- Category: Judge Karlin
- Published on 27 March 2015
- Written by Judge Karlin
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BAP WY-14-053 In Re Lane, Mar. 20, 2015
U.S. Bankruptcy Appellate Panel
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 of the Tenth Circuit
March 20, 2015
Page: 1 of 7
NOT FOR PUBLICATION Blaine F. Bates
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE ROBERT M. LANE, also knownas Bob Lane,
ROBERT M. LANE,
GARY A. BARNEY, Chapter 7
BAP No. WY-14-053
BAP No. WY-14-054
Bankr. No. 11-20398
Appeal from the United States Bankruptcy Courtfor the District of Wyoming
Before THURMAN, Chief Judge, MICHAEL, and KARLIN, Bankruptcy Judges.
KARLIN, Bankruptcy Judge.
The Chapter 7 debtor Robert Lane (the “Debtor” or “Lane”) appeals a
bankruptcy court’s order approving a motion to sell coins filed by the Chapter 7
trustee Gary Barney (the “Trustee”) and an order striking Lane’s objection to the
sale. We dismiss the appeals because the completed sale has rendered Lane’s
request for relief moot.
* This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, andissue preclusion. 10th Cir. BAP L.R. 8026-6.
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 2 of 7
I. Background Facts
Lane filed his Chapter 7 bankruptcy in April 2011, commencing a series of
battles with the Trustee over (among other things) asset sales, unscheduled and
undisclosed property, and lawsuits by the Trustee against Lane, his family
members, and family-controlled entities to revoke Lane’s discharge and to
recover assets for the benef it of the estate. The parties reached a ceasefire in June
2013, when the Bankruptcy Court approved two global settlement agreements:
one between the Trustee and Lane f amily members and family-controlled entities
(the “Family Settlement Agreement”),1 and one between the Trustee and Lane (the
“Lane Settlement Agreement”).2
Pursuant to the Lane Settlement Agreement, Lane was allowed to keep
many assets, 3 including a collection of “numismatic” coins. 4 That Settlement
Agreement also verified that a collection of “bullion coins” would be property of
the estate. Finally, in exchange for retaining significant assets and for being
released from litigation–including an adversary proceeding by the Trustee to
revoke Lane’s discharge–Lane agreed to waive standing in the bankruptcy case,
1 [Family] Settlement Agreement and Mutual Release, Appellee’s Appendix
(“Trustee App.”) at 36.
2 [Lane] Settlement Agreement and Mutual Release, Trustee App. at 453.
3 The Lane Settlement Agreement allowed Lane to retain pension assets
valued in excess of $2.5 million, collectibles (books, wine, baseball memorabilia,
numismatic coins), a fountain pen collection, valuable paintings, 3 automobiles,
including a Mercedes Benz, all furnishings and personal property in two homes,
the right to retain possession of and reside in those two homes in California andWyoming pending the Trustee’s sale of them, and to cap statutory Trustee fees.
The agreements also required the Trustee to dismiss some avoidance actionsagainst Lane family-controlled entities. Id. at 456-59.
4 The Trustee has alleged that both bullion and numismatic coins were not
disclosed by Lane on his bankruptcy schedules, and in fact were discovered bythe Trustee or his agents “throughout the house” during an eviction at one ofLane’s properties. Trustee’s Motion to Sell Estate’s Interest in Bullion Coins
Free and Clear, Appellant’s Appendix (“Lane App.”) at 517-18.
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 3 of 7
including standing to object to all f uture asset sales proposed by the Trustee.5
After the Lane Settlement Agreement was reached, the Trustee filed a
motion (the “Sale Motion”)6 in August 2014, seeking to sell coins to American
Rare Coins and Collectibles, an entity to whom the Trustee had previously sold
other coins after receiving Bankruptcy Court approval. The Trustee alleged in the
Sale Motion that he only wished to sell the bullion coins that remained estate
property, and the motion made it abundantly clear that no numismatic coins7 were
to be sold as part of this Sale Motion. 8 Lane objected, asserting that the coins
were in reality numismatic coins, and that they thus belonged to him under the
Lane Settlement Agreement. Lane also argued that the proposed sale violated the
rights of family-controlled entities, who he claimed had some interest in those
coins. The Trustee filed a motion to strike Lane’s opposition, arguing that Lane
5 Lane Settlement Agreement, Trustee App. at 459-62. Lane’s waiver of
standing to object was valuable to the Trustee and the estate, as Lane has filednumerous objections and other pleadings that have apparently slowed down assetsales and increased administrative costs for the estate. See, e.g., docket for Case
No. 11-20398 (“Docket”), Lane’s supplemental appendix (“Lane App. 2”) at PDFpp. 23 (Docket No. 981–Opposition to Trustee’s Motion to Sell Estate’s Interestin Bullion Coins Free and Clear); 33 (Docket No. 889–Objection to Applicationfor Writ of Execution for Possession of Real Property); 46 (No. 778–Objection toTrustee’s Motion to Sell Wilson, Wyoming Property Free and Clear); 60 (DocketNo. 650–Opposition to Trustee’s Motion to Turnover Post-Petition InsuranceProceeds on Debtor’s Post-Petition State Farm Insurance Coverages); 68 (DocketNo. 589–Opposition to Proposed Sale of Art); 112 (Docket No. 229–Opposition toProposed [Family] Settlement).
6 Trustee’s Motion to Sell Estate’s Interest in Bullion Coins Free and Clear,
Lane App. at 517.
7 Testimony concerning a prior coin sale suggests numismatic coins are more
valuable than bullion coins because the latter trade dollar for dollar in proportionto the value of their metal content while numismatic coins generally trade 20percent or more over their metal content value. [ Partial] Transcript of
Proceedings, January 16, 2014 (“January 2014 Transcript”), Trustee App. at 199,
206 (testimony of Trustee's expert on prior sale of coins).
8 The Sale Motion sought authority to sell the bankruptcy estate’s interest in
bullion coins to American Rare Coin. Sale Motion, Lane App. at 519-20.
Footnote 1 stated that “Trustee is not seeking to sell any of the Debtor’s personalproperty, including any of the numismatic coins.” Id. at 518 n.1 (emphasis in
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 4 of 7
had waived his standing to object to the sale when he signed the Lane Settlement
In October 2014, the Bankruptcy Court entered an order striking Lane’s
opposition (the “Strike Order”) and a separate order approving the sale (the “Sale
Order”). 9 The Sale Order expressly provided that the Trustee was authorized to
sell only bullion coins—not numismatic coins. 10 Lane did not seek a stay of
either order; instead he filed a “Request for Clarification” of the Sale Order,
which the Trustee opposed. The Bankruptcy Court denied that request. Lane
timely appealed both the Sale Order and Strike Order on October 16, 2014. The
Trustee closed the sale of the coins to American Rare Coins on or about October
27, 2014, realizing $115,282.50 from the sale.
Lane argues on appeal that (a) he has standing to enforce his right to
numismatic coins under the Lane Settlement Agreement; (b) the Bankruptcy Court
is estopped from denying Lane standing to enforce the Lane Settlement
Agreement when the court previously allowed him to enforce it; (c) the
Bankruptcy Court erred in permitting the coin sale without a proper determination
of whether the coins were bullion or numismatic; and (d) the Bankruptcy Court
erred in approving the sale and in the process violated the rights of various third
parties. Lane asks that we overturn the Sale Order and Strike Order. The Trustee
argues that (a) Lane lacks standing to appeal the Strike Order and the Sale Order;
9 Order Granting Trustee’s Motion to Strike Debtor’s Opposition to
Trustee’s Motion to Sell Estate’s Interest in Bullion Coins Free and Clear, Lane
App. at 595; Order Granting Trustee’s Motion to Sell Estate’s Interest in BullionCoins Free and Clear, Lane App. at 596.
10 The Bankruptcy Court made clear that the Trustee had authority to sell only
bullion coins, making the point both in the caption of the order (“Order GrantingTrustee’s Motion to Sell Estate’s Interest in Bullion Coins Free and Clear”), LaneApp. at 596 (emphasis added), and in the body of the order (“The Motion seeksauthorization to sell the bankruptcy estate’s interest in bullion coins .... Trustee isnot authorized to sell any numismatic coins.”), id. (underlined emphasis in
original; italicized emphasis added).
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 5 of 7
(b) the appeals are moot due to the sale closing; (c) the Bankruptcy Court
committed no error in entering the Sale Order and the Strike Order; and (d)
Lane’s challenges to the Trustee’s authority under the settlement agreements and
settlement orders are barred by res judicata.
The Court must satisfy itself that it has jurisdiction to hear these appeals. 11
In addition to determining whether an order is final or is an appropriate
interlocutory order under 28 U.S.C. § 158(a), we must be sure that the appeal is
not moot. 12 An appeal is moot when the issues are no longer “live” or when the
parties lack a legally cognizable interest in the outcome. 13 A controversy is no
longer “live” if the appellate court is incapable of rendering effective relief or
restoring the parties to their original position.14
The Trustee argues that Lane’s appeals are both statutorily moot under 11
U.S.C. § 363(m) and equitably moot. We need not decide whether Lane’s appeals
are equitably moot because they are statutorily moot under § 363(m). Section
363(m) provides that reversal or modification on appeal of a bankruptcy sale
order does not affect the validity of the sale to a good-faith purchaser unless the
sale and the sale order were stayed pending the appeal. 15 The sale to American
Rare Coins has closed. Lane did not seek a stay of the Sale Order or Strike
Order, and he does not argue that American Rare Coins (a neutral third-party
purchaser) is not a good-faith purchaser. The only remaining issue is whether
11 Egbert Dev., LLC v. Cmty. First Nat’l Bank (In re Egbert Dev., LLC), 219
B.R. 903, 905 (10th Cir. BAP 1998).
12 Id. (citing U.S. Const., art. III, § 2, cl. 1.)
15 11 U.S.C. § 363(m).
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 6 of 7
§ 363(m) permits the relief Lane seeks on appeal. It does not.
First, § 363(m) applies to both orders because the Sale Order depended in
part on the Strike Order. 18 Second, the only relief Lane seeks is a reversal of the
Sale Order and Strike Order. 19 Allowing such relief would frustrate § 363(m)’s
purpose of promoting finality to bankruptcy sales, which helps protect creditors.20
While we will attempt to “discern the kernel of the issues” presented by a pro se
party on appeal,21 we will not assume the role of advocate for that litigant.22
Because the only relief requested by Lane would affect the validity of the coin
sale, Lane’s appeals are moot under § 363(m).
The Trustee also asserts that jurisdiction is lacking because Lane waived
his standing in the case pursuant to the Lane Settlement Agreement. Lane argues,
in contrast, that he has standing to contest the sale of numismatic coins. We need
not decide that issue because the Sale Motion only sought the right to sell bullion
coins,23 and the Sale Order only granted the Trustee the right to sell bullion
18 In re C.W. Mining Co., 740 F.3d 548, 555 (10th Cir. 2014) (concluding that
the effect of § 363(m) is not limited to appeals of sale order itself where saleorder depends on other orders on appeal).
19 Appellant’s Opening Brief at 41 (“RELIEF SOUGHT . . . Debtor requests
that the Bankruptcy Appellate Panel, as the appellate court, review the law andthe factual evidence and overturn the lower court’s orders to deny him standingand to sell the coins. The Appellant prays that the court caref ully review mattersand make a just decision.”).
20 C.W. Mining Co., 740 F.3d at 555.
21 de Silva v. Pitts, 481 F.3d 1279, 1283 n.4 (10th Cir. 2007).
22 Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).
23 Sale Motion, Lane App. at 518 n.1 (confirming that Trustee was “not
seeking to sell . . . numismatic coins.”).
What Lane really appears to contest is the Trustee’s right to sell the
numismatic coins that Lane is entitled to retain under the Lane Settlement
Agreement. The Sale Order provides that all interests in the coins shall attach to
BAP Appeal No. 14-53 Docket No. 34 Filed: 03/20/2015 Page: 7 of 7
For the reasons stated above, Lane’s appeals are DISMISSED as moot.
the sale proceeds. Sale Order, Lane App. at 596. If Lane could establish that the
coins sold were in fact numismatic coins, he may have the personal right to assert
his interest in the proceeds. He would not have the right to assert the interests ofthird parties, such as Windriver Corp. of WY, LLC, because Lane has no standingto argue third-party rights. See Aid for Women v. Foulston, 441 F.3d 1101, 1111(10th Cir. 2006) (recognizing general standing limitation in federal courts that alitigant will ordinarily not be permitted to assert the rights of absent third parties).
Lane also expressly waived any “right” he might claim to assert standing onbehalf of others when he signed the Lane Settlement Agreement.
- Category: Judge Karlin
- Published on 09 March 2015
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- Hits: 166
In Re Mack, 14-41043 (Bankr. D. Kan. Mar. 3, 2015) Doc. # 149
SIGNED this 3rd day of March, 2015.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 14-41043
Jacqueline P. Mack, Chapter 7
Order Dismissing Case
Debtor Jacqueline P. Mack initially filed her pro se bankruptcy petition as a
chapter 11 case, and that case was later converted to one under chapter 7 on the
motion of the United States Trustee. Because Debtor’s required filing fee has never
been paid, despite repeated efforts to so collect, the Court now sua sponte dismisses
I. Procedural and Factual Background
From the outset, this case has required a disproportionate amount of time and
attention from this Court. Debtor’s pro se chapter 11 bankruptcy petition was filed on
Case 14-41043 Doc# 149 Filed 03/03/15 Page 1 of 11
September 9, 2014.1 That same date, Debtor also filed an application to pay her $1,717
filing fee in installments,2 which was granted.3 The order granting installment
payments notified Debtor that her fee must be paid in no more than four installments,
that the first payment was due within thirty days and every thirty days thereafter, and
that payment in full was due within one hundred twenty days. The order also notified
Debtor that if her filing fee was not paid within these periods, “the case may be
dismissed without further notice.”
Debtor made one installment payment, on September 29, 2014.4 Shortly
thereafter, the U.S. Trustee moved to convert Debtor’s case to one under chapter 7 (or
in the alternative, for dismissal), for cause based on Debtor’s bad faith and inability to
reorganize under chapter 11.5 Debtor opposed this motion, this time filing a Notice and
1 Doc. 1. Debtor’s petition was a “short” file, meaning none of the requiredSchedules, Statement of Financial Affairs, or Declarations were included. As a result, the
Court had to issue an Order To Correct, seeking these documents. Doc. 6.
2 Doc. 3. The Form B3A requires the debtor to “Fill in the amounts you propose topay and the dates you plan to pay them.” She filled in $429.25 to be paid “on or before” eachof the following dates, which she also filled in: September 6, 2014, October 3, 2014, October17, 2014 and October 31, 2014.
3 Doc. 9, entered September 11, 2014.
4 Debtor made this payment of $429.25 via a United States Postal Service PostalMoney Order, so she clearly knows how to make a proper payment for filing fees when shewants to make a valid payment.
5 Doc. 25. The motion alleged that "the case was filed under (sic) bad faith with noability to reorganize in a Chapter 11” because the case was filed listing a singlecreditor—the mortgagee on her home—and because Debtor had failed to make anymortgage payment for over a year. The creditor at issue now contends Debtor made zero, orperhaps one, payment since Debtor signed the promissory note and took possession of thehome in the spring of 2013. The U.S. Trustee's motion further noted Debtor attempted toexempt this real estate on her Schedule C as "spoliated owner; Title 12 U.S.C. § 95(a) &
Case 14-41043 Doc# 149 Filed 03/03/15 Page 2 of 11
Demand for Forensics Audit (to require the U.S. Trustee to do some kind of an audit),6
a Motion for Evidentiary Hearing,7 and a 99-page Motion to Strike,8 throughout
referring to herself as a trust protector, agent and general executor office. After the
hearing on the U.S. Trustee’s motion, the Court allowed Debtor to elect between the
conversion or the dismissal of the case, since the U.S. Trustee had stated cause for
relief.9 Debtor elected conversion. Although Debtor subsequently filed numerous other
documents in her case after conversion, most of which were likewise indecipherable10
95(b)” and that Debtor “claimed that since the mortgage was a FHA loan the United Statesowed the money and she was the custodian of the real property.” Id.
6 Doc. 38 (stating, among other unintelligible things: “Trust protector has, throughUCC-1 filing, fully surrendered and placed in trust with the estate for the Full Faith andCredit, herein now assigning any and all reversionary interest from Jacqueline PriscillaMack estate to the United States as gift pursuant to title 31 USC 3113(e)(1)(B).”).
7 Doc. 39
8 Doc. 40.
9 Doc. 45.
10 There are too many such documents to individually reference, so the Court simplyincorporates the Docket Sheet for more examples. The following filed just in the first 6weeks of the case are emblematic: Doc. 21 (Schedule A, listing Debtor’s interest as“spoliated owner,” giving the description and location of the real property as “State ofMichigan Certificate,” and nature of her interest in that property as “General Executrix”
with a zero fair market value and “united states full amt” in the column for the amount of
secured claim against her residence); Doc. 28 (a “trust order”—where Debtor purports toassign to this bankruptcy judge certain accounts—and an “Affidavit of Nationality”—a tenpage document randomly discussing the Bill of Rights and the Constitution, among otherthings); and Doc. 30 (a certificate of service of a “Notice of Mistake, Notice of Appearance,
Original Writ, Amended Trust Order, USDA CCC-251,USDA CC-252 and Form 56,”
referencing Debtor’s name “bearing Treasury Direct Account #B-405-787-740, by SpecialAttendance as agent for general executor office JACQUELINE PRISCILLA MACK estate,
see annexed form 56 . . . .”). Debtor also filed defective claims on behalf of approximately 9
creditors, then objected to those same claims because of that defect. She then asked theCourt to enter orders that would have forever barred these creditors from making any claimagainst her, which the Court denied. Doc. 125. The Court finds all of these filings were
Case 14-41043 Doc# 149 Filed 03/03/15 Page 3 of 11
and did not comply with applicable Federal or Local Rules or the Bankruptcy Code,
Debtor never made another payment toward her filing fee.
On January 29, 2015, the Court issued an order to show cause, ordering Debtor
to appear and show cause why her case should not be dismissed for failure to pay the
remainder of her filing fee.11 Within that order to show cause, Debtor was informed
that a balance of $1287.75 remained due on her filing fee. Debtor was therein again
warned of dismissal if the fee was not paid. Debtor, on February 9, 2015, then filed a
“request for clarification and notice of excusable error for cause and answer to the
order to show cause why the monthly installments stopped,”12 apparently in response
to the order to show cause. Within that document, Debtor explained that because her
case was converted to chapter 7, she did not know whether her chapter 11 fee remained
due and that she was confused. Debtor asked for five days to “settle any errors” with
respect to the filing fee issue.
At a hearing on another matter on February 11, 2015, the Court addressed
Debtor’s “request for clarification.” The Court gave Debtor the information sought by
her pleading. The Court informed Debtor, once again, that only $429.25 of her filing
fee had been received, and that a balance of $1287.75 remained due. The Court also
warned Debtor that the time for making her installment payments had passed, and
that the Court was likely to dismiss Debtor’s case if Debtor’s filing fee was not paid
made in bad faith.
11 Doc. 105.
12 Doc. 117.
Case 14-41043 Doc# 149 Filed 03/03/15 Page 4 of 11
before the show cause hearing set for February 24, 2015. An order was thereafter
entered denying Debtor’s “request for clarification” as moot, because the requested
clarification had been orally given.13 Within that order, Debtor was again warned by
the Court that her filing fee remained due, and that her case would be dismissed if the
remainder of the fee was not paid.
On February 12, 2015, the Court entered another order in Debtor’s case, this
time setting deadlines on a substantive matter—a motion for relief from stay by Wells
Fargo Bank, N.A. (“Wells Fargo”).14 In the February 12, 2015 order, the Court notified
Debtor that the show cause hearing previously set for February 24, 2015 remained set,
that Debtor’s filing fee was past due, and warned her yet again that if the fee was not
paid in full by the February 24, 2015 hearing, her case would be dismissed.
At the show cause hearing on February 24, 2015, Debtor acknowledged that her
filing fee was due and stated that she would pay it. Debtor stated no basis for why the
13 Doc. 121.
14 Doc. 122. Wells Fargo, the only creditor Debtor listed in her bankruptcy, filed amotion for relief from stay after the case was converted to chapter 7. See Doc. 75. In a
hearing on that motion, Debtor argued the July 1, 2014 state court judgment (foreclosing onher home), a copy of which counsel for Wells Fargo produced at the hearing, was not valid,
claiming she had filed a notice of appeal of that judgment. The Court ordered Debtor toproduce a certified copy of the state court file, as Debtor’s testimony on this topic was, atbest, confusing. Debtor was ordered to produce that complete certified copy of the statecourt record by February 18, 2015. See Doc. 122. On February 18 and 19, 2015, Debtor filedselected portions of the state court record, see Docs. 132 and 133, but did not file the
complete record as ordered. At the show cause hearing concerning her filing fee onFebruary 24, 2015, the Court granted Debtor an extension to March 2, 2015 to file thecomplete certified copy of the state court record, again admonishing Debtor for failing toobey a very clear court order. Debtor finally did so on March 2, 2015, see Doc. 147. Contraryto Debtor’s sworn testimony, she has not filed a Notice of Appeal in the state proceeding,
although she did file a motion for rehearing.
Case 14-41043 Doc# 149 Filed 03/03/15 Page 5 of 11
fee had not been paid by that point. Debtor orally requested a three day extension to
February 27, 2015, to make the payment, and the Court granted that request. The
Court again warned Debtor to pay the filing fee with certified funds by February 27,
2015, and again stated that the case would be dismissed if the fee was not paid. Debtor
stated she fully understood what was required of her.15 Again, in an order entered that
date on the Wells Fargo matter, Debtor was notified that her case would be dismissed
if her remaining filing fee was not paid by February 27, 2015.16
Debtor made no payment on or before the February 27, 2015 deadline. Then, on
March 2, 2015, but before the case was dismissed, the Court received, via registered
mail, several documents: 1) a document titled “Promissory Note Negotiable Bankers
Acceptance,” that included a promise to pay $1500 to the U.S. Bankruptcy Court on an
unspecified date; 2) a Kansas Secretary of State online acknowledgment of filing,
showing the United States Bankruptcy Court for the District of Kansas as the secured
party in the “Jacqueline Priscilla Mack Estate” with collateral of a “registered bonded
promissory note” for $1500; and 3) a copy of the Court’s February 11, 2015 Order,
which denied as moot Debtor’s “request for clarification,” with the written words
“Accepted for Honor” and the date added in the top margin, and a number stamp added
in the bottom margin. These March 2, 2015 documents will be hereinafter referred to
as the “promissory note” and related documents.
15 Doc. 143.
16 Doc. 144.
Case 14-41043 Doc# 149 Filed 03/03/15 Page 6 of 11
Filing fees are governed generally by 28 U.S.C. § 1930. Section 1930(a)(3)
requires that a party commencing a case under chapter 11 of title 11 pay the chapter
11 filing fee, although Federal Rule of Bankruptcy Procedure 1006(b) allows the filing
fee to be paid in installments. Under Rule 1006(b)(2), however, the final installment
“shall be payable no later than 120 days after filing the petition.”17 In this case,
Debtor’s bankruptcy petition was filed on September 9, 2014, and the 120 days expired
on January 9, 2015. Section 707(a)(2) of title 11 then provides that the Court may
dismiss, after notice and hearing, Debtor’s case for the “nonpayment of any fees or
charges” required by 28 U.S.C. § 1930.
Debtor made only one payment, of $429.25 on September 29, 2015, and has
submitted no further United States currency, cashier’s check, or money order toward
the payment of her fee. Rather, the next business day after the extended due date for
the payment of the fee, Debtor submitted her nonsensical “promissory note” and
related documents. For a multitude of reasons, this submission by Debtor does not
satisfy the Court’s show cause order, and Debtor’s case should be dismissed.
First, despite being repeatedly warned that dismissal of her case would occur if
the filing fee were not paid, Debtor’s submission is, simply, late. Debtor was notified
no less than seven times that if she did not timely pay her filing fee, her case would be
17 For “cause shown,” the period for making installment payments can be extended,
but to no more than 180 days after filing the petition. Fed. R. Bankr. P. 1006(b)(2). Debtorhas never requested such an extension, or alleged any cause why she should be granted anextension of this nature.
Case 14-41043 Doc# 149 Filed 03/03/15 Page 7 of 11
dismissed. Debtor was warned on September 11, 2014, in the initial order granting her
request to pay the fee in installments, on January 29, 2015 in the Court’s order to show
cause, on February 11, 2015, both in an oral admonition by the Court during a hearing
on another matter and in a written order denying Debtor’s “request for clarification”
as moot, on February 12, 2015, in an order setting deadlines on the Wells Fargo motion
for relief from stay, at the February 24, 2015 show cause hearing, and finally, in an
order entered on the Wells Fargo matter on February 24, 2015. Debtor affirmatively
stated at the February 24, 2015 show cause hearing that she understood what was
required of her, and yet she still did not follow the Court’s directive and pay her fee by
the extended February 27, 2015 due date. Debtor has offered no legal basis for why she
should be excused from the filing fee requirement, and the Court is fully justified in
dismissing Debtor’s case for failure to pay the fee.18
Second, even if the documents submitted by Debtor on March 2, 2015 were
timely, Debtor cannot pay her filing fee with what she submitted. The “promissory
note” and related documents do not constitute the certified funds the Court required
Debtor to pay—and Debtor stated at the show cause hearing on February 24, 2015 that
she fully understood what was required of her. The “promissory note” simply is not
legal tender this Court can accept for the payment of fees; the Court’s Internal Controls
Manual permits payment by debtors in United States currency, cashier’s checks, or
18 See, e.g., In re Meuli, 162 B.R. 327, 327–28 (Bankr. D. Kan. 1993) (reviewinghistory of case and dismissal for failure to pay the required filing fee). Cf. In re Armstrong,
101 Fed. App’x 766, 768 (10th Cir. 2004) (affirming the BAP’s decision to dismiss for failureto pay required fees).
Case 14-41043 Doc# 149 Filed 03/03/15 Page 8 of 11
money orders.19 The “promissory note” and related documents are not money, legal
tender, or any other commercially reasonable equivalent,20 and this Court will not
permit Debtor to further delay this case with her obstructive tactics.21
And finally, even if the March 2, 2015 “promissory note” and related documents
could somehow be construed as an extension request for the payment of Debtor’s filing
fee, no date is specified therein for the actual payment of the fee. Debtor also states no
basis or cause for giving her more time to make the required payment. The “promissory
19 United States Bankruptcy Court for the District of Kansas, Internal ControlsManual, 12–13 (rev. May 2012). Further, the “promissory note” is for $1500, more thanDebtor is required to pay, and this Court cannot make change or accept payment for morethan the amount due. Id.
20 Cf. In re Recker, No. 09-01541, 2010 WL 3655515, at *9 (Bankr. N.D. Iowa Sept.
10, 2010) (collecting cases of debtors attempting to use “bonded promissory notes’ as legaltender and finding no authority for proposition that these “notes” are “legal tender or haveany validity as a negotiable instrument or commercial paper”); In re Chabot, 411 B.R. 685,
704 (Bankr. D. Mont. 2009) (noting “egregious behavior” of the debtor in tendering a “bogusbonded promissory note” in payment of a creditor’s mortgage; referring to the debtor’sbehavior of “peddling bogus instruments” as evidence of bad faith); In re Walton, 77 B.R.
617, 620 (Bankr. N.D. Ohio 1987) (noting that the debtor’s purported “certified promissorymoney note” was not money or the commercially reasonable equivalent and was an “invaliddocument”).
21 Debtor’s bankruptcy petition now appears to solely be an attempt to delay theforeclosure by Wells Fargo of the real property where Debtor resides in Manhattan, Kansas.
As stated in the U.S. Trustee’s prior motion to convert or dismiss, Debtor is alleged to havepurchased the real property at issue in February 2013, made one payment at or aroundclosing, but has not made a single payment since that time and apparently does not intendto, as her Schedule J (expenses) shows zero monthly payment on this home mortgage notenotwithstanding her agreement to make monthly payments of $811.74. See Docs. 37 and 75.
Debtor has made repeated frivolous filings throughout this case, despite being admonishednumerous times that her filings should comply with the Federal and Local Rules and bebased on the Bankruptcy Code. Debtor has now hindered and delayed her creditors for anadditional six months while this case has been pending, all apparently without making asingle payment on her secured debt or more than one payment on her filing fee. And nowthat the Court has reviewed the contents of the Riley County, Kansas state court file (Doc.
147), it is clear that Debtor used the same tactics, of filing frivolous/unintelligiblepleadings, to delay that foreclosure proceeding. This Court will not be a party to this type ofbehavior by allowing Debtor’s case to remain open.
Case 14-41043 Doc# 149 Filed 03/03/15 Page 9 of 11
note” states an “unconditional promise [to] pay” at “sight days after N/A,” of $1500 of
“certified funds***remit at par via fedwire.”22 Obviously, the words used are
unintelligible. Debtor is proceeding pro se and the Court has attempted throughout
this case to construe her filings liberally,23 but the Court cannot construct arguments
for Debtor in the absence of any hint of their form.24
Because Debtor has not fulfilled her obligation to pay her filing fee, Debtor’s case
should be dismissed. Debtor did not, by the due date, submit the “certified funds” she
agreed to pay for this case to continue.
For the reasons stated above, Debtor’s case is hereby dismissed for failure to
timely pay her required filing fee.
The Clerk of this Court is ordered to docket a copy of the March 2, 2015
“promissory note” and related documents as a private entry on the docket. The
“promissory note” should be file stamped with its “received” date on the back page of
the document, which will become page 2, so as not to obliterate any text or markings
thereon. These documents contain “IRS ID” numbers, “bond” numbers, and other
unrecognizable, but potentially identifying, marks. As a result, the Court will docket
22 Various capitalization and colored print is used throughout the document, butthis is omitted in the Court’s quotation.
23 See Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991) (“A pro se litigant’spleadings are to be construed liberally and held to a less stringent standard than formalpleadings drafted by lawyers.”).
24 Drake v. City of Fort Collins, 927 F.2d 1156, 1159 (10th Cir. 1991) (stating thatcourts should not “construct arguments or theories” for litigants “in the absence of anydiscussion on those issues”).
Case 14-41043 Doc# 149 Filed 03/03/15 Page 10 of 11
the “promissory note” and related documents privately, in case these marks are
banking numbers or other private information. The Clerk is ordered to retain the
“promissory note” and related documents until such time as the Court determines they
are no longer needed.
As noted supra, in footnote 14, Debtor has also submitted a lengthy certified
copy of the state court record in her prior litigation with Wells Fargo. These documents
have been docketed as an electronic entry on the Court’s docket. If Debtor wishes to
retrieve the hard copy of these documents, she should personally retrieve them within
seven business days of the date of this order. Failure to retrieve these originals of the
submitted certified copies will be deemed a waiver of Debtor’s claim to them, and the
Clerk is ordered to thereafter immediately discard the hard copy of the entire file.
Because this case is dismissed, all future hearings and trial dates previously
scheduled are cancelled.
It is so ordered.
# # #
Case 14-41043 Doc# 149 Filed 03/03/15 Page 11 of 11
- Category: Judge Karlin
- Published on 13 January 2015
- Written by Judge Karlin
- Hits: 360
In Re MacMillan, 14-40965 (Bankr. D. Kan. Jan. 9, 2015) Doc. # 37
SIGNED this 9th day of January, 2015.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: Case No. 14-40965
Colin Edward MacMillan, and Chapter 7
Cassandra Grace MacMillan,
Memorandum Opinion and Order
Denying Trustee’s Objection to Debtors’ Amended Exemption
of Digital Photos and Business Website
Debtors Colin Edward MacMillan and Cassandra Grace MacMillan
filed a voluntary Chapter 7 Bankruptcy Petition in August 2014.1 The
Chapter 7 Trustee (Trustee) objected to their attempt to exempt, as a tool-of
the-trade, a website and a number of digital images, arguing both that theitems were not required for Colin’s primary occupation and that they were not
1 Doc. 1.
2 Doc. 22.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 1 of 11
tangible means of production, as the Trustee contends the Kansas tools-ofthe-
trade exemption requires. After receiving evidence, the Court determines
that the digital photographs and the website are electronic documents eligible
for exemption under K.S.A. § 60-2304(e), and that because these items are
necessary for Cassandra’s primary occupation, the Debtors are entitled to
claim the exemption. As a result, the Court overrules Trustee’s objection.
I. Findings of Fact
The parties agree with most of the facts necessary to resolve this issue.
Colin is a photographer and is employed as a manager of photography at
ImageMakers. He also runs his own personal photography business,
MacMillanWorks, on the side; this business focuses primarily on selling his
digitally manipulated landscape photographs directly to the public.
Debtors started MacMillanWorks in December 2012 and their jointly
filed 2013 tax returns reflected gross business income from MacMillanWorks
of $4,173. The reported gross business income for MacMillanWorks for the
period January 1, 2014 to August 18, 2014 was $5,042. Colin takes the
pictures and videos for MacMillanWorks, and digitally manipulates the
images before offering them for sale. Debtor Cassandra also works for
MacMillanWorks, handling all the accounting, some promotional work, and
most of the purchasing of supplies that the business requires. Although she
Case 14-40965 Doc# 37 Filed 01/09/15 Page 2 of 11
also earns income by providing nanny services each week, no evidence was
offered either about the value of her work for MacMillanWorks compared to
her nanny work, nor about her relative time commitment to each endeavor.
Debtors listed on Schedule B filed with their petition “Digital Images;
MacMillanWorks.net,” but they did not seek to exempt the website or the
digital images in their initial filing. After the first creditor meeting under 11
U.S.C. § 341 and a second special creditor meeting, where the Trustee’s
inquiry focused specifically on the digital images and the domain name,
Debtors filed an Amended Schedule C and now seek to claim the digital
images and the website as exempt pursuant to K.S.A. § 60-2304(e), the
Kansas tools-of-the-trade exemption. The Trustee objected to this exemption.
Section 60-2304(e) provides that a Kansas resident may exempt the
“books, documents, furniture, instruments, tools, implements and
equipment, the breeding stock, seed grain or growing plants stock, or
the other tangible means of production regularly and reasonably
necessary in carrying on the person’s profession, trade, business or
occupation in an aggregate value not to exceed $7,500.”
Debtors stored the digital images for MacMillanWorks, together with
thousands of personal images, on an external hard drive; the drive contains
over three terabytes of data.
3 Doc. 1.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 3 of 11
II. Conclusions of Law
This matter constitutes a core proceeding over which the Court has the
jurisdiction and authority to enter a final order. A debtor’s right to anexemption is determined as of the date the bankruptcy petition is filed.6 “In
determining whether a debtor is entitled to claim an exemption, ‘the
exemption laws are to be construed liberally in favor of exemption.’”7 “Once a
debtor claims an exemption, the objecting party bears the burden of proving
the exemption is not properly claimed.” As a result, Trustee bears the burdenof proving that neither Debtor may claim the exemption.
The Trustee raises two objections to Debtors’ claimed exemptions.
First, Trustee notes that § 60-2304(e) only allows a Kansas resident to
exempt the “books, documents, furniture, instruments, tools, implements and
equipment, the breeding stock, seed grain or growing plants stock, or the
other tangible means of production regularly and reasonably necessary in
5 See 28 U.S.C. § 157(b)(2)(B) (stating that “exemptions from property of the
estate” are core proceedings); § 157(b)(1) (granting authority to bankruptcy judges
to hear core proceedings).
6 In re Ginther, 282 B.R. 16, 19 (Bankr. D.Kan. 2002) (citing In re Currie, 34
B.R. 745, 748 (D. Kan.1983)).
7 Lampe v. Iola Bank and Trust (In re Lampe II), 331 F.3d 750, 754 (10th Cir.
2003) (quoting In re Ginther, 282 B.R. at 19).
8 Id. See also Fed. R. Bankr.Proc. 4003; Robinson v. Sanchez (In re Robinson),
295 B.R. 147, 152 (10th Cir. BAP 2003).
Case 14-40965 Doc# 37 Filed 01/09/15 Page 4 of 11
carrying on the person’s profession, trade, business or occupation in an
aggregate value not to exceed $7,500." The Trustee argues that the digital
images and website are not a “tangible means of production,” which Trustee
argues is required by § 60-2304(e). Second, Trustee argues that these assets
do not relate to Debtor Colin’s primary occupation as the manager of
photography at ImageMakers, noting that this Court has previously held that
only the tools related to a debtor’s primary occupation may be exempted
under the tools-of-the-trade exemption.10 Debtor Colin admitted at trial that
MacMillanWorks is a side business and that while he serves as a
photographer at both businesses, the majority of his income comes from his
employment at ImageMakers.
Both of Trustee’s arguments fail. Trustee’s first argument suggests §
9 Emphasis added. The Court notes the extensive briefing and testimony on
the value of the domain name associated with MacMillanWorks and on the value of
Debtor Colin's digital photographs related to that business, but the value of these
items is immaterial to the specific objections Trustee raised to Debtors' claim of
exemption. Because Trustee does not argue that the value of the property in
question exceeds the $7500 cap on the tools-of-the-trade exemption, the Court will
not further address this issue.
10 In re Wilkinson, Case No. 09-41059, 2010 WL 821345 (Bankr. D. Kan Mar.
5, 2010). The denial of the exemption in Wilkinson was in large part based on the
fact that debtor had filed tax returns and other documents, under penalty of
perjury, stating he had no income from the skid loader he was trying to
exempt—thus he could not meet the “regular use” criteria. That fact pattern does
not exist here. Colin is a photographer in both jobs, and earned income as a
photographer in both jobs.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 5 of 11
60-2304(e) must be read to require all items a debtor seeks to exempt as tools
of the trade be tangible. Although the state could be susceptible to such a
reading, the Court reads the statute more broadly in light of the mandate to
construe exemptions liberally. The purported tangibility requirement comes
from the catch-all portion of the statute, which allows a debtor to exempt,
“the other tangible means of production,” beyond the items enumerated
earlier in the sentence. One could read this sentence as Trustee
proposes—placing the emphasis on “other,” which would suggest that all
items must be tangible means of production. But the sentence could just as
easily be read to require that only the other means of production be tangible,
with no such requirement imposed on the enumerated items.
Again, because “exemption laws are to be construed liberally in favor of
exemption,”11 the Court will embrace the latter reading of the statute and
hold that only the additional items, not those enumerated in the list, must be
tangible items. This reading is especially appropriate given the nature of
many of the “books, documents, . . . instruments, [and] tools” in today’s
electronic era, which are entirely digital and thus likely not tangible items. In
this case, the digital images and the website are electronic documents and, as
11 In re Lampe II, 331 F.3d at 754. See In re Massoni, 67 B.R. 195, 197
(Bankr. D.Kan. 1986) (“The Kansas exemption laws are to be liberally construed ‘so
as to effect the humane purposes of the legislature in enacting them.’”).
Case 14-40965 Doc# 37 Filed 01/09/15 Page 6 of 11
such, are amenable to exemption under § 60-2304(e).
Trustee’s second argument, that the website and digital images are not
related to Debtor Colin’s primary occupation, fails to address Debtors’
argument that Debtor Cassandra could exempt the items herself. Trustee
provided no evidence to suggest that the items in question were not tools of
the trade for Debtor Cassandra’s primary occupation, as Debtors argued
during the evidentiary hearing. Generally, both debtors in a joint debtor case
may claim the exemptions available under Kansas law.12 More specifically,
the Court notes the long line of “farmer’s wife” cases, which establish that a
spouse, engaged together in an occupation with the other spouse, is able to
claim the Kansas tools-of-the-trade exemption for property used to run that
business if that business is the primary occupation for the spouse claiming
The Tenth Circuit BAP described the general theme in these cases:
The factual scenario running through those cases is
that of a farmer’s wife who has claimed an exemption
in farming equipment when the husband is primarily
responsible for the farming. The wife is either
employed part-time off the farm or not at all,
although she assists in the farming operation in one
way or another. Those courts have consistently found,
based on a litany of farming activities in which she
12 Lampe v. Iola Bank and Trust (In re Lampe I), 278 B.R. 205, 215 (10th Cir.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 7 of 11
participated, that the wife’s primary occupation was
farming and permitted her to claim the exemption.13
This case presents an analogous situation. Here, Debtor Cassandra handles
all the accounting and some promotional work for MacMillanWorks, and she
also purchases most of the supplies the business requires. Debtor Colin
testified that he could not make sense of the books, and that Debtor
Cassandra exclusively handles that side of the business.
Trustee bears the burden of establishing that Debtor Cassandra cannot
claim this exemption, but Trustee submitted virtually no evidence on this
point. Debtor Cassandra testified that she does work part time as a nanny
each week, in addition to her work with MacMillanWorks, but Trustee did not
elicit, and no witness volunteered, testimony reflecting her relative income
from each job, nor her time commitment to each endeavor. As a result, there
is no evidence that the work she does for MacMillanWorks is not her primary
Trustee noted in her written objection that MacMillanWorks is a sole
proprietorship owned by Debtor Colin, and Debtor Colin agreed that he
organized the company as a sole proprietorship. Trustee appears to be
arguing that Debtor Cassandra thus has no ownership interest in the
13 Dunivent v. Bechtoldt (In re Bechtoldt), 210 B.R. 599, 602, n.2 (10th Cir.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 8 of 11
business or the website and images, but Trustee never makes this argument
explicit. Even if she did, however, the argument would fail under existing
Circuit precedent. The test for co-ownership between a husband and wife
engaged in an enterprise like this is not the form of the business or whose
name appears on the business documents.
The Tenth Circuit addressed this very issue in In re Lampe, 14 where the
Court concluded that a wife had an ownership interest in farm implements
sufficient to support the tools-of-the-trade exemption, even though the farm
was a sole proprietorship in her husband’s name and only her husband
reported self-employment income and self-employment taxes for the farm
enterprise. In In re Lampe, the Court established the test for determining
whether a spouse has sufficient ownership interests to support this
the test for co-ownership for purposes of the tools of the
trade exemption is not whether a spouse can
demonstrate he or she acquired an ownership interest
by purchase with separate property, gift or inheritance
. . . . Instead, the debtors' intent and conduct controls.15
The Court went on to consider evidence that the wife worked on the farm and
14 331 F. 3d 750.
15 Id. at 755. See also Estate of Lane, 39 Kan.App.2d 1062, 1068–69 (Kan. Ct.
App. 2008) (approving of the spousal ownership interest test as stated in In re
Case 14-40965 Doc# 37 Filed 01/09/15 Page 9 of 11
operated some of the equipment, that all proceeds from the farming operation
were placed in a joint account, that funds to pay for the equipment came out
of the account, that the wife also deposited her outside employment income
into the joint account, and that she co-signed on the notes and security
agreements to obtain operating loans for the farm. Based on this evidence,
the Court concluded that, “the Trustee failed to meet its burden of proving
[the wife] lacked an ownership interest in the farm equipment.”16
Here, similar evidence supports this Court’s determination that Trustee
has been unable to show that Debtor Cassandra lacks the necessary
ownership interest in these documents. The evidence shows that Debtor
Cassandra handles all the accounting and some promotional work for
MacMillanWorks, and that she does most of the purchasing for the business.
Debtor Cassandra is not paid for that work. It is clear, then, that the Debtors
consider Debtor Cassandra not an employee of her husband’s business, but
rather a co-owner engaged in building the business. Even absent this finding,
because Trustee bears the burden of demonstrating that Debtor Cassandra
cannot claim this exemption, the failure to submit evidence on this question
beyond simply noting that the business is a sole proprietorship under Debtor
Colin, or to submit any other evidence suggesting that Debtor Cassandra
16 Id. at 756.
Case 14-40965 Doc# 37 Filed 01/09/15 Page 10 of 11
cannot claim the exemption, requires the Court to find that Debtor Cassandra
may claim the tools-of-the-trade exemption for the digital images and the
Because the digital images and the website fall within the meaning of
documents under §60-2304(e), and because Debtor Cassandra is entitled to
claim these documents as her tools of the trade, the Court overrules Trustee’s
Objection to Debtors’ Amended Schedule C.18
It is so ordered.
# # #
17In re Lampe I, 278 B.R. at 215.
18 Doc. 22. And to clean up the docket sheet, the Court grants the only other
motion shown as pending —Doc. 27, a Motion filed by Trustee on November 17,
2014, seeking a status conference. The Court granted that motion when it set and
conducted that status conference on November 25 and December 1, 2014,
Case 14-40965 Doc# 37 Filed 01/09/15 Page 11 of 11
- Category: Judge Karlin
- Published on 03 March 2015
- Written by Judge Karlin
- Hits: 178
BAP WY-14-035 In Re Rael, Feb. 27, 2015
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
February 27, 2015
Blaine F. Bates
NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE ROBERT ALYN RAEL and
LISA LYNN RAEL,
*NIONROBERT ALYN RAEL and LISA
WELLS FARGO BANK, N.A.,
IN RE ROBERT ALYN RAEL and
LISA LYNN RAEL,
ROBERT ALYN RAEL and LISA
WELLS FARGO BANK, N.A.,
Appeal from the United States Bankruptcy Courtfor the District of Wyoming
* This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, andissue preclusion. 10th Cir. BAP L.R. 8026-6.
Before KARLIN, SOMERS, and JACOBVITZ, Bankruptcy Judges.
KARLIN, Bankruptcy Judge.
Debtors Robert and Lisa Rael (the “Raels”) contend that after their case
was closed and they defaulted on their confirmed individual Chapter 11 plan,
their main creditor Wells Fargo Bank, N.A. (“Wells Fargo”) was required to
return to the bankruptcy court to enforce its preserved lien rights rather than
proceed in state court. They contend Wells Fargo violated the stay when it f ailed
to do so. Because we agree with the bankruptcy court’s decision that there was
no violation of the automatic stay, and that the bankruptcy court did not have
exclusive jurisdiction to enforce the terms of the Raels’ confirmed plan, we affirm
the decisions of the bankruptcy court.1
I. Procedural Timeline
The timeline and procedural posture of the Raels’ case, while not unique to
individual Chapter 11 proceedings generally, lead to the underlying disputes. The
bankruptcy court confirmed the Raels’ individual Chapter 11 plan, and the Raels
elected to close their case prior to receipt of a discharge. Wells Fargo
subsequently filed two state court actions: one to enforce the terms of the
confirmed Chapter 11 plan based on the Raels’ plan default and one to determine
lien priorities. The state court entered judgment against the Raels in the first case
(without objection by the Raels as to the state court’s jurisdiction or power to
hear the matters). Sometime later, the Raels reopened their Chapter 11 case and
filed a motion to show cause and/or for contempt against Wells Fargo.
The parties did not request oral argument, and after examining the briefs
and appellate record, the Court has determined unanimously that oral argumentwould not significantly aid in the determination of this appeal. See Fed. R.
Bankr. P. 8019(b)(3). The case is therefore ordered submitted without oral
The Raels argued both that: 1) Wells Fargo violated the automatic stay of
11 U.S.C. § 362(a)2 because of its enforcement actions against property of the
estate, and 2) that Wells Fargo violated the terms of the Raels’ confirmed Chapter
11 plan by seeking relief in state court, rather than in the bankruptcy court. The
bankruptcy court ruled that there was no stay violation. It cited both § 362(c)(2),
which states that “the stay of any other act . . . continues until . . . the time the
case is closed,” 3 and Houlik, 4 a Tenth Circuit BAP opinion applying § 362(c) to
an individual Chapter 11 case and holding that the automatic stay terminated as to
estate property upon plan confirmation under § 362(c)(1) and as to all other
property upon the closing of the case under § 362(c)(2). 5 The bankruptcy court
also rejected the Raels’ argument that the bankruptcy court had exclusive
jurisdiction to enforce the provisions of their plan and that the state court actions
were, therefore, improper. It again relied on Houlik, which held that when there
is no automatic stay or discharge injunction violation to support jurisdiction, a
bankruptcy court does not have jurisdiction to determine a post-confirmation
wrongful possession action.6
After the bankruptcy court denied their motion to show cause and/or for
contempt, the Raels requested reconsideration, this time focusing their argument
on § 362(c)(1). The bankruptcy court again denied the motion, this time ruling
that it was inappropriate for the Raels to advance new arguments in a motion for
reconsideration. The Raels appealed both orders in their first appeal. But they
2 All future statutory references are to Title 11 of the United States Code,
unless otherwise specified.
3 11 U.S.C. § 362(c)(2)(A).
4 In re Houlik, 481 B.R. 661 (10th Cir. BAP 2012).
5 Id. at 669-70.
6 Id. at 676.
were not done; advancing a “continuing violation” theory, they then filed yet
another motion to show cause and/or for contempt, presenting the same
arguments. The bankruptcy court again denied the motion on the same bases,
resulting in a second appeal. The Raels’ appeals were companioned by this Court
and are resolved by this opinion.
II. Background Facts
The Raels filed an individual Chapter 11 bankruptcy petition in 2008, and
their plan was confirmed in January 2010. The plan provided they would not
receive a discharge until they completed all payments under their plan. About a
year after their plan was confirmed, they filed a final report and motion for final
decree, seeking to close their case to avoid paying the United States Trustee’s
quarterly fee assessments. Over objections by both the United States Trustee and
Wells Fargo, the bankruptcy court entered a Final Decree and Order Closing Case
in March 2011. Neither the motion requesting case closing nor the resulting order
addressed any aspect of the automatic stay or suggested the closing was anything
but a full and complete closure of the case.
Several months after the case was closed, Wells Fargo filed a motion to
dismiss or convert the bankruptcy case based on the Raels’ default. The Raels
objected, arguing that because their case was closed, the bankruptcy court did not
have jurisdiction to grant relief. The motion remained undecided, and the
bankruptcy court later noted it had not ruled on Wells Fargo’s motion because the
case was closed.
Finding no relief at the bankruptcy court, Wells Fargo filed a complaint in
state court in November 2011, alleging the Raels had breached their contract
when they defaulted on the terms of the confirmed plan. The Raels answered the
state court complaint, failing to raise any jurisdictional defense to that court
hearing the matter, and the state court entered judgment for Wells Fargo in
A few months later, in December 2012, Wells Fargo next filed a state court
action seeking a determination that Wells Fargo had a superior lien over lien
rights of other defendants/creditors in certain property that the Raels acquired
before they commenced their Chapter 11 bankruptcy case. Wells Fargo then
installed a locked fence around one of the properties in February 2013.
More months passed. On May 28, 2013, the Raels moved to reopen their
bankruptcy case to enforce the terms of their confirmed plan and to bring a
contempt action for Wells Fargo’s alleged violation(s) of the automatic stay. The
court reopened the Raels’ bankruptcy case in June 2013. Several months later, in
September 2013, the parties filed a stipulated motion for relief from automatic
stay to allow Wells Fargo to foreclose on the subject properties (i.e., the
properties that were the subject of the state court proceedings). The order
approving that stipulated motion was entered on October 21, 2013.
Notwithstanding their stipulation to the bankruptcy court granting stay
relief, the Raels filed their first motion to show cause and/or for a finding of
contempt by the bankruptcy court on October 15, 2013. They alleged that Wells
Fargo was in contempt for violating §§ 362(a)(3), (5), and (6) based on the state
court actions filed before the stipulated stay relief, and for violating terms of the
Raels’ confirmed Chapter 11 plan, generally alleging that the property at issue
remained property of the estate and subject to the automatic stay. While this
motion was pending—but after the stipulated relief order was entered, Wells
Fargo proceeded to change the locks at two of the properties, and, in January
2014, foreclosed on them.
Several months later, in April 2014, the bankruptcy court denied the Raels’
contempt motion, finding there was no stay violation and that Wells Fargo was
entitled to enforce its rights under the confirmed plan in state court. As stated
above, the bankruptcy court also denied a subsequent motion for reconsideration
and a second motion for an order to show cause and/or for contempt. The appeals
that are the subject of this opinion followed.
III. Jurisdiction and Standard of Review
This Court has jurisdiction to hear timely-filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
unless one of the parties elects to have the district court hear the appeal. 7 Neither
party elected to have this appeal heard by the United States District Court. The
parties have therefore consented to appellate review by this Court. The orders of
the bankruptcy court (i.e., denying the Raels’ first motion to show cause and/or
for contempt, motion for reconsideration, and second motion to show cause and/or
for contempt) fully and finally resolved the parties’ disputes and are therefore
final orders for purposes of appeal. 8 The Raels timely appealed those orders and
this Court, therefore, has jurisdiction over the appeals.
The issues raised in these appeals are legal issues, which this Court reviews
de novo. 9 “De novo review requires an independent determination of the issues,
giving no special weight to the bankruptcy court’s decision.”10
7 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002 (now also
at Fed. R. Bankr. P. 8005, effective Dec. 1, 2014); 10th Cir. BAP L.R. 8001-3
(now codified at 10th Cir. BAP L.R. 8005-1, effective December 1, 2014).
8 See In re Eneco, Inc., No. UT-09-013, 2010 WL 744351, at *4 (10th Cir.
BAP Mar. 2, 2010) (bankruptcy court order denying motion for contempt is finalfor purposes of review).
9 Jantz v. Karch (In re Karch), 499 B.R. 903, 906 (10th Cir. BAP 2013)
(interpretation of statutory language is reviewed de novo) (citing Pierce v.
Underwood, 487 U.S. 552, 558 (1988)); Diviney v. Nationsbank of Tex., N.A. (In
re Diviney), 225 B.R. 762, 769 (10th Cir. BAP 1998) (“Whether a party’s actions. . . violated the automatic stay is a question of law [that] is reviewed de novo.”)
(quoting Barnett v. Edwards (In re Edwards), 214 B.R. 613, 618 (9th Cir. BAP
1997)); Korngold v. Loyd (In re S. Med. Arts Cos., Inc.), 343 B.R. 250, 254 (10thCir. BAP 2006) (bankruptcy court’s subject matter jurisdiction is an issue of lawthat is reviewed de novo) (citing Salt Lake Tribune Pub. Co., LLC v. AT & T
Corp., 320 F.3d 1081, 1095 (10th Cir. 2003)).
10 AG New Mexico, FCS, ACA v. Borges (In re Borges), 510 B.R. 306, 321
(10th Cir. BAP 2014) (citing Salve Regina Coll. v. Russell, 499 U.S. 225, 238
Application of the Automatic Stay in Individual Chapter 11Cases Post-confirmation
The filing of a petition in bankruptcy automatically imposes a stay that
prohibits most attempts by a debtor’s creditors to enforce their claims. 11 The
duration of that stay is generally defined in § 362(c). The issue in this appeal is
whether the stay in the Raels’ case remained in effect when Wells Fargo initiated
state court proceedings or otherwise enforced its rights under the Raels’
The relevant subsections of § 362(c), which are subject to specific
exceptions not applicable here, provide:
(1) the stay of an act against property of the estate under subsection (a)
of this section continues until such property is no longer property of the
(2) the stay of any other act under subsection (a) of this section
continues until the earliest of–
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case . . . under chapter 9, 11, 12, or 13 of this
title, the time a discharge is granted or denied[.]12
The Raels contend that Wells Fargo’s enforcement actions were taken against real
property that constituted property of the estate and, therefore, § 362(c)(1) is the
applicable subsection. But the bankruptcy court concluded that the stay
terminated as to all of the Raels’ property when they elected to close their case in
March 2011. All of Wells Fargo’s disputed conduct occurred between November
2011 (when it filed the first state court complaint) and February 2013 (when it
fenced in and locked one of the disputed properties). Thus, if the stay terminated
when the bankruptcy court closed the case in March 2011, there was no stay in
place that Wells Fargo’s subsequent enforcement efforts could violate.
11 U.S.C. § 362(a).
11 U.S.C. § 362(c)(1)-(2) (emphasis added).
On appeal, the Raels argue that the automatic stay remains in effect in
individual Chapter 11 cases post-confirmation because of the interplay between
§§ 362(c)(1), 1141(b), and 1115(a). The Raels, as the party alleging a stay
violation, bear the burden to prove Wells Fargo violated the stay.13
As noted above, § 362(c)(1) expressly states that the automatic stay “of an
act against property of the estate . . . continues until such property is no longer
property of the estate.” 14 Section 1141(b) then states that “[e]xcept as otherwise
provided in the plan or the order confirming the plan, the confirmation of a plan
vests all of the property of the estate in the debtor.” 15 Because the plan and
confirmation order the Raels drafted did not elect to provide otherwise, the simple
reading of these two statutes resulted in all property of the estate, at least as it
existed on the date of confirmation, vesting in the Raels at confirmation. As a
result, the automatic stay protecting that property—which included the property
the Raels had pledged to Wells Fargo—terminated upon confirmation of the
Raels’ plan in January 2010.
The Raels argue that § 1115(a) conflicts with § 1141(b), because § 1115(a)
states that in individual Chapter 11 cases, property of the estate includes property
“acquire[d] after the commencement of the case . . .” and “earnings from services
perf ormed by the debtor after the commencement of the case . . . ,” as long as that
property was acquired or earned “before the case is closed, dismissed, or
converted . . . .” 16 The Raels then analogize these Chapter 11 sections to similar
Chapter 13 sections, and discuss the split of authority in Chapter 13 cases over
See Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1171-72 (10th Cir.
11 U.S.C. § 362(c)(1).
11 U.S.C. § 1141(b).
11 U.S.C. § 1115(a)(1)-(2).
whether the property of the estate remains property of estate after confirmation
until discharge, and is therefore protected by the automatic stay. In the Chapter
13 context, there is no Tenth Circuit or BAP opinion deciding this issue,17 and
there are no opinions at all on the issue in the Chapter 11 context.
There is no real dispute that the bankruptcy court did not address this
argument (analogizing Chapter 11 provisions to Chapter 13 cases and the split in
the case law in those cases). And Wells Fargo responds to this argument, and the
Raels’ appeal, by arguing that the Raels waived this argument on appeal by
failing to make the same argument at the bankruptcy court. It is true that the
Raels’ briefing and advocacy on this issue at the bankruptcy court are not clear.
In their first motion for an order to show cause and/or for contempt, the Raels
only generally argued that the real property at issue was property of the estate and
subject to the automatic stay. In their motion for reconsideration, in response to
the bankruptcy court’s ruling that § 362(c)(2) and Houlik defeated their claims,
however, the Raels then pushed the issue that § 362(c)(1), rather than § 362(c)(2),
should be considered by the bankruptcy court.
The bankruptcy court, in ruling on the motion for reconsideration, held that
it was not appropriate for the Raels to advance the § 362(c)(1) argument, because
the Raels could have raised the argument in their prior briefing and did not. It
was not until briefing in support of their second motion for show cause and/or
contempt that the Raels fully briefed their argument about the interplay between
The Tenth Circuit has recognized the split in the Chapter 13 case law
concerning the Chapter 13 vesting provisions and property of the estate, but hasnot indicated which approach it will f ollow. See United States v. Richman (In re
Talbot), 124 F.3d 1201, 1207 n.5 (10th Cir. 1997) (acknowledging question overthe vesting provisions of § 1327(b) and its impact on estate property uponconfirmation of a Chapter 13 plan). The Tenth Circuit BAP has done the same.
See In re Vannordstrand, 356 B.R. 788, No. KS-05-091, 2007 WL 283076, at *2(10th Cir. BAP Jan. 31, 2007) (noting the “disputed issue” of whether “the‘vesting’ of estate property in the debtor [in a Chapter 13 case] acts to terminate
§ 1306’s inclusion of post-petition acquired property in the estate” butdetermining it need not decide the issue in that case).
§§ 362(c)(1), 1141(b), and 1115(a) and their analogy to the Chapter 13 case law.
Ultimately, it is a close call whether the Raels sufficiently and timely
raised the argument at the bankruptcy court that they now press on appeal. 18 But
because the Raels’ argument is without merit based on the simple application of
the plain language of the Bankruptcy Code to the facts of this case, and based on
binding precedent, we elect to dispose of it.
Debtors do not satisfactorily address the Tenth Circuit BAP opinion in
Houlik, 19 which has facts and issues similar to those at hand. In Houlik, after the
individual Chapter 11 debtors’ plan was confirmed, the court administratively
closed the case prior to debtors’ receipt of their discharge. 20 The debtors’
confirmed plan expressly vested all property in the debtors at confirmation. 21 The
debtors reopened their bankruptcy case several months later, alleging a violation
of the automatic stay as well as a violation of the discharge injunction and the
plan confirmation order. 22 Regarding the alleged violation of the automatic stay,
the Houlik panel applied § 362(c) and held the f ollowing:
Pursuant to § 362(c)(1), the stay of an act against property of the estatecontinues only until such property is no longer property of the estate.
As a result, in this case [ where the plan itself vested property in thedebtors upon confirmation], the automatic stay imposed with respect tothe [property] when the [debtors] filed their Chapter 11 petition
terminated upon Plan confirmation. Additionally, § 362(c)(2) provides
that the stay of any other act against the [ debtors] to collect on aprepetition claim continues only until the case is closed, the case is
The review applicable on appeal would change if the Raels had not
properly raised the issue at the bankruptcy court. See Barber v. T.D. Williamson,
Inc., 254 F.3d 1223, 1227 (10th Cir. 2001) (noting that when an appellant failedto timely raise an issue in the lower court, then the only review available is forplain error) (citing Giron v. Corrections Corp. of Am., 191 F.3d 1281, 1289 (10th
Houlik, 481 B.R. at 661.
Id. at 664.
dismissed, or a discharge is granted or denied, whichever occurs first.
Thus, any stay of actions against the [debtors] terminated when theircase was closed . . . . As a result, [the creditor] cannot be sanctioned forrepossession of the [property] as a violation of the automatic stay.23
The Houlik decision did not address the Raels’ current argument about the
interplay between §§ 362(c)(1), 1141(b), and 1115(a), likely because that court
did not believe it needed to. The Houlik decision applies the plain language of
§ 362(c) and concludes that the automatic stay terminated as to property of the
estate upon plan confirmation, and terminated as to all other property upon case
The Raels attempt to distinguish Houlik by emphasizing that the Chapter 11
plan in Houlik expressly vested property of the estate in the debtors upon plan
confirmation, while their plan is silent as to vesting. But that is a distinction
without a difference, since the plan in Houlik did only what the Bankruptcy Code
dictates for all cases—i.e., vesting property of the estate with all debtors upon
plan confirmation under § 1141(b) (unless the plan provides otherwise). As Wells
Fargo argues, the vesting language in Houlik was essentially redundant because
the Code provides the same result. As a result, the Raels’ argument finds no
support in the Tenth Circuit. 25 Just as in Houlik, the stay of actions against
property of the estate terminated upon the Raels’ plan confirmation under
§ 362(c)(1) and § 1141(b). As such, their argument that Wells Fargo violated the
23 Id. at 669-70 (internal citations omitted).
25 The Raels also contend that the bankruptcy court’s interpretation of
§ 362(c)(2), as ending any automatic stay upon closure of the case, renders
subsection (c)(1) “surplusage” because closure is irrelevant to (c)(1). However,
(c)(1) terminates the stay when estate property no longer belongs to the estate.
That happens upon confirmation under § 1141(b), which is prior to termination ofthe stay under (c)(2). Moreover, § 1141(b) specifically allows debtors to controlwhether or not estate property vests with them upon confirmation by allowingthem to “provide otherwise.” As a result, the Raels could have preserved theautomatic stay for a time by simply including such a provision in their plan.
automatic stay when it began its state court enforcement actions is misplaced, as
the property pledged to Wells Fargo was not estate property at that point.
Likewise, the stay that applies to all other acts terminated under § 362(c)(2) when
the Raels voluntarily elected to close their case prior to discharge. Thus, there
was no automatic stay violation at all.
The addition of § 1115(a) by BAPCPA,26 and the interplay of that section
with §§ 362(c)(1) and 1141(b), although not addressed by Houlik, also have no
impact here. The Raels analogize these sections to similar provisions in the
Chapter 13 context, and rely on cases outside the Tenth Circuit27 that essentially
ignore § 1327(b) (which, like § 1141(b), vests estate property with the debtor
upon confirmation unless otherwise provided) on the basis of a perceived
“conflict” between re-vesting estate property with the debtor and § 1306(a)
(which, like § 1115(a), includes an individual debtor’s post-petition assets in the
bankruptcy estate). The “conflict” that some courts have found between
§ 1327(b) and § 1306(a) is that, although estate property “vests” in a debtor upon
plan confirmation under § 1327(b), an individual debtor’s property and wages
acquired post-petition are considered to be “estate property” under § 1306(a) until
“the case is closed, dismissed, or converted.” 28 Thus, in the event that 1) neither
the plan nor the confirmation order provides that estate property shall remain
26 BAPCPA refers to the Bankruptcy Abuse Prevention and Consumer
Protection Act, Pub. L. 109-8, 119 Stat. 23, a major statutory revision of theBankruptcy Code in 2005.
27 The Raels cite United States v. Harchar, 371 B.R. 254 (N.D. Ohio 2007)
and In re Kolenda, 212 B.R. 851 (W.D. Mich. 1997) as cases finding that, in spiteof § 1327(b), estate property remains estate property (and therefore protected bythe automatic stay) after confirmation.
28 See, e.g., United States v. Harchar, 371 B.R. 254, 264 (N.D. Ohio 2007)
(noting the “contradiction” between § 1306 providing “that earnings and propertyare property of the estate until the case is closed, dismissed or converted, whileplan confirmation occurs before any of these events and “vests all of the propertyof the estate in the debtor” under [ §] 1327”); In re Kollenda, 212 B.R. 851,852–53 (W.D. Mich. 1997) (describing “conflict” between § 1306 and § 1327).
vested in the estate upon confirmation, and 2) the debtor acquires property or
wages between confirmation and the closure, dismissal, or conversion of his case,
what was previously estate property will be vested with the debtor and property
acquired by the debtor after confirmation (that would not have been estate
property except for application of § 1306(a) or § 1115(a)) is estate property by
virtue of those provisions. These courts then conclude that the property is
protected by the automatic stay set forth in § 362(c)(1).29
But even if there was controlling Tenth Circuit precedent on this issue,
which there is not, 30 § 1115(a) is simply inapplicable to the Raels. Again,
§ 1115(a) states that in individual Chapter 11 cases, property of the estate
includes property “acquire[d] after the commencement of the case . . .” and
“earnings from services performed by the debtor after the commencement of the
case . . . ,” as long as that property was acquired or earned “before the case is
closed, dismissed, or converted . . . .” 31 The logical reading of this statute is,
then, that it governs only what property enters the estate; it has no effect on the
termination of the automatic stay under § 362(c) in this case. The property that
was the subject of Wells Fargo’s actions was property on which Wells Fargo had
a prepetition lien. Thus, by definition, this was not property the Raels acquired or
earned after they filed their case and before case closure, as required for the
express terms of § 1115(a) to apply.
29 See, e.g., In re Kollenda, 212 B.R. at 855 (concluding “even if the property
in the estate at the time of confirmation is transf erred to the debtor under §
1327(b), the estate continues to exist, and property acquired post-confirmation isadded to the estate until the case is ‘closed, dismissed, or converted’) (quoting In
re Fisher, 203 B.R. 958, 962 (N.D. Ill. 1997)).
30 Obviously, the issue as it arises in Chapter 13 cases is very far afield f rom
what is squarely presented here. We express or imply no opinion on the split inauthority found in the Chapter 13 case law; this is not the proper case to weighthe differing approaches.
31 11 U.S.C. § 1115(a)(1)-(2).
As a result, the stay of Wells Fargo’s actions against property of the estate
had long since terminated—in January 2010 when the plan was
confirmed—pursuant to the plain language of § 362(c)(1) and § 1141(b). The
Raels could have chosen a different vesting time, as permitted by § 1141(b), but
they elected not to do so. Therefore, the confirmation of their plan vested all
property of the estate in them (under § 1141(b)) and the automatic stay ceased as
to that property at plan confirmation (under § 362(c)(1)). The stay against all
other acts terminated, by the express language of § 362(c)(2), when the Raels
elected to close their case.32
Once again, the Raels made this choice; they voluntarily sought the closing
of their case after plan confirmation in order to avoid further Chapter 11 fees.
And they used the fact the case was closed as a shield when Wells Fargo
attempted to dismiss or convert the Chapter 11 case after the Raels failed to
perf orm under the confirmed plan. They will not now be heard to suggest the
closing was something less than is contemplated by the express words of
Based on the timeline outlined herein, the Wells Fargo actions about which
Because of this, the Raels’ passing argument about the applicability of
§ 362(a)(5) is misplaced. Section 362(c)(2) terminated any stay under § 362(a).
The Raels also argue their Chapter 11 case was closed as a mereadministrative matter so they could avoid paying fees to the United StatesTrustee, and that, therefore, § 362(c)(2) is somehow inapplicable. Regardless ofthe Raels’ motive for closure, however, the Bankruptcy Code does not distinguishamongst motives for case closure. The Raels further argue that the automatic staywas reinstated when they reopened their Chapter 11 case. But, again, the onlyactions Wells Fargo took after the case was reopened occurred after entry of the
stay relief order to which the Raels had agreed. The Raels then argue that thereopening of their case somehow retroactively restored the automatic stay. Even
if the Raels had made this argument more than superficially, which they did not,
we need do no more than mention here that the Code does not provide for suchretroactivity. Cf. In re Singleton, 358 B.R. 253, 261 (D. S.C. 2006) (analyzingautomatic stay in Chapter 13 case, and noting that “[w]hile the Bankruptcy Code[may grant] a bankruptcy court the power to retroactively grant relief f rom a
stay . . . ,” there is no authority in the Code “that grants the bankruptcy courtpower to retroactively impose a stay. . . .”) (internal citations omitted).
the Raels complain occurred between November 2011 and February 2013. The
Raels’ Chapter 11 plan was confirmed in January 2010, and their Chapter 11 case
was closed in March 2011. Under § 362(c)(1), the stay of acts against property of
the estate terminated in January 2010 upon confirmation, and “the stay of any
other act . . .” terminated in March 2011 upon case closure. 33 The bankruptcy
court was correct to conclude there were no automatic stay violations by Wells
Fargo and to deny the Raels’ motions alleging violations.
Jurisdiction to Enforce the Terms of the Confirmed Chapter 11Plan
The Raels also argue on appeal that the bankruptcy court had exclusive
jurisdiction to enforce the provisions of their Chapter 11 plan, and that, therefore,
Wells Fargo’s state court action f or breach of the plan provisions was improper.
The bankruptcy court rejected this argument, again based on Houlik. The
majority in Houlik held that when there is no automatic stay or discharge
injunction violation to support jurisdiction, and there is no issue involving
noncompliance with or interpretation of a confirmed plan, a bankruptcy court
does not have jurisdiction to determine a post-conf irmation wrongful repossession
In Houlik, the majority opinion considered whether a bankruptcy court has
authority to sanction a creditor for violating a confirmation order when there is no
violation of the automatic stay or the discharge injunction. 35 The majority
opinion first noted that jurisdiction retention language in a plan “cannot broaden a
bankruptcy court’s jurisdiction . . . ,” and found any attempt to do so with such
11 U.S.C. § 362(c)(2).
Houlik, 481 B.R. at 676.
Id. at 672-73.
language to be irrelevant. 36 The majority then analyzed 28 U.S.C. § 157(b), and
concluded that the debtors’ claim in that case was not a core proceeding, and was,
in fact, a non-core proceeding that could have been brought in state court for
breach of contract or wrongful repossession. 37 As a non-core proceeding, the
bankruptcy court could only have jurisdiction if the action was “sufficiently
related to the [debtors’] Chapter 11 bankruptcy case.” 38 Based on the Tenth
Circuit’s definition of “related to” jurisdiction, and cases from outside the Tenth
Circuit applying that definition, the majority opinion in Houlik held that, no
matter how the “related to” definition is interpreted, the post-confirmation
jurisdiction of a case—where assets have re-vested in debtors, the plan is
substantially consummated and administered, and the creditor retains its rights in
the collateral pursuant to the plan—does not extend to the bankruptcy court to
sanction a plan violation. 39 The majority opinion concluded:
Even though it is brought by the debtors, the action affects neither anintegral aspect of the bankruptcy process, nor the interpretation,
implementation, consummation, execution, or administration of the
confirmed plan. That is, of course, not to say there is no remedy for the[debtors] in this situation—only that it is a state court remedy and nota bankruptcy court remedy. . . . [T]he bankruptcy court’s jurisdictionfollowing confirmation . . . is reserved for matters that impact thebankruptcy process directly or involve interpretation or execution of theplan of reorganization.40
The concurring opinion in Houlik agreed that the creditor’s exercise of its
lien rights retained under the plan did not require either interpretation or
enforcement of the plan, which would have been something over which the
Id. at 672 n.72 (internal citation omitted). Likewise, the jurisdiction
retention language in the Raels’ plan is irrelevant in the same way.
37 Id. at 674.
39 Id. at 675-76.
40 Id. at 676-77.
bankruptcy court retained jurisdiction, but it objected to the majority’s failure to
acknowledge the importance of such post-confirmation jurisdiction (whether it be
core or ancillary) by considering it only under a “related to” analysis.41
Regarding state court jurisdiction, the concurrence specif ically noted that “[t]he
state court would have concurrent jurisdiction to enforce the Plan as a contract
between the Debtors and [creditor],” but the bankruptcy court would retain
authority to prevent certain collection eff orts as part of its enforcement of the
The Raels first argue on appeal that Houlik is distinguishable because there
was, in fact, an automatic stay violation, and that, therefore, the action here would
be a core proceeding, not a non-core proceeding. As discussed above, however,
the bankruptcy court was correct in finding there was no automatic stay violation,
and this holding forecloses the Raels’ argument. The Raels then argue that
because their plan provided that the bankruptcy court “shall retain jurisdiction”
over their plan, that the bankruptcy court must have continuing jurisdiction over
the plan—questioning how the bankruptcy court could do anything further in their
Chapter 11 case if it has no jurisdiction at that stage. But the Houlik decision
does not state that bankruptcy courts have no post-confirmation jurisdiction.
Instead, the majority opinion concluded only that bankruptcy courts do not have
“related to” jurisdiction to issue sanctions in non-core post-confirmation actions
alleging a violation of the plan for state court enforcement of the plan. Applying
the concurring opinion from Houlik further reiterates that the bankruptcy court is
not left without jurisdiction entirely. Instead, exclusive bankruptcy court
jurisdiction did not arise based on those particular facts—facts that are nearly
identical to those found here. As a result, the Raels’ arguments also fail as to this
41 Id. at 678–79.
42 Id. at 679.
portion of the bankruptcy court’s orders.
Because we conclude that the bankruptcy court properly found Wells Fargo
did not violate the automatic stay, and that the bankruptcy court did not have
exclusive jurisdiction to enforce the terms of the Raels’ Chapter 11 plan, we
affirm the bankruptcy court’s orders denying relief to the Raels.
- Category: Judge Karlin
- Published on 25 November 2014
- Written by Judge Karlin
- Hits: 632
Williamson v. Bank of America, N.A. et al, 14-07033 (Bankr. D. Kan. Nov. 24, 2014) Doc. # 35
SIGNED this 24th day of November, 2014.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF KANSAS
In re: Case No. 12-41444
Eva M. Rodriguez, Chapter 7
Darcy Williamson, Trustee,
Plaintiff, Case No. 14-7033
v. Adversary Proceeding
Bank of America, N.A.,
Robert A. Johnson, Jr., and
Order Granting in Part and Denying in Part
Defendant Bank of America’s Motion to Dismiss
The chapter 7 Trustee, Darcy Williamson (hereinafter, the “Trustee”), filed this
adversary proceeding against Defendants Bank of America, N.A. (hereinafter “Bank
of America”), Anthony Abeyta, Robert Johnson, Jr., and Erlinda Johnson, to avoid
Case 14-07033 Doc# 35 Filed 11/24/14 Page 1 of 17
allegedly fraudulent transfers under 11 U.S.C. § 548 and to recover those transfers for
the bankruptcy estate under 11 U.S.C. §§ 550, 551, and 542. The Trustee alleges that
the debtor in the underlying bankruptcy case, Eva Rodriguez, sold real property to
Defendants Robert and Erlinda Johnson for less than fair market value, and used a
portion of the proceeds of that sale to pay off a second mortgage on the real property
and other debts to Defendant Bank of America, despite the fact her ex-husband,
Defendant Anthony Abeyta, was obligated by their divorce decree to pay the second
mortgage loan and the other debts.
Defendant Bank of America has moved to dismiss the counts against it, arguing
that the payment of the second mortgage loan is not constructively fraudulent because
it gave reasonably equivalent value in the form of a lien release in exchange for the
payment. Defendant Bank of America also argues that the Trustee’s complaint does
not allege actual intent to defraud sufficient to state a claim for actual fraud under §
Because the Court concludes that the payment of the second mortgage loan was
not constructively fraudulent as a matter of law, and that the Trustee did not allege
sufficient facts to support a claim of actual fraud, the Court finds that the Trustee has
failed to state a claim upon which relief can be granted as to those portions of her
complaint. Accordingly, the Court grants Defendant Bank of America’s motion to
dismiss as to those specific claims. The remainder of the alleged claims, however—that
payment of unsecured debts by the debtor to Bank of America resulted in a
constructively fraudulent transfer—do state a claim for relief, although just barely. As
Case 14-07033 Doc# 35 Filed 11/24/14 Page 2 of 17
a result, Bank of America’s motion to dismiss is denied as to this small portion of the
I. Background and Procedural History
The factual allegations of the Trustee’s complaint, which are assumed true for
the consideration of this motion, are included herein. Other procedural facts are
included from the docket of this adversary case.
Defendant Anthony Abeyta and Debtor Eva Rodriguez received title to real
property located at 1113 Safford, Garden City, Kansas ( the “Safford property”) via
general warranty deed in May 2001. Two years later, they granted Defendant Bank of
America a mortgage on the Safford property, and this first mortgage was recorded with
the Finney County Register of Deeds in October 2003.
Although the time of the next action on the Safford property is unclear, the
Trustee alleges that either in May 2005 or August 2008, Defendant Abeyta and Debtor
executed a second mortgage in favor of Bank of America on the Safford property.1 The
second mortgage was recorded with the Finney County Register of Deeds in September
2008. Defendant Abeyta and Debtor were the absolute owners of the Safford property
at the time they made, executed, and delivered both the first and second mortgages.
Shortly after the second mortgage was recorded, in November 2008, Defendant
Abeyta and Debtor divorced in Finney County and title to the Safford property was
1 The second mortgage, attached to the memorandum in support of Bank ofAmerica’s motion to dismiss, states the date as May 14, 2005. Regardless, theprecise date of the second mortgage appears to be immaterial to the disputesdiscussed herein, and neither party raises an issue with regard to that date.
Case 14-07033 Doc# 35 Filed 11/24/14 Page 3 of 17
awarded to Debtor. The parties’ settlement agreement further required Defendant
Abeyta to pay the debt to Bank of America for the second mortgage and to hold Debtor
harmless for the payment of that debt. The Trustee alleges that the amount due on the
second mortgage loan from Defendant Abeyta was $15,377.13. There is apparently a
third loan between Defendant Abeyta and Debtor with Bank of America, and the
property settlement agreement also required Debtor to pay that third loan. As of May
2012, the amount due under this third loan was $7474.57.
Several years later, in May 2012, Debtor entered into an agreement with
Defendants Robert and Erlinda Johnson to sell them the Safford property for $53,000.
Of the $53,000 gross sale proceeds, $27,000.66 was paid to Bank of America to satisfy
the first mortgage, and $15,377.13 was paid to Bank of America to satisfy the second
mortgage. After costs, Debtor received $9198.31 from the closing. Shortly after closing,
Debtor paid $5000 and $4202 from her checking account to unknown sources. The
Trustee alleges that Defendant Abeyta and Bank of America “may have been paid by
the Debtor on unsecured debts including, but not limited to, credit card obligations.”2
On May 29, 2012, Bank of America executed a real estate mortgage release
acknowledging full satisfaction of the second mortgage on the Safford property, and the
next day that release was filed with the Finney County Register of Deeds. On May 31,
2012, Bank of America executed a real estate mortgage release acknowledging full
satisfaction of the first mortgage on the Safford property, and that release was filed
2 Doc. 1 ¶ 19.
Case 14-07033 Doc# 35 Filed 11/24/14 Page 4 of 17
with the Finney County Register of Deeds a week later.
In 2012, the Finney County Appraiser’s Office valued the Safford property at
$77,700. At the time Debtor sold the Safford property to the Johnson Defendants, she
did not offer it for sale to any third party buyers to test its value. About three and a
half months after the sale of the property—on September 7, 2012—Debtor filed for
chapter 7 bankruptcy relief, and her Schedule A discloses no ownership interest in any
Safford property. Her Schedule D, however, lists a secured debt to Bank of America on
property listed as 704 Safford.3
The Trustee’s complaint states three claims. Count 1, against Defendants
Abeyta and Bank of America, is for avoidance of a fraudulent conveyance under § 548.
The Trustee alleges that Defendant Abeyta was responsible for paying the second
mortgage loan, and that Debtor’s payment of that loan “or potential other unsecured
obligations, at the time she closed the sale of 1113 Safford” was a transfer of an
interest of the Debtor in property within the two-year period preceding the date of
Debtor’s bankruptcy petition. The Trustee alleges that the transfers were made to
satisfy a debt obligation that Defendant Abeyta owed, and that the transfers were for
the benefit of Defendant Abeyta and Bank of America. The Trustee alleges that Debtor
made the transfers with the actual intent to hinder, delay, or defraud any entity to
which Debtor was indebted, or that Debtor received less than the reasonably
3 No explanation is given to the parties as to this property (i.e., 704 Saffordversus 1113 Safford). Debtor’s Schedule D lists her as a codebtor on the propertyand her Schedule H states that she is co-liable with her ex-husband, Defendant
Abeyta, on this debt.
Case 14-07033 Doc# 35 Filed 11/24/14 Page 5 of 17
equivalent value in exchange for the transfers. The Trustee alleges that Debtor
received no consideration for the transfers from either Defendant Abeyta or Bank of
America. And finally with regard to Count 1, the Trustee alleges that Debtor was
insolvent or became insolvent as a result of the transfers, as Debtor’s bankruptcy
schedules reflect $6760 in assets and $116,421 in liabilities.
Count 2 of the Trustee’s complaint is against Defendants Robert and Erlinda
Johnson and is also for avoidance of fraudulent transfer under § 548. The Trustee
alleges that when Debtor sold the Safford property to Defendants Johnson, Debtor
received $24,700 less than the appraised value for the property. The Trustee alleges
that this below-appraisal sale is a transfer of an interest of Debtor in property, made
within the two-year period preceding Debtor’s bankruptcy. Again, the Trustee alleges
that Debtor made the transfer with the actual intent to hinder, delay, or defraud any
entity to which Debtor was indebted, or that Debtor received less than the reasonably
equivalent value in exchange for the transfer, and that Debtor was insolvent or became
insolvent as a result of the transfer.
And finally, Count 3 of the Trustee’s complaint, against all Defendants, is for
recovery of the avoided interests under §§ 550, 551, and 542. The Trustee alleges she
is entitled to recover the transfers, or the value of such property, from Defendants
under § 550(a), that she is entitled to preserve the transfers, or the value of the
property, for the benefit of the bankruptcy estate under § 551, and that she is entitled
to turnover of the transfers under § 542.
Defendants Robert and Erlinda Johnson answered the Trustee’s complaint,
Case 14-07033 Doc# 35 Filed 11/24/14 Page 6 of 17
admitting they purchased the Safford property from Debtor for $53,000, but otherwise
generally denying the remaining allegations against them.4 While a motion to extend
time to answer was pending as to Defendant Abeyta, the Trustee and Defendant
Abeyta jointly moved to dismiss the complaint against him, and an order was entered
dismissing the claims against Abeyta on October 21, 2014.5 Defendant Bank of
America, in lieu of answering, filed the motion to dismiss that is the subject of this
A. Standards for Motions to Dismiss
Bank of America moves to dismiss the Trustee’s complaint under Federal Rule
of Civil Procedure 12(b)(6), for “failure to state a claim upon which relief can be
granted.”6 The requirements for a legally sufficient claim stem from Rule 8(a), which
requires “a short and plain statement of the claim showing that the pleader is entitled
to relief.”7 To survive a motion to dismiss, a complaint must present factual allegations,
that when assumed to be true, “raise a right to relief above the speculative level.”8 The
4 Doc. 15.
5 Doc. 26. Notwithstanding this dismissal and the deletion of his name in thecaption of the case, this decision will continue to refer to Abeyta as a defendant.
6 Rule 12 is made applicable to adversary proceedings via Federal Rule ofBankruptcy Procedure 7012(b).
7 Rule 8 is made applicable to adversary proceedings via Federal Rule ofBankruptcy Procedure 7008(a).
8 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 7 of 17
complaint must contain “enough facts to state a claim to relief that is plausible on its
face.”9 “[T]he complaint must give the court reason to believe that this plaintiff has a
reasonable likelihood of mustering factual support for these claims.”10 The Court must
accept the nonmoving party’s factual allegations as true and may not dismiss on the
ground that it appears unlikely the allegations can be proven.11
While the Trustee has repeatedly referred to the Bank of America second
mortgage within her complaint, she did not attach a copy of it. Bank of America has
attached a copy of the second mortgage to its memorandum in support of its motion to
dismiss. In the Tenth Circuit, “[i]t is accepted practice that, if a plaintiff does not
incorporate by reference or attach a document to its complaint, but the document is
referred to in the complaint and is central to the plaintiff’s claim, a defendant may
submit an indisputably authentic copy to the court to be considered on a motion to
dismiss.”12 Otherwise, “a plaintiff with a deficient claim could survive a motion to
dismiss simply by not attaching a dispositive document upon which the plaintiff
9 Id. at 570. The plausibility standard does not require a showing ofprobability that a defendant has acted unlawfully, but requires more than “a sheerpossibility.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, “mere ‘labels andconclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not
suffice; a plaintiff must offer specific factual allegations to support each claim.”
Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting
Twombly, 550 U.S. at 555).
10 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
11 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
12 Dean Witter Reynolds, Inc. v. Howsam, 261 F.3d 956, 961 (10th Cir. 2001)
(internal quotations omitted).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 8 of 17
relied.”13 Generally stated:
The Court may consider documents outside of the complaint on a motionto dismiss in three instances . . . First, the Court may consider outsidedocuments pertinent to ruling on a motion to dismiss pursuant to Fed. R.
Civ. P. 12(b)(1) [relating to subject-matter jurisdiction]. Second, the Courtmay consider outside documents subject to judicial notice, including courtdocuments and matters of public record. Third, the Court may consideroutside documents that are both central to the plaintiff’s claims and towhich the plaintiff refers in his complaint.14
Despite these three exceptions, a court is not obligated to consider extraneous
documents; the decision to do so is discretionary.15
Here, the second mortgage is absolutely central to a portion of the claims the
Trustee has made against Bank of America, and the Trustee (in her response to the
motion to dismiss) does not dispute the authenticity of the copy of the second mortgage
Bank of America attached to its memorandum in support of its motion to dismiss. As
a result, the Court will consider the second mortgage provided by Bank of America.16
B. Section 548 Fraudulent Transfer
The Trustee’s complaint raises two types of fraudulent transfer claims against
Bank of America: for contractive fraud and for actual fraud. The relevant portions of
13 GFF Corp. v. Assoc. Wholesale Grocers, Inc., 130 F.3d 1381, 1385 (10th Cir.
14 Driskell v. Thompson, 971 F. Supp. 2d 1050, 1057 (D. Colo. 2013) (internalcitations omitted).
15 Prager v. LaFaver, 180 F.3d 1185, 1189 (10th Cir. 1999).
16 See Jacobsen v. Deseret Book Co., 287 F.3d 936, 941–42 (10th Cir. 2002)
(noting holding of GFF Corp. that a court “may consider documents referred to inthe complaint if the documents are central to the plaintiff’s claim and the parties donot dispute authenticity”).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 9 of 17
§ 548 state:
(a)(1) The trustee may avoid any transfer . . . of an interest of the debtorin property . . . that was made or incurred on or within 2 years before thedate of the filing of the petition, if the debtor voluntarily or involuntarily-
(A) made such transfer . . . with actual intent to hinder, delay, ordefraud any entity to which the debtor was or became, on or after thedate that such transfer was made or such obligation was incurred,
(i) received less than a reasonably equivalent value inexchange for such transfer . . . ; and
(I) was insolvent on the date that such transfer wasmade . . . , or became insolvent as a result of such
transfer . . . [.]
The Trustee will ultimately bear the burden of proof as to each element of a § 548(a)
To prove constructive fraud under § 548(a)(1)(B), the Trustee must allege that
Debtor: (1) transferred property within two years of the bankruptcy filing; (2) received
less than reasonably equivalent value for the transfer; and (3) was insolvent as a result
thereof.18 Regarding the Trustee’s constructive fraud claim, Bank of America focuses
its motion to dismiss on the issue of “reasonably equivalent value” and the second
mortgage. Although the phrase “reasonably equivalent value” is not defined by the
Bankruptcy Code, the word “value” is defined in § 548(d)(2)(A) as “property, or
17 In re Adam Aircraft Indus., Inc., 510 B.R. 342, 352 (10th Cir. BAP 2014).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 10 of 17
satisfaction or securing on a present or antecedent debt of the debtor.”19
Bank of America argues that Debtor’s payment of $15,377.13 to Bank of America
to satisfy its second mortgage loan is not constructively fraudulent because when a
fully secured creditor releases its lien in exchange for payment, the fully secured
creditor gives reasonably equivalent value to the payor. Bank of America cites two
cases for this proposition: In re Vinzant20 and In re C.W. Mining Co.21
In In re Vinzant, the “value” question arose regarding release of judgment liens
in exchange for payment.22 Regarding whether release of a lien in exchange for
payment is reasonably equivalent value, the bankruptcy court stated:
In determining fair consideration the Court must look at what thedebtors received regardless of what the creditor may have gained or lost.
At the time of the transfer defendant held a valid judgment lien ondebtors’ property. The transfer (i.e., the release of the lien given inexchange for the payment to the defendant) satisfied an antecedent debtof the debtors. This transfer constituted value under § 548(d)(2). . . . Thevalue was roughly equal and so the Court finds reasonably equivalentvalue was received by the debtors.23
Likewise, the In re C.W. Mining Co. decision also stated: “If a fully secured creditor
releases its lien in exchange for payment, the fully secured creditor gives value in
19 A “debt” is then defined in § 101(12) as “liability on a claim,” and “claim” isdefined by § 101(5) to include the “right to payment, whether or not such right isreduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”
20 108 B.R. 752 (Bankr. D. Kan. 1989).
21 465 B.R. 226 (Bankr. D. Utah 2011).
22 108 B.R at 759.
23 Id. (internal citations omitted).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 11 of 17
exchange for the payment and the transfer is not fraudulent.”24 The case here is not
distinguishable. Bank of America released its lien in exchange for payment of the
secured mortgage, and therefore gave reasonably equivalent value in exchange for the
Bank of America also contends that because the Debtor was jointly obligated
under the second mortgage, there was an exchange of reasonably equivalent value
when Bank of America released its lien in response to payment of the second mortgage
loan, regardless whether her divorce settlement's division of debts and assets required
someone else—here, Defendant Abeyta—to repay the loan that both parties signed.
The second mortgage defines the borrowers (the “Grantors”) as both Anthony Abeyta
and Eva M. Abeyta.26 There is also a clause in the second mortgage stating: “Joint and
Several Liability. All obligations of Grantor under this Mortgage shall be joint and
several, and all references are to Grantor shall mean each and every Grantor. This
means that each Grantor signing below is responsible for all obligations in this
Mortgage.”27 The Trustee’s complaint acknowledges both that Bank of America was a
24 465 B.R. at 232–33.
25 Although the Tenth Circuit has not expressly weighed in on the matter, “anumber of courts have held that ‘a dollar-for-dollar reduction in debt constitutes
—as a matter of law—reasonably equivalent value for purposes of the fraudulent-
transfer statutes.’” Gonzales v. Liberman (In re Brutsche), Case No. 11-13326-7,
2013 WL 501666, at *6 (Bankr. D.N.M. Feb. 11, 2013) (quoting In re Southeast
Waffles, LLC, 702 F.3d 850, 857 (6th Cir. 2012) (citing additional cases)).
26 Doc. 17 Ex. A p.1.
27 Doc. 17 Ex. A p.7.
Case 14-07033 Doc# 35 Filed 11/24/14 Page 12 of 17
properly perfected secured creditor and that Bank of America released its lien in
exchange for payment of the second mortgage debt. As a result, reasonably equivalent
value was exchanged when Bank of America released its fully secured lien in exchange
for payment by Debtor, despite the divorce settlement division of debts. The Court
must grant Bank of America’s motion to dismiss this portion of the Trustee’s
constructive fraud claim; the Trustee has failed to “state a claim upon which relief can
But there is a second portion of the Trustee’s claim: namely, that Debtor’s
payment of “potential other unsecured obligations, at the time she closed the sale of
1113 Safford” was also a fraudulent transfer under § 548. The Trustee alleges that this
transfer for the unsecured debt was within the two-year period preceding the date of
Debtor’s bankruptcy petition, that the transfer was made to satisfy a debt obligation
held or co-held by Defendant Abeyta, and that the transfer was for the benefit of
Defendant Abeyta and Bank of America. The Trustee alleges that Debtor received
$9198.31 at closing of the sale of the Safford property, and that shortly after closing,
Debtor paid $5000 and $4202 from her checking account to an unknown source(s). The
Trustee also specifically alleges a third loan between Defendant Abeyta and Debtor
with Bank of America (with a balance of $7474.57 as of May 2012), and that Defendant
Abeyta and Bank of America “may have been paid by the Debtor on unsecured debts
28 Fed. R. Civ. P. 12(b)(6).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 13 of 17
including, but not limited to, credit card obligations.”29
The motion to dismiss filed by Bank of America ignores this transfer and the
allegations with respect to it. As stated above, to prove constructive fraud under §
548(a)(1)(B), the Trustee must allege that Debtor: (1) transferred property within two
years of the bankruptcy filing; (2) received less than reasonably equivalent value for
the transfer; and (3) was insolvent as a result thereof.30 Although not a model of clarity,
the Trustee’s complaint does satisfy this bare minimum. The Trustee alleges that
Debtor made two transfers—of $5000 and $4202—after the sale of the Safford property
to unknown sources. She then also alleges, however, a loan between Debtor and Bank
of America for $7474.57, and that Bank of America may have been paid on credit card
obligations (which are presumably this third loan). The transfers occurred within two
years of Debtor’s bankruptcy petition, and the Trustee alleges Debtor was insolvent at
the time of filing her petition, which was only three months after the payments were
made. Again, Bank of America’s motion to dismiss fails to address this claim at all, and
gives no explanation for the conflicting amounts of the debt versus the alleged
payments, or what value was given in exchange.
Although not many details are given, the Trustee’s complaint does have “enough
facts to state a claim to relief that is plausible on its face”31 with respect to these
29 Doc. 1 ¶ 19.
30 In re Adam Aircraft Indus., Inc., 510 B.R. 342, 352 (10th Cir. BAP 2014).
31 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 14 of 17
allegations. It is unclear the exact amount and date of transfer that is at issue
here—the $5000 or $4202 payments were made to unknown sources and the Trustee
does not expressly state that Bank of America was the “unknown source” of the
transfers. These links can be implied, however, because the Trustee also alleges that
Bank of America was paid on unsecured loan obligations. As a result, the Court finds
that this portion of the Trustee’s complaint survives, and denies Bank of America’s
motion to dismiss this portion of the Trustee’s constructive fraud claim.
2. Actual Fraud
Finally, with respect to the last substantive portion of the Trustee’s § 548
complaint against Bank of America—a claim for actual fraud under § 548(a)(1)(A)—
the Trustee must allege actual fraudulent intent. And a claim for actual fraud is
subject to heightened pleading requirements found in Federal Rule of Civil Procedure
Rule 9(b) requires the party to “state with particularity the circumstances
constituting fraud,” with general allegations only allowed for “malice, intent,
knowledge, and other conditions of a person’s mind.” The party alleging fraud must
“‘set forth the time, place, and contents of the false representation, the identity of the
party making the false statements and the consequences thereof.’”33 In other words, the
32 Rule 9(b) is applicable in bankruptcy pursuant to Federal Rule ofBankruptcy Procedure 7009.
33 Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997)
(quoting Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 982, 987 (10thCir. 1992)).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 15 of 17
alleging party must specify the “‘who, what, where, and when of the alleged fraud.’”34
The Trustee here has not met this pleading burden as to Bank of America with
respect to any of the payments alleged in the complaint. The only allegations made by
the Trustee are a recitation of the “actual intent to hinder, delay, or defraud” language
from § 548(a)(1)(A). The complaint alleges no facts by which this Court could
reasonably infer that Bank of America acted with actual intent to defraud anyone, let
alone the who, what, where, or why of such alleged fraud. There are simply no facts in
the complaint to satisfy the pleading requirements for an actual fraud claim under §
548(a)(1)(A), let alone the heightened pleading requirements of Rule 9(b). This portion
of Bank of America’s motion to dismiss is granted.
C. The Trustee’s Claims for Recovery and Turnover
The Trustee’s remaining claims against Defendant Bank of America are for
recovery of any avoided interest under §§ 550, 551, and 542. The Trustee alleges she
is entitled to recover the transfers, or the value of such property, from Defendants
under § 550(a), that she is entitled to preserve the transfers, or the value of the
property, for the benefit of the bankruptcy estate under § 551, and that she is entitled
to turnover of the transfers under § 542. These claims are, of course, dependent on
success on the fraudulent transfer claims. Because of the above rulings, Defendant
Bank of America’s motion to dismiss these derivative claims is also granted in part and
34 Jamieson v. Vatterott Educ. Ctr., Inc., 473 F. Supp. 2d 1153, 1156 (D. Kan.
2007) (quoting Plastic Packaging Corp. v. Sun Chem. Corp., 136 F. Supp. 2d 1201,1203 (D. Kan. 2001)).
Case 14-07033 Doc# 35 Filed 11/24/14 Page 16 of 17
denied in part. Only the Trustee’s claim for constructive fraud based on the “other
payments” for the unsecured debt could support these derivative claims.
Defendant Bank of America’s motion to dismiss35 is granted in part and denied
in part. Bank of America has shown that the Trustee has failed to state claims as to:
1) any actual fraud, or 2) constructive fraud based on the payment and release of the
second mortgage. Bank of America’s motion to dismiss is also granted as to the
derivative claims based on those allegations. The Trustee’s remaining constructive
fraud claim based on payment of unsecured debt to Bank of America, is, however
sufficient to state a claim for relief, and Bank of America’s motion to dismiss as to this
portion of the Trustee’s complaint, and the derivative claims based thereon, is denied.
It is so ordered.
35 Doc. 16.
Case 14-07033 Doc# 35 Filed 11/24/14 Page 17 of 17