In re Carrozzella & Richardson

• Decision Date: 02 October 2000
• Docket Number: 97-3021,97-3020,Bankruptcy No. 95-31231. Adversary No. 96-3162,97-3024.,97-3015
• Citation: 255 BR 267
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re CARROZZELLA & RICHARDSON, Debtor. Michael J. Daly, Trustee, Plaintiff, v. Zofia Deptula, Defendant. Michael J. Daly, Trustee, Plaintiff, v. Mary Lou Crandall, Defendant. Michael J. Daly, Trustee, Plaintiff, v. Esther Susie, Defendant. Michael J. Daly, Trustee, Plaintiff, v. Robert Parisi, Defendant. Michael J. Daly, Trustee, Plaintiff, v. Warren P. Corriveau, Defendant.

255 B.R. 267 (2000)

In re CARROZZELLA & RICHARDSON, Debtor.

Michael J. Daly, Trustee, Plaintiff, v. Zofia Deptula, Defendant.

Michael J. Daly, Trustee, Plaintiff, v. Mary Lou Crandall, Defendant.

Michael J. Daly, Trustee, Plaintiff, v. Esther Susie, Defendant.

Michael J. Daly, Trustee, Plaintiff, v. Robert Parisi, Defendant.

Michael J. Daly, Trustee, Plaintiff, v. Warren P. Corriveau, Defendant.

Bankruptcy No. 95-31231. Adversary Nos. 96-3162, 97-3015, 97-3020, 97-3021, 97-3024.

United States Bankruptcy Court, D. Connecticut.

October 2, 2000.

COPYRIGHT MATERIAL OMITTED

Douglas S. Skalka, Neubert, Pepe & Monteith, P.C., New Haven, CT, for Movant.

Robert G. Wetmore, Robert G. Wetmore P.C., Yalesville, CT, for Respondents.

MEMORANDUM OF DECISION ON MOTIONS FOR SUMMARY JUDGMENT

ALBERT S. DABROWSKI, Bankruptcy Judge.

I. BACKGROUND

Before the Court are the Plaintiff-Trustee's requests for summary judgment in the captioned preferential transfer adversary proceedings. These proceedings follow in the tragic wake of a pattern of fraud perpetrated by the Debtor's principals upon their clients and others. The present Defendants, like scores of others over a period spanning two decades, entrusted significant personal funds to the Debtor's care. Due to gross mismanagement and misappropriation by certain of its partners, the Debtor law firm ended up hopelessly insolvent and in liquidation in this Court. In an effort to augment the bankruptcy estate, the Plaintiff-Trustee has commenced, inter alia, a series of avoidance actions against individuals, such as the present Defendants, who requested and received back from the Debtor a portion of their funds within the preferential transfer "look-back window" of Bankruptcy Code Section 547(b)(4).¹ These actions have been defended on various theories; most notably a claim that the subject transfers were simply a return of funds that the Debtor had held in trust for the defendants.

Trial has been held before this Court on several of the Plaintiff's preferential transfer actions; many other such proceedings, like the ones presently at bar, have not yet reached the Court for trial. On August 18, 1999, the Court issued decisions in two of the tried preference actions. In Daly v. Biafore (In re Carrozzella & Richardson), 237 B.R. 536 (Bankr.D.Conn.1999), judgment was rendered for the Plaintiff-Trustee, but in Daly v. Radulesco (In re Carrozzella & Richardson), 237 B.R. 544 (Bankr. D.Conn.1999), judgment was entered for the Defendants. The Court expected that Biafore and Radulesco would serve as "channel markers" to guide and encourage the Trustee and the numerous other defendants toward fair and equitable settlements in the remaining proceedings.² The Court, as reflected in those companion decisions, strongly believes that justice and the law compel a distinction in outcome between defendants who used the Debtor as a contractual depository similar to a bank³ and those who entrusted funds with the Debtor under circumstances constituting and creating a fiduciary relationship.⁴

In Biafore final judgment stood without appeal, but in Radulesco the Plaintiff-Trustee prosecuted an appeal to the Bankruptcy Appellate Panel Service of the Second Circuit⁵ (hereafter, the "BAP"). On April 21, 2000, a three-judge panel of the BAP reversed this Court's decision and directed that judgment enter for the Plaintiff (hereafter, the "BAP Opinion").⁶ In the BAP Opinion, the appellate panel disagreed with this Court's conclusion that in the context of preference litigation defendants should not bear the burden of "tracing" the funds which are the subject of both the Trustee's avoidance action and Defendants' "trust fund" defense. The panel also found error in this Court's "overlooking" of a presumed tenet of Connecticut law precluding the impression of a trust upon an insolvent estate.⁷

In light of the BAP Opinion, the Plaintiff is prosecuting summary judgment motions in several of the preference cases which have not yet been reached for trial. The Plaintiff assumes that the BAP Opinion stands as binding precedent on this Court as to critical issues of law, and argues that there is no genuine issue as to any fact material to that law Yet, as detailed in this Memorandum of Decision, this Court concludes that it should regard BAP opinions as persuasive, but not binding, precedent. Thus, in light of this Court's respectful, yet profound, disagreement with certain of the BAP Opinion's conclusions of law, summary judgment will be denied in these cases since material facts remain in genuine issue.

II. JURISDICTION

The United States District Court for the District of Connecticut has subject matter jurisdiction over the instant matters by virtue of 28 U.S.C. § 1334(b); and this Court derives its authority to hear and determine these matters on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1). This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(F).

III. DISCUSSION

A. The Role of Stare Decisis.

At the outset it is important for this Court to clarify an obscure, yet important, area of federal jurisdiction implicated by these proceedings. In light of the BAP Opinion, the question is presented as to the proper stare decisis relationship between this Court and a BAP. More specifically, this Court has reflected, and must opine upon what. If any, obligation it has to adopt the conclusions of law of the BAP Opinion as the rule of decision in adversary proceedings other than Radulesco.⁸ Since the extant judicial authority bearing on this question is scant and without uniformity,⁹ its resolution must spring from a commonsense analysis of the constitutional and statutory framework of federal jurisdiction.

Appellate jurisdiction over bankruptcy matters is provided for in Section 158 of the United States Judicial Code, which reads in pertinent part as follows—

(a) The district courts of the United States shall have jurisdiction to hear appeals

(1) from final judgments, orders, and decrees;

(2) from interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title; and

(3) with leave of the court, from other interlocutory orders and decrees;

of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.

(b)(1) The judicial council of a circuit shall establish a bankruptcy appellate panel service comprised of bankruptcy judges of the districts in the circuit who are appointed by the judicial council in accordance with paragraph (3), to hear and determine, with the consent of all the parties, appeals under subsection (a) unless the judicial conference finds that —

(A) there are insufficient judicial resources available in the circuit; or

(B) establishment of such service would result in undue delay or increased cost to parties in cases under title 11.

* * * * * *

(4) If authorized by the Judicial Conference of the United States, the judicial councils of two or more circuits may establish a joint bankruptcy appellate panel comprised of bankruptcy judges from the districts within the circuits for which such panel is established, to hear and determine, upon the consent of all the parties, appeals under subsection (a) of this section.

(5) An appeal to be heard under this subsection shall be heard by a panel of 3 members of the bankruptcy appellate panel service, except that a member of such service may not hear an appeal originating in the district for which such member is appointed or designated under section 152 of this title.

(6) Appeals may not be heard under this subsection by a panel of the bankruptcy appellate panel service unless the district judges for the district in which the appeals occur, by majority vote, have authorized such service to hear and determine appeals originating in such district.

(c)(1) Subject to subsection (b), each appeal under subsection (a) shall be heard by a 3-judge panel of the bankruptcy appellate panel service established under subsection (b)(1) unless —

(A) the appellant elects at the time of filing the appeal or

(B) any other party elects, not later than 30 days after service of notice of the appeal;

to have such appeal heard by the district court.

(2) An appeal under subsections (a) and (b) of this section shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts and in the time provided by Rule 8002 of the Bankruptcy Rules.

(d) The courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section.

28 U.S.C. § 158 (1999). Thus, if the circuit court has authorized and a district court has accepted, the functioning of a BAP Service, appeals from the orders of bankruptcy judges in that district are handled by a BAP or district judge. The BAP hears the appeal only if, in essence, all parties to the appeal consent. Otherwise, the appeal is handled by a district judge.

Against the foregoing jurisdictional background the instant litigation raises the following question: what is the precedential effect of a given BAP decision upon this Court's deliberation in a different proceeding? This inquiry is best approached by first examining the stare decisis effect of district court decisions.

It is widely accepted that the decision of one district court judge is not binding on another district judge, even within the same district. E.g., Threadgill v. Armstrong World Industries, Inc., 928 F.2d 1366 (3d Cir.1991). Logically then, a judge of the bankruptcy court — a unit of the district court, 28 U.S.C. § 151 — is not bound by the decision of a single district court judge. See City of Olathe v. KAR...