- Category: Judge Nugent
- Published: 14 June 2016
- Written by Judge Nugent
- Hits: 143
In Re Abengoa Bioenergy Biomass of Kansas LLC, 16-10446 (Bankr. D. Kan. May 26, 2016) Doc. # 130
SIGNED this 26th day of May, 2016.
DESIGNATED FOR ONLINE PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANASAS
ABENGOA BIOENERGY BIOMASS Case No. 16-10446
OF KANSAS, LLC. Chapter 11
ORDER DENYING MOTION TO CERTIFY DIRECT APPEAL
Abengoa Bioenergy Biofuels of Kansas, LLC (ABBK) seeks to certify its appeal
from an order denying its motion to transfer venue for direct appeal to the Tenth
Circuit Court of Appeals (Transfer Order).1 When a bankruptcy court’s decision is
appealed, 28 U.S.C. § 158(d)(2) authorizes one or more parties to the case to seek an
order certifying that appeal directly to the Court of Appeals. The statute provides
1 Dkt. 69. ABBK’s request to transfer was brought under 28 U.S.C. § 1412 and Fed.
R. Bankr. P. 1014(b).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 1 of 14
that if the bankruptcy court certifies that one or more of the following factors apply,
and if the Court of Appeals accepts the direct appeal, that court, and not the
Bankruptcy Appellate Panel or the District Court, shall have jurisdiction of the
appeal. The factors are:
(i) the judgment, order, or decree involves a question of law as to whichthere is no controlling decision of the court of appeals for the circuit orof the Supreme Court of the United States, or involves a matter of publicimportance;
(ii) the judgment, order, or decree involves a question of law requiringresolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree maymaterially advance the progress of the case or proceeding in which theappeal is taken.2
Fed. R. Bankr. P. 8006(b) provides that the bankruptcy court retains jurisdiction to
decide the motion to certify for 30 days after the effective date of the notice of appeal.
Thereafter, the motion is deemed to be pending in the Bankruptcy Appellate Panel
(BAP) or the District Court. As the notice of appeal was filed in this case on May 2,
2016, this Court retains jurisdiction to decide the certification motion until June 1,
Direct Appeals under 28 U.S.C. § 158(d)(2)(A)
Circuit court authority directly interpreting § 158(d)(2) is scant, but most
courts addressing requests for certification conclude that direct appeals should be
reserved for questions of law rather than questions that are factual or mixed. The
2 28 U.S.C.A. § 158(d)(2)(A) (West).
3 Fed. R. Bankr. P. 8006(b).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 2 of 14
Second Circuit articulated this particularly well in Weber v. United States.4 In Weber,
the Second Circuit declined jurisdiction in a case where the creditor sought to directly
appeal a bankruptcy court’s decision about how a New York homestead exemption
statute should be applied. Seeking to limit the ways it would exercise its discretionary
jurisdiction to grant direct appeals, the Second Circuit held that § 158(d) had been
enacted to foster the development of coherent bankruptcy law precedent.5 It
concluded that § 158(d)(2) had been based on 28 U.S.C. § 1292(b), the civil
interlocutory appeals statute, and noted that § 1292(b) appeals are only granted when
there is a controlling question of law about which there is substantial ground for a
difference of opinion, not simply to correct error. Indeed, the Second Circuit referred
to legislative history indicating that “direct appeal would be most appropriate where
we are called upon to resolve a question of law not heavily dependent on the particular
facts of a case, because such questions can often be decided based on an incomplete
or ambiguous record.”6 The Weber court also noted that courts of appeal can “benefit
immensely from reviewing the efforts of the district court to resolve such questions.
Permitting direct appeal too readily might impede the development of a coherent body
of bankruptcy case-law.”7 The Second Circuit therefore declined to exercise its
4 484 F.3d 154 (2nd Cir. 2007).
5 Id. at 159.
6 Id. at 158, citing H.R. Rep. No. 109-31, at 148-49, U.S. CODE CONG & ADMINS.
NEWS 2005, 88, 206 (noting that Congress did not expect that § 1233 [of BAPCPA]
would be used to facilitate direct appeal of “fact-intensive issues,” but rather
“anticipated that ... [for such issues] district court judges or bankruptcy appellate
panels” would suffice).
7 Weber v. United States, 484 F.3d at 160.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 3 of 14
discretion to hear the direct appeal, finding that there was no conflicting bankruptcy
court case law on the issue presented.
Two cases in which the Tenth Circuit has accepted direct appeal of bankruptcy
cases involved what were then very controversial legal issues arising out of the
enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA).8 In In re Ford, for instance, the Circuit granted direct appeal from a
decision of this Court holding that a debtor’s “negative equity” in a vehicle treated
under the hanging paragraph of 11 U.S.C. § 1325(a)(9)(*) was payable as part of the
creditor’s allowed claim.9 The court granted that appeal because the treatment of
negative equity under the “hanging paragraph” had yet to be interpreted by the
Tenth Circuit and there were numerous conflicting bankruptcy court decisions on
that issue in the Circuit (and around the country). Likewise, in In re Stephens, the
Circuit granted a direct appeal of a bankruptcy court’s determination that the
absolute priority rule no longer applied in individual chapter 11 cases, another
controversial issue that was a matter of first impression for the Tenth Circuit and
upon which there were conflicting opinions both in and outside the bankruptcy courts
of the Tenth Circuit.10 Neither appeal involved factual disputes; both went directly to
determining the meaning of statutory provisions of Title 11, as amended by BAPCPA.
8 § 158(d)(2) was also enacted as a part of the 2005 legislation.
9 Ford v. Ford Motor Credit Corp. (In re Ford), 574 F.3d 1279 (10th Cir. 2006).
10 Dill Oil Company, LLC v. Stephens (In re Stephens), 704 F.3d 1279 (10th Cir.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 4 of 14
Courts in other Circuits decline to certify direct appeals that involve largely
factual questions. In In re American Home Mortgage Inv. Corp., a Delaware district
court judge declined to certify a direct appeal from a decision that involved what it
called “mixed questions that implicate the particular circumstances of this case” that
were not “pure legal questions warranting direct certification.”11 Compare this case
to the bankruptcy judge’s decision in In re SemCrude L.P., certifying for direct appeal
a legal question involving a direct conflict between the Kansas and Delaware versions
of the Uniform Commercial Code, an issue that needed to be resolved in order for the
court to determine the relative priority of certain secured claims and did not involve
a factual dispute.12
The Appealed Transfer Order
This chapter 11 began as an involuntary chapter 7 case filed by mechanic’s lien
creditors who were parties to a state court foreclosure in Stevens County, Kansas
district court. The debtor did not contest the involuntary case, instead moving 14 days
later to convert it to a voluntary chapter 11 case in this district and
contemporaneously filing a voluntary chapter 11 case in Delaware and a motion for
inter-district transfer to Delaware with this Court. A number of other Abengoa
affiliates filed bankruptcy cases in Delaware as well as the Eastern District of
Missouri. Fed. R. Bankr. P. 1014(b) provides that the court in which the earliest case
11 408 B.R. 42, 44 (D. Del. 2009) (citing Weber, supra, direct appeal is notappropriate for questions ‘heavily dependent on the particular facts of a case.’).
12 407 B.R. 82 (Bankr. D. Del. 2009) (bankruptcy court certified sua sponte direct
appeal of its summary judgment ruling).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 5 of 14
is filed has jurisdiction to determine whether the case should be transferred or
retained. ABBK’s transfer motion was opposed by several of the mechanic’s lien
creditors and after an evidentiary hearing, I entered an order making detailed
findings of fact and concluded that the debtor had failed to prove that transferring
the case to Delaware served either the convenience of the parties or the interests of
justice, the two alternative grounds set out in 28 U.S.C. § 1412.13 In doing that, I
applied a series of familiar legal principles to the evidence presented, all grounded in
case law interpretations of both Rule 1014(b) and § 1412, to determine that the
convenience of the parties to this case and the interests of justice required that the
debtor’s motion for transfer of venue be denied. The debtor appealed that Transfer
Order on May 2, 2016 and filed a motion for a stay pending appeal as well as this
current motion to certify a direct appeal to the Tenth Circuit.14 I denied the stay
pending appeal motion on May 6, 2016 and, on May 16, 2016, the Bankruptcy
Appellate Panel also denied a stay.15
Debtor ABBK requests that two questions be directly certified to the Court of
Appeals: (1) whether a debtor bears the burden of proof that the venue it has selected
is proper; and (2) whether the interests of local creditors trump the business
judgment of debtor’s management in selecting a preferred venue. Both questions
13 Dkt. 69.
14 Dkt. 78, 79, 81.
15 Dkt. 97 and Abengoa Bioenergy Biomass of Kansas, LLC v. ICM, Inc., et al, BAP
No. KS-16-012, dkt. 25 (10th Cir. BAP, May 16, 2016).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 6 of 14
involve interpreting and applying Fed. R. Bankr. P. 1014(b) and the statute it was
enacted to implement, 28 U.S.C. § 1412.16
Presence of Controlling Authority and Public Importance,
§ 158(d)(2)(A)(i); and Lack of Conflicting Decisions, § 158(d)(2)(A)(ii)
There is persuasive as well as controlling authority in the Tenth Circuit
concerning the standard to be applied to motions to transfer venue, at least in broad
terms. There is also broad agreement among the courts here about how to approach
such an issue, the allocation of the burden of proof, and the degree of deference to be
accorded a plaintiff’s or debtor’s choice of forum. Many bankruptcy courts in this
Circuit and elsewhere have applied a familiar multifactor test to determine whether
to change the venue of a case or adversary proceeding for the convenience of the
parties or in the interests of justice.17 Those factors include (1) the proximity of
creditors to the court; (2) the proximity of the debtor; (3) the proximity of necessary
witnesses; (4) the location of the assets; (5) the economic administration of the estate;
16 Section 1412 applicable to transfer of bankruptcy cases or proceedings issubstantially similar to the general transfer of venue of civil actions governed by 28
U.S.C. § 1404(a). Both contain the “interest of justice” and “convenience of the
parties” standards. Some bankruptcy cases cite with approval transfer of venueanalysis under § 1404(a). See Hechinger Liquidation Trust v. Fox (In re Hechinger
Inv. Co. of Delaware, Inc.), 296 B.R. 323, 325 (Bankr. D. Del. 2003) (a determinationof whether to transfer venue under § 1412 turns on the same issues as adetermination under § 1404(a)).
17 See e.g., In re James, 2012 WL 5467542 (Bankr. D. Colo. Nov. 9, 2012) (Courtsconsider same factors to determine a transfer of venue under § 1412 as a transfer
under § 1404(a)); In re Harwell, 381 B.R. 885 (Bankr. D. Colo. 2008) (Transferringadversary from home court; factors outweighed plaintiff's choice presumptions); In
re Coleman American Cos, Inc., 6 B.R. 915 (Bankr. D. Colo. 1980); In re Wheeler, 69
B.R. 29 (Bankr. D. N.M. 1986) (Transferee failed to overcome presumption oftrustee's choice venue, though bearing burden of proof; transfer must do more thanshift inconvenience from one party to another).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 7 of 14
and (6) necessity for ancillary administration.18 Many cases suggest that the party
seeking to transfer the case to another venue has the burden to prove either the
justice or the convenience of the contemplated move and at least one judge has noted
that the burden of determining what is “just” ultimately falls to the judge.19 Courts
also give deference to the debtor’s choice of venue.20
Courts in the Tenth Circuit look to controlling authority that outlines many of
the same or similar factors for consideration in considering whether to transfer venue
of civil cases under 28 U.S.C. § 1404. In its review of the venue statutes, the BAP has
noted the similarity of the change of venue statutes: § 1412 for bankruptcy cases and
§ 1404(a) for civil actions in district court.21 Both contain “convenience of the parties”
and “interest of justice” standards. Similarly, the Tenth Circuit has noted the
“paucity of authority” on transfer orders under the bankruptcy venue statute, but has
acknowledged the analogy to § 1404(a) transfer orders is “apposite.”22
The leading § 1404(a) venue case is Texas Gulf Sulphur v. Ritter, in which the
Circuit held that the burden to demonstrate a transfer is on the movants and that, in
18 See In re Enron Corp., 274 B.R. 327, 332 (Bankr. S.D.N.Y. 2002). The factors are
often referred to as the “CORCO factors,” see In re Commonwealth Oil Ref. Co., Inc.
(“CORCO”), 596 F.2d 1239, 1247 (5th Cir. 1979), cert. denied, 444 U.S. 1045 (1980).
19 In re Caesars Entertainment Operating Company, Inc., 2015 WL 495259 at *5
(Bankr. D. Del. Feb. 2, 2015).
20 Caesars Operating at *7 (noting the level of deference given to a debtor’s choice of
forum is less clear where an involuntary petition was filed against the debtor in a
different venue prior to the debtor’s voluntary petition).
21 See In re Sorrells, 218 B.R. 580, 585 (10th Cir. BAP. 1998)
22 See In re Dalton, 733 F.2d 710, 715 n.3 (10th Cir. 1984) (discussing bankruptcy
change of venue statute, § 1475 – the predecessor to § 1412).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 8 of 14
each case, the trial judge must exercise her discretionary power under § 1404(a) to
consider, among other factors—
… the plaintiff's choice of forum; the accessibility of witnesses and othersources of proof, including the availability of compulsory process toinsure attendance of witnesses; the cost of making the necessary proof;
questions as to the enforceability of a judgment if one is obtained; relativeadvantages and obstacles to a fair trial; difficulties that may arise fromcongested dockets; the possibility of the existence of questions arising inthe area of conflict of laws; the advantage of having a local court
determine questions of local law; and, all other considerations of apractical nature that make a trial easy, expeditious and economical.23
Another Tenth Circuit civil case is Chrysler Credit Corp v. Country Chrysler, Inc.,24
in which the court considered that the burden of proof for transferring venue is on
the movant and held that relief under § 1404 is discretionary according to an
“individualized, case-by-case consideration of convenience and fairness.”25
These factors are very similar to those I applied to the debtor’s transfer motion.
As I noted in the Transfer Order, they are the same factors most bankruptcy courts
apply in addressing these types of issues.26 While there is no Tenth Circuit case that
specifically references Rule 1014(b), I am not persuaded that there is a lack of
controlling authority on the transfer of venue or that the courts of this Circuit
disagree on the legal standards to be applied to such a motion in whatever context it
arises. Rule 1014(b)’s principal function is to outline the applicable procedure when
cases involving the same or related debtors are filed in different courts. It does not
23 Texas Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir. 1967).
24 928 F.2d 1509 (10th Cir. 1991).
25 Id. at 1516, quoting Stewart Org. v. Ricoh Corp., 487 U.S. 22, 29 (1988).
26 Transfer Order, Dkt. 69, pp.11-12.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 9 of 14
define the standards the deciding court should employ. In short, Tenth Circuit case
law on change of venue under § 1412 and § 1404(a), clearly establishes that each case
is dependent on its own facts and circumstances.
Orders concerning venue transfer are interlocutory.27 The BAP considered an
interlocutory appeal from an order denying transfer of venue in In re Sorrells.28 The
bankruptcy court in Sorrells denied the United States Trustee’s motion to dismiss, or
alternatively, to transfer venue due to improper venue. But in doing so, it retained
an improperly venued chapter 7 case for convenience of the parties. The BAP held
that the bankruptcy court had no discretion to retain an improperly venued case; it
had to be dismissed or transferred to the court in which venue was proper. The BAP
noted that venue orders are not final orders and recognized that venue orders are
generally not appealable “because they do not involve a question of law, but rather
entail the issue of whether the trial court properly exercised its discretion in granting
or denying a request for transfer of venue.”29 It applied the Tenth Circuit’s traditional
strict test for interlocutory review of the venue order, a test that does not apply a
“success on appeal” standard:
27 See Dalton v United States (In re Dalton), 733 F.2d 710, 714-15 (10th Cir. 1984).
28 In re Sorrells, 218 B.R. 580 (10th Cir. BAP 1998).
29 218 B.R. at 584. See Coopers & Lybrand v. Livesay, 437 U.S. 463, 477 n. 30 (1978)
(interlocutory appeals from discretionary rulings that turn on the facts of the
individual case are plainly inconsistent with the policies promoted by 28 U.S.C. §
1292(b)); In re Wyoming Tight Sands Antitrust Cases, 715 F. Supp. 307 (D. Kan.
1989) (denying certification of order denying change of venue; question of whether
venue should have been transferred under § 1404(a) is not a controlling question of
law; the question was not whether venue in Kansas was proper but was a
discretionary issue of whether change of venue was warranted).
Case 16-10446 Doc# 130 Filed 05/26/16 Page 10 of 14
Leave to hear appeals from interlocutory orders should be granted withdiscrimination and reserved for cases of exceptional circumstances.
Appealable interlocutory orders must involve a controlling question oflaw as to which there is substantial ground for difference of opinion, and
the immediate resolution of the order may materially advance the
ultimate termination of the litigation.30
The BAP concluded that this test was met in Sorrells because the appeal of the venue
order involved a question of law: whether the bankruptcy court had the power to
retain the Debtors’ case when venue was improper.31 In reviewing bankruptcy and
nonbankruptcy venue statutes, the BAP noted that there was no bankruptcy-specific
venue statute similar to 28 U.S.C. § 1406(a) requiring transfer or dismissal if venue
of a case in district court is improper.
. . . the issue thus becomes whether a bankruptcy court of impropervenue may, under the permissive language of section 1412, retain a case
“in the interest of justice or for the convenience of the parties,” or
whether it must dismiss or transfer the case by applying section 1406(a)
. . . . Courts deciding this issue are split.
While Sorrells is readily distinguishable from our case, it does suggest that the Court
of Appeals will apply its strict test in deciding whether to accept a direct appeal of
this Court’s Transfer Order. Here, the lack of a “substantial ground for difference of
30 218 B.R. at 582 (declining to carve out an exception to this test for interlocutoryreview of venue orders entered by the bankruptcy court). This test is incorporated
by § 158(d)(2)’s certification standards as amended by BAPCPA in 2005, and issubstantially similar to 28 U.S.C. § 1292(b)’s certification standard for review ofinterlocutory orders in civil cases.
31 218 B.R. at 584. At the time Sorrells was decided, 28 U.S.C. § 158 did not have acertification procedure similar to 28 U.S.C. § 1292(b) governing civil actions, butconcluded the underlying substantive test for determining whether leave of court orcertification should be granted are identical; in short the same standard for
appellate review of venue orders applied whether it was a bankruptcy court venueorder or a district court venue order.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 11 of 14
opinion” on the law makes it unlikely that the Circuit would accept this case on direct
Section 158(d)(2)(A)(i) also provides for allowing a direct appeal when the court
concludes that the issue presented involves a “matter of public importance.” The
debtor argues that the Transfer Order allows involuntary creditors to “jockey” for
position in cases, a result that it says is “anathema to the core values of Title 11.”
Indeed, Collier’s states that issues having “public importance” are those that
“transcend the litigants” and involve issues that “advance the cause of
jurisprudence.”33 Any appeal from the findings in the Transfer Order does not
“transcend the litigants” here. It is useful to consider the record before me in entering
that order. At the hearing, most of the known creditors were identified as mechanics
lienholders claiming interests in the debtor’s real property in Kansas. These included
affiliates of the debtor. The United States Department of Energy was described as
holding some undefined interest in that property.34 This case doesn’t involve wresting
a properly-venued, previously filed case away from the proper court. Both Kansas and
Delaware are proper venues for this case. Rather, this case involves the application
of familiar, well-established standards governing transfer of venue to a discrete set
32 See also Johns-Manville Sales Corp. v. United States, 796 F.2d 372 (10th Cir.
1986) (interlocutory appeal certified under 28 U.S.C. § 1292(b) of district court’svenue determination resolving a question of law interpreting venue statute, 28
U.S.C. § 1402(b), that proper venue of corporate plaintiff’s residence is limited to the
state of incorporation).
33 1 COLLIER ON BANKRUPTCY ¶ 5.06[b] (16th Rev. Ed. 2015).
34 Debtor has scheduled the United States as an unsecured creditor holding a
contingent or unliquidated claim. See Dkt. 120, p. 28.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 12 of 14
of facts. It is difficult to see how the Transfer Order will have a “resounding impact”
outside the factual setting the parties presented.
While the debtor may complain about the conclusions reached in the Transfer
Order, it cannot complain that the appropriate standards were not applied. Moreover,
as noted in the Weber decision cited above, direct appeals should not lie for questions
of fact or mixed questions of fact or law. At best, that is what this appeal presents.
After hearing the testimony of several witnesses, including a senior officer of the
debtor’s principal affiliate, and applying the factors to the evidence before me, I
concluded that the debtor had failed to carry its burden of proof. As other courts have
noted, whether to transfer a bankruptcy case is often a fact-specific decision. Fact-
specific cases are not good candidates for § 158(d)(2) direct appeals. There is
controlling authority in this Circuit concerning venue transfers and no real conflict
or question about the law governing these discretionary determinations. There are
no grounds for certifying a direct appeal under subparts (i) or (ii) of the §158(d)(2)(A).
Advancing the Progress of the Case, § 158(d)(2)(A)(iii)
In addressing this motion to certify, I must also consider whether a direct
appeal would advance the progress of this bankruptcy case. A brief timeline of this
case suggests that it wouldn’t. The involuntary proceeding was filed on March 23,
2016. The debtor converted the case to chapter 11 on April 6, 2016. Conversion of the
case amounts to the entry of an order for relief under 11 U.S.C. § 348. On April 6, the
debtor filed an emergency motion to transfer this case to Delaware because it had
filed a voluntary chapter 11 case in that district the same day. After a number of
Case 16-10446 Doc# 130 Filed 05/26/16 Page 13 of 14
creditors objected to transfer, I conducted an expedited evidentiary hearing on that
motion on April 13, 2016. After hearing final arguments on that motion by telephone
on April 19, I entered the Transfer Order from which debtor appeals on April 25.
Since that time, this Court and the BAP have denied debtor’s motion for a stay
pending appeal. The debtor filed its schedules and statement of affairs in this case on
May 20, 2016 and the first meeting of the creditors is scheduled for June 9, 2016. The
progress of the case is not being materially hampered by the appellate process,
particularly where the Delaware bankruptcy court’s stay of all proceedings in the
Delaware ABBK case remains in place.35 As the BAP pointed out in denying debtor’s
motion for stay pending appeal, the debtor did not apply for a suspension of
proceedings pending appeal under Fed. R. Bankr. P. 8007(a)(1)(D) and (b)(1). Because
no stay or suspension of the Kansas bankruptcy is in place, the case is proceeding
forward on the merits and certifying a direct appeal will not further advance the
progress of the bankruptcy case.
Debtor’s motion to certify a direct appeal of the Transfer Order to the Tenth
Circuit Court of Appeals is therefore DENIED.
35 The Court also notes that on April 20, 2016 debtor and its utility creditor PioneerElectric Cooperative entered into an agreed order for adequate assurance ofpayment under 11 U.S.C. § 366, following an expedited evidentiary hearing on April
7. Dkt. 62.
Case 16-10446 Doc# 130 Filed 05/26/16 Page 14 of 14
- Category: Judge Nugent
- Published: 03 June 2016
- Written by Judge Nugent
- Hits: 224
In Re Johnson, 15-10191 (Bankr. D. Kan. May 19, 2016) Doc. # 79
SIGNED this 19th day of May, 2016.
DESIGNATED FOR ONLINE PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANASAS
MICHAEL D. JOHNSON,
SHONDA J. ZOLLINGER-JOHNSON
Case No. 15-10191
ORDER DENYING STAY RELIEF
When a chapter 13 plan is confirmed, its terms bind the debtor and every
creditor.1 The binding effect of the plan does not relieve the debtor of the need to
adequately protect the interests of his secured creditors and if it appears that
adequate protection of the creditor’s interest has failed as a result of post-
confirmation developments, the Court can grant relief from the automatic stay for
1 11 U.S.C. § 1327(a).
Case 15-10191 Doc# 79 Filed 05/19/16 Page 1 of 12
cause.2 The party seeking that relief has the burden of proof on issues relating to the
debtor’s equity in the property; the debtor has the burden on all other issues.3 In this
case, the Valley State Bank did not prove either that the debtors have violated the
plan’s terms or that they have committed post-confirmation conduct that would
trigger stay relief.4
Valley State Bank loaned Michael and Shonda Johnson $71,000 in 2010 to
refinance and improve their home in Belle Plaine, Sumner County, Kansas.5 The
debtors gave the bank a note in that amount dated August 20, 2010. The note is
secured by a mortgage on their homestead, among other things, and called for 98
monthly payments of $913.12, with the final payment being due on August 15, 2018.
The homestead consists of a manufactured home that is set on 3.6 acres in rural Belle
Plaine.6 The land lies in the 100-year flood plain and has been flooded twice in the
last 35 years, the last time in 1998. Mr. Johnson testified that the couple bought the
house as a “fixer-upper,” lived in and worked on the house from 1998 to 2005, and
thereafter leased it to another party.7 When they regained possession in 2010, they
2 11 U.S.C. § 362(d)(1).
3 11 U.S.C. § 362(g)(1).
4 The Court conducted an evidentiary hearing on Valley State Bank’s motion for
relief from the stay, Dkt. 54. Debtors appeared by their attorney David J. Lund. The
Valley State Bank appeared by its counsel W. Thomas Gilman.
5 See Claim no. 7-3, pp. 23-30 (Ex. 3, Note and Mortgage).
6 The manufactured home was built in 1972, making it 38 years old at the time of
the 2010 loan transaction. See Ex. 6, pp. 2, 3, 11.
7 Mr. Johnson described it as a “Tenant Rent to Own” sale on contract for the price
Case 15-10191 Doc# 79 Filed 05/19/16 Page 2 of 12
found the house in disrepair and borrowed from the Bank to renovate it. At least one
of them has lived there since and Mr. Johnson stated that he lives there today. Mrs.
Johnson lives in Belleville, Kansas, but spends time in the Belle Plaine residence on
When the Bank made this loan in 2010, it obtained an appraisal from Munson
Appraisers that valued the property, subject to certain improvements being
completed, at $98,000.8 The proposed improvements included electrical work,
plumbing, replacing the HVAC units, re-roofing the garage and family room (a
converted porch), cabinet bases, a bathroom remodel, carpet and vinyl, replacing two
doors, replacing all of the windows, adding vinyl siding, touching up the exterior
paint, and replacing certain interior trim work. In the 2010 appraisal, Scott Munson
used six comparable sales, including 934 N. Timber Road, a property that had sold
for $92,200 in Belle Plaine. His comparable sales prices ranged from $75,000 to
The Johnsons defaulted repeatedly on the mortgage loan and, in 2015, the
Bank foreclosed. That prompted the Johnsons to file this chapter 13 case on February
5, 2015. Because they believed they had substantial equity in the house, their
amended plan proposed to pay the Bank nothing until it sold, when the Bank would
be paid in full.9 Meanwhile, the debtors would make monthly payments through the
plan on the Bank’s two small notes that are secured by this mortgage as well as
8 Ex. 6.
9 Ex. 2, pp. 4-6 (Dkt. 33).
Case 15-10191 Doc# 79 Filed 05/19/16 Page 3 of 12
security interests in a Chevrolet Tahoe and a Fifth Wheel trailer. Those payments
are current. The Bank twice amended its proof of claim in this case.10 As of the
petition date, the Bank’s mortgage claim, with accrued interest and other charges,
amounted to $49,905.48.11 That amount increases at the rate of 5.459% per annum
or $7.4639 per diem. After negotiations, the Bank and the debtors agreed to an order
setting out revised plan terms and agreeing to confirmation of the plan (the “Agreed
Order”) that was filed on July 10, 2015.12 The amended plan was confirmed on July
The Agreed Order provides that the debtors can retain the home and conditions
the continuation of the automatic stay upon the following terms:
1. One or both debtors will occupy the home while it is being marketed;
2. The debtors will give notice to the Bank of any proposed sale;
3. The debtors will keep the home insured and the ad valorem taxes paid
current at all times; and
4. The debtors will maintain an equity cushion in the home as described in the
4. It is agreed that the current outstanding loan value to market valueratio in the Real Estate is approximately 67% (the Bank’s outstandingloan amount secured by the Real Estate ($49,563.68) divided by $74,000,
the debtors’ claimed value of the Real Estate). In the event the Bank’soutstanding claim continues to accrue interest, late fees and attorney’s
fees and expenses to the point that the Bank’s outstanding loan balance
is 80% or more ($59,200 or more) of the market value ($74,000), the
10 See Claims 7-1, 7-2, and 7-3.
11 See Claim 7-3, p. 3 (Ex. 3, p.3).
12 Ex. 4 (Dkt. 43).
13 Dkt. 45.
Case 15-10191 Doc# 79 Filed 05/19/16 Page 4 of 12
debtors shall either (a) make adequate protection payments to the Bank
in the amount of the ongoing monthly payment ($912.13) or (b) absent
such payments, the Bank shall be granted relief from stay torecommence the foreclosure action (in rem only) pending in the Sumner
County, Kansas, District Court.14
Ms. Wharton, the Bank’s loan officer, testified that she was comfortable agreeing to
these terms because she had a $98,000 appraisal on file and because the Johnsons
had scheduled the property at $74,000. She assumed that all of the anticipated
repairs had been completed.
The property has been listed for sale at all relevant times. The debtors’ listing
agent, Julie Gooch, stated that she initially listed the home in September of 2014 at
$78,000 and that the price has been dropped several times, most recently to $69,900
in December of 2015. While the house shows somewhat frequently, 20 times in the 45
days between November 15, 2015 and year’s end, Ms. Gooch suggested that its
location in the flood plain and history of being flooded detracts from its salability.15
She agreed that while there are repairs needed, the house is in reasonable condition
and is the same condition it was in July of 2015 when the Agreed Order was
negotiated and entered.
Sometime after the Agreed Order was entered, Ms. Wharton drove past the
property, noted the lack of yard maintenance, and concluded that the house was
unoccupied. She then contacted the Bank’s counsel to arrange an inspection and
appraisal. Mr. Munson visited the property in December of 2015 where he met Mr.
14 Dkt. 43. Emphasis added.
15 Ex. 8.
Case 15-10191 Doc# 79 Filed 05/19/16 Page 5 of 12
Johnson and made an appraisal, concluding that the value of the home had declined
to $45,000.16 Based on that appraisal, the Bank filed this motion for relief from the
stay on the basis that the mortgage loan balance, now exceeds the much-diminished
value of the property in violation of the Agreed Order.
Mr. Munson said that when he made the 2015 appraisal, he did not know the
Johnsons had filed bankruptcy, only learning that from Ms. Wharton when he
submitted the report. He also said he didn’t refer to the 2010 appraisal before visiting
the Johnson home in December 2015. The 2015 report concludes that the property is
only in fair condition. Mr. Munson noted that it could not be easily compared to the
2010 appraisal because not all of the improvements on which the former report was
based had been completed. Remaining incomplete were the siding, some of the
roofing, the paint touch-up, and the interior trim work. This time, he only pulled three
comparable sales that ranged between $34,900 and $65,000. Notably, one of his
comparables was the sale of 934 N. Timber, formerly included in the 2010 appraisal
and a house with which Ms. Gooch was familiar. While Timber sold for $92,000 before
the 2010 report, by the time of the 2015 appraisal, it had recently sold again, this
time for $34,500. Ms. Gooch noted that she had shown the home, that it was a “repo,”
and that it had been “stripped” of appliances, HVAC units, glass, and even doorknobs.
While Mr. Munson didn’t agree that the home had been “stripped,” he conceded that
it was in particularly poor condition. The 2015 comparables are much lower quality
and value houses than those he used in 2010. In testimony, Mr. Munson said that the
16 Ex. 7.
Case 15-10191 Doc# 79 Filed 05/19/16 Page 6 of 12
debtor’s house that he appraised in 2010 by assuming that several improvements
would be made, never actually “existed” because not all of the improvements were
made, thus justifying the significant drop in his value conclusion.
Mr. Johnson testified that he would take $69,000 for the house as of the
hearing date, February 16, 2016. He thought $74,000 was fair when he scheduled
that amount and he believes the house is worth much more than the $45,000 value
Munson gave it. He also pointed out that he has completed everything on the 2010
list except re-roofing the garage and family room, the siding, and the painting. He
has replaced some, but not all, of the windows, stopping because he ran out of money.
He indicated that he wants to sell the house and pay off the Bank’s claim.
Deciding this stay relief motion comes down to interpreting the Agreed Order’s
provisions and determining whether the Bank demonstrated that the debtors have
failed to adequately protect its position in a way that would warrant lifting the stay.
The Bank argues that the house’s value has dropped and that, as a consequence, the
Bank no longer has the 80% loan-to-value ratio the Agreed Order required, triggering
stay relief to continue with its foreclosure action. The debtors reply that the Agreed
Order merely provides that the loan balance remain under $59,200, not that the loan
balance must be maintained at an amount lower than 80% of the home’s current
I agree with the debtors’ reading of paragraph 4. That sentence provides that
if the Bank’s “outstanding loan balance is 80% or more ($59,200 or more) of the
Case 15-10191 Doc# 79 Filed 05/19/16 Page 7 of 12
market value ($74,000),” the debtors must either make adequate protection payments
or suffer the loss of the stay. It does not refer to either the “market value” or the
“outstanding loan balance” being adjusted. Instead, it refers to the then-current
market value as the basis for calculating what the maximum loan amount can be
before adequate protection is required. It expressly contemplates that the loan
balance will increase (as it must to recognize accruing interest). Ms. Wharton stated
that she worked on the wording of the Agreed Order with her counsel and that the
Bank had agreed that, so long as the loan balance remained below $59,200, the
debtors would have no current monthly payment obligations.
The debtors are not in default of their obligations under the Agreed Order. As
of the date of the hearing, the loan balance was $52,710.44, including accrued interest
to February 16, 2016 at 5.459% per annum or $7.4639 per diem, late fees, attorney
fees, filing fees, and abstract costs.17 This leaves the debtors with a cushion under the
Agreed Order of about $6,490.18 The Bank abandoned its allegation that the debtors
had failed to occupy the property. Because the Agreed Order is part of the confirmed
plan, the debtors and the Bank are bound by its terms. Section 1327(a) makes that
That said, to retain the stay’s protection, the debtors must still adequately
protect the Bank’s interests. But that obligation does not extend to protecting the
17 The Bank’s claim on the date of the petition was $49,905.48. Interest accrued at
the rate of 5.459% or $7.4639 per diem from Feb 6, 2015 – Feb 16, 2016 (376 days)
for a total of $2,804.96. $49,905.48 + $2,804.96 = $52,710.44.
18 Maximum outstanding loan balance under the Agreed Order of $59,200 minus
outstanding loan balance on the date of hearing of $52,710.44 equals $6,489.56.
Case 15-10191 Doc# 79 Filed 05/19/16 Page 8 of 12
Bank from fluctuating market values. The debtors did not guarantee that the value
of their home would be sufficient to provide the Bank 80% loan-to-value. Ms. Wharton
stated that she did not view the property until after confirmation. When she did, she
concluded that it was either unoccupied or wasn’t being effectively maintained and
only then did the Bank seek an inspection and appraisal.
In general, post-confirmation stay relief is only a remedy for post-confirmation
. . . a postconfirmation request for relief from the stay must be based on
postconfirmation facts, events, or defaults: confirmation is an
adjudication of the rights of all parties, and a creditor cannot use apostconfirmation request for relief from the stay as a collateral attack
on the confirmation order.19
The binding effect of confirmation that is imposed by § 1327(a) drives this conclusion.
Confirmation precludes arguments that a creditor might have made prepetition, even
those related to a prepetition lack of adequate protection.20 Here, the Agreed Order
19 Keith M. Lundin & William H. Brown, CHAPTER 13 BANKRUPTCY, 4th Edition, §
242.1, at ¶ 1, Sec. Rev. June 30, 2004, www.Ch13online.com. See also Lomas
Mortgage USA v. Wiese (In re Wiese), 980 F.2d 1279, 1284 (9th Cir. 1992)
(bankruptcy court did not err by denying stay relief where issues involved were
determined in the confirmation of the Chapter 13 plan and were res judicata ), rev’d
on other grounds 508 U.S. 958 (1993) (judgment vacated and case remanded in light
of Nobelman v. American Savings Bank, 508 U.S. 324 (1993)); In re Pence, 905 F.2d
1107, 1110 (7th Cir. 1990) (post-confirmation stay relief denied where creditor didnot object to confirmation nor object to valuation of the property at confirmation;
mortgagee could not collaterally attack confirmation order to challenge valuation of
property in chapter 13 plan); Anaheim Savings and Loan Assoc. v. Evans (In re
Evans), 30 B.R. 530 (9th Cir. BAP 1983) (confirmed chapter 13 plan barred securedcreditors from seeking stay relief absent postconfirmation default in carrying outplan).
20 See e.g. Chevy Chase Bank v. Locke (In re Locke), 227 B.R. 68 (Bankr. E.D. Va.
1998) (Failure to object to confirmation precludes post-confirmation stay reliefbased on contention that plan does not adequately protect creditor’s interest in
Case 15-10191 Doc# 79 Filed 05/19/16 Page 9 of 12
resolved the Bank’s objection to confirmation and memorialized the parties’ agreed
plan treatment of the Bank’s claim, including when adequate protection payments
would be required.21
The Bank relies on an alleged diminution of the value of its collateral to
support its argument that it is no longer adequately protected because the debtor’s
equity cushion has been depleted. The Bank’s appraiser attributed some of that value
drop to the fact that the Johnsons did not complete all of the improvements that
underlay the 2010 appraisal. The Bank concedes that it did not inspect or appraise
the house before entering into the Agreed Order. Ms. Wharton testified that she
accepted the Agreed Order’s $74,000 because she assumed the repairs had been
made. The Bank didn’t prove any post-confirmation conduct or omission of the debtors
that could have contributed to the value drop. To the extent it relies on any potential
pre-petition dispute that could have arisen from the debtor’s failure to complete the
improvements, that dispute was resolved when the Agreed Order was entered and
the plan confirmed. Section 1327(a) rules out any collateral attack on that resolution.
vehicle); In re Mitchell, 281 B.R. 90, 94 (Bankr. S.D. Ala. 2001) (Absent a default in
carrying out the plan, confirmed plan precludes relief from the stay on grounds of
lack of adequate protection); Lester Mobile Home Sales, Inc. v. Woods (In re Woods),
130 B.R. 204 (W.D. Va. 1990) (confirmation precludes stay relief on ground that the
plan improperly valued creditor’s collateral).
21 Cf. In re Taumoepeau, 523 F.3d 1213, 1218-19 (10th Cir. 2008) (preconfirmation
stipulation between lender and debtor survived confirmation order where amended
plan addressed only prepetition arrearage while stipulation addressed postpetition
arrearage and the postpetition arrearage was paid outside the plan).
Case 15-10191 Doc# 79 Filed 05/19/16 Page 10 of 12
Nor did the Bank carry its burden to prove a lack of equity. The movant bears
that burden under § 362(g). Munson’s opinion that the house is only worth $45,000
isn’t enough. That report purports to value the same house portrayed in the 2010
appraisal, but with most of the improvements upon which the first appraisal was
predicated having been done. The 2010 appraisal drew from significantly higher
comparative sales than did the second appraisal. Mr. Munson’s reliance on the
Timber comparable in the 2015 report is particularly troubling. While one can quibble
about what “stripped” means, Ms. Gooch convinced me that the Timber property was
not habitable: it lacked sinks, HVAC units, mirrors, windows, wiring, and even
doorknobs. By comparison, Mr. Johnson lives in the subject property and the pictures
show that it is in habitable condition. It is difficult to believe that the presence of a
$34,500 sale in the comparative sales analysis did not significantly drive Mr.
Munson’s value conclusion below what reflects market reality. In short, the 2015
appraisal didn’t persuade me.
The house’s listing price has now dropped to $69,900. As of the hearing date,
it hadn’t yet been sold. The house may not be worth $74,000. But even if, as Mr.
Johnson believes, the house is only worth $69,000, 80% of that amount is $55,200
which still leaves the debtors and the Bank a modest cushion.22 At some point in the
future, if the Johnsons fail to sell or resume payments, they will have no equity in
the house, but that time has not arrived.
22 The equity cushion would be $2,490 ($55,200 - $52,710.44 = $2,489.56). Thatcushion will evaporate within the next year as post-petition interest accrues on theBank’s claim in the amount of $2,724 each year (365 x $7.4639 per diem interest).
Case 15-10191 Doc# 79 Filed 05/19/16 Page 11 of 12
The Bank’s motion for stay relief is therefore DENIED.
# # #
Case 15-10191 Doc# 79 Filed 05/19/16 Page 12 of 12
- Category: Judge Nugent
- Published: 11 May 2016
- Written by Judge Nugent
- Hits: 118
In Re Abengoa Bioenergy Biomass of Kansas LLC, 16-10446 (Bankr. D. Kan. Apr. 25, 2016) Doc. # 69
SIGNED this 25th day of April, 2016.
DESIGNATED FOR ONLINE PUBLICATION ONLY
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
IN RE: )
ABENGOA BIOENERGY BIOMASS OF ) Case No. 16-10446
KANASAS, LLC, ) Chapter 11
ORDER DENYING DEBTOR’S MOTION FOR INTER-DISTRICT
TRANSFER UNDER 28 U.S.C. § 1412 AND FED. R. BANKR. P. 1014
Abengoa Bioenergy Biomass of Kansas, LLC moves to transfer this case to the
United States Bankruptcy Court for the District of Delaware where cases involving
its indirect parent companies and other affiliates are pending. This motion requires
me to consider whether that transfer would serve the convenience of the parties or
the interests of justice. After carefully considering both the evidence and argument
Case 16-10446 Doc# 69 Filed 04/25/16 Page 1 of 18
received on April 13 and 19, 2016, I conclude that the facts and unique circumstances
surrounding this debtor and its known creditors do not warrant transferring the case.
Petitioning Creditors and mechanics’ lien claimants Brahma Group, Inc., CRB
Builders, LLC, and Summit Fire Protection Co. commenced this case by filing an
involuntary chapter 7 petition against debtor Abengoa Bioenergy Biomass of Kansas,
LLC (ABBK) on March 23, 2016. Service on ABBK was made on March 25, 2016. On
April 6, ABBK filed a motion to convert the case to chapter 11. An order granting that
motion was entered on April 8. Contemporaneous with the motion to convert, ABBK
filed a motion for inter-district transfer of the case from the District of Kansas to the
District of Delaware, so it can be jointly administered with the chapter 11 cases filed
by ABBK’s affiliates, and requested an expedited hearing on its transfer motion. Also
on April 6, ABBK filed a voluntary chapter 11 petition in the District of Delaware.
Several mechanics’ lien claimants and creditors filed objections to the transfer.1 An
evidentiary hearing was held on the motion on April 13.2
1 See Dkt. 46 (Stoppel Dirt), 47 (Schaedler Enterprises, Inc.), 48 (ICM), 49 (Brahma), 51
(TUSA), 57 (Elliott Electrical Supply).
2 After the evidentiary record was closed on April 13, the Court heard closing arguments from
the parties on April 19. ABBK appeared by its counsel Christine Schlomann. Creditor
Brahma Group appeared by its counsel Rick Griffin and Samantha Woods. Creditor ICMappeared by its counsel Thomas Lasater and Charles Milsap. Creditor Stoppel Dirt, Inc.
appeared by its counsel Bruce J. Woner. Creditor Schaedler Enterprises, Inc. appeared by itsattorney Richard Davis. Creditor Vista Energy, L.P. appeared by its counsel Jeffrey D.
Leonard. Creditor Pioneer Electric Cooperative, Inc. appeared by its attorney Edward J.
Nazar. The United States Trustee appeared by Richard A. Wieland. Victor Zhao, AssistantUnited States Attorney appeared telephonically on behalf of the U.S. Department of Energy.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 2 of 18
In November of 2015, Brahma Group filed a state court mechanic’s lien
foreclosure suit against ABBK in the District Court of Stevens County, Kansas. At
the time this involuntary case was commenced, there were approximately 25 lien
claimants joined in the state court foreclosure action.3 That action was stayed by the
involuntary petition against ABBK.
The Debtor ABBK
ABBK is one of hundreds of affiliates and indirect subsidiaries under the
expansive umbrella of Abengoa, S.A., a Spanish multi-national engineering and clean
technology conglomerate that operates in the energy and environmental sectors,
including the industrial production of biofuels such as ethanol.4 ABBK is a Kansas
limited liability company organized in 2006 and is part of Abengoa’s United States
bioenergy group of subsidiaries and affiliates. Its principal asset is a so-called “second
generation” biofuel/ethanol plant located on 400 acres in Hugoton, Kansas, the
southwest part of the state.5 In addition to the plant, ABBK owns the real estate and
unspecified water rights. After 3 years of construction, the plant was substantially
completed in 2014. The plant started up and achieved commercial production levels
during 2015, but never reached its design capacity of 25 million gallons annually.
Technology and production problems shut production down in November of 2015 and
the plant remains in “idled maintenance” status. ABBK’s witness Christopher
Standlee testified that the plant was “not broken,” but needs modifications or “fixes”
3 See Ex. 3, Third Amended Foreclosure Petition
4 See Ex. G.
5 First generation ethanol plants produce biofuels from food crops like corn while second
generation plants use renewable non-food plant matter like corn stover or switchgrass.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 3 of 18
to run the plant profitably. He anticipated that fixing the problems could cost as much
as $10-$20 million and take between two and six months. ABBK does not have the
cash to fix the plant’s operating problems. While the plant was running, ABBK had
70 to 80 employees; currently only ten remain, including the plant manager Danny
Allison in Hugoton. Mr. Allison reports to Craig Kramer, the Vice-President of
Operations in St. Louis where ABBK’s officers are housed.
ABBK’s Affiliate Relationships
ABBK is wholly owned by Abengoa Bioenergy Hybrid of Kansas, LLC (ABHK),
also a Kansas limited liability company. ABHK, in turn, is owned by Abengoa
Bioenergy US Holding, LLC, (ABUSH) a Missouri limited liability company.6 ABBK’s
mailing address for “official mail” is Chesterfield, Missouri (near St. Louis), the same
address as ABHK’s and ABUSH’s principal place of business.7 The ABBK facility’s
plant manager is in Hugoton, but the ABHK and ABUSH offices and the corporate
officers direct, control and coordinate ABBK from St. Louis.
ABHK filed a voluntary chapter 11 petition in Delaware on April 6.8 ABUSH
filed a voluntary chapter 11 petition in the Eastern District of Missouri (St. Louis) on
February 24 and is the lead debtor in the jointly administered case, together with
other subsidiaries and affiliates in Abengoa’s bioenergy group.9
Both of the Abengoa subsidiaries that supplied engineering and construction
services at the Hugoton project or served as general contractor on the project are
6 Ex. 2.
7 Ex. 8.
8 Ex. 8.
9 Ex. F, p. 29; Ex. 2.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 4 of 18
located in Phoenix, Arizona. They are Abeinsa EPC LLC10 and Abener Teyma
Hugoton General Partnership (Teyma). Both are parties to the Stevens County
foreclosure. Abeinsa EPC and Teyma each filed voluntary chapter 11 petitions in
Delaware on March 29, 2016.11 Neither Abeinsa EPC nor Teyma are part of the
Abengoa bioenergy group.12 Abengoa’s subsidiaries operate on a decentralized
Another Abengoa affiliate, Abengoa Bioenergy New Technologies, LLC (ABNT)
developed and owns the second generation technology in use at the Hugoton plant.
ABNT licenses that technology to ABBK, though there was no evidence offered at the
in Delaware on April 6.14
ABBK’s Books and Records
While operational records are maintained at ABBK’s Hugoton facility, ABBK’s
books and records reside in St. Louis. The construction records for the Hugoton
facility are maintained by Teyma in Phoenix, Arizona.
The Known Creditors of ABBK
ABBK’s known creditors include the U.S. Department of Energy (DOE) which
provides unspecified financial assistance to renewable energy enterprises and the
mechanics’ lien claimants who provided labor and materials in the construction of the
10 “EPC” is the acronym for Engineering, Procurement, and Construction. See Ex. F, p. 5.
Abeinsa EPC is a Delaware limited liability company.
11 Ex. F, p. 28; Ex. 6.
12 Ex. F, p. 5.
13 Ex. F, p. 6.
14 Ex. 7.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 5 of 18
facility.15 I assume there are numerous trade creditors as well as inter-affiliate
obligations. ABBK’s utility provider is Pioneer Electric Cooperative, Inc. and is
located in southwest Kansas.16 Though ABBK suggested at trial that DOE would
assert a priority lien in its assets, DOE’s counsel informed that court that the
Government’s interests are more in the nature of restrictions on ABBK’s use of the
land that are based upon certain regulatory provisions. DOE has no recorded lien, at
least in Stevens County. The mechanics lien claimants are parties to the Stevens
County case and those who have entered appearances in this case. DOE is located in
Washington D.C. The mechanics lien claimants are located in Kansas and several
other states across the country, but all have provided materials and services in the
construction of the ABBK ethanol plant in Kansas.17 The petitioning creditors’
principal places of business are in Salt Lake City, Utah (Brahma); St. Louis, Missouri
(CRB Builders); and St. Paul, Minnesota (Summit Fire). The following mechanic’s
lien claimants are located in Kansas or are entities organized under Kansas law:
ICM, Inc., Stoppel Dirt, Inc., TUSA, Inc., Decker Electric, Inc., Mead O’Brien, Inc.,
Sunrise Staffing Services, LLC, Bearing Headquarters Company, and C.F. Service &
Non-Kansas lien claimants include creditors Acid Piping Technology and
Cogent, Inc., both are located in Missouri. The following lien claimants are located in
15 ABBK has not filed its schedules in either Kansas or Delaware. I assume there are
numerous trade creditors as well as inter-affiliate obligations.
16 ABBK and Pioneer entered into an Agreed Order for adequate assurance of payment under
§ 366 on April 20, 2016. See Dkt. 62.
17 Ex. A and Ex. 3.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 6 of 18
Georgia: Transglobal Energy, Inc., Black Diamond Industrial LLC, Air Techniques,
Inc., and Dustex LLC. Creditor Maine Automation is located in Maine. Vista Energy
is located in Washington. Sulzer Pump Services US Inc. is located in Texas. W-S
Industrial Services, Inc. is located in Iowa. FHI Plant Services is located in Arizona.
Lien claimant Pumping Solutions, Inc. is located in Illinois. We do not know the
principal place of business of either Elliott Electrical Supply, Inc. or Schaedler
Enterprises, two other lien creditors who oppose transfer. Other than these two
creditors, none of the lien claimants appear to maintain a principal place of business
The Parties’ Counsel
Nearly all of the lien claimants have retained counsel for the Stevens County
foreclosure from Kansas or the Kansas City metropolitan area. All of the Abengoa
subsidiaries in the foreclosure – ABBK, Abeinsa EPC LLC and Abener Teyma
Hugoton General Partnership, have retained the services of a Wichita, Kansas law
firm. Ms. Christine L. Schlomann, ABBK’s attorney on the motions filed in this case
offices in Kansas City, Missouri.18 Creditor counsel who have entered their
appearances in this bankruptcy to date are nearly all from Kansas or the Kansas City
area.19 DOE appeared telephonically at the transfer hearing by a justice department
attorney from Washington D.C.
18 After the motion for transfer was heard, Ms. Schlomann moved for co-counsel R. Craig
Martin’s admission pro hac vice which was granted on April 20. Mr. Martin practices with
DLA Piper LLP in Wilmington, Delaware.
19 Counsel Jay Welford of the law firm Jaffe Raitt Heuer & Weiss, P.C. from Southfield,
Michigan has entered an appearance for Varilease Finance, Inc., VFI KR SPE I, LLC and
VFI-SPV VIII Corp.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 7 of 18
ABBK’s sole witness at the transfer hearing was Christopher Standlee, the
Executive Vice-President for Global Affairs. He works for ABUSH, the upstream
parent of ABBK and Eastern District of Missouri debtor, and is a member of its Board
of Directors. He formerly worked out of the St. Louis office but now works from
Washington D.C.20 He is on the Steering Committee for Abengoa’s global
restructuring, but is not the “decision maker” for ABBK and has little or no “line”
authority over its ABBK’s operations.
Apart from the creditors, DOE, and on-site Hugoton plant manager who may
be witnesses in ABBK’s bankruptcy, the identity and location of other potential
witnesses is unknown. The nature and location of the debtor’s other professionals,
such as investment bankers or restructuring experts is not in the record. The DOE
witnesses would likely travel from the Washington D.C. area. It appears that the
officers with authority and management over ABBK’s operations are located at
corporate offices ABHK or ABUSH in St. Louis. No corporate officers appear to be
located in Delaware.
The Eastern District of Missouri Cases
In addition to ABBK’s bankruptcy here, and the recent bankruptcy filings in
Delaware as noted above, several Abengoa affiliates and subsidiaries that, like
ABBK, are part of the bioenergy group, filed chapter 11 cases in St. Louis in the
20 Before working for Abengoa, Mr. Standlee practiced law in Wichita, Kansas, later servingas general counsel to High Plains Corporation before it was acquired by Abengoa.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 8 of 18
Eastern District of Missouri on February 24, 2016.21 The lead debtor in the jointly
administered Missouri bankruptcies is ABUSH – ABBK’s upstream parent. Other
subsidiaries owning or operating first or second generation ethanol plants in
Ravenna, Nebraska; York, Nebraska; Colwich, Kansas; and Portales, New Mexico,
including Abengoa Bioenergy of Nebraska, LLC and Abengoa Bioenergy Company,
LLC, a Kansas limited liability company, are chapter 11 debtors in the Missouri
proceedings. It appears that none of the Abengoa affiliates or subsidiaries that
directly own and operate ethanol plants have filed bankruptcy in Delaware.
Abengoa, S.A.’s Global Restructuring
This bankruptcy and the cascade of affiliate and subsidiary bankruptcy filings
follow the ultimate parent Abengoa, S.A.’s efforts in 2015 to turnaround the
conglomerate’s financial situation.22 In November of 2015 Abengoa, S.A. sought
protection under the Spanish Insolvency Act to pursue negotiations with its principal
financial creditors to reach a global agreement for restructuring its financial affairs.
In March of 2016, Abengoa, S.A. presented its Restructuring Proposal in Spain – “the
framework for the restructuring of Abengoa’s financial obligations,” and is seeking to
obtain the requisite creditor approval in order for the Spanish Court to approve the
same.23 As part of a Standstill Agreement entered into between Abengoa and certain
financial creditors, Abengoa, S.A. and its numerous Spanish affiliates filed chapter
21 Ex. F, p. 29.
22 See Ex. F, Runge Declaration (“Runge Dec.”), pp. 4-14 for history of Abengoa, S.A., its
corporate structure, and business activities leading up to the current global restructuring
and reorganization efforts.
23 See Ex. I, Business Plan & Financial Restructuring Proposal, March 16, 2016; Runge Dec.,
Case 16-10446 Doc# 69 Filed 04/25/16 Page 9 of 18
15 bankruptcy cases in the District of Delaware on March 28, 2016 to extend the
The Abengoa entities and business activities are broken into four “distinct
business units” – bioenergy, EPC (engineering, procurement, and construction),
water, and solar.24 They “operate on a decentralized basis,” and the majority of
operations are in the EPC and solar business units.25 Through the Restructuring
Proposal and its agents, Abengoa has expressed its plans with respect to its U.S.
bioenergy affiliates and subsidiaries. With specific reference to the Missouri
proceedings noted above, it stated that “the Bioenergy Debtors seek to reorganize
through a sale of all or substantially all of their assets or a stand-alone
restructuring.”26 As described in the Restructuring Proposal, the “new” Abengoa in
general would focus on turnkey projects focusing on its engineering and construction
business unit and no longer own “industrial plants.”27 Other publicity in 2016
regarding Abengoa’s future reported that it was open to selling off the bioenergy unit
because “making biofuels” was not part of its core business.28
At about the same time the Restructuring Proposal came out and shortly before
this involuntary was commenced, the plant manager of the Hugoton facility offered
for sale an extensive list of “surplus equipment.”29 Land and water rights have also
24 Runge Dec., ¶ 11.
25 Id. at ¶ 13.
26 Id. at ¶ 33.
27 Ex. I, p. 37.
28 Ex. K. See also, Ex. L.
29 Ex. J.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 10 of 18
been offered for sale. Mr. Standlee testified these were excess rights and land due to
over-purchase of water rights and land that was not needed to run the plant.
The court may, in its discretion, transfer a case either for the convenience of
the parties or in the interests of justice.30 Fed. R. Bankr. P. 1014(b) provides that, if
multiple cases involving the same debtor are filed in different districts, the court in
which the first-filed petition is pending may decide, again based on the interests of
justice or the parties’ convenience, where the case should proceed. Because the first
petition was filed in the District of Kansas, it falls to me to determine where this
chapter 11 case should proceed. Usually, the burden is on the party seeking to
transfer venue to prove that it is warranted by a preponderance of the evidence.31
Courts usually apply the CORCO test, weighing a series of factors set out in
that case.32 Those factors include (1) the proximity of creditors to the court; (2) the
proximity of the debtor; (3) the proximity of necessary witnesses; (4) the location of
the assets; (5) the economic administration of the estate; and (6) necessity for
ancillary administration.33 Many cases suggest that the party seeking to transfer the
case to another venue has the burden to prove either the justice or the convenience of
the contemplated move and at least one judge has noted that the burden of
30 See 28 U.S.C. § 1412(a)(1) and (b).
31 See In re Enron Corp., 317 B.R. 629, 637-39 (Bankr. S.D.N.Y. 2004).
32 See In re Commonwealth Oil Ref. Co., Inc. (“CORCO”), 596 F.2d 1239, 1247 (5th Cir. 1979),
cert. denied, 444 U.S. 1045 (1980).
33 See In re Enron Corp., 274 B.R. 327, 332 (Bankr. S.D.N.Y. 2002).
Case 16-10446 Doc# 69 Filed 04/25/16 Page 11 of 18
determining what is “just” ultimately falls to the judge.34 Courts also give deference
to the debtor’s choice of venue.35 The first case filed was the creditors’ involuntary
petition against a Kansas debtor in Kansas. The debtor converted that case to a
chapter 11 case here, simultaneously filing the companion case in the District of
Delaware. I view the “first-filed” and “debtor preference” rules as part of the “interests
of justice” determination. In weighing the CORCO factors, the court looks at the case
“on the ground” as the record portrays it at the time of the hearing.36 I am also
mindful that transfer should not be granted if it merely shifts the inconvenience from
one party to the other.37
Rule 1014(b) “Convenience” Considerations
The first factor is the proximity of creditors of every kind to the court. Mr.
Standlee testified that this debtor may have “thousands” of creditors in all fifty states.
But ABBK’s order for relief had only issued seven days before the hearing and there
are no schedules. Based on the evidence, the only creditors we know about are the
mechanics lienholders at the Hugoton project, debtor’s utility provider, and the
Department of Energy (DOE or Department). The lien creditors are from various
34 In re Caesars Entertainment Operating Company, Inc., 2015 WL 495259 at *5 (Bankr. D.
Del., Feb. 2, 2015).
35 Caesars Operating at *7 (noting the level of deference given to a debtor’s choice of forum is
less clear where an involuntary petition was filed against the debtor in a different venue prior
to the debtor’s voluntary petition).
36 In re West Coast Interventional Pain Medicine, Inc., 435 B.R. 569, 579-80 (Bankruptcy.
N.D. Ind. 2010) (The court must focus on concrete facts that exist at the time venue motionis considered – not what may or may not play out in administration of the case); CORCO, 596
F.2d at 579-80.
37 In re Great American Resources, Inc., 85 B.R. 444, 446 (Bankr. N.D. Ohio 1988); Matter of
Lakeside Utilities, 18 B.R. 115, 118 (Bankr. D. Neb. 1982).
Case 16-10446 Doc# 69 Filed 04/25/16 Page 12 of 18
places, but more than a few are from Kansas or have consented to its territorial
jurisdiction by doing business in Kansas and by appearing in a Kansas state court
proceeding concerning their claims.
The DOE’s interest is unclear at present. At trial, the debtor said that the DOE
has a lien-like interest in ABBK’s real property by virtue of regulatory provisions that
govern alternative energy grants and that this lien would prime the lien claimants’
priority. Other than Mr. Standlee’s testimony, no evidence of that was produced. At
argument, DOE’s counsel stated that the Department doesn’t claim a lien; rather the
regulations found in 10 C.F.R. § 601.321 gives the Department certain veto rights
over the disposition of an alternative energy grantee’s real estate.38 It remains to be
seen to what extent the DOE’s claim affects the secured status of this asset or how
those rights stack up to against perfected security interests in bankruptcy court. The
creditor proximity test weighs against transfer for now.
The debtor has proximity to the court. ABBK is a Kansas limited liability
company that is owned by another Kansas LLC, ABHK. ABHK is remotely owned by
a Missouri entity, ABUSH. ABUSH’s offices and ABBK’s managing officers are
located in St. Louis, Missouri, and Washington, D.C. Travel between here and those
cities is hardly impossible. Given that this debtor’s assets are few in number (though
very valuable) and that its place in Abengoa’s corporate scheme is as one of many
distinct entities, its need to transport officers and witnesses may prove to be
infrequent and, in any event, will not be burdensome. By comparison, requiring these
38 10 C.F.R. § 601.321.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 13 of 18
creditors to go to East Coast to defend their Kansas law-based claims will
undoubtedly be burdensome to them. This factor weighs against transfer.
As to the proximity of witnesses, the debtor argues that the necessity of
appearance by investment bankers and other professionals who office on the East
Coast demands venue in Delaware. But, some of the likely witnesses to the lien claims
issues are from Kansas or are situated in the Midwest and easily accessible to
Kansas. Many of them are subject to this court’s subpoena power. This factors weighs
slightly against transfer.
This debtor’s assets, including 400 acres of land, water rights, and the plant’s
improvements, are located in Stevens County, Kansas. That is 250 miles from this
courthouse and lies within this court’s territorial jurisdiction. Oversight management
occurs at the “home office” in St. Louis. Mr. Standlee testified he was unaware of
other assets located outside Kansas. This factor weighs against transfer.
The record is less clear concerning the books and records of the debtor. The
plant manager did not testify. Mr. Standlee stated that some of the books and records
are maintained in St. Louis. The construction records for the debtor may be in
Phoenix, and those business records not at the plant are in St. Louis. There is no
suggestion those records reside in the District of Delaware. Given the ability to search
and transmit records electronically, their physical whereabouts may not be as
important as it once was. This factor weighs neutral.
As to the economical administration of this estate, the location of this debtor’s
management in Missouri, while not ideal to the case proceeding in Wichita, should
Case 16-10446 Doc# 69 Filed 04/25/16 Page 14 of 18
not impede efficiently prosecuting the case here. Mr. Standlee came from Washington
to testify on extremely short notice. He is the Executive Vice President for Global
Affairs of ABUSH which is a debtor in the Eastern District of Missouri. He said has
no line authority over this debtor. Rather, he is a member of a steering committee
overseeing all of the bankruptcy cases involving Abengoa entities. The operational
assets are here and St. Louis is not far away. Nothing in the record suggests there
are directly responsible administrators in Delaware. The court notes that it hears
many business cases in which ownership and management are from outside Kansas.
This factor weighs neutral.
In summary, convenience weighs against transferring this case. This is a
debtor with a principal, albeit large and expensive, asset—the Kansas plant.
Purposefully organized as such, it is one of many separate entities that make up a
larger enterprise. Nothing prevents this debtor from benefitting from a debtor in
possession credit facility that is approved in the Delaware cases. This court can
certainly determine whether the amounts requested are appropriate and whether the
extent to which this debtor’s assets will be encumbered is proper. I can reach those
and any other issues concerning the terms of a proposed credit facility as it affects
this debtor very promptly. Right now, there is no evidence about whether such a
facility is forthcoming or who the lenders might be.
Unlike the movants in CORCO, Enron, or Caesars Operating, these objecting
creditors do not seek to transfer a mega-case filing to their venue. Rather, they simply
ask that a case they initiated as an involuntary proceeding and that involves a legally
Case 16-10446 Doc# 69 Filed 04/25/16 Page 15 of 18
and financially distinct entity remain here. At this point, ABBK has simply failed to
show why this case (and this debtor) cannot operate separately, but in tandem with,
the Delaware and Missouri cases.
The Interest of Justice
The interest of justice test involves balancing more intangible considerations.
A court should exercise its power to transfer a bankruptcy case cautiously.39 In doing
so, it should consider what will promote the efficient administration of this estate,
judicial economy, timeliness, and fairness.40
In cases with one or a few assets, courts have favored sending them to or
leaving them in venues where the assets are located. In In re Rehoboth Hospitality,
LP, the court faced a Delaware voluntary petition concerning a debtor who, while
organized in Delaware, owned a hotel in Texas—its only asset.41 In that case, the
court noted that deference is often afforded the debtor’s choice of forum, but that the
debtor’s choice is not dispositive when the choice is not directly related to the
underlying facts and issues in the case.42 There, because the asset and most of its
creditors were situated in Texas, the court granted their motion to transfer after
concluding the movants had carried their burden of proof.
Compare that result to Caesars Operating, where the court recognized that the
level of deference is less clear where an involuntary petition was filed before the
39 CORCO, 596 F.2d 1239, 1241; Enron, 274 B.R. at 342; In re Condor Exploration, LLC, 294
B.R. 370, 377 (Bankr. D. Colo. 2003); In re Toxic Control Tech, Inc., 84 B.R. 140, 143 (Bankr.
N.D. Ind. 1988).
40 Enron, 274 B.R. 327, 343 (Bankr. S.D.N.Y.2002).
41 In re Rehoboth Hospitality, LP, 2011 WL 5024267 (Bankr. D. Del. Oct. 19, 2011).
42 2011 WL 5024267 at *3.
Case 16-10446 Doc# 69 Filed 04/25/16 Page 16 of 18
debtor filed its voluntary case.43 In that case, the Delaware court had the first-filed
involuntary while the voluntary case was filed in the Northern District of Illinois.
The creditors seeking the transfer in Caesars wanted the entire mega-case to be
transferred from that district to the District of Delaware. The petitioning creditors in
that matter filed their petition knowing that the debtor would be filing a voluntary
case. In those circumstances, the court concluded that it would honor the debtor’s
Our situation is different in several ways. First, the petitioning creditors here
sought involuntary relief more than ten days before the voluntary case was filed.
ABBK presented no evidence that the petitioning creditors knew ABBK was going to
file a voluntary chapter 11 in Delaware and that the Kansas involuntary was a
preemptory strike. Second, the ABBK case, while part of a complex set of entities,
does not itself seem to be nearly as complex. It is a company with few but valuable
assets that are encumbered by liens, not unlike the hotel in Rehoboth. Third, the
creditors seeking the transfer in Caesars wanted the entire complex of related cases
to be transferred from the Northern District of Illinois to the District of Delaware.
ABBK’s creditors merely want this entity’s case to be conducted in this District. They
do not seek to wrest the Delaware cases away, nor would this court entertain such a
In considering the fairness of a transfer, I should note the respective parties’
concerns about ABBK’s true intentions in this case. The objecting creditors believe
43 In re Caesars Operating Company, Inc., 2015 WL 495259 at *7 (Bankr. D. Del. 2015).
Case 16-10446 Doc# 69 Filed 04/25/16 Page 17 of 18
that this debtor will ultimately sell the plant because of what they perceive Abengoa’s
larger business strategy to be. Certainly, Abengoa’s senior management has made
clear its intention to exit the manufacturing business and rely more on engineering,
procurement, and construction (“EPC”) both in its overall business plan and in
pleadings in this court. But this court is also open to the possibility that ABBK’s
position as the owner and user of a developing technology furthers the greater
venture’s EPC goals.
It may also be more efficient and less expensive to consider whether and to
what extent to allow the claims in this case here. Like the Delaware cases, this case
is in its infancy; neither court is likely to have “gained familiarity with many of the
issues that have and will continue to arise.”44 The validity of the mechanics lien
claims turns on Kansas law and many of the lien claimants are present in Kansas or
have consented to its jurisdiction. This court has the time and expertise to reach those
and any other necessary issues with dispatch. Even though my distinguished
Delaware colleagues give every issue they get the closest and fairest consideration, I
am reluctant to risk ABBK’s creditors being lost in the sea of complex matters that
may be pending in the larger Abengoa cases.
I conclude that ABBK has not demonstrated by a preponderance of the
evidence that the case should be transferred on either convenience grounds or the
interests of justice. The debtor’s motion to transfer is accordingly DENIED.
# # #
Case 16-10446 Doc# 69 Filed 04/25/16 Page 18 of 18
- Category: Judge Nugent
- Published: 16 May 2016
- Written by Judge Nugent
- Hits: 125
In Re Krier, 14-12439 (Bankr. D. Kan. Apr. 29, 2016) Doc. # 74
DESIGNATED FOR ONLINE PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANASAS
RONALD L. KRIER
Case No. 14-12439
ORDER DENYING CONFIRMATION
Ronald Krier’s chapter 12 plan treats his domestic court obligation to his
former wife, Constance Schaffer, as an allowed secured claim rather than as a
“domestic support obligation” that must be repaid before his plan can be confirmed.
He offers to repay the debt over 20 years, extending what was originally a fifteen year
obligation in 2005 to one that might not be paid in full until 2036. In a May 2014
settlement agreement, Schaffer agreed to reduce her debt from $106,000 to $88,000
that was payable in full on November 1, 2014. That agreement was a novation that
replaced the parties’ original 2005 property settlement. The 2014 agreement didn’t
delineate between property settlement and maintenance like the 2005 agreement did,
stripping the debt of its domestic support obligation character and excusing Krier
from having to pay it in full as a prerequisite to confirmation.1
1 See 11 U.S.C. § 101(14A); In re Taylor, 737 F.3d 670, 676 (10th Cir. 2013); and In re
Sampson, 997 F.2d 717 (10th Cir. 1993); see also § 1225(a)(7) (Requiring that all domestic
support obligations becoming due and payable after filing be paid in full).
2 Confirmation of debtor’s chapter 12 plan was submitted to the Court on Krier’s and
Schaffer’s joint stipulation of facts and briefs. See Dkt. 65 and supporting exhibits thereto.
The debtor Ronald L. Krier appears by his attorney Dan Forker. Creditor Constance
Schaffer appears by her attorney Kelsey N. Frobisher.
Krier’s obligation to Schaffer under the 2014 agreement is instead a fully
secured claim that may be paid by a stream of payments equal in value to the allowed
amount of the claim. But Schaffer is not a bank. She is a former spouse who has
already waited 11 years to receive payment for her share of the marital estate—an
estate that Krier has continued to use while not paying his obligations to her.
Converting Schaffer’s claim from a single payment obligation due in a few weeks to a
20 year loan lacks good faith under § 1225(a)(3) and falls short of the secured claim
requirements of § 1225(a)(5). Since the plan doesn’t comply with § 1225, confirmation
must be DENIED. The debtor is granted 21 days from the date of this order to file an
amended plan or to convert to chapter 7. Otherwise, the case will be dismissed.2
Constance Schaffer and Ronald Krier separated in 2004 after a 15 year
marriage and were divorced in 2005. In their Property Settlement Agreement (the
“2005 Agreement”), Krier agreed to pay Schaffer $63,750 in property settlement and
the same amount in “spousal maintenance.”3 The property and maintenance
payments were due every February and August in equal amounts and were to be paid
in full within fifteen years, not later than February of 2020. If the debtor missed a
property settlement payment, interest would accrue on any unpaid balance. If
Schaffer married or died during the repayment period, Krier’s obligation to pay the
maintenance portion of the debt would terminate. The agreement recited that none
of the obligations were dischargeable in bankruptcy. The District Court of Osborne
County made this agreement a part of the divorce decree it issued on May 18, 2005.4
3 Dkt. 65-2.
4 Dkt. 65-1.
5 Dkt. 65-4.
Krier missed many payments. In 2013, Schaffer requested and received an
order from the state court determining that Krier was $24,013 behind on
maintenance and $24,013 behind on the property settlement. The parties stipulate
that, before they signed the 2014 Settlement Agreement, Krier owed Schaffer over
In 2010 and 2012, Krier granted his lender, Guaranty State Bank & Trust Co.
mortgages on his farmland. Those mortgages are subordinate in priority to Schaffer’s
judgment lien. When Krier defaulted in 2013, the Bank foreclosed, including Schaffer
and other judgment lien creditors as party defendants.6 That foreclosure led to a
mediated global settlement that is documented by a May 2014 Settlement Agreement
(the “Settlement Agreement”) between Krier and all of his secured creditors.7
6 Dkt. 65-6.
7 Dkt. 65-7. The Settlement Agreement was journalized in the foreclosure case in July of
2014. Dkt. 65-8.
8 Dkt. 65-7, p. 2.
9 Dkt. 65-7, p. 3. Emphasis added.
10 Id., pp. 3-4.
In the Settlement Agreement, the parties “agree and acknowledge” that the
Krier-Schaffer divorce decree “created certain obligations between [them] concerning
payment of spousal support (sometimes referred to as alimony or spousal
maintenance, and payment of monies to equalize a property division.”8 After reciting
the other debts Krier owed the plaintiff and defendants, the Settlement Agreement
The parties agree and acknowledge that they are entering into this
agreement to establish certain amounts to be paid by Krier to all of the
parties, the priority for payment, and to resolve all issues pending
before the parties in all cases set forth above, together with any
other issues not heretofore stated or alleged by the parties.9
The Settlement Agreement then recites that Schaffer will be paid $88,000 and
Krier and Schaffer agree that the above amount differs from the
agreement of the parties concerning payment of monies by Krier to
Schaffer in said divorce action, and that both parties agree to a
modification of said amount, the terms and conditions of payment, and
that upon the payment of $88,000 to Schaffer as set forth above, all
obligations of Krier to Schaffer for payment as previously agreed to by
the parties will be deemed satisfied and paid in full.10
11 Id. at p.7. Emphasis added.
12 Dkt. 65-8.
The parties acknowledged that Schaffer’s judgment lien was senior in priority to the
mortgage and judgment liens of the other creditors. Krier agreed that by November
1, 2014, he would either refinance all of his obligations to Schaffer and the other
lienholders or sell his land and pay all of them in full. The Settlement Agreement
would become part of a journal entry of judgment and if Krier failed to perform, all of
the property he listed as collateral for his various debts would be sold at sheriff’s sale
on November 1, 2014 and the parties paid in priority order.
The Settlement Agreement contained an integration clause:
Absolute, Complete Agreement. This agreement is absolute and
irrevocable. It constitutes the complete and final expression of the
parties’ understandings concerning settlement and dismissal of the
above captioned action [the foreclosure]. This agreement supersedes
all previous contracts, agreements, and understandings of the
parties, whether oral or written. . . . 11
The Settlement Agreement was submitted to the state court for approval along
with a Journal Entry of Judgment that all of the parties approved and that the court
entered on July 18, 2014.12 The Journal Entry finds that the notes of Guaranty Bank
were in default and that, pursuant to the Settlement Agreement, Schaffer was owed
$88,000. The Journal Entry further states that:
Defendants, Constance Shaffer, Midway Co-op, Inc., and MNM Seeds,
LLC all have valid judgments against the Defendant, Ronald L.
Krier, in the amounts and priority referenced above, which
amounts include interest accrued and accruing through November 1,
13 Dkt. 65-8, p. 3, ¶ 4. Emphasis added.
14 See Claim 13-1.
15 Dkt. 19, p. 6. See Till v. SCS Credit Corp., 541 U.S. 465, 479 (2004) (Discount rate for
secured claims in chapter 13 equals prime rate plus a default risk factor).
The Journal Entry barred the plaintiff and the judgment creditors from executing on
those judgments until November 1, 2014 and provided for the plaintiff to arrange for
a sheriff’s sale at execution to be held on November 1, 2014 pursuant to an order of
sale. The recitation in the Settlement Agreement concerning the nature of Krier’s
original obligation to Schaffer is the only reference to any part of the debt having
been for spousal support.
Krier filed this chapter 12 case on October 27, 2014. Schaffer filed a proof of
claim for $88,000 plus interest accruing at 4.75% per annum, describing the debt as
a secured claim for “domestic support obligation/property settlement.”14 Krier’s
chapter 12 plan proposes to pay Schaffer $88,000 in annual payments, amortizing her
$88,000 claim at the trustee’s Till rate of 5.25% per annum over 20 years after
Schaffer objected to the plan on several grounds. She argues first that one-half
of the $88,000 is domestic support that came due on November 1, 2014, post-petition,
and must be paid in full to satisfy § 1225(a)(7). She also argues that the proposed 20
year term, at an interest rate lower than that being paid a subordinate secured
creditor, Guaranty Bank, was not proposed in good faith, barring confirmation under
§ 1225(a)(3). Nor is the proposed repayment sufficient under § 1225(a)(5).16
16 In her brief, Schaffer also argued that Krier’s plan didn’t provide for her to retain her lien
as § 1225(a)(5)(B) requires, but that is incorrect. It does. See Dkt. 19, p.6.
Krier argues that the Settlement Agreement replaced the twin support and
property claims with one debt and that the new debt is no longer a domestic support
obligation that must be paid at confirmation. He argues that he is proceeding in good
faith, that the Till rate is appropriate, and nothing in the Code prevents him from
extending the repayment period for debt secured by a judgment lien for 20 years.
This case has been pending since October 27, 2014. Krier filed his plan on
January 22, 2015. Schaffer’s is the only objection remaining in controversy. At their
request, Krier’s and Schaffer’s counsel submitted stipulations and briefs concerning
Ms. Schaffer’s objections to the plan. Those objections centered on the nature and
treatment of her claim. On August 18, Krier appeared in court and testified in support
of his plan, including its feasibility, but there have been no further proceedings in
this case beyond Krier’s and Schaffer’s briefing of the issues surrounding her claim.
The Settlement Agreement as adopted in the Journal Entry of Judgment
acknowledges that Krier’s original obligations to Schaffer were for spousal
maintenance and property settlement, but goes on to state that the Agreement is
intended to “establish certain amounts” for his debts and to “resolve all issues
pending before the parties in all cases set forth above, together with any other issues
not heretofore stated or alleged ….”17 It also states that Schaffer’s $88,000 claim is a
modification of a prior amount due and that payment of that amount will satisfy all
of Krier’s obligations to her.18 Most notably, the Settlement Agreement states that it
is the final expression of the understandings among the parties that “supersedes all
previous contracts, agreements and understandings….”19 The Journal Entry recites
that Schaffer has a judgment for $88,000 that can be enforced by execution sale if
Krier doesn’t comply with the terms of the Settlement Agreement.20
17 Dkt. 65-7, p. 3, ¶ 5.
18 Id. at ¶ 4.
19 Id. at p. 7, ¶ 2.
20 Dkt. 65-8, p. 4, ¶s 8-9; Dkt. 65-7, p. 6, ¶ 5-6.
21 Dkt. 65-2.
22 Id. at pp. 2-3, ¶s 4-5.
These terms are different from those set out in the 2005 Agreement.21 Then,
Ms. Schaffer’s claim was expressly bifurcated between property settlement and
maintenance.22 Though the payments on each were in equal amounts, the
maintenance payments terminated upon Ms. Schaffer’s death or remarriage and, if
Krier missed any property settlement payments, interest would accrue on the unpaid
principal balance. The final payments were not due until February of 2020. Compare
this to the terms of the Settlement Agreement that combined and discounted the
amount of the support and property debts, eliminated the periodic payment scheme
entirely, omitted any mention of payments being terminated on remarriage or death,
and converted the obligation to a lump sum judgment payable no later than
November 1, 2014.
The Settlement Agreement is a novation that replaced and extinguished the
2005 Agreement. A novation is “a new contractual relation” that is substituted for an
old one, extinguishing the former agreement.23 It replaces the previous agreement in
its entirety rather than modifying only some of the prior agreement’s terms and is
different from an executory accord, an agreement that merely promises a substituted
performance of an existing promise:
23 Elliott v. Whitney, 215 Kan. 256, 259-260, 524 P.2d 699 (1974).
24 Id. at 260.
The distinction between a novation and an executory accord becomes
significant in the event of breach of the new agreement. If the new
agreement constitutes a novation, a breach does not revive the
discharged claim and the parties' rights are controlled by the new
agreement. [citations omitted]
On the other hand the effect of a breach of an executory accord is stated
in the following: ‘Since an accord executory operates at best no more
than as a suspension of the antecedent claim, a material breach of the
accord by the debtor lifts the suspension and makes the creditor’s prior
claim again enforceable.’ [citation omitted].24
An executory accord allows the unmodified terms of the prior agreement to be revived.
A novation doesn’t. Whether the agreement is a novation or an executory accord is a
matter of intent.25 We can infer that the parties intended to replace the former
contract with the latter one when the provisions of the latter contract differ
“radically” from the former.26 So it is here. Not only did the Settlement Agreement
dramatically modify both the payment scheme and the amount due under the 2005
Agreement, it dropped any mention of the debt being support or maintenance, as well
as the termination on remarriage or death terms. Krier agreed to pay his discounted
debt in a few weeks, not years. After they signed it, the Settlement Agreement
replaced the 2005 Agreement between Krier and Schaffer.
Bankruptcy Code §101(14A) defines a “domestic support obligation” (“DSO”) as
a debt that is owed to a former spouse that is “in the nature of alimony, maintenance,
or support,” and has been established by a matrimonial agreement or a court order.
After the recitals, nothing in the Settlement Agreement or Journal Entry suggests
that Mr. Krier’s restated debt to Ms. Schaffer is a DSO. In In re Sampson, the Tenth
Circuit Court of Appeals announced a two-step analysis for bankruptcy courts to use
in determining whether a matrimonial debt is in the nature of support and excepted
from discharge.27 Sampson gives some weight to how the issuing court describes the
obligation, but also applies a series of factors that consider the comparative financial
abilities of the two parties at the time of the divorce, the frequency and regularity of
the periods between payments, the overall length of the payment term, whether the
payments terminate upon a life event like the payee spouse’s remarriage or death or
the emancipation of a child, whether the obligation can be modified, how it is treated
27 11 U.S.C. § 523(a)(5); In re Sampson, 997 F.2d 717, 722-23 (10th Cir. 1993) (dual inquiry
into the parties’ shared intent and the substance of the obligation).
Case 14-12439 Doc# 74 Filed 04/29/16 Page 10 of 14
for tax purposes, and the current circumstances of the parties.28 The Settlement
Agreement doesn’t describe Krier’s obligation to Schaffer as support. Nor are any of
the Sampson considerations addressed. Accordingly, none of Schaffer’s claim under
the Settlement Agreement qualifies as a DSO and Krier need not pay her claim in
full as a prerequisite to confirmation as § 1225(a)(7) would have required.29
28 Sampson, 997 F.2d at 723-26. See also, In re Goin, 808 F.2d 1391, 1392-93 (10th Cir.
29 Though the parties spar over whether the obligations in the 2005 Agreement were DSO,
the old agreement has been extinguished by the Settlement Agreement, mooting that issue.
30 See Flygare v. Boulden, 709 F.2d 1344, 1347-48 (10th Cir. 1982) (adopting eleven non-
exclusive factors enumerated in In re Estus, 695 F.2d 311, 317 (8th Cir. 1982)), superseded
by statue In re Cranmer, 697 F.3d 1314, 1319 n. 5 (10th Cir. 2012) (BAPCPA’s amendment
in § 1325(b) subsumes some of Flygare/Estus “ability to pay” factors and narrows good
faith inquiry; exclusion of social security income from calculation of projected disposable
income calculation cannot constitute lack of good faith where Code expressly allows
exclusion); In re Sorrell, 286 B.R. 798, 805 (Bankr. D. Utah 2002) (applying Flygare factors
to determine whether chapter 12 plan is proposed in good faith, noting that good faith in
chapter 12 is similar to chapter 13 case).
31 Flygare, 709 F. 2d at 1348.
But winning the DSO battle doesn’t win Krier the war because he has not
demonstrated that he proposed Schaffer’s plan treatment in good faith under §
1225(a)(3) or that the treatment complies with the cram-down requirements of §
1225(a)(5). “Good faith” in this context is determined by considering the familiar
“Flygare” factors.30 The relevant factors here are the motivation and sincerity of the
debtor, the timing of his filing, and his effort to repay Ms. Schaffer.31 It is difficult to
draw a positive impression of Krier’s motivation and sincerity when he has been in
payment default to Schaffer since 2005, has made NO payments since 2010, and
when, after he bargained her debt down from $106,000 to $88,000 in May and
promised to pay her in full by November 1, 2014, he instead filed this case on October
27. Adding insult to injury, Krier proposed to pay Schaffer’s discounted claim over a
new 20 year period that will not end until 16 years after the original 2005 obligation
would have been paid in full. And, though Schaffer holds a fully-secured first lien, he
offered her a lower rate of interest than Guaranty Bank will receive.
Ms. Schaffer is not a bank and shouldn’t be treated like one. She is the debtor’s
former wife whose ex-husband kept this land by agreeing to pay her for her share of
it -- and hasn’t. Not only does Krier’s pre-petition conduct reflect poorly on his
motivation and sincerity, but the timing of his filing, the proposed duration of his
payments to Schaffer, and his previous efforts to repay reinforce my concluding that
his treatment of her claim is not proposed in good faith.32
32 See e.g. In re Melcher, 416 B.R. 666, 669 (Bankr. D. Neb. 2009) (extension of alimony and
property settlement judgment by 30 years “unfair and in bad faith”).
Even if Krier has proceeded in good faith, his treatment of Schaffer’s claim
doesn’t comport with § 1225(a)(5). That section requires that Ms. Schaffer have
accepted the plan or that she retain her lien and receive value in an amount not less
than the value of her secured claim. While the plan proposes that Schaffer retain her
lien, it also proposes that she will receive a lower rate of interest than Guaranty Bank
despite her first lien status, and be repaid over the same 20-year term as all of the
other creditors, all commercial entities in the business of extending credit. The debtor
offers no justification for the differential in rates, though I am persuaded that the so-
called Till rate, the prime rate adjusted for risk, is appropriate.33 In any case, the
repayment period is too long. Bloomberg’s Bankruptcy Treatise suggests that—
33 See Till v. SCS Credit Corp., 541 U.S. 465, 479 (2004); see also In re Woods, 465 B.R.
196 (10th Cir. BAP 2012), rev'd on other grounds 743 F.3d 689 (10th Cir. 2014) (Similarity
of chapter 12 to chapter 13 makes Till rate applicable in both).
34 BLOOMBERG LAW: BANKRUPTCY TREATISE, pt. VI, ch. 212, at III.F.4.a. (D. Michael Lynn et
al. eds, 2015), available at www.bloomberglaw.com/content/bankruptcytreatise. See also In
re Torelli, 338 B.R. 390 (Bankr. E.D. Ark. 2006); In re Koch, 131 B.R. 128, 132-33 (Bankr.
N.D. Iowa 1991); In re Lupfer Bros., 120 B.R. 1002, 1005 (Bankr. W.D. Mo. 1990) (citing In
re Peterson, 95 B.R. 663 (Bankr. W.D. Mo. 1988)); and In re Foster, 79 B.R. 906, 911 (Bankr.
D. Mont. 1987).
35 In re Melcher, 416 B.R. 666 (Bankr. D. Neb. 2009); In re Kemp, 134 B.R. 413 (Bankr. E.D.
Cal. 1991) (10-year repayment of former wife not in good faith where debtor could pay
more); and, generally, In re Torelli, 338 B.R. 390 (Bankr. E.D. Ark. 2006) (Reamortization of
prior 10-year bank obligation to 20 years violated present value requirement of §
36 11 U.S.C. § 1225(a)(6).
While there is not a specific provision in the Code that governs the
extent to which the repayment period of a secured claim may be
extended, courts consider the economic life of the collateral, the age of
the debtor, the length of the underlying note, and the creditor's
customary repayment periods for similar loans when deciding whether a
claim's treatment will stretch over too long a period.34
Even though Schaffer’s collateral is real estate that might support extending a
creditor’s repayment term over a period of years, Krier’s underlying obligation to her
was to have been satisfied within a few months, not an additional 20 years. Extending
payment of what was established as a 15 year debt in 2005 out to 2036 is an
inequitable and unsuitable treatment of Schaffer’s claim that I cannot confirm.35
Ms. Schaffer also objects that this plan is unfeasible.36 There is nothing in the
stipulations about that, though Mr. Krier has testified about feasibility in his proffer.
Because I conclude that the plan cannot be confirmed, Ms. Schaffer’s feasibility
objection is moot. If and when Mr. Krier offers an amended plan, I will consider
reopening the record on whether that plan is feasible.
Because the plan’s treatment of Ms. Schaffer’s allowed secured claim was not
proposed in good faith, and because that treatment does not satisfy the cram-down
requirements of § 1225(a)(5) due to the excessively lengthy repayment period,
confirmation is DENIED. If the debtor does not file an amended plan or convert this
case to chapter 7 within 21 days of this order, the case will be DISMISSED without
# # #
- Category: Judge Nugent
- Published: 15 April 2016
- Written by Judge Nugent
- Hits: 215
In Re Ledin, 14-12347 (Bankr. D. Kan. Apr. 1, 2016) Doc. # 111
DESIGNATED FOR ONLINE PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANASAS
JONATHAN E. LEDIN
Case No. 14-12347
ORDER DENYING DEBTOR’S MOTION FOR ORDER TO SHOW CAUSE
WHY CREDITOR SHOULD NOT BE HELD IN CONTEMPT FOR
VIOLATION OF DISCHARGE INJUNCTION
A chapter 7 discharge in bankruptcy enjoins creditors from commencing or
continuing to enforce a prepetition debt as a personal obligation of the debtor. This
injunction does not extend to actions to enforce a pre-petition, non-avoided lien. When
a creditor issues an order of garnishment against a judgment debtor’s bank deposits,
the order attaches any credits or other debts owed by the depository bank to the
debtor on the date that order is served. Like any other lien, a garnishment lien that
is not avoided or released “rides through” a chapter 7 bankruptcy case and remains
effective after the debtor’s discharge. While a garnishing creditor would be precluded
from enforcing a garnishment lien after the judgment debtor filed a chapter 7 petition
without relief from the stay, nothing prevents that creditor from attempting to realize
on the garnishment lien after discharge when the stay has expired.
Before this bankruptcy case was filed, FinanceCo garnished Jonathan Ledin’s
account at Commerce Bank and attached $333.49. After he was discharged, Ledin
sued Commerce in state court to obtain a release of the garnished funds. Commerce
filed a third-party interpleader petition, adding both Ledin and FinanceCo as
defendants, and paid the funds into the court’s registry for the court’s determination
of whether Ledin or FinanceCo was entitled to the funds. Instead of participating in
that process, Ledin presented an ex parte order to a Reno County judge to pay out the
funds to him and the judge entered it. After discovering that Ledin obtained the
funds, FinanceCo moved to alter or amend that order asking that the funds be
returned to the court’s registry and that the court determine the parties’ respective
rights in them. Ledin claims that FinanceCo’s effort to set aside the ex parte order is
an attempt to collect a discharged, prepetition debt from him personally and seeks to
have FinanceCo held in contempt. But because FinanceCo’s efforts only extend to
recovering the funds its garnishment lien attached and not to hold Ledin personally
responsible, FinanceCo did not violate the discharge injunction. Even if FinanceCo’s
actions did violate 11 U.S.C. § 524(a), Ledin has received more than the amount
garnished and has been made whole. Ledin’s motion for contempt is therefore
1 I conducted an evidentiary hearing in this matter on March 16, 2016. The debtor, Jonathan Ledin,
appeared pro se. FinanceCo of Kansas, Inc. appeared by its attorney, Samantha M.F. Woods and its
corporate secretary, Dennis Lubbers. These are my findings of fact followed by my conclusions of law
made in this contested matter pursuant to Fed. R. Bankr. P. 7052.
2 Ex. G, p. 45. With interest accruing thereon at the rate of 21% per annum from October 3, 2008, the
judgment had grown to $15,161.63 when FinanceCo garnished Ledin’s bank accounts in September
of 2014. See Ex. G, p. 50.
3 Ledin claimed, as he did here in a later adversary proceeding, that the Social Security Act and
various banking regulations restrict creditors from garnishing and banks from paying out certain
social security payments. See 31 C.F.R. § 212.6(a). The Reno County court rejected that argument in
the June Garnishment case. Ex. G, pp. 47-48.
4 Ex. G, pp. 50-51.
5 Ex. G, p. 53. Commerce was authorized to withhold the $15 administrative fee by KAN. STAT. ANN. §
60-733(a) (2015 Supp.).
6 Ex. G, p. 71.
In July of 2009, creditor FinanceCo of Kansas, Inc. obtained an agreed journal
entry of judgment against Jonathan Ledin in the principal amount of $6,020.43 in
the District Court of Reno County, Kansas.2 In June of 2014, FinanceCo garnished
Ledin’s bank accounts at Commerce Bank in an effort to collect the judgment (the
“June Garnishment”). After Ledin replied to the June Garnishment claiming that the
funds were exempt social security benefits, the Reno County court conducted a
hearing and overruled the objection, ordering Commerce to pay the garnished funds
to FinanceCo.3 On September 5, 2014, FinanceCo served another garnishment order
on Commerce (the “September Garnishment”).4 Commerce answered on September
15, this time stating that it held $333.49 plus an administrative fee of $15.5 On
September 9, Commerce wrote Ledin a letter terminating their banking relationship
and closing his accounts effective October 10.6 Ledin replied to the September
Garnishment, again claiming that the funds on deposit were exempt from
garnishment because they consisted of social security benefits directly deposited to
his account and requesting a hearing that the court set for September 29, 2014.7 At
that hearing, the Reno County court directed the debtor to file bank statements for
July, August, and September of 2014 not later than October 19, presumably so the
court and FinanceCo could review them to determine whether actual social security
funds had been deposited.8 On October 14, 2014, Ledin filed this chapter 7 bankruptcy
case. No further action on the September Garnishment was taken during the
pendency of the bankruptcy until after Ledin received his chapter 7 discharge on
April 14, 2015.
7 See KAN. STAT. ANN. § 60-735 (2015 Supp.).
8 Ex. G, pp. 74-75.
9 Ledin v. FinanceCo of Kansas, Inc., et al. (In re Ledin), Adv. No. 14-5193 (Bankr. D. Kan.).
10 See the order entered in that proceeding for a more detailed description of the litigation waged in
this Court, and, before that, the Reno County District Court. See Adv. No. 14-5193, Dkt. 51.
11 Ex. A. Ledin v. Commerce Bank, Case No. 2015 CV 295 (D. Ct. of Reno County, Kan.).
While in chapter 7, Ledin (a prolific pro se litigant) filed an adversary
proceeding against Commerce, its branch manager, FinanceCo, and its attorney who
handled the garnishments, claiming an “illegal garnishment” and seeking damages
for their impairing his exempt interest in the social security funds and violating
certain federal statutes and regulations in connection with the June and September
Garnishments.9 I dismissed that proceeding for failure to state a claim.10
In September of 2015, after he was discharged, Ledin sued Commerce in Reno
County District Court for return of the garnished funds.11 Commerce answered,
denied liability, and filed a third-party interpleader petition, adding FinanceCo as a
third-party defendant and seeking to pay into court the $348.49 it held, plus Ledin’s
filing fee of $202.80 and service costs, for a total of $566.29.12 On October 30, 2015,
the state court heard and entered an order granting the third-party petition for
interpleader, directing Commerce to pay the funds into the court’s registry, which it
did, and requiring Ledin and FinanceCo to each prosecute their respective claims to
the money.13 On November 3, 2015, without notice to the other parties, Ledin
presented an ex parte order directing the Reno County court’s clerk to pay over the
interpleaded funds of $566.29 to him. Another Reno County judge entered that order
and the clerk paid the funds to Ledin that day.14
12 Ex. B.
13 Ex. E.
14 Ex. F.
15 Ex. G, 26-32.
16 Dkt. 66. Ledin also demanded a jury trial on that motion. Dkt. 91. I denied that demand from the
bench on March 3, 2016, see Dkt. 94, 96. Civil contempt claimants are not entitled to a trial by jury
on either the issue of contempt or compensatory damages. See Federal Trade Commission v.
Kuykendall, 371 F.3d 745, 751-54 (10th Cir. 2004); Reliance Ins. Co. v. Mast Constr. Co., 159 F.3d
1311, 1318 (10th Cir. 1998). See also Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989)
(Seventh Amendment protects right to jury trial only if cause of action is legal in nature, as opposed
to equitable); Mountain Am. Credit Union v. Skinner (In re Skinner), 917 F.2d 444, 447 (10th Cir.
1990) (bankruptcy courts are empowered to exercise civil contempt and equitable powers under 11
U.S.C. § 105(a)); Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1306-07 (10th Cir. 2008) (bankruptcy
courts have equitable power under § 105(a) to enforce and remedy violations of the discharge
When FinanceCo learned of the ex parte order, it filed a Motion to Alter and
Amend on November 25, 2015.15 That motion noted that that the earlier order had
been entered without notice to any other parties and requested that the funds be
returned to the court registry so that the court could determine to whom they should
be paid. In response to that motion, Ledin filed his “Motion for an Order to Show
Cause” here, seeking to hold FinanceCo in contempt of his bankruptcy discharge by
filing the reconsideration motion in Reno County.16 On January 6, 2016, the Reno
injunction); Barrientos v. Wells Fargo Bank, N.A., 633 F.3d 1186 (9th Cir. 2011) (Sections 105(a) and
524 do not create a private cause of action for damages for violation of the discharge injunction; the
remedy for discharge injunction violations is an order of contempt). In any event, FinanceCo declined
to consent to a jury trial by a bankruptcy judge, thereby precluding my conducting a jury trial on
Ledin’s contempt proceeding. 28 U.S.C. § 157(e).
17 Ex. H.
18 Ex. J.
County court set the ex parte order aside and directed that a hearing be scheduled to
determine who was entitled to recover the garnished funds.17 The state court did not
direct Ledin to return the funds and he hasn’t. On February 26, FinanceCo orally
moved to dismiss Ledin’s suit with prejudice and to allow him to retain all the
interpleaded funds. The Reno County court entered an agreed order signed by counsel
for FinanceCo and Ledin dismissing the state case on February 26, 2016.18
Ledin claims that FinanceCo’s actions violated the discharge injunction and
caused him both bodily harm and emotional distress. He seeks damages of $150,000.
But, other than stress, loss of sleep, and distraction, Ledin offered no medical
evidence of any specific physical or psychic injury to support either the validity or the
extent of his damage claim at trial. Nor did he offer any evidence of lost interest or
income as a result of FinanceCo’s actions. Ledin called Mr. Dennis Lubbers,
FinanceCo’s corporate secretary, in his case in chief. Mr. Lubbers testified that he
had no knowledge of Ledin’s file and hadn’t been involved in the collection of the
judgment or in instructing FinanceCo’s lawyers as they represented the company’s
Ledin submitted a trial brief.19 I offered FinanceCo an opportunity to file a
responsive brief, but its counsel advised the Clerk that they would stand on the
evidence, their pleadings, and closing argument.
19 Dkt. 105.
20 11 U.S.C. § 524(a).
21 Mountain Am. Credit Union v. Skinner (In re Skinner), 917 F.2d 444, 447 (10th Cir. 1990)
(bankruptcy courts are empowered to exercise civil contempt and equitable powers under 11 U.S.C. §
105(a)); Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1306-07 (10th Cir. 2008) (bankruptcy courts have
equitable power under § 105(a) to enforce and remedy violations of the discharge injunction).
22 KAN. STAT. ANN § 60-732 (2005) and § 60-733 (2015 Supp.). See In re Hilgers, 352 B.R. 298, 309
(Bankr. D. Kan. 2006), aff’d 371 B.R. 465 (10th Cir. B.A.P. 2007), aff’d 279 Fed. Appx. 662 (10th Cir.
May 20, 2008). See also In re Boden, 61 B.R. 329, 331 (Bankr. D. Kan. 1986) (construing predecessor
statute § 60-717 in effect until its repeal in 2002 and replacement with § 60-732(c)).
Ledin claims that FinanceCo’s motion to reconsider the ex parte order violated
his discharge injunction because FinanceCo was continuing to collect a discharged
debt. That is incorrect. Section 524(a)(1) provides that the discharge voids any
judgment as to a personal obligation of the debtor with respect to a discharged debt
and subsection (a)(2) states that the discharge “operates as an injunction against the
commencement or continuation of an action … to collect … any such debt as a
personal liability of the debtor ….”20 Collecting a discharged pre-petition judgment in
personam is barred and doing so would be punishable as civil contempt under 11
U.S.C. § 105(a).21 But, nothing in § 524 precludes a creditor from enforcing a
prepetition garnishment lien that has survived the debtor’s chapter 7 discharge. This
is all FinanceCo sought to do and it is not a violation of the discharge injunction.
Under Kansas law, FinanceCo’s order of garnishment created a lien on the
debtor’s deposits in the hands of Commerce.22 A garnishment order “shall have the
effect of attaching: . . . funds, credits or other indebtedness belonging to or owing the
judgment debtor . . . which is in the possession or under the control of the garnishee,
and all such credits and indebtedness due from the garnishee to the judgment debtor
at the time of service of the order.”23 Thus, when the order of garnishment was served
on Commerce prior to Ledin’s bankruptcy filing, FinanceCo obtained a lien on the
$333.49 that Commerce held on deposit for Ledin.24 Because the Reno County court
did not issue an order directing Commerce to pay the funds to FinanceCo before Ledin
filed his bankruptcy case, their ownership never changed.25 The deposits continued
to be Ledin’s property, though subject to FinanceCo’s garnishment lien.26 When he
filed his bankruptcy petition, those funds became property of the bankruptcy estate
and still remained subject to the lien.27
23 KAN. STAT. ANN § 60-732(c)(1) (2005) (Emphasis added).
24 See Johnson v. Brant, 38 Kan. 754, 17 P. 794 (1988) (when judgment creditor garnishes a bank he
acquires a lien on only such non-exempt property of the judgment debtor as the bank holds when the
garnishment is served); R.T. Davis Mill Co. v. Bangs, 6 Kan. App. 38, 49 P. 628 (1897) (garnishment
attaches a lien on the property of the debtor in the hands of the garnishee from the time of the
service of the same); In re Rodriguez, 140 B.R. 562, 564 (Bankr. D. Kan. 1992) (garnishment lien
attaches at time of service of order of garnishment, regardless of whether garnished funds were ever
paid into registry of court).
25 See In re Thomas, 215 B.R. 873, 875 (Bankr. E.D. Mo 1997) (garnished funds are owned by
judgment debtor until court orders these funds paid over to judgment creditor); In re Bensen, 262
B.R. 371, 380-81 (Bankr. N.D. Tex 2001) (lien against funds in bank account was fixed where writ of
garnishment was served prepetition but garnishment action was not completed prepetition; title to
garnished property did not pass to judgment creditor merely upon service of writ); In re Drum Corps
Ass’n of Spokane, 22 B.R. 929, 933 (Bankr. E.D. Wa. 1982) (where order to pay out garnished funds
was stayed by debtor’s bankruptcy filing, debtor still possessed an interest in the funds and they
became property of the estate).
26 KAN. STAT. ANN § 60-739(b) (2015 Supp.) provides that if an order to pay in is not issued within 60
days of the garnishee’s answer, the garnishee may release the deposits to the judgment debtor.
27 11 U.S.C. § 541(a); In re Johnson, 479 B.R. 159 (Bankr. N.D. Ga 2012) (funds in garnishee's
possession at time of bankruptcy filing are property of the estate; auto stay prevented judgment
creditor from seeking disbursement of any funds held by garnishee, but creditor's lien attaches to
garnished funds upon service of garnishment order and bankruptcy filing does not affect the
judgment creditor's lien).
The trustee did not avoid the garnishment lien during the chapter 7
administration.28 Liens that are not avoided during bankruptcy administration “ride
through” a chapter 7 bankruptcy case and survive the debtor’s discharge.29 Though
FinanceCo was certainly stayed from enforcing that lien during the pendency of the
bankruptcy case by the automatic stay, nothing precluded it from enforcing that lien
post-discharge.30 Section 524(a)(1) enjoins continuing to collect a debt “as a personal
liability of the debtor.” It does not enjoin a creditor from realizing on a prepetition
lien. In In re Johnson, a Georgia bankruptcy court explained that the automatic stay
doesn’t require a garnishing creditor to dismiss its garnishment action or release a
garnishment lien, but that before the creditor takes further action, stay relief would
be required.31 Here, no stay relief is required for FinanceCo to proceed to realize upon
its garnishment lien because there is no longer a stay. It expired upon the entry of
the debtor’s discharge order.32 Accordingly, nothing prevented FinanceCo from filing
its motion to alter and amend the November 2015 court order that set the
interpleaded funds over to Ledin. That motion merely sought to restore the parties to
28 For example, in appropriate circumstances, the trustee could have avoided the lien as a
preferential transfer under 11 U.S.C. § 547(b), or if the garnishment lien encumbered exempt
property, the debtor might have avoided the lien as impairing an exemption under 11 U.S.C. § 522(f).
29 See Johnson v. Home State Bank, 501 U.S. 78, 82-83 (1991) (mortgage survives chapter 7
discharge; only the personal liability of debtor is extinguished by the discharge); Long v. Bullard, 117
U.S. 617, 620-21 (1886); In re Johnson, 479 B.R. 159, 171 (Bankr. N.D. Ga. 2012); In re Willis, 199
B.R. 153, (Bankr. W.D. Ky. 1995) (a lien “rides through” bankruptcy unaffected, unless the lien is
disallowed or avoided).
30 The automatic stay terminates the earlier of the time the case is closed or a discharge is granted or
when property is no longer property of the estate. 11 U.S.C. § 362(c)(1) and (2).
31 479 B.R. 159, 171-72.
32 11 U.S.C. § 362(c)(2)(C).
their previous litigation positions so that the state court could determine whether
FinanceCo or Ledin was entitled to the funds. The discharge doesn’t enjoin that.
In February, 2016, FinanceCo abandoned its efforts to enforce its garnishment
lien and recover the garnished funds and, with the debtor’s approval, the Reno
County case was dismissed with prejudice.33 Ledin remains in possession not only of
the $348.49 garnished from his Commerce accounts, but also his state court case
filing fee and costs that Commerce interpleaded into court. He has been more than
made whole. In a somewhat similar setting, another Kansas bankruptcy judge has
held that once a garnishing creditor released garnished wages to the debtor, that
debtor’s motion to avoid the garnishment lien was moot.34 Even if the facts and law
warranted my finding that FinanceCo had violated the discharge injunction, Ledin
has not demonstrated any compensatory damages that I could award beyond
restoring to him his funds on deposit with Commerce.
33 Ex. J.
34 See In re Rodriguez, 140 B.R. 562, 564 (Bankr. D. Kan. 1992).
While this Court takes discharge violations very seriously, FinanceCo’s effort
to enforce a prepetition garnishment lien in rem is not such a violation. Even if I were
to find FinanceCo in contempt, which I do not, Ledin has been made whole by
recovering and retaining all of the interpleaded funds of $566.29. Lacking any factual
or legal support, Jonathan Ledin’s Motion for Contempt against FinanceCo is
# # #