Crawford v. Hertzberg (In re Hertzberg)
| Decision Date | 04 November 2014 |
| Docket Number | Adversary No. 14–2141–JAD.,Bankruptcy No. 13–23753–JAD. |
| Citation | 521 B.R. 99 |
| Parties | In re Todd HERTZBERG, Debtor. Rosemary C. Crawford, Trustee for the Bankruptcy Estate of Susan Hertzberg, Plaintiff, v. Todd Hertzberg, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
OPINION TEXT STARTS HERE
Rosemary C. Crawford, Crawford McDonald, LLC, Allison Park, PA, pro se.
Robert O. Lampl, Mary Bower Sheats, Frank, Gale, Bails, Murcko & Pocrass, P.C., Pittsburgh, PA, for Defendants.
This is a case that finds itself in a unique position. That position is a chapter 7 bankruptcy trustee filing suit against a chapter 11 debtor-in-possession. The gravamen of the dispute is that the chapter 7 trustee is seeking the turnover of $145,000 in retirement funds (the “Retirement Funds”) in the possession, custody and control of the chapter 11 debtor-in-possession.1
Since this adversary proceeding concerns property of the bankruptcy estates, or more appropriately property of one bankruptcy estate and alleged property of the other bankruptcy estate, and since this adversary proceeding also implicates the contours of the automatic stay, this adversary is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(E),2 (G), and (O). This Court also has subject-matter jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and (e).
For the reasons set forth below, this Court concludes that the chapter 7 trustee has, at least in part, stated a claim for relief as it relates to the Retirement Funds at issue.
The facts, as alleged by the chapter 7 trustee in the Complaint to Turnover Retirement Funds (the “Complaint”) are not terribly complicated. These allegations are summarized herein, albeit in a different order as alleged by the chapter 7 trustee.
Susan M. Hertzberg is the former wife of the debtor-in-possession Todd Hertzberg. Before this Court, Mrs. Hertzberg filed her own voluntary petition under chapter 7 of the United States Bankruptcy Code. While not stated in the Complaint, the Court takes judicial notice of the filing and observes that her bankruptcy filing occurred on February 27, 2012 and was filed at Bankruptcy No. 12–20888–GLT.
Upon the filing of Mrs. Hertzberg's chapter 7 bankruptcy case, Ms. Rosemary C. Crawford was duly appointed trustee, charged with the duty of reducing estate assets to cash and making distributions to the creditors of the bankruptcy estate of Mrs. Hertzberg. One such asset that Mrs. Hertzberg had as of the filing of her bankruptcy case was whatever rights, title and interests she had pursuant to a Marriage Settlement Agreement dated October 5, 2010 by and between Mrs. Hertzberg and Todd Hertzberg. It is alleged that pursuant to this Marital Settlement Agreement, Mrs. Hertzberg acquired an interest in $145,000 of the Retirement Funds.
Approximately 19 months after Mrs. Hertzberg filed her chapter 7 liquidation case, on September 3, 2013, Mr. Hertzberg filed his chapter 11 reorganization case before this Court at Bankruptcy No. 13–23753–JAD. After the commencement of his chapter 11 case, the chapter 7 trustee in the case of Mrs. Hertzberg filed the above referenced Complaint alleging, inter alia, that:
• $145,000 of the Retirement Funds are property of the bankruptcy estate of Mrs. Hertzberg.
• The chapter 7 trustee made numerous requests that $145,000 of the Retirement Funds be turned over to the chapter 7 trustee for the benefit of the bankruptcy estate of Mrs. Hertzberg.
• The debtor-in-possession, Mr. Hertzberg, through his attorney, ignored the chapter 7 trustee's repeated turnover demands.
—and—
• Turnover of $145,000 of the Retirement Funds should be ordered by the Court pursuant to various statutes, including 11 U.S.C. §§ 541, 542, 548 and 550 and 12 Pa.C.S. §§ 5101–5110, 5104.
The Complaint filed by the chapter 7 trustee has been met with opposition by the chapter 11 debtor-in-possession. Specifically, the defendant Mr. Hertzberg filed a Motion to Dismiss, contending that ownership of the $145,000 of Retirement Funds has always been vested in Mr. Hertzberg, and not Mrs. Hertzberg. As such, Mr. Hertzberg contends that the $145,000 of Retirement Funds never constituted property of the bankruptcy estate of Mrs. Hertzberg, and that the chapter 7 trustee fails to plead a cause of action for turnover pursuant to 11 U.S.C. §§ 541 and 542.
The defendant also seeks to dismiss the Complaint because the Complaint fails to identify any pre-bankruptcy “transfer” of the Retirement Funds at issue. Absent an allegation of a “transfer” of property, the Motion to Dismiss contends that the chapter 7 trustee fails to state a claim under the Bankruptcy Code's fraudulent transfer provisions found at 11 U.S.C. §§ 548 and 550 and state law fraudulent transfer statutes found at 12 Pa.C.S. §§ 5101–5110 et seq.
The defendant further seeks dismissal of this adversary proceeding, contending that the claims of the chapter 7 trustee are stayed by the statutory injunction found in the Bankruptcy Code's automatic stay provisions of 11 U.S.C. § 362(a). Alternatively, the debtor-in-possession in this case seeks to compel the chapter 7 trustee of the bankruptcy estate of Mrs. Hertzberg file a more specific pleading.
On August 11, 2014, the Court heard oral argument on the Motion to Dismiss. Thereafter, the parties filed supplemental briefs along with various documents attached to them on September 18, 2014 and September 22, 2014. This matter is now ripe for decision.
Rule 12(b)(6) of the Federal Rules of Civil Procedure is incorporated into the Bankruptcy Rules through Federal Rule of Bankruptcy Procedure 7012. Pursuant to Rule 12(b)(6), a complaint may be dismissed by the Court for “failure to state a claim upon which relief can be granted.”
In the course of deciding a motion to dismiss, the court is to review the complaint in the light most favorable to the plaintiff. See Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir.2011). In addition, in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the United States Supreme Court set forth a “plausibility standard” for overcoming a motion to dismiss that requires the plaintiff to plead “enough facts to state a claim to relief that is plausible on its face.” The plausibility requirement contemplates “more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
With these standards in mind, and as discussed more fully below, this Court concludes that the plaintiff has stated a claim for relief for turnover of the Retirement Funds pursuant to 11 U.S.C. §§ 541 and 542. This Court also concludes that this cause of action should not be stayed by the automatic stay of 11 U.S.C. § 362. In addition, the Court concludes that the chapter 7 trustee has not made sufficient allegations to support a claim for relief under applicable fraudulent transfer law, whether it be under federal statutes or state statutes.
Section 541 of the Bankruptcy Code defines exactly what constitutes property of a bankruptcy estate. In its broadest sense, property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” See11 U.S.C. § 541(a)(1).
Section 542 of the Bankruptcy Code empowers a bankruptcy trustee to compel the turnover of property of the estate when such property is in the hands of third parties. Specifically, this statute states, in pertinent part, that “an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell or lease ... shall deliver to the trustee, and account for such property or the value of such property....” See11 U.S.C. § 542(a).3
In the matter sub judice the chapter 7 trustee contends that the $145,000 of Retirement Funds constitutes property of the bankruptcy estate of Susan Hertzberg. The debtor-in-possession, however, disputes this assertion and avers that, as a matter of law, the $145,000 of Retirement Funds constitute property of the bankruptcy estate of Todd Hertzberg.
Both parties rely on the Marital Settlement Agreement in support of their respective positions. In this regard, the chapter 7 trustee contends that the Marital Settlement Agreement operated to convey an interest in $145,000 of the Retirement Funds to Mrs. Hertzberg, and that the chapter 7 trustee succeeded to such interest when Mrs. Hertzberg commenced her bankruptcy case. Todd Hertzberg contends that Susan Hertzberg acquired no property interest in the Retirement Funds and that the Marital Settlement Agreement merely gives rise to a general unsecured claim by the bankruptcy estate of Mrs. Hertzberg against the bankruptcy estate of Mr. Hertzberg. The outcome of these dueling positions turns on the application of non-bankruptcy law. See Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).
A fundamental question in this case is whether, prior to her own bankruptcy filing, Mrs. Hertzberg obtained a legal or equitable interest in $145,000 of the Retirement Funds by virtue of the Marital Settlement Agreement.
As to the pure legal interest, the parties appear to concede that the $145,000 of Retirement Funds at issue have always been legally titled in the name of Todd Hertzberg. The real issue then to be considered is whether Susan Hertzberg acquired an equitable interest in the $145,000 of Retirement Funds that should be recognized by this Court with respect to the chapter 7 trustee's turnover action.
One of the maxims in equity is that equity “regards and treats as done what, in good conscience ought to be done.” 2 John Norton Pomeroy, A Treatise on Equity Jurisprudence § 364 (1941). If what “ought to have been done” in this case was Todd Hertzberg effectuating a rollover of the Retirement Funds to the bankruptcy estate of Susan...
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