MEMORANDUM OPINION REGARDING PLAINTIFF'S FIRST AMENDED COMPLAINT TO DETERMINE DISCHARGEABILITY
Hellene Hiner (the “Plaintiff”) initiated the instant adversary proceeding against Valeriy Koukhtiev, the debtor in the main case (the “Debtor”), and requested this Court to declare that a certain judgment that she obtained against the Debtor in state court is a non-dischargeable obligation under 11 U.S.C. §§ 523(a)(2)(A) and/or (a)(6).
With respect to § 523(a)(6), the Court finds that the Debtor willfully and maliciously injured the Plaintiff. Indeed, there is no doubt that the Debtor had subjective motive that his actions would cause harm to the Plaintiff as a result of his withholding the source code and his selling the Soft Way Program under his dba, Bummel Software. While he was undertaking these actions, he knew full well that the Plaintiff was unaware of Bummel Software and that he was depriving her of her rightful ownership of the proceeds from the sales of the Soft Way Program. He also knew that pursuant to the Work Agreement, he had no ownership interest in the Soft Way Program, the source code, and the proprietorship known as Cottage Music Academy, and that the Plaintiff was the sole owner of these assets.
With respect to § 523(a)(2)(A), the Debtor made no representations to the Plaintiff; rather, he surreptitiously sold the Soft Way Program on the open market for $300.00 per disc as if he did in fact own the Soft Way Program; and, he refused to give the Plaintiff the necessary information for her to access and update the source code. While this conduct was improper, it nevertheless does not amount to a false representation or false pretenses. However, the Court finds that the Debtor’s actions constitute actual fraud. Specifically, the evidence reveals that while the Debtor was intentionally denying the Plaintiff access to the source code, he was deliberately concealing from the Plaintiff the sales of the Soft Way Program that he was making under his personal dba (i.e., Bummel Software)— actions that he does not dispute and, in fact, admitted.
If the Court had adjudicated this suit prior to Husky, the Court would have held that the Plaintiff has failed to prove all of the elements of § 523(a)(2)(A) because the Fifth Circuit’s RecoverEdge holding required that a plaintiff prove that the debtor made a misrepresentation—and here, the Debtor made no misrepresentation to the Plaintiff. However, Husky eliminated this requirement with respect to proving “actual fraud” under § 523(a)(2)(A), and held that a plaintiff need only prove an “intentional wrong” by the Debtor. In the suit at bar, this Court finds that the Plaintiff has met her burden in proving that the Judgment resulted from conduct constituting actual fraud by the Debtor; therefore, the amounts owed by the Debtor under the Judgment are non-dischargeable.
Report and Recommendation to the United States District Court Recommending Against Withdrawal of the Reference
Thursday, November 2, 2017
REPORT AND RECOMMENDATION TO THE UNITED STATES DISTRICT COURT RECOMMENDING AGAINST WITHDRAWAL OF THE REFERENCE.
In this case, the Chapter 7 trustee in the main case, Rodney Tow, sued Park Lake Communities, LP ("Park Lake") under 11 U.S.C. § 542(b) requesting that this Court order Park Lake to pay down a debt of $4.5 million that it owed to the estate by remitting the proceeds to be generated from a certain receivable that Park Lake held from the Montgomery County Municipal Utility District #15. Park Lake requested that this Court recommend to the District Court that the reference of the adversary proceeding be withdrawn.
First, the Court concluded that mandatory withdrawal is inapplicable to the instant suit because there were no causes of action involving federal law outside of the Bankruptcy Code. Second, the Court considered permissive withdrawal of the reference pursuant to the six factors set forth in Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985): (1) the underlying lawsuit is a non-core proceeding; (2) uniformity in bankruptcy administration will be promoted; (3) forum shopping and confusion will be reduced; (4) economical use of debtors’ and creditors’ resources will be fostered; (5) the bankruptcy process will be expedited; and (6) a party has demanded a jury trial. After undertaking an analysis of the six factors and concluding that five of the six factors disfavored withdrawal of the reference by the District Court, the Court recommended against withdrawal of the reference.
MEMORANDUM OPINION REGARDING: (1) CHRIS ALLEN LOUVIERE’S MOTION FOR LEAVE TO REFILE COMPLAINT FOR DETERMINATION OF DISCHARGEABILITY AND OBJECTION TO DEBTORS[’] DISCHARGE PURSUANT TO SECTION[S] 523 AND 727; AND (2) THE DEBTORS’ EMERGENCY MOTION TO DISMISS WITH PREJUDICE THE ADVERSARY COMPLAINT.
Louviere's Motion for Leave requests this Court to allow Louviere, even though he missed the deadline for initiating a proper adversary proceeding, to prosecute a complaint against the Debtors to prevent discharge of a judgment that Louviere obtained pre-petition or, alternatively, to prevent discharge of all the debts owed by the Debtors. The Debtors' Motion to Dismiss requests that this Court bar Louviere from seeking such relief on the grounds that he failed to timely initiate a proper adversary proceeding against the Debtors. This dispute is governed by Rules 4007 and 4004.
Rule 9006(b)(1) does provide an avenue for a litigant to be able to assert a claim or a defense despite having missed a deadline. Unfortunately for Louviere, he cannot avail himself of the “excusable neglect” doctrine under Rule 9006(b)(3). Rule 9006(b)(3) also excepts Rule 4004(a) from the excusable neglect standard; therefore, the late filing of a complaint objecting to the discharge of all debts of a debtor cannot be cured through the doctrine of excusable neglect. Louviere may use the "actual notice/relation-back" exception to Rules 4007(c) and 4004(a).
Louviere filed not one, but two, detailed pleadings with this Court on or before the 60‑day deadline of March 20, 2017, and he immediately served these pleadings on the Debtors, through their counsel--all of which gave actual notice to the Debtors that Louviere intended to seek an order from this Court declaring the Judgment to be non‑dischargeable. First, on January 13, 2017—more than two months before the 03-20-2017 Deadline—Louviere filed the Motion to Lift Stay. The Motion to Lift Stay set forth in great detail the background of how Louviere obtained the Judgment against Thompson and why this debt is based on Thompson’s fraud, and then the Motion to Lift Stay expressly refers to §§ 523(a)(2)(A), 525(a)(4), and 727(a)(4)(A) in asserting that the debt held by Louviere is nondischargeable and that therefore this Court should lift the stay to allow Louviere to proceed with efforts to collect the Judgment. On February 7, 2017, this Court held a preliminary hearing on the Motion to Lift Stay. Louviere’s attorney appeared at this hearing, and the Court set the matter for a final hearing for February 14, 2017. Then, on February 14, 2017, this Court held a final hearing on the Motion to Lift Stay. Both counsel for Louviere and counsel for the Debtors appeared at this hearing. There is no question that as of February 14, 2017, the Debtors, through their counsel, had received abundant notice of Louviere’s position that the Judgment should be a non‑dischargeable debt that he was entitled to collect at all times in the future.
Memorandum Opinion Approving Trustee's Motion to Compromise. Pending before this Court is the application (the “Application”) of the Chapter 7 trustee, Eva S. Engelhart (the “Trustee”), to approve a settlement that she has negotiated with Tony DeRosa‑Grund, the debtor (the “Debtor”). New Line Productions, Inc. (“New Line”), a party-in-interest, vigorously objects to the proposed settlement. New Line has standing to object to the Application because New Line is threatened with an injury: if the Debtor regains his interest in Silverbird and/or EMG, he will have the opportunity to use these entities to seek to recover damages from New Line on the grounds that New Line has allegedly misappropriated the Treatment at the expense of Silverbird and/or EMG; thus, New Line will have to expend more time and attorneys’ fees litigating over who owns the Treatment, thereby depriving New Line of the benefit of its bargain when it paid the Trustee $200,000.00 for the Treatment pursuant to the New Line/Trustee Settlement. Court considered the following factors in approving the Trustee's Motion to Compromise: (1) The probabilities of ultimate success should the claim or claims be litigated; (2) The complexity, expense, and likely duration of litigating the claims; (3) The difficulties of collecting a judgment rendered from such litigation; and (4) All other factors relevant to a full and fair assessment of the wisdom of the compromise. With respect to the fourth factor, the Court considered: (a) The paramount interest of creditors with proper deference to their reasonable views; (b) The extent to which the proposed settlement is the product of arms‑length negotiations; (c) Whether the proposed settlement is with an insider; and (d) Whether the proposed settlement promotes the integrity of the judicial system. Court approves motion to compromise because it believes that “what is right and equitable under the circumstances and law” in the case at bar is for the Debtor to receive none of the excess proceeds associated with this case. The Court holds this belief because the Debtor has abused the judicial system and, as discussed in the Opinion, because the Debtor may have committed crimes under 18 U.S.C. that could be worthy of prosecution. Preventing him from receiving any of the excess funds by approving the Proposed Settlement is the most “fair and equitable” result in this Court’s view.
Husky International Electronics, Inc. v. Daniel Lee Ritz, Jr.
Wednesday, April 19, 2017
The dischargeability suit discussed in this memorandum opinion was initially tried in 2011. This Court ruled in favor the debtor; the District Court affirmed the ruling; the Fifth Circuit affirmed the District Court’s holding; but the Supreme Court reversed the Fifth Circuit’s holding. On remand, the Fifth Circuit issued an opinion remanding the matter to this Court for further findings and conclusions.
In 2011, Husky International Electronics, Inc. (“Husky”) filed a complaint to determine dischargeability against Daniel Lee Ritz, Jr. (the “Debtor”), seeking a judgment that the debt of $163,999.38 that the Debtor’s company, Chrysalis Manufacturing Corporation, owed Husky is a personal obligation of the Debtor that is non-dischargeable under 11 U.S.C. § 523(a)(2)(A) because the Debtor committed “actual fraud.” Husky based its 11 U.S.C. § 523(a)(2)(A) claim on § 21.223(b) of the Texas Business Organization Code, which allows a creditor of a corporation to pierce the corporate veil and impose liability on an officer, director, or shareholder of the company if the creditor can prove that the individual “caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the holder, beneficial owner, subscriber, or affiliate.” Tex. Bus. Org. Code Ann. § 21.223(b) (WestlawNext 2015).
Here, the Court undertook a three-step analysis. First, the Court found that there was a sufficient number of badges of fraud (as articulated by Texas Business and Commerce Code § 24.005) to find that the Debtor did commit actual fraud with the intent to hinder, delay, or defraud Husky’s collection efforts for the debt of $163,999.38. Specifically, the Court found that the Debtor orchestrated over 150 transfers of $1,161,279.90 out of Chrysalis Manufacturing Corporation, a company that he controlled, to other companies that he controlled in order to hinder, delay, or defraud Husky.
Second, the Court found that the Debtor committed this actual fraud for his personal benefit. By orchestrating the transfers, the Debtor retained a personal benefit because he avoided personal liability for loans that he guaranteed and continued to control the funds by virtue of his interests in the transferee companies.
Third, the Court found that the debt of $163,999.38 owed to Husky was non‑dischargeable under § 523(a)(2)(A) because such debt was for “money [or] property . . . obtained by actual fraud.” Thus, the debt is a non‑dischargeable, personal obligation of the Debtor.
Because the personal obligation of $163,999.38 is non-dischargeable, the Court found the Debtor liable for the following non-dischargeable amounts: (1) $163,999.38; (2) pre‑judgment interest on the debt of $163,999.38; (3) post-judgment interest on (1) and (2); (4) reasonable attorneys’ fees incurred by Husky; (5) and post-judgment interest on such fees.
In this case, the Debtor objected to the Trustee’s motion to make interim distributions. The Debtor contended that because the largest creditor, RES, filed a proof of claim for community claims only and because the estate was composed of non-community assets, that the Trustee should not make distributions to RES. However, RES filed an amended claim which removed the pertinent “community claim” language. Further, the Debtor previously signed a settlement agreement with the Trustee and RES whereby the Debtor agreed that he would not object or otherwise interfere with RES’s proof of claim. In exchange, the Debtor and other related parties were dismissed from various lawsuits and the Trustee did not take title to the luxurious beachside home where the Debtor resides.
The Court found that allowing the Debtor to now object to the distribution (as opposed to the proof of claim) would undermine the settlement agreement because objecting to the distribution interferes with RES’s proof of claim, which violates the settlement agreement. Moreover, the Court found that distribution was appropriate pursuant to 726(a) and not § 726(c) because § 726(c) should only be used for special distributions when the estate is comprised of both community and non-community property, and here, there was no proof that the estate contained mixed property.
FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING: (1) LETTER/MOTION OF DEFENDANTS TO RELEASE FUNDS, [Adv. Doc. No. 50]; (2) RESPONSE OF PLAINTIFF TO DEFENDANTS’ LETTER/MOTION TO RELEASE FUNDS AND APPLICATION FOR PAYMENT OF FUNDS FROM COURT’S REGISTRY, [Adv. Doc. No. 51]; AND (3) INTERVENORS, 3410 TOWNSHIP GROVE, LLC, AND KRISTINE PHAM’S MOTION TO INTERVENE AND APPLICATION FOR PAYMENT OF FUNDS FROM THE COURT’S REGISTY [ADV. DOC. NO. 57].
Ngo Xuan Dinh (“Mr. Dinh”) and Nina Nhathuy Dinh (“Ms. Dinh”) are the debtors in the main Chapter 7 case and the defendants in the above-referenced adversary proceeding. On August 22, 2016, Mr. Dinh and Ms. Dinh (collectively, the “Defendants”), now representing themselves pro se, filed a hand-written letter/motion regarding, among other issues, the release of certain funds on deposit in the registry of the Court (the “Motion to Release Funds”). The pending dispute between the Plaintiff and the Defendants is this: How much of the proceeds from the sale of the Defendants’ homestead (which total $97,000.00 and are sitting in the registry of this Court) should be distributed to the Gulam Gulamali (the "Plaintiff")?
In the suit at bar, the Townhome was sold for $97,000.00—all of which were proceeds first held by the U.S. Marshals Service and then deposited into the registry of the Court. Pursuant to the Judgment, the Plaintiff owns an equitable lien of $16,932.72. However, the Plaintiff not only requests the distribution of $16,932.72 from the Sale Proceeds (pursuant to its equitable lien set forth in the Judgment), he also seeks distribution for the remaining amount due to him under the Judgment (i.e., $33,067.28). Texas homestead exemptions must be “liberally construed to effectuate their beneficent purposes.”
Here, the U.S. Marshals Service had complete control of the Sale Proceeds from May 3, 2016 until August 2, 2016, the Defendants had no access to these proceeds during this three-month period. Then, the Sale Proceeds were deposited into the registry of the Court and have been sitting in the registry since August 2, 2016. Once again, while the Sale Proceeds had been sitting in the registry of the Court, the Defendants had no access to these proceeds. Without access to the Sale Proceeds since the date of the sale of the Townhome, the Defendants have been unable to use the Sale Proceeds to purchase another homestead during the six‑month period between May 3, 2016 and November 3, 2016.
While the Defendants, representing themselves pro se, did not specifically request that this Court toll the six-month statutory period in the Motion to Release Funds, they certainly indicated that they wanted to obtain control of the Sale Proceeds by asking this Court “how would [the Court] release whatever was left from mortgage [i.e., the Sale Proceeds][?]” This Court construes the Defendants’ language as a request to allow them to gain control over the Sale Proceeds, a request that this Court finds is at least as compelling as—if not more compelling than—a request to toll the six-month safe harbor period. Given the above-described circumstances and the law liberally construing homestead exemptions, this Court now equitably tolls the six-month statutory exemption period, effective May 3, 2016. Thus, the Sale Proceeds, which were generated from the sale of the Townhome, constitute the exempt property of the Defendants pursuant to Texas Property Code § 41.001(c). Contrary to the Plaintiff’s assertion, the six-month safe harbor period has not already expired.
In this case, the Court GRANTS in part and DENIES in part Joseph M. Hill's, Chapter 7 Trustee (the "Trustee"), application for compensation and expenses. The Trustee requested the maximum amount of compensation available to him under 11 U.S.C. § 326(a). Pursuant to the Court’s independent duty under 11 U.S.C. § 33)(a)(2), the Court evaluated the Trustee’s fee application to determine if the amount requested was reasonable. Under that evaluation, the Court held that awarding the Trustee the maximum compensation was inequitable and disproportional, thus, not reasonable. This is because the Trustee violated his fiduciary duty to creditors of the estate, violated Bankruptcy Rules 9019 and 2016, and made misrepresentations to this Court. Further, the Trustee is board-certified and a very experienced trustee, yet he feel far short of administering the estate in a manner worthy of receiving the maximum compensation.
SOCA's Objection and the Trustee's Objection SUSTAINED. The dispute here is between Howard Liao, the debtor (the “Debtor”), and SOCA Funding, LLC (“SOCA”), a creditor and party-in-interest in the above-captioned Chapter 7 case; and between the Debtor and Eva Engelhart, the Chapter 7 trustee (the “Trustee”). On December 11, 2015, he filed his original schedules, and claimed a homestead exemption in a particular piece of property. On January 26, 2016, the Debtor filed amended schedules to change his claimed homestead exemption. On March 8, 2016, SOCA filed an objection to the Debtor’s claimed exemption. The Debtor Maintained a Homestead Interest in the Belle Grove Property From August 1988 to September 2012. The Debtor Did Not Abandon His Homestead Interest in the Belle Grove Property based on two reasons. First, the Debtor did not abandon his homestead interest in the Belle Grove Property by moving into the Elderberry Property. Second, the Debtor abandon his homestead interest in the Belle Grove Property by renting it out. The requirements for quasi-estoppel under Texas law are entirely satisfied. The elements of quasi-estoppel are: (1) the Debtor acquiesced to or benefited from a position inconsistent with his present position; (2) it would be unconscionable to allow the Debtor to maintain his present position; and (3) the Debtor had knowledge of all material facts at the time of the conduct on which estoppel is based. By claiming in his original schedules that, as of the Petition Date, he owned the Elderberry Property and that it was his homestead, the Debtor clearly held a position inconsistent with his current position that he does not own the Elderberry Property and that the Belle Grove Property is his homestead. The Debtor and his sibling partners obtained a benefit by the Debtor’s assertion that as of November 30, 2015, he owned the Elderberry Property and that this property was his homestead. Specifically, the values of their respective interests in MIG Pship were preserved because the Elderberry Property was not foreclosed upon. This Court finds that, applying the quasi-estoppel doctrine under Texas law, the Debtor is barred from amending his Schedule C to claim the Belle Grove Property as his homestead.
This Memorandum Opinion concerns an acrimonious dispute involving the two shareholders of the corporate debtor and the wife of one of these shareholders. The Plaintiff initiated the pending adversary proceeding in this Court by filing a Complaint for Declaratory Judgment and Request for Preliminary and Permanent Injunction against two defendants, K Realty Development (KRD) and Kyle Tauch (Tauch). Prior to the initiation of the adversary proceeding, KRD filed suit against Krasoff in the District Court of Harris County, Texas, and this suit was assigned Cause Number 2016-22603. The Defendants assert that this Court has no jurisdiction over the pending dispute. In re Christ Hosp., 502 B.R. 158 (Bankr. D.N.J. 2013), is factually analogous to the dispute at bar and illustrates why this Court has jurisdiction over the dispute at bar. Other courts—including the Supreme Court—have also held that a bankruptcy court maintains jurisdiction to interpret and enforce its own prior orders, and that a court’s enforcement of its prior order is a “core” matter. This Court finds that the reasoning in Christ Hospital and the holdings in the above-referenced cases leave no doubt that this Court has jurisdiction over the dispute at bar. This Court has jurisdiction over this adversary proceeding because it involves the interpretation and the enforcement of an order issued by this Court; namely, the Sale Order. With regard to the fiduciary duty claim: (1) numerous Texas courts have held that “a co-shareholder in a closely held corporation does not as a matter of law owe a fiduciary duty to his co-shareholder”; (2) the Fifth Circuit, applying Texas law, has made it clear that a cause of action for an officer’s or director’s breach of a fiduciary duty owed to the corporation belongs to the corporation, and not to individual shareholders; and (3) at least one district court within the Fifth Circuit, applying Texas law and citing Gearhart, has held that “[o]fficers and directors owe fiduciary duties only to the corporation.” Accordingly, the Fiduciary Duty Claim against Krasoff is a derivative claim, and as such, it was one of the claims that comprised the Sale Order Claims that the Trustee conveyed to the Plaintiff. The Court concludes that the Fraud Claim asserted by KRD in the State Court Suit is a derivative claim. Testimony at the TI Hearing revealed that prior to the Petition Date, Tauch, on behalf of KRD, deposited substantial funds into the accounts of the Debtor. This is because once KRD’s monies were deposited into the Debtor’s account, these funds belonged to the Debtor, and any funds thereafter diverted by Krasoff from the Debtor’s account constituted an injury to the Debtor, not KRD. KRD also sues Krasoff for breach of contract. Specifically, KRD asserts that Krasoff violated the MOU, and that Krasoff’s violation has directly harmed KRD. Moreover, KRD emphasizes that the Debtor did not sign the MOU and, therefore, cannot possibly have a derivative claim with respect to this contract. In the SOFA signed by Tauch under oath and filed in the Debtor’s main bankruptcy case, Tauch expressly represented, not only once, but twice, that the MOU was “never consummated.” The Court construes Tauch’s representation to be that the MOU was never finalized—i.e., never took effect. Alternatively, even assuming that the MOU constitutes an enforceable contract, KRD still does not have its own direct claim against Krasoff on the ground of breach of contract.
Memorandum Opinion Regarding the Second and Final Application for Allowance of Compensation of Expenses of General Counsel for the Period May 1, 2014 Through November 15, 2015 (the "Application"). Rodney Tow was appointed as the Chapter 7 trustee in this case (the "Trustee"). The Trustee filed a motion to employ Cooper & Scully, P.C. as general counsel, and later filed an amended motion to employ Cooper & Scully, P.C. as general counsel. In neither of these motions to employ did the Trustee disclose that his daugther worked at this firm. Also, the Trustee and the law firm of Cooper & Scully, P.C. failed to disclose that the Trustee's daughter and the Trustee's former law partner were going to work on this pending case. The Court discussed the many infirmities of the law firm's fee application: (1) there are services rendered by the Trustee's own daughter and his former law partner when they were neither disclosed to this Court nor approved as one of the attorneys who could represent the Trustee in this case; (2) there are services rendered for drafting pleadings that were never filed with the Court; (3) there are services rendered that fall wtihin the duties of the Trustee and should not be delegated to his attorneys and billed to the estate; (4) there is excessive billing; and (5) there are duplcate entries. After hearings were held on the firm's fee application, the firm withdrew the application.
Fee Application filed by the Chapter 7 Trustee's counsel, Cage, Hill & Niehaus, LLP (the "Applicant"), GRANTED in part and DENIED in part. Western Surety Company, the largest unsecured creditor in the case, has lodged an objection to the Fee Application. Application of the legal standards discussed in the Opinion to the Fee Application in this case leads this Court to conclude that: (1) the Trustee’s law firm (i.e., the Applicant) is seeking compensation for numerous non-legal services that are per se non-compensable; and (2) the Applicant is requesting compensation for many services that are presumptively non-compensable and it has failed to meet its burden of establishing that these particular services involved “unique difficulties” beyond the Trustee’s abilities. Services rendered by associate attorney, Sean Wilson, that are disallowed include: (1) non-legal services that are non-compensable per se; (2) even if they somehow are legal services, they constitute “review of the debtor’s records” that are presumptively non-compensable; and (3) at the time that Wilson rendered these services in 2013, he was not one of the Applicant’s attorneys whom this Court had authorized to provide services to the Trustee. Services rendered by associate attorney, Timothy Wentworth, that are disallowed include time entries that: (1) are non-legal and therefore per se non-compensable; or (2) fall within one of the specific categories that are presumptively non-compensable. The Court further deducted fees from the lodestar fee based on the following three reasons: (1) The Trustee’s Failure to Properly Supervise his own Firm; (2) The Trustee’s Misrepresentation in the Applications to Employ; and (3) The Applicant, on Behalf of the Trustee, Failed to Obtain Approval of the $4,000.00 Settlement that he Effectuated with the Debtor Regarding Certain Exemptions.
For the reasons set forth herein, the Court approves $42,140.75 of the requested fees (including the fees for preparing the Fee Application), and $3,712.26 of the requested expenses; and disapproves $81,141.50 of the requested fees and $847.77 of the requested expenses.
Debtor's Motion to Reopen Chapter 7 Case Pursuant to 11 U.S.C. § 350 GRANTED and the case will be reopened so that the Debtor can amend his Schedule B to list the assets that he failed to initially disclose, including the Treatment. However, this Court finds that under the doctrine of judicial estoppel, the Debtor is estopped from receiving any benefits from the Chapter 7 trustee’s administration of the Treatment or any other asset that the Debtor did not initially disclose. The Court finds that the Debtor is not a credible witness on several material issues, seeAppendix A. The Court held that: (1) The Debtor, in His Individual Capacity, Owned the Treatment on the Petition Date and Therefore the Case Should Be Reopened So That the Trustee Can Administer This Asset for the Benefit of Creditors Whose Claims Remain Unpaid; (2) The Principle of Judicial Estoppel Bars the Debtor From Ever Benefiting from the Trustee’s Administration of the Treatment; (3) The Debtor’s Position that His Failure to Disclose the Treatment on His Original Schedule B was Due to Reliance Upon His Bankruptcy Attorney Does Not Make the Debtor’s Nondisclosure Inadvertent; (4) The Debtor’s Position that He Did Not Have the Financial Means to File the Motion to Reopen Any Earlier is Wholly Unpersuasive and Therefore Does Not Make the Debtor’s Nondisclosure of the Treatment Inadvertent; and (5) Judicial Estoppel Bars the Debtor from Ever Benefitting from the Trustee’s Administration of the Treatment
United States Trustee's Motion to Convert to Chapter 11 Pursuant to 11 U.S.C. § 706(b) or, in the Alternative, to Dismiss this Chapter 7 Case Pursuant to 11 U.S.C. § 707(a) for Cause (the "Motion") GRANTED. There is a split among courts about what constitutes "cause" under § 707(a). Some courts hold that "cause" under this provision includes bad faith conduct and others hold that it does not. After reviewing numerous opinions address § 707(a), this Court concludes that a case can be dismissed for "cause" even though the debtor has timely and accurately filed all of his Schedules and Statement of Financial Affairs ("SOFA"), completely cooperated with the U.S. Trustee (including providing all requested documents), and fulfilled all of the other fundamental duties required of an individual in Chapter 7. Specifically, the Third, Sixth, and Eleventh Circuits, in addition to lower courts, have focused on whether there is a lack of good faith on the debtor's part when deciding whether "cause" exists to warrant dismissal under § 707(a). However, the Ninth Circuit takes a much more forgiving attitude towards debtors when analyzing a request for dismissal under § 707(a). And, other courts (i.e., the Seventh Circuit) have held that no "bad faith" analysis is required and that "cause" is established when the debtor has been selfish. This Court applies the approach that even if a debtor has satisfied all of the requirements of filing his schedules, SOFA, etc., "cause" can still exist if the debtor's conduct in some other way, either pre-petition or post-petition, is questionable. In the case at bar, there is no question that the Debtor has timely, completely, and accurately filed all of his Schedules and SOFA, has paid his filing fee, has been very cooperative in providing the Trustee with documents that she has requested, and has testified truthfully about his financial affairs. Nevertheless, under the approach that this Court has chosen to take in ruling on the Motion, the Court must focus on whether the Debtor's overall conduct, both pre-petition and post-petition, has impugned the integrity of the bankruptcy system. The Debtor in this case is gainfully employed, earns a substantial salary and receives a host of benefits—including a housing allowance, a company car, an expense account, 401(k) contributions, and eligibility for a management bonus. He has also received a refund from the IRS of over $200,000.00, none of which he used to pay back his creditors. He has demonstrated no effort to retire any portion of his debt, and in fact, has established, through his own testimony, that he deliberately chose not to make any payments to his creditors in the year and a half prior to the petition date in order to avoid creating a preference! This is the type of unseemly and selfish behavior that, if tolerated, casts a pall on the bankruptcy system. Therefore, "cause" exists under § 707(a). Chapter 7 case is dismissed without prejudice to the Debtor refiling a Chapter 11 petition.
Creditor Res-TX One, LLC objected to discharge for Chapter 7 Debtors (Greg Hawk and Marcie Hawk). Greg Hawk will be denied a discharge under 11 U.S.C. § 727(a)(2), or alternatively, under § 727(a)(4). Greg Hawk's pre-petition transfer of funds from exempt accounts to a corporate account in Tejas's name constitutes a violation of § 727(a)(2). Greg Hawk's omission of two significant transfers within the 90 days of the petition date, and his failure to properly disclose the Tejas account in his schedules, constitutes a violation of § 727(a)(4). Res-TX has failed to satisfy its burden of proof under § 727(a)(3) or (a)(5); therefore, Greg Hawk is not denied a discharge under these two subsections. The Court further finds that Res-TX has failed to meet its burden of proof entirely, and as fraudulent intent cannot be imputed from one spouse to the other spouse, Res-TX's objection to Marcie Hawk's discharge will be overruled; therefore, Marcie Hawk will be granted a discharge.
Motion to Modify or Amend Findings of Fact and Conclusions of Law Regarding Order Directing Appointment of a Chapter 11 Trustee DENIED. Motion to Modify or Amend the Order Directing the Appointment of a Chapter 11 Trustee DENIED. Three creditors filed an involuntary Chapter 11 petition against Amerejuve, Inc. (the Debtor), a privately-held company in Houston. The president and majority shareholder of the Debtor, Morteza Naghavi (Naghavi), authorized the filing of a voluntary Chapter 11 petition. After Naghavi took this action, the parties filed an involuntary Chapter 11 petition against the Debtor that filed the involuntary petition filed a motion to appoint a trustee under § 1104 of the Bankruptcy Code. In the case at bar, the facts reflect that Naghavi embezzled substantial funds belonging to the Debtor or, more precisely, the IRS. Further, not only is the four-part test of Pool satisfied, but the totality of the circumstances reflect Naghavi’s fraudulent intent. This Court: (1) holds that its original ruling that Naghavi committed embezzlement is correct, and therefore declines to amend its findings and conclusions to delete the finding that Naghavi committed embezzlement; (2) holds that, even if the Court is incorrect about Naghavi having committed embezzlement, it should not vacate its order appointing a trustee because the Court articulated other valid grounds, that provided the basis for the appointment of a trustee; and (3) declines to terminate the trustee and reinstate Naghavi under § 1105.
Chapter 7 Trustee's Expedited Motion for Turnover GRANTED. This Memorandum Opinion concerns an important exemption issue: does the Fifth Circuit’s recent holding in Viegelahn v. Frost (In re Frost), 744 F.3d 384 (5th Cir. 2014), pertaining to homestead exemptions extend to individual retirement account (IRA) exemptions? In the case at bar, the Chapter 7 trustee contends that it does; the debtors argue that it does not. Applying the Texas homestead exemption statute, the Fifth Circuit in Frost held that six months after the debtor’s homestead sale, the proceeds, which the debtor failed to reinvest in a new homestead, automatically lost their exempt status and therefore immediately became property of the debtor’s bankruptcy estate. The Court found no indication that the holding in Frost should be limited to Chapter 13 cases. Further, this Court found that proceeds from a post-petition sale of a debtor’s exempt homestead fell within the definition of “property of the estate” under § 541 applicable in Chapter 7 cases. In issuing this Opinion, the Court urges the debtors’ bar to counsel carefully their clients about preserving their exemptions. Debtors should refrain from selling exempt assets until their case is closed; or, if they sell during the pendency of their case, they must strictly abide by applicable state law exemption provisions, as no provision in the Code or Rules will preserve the exempt status of the proceeds if they are not timely reinvested pursuant to the applicable exemption statute.
In re Brown (re: Trustee's Amended Objection to Claim No. 137 filed by Rachel Brown)
Friday, October 17, 2014
Chapter 7 Trustee's Amended Objection to Claim No. 137 Filed by Rachel Brown SUSTAINED and Rachel Brown's Amended Application for Family Allowance and Allowance in Lieu of Homestead and Exempt Property DENIED. Surviving spouse of a deceased bankruptcy debtor was not entitled to a family allowance from the bankruptcy estate since the allowance was only payable from the debtor's probate estate, which was distinct from the bankruptcy estate and consisted solely of the debtor's exempt property. The spouse was not a creditor with a claim for a domestic support obligation since the allowance was statutory and was not established by court order or agreement. The Court had jurisdiction over the exempt assets of the debtor' probate estate since state laws reserving exclusive probate jurisdiction were preempted by federal law establishing bankruptcy jurisdiction, there was no existing probate proceeding to implicate the probate exception to federal jurisdiction, and the Court had equitable authority to grant an allowance to the spouse from the probate estate. The order sustaining the Trustee's Amended Objection will bar any use of assets of the debtor's bankruptcy estate to pay any of the claims. The order denying that portion of Rachel Brown's Amended Application requesting that the Applicant's claim be paid with assets of the Debtor's Chapter 7 estate will be granted in part and denied in part: namely, that the Applicant receive payment from the debtor's probate estate, but only to the extent of $18,000.00.
Creditor's Chapter 7 Involuntary Petition GRANTED. Debtor's Motion to Dismiss DENIED. Although the Tagos Group, LLC ("Creditor") that owned a 45 percent interest in CorrLine International, LLC ("Debtor") that was formed to produce, market, and sell an anti-corrosion product was the only creditor to file an involuntary Chapter 7 bankruptcy petition against the Debtor, it met the prerequisites established by 11 U.S.C.S. § 303 for obtaining relief under Chapter 7 by showing, inter alia, that the Debtor owed it an undisputed debt in the amount of $540,587 that was not being paid. A single creditor was allowed under § 303(b) to file an involuntary petition against a debtor if it held an undisputed claim against the debtor that exceeded $15,325 and the debtor did not have more than 12 creditors, and although the debtor listed more than 12 creditors, most of the creditors it listed did not qualify as "creditors" under § 303(b). The Court stated that it would enter an order granting the Creditor's petition. The Court also dismissed an answer to the Creditor's petition which a law firm filed on behalf of the Debtor because the Debtor’s CEO hired the law firm in violation of a joint venture agreement the Creditor and a corporation entered, which created the Debtor, when he did not obtain approval from the Debtor's managers to hire the firm.
Cage et al v. Smith et al (re: Supplemental and Amended Motion to Dismiss Complaint for Failure to State a Claim)
Adv. Proc. No. 14-03115
Monday, August 4, 2014
Supplemental and Amended Motion to Dismiss Complaint for Failure to State a Claim DENIED. The Debtor was required to turn over proceeds from a postpetition sale of the Debtor's exempt homestead which became nonexempt under Tex. Prop. Code Ann. § 41.001 when the Debtor failed to reinvest the proceeds within six months of the sale, since application of the exemption condition was not limited in bankruptcy to Chapter 13 cases in which property acquired postpetition was property of the estate, and applied to the Debtor's open Chapter 7 case which continued to collect nonexempt assets for distribution. The Debtor's discharge did not preclude recovery of the proceeds since the debtor's case remained open for the collection and distribution of non-exempt assets. The trustee was not required to object to the exemption prior to the sale since requiring the Trustee to object conditionally in every case involving the exemption would be unduly burdensome.
Debtor is DENIED her discharge. The Chapter 7 Trustee requests that this Court deny the Debtor's discharge under §§ 727(a)(4)(A) or, alternatively, under 727(a)(3). The Debtor made false statements under oath and the Debtor knew them to be false. Specifically, the Debtor made several false statements concerning the values of her jewelry and artwork. Indeed, there were material discrepancies between the values that the Debtor placed on her jewelry in the original schedules and the amended schedules. The Debtor's omissions of the eight pieces of artwork on both the original schedules and amended schedules were material and constitute false statements that the Debtor made under oath. The Debtor made her false statements with fraudulent intent because the Debtor demonstrated reckless indifference to he truth in her schedules. The Debtor's false statements are material to the bankruptcy case and amending the schedules does not excuse false oaths. The Court finds that the Trustee satisfied his burden. Alternatively, the Court concludes that the Debtor should be denied her discharge under § 727(a)(3) because: (1) the Trustee has made a prima facie case under § 727(a)(3); and (2) the Debtor has failed to justify her failure to keep adequate financial records. The Court will not require the Debtor to reimburse the Trustee for his attorneys' fees as there is neither a contract nor a statute to which the Trustee can point that justifies his request.
Debtors' Motion for Contempt and Sanctions Against Ductworks, Inc. and Patrick Dozark for Violation of the Discharge Injunction for Collection of Debt GRANTED in part and DENIED in part. Lender for a note that was discharged in a Chapter 7 bankruptcy was liable for willfully violating the discharge order because it filed a state court petition against Debtors after the discharge under 11 U.S.C. § 524, and it was aware of the bankruptcy discharge at the time. Lender could not escape liability by shifting the blame to its attorney who advised that it was okay to file the state court action because the debtors had failed to list the note on their schedules. Court was authorized to invoke 11 U.S.C. § 105(a) and its inherent power to enforce the discharge injunction in order to require that the lender pay damages to the Debtors. Debtors were entitled to recover their lost wages and reasonable attorneys' fees, but Debtors were not entitled to punitive damages, due to Debtors' failure to demonstrate that lender acted with malevolent intent.
Cage et al v. Smith et al (re: Motion to be Joined as Party in the Chapter 7 Trustee's Turnover Adversary Proceeding)
Adv. Proc. No. 14-3115
Tuesday, June 10, 2014
Green Bank, N.A.'s Motion to be Joined as a Party in the Chapter 7 Trustee's Turnover Adversary Proceeding; and (2) Green Bank, N.A.'s Supplement and Amendment to its Motion to be Joined as a Party in the Chapter 7 Trustee's Turnover Adversary Proceeding DENIED.
The Chapter 7 Trustee ("Trustee") commenced an adversary proceeding and filed his Complaint for Turnover against the Debtor and his wife. Green Bank, N.A. ("Green Bank"), the Debtor's largest unsecured creditor, filed a Motion to be Joined as a Party in the Trustee's Motion for Turnover. The issue here is whether the Debtor's largest unsecured creditor should be permitted to intervene as a party-plaintiff in the trustee's suit against the Debtor and his wife seeking a determination that certain proceeds in their possession were property of the estate under 11 U.S.C.S. § 541 and to recover those proceeds under 11 U.S.C.S. § 542. The Court holds that Fed. R. Civ. P. 20 was not applicable because the creditor was a non-party. Further, Green Bank was not entitled to intervention of right under Fed. R. Civ. P. 24(a)(2) because the motion to join was not timely filed, Green Bank did not have a sufficient interest in the adversary proceeding to support intervention, the disposition of the action would not impair or impede Green Bank's ability to protect its interest, and Green Bank failed to overcome the presumption that the trustee adequately represented its interests.
In re Cowin (re: Trustee's Objection to Homestead Exemption and Request for Protection of the Estate's Interest in Property)
Friday, March 21, 2014
Chapter 7 Trustee's Objection to Homestead Exemption Under 11 U.S.C. § 522(o) & (p) is SUSTAINED; Chapter 7 Trustee's Request for Protection of the Estate's Interest in Property is GRANTED. On July 12, 2013, Ronald J. Sommers, the Chapter 7 Trustee (the "Trustee") in the above referenced Chapter 7 Case, filed his Objection to Homestead Exemption under 11 U.S.C. § 522(o) & (p) and Request for Protection of the Estate's Interest in Property (the "Objection"). The Trustee has proven all of the elements of § 522(o): (1) The Debtor Disposed of Property Within Ten Years Before Filing His Chapter 7 Petition; (2) The Debtor Disposed of Property that was Nonexempt; (3) The Non-exempt Property Was Used to Pay for a Portion of a Homestead; and (4) The Debtor Disposed of Non-exempt Property With the Intent to Hinder, Delay, or Defraud His Creditors. The Court further concludes that a sufficient number of badges of fraud are present to infer the Debtor’s fraudulent intent. This Court also finds that the form of adequate protection that needs to be provided is for the Debtor to make current payments to MELP as required under the $52,880 Note, to make timely monthly payments as necessary to pay property taxes, insurance, and HOA fees, and to pay other ongoing expenses—such as plumbing and electrical repairs—necessary to preserve the value of the estate’s interest in Unit 320.
In re Reeves (re: Trustee's Objection to Exemptions and Motion to Compel Turnover and Filing of Statement of Financial Affairs)
Wednesday, January 29, 2014
Chapter 7 Trustee's Objection to Exemptions is SUSTAINED and Chapter 7 Trustee's Motion to Compel Turnover and Filing of Statement of Financial Affairs is GRANTED. THe Court strikes bankruptcy debtors' amended schedules because the schedules did not timely reflect assets acquired after the bankruptcy petition date and the date of conversion of their case from Chapter 13 to Chapter 7, after their Chapter 13 plan was confirmed and the debtors' case was converted in bad faith. The debtors failed to cooperate with the bankruptcy trustee by filing inaccurate and incomplete schedules, failing to fully and truthfully disclose their assets, failing to turn over estate property, and failing to attend meetings of creditors. The debtors' claimed exemptions in financial accounts, a tax refund, a vehicle, and a Chapter 13 refund were disallowed since the debtors blatantly and substantially undervalued assets, falsely claimed the vehicle as a tool of trade, and failed to turn over the refund received from the Chapter 13 trustee.
Williams v. McKesson Corporation (In re Quality Infusion Care, Inc.)
Adv. No. 13-3056
Monday, November 25, 2013
The Chapter 7 trustee and the Defendant filed cross-motions for summary judgment pursuant to Section 547(b) of the Bankruptcy Code. The Court issues this Memorandum Opinion for two reasons: (1) to emphasize to the practicing bankruptcy bar that in seeking to avoid and recover preferential payments, the element required to be satisfied under 11 U.S.C. § 547(b)(5) requires satisfying the so-called Application Aspect and Source Aspect when the defendant asserts that it is an undersecured creditor; and (2) to set forth this Court's disagreement with the Ninth Circuit's holding that to satisfy the implicit requirement of § 547(b)(5), which is typically referred to as the "diminution of the estate" test, the plaintiff must show that the alleged preferential transfer "diminishes directly or indirectly the funds to which creditors of the same class can legally resort for the payment of their debts, to such extent that it is impossible for other creditors of the same class to obtain as great a percentage as the favored one." Adams v. Anderson (In re Superior Stamp & Coin Co.), 223 F.3d 1004, 1007 (9th Cir. 2000). This Court concludes that the implicit requirement of § 547(b)(5) requires only that the plaintiff prove that the property which was transferred would have become "property of the estate" upon the filing of the bankruptcy petition if no transfer had occurred. The Court granted the trustee's motion as to the Defendant's "ordinary course of business" defense and denied the trustee's motion as to his preference claim because the trustee failed to establish that there is no genuine issue of material fact with respect to the fifth element of the preference claim, § 547(b)(5). The Court denied the Defendant's motion in its entirety.
Sommers v. Comerica Bank, N.A. (In re Terrabon, Inc.)
Adv. No. 13-03069
Friday, November 22, 2013
The Court granted the Defendant's motion for summary judgment on the Chapter 7 trustee's claim seeking relief pursuant to Sections 506(d) and 551 of the Bankruptcy Code. The Chapter 7 trustee requested that the Court enter a judgment declaring the Defendant's security interest in a CD void and preserving the Defendant's security interest in the CD for the the benefit of the Debtor's bankruptcy estate. The Court writes this Memorandum Opinion to underscore how tenuous the corporate shield can be when one individual is CEO of both the parent and its subsidiary. Unfortunately, for the Chapter 7 trustee in this suit, this porous shield dooms his cause of action. Privately-held corporations and subsidiaries having the same person as CEO cannot play a "shell game" with assets that a bona fide lender, acting in good faith, has taken as collateral in exchange for extending financing.
The Chapter 7 trustee filed an application to employ his own law firm to act as general counsel for the Chapter 7 estate and for the trustee's law partner to serve as lead counsel. The trustee was a "self-dealing fiduciary" and has the burden to demonstrate the fundamental fairness of every self-dealing transaction, including the request to employ his own law firm to act as general counsel for the estate. The Court denied the application without prejudice to refiling because the application failed to address certain issues required by this Court's opinion in In re Jackson, including the trustee's investigation to determine the availability of other qualified firms to handle the matters for which the trustee seeks counsel and to compare the hourly rates of the attorneys at those firms with the hourly rate of the trustee's law partner.
Appearance Attorneys May Not Be Used In Cases Over Which the Undersigned Judge Presides. Following conversion of Debtors' case from Chapter 13, Chapter 7 trustee moved to set show cause hearing to require attorney who was representing debtors and law firm employing him to show cause why they should not be required to disgorge fees paid by debtors and sanctioned. Show cause order (SCO) was issued to attorney, his legal assistant, and firm's name partners. The SCO required Aduwa, Macey, Aleman, the Firm, and Gutierrez to show cause why they should not be sanctioned for the following: (1) filing Schedules and SOFA with forged signatures; (2) filing Schedules and SOFA without an attorney from the Firm personally meeting with the Debtors to review these documents for their accuracy; (3) allowing Gutierrez, a legal assistant, to practice law; (4) failing to have face-to-face communications with the Debtors by the attorney-in-charge of the file; (5) failing to prepare the Debtors for the meeting of creditors; (6) not appearing at the meeting of the creditors to represent the Debtors; (7) sending Carter, an uninformed appearance attorney, to the meeting of the creditors to represent the Debtors; (8) misrepresenting to the Court in a Rule 2016 Disclosure—the amount of money paid by the Debtors for prosecution of the Chapter 13 case; and (9) misrepresenting to the Court in a Rule 2016 Disclosure—the amount of money paid by the Debtors for prosecution of the case after conversion to Chapter 7. Sanctions Will Be Imposed Under Bankruptcy Rule 2016 and § 329 against Aleman, the Firm, Macey, and Aleman. Sanctions Will Be Imposed Under Bankruptcy Rule 9011(c) against Aduwa, the Firm, Macey, and Aleman. Sanctions Will Be Imposed Under § 105(a) and this Court’s Inherent Powers against Aduwa, Gutierrez, the Firm, Macey, and Aleman. The Effect of Past Misconduct on the Imposition of Sanctions Now Imposed by this Court. Monetary Sanctions to be Imposed Against Gutierrez. Monetary Sanctions to be Imposed Against Macey, Aleman, and the Firm. Non-Monetary Sanctions to be Imposed Against the Firm.
The Court issued a Show Cause Order on the Debtor's attorney for filing the Debtor's Schedules and Statement of Financial Affairs (SOFA) without: (1) personally meeting with the Debtor; (2) reviewing these documents with the Debtor for accuracy; (3) obtaining the Debtor's signatures on these documents; or (4) obtaining the Debtor's permission to file these documents. The Debtor's attorney also forged the Debtor's signature on these documents using the symbol "/s/." As a result, the Court imposed sanctions on the Debtor's attorney under Bankruptcy Rule 9011(c) and 11 USC § 105(a).
The Debtor's former husband sought a declaration that the Debtor's obligations to him under the terms of a state court divorce judgment were non-dischargeable under 11 USC 523(a)(5) as a domestic support obligation. The Court found the husband failed to present sufficient evidence either from the language and form of the judgment, or from extrinsic evidence defined by the Nunnally factors, to demonstrate that the state court intended to classify the obligations as as a domestic support obligation. The obligations were more likely characterized as "property divisions," excepted from discharge only under a second provision, 11 USC § 523(a)(15)§which the husband failed to plead.
The chapter 7 Trustee sought the Court's approval, nunc pro tunc, to retain his own law firm, including two members thereof, to function as the attorney in charge and the advisor and litigator for intellectual property matters. The motion to approve the retention of counsel was denied in part without prejudice and denied in part with prejudice. The Trustee could file another application so long as he addressed all the factors discussed in the Court's opinion. The Trustee could not, however, seek nunc pro tunc approval as the deadline had passed, and his untimeliness was not excusable.
The Court issued this Opinion to clarify the scope of the attorney-client privilege and the work product doctrine regarding handwritten notes and comments made by the Debtors and their counsel. The Debtors and their attorneys used these notes to complete the Debtors' bankruptcy petition, Schedules and Statement of Financial Affairs. The Court found that these notes may be privileged under either doctrine, but in the case of the attorney-client privilege, the assertor must show that: (1) the notes were made to a lawyer; (2) for the primary purpose of securing legal advice; and (3) with the intent to remain confidential. In the case of the work product doctrine, the assertor must show that: (1) there is a substantial need for the materials; and (2) that it is impossible to obtain this information, without undue hardship, by other means.
An agreed divorce decree between the Debtor and her ex-husband required the ex-husband to pay certain debts, and indemnify and hold harmless the Debtor for any failure to do so. The ex-husband did not pay and the creditors filed claims against the Debtor's bankruptcy estate. The Chapter 7 Trustee, on behalf of the estate, sought an order pursuant to 11 U.S.C. § 542 requiring the ex-husband to turnover funds sufficient to satisfy the debts. The Court found that turnover, rather than a mere monetary judgment against the ex-husband, was appropriate. Further, as the ex-husband had acted inequitably in failing to fulfill his obligations under the divorce decree, he was not entitled to equitable relief.
The Court denied the Debtors' discharge under 11 U.S.C. § 727(a)(2)(A), (a)(3), (a)(4)(A), (a)(4)(D) and (a)(5). The Court also denied the Debtors' counterclaim under 11 U.S.C. § 362(k), which alleged that the Debtors' creditors violated the automatic stay by orchestrating the Debtors' arrests after they filed their Chapter 7 petition. The Court concluded that the creditors and their agents lacked notice of the actual bankruptcy filing, and therefore also lacked notice of the automatic stay. Further, the Court found that the Debtors' arrests and surrounding activity did not violate the plain language of 11 U.S.C. § 362(a), as these activities fall under the exception in § 362(b)(1), which bars the automatic stay from affecting the commencement or continuation of a criminal action against the debtor.
In denying the Chapter 7 trustee's application to employ special counsel, a counsel for the Chapter 7 trustee failed to show that he had tried to secure a more favorable rate of compensation than what was being offered by the proposed special counsel.
A trustee was due compensation pursuant to 11 U.S.C. § 330 for selling a debtor's real property because the trustee had a good faith belief that a judgment creditor's lien was invalid and unsecured creditors would benefit as a result (with the sale also benefiting the estate).
The Court held that debt owed to an ex-husband by an ex-wife was nondischargable pursuant to 11 U.S.C. § 523(a)(15), as it stemmed from the parties' divorce. Moreover, the Court concluded that collateral estoppel applied because the state court necessarily adjudicated whether the debt arose out of the parties' divorce.
A Chapter 7 debtor's designated representative has an affirmative duty to cooperate with the Chapter 7 trustee and turnover documents requested pursuant to 11 U.S.C. § 521(a)(3) and Bankruptcy Rule 4002(a)(4), as the items requested were necessary for the trustee to perform his duties under the code.
West v. Hsu (In re Advanced Modular Power Sys., Inc.)
Adv. No. 08-3177
Monday, August 31, 2009
The controlling shareholder of the debtor, as well as its principal, were liable for the value of the debtor's intangible assets. THese assets were used pre-petition by a newly formed corporation to continue the debtor's business. Therefore, the Court held that this use of the assets resulted in a breach of fiduciary duty, conversion, fraudulent transfer, and unauthorized postpetition transfers.
The Court dismissed a creditor's pleading challenging discharge because it was filed after the sixty-day deadline promulgated in Bankruptcy Rule 4007(c). Moreover, the creditor incorrectly filed the pleading in the main case as a contested matter instead of a complaint initiating an adversary proceeding (as required by Bankruptcy Rules 7001(6) and 7003.
The Court held that where a creditor had a sufficient remedy in requesting a state court to appoint a receiver, it was improper to consider abandonment of the general partner's interest by the bankruptcy trustee pursuant to 11 U.S.C. § 554(b).
The Court allowed the appointment of a shareholder as the representative of the debtor instead of appointing the debtor's former Chief Restructuring officer because Bankruptcy Rule 9001 allows for the appointment of a controlling shareholder, and the shareholder had ties to the debtor at the time of filing (while also more knowledgeable than the Chief Restructuring Officer about matters pertaining to the bankruptcy).
The Court denied a chapter 7 trustee's motion to compel compliance with an agreed final judgment. The Court denied the motion to compel because the agreed judgment was ambiguous, using incorrect language and containing inconsistencies, and improperly defined terms.
The Court held that the lessor could not prevail pursuant to 11 U.S.C. § 523(a)(2)(A) because it was unable to prove that the debtor knew that his representations were false at time time of the lease signing, nor that the debtor made representations with the intent to deceive. The lessor also failed to satisfy the requirements of 11 U.S.C. § 523(a)(4) because the debtor did not intend to deprive the lessor of its property.
The Court held that denial of discharge was supported based upon the fraudulent intent relating to the debtor's transfer of property and the debtor's failure to explain the loss of collateral that had been pledged toward a loan.
H.D. Smith Wholesale Drug Co. v. McCombs (In re McCombs)
Adv. No. 07-3043
Monday, December 17, 2007
The Court held that when an allegedly partitioned homestead lacked the substantive requirement of an intent to partition and failed as a gift of community property (because the debtor expressed no present intention to make a gift and did not deliver the deed), the party arguing for partition will not have a claim to a homestead exemption separate and distinct from the debtor.
The Court sustained an objection to a homestead exemption under 11 U.S.C. § 522(q), (o) and (p) because: (1) the debtor used sale proceeds to make improvements to his house within ten years of the bankruptcy filing (and failed to disclose it); (2) the debtor acquired the ex-wife's community property interest, which was not protected by the terms of § 522(p); and (3) the the debtor intentionally concealed a tax refund by failing to give his ex-wife half.
The Court held an inherited IRA was not exempt from the bankruptcy estate pursuant to Tex. Prop. Code § 52.0021(a) because it was sufficiently different from an IRA as the debtor could not roll over the IRA into another account, could not make any contributions to the IRA, and could remove funds from the IRA at any time, for any reason, and without penalty.
Johnson v. Williamson (In re British American Properties III, Ltd.)
Wednesday, March 14, 2007
The Court determined that the defendant had not waived her right to a jury trial by filing a counterclaim against, and seeking attorney's fees from, the bankruptcy estate. The Court found that the particular facts of the adversary proceeding and the defendant's specific counterclaims did not involve the process of allowance and disallowance of claims, nor did they invoke the equitable power of the bankruptcy court to adjust the debtor-creditor relationship. Thus, the Court made this Report and Recommendation, pursuant to Local Bankruptcy Rule 5011, in favor of withdrawing the reference so that the District Court may conduct a jury trial.
Hallmark Capital Group, LLC v. Pickett (In re Pickett)
Monday, February 12, 2007
The Court concluded that it did have jurisdiction to determine the validity and extent of a lien on the Debtor's exempt homestead property, but nevertheless concluded that it should abstain from adjudicating the lawsuit.
The Court granted the plaintiffs' motion for leave to amend their complaint, and denied in part and granted in part the defendants' motion to dismiss for failure to state a claim, evaluating the plaintiffs' claims under Section 523(a)(2)(A) and Section 523(a)(4) of the Bankruptcy Code.
The Court held that the mere act of declaring an intent to surrender collateral on a Statement of Intention does not extinguish the Debtors' right to deduct those payments under Section 707(b)(2)(A)(iii) of the Bankruptcy Code. However, for purposes of a motion to dismiss based on the presumption of abuse formula found in Section 707(b)(2)(A), the relevant date on which calculations should be based is the date of the filing of the motion, not the date of the filing of the petition. Therefore, any events occurring post-petition and up to the date of the filing of the motion must be taken into account in applying the means test. If a debtor has carried through with his intent to surrender the collateral and relief from stay has been granted before the filing of the presumption of abuse motion, the payments on that debt would not be counted under Section 707(b)(2)(A)(iii).
The Court concluded that the Debtor (a practicing attorney) abused the bankruptcy process by: (1) filing the pending case in violation of Judge Isgur's order dismissing the Debtor's first bankruptcy with prejudice; and (2) failing to file full and complete schedules, statements, and creditors' matrices and failing to schedule his debts in violation of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. The Court also concluded that the Debtor filed his bankruptcy petition in bad faith. The Court sanctioned the Debtor in the form of attorneys' fees awarded to his creditors (as an addition to sanctions previously imposed).
Gulf Coast Bank and Trust Company v. Mendel (In re Mendel)
Tuesday, September 19, 2006
The Court concluded that the Debtor's motion to dismiss should be granted because the plaintiff failed to present any evidence justifying its delay or the mistakes in its original complaint; and the Court concluded that the amended complaint did not relate back to the original complaint because the facts described in the original compliant arose out of a separate transaction or occurrence.
The Court denied the Debtor's timely filed motion for rehearing because the Debtor: (1) presented no new evidence; (2) lacked the authority to reinstate the corporate charter (which would serve as new evidence supporting grounds for a new trial); (3) would deprive the bankruptcy estate of assets if allowed to reinstate the charter; and (4) cannot disturb the order denying discharge even if the corporate charter were reinstated.
Waldon v. National Union Fire Insurance Company (In re EbaseOne Corporation)
Wednesday, June 14, 2006
The Court issued its report and recommendation to the United States District Court regarding the defendant's motion to withdraw the reference. The Court determined that the Holland America factors weighed in favor of withdrawal of the reference.
The Court denied the Debtor/Defendant's pro se motion to enlarge the time to file a notice of appeal because: (1) under Federal Rule of Bankruptcy Procedure 8002, the motion was not timely filed; and (2) alternatively, even if the motion was timely filed, the Debtor/Defendant failed to demonstrate excusable neglect as required under Bankruptcy Rule 8002(c)(2) to warrant an enlargement of time for her to file a notice of appeal of the judgment.
The Court denied the Debtor's motion to void a judicial lien on her home because: (1) the Rooker-Feldman doctrine precluded the Court from exercising jurisdiction; (2) the doctrine of res judicata barred the Debtor from relitigating the ownership interest in the property; and (3) the Debtor could not use Section 522(f) of the Bankruptcy Code to void the interest held by the respondent in the property.
Floyd v. American Block (In re Cooper Manufacturing Corporation)
Tuesday, April 11, 2006
In cross-motions for Partial Summary Judgment, the parties requested the Court adjudicate whether certain transfers of letter of credit proceeds made by the Debtor to its four creditors constituted avoidable preferences under Section 547(b) of the Bankruptcy Code.
The Chapter 7 trustee filed a motion to show cause. The Court held that a credit counseling firm, a California law firm, and an attorney hired as the Debtor's local counsel (either collectively or individually) violated the Bankruptcy Code, local rules for the Southern District of Texas, local bankruptcy rules, and state disciplinary rules by: failing to adequately disclose compensation, sending out an improper mailing list, practicing law in the Southern District of Texas without being admitted to practice in the district, engaging in the unauthorized practice of law, not keeping the debtor reasonably informed about the status of the case, receiving unreasonable fees, not being candid with the Court, and making false or misleading communications about their services. Sanctions were imposed.
Debtor's discharge denied pursuant to Sections 727(a)(2)(A) and 727(a)(3) for improperly transferring funds in excess of $22,000 from the sale of his exempt homestead and failing to substantiate how he spent over $50,000 in proceeds from the sale of his residence in the months immediately preceding his bankruptcy filing.
Smith v. Lounsbury (In re Amberjack Interests, Inc.)
Friday, July 8, 2005
Order construing contingency fee agreement of special litigation counsel employed by trustee, denying enhanced fees requested by special counsel pursuant to Sections 328 and 330, and awarding exemplary damages to the trustee under Texas law based on evidence of principals' malice.