491 F.3d 120 (3rd Cir. 2007), 05-4882, In re Myers

Docket Nº:05-4882.
Citation:491 F.3d 120
Party Name:In re Margaret J. MYERS, Debtor. Margaret J. Myers, Appellant.
Case Date:June 21, 2007
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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491 F.3d 120 (3rd Cir. 2007)

In re Margaret J. MYERS, Debtor.

Margaret J. Myers, Appellant.

No. 05-4882.

United States Court of Appeals, Third Circuit

June 21, 2007

Submitted Pursuant to Third Circuit L.A.R. 34.1(a) June 4, 2007

On Appeal from the United States District Court for the Eastern District of Pennsylvania District Court No.: 04-cv-5282 District Judge: The Honorable Anita B. Brody Bankruptcy Judge: The Honorable Bruce Fox

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[Copyrighted Material Omitted]

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David A. Scholl, Counsel for Appellant

Francis J. Sullivan, Hill Wallack, Counsel for Appellee

Before: SMITH, COWEN, and SILER, Circuit Judges[*]


SMITH, Circuit Judge.

Every now and then, we encounter an appeal where just about everyone appears to have behaved badly. Unfortunately, this is such a case.

In June 1999, Appellee-creditor Southern Medical Supply Co. ("SMS") obtained a $739,044.32 judgment in Georgia state court against Margaret Myers and her husband, Paul Myers, and two corporations owned by him, Alpha Technology and Micro Design. SMS then transferred the Georgia judgment to Bucks County, Pennsylvania, where Mr. and Mrs. Myers reside.

SMS also filed a lawsuit in the Bucks County Court of Common Pleas ("the CP Court") against Mr. Myers, Mrs. Myers, and Alpha Watch, Inc. ("AWI"), a corporation of which Mrs. Myers was the president and sole shareholder. All corporations owned by Mr. and Mrs. Myers sold "wander-control" patient-monitoring systems to nursing homes. The couple was involved in the operations of AWI and earned income from it. The CP Court suit alleged that the Myerses had fraudulently conveyed the assets of Mr. Myers's corporations, Alpha Technology and Micro Design, to AWI. On January 15, 2003, Mr. M yers filed a voluntary Chapter 7 bankruptcy petition and received a bankruptcy discharge.

On August 9, 2004, a bench trial began in the CP Court suit to decide SMS's fraudulent conveyance claim. Mrs. Myers and AWI were the only remaining defendants.

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On Wednesday, August 11, 2004, the trial judge in the CP Court suit stated that he would issue his judgment in open court on Friday, August 13. Mrs. Myers was not present in court for this announcement. However, the Bankruptcy Court concluded that Mr. Myers and his attorney, who were both present, believed that the CP Court intended to enter judgments against both AWI and Mrs. Myers and advised Mrs. Myers to therefore file for bankruptcy.

On Thursday, August 12, 2004, the day before the state court was to render its judgment, Mrs. Myers filed a bankruptcy petition under Chapter 13. Her counsel immediately informed SMS and the CP Court of the bankruptcy filing. Earlier that week, SMS had commenced an additional lawsuit in the CP Court against the Myerses and Stroll Control, Inc. ("SCI"), another corporation formed and owned by Mr. Myers. SMS sought to enjoin defendants from transferring any assets from AWI to SCI. A preliminary injunction hearing before the same state court was scheduled for August 13, 2004.

On Friday, August 13, 2004, the CP Court issued rulings in both suits against the Myerses and SCI. The Myerses did not attend the August 13 hearing, but their attorney was present and asserted that Mrs. Myers's bankruptcy filing the day before and Mr. Myers's prior bankruptcy filing prevented any judgment in the two lawsuits. The state court stated that it was aware of Mrs. Myers's bankruptcy filing, but that the bankruptcy stay only applied to matters against her in her individual capacity, not in her capacity as president of AWI. The CP Court ruled that Mr. and Mrs. Myers had transferred all of the assets of Alpha Technology and Micro Design to AWI with the intent to defraud SMS. Furthermore, the CP Court found that because AWI operated from the same location as the other two corporations, in the same business, with the same telephone numbers, and involving the same customers, it was appropriate to pierce the corporate veil of AWI and hold Mrs. Myers personally liable for the fraudulent conveyance. The CP Court entered judgments against AWI and Mrs. Myers in the amount of the original Georgia state court judgment, plus interest, totaling $1,198,778.19. The CP Court decreed that judgment was entered against Mrs. Myers "in her corporate capacity, and will be [entered against her] in her individual capacity when the stay is lifted, in the similar amounts."

The CP Court also froze all of the assets of AWI and announced its intention to appoint a receiver for the corporation. The CP Court sanctioned the Myerses by awarding attorney's fees to SMS and referring the case for possible criminal sanctions. The CP Court entered nine orders. It (1) entered judgment against Mrs. Myers and AWI in the amount of $1,198,778.19; (2) placed Mrs. Myers's stock in AWI in a constructive trust in favor of SMS with the stock to be held by the state court; (3) froze the assets of AWI and enjoined defendants from transferring, selling or otherwise disposing of AWI's assets; (4) appointed a receiver for AWI; (5) assessed sanctions against defendants in the amount of $55,284.37; (6) directed Appellant-debtor to appear for a contempt hearing on August 16 due to her failure to appear in court on August 13; (7) enjoined SCI, as well as Mr. and Mrs. Myers, from transferring any assets already delivered from AWI to SCI; (8) appointed a receiver for SCI; and (9) enjoined Mr. and Mrs. Myers from owning, operating, investing in, or working for any entity involved in the business of patient monitoring.

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Mr. and Mrs. Myers were not present in court to witness these events. The Bankruptcy Court concluded that their attorney probably informed them of the state court's rulings, because on Saturday, August 14, 2004, Mr. Myers withdrew $6,000 from AWI's bank account and $1,184.10 (the entire balance) from SCI's account, in violation of the CP Court's orders. The Bankruptcy Court found that Mrs. Myers knew of these actions. The Bankruptcy Court also found that she appointed her husband vice-president of AWI, and that together they approved corporate bankruptcy filings of AWI and SCI. Mr and Mrs. Myers used the $6,000 withdrawn from the AWI account to pay state court counsel for AWI and Mrs. Myers, bankruptcy counsel for Mrs. Myers, and bankruptcy counsel for AWI and SCI.

SMS filed a motion to dismiss Mrs. Myers's bankruptcy case as filed in bad faith. Mrs. Myers sought to void the CP Court orders against her as violations of the automatic bankruptcy stay. Mrs. Myers also requested a temporary restraining order ("TRO") and preliminary injunction ("PI") enjoining SMS from enforcing the orders. The Bankruptcy Court issued a TRO preventing SMS from enforcing certain provisions of the CP Court's orders. SM S moved for relief from the automatic stay...

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