In re Broadview Hospitality Holdings, LLC, Wichita Hospitality Holdings, LLC, Wichita Realty, LLC; Wichita Hospitality Holdings, LLC, Wichita Realty, LLC and Broadview Hospitality Holdings, LLC vs. Mordechai Boaziz vs. Prosper Levay, PJDYH, LLC and Ovadia Oved.; Case No. 04-16882-11; Case No. 04-16883-11; Case No. 04-16884-11; Adv. No. 04-5348 (Nugent)(January 9, 2006)
MEMORANDUM OPINION
This case was extremely fact intensive with regard to investor interests in the three LLCs, Broadview Hospitality Holdings, LLC, Wichita Hospitality Holdings, LLC and Wichita Realty, LLC. The Court examined accountant forensic reports, deposition and trial testimony in determining the initial capital contributions of the members of the LLCs.
In re Glen George Hambleton; Case no. 04-42681 (Karlin) (February 7, 2006).
MEMORANDUM AND ORDER DENYING TRUSTEE’S MOTION FOR SUMMARY JUDGMENT AND SETTING CASE FOR TRIAL
Facts:
Debtor sold his homestead and put the proceeds in bank account. Subsequent to sale, the debtor filed for bankruptcy. Debtor sought to exempt $15,000 of the proceeds under K.S.A. 60-2304 as the statutory basis for this exemption. Trustee did not object to any exemption and the Ch. 13 plan was confirmed. Subsequently, debtor converted his Ch. 13 to a Ch. 7. The trustee objected to the debtor’s exemption of the proceeds from the sale, noting that the claimed statutory basis for exemption did not support the exemption. Instead, K.S.A. 23-2301 was the proper basis for the exemption. The trustee contended that the debtor was prohibited from claiming the exemption in the proceeds from the sale of his homestead because the debtor’s attorney cited the wrong statutory basis for the exemption in his schedules, notwithstanding the provisions of a signed Pretrial Order raising other basis for the claimed exemption.
Holding:
The court held that the errors by the debtor’s attorney provided no basis for disallowing the Debtor’s homestead exemption. The court cited the fact that the Trustee’s experience and qualifications did not require him to guess what debtor intended to exempt. While the court found that no party was harmed by citation to the incorrect statute, the court required the debtor to correct the error by amending Schedule C.
In re Jorge Colon, Jr. and Antoinette Valentina Ortiz-Colon; Jan Hamilton v. Washington Mutual Bank, F.A.; Case No. 04-42174-13; Adv. No. 05-7032 (Karlin)(February 8, 2006)
ORDER SETTING MATTER FOR SCHEDULING CONFERENCE
Facts:
In an earlier order denying Washington Mutual Bank, FA’s (“Washington”) motion for summary judgment, the court noted that all legal issues had been decided and that all material facts had been determined by the Court. Because here the Trustee had not filed his own summary motion instead of only responding to Washington’s, the court gave Washington an opportunity to argue why summary judgment should not be granted to the Trustee. The court commented that Washington misunderstood this limited inquiry as “an invitation to seek reconsideration of most of the Court’s prior rulings.” In arguing reconsideration, Washington alleged that it was not afforded due process and that it was not bound to the terms of the confirmed plan because the objection process somehow preserved its right to later argue that the plan was not fair and equitable. In Washington’s summary judgment motion, the issue of whether a mortgage recorded by Washington was sufficient to provide constructive notice to future purchasers arose. The Trustee argued that the mortgage contained the improper lot number without any citation to the record. Nevertheless, the statement was accepted as uncontroverted because Washington did not contest the statement in its response pursuant to D.Kan. LBR 7056.1(b). The court thus found that as a matter of law the Trustee qualified as a bonafide purchaser of the property. Here, Washington argued that it did not intend to concede the issue of fact and that it was unfair to grant summary judgment to the Trustee who had the burden to prove that the mortgage did not provide constructive notice of its existence. The court thus reviewed both Washington’s response and its “disguised Motion to Reconsider.”
Holding:
1. The court denied Washington’s “disguised Motion to Reconsider” stating that Washington’s original decision not to object to the plan, seek reconsideration, or appeal barred its complaint that it was not provided due process or that the confirmation order was not res judicata on the issue of plan treatment.
2. The court found that an entry of judgment was improper because a question of fact existed as to whether the mortgage filed by Washington would appear in the chain of title during a reasonable title search and thus the mortgage as recorded was insufficient to provide constructive notice in light of Kansas law.
In re: Daniel Lee Ross and Mary Gina Ross; Case no. 05-42544 (Somers)(February 10, 2006)
MEMORANDUM AND ORDER GRANTING TRUSTEE’S OBJECTION TO EXEMPTION OF TRUTH-IN LENDING ACT CLAIM
Facts:
Trustee objected to the debtors’ amended Exemptions in which they claimed as exempt possible Truth in Lending Act (TILA) violations on their first and second mortgages pursuant to the Kansas homestead exemption. Debtor claimed the mortgage lender violated TILA because of it failed to deliver multiple copies of the Notice of Right to Rescind. Litigation in regard to the violations in question had not commenced and it was unclear if demand had been made on the creditor. Debtor argued that the statutory penalties imposed by violations of TILA “were so intertwined with the equity of the Debtors in their homestead” that the claim was exempt. Debtor relied on In re Stroble which held that a settlement awarded in an unfair and deceptive mortgage practices class action lawsuit was exempt under the Kansas homestead exemption.
Holding:
The court distinguished Stroblel on the grounds that the litigation in question had not commenced and the debtor had not disclosed either the elements of the claim or the remedies sought. Further, the Court found that because TILA awards damages for attorneys fees and costs, the damages compensate for damage to the homestead but also with personal loss to the debtors. Thus, the court found that there was a likelihood that the Debtor’s TILA claim had both exempt and nonexempt aspects, but would not rule on the issue since it had not been briefed on the matter by the parties.
In re: Rafter Seven Ranches, L.P.; Case no. 05-40483 (Somers)(February 10, 2006)
MEMORANDUM AND ORDER ADDRESSING MATTERS RELATING TO C.H. BROWN CO.
Facts:
Debtor entered into leases with creditor for four
used irrigation sprinklers to be installed by an irrigation company. The leases
were for five years and required semi-annual payments. Three sprinklers were
“delivered” and did not conform to the lease in various ways. One nonconforming
sprinkler was used and two set in the fields. Debtor sent creditor and
irrigation company letters which indicated his dissatisfaction with the
situation and threatened rejection of the three leases. The fourth sprinkler was
never delivered and debtor sent creditor a notice of cancellation regarding that
sprinkler. Debtor made no lease payments. Eventually, creditor filed an action
to collect money due on the lease in state court. Debtor filed for bankruptcy
staying the state court action and creditor filed a proof of claim. The Debtor
objected asserting that the equipment was never delivered and debtor had
rescinded and repudiated the leases in 2001. Creditor filed a motion for an
order requiring debtor to assume or reject the leases pursuant to
Holdings:
1. The court found that Article 2 does not require perfect tender of goods. Because Debtor used one sprinkler and did not within a reasonable time unequivocally reject the other two that were delivered, he accepted three of the four sprinklers. After acceptance, the nonconformities became irrelevant to Debtor’s obligation to pay. Thus, creditor was entitled to an unsecured claim.
2. The court found that the leases were not subject to assumption or rejection. It used the traditional Countryman test and inquired whether performance was due by both parties to the extent that nonperformance by either party would constitute a material breach excusing performance by the other. The court reasoned that when the creditor filed suit in state court, he elected to treat the leases as cancelled. The court also found that Debtor’s notice of cancellation of the fourth sprinkler also acted as a cancellation of the lease. Because all of the leases were cancelled pre-petition, they were not executory on the date of filing. Therefore the leases were not subject to assumption or rejection.
In re: Randal Steven Reed; Carl B. Davis vs. Randal Steven Reed and Rose Hill Bank f/k/a Rose Hill State Bank; Case no. 04-21464; Adv. No. 04-05302 (Somers) (January 19, 2006)
MEMORANDUM AND ORDER GRANTING IN PART AND DENYING IN PART TRUSTEE’S COMPLAINT FOR LIEN AVOIDANCE
Facts:
Debtor purchased a boat, motor and trailer on June 16, 1999. Rose Hill Bank (“the Bank”) financed the purchase and on June 28, 1999 the Bank recorded a UCC-1 financing statement with Kansas Secretary of State in order to perfect its security interest in the property. On June 28, 1999, Debtor caused the boat to be titled in Oklahoma on the advice of the marina from whom it was purchased. The Oklahoma title issued for the boat and motor did not contain a notation regarding the Bank’s lien. The trailer was never titled in Oklahoma. Subsequent to granting the security interest to the Bank and the Bank recording the UCC-1, Debtor took the property to Kaw Lake in Oklahoma where he went on weekends and stored it there until the end of the boating season in October 2000. Debtor would regularly store the boat at a friend’s house in Oklahoma from April to October and then return the boat to his driveway for storage from October to April. When the Debtor filed his voluntary petition under Chapter 7 on July 13, 2004, the debtor’s boat, motor and trailer were located in the State of Oklahoma. The Debtor did not claim the property as exempt.
Holdings:
1. The Bank’s UUC-1 filed in June of 1999 initially perfected the security interest in the boat and motor (“boat”) because Kansas statutes did not require a title for the boat. However the requirements for perfection changed in 1999 when the boat was moved to Oklahoma and remained there for 15 months and an Oklahoma title was issued. Once the boat was titled in Oklahoma, the Kansas version of Article 9 looked to the law of Oklahoma to determine perfection. When goods are covered by a certificate of title issued in another state, the local law of the jurisdiction under whose law the certificate of title was issued determines perfection and because the exclusive method of perfection in Oklahoma required notation of the lien on the title and the title contained no notation regarding the Bank’s lien, the Trustee can avoid the Bank’s lien in the boat.
2. In Kansas in 1999, a permissible method for perfection of a security interest in a trailer was the filling of a UCC-1. Such method continues to be a permissible method and therefore the Bank is properly perfected in the trailer and the Trustee cannot avoid the lien in the trailer.
3. The Court declined to order preservation of the lien under 11 U.S.C. §551 as preservation is automatic and because §551 is irrelevant as the property was not claimed as exempt.
In re: Christopher Lee Haberman and Catherine May Haberman; J. Michael Morris v. St. John National Bank, Christopher Haberman and Catherine Haberman; Case No. 02-11974-7; Adv. No. 02-5273 (Somers) (February 10, 2006).
OPINION DETERMINING RIGHTS IN CERTAIN POSTPETITION PAYMENTS DEBTORS MADE IN ORDER TO KEEP THEIR CAR
Facts:
When the debtors filed for bankruptcy, St. John National Bank (“Bank”) had a lien on their car to secure a debt of over $3,000. Soon after the Trustee commenced the present proceeding to avoid the Bank’s lien, he sought and obtained an order declaring the bankruptcy estate had a contingent interest in any postpetition payments the Debtor might make on the debt secured by the car that would be superior to the Bank’s interest if the lien avoidance action was successful. The debtors continued to make installment payments to the Bank, ultimately paying off the balance that they owed. In April of 2004, the court determined that the Bank’s lien was unperfected, that the Trustee could avoid it and that that the Trustee’s claim should be limited to car’s value on the day the Debtors filed for bankruptcy. The trustee conceded that he was precluded from recovering post petition payments made before the Contingent-Interest Declaration was announced. The court thus considered the estate’s rights in payments made after the Contingent-Interest Declaration was made. The court relying on statements in Morris v. Vulcan Chemical Credit Union (In re Rubia) ruled that the lien preserved was limited to the lesser amount the Debtors owed the Bank on the day they filed for bankruptcy or the value of the car on that day. The trustee took issue with the conclusion that Rubia was binding authority.
Holding:
The court affirmed the reliance on Rubia. A trustee who avoids and preserves a lien does not succeed to all of the rights the secured creditor would have had had if its lien could not have been avoided as unperfected. Thus the Trustee had only the rights bestowed by the Code. Because the avoided transfer is the one that created the lien in the car, the Trustee’s rights are limited to an interest in the car itself. Thus, the Trustee was allowed to recover the value of the car at the time of filing instead of the entire sum paid to the bank after the Contingent Interest Declaration was announced.
In re: Stanley P. Brensing and Dara Dee Brensing; Case no. 04-21464 (Berger) (January 24, 2006)
MEMORANDUM AND OPINION
Facts:
Debtors filed their first Chapter 13 bankruptcy in April 1996 and the plan was confirmed in October of 1996. In December of 1999 the IRS assessed against the Brensings income taxes for 1997. This post petition liability could not be paid within the 60 month limit. The IRS filed a 1305 claim for the 1997 income tax liability. Debtors did not object to this proof of claim. After some time, the Brensings and the IRS reached an agreement with regard to payment of the 1997 income tax claim and an order reflecting this agreement was filed in 2001. In the agreement, the debtor’s waived discharge of the tax claim. Thus, the tax claim was not discharged with the order of discharge filed in 2001. Debtors filed a second Chapter 13 claim in April of 2004, less than three years after the bankruptcy case was discharged. The debtors asserted that the 1997 income tax liability was not entitled to priority status.
Holding:
The priority tax claim deadline set out in 507(a)(8)(A)(i) was tolled during the prior bankruptcy until the date of the first case’s discharge. Since the new bankruptcy was filed less than three years after the discharge date, the 1997 tax liability was entitled to unsecured priority status under the three year rule. The United State’s motion for summary judgment was granted.