In re Bell & Beckwith
| Decision Date | 19 January 1990 |
| Docket Number | Bankruptcy No. 85-0024. |
| Citation | 112 BR 863 |
| Parties | In re BELL & BECKWITH, Debtor. Patrick A. McGRAW, Trustee, Plaintiff, v. Roscoe R. BETZ, Jr., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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Fuller & Henry, Toledo, Ohio, for plaintiff.
Stephen P. Harbeck, Washington, D.C., for SIPC.
Edward F. Zoltanski and Russell Miller, Toledo, Ohio, for Roscoe R. Betz, Jr.
Susan M. Pioch, Toledo, Ohio, for Robert R. Coon, II.
Randy L. Reeves, Lima, Ohio, for Louis Haubner, Jr.
Charles V. Contrada and Dennis F. Keller, Holland, Ohio, for Donald C. Henninger.
Philip R. Joelson, Toledo, Ohio, for J. Robert and Marilyn J. Jesionowski.
David M. Schnorf, Toledo, Ohio, for Thomas L. McGhee.
David W. Wicklund and Deborah L. Kovac, Toledo, Ohio, for John E. Thompson and George M. Todd.
Frank J.P. McManus, Toledo, Ohio, for Edward P. Wolfram, Jr.
David P. Rupp, Jr., Archbold, Ohio, for Beverly Betz.
This cause comes before the Court on the Trustee's Motion for Summary Judgment Against Defendants R. Betz, Coon, Henninger, R. Jesionowski, McGhee, Thompson, Todd, and Wolfram. The Trustee filed a Memorandum in Support of his Motion for Summary Judgment. Memoranda in Opposition to the Trustee's Motion for Summary Judgment were filed by Roscoe R. Betz, Jr., J. Robert Jesionowski, Thomas L. McGhee, John E. Thompson, and George M. Todd. The Trustee has filed various reply Memoranda. A settlement is pending between Roscoe R. Betz, Jr. and the Trustee. Consequently, this Opinion will not address the Trustee's Motion for Summary Judgment against Mr. Betz. The Court has reviewed the exhibits, affidavits, and the written arguments of counsel, as well as the entire record in this case. Based on that review, and for the following reasons, the Court finds that the Motion for Summary Judgment should be granted.
The facts in this case are not in dispute. The Plaintiff in this action is the Trustee of Bell & Beckwith, the Debtor in the underlying bankruptcy proceeding. Bell & Beckwith was a stock brokerage located in Toledo, Ohio. The brokerage operated as a partnership and was managed by Edward P. Wolfram, Jr. (hereinafter "Mr. Wolfram"). Starting in approximately 1973, Mr. Wolfram began systematically diverting cash and securities held by the brokerage in customer margin accounts. At the time Mr. Wolfram's fraud was discovered by a Securities & Exchange Commission examiner in 1983, Wolfram had left Bell & Beckwith indisputably insolvent.
The Defendants were all general partners of Bell & Beckwith on February 5, 1983. See, Answer of Robert R. Coon, II, at ¶ 1; Answer of Defendant, John E. Thompson, at ¶ 112; Answer of Defendant, George M. Todd, at ¶ 13; Answer of Edward P. Wolfram, Jr., at ¶ 2; Memorandum in Reply to Defendant John E. Thompson's Opposition to Plaintiff's Motion to Strike and For Summary Judgment, (October 26, 1987), Affidavit of Patrick A. McGraw, Trustee, Exhibit 1 (Certificate of Limited Partnership on file with the Lucas County Recorder on February 5, 1987) and Exhibit 8 (Letterhead of Bell & Beckwith); Answer of Thomas L. McGhee in Adversary Case 83-0184 (May 2, 1983) at ¶ 4; Objection to Trustee's Proposed Settlement with Frederick S. Todman & Company, et al and Objection to Trustee's Proposed Agreement with BBS, Inc., Trustee and AMC Trustee, in main case 83-0132 (June 11, 1987); Securities & Exchange Commission v. Bell & Beckwith, Civil Action No. C-83-103, Consent and Stipulation of Defendant Bell & Beckwith, (February 11, 1983)(signed by J. Robert Jesionowski); see also, In re Bell & Beckwith, 77 B.R. 606, 608 (Bankr. N.D. Ohio 1987); In re Bell & Beckwith, 50 B.R. 440, 442 (Bankr. N.D. Ohio 1985); and Adversary Case 83-0184 (in which a preliminary injunction was entered with respect to each of the above Defendants under § 723(b)).
The Trustee has filed an Affidavit and Statement of Deficiency of Partners' Capital dated August 31, 1987. The Statement of Deficiency shows a minimum deficiency in Partners' Capital of Thirty Million Two Hundred Forty-two Thousand Four Hundred Nine Dollars and Fifteen Cents ($30,242,409.15). The Trustee has rounded that amount to Thirty Million Dollars ($30,000,000.00) and seeks Summary Judgment against the partners for that amount under 11 U.S.C. § 723(a). The minimum deficiency is based upon each claim of the estate realizing the maximum of potential cash that can conceivably be obtained. See, Memorandum In Support of Motion for Summary Judgment Against R. Betz, Coon, Henninger, R. Jesionowski, McGhee, Thompson, Todd and Wolfram, (October 9, 1987), Affidavit of Patrick A. McGraw, Trustee, Exhibit 1, ¶ 5 at 3. This includes assuming the full collectability of all judgments. Id., ¶ 5 at 3. The Statement also assumes the estate would have insufficient funds to make any additional distributions to partially unpaid customers from Customer Fund Property. Consequently, all securities were deemed to belong to the estate, as well as interest and dividends attributable to those securities. Id., ¶ 5 at 3-4. Certain escrow accounts were also deemed to belong to the estate. Id., ¶ 5 at 4.
The Court notes that while no significant additional assets have been discovered, some of the "assets" which were assumed under the Trustee's optimistic scenario have not been realized. For example, the Court takes judicial notice of the United States District Court's decision in Patrick A. McGraw, Trustee v. Liberty Airlines, Inc., 114 B.R. 475 (N.D.Ohio 1989).
The Court will discuss the Partners' Objections to the Trustee's Motion for Summary Judgment infra. However, based on its review of the Trustee's affidavit, the Statement of Deficiency, and the voluminous materials filed in this case, the Court finds that the minimum deficiency in partnership capital is greater than Thirty Million Dollars ($30,000,000.00).
Several of the partners have denied that this Court has subject matter jurisdiction over the instant adversary proceeding. Nevertheless, this Court has jurisdiction based upon a number of different statutes. Under the Securities Investor Protection Act (hereinafter "SIPA"), the United States District Court issues a protective decree and appoints a trustee for the liquidation of an insolvent brokerage. Immediately thereafter, the case is removed to the Bankruptcy Court. See, 15 U.S.C. § 78eee(b)(2)(A). The Bankruptcy Court thereafter has all of the jurisdiction, powers, and duties conferred by SIPA upon the court to which application for the protective decree was made. Id. Under SIPA, the Court has exclusive jurisdiction over all of the debtor's property, wherever located. See, § 78eee(b)(2)(A). "Property of the estate" is defined in 11 U.S.C. § 541(a)(1) and (7) as including all the debtor's legal or equitable interests in property, whether tangible or intangible, as of the commencement of the case, or that are acquired after the commencement of the case.
Under the Bankruptcy Code, this adversary case is a core proceeding. The cause of action arises under Title 11. See, § 157(b)(1) and § 723; see also, In re Riverside-Linden Inv. Co., 85 B.R. 107, 113-114 (Bankr.S.D.Cal.1988); In re Downtown Inv. Club III, 89 B.R. 59, 65 (9th Cir. BAP 1988). The list of core proceedings set forth in 28 U.S.C. § 157 is not exclusive. However, § 157(b)(2)(A), (E) and (O) support this action's core status. The Trustee is seeking recovery of the deficiency in the estate of Bell & Beckwith from the general partners of the firm under 11 U.S.C. § 723(a). While the Trustee's right to recover under § 723 parallels the provisions of Ohio's version of the Uniform Partnership Act (hereinafter "UPA"), the fact that state law will affect the resolution of this case is not grounds for finding this action to be non-core. See, § 158(b)(3). Moreover, a review of cases involving § 723(a) reflect that judgments against partners have been issued by Bankruptcy Courts. See, Matter of Barton & Ludwig, 37 B.R. 377 (Bankr.N.D.Ga.1984); In re Lamb, 36 B.R. 184 (Bankr.E.D.Tenn.1983); and cf., In re City Communications, Ltd., 105 B.R. 1018 (Bankr.N.D.Ga.1989).
It is also important to remember that the Debtor is a partnership, and the Defendants are general partners. While the tendency under the UPA has been to emphasize to a greater extent the "entity" aspect of the partnership relationship, in many ways a partnership is merely an "aggregate" of the individual partners. 59A Am.Jur.2d Partnership §§ 5-11 at 237-241. To the extent that the partnership is viewed as an aggregate of its general partners, the Defendants are already before the Court. Cf., Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966).
In a recent decision, the United States Supreme Court addressed the right to a jury trial in bankruptcy proceedings. Granfinanciera, S.A. v. Norberg, ___ U.S. ___, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). In determining if there is a right to a jury trial, the United States Supreme Court set forth a three part analysis that focuses on the traditional Seventh Amendment distinction between legal and equitable causes of action as they existed in 1791.
While this Court will not engage in a full Granfinanciera analysis, it should be noted that historically, accounts were taken, dissolutions decreed, and partnerships were wound up in the Courts of Chancery. G. Spence, The Equitable Jurisdiction of the Court of Chancery Ch. 21, § 2 at 665-666 (1846); G. Bispham, The Principles of Equity: A Treatise on the System of Justice Administered in the Courts of Chancery Part III, Ch. 5, § 505 at 555-556 (4th ed. 1887). Bills for the administration of partnership assets were also filed in equity. G. Bispham, The Principles of Equity Part III, Ch. 5, § 509 at 558 (4th ed. 1887). Another analogous equitable action that was available when the...
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