence of both of these components during the one-year period preceding *199bankruptcy; anything occurring outside of the one-year period “is forgiven”. Id.
To prevail under § 727(a)(2)(A), Seedling must prove that: (1) the debtor; (2) transferred or concealed; (3) debtor’s property; (4) with intent to hinder, delay, or defraud a creditor; (5) within one year prior to the bankruptcy filing. In re Kontrick, 295 F.3d 724, 736 (7th Cir.2002).
The required intent must be actual; constructive fraud will not suffice. Groman v. Watman (In re Watman), 301 F.3d 3, 8 (1st Cir.2002). Because it is difficult to prove by direct means, actual intent may be inferred from circumstantial evidence. Keeney v. Smith (In re Keeney), 227 F.3d 679, 684 (6th Cir.2000).
A debtor may be denied a discharge in accordance with § 727(a)(2)(A) even though no creditor was harmed by the transfer or concealment. Proof of harm, in other words, is not required. Id.
We noted previously that, based on the evidence presented at trial, we are not able to determine which of the items listed in paragraph 4 of the complaint belonged to Seedling and which belonged to debtor Douglas Fryer. As a consequence, Seedling has not established that the third of the above requirements of § 727(a)(2)(A) — i.e., that debtors transferred or concealed their own property — is satisfied.
The matter does not end there. Even if the items in question qualified as debtors’ property, the evidence presented at trial does not establish that debtors transferred them with actual intent to hinder, delay, or defraud any of their creditors. The fourth of the above requirements, in other words, also is not satisfied.
During the trial all parties seemed to agree that debtors were lured to a meeting by plaintiff wherein this third party recipient of the items in question was included. The parties appeared to go to great lengths to keep the contents of the meeting out of the record; however, thereafter the transfers in question occurred. The parties appear to purposefully leave the record and this writer in the dark about the purpose and substance of this meeting which we guess holds the key to these transfers.
Without this information, the totality of the circumstances lead us nowhere in determining debtors’ intent. With this background we are unable to conclude that debtors made the above transfers and failed to disclose the transactions with their creditors in mind in any way. We speculate that debtor Douglas Fryer believed, rightly or wrongly, that the items belonged to him and transferred them because he believed that it made good business sense to do so. We could also speculate that he acted as he did because he wanted to hinder, delay or defraud his creditors. Perhaps debtors did not disclose the transfers or the other items listed in paragraph 4 of the complaint, not because they wanted to hinder, delay, or defraud their creditors, but because debtor Douglas Fryer was bullheaded and inattentive to detail. It is possible that debtors’ bankruptcy counsel was not as attentive to details as he should have been. All this speculation is not a basis for a denial of a discharge.
We conclude in light of the foregoing that Seedling has not established that debtors should be denied a discharge in accordance with the exception found at § 727(a)(2)(A).
Should Debtors’ Bankruptcy Case Be Dismissed?
Seedling also asserts that cause exists to dismiss debtors’ chapter 7 case with prejudice because debtors committed bankruptcy fraud by failing to disclose the transfers *200of the above items and by failing to disclose the existence of certain other assets on their bankruptcy schedules.
After notice and a hearing, a chapter 7 case may be dismissed “only for cause”. 11 U.S.C. § 707(a).
Although the provision does not expressly so provide, “cause” for purposes of § 707(a) includes a lack of good faith. A chapter 7 case may be dismissed “for cause” if the debtor fails to demonstrate good faith in the filing of the bankruptcy petition. Tamecki v. Frank (In re Tamecki), 229 F.3d 205, 207 (3d Cir.2000).
The term “good faith”, which is not defined in the Bankruptcy Code, at a minimum requires honest intention. Good faith, or the lack thereof, can be determined only on an ad hoc basis and depends on whether the debtor has in some way abused the provisions, purpose, or spirit of bankruptcy law. Id. The decision to dismiss a chapter 7 case due to the lack of good faith lies within the sound discretion of the bankruptcy court. Id.
Dismissal due to the lack of good faith “should be confined carefully” and should be utilized only in egregious situations, including cases involving concealed or misrepresented assets and/or sources of income. Industrial Insurance Services, Inc. v. Zick (In re Zick), 931 F.2d 1124, 1129 (6th Cir.1991).
Once a party has called a debt- or’s good faith into question, the burden shifts to the debtor to prove that the bankruptcy petition was filed in good faith. In re Tamecki, 229 F.3d at 207. This is not to say that a debtor must affirmatively demonstrate good faith in the absence of any challenge or that dismissal is warranted anytime a debtor fails to affirmatively demonstrate good faith. It is to say only that the burden shifts to the debtor to prove good faith only after the trustee or a creditor has called debtor’s good faith into question and has “put on evidence sufficient to impugn that good faith”. In re Tamecki, 229 F.3d at 207, n. 2.
We reject Seedling’s contention that debtors filed their chapter 7 petition in bad faith and therefore should be dismissed for cause pursuant to § 707(a). In our estimation, Seedling has not come forward with evidence which arguably impugns debtors’ good faith in filing a bankruptcy petition.
The crux of Seedling’s argument in support of dismissal is the proposition that debtors acted fraudulently in failing to disclose the above transfers of their assets and in failing to disclose the existence of certain other assets of theirs on their bankruptcy schedules. Its argument falters for various reasons.
We determined previously that Seedling failed to establish who owned the assets listed in paragraph 4 of its complaint. As a result, we had no basis for determining that Seedling owned a specific item on the list or that debtors owned them. Without such a determination, we have no basis for concluding that debtors arguably acted fraudulently when they did not disclose the transfers of certain of the items on the list and did not disclose the existence of certain others on their bankruptcy schedules.
Furthermore, even if Seedling had established that debtors owned the assets in question, it still did not come forward with evidence sufficient to impugn debtors’ good faith in filing their bankruptcy petition. We previously rejected the contention that debtors acted with actual intent to defraud their creditors when they did not disclose the above transfers or the existence of other assets on their schedules. Based upon the record offered, we are unable to conclude what debtors had in *201mind when they failed to do these things. Without proof of actual intent to defraud their creditors, we are hard pressed to see how debtors arguably acted fraudulently in this instance.
We conclude in light of the foregoing that Seedling has not presented sufficient evidence to impugn debtors’ good faith in filing their chapter 7 petition. Debtors consequently need not demonstrate that they acted in good faith. Seedling, in short, has not shown that debtors’ intention was somehow improper when they filed their petition and that allowing their case to move forward would violate the provisions, spirit, or purposes of the Bankruptcy Code.
An appropriate order shall issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493514/ | *512
MEMORANDUM ON MOTION FOR DETERMINATION OF DISCHARGEA-BLE DEBT AND RELIEF FROM THE AUTOMATIC STAY
RICHARD S. STAIR, Jr., Bankruptcy Judge.
This matter is before the court on a Motion for Determination of Dischargeable Debt and Relief from the Automatic Stay (Motion) filed by Manuel Canari, Betsy Canari, William W. Owens, Douglas W. Owens, Marlene J. Owens, and John T. Owens (collectively, the Movants) on November 12, 2002. By this Motion, the Movants request relief from the automatic stay to proceed against the Debtor in a pending state court action and a determination that any resulting judgment is nondisehargeable.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(A), (G), (I), and (0) (West 1993).
I
The Debtor filed a Voluntary Petition under Chapter 7 on August 1, 2002. The meeting of creditors pursuant to 11 U.S.C.A. § 341(a) (West 1993) was scheduled for September 10, 2002, and the deadline to file a complaint objecting to discharge of the debtor or to determine the dischargeability of certain debts was fixed at November 12, 2002. See Rules 4004(a) and 4004(c) of the Federal Rules of Bankruptcy Procedure.1
The Movants allege in their Motion that they were not notified of the Debtor’s bankruptcy filing and that they filed suit against him and others in the Chancery Court for Knox County, Tennessee, on August 15, 2002 (the State Lawsuit). The Movants did not attach a copy of the State Lawsuit to their Motion, but instead, merely referenced that a copy of the Complaint was appended to their Proof of Claim, also filed on November 12, 2002.2 Regarding the relief sought in the bankruptcy court, the Motion states as follows:
6. Based on the averments contained in the Complaint [filed in the State Lawsuit] and 11 U.S.C.A. § 523(a)(2) and (4), Debtor has incurred liability that should not be avoided by the filing of bankruptcy after the debt was incurred and the fraudulent acts committed and misrepresentations made.
7. Petitioners should also be granted relief from the stay to proceed with the determination as to the amount of liability of Debtor so that any judgment, nondischargeable or not, may be included in any plan of liquidation of assets forthcoming.
WHEREFORE, Petitioners pray that this Court will order the debt nondischargeable and require Debtor to defend the pending action in Knox County Chancery Court, or alternatively grant them relief from the automatic stay to proceed with the litigation that has been pending against Debtor in Knox County *513Chancery Court[,] to determine the amount of debt to be included in any liquidation of assets.
The court, sua sponte, entered an Order on November 15, 2002, directing, inter alia, that the Movants appear on December 5, 2002, to show cause why the Motion, to the extent a determination of the dischargeability of a debt was requested, should not be denied because the action was not commenced in accordance with the Federal Rules of Bankruptcy Procedure. Additionally, the Debtor filed a Response to Motion for Determination of Discharge-able Debt and Relief from Automatic Stay on November 22, 2002, raising the same procedural issue regarding the discharge-ability request set forth in the Motion.
A hearing was held on December 5, 2002, at which time the Movants’ attorney acknowledged that she did not comply with the procedures set forth in the Federal Rules of Bankruptcy Procedure for seeking of a determination of the dischargeability of a debt. Additionally, she agreed that the dischargeability aspect of the Motion should be denied. The court nonetheless deems it appropriate to address the procedural problem presented by the Motion.
II
Dischargeability of debts is governed by 11 U.S.C.A. § 523 (West 1993 & Supp. 2002), which provides in material part:
(a) A discharge under section 727,3 ... of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(in) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or
(C) for purposes of subparagraph (A) of this paragraph, consumer debts owed to a single creditor ...
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
(c)(1) Except as provided ..., the debt- or shall be discharged from a debt of a kind specified in paragraph (2), (4), ... of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), ..., as the case may be, of subsection (a) of this section.
11 U.S.C.A. § 523.
Actions to determine the dischargeability of a debt are also governed by Federal Rule of Bankruptcy Procedure 4007, which provides as follows:
(a) Persons entitled to file complaint. A debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt.
*514(b) Time for commencing proceeding other than under § 523(c) of the Code. A complaint other than under § 523(c) may be filed at any time....
(c) Time for filing complaint under § 523(c) in a chapter 7 liquidation, ...; notice of time fixed. A complaint to determine the dischargeability of a debt under § 523(c) .... 4
(e) Applicability of rules in Part VII. A proceeding commenced by a complaint filed under this rule is governed by Part VII of these rules.
Fed. R. Bankr. P. 4007.
Part VII of the Federal Rules of Bankruptcy Procedure is entitled “ADVERSARY PROCEEDINGS.” Pursuant to Rule 7001(6), “[a]n adversary proceeding is governed by the rules of this Part VII. The following are adversary proceedings: ... (6) a proceeding to determine the dischargeability of a debt; .... ” Fed. R. Bankr. P. 7001(6). Additionally, Rule 7003 is entitled “Commencement of Adversary Proceeding” and states that “Rule 3 [of the Federal Rules of Civil Procedure] applies in adversary proceedings.” Fed. R. Bankr. P. 7003. Rule 3 of the Federal Rules of Civil Procedure provides that “[a] civil action is commenced by filing a complaint with the court.” Fed. R. Civ. P. 3.
III
Correspondingly, pursuant to Rules 4007, 7001, and 7003, the only procedure for requesting a determination of whether or not a specific debt is dischargeable is by filing an adversary proceeding. Fed. R. Bankr. P. 4007; Fed. R. Bankr. P. 7001; Fed. R. Bankr. P. 7003; see also Fed. R. Bankr. P. 4007 advisory committee note (“The complaint required by this subdivision should be filed in the court in which the case is pending .... ”); 4 Collier on Bankruptcy ¶ 523.04 (Lawrence P. King ed., 15th ed. rev. 2002) (“[A]n action [to determine dischargeability of a debt] is an adversary proceeding that must be initiated by the filing of a complaint.”). In addition, the action must be served in accordance with Rule 7004 of the Federal Rules of Bankruptcy Procedure, which also incorporates portions of Federal Rule of Civil Procedure 4. See Fed. R. Bankr. P. 7004.5 Accordingly, creditors may not seek a determination of a debt’s discharge-ability by filing a motion. See e.g., In re Purina Mills, Inc., No. 99-3938-SLR, 2002 Bankr.LEXIS 55, at *3, 2002 WL 125677, at *1 (Bankr.D.Del. Jan.28, 2002); In re A.H. Robins Co., Inc., 251 B.R. 312, 319 n. 4 (Bankr.ED.Va.2000); Ung v. Boni (In re Boni), 240 B.R. 381, 385 (9th Cir. BAP 1999); In re Garfield, No. 83C-03017, 1984 Bankr.LEXIS 4475, at *4-*5 (Bankr.D.Utah Dec. 8,1984).6
*515Moreover, even if the court could consider the Movants’ Motion procedurally, it lacks the requirements necessary to sustain a complaint to determine dischargeability under § 523. First, the Motion does not contain “a statement that the proceeding is core or non-core ...” as required by Federal Rule of Bankruptcy Procedure 7008(a). Second, even though the Motion references a reliance upon 11 U.S.C.A. § 523(a)(2) and (4) for the relief sought, the Movants do not specify which subsections allegedly apply, nor do they include facts to support this reliance.7 The Movants refer to the Complaint filed in the State Lawsuit; however, they do not attach a copy of this Complaint to the Motion itself. Instead, they merely reference that it has been attached to their Proof of Claim, which is not a pleading. See Fed. R. Bankr. P. 3001(a), (b) (“A proof of claim is a written statement setting forth a creditor’s claim ... [that] shall be executed by the creditor or the creditor’s authorized agent .... ”); Fed. R. Bankr. P. 7007 (incorporating Fed. R. Civ. P. 7, which identifies the complaint, answer, reply to a counterclaim, answer to a cross-claim, third-party complaint, and answer to a third-party complaint as the only pleadings allowed in an adversary proceeding).
Finally, the Motion recites generally that Movants “alleged fraud and misrepresentation by Debtor” in the State Lawsuit. Federal Rule of Civil Procedure 9, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7009, requires that “[i]n all averments of fraud or mistake the circumstances constituting fraud or mistake shall be stated with particularity.” The Motion contains no averments to support the Movants’ general allegation of “fraud and misrepresentation.”
In summary, the Motion is not only procedurally deficient, it is also substantively deficient in that it contains few, if any, of the elements that would allow the court to direct that it be treated as a complaint, notwithstanding that it was filed in the Debtor’s case as a motion.
IV
The Movants also request relief from the automatic stay to prosecute the State Lawsuit to judgment against the Debtor. In what is thus far a no-asset case,8 the court does not find that “cause” exists to modify the stay to allow the State Lawsuit to go forward against the Debtor. 11 U.S.C.A. § 362(d)(1) (West 1993). The Movants have filed their Proof of Claim. If assets become available, and the Trustee should object to that claim, its allowability can be determined by the court in accordance with the claims resolution process. To force the Debtor to now go into state court to defend an action that may result in a judgment in the Movants’ favor that is collectible only on a pro rata basis from assets that may or may not be recovered by the Trustee seems to the court to be contrary to the fresh start provisions of the Bankruptcy Code.
*516More importantly, the state court action filed by the Movants was commenced in violation of the automatic stay, as it was filed on August 15, 2002, fourteen days after the Debtor filed the Voluntary Petition commencing his Chapter 7 case. Section 362(a)(1) of the Bankruptcy Code provides that the filing of a bankruptcy petition “operates as a stay ... of the commencement or continuation ... of a judicial ... action or proceeding against the debtor that was or could have been commenced” before the Debtor filed for bankruptcy. 11 U.S.C.A. § 362(a)(1) (West 1993) (emphasis added).
The Sixth Circuit has held that such “actions taken in violation of the [automatic] stay are invalid and voidable and shall be voided absent limited equitable circumstances.” Easley v. Pettibone Mich. Corp., 990 F.2d 905, 911 (6th Cir.1993). As to what constitutes “equitable circumstances,” the court stated:
We suggest that only where the debtor unreasonably withholds notice of the stay and the creditor would be prejudiced if the debtor is able to raise the stay as a defense, or where the debtor is attempting to use the stay unfairly as a shield to avoid an unfavorable result, will the protections of section 362(a) be unavailable to the debtor.
Id.
In their Motion, the Movants aver that they were not listed by the Debtor in the schedules accompanying his bankruptcy petition and they, therefore, had no notice of the bankruptcy case. However, this is not one of those “limited equitable circumstances” where the Debtor should not be allowed to avail himself of the automatic stay because of prejudice to the Movants. The Movants had actual notice of the commencement of the Debtor’s bankruptcy case, as is established by their filing of a Proof of Claim and the Motion prior to the expiration of the date for filing a complaint to determine dischargeability of a debt.9 That they did not do so is no fault of the Debtor’s.
For the above reasons, an order denying the Motion will be entered.
. Rule 4004(a) provides that "a complaint objecting to the debtor’s discharge under § 727(a) of the Code shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).” Rule 4007(c) provides that "[a] complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).”
. In the State Lawsuit, the Movants allege that the Debtor, along with other defendants, fraudulently misrepresented a business plan for Chef Jock’s Entertainment Properties, Inc., a Tennessee corporation for which the Debtor is a member of the Board of Directors and registered agent, and that based upon these misrepresentations, the Movants purchased stock in the corporation. They seek rescission of their stock acquisitions and a refund of the $60,000.00 paid for the stock.
. See supra tí. 1.
. Rule 7004(b) provides for service by first class mail and directs at subparagraph (9) that service on the debtor must be accomplished "by mailing a copy of the summons and complaint to the debtor at the address shown in the petition or statement of affairs ... and, if the debtor is represented by an attorney, to the attorney at the attorney’s post-office address.” Fed. R. Bankr P. 7004(b)(9). Pursuant to Federal Rule of Bankruptcy Procedure 9014, the service requirements of Rule 7004(b) are applicable to contested matters, such as a motion for relief from the automatic stay. See Fed. R. Bankr. P. 4001(a). Here, service of the Motion was defective because the Certificate of Service appended to the Motion evidences that Movants' counsel only served the Debtor’s attorney and not the Debtor. This defect was waived by the Debtor by the filing of his Response.
.Parties seeking a determination of dischargeability of a debt are also required to pay a $150.00 filing fee. See 28 U.S.C.A. § 1914(a), (b) (West 1994 & Supp.2002); 11 U.S.C.A. § 1930(b) (West 1994). Additionally, an adversaty cover sheet and summons *515must accompany the complaint. See E.D. Tenn. LBR 7003-1 and 7004-2.
. For example, for nondischargeability under § 523(a)(2)(A), a creditor must prove different elements than for nondischargeability under § 523(a)(2)(B). The Motion does not contain any information which would allow the court to even determine under which section the Movants are proceeding.
. The Trustee stated at the December 5, 2002 hearing on the Motion that he anticipates the receipt of an undetermined amount of funds from the liquidation of a $17,000.00 promissory note and from a personal injury products liability case.
. The Motion was filed on the last day for filing such complaints, November 12, 2002. No extension of this date was requested as is permitted under Federal Rule of Bankruptcy Procedure 4007(c) ("On motion of a party in interest ... the court may for cause shown extend the time fixed under this subdivision. The motion shall be filed before the time has expired.”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493515/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
These proceedings are before the Court on the Objections filed by Mariann Pogge, Trustee (“Trustee”) to Claims #1, #2, and #3 filed by Jessica Staake, Clinton Staake, and Jason Staake (“the Staake children”), respectively, in the above-captioned bankruptcy case. Also before the Court is the Staake children’s Motion for Summary Judgment and the Trustee’s Responses thereto, all filed in the above-captioned adversary proceeding. The issue is whether the post-transfer recording of a memorandum of judgment in favor of the Staake children attaches to property recovered by Trustee pursuant to 11 U.S.C. §§ 547 and 548.
The Staake children are the adult children of Debtor’s former wife, Brenda Abner, n/k/a Brenda Petefish (“Ms. Petefish”). During Debtor’s marriage to Ms. Petefish, Debtor became trustee of a trust established for the benefit of the Staake children and funded with life insurance proceeds paid to them when their natural father was killed by Ms. Petefish. Debtor subsequently used the proceeds of the trust to purchase a lot and to buy the materials to build the home at 619 Covered Bridge Road, Glenarm, Illinois (“the subject real estate”). When Debtor and Ms. Petefish divorced, Debtor first claimed that the subject real estate was a marital asset. The Staake children intervened in the divorce action and alleged that the subject real estate was subject to a constructive trust in their favor. Ms. Petefish agreed, and Debtor ultimately agreed to the entry of a judgment in favor of the Staake children. Debtor agreed to pay the judgment within 30 days of the entry of the final judgment of dissolution.
On October 25, 1999, the 29th day after entry of the final judgment of dissolution, Debtor conveyed the real estate by quitclaim deed to his father, William E. Abner (“Mr. Abner, Sr.”). On November 14, 1999, the Staake children filed a memorandum of judgment against the subject real estate based upon the judgment obtained in the dissolution proceeding.
*540On March 29, 2000, Debtor filed his voluntary Chapter 7 bankruptcy petition. Trustee then sought avoidance of the transfer of the subject real estate to Mr. Abner, Sr., and the Court subsequently set aside the transfer of the subject real estate to Mr. Abner, Sr. The issue presently before the Court is the relative priority of the claims of the Trustee and the Staake children to the proceeds of the subject real estate. The Staake children argue, inter alia, that a transfer which is fraudulent is void as to the defrauded creditor. “Where a debtor transfers property to defraud creditors, the transfer passes nothing as to the creditor and the creditor has the right to treat the conveyance as void; the moment a creditor levies his or her attachment it is an election to consider the transfer void and the attachment becomes a lien against the land itself with the same effect as if the transfer has never occurred.” Staake Memorandum at pp. 6-7, citing Pease v. Frank, 263 Ill. 500, 105 N.E. 299 (1914).
Unfortunately for the Staake children, this is not a case where the defrauded creditors were able to set aside a fraudulent conveyance under state law. Rather, the intervening bankruptcy prohibited any such action, allowing the Trustee to set aside the transfer under 11 U.S.C. §§ 547 and 548. Another section of the Bankruptcy Code, specifically 11 U.S.C. § 551, provides that any transfer avoided under 11 U.S.C. §§ 547 or 548 is preserved for the benefit of the estate.
As stated in In re Previs, 31 B.R. 208 (Bankr.W.D.Wash.1983):
Although there is an element of unfairness in the result that the Trustee may have the benefit of a fraudulent transfer so as to take priority over judgment lien creditors, as is noted in a leading commentary: “It is doubtful that the court can use its general equitable powers under section 105(a) and 28 U.S.C. sections 1481 & 1651 to defeat the express language of section 551.” 4 Collier on Bankruptcy p. 551.02, 551-4 (15th ed.1982).
Previs, supra, 31 B.R. at 211.
Under Section 551, property subject to the avoided transfer is preserved for the benefit of the bankruptcy estate. The Staake children’s memorandum of judgment was not recorded until November 14, 1999, at which time Debtor no longer held title to the real estate. “If property subject to a lien is transferred prepetition to a third party and later, after the bankruptcy filing, the trustee avoids the transfer of that property as a preference, the prepetition lien does not reattach to the recovered property.” 5 Lawrence P. King, Collier on Bankruptcy ¶ 551.02, 551-4 (15th Ed. Revised 2000), citing In re Integrated Testing Prods. Corp., 69 B.R. 901, 904-05 (D.N.J.1987). For this reason, the Staake children’s judgment lien does not attach to the subject property.
The Staake children invoke principles of equity to support their position. While the Court sympathizes with their situation, the Court finds that its own equitable powers are not sufficient to alter the outcome in this case, which is clearly dictated by federal and state statute and binding precedent.
As an aside, it appears at this time, after having adjudicated the validity of the claim of Mr. Abner, Sr., that the Court’s decision on this particular issue is relatively unimportant as it appears that the assets of the estate will be sufficient or nearly sufficient to pay all claims in full.
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.
*541ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the Motion for Summary Judgment filed by Jason Staake, Clinton Staake, and Jessica Staake be and is hereby denied.
IT IS FURTHER ORDERED that Claims # 1, # 2, and # 3 be and are hereby allowed, but only as unsecured claims. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493516/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
This proceeding is before the Court on the Plaintiffs Motion for Reconsideration. The Defendant has filed a Response to the Motion for Reconsideration and the Plaintiff has filed a Counter-Response.
“Motions for reconsideration” are not formally designated by either the Federal Rules of Bankruptcy Procedure or the Federal Rules of Civil Procedure, except as provided in Bankruptcy Rule 3008, which allows reconsideration of orders allowing or disallowing claims against the estate. Rule 59(e) of the Federal Rules of Civil Procedure, as adopted by Federal Rule of Bankruptcy Procedure 9023, permits a party to move the court to alter or amend a judgment entered by filing a motion to alter or amend, not one styled as a “motion for reconsideration.”
The U.S. Court of Appeals for the Seventh Circuit has instructed courts in the circuit to treat all substantive post-judgment motions filed within ten days of judgment under Rule 59. Charles v. Daley, 799 F.2d 343 (7th Cir.1986). Because the Plaintiffs “Motion for Reconsideration” was filed on July 9, 2001, or eleven days after the entry of the Order on June 26, 2001, Fed.R.Civ.P. 59 is inapplicable to this case. The Plaintiffs only recourse is a motion under Fed.R.Civ.P. 60(b).
Fed.R.Bankr.P. 9024 makes Federal Rule of Civil Procedure 60 applicable to bankruptcy proceedings. Rule 60(b) provides for relief from a final order for, inter alia, mistake, inadvertence, surprise, excusable neglect, or any other reason justifying relief from the operation of the judgment. A motion for relief from a final order of judgment filed pursuant to Fed. R.Civ.P. 60(b) must be filed within one year after the order was entered.
Rule 60(b) provides in pertinent part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judg*543ment 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....
In order to qualify for relief from a judgment under Rule 60(b), the Defendant herein must demonstrate that the judgment resulted from a mistake, inadvertence, surprise, or excusable neglect and that it has a meritorious defense. Ellingsworth v. Chrysler, 665 F.2d 180 (7th Cir.1981). Rule 60(b) relief is an extraordinary remedy and is granted only in exceptional circumstances. See Nelson v. City Colleges of Chicago, 962 F.2d 754, citing CKS Engineers, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202 (7th Cir.1984); In re John Carey Oil Company, Inc., Case No. 89-71311, Adv. No. 90-7140 (Bankr.C.D.Ill.1992). Those exceptional circumstances are not present in this case.
The only aspect of Rule 60(b) which could possibly apply in this case is the catch-all provision of (6) — “any other reason justifying relief from the operation of the judgment....” This provision applies only in exceptional or extraordinary circumstances which are not covered by other portions of Rule 60. Wilson v. Upjohn Co., 808 F.Supp. 1321 (S.D.Ohio 1992).
The Plaintiffs Motion for Reconsideration essentially reiterates the arguments set forth in her Response to the Defendant’s Motion for Summary Judgment. As the Court noted in its Opinion, the equitable arguments presented by the Plaintiff are not relevant to a § 523(a)(5) proceeding, and the Plaintiff elected not to proceed under § 523(a)(15). At this point in time, the only forum with authority to consider the equities of the situation is the state court upon the filing of a motion to modify divorce decree based upon changed circumstances, i.e. the Defendant’s bankruptcy. The Plaintiff has not set forth sufficient grounds for relief under Rule 60(b).
For the foregoing reasons, the Plaintiffs Motion for Reconsideration is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493517/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
This matter is before the Court on Plaintiffs Motion for Relief from Judgment and for Leave to File Amended Complaint. The Defendant opposes the Motion.
The Court has already written two Opinions in this matter which set forth the factual background of the case. It should suffice at this point to state that the Plaintiff and the Defendant were once married, that their marriage was dissolved, and that the Judgment for Dissolution of Marriage entered in their case required Defendant to pay Plaintiff a sum of money which he has not paid. Defendant has filed a voluntary Chapter 7 petition in bankruptcy, and Plaintiff has filed an adversary complaint under 11 U.S.C. § 523(a)(5) seeking to have the debt determined to be nondischargeable. Subsequent to the filing of the adversary complaint, Defendant filed a Motion for Summary Judgment. On June 26, 2001, the Court entered an Opinion and Order (subsequently corrected on July 5, 2001) granting Defendant’s Motion for Summary Judgment. On July 9, 2001, Plaintiff filed a Motion for Reconsideration. On September 28, 2001, the Court entered an Order and Opinion denying the Motion for Reconsideration. The September 28, 2001, Opinion stated that the Motion for Reconsideration was untimely filed, which precluded relief under Federal Rule of Civil Procedure 59. Accordingly, Plaintiffs only avenue of recourse was under Federal Rule of Civil Procedure 60(b). The September 28, 2001, Opinion went on to enumerate the criteria for granting relief under Fed.R.Civ.P. 60(b) [mistake, inadvertence, surprise, excusable neglect, or any other reason justifying relief from the operation of the judgment]. The Court then held that the only aspect of Rule 60(b) which could possibly apply in this case was the catch-all provision of Fed. R.Civ.P. 60(b)(6) — “any other reason justifying relief from the operation of the judgment....” The Court found that there *545were insufficient grounds for relief under 60(b)(6) and suggested that the only forum with authority, at this stage in the game, to consider the equities of the situation was the state divorce court.
On October 4, 2001, Plaintiff filed her Motion for Relief from Judgment and for Leave to File Amended Complaint. Apparently, Plaintiff has finally seen the light and now seeks to file an amended adversary complaint seeking relief under 11 U.S.C. § 523(a)(15). Again, Plaintiff asserts that the equities in this case favor her position. Accordingly, Plaintiff seeks relief from the Court’s judgment pursuant to Fed.R.Civ.P. 60(b)(6).
Plaintiffs entitlement to relief pursuant to Fed.R.Civ.P. 60(b)(6) was squarely addressed in the Court’s September 28, 2001, Opinion and Order. However, the Court will treat Plaintiffs Motion for Relief from Judgment and for Leave to File Amended Complaint as a motion to alter or amend the September 28, 2001, Order pursuant to Fed.R.Civ.P. 59. See September 28, 2001 Opinion, 288 B.R. 541, 542. This treatment allows the Court to revisit the availability of relief under Fed.R.Civ.P. 60(b)(6), but it does not allow the Court to revisit the availability of relief under Fed. R.Civ.P. 59. The Plaintiff lost that avenue of relief when she failed to timely file her “Motion for Reconsideration” of the Court’s June 26, 2001, Order.
Visiting once again the question of whether Plaintiff has a basis for relief under Fed.R.Civ.P. 60(b)(6) for “any other reason justifying relief from the operation of the judgment...”, the Court finds, for the same reasons as set forth in its September 28, 2001, Opinion, that the exceptional or extraordinary circumstances which are required to merit relief are not present here. Plaintiffs only new argument is that she has identified a new statutory basis on which to proceed with her adversary complaint. That argument is insufficient to merit Rule 60(b)(6) relief. Plaintiffs main argument for relief is one she has argued before — the equities. Again, Plaintiffs best forum for making this argument is the divorce court, as it appears that Plaintiff may have grounds for obtaining modification of the divorce decree based upon changed circumstances, ie. the Defendant’s bankruptcy.
Plaintiff also argues that she should be entitled to amend her pleading pursuant to Fed.R.Civ.P. 15. Plaintiff argues that allowing an amended complaint is proper where the same factual basis would support both the first and amended complaint where the first complaint was timely filed and the amendment was filed after the date proscribed for the filing of an adversary complaint.
Plaintiffs position may well be correct, and she might otherwise be entitled to amend her complaint, were it not for the fact the Order dated June 26, 2001, granting Defendant’s Motion for Summary Judgment became final before Plaintiffs “Motion for Reconsideration” was filed. This hurdle is insurmountable for Plaintiff because the complaint has been fully and finally adjudicated and, therefore, cannot be amended. To allow Plaintiff to amend her complaint at this point would be to allow her to set aside a final judgment without meeting the requirements of either Rule 59 or Rule 60(b).
For the reasons set forth above, the Plaintiffs Motion for Relief from Judgment and for Leave to File Amended Complaint is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493519/ | MEMORANDUM AND ORDER ON ROBERT J. MILLS’S APPLICATION FOR REIMBURSEMENT
LAMAR W. DAVIS, Jr., Bankruptcy Judge.
This matter, a core proceeding within the jurisdiction of this Court under 28 U.S.C. § 157(b)(1) & (2)(A) & (B), involves a dispute as to who should receive monies remaining in a fund established to pay creditors in accordance with a confirmed Chapter 11 plan of reorganization. There are two contenders: the successors to the debtor corporation, who are entitled to receive any undistributed monies left in the fund at the time the case is closed, and a former officer of the debtor corporation, who has applied for reimbursement of certain legal expenditures to which he believes he is entitled under indemnity agreements or provisions of the plan.
In accordance with Bankruptcy Rule of Procedure 7052(a), I make the following Findings of Fact and Conclusions of Law.
*600
FINDINGS OF FACT
Robert J. Mills (“Mills”) was the CEO of First American Health Care of Georgia (“First American”), which filed a Chapter 11 case on February 21,1996. Its plan for reorganization (“the Plan”) was confirmed on October 4, 1996. Prior to confirmation, First American filed a motion seeking court approval of a settlement agreement between Mills and First American regarding numerous issues (“the Motion”). The Motion recited that the settlement reflected the best interests of debtors, creditors, and parties in interest because litigation of those issues might prevent or delay confirmation of the Plan and completion of the anticipated merger with Integrated Health Services (“IHS”). See Ex. 5 (Motion ¶ 6). The Motion also recited that among the numerous claims against First American were unspecified “other financial obligations and future indemnification claims,” id. ¶ 4. On October 3, 1996, the Court approved the settlement “on the terms and conditions set forth within the omnibus settlement agreement” (“the Omnibus Agreement”), Ex. 5 (Order Approving Settlement), and the Plan was confirmed immediately thereafter.
Mills’s claim arose out of two lawsuits. One, the “Broussard Litigation,” was filed pre-petition in 1992 in Texas and the other, the “Towne Litigation,” was a 1995 prepetition suit brought in Georgia. The lawsuits, which asserted breach of contract, fraud, and similar causes of action, arose out of alleged breach of acquisition agreements whereby First American acquired local home health care agencies under a contract that provided for certain financial consideration and/or employment contracts for the key employees of the acquired organizations. Mills and First American were named as defendants in both suits.
First American’s by-laws provided for indemnification of its officers in the event that they were sued for acts they committed in the course of their employment. In accordance with that provision, First American undertook, in addition to its own defense, Mills’s defense in both lawsuits. It continued to provide for Mills’s defense after filing its Chapter 11 case and to pay Mills’s legal expenses as they were incurred.
Pursuant to the Plan, First American established an escrow account, designated as “Creditor Payment Fund,” which was funded in an amount determined at confirmation by this Court to be sufficient to pay the allowed claims of Class 4 creditors. Class 4 claims consisted of
unsecured claims against any Debtor not otherwise classified or treated in this Plan (whether or not liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, absolute, accrued, unaccrued, legal, or equitable), including without limitation, ... any claims for indemnification, reimbursement, or contribution by any officers, directors, agents, or employees on account of any claims made against any such person arising out of any facts or conduct occurring prior to the Filing Date .... Each holder of a claim in this class is not deemed to be filed pursuant to § 1111(a) ... must file a proof of claim with regard to such claim on or before the Claims Bar Date (it being understood that an indemnification, reimbursement, or contribution claim may be preserved with respect to acts, omissions, events or circumstances occurring or existing prior to the Filing Date, even if actual or potential claims, losses, liabilities or expenses have not yet been identified, asserted or incurred, only by expressly stating same in a properly and timely filed proof of claim).
Ex.l (Plan ¶ 3.04) (emphases added).
The Plan incorporated paragraph 10 of the Omnibus Agreement, which provided in relevant part:
*601Future Indemnification. Except as expressly provided otherwise in the Merger Agreement, and subject to the terms and conditions of this Agreement, the Company agrees to accept responsibility for any liability of the Company (including legal fees and expenses, settlement amounts, and damages, as applicable) incurred in any action in which the Principal Shareholder(s) are made a party to a proceeding solely because he or she was an officer, director or agent of the Company acting on behalf of the Company in a manner he or she believed in good faith to be in the best interests of the Company, so long as such litigation does not result from any action or omission of either Principal Shareholder which could reasonably be found to constitute a crime or fraud and does not pertain to any personal benefit either Principal Shareholder improperly received. The Company shall have the exclusive right to manage and control the defense, settlement or other disposition, payment or discharge of all such matters for which indemnification is provided. The Principal Shareholders will agree to any settlement proposal by the Company and will fully cooperate, at the Company’s expense (for out-of-pocket costs thereby incurred) in the defense or prosecution of any such claim. If the Principal Shareholders choose to employ their own counsel to participate in the defense of such matters, they may do so only at their own expense ....
Ex. 4 (Omnibus Agreement ¶ 10).
At confirmation or shortly thereafter, First American merged with IHS, as contemplated in the Plan. IHS subsequently merged with or was acquired by other entities which ultimately became a part of a company known as “Medshares.” Each of these “successor companies,” as they are collectively referenced herein, initially assumed Mills’s defense and paid some, but not all, the bills tendered by the two counsel involved. Ultimately, however, the successor companies ceased participating in Mills’s defense, first in the Broussard case in the spring of 2000 and then in the Towne litigation in the spring of 2001. The relevant facts of each of the actions are set out below.
1. The Towne Litigation
The Towne case was filed in September 1995. At its inception, First American hired counsel to represent its interests and those of Mills. After confirmation, its successor hired Austin Catts as counsel to continue its and Mills’s defense and paid Mills’s attorney fees in October 1998. Ex. 6. In February 1999 Medshares communicated to Catts that it was assuming the defense. Ex. 7. Catts provided status reports to Medshares from time to time and kept it informed at all times as to the status of the litigation. See Exs. 9, 10, 11. At some point, Medshares, without specifically informing Catts that it was no longer affording Mills a defense, stopped paying Catts’s statements for services rendered and ceased responding to Catts’s communications. As a result, in March 2001 Catts informed Mills that he should hire an attorney to protect his interests in the ongoing litigation. Mills personally hired Catts and attorney Jim Bishop to serve in that role.
Medshares subsequently authorized a settlement for $60,000.00 which was paid from the creditor payment fund in this case as authorized by Order of this Court dated May 23, 2002. Catts testified that although the litigation asserted breach of contract and fraud and sought rescission or the imposition of a constructive trust, it was settled without any admission or establishment of liability for fraud or any criminal activity on the part of Mills. Catts also testified that Mills was named *602as a defendant only because he was the person acting on behalf of First American as CEO in arranging a merger with Roger Towne and Tri-County Healthcare. This evidence was uncontradicted.
Mills contends that because (1) the successor companies had assumed his defense, (2) First American never provided Mills with any reservations of rights to deny its liability or indemnity under either the corporate by-laws or under the confirmed plan, and (3) Medshares abandoned his defense and caused him to seek his own counsel, he is entitled to reimbursement as a Class 4 claim under the terms of the Omnibus Agreement.
2. The Broussard Litigation
Mills’s and First American’s defense counsel in the Broussard litigation was James Galbraith, who was initially hired in 1992. After First American filed its Chapter 11 case, the debtor-in-possession hired Galbraith, see Composite Ex. 12 (sub-Ex.l), and paid him $10,500.00 for prepetition attorney fees, see id. (sub-Ex.2). After confirmation and each succeeding merger, the successor companies routinely contacted Galbraith and assured him that it was their desire to continue to retain him as counsel, as evidenced by IHS’s payment of his bills, see id. (sub-Ex.3), by correspondence indicating Medshares was assuming the responsibility for defense of the action, see id. (sub-Ex.4), and by Medshares’ authorization to settle the case for $65,000.00 at a prior mediation session in 1999, see id. (sub-Ex.9).
The case spanned a period of time from pre-filing to post-confirmation. Prior to the filing, the case was tried before a jury, which rendered a verdict in favor of Mills and First American. That verdict was appealed. The Texas Court of Appeals remanded the case for another trial because the trial court, due to the illness of the court reporter, was unable to transmit a sufficient transcript of the proceedings on which the appellate court could issue a ruling.
At some point, the successor companies ceased paying Mills’s legal bills, at which time Mills authorized Galbraith to seek a writ from the Texas Supreme Court reversing the decision of the Court of Appeals which had remanded the case to trial. The case was ordered to mediation in April 2001. Id. (sub-Ex.14). At the time of the mediation, the successor companies had filed their own Chapter 11 cases, and the Broussard matter was proceeding solely against Mills individually. Galbraith informed MedShares of the mediation and asked for “MedShares’ position and if it planned to have a representative in attendance.” Id. (sub-Ex.15).
The Broussard case was ultimately settled on Mills’s sole authority for $250,000.00, which amount he paid out of his personal funds. At the time of the second mediation, communications with First American’s successors had ceased. Mills did not notify the successor companies of the fact or amount of the proposed settlement. Galbraith believed that $250,000.00 was a reasonable settlement amount because the intervening conviction of Mills on criminal charges would have made his defense more difficult at a retrial. Galbraith testified that Mills was named individually as a defendant only because of acts he had taken in his capacity as CEO of First American and that it was never alleged or proved that Mills had engaged in any ultra vires acts. This evidence was uncontradicted.
Mills’s total outlay of funds in his defense for which he seeks reimbursement under the terms of the Omnibus Agreement was $369,367.43, which sum included the $250,000.00 settlement amount in the Broussard case in addition to the attorney *603fees paid to Catts, Bishop, and Galbraith in the respective amounts of $74,973.37, $16,405.54, and $27,988.52.
CONCLUSIONS OF LAW
1. Proof of Claim
The threshold question is whether the Plan requirements for filing Class 4 claims operate to preclude Mills, as a matter of law, from maintaining a claim for reimbursement due to his failure to file a proof of claim on or before the claims bar date.
Generally, failure to file a proof of claim by the bar date is fatal to a creditor’s right of recovery in a bankruptcy case. See The Charter Co. v. Dioxin Claimants (In re The Charter Co.), 876 F.2d 861, 863 (11th Cir.1989) (“After passage of ... the bar date, the claimant cannot participate in the reorganization unless he establishes sufficient grounds for the failure to file a proof of claim.”). Courts have recognized, however, that payment of such a claim is allowable, notwithstanding the lack of a timely filed formal proof of claim, e.g., id. at 863-64, where a creditor takes action which amounts to a timely informal proof of claim which “apprise[s] the court of the existence, nature and amount of the claim (if ascertainable) and make[s] clear the claimant’s intention to hold the debtor liable for the claim,” id.
In this case, the Omnibus Agreement was sufficient as an informal proof of claim because: (1) it was contemplated in the Chapter 11 Plan, see Ex. 1 (Plan ¶ 6.11 (captioned “Settlement of Issues Between the Debtors and the Mills Group”)); (2) it was a critical linchpin in bringing the Plan to confirmation on October 4,1996; and (3) it placed First American on notice of Mills’s claim.
It is apparent that the purpose of Plan paragraph 3.04, which applied to “officers, directors, agents or employees of the company,” id. ¶ 3.04, was to ensure that First American had notice of the existence of all potential claims, in that the Plan encompassed claims the amount of which might “not yet have been identified, asserted, or incurred,” id. Since the Omnibus Agreement served to afford First American actual notice of Mills’s claim, the claim filing requirement was superfluous.
Furthermore, the Motion to approve the Omnibus Agreement made it clear that approval would facilitate confirmation and ensure a higher dividend to creditors than would permitting the controversy between Mills and his company to proceed over a long period of time to an uncertain end. The Omnibus Agreement provided that the company was obligated, subject to certain conditions, to indemnify Mills for expenses incurred because of litigation to which he had been made a party. Without that indemnification, Mills may not have entered into the Omnibus Agreement, and without the Omnibus Agreement, the then-proposed Plan would likely not have been confirmed.
Therefore, notwithstanding Mills’s failure to file a timely proof of claim in accordance with Plan paragraph 3.04, I hold that, so long as Mills’s claim fits within the definition of claims for which indemnification was provided in paragraph 10 of the Omnibus Agreement, he is not precluded as a matter of law from asserting and maintaining a claim for reimbursement.
Alternatively, I hold that any ambiguity with respect to whether the company intended to waive Mills’s filing of a proof of claim or any conflict between the terms of the Omnibus Agreement and Plan paragraph 3.04 should be resolved against Respondents, whose predecessor was the entity under whose direction the Plan was written. See O.C.G.A. § 13-2-2(5) (“If the *604construction is doubtful, that which goes most strongly against the party executing the instrument or undertaking the obligation is generally to be preferred.”); cf. also In re Pickering, 195 B.R. 759, 762-63 (Bankr.D.Mont.1996) (“[A] court must construe any ambiguities with regard to the information-or lack thereof-in a debtor’s schedules or statements of affairs against the debtor as both the drafter of the documents and as the party most familiar with the information required by them.”).
2. Indemnification and Reimbursement
Mills seeks two types of reimbursement: (1) reimbursement of attorney fees and (2) reimbursement of the Broussard settlement payment. For the reasons that follow, I find that he is entitled to full reimbursement of fees paid to his attorneys in the Broussard and Towne cases and partial reimbursement of the Broussard settlement.
a. Attorney Fees
Several limitations applied to First American’s obligation to indemnify Mills: (1) any suit as to Mills must have arisen out of conduct which occurred prior to filing, Ex. 1 (Plan ¶ 3.04); (2) such suit must have been regarding actions for which Mills was subject to liability solely because of actions taken in his capacity as First American’s CEO, Ex. 4 (Omnibus Agreement ¶ 10); (3) Mills must have cooperated fully in the defense provided for him, id.; (4) Mills’s actions must not have reasonably constituted a crime or fraud or pertained to an improperly received benefit, id.; and (5) no indemnification was to have been provided for fees paid to an attorney of Mills’s own choice, id.
Mills complied with these terms. First, the evidence was uncontroverted that the law suits were based on actions taken by Mills, prior to filing, in his capacity as CEO, and there is no suggestion that he failed to cooperate in the defense or that the Omnibus Agreement released First American from liability to indemnify Mills. Also, there is no basis for a reasonable belief that Mills’s actions in the Broussard and Towne matters were fraudulent or constituted a crime.1 Finally, Mills did not “choose” his attorney in the manner contemplated in the Omnibus Agreement, in that the successor companies’ failure to pay Mills’s legal bills, without explanation or justification, constituted a material breach of their obligation under the future indemnification clause to provide legal representation. That breach forced Mills to proceed on his own and hire his own counsel.
I therefore conclude that Mills’s claim for attorney fees fits within the definition of claims allowed in Class 4 and that he is entitled to full reimbursement of the fees he paid to his attorneys.
b. Settlement Payment
Respondents contend that, while the future indemnification clause encompassed payments of settlement amounts, Mills’s unilateral decision to settle for $250,000.00 without apprising them of the fact or amount of the contemplated settlement was failure to meet a condition for indemnification of that payment. The future indemnification clause entitled the successor companies to “manage and control the defense, settlement or other disposition, payment, or discharge for all ... matters for which indemnification [was] *605provided,” Ex. 4 (Omnibus Agreement ¶ 10), and that entitlement was expressly characterized as an “exclusive right,” id. Thus, the issue is whether the successor companies retained the right to “manage and control” with respect to the mediation which resulted in the settlement or whether that right had evaporated as a result of their non-payment of Mills’s attorney fees.
Mills contends that the failure of the successor companies to provide for his defense constituted waiver of their rights under the Omnibus Agreement and that, pursuant to authority from the Southern District of Georgia, those entities are now estopped to rely on the provisions of paragraph 10 of that agreement with respect to their exclusive right to manage and control the settlement of the Broussard case.
Mills primarily relies on the decision in Colonial Oil Indus., Inc. v. Underwriters Subscribing to Policy Nos. T031501670 & T031501671, 1995 WL 495991 (S.D.Ga. 1995), in which Judge Edenfield cited Georgia caselaw for the following proposition:
When an insurer denies coverage and absolutely refuses to defend an action against an insured, when it could do so with reservation of rights as to coverage, the legal consequence of such refusal is that it waives the provisions of the policy against a settlement by the insured and becomes bound to pay the amount of any settlement made in good faith plus expenses and attorneys fees.
Id. at *8 (quoting Ga. S. & Fla. R.R. Co. v. U.S. Cas. Co., 97 Ga.App. 242, 244, 102 S.E.2d 500 (1958) (emphasis in original)).
This language does not articulate applicable Georgia law. The ultimate outcome of the Colonial Oil matter reveals that, notwithstanding an indemnitor’s having materially breached a contractual obligation to defend, estoppel does not apply to preclude an indemnitor from raising defenses based on terms of its contract with the indemnitee. On appeal of a subsequent opinion by Judge Edenfield reaching the same result, the 11th Circuit reversed. The Court held: “Although the district court correctly concluded that the Underwriters breached their duty to defend, the court erred in holding that the Underwriters were estopped from raising policy defenses to coverage.” See Colonial Oil, 133 F.3d 1404, 1405 (11th Cir.1998) (reversing 1995 WL 692691 (S.D.Ga.1995), amended by 910 F.Supp. 655 (S.D.Ga.1995) (effectively overruling 1995 WL 495991)); Colonial Oil, 268 Ga. 561, 561, 491 S.E.2d 337, 338 (1997) (answering question certified by 11th Circuit in Colonial Oil, 106 F.3d 960, 966 (11th Cir.1997) (“To what extent does Georgia law estop an insurer from raising coverage defenses after the insurer ... refuses to defend the insured?”), as follows: “[A]n insurer who has wrongfully refused to defend may raise policy defenses to coverage.”). The Georgia Supreme Court explained that the rationale for allowing an insurance company, as contractual indemnitor, to raise policy defenses
is that when the insurer breaches the contract by wrongfully refusing to provide a defense, the insured is entitled to receive only what it is owed under the contract-the cost of defense. The breach of the duty to defend, however, should not enlarge indemnity coverage beyond the parties’ contract. This rule, which is the majority position, recognizes that the duty to defend and the duty to pay are independent obligations.
Colonial Oil, 268 Ga. at 563, 491 S.E.2d 337. It is clear, therefore, that the decisional language quoted by Mills — as attractive as it is as support for his position — was superceded by the holdings in Colonial Oil, 133 F.3d 1404 (11th Cir. *6061998), and Colonial Oil, 268 Ga. 561, 491 S.E.2d 337 (1997).
Mills also contends that the successor companies’ failure to pay the attorney fees constituted anticipatory breach which justified Mills’s entering into mediation and settling the case without notifying Respondents of the fact of the mediation or the amount of the settlement. “It is a question for the trier of fact as to whether any action of one party is sufficient to constitute a repudiation of the contract and amount to an anticipatory breach.” Jones v. Solomon, 207 Ga.App. 592, 594, 428 S.E.2d 637, 639 (Ga.App.1993).
Contrary to Mills’s contention that First American’s breach of “the very terms which First American contends bars his entitlement to indemnification” constituted anticipatory breach, Br. of Resp. at p. 6, applicable Georgia law defines “anticipatory breach” in terms which do not encompass this situation. In the first place, the Georgia Supreme Court has emphasized that a finding of “anticipatory breach” requires absolute and unqualified refusal to perform prior to the time of performance:
The “anticipatory repudiation” of a contract occurs when one party thereto repudiates his contractual obligation to perform prior to the time such performance is required under the terms of the contract. Thus, when one party to a bilateral contract of mutual dependent promises absolutely refuses to perform and repudiates the contract prior to the time of his performance, the innocent party is absolved from any future performance on his part. The breach which will form the basis for an anticipatory breach of contract action is an unqualified repudiation of the entire contract prior to the time for performance.
Coffee Butler Serv., Inc. v. Sacha, 258 Ga. 192, 193, 366 S.E.2d 672, 673 (Ga.1988) (first emphasis added, other emphases in original) (internal punctuation omitted); see also Black’s Law Dictionary 1306 (7th ed. 1999) (“The First Restatement lists three actions that constitute anticipatory repudiation: ‘(a) a positive statement to the promisee or other person having a right under the contract, indicating that the promisor will not or cannot substantially perform his contractual duties; (b) transferring or contracting to transfer to a third person an interest in specific land, goods, or in any other thing essential for the substantial performance of his contractual duties; (c) any voluntary affirmative act which renders substantial performance of his contractual duties impossible, or apparently impossible.’” (quoting Restatement of Contracts § 318 (1932))).
Three issues arise. The first is whether the successor companies repudiated their obligation to defend Mills with respect to all aspects of his defense, including the settlement negotiations. The evidence does not indicate that the successor companies “absolutely” and “unqualifiedly” refused to participate; nor does the situation fit into the “anticipatory” category, that is, “prior to the time for performance.” See Rhodes v. Amarillo Hosp. Dist. 654 F.2d 1148, 1151-52 (5th Cir.1981) (explaining why anticipatory repudiation was “poorly fitted to the facts”: “[AJnticipatory repudiation arises when a party unequivocally renounces his duties under a contract prior to the time fixed for his performance. Whatever the act of repudiation ..., it was here scarcely ‘anticipatory.’ Both parties had begun performance .... Further performance theoretically could have been repudiated ..., but that situation is properly dealt with as actual, not anticipatory, breach.”). Here, respondents participated in Mills’s defense for a period of time, but their failure to pay Mills’s attorney fees did not constitute an unqualified and abso*607lute refusal to participate in the settlement of the case. They neither expressly renounced any obligation to indemnify or control settlement in advance, nor were they afforded notice or the right to comment, object, or approve when the settlement was finally reached.
The second question is whether Mills’s obligation to inform Medshares of the contemplated settlement was excused when the successor companies failed to pay Mills’s attorney fees, or, put another way, whether First American’s right to participate in a settlement-at least to the extent of being informed that a settlement was imminent, payment of which it was ultimately liable-was waived by its prior breach of its duty to defend. Because “the duty to defend and the duty to pay are independent obligations,” Colonial Oil, 268 Ga. at 563, 491 S.E.2d 337, I hold that Medshares’ rights and Mills’s obligation were not extinguished by Medshares prior acts in failing to pay counsel..
The final inquiry is whether the failure to pay Mills’s attorney fees was an affirmative act which rendered substantial performance of the successor companies’ contractual duties impossible, or apparently impossible. Clearly, that is not the case. While the failure to provide a defense suggested that First American might not authorize or pay a settlement, it did not render its participation impossible.
Mills unilaterally decided to settle the case for $250,000.00. His attorney testified as to the reasonableness of that amount in light of the $1.5 million at stake in the trial on remand and explained that despite the favorable jury verdict in the first trial, Mills’s intervening criminal conviction jeopardized the likelihood of success at a retrial. The successor companies, who were then embroiled in their own Chapter 11 cases, may or may not have approved the settlement, or even acknowledged receipt of a demand for approval. We will never know. What is known is that the successor companies were not afforded the opportunity to choose to perform or to breach. Mills will not be fully reimbursed for a settlement he paid without having at least informed the successor companies that settlement was imminent.
I conclude that Mills’s failure to give First American’s successors notice of his intent to settle and an opportunity to object or at least to communicate prior to its consummation unreasonably deprived First American’s successors of their right to participate in a settlement and therefore is fatal to Mills’s prayer for full reimbursement.
Because, however, Medshares had earlier authorized settlement in the amount of $65,000.00, I hold that authorization to have been the functional equivalent of authorization to settle in that amount after the case was remanded for a new trial. In this case, a $65,000.00 settlement amount had been authorized by Medshares at a time when the settlement value of the -case was no greater than the time in question. It is impossible to conceive how, even if notice had been given, Medshares could have failed to approve reauthorization of that amount; indeed, under the circumstances of this case, requiring reauthorization of that amount would not have furthered any worthwhile purpose, see Jaffe-Spindler Co. v. Genesco, Inc., 747 F.2d 253, 258 (4th Cir.1984) (“[T]he courts should not require the performance of acts when the doing of them will not further any worthwhile purpose .... ”).
“Equity considers that done which ought to be done and directs its relief accordingly.” O.C.G.A. § 23-1-8. I conclude, therefore, that in light of the fact and amounts of the prior settlement offer extended to the Broussard entities, Mills is *608entitled to partial reimbursement of his settlement payment in the amount of $65,000.00.
The purpose of the creditor payment fund, the establishment of which was required by the terms of the confirmed plan, see Ex. 1 (Plan ¶ 7.01), and in which the reorganized debtor is presently holding more than $450,000.00, was to provide payment of Class 4 general unsecured claims. In that the Omnibus Agreement and the contemporaneous transactions leading to that agreement constitute an informal proof of claim, see discussion supra, Mills’s claim for indemnification is within Class 4. Provided that the creditor payment fund remains solvent, payment of Movant’s attorney’s fees, together with $65,000.00 of the settlement, will therefore be authorized from that fund.
ORDER
Robert J. and Margie B. Mills’ application for reimbursement of their attorney fees in the amount of $119,367.43 is APPROVED. Their application for reimbursement of the amount paid as settlement in the Broussard case is PARTIALLY GRANTED in the amount of $65,000.00. It is DIRECTED that, in light of the uncertainty as to the insolvency of the creditor payment fund, no remittance be made after this order becomes final until Debtor’s counsel stipulates or the Court makes a determination that all remaining, outstanding, unpaid claims against that fund have been satisfied.
. Even though Mills was in fact convicted of criminal activity and has served time in a federal prison for conduct arising out of his management of First American, it has not been contended that any of the counts on which he was convicted related to the transactions with Roger Towne or to those which led to the Broussard litigation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493520/ | ORDER ON TRUSTEE’S MOTION TO DETERMINE VALIDITY, PRIORITY, OR EXTENT OF LIEN
LAMAR W. DAVIS, Jr., Bankruptcy Judge.
On July 25, 2001, Debtor Robert R. Greenberg (“Debtor”) filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. This Court denied Debtor’s discharge by Order filed of record by the Clerk of Court on August 2, 2002. On June 24, 2002, Plaintiff James B. Wessinger, III, the Chapter 7 Trustee (“Trustee”) filed this Adversary Proceeding seeking determination of the extent and validity of a judgment lien held by Defendant Mary Raab (“Defendant”) against Debtor. On September 25, 2002, a properly noticed hearing was held during which Trustee presented oral argument. Defendant did not appear at the hearing. This Court has jurisdiction in this matter, which is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E).
The lien at issue arose out of a judgment for fraud in the amount of $122,616.87 entered on August 6, 1992, in favor of Defendant and against Debtor by the United States District Court of the Virgin Islands. Pl.’s Ex. 1. On March 18, 1994, Defendant transferred the judgment to the United States District Court for the Southern District of Georgia, and the Clerk of Court issued a Writ of Execution, PL’s Ex. 2. On January 6, 1995, Defendant perfect*614ed her judgment lien in Debtor’s real and personal property by recording the Writ on the General Execution Docket for the Superior Court of Chatham County, Georgia. Id.
The Official Code of Georgia provides secured status to judgment creditors who comply with the requirements of O.C.G.A. § 9-12-81. That Section provides that a judgment creditor may retain a lien upon property of the judgment debtor after that property has been acquired by a third party only if the creditor has executed the judgment lien on the general execution docket. Id. § 9-12-81. To prevent a judgment from becoming “dormant” — that is, at least temporarily unenforceable — the holder of the judgment must, after effecting its initial entry on the general execution docket, re-enter it on the general execution docket at least once within a period of seven years, id. § 9 — 12—60(a)(2) & (b), or make a “bona fide public effort ... to enforce the execution in the courts” at least once within a period of seven years, id. § 9-12-60(a)(3) & (b). If the holder neither re-enters nor attempts to otherwise publicly enforce execution within that seven-year period, the judgment becomes unenforceable. Id. § 9 — 12—60(a). To prevent a dormant judgment from becoming ;permanently unenforceable, the holder of the judgment must opt within three years either to renew or revive the judgment “by an action or by scire facias.”1 Id. § 9-12-61.
In this case, Defendant complied with 0.C.G.A. § 9-12-81 by causing her lien to be entered on the general execution docket, thereby perfecting her lien and acquiring secured creditor status. Inasmuch as Debtor filed his bankruptcy petition prior to the expiration of the seven-year period set by O.C.G.A. § 9-12-60, Defendant’s lien was valid and enforceable on the filing date. Trustee contends that on January 6, 2002, which date was seven years after Defendant’s judgment had been docketed, Defendant’s lien expired by operation of law, even though Debtor had filed bankruptcy five months earlier.
The plain words of the Bankruptcy Code indicate otherwise. 11 U.S.C. § 108(e) provides in pertinent part:
[I]f applicable nonbankruptcy law ... fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, ... and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay ... with respect to such claim.
11 U.S.C. § 108(c)(1),(2). Thus, provided that the conditions set out in § 108(c) are satisfied, a limitations period is to be extended at least until thirty (30) days after notice of the termination or expiration of the automatic stay.
In this case, there is no doubt that two of the conditions set out in 11 U.S.C. § 108(c) were met: the limitations period at issue was fixed by Georgia statute, which is applicable nonbankruptcy law, and the seven-year period had not expired as of the date Debtor filed his bankruptcy petition. The condition that Trustee contends has not been satisfied is the requirement that to be extended by § 108 the *615limitation period must relate to “commencing or continuing a civil action” in a non-bankruptcy court. Trustee argues that renewal of a judgment lien pursuant to O.C.G.A. § 9-12-60 represents merely the maintenance of the creditor’s lien, rather than the continuance of an action against the debtor. Therefore, the seven year time limitation is not extended by operation of 11 U.S.C. § 108(c).
To the contrary, under O.C.G.A. § 9-12-60, existence of a valid judgment lien creates a right to enforce that judgment, whereas the lapse of that lien deprives the creditor of the right to enforce the judgment. Any act taken to renew the judgment, a pre-requisite to enforcement, constitutes a continuation of the civil action against the debtor or the debtor’s property to which a nonbankruptcy statutory time limitation applies. Because applicable Georgia law “fixes a period” for “continuing a civil action” in a nonbankruptcy court, all the conditions for applying 11 U.S.C. § 108(c) to extend the limitations period to the later of two specified dates have been met.
The Bankruptcy Code provides that, in an individual’s Chapter 7 case, the protection of the automatic stay2 ends at the time a discharge is denied. 11 U.S.C. § 362(c)(2). The automatic stay in Debt- or’s Chapter 7 case thus expired on August 2, 2002, the date on which the Clerk of Court entered this Court’s Order denying a discharge to Debtor. Defendant received, by operation of § 108(c), an extension of time “until the later of’ the end of the state-law period of limitations, “including any suspension of such period occurring on or after the commencement of the case,” id. § 108(c)(1), or “30 days after notice of the termination or expiration of the stay under section 362,” id. § 108(c)(2).
The expiration date of the Georgia statutory period of limitation was January 6, 2002. Because the Georgia statutory provision contains no express provision for suspension of the seven-year period, and because no evidence has been presented to show that any other suspension of the statutory limitations period occurred, “the later of’ the two dates was September 1, 2002, which was thirty (30) days after notice of the termination or expiration of the automatic stay in Debtor’s bankruptcy case; therefore, if Defendant failed to renew her judgment prior to September 1, 2002, her judgment became dormant on that date and she has no enforceable judgment lien.
Because there is no evidence that Defendant renewed her judgment lien prior to September 1, 2002,1 hold that Defendant’s judgment against Debtor became dormant on that date. Therefore, IT IS THE ORDER OF THIS COURT that Defendant Mary Raab’s judgment lien IS AVOIDED AND SET ASIDE and her dormant judgment IS TO BE ADMINISTERED AS AN UNSECURED CLAIM in this case.
. A writ of scire facias, in the context of reviving a dormant judgment after a lapse of time, is a continuation of the original action. O.C.G.A. § 9-12-62; Black’s Law Dictionary 1208 (5th ed.).
. Section 362 of the Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of
(1) the ... continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was ... commenced before the commencement of the [bankruptcy] case ...;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy] case . . .;
(5) any act to ... perfect or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the [bankruptcy] case ....
11 U.S.C. § 362(a)(1),(5),(6). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493522/ | OPINION
GERALD D. FINES, Chief Judge.
This matter having come before the Court on an Amended Motion for Summary Judgment filed by the Plaintiff, National City Bank of Michigan/Illinois (National City Bank), and Response to Amended Motion for Summary Judgment filed by the Debtor/Defendant; the Court, having heard arguments of counsel and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
In order to prevail on a motion for summary judgment, the movant must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings in bankruptcy by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Rule 56(c) reads in part:
[T]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
See: Donald v. Polk County, 836 F.2d 376 (7th Cir.1988).
The United States Supreme Court has issued a series of opinions which encourage the use of summary judgment as a means of disposing of factually unsupported claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute.” Fames v. Stanadyne/Chicago Div., 832 F.2d 374 (7th Cir.1987). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson, supra, at 2514. There is no genuine issue for trial if the record, taken as a whole, does not lead a rational trier of fact to find for the non-moving party. See: Matsushita, supra, at 587, 106 S.Ct. 1348. “If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.” Anderson, supra, at 250,106 S.Ct. 2505.
The material facts in this matter are not in dispute. The Debtor/Defendant, Donald A. Marcotte, is indebted to Plaintiff, National City Bank, on two Promissory Notes. One of the Promissory Notes is dated March 13, 1997, in the original principal amount of $40,000, and a second Promissory Note is dated April 9, 1999, in the original amount of $105,000. Both of the Promissory Notes upon which the Debtor/Defendant is indebted are covered by an Agricultural Security Agreement, dated April 9, 1999, which, by its terms, granted Plaintiff, National City Bank, a security interest in Debtor/Defendant’s crops and equipment. During the year 2000 growing season, the lending relationship between Plaintiff, National City Bank, and the Debtor/Defendant ended, and, on *800September 18, 2000, National City Bank filed suit against the Debtor/Defendant in the Circuit Court of Kankakee County, Kankakee, Illinois, seeking recovery under the two aforementioned Promissory Notes and the Agricultural Security Agreement. This State Court lawsuit resulted in a judgment against the Debtor/Defendant in the amount of $38,095.93, together with an Order of Replevin directing that the Debt- or/Defendant return collateral covered by the Agricultural Security Agreement, including crops and equipment. Prior to Plaintiff, National City Bank, taking appropriate steps to enforce its Judgment Order and Order of Replevin, the Debt- or/Defendant filed for relief under Chapter 7 of the Bankruptcy Code, and the Plaintiff filed the instant adversary proceeding seeking to have the debt owed it, in the amount of $38,095.93, to be determined nondischargeable in the Debtor/Defendant’s bankruptcy proceeding.
The Debtor/Defendant, Donald A. Marcotte, gave a deposition in this matter on September 11, 2001, at which time he indicated that the year 2000 was the last year that he planted and harvested a crop. Debtor/Defendant indicated that, at the time he quit farming, he only owned one piece of equipment, namely a grain drill which was sold at an auction in St. Anne, Illinois, in approximately March or April 2000, for $1,750. Debtor/Defendant received the sum of $1,750 from the sale of the grain drill, which he used to pay for living expenses. Debtor/Defendant admitted that, at the time he sold the grain drill, he was aware that suit had been filed against him in Kankakee County, Illinois, by the Plaintiff, National City Bank, and that the grain drill was collateral on the indebtedness to the Bank. As such, the Debtor/Defendant did not deny that his debt to National City Bank, to the extent of $1,750, which he received from the sale of the grain drill, was nondischargeable in bankruptcy.
The facts adduced from the deposition testimony of the Debtor/Defendant, Donald A. Marcotte, and his father, Alfred Marcotte, further indicated that the year 2000 was the last year that the Debtor/Defendant farmed, because National City Bank had indicated that it would not loan him any more money. The Debtor/Defendant was aware of this fact at the time his 2000 crop was harvested. The facts are undisputed that the Debtor/Defendant’s father, Alfred Marcotte, actually harvested the Debtor/Defendant’s 2000 crop with the help of the Debtor/Defendant. The evidence further indicates that the Debt- or/Defendant’s father took the crop to the elevator for sale rather than the Debt- or/Defendant, and that Alfred Marcotte received all of the proceeds from the year 2000 crop, which he then paid directly over to the Debtor/Defendant. None of the proceeds from the year 2000 crop were paid to National City Bank, even though the Debtor/Defendant admits that he was aware of the Agricultural Security Agreement with the Bank, claiming as collateral Debtor/Defendant’s 2000 crop. The evidence further indicates that, in the year 1999, when the Debtor/Defendant harvested and delivered his crop to the elevator, checks for the crop were made jointly payable to the Debtor/Defendant and to Plaintiff, National City Bank. Whereas, in the year 2000, crops were delivered by the Debtor/Defendant’s father, with the proceeds being paid directly to Debtor/Defendant’s father and then transferred to the Debtor/Defendant.
In its Complaint to Determine Dischargeability Under Section 523(a)(2), filed on September 21, 2001, the Plaintiff clearly alleges, in paragraphs 7 through 12, that the Debtor/Defendant knowingly converted collateral of the Plaintiff into cash, and *801then used that cash for his own purposes. Such an action of conversion has been held to result in a nondischargeable debt pursuant to the provisions of 11 U.S.C. § 523(a)(6), which states:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt — ...
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity;
The Plaintiff has the burden of proof by a preponderance of the evidence to show that the debt in question is nondischargeable under 11 U.S.C. § 523(a)(6). Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). In Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), the U.S. Supreme Court has addressed a split in the Circuit Courts regarding the proper interpretation of the term “willful” under § 523(a)(6). The Court found that debts caused by negligent reckless conduct are dischargeable, whereas debts arising from intentional torts are not dischargeable. In reaching this holding, the Supreme Court noted: “Intentional torts generally require that the actor intend the consequences of an act, not simply the act itself.” While the Supreme Court addressed the definition of the term “willful,” it did not define the intent necessary to constitute willful conduct. This Court finds that the intent necessary to constitute willful conduct was aptly defined in the case of In re Cox, 243 B.R. 713 (Bankr.N.D.Ill.2000), in which the Court found that a debt would be nondischargeable under § 523(a)(6), where a creditor demonstrated by a preponderance of the evidence either that the debtor desired to cause the injury complained of, or that the debtor believed that harmful consequences were substantially certain to result from the debtor’s acts. The Cox Court further went on to reiterate the long standing definition of “malicious injury” as being one under which the debtor acts with a conscious disregard of one’s duties or acts without just cause or excuse. See: In re Thirtyacre, 36 F.3d 697 (7th Cir. 1994). The Cox Court further went on to state that maliciousness does not require ill will or specific intent to do harm. In re Arlington, 192 B.R. 494 (Bankr.N.D.Ill. 1996).
In examining the undisputed facts in this case, the Court finds that the Plaintiff has shown, by a preponderance of the evidence, that the Debtor/Defendant’s act of selling a grain drill and of disposing of his year 2000 crop, while failing to pay any of the proceeds to the Plaintiff, resulted in a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(6). It is clear that, at the time of the Debtor/Defendant’s actions in the year 2000, he was aware that the Plaintiff claimed a perfected security interest in his machinery and crops, and that his actions in liquidating those items without paying any of the proceeds to the Plaintiff Bank resulted in a substantial certainty that the Bank would be harmed. The Debtor/Defendant has offered no just cause or excuse for his actions, and, thus, the entire amount of the April 30, 2001, State Court judgment against the Debt- or/Defendant, in the amount of $38,095.93, must be found to be nondischargeable in this Chapter 7 Bankruptcy proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493524/ | MEMORANDUM OPINION
DAVID P. MCDONALD, Bankruptcy Judge.
Employer Solutions, Inc. (“ESI”) filed this adversary complaint seeking a declaration that it was not the common law nor statutory employer under Section 3401(d) of the Internal Revenue Code, 26 U.S.C. § 3401(d), of certain employees it had leased to Shared Savings Contracts, Inc. (“SSC”). Because Congress had not waived the Internal Revenue Services’s (“IRS”) sovereign immunity concerning the type of claim contained in ESI’s complaint, this Court lacks subject matter jurisdiction over ESI’s complaint with respect to the IRS. Further, because the IRS is an indispensable party to the complaint, the complaint must be dismissed against the remaining parties.
PROCEDURAL & FACTUAL BACKGROUND
ESI and SSC entered into an agreement (the “Agreement”) in December 1997 whereby ESI leased employees to SSC. Under the terms of the Agreement, ESI was responsible for withholding, reporting and remitting payroll taxes to state taxing authorities and the IRS for all non-Missouri based employees (the “Subject Employees”). SSC was obligated under the Agreement to forward to ESI sufficient funds to pay both the payroll taxes and the net wages to the Subject Employees.
Beginning in December 1999, SSC failed to remit to ESI a sufficient amount of cash to fund the payment of the payroll taxes. ESI, however, continued to pay those taxes to the various taxing authorities until March 2000. At that time, ESI began to only report the amount of payroll taxes owed but did not remit any amounts to the taxing authorities.
The various taxing authorities demanded that ESI pay the payroll taxes reflected on the reports that it had been filing. ESI in turn made a demand on SSC to remit to it payment sufficient to fund the payment of the delinquent payroll taxes. From March 2000 through sometime in late 2000, SSC did pay ESI a portion of the payroll taxes that ESI had remitted to the taxing authorities. SSC then ceased remitting payment to ESI for the past due taxes. ESI finally terminated the Agreement for cause in February 2001.
SSC filed for protection under Chapter 11 of the Bankruptcy Code on March 16, 2001. ESI filed a proof of claim against the bankruptcy estate in the amount of $261,781.74. This claim consists of the following: (1) $70,000 for unpaid payroll taxes due to the IRS; (2) $41,738.74 for unpaid worker’s compensation and unemployment insurance owed to the Canadian IRS and various state governmental units; and (3) $150,000 for the funds that ESI advanced to the IRS for payroll taxes from December 1999 through March 2000. ESI has filed a request for a refund of the $150,000 it has already remitted to the IRS. ESI contends that its claim should be afforded priority status under 11 U.S.C. § 507(a)(8) because it is asserting its claim on behalf of both itself and the various taxing authorities.1
At the direction of the Court, ESI contacted the various taxing authorities and *830notified them of the bar date for the filing of governmental claims against the estate. The IRS and the Ohio Bureau of Worker’s Compensation were the only two governmental entities that filed a proof of claim against the estate. The IRS’s proof of claim was in the amount $75,000, consisting of the amount of outstanding payroll taxes. The IRS and SSC reached an agreement settling the IRS’s proof of claim. Under the terms of the agreement, the IRS received immediate payment of $50,000 as a priority administrative claim and the remaining $25,000 portion of its claim will be a general unsecured claim. The IRS, in exchange for the immediate payment of the $50,000, stipulated that it will not pursue any additional claims against SSC for pre-petition tax liability.2 SSC paid the claim of the Ohio Bureau of Worker’s Compensation in full.
ESI filed the present adversary complaint, seeking a declaration that it was not the common law nor statutory employer of the Subject Employees under 26 U.S.C. § 3401(d). The IRS filed a motion to dismiss, arguing that under the doctrine of sovereign immunity, this Court lacks jurisdiction to adjudicate ESI’s claim with respect to the IRS. Because ESI’s complaint does not invoke a statute in which Congress has expressly abrogated sovereign immunity, the IRS’s motion will be granted. Also, because the IRS is an indispensable party to ESI’s complaint, the complaint must be dismissed.
DISCUSSION
A. The IRS’s Sovereign Immunity Claim
The IRS, as a unit of the Federal Government, enjoys sovereign immunity against suits in Federal Courts unless Congress has consented to such suits. Miller v. Alamo Foundation, 134 F.3d 910, 915-16 (8th Cir.1998). Congress’ consent to such a suit must be unequivocal. United States v. Nordic Village, Inc., 503 U.S. 30, 33, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992). Thus, any statute that purportedly waives immunity must be strictly construed in favor of the sovereign. Id. at 34, 112 S.Ct. 1011.
Here, ESI contends that Congress waived sovereign immunity with respect to its complaint for two reasons. First, ESI argues that Congress waived sovereign immunity with respect to the present adversary complaint because the complaint invokes the general jurisdiction of this Court under 28 U.S.C. §§ 157 and 1334. Second, ESI maintains that Congress abrogated the IRS’s sovereign immunity with respect to ESI’s complaint because the complaint invokes this Court’s specific jurisdiction to determine tax liability under 11 U.S.C. § 505(a)(1). The Court disagrees with ESI’s contention that Congress has abrogated the IRS’s sovereign immunity with respect to its adversary complaint.
ESI first argues that 28 U.S.C. §§ 157 and 1334, which confers general jurisdiction to the district court to hear and refer cases arising under the Code to bankruptcy courts, is a Congressional intent to waive sovereign immunity with respect to cases arising in or arising under the Code. The Supreme Court rejected that argument in Nordic Village because merely conferring general jurisdiction to federal courts generally is not a sufficiently clear Congressional consent to allow specific suits against governmental units. Id. at 37-38, 112 S.Ct. 1011. Therefore, 28 U.S.C. §§ 157 and 1334 is not an abrogation of sovereign immunity. Id.
*831ESI also states that 11 U.S.C. § 106(a) is applicable to ESI’s adversary complaint and waives the IRS’s sovereign immunity. Section 106(a) provides that sovereign immunity is abrogated with respect to actions arising under certain provisions of the Code. Specifically, in the present case, ESI contends that its adversary complaint arises under § 505(a)(1), which is one of the sections enumerated in § 106(a).
Section 505(a)(1) states in relevant part that “[T]he court may determine the amount or legality of any tax.” ESI asserts two bases in contending that § 505(a)(1) is applicable here. First, ESI contends that the determination of its tax liability will affect the tax liability of SSC. ESI premises its argument on the rationale that if it is not liable to the IRS for the payroll taxes, its claim against the estate will be reduced accordingly. The Court rejects this argument for two reasons.
First, the scope of § 505(a)(1) is limited to the adjudication of the debtor’s unpaid tax liability. It is true that the literal language of the statute indicates that the bankruptcy court has the power to adjudicate any tax. (Emphasis Added). The majority of courts, however, has limited the scope of § 505(a)(1) to only conferring jurisdiction to bankruptcy courts to determine the debtor’s unpaid tax liability. The Courts adopts this majority approach in construing the scope of § 505(a)(1).
The legislative history of § 505(a)(1) clearly indicates that Congress only intended to confer the bankruptcy court with the power to adjudicate the unpaid tax liability of the debtor. Quattrone Accountants, Inc. v. Internal Revenue Service, 895 F.2d 921, 925 (3d Cir.1990) (quoting 1978 U.S.Code Cong. & Admin. News 5787, 5853). Allowing bankruptcy courts to consider the “amount or legality of any tax” as provided in the literal language of the statute would transform bankruptcy courts into a secondary tax court system. See Michigan Employment Security Comm. v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132, 1139 (6th Cir.1991). This is clearly contrary to Congress’ intent as expressed in the legislative history of § 505(a)(1). Id. Accordingly, this Court adopts the majority construction of § 505(a)(1) that limits its scope to conferring jurisdiction to issues involving the unpaid tax liability of the debtor.3
Here, the determination of whether ESI is liable to the IRS for the payroll taxes in dispute will not have an impact on SSC’s tax liability. SSC has entered into a settlement agreement with the IRS in which the IRS has stipulated that it will not pursue any additional claim against SSC for pre-petition tax liability. Thus, regardless of whether or not ESI is hable to the IRS for the payroll taxes, SSC’s tax liability has been settled. Accordingly, the adjudication of ESI’s adversary complaint can only affect ESI’s potential tax liability.
Second, ESI’s argument that its adversary complaint invokes this Court’s jurisdiction under § 505(a)(1) fails because any liability that SSC may have to ESI as a result of SSC’s status as the employer under 26 U.S.C. § 3401(d) cannot be a “tax” for purposes of the Code. Under the Code, a tax is a “pecuniary burden laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or *832of undertakings authorized by it.” North Dakota Workers Compensation Bureau v. Voightman (In re Voightman), 239 B.R. 380, 383 (8th Cir. BAP 1999) (quoting City of New York v. Feiring), 313 U.S. 283, 285, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941). Thus, a tax under the Code must be a payment compelled by a governmental unit exercising its police or taxing power and the revenues generated from the payment must benefit the public at large. County Sanitation Dist. No. 2 v. Lorber Indus. (In re Lorber Indus.), 675 F.2d 1062, 1066 (9th Cir.1982); Voightman, 239 B.R. at 383-84; In re Sacred Heart Hosp., 212 B.R. 467, 472 (E.D.Pa.1997). Therefore, a payment to a private party under a contract is not a “tax” under the Code. See Id.
Here, any payment from SSC to ESI would be under the Agreement and not compelled by any governmental unit exercising its police or taxing power. Also, any payment to ESI would benefit ESI, not the public at large. Accordingly, any payment that SSC would be required to make to ESI as a result of SSC’s status as the employer could not be construed as a “tax” under the Code. Therefore, even if the present adversary complaint may affect SSC’s liability to ESI, such liability is not a “tax” under the Code and § 505(a)(1) is inapplicable.
ESI also argues that the present adversary complaint invokes this Court’s jurisdiction under § 505(a)(1) because a determination of whether it or SSC is the employer will determine whether SSC’s payment to the IRS was a tax payment. As discussed above, § 505(a) is limited in scope to conferring bankruptcy courts with the power to determine the amount or legality of the debtor’s unpaid tax liability. Quattrone, 895 F.2d at 925. (Emphasis Added). SSC’s tax liability was settled in the agreement with the IRS. Thus, regardless of whether SSC’s payment to the IRS was in satisfaction of its tax liability, the adjudication of ESI’s adversary complaint can in no way affect SSC’s unpaid tax liability. Accordingly, the relief sought in ESI’s complaint simply exceeds the limited scope of § 505(a).
In conclusion, there is no provision under the Code in which Congress has abrogated the IRS’s sovereign immunity with respect to the relief sought in ESI’s adversary complaint. Thus, this Court lacks subject matter jurisdiction over ESI’s complaint with respect to the IRS. Accordingly, the IRS’s motion to dismiss is granted.
B. The IRS is an Indispensable Party to this Action
Because this Court lacks jurisdiction over ESI’s claim with respect to the IRS, the Court must determine whether ESI’s adversary complaint can proceed in the IRS’s absence. Rule 19(b) of the Federal Rules of Civil Procedure, which is made applicable to this adversary proceeding under Fed. R. Bankr.P. 7019, requires dismissal of an action if an absent necessary party is indispensable to the continuation of the action. Clearly, the IRS is a necessary party to ESI’s complaint under Rule 19(a). If ESI were to prevail in its action, the IRS’s interest in ESI’s pending claim for a refund. Thus, the IRS is a necessary party to the action under Rule 19(a)(2)®.
If a necessary party cannot be joined in the action, the court must dismiss the action if in equity and good conscience, it finds that the absent party is indispensable. Fed.R.Civ.P. 19(b). Whether the absent necessary party is indispensable is a fact intensive analysis that must be determined in the context of the particular litigation. Spirit Lake Tribe v. North Dakota, 262 F.3d 732, 746 (8th Cir.2001). Rule 19(b) specifically outlines the follow*833ing four factors in determining whether the absent party is indispensable: (1) to what extent a judgment rendered in the person’s absence might be prejudicial to the person or the present parties; (2) the extent to which, by protective provision in the judgment, the court could protect the absent party; (3) whether a judgment entered in the person’s absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed.
After reviewing the facts presented here, the Court finds that in equity and good conscience, ESI’s adversary complaint cannot proceed without the IRS. First, as stated above, the determination of whether ESI is the employer could prejudice the IRS’s position vis-a-vis ESI’s pending claim for a refund. Thus, ESI’s position in the present adversary complaint is adverse to the IRS’s position. Such a situation militates strongly against allowing the action to proceed without the IRS. See Spirit Lake Tribe, 262 F.3d at 747-48. Also, the Court finds that it would be unable to protect the IRS’s position if ESI’s complaint were to proceed. Finally, ESI does have an alternative forum to pursue the IRS for a determination of its tax liability and it has already filed an action in that forum.
In conclusion, the facts in the present litigation weigh strongly in favor of finding that the IRS is an indispensable party to ESI’s adversary complaint under Rule 19(b). Thus, because the Court lacks jurisdiction over the IRS, ESI’s adversary complaint must be dismissed.
CONCLUSION
ESI’s complaint does not invoke any provision of the Bankruptcy Code in which Congress has abrogated the IRS’s sovereign immunity. Thus, the Court lacks subject matter jurisdiction to adjudicate ESI’s adversary complaint with respect to the IRS. Also, the IRS is an indispensable party to ESI’s action. Therefore, ESI’s complaint cannot proceed in the absence of the IRS. Accordingly, ESI’s complaint must be dismissed.
An Order consistent with this Memorandum Opinion will be entered this date.
. SSC has objected to the amount and priority status of ESI’s claim.
. The IRS confirmed the terms of the agreement on the record at the hearing on the present motion.
. Even courts that have adopted the minority position that § 505(a)(1) does give the bankruptcy court the power to adjudicate the tax liability of non-debtors have limited that jurisdiction to situations where such a determination may have an impact on the tax liability of the debtor. See e.g. In re Schmidt, 205 B.R. 394, 397-98 (Bankr.N.D.Ill.1997). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493525/ | *110
OPINION
GERALD D. FINES, Chief Judge.
This matter having come before the Court on a Motion for Leave to Withdraw Attorney Appearance filed by Attorney Richard F. Kurth, Petition for Attorney Fees filed by Richard F. Kurth, Debtors’ objection thereto, and Motion to Reinstate Motion for Civil Contempt; the Court, having heard arguments of the parties and reviewed the record of Debtors’ bankruptcy proceeding and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Findings of Fact
In considering the matters presently before it, the Court finds it helpful to first set out a complete chronology of the Debtors’ bankruptcy proceeding from its inception to the present time. That chronology, in pertinent part, is as follows:
1. The Debtors filed for relief under Chapter 11 of the Bankruptcy Code on December 4, 1989. The Debtors were initially represented by Attorney Larry Serene. In their original bankruptcy schedules, the Debtors scheduled Kankakee County as a Creditor holding claims for unpaid real estate taxes for the years 1984 though 1988, in the approximate amount of $71,450.15. The majority of the Debtors’ assets included numerous parcels of rental real estate located in and around the City of Kankakee, Illinois.
2. The first meeting of creditors in Debtors’ bankruptcy was scheduled and held on February 12,1990, at which time it was noted that the Court was having difficulty in getting the Debtors to file all required schedules, including the schedule of salary which was not filed until March 19,1990.
3. Apparently, difficulties developed between the Debtors and their then-attorney, Larry Serene, as indicated by the fact that the Debtors began to file pro se documents following their first meeting of creditors. On March 5, 1990, Attorney Larry Serene withdrew his representation of the Debtors, and Attorney Richard F. Kurth entered his appearance.
4. The Debtors’ Chapter 11 plan of reorganization and disclosure statement were originally due to be filed on or before April 4, 1990. However, the Debtors were unable to meet the filing deadline, and an extension was granted until June 4, 1990.
5. On June 4, 1990, it was apparent that the Debtors were going to be again unable to file a plan and disclosure statement, and a final extension was granted until July 5,1990.
6. On June 11, 1990, the Office of the United States Trustee moved to dismiss the Debtors’ case for their failure to formulate a plan of reorganization. This Motion was later withdrawn upon the Debtors’ filing of their Plan and Disclosure Statement.
7. On July 5, 1990, the Debtors’ filed a Chapter 11 Plan of Reorganization and Disclosure Statement. In their Chapter 11 Plan, the Debtors, at Class Five, indicated that they would pay the sum of $75,000 to Kankakee County, for real estate taxes due for the years 1984 through 1988, over a period of five years, plus nine percent interest. Numerous objections were filed to the Debtors’ Disclosure Statement indicating that the information was incomplete, and, as such, the Debtors’ original Disclosure Statement was denied, on October 15, 1990, and the Debtors were given 14 days to file an amended disclosure statement. The Debtors did not meet the 14 day deadline. However, an Amended Disclosure Statement was filed on No*111vember 15,1990, and approved, over objection, on December 14, 1990, a date 10 days after the one year anniversary of Debtors’ Chapter 11 filing.
8. On February 19, 1991, the Office of the United States Trustee filed a Motion to Convert Debtors’ Chapter 11 Case to One Under Chapter 7, indicating that the Debtors had not filed monthly reports as required, nor had they paid the fees to the United States Trustee’s Office. At this time, numerous objections to confirmation were filed setting off several hearings concerning the confirmation of the Debtors’ Chapter 11 Plan of Reorganization.
9. On July 8, 1991, the Office of the United States Trustee again filed a Motion to Convert Debtors’ Chapter 11 Case to One Under Chapter 7, stating as cause that once again the Debtors had failed to file required reports and pay required fees.
10. At hearing in May 1991, the Court confirmed the Debtors’ Chapter 11 Plan of Reorganization after numerous negotiations between Debtors and creditors, and the Court directed that the Debtors file an order of confirmation on or before May 21, 1991. The Order of Confirmation was not filed until August 21,1991, at which time it was entered. During the three months between the date the Order of Confirmation was due and the date it was filed, numerous motions for relief from the automatic stay were being filed by various mortgage holders of the Debtors, indicating as cause that the Debtors were not paying current mortgage payments as they came due. The majority of these motions for relief from stay were eventually resolved by payments from the Debtors, albeit they were not timely made.
11. On December 18, 1991, the Office of the United States Trustee filed a Motion for Summary Dismissal, indicating that once again the Debtors were failing to file reports as they came due. At this time, it was noted by the Court that the Debtors had developed a pattern of failing to file necessary monthly reports and pay quarterly fees until such time as the Office of the United States Trustee filed either a motion for conversion or a motion for dismissal.
12. On February 28, 1992, Creditor, Security Lumber and Supply Co., filed a Motion to Dismiss Debtors’ bankruptcy proceeding, stating as cause that payments as proposed in the Debtors’ Plan were not being made. This Motion was later resolved by a payment from the Debtors.
13. On April 13, 1992, Creditor, First of America Bank, filed a Motion to Convert or Dismiss Debtors’ bankruptcy proceeding, stating as cause that the Debtors were failing to make payments as proposed in their Plan as they came due. During this time, other mortgage creditors were filing motions for relief from stay based upon non-payment by the Debtors. As had become the case since the inception of Debtors’ bankruptcy filing, the Debtors resolved these matters by payment when faced with the prospect of conversion, dismissal, or relief from the stay.
14. On August 16, 1993, Creditor, Security Lumber and Supply Co., filed a Motion to Dismiss Debtors’ Chapter 11 proceeding based upon the fact that a payment had been made by the Debtors by check, and the check had been returned to the Creditor for non-sufficient funds. Once again, this matter was eventually resolved by a payment from the Debtors in the face of the possibility of dismissal.
15. On October 5, 1994, Debtors filed an Annual Report in which they admitted that, from “time to time” the Debtors fell into arrears on their Plan payments; how*112ever, the Debtors believed that they were current at that time.
16. On January 23, 1995, Creditor, First of America Bank, again filed a Motion to Convert or Dismiss Debtors’ bankruptcy proceeding based upon nonpayment of its debt. This Motion was subsequently resolved by a payment from the Debtors.
17. On April 24, 1995, Creditor, First of America Bank, again filed a Motion to Convert or Dismiss based upon non-payment, and, on July 24, 1995, a “drop dead” Order was entered requiring the Debtors to make payments on a timely basis, with the proviso that failure to do so would result in automatic relief from stay in the event Debtors fell behind and were unable to cure the default.
18. On October 6, 1995, Debtors filed a Motion to Dismiss and for Discharge of their Chapter 11 bankruptcy proceeding based upon their allegation that they had obtained financing with which to pay the balance of their Chapter 11 Plan as originally proposed.
19. On November 13, 1995, the Debtors’ Motion to Dismiss and for Discharge was denied based upon the fact that the financing promised by the Debtors had not materialized. As a result, the Debtors were unable to obtain a discharge in their Chapter 11 bankruptcy proceeding, and a final decree was never entered, in that payments as proposed were not made in full.
20. On April 16, 1996, Debtors filed a Motion to Convert their Chapter 11 proceeding to one under Chapter 13 of the Bankruptcy Code. This Motion was subsequently allowed by Order entered May 14, 1996, together with an Order indicating that numerous documents necessary in the Debtors’ Chapter 13 filing had not been filed. Debtors were directed to file the necessary documents within 15 days.
21. On May 29, 1996, Debtors were unable to file the necessary documents and were granted a 10 day extension to do so.
22. On June 13,1996, once again it was evident that the Debtors had not filed the necessary documents, and a further extension of 7 days was granted.
23. On June 26, 1996, Debtors filed some of the missing documents which were required to have been filed on or before June 20,1996.
24. On June 28, 1996, the Court received the remaining missing documents, most important of which was the Debtors’ Schedule of PosNPetition Debts, in which they indicated that there were “none”.
25. On July 22, 1996, both the Debtors and their attorney failed to appear at their scheduled first meeting of creditors, with the meeting being continued until September 5,1996.
26. On September 5, 1996, the Debtors again failed to appear at their first meeting of creditors, resulting in a rescheduling of the hearing to October 10,1996.
27. On September 16, 1996, a Motion for Relief from the Automatic Stay or in the Alternative Dismissal was filed by Creditor, National City Mortgage, stating as cause that the Debtors had failed to make payments to the Chapter 13 Trustee as required by their Plan.
28. On October 10, 1996, Debtors’ first meeting of creditors in their Chapter 13 bankruptcy was held, and it is noted that, at that time, numerous objections had been filed to the Debtors’ Chapter 13 Plan and additional motions for relief from the automatic stay had been filed based upon nonpayment of debt.
29. On March 7, 1997, Debtors filed an Amended Chapter 13 Plan of Reorganiza*113tion, which was subsequently confirmed on May 1, 1997. It is here noted that this Amended Plan did not include any post-petition debt from the period of December 4, 1989, through the time of conversion on May 14,1996.
30. On January 14, 1998, the Chapter 13 Trustee filed a Motion to Dismiss Debtors’ bankruptcy proceeding indicating that the Debtors had missed a total of six payments at that time. This Motion was subsequently withdrawn by the Trustee on February 13, 1998, based upon the Debtors’ promise to make the missing payments and make future payments in a timely manner.
31. On May 20, 1998, the Debtors filed a Motion for Temporary Restraining Order requesting that an action by Kankakee County to sell real estate located at 964 North Indiana, Kankakee, Illinois, for back taxes be stopped. This Motion was later withdrawn on June 12,1998.
32. On September 4, 1998, the Debtors filed a Motion for Civil Contempt requesting that the Court find Kankakee County Treasurer Mark Frechette in contempt of Court for violation of the automatic stay as a result of his action to sell various parcels of the Debtors’ real estate based upon unpaid real estate taxes for the years 1994 and 1995. Here the Court would note that the 1994 and 1995 real estate taxes had not been scheduled as debts in the Debtors’ Chapter 13 bankruptcy proceeding, in that the Schedule of Post-Petition Debt filed by the Debtors on June 28, 1996, indicated that there were no post-petition debts.
33. On October 26, 2000, the Chapter 13 Trustee filed a Motion to Dismiss the Debtors’ bankruptcy proceeding stating that, at that point in time, the Debtors had missed 15 scheduled plan payments. In relation to this Motion, the Court entered an Order on November 16, 2000, indicating that the Debtors would be given until January 15, 2001, to cure all plan arrearages, or the case would be dismissed.
34.On October 27, 2000, Debtors once again filed a Motion for Temporary Restraining Order requesting that the Court stop the sale of real estate for unpaid taxes by Kankakee County. This Motion was denied by an Order entered on January 31, 2001, based upon the Debtors failure to prove that the County was acting beyond the scope of its authority or in violation of the automatic stay.
Conclusions of Law
The Court will first consider the Motion to Reinstate Motion for Civil Contempt filed by the Debtors on August 30, 2001, in which the Debtors request that the Court enter an order reinstating the Motion for Civil Contempt filed against Kankakee County Treasurer, Mark Frechette, on September 4, 1998. In reviewing the record of Debtors’ bankruptcy proceeding, the Court finds that the Motion for Civil Contempt at issue was considered by the Court, together with Adversary Case No. 00-9045, and dismissed by order of the Court on November 16, 2000. The Motion for Civil Contempt was predicated on allegations by the Debtors that Kankakee County Treasurer, Mark Frechette, had violated the automatic stay when he took actions to sell real estate owned by the Debtors for delinquent taxes in the years 1993,1994, and 1995.
Pursuant to 11 U.S.C. § 362(h):
An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
In dismissing both the Motion for Civil Contempt and Adversary Case No. 00-9045, the Court concluded that there had *114been no violation of the automatic stay, either willful or technical, in that the real estate which was sold for delinquent taxes concerned tax years which were not a part of the Debtors’ Chapter 13 bankruptcy. As accurately pointed out by Defendant, Zion Gate Missionary Baptist Church, in its opposition brief in Adversary Case No. 00-9045, filed on October 24, 2000, real estate taxes for which the Debtors were responsible subsequent to their original bankruptcy filing on December 4, 1989, were neither scheduled in their Chapter 13 petition nor included in the Debtors’ Amended Chapter 13 Plan. As such, the Debtors remain responsible for the payment of those taxes, and any liens on the Debtors’ real estate resulting from the non-payment of those taxes have survived the Debtors’ bankruptcy filing. As noted above, at paragraph 24 of its Findings of Fact, it is clear that, on June 28, 1996, when the Debtors’ filed their Schedule of Post-Petition Debts to be included in their Chapter 13 bankruptcy, “none” were listed. This being the case, the Court can easily conclude that Kankakee County and the Kankakee County Treasurer were well within their rights to seek payment of delinquent real estate taxes for the years following 1989, and to sell the real estate for non-payment of those taxes, as has been the case. These real estate taxes, for the years subsequent to 1989, clearly could not have been included in Debtors’ Chapter 11 bankruptcy, as they were post-petition and were not included in Debtors’ Chapter 13 bankruptcy, as they were not scheduled nor were they referenced in the Amended Chapter 13 Plan filed by the Debtors on March 7, 1997, and subsequently confirmed on May 1, 1997. For these reasons, the Motion to Reinstate Motion for Civil Contempt must be denied.
In addition to the reasons stated above for the denial of the Motion to Reinstate Motion for Civil Contempt, the Court further finds that the Motion to Reinstate Motion for Civil Contempt was not timely filed. Pursuant to Rule 9023 of the Federal Rules of Bankruptcy Procedure, Rule 59 of the Federal Rules of Civil Procedure is made applicable to bankruptcy proceedings, and Rule 59(e) states, “Any motion to alter or amend a judgment must be filed no later than 10 days after entry of the judgment.” The instant Motion to Reinstate Motion for Civil Contempt is, in essence, a motion to alter or amend the judgment of this Court in dismissing the Motion for Civil Contempt, and the Motion to Reinstate was clearly filed well beyond the 10 day time period.
In considering the Petition for Attorney Fees filed by Debtors’ attorney, Richard F. Kurth, on September 21, 2001, the Court finds that Debtors’ attorney seeks to be paid the sum of $29,050, in addition to fees in excess of $23,000, which have already been paid by the Debtors. The record of Debtors’ bankruptcy proceeding reflects that the Trustee, James Geekie, is currently holding approximately $16,000, which may be paid to Debtors’ attorney for fees or paid to creditors who have filed claims to increase the percentage of their recovery. Debtors’ attorney seeks to have the $16,000 paid as part of his fee, with any remaining fees being due from the Debtors personally. The Debtors have objected to the payment of additional fees by way of a letter filed on October 12, 2001, in which the Debtors indicate that they have, in fact, paid their attorney in excess of $32,000. It is their belief that their attorney has not completed all work which he agreed to perform in a Contract of Employment which the parties entered into on April 17, 1996, and is, thus, not entitled to any additional fees at this time.
The procedure which this Court follows in evaluating fee applications has *115long been established and is set out in detail in the case of In re Chellino, 209 B.R. 106 (Bankr.C.D.Ill.1996). In that case, this Court cited, with approval, the cases of In re Wiedau’s, Inc., 78 B.R. 904 (Bankr.S.D.Ill.1987); In re Wildman, 72 B.R. 700 (Bankr.N.D.Ill.1987); and In re East Peoria Hotel Corp., 145 B.R. 956 (Bankr.C.D.Ill.1991), for the proposition that fee apphcations must be accompanied by written justification supporting the fees requested. In the instant case, no such justification has been supplied. In reviewing the record of Debtors’ bankruptcy proceeding, the Petition for Attorney Fees, and the itemization attached thereto, the Court concludes that an award of additional attorney fees is not justified in this case. Debtors’ attorney indicates that he has been paid in excess of $23,000 in fees, and the Debtors indicate that the attorney has been paid in excess of $32,000. Regardless of which amount is correct, the Court concludes that Debtors’ attorney has been sufficiently compensated for the services which he has performed, in light of the results obtained. Thus, the Petition for Attorney Fees, filed on September 21, 2001, must be denied.
Finally, the Court turns to the Motion for Leave to Withdraw Attorney Appearance filed by Debtors’ attorney, on December 18, 2001, and the objection thereto filed by the Debtors on January 10, 2002, in the form of a Motion to Deny Motion for Leave to Withdraw Attorney Appearance. In reviewing the Motion for Leave to Withdraw Attorney Appearance, the objection filed by the Debtors on January 10, 2002, and the record of Debtors’ bankruptcy proceeding, the Court finds that many conflicts have arisen between the Debtors and their attorney, such that the Motion for Leave to Withdraw Attorney Appearance should be allowed. The most significant conflict which exists concerns the Debtors’ desire to litigate issues concerning the 1993, 1994, and 1995 real estate tax claims on behalf of Kankakee County, and their attorney’s belief that he has done all that can be done regarding these matters. Further, from a review of the record of the Debtors’ bankruptcy proceeding, it is clear that the Debtors have had on-going misunderstandings as to the effect of their Chapter 13 bankruptcy, and communications between the Debtors and their attorney have failed to rectify these misunderstandings. Although the Debtors did complete payment of their Amended Chapter 13 Plan, the record of this proceeding reflects that many instances of non-payment occurred along the way. The record reflects that, not only were the Debtors very sluggish in their payments to the Chapter 13 Trustee, but they were also less than diligent in their payments to various mortgage holders and in their payments to Kankakee County for real estate taxes. Ultimately, it is apparent that the Debtors continue to have significant delinquencies for real estate taxes due for the years following their original bankruptcy filing, in December 1989, which were not and could not be resolved by their Amended Chapter 13 Plan, for the reason that said taxes were either post-petition and not properly includable in their Plan, or were not scheduled as debts for which claims could have been filed. In all, it is apparent that the relationship between the Debtors and their attorney has deteriorated to a point where it is necessary that Debtors’ attorney be allowed to withdraw as counsel of record.
At this time, the Court having disposed of all pending matters in this proceeding, including the Petition for Attorney Fees and the Motion for Leave to Withdraw Attorney Appearance, it is incumbent upon the Chapter 13 Trustee to pay monies remaining in his hands to creditors who have properly filed claims, such that their *116percentage of recovery will be increased. Once this has been accomplished, the case should proceed to discharge and closing at the earliest possible moment.
ORDER
For the reasons set forth in an Opinion entered on the_day of February 2002;
IT IS HEREBY ORDERED that:
A. The Motion to Reinstate Motion for Civil Contempt filed on August 30, 2001, is DENIED;
B. The Petition for Attorney Fees filed on September 21, 2002, is DENIED;
C. The Motion for Leave to Withdraw Attorney Appearance filed on December 18, 2001, is ALLOWED; and,
D. The Motion to Deny Motion for Leave to Withdraw Attorney Appearance, taken by the Court as an objection to the Motion for Leave to Withdraw Attorney Appearance, filed by the Debtors pro se on January 10, 2002, is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493526/ | OPINION
GERALD D. FINES, Chief Judge.
This matter having come before the Court for trial on Debtors’ Motion to Determine Extent of Lien Pursuant to 11 U.S.C. § 506; the Court, having heard arguments of counsel and being otherwise fully advised in the premises, makes the *121following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Findings of Fact
The material facts in this matter are not in dispute, and are, in pertinent part, as follows:
1. Debtors filed for relief under Chapter 13 of the Bankruptcy Code on May 28, 1999.
2. On November 29, 1999, Debtors’ Chapter 13 bankruptcy proceeding was' converted to one under Chapter 7 of the Bankruptcy Code.
3. Prior to filing for relief under the Bankruptcy Code, Debtor, Robert A. Rie-man, was involved in an automobile accident during the course of his employment.
4. Based upon the fact that the automobile accident at issue occurred while the Debtor, Robert A. Rieman, was working, the Debtor pursued a Worker’s Compensation claim against his employer’s insurer, Allied Insurance.
5. As a result of his Worker’s Compensation claim, Allied Insurance paid medical, benefits on behalf of Debtor, Robert A. Rieman, in the approximate amount of $131,017.49.
6. In addition to his Worker’s Compensation claim, Robert A. Rieman filed a personal injury lawsuit against Paul Stro-bel for his alleged negligence in causing the automobile accident in which Robert A. Rieman was injured.
7. The personal injury action against Paul Strobel was settled for the policy limits of $100,000.
8. Pursuant to 820 ILCS 305/5(b), Defendant, Allied Insurance, asserted a lien on the proceeds received by Robert A. Rieman in his personal injury case to recoup the Worker’s Compensation benefits paid under the Debtor’s Worker’s Compensation claim.
9. After payment of attorney’s fees, the amount remaining on the personal injury settlement is $75,000. Defendant, Allied Insurance, seeks to have this sum paid to it in satisfaction of its Worker’s Compensation lien.
10. Debtor, Robert A. Rieman, wishes to assert his personal injury exemption, pursuant to 735 ILCS 5/12 — 1001 (h)(4), as the lien impairs his personal injury exemption. It is the position of Debtor, Robert A. Rieman, that he should receive the sum of $7,500 as and for his personal injury exemption, with the remaining proceeds to be paid to Allied Insurance on its Worker’s Compensation lien.
Conclusions of Law
The parties to this matter agreed that there were no facts in issue, and, as such, the parties submitted legal briefs. Argument was held on January 17, 2003. A thorough review of the case law cited by the parties leads the Court to conclude that the Debtors’ assertion of a personal injury exemption over the statutory Worker’s Compensation lien held by Defendant, Allied Insurance, must be denied.
In support of their position, Debtors cite the case of Brinegar v. Reeves, 289 Ill.App.3d 405, 224 Ill.Dec. 459, 681 N.E.2d 1080 (1997), for the proposition that Debtors are entitled to exempt $7,500 of the personal injury settlement proceeds prior to any payment to the Defendant, Allied Insurance. A careful review of the Brine-gar case leads the Court to conclude that it is clearly distinguishable on its facts, and it does not support the conclusion suggested by the Debtors. The Brinegar case does not involve the Worker’s Compensation statute and does not stand for the proposition as cited by the Plaintiffs.
In reviewing the cases cited by the Defendant and cases found by the Court, it is clear that the Worker’s Compensation lien is a statutory lien and is, therefore, not *122avoidable pursuant to 11 U.S.C. § 522(f), nor can it be subordinated to the Debtors’ personal injury exemption under any other provision of the Bankruptcy Code. See: In re Whitford, 101 B.R. 559 (Bankr.S.D.Ill.1989); In re Elledge, 1998 WL 2017634 (Bankr.D.S.C.1998); and In re Carpenter, 245 B.R. 39 (Bankr.E.D.Va.2000). The holdings under these cases are clear and factually on point. As such, the Court must conclude that the Debtors’ attempt to assert a personal injury exemption as against the Worker’s Compensation hen held by Allied Insurance must fail, leaving the Court no choice but to deny the Debtors’ Motion to Determine Extent of Lien Pursuant to 11 U.S.C. § 506. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493527/ | ORDER ON VERIFIED MOTION TO RECUSE JUDGE PASKAY and MEMORANDUM OF LAW
(Doc. No. 181)
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration in this Chapter 7 case is the “Verified Motion to Recuse Judge Paskay and Memorandum of Law” [sic] (Verified Motion), filed by Noel Dean Clerk, Jr. (Debtor). According to the Debtor, the Verified Motion is filed pursuant to Fla. Stat. § 38.10 and Canon 3C of the Code of Judicial Conduct. In the Verified Motion, the Debtor alleges that he cannot get a fair and impartial ruling because the undersigned is obviously biased towards pro se debtors, very rude and obnoxious, and indicates a strong dislike for this pro se Debtor; that he cannot receive a fair and impartial ruling from a judge “that wishes to make mock*195ery of his presence in Court”; and that this Court tried to shame and embarrass the pro se Debtor.
On September 5, 2002, V. John Brook, the Trustee in charge of the administration of the estate of Elnora May Hoffman, filed a Response to the Debtor’s Motion to Re-cuse. Brook, in his Response, alleged that among the assets of the Hoffman estate is a promissory note secured by a mortgage deed of a tract of land fully identified by a legal description located in Lee County, Florida and a 1957 mobile home, bearing serial no. 5579.
Brook contends that the maker of the note is delinquent and that he filed an Amended Motion for Relief from the automatic stay or in the alternative for administrative rent in this case. Simultaneous with a Response to the Motion for Relief from stay, the Debtor filed the Verified Motion to Recuse. The Debtor, in his response to the Motion filed by Brook, took the position that he “has never had and has no personal interest in the subject property,” i.e. the property covered by the mortgage described earlier. Based on the position taken by the Debtor, this Court granted the motion and authorized Brook to commence a foreclosure action to enforce the mortgage lien against the subject property. This Court also provided that the relief granted was strictly in rem relief and did not authorize Brook to seek an in personam personal liability against the Debtor based on the promissory note. In addition, Brook set forth extensive citation of authorities in support of the proposition that the Motion, as pled, failed to set forth anything, which under the controlling authorities, would warrant a recusal. In addition, Brook noted that the recusal of a federal judge is not governed either by § 38.10 Fla. Stat. or by Rule 2.160 Fla. R. Jud. Admin.
At the duly noticed hearing on the Verified Motion, the Debtor appeared pro se. Ms. Carr, the Trustee of the estate of the Debtor, also appeared. This Court invited the Debtor to present argument in support of his Verified Motion. The Debtor initially stated, in essence, the same allegations which were set forth in the Verified Motion. However, he also alleged, without specifying in what manner, that this Court violated his constitutional rights and that this Court “created new law.” In response to an inquiry by this Court of whether he desired to present anything else, the Debt- or stated that he would like to “get some of the things on record” since he will have to “do an appeal with this thing.”
After this Court approved the request, the Debtor stated that he observed during the past year that several attorneys who have appeared before this Court violated the automatic stay but that this Court did not impose any sanctions on those attorneys. However, when the Debtor was charged with violating the automatic stay, and because he never received a notice of the hearing on a motion to impose sanctions against him, this Court imposed sanctions. When he filed a Motion for Rehearing of the Order granting the sanctions, this Court granted the Motion, which was set for hearing in due course. According to the Debtor, he brought seven witnesses to the hearing on the Motion for Rehearing but this Court refused to hear any testimony on the ground that a hearing on a Motion for Rehearing was not scheduled as an evidentiary hearing but solely to hear argument limited to the issue of whether there was a sufficient legal basis to grant the request to reconsider the original motion for sanction on its merits.
The second basis for the Verified Motion is the contention by the Debtor, without really articulating with specificity, that this Court granted a Motion for Relief from *196the automatic stay with the Hoffman estate involving a certain trust, which was not protected by the automatic stay. This record did not reveal what cognizable interest the Debtor had in the land involved in the Motion for Relief from the automatic stay.
Having heard the oral statement of the Debtor in support of the Verified Motion, having considered the allegations in the Verified Motion, the Response filed by Brook, as well as the pertinent part of the record of this chapter 7 case, this Court is satisfied that the Verified Motion is not supported by facts and by the legal principles applicable to a recusal, and therefore it should be denied for the following reasons.
It should be noted at the outset that the recusal of a federal judge is not governed by Fla. Stat. § 38.10 or by a State Court Rule dealing with the recusal of a judicial officer. The applicable statutes involved for recusal of a federal judge are as follows and provide:
28 U.S.C. § 455(a) states “any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.”
28 U.S.C. § 455(b)(1) states he [judge] shall also disqualify himself in the following circumstances ... where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding.
28 U.S.C. § 144 states “the moving party shall file an affidavit which shall state the facts and the reasons for the belief that bias or prejudice exists ... and shall be accompanied by a certificate of counsel of record stating that it is made in good faith.”
28 U.S.C. § 144 and 455.
The burden of proof to establish a valid legal ground to disqualify a presiding judge is on the moving party. In re Betts, 165 B.R. 233 (Bankr.N.D.Ill.1994). Cases construing these two sections, 144 and 455, have uniformly held that a motion to recuse must be made timely and at the earliest possible moment after obtaining information of possible bias based on extrajudicial sources rather than facts arising in the context of the very proceeding presided over by the judge. In re Cooke, 160 B.R. 701 (Bankr.D.Conn.1993); Planned Parenthood of Southeastern Pennsylvania v. Casey, 812 F.Supp. 541 (E.D.Penn.1993).
A person seeking recusal must set forth specific facts establishing the perceived bias. United States v. Carignan, 600 F.2d 762 (9th Cir.1979). In seeking disqualification of a federal judge on the basis of personal bias, facts learned by judge in his judicial capacity cannot be the basis for disqualification. Hale v. Firestone Tire & Rubber Co., 756 F.2d 1322 (8th Cir.1985). It is also well supported by authorities that the affidavit, which must be filed in support of such motion, must allege facts which warrant a recusal. Facts that occurred in the judicial context are not sufficient to show “personal extrajudicial” bias as required by 28 U.S.C. §§ 144 and 455. As stated in the case of In re M. Ibrahim Khan, P.S.C., 751 F.2d 162 (6th Cir.1984), bias which justifies recusal must be a personal one, not one arising from a judge’s view of the law.
A judge’s views on legal issues may not serve as a basis for motion to disqualify. Hasbrouck v. Texaco, Inc., 842 F.2d 1034 (9th Cir.1988), aff'd, 496 U.S. 543, 110 S.Ct. 2535, 110 L.Ed.2d 492 (1990). The Ninth Circuit in the case of United States v. Conforte, 624 F.2d 869 (9th Cir.1980), cert. denied, 449 U.S. 1012, 101 S.Ct. 568, 66 L.Ed.2d 470 (1980), held *197that impartiality of a judge should not be questioned simply because a judge employed a strong language expressing legal opinion. Any alleged bias that arises from facts that are a matter of record, which a judge learned from his involvement in a case is not sufficient to warrant a recusal. Vangarelli v. Witco Corp., 808 F.Supp. 387 (D.N.J.1992). Although certain statement made by a trial judge might have been “intemperate” such statements did not show extrajudicial bias as to warrant recu-sal. Johnson v. Trueblood, 629 F.2d 287 (3rd Cir.1980), cert. denied, 450 U.S. 999, 101 S.Ct. 1704, 68 L.Ed.2d 200 (1981). Moreover, in the recent decision of In re Lickman, 284 B.R. 299 (Bankr.M.D.Fla.2002), the bankruptcy court reaffirmed the law of the land that perceived adverse rulings do not constitute bias for disqualification purposes, citing Liteky v. United States, 510 U.S. 540, 555, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994).
This Chapter 7 case has been pending since 1997, or for over five years. The Docket of this case indicates that there are over 186 entries. There have been multiple and numerous hearings and the Motion under consideration was not filed until September 3, 2002. Clearly the motion is untimely. In the last analysis, it is clear that the primary and sole basis for the grievance of the Debtor stems from this Court’s two rulings. First, is the Order, which granted the Motion for Relief from Stay with respect to the Hoffman estate property, in which the Debtor disclaimed any interest. Second, is the Order, which granted the Motion to Impose Sanctions upon the Debtor for a violation of the automatic stay. Neither of the Orders involved have ever been appealed, and the time to appeal and revisit the same have long since expired.
Based on the foregoing, this Court is satisfied that the Verified Motion should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Verified Motion to Re-cuse Judge Paskay and Memorandum of Law [sic] (Doc. No. 181) be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493528/ | ORDER ON MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
The matters under consideration in this Chapter 7 case are two Motions for Summary Judgment, one filed by Diane Jensen (Trustee) and the other by Captiva Limousine Service, Inc. (Captiva). The Motions were filed in the above-captioned adversary proceeding commenced by the Complaint filed by the Trustee against Captiva. The claim asserted by the Trustee, in her Complaint, is based on the allegation that a transfer of $65,997.80 by Douglas Rajko-vic (Debtor) within one year of the commencement of the case was fraudulent; that at the time of the transfer, the Debtor was insolvent; and the Debtor received less than reasonable value in exchange for the transfer, and in fact, the Debtor received nothing from Captiva for the transfer. Based on the foregoing, the Trustee contends that the transfer is voidable as a fraudulent transfer, pursuant to Section 548[sic] of the Code.
In due course, Captiva filed its Answer to the Complaint in which it admitted some and denied some of the allegations set forth in the Complaint. In addition, Capti-*199va also asserted an affirmative defense alleging that the funds it received from the Debtor were exempt pursuant to Fla. Stat. 440.22, thus, the Trustee has no right to the funds it received from the Debtor.
On October 2, 2002, Captiva filed “Defendant’s Motion for Summary Judgment,” contending that there are no genuine issues of material fact and that it is entitled to a judgment in its favor as a matter of law. In its Motion, Captiva also alleged that the Complaint is defective since it does not join an indispensable party, namely the Debtor. This last allegation should be construed as a Motion to Dismiss which, of course, is not properly included in a Motion for Summary Judgment. Moreover, the Debtor is not an indispensable party to a fraudulent transfer suit. Therefore, it is without merit and will not be considered. Simultaneously with the filing of its Motion for Summary Judgment, Captiva filed a Motion to Take Judicial Notice. In its Motion, Captiva requested that this Court take judicial notice of the facts contained in a Stipulation filed in Adv. Pro. No. 01-744, where the Trustee filed a Complaint against the Debtor challenging the Debtor’s right to a discharge.
On October 7, 2002, the Trustee also filed “Plaintiffs Motion for Summary Judgment.” In her Motion, while she concedes that based on a Stipulation of the facts with Captiva there are indeed no genuine issues of material fact, she contends that she is entitled to a judgment in her favor as a matter of law.
The following facts are indeed without dispute and as set forth in the Stipulation filed by the parties is as follows:
On July 3, 2001, the Debtor filed his voluntary Petition for Relief under Chapter 7, and Ms. Jensen was appointed as Trustee for the Debtor’s estate. On December 8, 2000, the Debtor received $100,000 as a settlement of his Worker’s Compensation claim. He failed to disclose his entitlement on his Statement of Financial Affairs (SOFA). On January 22 or 23, 2001, the Debtor transferred the sum of $65,997.80 to Captiva. It is further stipulated that the funds received were used to purchase a 2000 Krystal Koach Limousine. The funds transferred were from the Workers’ Compensation claim settlement.
Captiva was incorporated by the Debtor on October 30, 2001, and each of the Debt- or’s four children were issued 10 percent and the Debtor and his wife received 30 percent of the shares in Captiva. None of the children, or the Debtor’s wife gave any consideration for the shares they received. The limousine is titled in the name of Captiva, and there are no liens recorded on the title certificate issued to Captiva. The Stipulation also established the authenticity of certain documents relevant to the facts set forth in the Stipulation and the fact that the Debtor was represented by counsel in his Chapter 7 Case.
In support of her Motion, the Trustee contends that “there is no exception in the Bankruptcy Code under 11 U.S.C. Section 548 which provides that Plaintiff must prove a fraudulent transfer excludes from its scope transfers from of potentially ex-emptible assets.” She also refers to a comment by this Court in the adversary proceeding filed by her against the Debtor, “that the transfer, which was made by the Debtor, could have certainly warranted the conclusion that it was fraudulent and could be avoided by the Trustee.” The Trustee’s reliance on the statement quoted above is misplaced and has no relevance to the immediate matter under consideration. This is so because the adversary proceeding had nothing to do with the immunity vel non of the proceeds of the settlement of a workman’s compensation claim from *200an attack to set aside the transfer of the funds as fraudulent. Thus, the observation by the Court was nothing more than dicta lacking any persuasive force concerning the issue before this Court.
It is evident from to foregoing that the ultimate and the only issue relevant to the two Motions for Summary Judgment under consideration is whether the Trustee’s voiding power under Section 548 can reach property which was claimable as exempt by the Debtor.
The claim of exemption of the funds in question is based on Fla. Stat. 440.22. It is beyond peradventure to say that by virtue of Section 522(b)(2)(a), Florida opted out of the specific federal exemptions and the citizens of Florida may only claim properties as exempt under the applicable local law. The settlement proceeds are claimed by the Debtor to be exempt pursuant to Fla. Stat. 440.22, which provides as follows:
440.22. Assignment and exemption from claims of creditors.
No assignment, release, or commutation of compensation or benefits due or payable under this chapter except as provided by this chapter shall be valid, and such compensation and benefits shall be exempt from all claims of creditors, and from levy, execution and attachments or other remedy for recovery or collection of a debt, which exemption may not be waived.
The term “due and payable” was construed by the Supreme Court of the State of Florida in the case of Broward v. Jacksonville Medical Center, 690 So.2d 589 (Fla.1997). Judge Grimes, speaking for the Supreme Court of Florida, held that the protection granted for Worker’s Compensation benefits is not limited to the benefits yet to be received, but extends to the benefits actually already received, provided the funds claimed as exempt are traceable to the Worker’s Compensation benefits. There is no question that the law as stated in Broward is the law of this State, and outside of bankruptcy, the funds in question could not have been reached by creditors of a debtor.
Unfortunately, Broward did not answer the question of whether or not the immunity granted to Worker’s Compensation benefits extends to funds, which were allegedly fraudulently transferred and now are in the possession and control of the transferee. The Eleventh Circuit Court of Appeals was called upon to consider the immunity granted to social security benefits by Section 407 of the Social Security Act, 42 U.S.C. 407, in the case of Walker v. Treadwell, 699 F.2d 1050 (11th Cir.1983). Treadwell involved the exemption claimed under Georgia law. The Court of Appeals considered the question of whether the debtor, who elected to use Georgia exemptions, may also use Section 522(d) of the Code. The Eleventh Circuit, having analyzed the immunity claim, concluded that the debtor could have obtained the exemption granted by 42 U.S.C. § 407 but only while forsaking exemptions specified by the Bankruptcy Code and the protection granted by that Section did not intend to override the fraudulent conveyance provisions of the Federal Bankruptcy law. In light of the fact that the Eleventh Circuit in Treadwell held that a debtor could not rely on the immunity granted by Section 407 because he elected exemptions under applicable local law, Treadwell is not very helpful to furnish a satisfactory answer to the issue before this Court.
Florida courts have considered the Trustee’s ability to attack and set aside a transfer of property as fraudulent, which was exempt. In the case of In re Fornabaio, 187 B.R. 780 (Bankr.S.D.Fla.1995), the bankruptcy court held that exempt *201homestead property could not be set aside as fraudulent. Also, in the case of In re Short, 188 B.R. 857 (Bankr.M.D.Fla.1995), the bankruptcy court held that since the homestead in Florida is exempt of claims of creditors, a disposition of the homestead cannot be fraudulent because creditors could not have reached the property whether transferred or not.
The principles announced by these two cases are sound and well supported by the homestead exemption, which is granted by the Constitution, Art. X, § 4. To apply the principles of Short and Fornabaio, supra, to the instant case is difficult because the immunity granted in the present instance is not by the Constitution but by a Statute. The language in Broward, supra, concerning the purpose of the protection granted to Worker’s Compensation is helpful. The protection granted by the Statute was designed to financially assist an injured worker during the whole or at least part of his disability. He was to be safe from becoming one of the derelicts of society and the purpose of the Statute is rehabilitation of the man and not the payment of his debts. Surace v. Danna, 248 N.Y. 18, 161 N.E. 315 (1928).
The funds received by the Debtor in the present instance, once it was transferred to Captiva were no longer funds, which could have assisted his rehabilitation and they were not used to save him from financial distress during the term of his disability. They were used to invest in a corporation formed by him, which all the outstanding interest was owned by himself and members of his family. To permit Captiva, the recipient of the transfer, to immunize the monies it received would be a perversion of the very purpose of the Statute designed to assist an injured worker to achieve rehabilitation and not to enable a recipient of benefits to utilize the funds it received to invest in business ventures.
For the reasons stated, this Court is satisfied that since it is stipulated and it is without dispute that Captiva furnished no consideration for monies it received at the time the funds were transferred and the Debtor was insolvent when the monies were transferred, the transfer is a voidable transfer under Section 548(a)(1)(B).
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion for Summary Judgment be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that Captiva’s Motion for Summary Judgment be, and the same is hereby, denied. Captiva is hereby directed to turnover the limousine to the Trustee within thirty (30) days from the entry of this Order or a money judgment shall be entered in favor of the Trustee and against Captiva in the amount of the transfer. A separate Final Judgment shall be entered in accordance to this Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493529/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This case came before the Court upon Motion to Value Claim 2 of LPP Mortgage, Ltd. (“LPP”) filed by Debtors and LPP’s Response to Debtors’ Motion to Value Claim 2. The Court conducted a hearing on December 18, 2002. Upon the evidence presented and the arguments of the parties, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
Debtors filed a voluntary petition under Chapter 11 of the Bankruptcy Code on March 18, 2002. On June 10, 2002 LPP filed a secured claim in the amount of $385,458.49, which the Clerk’s Office designated as Claim 2. LPP is the first mortgagee on Debtors’ principal residence. On September 20, 2002 Debtors filed Amended Motion to Value Claim 2 of LPP in which they assert that the fair market value of the property securing Claim 2 is $122,000.
The property consists of an approximate 2,500 square foot house situated on 82 acres in Lake Butler, Florida, a rural area heavily populated by mobile homes. The house is 1/6 stories, has 4 bedrooms, two baths, and is 72 years old. Debtor’s appraiser, Thomas C. Tompkins (“Tompkins”) valued the property at $122,000 with $31,800 representing the value of the house and $90,200 representing the value of the land, while LPP’s appraiser, Lee Hardenbrook (“Hardenbrook”) valued the property at $280,000 with $79,000 representing the value of the house and $201,000 representing the value of the land.
I. Value of the Land
a. Tompkin’s Appraisal
Tompkins valued the land upon which the house is situated at $90,200 or $1,100 per acre. Tompkins used three compara-bles in his appraisal, none of which was used by Hardenbrook. Tompkin’s Comparable 1 sold for $1,653 per acre. Harden-brook testified that he did not use Tomp-kin’s Comparable 1 because the property contains only 400 feet of road frontage and is intersected by a creek. Tompkins testified that the presence or absence of road frontage does not affect the value of rural agricultural land. He also testified that the presence of the creek does not affect the value of the property. Tompkins made a $200 per acre negative adjustment to Comparable 1, resulting in a $1,453 price per acre, because the property is more rectangular or square than Debtors’ property, making it easier to fence or grow crops. Hardenbrook testified that in light of the fact that the buyer of the property is an area investor and land dealer, the property’s purchase price is a good indication as to its value.
Tompkin’s Comparable 2 sold for $1,000 per acre. Tompkins made a $100 per acre (net) negative adjustment to Comparable 2, resulting in a $900 price per acre. Har-denbrook testified that he completely discounted Tompkin’s Comparable 2 because *237almost half of it is comprised of a hardwood swamp.
Tompkin’s Comparable 3 sold for $964 per acre. Tompkins made a $150 per acre (net) positive adjustment to Comparable 3, resulting in an $1,114 price per acre. Har-denbrook testified that he did not utilize Tompkin’s Comparable 3 because the sale was consummated more than 4 years prior to the appraisal.1 Tompkins testified that land values in Union County have remained stable over the last 4 to 5 years.
b. Hardenbrook’s Appraisal
Hardenbrook valued the land upon which the house is situated at $201,000 or $2,450 per acre.2 Hardenbrook included twelve comparables in his appraisal, the first four of which are located in Union County. Tompkins did not use any of Hardenbrook’s comparables.
Hardenbrook’s Comparable 1 sold for $2,085 per acre. Hardenbrook made a $500 per acre positive adjustment to Comparable 1, resulting in a $2,585 price per acre. Tompkins testified that he did not use Hardenbrook’s Comparable 1 because the property was purchased by an adjacent land owner who owned an air strip and wanted to protect his interest. Har-denbrook testified that he spoke with the buyer of the property who told him that the airstrip had no effect on the property’s purchase price.
Hardenbrook’s Comparable 2 sold for $2,340 per acre. Hardenbrook made a $200 per acre (net) negative adjustment resulting in a $2,140 price per acre. Although Hardenbrook’s Comparable 2 was listed on the Vacant Land Sales Chart3 as being located in Columbia County, it is actually located in Union County.
Hardenbrook’s Comparable 3, approximately 175 acres, sold for $1,477 per acre. Hardenbrook made an $800 per acre (net) positive adjustment resulting in a $2,277 price per acre. Hardenbrook made a $500 per acre positive adjustment “to reflect the fact that the market values smaller parcels at a generally higher price per unit than larger parcels.” Hardenbrook also made a $300 per acre positive adjustment to reflect the fact that the parcel was two separate parcels, stating that “[tjypically non-compact parcels sell for less than compact parcels, requiring an adjustment.” Tompkins testified that he did not use Harden-brook’s Comparable 3 because the Union County Property Appraiser classified it as “unqualified”, that is, not the result of an arm’s length transaction. Hardenbrook’s appraisal indicates that the property was purchased from an estate.
Hardenbrook’s Comparable 4, approximately 148 acres, sold for $2,097 per acre. Hardenbrook made an $800 per acre positive adjustment resulting in a $2,897 price per acre. Hardenbrook made a $500 per acre positive adjustment “to reflect the fact that the market values smaller parcels at a generally higher price per unit than larger parcels.” Hardenbrook also made a $300 per acre positive adjustment to reflect the fact that the parcel was two separate parcels, stating that “[tjypically non-compact parcels sell for less than compact parcels, requiring an adjustment.” Tompkins testified that he did not use Hardenbrook’s Comparable 4 because it was purchased by the Suwanee County *238Water District to be used for utilities. Hardenbrook testified that because the property is located 1/& miles from the city limits, there are hundreds of acres that could be used for the same purpose.
Hardenbrook’s Comparables 5-12 are located in Bradford, Alachua, and Columbia Counties. Hardenbrook testified that Comparables 5-12 provide a good indication of value in the general rural market. Nonetheless, his appraisal gave them less weight in the determination of the property’s value. Tompkins testified that Bradford, Alachua, and Columbia Counties are superior to Union County.
II. Value of the house
Tompkins assigned the house an effective age of 45 years. Tompkins used three comparables with respective effective ages of 45, 30, and 25 years in the residential portion of his appraisal. Tompkins testified that the house is in poor condition. He based this conclusion on his observation of the following: 1) numerous items of deferred maintenance, 2) ceilings in poor condition, including a partially collapsed ceiling in the recreational room, and 3) extensive rotting around the perimeter of the house.
Hardenbrook assigned the house an effective age of 20 years. Hardenbrook used twelve comparables, five of which had effective ages of 5 years, four of which had effective ages of 10 years, two of which had effective ages of 20 years, and one of which had an effective age of 15 years. Hardenbrook testified that the house is in average condition, noting that the bone structure, the underlying component of the house, appeared to be solid. He acknowledged that a leaking roof which was recently repaired caused wood rot and ceiling damage which he estimated could be repaired for $10,000.00. In his appraisal, Hardenbrook noted “though the subject requires some repair, it is very livable with no danger to safety or health, and is in fact occupied by the owner, as best as can be determined. The house is not in poor condition: it only requires some relatively minor structural and cosmetic repairs.” Hardenbrook testified that a conclusion or assessment that a house is in poor condition would be based upon conditions such as broken windows, holes in the floor and wall, and foundation cracks, as well as the need for substantial structural renovation in order to render the house habitable.
CONCLUSIONS OF LAW
Valuation of assets “is not an exact science and has inherent vagaries.” First Am. Bank of Va. v. Monica Road Assocs. (In re Monica Road Assocs.), 147 B.R. 385, 389 (Bankr.E.D.Va.1992). Courts have wide latitude in determining value. In re Richards, 1999 WL 14680, *7 (Bankr.E.D.Pa.1999). A court may consider appraisals and appraisers’ testimony as to a property’s value, but it is not bound by them. Id.
I. Value of the Land
With respect to the value of the land, the Court elects not to choose one appraisal over the other, that is, to accept one in its entirety and reject the other in its entirety. The Court believes that the better reasoned approach is to review all of the proposed comparables, including in its analysis only those that assist the Court in its determination.
a. Tompkin’s Appraisal
The Court finds no reason to exclude Tomkin’s Comparable 1 or to reject his adjustment thereto. The Court is persuaded by Tompkin’s testimony that: 1) the presence or absence of road frontage does not affect the value of rural agricul*239tural land and 2) the presence of the creek does not affect the property’s value.
Hardenbrook testified that almost half of the property represented in Comparable 2 is a hardwood swamp. The Court finds this a compelling reason not to utilize Comparable 2 in its analysis.
The Court is troubled by the passage of over 4 years between the sale date in Comparable 3 and Tompkin’s appraisal. The only evidence Debtors presented concerning the validity or utility of Comparable 3 is Tomkpin’s conclusory assertion that land values in Union County have remained stable over the last 4 to 5 years. However, Hardenbrook’s Comparables indicate otherwise. Accordingly, the Court will not utilize Tompkin’s Comparable 3.
b. Hardenbrook’s Appraisal
The Court will use Hardenbrook’s Comparable 1. The Court is persuaded by Har-denbrook’s testimony that the presence of the airstrip on the adjacent property had no effect on the purchase price of the property. Because Debtors presented no evidence as to why the Court should exclude Hardenbrook’s Comparable 2, the Court will use it.
The Court will use Hardenbrook’s Comparable 3. The purchase of property from an estate is more likely to result in a decrease rather an increase to the purchase price. The Court will not exclude Hardenbrook’s Comparable 3 simply because of its “unqualified” classification. However, based upon its experience in numerous real estate transactions, the Court does not agree with Hardenbrook’s size and compactness adjustments and will therefore utilize Comparable 3’s unadjusted price per acre.
The Court will utilize Hardenbrook’s Comparable 4. The Court is persuaded by Hardenbrook’s testimony that the availability of hundreds of acres for purchase by the Suwanee County Water District for utilities does not render Comparable 4 unacceptable. However, as with Harden-brook’s Comparable 3, the Court does not agree with Hardenbrook’s size and compactness adjustments and will therefore utilize Comparable 4’s unadjusted price per acre.
The Court declines to make an explicit finding that Bradford, Alachua, and Columbia Counties, the counties in which Hardenbrook’s Comparables 5-12 are located, are superior to Union County. However, despite Hardenbrook’s assertion that Comparables 5-12 provide a good indication of the value of property in the general rural market, he accorded them less weight in his final reconciliation. The Court elects not to use Comparables 5-12 in its analysis.
II. Value of the House
In contrast to the land portion of the appraisal, the appraisers offered scant testimony as to why their respective residential comparables were superior. Accordingly, although it has reviewed all of the residential comparables, the Court will not engage in an independent exhaustive analysis of the suitability of each or the prefer-ability of some over others. The Court is more persuaded by Hardenbrook’s testimony and residential appraisal and will value the house at $60,000.00.
CONCLUSION
The Court will utilize and will give equal weight to Tompkins’ Comparable 1 ($1,453 adjusted price per acre) and Harden-brook’s Comparables 1 ($2,585 adjusted price per acre), 2 ($2,140 adjusted price per acre), 3 ($1477 unadjusted price per acre), and 4 ($2,097 unadjusted price per acre). The Court values the land at $1,950 per acre for a total of $159,900. Combined *240with the $60,000 value of the house, the total value of the collateral securing Claim 2 is $219,900. The Court will enter a separate order consistent with these Findings of Fact and Conclusions of Law.
. The sale was consummated in May, 1998.
. The price per acre ($2,450) multiplied by the number of acres (82) actually equals $200,900. Hardenbrook rounded up to $201,000.
.The Vacant Land Sales Chart is a summary prepared by Tompkins of the comparables from both appraisals. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493530/ | MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On October 16, 2002, the court held a hearing on the Motion of Sallie Mae Servicing, L.P. (“Defendant”) to Dismiss Pursuant to Bankruptcy Rule 7012(b)(6). At the conclusion of the hearing, the court took the matter under advisement. After considering the parties’ briefs and oral arguments, as well as applicable statutory and case law, the court makes the following conclusions of law.
PROCEDURAL HISTORY
David A. and Vicki B. Wren (“Debtors”) filed a Chapter 11 Bankruptcy petition on May 13, 1993. Debtors’ Plan of Reorganization (“Plan”) was confirmed on June 27, 1994. Debtors’ Plan included full repayment of three student loans at 6% interest amortized over thirty years. One loan, originally held by Student Loan Marketing Association then assigned to the Department of Health and Human Services (“DHHS Loan”), had an outstanding balance of $57,544.14 with monthly payments of $345.01. Another loan which was a Health Education Assistance Loan (“HEAL Loan”), originally held by the Loan Servicing Center, had an outstanding balance of $21,686.01 with monthly payments of $130.02. The third loan, originally held by Great Lakes Higher Education Corporation (“Great Lakes Loan”), had an outstanding balance of $32,697.27 with monthly payments of $196.04. A final decree was entered in Debtors’ case on October 28,1994.
In June 1996, Debtors asked the court to re-open their case so they could pursue a motion for contempt action regarding the HEAL Loan against Defendant which had been assigned the loan. The parties came to a settlement agreement and Debtors withdrew their motions to re-open the case and for contempt against Defendant.
On or about January 2, 2002, Debtors again asked the court to re-open their case *250so they could pursue a motion for contempt action against Defendant regarding the HEAL Loan and the Great Lakes Loan. On April 1, 2002, Defendant filed a motion to dismiss Debtors’ motion for contempt arguing that the issue should be brought before the court as an adversary proceeding. Debtors subsequently withdrew the motion for contempt and initiated this adversary proceeding on or about August 5, 2002. On September 9, 2002, Defendant filed the motion to dismiss the adversary proceeding that is currently before the court.
Defendant asserts multiple grounds for dismissal. First, Defendant urges that Debtors have attempted to modify the terms of a non-dischargeable student loan through the order of confirmation, without the required adversary proceeding, and that such a modification violated Defendant’s due process rights. Therefore, Defendant argues that Debtors’ motion for contempt fails to state a claim upon which relief can be granted. Second, since Debtors asserted in their answer to Defendant’s motion to dismiss that the Great Lakes Loan is subject to the 1996 settlement agreement, the bankruptcy court lacks jurisdiction to hear the case. Lastly, even if the court decides that it can hear the case regarding the alleged breach of the settlement agreement, Defendant asserts that the Great Lakes Loan is not subject to the settlement agreement.
Debtors contend that Banks v. Sallie Mae Servicing Corporation (In re Banks), 299 F.3d 296 (4th Cir.2002), which was relied upon by Defendant, is factually distinct from the present case. Here, Debtors did not propose to discharge post-petition interest. Even if Banks applies to the present case, the complaint is based on the breach of the settlement agreement, not on the notion of a partial discharge. Further, Defendant has waived its right to argue that an adversary proceeding was necessary to discharge the student loan by failing to argue that very point in 1996 when Debtors filed the first motion for contempt. Debtors argue that they relied on Defendant’s promises in the settlement agreement. Therefore, Defendant is es-topped from arguing that an adversary proceeding was required.
CONCLUSIONS OF LAW
It is clear from the record and the pleadings that the 1996 settlement agreement dealt only with the HEAL Loan. If either party wishes to pursue an action regarding that settlement agreement, they may take their case to state court. The court might abstain from hearing an issue involving the settlement agreement, which is a state law contract claim. See 28 U.S.C. § 1334(c). The only loan at issue here is the Great Lakes Loan.
In considering a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), made applicable to adversary proceedings in bankruptcy by Federal Bankruptcy Rule 7012, the court should construe the facts in the light most favorable to the plaintiff. FED BANKR. R. 7012; see Covad Communications Company v. BellSouth Corporation, 299 F.3d 1272, 1279 (11th Cir.2002). “[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.” St. Joseph’s Hospital, Inc. v. Hospital Corporation of America, 795 F.2d 948, 953 (11th Cir.1986) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).
The Banks case relied upon by Defendant may be good law. However, Debtors’ Plan provided for full payment of the principal amount on the Great Lakes Loan plus 6% interest amortized over thir*251ty years. (See Debtors’ Confirmed Plan, Docs. 31 & 67). For Banks to be applicable, Defendant must be able to show that the treatment the loan received under the Plan resulted in the discharge of some portion of a non-dischargeable debt. Banks, 299 F.3d at 300. Ordinarily, the only way to discharge student loan debt is to bring an adversary proceeding, which Debtors did not do on this loan. Id. According to Banks, Defendant would not be barred by res judicata and could continue to collect on unpaid debt, including unpaid interest not provided for through the Plan, under the principles of due process. Id. at 302. However, there is nothing in the record to show that this is the situation in the present case.
Defendant alleges that the original interest rate on the loan was 9%. However, the uncertified copy of the promissory note submitted by Defendant in the supplemental brief to their motion to dismiss cannot be considered by the court. A 9% interest rate on the original loan was not stipulated or admitted to by Debtors. The promissory note was never admitted into evidence. The promissory note nor its terms were made part of the record via an admitted pleading, Debtors’ disclosure statement or Plan, or a creditor’s claim filed with the court. Currently, there are no grounds upon which the court can grant Defendant’s Motion to Dismiss Pursuant to Bankruptcy Rule 7012(b)(6). Defendant has ten days from notice of the court’s action to file an answer to Debtors’ Complaint for Damages. See Fed. BankR. R. 7012(a).
An order in accordance with this Memorandum Opinion will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493533/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER before this Court in this Chapter 7 case of Noel Dean Clark, Jr. (Debtor), is an adversary proceeding commenced by Stephany Carr (Trustee) against Jeffery Todd Clark (Defendant). The Trustee’s Complaint was filed on October 4, 1999, and sets forth seven separate claims in seven separate counts. The Counts are summarized as follows.
In Count I, the Trustee seeks declaratory relief to the effect that the recordation of “Court Ordered Mineral Right and Roy-ality [sic] Transfer,” recorded in Official Public Records of Collier County on December 17, 1996 by the Debtor, is legally ineffective to effectuate a transfer of any mineral interests that the Debtor had in Collier County, Florida. (Ex. A to Compl. /Ex. 1 of PL). In said Order, the Debtor purports to transfer to Patricia Ann Clark, his former spouse (Ms. Clark), 50% interest in those mineral rights.
In the same Count, the Trustee alleges that the quit-claim deed executed by Ms. Clark to the Defendant on October 9, 1996 and recorded on January 24, 1997, is void. (Ex. B to Compl./Ex. 2 of PL). In addition, she alleges that the quit-claim deed executed on October 21,1996 and recorded on January 27, 1997, (Ex. C to Compl./Ex. 3 of Pl.) from Ms. Clark to the Driftwood Family Trust (Family Trust), which also purports to transfer a portion of the Debt- or’s mineral interest, is void. Finally, the Trustee alleges that the quit-claim deed executed on July 2, 1997 from Besty Brennan, individually and Betsy Brennan as Trustee of the Family Trust (Ms. Brennan) to the Defendant and recorded on June 17, 1999, is void. (Ex. D to Compl. /Ex. 4 of PL).
In essence, the Trustee seeks a declaration that the first alleged transfer from the Debtor to Ms. Clark, in the form of the recordation of the Order, was not valid, thus any additional transfers of the same subject by Ms. Clark to the Defendant and to the Family Trust, and from the Family *476Trust to the Defendant are also invalid and unenforceable.
Her claim in Count II is based on Section 547 of the Bankruptcy Code. In this Count she alleges that if the attempted transfer of December 1996 is valid, that is, the transfer by the Debtor to Ms. Clark, it is a preference and was to an insider, therefore it is voidable since it occurred within one year of the filing of the Debt- or’s Bankruptcy Petition. In this Count, the Trustee seeks a judgment avoiding the transfer from the Debtor to Ms. Clark and also all subsequent transfers by Ms. Clark to the Defendant and to the Family Trust, and from the Family Trust to the Defendant.
The claim in Count III is based on Section 548 of the Code. In this Count, the Trustee alleges that the following transfers made by the Debtor were made with the actual intent to hinder, delay and defraud creditors: (1) quit-claim deed executed on December 24, 1994 and recorded on May 12, 1997 (Ex. E to Compl./Ex. 8 of PL); (2) quit-claim deed executed on December 24, 1994 and recorded on May 12, 1997 (Ex. F to Compl./Ex. 9 of PL); and (3) quit-claim deed executed on December 24, 1994 and recorded on May 17, 1997 (Ex. G to Compl./Ex. 10 of PL).
In addition, the Trustee alleges in Count III that the quit-claim deed from the Family Trust to the Defendant, which transferred certain mineral rights that were originally transferred by the Debtor to the Family Trust (Ex. H to Compl./Ex. 7 of PL), was also transferred with intent to hinder, delay or defraud creditors. In the alternative, she alleges that the transfers were made without a reasonable equivalent value for the property interests transferred by the Debtor who was insolvent at the time.
In Count III, she also seeks a judgment avoiding the transfer by the Family Trust to the Defendant within one year of the filing of the Petition and seeks an attachment against the assets transferred and any proceeds from the interest transferred or, in the alternative, a money judgment for the value of the transferred properties.
The claim in Count IV is based on Section 548 of the Code and is based on the allegation that the following transfers by the Debtor to the Family Trust were made by the Debtor when he was insolvent and for which the Debtor did not receive a reasonable equivalent value. The three transfers involved are the same transfers as described in Count III (Exs. E, F, and G to Compl./Exs. 8, 9, and 10 of PL). Following those transfers, the Trustee alleges that on July 2, 1997, the Family Trust executed a quit-claim deed to the Defendant for the mineral rights which the Family Trust obtained from the Debtor and that the Defendant filed the same in the public records on June 17. 1999 (Ex. H to Compl./Ex. 7 of PL). It is contended by the Trustee that this transfer was also made with actual intent to hinder, delay or defraud creditors or, in the alternative, was made without receiving a reasonable equivalent value in exchange for the transfer while the Debtor was insolvent and that the Defendant accepted this transfer with the full knowledge that the property so transferred had been fraudulently transferred to the Family Trust by the Debtor. The Trustee seeks a judgment in this Count to avoid the transfer from the Family Trust to the Defendant or for attachment against any assets transferred and proceeds from the interest or, in the alternative, for the value of the transferred properties.
In Count V, the Trustee seeks to avoid as fraudulent transfers, under the Uniform Transfer Act, Fla. Stat. § 726.101 et seq., as made applicable by Section 544(b) of the Code, the transfers from the Family Trust *477to the Defendant. The allegations in this Count are identical as recited earlier and involve the following transfers: (a) quitclaim deed executed on December 23, 1994 and recorded on February 7,1995 (Ex. I to Compl./Ex. 11 of PL); (b) quit-claim deed executed on December 24, 1994 and recorded on February 7, 1995 (Ex. J to Compl./Ex. 12 of PL); (c) the three quitclaim deeds previously identified (Exs. E, F, and G to Compl./Exs. 8, 9, and 10 of PL); and (d) Assignment dated July 1, 1994 and recorded on February 7, 1995 (Ex. K to ComplTEx. 13 of PL).
Following these transfers from the Debtor to the Family Trust, the Family Trust quit-claim deeded its interest to the Defendant and also assigned the transferred assignment to the Defendant (Ex. H and L to Compl./Ex. 7 and 14 of PL). In this Count, the Trustee seeks a judgment avoiding these transfers from the Family Trust to the Defendant and, again, seeks an attachment against the assets transferred and any proceeds or, in the alternative, the value of the transferred properties.
In Count VI, the Trustee seeks to avoid as fraudulent transfers, under the Uniform Transfer Act, Fla. Stat. § 726.101 et seq., as made applicable by Section 544(b) of the Code, transfers from the Family Trust to the Defendant. The allegations and relief are identical as set forth in Count V.
The last count in the Complaint, Count VII is based on the theory of constructive trust. In this Count, the Trustee alleges that she is entitled to a decree for the imposition of a constructive trust on all the properties which were transferred and recited above based on the allegation that the Defendant and the Family Trust were part of a scheme and conspiracy, in combination with the Debtor to defraud the creditors of the Debtor. She also alleges in support of the claim asserted in this Count that these transfers were made for the express purpose of hiding the assets of the Debtor and removing them from the reach of the then existing creditors of the Debtor and the future creditors of the Debtor. She alleges that the Defendant and the Family Trust actively participated in the scheme designed for the sole purpose to benefit the Defendant at the expense of the creditors of the Debtor.
The Defendant initially filed a Motion to Dismiss and subsequently an Amended Motion to Dismiss. On October 9, 2001, this Court entered an Order and granted the Defendant’s Amended Motion to Dismiss in which the claims in Counts III and VII were dismissed but it was denied as to Counts I, II, IV, V and VI.
On October 29, 2001, the Defendant filed his Answer, Affirmative Defenses and Counterclaim. In his Answer, he set forth certain admissions and denials, including a denial that the Bankruptcy Court had jurisdiction to entertain the claims asserted by the Trustee at this late date (years after the discharge of the Debtor). In addition, the Defendant contends that the Trustee is barred to assert any claims based on the doctrine of res judicata and statute of limitations.
The Defendant’s Answer is coupled with several affirmative defenses. The first affirmative defense of the Defendant is that he was an innocent purchaser for value. The second affirmative defense is based on the contention that the claims asserted by the Trustee are barred as a matter of law since the Defendant owned the property which is now subject to the Trustee’s claim in a prior adversary proceeding, bearing Adv. Proc. No. 99-152, where the Trustee also sued Ms. Brennan, individually and as Trustee of the Family Trust.
The Defendant contends that the Trustee and her attorneys were fully aware of *478the Defendant’s ownership and failed to join the Defendant in that particular lawsuit, which involved the identical transfers which are now sought to be set aside by the Trustee.
The Defendant also challenges the Trustee’s lack of standing to maintain an action; that the Debtor is entitled to a setoff from the Trustee for the alleged conspiracy and fraud asserted by the Trustee against the Defendant [sic].
Again, as an Affirmative Defense, the Defendant asserts the doctrine of res ju-dicata, statute of limitations, and lastly that he no longer owns any of the mineral interest which have been assigned, reassigned and then reassigned again and any judgment adjudicated against the Defendant and all of the necessary parties, including him, would be a worthless judgment, just the same as the Trustee’s judgment against Ms. Brennan. The Defendant also alleges that the Trustee came before this Court with unclean hands and, therefore, the claims are barred.
Finally, the Defendant filed a Counterclaim against the Trustee, Ms. Carr, individually, as well as against Stephen G. Wilcox, individually and the law firm of Snakard and Gambill, P.C. Two days later, on October 31, 2001, the Defendant filed an Amended Answer and Counterclaim. It appears that the only difference is that in the Amended Counterclaim, the Defendant properly added Ms. Carr, Mr. Wilcox and the law firm as third-party defendants. The Counterclaim was subsequently voluntarily dismissed by the Defendant.
The Defendant, pro se, filed his first Answer, Affirmative Defenses and Counterclaim as well as his Amended Answer and Counterclaim. Thereafter, he retained counsel and on January 31, 2002, the Defendant filed a pleading entitled “Amended Affirmative Defenses.”
After the parties completed their discovery, this Court scheduled a final evidentia-ry hearing on the remaining counts, at which time this Court heard testimony of witnesses and considered the documents offered and introduced into evidence, and now makes the following findings and conclusions of law. As a threshold matter, this Court has determined that there are, in essence, four distinct sets of transfers that the Trustee seeks to void. The four distinct transfers and the accompanying Counts to her Compliant are summarized as follows:
The First Set of Transfers: The Subjects of Counts I and II
On June 19, 1987, the Circuit Court of the Twentieth Judicial Circuit in and for Glades County, Florida, entered a Final Judgment of Dissolution of Marriage (Final Judgment) (Ex. 1 of Def.), in the dissolution proceeding commenced by Ms. Clark against the Debtor. The Final Judgment provided, inter alia, at paragraph 7 that the agreement (Agreement) of the parties, attached to the Final Judgment, was “made a part hereof is adopted and approved and the parties are ordered to comply with its terms.” (Emphasis supplied). The Final Judgment and Agreement were recorded together in Glades County on July 1, 1987, at Official Records book 0110, beginning at page 0522. The Debtor also caused the Final Judgment and Agreement to be recorded in Collier County, Florida on December 17, 1996, at Official Records book 2261, beginning at page 2295.
The parties executed the Agreement, referenced by the Circuit Court, on March 16, 1987. In the first paragraph, the Agreement provides as follows: “Patricia Ann Clark, party of the first part does hereby agree to deed one-half (1/2) of her *479interest in any recorded Mineral Deeds on record in Collier County, Florida, to Noel D. Clark, Jr., party of the second part.” The record is unclear what if any interests Ms. Clark had in any mineral rights and what if any rights she ever conveyed to the Debtor.
In the second paragraph, the Agreement provides as follows:
Noel D. Clark, Jr., party of the second part does hereby agree to deed one-half (1/2) of his interest in any recorded Mineral Deeds on record in Collier County, Florida, dated through December 31, 1986, to Patricia Ann Clark, party of the first part.
Finally, paragraph 7 of the Agreement states “Noel D. Clark, Jr., party of the second part, agrees to pay to Patricia Ann Clark, party of the first part, one-half (1/2) of all royalty monies held by Exxon, upon release of said monies.” It appears from the Agreement that the Debtor was to convey both his interests in certain mineral rights as well as his interest in certain Exxon royalties (Exxon Royalties).
It appears that on December 17, 1996, the Debtor also caused the following document to be recorded in the official records of Collier County: “Court Ordered Mineral Right and Royality [sic] Transfer” (Court Ordered Transfer), which was signed by the Debtor individually and as a president of State Wide Abstract & Land Services, Inc. (State Wide Abstract). (Ex. 1 of PL). The Court Ordered Transfer is a three-paragraph document, which states in relevant part as follows:
Upon the recording of any mineral rights purchased by Noel D. Clark, Jr., or his company Satewide [sic] Abstract and Land Services, Inc., anywhere in Collier County Florida through December 31, 1986. Patricia Ann Clark automatically becomes owner of 50% (fifty percent) of said minerals purchased.
Patricia Ann Clark is also 50% (fifty percent) owner of all monies held by Exxon Corporation in reference to the minerals purchased by Noel D. Clark, Jr. or Statewide Abstract and Land Services, Inc.
It is without dispute that during the relevant time, Ms. Clark executed a quitclaim deed on October 9, 1996 and recorded on January 24, 1997, and conveyed to the Defendant certain gas, oil and mineral rights “fully described on attached Exhibit A and made a part hereof’ (Ex. 2 of PI.) (First Deed). The property description is a nineteen-page property description, including this phrase “This transfer includes 100% of my held, stacked or escrowed royalities [sic] and revenues from production since day one of production, forward which is currently being wrongfully held by Exxon and assigns.”
Also, it is without dispute that on October 21, 1996, Ms. Clark executed a quitclaim deed and transferred to Ms. Brennan as Trustee of the Family Trust, “all oil gas and mineral rights and royalties described on attached Exhibit A attached hereto and made a part hereof’ (Ex. 3 of PL) (Second Deed). The Second Deed was recorded on January 27, 1997. The legal description is a four-page legal description. Thereafter, on July 2, 1997, Ms. Brennan, individually and as Trustee of the Family Trust, conveyed by quit-claim deed to the Defendant certain mineral rights “fully described on Exhibit A pages 1^1 attached hereto and made a part thereof’ (Ex. 4 of Pl.) (Third Deed). The Third Deed was recorded on June 17, 1999. A comparison of the Second Deed and the Third Deed confirms that Ms. Brennan transferred to the Defendant the same property that Ms. Clark had originally transferred to Ms. Brennan on October 21, 1996. The net affect of the First Deed, the Second Deed and the Third Deed is that all property *480was purportedly transferred to the Defendant.
The Second Set of Transfers: The Subjects of Counts III, TV, and V
It is without dispute that on December 24, 1994, the Debtor individually and as owner of all assets of State Wide Abstract conveyed to Ms. Brennan as Trustee of the Family Trust “mineral rights, Exhibit A, pages 1-4, deeding all mineral rights described on Exhibit A 1-4 attached hereto and made a part hereof’ (Debtor 1st Deed) (Ex. 8 of Pl.). The Debtor 1st Deed was recorded on May 12, 1997. Also on December 24,1994, the Debtor again, individually and as the owner of State Wide Abstract, conveyed to Ms. Brennan, as Trustee of the Family Trust certain property described as “Exhibit A pages 1-12, attached hereto and made a part hereof’ (Debtor 2nd Deed) (Ex. 9 of Pl.). The Debtor 2nd Deed was recorded on May 12, 1997. Also on December 24, 1994, the Debtor, individually and as owner of the assets of State Wide Abstract conveyed to Ms. Brennan as Trustee of the Family Trust “Township 52 South, Range 34 East, S % NE % SW y4 NW T (Debtor 3rd Deed) (Ex. 10 of Pl.). The Debtor 3rd Deed was recorded on May 12,1997.
The three deeds described above: The Debtor 1st Deed, the Debtor 2nd Deed, and the Debtor 3rd Deed were avoided in Adversary Proceeding No. 98-152, by the entry of a Final Judgment entered on April 5, 2000. (Ex. 5 of Pl.). The Debtor 1st Deed, Debtor 2nd Deed and Debtor 3rd Deed were deemed to be void pursuant to 11 U.S.C. § 548(a)(2)(A)(B)(i), 11 U.S.C. § 544(b) and Fla. Stat. § 726.105. The named defendant in Adv. Proc. No. 98-152 was Ms. Brennan. This Final Judgment was affirmed on appeal by Order of the District Court entered on March 14, 2002. (Ex. 6ofPl.).
On December 23, 1994, the Debtor individually, and again as the owner of the assets of State Wide Abstract, executed a quit-claim deed (Debtor 4th Deed) (Ex. 11 of Pl.) purporting to convey to Ms. Brennan as Trustee of the Family Trust the following:
Twnship 61 SO, Range 34 East Sect 34. OR. Acre Net Min. Acres ... Well 11 ... Well 10 ... Well 9 ... Well 8 ... deeding all stacked, unpaid, royalties or revenues from production, including all royalties due that were wrongfully or mistakenly paid out by Exxon after Noel D. Clark, Jr. or Statewide purchased the previous owners mineral rights. This Claim is made from the day production was made, “the very first runs” from all deeds purchased from the former mineral owners to State Wide Abstract and Land Services, Inc. and or to Noel D. Clark, Jr., up through the day of transfer by Noel D. Clark, Jr. of said fractional interests.
The Debtor 4th Deed was recorded on February 7, 1995. And, on December 24, 1994, the Debtor executed a quit-claim deed (Debtor 5th Deed) (Ex. 12 of Pl.) to Ms. Brennan as Trustee, that conveyed interest in the legal description of some land in Township 61, South Range 34, East Section 34. The Debtor 5th Deed was recorded on February 7, 1995. The Debt- or 4th Deed and the Debtor 5th Deed were also found to be void by entry of a Final Judgment in Adv. Proc. No. 98-152 pursuant to 11 U.S.C. § 544(b) and Fla. Stat. § 726.106. (Exs. 5 and 6 of Pl.).
The Third Set of Transfers: The Subject of Count V
On December 1, 1994, the Debtor executed an Assignment (First Assignment) to Ms. Brennan as Trustee of the Family *481Trust all of his right, title, interest, and benefit to in and under the “Final Judgement” [sic] received by the Debtor on March 16, 1993 in case number 89-6534. (Ex. 13 of PL). The First Assignment was recorded in the Official Records of Collier County on February 7,1995.
On July 2, 1997, Ms. Brennan as Trustee of the Family Trust executed an Assignment (Subsequent Assignment) of the First Assignment to the Defendant. The Subsequent Assignment, while it was recorded in Collier County, Florida on June 17, 1999, carries the legend “Recorder’s memo: Legibility of Writing. Typing or Printing unsatisfactory in this document when received.” (Ex. 14 of PL). The First Assignment was also avoided in Adv. Proc. No. 98-152 by the entry of the Final Judgment, pursuant to 11 U.S.C. § 544(b) and Fla. Stat. § 726.106, as affirmed by the District Court.
The Fourth Transfer: The Subject to Counts III, TV, V, and VI
The final transfer at issue is the execution of a quit-claim deed (the Brennan Deed) dated July 2, 1997 to the Defendant. The Brennan Deed was recorded on June 17, 1999. The Brennan Deed purports to transfer the same property as referenced in the First Deed, which already transferred from Ms. Clark to the Defendant the subject property.
These are all of the transfers which have their origin from the initial transfer made by the Debtor in favor of his ex-wife Ms. Clark, ostensibly pursuant to the Agreement entered into as part of the dissolution of marriage proceeding. As noted earlier, the Agreement was incorporated, adopted and approved by the Circuit Court, who entered the Final Judgment of dissolution of marriage between the Debt- or and Ms. Clark.
The majority of the Trustee’s Counts can be disposed of based upon the entry of the Final Judgment in Adv. Proc. No. 98-152. As stated earlier, Counts III and VII were dismissed by separate Order of this Court. Counts IV and V involve the five deeds executed by the Debtor to Mr. Brennan and the First Assignment, all of which have been avoided by the entry of the Final Judgment in Adv. Proc. No. 98-152. Therefore, as Counts IV and V relate to these five transfers, the law of the ease is that these transfers have been avoided and is therefore res judicata as against the Defendant. A final judgment shall be entered in favor of the Trustee and against the Defendant. As to Counts IV, V, and VI,'as they relate to the transfer as evidenced by the Brennan Deed, the avoidance of this transfer is academic. This is so because the Brennan Deed purports to transfer the same property as evidenced in the First Deed. Case law is clear that one cannot transfer something that one does not own. Inasmuch as the First Deed was executed and recorded before the Brennan Deed, the Defendant was already, if deemed to be found, in possession of the property. Therefore, judgment shall be entered in favor of the Trustee and against the Defendant as to Counts IV, V, and VI. Finally, since it has been found that the First Assignment was avoided, the Subsequent Assignment is also void and therefore, Count V as it relates to the Subsequent Assignment shall be entered in favor of the Trustee and against the Defendant.
This leaves for consideration Counts I and II. The Trustee at the final eviden-tiary hearing announced that she was withdrawing Count II, therefore, final judgment shall be entered in favor of the Defendant and against the Trustee. This leaves the remaining claim asserted by the Trustee in Count I.
*482The entire thrust of the attack on these transfers is generated by the initial transfer which according to the Trustee, was legally ineffective to effectuate a transfer of oil, gas and mineral rights under the applicable legal principles, which govern the perfection of transfers of interest involved in the present controversy. Thus, it is evident if the Trustee prevails on the initial attack of the transfer between the Debtor and his ex-wife, Ms. Clark, pursuant to the Agreement incorporated in the Final Judgment; none of the subsequent transfers are enforceable.
The threshold question in this matter is whether or not the Debtor effectively transferred his interest in certain mineral rights located in Collier County, Florida to Ms. Clark by virtue of the Final Judgment, entered in their dissolution proceeding, as recorded and by virtue of the Court Ordered Transfer.
In Florida, there are two circumstances where a final judgment entered in a dissolution proceeding may operate as a transfer of title to real property. The first is by statute as set forth in Florida Statute § 61.075(4), which provides that upon the recordation of a judgment, the same shall have the effect of a duly executed instrument of conveyance. Fla. Stat. § 61.075(4). However, this statute was not enacted until 1994 and cannot be applied retroactively. Hadden v. Cirelli, 675 So.2d 1003 (Fla. 5th DCA 1996), citing Arrow Air, Inc. v. Walsh, 645 So.2d 422 (Fla.1994). The second circumstance is set forth in Florida Rule of Civil Procedure 1.570, entitled “Enforcement of Final Judgments,” which states that if a judgment is for a conveyance of real or personal property, once it is recorded, the judgment shall have the same effect as a duly executed conveyance. Fla.R.Civ.Proc. 1.570.
The case at hand is similar to the facts in the Hadden case. In Hadden, a husband and wife divorced and the judgment (1) incorporated a “Property Settlement Agreement” whereby the husband agreed to convey to his soon to be ex-wife certain properties and (2) ordered and directed the husband to convey the property to the ex-wife. Hadden, 675 So.2d at 1004. The court in Hadden determined that the judgment itself was not subject to Fla. Stat. § 61.075(4) since that statute was not effective until 1994, or some sixteen years after the entry of the judgment and that the judgment was not self-executing, as is necessary under Fla.R.Civ.P. 1.570.
In the case at hand, the Final Judgment “adopted and approved” the Agreement and the parties were “ordered to comply with its terms” (emphasis supplied). Turning to the Agreement itself, it likewise states that the parties “agree to deed ...” (emphasis supplied). This language is not self-executing and instructed the Debtor to convey to Ms. Clark his interest in any mineral deeds. The next step in this analysis is to determine whether or not the Debtor subsequently executed a deed to transfer his interests to Ms. Clark. It is the position of the Defendant that the Court Ordered Transfer is the document that the Debtor utilized to convey to Ms. Clark his mineral rights. A review of the Court Ordered Transfer on its face reveals that it is ineffective to transfer mineral rights.
At a minimum, a document that attempts to convey real property must describe or identify the land affected. Mendelson v. Great Western Bank, 712 So.2d 1194 (Fla. 2d DCA 1998); Mitchell v. Thomas, 467 So.2d 326 (Fla. 2d DCA 1985). The Court Ordered Transfer, recorded on December 17, 1996 merely states that “upon recording of any mineral rights ... anywhere in Collier County *483Florida through December 31, 1986 ... Patricia Ann Clark automatically becomes owner of 50% .By the time the Court Ordered Transfer was recorded, in the year 1996, the Debtor would have known at a minimum the OR book and page number of any mineral interests he had at that time. There is no property description nor is there any listing of the OR book and page number to identify any mineral interests that the Debtor had when the Court Ordered Transfer was recorded. This Court is satisfied that this document, the Court Ordered Transfer, on its face is ineffective to transfer mineral rights from the Debtor to Ms. Clark. Unfortunately, the analysis does not end with this proposition. It is clear that the Debtor not only intended to convey to Ms. Clark his interest in certain mineral rights, but also his interest in the Exxon Royalties. As noted earlier, the Debtor in the Court Ordered Transfer attempted to transfer “50% (fifty percent) owner of all monies held by Exxon Corporation in reference to the minerals purchased by Noel D. Clark, Jr. or Statewide Abstract and Land Services, Inc.”
It is unequivocal under Florida law that unaccrued royalties, pertaining to future production of minerals are real property interests, while accrued royalty interest in minerals that have been produced and severed from the land are personalty. Terry v. Conway Land, Inc., 508 So.2d 401 (Fla. 5th DCA 1987). When interests are severed from the land, the rents or royalties under the lease are characterized as personal property. Miller v. Carr, 137 Fla. 114, 188 So. 103 (1939). In this instance, the Debtor attempts to convey to Ms. Clark his interest in the “Exxon royalties.” Transfer of personal property or chattel, to be valid and properly perfected, must be in compliance with Article 9 of the UCC, as adopted in Florida pursuant to Fla. Stat. Ch. 679, See Octagon Gas Systems v. Rimmer (In re Meridian Reserve, Inc.), 995 F.2d 948 (10th Cir.1993). Based upon the foregoing authority, the Debtor could not effectively transfer his interests in the “Exxon royalties” by deed, or in this instance, by virtue of the Court Ordered Transfer.
This Court initially raised its concern at trial that Ms. Clark was an indispensable party to this Adversary Proceeding. In the case of Sparling v. Boca Raton Land Development, Inc., 438 So.2d 413 (Fla. 4th DCA 1983), the court essentially determined that in a quiet title action, the intermediary transferors were not necessary parties since the current action was to determine the rights between the current landowner and the subsequent landowner. In this instance, Count I is essentially an action to quiet title. The Trustee is requesting that this Court find that the transfers from Ms. Clark to the Defendant are ineffective, since Ms. Clark cannot transfer title to something she does not own. Although, as stated in the Sparling decision, it would have been “better practice” to compel the joinder of all parties claiming an interest in the subject land, it was not necessary.
In the present instance, Ms. Clark has no interest in the present controversy because she has voluntarily divested herself of any interest in the subject property. The fact that the transfers by her to the Defendant and to the Family Trust are determined to be ineffective is of no consequence and a decision in this matter in no way impacts her substantive rights. For these reasons, this Court is satisfied that its initial concerns regarding the joinder of Ms. Clark have been satisfied and she is not an indispensable party.
In light of the foregoing, this Court is satisfied that the Trustee has met her *484burden under Count I. This Court finds that the first alleged transfer from the Debtor to Ms. Clark, in the form of the recordation of the Court Ordered Transfer, is not a valid transfer of his mineral rights, thus any subsequent transfers of the same subject matter by Ms. Clark to the Defendant and to the Family Trust, and from the Family Trust to the Defendant are also invalid and unenforceable.
A separate Final Judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493535/ | MEMORANDUM OPINION
MARK W. VAUGHN, Chief Judge.
The Court has before it the complaint of Jean Marie Sangi (“Plaintiff’) against the Debtor Defendant, Joseph San Giovanni (“Defendant”). The Plaintiff seeks that her debts be excepted from discharge pursuant to section 523(a)(5) and (15) of title 11 of the United States Code.1 The Court took evidence in this adversary proceeding in a one-day trial held on April 17, 2002. At the conclusion of the trial, both sides filed requests for findings and/or memorandum of law, and the Court took the matter under advisement. For the reasons set out below, the Court finds that the Defendant’s obligations to the Plaintiff are excepted from discharge pursuant to section 523(a)(5).
Jurisdiction
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
After approximately fourteen years of marriage, the Plaintiff and the Defendant separated and entered into a separation agreement dated November 3, 1992. (PI. Ex. 1.) Pursuant to the agreement, the Defendant retained the marital residence *518in Fort Lauderdale, Florida, three other properties in Florida, and five mortgages on properties located in Kingston, New York, and West Palm Beach, Florida. (PL Ex. 1 at 2.) The Plaintiff, under section 6 of the agreement, entitled “Maintenance and Support,” was to receive a home to be bought by the Defendant in the area of Kingston, New York. (Pl.Ex. 1 at 3.) The specific language of section 6 is as follows:
Husband agrees to buy for the benefit of the Wife and Children a house in the vicinity of Kingston, N.Y. worth at least $80,000 and not more than $100,000. The house shall be chosen by the Wife, after consultation with the Husband. This house will be owned in the Wife’s name alone. Purchase shall be completed on or before December 18, 1993, and any mortgage payment thereon shall be Husband’s sole responsibility. Husband shall also promptly pay any and all of the following living expenses of the Wife and Children: $600.00 per month until Wife moves into said house; all repairs, maintenance and renovation of the Kingston house up to $5,000.00, installation, maintenance and monitoring of alarm system, heating and utilities up to $240.00 per month, all telephone installation fees plus telephone bills up to $60.00 per month, cable television, all real estate taxes all water and sewer bills, any other municipal or special assessments on the property for two years after closing. Husband shall also pay up to $5,000.00 for furnishings and decoration of the house and grounds.
(Pl.Ex. 1 at 3.) Paragraph 8 of the same agreement provided for child support. (PI. Ex. 1 at 4-5.)
On February 12, 1993, a property was purchased from Richard Lewis Rydant. (Pl.Ex. 8.) Title was taken in the name of the Plaintiff and the Defendant. As part of the transaction, the seller took back a first mortgage in the original amount of $107,200. On July 24, 1994, the Plaintiff and Defendant deeded the property to the Plaintiff, making her the sole owner of the property subject to the mortgage that the Defendant was obligated to pay.
The parties were divorced on February 22, 1995, and the November 3, 1992 separation agreement was incorporated into the divorce decree. (Pl.Ex. 2.) Despite the Defendant’s obligation to pay the mortgage and other obligations on the property pursuant to paragraph 6 of the separation agreement, he failed to do so. On November 15, 1995, the Defendant was found to be in contempt for nonpayment and, in order to purge the contempt, ordered to pay the mortgagee the balance due on the mortgage, $102,902.98 plus interest of $3,430.10 and attorney fees of $2,500. (Def.Ex. 103.) He was also ordered to pay back child support and other expenses related to the property. The Defendant failed to make the required payments and, on December 12,1995, the Plaintiff executed a deed in lieu of foreclosure to the mortgagee in full satisfaction of her mortgage obligation. (Pl.Ex. 11.) Since that time, she has been living with her parents. On April 23, 2001, the parties stipulated as to the amount and payment method of past due child support, which was incorporated into a court order dated October 10, 2001. (Def.Ex. 104.) On May 13,1997, the Plaintiff filed a petition for bankruptcy under Chapter 7 in the Bankruptcy Court for the Southern District of New York and was granted a discharge on August 20, 1997. The Defendant filed his Chapter 7 bankruptcy petition in this Court on April 6, 2001.
Discussion
The Plaintiff now asks the Court to find that the following debts are excepted from *519discharge pursuant to section 523(a)(5) and (15) of the Code:
a. $3,335.27 to Wellcare of New York, Inc.;
b. $109,154.58 to Richard Louis Ry-dant, Plaintiffs mortgagee;
c. $20,000 to Plaintiff representing unpaid child support;
d. $5,688.92 to the City of Kingston, New York, representing real property taxes;
e. $1,225 to Central-Hudson for Utility charges;
f. $130 to New York Telephone;
g. $15 to TCI of New York for cable service;
h. $146 to Plaintiff for homeowners insurance premium;
i. $1,000 to the clerk of court for Ulster County.
(Adv.Doc. 8, ¶ 6.) Section 523(a)(5) provides in relevant part:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(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 ..., but not to the extent that—
(A) such debt is assigned to another entity ...; 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.
11 U.S.C. § 523(a)(5).
The Defendant does not contest the fact that the unpaid child support is excepted from discharge pursuant to section 523(a)(5), and this Court so finds. As to the other obligations, it is clear that this Court, as a matter of federal bankruptcy law, has the authority to determine whether provisions of a divorce decree, despite their characterization in the decree, are actually in the nature of alimony, maintenance or support. See Werthen v. Werthen (In re Werthen), 282 B.R. 553, 558 (1st Cir. BAP 2002) (“The § 523(a)(5) inquiry does not stop at the labels applied in the decree; its substance prevails over its form”); Bourassa v. Bourassa (In re Bourassa), 168 B.R. 8, 10 (Bankr.D.N.H.1994). In determining whether the obligation in question is alimony or support, the Court “will look no further than ‘the intent of the parties at the time a separation agreement is executed.’ ” Bourassa, 168 B.R. at 10 (quoting In re Brody, 3 F.3d 35, 38 (2nd Cir.1993)).
In the instant case, that determination is relatively simple. Section 6 of the separation agreement incorporated into the divorce decree is entitled, “Maintenance and Support” and was clearly intended to provide a means of maintenance and support to the Plaintiff by providing her a house to live in and paying the obligations related to it for a period of two years from the closing. The financial condition of the parties at the time of the divorce and the rest of the separation agreement clearly support this finding. The testimony at trial was, at the time of the separation, that the Defendant had a number of business interests including elderly housing, a hotel and an apartment building. The separation agreement provided that the Defendant would retain the three parcels of real estate as well as the five mortgages, which they held as mortgagee. The Plaintiff, on the other hand, received the obligation to provide her a house, some personal property, and the payment of $25,000 over three years. At the time of the separation agreement, the Plaintiff and *520her two sons were living with her parents in Kingston, New York. She eventually went back to work at the wage of four dollars per hour.
The Defendant hardly, if at all, contests that these obligations were maintenance and support at the time of the separation and divorce. The main thrust of the Defendant’s argument is that the combination of the Plaintiffs discharge in bankruptcy and the contempt order ordering the Defendant to pay the mortgage obligation directly to the mortgagee somehow relieved him from his obligations under the separation agreement incorporated into the divorce order. This Court disagrees.
The contempt order, as a means of purging the Defendant’s contempt, ordered that certain payments be made directly to the mortgagee and others. This is separate and distinct from the provisions of the separation agreement. It provided only a means of purging the contempt. It did not, in any way, modify the terms of the separation agreement. The Defendant failed to make the payments to purge the contempt; the Plaintiff lost her house as a result of the failure of the Defendant to provide the support and maintenance required by section 6 of the separation agreement.
Conclusion
The Court finds that these obligations are excepted from discharge pursuant to section 523(a)(5) of the Bankruptcy Code. Having made a finding under section 523(a)(5), it is unnecessary to make a finding under section 523(a)(15)2, but for the sake of judicial economy, this Court would find that the Plaintiff has not met her burden under that section and would deny the request for relief under section 523(a)(15).
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 final judgment consistent with this opinion.
. Unless otherwise noted, all statutory section references herein are to the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. § 101, et seq.
. Section 523(a)(15) provides:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, a determination made in accordance with State or territorial law by a governmental unit unless—
(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.
11 U.S.C. § 523(a)(15). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493536/ | MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
AMG Resources Corporation has brought a motion to dismiss the voluntary chapter 11 petition which was filed in this case on behalf of Industrial Concerns, Inc (“ICI”) by its president, Charles Barletto, without obtaining prior authorization of ICI’s board of directors. AMG Resources, which owns fifty percent of ICI’s outstanding shares of stock, maintains that Barlet-to lacked authority to file the petition on his own initiative.
ICI and Barletto oppose the motion. They assert that Barletto had not defaulted on his obligations to AMG Resources prior to the filing of the bankruptcy petition and that, in accordance with a settlement agreement involving AMG Resources, he had the “exclusive right to manage the business of ICI”.
We conclude that Barletto had defaulted on his obligations to AMG Resources prior to the filing of the bankruptcy petition and therefore no longer had such “exclusive right” when he filed the petition on behalf of ICI. In addition, we conclude that Bar-letto’s “exclusive right to manage the business of ICI” did not in any event empower him to file a chapter 11 petition on behalf of ICI without first obtaining authorization from ICI’s board of directors. Based on these determinations, we will dismiss the bankruptcy petition.
-FACTS-
ICI is in the business of owning and managing real property located in New Castle, Pennsylvania. It leased the property to Industrial Metal Processing, Inc. (“IMP”), a related corporation which processes and recycles scrap metal.
At their inception Charles Barletto owned ninety percent of the outstanding shares of ICI and one hundred percent of the outstanding shares of IMP. The remaining ten percent of ICI’s shares were owned by Thomas Metesic.
AMG Resources began selling scrap metal to IMP at some time in 1996 and soon became IMP’s largest supplier. Not long thereafter IMP became delinquent on its obligations to AMG Resources.
On January 28, 1997, ICI, IMP, Barlet-to, AMG Resources and Allen Goldstein, president and board chairman of AMG Resources, executed a stock transfer and management agreement to resolve their differences. Among other things, Barletto agreed to transfer fifty percent of the outstanding shares of ICI and IMP to AMG Resources, which in turn agreed to provide ICI and IMP with administrative, commercial and management services.
AMG Resources and Barletto concurrently executed a shareholders’ agreement whereby Barletto transferred fifty percent of the shares of ICI and IMP to AMG Resources. The agreement further provided that the board of directors of ICI and IMP would consist of four persons, two of whom were to be appointed by Barletto and two by Goldstein. Barletto appointed himself and Metesic as directors while Goldstein appointed himself and Ron Zorn.
On February 25, 1998, Barletto filed a voluntary chapter 11 petition in this court. On April 17, 1998, ICI filed voluntary chapter 11 petition. ICI’s bankruptcy 11 petition was filed on its behalf by Barletto as its president. Authorization from ICI’s *612board of directors was neither sought nor obtained prior to the filing. An involuntary chapter 7 petition also was filed against IMP on April 17,1998.1
On September 28, 1998, AMG Resources, AMG Recycling2, Goldstein, Bar-letto, ICI, IMP and BECO entered into a written settlement agreement which sought to resolve various claims they had against one another.
Acting individually and on behalf of ICI and IMP, Barletto stipulated that AMG Resources and/or AMG Recycling had a valid claim in the amount of $1,300,000 against IMP for, inter alia, inventory, cash and services provided and that IMP would not assert any defenses to the claim in its bankruptcy case. (¶ 1.)
Barletto agreed to purchase existing inventory of AMG Resources located on the site owned by ICI for the sum of $92,000, which was due and payable on or before entry of a final, non-appealable order approving debtors’ plan of reorganization. (¶5)
Barletto further agreed to pay AMG Resources an additional $250,000. Payments in the amount of $5,000 were due and payable on or before the tenth day of each month for thirty-six consecutive months. A final payment in the amount of $70,000 thereafter was due within thirty days following the thirty-sixth monthly payment. All payments were to be deposited into an account established by AMG Resources at a bank within ten miles of the location of ICI and IMP. (¶ 6.)
If Barletto complied with the above payment obligations, Goldstein, AMG Resources and AMG Recycling agreed to limit their claims against Barletto, ICI, IMP and/or BECO to $1,3000,000. (¶ 7.)
Barletto’s failure to pay to AMG Resources when due the final $70,000 balloon payment provided for in paragraph 6 constituted an event of default under the agreement (¶ lOd.)
AMG Resources was to receive a joint and several consent judgment in the amount of $1,3000,000 in its favor and against ICI and IMP in the Court of Common Pleas of Lawrence County, Pennsylvania. AMG Resources would forbear from executing or taking other legal action on the consent judgment, provided that Barletto, ICI and IMP did not default on their obligations arising under the settlement agreement. A prompt judicial sale of all the assets of ICI and IMP could take place at the option of AMG Resources, however, if Barletto defaulted. (¶ 11.)
If and when Barletto fully performed all of his obligations arising under the agreement, within thirty days after receipt of the final balloon payment AMG Recycling would transfer to Barletto all of the shares of ICI and IMP it owned and would cause any board member of ICI and IMP appointed by it to resign. (¶ 15.)
Until and unless Barletto fully performed his obligations arising under the agreement, AMG Resources would continue to own fifty percent of the shares of ICI and IMP and the board of directors of ICI and IMP would be comprised of Barletto, Metesic, Goldstein and Zorn, “provided, however, that, so long as Barletto has not committed an Event of Default hereunder, he shall have the exclusive right to manage the business of ICI and IMP”. (¶ 16.)
*613It was agreed that time was of the essence with respect to all of the obligations and time periods arising under the agreement. (¶ 17.)
It further was agreed that, as permitted by the bankruptcy court, the parties would forbear prosecution of all pending actions between them and would, to the best of their abilities, maintain the status quo. (¶ 23.)
The settlement agreement contained the entire agreement of the parties and could be amended only by a writing executed on behalf of the parties by their duly authorized officers or representatives. (¶ 25.)
An order approving the above settlement agreement issued on December 16, 1998.
The joint chapter 11 plan filed by Bar-letto, ICI, IMP and BECO was confirmed on April 22,1999.
Pursuant to the settlement agreement, AMG Resources established an account at a branch of Sky Bank located in New Castle, Pennsylvania. In addition, a consent judgment in the amount of $1,3000,-000 in favor of AMG Resources and against ICI and IMP was entered and recorded in the Court of Common Pleas of Lawrence County.
It is undisputed that Barletto made the required initial payment of $92,000 to AMG Resources. It also is undisputed that a total of thirty-six monthly payments by Barletto in the amount of $5,000 were deposited into the account of AMG Resources at the Sky Bank branch in New Castle.
The first $5,000 installment payment was deposited into the account of AMG Resources on July 2, 1999. The thirty-sixth payment was deposited into its account in June of 2002. A thirty-seventh payment was deposited into the account on July 1, 2002. The amount of this latter deposit was $5,000, however, not $70,000. No further payments were ever deposited into the account.
At some time prior to June 18, 1998, counsel to Barletto left a voice mail message for counsel to AMG Resources concerning the possibility of liquidating the above $70,000 balloon payment in $5,000 monthly installments instead of in a lump sum.
Counsel for Barletto and counsel for AMG Resources thereafter had a telephone conversation on June 26, 2002, wherein they discussed the proposal. Counsel to AMG Resources advised counsel to Barletto that he would take the proposal to Goldstein and would attempt to “sell” it to him. He further advised counsel to Barletto that a payment of $5,000 toward the $70,000 balloon payment that was about to become due was better than no payment at all. A thirty-seventh payment in the amount of $5,000 was deposited into the account of AMG Resources a few days later on July 1, 2002.
At some time after June 26, 2002, counsel to AMG Resources presented Barlet-to’s proposal to Goldstein, who rejected it. Goldstein then directed counsel to AMG Resources to take steps to execute on the consent judgment previously entered in the Court of Common Pleas of Lawrence County.
On July 16, 2002, counsel to AMG Resources submitted a praecipe for a writ of execution to the Prothonotary of Lawrence County requesting that a writ be issued directing the sheriff of Lawrence County to execute on the property of ICI and IMP.
Counsel to AMG Resources notified counsel to Barletto on July 17, 2002, that AMG Resources had rejected the proposal to continue paying $5,000 per month until the $70,000 payment was made. Counsel *614to AMG Resources instead demanded that Barletto make the final payment in the full amount of $70,00, as provided for in the settlement agreement. He also informed counsel to Barletto that Goldstein had directed that an execution proceeding be commenced against ICI and IMP in light of Barletto’s default.
The next day — i.e., on July 18, 2002-counsel to Barletto sent a fax to counsel to AMG Resources containing another proposal concerning the balloon payment. Counsel to Barletto proposed that, in addition to the $5,000 payment made on July 1.2002, Barletto would make payments of $5,000 in August, September, and October of 2002 and would pay the remaining balance of $50,000 by November 1, 2002.
Counsel to AMG Resources sent a letter to Barletto on July 19, 2002, rejecting the proposal. In the letter he averred that Barletto had voluntarily tendered $5,000 to AMG Resources and stated that Barletto, ICI and IMP had defaulted on their obligations arising under the settlement agreement.
ICI filed a voluntary chapter 11 petition on August 9, 2002, thereby automatically staying the execution proceeding. Barlet-to brought the petition on behalf of ICI in his capacity as its president. He acted on his own initiative and without notice to or prior authorization by the board of directors of ICI.
The schedules accompanying the petition listed assets with a declared value of $980,200.00 and liabilities totaling $2,217,339.24. AMG Resources was listed as having an unsecured non-priority claim in the amount of $1,2000,000 for “trade debt”.
On November 7, 2002, AMG Resources, Goldstein and Zorn brought a motion to dismiss the voluntary petition Barletto had filed on behalf of ICI. The thrust of the motion is that the filing of the chapter 11 petition by Barletto was an ultra vires act which was undertaken without proper and necessary authority. It was alleged that Barletto had acted unilaterally and did not obtain authorization from the board of directors of ICI prior to the filing.
An evidentiary hearing on the motion and the opposition thereto of Barletto and ICI was conducted on January 23, 2003.
- DISCUSSION -
The following issues must be resolved in order to decide AMG Resources’ motion to dismiss: (1) whether Barletto defaulted on his payment obligations as set forth in paragraph 6 of the settlement agreement; and (2) if Barletto was not in default, whether he had authority to file a voluntary chapter 11 petition on behalf of ICI on his own initiative and without prior authorization by the board of directors of ICI.
Did Barletto Default?
It is undisputed that: Barletto made the initial payment in the amount of $92,000 to AMG Resources to purchase existing inventory; Barletto made thirty-six monthly payments in the amount of $5,000 starting in July of 1999 and ending in June of 2002; Barletto did not pay $70,000 within thirty days of the date on which the thirty-sixth payment was made; and paragraph lOd of the settlement agreement provides that Barletto’s failure to make the required balloon payment when due constituted an event of default.
Whether Barletto defaulted depends in the first instance on when the thirty-sixth monthly payment in the amount of $5,000 was made. There is a dispute concerning when it was made.
Barletto asserts that the payment was made on June 27, 2002. If Barletto is correct, he had until July 27, 2002, to make *615the $70,000 balloon payment. Under this scenario', AMG Resources breached the settlement agreement before Barletto defaulted when it initiated an execution proceeding against ICI and IMP less then thirty days later on July 17, 2002.
AMG Resources maintains that Barletto breached the settlement agreement before it initiated the execution proceeding against ICI and IMP. It asserts that the thirty-sixth monthly payment of $5,000 was made on June 3, 2002, not on June 27, 2002, and that Barletto failed to make the required $70,000 balloon payment within thirty days thereafter i.e., by July 3, 2002. The only payment Barletto made subsequent to June 3, 2002, was a $5,000 payment on July 1, 2002.
After considering all of the evidence submitted by the parties at the hearing, we conclude that the thirty-sixth monthly payment in the amount of $5,000 was made on June 3, 2002, not on June 27, 2002, and that the required $70,000 balloon payment was not made within thirty days of this date. The bank statement for the account of AMG Resources at the branch of Sky Bank located in New Castle definitively shows that the only deposit made into the account in June of 2002 occurred on June 3, 2002. No other deposit was made into the account during that month.
Barletto has put forth various arguments in an attempt to avoid the seemingly inescapable conclusion that he defaulted on his obligations and consequently no longer had “the exclusive right to manage the business of ICI” when he unilaterally filed ICI’s chapter 11 petition.
Barletto first maintains that AMG Resources is obligated under the agency doctrine of apparent authority to accept payments in the amount of $5,000 per month until the $70,000 balance is paid in full because counsel for AMG Resources accepted such a proposal despite having no express authority to do so.
As was previously noted, counsel to Bar-letto approached counsel to AMG Resources late in June of 2002 and proposed that, instead of paying it in one lump sum, Barletto pay the $70,000 still due at the rate of $5,000 per month until the amount due was paid in full.
Barletto asserts that counsel to AMG Resources accepted the proposal despite lacking express authority to do so and stated that he would take it to Goldstein and “sell the idea” to him. Barletto further asserts that counsel to AMG Resources instructed Barletto’s counsel to make the initial $5,000 payment. The representation of counsel to AMG Resources that he would “sell the idea” to Goldstein turned out to be untrue. Goldstein rejected the proposal outright when counsel to AMG Resources presented it to him.
An attorney must have express authority from a client to settle a matter on behalf of the client. Rothman v. Fillette, 503 Pa. 259, 264, 469 A.2d 543, 545 (1983). Under the doctrine of apparent authority, however, a settlement agreement nonetheless may be enforced against a principal when a third party reasonably believes that the principal’s lawyer had authority to agree to a settlement when the lawyer fraudulently represented that he had such authority. Id. If one of two parties in such a situation must suffer, the loss should be borne by the party who placed the lawyer in a position of trust and confidence and thus enabled the lawyer to perpetrate the fraud. Id.
According to Barletto, counsel to AMG Resources accepted the proposed modification of the settlement agreement and misleadingly induced Barletto to reasonably believe that counsel had express authority to accept the proposal on behalf *616of AMG Resources when in reality he did not. From this Barletto would have us infer that his proposal is enforceable under the doctrine of apparent authority. If we so conclude, it presumably would follow that Barletto had not defaulted on his payment obligations arising under the settlement agreement because he already had made one agreed-to $5,000 payment when AMG Resources breached the settlement agreement by initiating an execution proceeding against ICI and IMP.
This argument is without merit. It relies on the erroneous assumption that counsel to AMG Resources accepted, Bar-letto’s proposal to pay the $70,000 balloon payment at the rate of $5,000 per month even though counsel lacked express authority from AMG Resources to accept the proposal.
Counsel to AMG Resources, we find, neither accepted the proposal on behalf of AMG Resources nor held himself out as having authority to do so. Counsel instead indicated only that he would attempt to “sell the proposal” to Goldstein — i.e., would present it to Goldstein to see if he would accept it. Moreover, we find that counsel to AMG Resources did not instruct or in any way induce Barletto to make the $5,000 payment that occurred on July 1, 2002. Counsel instead merely acquiesced in Barletto’s suggestion that Barletto make a $5,000 payment as the first installment. Barletto and his counsel made far more of what counsel AMG Resources said or did than was reasonable under the circumstances.
Barletto next argues that AMG Resources should be equitably estopped from asserting that Barletto defaulted when he failed to make the required $70,000 balloon payment within thirty days of June 3, 2002.
As its name implies, equitable estoppel sounds in equity. Zitelli v. Dermatology Education and Research Foundation, 534 Pa. 360, 373, 633 A.2d 134, 139 (1993). It is a doctrine of “fundamental fairness” whose application depends on the facts of a particular case. Homart Development Co. v. Sgrenci, 443 Pa.Super. 538, 554, 662 A.2d 1092, 1100 (1995).
Its application makes enforceable a promise implied by words, deeds or representations which induce another to justifiably rely to their detriment. Kreutzer v. Monterey County Herald Co., 560 Pa. 600, 607, 747 A.2d 358, 362 (2000). It also prevents one from asserting a position to the prejudice of another which is at odds with a previous position. Blofsen v. Cutaiar, 460 Pa. 411, 417, 333 A.2d 841, 844 (1975).
Equitable estoppel consists of two elements: (1) inducement; and (2) justifiable reliance on that inducement. Novelty Knitting Mills, Inc. v. Siskind, 500 Pa. 432, 436, 457 A.2d 502, 503 (1983). The inducement may arise out of one’s words or deeds. The conduct that is induced may occur by commission or forbearance, as long as a detrimental change in position results. Id., 500 Pa. at 436, 457 A.2d at 503-04.
The party asserting equitable estoppel has the burden of proving these elements by clear, precise and unequivocal evidence. Blofsen, 460 Pa. at 417-18, 333 A.2d at 844.
Barletto asserts that he was induced by the misrepresentation of counsel to AMG Resources that payment of $5,000 per month was an acceptable means of satisfying Barletto’s obligation to make a $70,000 balloon payment. Only after it was too late to make the required $70,000 payment in full within the time period prescribed by the settlement agreement did AMG Resources declare that Barletto *617had defaulted and that it had initiated an execution proceeding to satisfy the above consent judgment. From all of this Bar-letto would have us conclude that AMG Resources is equitably estopped from asserting that Barletto had defaulted with respect to his obligations arising out of the settlement agreement.
This argument also is without merit. Like the previous argument, it rests on the erroneous premiss that counsel to AMG Resources indicated to Barletto’s counsel that continued payments in the amount of $5,000 per month were acceptable.
We previously determined that counsel to AMG Resources gave no such indication. Counsel merely indicated that he would take the proposal to Goldstein and find out whether it was acceptable to Gold-stein. Counsel did not represent or otherwise indicate that Barletto’s proposal was acceptable.
As a consequence, nothing counsel to AMG Resources said or did justified a belief on Barletto’s part that it was acceptable for him to pay only $5,000 instead of $70,000 within thirty days of the thirty-sixth $5,000 monthly payment. Any harm or prejudice Barletto or ICI suffered as a result of Barletto’s failure to pay $70,000 by that date was due to a misunderstanding on the part of Barletto and his counsel. It was not justifiable to believe from anything counsel to AMG Resources said or did that Barletto need not pay the full amount due — i.e., $70,000 — by no later than July 3, 2002.
Based on the foregoing, we conclude that by July 3, 2002, Barletto had defaulted on his obligation to make a $70,000 balloon payment within thirty days of the date on which he made the thirty-sixth installment payment of $5,000. In accordance with paragraph 11 of the settlement agreement, AMG Resources was permitted to initiate execution proceedings against ICI and IMP. Moreover, in accordance with paragraph 6 of the settlement agreement, Barletto no longer had “the exclusive right to manage the business” of ICI when he initiated a chapter 11 proceeding on behalf of ICI.
Did Barletto Have Authority To File A Voluntary Chapter 11 Petition On Behalf Of ICI Without Obtaining Prior Approval Of Its Board Of Directors?
Paragraph 16 of the above settlement agreement reads as follows:
Unless and until Barletto fully performs his obligations under the Agreement, AMG Recycling shall continue to own 50% of the stock of ICI and IMP and the Board of Directors of both corporations shall continue to be Barletto, Gold-stein, Ron Zorn and Thomas Metesic, provided, however, that, so long as Bar-letto has not committed an Event of Default hereunder, he shall have the exclusive right to manage the business of ICI and IMP. (Emphasis added.)
Assuming eounterfactually that Barletto had not defaulted on his obligations arising under the settlement agreement, did he have authority to file a bankruptcy petition for ICI on his own initiative and without obtaining prior approval of ICI’s board of directors?
Barletto insists that he had such authority by virtue of the language of paragraph 16 giving him “the exclusive right to manage the business of ICI”. This assertion is without merit.
The decision to initiate a voluntary bankruptcy case on behalf of a corporation must be made by those persons having the power of managing the corporation. Price v. Gurney, 324 U.S. 100, 104, 65 S.Ct. 513, 515, 89 L.Ed. 776 (1945).
*618It is a longstanding principle that a president or other officer of a corporation cannot on his or her own initiative file a voluntary petition for the corporation. Approval of its board of directors is required. In re I.D. Craig Service Corp., 118 B.R. 335, 336 (Bankr.W.D.Pa.1990) (citing In re Farrell Realty Co., 10 F.2d 612, 614 (W.D.Pa.1925); also In re Penny Saver, Inc., 15 B.R. 252, 253 (Bankr.E.D.Pa.1981)).
The power to manage a business corporation resides in its board of directors. The Pennsylvania Business Corporation Law (“BCL”) sets forth general powers that a business corporation has in Pennsylvania. See 15 Pa.C.S.A. § 1502(a). Unless otherwise provided for by statute or in a bylaw adopted by shareholders, all such powers are to be exercised by or under the authority of its board of directors. Management of its business affairs is subject to the direction of its board of directors. See 15 Pa.C.S.A. § 1721.
What a manager or officer of a corporation may do on his or her own initiative on behalf of the corporation is subject to limitation. Under Pennsylvania law, the manager or officer of a corporation has authority to do any act on behalf of the corporation which is in the ordinary course of the corporation’s business. See Gillian v. Consolidated Foods Corp., 424 Pa. 407, 411-12, 227 A.2d 858, 860 (1967); also Kelly, Murray, Inc. v. Lansdowne Bank & Trust Co., 299 Pa. 236, 242, 149 A. 190, 192 (1930).
There is nothing in the record created at the evidentiary hearing indicating that the above language of paragraph 16 of the settlement agreement was meant to deviate from this general principal. The provision giving Barletto “the exclusive right to manage the business of ICI” only gave him authority to make any and all decisions' pertaining to the ordinary business affairs of ICI without consulting its board of directors.
As we understand it, paragraph 16 did not give Barletto authority to do anything on his own initiative which was outside the ordinary business affairs of ICI. The parties to the settlement agreement, in other words, did not intend to give Barletto unfettered discretion to act on his own with respect to Id's extraordinary business affairs. They intended instead to give him such discretion only with respect to the ordinary business of ICI. The fact that his right to manage ICI was “exclusive” does not override this distinction.
ICI, it was noted previously, is in the business of owning and leasing real property to others. The filing of a chapter 11 bankruptcy petition is not within the scope of its ordinary business affairs. To the contrary, resorting to a voluntary chapter 11 petition is a drastic departure from Id's ordinary business affairs. The filing of a voluntary chapter 11 petition has as its presumed purpose the reorganization of a corporation’s business affairs by restructuring its existing obligations to creditors which arose in the ordinary course of its affairs. Such action undoubtedly is “extraordinary”.
As a matter of law, the filing of a voluntary petition is not an action done for the purpose of carrying on the ordinary business of a partnership. See In re SWG Associates, 199 B.R. 557, 559 (Bankr.W.D.Pa.1996). The same would be no less true where a business corporation is concerned.
Support for the conclusion that authority for filing a voluntary bankruptcy petition on behalf of a corporation resides in its board of directors is found elsewhere in the BCL. to wit:
Whenever a business corporation is insolvent or in financial difficulty, the *619board of directors may, by resolution and without the consent of shareholders, authorize and designate the officers of the corporation to ... file a voluntary petition in bankruptcy.
15 Pa.C.S.A. § 1903. If, in its discretion, the board of directors decides that a voluntary petition is appropriate, it may grant such authority to designated officers of the corporation.
The context in which the above settlement was arrived at supports the conclusion that paragraph 16 was not meant to give Barletto unfettered discretion to file a voluntary bankruptcy petition on behalf of ICI without obtaining prior authorization to do so from its board.
It was noted previously that ICI had previously filed a voluntary chapter 11 petition on April 17, 1998. As in the present case, Barletto signed the petition on behalf of ICI as its “authorized individual”. On May 28, 1998, AMG Recycling brought a motion to dismiss the petition. As in the present case, the moving party averred that the bankruptcy filing was not authorized or approved by ICI’s board of directors.
A major purpose of the settlement agreement arrived at on September 28, 1998, was to resolve once and for all the scope of Barletto’s authority vis-á-vis ICI. Paragraph 16 was intended to define the parameters on Barletto’s authority to take action on his own initiative on its behalf. It not plausible that the issue underlying the motion to dismiss in that case was left unresolved and was postponed until Bar-letto might see fit to file another voluntary bankruptcy petition on behalf if ICI. As we have indicated, one purpose of paragraph 16 was to restrict Barletto’s exclusive right to manage ICI’s business affairs to matters arising in the ordinary course of its business.
Based on the foregoing, we conclude that Barletto had previously defaulted on his obligations to AMG Resources as set forth in the settlement agreement when he unilaterally filed a voluntary bankruptcy petition on behalf of ICI. As a consequence, AMG Resources was entitled to initiate an execution proceeding against ICI and IMP and by then Barletto no longer had exclusive authority to manage ICI’s business affairs. To the extent Bar-letto still retained such an exclusive right, it was limited to managing ICI’s ordinary affairs. He had no authority to file a voluntary bankruptcy petition on its behalf without first obtaining authorization to do so from its board of directors, which he neither sought nor obtained. Because Bar-letto lacked authority to file the voluntary petition in this case, the petition will be dismissed.
. Barletto Equipment and Construction Company ("BECO”), another corporation controlled by Barletto, also filed a bankruptcy petition at or about the same time.
. AMG Recycling is a corporation related to AMG Resources and also is controlled by Goldstein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493537/ | *700OPINION
LARRY L. LESSEN, Bankruptcy-Judge.
This matter came before the Court for trial on February 3, 2003, on Plaintiffs Complaint to Determine Dischargeability of Debt. At issue is whether certain obligations of the Debtor arising out of marital dissolution proceedings to pay certain joint debts of the parties and her obligation to indemnify Plaintiff and hold him harmless from said debts are subject to discharge under 11 U.S.C. § 523(a)(15).
Debtor and Plaintiff were married on June 11, 1988. Two children were born to the parties, one on September 29, 1993, and the other on September 29, 1995. On December 21, 2001, a Judgment of Dissolution of Marriage was entered by the Circuit Court of Sangamon County, Illinois, dissolving the marriage of Plaintiff and Debtor. Pursuant to the Judgment of Dissolution and other subsequent orders, Debtor was ordered to pay certain marital debts to certain creditors enumerated below. Debtor was further ordered to indemnify and hold harmless Plaintiff from the debts she was required to pay.
On July 26, 2002, Debtor filed her voluntary Chapter 7 Petition in Bankruptcy. On November 4, 2002, Plaintiff filed his two-count Complaint to Determine Dis-chargeability of Debt. Count I asserts the nondischargeability of debts in the following amounts to the following creditors which the divorce court ordered Debtor to pay directly to said creditors: $3,758.05 to Bank of Springfield, $810.42 to Conseco, $210.57 to Firestone, $634.18 to Lowe’s, $1,582.11 to Leath’s, and $7,443.09 to Mission Federal Credit Union. Plaintiff asserts that these debts now total approximately $16,294.42 and are nondischargeable under 11 U.S.C. § 523(a)(15). Count II of Plaintiffs Complaint asserts the nondischargeability of the $3,758.05 debt to Bank of Springfield pursuant to 11 U.S.C. § 523(a)(2)(A). As there was no evidence presented at trial regarding this Count, the Court finds said debt to be dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), and the remainder of this Opinion will focus on Count I of the Complaint and the allegation of non-dischargeability pursuant to 11 U.S.C. § 523(a)(15).
11 U.S.C. § 523(a)(15) provides in pertinent part as follows:
(a) A discharge under section 727... of this title does not discharge an individual debtor from any debt-
(15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record... unless-
(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor...; or
(B) discharging the debt would result in a benefit to the debtor that outweighs the detrimental consequences to the spouse, former spouse, or child of the debtor(.)
To prevail under § 523(a)(15), the debt in question must be other than the type set forth in § 523(a)(5), that was awarded by a court in the course of a divorce proceeding or separation. In re Paneras, 195 B.R. 395, 403 (Bankr.N.D.Ill.1996) citing In re Silvers, 187 B.R. 648, 649 (Bankr.W.D.Mo.1995). Once this is established (and it is not disputed in our case), the burden of proving that the debt falls within either of the two exceptions to nondischargeability rests with the debtor. *701In re Crosswhite, 148 F.3d 879, 884-85 (7th Cir.1998). Hence, once the creditor’s initial proof that the claim falls under Section 523(a)(15) of the Bankruptcy Code is made, the debt is excepted from discharge and the debtor is responsible for the debt unless the debtor can prove either of the two exceptions, subpart (A), the “ability to pay” test, or (B), the “detriment” test. Id., 148 F.3d at 885.
If the debtor can show the inability to pay the debt, the examination stops and the debtor prevails. The debt will remain dischargeable if paying the debt would reduce the debtor’s income below that necessary for the support of the debt- or and the debtor’s dependents. In re Hill, 184 B.R. 750, 754 (Bankr.N.D.Ill.1995). Because this language mirrors the disposable income test found in 11 U.S.C. § 1325(b)(2), most courts utilize an analysis similar to that used in determining disposable income in Chapter 13 cases. Hill, supra at 755; In re Smither, 194 B.R. 102, 108 (Bankr.W.D.Ky.1996); In re Carroll, 187 B.R. 197, 200 (Bankr.S.D.Ohio 1995); In re Phillips, 187 B.R. 363, 369 (Bankr.M.D.Fla.1995); In re Hesson, 190 B.R. 229, 237 (Bankr.D.Md.1995). However, if the debtor can afford to make the payment, either in a lump sum or in installments over time, then the inquiry proceeds to Section 523(a)(15)(B) where the debtor has the burden to show that the benefit to the debtor from not having to pay the debt at issue is greater than the detrimental effects on the creditor-his spouse, former spouse, or child-who then must pay the debt. In re Crosswhite, supra, 148 F.3d at 885.
This Court has previously concluded that determining the dischargeability of debt under § 523(a)(15) requires the evaluation of three factors: (1) the debtor’s ability to pay the subject debt, (2) the non-debtor former spouse’s ability to pay the subject debt, and (3) the financial repercussions to the non-debtor former spouse of discharging the debt. In re Jenkins, 202 B.R. 102, 104-05 (Bankr.C.D.Ill.1996). As indicated above, a finding that the debt- or lacks the ability to repay the subject debt ends the inquiry with the first factor and the debt is deemed dischargeable. If, however, the debtor is found to have the ability to repay the subject debt, the inquiry proceeds to consider the second and third factors — the non-debtor former spouse’s ability to pay the subject debt and the financial repercussions of leaving the non-debtor former spouse to do so.
Facially, Plaintiffs Complaint appeared meritorious as Debtor’s Schedule I indicated that she was employed full-time and earning approximately $50,000 per year. However, the evidence adduced at trial indicated that Debtor’s full-time-position was eliminated and she was re-hired into a similar position with less than full-time hours and a salary to match. Unfortunately for all, under her present circumstances, Debtor clearly lacks the ability to pay the debt in question. Her annual gross income is $29,071, with a monthly net of $1,848. Her monthly expenses include rent (in a shared home) of $500, car payment of $394, groceries of $300, clothing for herself and the parties’ two children (Debtor has visitation rights during the school year and primary custody during the summer) of $100, car repairs of $75, gasoline of $100, medication/drug store items of $100, insurance (auto and rental) of $72, electricity of $50, school expenses of $40, grooming of $75, child support of $58.06, and tutoring of $40. These expenses total $1,904.06, which exceeds Debtor’s monthly net income.' The above-enumerated expense total does not include lunches ($80), Debtor’s payment of which was disputed at trial, nor does it include cell phone ($80), entertainment *702($40), or retirement buy-back ($97.80), all, some, or none of which may be necessary living expenses.
The evidence adduced at trial does not indicate that Debtor is voluntarily underemployed, or that her living expenses are excessive. Rather, it simply appears that, primarily because of her income, Debtor lacks the ability to pay the subject debt, either in a lump sum or in installments.
As the Court has determined that the Debtor lacks the ability to pay the subject indebtedness, the inquiry ends and the debt is deemed dischargeable.
For the reasons set forth above, the subject debt is dischargeable pursuant to 11 U.S.C. § 523(a)(15).
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule. 7052 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493539/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
The issue before the Court is whether the Debtors’ proposed Chapter 11 Plan impermissibly modifies an undersecured home mortgage in violation of Section 1123(b)(5) of the Bankruptcy Code.
The material facts are not in dispute. John C. Dailey is a sixty-two year-old doctor practicing in Jacksonville, Illinois. His specialty is ear, nose, and throat. He earns over $400,000 a year. His wife, Patricia A. Dailey, has not been employed outside the home since 1985. They have four adult, emancipated children.
The Daileys filed a petition pursuant to Chapter 11 of the Bankruptcy Code on February 21, 2002. The primary cause of the Debtors’ financial problems was the construction of a home located at 1546 Concord Road, Jacksonville, Illinois. The construction costs of the house far exceeded the original construction projections. The home serves as the Debtors’ principal residence.
The Debtors’ home is an ultra-luxury home that is well constructed out of premium materials. It is located on a five-acre tract. The Debtors built the house for around $750,000. The Debtors valued the home at $1,000,000 in their schedules. However, the house has been on the market and has failed to sell. The asking price has ranged from $995,000 to around $800,000.
The Court held a valuation hearing on June 28, 2002, and determined the fair market value of the house to be $350,000. The Court based its valuation on the lack *709of a water source on the five-acre tract (water comes from an adjacent tract also owned by the Debtors), and the limited market for luxury homes in the Jacksonville area. An appraiser testified that luxury homes rarely bring what they cost to build.
The Debtors financed the construction of the house in part through a loan from AmerUs Bank; Commercial Federal Bank is the successor by merger to AmerUs. On June 27, 1997, the Debtors executed a note in favor of the Bank in the principal amount of $727,700 plus interest to accrue thereon at the rate of 9.25% per annum. The note is secured by a mortgage on the house and five-acre tract upon which it sits. In addition, the Debtors’ schedules show Conseco as having second and third mortgages on the property totaling $142,000.
The Debtors’ Chapter 11 Plan filed July 29, 2002, proposes to treat Commercial as a Class 2 allowed secured claim which is impaired by the Plan. Under the proposed Plan, Commercial’s secured claim of $840,598.83 would be “stripped down” to the Court-determined fair market value of the property—$350,000. The Debtors propose to pay the stripped-down claim of $350,000 over 30 years at 7% interest with a five year balloon. Monthly payments would be not less than $2,328.56. The balance of $460,500 would be treated as an unsecured debt.
Commercial objects to confirmation of the Chapter 11 Plan on the grounds that it impermissibly modifies Commercial’s security claim in violation of 11 U.S.C. § 1123(b)(5), which provides as follows:
(b) Subject to subsection (a) of this section, a plan may—
(5) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s personal residence....
This provision was added to the Bankruptcy Code by the Bankruptcy Reform Act of 1994, and the legislative history clearly indicates the Congressional intent to amend Chapter 11 to include the same anti-modification provision applicable to Chapter 13 plans under § 1322(b)(2) and the Supreme Court’s decision in Nobelman v. American Savings Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). In re Cohen, 267 B.R. 39, 42 (Bankr.D.N.H.2001); In re Lievsay, 199 B.R. 705, 708-09 (9th Cir. BAP 1996).
In this case, the only collateral subject to the Bank’s security interest is the Debtors’ principal residence at 1546 Concord Road. Therefore, the Bank’s security interest may not be modified by the Chapter 11 Plan of Reorganization.
The Debtors argue that the Bank should be estopped from relying on § 1123(b)(5) because it participated in the valuation hearing. This argument is without merit. The Bank has never expressed an intention of waiving any of its rights under the Bankruptcy Code. The Bank did appear at the valuation hearing, but its participation was limited; the Bank did not produce its own appraiser. The Bank was well aware that its mortgage could not be modified. The purpose of the valuation hearing was to determine whether the second and third mortgages were totally unsecured, and therefore subject to strip off. See In re Waters, 276 B.R. 879, 888 (Bankr.N.D.Ill.2002).
The Debtor also argues that “the provisions of 1123(b)(5) are contrary to the position that bankruptcy should afford a debtor a fresh start in that they substantially impair the ability of a debtor to achieve a fresh start by being overbur*710dened with debt associated with the one asset that they need to retain.” Section 1123(b)(5) may be harsh, and the Debtor may be unhappy with the anti-modification rule, but it is not optional. “If the Court were to re-write the Code every time a debtor was dissatisfied with a specific provision of the Bankruptcy Code, there would be no Bankruptcy Code.” In re Gosman, 282 B.R. 45, 52 (Bankr.S.D.Fla.2002).
It is clear from the foregoing that the Debtors’ Chapter 11 plan may not be confirmed. Therefore, the Court need not address the Bank’s objection pursuant to § 1129(a)(ll) that the plan is not feasible and is likely to be followed by liquidation and the need for further financial reorganization. The Court also notes that the Debtors face a substantial obstacle to confirmation in the guise of the absolute priority rule of § 1129(b)(2)(B)(ii). In re Gosman, supra. The Court also notes that the Internal Revenue Service filed an Amended Objection to Plan on December 3, 2002.
Also pending is the Bank’s Motion to Lift the Automatic Stay. The Motion was originally filed on March 20, 2002; an Amended Motion was filed on April 10, 2002. The Motion was continued at the request of the Bank so that it could review the Debtors’ Plan and Disclosure Statement. The Bank has reasserted its request for a modification of the automatic stay in its reply brief filed February 26, 2003.
The Bank argues that the automatic stay should be lifted pursuant to 11 U.S.C. § 362(d)(2) on the grounds that the Debtor does not have any equity in the property and that the property is not necessary to an effective reorganization. The Bank has the burden of showing that the Debtors do not have any equity in the property, and the Debtors have the burden of proving that the property is necessary to an effective reorganization. 11 U.S.C. § 362(g). It is undisputed that the Debtors do not have any equity in the property. Thus, the only issue with respect to the Bank’s request for relief from the automatic stay is whether the property is necessary to an effective reorganization of the Debtors.
The property does not generate any income, and there are no plans to use it to generate any income. The primary purpose of the Chapter 11 filing was to save the home for the Debtors as their residence. The Debtors’ proposed Chapter 11 Plan of Reorganization is based upon the bifurcation and modification of the Bank’s secured claim. The Debtors stated in their brief in opposition to the Bank’s objection to confirmation that, if the Bank’s mortgage cannot be modified as set forth in the proposed Chapter 11 Plan of Reorganization, then the Debtors would want to amend their plan to provide for liquidation by them. Since the Court has determined that the Bank’s mortgage may not be modified by a Chapter 11 plan, an effective reorganization is not possible.
The question then becomes whether to lift the stay to allow the Bank to proceed with foreclosure or to allow the Debtors to liquidate the house in an amended Chapter 11 plan. Given that the Debtors had the house on the market for over three years without any success, the Debtors’ failure to make payments to the Bank during the pendency of these proceedings, the growing post-petition arrearage, and the value of the property, the Court finds that the Bank is not adequately protected and that the stay should be lifted.
For the foregoing reasons, confirmation of the Debtor’s Chapter 11 Plan of Reorganization is denied, and Commercial Federal Bank’s Amended Motion for Relief from the Automatic Stay is allowed.
*711This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493540/ | ORDER ON MOTION FOR RELIEF FROM JUDGMENT
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This matter came before the Court upon Defendant’s Motion for Relief from Judgment (“Motion”) and the Memorandum of Sara J. Daneman, Trustee, in Opposition *881to Defendant’s Motion for Relief from Judgment (“Memo Contra”).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this district. This is a core proceeding under 28 U.S.C. § 157(b)(2)(0).
A. Procedural History
On February 27, 2001, Debtor, Dena L. Eden, filed her Chapter 7 bankruptcy petition. In Schedule A, Debtor listed an undivided one-half interest in real estate known as 13828 Fridley Road, Ashville, Ohio. In Schedule C, Debtor listed William F. Eden as a co-debtor on the Debtor’s house and car. (Case No. 01-51921, pleading No. 1).
On October 30, 2001, Trustee filed this adversary proceeding. In the adversary proceeding complaint, Trustee sought an order from the Court allowing her to sell the real estate jointly owned by the Debtor and Defendant, William F. Eden. The Trustee based her complaint upon 11 U.S.C. § 363(h). Defendant answered the adversary proceeding complaint on November 28, 2001. In his answer, Defendant affirmatively stated that “the detriment to Defendant outweighs the benefit to the estate considering Defendant’s life expectancy, his contribution to the purchase price and mortgage payments, tax exemptions, prospect of obtaining a new home, the physical problems of Dena Eden, the psychological, emotional, and financial detriments that would result from the sale.” (Answer, adversary pleading no. 4).
On August 30, 2002, Trustee filed a motion for summary judgment. In the motion for summary judgment, Trustee argued that the requisite conditions had been established for the Court to authorize her to sell the real property co-owned by Debtor and Defendant pursuant to 11 U.S.C. § 363(h). Defendant filed no opposition to the motion for summary judgment. The Court reviewed the motion for summary judgment, as well as the adversary proceeding and bankruptcy proceeding files. Based upon that review, the Court concluded that Trustee’s motion should be granted. The Court entered its Order on Motion of Sara J. Daneman for Summary Judgment on October 21, 2002.
On November 27, 2002, Defendant filed his Motion moving the Court “pursuant to FRCP. 609(B) [sic] and BR 9024 for relief from the order of sale entered October 18, 2002.” (Motion, adversary pleading no. 17). Defendant, while not referring to a particular provision of mistake under Rule 60(b), argued that the Court “err[ed] when if [sic] found that there was sufficient equity in the property to be paid to the Trustee.” (Motion, adversary pleading no. 17). Through the Motion, Defendant argued that the “order of sale” should be vacated.1 Trustee responded and argued that Defendant’s Motion should be denied because it was not timely and was being used as a substitute for appeal.
B. Legal Analysis
Rule 60(b) of the Federal Rules of Civil Procedure, as made applicable by Rule 9024 of the Federal Rules of Bankruptcy procedure provides, in pertinent part, as follows:
On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final *882judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation.
Since Defendant did not refer to a particular provision of Rule 60(b), the claim of legal error must be “subsumed in the category of mistake under Rule 60(b)(1).” Pierce v. United Mine Workers of America Welfare, 770 F.2d 449, 451 (6th Cir.1985). See also In re Swing, 171 B.R. 813, 814 (Bankr.S.D.Ohio 1994). Under Rule 60(b)(1), a motion for relief must be made within a reasonable time. In the Sixth Circuit, it has been determined that Rule 60(b)(1) relief may only be granted where the motion was filed prior to the time for taking an appeal. In re Swing, 171 B.R. at 815.
Under Rule 8002(a) of the Federal Rules of Bankruptcy Procedure, a notice of appeal is required to be filed “within 10 days of the date of entry of the ... order ... appealed from.” Fed. R. Bankr.P. 8002(a). In the instant case, Defendant failed to respond to the motion for summary judgment, and the Court entered the Order on Motion of Sara J. Daneman for Summary Judgment on October 21, 2002. Defendant failed to file his notice of appeal and Motion within the appeal period. Because Defendant’s Rule 60(b)(1) motion to vacate was filed outside of the appeal period, the Motion must be denied.
C. Conclusion
For the foregoing reasons, it is hereby ORDERED that Defendant’s Motion for Relief from Judgment is DENIED.
IT IS SO ORDERED.
. The Order entered on October 21, 2002, concluded that the Trustee had established the requisite conditions for the Court to authorize her to sell the co-owned real property pursuant to 11 U.S.C. § 363(h). It did not authorize or approve the sale of the real property to a particular purchaser at a particular price. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493541/ | MEMORANDUM ORDER
JERRY W. VENTERS, Bankruptcy Judge.
Three matters are presently pending before the Court in this Chapter 13 proceeding. Greg and Carolyn Coursen (“Cour-sens”), creditors of the Debtors, William Kenneth Moore and Delene Lee Moore (“Moores” or “Debtors”), have filed an Objection to Treatment of Claim by Trustee (Document # 31) and a Motion for Relief from Stay (Document # 33). The Debtors have filed an Objection to Claim of Greg and Carolyn Coursen (Document # 38). On January 30, 2003, the Court held a hearing in Carthage, Missouri, on all three matters. At the close of the hearing, the Court announced that it would take the matter under advisement and give the Debtors until February 7, 2003, to respond to the Coursens’ trial brief (which was handed up to the Court at the hearing but was not electronically filed).1 Counsel for the Debtors filed his reply brief on February 4, 2003 (Document # 45). The Court has reviewed these briefs in addition to the pleadings, relevant case law, and the evidence adduced at the hearing, and is now ready to rule.
For the reasons set forth below, the Court will sustain the Debtors’ Objection to Claim of Greg and Carolyn Coursen (Document # 38) and will deny the Cour-sens’ Objection to Treatment of Claim by Trustee (Document # 31). The Court will not rule at this time on the Coursens’ Motion for Relief from Stay (Document # 33) for the reasons stated hereinbelow.
The facts of the case can be briefly described. On September 1,1999, the parties executed a promissory note (Coursens’ Ex. 1) in the amount of $26,000.00 in connection with the Debtors’ purchase of a 1999 Legend mobile home (“mobile home”) which was titled in the names of the Cour-sens.2 The Coursens were not able to convey title to the mobile home because it was subject to a lien in favor of the Bank of Joplin. (Coursens’ Ex. 2) The promissory note, which apparently memorializes *143the entire agreement of the parties, should perhaps be referred to as a “contract for title,” because just above the signatures of the Moores there appears the statement: “Title to held [sic] until note is paid in full.” The note provides that the Debtors will pay 12% interest for the purchase of the mobile home, with payments of $286.43 a month for 20 years.
The Debtors were unable to make payments on the mobile home and subsequently filed for bankruptcy on May 16, 2002. In their Schedule D — Creditors Holding Secured Claims, the Debtors listed the Coursens as secured creditors, with the 1999 Legend mobile home as collateral for a debt of $25,007.71. The Debtors listed the value of the mobile home as $18,000.00. In their Chapter 13 Plan, which was confirmed without objection on October 18, 2002, the Debtors listed the Coursens as secured creditors and the value of the mobile home as $18,000.00, and provided that that debt would be paid in the course of the Plan, with interest at the rate established pursuant to this Court’s Local Rules, generally referred to as the “Chapter 13 Rate.”
It was not until October 22, 2002, after the Debtors’ Plan had been confirmed, that the Coursens filed their first proof of claim, alleging the value of the mobile home to be $26,000.00. This first proof of claim did not identify the debt as a secured debt or as related to an executory contract; it simply showed the debt as an unsecured debt. However, after receiving the Trustee’s Notice Allowing Chapter 13 Claims as Filed — which provided for the debt to the Coursens to be paid as a secured debt in the amount of $18,000.00 in accordance with the schedules — the Coursens amended their claim on December 17, 2002, asserting that the transaction between the parties was actually an execu-tory contract, not a security interest.
The Debtors objected to this second proof of claim, contending that the Cour-sens’ claim should be allowed as secured in the amount of $18,000.00, with the remainder of the debt treated as unsecured pursuant to their confirmed plan. In both their arguments and their post-hearing brief, the Debtors contend that under 11 U.S.C. § 1327, the Coursens are bound to the treatment of their debt as provided in the Plan and are precluded from repossessing the mobile home as long as their plan stands confirmed.
Section 1327 provides as follows:
(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan, the confirmation of a plan vests all of the property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.
11 U.S.C. § 1327. (emphasis added)
As one respected bankruptcy judge and commentator has said:
Confirmation is the bright line in the life of a Chapter 13 case at which all the important rights of creditors and responsibilities of the debtor are defined and after which all rights and remedies must be determined with reference to the plan. [Title] 11 U.S.C. § 1327(a) states clearly: “The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of *144such creditor is provided by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan”. “[Bjind” means that rights and responsibilities are defined by the plan rather than by prepetition contracts, state law, non-bankruptcy federal law, or the “equities” of prepetition events.
[T]he confirmed plan controls the debt- or-creditor relationship unless and until the plan is modified or a creditor is relieved of its effects. This binding effect is every bit as compelling as a new agreement and is fully enforceable by the debtor so long as the debtor does not default under the plan.
Lundin, K.M., Chapter 13 Bankruptcy, § 6.9, 6-4 and 6-5, Vol. 2 (1997). See In re Sanders, 243 B.R. 326, 330 (Bankr.N.D.Ohio 2000).
The Eighth Circuit Bankruptcy Appellate Panel has described the binding effect of a confirmed Chapter 13 plan as follows:
The sum of the judicial decisions that have considered the statutorily binding effect of a confirmed plan of reorganization is that if the confirmed plan treats the creditor, and if the creditor received proper notice of the plan and its proposed confirmation, the creditor’s only potential remedy for a plan it doesn’t like is to appeal the order of confirmation.
In re Simpson, 240 B.R. 559, 562 (8th Cir. BAP 1999). See In re Smith, 2003 WL 261921, *3 (Bankr.E.D.Ark.).
Courts recognize an exception to this finality of the confirmed plan if the creditor was denied due process for lack of notice. In re Durham, 260 B.R. 383, 387 (Bankr.S.C.2001). However, where adequate notice has been provided to claimants regarding the plan confirmation process, most courts prohibit further litigation of all issues which were or could have been litigated at or before confirmation. Sanders, supra, 243 B.R. at 331; In re Basham, 167 B.R. 903 (Bankr.W.D.Mo.1994). There is no claim of lack of notice in this case. In fact, Mr. Coursen testified that he had received notice of the confirmation hearing. Accordingly, the Court finds that the Coursens had notice of the Debtors’ Plan and its provisions as to payment of their debt, as well as an opportunity to be heard. For whatever reasons, the Cour-sens did not object to the Debtors’ Plan and they failed to appeal the Order of Confirmation; therefore, they are bound by the terms of the confirmed plan. Even if the Coursens’ argument is meritorious, on which we will offer no opinion, they are now barred from bringing this issue before the Court.
Turning to the Coursens’ Motion for Relief, the Court will withhold a ruling on that Motion because, after the Court took this matter under advisement the Trustee filed a Motion to Dismiss the Moores’ case for failure to make their plan payments (Document #46). The Trustee alleges— and the Chapter 13 Web site shows — that the Debtors are four months behind in plan payments of $800.00 per month, for a total of $3,200.00. Although the Plan provides for payments to the Coursens, no money has been distributed to them by the Trustee because of the Debtors’ failure to make their Plan payments. The Court will withhold ruling on the Coursens’ Motion for Relief pending resolution of the Trustee’s Motion to Dismiss. The Debtors have until February 25, 2003, to respond to the Trustee’s Motion to Dismiss. If the Debtors fail to respond to the Trustee’s Motion, or if they fail to present a satisfactory proposal to cure the arrearages in the plan payments, the Coursens’ Motion for Relief will be granted and the case will be dismissed.
*145Therefore, for the reasons stated herein, it is
ORDERED that the Debtors’ Objection to the Claim of Greg and Carolyn Coursen (Document #38) be and is hereby SUSTAINED. It is
FURTHER ORDERED that the Cour-sens’ Objection to Treatment of Claim by Trustee (Document # 81) be and is hereby OVERRULED. It is
FURTHER ORDERED that the Cour-sens’ Motion for Relief from Stay (Document # 38) shall remain under advisement pending a final determination with respect to the Trustee’s Motion to Dismiss (Document # 46).
. The Court has directed counsel for the Coursens to file the trial brief electronically.
. The promissory note identified the mobile home as a 1998 model, but the parties agreed at the hearing that the mobile home is a 1999 model. The certificate of title shows that it is a 1999 model. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493542/ | ROBERT C. JONES, Bankruptcy Judge.
The Defendant/Cross-Claimant, Wool-man Oval Holdings, LLC’s (Woolman), cross-claim for lost profits was heard at trial in the above-entitled court on January 12, 2001. The Defendant/Cross-Claimant appeared by and through counsel of record, Joseph P. Reiff, Esq. The Defendant Fleet Mortgage Corp. (Fleet) appeared by and through counsel of record, Jeremy T. Bergstrom, Esq. of the law firm of Miles & Associates, LLP. The Plaintiff, Ronald Cross (Cross), appeared by and through counsel of record, Gary Gowan, Esq.
The Court, having read and considered the Statements, Briefs, and Replies, finding that the notice given of the hearing on *159the Motion was adequate, and good cause appearing therefore,
IT IS HEREBY ORDERED that the Claim for Lost Profits is hereby DENIED.
FACTS
The relationship between the Debtor Cross and the Creditor Fleet Mortgage began September 4, 1986 when Cross purchased property at 32 Sir Noble Street and executed a deed of trust in favor of Fleet for $74,787.00. The debtor filed for Chapter 13 bankruptcy protection on December 17, 1997. Apparently, questions arose as to Cross’ mortgage payments and an order granting Fleet relief from the automatic stay was entered May 24, 1999. On that same date, Cross motioned the Court for reconsideration of its previous relief from stay order and for reimposition of the stay. Then, on October 4, 1999, Cross’ Motion to Reconsider was granted subject to Cross remaining current on his mortgage payments.1 If Cross were to fall into arrears, the order required that Fleet give Cross notice and ten days to cure any default. If the delinquency was not cured, the stay would be automatically lifted and Fleet could then proceed to foreclosure.
On March 9, 2000, Fleet issued a notice of default which was not answered in writing by Cross. Fleet then entered a Motion for Relief From Stay which was granted April 14, 2000. In reaction, Cross entered a Motion to Reinstate Automatic Stay on May 8, 2000. Despite this, Cross’ home was sold to Defendant Woolman Oval Holdings, LLC for $73,827.18. On June 15, 2000, the instant adversary proceeding was filed by Cross to recover the foreclosed property. Woolman cross-claimed for lost profits. On September 28, 2000, an Order for Preliminary Injunction was entered on the basis that Cross was not in default at the time the stay was lifted. A trial was held January 12, 2001 and this Court rescinded the foreclosure sale. Pursuant to the rescission, Cross is to recover title to the Sir Noble Street property. Therefore, the question remaining for this Court to decide is whether the third-party purchaser Woolman can recover expectation damages from Fleet as a result of Fleet’s wrongful foreclosure.
DISCUSSION
Under state and federal law, an act in violation of the automatic stay is void ab initio. Therefore, when a foreclosure sale is rescinded, the parties will be put, as nearly as possible, into the positions they held prior to the violation. The Third-Party Purchaser Woolman is entitled only to return of the funds expended at the sale plus interest and fees. To award damages as well would be to allow Woolman an unwarranted double recovery.
I. Rescission
The Ninth Circuit Court of Appeals has determined that, considering the importance of the automatic stay, Congress “intended violations of the automatic stay to be void, rather than voidable.” Schwartz v. U.S., 954 F.2d 569, 571 (1992); Phoenix Bond & Indemnity Co. v. Shamblin, 890 F.2d 123, 125 (9th Cir.1989). As a result, courts in the Ninth Circuit have found that any act that violates the automatic stay is void rather than voidable. See Blatnick v. Sanders, 198 B.R. 326, 328-29 (Bankr.S.D.Cal.1996). This is the best approach for protecting debtors because, to hold otherwise would require that debtors spend a significant amount of time litigating creditors’ claims and could en*160courage violations of the automatic stay. See Schwartz, 954 F.2d at 572. Additionally, when an order is judged void as a violation of the automatic stay, the stay will be regarded to have been continuously in effect from the date the petition was filed. A foreclosure sale held pursuant thereto will be deemed void and without effect. See Great Pacific Money Markets v. Krueger, 88 B.R. 238, 241 (9th Cir. BAP 1988).
Further, this Court determined that the foreclosure sale of Cross’ property was improperly conducted. Pursuant to that determination, the sale was rescinded. The Nevada Supreme Court has held that a contract is either valid or void in toto. See Bergstrom v. Estate of DeVoe, 109 Nev. 575, 578, 854 P.2d 860, 862 (1993). “Because a rescinded contract is void ab initio, following a lawful rescission the ‘injured’ party is precluded from recovering damages for breach just as though the contract had never been entered into by the parties.” Id. Additionally, “rescission of a contract demands as a general rule the restoration of the status quo of the parties.” Mackintosh v. Cal. Fed. Sav. and Loan Ass’n., 113 Nev. 393, 407, 935 P.2d 1154, 1163 (1997). Although complete restoration is not required, a court should attempt to put the parties as close to their original positions as is “reasonably possible and demanded by the equities of the case.” Id.
A. Arguments of the Parties
In its Brief in Support of Claim for Lost Profits, Woolman attempts to factually distinguish Bergstrom from the instant action. Woolman also argues that this case should be treated as a breached land sale contract and as such, the proper measure of damages is lost profits. Fleet counters that factual distinctions of Bergstrom made by Woolman are meaningless and that the cases cited by Woolman are not applicable because the case at bar does not involve an arm’s length land sale contract conducted by the parties to the sale.
A brief overview of Bergstrom is helpful in determining its applicability to the present circumstances. Bergstrom was based on an action for rescission of a contract for the purchase of a party’s interest in an equipment rental business. 109 Nev. at 576-77, 854 P.2d at 861. The agreement between seller DeVoe and buyer Berg-strom provided that Bergstrom would buy DeVoe’s interest for $80,000.00, payable in monthly instalments of $2,000.00. Also, Bergstrom’s collateral was to have been substituted for DeVoe’s. The Nevada district court rescinded the contract and awarded DeVoe the principal amount plus interest and the stock in the rental business. Bergstrom appealed the district court’s decision, arguing that the rescission award precluded damages for breach. The Nevada Supreme Court agreed with Bergstrom and held that “it would have been proper to rescind the contract or to award damages for breach of that contract. It was, however, improper to both rescind the contract and to award damages for breach.” Bergstrom, 109 Nev. at 578, 854 P.2d at 862.
The main factual distinction pointed out by Woolman is that two parties were involved in Bergstrom whereas the instant action included a third-party purchaser. While this may be true, the Bergstrom court was citing “the general canons of rescission” in its opinion. Id. As general cannons, they are applicable to this Court’s rescission of the wrongful foreclosure sale of Cross’ property. Thus, the factual peculiarities of Bergstrom do not preclude this Court from adopting its legal principles.
Woolman also argues that the proper measure of damages is the increased value *161of the land at breach minus the contract price. This argument fails to address the fact that equitable rescission excludes a recovery from a breach because the contract is void from the beginning. See Bergstrom, 109 Nev. at 577-78, 854 P.2d at 862. Fleet properly notes that the Nevada Supreme Court has farther defined equitable rescission as a proceeding whereby “the aggrieved party brings an action in a court with equitable jurisdiction asking for the court to nullify the contract. A priori, where there has been a valid rescission of the contract, there is no longer any contract to enforce and, therefore, no longer a cause of action for breach.” Great American Ins. Co. v. General Builders, Inc., 113 Nev. 346, 354, 934 P.2d 257 (1997). Additionally, under bankruptcy law, when an order is determined to be a violation of the automatic stay, it is void from the beginning (as is a foreclosure sale based thereon). See Great Pacific Money Markers v. Krueger, 88 B.R. 238, 241 (9th Cir.BAP 1988). As a result, when a transaction is deemed void as a violation of the automatic stay and the underlying contract is rescinded, there is no contract upon which to base a claim for consequential damages. Thus, cases measuring damages based on a breach of contract between two parties in a consensual sale are of no moment in determining the outcome of this action.
B. This Court’s Analysis
As Woolman’s arguments regarding the applicability of Bergstrom and the use of lost profits as the measure of damages have been rejected, this Court will apply the principles governing violations of the stay and rescission of contracts enumerated above. Specifically, that any act that violates the automatic stay is void rather than voidable (See Blatnick v. Sanders, 198 B.R. 326, 328-29 (Bankr.S.D.Cal.1996)) and “a rescinded contract is void ab initio.” Mackintosh v. Cal. Fed. Sav. and Loan Ass’n., 113 Nev. 393, 407, 935 P.2d 1154, 1163 (1997). Further, this Court will attempt to place the parties in positions as near as reasonably possible to that occupied prior to the foreclosure sale. This leads to the conclusion that since the sale of Cross’ property was in violation of the automatic stay, it was void despite the Court’s order lifting stay. Because the foreclosure sale has been equitably rescinded, there is no contract upon which Woolman can base a claim for lost profits.
If lost profits are not the proper measure of damages, what should a court do to help return the parties, as near as possible, to the status quo? The proper measure of damages suggested by both law and reason is the return of funds expended by Woolman to purchase Cross’ property at the foreclosure sale plus interest and attorney’s fees. See Walker v. California Mortgage Service, 67 B.R. 811 (Bankr.C.D.Cal.1986) (third-party purchaser was entitled to the “benefits of the rescission of the foreclosure sale” including the amount paid at the sale, plus interest at the legal rate). In unwinding the foreclosure sale, Woolman is entitled to regain the status held prior to the sale. Allowing interest and costs comes as close to the pre-sale state of things as is reasonable under the circumstances. In contrast, allowing the claimed lost profits in excess of twenty thousand dollars ($20,000.000) would place Woolman in a position substantially better than the one it occupied before the sale took place. By rescinding the foreclosure sale, returning title to the subject property to Cross, and returning sales proceeds paid to Fleet by Woolman plus interest and costs, this Court is preserving the status quo ante.
II. Privity of Contract
The parties also dispute whether Fleet may be considered the seller at the fore*162closure conducted by the foreclosure trustee, Professional Lender’s Alliance, LLC. Fleet’s chief contention is that there was no contractual privity between Fleet and Woolman because the actual sale agreement was executed by the trustee and Woolman. Woolman argues that language in the order terminating the automatic stay suggests Fleet was the seller as does the fact Fleet was able to suggest the process for foreclosure. Under the present circumstances, it is unnecessary to address these specific arguments. As stated, a violation of the stay is void and a rescission of the underlying contract works to void that contract. Therefore, the contract in this case will be treated as a nullity. Attempting to determine what role each of the three parties played in the voided foreclosure sale would be superfluous.
CONCLUSION
Under Ninth Circuit bankruptcy law, foreclosure sales made pursuant to an unjustified order lifting stay are violations of the automatic stay. Violations of the stay are void ab initio. Additionally, the Nevada Supreme Court has determined that the remedy of rescission works to nullify the underlying contract. Thus, there can be no claim for damages resulting from a breach of the abrogated contract. This Court found that the foreclosure on Cross’ property was improperly conducted and should be rescinded. As a result, the parties are to be returned to their respective positions held prior to the foreclosure sale. Cross will be restored as title holder of the property and Woolman will receive the Seventy-Four Thousand Seven Hundred Eighty Seven Dollars ($74,787.00) expended at the foreclosure sale, plus interest and costs.
Therefore:
IT IS HEREBY ORDERED that the Defendant/Cross-Claimant Woolman Holding’s Claim for Lost Profits is hereby DENIED.
. A Stipulated Order for Adequate Protection was entered August 4, 1999 with terms similar to those in the October 4, Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493543/ | MEMORANDUM OPINION
JAMES D. WALKER, Jr., Bankruptcy Judge.
This matter comes before the Court on Plaintiff Bert F. Thompson’s Complaint for Injunctive Relief and on Plaintiff Edwards Wood Products, Inc.’s Complaint for Damages. Both proceedings have raised the issue of who may sue the principal of a debtor in possession under an alter ego theory. This is a core matter within the meaning of 28 U.S.C. § 157(b)(2)(0). After considering the pleadings, the evidence, the briefs, and the applicable authorities, the Court enters the following decision in conformance with Federal Rule of Bankruptcy Procedure 7052.
Undisputed Facts
For purposes of this Opinion, the Court has consolidated two cases with identical facts that raise the same determinative issue. The only material difference between the two cases is their procedural posture. In the case of Edwards Wood Products, Inc., the creditor filed an alter ego suit against Bert F. Thompson, principal of Icarus Holdings, LLC (“Debtor,” “Debtor in Possession,” or “DIP”), in state court, the suit was removed to this Court, and Edwards now seeks to remand the suit (the “Edwards case”). In the case of Baillie Lumber Company, LP, Thompson is seeking an injunction to prevent Baillie from proceeding with a similar alter ego suit it filed against him in state court (the *173“Baillie case”). Debtor has intervened in both cases.
The Court asked the parties to file cross motions for summary judgment on the issue of whether or not an alter ego claim against the principal of a corporate debtor is property of the estate and, thus, can be brought only by the trustee or DIP. The statements of undisputed material facts submitted with the motions were indistinguishable and provide as follows:
Debtor operated as a national manufacturer and distributor of a variety of unfinished solid hardwood flooring, primarily for residential use. Prior to Debtor’s bankruptcy filing, Edwards and Baillie (the “Creditors”) sold lumber to Debtor for which Debtor has not paid.
Also prior to the filing, Debtor’s principal member and former president and manager, Thompson, engaged in certain alleged financial irregularities that adversely impacted Debtor’s liquidity. These irregularities included allegedly using Debtor’s assets and resources, including Debtor’s employees and equipment, to subsidize the construction and improvement of Thompson’s hunting lodge in Camden County, Georgia. Additionally, Thompson used Debtor’s assets to fund the operation of Southern Wood Services, LLC, a separate and affiliated company also owned by Thompson. Thompson no longer is involved in the management of Debtor.
Debtor filed a Chapter 11 petition on December 17, 2001. Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, Debtor continues to operate its business and manage its property as Debtor in Possession.1
On December 28, 2001, Debtor filed an adversary proceeding in this Court against Thompson and against Thompson Land and Timber, LLC, a company partially owned by Thompson. The complaint asserts, among other things, that Thompson’s financial irregularities and prepetition transfers were fraudulent transfers and that the entities, including Thompson, holding the transferred property do so in constructive trust for Debtor. The adversary proceeding was filed for the primary purpose of filing a Us pendens on the Camden County property. Debtor did not specifically allege an alter ego or piercing the corporate veil cause of action against Thompson or Thompson Land and Timber in the complaint.
On January 11, 2002, the office of the United States Trustee for the Middle District of Georgia, Macon Division, appointed the Official Committee of Unsecured Creditors (the “Committee”). Edwards and Baillie are both members of the Committee.
Since the petition date, the Committee, Debtor, and Thompson have engaged in settlement negotiations. While a binding settlement agreement has not been executed, the Committee, Debtor, and Thompson have agreed orally to settle various disputes, including Debtor’s adversary proceeding against Thompson and any alter ego claims that Debtor or the Committee may be entitled to assert against Thompson. The proposed settlement agreement provides that in settlement of all claims against Thompson, he shall pay to Debt- or’s estate $900,000 if paid on or before February 15, 2003, or $950,000 if paid after February 15, 2003, and that Thompson shall remain hable on a personal guaranty of a debt not to exceed $1,247,000 owed by *174Southern Wood Services to Debtor’s estate.
In January 2002, Thompson Land and Timber sold the Camden County property, and net proceeds of approximately $540,000 were paid into the registry of the Court. Under the terms of the proposed settlement agreement, this $540,000 will be paid to Debtor’s estate upon approval of the settlement by the Court and will be applied to reduce Thompson’s obligations under the proposed settlement agreement.
On January 8, 2002, Baillie filed suit against Thompson, individually, in the State Court of Bibb County, Georgia, alleging, among other things, that Thompson is the alter ego of Debtor and, therefore, is personally hable for Debtor’s debts, including any indebtedness owed by Debtor to Baillie. On April 17, 2002, Thompson filed a Complaint for Injunctive Relief against Baillie in this Court. The complaint asserts that Baillie’s alter ego claim against Thompson is property of Debtor’s bankruptcy estate. It also alleges that, to the extent Baillie is successful in its state court action, Thompson will be unable to satisfy his obligations under the proposed settlement agreement.
On April 3, 2002, Edwards filed suit against Thompson, Southern Wood Services, and Thompson Land and Timber in Bibb County Superior Court. The complaint alleges, among other things, that as the alter ego of Debtor, Thompson is personally hable for Debtor’s debts, including any indebtedness owed by Debtor to Edwards. Additionahy, the complaint aheges that Southern Wood Services is the alter ego of Debtor and, therefore, is liable for Debtor’s debts, including any indebtedness owed by Debtor to Edwards. The complaint also included an allegation that property held by Thompson Land and Timber was held in constructive trust for the benefit of Edwards. The defendants in the state court action answered, denying that Edwards was entitled to the relief requested. On May 1, 2002, the defendants removed the state court action to this Court. Edwards has filed a motion to remand the case to state court.
Thompson, Debtor, the Committee,2 Southern Wood Services, and Thompson Land and Timber contend that the alter ego claim against Thompson is property of the bankruptcy estate; thus, only Debtor in Possession has standing to bring an alter ego claim. Baillie and Edwards contend that their state court claims are not property of Debtor’s estate and that they are not attempting to recover property of or money owed to the estate, so that neither Debtor nor the Creditor’s Committee has the authority to settle their state court claims.
Conclusions of Law
Summary judgment is governed by Federal Rule of Civil Procedure 56, made applicable to bankruptcy through Bankruptcy Rule of Procedure 7056. Under Rule 56, a party is entitled to summary judgment when the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c); McCaleb v. A.O. Smith Corp., 200 F.3d 747, 750 (11th Cir.2000). The parties in this case concede that no material facts are in dispute. The Court agrees. Thus, the Court may proceed to the legal question.
The issue before the Court is whether or not a suit to pierce the corporate veil under an alter ego theory is property of a corporate debtor’s bankruptcy estate sub*175ject to the exclusive control of the trustee. The Creditors argue that a trustee can only sue to recover money owed to the estate; it cannot sue to recover debts owed to individual creditors. Thompson and Debtor argue that the alter ego claim is property of the estate, and the trustee has exclusive standing to pursue such a claim if (1) under Georgia law Debtor could have asserted an alter ego claim to pierce its own veil, and (2) the claim is a general one that could have been brought by any creditor. Thompson and Debtor further contend that the trustee has standing to pursue alter ego claims under Section 5443 of the Bankruptcy Code. In the alternative, Thompson and Debtor argue that the Court may use its Section 105(a)4 power to enjoin the Creditors from prosecuting alter ego actions against Thompson.
The Court holds that under Georgia law, the alter ego claim asserted by the Creditors is property of the estate that Debtor in Possession has exclusive standing to pursue.
All parties correctly assert that this question is answered by reference to state law regarding who can bring an alter ego claim. Section 541 of the Bankruptcy Code defines property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C.A. § 541(a)(1) (West 1993). This includes causes of action. 5 Collier on Bankruptcy ¶ 541.08 (15th ed. rev.2002). Whether or not an interest falls within the scope of Section 541 is a federal question answered by reference to the relevant nonbankrupt-cy law. Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280, 1283 (11th Cir.1998) (citing Southtrust Bank of Ala. v. Thomas (In re Thomas), 883 F.2d 991, 995 (11th Cir.1989)). See also Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979).
Several circuit courts have considered whether an alter ego claim is property of the estate and have reached different results due to variations in state law. However, the courts’ reasoning begins with the same premise: If the debtor could have brought the suit outside of bankruptcy then the claim becomes property of the estate assertable by the trustee.
For example, in Mixon v. Anderson (In re Ozark Restaurant Equipment Co., Inc.), 816 F.2d 1222 (8th Cir.1987), a Chapter 7 case involving an Arkansas corporation, the trustee brought an alter ego action on behalf of the creditors. Id. at 1223. The court held that the trustee had no standing to bring the suit because it was not an interest of the debtor. Id. at 1225-26. The court agreed that “whenever a cause of action ‘belongs’ to the debtor corporation, the trustee has the authority to pursue it in bankruptcy proceedings.” Id. at 1225. However, Arkansas law requires that a third party be harmed by disregard of the corporate form. Id. Because of this third party requirement, the court concluded that under Arkansas law, a corporation could not pierce its own veil. Id. Thus, the alter ego claim did not become property of the estate assertable by the trustee.5 Id. at 1226. However, the court *176acknowledged that in other states, the law could allow a corporation to pierce its own veil. Id. n. 7.
The court reached a different result by following similar reasoning in S.I. Acquisition, Inc. v. Eastway Delivery Service, Inc. (Matter of S.I. Acquisition, Inc.), 817 F.2d 1142 (5th Cir.1987). The creditor filed an alter ego suit against the principal of the debtor. After the debtor filed a Chapter 11 petition, it claimed that the creditor’s suit violated the automatic stay, even though the debtor had been severed from the case and was not a party to the suit. Id. at 1144-45. The court found that under Texas law a corporation could pierce its own corporate veil because “the predominate policy of Texas alter ego law is that the control entity that has misused the corporation form will be held accountable for the corporation’s obligations.” Id. at 1152. As a result, the court concluded that the alter ego action was property of the estate, and any such suits by creditors ran afoul of the automatic stay.6 Id. at 1153. In addition, the court noted that its decision furthered a policy underlying the Bankruptcy Code because, if the creditor’s alter ego action were not stayed, it would “promote the first-come-first-served unequal distribution dilemma that the Bankruptcy Code ... sought to prevent.” Id. at 1153-54.
The Eleventh Circuit Court of Appeals has applied similar reasoning in E.F. Hutton & Co., Inc. v. Hadley, 901 F.2d 979 (11th Cir.1990). Although Hutton did not deal with veil piercing, it did question whether the bankruptcy trustee could assert causes of action held by creditors. The debtor was a dealer in mortgage securities, which it purchased through a margin account at E.F. Hutton. In the event the balance on the margin account remained unpaid, E.F. Hutton was contractually authorized to sell the securities purchased on margin and to apply the proceeds to the balance. The debtor engaged in a scheme in which it bought securities for its customers through its margin account, but rather than applying the money paid by the customers to its margin balance, the debtor diverted the funds to other purposes. Because of the resulting unpaid balance on the margin account, E.F. Hutton sold the securities for which the debtor’s customers had paid in full. After the debtor filed for bankruptcy, the bankruptcy trustee sued E.F. Hutton for, among other things, conversion of the securities. E.F. Hutton argued that the trustee had no standing to sue because the debtor did not have a *177property right in the securities. Id. at 980-81.
The Eleventh Circuit agreed with E.F. Hutton, finding that the debtor had no interest in the securities. Id. at 985. There was no evidence the securities were owned by the debtor rather than its customers. Id. Thus, the debtor’s customers-not the debtor-had a cause of action against E.F. Hutton, so that it had not become property of the bankruptcy estate. Id. The Hutton decision is consistent with the outcome of alter ego cases in other circuits: If the debtor could not bring a cause of action outside bankruptcy, the trustee cannot pursue that action in bankruptcy.
In reaching its decision, the Eleventh Circuit considered the United States Supreme Court case Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972). In Caplin, the misconduct of a third party (the indenture trustee) injured the debtor’s debenture holders. The bankruptcy trustee sought to assert a cause of action against the debenture trustee on behalf of the debenture holders. Id. at 418-20, 92 S.Ct. at 1680-81. The Court denied the trustee standing to sue based on three factors: (1) nothing in the Bankruptcy Act or other relevant law gave the trustee standing to sue third parties on behalf of the debenture holders; (2) the debtor had no claim against the indenture trustee; and (3) the trustee’s suit and subsequent actions initiated by the debenture holders could lead to inconsistent results. Id. at 428-34, 92 S.Ct. at 1685-88.
In Hutton, the Eleventh Circuit found all three factors to be present. 901 F.2d at 986. However, when the cause of action is property of the bankruptcy estate, these problems disappear. First, the trustee would not be suing on behalf of creditors, but on behalf of the debtor. Second, the cause of action could only become property of the estate if the debtor had a claim against the defendant. Third, because creditors would be enjoined by the automatic stay from interfering with property of the estate, they would not be able to pursue the same claim; thus, preventing inconsistent litigation results.
As the foregoing cases indicate, the Court must determine whether a corporation could bring an alter ego action against its principal under Georgia law. None of the parties were able to locate any Georgia cases directly on point, and the Court’s research has been similarly fruitless. However, it is well established that, in Georgia,
in order to disregard the corporate entity because a corporation is a mere alter ego or business conduit of a person, it should have been used as a subterfuge so that to observe it would work an injustice. To prevail based upon this theory it is necessary to show that the shareholders disregarded the corporate entity and made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist. The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has over extended his privilege in the use of a corporate entity in order to defeat justice, perpetuate fraud or to evade contractual or tort responsibility.
Heyde v. Xtraman, Inc., 199 Ga.App. 303, 306, 404 S.E.2d 607, 610 (1991) (citations and internal quotation marks omitted).
Thus, the law appears to hinge on the types of equitable concerns that affected the outcome in the S.I. Acquisition, Koch Refining, Phar-Mor, American Financial, *178and Steyr-Daimler-Puch cases.7 So, a cause of action invoking the alter ego theory likely would become property of the debtor’s bankruptcy estate. Moore v. Kumer (In re Adam Furniture Ind., Inc.), 191 B.R. 249, 257 (Bankr.S.D.Ga.1996) (“Georgia law supports an alter ego action by the debtor, and ... the trustee succeeds to the right to institute such an action .... ”); Stamps v. Knobloch (In re City Communications, Ltd.), 105 B.R. 1018, 1022 (Bankr.N.D.Ga.1989) (“[U]nder Georgia law, an alter ego claim is property of the estate under § 541 and can be asserted by the Trustee.”).
One bankruptcy court has rejected an interpretation of Georgia law that would permit a corporation to pierce its own veil. Ellenberg v. Waliagha (In re Mattress N More, Inc.), 231 B.R. 104 (Bankr.N.D.Ga.1998). While acknowledging that “[i]t is difficult to predict what the state law is or would be when there is no state court case on point,” the court said it was “not persuaded that a trustee can destroy the corporate fiction to make shareholders and related entities liable for all the debtor’s debts and the trustee’s administrative expenses.” Id. at 109, n. 3. The court reached this decision after reviewing “principles of corporate jurisprudence and dozens of Georgia cases involving veil-piercing claims.” Id. at 109. It concluded that veil piercing is really a debt collection device for creditors, and stated that there “is something anomalous about a corporation, which is created to protect its shareholders from the liability of the enterprise, asserting a claim to destroy the very protection for which it was created.” Id. Thus, the court held that the alter ego claim was not property of the estate and could not be asserted by the trustee. Id. at 109-10.
The Georgia Court of Appeals has since decided a case that casts doubt on the rationale of Mattress N More. In Paul v. Destito, 250 Ga.App. 631, 550 S.E.2d 739 (2001), the defendants argued that “Georgia law does not allow a person who is a shareholder, director, and officer of a corporation to ‘pierce the veil’ of his own corporation.” Id. at 638, 550 S.E.2d at 747. The court disagreed, noting that it previously had allowed a 50 percent shareholder and director of a corporation to pursue a claim for piercing the corporate veil. Id. at 639, 550 S.E.2d at 747 (citing Cheney v. Moore, 193 Ga.App. 312, 312-13, 387 S.E.2d 575, 576 (1989)). Thus, the court rejected the “sweeping assertion that, in all cases, Georgia law prohibits a director, officer, or shareholder from piercing the corporate veil.” Id. The court, instead, focused on the standard in Georgia for piercing the veil, which it emphasized is rooted in equity concerns: “Georgia courts pierce the corporate veil ‘to remedy injustices which arise where a party has overextended his privilege in the use of a corporate entity in order to defeat justice, perpetrate fraud or evade contractual or tort responsibility.’ ” Id. (quoting Cheney, 193 Ga.App. at 312-13, 387 S.E.2d at 576). Paul indicates that the scope of potential plaintiffs in an alter ego action is not limited to creditors; rather it can include those who enjoy the protections of the corporate form. Thus, Georgia law does not require harm to a third party. Rather, it looks to whether there has been any abuse of the corporate form that has resulted in inequities. In light of the Paul case, the Court finds the reasoning in Mattress N More unpersuasive.
Some courts have made a distinction between general claims, belonging to all creditors, and personal claims, which are specific to one creditor. See, e.g., St. *179Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir.1989); Koch Refining, 831 F.2d at 1348-49; City Communications, 105 B.R. at 1022-23. Under this distinction, the trustee has standing to pursue general but not personal claims. The Court finds this distinction irrelevant to the inquiry at hand. See Adam Furniture, 191 B.R. at 257 n. 6. The alter ego theory is one that could be used by any creditor seeking to recover money, and the path to the principal’s pockets must go through the debtor corporation. The Court is unable to hypothesize any set of circumstances in this case in which the principal’s disregard of the corporate form would create a particularized injury to one creditor. Furthermore, no such creditor-specific claim has been raised in this case. Once the corporate form has been disregarded, any unpaid creditor could argue for piercing the corporate veil. In bankruptcy, if the alter ego claim is property of the estate, all creditors are barred from prosecuting such a claim by the automatic stay. “[A] section 362(a)(3)8 stay applies to a cause of action that under state (or federal) law belongs to the debtor[.]” S.I. Acquisition, 817 F.2d at 1150 (footnote added). As a result, a creditor cannot pursue the claim unless the trustee has abandoned it. Steyr-Daimler-Puch, 852 F.2d at 136.
Based on the foregoing the Court concludes as follows: A trustee has the exclusive right to bring an alter ego action if it is property of the bankruptcy estate. Any suits seeking an alter ego remedy filed by creditors are subject to the automatic stay unless the cause of action is abandoned by the trustee. Based on the Paul case, this Court predicts that under Georgia law, an alter ego claim may be asserted by the corporation and, thus, becomes property of the estate. Therefore, the alter ego claim against Thompson at issue here became property of the estate upon Debtor’s bankruptcy filing. As a result, Debtor in Possession has exclusive standing to pursue an alter ego claim against Thompson. Any suits initiated by the Creditors to recover unpaid debt on the theory that Thompson is the alter ego of Debtor violate the automatic stay.
Because the Court has held that the alter ego claim is property of the estate, it need not consider Thompson’s argument that Debtor in Possession may enforce the Creditors’ alter ego claims pursuant to Section 544. Furthermore, because the Court has concluded that the automatic stay applies to the Edwards and Baillie cases, it need not consider whether to stay those cases pursuant to Section 105(a).
In light of the procedural posture of these cases, the Court will rule as follows: With respect to the Baillie case, Thompson and Debtor filed a complaint for injunctive relief to prevent Baillie from proceeding with an alter ego claim against Thompson. Because the Court has found that Baillie’s suit is subject to the automatic stay, a separate injunction is unnecessary. Therefore, the Court will grant Baillie’s motion for summary judgment and deny Thompson’s and Debtor’s motions for summary judgment. In the Edwards case, Edwards’ motion to remand remains outstanding. The Court will grant the motion for remand pursuant to 28 U.S.C. § 1452(b), which allows remand on equitable grounds.9 The Court finds sufficient *180equitable grounds to remand the case. First, the Baillie case already is pending in state court with no chance of removal. Should the automatic stay be modified to allow the cases to proceed, it would be more efficient and would lessen the possibility of inconsistent results to allow the same issue to be tried in a single forum. Second, as an issue of state law, the most appropriate forum for the case is the state court. See Wilson v. Alfa Cos. (In re Wilson), 207 B.R. 241, 249 (Bankr.N.D.Ala.1996) (listing factors for consideration in a remand decision). However, like the Bail-lie case, the Edwards case is subject to the automatic stay.
. Because the rights, powers, and duties of a debtor in possession are essentially the same as those of a trustee pursuant to 11 U.S.C. § 1107, the terms "trustee” and "debtor in possession” are used interchangeably throughout this Opinion.
. The Committee filed an amicus curiae brief in the Baillie case.
. Section 544 allows the trustee to step into the shoes of a creditor to avoid certain transfers. 11 U.S.C.A. § 544 (West 1993 & Supp. 2002).
. "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C.A. § 105(a) (West 1993).
.See also Spartan Tube & Steel, Inc. v. Him-melspach (In re RCS Eng’d Prods. Co., Inc.), 102 F.3d 223, 111 (6th Cir.1996) ("Since a subsidiary may not bring an alter ego claim against its parent company under Michigan *176law, the claim does not become the property of the [subsidiary's bankruptcy] estate ...."). Compare Williams v. California 1st Bank, 859 F.2d 664, 667 (9th Cir.1988) (denying the trustee standing to pursue a securities fraud action on behalf of creditors, in part, because the debtor “has no claim of its own that it could press against the defendant.”).
. See also Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1240 n. 20 (3d Cir.1994) ("It may seem strange to allow a corporation to pierce its own veil .... In some states, however, piercing the corporate veil and alter ego actions are allowed to prevent unjust or inequitable results; they are not based solely on a policy of protecting creditors.”); Kalb, Voorhis & Co. v. American Fin. Corp., 8 F.3d 130, 132 (2d Cir.1993) ("If under governing state law the debtor could have asserted an alter ego claim to pierce its own corporate veil, that claim constitutes properly of the bankrupt [sic] estate and can only be asserted by the trustee or the debtor-in-possession.”); Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132, 135 (4th Cir.1988) ("[A]n alter ego claim, under Virginia law, is property of the corporation so that it becomes property of the bankruptcy estate over which the trustee has control ....”); Koch Refining v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1346 (7th Cir.1987) ("[U]nder Illinois and Indiana law as well, a bankruptcy trustee can bring an alter ego claim of action.”).
. See supra note 6 and accompanying text.
. "(a) [A] petition filed under section 301 ... of this title ... operates as a stay, applicable to all entities, of ... (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” 11 U.S.C.A. § 362(a)(3) (West 1993 & Supp.2002).
. Section 1452 reads, in relevant part, as follows:
*180(a) A parly may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
(b) The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground.
28 U.S.C.A. § 1452 (West 1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493544/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The matter before the court in this Chapter 7 case is the objection of Marian T. Vanegas, the debtor, filed on September 19, 2002, to an unsecured proof of claim, filed on November 27, 2000, by Windsor Federal Savings and Loan Association (“the Bank”). The debtor contends, and the Bank denies, that the claim should be reduced from $51,171 to $6,000 in light of the following circumstances established at a hearing held on November 19, 2002.1
II.
The debtor, on June 22, 1988, executed and delivered a mortgage and a mortgage *192note for $64,000 to the Bank to finance her purchase of a condominium located at 1449 Boston Post Road, Westbrook, Connecticut (“the property”). By 1998 the mortgage loan had been in default for a number of years and had an unpaid balance of approximately $77,000. The Bank and the debtor, after discussion, then agreed that the debtor should sell the property in a “short sale.” Under this arrangement, the parties intended for the debtor to sell the property at a sales price agreeable to the Bank. The Bank would then release its mortgage for less than payment in full, provided it received the net sale proceeds and the parties agreed on an amount and manner of payment of the loan deficiency. In the fall of 1998, the debtor secured a buyer to purchase the property for $28,000, a price acceptable to the Bank. By letter dated October 15, 1998, the Bank advised the debtor: “In order to speed this purchase, you will be required to sign a $6,000.00 deficiency note to help minimize the substantial loss the Bank is taking on this property.” (Debtor’s Ex. 4.)
The debtor’s then attorney, on November 17, 1998, responded to the Bank’s attorney, advising that since the debtor’s financial circumstances were such that the debtor would be filing a bankruptcy petition “once she has lost ownership to her current residence in Windsor Locks, Connecticut” and that it was “very unlikely” the Bank “would receive payments on the note,” the deficiency note should be for the full amount owed, in order for the debtor to avoid the nondischargeable income taxes arising from a forgiven debt.2 (Bank’s Ex. A.) The Bank agreed, and at the property closing which took place on December 31, 1998, the Bank received the net sale proceeds of $25,889.20, and the debtor’s promissory note for $51,171. This note had a five-year term, payable in monthly installments, starting February 1, 1999, of principal and interest of $1,037.56, with interest at eight percent per annum.
The debtor made no payments on this note. The Bank, by its attorney, on October 18, 1999, sent a letter to the debtor advising that collection proceedings would commence in the event the nine-month default in payments was not cured.
The debtor filed her bankruptcy petition on August 25, 2000, scheduling no nonexempt assets,3 and three unsecured creditors with claims totaling $29,964, with the Bank listed with a claim of $28,798. The Chapter 7 trustee, on September 28, 2000, filed a “Report Of No Distribution,” stating that there was no estate property available for distribution and certifying the estate had been fully administered. The trustee, on January 5, 2001, filed a withdrawal of this notice in light of the debtor becoming entitled, post-petition, to an inheritance from her mother’s estate.4 The trustee subsequently received $80,621.32 for the inheritance and filed an accounting on August 12, 2002, proposing to distribute to the Bank $51,171.00 plus $5,888.29 interest. As noted, the debtor filed her objection to the Bank’s proof of claim on September 19, 2002.
*193III.
The debtor, in her post-hearing memorandum of law, argues, inter alia, (a) that “the Bank has failed to meet its burden of proof’ and (b) that “a meeting of the minds existed as to the deficiency following the sale of the debtor’s property.” (Debtor’s Mem. at 4.) As to (a), the debtor contends, without any discussion, that the debtor’s evidence overcame any presumption of validity of the Bank’s proof of claim. As to (b), the debtor submits that the Bank should be bound by its original willingness to accept a note for $6,000 from the debtor as a deficiency on the mortgage loan, since the execution of a promissory note for $51,171 was “questionable as a tax avoidance tool. The underlying transaction must be a true loan rather than a sham transaction aimed solely at tax avoidance.” (Debtor’s Mem. at 7.)
The Bank insists that the deficiency note for $51,171 is valid; that the debtor never executed a $6,000 note; that there is no credible evidence of any misunderstanding or mistake on the part of the debtor; and that the Bank’s actions throughout were legitimate and appropriate.
rv.
A
Fed. R. Bank. P. 3001(f) provides: “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.” An objecting party, accordingly, must provide evidence indicating the claim is not valid. See In re Reilly, 235 B.R. 239, 243 (Bankr.D.Conn.1999). “If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence. The burden of persuasion is always on the claimant.” Id. The court concludes that the evidence submitted by the debtor does not sufficiently overcome the validity and amount of the Bank’s proof of claim.
B.
The court concludes that the record and arguments made do not justify the court upholding the debtor’s contention that her responsibility to the Bank must be limited to $6,000. It was at the debt- or’s request that the Bank submitted and the debtor executed a deficiency note for the actual amount ($51,171) of the mortgage loan deficiency. The record made does not support the debtor’s insinuation that the Bank participated in a sham transaction. Cf. Dills v. Enfield, 210 Conn. 705, 717-20, 557 A.2d 517 (1989) (holding that in the absence of a claim of impossibility of performance, fraud or other extraordinary circumstances, a party to a contract may not unilaterally change the agreement because circumstances have changed to his detriment). The debtor’s arguments, at heart, are more pointed towards the action of Congress in enacting § 541(a)(5)(A) than anything that the Bank has done.
V.
The Bank, post-hearing, and on December 19, 2002, filed an amendment to its proof of claim, initially filed on November 27, 2000, to increase its claim to $58,990.87 by including accrued interest and late charges on its note as of the date the debtor filed her petition. A Bank officer had testified to such increase in the debt at the hearing. The debtor objects to the Bank’s attempt to amend its proof of claim at trial two years after the original filing of the proof of claim. The court concludes that to allow such an amendment, whether at trial or post-hearing, would be inequitable. The Bank provided no justification for *194its failure to file a timely amendment pre-hearing, and the court, in balancing the equities, concludes that the amendment should not be allowed. Cf. Bishop v. United States (In re Leonard), 112 B.R. 67, 71 (Bankr.D.Conn.1990) (noting that an important factor in considering whether an amendment would be equitable is whether there is a justification for the movant’s failure to amend timely).
VI.
In light of all that has been noted, the court denies the debtor’s objection to the Bank’s proof of claim, and further sustains the debtor’s objection to the Bank’s amendment of its proof of claim. It is
SO ORDERED.
. No issue is raised as to the standing of the debtor to file an objection to claim since the parties concede that the debtor’s estate is solvent.
. See 26 U.S.C. § 61(a)(12) which provides that gross income includes "Income from discharge of indebtedness." 26 U.S.C. § 108(a)(1)(B) provides for exclusion from gross income if "the discharge occurs when the taxpayer is insolvent."
. The debtor listed exempt assets with a total value of $57,534.34, including an interest in an IRA valued at $44,484.00.
. Bankruptcy Code § 541(a)(5)(A) provides that a debtor's estate includes property which the debtor acquires by bequest, devise or inheritance within 180 days after the petition date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493545/ | DECISION & ORDER
JOHN C. NINFO, II, Chief Judge.
BACKGROUND
On December 31, 1998, Gregory S. Nephew and Deborah A. Nephew (the “Debtors”) filed a petition initiating a Chapter 13 case. On May 13, 1999, the Court entered an order confirming the Debtors’ five-year plan which provided for the payment of the arrearages on the Debtors’ home mortgage and a distribution of 17% to unsecured creditors.
On December 13, 1999, at the request of the Debtors, the Court entered an order converting their Chapter 13 ease to a Chapter 7 case after they defaulted on their post-petition mortgage payments and the stay was terminated in favor of their mortgage holder.
On December 15, 1999, the Bankruptcy Court Clerk’s Office (the “Clerk’s Office”) mistakenly mailed out a Notice of Order Converting Chapter 7 to Chapter 13 Case (the “Chapter 13 Conversion Notice”), rather than a Notice of Order Converting Chapter 13 Case to Chapter 7 Case (a “Chapter 7 Conversion Notice”). The Chapter 13 Notice advised the Debtors and their attorney that the Debtors were required to file the statements and schedules required by Rule 1007(b) within fifteen days, if those schedules and statements had not already been filed.1
The Bankruptcy Court docket shows that at no time after their case was converted from Chapter 13 to Chapter 7, did the Debtors file: (1) an amended schedule of creditors; (2) an amended matrix of *204creditors; or (3) a schedule of post-petition unpaid debts as required by Rule 1019(5).
On December 30, 1999, a scheduled Section 341 meeting notice (a “No Asset Notice”) was mailed to creditors by the Clerk’s Office. It informed those creditors that this was a “no asset” case and advised them, “do not file a proof of claim unless you receive a notice to do so.”2
On February 17, 2000, after the Debtors’ Trustee had conducted an adjourned February 9, 2000 meeting of creditors, he filed a no asset report, and on March 28, 2000, the Court entered an order discharging the Debtors (the “Discharge Order”).
On January 3, 2003, the attorney for the Debtors filed a motion (the “Discharge Motion”) which requested that the Court: (1) reopen the Debtors’ Chapter 7 case; (2) grant a temporary restraining order against Greece Pediatric Dentistry, L.L.P. (“Greece Pediatric”), David T. Corretore, Esq. (“Attorney Corretore”) and Constable John Soldi, Jr. (“Constable Soldi”), restraining them from enforcing a judgment entered on March 11, 2002 in favor of Greece Pediatric against Deborah Nephew in the Rochester City Court in the amount of $625.08 (the “Greece Pediatric Judgment”); (3) determine that the Greece Pediatric Judgment was void and unenforceable; and (4) require Greece Pediatric to pay the reasonable attorney’s fees incurred by Deborah Nephew in enforcing her bankruptcy discharge.
On January 13, 2003, the Court entered an order reopening the Debtors’ Chapter 7 case, restraining Greece Pediatric, Attorney Corretore and Constable Soldi from enforcing the Greece Pediatric Judgment pending a hearing on the Discharge Motion, and setting a hearing on the Motion for January 22, 2003.
The Discharge Motion alleged that: (1) between June 5, 1999 and August 12, 1999, while the Debtors’ Chapter 13 case was pending, their daughter had received emergency dental treatment from Greece Pediatric; (2) Greece Pediatric commenced a state court action against Deborah Nephew (the “State Court Action”), obtained the Greece Pediatric Judgment and, in March 2002, had Constable Soldi serve Deborah Nephew’s employer with an income execution to enforce the Judgment; (3)after the income execution was served, Deborah Nephew contacted her attorneys; and (4) Deborah Nephew’s attorneys then wrote several letters to Attorney Corre-tore’s office wherein they: (a) asserted that the amounts owed to Greece Pediatric had been discharged in the Debtors’ Chapter 7 case pursuant to Section 727(b); and (b) demanded that the income execution be withdrawn and the Greece Pediatric Judgment vacated.
On January 21, 2002, Greece Pediatric, by Attorney Corretore, interposed an Objection to the Discharge Motion which alleged that: (1) from June 21, 1999 through July 17, 2000, Greece Pediatric had sent monthly billing statements to the Debtors, including a statement sent by certified mail on January 7, 2000, which Deborah Nephew acknowledged receipt of on January 13, 2000; (2) the Debtors never objected to the unpaid billing statements or advised Greece Pediatric of their bankruptcy; (3) the Corretore law offices sent demand letters to the Debtors on January 28, 2000, August 15, 2000 and August 28, 2000, and received no response from the Debtors; (4) the Debtors never advised Greece Pe-
*205diatric directly that they had filed for bankruptcy or that they believed that the amounts due to Greece Pediatric had been discharged in their bankruptcy; (5) in a September 15, 2000 telephone call to Deborah Nephew, initiated by the Corretore Law Offices, Deborah Nephew indicated that the Debtors had gone bankrupt; (6) in April 2001, after nothing further was heard from the Debtors, the State Court Action was commenced by personal service of a Summons & Complaint on each of the Debtors; (7) on January 15, 2002, after no answer was interposed by the Debtors in the State Court Action for more than eight months, the Greece Pediatric Judgment was entered by default; (8) on March 15, 2002, an income execution was served on Deborah Nephew’s employer; (9) on or about April 5, 2002, the attorneys for the Debtors were advised that it was the position of Greece Pediatric that the Decision of the Court in In re Tucker, 143 B.R. 330 (Bankr.W.D.N.Y.1992), aff'd, No. 92-CV-6407 (W.D.N.Y. July 28, 1993) (“Tucker”) did not apply to the facts and circumstances of the Debtors’ case; and (10) the Discharge Motion should in all respects be denied, since: (a) the unpaid services were rendered during the Debtors’ Chapter 13 case, and the Debtors never notified Greece Pediatric or the Corretore law offices of their bankruptcy before the case was closed; (b) the Debtors had failed, as suggested by Tucker, to interpose their alleged bankruptcy discharge as an affirmative defense in the State Court Action; (c) under Section 523(a)(3)(A), the Greece Pediatric Judgment was excepted from discharge in the Debtors’ Chapter 7 case since: (i) the Debtors failed to schedule Greece Pediatric as a creditor; and (ii) Greece Pediatric had no actual knowledge of the bankruptcy before the case was closed; and (d) the Debtors had failed to respond to either the unpaid statements or the demand letters sent to them after their case was converted to Chapter 7 and before it was closed, or the State Court Action.
On January 22, 2003, Greece Pediatric, by Attorney Corretore, interposed an additional Objection that: (1) emphasized: (a) the Debtors’ failure to respond to the monthly unpaid statements, the demand letters and the State Court Action; and (b) the costs and expenses incurred by Greece Pediatric as the result of the failures of the Debtors to amend their schedules to include Greece Pediatric or to take the position, immediately after their conversion, that the Greece Pediatric indebtedness would be discharged in their Chapter 7 case; and (2) asserted that Tucker did not apply because of the reckless failures of the Debtors and the prejudice sustained by Greece Pediatric.
DISCUSSION
I. In re Tucker
In Tucker the Court held that:
The plain language of Section 523(a)(3)(A) and the holding of this Court in this case indicate that if there is a closed no-asset case where a No-Asset Notice has been utilized, so that no bar date has been set and the time to file proofs of claim has not expired, all that is required for the claim of an unscheduled creditor to be discharged is that: (1) the creditor receive notice or actual knowledge of the case so that it can timely file a proof of claim; and (2) there has been no intentional or reckless failure to schedule the creditor, fraudulent scheme, intentional laches or prejudice to the creditor.
Section 523(a)(3) provides that:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-(3) neither listed nor *206scheduled 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 permits
(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 case 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[.]
Section 348(d) provides that,
A claim against the estate or the debtor that arises after the order for relief, but before conversion in a case that is converted under Sections 1112, 1208 or 1307 of this Title, other than a claim specified in Section 503(b) of this Title shall be treated for all purposes as if the claim had been written immediately before the date of the filing of the petition.3
Section 727(b) provides that unless a debt is excepted from discharge pursuant to Section 523, a discharge under Section 727(a) discharges the debtor from all debts that arose before the date of the order for relief.
In view of the provisions of Section 348(d) and Section 727(b) a post-petition, non-administrative expense claim indebtedness incurred by a debtor in a Chapter 13 case would be discharged under the holding of Tucker when the Chapter 13 case is converted to a Chapter 7 case under Section 1307, even if the indebtedness is not scheduled as required by Rule 1019(5), provided the converted Chapter 7 case is a no asset case, unless: (1) there has been an intentional or reckless failure to schedule the creditor holding the post-petition indebtedness, a fraudulent scheme, intentional laches or prejudice to the creditor; and (2) the indebtedness might otherwise be nondischargeable under Sections 523(a)(2), (4), (6) or (15).
However, given the requirement of Rule 1019(5), consumer debtors in the Rochester Division of the Western District of New York whose case has converted from Chapter 13 to Chapter 7 who then assert that Tucker should apply to overcome the nondischargeability provisions of Section 523(a)(3) have a heavy burden to demonstrate why their failure to schedule such a post-petition indebtedness was not reckless.
II. Intentional or Reckless Failure to Schedule a Creditor in a Case Converted from Chapter 13 to Chapter 7
Rule 1019(5) requires a debtor within fifteen days of conversion to file a schedule of unpaid debts incurred after the filing of the petition and before conversion, including the name and address of the holder of any such claim.
In the Rochester Division of the Western District of New York there should be few, if any, unpaid, post-petition Chapter 13 debts that would be required to be scheduled when a case converts to Chapter 7, since: (1) the standard Order Confirming Chapter 13 plans provides that the debtor is stayed and enjoined from incurring any new debts in excess of $500.00, except such debts as may be necessary for *207emergency medical or hospital care, without the prior approval of the Trustee or the Court, unless such prior approval was impractical and therefore cannot be obtained; and (2) at their confirmation hearing debtors are advised by the Court that while they are under its jurisdiction, the Court expects them to pay any post-petition obligations when they become due.
Although the Clerk’s Office normally reminds debtors and their attorneys of the requirements of Rule 1019(5) in the Chapter 7 Conversion Notice, there is no requirement in the Bankruptcy Rules that the Clerk’s Office provide debtors or their attorneys with that reminder.
The Debtors should have been aware of their obligation under Rule 1019(5), because they have been represented by very experienced bankruptcy attorneys. Furthermore, because of the unpaid statements and the demand letter they had received prior to their 341 meeting in their Chapter 7 case, they were very much aware of their unpaid obligation to Greece Pediatric. Nevertheless, before their case was closed, the Debtors failed to amend their previously filed schedules or to file the schedule required by Rule 1019(5), either of which would have resulted in Greece Pediatric being timely notified of their converted Chapter 7 case.4
In this case, given the requirements of Rule 1019(5) and the receipt by the Debtors of unpaid monthly statements from Greece Pediatric pre-conversion and post-conversion through the time the Chapter 7 case was closed, I find that the failures of the Debtors to: (1) respond to the unpaid statements and demands during their Chapter 7 case by specifically advising Greece Pediatric and its attorneys of their pending Chapter 7 bankruptcy case and their position that the indebtedness due to Greece Pediatric would be discharged in their converted Chapter 7 case; or (2) to meet their obligations under Rule 1019(5), constitutes a sufficiently reckless failure to schedule Greece Pediatric, so that Tucker does not apply to overcome the nondis-chargeability provisions of Section 523(a)(3)(A).5
III. Prejudice to the Creditor
I also find that the failure of the Debtors to affirmatively assert a bankruptcy discharge at any time between the entry of the Discharge Order and the filing of the income execution, including their failure to interpose an asserted bankruptcy discharge as an affirmative defense in the State Court Action, has resulted in sufficient prejudice to Greece Pediatric that Tucker does not apply to overcome the nondischargeability provisions of Section 523(a)(3)(A).
Although when read together Sections 348(d) and 727(b) make a post-petition Chapter 13 indebtedness eligible for discharge in a converted Chapter 7 case, that result is counterintuitive for most creditors and attorneys who understandably may believe that a post-petition indebtedness incurred by a consumer debtor who was under the jurisdiction of the Bankruptcy Court and never advised the creditor that *208they were in bankruptcy when they incurred the indebtedness would be required to be paid.
In this case it appears that Deborah Nephew did nothing more in September 2000, than to indicate that the Debtors had been bankrupt. It does not appear, as contemplated and strongly suggested by Tucker, that she made a specific and detailed assertion that the Greece Pediatric debt was discharged in the Debtors’ bankruptcy because of Tucker,6 Furthermore, the Debtors failed to interpose the asserted discharge as an affirmative defense in the State Court Action, again as strongly suggested by Tucker, in order to avoid exactly the kind of prejudice to an unscheduled creditor that has occurred in this case.
In this case, given the relatively small amount of the Greece Pediatric Judgment, the unnecessary costs and expenses incurred and time spent by Greece Pediatric and its attorneys in connection with the: (1) post-conversion unpaid statements and demand letters; (2) phone calls by the Corretore law offices; (3) State Court Action; (4) entry of the Greece Pediatric Judgment and the related enforcement proceedings; and (5) responses required to the Discharge Motion, constitute the very type of substantial prejudice that makes Tucker inapplicable.
For this Court to discharge the Greece Pediatric Judgment given the many failures of the Debtors, would afford them a head start rather than a fresh start.
IV. Overview
Tucker contemplates, and strongly suggests, that a debtor, who has inadvertently failed to schedule a creditor in an originally filed Chapter 7 case, in order to have that creditor’s debt discharged, notwithstanding the provisions of Section 523(a)(3)(A), take affirmative steps as soon as possible after it becomes clear that the creditor was unscheduled to: (1) advise the creditor of the bankruptcy and its details, including that it is a no asset case; (2) provide that creditor or the creditor’s attorney with a copy of the Tucker decision to support the position that in the Western District of New York the unscheduled debt was or will be discharged.
The primary purpose of the expectation that a debtor will be proactive in advising the unscheduled creditor of the bankruptcy and the holding of Tucker is to insure that there will be no prejudice to the unscheduled creditor. Since the holding in Tucker has not been accepted by all Bankruptcy Courts, it would never be enough for a debtor to simply advise the unscheduled creditor of the debtor’s bankruptcy, especially if the creditor or its attorneys are from a jurisdiction that has not accepted the Tucker rationale.
As discussed more fully in this Decision & Order, in order to have the benefit of the Tucker holding, the debtor must demonstrate that there was an inadvertent failure to schedule the creditor, and the debtor’s explanation must be reasonable. Notwithstanding this Court’s emphasis on the importance of Debtors fulfilling their Section 521 duties and taking great care to complete their schedules and list all of their creditors, the Court is aware that some consumer Chapter 7 debtors have many consumer obligations, some of which can be quite old, and sometimes they simply forget about them.
*209However, in a case converted from Chapter 13 to Chapter 7, where there should be few, if any, unpaid post-petition Chapter 13 pre-conversion debts, the debt- or bears an extremely heavy burden to demonstrate why the scheduling requirements of Rule 1019(5) have not been complied with.
In this case, there is really no reasonable explanation for the Debtors’ failure to schedule Greece Pediatric during their converted Chapter 7 case. They were receiving monthly unpaid statements and even an attorney demand letter, so they were certainly aware of the unpaid indebtedness. Furthermore, there is no evidence that the Debtors took the required proactive detailed steps to advise Greece Pediatric or its attorneys of their position with regard to Tucker and Section 523(a)(3)(A) before there was sufficient prejudice to Greece Pediatric to make Tucker inapplicable.
CONCLUSION
On the facts and circumstances of this case, there has been a sufficient showing of a reckless failure to schedule Greece Pediatric and a substantial prejudice to Greece Pediatric, so that the holding in Tucker is not applicable. The Discharge Motion is in all respects denied and the Greece Pediatric Judgement is excepted from discharge under Section 523(a)(3).
IT IS SO ORDERED.
. Even though the Bankruptcy Rules do not require the Clerk's Office to do so, the Chapter 7 Conversion Notice utilized in the Western District of New York also reminds debtors who convert from Chapter 13 to Chapter 7 that, as required by Rule 1019(5), within fifteen days of the date of the Order for Conversion they must file a schedule of any unpaid debts incurred after the commencement of their Chapter 13 case.
. The No Asset Notice, which also indicated that the Debtors’ bankruptcy was originally filed under Chapter 13 on December 31, 1998, and was converted to a case under Chapter 7 on December 13, 1999, fulfilled the obligation of the Clerk’s Office to give notice of the conversion of the Debtors’ case to another chapter, as required by Rule 2002(f)(2).
. The services performed by Greece Pediatric would not give rise to a Section 503(b) administrative expense claim.
. At least one panel trustee requires debtors to file a Rule 1019(5) schedule in all converted cases, even if it simply lists "none,” and all trustees at their 341 meetings inquire as to whether the schedules filed by the debtors include all of their debts and creditors.
. Since the services provided by Greece Pediatric were emergency medical services and at the time the Debtors were not in default on their post-petition mortgage payments, there is no basis for an assertion that the indebtedness was knowingly incurred when a conversion to Chapter 7 was contemplated, and, therefore, possibly nondischargeable under Sections 523(a)(2)(A) and 523(a)(3)(B).
. If Deborah Nephew had actual knowledge that there was an argument that the Greece Pediatric indebtedness was discharged in the Debtors’ Chapter 7 case because of Sections 348(d) and 727(b) and Tucker, she must have also known of the scheduling requirement of Rule 1019(5). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493546/ | *300
Opinion Regarding Order to Show Cause
STEVEN W. RHODES, Chief Judge.
On September 5, 2002, the Court issued an order to show cause why attorney Gary D. Dodds should not be held in contempt and sanctioned for, in part, forging the debtor’s signature on the bankruptcy petition, the Rule 2016(b) Statement, and the Bankruptcy Petition Cover Sheet. The Court conducted a hearing on October 31, 2002, and requested a brief from Dodds on the issue of his signing his client’s name. The hearing was adjourned to December 12, 2002. Following the December 12, 2002, hearing, the Court took the matter under advisement.
I.
Fed. R. Bankr.P. 1008 provides:
All petitions, lists, schedules, statements and amendments thereto shall be verified or contain an unsworn declaration as provided in 28 U.S.C. § 1746.
Fed. R. Bank. P. 1008.
28 U.S.C. § 1746 provides:
Wherever, under any law of the United States or under any rule, regulation, order, or requirement made pursuant to law, any matter is required or permitted to be supported, evidenced, established, or proved by the sworn declaration, verification, certificate, statement, oath, or affidavit, in writing of the person making the same (other than a deposition or an oath of office, or an oath required to be taken before a specified official other than a notary public), such matter may, with like force and effect, be supported, evidenced, established, or proved by the unsworn declaration, certificate, verification, or statement, in writing of such person which is subscribed by him, as true under penalty of perjury, and dated, in substantially the following form (2) If executed within the United States, its territories, possessions, or commonwealths: “I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date). (Signature).”
28 U.S.C. § 1746.
Dodds argues that an attorney is permitted to sign a document on behalf of his client. However, this authority does not address the specific requirements of Rule 1008 that the petition and schedules be verified. Dodds did not sign his name on behalf of his client; he signed his client’s name. 28 U.S.C. § 1746 specifically requires the signature of the person making the declaration.
In In re Brown, 163 B.R. 596 (Bankr.N.D.Fla.1993), a petition was filed bearing the signature of Berton Brown. However, it was later determined that the signature was actually that of Derlie Brown, the debtor’s wife. Mrs. Brown had apparently signed the petition pursuant to a general power of attorney, however, the petition did not indicate that it was signed by Mrs. Brown in her representative capacity. On the issue of the validity of the petition, the court stated:
The filing of bankruptcy petition is a serious act which necessarily involves exposing the financial and legal affairs of the petitioner to all interested parties in a public forum. The filing of the petition, while offering relief to beleaguered debtors, also carries a long lasting stigma in our society. In addition, the completion of the debtor’s schedules frequently requires information that is only available from the debtor. For these reasons courts have been reluctant to permit a party other than the debtor to sign and file a petition under a power of attorney absent extraordinary circumstances.
*301The most commonly occurring circumstance warranting the acceptance of a petition signed by a non-debtor involves members of the armed services. The typical situation involves a power of attorney appointing a spouse or family member to conduct the serviceman’s affairs while on duty in remote parts of the world. The rationale supporting these cases can be fairly summarized by stating that the need to conduct the debtor’s affairs and the inability of the individual to do so while far from home necessitates the filing of a petition under a power of attorney. There is also a line of cases which permits a court-appointed guardian to file a petition on behalf of a disabled person. However, these cases generally require express authority to file a bankruptcy petition from the court making the appointment.
Id. at 597-98 (citations omitted).
Here, Dodds did not indicate that he was signing the debtor’s name in a representative capacity. Nor did Dodds obtain authority from the Court to sign his client’s name on her behalf.
In In re Harrison, 158 B.R. 246 (Bankr.M.D.Fla.1993), the court dismissed a bankruptcy petition in which a non-debtor had signed the debtor’s name. The court stated, “It takes no elaborate discussion to point out the obvious that no one can grant authority to verify under oath the truthfulness of statements contained in the documents and to verify facts that they are true when the veracity of these facts are unique and only within the ken of the declarant[.]” Id. at 248.
There are limited circumstances when courts have permitted a third party to sign a petition on behalf of the debtor. In In re Ballard, 1987 WL 191320 (Bankr.N.D.Cal.1987), the court permitted the debtor’s wife to sign a chapter 13 petition on his behalf because he was in the army stationed in Europe and there was insufficient time to obtain his signature to stop a foreclosure action. See also In re Hurt, 234 B.R. 1 (Bankr.D.N.H.1999) (A petition could be commenced by a non-debtor under a power of attorney if the petitions and schedules reflect that they were executed by the non-debtor in his representative capacity and a copy of the power of attorney is filed with the petition.); In re Gridley, 131 B.R. 447 (Bankr.D.S.D.1991) (Petition was properly filed by incapacitated debtor’s son who held power of attorney with specific authority to file bankruptcy petition.).
These cases demonstrate that only in very limited circumstances are the requirements of Rule 1008 and § 1746 are not strictly complied with. Strict compliance is also consistent with the legislative history of 28 U.S.C. § 1746. This section was enacted to permit the use of unsworn declarations given under penalty of perjury in lieu of affidavits. H.R. Rep. 94-1616, H.R.Rep. No. 1616, 94th Cong., 2nd Sess. 1976, 1976 U.S.C.C.A.N. 5644.
An affidavit or other written document that requires verification by the person signing it currently must be subscribed to under oath. This requires that the person signing the affidavit or document must be taken before someone legally authorized to administer oaths (usually a notary public). A person who falsely states something in a document he subscribed to under oath is subject to the penalty imposed by law for perjury.
The requirement that the person who signs an affidavit must appear before a notary and be sworn can be inconvenient. For example, it may be necessary for the document to be executed during other than normal business hours. Further, the document may have to be executed in another country for use in the United States. This generally will re*302quire, in addition to the document subscribed to under oath, additional certifications and documents to prove such things as the authority of the officer who administers the oath and the authenticity of his seal.
The legislation provides an alternative to affidavits and sworn documents when it is necessary to require verification of the truthfulness of what the document contains. The legislation will permit the signer to subscribe to a document that expressly provides that it is being executed subject to the penalties of perjury[.]
Id.
Allowing a debtor to sign a document under penalty of perjury instead of under oath does not eliminate the requirement that the debtor personally sign the document. Accordingly, the Court concludes that Rule 1008 and 28 U.S.C. § 1746 require the debtor to personally sign the petition, Bankruptcy Petition Cover Sheet, and Rule 2016(b) Statement. Dodds’s actions of signing the debtor’s name was improper. The Court will schedule a further hearing to determine the appropriate sanctions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493547/ | ORDER
MARY D. FRANCE, Bankruptcy Judge.
Debtors own certain real estate located at 2318 North Fifth Street in Harrisburg, Pennsylvania for which they failed to pay municipal charges and fees for water, sewer, and solid waste disposal. In 1993, pursuant to the Municipal Claims and Tax Liens Act (MCTLA), 53 P.S. § 7101 et. seq., the City of Harrisburg recorded liens, docketed as “mechanics hens,” against the property. On April 22, 1997, Debtors filed for bankruptcy relief under Chapter 7.
On May 21,1997, the City of Harrisburg assigned the claims for delinquent taxes to National Tax Funding, L.P. (NTF). NTF *528did not record lien documents with the Prothonotary of the Court of Common Pleas of Dauphin County. Rather, on May 21, 1997, an attorney for the City filed a praecipe with the Prothonotary’s office stating that the City’s liens against Debtors’ property had been assigned to NTF. Capital Asset Research Corporation (CARC), the Defendant herein, is the servicing agent for the collection of the claims assigned to NTF.
On December 18, 1998, NTF filed three proofs of claim to which Debtors filed objections on February 2, 2000.1 A hearing on the objections was held on April 6, 2000. After NTF failed to file an answer to the objections or appear at the hearing, an Order was entered disallowing and dismissing the claims.
On February 25, 2000 Debtors filed the instant adversary action to avoid the liens assigned to NTF by using the “strong arm clause” of 11 U.S.C. § 544 and the avoidance powers of § 545. Specifically, Debtor invokes § 545(2), which provides that “the trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien ... is not perfected or enforceable at the time of the commencement of the case against a bona fide [hypothetical] purchaser.... ” Debtors assert that the praecipe filed by the City’s attorney was not effective to perfect NTF’s hens. As a result, the liens were not perfected vis-a-vis a hypothetical purchaser on the date of the Petition and, therefore, may be avoided. That is the issue now before me.
Initially, I note that § 545 refers only to “the trustee” and not to “the debt- or”. However, the Third Circuit has held that a debtor in Chapter 13 may, pursuant to § 522(h), stand in the shoes of a trustee to avoid any liens that, according to state law, have not been properly perfected by the time the debtor has commenced the bankruptcy proceeding. See, 11 U.S.C. § 544(A)(3), McLean v. City of Philadelphia Revenue Bureau, 891 F.2d 474 (3d Cir.1989). Thus, the Debtor has standing to initiate the instant adversary.
Debtor asserts that In re Thomas, 1999 WL 1102991, 1999 Bankr.LEXIS 1515 (Bankr.W.D.Pa.) vacated as advisory, Civil Action No. 01-385 (W.D.PA. March 21, 2002) (Thomas I) applies foursquare to the instant matter. In Thomas I, the Court ruled that a debtor could avoid claims that had been sold and assigned post-petition by the City of Pittsburgh to NTF for unpaid taxes and municipal charges because such hens were not perfected in the name of NTF on the date of the Petition. The Court reasoned that although the tax claim of the City of Pittsburgh was transferrable, the priority status afforded to the City’s secured claim was not. When requested to reconsider and amend the Order, the Court reaffirmed its holding that NTF’s hen was unenforceable and avoidable. In re Thomas, 2001 WL 55533 (Bankr.W.D.Pa.)(Thomas II).
After Thomas II was rendered, the District Court for the Western District of Pennsylvania examined the identical issue on appeal from another bankruptcy case. Rather than analyzing the impact of the Bankruptcy Code on the attributes of a municipal hen, the District Court simply construed the Pennsylvania statute on its face and held that “[t]here is nothing in the statute that indicates that assignees should be treated differently from municipalities for purposes of these claims.” In re Swinton, 287 B.R. 634, 637 (W.D.Pa. *5292003). Swinton examined the holdings of the Commonwealth Court of Pennsylvania in Maierhoffer v. GLS Capital, Inc., 730 A.2d 547 (Pa.Cmwlth.Ct.1999), in which the Court held that government entities were permitted to assign their rights in certain municipal claims and liens, and Pentlong Corp. v. GLS Capital, Inc., 780 A.2d 734, 746 (Pa.Cmwlth.Ct.2001) in which it concluded that such assignees did not acquire a delinquent tax, but rather an in rem hen purchased under the MCTLA. Disregarding the cumbersome construction used by the Commonwealth Court, the Swinton court instead turned to the Court of Appeals for the Third Circuit in Pollice v. National Tax Funding, L.P. 225 F.3d 379, 389-390 (3d Cir.2000). Therein the Court of Appeals reiterated that the as-signee of a municipal hen “stands in the shoes” of the government entity with regard to these hens.
I agree with the District Court that there is nothing in the Pennsylvania statute that indicates that rights of assignees should be diminished when they purchase a municipal claim. Section 7147 of the MCTLA clearly states that an assignee “shall have ah the rights of the original holder thereof.” Therefore, private parties “stand in the shoes” of the government entity and enjoy the same rights.
This interpretation of the MCTLA not only is in accord with the principles of statutory construction, it also constitutes sound public policy. Assignments of mortgages are commonplace in the banking industry today, and the Bankruptcy Code generally does not hmit post-petition assignments. See, e.g., In re Noletto, 280 B.R. 868, 870 (Bankr.S.D.Ala.2001); In re Giordano 212 B.R. 617, 619 (9th Cir. BAP (Wash.), 1997); In re Halabi, 196 B.R. 631 (Bankr.S.D.Fla.1996); In re South Plaza Ventures 167 B.R. 535, 536 (Bankr.E.D.Mo.1994); In re Heritage House Interiors, Inc., 122 B.R. 605, 608 (Bankr.M.D.Fla.1990); In re WRB West Associates Joint Venture, 106 B.R. 215, 216 (Bankr.D.Mont.1989). To hold otherwise not only would jeopardize the market value of municipal liens, it also could cast a pall of uncertainty over the rights of assignees of mortgages and other liens.
For these reasons, I must conclude that the assignment of the lien in this instance was effective and cannot be avoided through Section 544. Therefore, the Adversary Complaint in the above-captioned matter shall be and hereby is dismissed.
. Debtors’ Chapter 13 plan, which was confirmed on August 25, 1999 proposed that no payments be made to the City of Harrisburg for the claims related to the North Fifth Street property. Debtors' plan did not address or provide for the claims of NTF. | 01-04-2023 | 11-22-2022 |
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