- Category: Judge Karlin
- Published on 16 April 2014
- Written by Judge Karlin
- Hits: 23
In Re Martinez, 13-41499 (Bankr. D. Kan. Apr. 15, 2014) Doc. # 45
SIGNED this 14th day of April, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Mary Martinez Case No. 13-41499
MEMORANDUM AND ORDER OVERRULING DEBTOR’S OBJECTION TO
CLAIM #3, FILED BY INTERNAL REVENUE SERVICE
Debtor Mary Martinez (Debtor) objected to Claim #22, a claim for unpaid
taxes filed by the creditor Internal Revenue Service (IRS).1 Debtor argues that the
portion of the claim attributable to the 2009 tax year should be classified as a
general unsecured debt. In response, IRS argues that the 2009 taxes are entitled to
priority status because they fall within the three year “look-back” period between
the day the taxes became due and the day Debtor filed her bankruptcy petition.2
Although more than three years elapsed, IRS argues that it gets the benefit of the
1 Doc. 15.
2 Doc. 19.
Case 13-41499 Doc# 45 Filed 04/14/14 Page 1 of 8
tolling period plus an additional 90-day grace period under 11 U.S.C. § 507(a)(8)(A)
because of the automatic stay imposed due to Debtor’s previous bankruptcy filing
within the look-back period. In response, Debtor urges the Court to exercise “good
conscience and equity” to deny IRS the benefit of part of the tolling period because
she claims it violated the automatic stay during her prior bankruptcy. For the
reasons explained below, the Court overrules Debtor’s objection to IRS’s claim.
I. STIPULATION OF FACTS
The parties have stipulated to certain facts.3 Based on the stipulations, the
Court makes the following findings of fact.
Although Debtor filed a timely 2009 tax return, she failed to report certain
self-employment income. After filing the 2009 return— but before she filed her
current bankruptcy petition on October 25, 2013,4 Debtor filed a chapter 13 petition
(in 2012) that was ultimately dismissed before she received a discharge. Her 2012
bankruptcy created an automatic stay that lasted 184 days.
IRS timely filed a proof of claim in this bankruptcy for $8,823.55,5 claiming
Debtor owes taxes for the 2009, 2011, and 2012 tax years. The claim indicates
$6,740.59 is entitled to priority status under 11 U.S.C. § 507(a)(8). Debtor filed an
objection to this claim,6 alleging the $4,959 debt claimed for the tax period ending
3 Doc. 33.
4 Doc. 1.
5 Claim 3-1.
6 Doc. 15.
Case 13-41499 Doc# 45 Filed 04/14/14 Page 2 of 8
December 31, 2009 should be classified as an unsecured general claim instead of as
a priority claim.
This matter is a core proceeding over which the Court has jurisdiction,7 and
the parties do not contest the Court’s jurisdiction. “The burden of proving
entitlement to a priority is on the person claiming priority,”8 and statutory
priorities are construed narrowly.9
IRS bases its claim on 11 U.S.C. § 507(a)(8)(A), which governs the priority of
unsecured tax claims of governmental units. That section allows IRS to maintain
priority status for:
unsecured claims of governmental units, only to the extent
that such claims are for–
(A) a tax on or measured by income or gross receipts for ataxable year ending on or before the date of the filing of thepetition–
(i) for which a return, if required, is last due,
including extensions, after three years before thedate of the filing of the petition;
(ii) assessed within 240 days before the date of thefiling of the petition, exclusive of–
(I) any time during which an offer incompromise with respect to that tax waspending or in effect during that 240-dayperiod, plus 30 days; and
(II) any time during which a stay of
proceedings against collections was in effect ina prior case under this title during that
7 28 U.S.C. § 157(b)(2)(B).
8 Isaac v. Temex Energy (In re Amarex), 853 F.2d 1526, 1530 (10th Cir. 1988).
Case 13-41499 Doc# 45 Filed 04/14/14 Page 3 of 8
240-day period, plus 90 days; or
(iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523 (a)(1)(C) of this title, not assessedbefore, but assessable, under applicable law or byagreement, after, the commencement of the case.
. . .
An otherwise applicable time period specified in thisparagraph shall be suspended for . . . any time during whichthe stay of proceedings was in effect in a prior case underthis title or during which collection was precluded by theexistence of 1 or more confirmed plans under this title, plus90 days.
The statute provides three possible avenues for the IRS to prove its claim has
priority status. Debtor argues that, although the IRS meets § 507(a)(8)(A)(i), the
statute should be read conjunctively, that is, with an understood “and” between
parts (i) and (ii), such that the IRS would have to meet both parts (i) and (ii) or, in
the alternative, part (iii). Under this reading, satisfying only subsection (i), as the
parties agree the IRS has done, would be insufficient.
The Court finds that, contrary to Debtor’s arguments, § 507(a)(8)(A)(i), (ii),
and (iii) should be read disjunctively—IRS must only show one of these subsections
applies to attain priority status. Although Debtor acknowledges that substantial
case law supports the proposition that these provisions should be read in the
disjunctive, and cites to no Tenth Circuit case law supporting her interpretation,
she nevertheless argues that legislative history suggests Congress might not have
intended to construe the three items disjunctively. In essence, Debtor argues that
because the statute reads “(i), (ii), or (iii),” it is reasonable to place an “and” between
(i) and (ii), which would have the practical effect of requiring IRS to show both (1)
Case 13-41499 Doc# 45 Filed 04/14/14 Page 4 of 8
that the tax became due within three years of the petition and (2) that it assessed
the tax within 240 days of the petition. But this argument is contrary to the plain
language of the statute.
As IRS argues, drafters of statutes commonly use the form (X), (Y), or (Z)
when they mean to say (X) or (Y) or (Z), and this is a generally accepted
formulation.10 “When the term ‘or’ is used, it is presumed to be used in the
disjunctive sense unless the legislative intent is clearly contrary.”11 Debtor’s
argument that the drafters’ use of (X), (Y) or (Z) really means (X) and (Y) or (Z) is
contrary to common sense and common usage, and would certainly depart from
precedent in interpreting this statute. The Court rejects this strained reading of the
Applying the correct reading of § 507(a)(8)(A) to the stipulated facts makes
Debtor’s objection simple to resolve. The tax for the tax year 2009 was due April 15,
2010. Under the three year look-back period, tax debts owing three years from
October 25, 2013—the date of Debtor’s petition—are entitled to priority. One must
10 See, e.g., Hosack v. IRS (In re Hosack), 282 F. App’x. 309, 315 (5th Cir.
2008)(rejecting the disjunctive reading argument); Lastra v. IRS (In re Lastra), No. 121188,
2012 WL 6681739, at *4 (Bankr. D.N.M. Dec. 21, 2012)(Same). See also 4 COLLIER ON
BANKRUPTCY ¶ 507.11 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (“A taxmeasured by gross income or gross receipts will be entitled to priority if the tax is for ataxable year ending on or before the date of the filing of the petition and one of three
alternative grounds has been fulfilled.”) (emphasis added); 3 NORTON BANKRUPTCY LAW AND
PRACTICE § 49:50 (3d. ed. 2013) (“Taxes on prepetition income . . . warrant eighth-prioritytreatment in three separate situations. These present alternative bases for obtainingpriority; i.e., a claimant need only qualify under any of the three to receive priority.”)
11 United States v. O'Driscoll, 761 F.2d 589, 597–98 (10th Cir. 1985).
Case 13-41499 Doc# 45 Filed 04/14/14 Page 5 of 8
then subtract the 184 days during which the automatic stay was in effect during
Debtor’s first bankruptcy (from July 25, 2012 to January 25, 2013).12 That pushes
the cut-off date back to April 24, 2010. Finally, because the cut-off date is then
pushed back an additional 90 days pursuant to the language at the end of
§507(a)(8),13 the proper cut-off date occurs well before the date when the 2009
return was due.
Debtor makes an additional argument against permitting this priority claim;
she claims this Court should, using its 11 U.S.C. § 105(e) equitable powers, deny
one or both tolling periods. This suggestion is based on her claim that IRS willfully
violated the automatic stay during her first bankruptcy, although she declined to
prosecute such a stay violation during that case. Because IRS needs both the tolling
period from the first bankruptcy and the additional 90-day period to satisfy the
three year look-back rule, denying either tolling period would have the practical
effect of barring IRS from meeting the three year look-back rule. This would result
in IRS not receiving priority treatment for the 2009 taxes.
But the parties agreed to present this objection on stipulated facts, and there
are no stipulated facts, whatsoever, to support Debtor’s claim that IRS willfully
violated the stay in her prior bankruptcy. Fortunately, the Court need not make
any factual findings concerning the considerable discrepancy between Debtor’s
12 United States v. Richards (In re Richards), 994 F.2d 763 (10th Cir. 1993).
13 United States v. Montgomery, 475 B.R. 742 (D. Kan. 2012).
Case 13-41499 Doc# 45 Filed 04/14/14 Page 6 of 8
allegation that IRS levied against Debtor’s wages during her first case and IRS’s
position that Debtor entered into a voluntary payroll deduction before her first
bankruptcy, but then IRS admittedly failed to release that voluntary wage
deduction until Debtor’s counsel demanded it post-filing.
Even assuming Debtor’s version of the facts is accurate—that IRS placed a
lien on Debtor’s pay during her first bankruptcy and collected $50 from each of four
pay periods while the stay was in effect, the Court would not use its equitable
powers to change the tolling period. The alleged harm ($200 of tax collection that
was relatively promptly repaid to Debtor when she brought that fact to the
attention of the U.S. Attorney) is grossly disproportionate to the amount of
sanctions Debtor effectively seeks. If the sanction request were granted, IRS would
lose priority status for $4,959.00 of its claim over what even Debtor admits was a
short-lived period. And the stay violation was apparently so minor that she made no
effort to seek damages for the stay violation when it actually occurred or during the
following months when her bankruptcy was still pending. Further, Debtor’s
description of IRS’s alleged actions does not exhibit any coercion or harassment,
which also militates against sanctioning IRS effectively almost $5,000. Even
Debtor’s version of the events do not justify denying IRS the benefit of this tolling
period. As a result, the Court rejects Debtor’s request for the Court to use its
equitable powers to eliminate the statutory tolling requirements in § 507(a)(8)(A).
Because the Court finds that the IRS has met its burden to show, by a
preponderance of the evidence, that its claim meets the requirements for priority
Case 13-41499 Doc# 45 Filed 04/14/14 Page 7 of 8
required by § 507(a)(8)(A), and because the Court has determined that avoiding the
tolling requirements of this statute would not be a reasonable use of the Court’s
equitable powers, Debtor’s objection to claim #3 is overruled.
It is so ordered.
Case 13-41499 Doc# 45 Filed 04/14/14 Page 8 of 8
- Category: Judge Karlin
- Published on 16 April 2014
- Written by Judge Karlin
- Hits: 15
Wieland v. Albadawi, 14-06024 (Bankr. D. Kan. Apr. 9, 2014) Doc. # 10
SIGNED this 9th day of April, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Charif M. Albadawi, Case No. 12-23050
Richard A. Wieland,
Office of U.S. Trustee,
Plaintiff, Case No. 14-06024
v. Adversary Proceeding
Charif M. Albadawi,
Order Denying Defendant’s Motion to Dismiss
The United States Trustee, Richard A Wieland (“U.S. Trustee”), filed this
adversary proceeding against Defendant/Debtor Charif M. Albadawi for revocation of
discharge under 11 U.S.C. §§ 727(d) and (e), alleging Defendant both concealed assets
and made a false oath and account. Defendant has moved to dismiss the U.S. Trustee’s
Case 14-06024 Doc# 10 Filed 04/09/14 Page 1 of 12
complaint in its entirety,1 arguing a settlement agreement that Defendant entered into
with the panel trustee of his chapter 7 bankruptcy case should be binding on the U.S.
Trustee. Defendant argues that the adversary complaint is prohibited because the U.S.
Trustee cannot assert the same allegations against Defendant that have already been
settled between the chapter 7 panel trustee and Defendant.
Because this Court concludes that the U.S. Trustee is not bound by the
settlement agreement made by the chapter 7 panel trustee, the Court finds no support
for Defendant’s motion to dismiss. The U.S. Trustee is a distinct entity from the
chapter 7 panel trustee, and there is no basis for concluding the U.S. Trustee was
bound by the separate actions of the chapter 7 panel trustee. The Court therefore
denies Defendant’s motion to dismiss.
I. Findings of Fact
The factual allegations of the U.S. 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 Defendant’s main bankruptcy case.
Defendant filed a voluntary petition under chapter 7 of the Bankruptcy Code,
and signed his petition, schedules, and statement of financial affairs under penalty of
perjury. Specifically, Defendant’s Schedule I stated that Defendant’s total income
consisted of food stamps, wages from part-time employment as a clerk at Dollar Value,
and contributions from family members. Defendant’s Schedule B indicated that his sole
1 Doc. 5.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 2 of 12
bank account was at the Bank of Blue Valley, account number ending in 75, with $150
on deposit as of filing. Defendant’s statement of financial affairs stated that he had no
safety deposit box holding cash or other valuables, and had not had the same for the
A chapter 7 trustee, Eric C. Rajala, was appointed to serve as the case trustee
for Defendant’s bankruptcy. At the creditors’ meeting held pursuant to 11 U.S.C. § 341,
Defendant reaffirmed, under oath, the accuracy and completeness of his schedules and
statement of financial affairs. Defendant was granted a discharge, and Rajala, relying
on Defendant’s representations, filed a report of no distribution. Shortly thereafter, a
final decree was signed and Defendant’s bankruptcy case was closed on April 17, 2013.
That very date—April 17, 2013—Defendant deposited $250,000 in cash into his
personal bank account (the same account discussed above, ending in 75) at Bank of
Blue Valley. The $250,000 cash deposit consisted of $100-currency bundles,
individually wrapped in “Bank of America” bundle straps. Defendant informed the
Bank of Blue Valley teller that the funds were the result of a cashed certificate of
deposit from Bank of America in 2009, and that the funds had been held in a safe
deposit box until the deposit at Bank of Blue Valley on April 17, 2013.2
Both the chapter 7 panel trustee and the U.S. Trustee requested that the Court
reopen Defendant’s bankruptcy case, and this Court entered an order reopening the
2 Defendant disputes the facts of this paragraph. As discussed below, however, theCourt accepts the allegations of a complaint as true for purposes of a motion to dismiss. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“[A] court must accept as true all of theallegations contained in a complaint.”).
Case 14-06024 Doc# 10 Filed 04/09/14 Page 3 of 12
case on July 19, 2013. The chapter 7 panel trustee eventually filed a motion for
intended compromise in the main bankruptcy case3 between himself, the
Defendant/Debtor, and Defendant’s wife, dated January 31, 2014, seeking to settle the
chapter 7 trustee’s demand for turnover of the alleged undisclosed $250,000.
Shortly after the motion for compromise was filed in the bankruptcy case, the
U.S. Trustee filed this adversary proceeding, stating two bases for revocation of
Defendant’s bankruptcy discharge under §§ 727(d) and (e): (1) concealment of assets
and (2) false oath and account at Defendant’s creditors’ meeting. To support his first
claim, the U.S. Trustee alleges that Defendant falsely answered questions within his
schedules and statement of financial affairs and concealed property, all with the intent
to hinder, delay, or defraud his creditors. To support his second claim, the U.S. Trustee
alleges that Defendant’s sworn testimony at his meeting of creditors was false, and
done with the intent to hinder, delay, or defraud his creditors. In addition, regarding
both claims, the U.S. Trustee alleges that Defendant’s behavior was not known, and
could not have been known, until after discharge was entered.
The day after the U.S. Trustee’s adversary complaint was filed, Defendant filed
an objection to the motion to compromise in the main bankruptcy case. Defendant
argued that the settlement agreement should be deemed a full compromise of all claims
held by both the chapter 7 panel trustee and the U.S. Trustee. Defendant stated that
he had no objection to the Court approving the motion to compromise if, and only if, it
3 Doc. 39.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 4 of 12
included the U.S. Trustee’s adversary complaint for revocation of discharge. In other
words, he objected to approval of the motion to compromise unless the main case
compromise precluded the U.S. Trustee from pursuing this adversary proceeding
seeking the revocation of Defendant’s discharge.
Shortly thereafter, Defendant filed the motion to dismiss the U.S. Trustee’s
adversary complaint that is the subject of this order. Defendant’s main basis for
dismissal is that the U.S. Trustee is bound by the settlement agreement made by the
chapter 7 panel trustee. Defendant states that “[t]he U.S. Trustee is bound by the acts
of the Chapter 7 Trustee, and the U.S. Trustee . . . cannot assert the same allegations
against the Debtor that have been settled.”4 The motion to compromise in the main
bankruptcy case has been stayed pending resolution of this motion to dismiss.
This matter constitutes a core proceeding over which the Court has the
jurisdiction and authority to enter a final order.5
A. Standards for Motions to Dismiss
Although Defendant never states the basis for his motion to dismiss, or argues
legal standards for dismissal within his motion, the motion is presumably brought
under Federal Rule of Civil Procedure 12(b)(6), which permits a motion to dismiss for
4 Doc. 5 ¶ 8.
5 See 28 U.S.C. § 157(b)(2)(J) (stating that objections to discharge are coreproceedings); § 157(b)(1) (granting authority to bankruptcy judges to hear core proceedings).
Case 14-06024 Doc# 10 Filed 04/09/14 Page 5 of 12
“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 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
Is the U.S. Trustee Bound by the Settlement Agreement of the
Chapter 7 Panel Trustee?
Defendant’s motion to dismiss is based entirely on the assertion that the U.S.
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).
9 Id. at 570. The plausibility standard does not require a showing of probability thata defendant has acted unlawfully, but requires more than “a sheer possibility.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). However, “mere ‘labels and conclusions,’ and ‘a formulaicrecitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specificfactual 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. 2007).
11 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
Case 14-06024 Doc# 10 Filed 04/09/14 Page 6 of 12
Trustee is bound by the settlement agreement made by the chapter 7 panel trustee.
Defendant contends the panel trustee is the agent of the U.S. Trustee, with “express,
implied and apparent authority to bind the U.S. Trustee.”12 Defendant argues,
apparently as a policy matter, that the U.S. Trustee must be bound by the settlement
agreement between Defendant and the chapter 7 panel trustee, “or literally every
settlement with a panel Chapter 7 Trustee will need to be questioned which will
increase the costs of every Chapter 7 case.”13
Defendant’s motion, however, cites no legal support for his agency theory, and
this Court can find no support in the case law. To the contrary, the U.S. Trustee and
the chapter 7 panel trustee are two separate entities. Facing a very similar factual
scenario, wherein a debtor challenged a U.S. Trustee’s adversary proceeding based on
a prior settlement with a panel trustee, one bankruptcy court succinctly stated:
Debtor’s assumptions are based largely, if not entirely, upon Debtor’sassumption that the U.S. Trustee and the Chapter 7 Trustee are thesame entity and that the U.S. Trustee’s Office is therefore bound by anasserted agreement between Debtor and the Chapter 7 Trustee. Thisassumption is incorrect. One of the duties of the U.S. Trustee is to
12 Doc. 9 at ¶ 12. Defendant never actually discusses his agency theory at all.
Presumably he does not contend there is an express agency between the U.S. Trustee andthe panel trustee, as an express agency requires an express grant of agency from a principal
to an agent. See, e.g., BancOklahoma Mortgage Corp. v. Capital Title Co., Inc., 194 F.3d
1089, 1104 (10th Cir. 1999). But even an implied agency relationship requires “actualauthority granted implicitly by the principal to the agent [that] is often inferred from aprior course of dealing between the alleged principal and the agent,” id. at 1105, none of
which factors are addressed by Defendant. And finally, an apparent agency relationship isonly found when a “principal’s acts lead others to believe the agent possesses authority toact on the principal’s behalf,” id., again, a scenario that Defendant fails to address in any
13 Doc. 5 ¶ 15.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 7 of 12
supervise a panel of Chapter 7 trustees. He also appoints an interimtrustee for every Chapter 7 case. The U.S. Trustee is treated as an officerof the United States. Either the Chapter 7 trustee or the U.S. Trusteemay object to the granting of a discharge or request the Court to revokea discharge. Although the Chapter 7 trustee and the U.S. Trustee maypossess a comity of interests, they are two separate entities. 14
Additional courts analyzing other scenarios have detailed the separate status
of the U.S. Trustee and panel trustees. For example, in Curry v. Castillo (In re
Castillo), the Ninth Circuit discussed at length the current structure of the bankruptcy
trustee system, and the separate duties of the U.S. Trustee and panel trustees.15 The
Ninth Circuit noted that the “United States Trustee is the ‘watchdog’ of the bankruptcy
system, charged with preventing fraud and abuse,” and that the U.S. Trustee
establishes and supervises the panel of bankruptcy trustees, detailing the separate
functions of the panel trustees.16 Similarly, the Tenth Circuit BAP has recognized the
separate status of both entities, stating:
Panel trustees make only limited decisions. Just because panel trusteeshave some decision making power, this does not mean that they areclassified as a government agency. For example, In re Hughes Drilling
Co., 75 B.R. 196, 197 (Bankr. W.D. Okla. 1987), classified a panel trustee
14 In re Houston, Case No. 07-01798, 2008 WL 5215190, at *3 (Bankr. N.D. IowaNov. 18, 2008) (internal citations omitted) (emphasis added).
15 297 F.3d 940, 949–50 (9th Cir. 2002).
16 Id. at 950–51 (internal citation omitted). The In re Castillo decision discusses the
history and progression of the bankruptcy trustee program from common law through thecurrent bankruptcy trustee program. Id. Other more recent cases have similarly defined thescope of the duties of the U.S. Trustee and panel trustees. See, e.g., Youngman v. Bursztyn
(In re Bursztyn), 366 B.R. 353, 364–65 (Bankr. D.N.J. 2007) (discussing the scope of theduties of the U.S. Trustee and the appointment process for panel trustees). Defendant’sargument that the U.S. Trustee relies on outdated cases decided prior to the BankruptcyReform Act of 1978 is simply unfounded.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 8 of 12
as ‘a representative of the estate, not an officer, agent or instrumentality
of the United States.’17
The takeaway from these cases is that, despite the fact that the U.S. Trustee and panel
trustees sometimes work closely together, they are not the same entity.18
The only legal authority for Defendant’s agency theory is found in his reply brief.
There he cites the Fifth Circuit case, Bell v. Thornburg, 19 (and a few additional cases)
for the proposition that a chapter 7 panel trustee has “delegated authority” from the
U.S. Trustee to carry out his responsibilities, and this delegated authority from the
U.S. Trustee binds the U.S. Trustee to settlement agreements entered by the panel
trustee. The first part of Defendant’s argument is correct: as discussed above, panel
trustees do have delegated authority received from the U.S. Trustee to administer
bankruptcy cases.20 But the second part of Defendant’s argument is a leap too far.
The Bell case considered whether a chapter 13 standing trustee “acted under”
the U.S. Trustee for purposes of the federal officer removal statute of 28 U.S.C. §
1442.21 The Fifth Circuit concluded that the standing trustee did act under the U.S.
17 Olsen v. Rupp (In re Olsen), Case No. UT-98-088, 1999 WL 513846, at *4 (10thCir. BAP June 24, 1999).
18 Although admittedly in another context, the Supreme Court has also noted: “Noris the bankruptcy trustee so closely connected to the Federal Government that the twocannot realistically be viewed as separate entities.” Cal. State Bd. of Equalization v. Sierra
Summit, Inc., 490 U.S. 844, 849 (1989) (internal quotation marks omitted).
19 743 F.3d 84 (5th Cir. 2014).
20 See 28 U.S.C. § 586(a) (governing the duties and supervision powers of the U.S.
Trustee in chapter 7 cases).
21 Bell, 743 F.3d at 88.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 9 of 12
Trustee. The Fifth Circuit based this decision on two factors: (1) recent Supreme Court
guidance that the removal statute be liberally construed and (2) the current
bankruptcy trustee program, under which a chapter 13 standing trustee receives
delegated authority from the U.S. Trustee to assist the office of the U.S. Trustee.22
The Bell decision does not assist Defendant, however, because it does not go
beyond the principle that a panel trustee has delegated authority from a U.S. Trustee.
As discussed at length above, a chapter 7 panel trustee is appointed by the U.S.
Trustee to administer chapter 7 cases, and, as such, is given authority to act within the
scope of that chapter 7 case and the Bankruptcy Code. But the panel trustee and the
U.S. Trustee are separate and distinct entities. As stated in a leading treatise on
Supervision of cases with trustees must be distinguished fromsupervision of the trustees who administer the cases. The United Statestrustee supervises trustees by setting standards for case administration.
However it is not the United States trustee’s function to formally directa trustee’s action in a particular case, the trustee having fiduciaryresponsibility to others. The case trustee simply does not act as theUnited States trustee’s agent in a case. 23
Defendant’s argument seems to be that, simply by acting as a panel trustee, anything
the panel trustee does binds the U.S. Trustee from acting in any way inconsistent
therewith. But there is simply no support for this position in the case law, and a
22 Id. at 88–89.
23 1 Collier on Bankruptcy ¶ 6.11, at 6-36 (Alan N. Resnick & Henry J. Sommer eds.,
16th ed.) (emphasis added); also see id. ¶ 6.12, at 6-41 (“[T]he United States trustee doesnot supervise cases by directing the trustee’s actions in particular cases.”).
Case 14-06024 Doc# 10 Filed 04/09/14 Page 10 of 12
motion to dismiss on this basis must be denied. A settlement agreement by a chapter
7 panel trustee does not automatically bind the U.S. Trustee just because the panel
trustee is appointed by the U.S. Trustee.24
The U.S. Trustee’s adversary complaint states a claim under §§ 727(d) and (e).
Defendant’s motion to dismiss must be denied, as it states no basis for dismissal of the
claims made by the U.S. Trustee. As a result, Defendant’s answer is due 14 days from
the date this order is entered pursuant to Federal Rule of Bankruptcy Procedure
7012(a), and a Scheduling Conference will be set by the Clerk.
The settlement agreement filed in the main bankruptcy case expressly states
24 Furthermore, even if a panel trustee could bind a U.S. Trustee with a settlement
agreement based on nothing more than the panel trustee’s delegated authority, it is farfrom clear that the actual settlement agreement in this case would so bind. The settlementagreement, attached as Exhibit A to Defendant’s motion to dismiss, expressly states that itis between the chapter 7 panel trustee, Defendant, and Defendant’s wife. Conspicuouslyabsent is any mention that the U.S. Trustee is involved with, or bound by, the agreement.
The parties’ briefing debates what Counsel for Defendant was told concerning the
U.S. Trustee’s position on the settlement. Defendant alleges he spoke with the paneltrustee about the U.S. Trustee’s position, but admits that the panel trustee “advised he wastold to do what he thought was appropriate.” Doc. 5 ¶ 9. The U.S. Trustee’s response to themotion to dismiss argues that Counsel for Defendant was told “that the U.S. Trustee wasnot a party to the settlement negotiations and not bound by any proposed settlement” andthat Counsel was specifically advised that “the case was under review by the U.S. Trustee’soffice.” Doc. 8 ¶¶ 16–17. Defendant disputes this exchange. But regardless of the content ofany verbal exchanges between counsel, the actual settlement agreement itself contains aclassic integration clause, labeled “Entire Agreement,” which states that the settlementagreement constitutes the entire agreement between the parties “and there are no otherunderstandings, representations, or agreements, oral or otherwise, concerning theSettlement Agreement.” Doc. 5 Exh. A ¶ 8. If consent of the U.S. Trustee was a conditionrequired by Defendant’s counsel, he could and should have required the U.S. Trustee to be aparty and signatory to the settlement agreement.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 11 of 12
that it is not effective until it receives Court approval.25 The U.S. Trustee states in
response to Defendant’s motion to dismiss that he does not object to Defendant
rescinding the settlement agreement with the chapter 7 panel trustee. The parties
must be prepared to state their positions regarding enforcement versus rescission of
the settlement agreement at the hearing on the motion to compromise set in the main
bankruptcy case on April 18, 2014, at 9:30 a.m. If the parties agree the settlement
agreement should be rescinded, the panel trustee should withdraw his motion to
approve the compromise prior to the April 18 hearing.
It is so ordered.
# # #
25 Doc. 5 Exh. A ¶ 2.
Case 14-06024 Doc# 10 Filed 04/09/14 Page 12 of 12
- Category: Judge Karlin
- Published on 10 March 2014
- Written by Judge Karlin
- Hits: 199
Farmway Credit Union v. Eilert et al, 13-07037 (Bankr. D. Kan. Mar. 10, 2014) Doc. # 32
SIGNED this 10th day of March, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Henry Anthony Eilert and Case No. 13-41298
Betty Lynne Eilert, Chapter 13
Farmway Credit Union,
vs. Adversary No. 13-7037
Henry Anthony Eilert and
Betty Lynne Eilert,
Memorandum Opinion and Order Conditionally Granting
Debtors’/Defendants’ Motion for Attorney Fees
In October 2013, Farmway Credit Union (“Creditor”) filed a one and one-half
page Rule 7001(6) adversary complaint against Defendants Henry Anthony Eilert
and Betty Lynne Eilert (“Debtors”), claiming fraud and seeking a determination
Case 13-07037 Doc# 32 Filed 03/10/14 Page 1 of 8
that a $9,185.18 debt it claimed Debtors owed it was nondischargeable under the
false pretenses, false representation, or actual fraud provisions in 11 U.S.C. §
523(a)(2)(A).1 Debtors moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6),2
asserting that Creditor’s complaint failed to state a claim. I agreed that Creditor’s
bare allegations did not state a claim.3 Rather than dismissing the case, I instead
granted Creditor 14 days to file a motion to amend its complaint, requiring it to
attach a copy of the proposed amended complaint so Debtors could assess whether
they believed the amended complaint then stated a claim.
Creditor did file a proper motion to amend, attaching its proposed amended
complaint,4 this time asserting only $3,468.91 should be excepted from discharge,
but Debtors argued the proposed amended complaint still failed to state a claim. I
agreed, denied Creditor’s motion to amend, and dismissed the original complaint.5
Debtors have now filed a motion for fees pursuant to 11 U.S.C. § 523(d).6
Because the Court finds Creditor’s position, as articulated in its two complaints,
was not substantially justified, and that Creditor has not shown special
circumstances to avoid a fee award, I conditionally grant Debtors’ motion for
1 Doc. 1.
2 Doc. 9.
3 Doc. 11.
4 Doc. 14.
5 Doc. 22.
6 Doc. 27.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 2 of 8
Section 523(d) provides:
[i]f a creditor requests a determination of dischargeability
of a consumer debt under subsection (a)(2) of this section,
and such debt is discharged, the court shall grant judgment
in favor of the debtor for the costs of, and a reasonable
attorney’s fee for, the proceeding if the court finds that the
position of the creditor was not substantially justified,
except that the court shall not award such costs and fees if
special circumstances would make the award unjust.
The Tenth Circuit BAP explained the shifting burdens of proof under § 523(d) in
Commercial Fed. Bank v. Pappan (In re Pappan).7 After a debtor shows that the
creditor filed a dischargeability action under § 523(a)(2), that the debt sought to be
discharged is a consumer debt, and that the debt was discharged,8 “the burden
shifts to the creditor to show that its position was substantially justified or, if not,
that special circumstances would make an award unjust.”9 If the court does not find
substantial justification or special circumstances, it must award fees and costs to
the debtor. In interpreting this statute, courts must remain cognizant that Congress
7 334 B.R. 678, 682 (10th Cir. BAP 2005).
8 Id. Where, as here, the debt has not yet been discharged because Debtors are in a
Chapter 13 repayment plan, a court may nonetheless determine whether attorney fees
shall be awarded, and then stay entry of the judgment until discharge to meet the "debt
was discharged" element. Alliant Credit Union v. Baptiste (In re Baptiste), Case No. 09 B
07338, 2010 WL 3834607, at *1 (Bankr. N.D. Ill. Sept. 24, 2010) (“[T]he statutory
requirement [of discharge] is a bar to recovery under § 523(d) until the debt is discharged,
not deprivation of jurisdiction to consider whether that recovery should be allowed
conditional upon the discharge, with any judgment under § 523(d) stayed until discharge
and judgment vacated if there is no discharge.”). See also In re Malone, Case No. 10-02470HB,
2011 WL 3800121, at *4 (Bankr. D.S.C. Aug. 29, 2011).
9 In re Pappan, 334 B.R. at 682.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 3 of 8
enacted this law to prevent (typically) deeper-pocket creditors from obtaining unfair
leverage over debtors by filing a meritless suit and then seeking settlement, thereby
forcing debtors to settle to avoid paying an attorney to defend the meritless suit,
which many debtors cannot afford.10
Creditor does not dispute that it filed a dischargeability action under §
523(a)(2) and that the debt it sought to except from discharge is a consumer debt.
And because I will make this fee award contingent on Debtors receiving a
discharge, Debtors have met their burden of proof under § 523(d). The burden thus
shifts to Creditor.
Creditor here argues that its position was substantially justified, but it also
seems to suggest that special circumstances exist to make an award unjust.11 It
frankly admits that “its attorneys did not adequately plead the complaint for
nondischargeability,” but then states that fact does not require a finding that its
position was not substantially justified. It then argues that because the law firm
representing the creditor “has agreed to provide uncompensated services equivalent
to the value of the clearly nondischargeable debt to its client and has also removed
charges from the client’s bill for [representing it] for this lawsuit,” the allegations
were either substantially justified or that it would be unjust to award fees.
To determine whether a creditor’s position was substantially justified, a court
10 Mercantile Bank of Illinois v. Williamson (In re Williamson), 181 B.R. 403, 409
(Bankr. W.D. Mo. 1995).
11 Doc. 28, at 1.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 4 of 8
should consider whether the plaintiff has shown “a reasonable basis for the facts
asserted; a reasonable basis in the law for the legal theory proposed; and support
for the legal theory by the facts alleged.”12 Although Creditor now tries to reargue
whether its two complaints did, or at some point could have, stated a claim, and
attempts to present additional evidence and arguments that it failed to present
when defending those complaints from Debtors’ Rule 12(b)(6) motions, most courts
in situations like this—where the case did not proceed to trial—have looked solely
to the complaint itself to determine if the position Creditor took there was
substantially justified.13 I agree that is the correct procedure. Allowing creditors to
bolster an argument after the fact would leave those creditors free to file suit
without careful consideration of its merits, in hopes of later bolstering the lawsuit if
necessary (after debtor has had to retain a lawyer to defend a seemingly meritless
complaint) to avoid a § 523(d) fee award. Allowing such an approach would defeat §
523(d)’s goal of dissuading creditors from filing poorly-prepared lawsuits in the first
12 In re Pappan, 334 B.R. at 683.
13 See Heritage Pac. Fin. v. Machuca (In re Machuca), 483 B.R. 726, 736 (9th Cir.
BAP 2012) (“In short, [after losing on a summary judgment motion], the doctrine of issue
preclusion estops [creditor] from arguing that the bankruptcy court was wrong, or that
[creditor] had an undisclosed basis in law and fact for its . . . claim.”); Discover Bank v.
Warren (In re Warren), Case No. 11-06879-dd, 2013 WL 6183869, at *13 (Bankr. D.S.C.
Nov. 26, 2013) (“Given the lack of factual allegations in the initial complaint that formed
the basis for Plaintiff’s position that the debt owed was nondischargeable, the Court finds
Plaintiff’s position was not substantially justified at the time it filed this case.”); In re
Malone, 2011 WL 3800121, at *6 (holding that the creditor was not reasonably justified in
asserting a claim against a debtor because the claim was dismissed on a motion to
dismiss); and Bank One Del. v. Hamilton (In re Hamilton), Case No. Bankr. 04-13338-SBB,
2004 WL 1898218, at *4 (Bankr. D. Colo. Aug. 4, 2004) (awarding fees under § 523(d) on
the basis of the complaint as plead).
Case 13-07037 Doc# 32 Filed 03/10/14 Page 5 of 8
instance, hoping for a quick settlement since most debtors are not in a position to
hire a lawyer to defend.
Assessed in this manner, it is clear that Creditor’s position as stated in its
complaints was not substantially justified. Creditor now essentially argues that
facts did exist to allow it to state a claim, but that its law firm simply failed to
properly articulate that claim. But here, this Creditor twice failed to state a claim
under § 523(a)(2), and that failure makes it clear that its position was not
substantially justified at the time it commenced this adversary proceeding.
In its first complaint, Creditor failed to make the short and plain statement
of a claim required by Rule 8(a). I could not determine the statutory basis for
Creditor’s nondischargeability argument or even which loans Creditor sought to
have declared nondischargeable. But instead of dismissing the case, I elected to give
Creditor a second opportunity to meet its pleading burden. My decision essentially
provided a roadmap how Creditor could meet that burden.14 But Creditor again
failed to take a tenable position in its amended complaint by failing to even allege
facts establishing all elements of any purported basis for nondischargeability.
Under these circumstances, I find § 523(d) requires a fee award unless Creditor can
demonstrate that special circumstances exist that would make the award unjust.
Although Creditor doesn’t use the term “special circumstances” in arguing I
should not award fees, it effectively makes that argument by stating I should not
14 Doc. 11.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 6 of 8
award fees because the law firm, and the Creditor I presume, has suffered enough
from having the complaints dismissed and because the law firm has had to write off
the fee it would have charged this client for its work. But this argument misses the
point, which is that Debtors had to hire a lawyer to defend this action and that
Creditors could have avoided its harm by properly pleading its case, if one existed.
The purpose of § 523(d) is to protect debtors from unreasonable challenges to
dischargeability of debts without deterring creditors from making challenges when
it is reasonable to do so.15 So when this Creditor and its law firm argue they should
not be punished with a § 523(d) award because they have now lost money as a
result of filing not one, but two complaints, which even they admit were defective,
they miss the point that Debtors are also being punished if the attorney fees
Debtors incurred are not reimbursed. I find Creditor has not shown that special
circumstances exist that would make an award unjust.
Regarding the amount of the fee to be awarded, Creditor stipulates the $200
hourly rate is appropriate,16 and I agree. Debtors’ counsel is an experienced
bankruptcy lawyer who easily commands this fee. But Creditor then argues that
Debtors’ attorney spent too much time responding to its complaints. Because
Debtors were required to pay their attorney to respond to two separate complaints,
as set out in counsel’s statement of time and expenses, and because, as my opinions
15 In re McCahon, 2013 WL 4772968 (Bankr. D. Kan. 2013) citing Citizens National
Bank v. Burns (In re Burns), 894 F.2d 361, 362 n.2 (10th Cir.1990).
16 Doc. 28, at 4.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 7 of 8
reveal, it was not easy to parse out the allegations in the two complaints, I disagree
that the 11.42 hours counsel spent defending this entire adversary proceeding was
excessive. After a thorough review of Debtors’ fee submissions, I find the time spent
by Debtors’ attorney was entirely appropriate. Therefore, the Court awards Debtors
their attorney fees in the amount of $2,284.00.
Upon filing their application for discharge, Debtors may request entry of a
judgment awarding attorney fees and costs in this amount under § 523(d),
consistent with this Order. Until then, this fee award is stayed.
It is so ordered.
Case 13-07037 Doc# 32 Filed 03/10/14 Page 8 of 8
- Category: Judge Karlin
- Published on 16 April 2014
- Written by Judge Karlin
- Hits: 16
BAP NM-13-046 In Re Pickel, Apr. 9, 2014
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
April 9, 2014
Blaine F. Bates
NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE JACK D. PICKEL, formerlydoing business as Officer of AlamedaLand Investment Corporation, doingbusiness as Sole Member Alameda
Virgin Islands Company, LLC,
formerly doing business asManager/Member of P.O.S.T. Land Ltd.
Company, doing business as Officer ofClub Comanche, Inc., doing business as
J. Pickel & Company, Inc.,
Plaintiff – Counter-
Defendant – Appellant,
JACK D. PICKEL and ALAMEDA
VIRGIN ISLANDS COMPANY, LLC,
Defendants – Counter-
Claimants – Appellees.
BAP No. NM-13-046
Bankr. No. 12-13262
Adv. No. 12-01319
Appeal from the United States Bankruptcy Courtfor the District of New Mexico
Before KARLIN, ROMERO, and HALL , Bankruptcy Judges.
KARLIN, Bankruptcy Judge.
* 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. 8018-6.
Honorable Sarah A. Hall, United States Bankruptcy Judge, United States
Bankruptcy Court for the Western District of Oklahoma, sitting by designation.
Mary Boehm agreed to sell to Alameda Virgin Islands Company, LLC
(AVIC) her large share of Club Comanche (Comanche), a corporation that owned
a hotel and restaurant (Hotel) located on premium real estate on St. Croix, Virgin
Islands. After AVIC made payments totaling $550,000 of the $800,000 required,
and added $1.9 million in improvements, Boehm seems to have had a change of
heart. She decided it might be a good idea to hold on to this property after all, as
it had more than doubled in value since she sold it.
The bankruptcy court found her efforts to regain the Hotel constituted an
anticipatory repudiation of the contract. As a result, it granted AVIC’s request
for specific performance and awarded a portion of the damages it sought. Boehm
asks this court to reverse those decisions.
Because our review of the record and applicable law confirm that Boehm
repudiated the contract and caused AVIC the damages the bankruptcy court
awarded, we instead affirm.
In 2007, a Virgin Islands superior court granted a money judgment against
Comanche and directed it to issue 156 shares of its stock to a third party. Until
then, Boehm 2 and her late husband owned all of the Comanche stock. As a result
of the judgment, Boehm decided to sell her remaining shares of stock to AVIC,
also a Virgin Islands entity, which was wholly owned and managed by Jack Pickel
(Pickel), the debtor.
The 2007 sale contract (Agreement) conveyed to AVIC the right to vote
447.5 shares of Comanche and to receive any and all dividends or distributions
1 Unless indicated otherwise, the basic facts not in dispute have been taken
from the bankruptcy court’s published opinion, Boehm v. Pickel (In re Pickel),
493 B.R. 258 (Bankr. D.N.M. 2013) (hereafter “Memorandum Opinion”).
2 Boehm’s son was also a party to the Agreement, but because he only owned
one share of Comanche stock and is not a party to this appeal, we refer solely toMary Boehm.
with respect to those shares. In exchange, AVIC was required to pay $800,000 in
four installments; the fourth and final payment was to be $250,000 and was due
November 1, 2009. 3 Pickel also executed a non-negotiable promissory note
(“Note”) in favor of Boehm on behalf of AVIC,4 which required payments be
made to Boehm at the Hotel, since the Agreement contemplated she would
continue to live there for a few months. The Note required her to “designate in
writing” if payments should be sent to a different address. No evidence received
at trial demonstrated she ever so designated.
AVIC made the first three payments totaling $550,000, but did not pay the
final $250,000 installment on its due date. It is AVIC’s failure to timely make
this final payment that precipitated the events that are at the crux of this appeal.
The Agreement provided that AVIC “shall be deemed in default, if after ten (10)
business days after receipt of written notice of default, [AVIC] fails to cure.”5
Accordingly, one day after the final payment was due, Boehm and her daughter
drafted the contemplated written notice (Notice of Default) and delivered it to
The Notice of Default erroneously stated that the last day to cure the
default was November 13, 2009, notwithstanding that the Agreement, itself,
provided a cure period of ten business days—or until November 17, 2009. 6 As a
3 Agreement at 1, ¶ 1, in Appellant’s App. at 312. The payment schedule was
as follows: $275,000 upon execution of Agreement, $25,000 on November 30,2007, $250,000 on November 1, 2008, and $250,000 on November 1, 2009.
4 Id. at 2-3, ¶¶ 4, 6 in Appellant’s App. at 313, 314. The Agreement
expressly states that it is not a sale of the stock itself, but undoubtedlycontemplates a future sale of the stock to AVIC (for one dollar) provided it doesnot default. The language suggests that when the Agreement was executed, anoutright sale of the stock could not take place for legal reasons. Id.
5 Id. at 6, ¶ 15, in Appellant’s App. at 317.
6 Although the Notice of Default actually (and accurately) stated “Alameda
has (10) business days to cure this default in accordance with paragraph 15 of the
result, because AVIC received the Notice of Default on November 2, the
contractual deadline for it to cure nonpayment was actually November 17. 7 The
Notice, which is not on letterhead of any sort, provided no address where the cure
payment should be made.
Notwithstanding that AVIC had an additional four days to cure, Boehm’s
counsel delivered a letter to Pickel on November 13 purporting to terminate the
Agreement and declare it null and void (Termination Letter). The Termination
Letter demanded immediate possession of the Hotel, including turnover of the
keys to all rooms, terminated Pickel’s employment by Comanche, ordered all
employees to vacate the Hotel the same date the Termination Letter was
delivered, and terminated all corporate directors. 8 The letter further claimed that
AVIC had “no further rights.”
Pickel claims that AVIC attempted to cure the default by tendering a check
in the full amount due on November 16, but that Boehm’s counsel refused to
accept the check. He also claims he left a voice mail message for her on
November 17 and told her she could pick up the check from the Hotel that same
day. 9 Nine days later, Boehm filed an action in the Virgin Islands
Agreement,” it then erroneously required AVIC to pay the balance “by November
13, 2009[.]” See Notice of Default, in Appellant’s App. at 353 (emphasis added).
7 No one disputes November 11th was properly omitted as a business day
because it was a federal holiday (Veterans Day).
8 The Agreement provided that Boehm and her son would resign from their
positions as officers and directors of Comanche upon execution to allow “orderly
appointment of new officers and directors and a smooth transition to new
corporate management and governance.” Agreement at 4, ¶ 8, in Appellant’s App.
9 Boehm makes much of the fact that Pickel delivered the check to the Hotel
address when he knew she did not live there, claiming his tender was thus
insufficient, but the Agreement clearly provided the Hotel as the correct location
for all notices to her. She failed to change the location for notices, as the
Agreement clearly allowed. In addition, there is abundant evidence in the record
superior court seeking: 1) a declaratory judgment that she validly terminated the
Agreement and, therefore, it was null and void; and 2) injunctive relief preventing
Pickel from occupying the Hotel or operating a business on the premises (Local
Action). She obtained an ex parte temporary restraining order (TRO)
dispossessing Pickel of the Hotel for four days. Boehm also filed a lis pendens
against the Hotel. Although the Local Action had been on file for several years, it
remained pending when Pickel filed for bankruptcy protection in New Mexico in
II. BANKRUPTCY COURT PROCEEDINGS
Several months after Pickel filed his Chapter 11 petition, Boehm filed this
adversary proceeding seeking a declaratory judgment that the Agreement was null
and void. Pickel counterclaimed for breach of contract and slander of title; he
sought specific performance as well as damages for lost revenue and the
attorney’s fees he incurred when forced to quickly litigate the dissolution of the
TRO in order to regain control of the Hotel. Pickel also sought interest expense
on a construction loan he alleged could not be refinanced at a lower rate due to
the pending Local Action, as well as punitive damages. While the adversary was
pending, Pickel transferred all of AVIC’s rights under the Agreement to himself
in his individual capacity and dissolved AVIC.11
The bankruptcy court conducted a trial on the merits, and after hearing the
testimony of Boehm and Pickel and reviewing the exhibits received, entered
supporting the bankruptcy court’s finding that Boehm appeared to be evading
Pickel in hopes of defeating his ability to cure the default.
10 The bankruptcy court noted that nothing much had happened in the Local
Action after the TRO was dissolved four days after it was granted. Memorandum
Opinion, 493 B.R. at 266, ¶ 42.
11 As a result, AVIC and debtor Pickel are used interchangeably in some
judgment mostly in Pickel’s favor. Applying the law of the Virgin Islands, which
follows the American Law Institute’s Restatements of the Law, the bankruptcy
court determined that: 1) the Termination Letter Boehm delivered to Pickel on
November 13 was ineffective because November 17 was the actual cure date
under the Agreement; and 2) AVIC tendered a timely and adequate cure of the
payment default prior to the correct cure date sufficient to avoid termination of
the Agreement. The bankruptcy court then held that because Boehm’s actions
constituted an anticipatory breach, the Agreement was still binding. As a result,
it ordered specific performance of the Agreement conditioned upon Pickel making
the final payment.
With respect to Pickel’s counterclaim for breach of contract, the bankruptcy
court overruled Boehm’s claim that she had simply been mistaken in interpreting
the contract (which she thought should excuse her clear anticipatory repudiation).
It determined that her breach of the Agreement had caused Pickel out-of-pocket
damages of $2,800 for lost revenue during the short time AVIC was ousted from
the Hotel. Additionally, as an element of contract damages, the bankruptcy court
awarded $10,000, apparently relying on 5 V.I. Code § 541, a provision of Virgin
Island territorial law that permits recovery of fees in some cases. This
represented the attorney’s fees that the bankruptcy court held AVIC was required
to incur to dissolve the TRO Boehm had improperly obtained in the Local Action.
But the bankruptcy court declined Pickel’s request for interest expense and
The bankruptcy court also determined that Boehm may have improperly
filed a lis pendens, thereby slandering Pickel’s title to the Hotel. Notwithstanding
that finding, the bankruptcy court declined to award damages for that alleged
slander of title, noting that the lis pendens did not appear to have caused Pickel
any real damage, and that he had made no effort to get it removed.
III. APPELLATE JURISDICTION
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.12
Because neither party elected to have this appeal heard by the United States
District Court for the District of New Mexico, they have consented to appellate
review by this Court. A decision is considered final “if it ‘ends the litigation on
the merits and leaves nothing for the court to do but execute the judgment.’”13
Here, the bankruptcy court’s judgment terminated the adversary proceeding, and
therefore is final for purposes of appeal.
IV. ISSUES ON APPEAL AND STANDARD OF REVIEW
Boehm argues the bankruptcy court erroneously determined both that her
Notice of Default was defective and that she anticipatorily breached the
Agreement. She also claims Pickel failed to tender an adequate and timely cure
of his default, that the bankruptcy court lacked jurisdiction to award attorney’s
fees for the TRO—an action over which it did not preside, and that it erred in
finding she improperly filed a lis pendens against the Hotel.
For purposes of standard of review, decisions by trial courts are
traditionally divided into three categories, denominated: 1) questions of law,
which are reviewable de novo; 2) questions of fact, which are reviewable for clear
error; and, 3) matters of discretion, which are reviewable for abuse of discretion.14
Boehm’s argument that the bankruptcy court was without jurisdiction to award
12 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.
BAP L.R. 8001-3.
13 Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin
v. United States, 324 U.S. 229, 233 (1945)).
14 Pierce v. Underwood, 487 U.S. 552, 558 (1988); see Fed. R. Bankr. P.
8013; Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1370 (10th Cir. 1996).
attorney’s fees is a question of law. De novo review of legal questions requires
an independent determination of the issues, giving no special weight to the
bankruptcy court’s decision. 15 Boehm’s assertions of error with respect to breach
of the Agreement and cure of the default are underpinned by the bankruptcy
court’s factual findings. A factual finding is “clearly erroneous” when “‘it is
without factual support in the record, or if the appellate court, after reviewing all
the evidence, is left with the definite and firm conviction that a mistake has been
V. ANALYSIS OF ANTICIPATORY BREACH OF THE AGREEMENT
A. Defective Notice of Default
Boehm first argues that the bankruptcy court erroneously determined her
Notice of Default was defective,17 and that she anticipatorily breached the
Agreement. The bankruptcy court stated, or at least implied, that the Notice of
Default was defective because it contained an incorrect cure date. But the
bankruptcy court also explained that the Agreement did not require the cure
period to be stated in the Notice of Default, as Pickel was a sophisticated party
capable of determining the correct cure date.
The bankruptcy court also concluded that Boehm was not required to send a
corrected Notice of Default reflecting the correct cure period. 18 Therefore,
Boehm’s assertion that the bankruptcy court erred in determining the Notice of
Default was defective is irrelevant because it is not necessary to its conclusion
that she anticipatorily breached the Agreement. Instead, the critical aspects of the
15 Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).
16 Las Vegas Ice & Cold Storage Co. v. Far W. Bank, 893 F.2d 1182, 1185
(10th Cir. 1990) (quoting LeMaire ex rel. LeMaire v. United States, 826 F.2d 949,
953 (10th Cir. 1987)).
17 Notice of Default, Exhibit F, in Appellee’s App. at 33.
18 Memorandum Opinion, 493 B.R. at 268.
bankruptcy court’s holding regarding anticipatory breach of the Agreement
concern the Termination Letter Pickel received on November 13,19 and Boehm’s
alleged evasion of Pickel’s attempts to cure the default.20
B. Anticipatory Breach
The bankruptcy court held that Boehm’s Termination Letter “was plainly
contrary to the Agreement, and constituted an anticipatory breach of the
Agreement.” 21 To support its conclusion, the bankruptcy court cited United Corp.
v. Reed, Wible and Brown, Inc. 22 and Bennington Foods, L.L.C. v. St. Croix
Renaissance Group L.L.L.P. 23 These two Virgin Islands cases apply §§ 244, 250,
251, 253, and 254 of the Restatement (Second) of Contracts (Restatement), as the
Virgin Islands has statutorily adopted application of the Restatement.24
According to § 250 of the Restatement, a repudiation is:
(a) a statement by the obligor to the obligee indicating that theobligor will commit a breach that would of itself give the obligee aclaim for damages for total breach under § 243, or
19 Termination Letter, Exhibit G, in Appellee’s App. at 34.
20 Boehm suggests Pickel was required to respond to her Notice of Default to
both claim he had a longer period to cure and to indicate his intent to timely cure.
Opening Brief at 12-13. Additionally, Boehm argues that nothing in her Notice ofDefault indicated she was not going to perform. Opening Brief at 13. But it is
the Termination Letter that is the key to repudiation, not the Notice of Default.
21 Memorandum Opinion, 493 B.R. at 268.
22 626 F. Supp. 1255, 1257 (D.V.I. 1986).
23 2010 WL 1608483, at *10 (D.V.I. 2010).
24 The Virgin Islands statute provides as follows:
§ 4 Application of common law; Restatements
The rules of the common law, as expressed in the restatements of the lawapproved by the American Law Institute, and to the extent not so expressed,
as generally understood and applied in the United States, shall be the rulesof decision in the courts of the Virgin Islands in cases to which they apply,
in the absence of local laws to the contrary.
V.I. Code Ann. tit 1, § 4 (2013).
(b) a voluntary affirmative act which renders the obligor unable orapparently unable to perform without such a breach.25
Courts have held that in order to constitute repudiation, the party to a contract
must make an absolute and unequivocal refusal to perform an obligation and that
such obligation must be so essential to the purpose of the contract that
nonperformance makes the agreement worthless. 26 While the Termination Letter
clearly meets these requirements, Boehm argued she could not have repudiated
the Agreement because she had no intent to do so. Instead, she claims because
she was merely mistaken about the Agreement’s default provision, she should not
have been held to have repudiated it.27
The bankruptcy court correctly noted that Comment d to § 250 of the
Restatement cautions that “[g]enerally, a party acts at his peril if, insisting on
what he mistakenly believes to be his rights, he refuses to perform his duty.”28
The bankruptcy court was also not convinced, after having the opportunity to
assess her credibility, that Boehm had merely misinterpreted the default
provision. Instead, it found there had been no “defensible but erroneous”
interpretation, and suggested Boehm may have purposely elected to assert an
interpretation she knew was wrong in an attempt to regain possession of the
Boehm also maintains that: 1) under § 251 of the Restatement, Pickel was
required to assure her of his intent and ability to perform under the Agreement,
25 Restatement (Second) of Contracts § 250 (1981).
26 McCloskey & Co. v. Minweld Steel Co., 220 F.2d 101, 104 (3d Cir. 1955).
27 Memorandum Opinion, 493 B.R. at 269.
28 Id. at 270 (internal quotation marks omitted).
and he did not do so;30 and 2) she had no obligation to render performance until
Pickel made the final payment. Boehm concludes that she could not have
breached the Agreement by merely sending Pickel the Notice of Default and
Termination Letter, so it is really Pickel who breached the Agreement, not her.31
As a preliminary matter, it does not appear she made this argument to the
bankruptcy court. Appellate courts consider issues that have not been decided by
the trial court only in rare circumstances not present here. 32 But even were we to
seriously consider this argument, there is no evidence to suggest Boehm made any
demand for an assurance of performance from Pickel. She admits that after she
issued the Notice of Default and the Termination Letter, there was no other
communication between the parties. And frankly, what would she have had
Pickel do to resuscitate the Agreement after she herself deemed the Agreement
terminated, null and void?
As a result, we conclude Boehm has not demonstrated that the bankruptcy
court erred in holding that she anticipatorily breached, or repudiated, the
30 That section of the Restatement provides as follows:
§ 251 When a Failure to Give Assurance May Be Treated as a
(1) Where reasonable grounds arise to believe that the obligor will commita breach by non-performance that would of itself give the obligee a claimfor damages for total breach under § 243, the obligee may demand adequateassurance of due performance and may, if reasonable, suspend anyperformance for which he has not already received the agreed exchangeuntil he receives such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to providewithin a reasonable time such assurance of due performance as is adequatein the circumstances of the particular case.
Restatement (Second) of Contracts § 251 (1981).
31 Opening Brief at 14-15.
32 In re C.W. Mining Co., 625 F.3d 1240, 1246 (10th Cir. 2010) (citing
Singleton v. Wulff, 428 U.S. 106, 120 (1976)).
C. Tender of Adequate and Timely Cure by Pickel
Under § 253 of the Restatement, a party’s repudiation of a duty under a
contract gives rise to a claim for damages for total breach. 33 But a “party’s duty
to pay damages for total breach by repudiation is discharged if it appears after the
breach that there would have been a total failure by the injured party to perform
his return promise.” 34 As explained in Williston on Contracts,
the party claiming that an anticipatory repudiation has excusedperformance of a condition precedent must show that but for therepudiation, it would have been ready, willing, and able to performits obligations under the contract, at least when the defendant–that is,
the repudiating party–places in issue the ability of the plaintiff toperform.35
Therefore, a critical aspect of this case, and an intensely factual one, is whether
Pickel tendered a timely and adequate cure, or was at least ready, willing, and
able to do so.
Pickel maintained, and the bankruptcy court found, that he both:
1) tendered a check to Boehm’s counsel on November 16, which was refused; and
2) had a check waiting for Boehm to pick up at the Hotel on November 17, and so
33 That section of the Restatement provides:
§ 253 Effect of a Repudiation as a Breach and on Other Party’s Duties
(1) Where an obligor repudiates a duty before he has committed a breach bynon-performance and before he has received all of the agreed exchange forit, his repudiation alone gives rise to a claim for damages for total breach.
(2) Where performances are to be exchanged under an exchange ofpromises, one party’s repudiation of a duty to render performancedischarges the other party’s remaining duties to render performance.
Restatement (Second) of Contracts § 253 (1981).
34 Restatement (Second) of Contracts § 254 (1981).
35 Richard A. Lord, 13 Williston on Contracts § 39:41 (4th ed. 2013)
informed Boehm by leaving a message on her answering machine. 36 Boehm
contends § 254 of the Restatement discharges her duty to pay damages for breach
by repudiation because there is no evidence to support the bankruptcy court’s
findings that Pickel attempted to cure the default. Boehm further argues that,
even if Pickel in fact tendered a check to cure the default, there remains a failure
to perform because he admitted it was drawn on an account with insufficient
funds to cover the payment.37
1. Tender of payment
In determining whether Pickel tendered a timely and adequate cure of the
default, the first dispute concerns the proper place for, or manner of, making that
payment. Although Boehm resided at the Hotel when the parties executed the
Agreement, the parties clearly anticipated she would be vacating the premises
within a couple months, if not sooner. 38 Nevertheless, the Agreement expressly
directs all notices to Boehm be delivered or mailed to her at the Hotel,39 but
provides no place or method for making payment. The Note specifies that Pickel
make payments to Boehm at the Hotel, “or at such other place as the holder
hereof may from time to time designate in writing.”40
The bankruptcy court held that Boehm never designated a different address
for making payments, and Boehm certainly did not testify she did or otherwise
seek to admit a copy of such a written designation at trial. She did testify that
Pickel had made previous payments through the trust account of an attorney
payment of $25,000 was due on November 30, 2007, or when Boehm vacated the
36 Memorandum Opinion, 493 B.R. at 263, ¶¶ 22, 23.
37 Opening Brief at 16.
38 Agreement at 1, ¶ 1, and 4, ¶ 7, in Appellant’s App. at 312, 315. A
premises, if earlier.
39 Id. at 6-7, ¶ 16, in Appellant’s App. at 317-18.
40 Non-Negotiable Promissory Note at 1, in Appellant’s App. at 338.
named Lorin Kleeger, who brought the parties together for the sale transaction.41
As a result of this payment history, she argues Pickel made no good faith attempt
to present the final payment and cure the default because he “failed to utilize the
common course of dealing in making payments” under the Agreement by not
“sending payment to the trust account of his attorney.” 42 This argument is not
persuasive for several reasons.
First, only four payments were due under the Agreement. One payment
was made upon execution of the Agreement, leaving only two other installment
payments before the final payment at issue here. That makes a true “course of
performance” difficult to establish. Second, and more importantly, the Note
expressly provides for payment to Boehm at the Hotel and mentions nothing of an
intermediary. Section 203(b) of the Restatement provides that the express terms
of a contract are to be given greater weight than course of performance and course
of dealing between the parties.43
Pickel testified that on November 16, one day prior to the cure deadline, his
41 Transcript of Proceedings on May 30, 2013 (“Transcript”) at 17-18, in
Appellant’s App. at 64. It should be noted that ¶ 16 of the Agreement providesthat notice to AVIC be given to Lorin M. Kleeger, Esq., suggesting Mr. Kleeger isAVIC’s counsel. Apparently, however, Mr. Kleeger also represents Boehm innumerous matters. Transcript at 48-49, in Appellant’s App. at 95-96.
42 Opening Brief at 16.
43 That section of the Restatement provides:
§ 203 Standards of Preference in Interpretation
In the interpretation of a promise or agreement or a term thereof, the
following standards of preference are generally applicable:
. . .
(b) express terms are given greater weight than course of performance,
course of dealing, and usage of trade, course of performance is givengreater weight than course of dealing or usage of trade, and course ofdealing is given greater weight than usage of trade[.]
Restatement (Second) of Contracts § 203 (1981).
representative attempted to hand deliver a check to Boehm’s attorney, Ezart A.
Wynter, Sr. (“Wynter”), but that Wynter refused to accept it. 44 On appeal, Boehm
argues there is nothing in the record to support the bankruptcy court’s finding that
the cure payment was tendered to Wynter because he “was never called as a
witness to explain the affidavit the [bankruptcy] court relied on to say [ ] Wynter
attempted to avoid receipt of the November 16, 2009 insufficient check.” 45 The
affidavit Boehm refers to was made by Wynter on January 4, 2010, in connection
with her Local Action seeking declaratory judgment and injunctive relief.46
In the affidavit, Wynter stated he was contacted by Pickel’s representative
inquiring about Boehm’s whereabouts and that he indicated he was unaware of
Boehm’s location, and additionally, that he was not authorized to accept any
documents on her behalf. The affidavit states Pickel’s representative “called” on
November 13. It is uncertain whether “called” means contacted in person or by
telephone, or whether the date of November 13 is accurate. What is important is
that Boehm provided no evidence at trial to counter Pickel’s evidence that his
representative tried to tender the final installment payment to her own lawyer,
except that she testified she was in constant contact with her lawyer and would
have known if this had occurred. 47 No one stopped Boehm from calling Wynter to
testify if she wished to rebut Pickel’s version of events.
Further, Pickel testified that he personally left a telephone message for
Boehm on November 16, advising her that the check was available for her to
Transcript at 134-36, 167, in Appellant’s App. at 181-83, 214; Exhibit H,
in Appellee’s App. at 36.
45 Opening Brief at 17.
46 Exhibit AA, Affidavit of Eszart A. Wynter, Sr., in Appellee’s App. at 120.
47 Transcript at 28, in Appellant’s App. at 75.
retrieve at the Hotel on November 17. 48 Pickel also produced a
contemporaneously written and witnessed account of that phone call. 49 Boehm
testified she never received Pickel’s message.50
The bankruptcy judge ultimately did what all trial judges have to do; he
listened to the testimony of Boehm and Pickel and assessed their credibility. For
good reason, Federal Rule of Bankruptcy Procedure 8013 requires that this Court
give due regard “to the opportunity of the bankruptcy court to judge the
credibility of the witnesses.” 51 The bankruptcy court clearly believed Pickel’s
version of the events over Boehm’s version. Accordingly, without any persuasive
corroborative evidence to support Boehm’s version of the events, we must accept
the bankruptcy court’s findings regarding tender of the cure payment.
2. Pickel’s ability to make good on cure payment
Pickel tendered a full cure of the default in the form of a check drawn on
his account at a New Mexico bank. 52 Boehm argues that Pickel admitted his
account had insufficient funds to cover the payment, and that drawing and
delivering a worthless check is a crime.53
At trial, Pickel testified he had made arrangements for a bank loan that
would cover the check he tendered to cure the default. 54 That plan required him
to notify the senior vice president loan officer at his bank the moment Boehm
retrieved the check and to arrange to have the borrowed funds immediately
48 Transcript at 134-36, 154-56, in Appellant’s App. at 181-83, 201-03.
49 Exhibit I, in Appellee’s App. at 37.
50 Memorandum Opinion, 493 B.R. at 263, ¶¶ 22-24.
51 Fed. R. Bankr. P. 8013.
52 Letter and Check dated November 16, Exhibit H, in Appellee’s App. at 36.
53 Opening Brief at 16.
54 Transcript at 135-36, in Appellant’s App. at 182-83.
wired. 55 Because Boehm was in the Virgin Islands, whereas the check was drawn
on a New Mexico bank, this plan was intended to allow time for funds to be
deposited in the account to cover the check before it was presented. Pickel also
offered into evidence a copy of an email he received on the morning of November
17, from his lawyer arranging this transaction. The email confirmed that the loan
documents had been prepared and the funds had been received.56
Once again, the bankruptcy court believed Pickel’s version of these events,
and found that Pickel credibly demonstrated he was ready, willing, and able to
perform his obligations under the contract. Boehm failed to specifically
contradict any of this evidence. As a result, there is no basis to reverse the
D. Summary of Anticipatory Breach and Cure of Default
Boehm’s arguments on appeal with respect to breach of the Agreement and
cure of the default are based on her allegations that the bankruptcy court’s factual
findings were erroneous. Under the “clearly erroneous” standard of review,
reversal is appropriate only if such findings are “‘without factual support in the
record, or if the appellate court, after reviewing all the evidence, is left with the
definite and firm conviction that a mistake has been made.’” 57 The only witnesses
appearing at trial were the parties themselves, perhaps because other witnesses
were located in the Virgin Islands. As a result, the amount and type of evidence
received was limited. But, after hearing and assessing the credibility of the
witnesses and reviewing the documentary evidence, the bankruptcy court
concluded that, rather than sincerely trying to collect the final $250,000 payment,
(10th Cir. 1990) (quoting LeMaire ex rel. LeMaire v. United States, 826 F.2d 949,
55 Id. at 154-56, in Appellant’s App. at 201-03.
56 Exhibit CC, in Appellee’s App. at 129.
57 Las Vegas Ice & Cold Storage Co. v. Far W. Bank, 893 F.2d 1182, 1185
953 (10th Cir. 1987)).
at some point Boehm became more interested in getting back the Comanche stock
(and thus the Hotel) she had sold to Pickel.58
According to the bankruptcy court, it was possible that to further that goal,
Boehm may have intentionally “misinterpreted” the default provision in the
Agreement, issued the erroneous Notice of Default and Termination Letter and
refused to correct them, and then evaded Pickel’s attempt to cure. 59 As the
bankruptcy court opined, allowing Boehm to regain the stock using this ploy
would be tantamount to a forfeiture, which is disfavored by the law.60
Pickel had already paid $550,000 of the $800,000 purchase price due under
the Agreement. Additionally, Pickel testified he had spent almost $2 million
repairing and improving the Hotel after the Agreement was signed,61 and that the
Hotel was now worth more than double what it had been worth when he signed
the purchase Agreement with Boehm. 62 The stock covered by the Agreement
represented a 42.6% interest in Comanche, and therefore likely had a value in
excess of $2 million. To permit Boehm to regain the stock to satisfy Pickel’s
$250,000 outstanding debt would be inequitable, especially in light of Boehm’s
actions that were contrary to the Agreement.
Our review of the appellate record63 demonstrates that there is more than
58 Memorandum Opinion, 493 B.R. at 264, ¶ 32.
59 Id. at 270.
60 Id. at 271.
61 Id. at 264, ¶ 34.
62 Id. at 264-65, ¶ 35.
63 As to the record on appeal, Pickel filed a Motion to Strike Portions of
Appellant’s Joint Appendix (“Motion to Strike”), complaining about the
documents Boehm submitted in Volumes XII and XIII of her Appendix. But two
days after filing his Motion to Strike, Pickel filed his own Appendix, and itcontains all but two or three of the very exhibits he now seeks to strike fromBoehm’s Appendix. At oral argument, Pickel’s counsel admitted those additional
adequate factual support in the record for those findings. We are not left with the
definite and firm conviction that the bankruptcy court made any mistake in these
findings of fact. Additionally, we note the bankruptcy court appears to have
reached its conclusions regarding anticipatory breach and evasion of cure
attempts, in part, based on Boehm’s pattern of behavior. It did not escape the
bankruptcy court’s attention, or ours, that in addition to this adversary
proceeding, Boehm has been litigating matters related to the Hotel and
Comanche’s stock for 20 years in at least eight other civil actions. 64 We therefore
affirm its decision that Boehm anticipatorily breached the Agreement and that
Pickel tendered an adequate cure of the default, or at least was ready, willing, and
able to do so.
VI. ANALYSIS OF ATTORNEY’S FEES AND LIS PENDENS
A. Attorney’s Fees
The bankruptcy court awarded Pickel $10,000 for the attorney’s fees AVIC
incurred in dissolving the TRO in the Local Action, effectively finding that its
efforts to dissolve the TRO were necessary for AVIC to regain possession of the
Hotel and realize the benefit of its bargain. The bankruptcy court held that those
fees were recoverable not as attorney’s fees per se, but instead as an element of
breach of contract damages. 65 Key to the decision is that the Virgin Islands does
not follow the general “American Rule” that parties bear their own costs,
documents were of no consequence to his position on appeal, and indicated his
Motion to Strike could be denied. We conclude the Motion to Strike was ill-
advised as Pickel put essentially identical documents before this court for review
and the few that were not duplicative were immaterial to the appeal.
Accordingly, we deny his Motion to Strike as moot.
64 Memorandum Opinion, 493 B.R. at 264, ¶ 33.
65 Id. at 273.
expenses and fees, absent contractual or statutory provisions to the contrary.66
Instead, under Virgin Islands law, attorney’s fees may be allowed as an element
of costs in the court’s discretion. 67 The bankruptcy court determined that if
Boehm had not breached the Agreement, and had she not sought the TRO, Pickel
would not have incurred the $10,000 in expenses necessary to dissolve the
TRO—classic breach of contract damages.
Boehm misunderstands the character of the award when she argues that the
bankruptcy court “lacks jurisdiction to award attorney’s fees in a case that was
never before the court.” 68 Admittedly, the Virgin Islands statute contemplates
that the judge hearing the case who is familiar with the work involved and the
services rendered has the authority to award such fees. But the bankruptcy court
found credible Pickel’s testimony that he had incurred $25,000 in defending the
Virgin Islands litigation caused by Boehm’s anticipatory breach, and that at least
$10,000 of it was directly attributable to the TRO litigation itself.
Boehm questions the award of $10,000 in damages because Pickel did not
introduce documentary evidence—such as an itemization of hours expended
multiplied by the applicable hourly rate. While it is true that Pickel did not
introduce an itemized accounting of the legal work performed, there is
considerable other evidence in the record supporting the award.
First, the record contains the order dissolving the TRO, which recites that
66 Prosser v. Prosser, 40 F. Supp. 2d 663, 671 (D.V.I. 1998) (holding that
“[i]n the courts of the Virgin Islands[,] the American Rule against shifting fees tothe losing party does not apply”), rev’d on other grounds, 186 F.3d 403 (3d Cir
1999); Anderson v. Bryan, No. ST-08-CV-545, 2013 WL 3215672, at *3 (V.I.
June 24, 2013) (same).
67 V.I. Code Ann. tit 5, § 541 (West 2013). But see Pan Am. Realty Trust v.
Twenty One Kings, Inc., 297 F. Supp. 143, 151 (D.V. I. 1968), aff’d, 408 F.2d 937(3d Cir. 1969) (“The amount to be awarded is wholly within the discretion of thejudge before whom the case has been tried and who is, therefore, familiar with thework involved and the services rendered.”) (emphasis added).
68 Opening Brief at 17.
AVIC filed an emergency motion to vacate the TRO the day after it was entered,
and also that the hearing on that motion was held only three days later. 69 Pickel
testified he had already paid his attorneys $15,000 in connection with this matter,
and still owed them more. 70 He also testified that the billing rates of his two
attorneys were $250 to $300 an hour, that they “were called out at 7:00 at night
and worked through the night” in order to prepare an emergency motion to quash
the TRO, and then “worked several hours each day that week in preparing for the
hearing” on the TRO. 71 Boehm is simply incorrect that there was no evidence in
the record to support the award.
While an itemized bill might have been more persuasive evidence, the
bankruptcy court clearly found Pickel’s testimony credible and believed that his
attorneys would likely have needed to spend long hours over a very short period
of time to prepare for, and attend, the hearing to dissolve the TRO. And at $250$
300 per hour for his two attorneys, an hourly rate Boehm does not challenge, it
is not difficult to see how AVIC incurred $10,000 in fees.
Boehm knew or reasonably should have known that her election to breach
the Agreement and have Pickel evicted from the Hotel would cause AVIC
damages, including the attorney’s fees required to dissolve the improperly
acquired TRO. There is sufficient evidence in the record to support those fees as
an element of damages for her breach. We decline, therefore, to reverse the
bankruptcy court’s award of $10,000 as an element of contract damages.
69 The Appellee’s Appendix contains pleadings and orders from the Local
Action, including the complaint, amended complaint, affidavit in support of TRO,
order granting TRO, order staying TRO, and order dissolving TRO. See Exhibits
O through T, in Appellee’s App. at 58 to 78. Boehm obtained the ex parte TROon Monday, December 14, 2009, and delivered it to Pickel that same evening. By
9:00 a.m. the next morning, Pickel filed the emergency motion to dissolve orvacate the TRO. The actual hearing on the TRO was held four days later.
70 Transcript at 194-96, in Appellant’s App. at 241-43.
71 Id. at 195, in Appellant’s App. at 242.
B. Improper Filing of Lis Pendens
Boehm’s final argument is that the bankruptcy court erred in finding that
she improperly filed a lis pendens against the Hotel. The bankruptcy court stated,
or at least implied, the filing of the lis pendens was improper because Boehm had
no personal claim against the property, as any claim would be held by the
corporation, itself, not by her as an individual shareholder. Boehm’s lis pendens
argument is irrelevant to her appeal, however, because the bankruptcy court
declined to award any damages in connection with Pickel’s counterclaim for
slander of title.72
Boehm’s appeal of the bankruptcy court’s decision, which held that the
Agreement remained in full force and effect, and thus both parties were entitled to
specific performance of all their rights under the Agreement, is ultimately based
on her disagreement with that court’s factual findings. We cannot say that those
findings, essentially that Boehm repudiated the Agreement and Pickel tendered a
timely and adequate cure, are clearly erroneous. Therefore, the bankruptcy
court’s order is hereby AFFIRMED.
Memorandum Opinion, 493 B.R. at 274.
- Category: Judge Karlin
- Published on 28 January 2014
- Written by Judge Karlin
- Hits: 268
Farmway Credit Union v. Eilert et al, 13-07037 (Bankr. D. Kan. Jan. 22, 2014) Doc. # 23
SIGNED this 22nd day of January, 2014.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Henry Anthony Eilert and Case No. 13-41298-13
Betty Lynne Eilert,
Farmway Credit Union,
vs. Adversary No. 13-7037
Henry Anthony Eilert and
Betty Lynne Eilert,
Memorandum Opinion and Order Denying Plaintiff’s/Creditor’s
Motion to File an Amended Complaint and Dismissing Creditor’s
Case 13-07037 Doc# 23 Filed 01/22/14 Page 1 of 10
Farmway Credit Union (“Creditor”) filed an adversary complaint1
against Defendants Henry Anthony Eilert and Betty Lynne Eilert (“Debtors”)
in October 2013. It consisted of 10 substantive lines of text generically
claiming Debtors had obtained $9,185.18 in loans that should not be
discharged under 11 U.S.C. § 523(a)(2) [no further subsection provided].
Debtors filed a motion to dismiss,2 asserting that the complaint failed to state
a claim as required by Fed. R. Civ. P. 12(b)(6), and this Court agreed that
Creditor’s bare allegations did not state a claim.3
Rather than dismissing the complaint, this Court opted to grant
Creditor 14 days to file a motion to amend its complaint, requiring it to
attach the proposed Amended Complaint to its motion as required by D. Kan.
Rule 15.1(a), so that Debtors, and ultimately this Court, could determine
whether the amended complaint now stated a claim. Creditor filed that
motion to amend,4 but Debtors oppose it.5 Creditor has not filed any pleading
in further support of its motion, and the time to do so has expired. Because
the Court finds that the proposed amended complaint still fails to state a
1 Doc. 1.
2 Doc. 9.
3 Doc. 11.
4 Doc. 14.
5 Doc. 19.
Case 13-07037 Doc# 23 Filed 01/22/14 Page 2 of 10
claim, the Court denies Creditor’s motion to amend and dismisses the original
I. Standard for a Motion to Amend
Leave to amend a complaint is freely given when justice so requires.6 A
party is granted leave to amend unless there is “a showing of undue delay,
undue prejudice to the opposing party, bad faith or dilatory motive, failure to
cure deficiencies by amendment previously allowed, or futility of
amendment.”7 A proposed amendment is futile if the amended complaint
would be subject to dismissal.8
Debtors argue the proposed amended complaint would likewise be
subject to dismissal under Rule 12(b)(6), and therefore the Court should deny
the motion to amend. In its order granting the motion to dismiss, subject to
Creditor timely amending its complaint, this Court articulated, in great
detail, the requirements for a legally sufficient claim for the non-discharge of
a debt under 11 U.S.C. § 523(a)(2). In brief, the order stated the complaint
must contain “a short and plain statement of the claim showing that the
6 Fed. R. Civ. P. 15(a)(2).
7 Duncan v. Manager, Dep't of Safety, City & Cnty. of Denver, 397 F.3d 1300, 1315
(10th Cir. 2005) (citation and quotation marks omitted).
8 Anderson v. Merrill Lynch Pierce Fenner & Smith, Inc., 521 F.3d 1278, 1288 (10thCir. 2008).
Case 13-07037 Doc# 23 Filed 01/22/14 Page 3 of 10
pleader is entitled to relief.”9 The complaint must present factual allegations,
that when assumed to be true, “raise a right to relief above the speculative
level,”10 and the complaint must contain “enough facts to state a claim to
relief that is plausible on its face.”11 “Determining whether a complaint states
a plausible claim for relief is a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense. This
contextual approach means comparing the pleading with the elements of the
cause(s) of action.”12 A plaintiff must include in the complaint “either direct or
inferential allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory.”13 “[T]he complaint must
give the court reason to believe that this plaintiff has a reasonable likelihood
of mustering factual support for these claims.”14
9 Fed. R. Civ. P. 8(a).
10 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
11 Id. at 570.
12 Burnet v. Mortg. Elec. Registration Sys., 706 F.3d 1231, 1236 (10th Cir. 2013)
(internal citations and quotation marks omitted).
13 Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). See also Commonwealth
Prop. Advoc., v. Mortg. Elec., 680 F.3d 1194, 1201–02 (10th Cir. 2011) (holding that acomplaint must “sufficiently allege facts supporting all the elements necessary toestablish an entitlement to relief under the legal theory proposed”).
14 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).
Case 13-07037 Doc# 23 Filed 01/22/14 Page 4 of 10
Creditor’s proposed amended complaint does provide some additional
factual detail and more precise citations to the bankruptcy code, clarifying the
exact subsections of § 523(a)(2) upon which it relies to argue that
[significantly smaller] portions of Debtors’ debt to it should not be
discharged.15 Creditor now argues that a loan Debtors originally sought on
July 16, 2013, in the amount of $2,495.00, is nondischargeable under 11
U.S.C. § 523(a)(2)(C); Creditor’s factual focus on luxury goods and the 90-day
period preceding the bankruptcy further clarifies that Creditor seeks a
determination that this debt is nondischargeable under § 523(a)(2)(C)(i) (I).
That subsection creates a presumption of nondischargeability for “consumer
debts owed to a single creditor and aggregating more than $600 for luxury
goods or services incurred by an individual debtor on or within 90 days” of
bankruptcy. Creditor also argues that a loan Debtors earlier sought— on May
14, 2013 in the amount of $973.91—is nondischargeable under § 523(a)(2)(A),
admitting that because this debt was incurred more than 90 days before the
bankruptcy petition, it cannot rely on the presumption of nondischargeability
contained in § 523(a)(2)(C)(i) (I) for the $973.91 debt.
15 The original complaint sought the non-discharge of $9,185.18. The proposedamended complaint seeks the non-discharge of only $2,495.
Case 13-07037 Doc# 23 Filed 01/22/14 Page 5 of 10
Taking the second argument first, Creditor fails to state a claim under
§ 523(a)(2)(A). As the Court stated in its previous opinion, a successful
§ 523(a)(2)(A) claim requires either direct or inferential allegations respecting
the following elements: (1) debtor used false pretenses, false representations,
or actual fraud; (2) which debtor knew at the time to be false or fraudulent;
(3) with the intent to deceive the creditor; (4) the creditor justifiably relied on
the representation; and 5) creditor sustained damage as a proximate result of
the debtor’s false pretenses, false representations, or actual fraud.16 Here, as
in the first complaint, Creditor fails to allege facts supporting the fourth and
fifth elements; the amended complaint remains silent on whether Creditor
relied on whatever representations Debtors are alleged to have made (and
which representations were purportedly false) and that its damages were
proximately caused by those representations or other fraud. Finally,
considering the heightened pleading standards required by Rule 9(b) when
pleading fraud, the complaint also fails to allege the first element with the
required specificity.17 Thus, Creditor fails to state a claim directly under
16 See Barenburg v. Burton (In re Burton), No. CO-10-022, 2010 WL 3422584, at *4
(10th Cir. BAP Aug. 31, 2010) and Memorandum Opinion and Order GrantingDefendants’/ Debtors’ Motion to Dismiss, but Granting Plaintiff Fourteen Days toAmend (Doc. 11).
17 Perhaps Creditor hoped that attaching an exhibit (Exhibit A referenced inparagraph 8 of the proposed amended complaint) might provide the required specificity, butif so, it didn’t assist because the Exhibit was not, in fact, attached. Debtors noted this
Case 13-07037 Doc# 23 Filed 01/22/14 Page 6 of 10
Creditor also fails to state a claim with respect to the July 16, 2013.
loan, which Creditor seeks to have declared nondischargeable pursuant to
§ 523(a)(2)(C)(i)(I). To state a claim under § 523(a)(2)(C)(i)(I), a creditor must
allege facts supporting the following elements: the debt is “(1) a consumer
debt; (2) owed to a single creditor; (3) aggregating more than $600; (4) for
luxury goods or services; (5) incurred by an individual debtor; and (6) on or
within 90 days before the filing of the petition.”18 The fourth element, that the
debt be for luxury goods or services, refers to a vendor's right to payment for
luxury goods or services sold directly to a debtor, not to a lender's right to
repayment of a cash loan that was eventually used to purchase a luxury good
or service.19 As a result, § 523(a)(2)(C)(i)(I) is inapplicable to the cash loan at
issue here. Thus, the proposed amended complaint also fails to state a claim
under § 523(a)(2)(C)(i)(I).
problem in their reply filed two weeks ago, but notwithstanding that notice, Creditor hasnever elected to provide that document or to respond to the Debtors’ reply. The "intent"
element is also not strongly plead, but the word “intent” is at least mentioned twice in theproposed amended complaint.
18 Discover Bank v. Hankins (In re Hankins), No. 12-5114, 2012 WL 5409629, at *3(Bankr. D. Kan. Nov. 5, 2012).
19 Aetna Fin. Co. v. Neal (In re Neal), 113 B.R. 607, 610 (9th Cir. 1990). See also
Beneficial of Mo., Inc. v. Shurbier (In re Shurbier), 134 B.R. 922, 927 (Bankr. W.D. Mo.
1991); Brewer Fed. Credit Union v. D’Amboise (In re D’Amboise), 232 B.R. 540, 542 (Bankr.
D. Me. 1999).
Case 13-07037 Doc# 23 Filed 01/22/14 Page 7 of 10
The Court is aware, as Creditor states, that the facts in this case have
not been fully elucidated because discovery has not been completed.
Certainly, this limits the specificity with which any creditor can make
allegations in a complaint. Nevertheless, a plaintiff must at least allege facts
that directly or indirectly support the elements underlying any given claim.
These facts may change through discovery and additional investigation, but
at a minimum, a complaint should mention each element and in good faith
suggest some way that the plaintiff can eventually muster factual support for
For example, in this case, Creditor could have alleged that it would not
have made a loan to Debtors absent whatever fraud it contends allegedly
occurred, and that Creditor examined the loan application and Debtors’ credit
history and found no reason to doubt Debtors’ fraudulent representation
(whatever that representation might have been here). Bare though it may be,
such allegation would at least minimally allege the required justifiable
reliance element of § 523(a)(2)(A). Failing to mention reliance at all, however,
does not meet this element. Similarly, by failing to mention reliance, this
Creditor also fails to allege its damages were proximately caused by whatever
fraud Debtors allegedly engaged in or misrepresentations they allegedly
Case 13-07037 Doc# 23 Filed 01/22/14 Page 8 of 10
As the Tenth Circuit has clearly noted, “[t]he burden is on the plaintiff
to frame a ‘complaint with enough factual matter (taken as true) to suggest’
that he or she is entitled to relief” and these “[f]actual allegations must be
enough to raise a right to relief above the speculative level.”20 If Creditor’s
allegations in its proposed amended complaint are taken as true, all Creditor
has demonstrated is that Debtors borrowed money to help finance a wedding
within 90 or more days of filing bankruptcy, and thus they must have
intended to defraud Creditor because they did not repay the loan. That is not
One of the principal purposes of the bankruptcy code is to grant honest
debtors a "fresh start." To further this purpose, Congress warns creditors that
if they bring a complaint seeking the non-discharge of a consumer debt and
the debtor ultimately obtains a discharge of that debt, they might well be
20 Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008), quoting Twombly, 550
U.S. at 570.
21 As Judge Nugent recently noted in In re Hankins), 2012 WL 409629 at *4,
“[t]here are several possible inferences that can be drawn from this bare allegation.
Twombly requires a plaintiff to plead ‘factual content that allows the court to draw thereasonable inference that the defendant is liable for the misconduct alleged.’ Plausibilityrequires more than a “sheer possibility” that the defendant is liable under the claimalleged.” In Hankins, the Court noted that at least that creditor alleged debtor’s schedulesshowed no ability to pay for the charges she made to her Discover credit card account.
Case 13-07037 Doc# 23 Filed 01/22/14 Page 9 of 10
liable for payment of the reasonable attorney's fee and other costs associated
with debtors having to defend such actions.22 For that reason, and because of
its desire to hear disputes on the merits, the Court gave this Creditor a
second opportunity to meet its pleading burden, even providing a roadmap
how to meet that burden in its first order, including citations to prevailing
authority. But because Creditor’s proposed amended complaint still fails to
state a claim, the motion to amend the complaint must be denied and the
original complaint is now dismissed.
It is so ordered.
# # #
22 11 U.S.C. § 523(d).
13-07037 Doc# 23 Filed 01/22/14 Page 10 of 10