IN RE R & W ENTERPRISES
| Decision Date | 15 December 1994 |
| Docket Number | Bankruptcy No. 88-04172. Adv. No. 93-08024. |
| Citation | 181 BR 624 |
| Parties | In re R & W ENTERPRISES, Debtor. UNITED STATES of America, FOR the USE AND BENEFIT OF Matt Langley BELL, as the Duly Elected Tax Collector in and for Escambia County, Florida, Plaintiff, v. M. Alan RHODEY, Trustee, and Fidelity and Deposit Company of Maryland, Defendants and Third Party Plaintiffs, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Third Party Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Florida |
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Philip Bates, Pensacola, FL, for plaintiff.
Cory Peterson, Pensacola, FL, for defendants and third party plaintiffs.
Carol Koehler Ide, U.S. Dept. of Justice, Washington, DC, for third party defendant.
This adversary proceeding involves the extremely serious matter of a complaint against a trustee on his bond. On April 9, 1990 the Chapter 7 Trustee of R & S Enterprises submitted a Request to Close Case ("Proposed Distribution") to the U.S. Trustee. The U.S. Trustee reviewed and approved the Proposed Distribution and filed it with the Court. Based on the Trustee's proposal and on the U.S. Trustee's approval of the proposal, an Order Directing Disbursement of Funds ("Order of Distribution") was entered on April 9, 1991. In conformity with that order, the Trustee made his distribution which is the subject of this adversary proceeding.1 On July 3, 1991, after the distribution was made, the U.S. Trustee filed his Certification of the United States Trustee ("Certification") that he had reviewed the case and that the estate had been fully administered. Based on that review and Certification, an Order Approving Account, Discharging Trustee, and Closing Estate was entered on July 5, 1991. On April 1, 1993 the Plaintiff filed a Motion to Reopen the case contending that the original distribution was incorrect and asked that the Plaintiff be allowed to file a complaint against the Trustee and his bonding company. Contemporaneously with the Motion to Reopen, the Plaintiff did file an adversary proceeding complaint against the Trustee and his bonding company. An order granting the Motion to Reopen was entered on April 13, 1991 and the complaint was allowed.
The substantive issues of this case are relatively simple. The procedural issues raised by the parties are quite difficult.
Two complaints are now pending before this Court. The first is the complaint of Escambia County, Florida against Mr. M. Alan Rhodey, the Chapter 7 Trustee of R & W Enterprises, and against the Fidelity and Deposit Company of Maryland, the bonding company providing blanket bond coverage for the Chapter 7 trustees of the Northern District of Florida.2 In its complaint the County seeks payment for 1987 tangible personal property taxes of $8,137.59, and 1988 tangible personal property taxes of $7,594.79.3 The County contends the 1987 taxes were due when the Trustee made his distribution in this case, and contends that the 1987 taxes had a greater priority than those paid, namely those of the IRS, the only non-administrative creditor sharing in the distribution. The Trustee contends that his distribution was correct and that the County was not entitled to share in the distribution.
The second action is a complaint by the Trustee Mr. Rhodey, as a third party plaintiff against the Internal Revenue Service, as a third party defendant. As a backup position, the Trustee seeks to recover funds he distributed to the IRS and contends that if the County is entitled to the personal property taxes, then the funds from which those taxes should be paid are funds he distributed to the IRS, not from funds based on his bond coverage. The IRS contends that both the County's complaint and the Trustee's complaint are untimely, but agrees with the County that the County should have received a distribution, and that the County's 1987 claim was superior to the claim of the IRS. The IRS disagrees with the Trustee that the funds to satisfy the County's claim should come from the government's distribution. The County just wants its money and agrees with the Trustee that there is an argument that the IRS should be required to repay a portion of the funds it received in an amount sufficient to pay the County's claim.
The Court finds that the facts are not in dispute and adopts them from the pleadings and from the arguments of counsel and pursuant to Rule 201 of the Federal Rules of Evidence, takes judicial notice of the records maintained by the Clerk of Court.
This Debtor filed a Chapter 11 petition on March 17, 1988. Prior to conversion of the case, and before the Trustee's appointment, the Debtor in possession asked the Court for permission to sell certain property free and clear of liens. Because this property included personal property on which the County claimed liens, and because those claims were not preserved in the Debtor's request, the County objected to the proposed sale. In response to this objection the debtor in possession filed an Amended Motion to Sell Property Free and Clear of Liens and Other Interest. Notice was given to all creditors. The Court approved the sale on March 13, 1989 which provided, by way of the Amended Motion, that the Debtor was to pay the County $8,137.59 for the 1987 taxes.
In conformity with the terms of its motion and the order approving the sale, the Debtor in possession conducted the sale. The proceeds of the sale were used to pay certain creditors, but for purposes of the matters before this Court, the Debtor in possession satisfied only claims superior to the County and the IRS and did not pay either the County or the IRS.4
Both the County and the IRS have filed proofs of claim. The County's for its 1987 taxes of $8,137.59 was filed on July 25, 1988 (claim no. 27). One for the IRS of $156,854.51 for 1987 FUTA taxes and withholding and FICA taxes for the third and fourth quarters of 1987, all assessed on February 29, 1988, was filed on June 20, 1988 (claim no. 24).
The case was converted to a Chapter 7 case on October 12, 1989, and Mr. Rhodey was appointed Trustee.
On November 8, 1989 the Trustee received $84,590.75 from the counsel for the debtor in possession. This amount represented the remaining proceeds from the Debtor's Chapter 11 sale. The Trustee does not deny that he was aware of the County's claim to a portion of these proceeds.
On April 9, 1990 the Trustee sent his Proposed Distribution to the U.S. Trustee in Tallahassee, who reviewed it, approved it, and filed it with the Court. Based on the Trustee's proposal and on the U.S. Trustee's approval of the proposal, the Court's Order of Distribution was entered on April 9, 1991. The Trustee then made his distribution which is the subject of this adversary proceeding.5 Through the distribution the Trustee paid the clerk's special charges of $488.50, trustee's fees and expenses of $2,685.60, and $1,640.00 to himself as attorney for the trustee. The amount remaining was $78,705.83 which was paid to the IRS. On July 3, 1991, after the distribution was made, the U.S. Trustee filed his Certification that he had reviewed the case and that the estate had been fully administered. Based on that review and Certification, the Court entered its Order Approving Account, Discharging Trustee, and Closing Estate on July 5, 1991.
Regarding the Trustee's Proposed Distribution, the County maintains that it did not receive any prior notice or have any opportunity to be heard and contends that it did not discover that it was not included in the Trustee's distribution until June 1991.
On April 1, 1993 the plaintiff filed its Motion to Reopen. An order granting the Motion to Reopen was entered on April 13, 1991 and the complaint filed with the motion was allowed.
In making the decisions necessary to resolve these matters, if this Court accepts the parties' factual explanations of why the County was not paid, the only conclusion this Court can reached is that almost everything that could have gone wrong, did go wrong. The County blames the Trustee and argues that the Trustee should have made his Chapter 7 distribution in accordance with the Court's Order of March 13, 1989 entered during the Chapter 11 proceedings, rather than pursuant to the Court's Order of Distribution entered during the Chapter 7 proceedings. The County also argues that the Clerk of Court failed to schedule a hearing on the Proposed Distribution, failed to send notices to creditors of the proposed Chapter 7 Order of Distribution, and failed to send copies of the Order of Distribution to creditors after that order was entered.6
The Internal Revenue Service argues that the Trustee is at fault because the original mistake was made by the Trustee and argues that the County cannot now complain because the County waited far too long to question that mistake.
The Trustee blames the County because it did not object to or appeal the Order Directing Disbursement of Funds and failed to take actions which would have mitigated the circumstances. The County, of course, counters that without notice it could not have known to object or appeal. The Trustee also blames the U.S. Trustee's office contending that the U.S. Trustee's established case auditing procedures failed to discover the mistake, if there were one.
There are three real parties to this matter. Escambia County, Florida, the Trustee, Mr. M. Alan Rhodey, and the Internal Revenue Service. Technically, one matter only is before this Court, that is the Trustee's Motion for Summary Judgment on the County's complaint. The Court's notes from a status conference held on August 31, 1993 explain that there was at least one commitment that...
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