KSB

Judge Somers

11-40764 D.J. Christie, Inc. (Doc. # 174) - Document Text

SO ORDERED.
SIGNED this 26th day of April, 2012.

 

Designated for on-line use but not print publication.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:
DJ CHRISTIE, INC.,
DEBTOR.
CASE NO. 11-40764
CHAPTER 11

MEMORANDUM OPINION AND JUDGMENT DENYING
WASHINGTON INTERNATIONAL INSURANCE COMPANY’S
MOTION FOR RELIEF FROM STAY


Washington International Insurance Company (“Washington”) moves for relief
from stay under 11 U.S.C. § 362(d)(1) (the “Motion”) to allow it to comply with
competing orders regarding turnover of the proceeds of a supersedeas bond posted in
prepetition litigation involving DJ Christie, Inc. (“Debtor”).1 Debtor and creditors Alan

1 Dkt. 101.

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E. Meyer (“Meyer”) and John R. Pratt (“Pratt”) oppose the Motion. For the reasons
stated below, the Court denies the Motion.
The Motion is one part of extensive litigation involving Debtor, David J. Christie
(Christie), and Alex W. Glenn (Glenn) (collectively “the Christie Interests”) and Dovetail
Builders 2, L.L.C. (Dovetail), Meyer, and Pratt (collectively “the Meyer Interests”). A
general understanding of the actions is necessary to fully understand the Motion.

FACTUAL BACKGROUND
The Federal Court Litigation

In 2005, the Christie Interests had conversations with the Meyer Interests about
development of a residential housing project in Junction City, Kansas. Disputes arose,
and in May 2007, the Meyer Interests sued the Christie Interests in federal court.
Following ten days of trial and four hours of deliberations, the jury found for the Meyer
Interests. On May 22, 2009, a judgment was entered in favor of the Meyer Interests in the
amount of $14,696,345.00, plus post judgment interest at the rate of 0.5%, along with
costs.2

The Christie Interests filed an appeal to the Tenth Circuit Court of Appeals. As a
condition for a stay pending the appeal, the district court required the Christie Interests to
post a supersedeas bond for $1.125 million (the “Bond”). Washington, as surety, issued
the Bond on January 20, 2010. David J. Christie, individually, is the principal, while

2 Meyer v. Christie, Case No. 07-2230, dkt. 297 (D. Kan. May 22, 2009) (Judgment).
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Meyer, Pratt, and Dovetail are the judgment creditors. According to Meyer and Pratt, the
Bond was set in an amount significantly less than the judgment because Christie and
Glenn represented that they had significant nonexempt illiquid assets to pay the judgment.

On April 25, 2011, the Tenth Circuit issued its mandate, affirming liability of the
Christie Interests to Meyer and Pratt, but reversing as to Dovetail. On July 15, 2011, after
Meyer and Pratt obtained relief from stay,3 the district court entered the judgment on the
remand issues and a final amended judgment in the amount of $7,170,603.00 plus $100
punitive damages and costs in favor of Meyer and Pratt against the Christie Interests (“the
Judgment”).

Meyer and Pratt undertook proceedings to satisfy the Judgment against nondebtors
Christie and Glenn. The Clerk of the District Court entered an order granting Meyer’s
and Pratt’s motion for disbursement of the Bond proceeds, directing payment of the full
amount of the Bond to Meyer’s and Pratt’s attorneys within five days (the “Bond
Disbursement Order”). On October 13, 2011, the district court entered a writ of general
execution as to Glenn and Christie. The next day, Meyer and Pratt filed a notice in the
bankruptcy court that they intended to obtain the stock certificates issued by Debtor to
Christie (the “Stock”) to take control of Debtor. On November 3, 2011, attorneys for

3 DJ Christie, Inc. had filed this bankruptcy case on May 20, 2011. On July 15, 2011,
Meyer and Pratt were granted relief from stay for the limited purpose of allowing the district
court to finally determine matters pending following the remand from the Tenth Circuit. A
request that relief include allowing the district court to determine if the judgment is subject to
being satisfied by offset of the assigned Iowa Judgments was denied based upon fact that the
bankruptcy case was in its early stages and Debtor should be given an opportunity to negotiate
with its creditors. Dkt. 68.

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Meyer and Pratt accompanied the United States Marshall to Christie’s home to seize the
Stock. Christie did not turnover the Stock. Meyer and Pratt filed a motion for contempt
in district court against Christie for failure to turnover the Stock and also against
Washington for failing to turnover the Bond proceeds.

The Iowa Judgments

Much of the controversy in this bankruptcy case, and the focus of the adversary
proceeding filed by Debtor,4 involves the Christie Interests’ acquisition of assignments of
judgments against Meyer and Pratt, which they propose to use to satisfy the Judgment by
offset. On April 29, 2011 and May 2, 4, and 18, 2011, the Christie Interests were
assigned judgments which had been entered against Meyer, Pratt, and others in Iowa on
June 3 and 21, 2010, July 7 and 20, 2010, August 17, 2010 and September 3, 2010 (the
“Iowa Judgments”). The total amount of the Iowa Judgments allegedly exceeds the
Judgment in favor of Meyer and Pratt against the Christie Interests. Some or all of the
Iowa Judgments were registered in Dickinson County, Kansas, and a portion of the Iowa
Judgments were registered in Jackson, County, Missouri.

On June 8, 2011, the Christie Interests filed garnishment actions in Jackson
County, Missouri and Pratt, Kansas, naming Washington, the bonding company, as
garnishee. On June 29 and August 5, 2011, garnishment orders issued from Jackson
County were served on Washington. Washington filed this Motion “to allow it to comply

4 D.J. Christie, Inc. v. Meyer (In re D.J. Christie, Inc.), Adv. No. 11-07043.
4

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with its legal obligations as to the Bond as a result of” the federal Bond Disbursement
Order and the state garnishment orders.5

Debtor’s Chapter 11 case

Debtor filed for Chapter 11 relief on May 20, 2011. In its schedules, Debtor listed
the Bond as personal property by virtue of the garnishment orders.6

On July 29, 2011, Debtor filed an adversary proceeding against defendants Meyer,
Pratt, Washington, Glenn, and Christie (the “Adversary Proceeding”).7 The complaint
alleges three counts: (1) determination of the validity, extent, and priority of judgment
liens held by Meyer and Pratt on the estate’s real property; (2) determination of amounts
due between Debtor and Meyer and Pratt, based upon setoff of the Iowa Judgments,
including cancellation of the Bond because the setoff would satisfy the Judgment in full;
and (3) judgment against Meyer and Pratt for the excess of the assigned Iowa Judgments
over the amount owed under the Judgment against the Christie Interests. Glenn and
Christie filed a cross claim; and Meyer and Pratt filed a counterclaim/cross claim,
challenging the availability of offset and seeking declaratory judgments as to the rights to
the Bond and the Stock. On January 17, 2011, Pratt filed a motion to withdraw reference

5 Dkt. 101.
6 Dkt. 42.
7 D.J. Christie, Inc. v. Meyer (In re D.J. Christie, Inc.), Adv. No. 11-07043.


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of the Adversary Proceeding. The Court’s recommendation on that motion is filed
separately.

Both Meyer and Pratt filed proofs of claim. Debtor objected to these claims based
upon the contention that they are fully satisfied by offsetting the Iowa Judgments.
DISCUSSION

Section 362(a)(3) imposes a stay against “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.” Property of the estate is broadly defined by § 541 to consist of all legal and
equitable interest of the debtor in property as of the commencement of the case and any
interest that the estate acquires after the commencement of the case. Here the estate
claims an interest in the Bond proceeds under the orders of garnishment issued in
Jackson County, Missouri and served on Washington on June 29, 2011 and August 5,
2011. The Court finds, for purposes of this Motion, that Debtor’s asserted interest in the
Bond proceeds is a property interest under § 541 which is protected by the stay of § 362.

Washington moves for relief from the stay to allow it to resolve the competing
claims to the Bond proceeds arising from the federal Bond Disbursement Order and the
state garnishment orders. Under § 362(d)(1), the Court may grant relief from stay for
cause. “While cause under § 362(d)(1) includes ‘the lack of adequate protection of an
interest in property,’ it is not so limited. Because ‘cause’ is not further defined in the
Bankruptcy Code, relief from stay for cause is a discretionary determination made on a

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case by case basis.”8 Although there is a shifting burden of proof, the moving party has
the obligation to establish a prima facie case.9

Washington has failed to establish a prima facie case of cause for relief from stay.
The only argument presented in support of its Motion is Washington’s desire to comply
with its legal obligation under the Bond. At oral argument on a related motion,
Washington’s counsel suggested that it would file a declaratory judgment action to seek
resolution of the conflicting claims to the Bond proceeds. Ruling on such an action
would require a determination of the offset issue. But the offset issue is before this Court
in the Adversary Proceeding. Allowing relief from stay for the purpose of filing a
declaratory judgment action would invite a second forum to rule on the same matters as
are before this Court, with the possibility of conflicting rulings.

Washington may be seeking stay relief to avoid suggestions that it is in contempt
of the Bond Disbursement Order or the garnishment orders. The finding of this Court that
the stay is applicable to any action to obtain control or possession of the Bond coupled
with the denial of this Motion for relief from stay should allay Washington’s concerns.

Meyer and Pratt oppose the Motion on the basis that no stay relief is required since
the estate has no interest in the Bond proceeds. Essentially, Meyer and Pratt are
requesting the Court to adjudicate the offset question when ruling on the Motion for

8 In re Busch, 294 B.R. 137, 140 (10th Cir. BAP 2003).
9 3 Collier on Bankruptcy ¶ 362.10 at 362-135 (Alan N. Resnick & Henry J. Sommer eds,
16th ed. 2010).
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relief. The Court declines to do so. Whether the conditions for payment of the Bond
proceeds exist and the persons entitled to claim the proceeds are matters which will be
determined in future litigation in this Court.

Because Washington has failed to establish cause for relief from stay, the Motion
is denied. Washington is barred by bankruptcy law from disbursing the Bond proceeds to
any entity, including a court registry. Washington shall hold the proceeds pending further
order of this Court.
CONCLUSION

Washington’s Motion for relief from stay is denied for the reasons stated above.
Washington is barred from disbursing the Bond proceeds to any entity and shall hold the
proceeds pending further order of this Court.

The foregoing constitute Findings of Fact and Conclusions of Law under Rules
7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure which make Rule 52(a)
of the Federal Rules of Civil Procedure applicable to this matter.

JUDGMENT

Judgment is hereby entered denying the Motion of Washington International
Insurance Company for Relief From the § 362 Bankruptcy Automatic Stay. The
judgment based on this ruling will become effective when it is entered on the docket for
this case, as provided by Federal Rule of Bankruptcy Procedure 9021.

IT IS SO ORDERED.
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