In re Adell

• Decision Date: 28 May 2004
• Docket Number: No. 9:03-bk-23684-ALP.,9:03-bk-23684-ALP.
• Citation: 310 B.R. 460
• Parties: In re Kevin ADELL, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

Page 460

310 B.R. 460

In re Kevin ADELL, Debtor.

No. 9:03-bk-23684-ALP.

United States Bankruptcy Court, M.D. Florida, Ft. Myers Division.

May 28, 2004.

Asher Rabinowitz, Ruden, McClosky et al., Dawn A. Carapella, Trenam Kemker et al., Roberta A. Colton, Tampa, FL, for Debtor.

T. Patrick Tinker, Office of the U.S. Trustee, Tampa, FL, for U.S. Trustee.

ORDER ON MOTION TO DISMISS

(Doc. No. 145)

ALEXANDER L. PASKAY, Chief Judge.

It is not unusual, as a matter of fact, it is quite common that debtors who are about to lose their homes seek refuge in the court of last resort, which is the Bankruptcy Court. While it is true that this happens as a general rule in Chapter 13 cases, there is nothing in the Bankruptcy Code, which prohibits an individual debtor who is eligible for relief under Chapter 11, to file a Petition for the same reason, even if that is the paramount and at times, the only reason to do so. It cannot be gainsaid that the threat of the loss of a home due to a pending mortgage foreclosure or actually threat of an immediate foreclosure sale, prompts the debtor to seek relief in the bankruptcy court. However, it is clear that basically there is no difference when a debtor files a Petition to save the home when it is threatened by loss by a judgment creditor who is aggressively pursuing an attempt to obtain satisfaction of a judgment by liquidating all assets of the debtor, including the family home, or when the loss of the home is at a foreclosure sale. The fact that the debtor is able to pay his debts as they mature and that the debtor is solvent is of no consequence, especially when the debtor is rendered hopelessly insolvent by the entry of a money judgment in a very large amount. It is well established that the mere fact that the bankruptcy Petition thwarts a judgment creditor in its attempt to enforce a valid legal right is no basis alone to deny the relief sought by the debtor provided that the debtor has an honest intention and a real need for relief and the ability to obtain relief under the provisions of Chapter 11 of the Code.

The instant matter under consideration is a Motion to Dismiss (Doc. No. 145) this Chapter 11 case of Kevin Adell (Debtor), which is filed by John Richards Homes Building Company, L.L.C. (JRH), a judgment creditor of the Debtor. JRH obtained a judgment in the bankruptcy court, in the Eastern District of Michigan, against the Debtor in the amount of $4,100,000, as compensatory and $2,000,000, as punitive, plus attorney's fees in the amount of $313,230.68, for a total of approximately $6.4 million. In due course, this Court scheduled a preliminary hearing on the Motion to Dismiss, at the conclusion of which, this Court entered an order (Doc. No. 219), which specified the following issues to be tried at a final evidentiary hearing:

(1) the alleged bad faith aspect of the filing of this Chapter 11 case, including but not limited to the intent of the Debtor to abuse the judicial process; and

(2) the Debtor's attempts to frustrate the legitimate efforts of JRH in enforcing its rights against the Debtor by filing this Chapter 11 case.

At the duly scheduled final evidentiary hearing, the following facts have been established by documentary evidence and testimony of witnesses relevant to the two issues outlined above.

The Debtor is a highly successful executive and at the time of filing, he was and still is, the officer of the following corporations: Adell Broadcasting Corp.; STN.com, Inc.; The Word Network; and Cubana One Network. In the year 2000, his annual gross income was $935,660; in 2001, $2,277,724; in 2002, $1,705,683; in 2003, $1,700,000; and in the first part of 2004, $380,000.

Upon reviewing an ad promoting the sale of custom-built homes by JRH, the Debtor inquired about the possibility of having a home constructed by JRH. The parties met and discussed the price. JRH wanted $4 million and the Debtor was only willing to pay $3 million. After a few meetings, they agreed on a price and the Debtor signed a contract with JRH for the construction of the home for $3,030,000. The home was to be constructed within one year. The Debtor paid JRH a $600,000 down. When JRH found out that it did not own the lot but only had an option to buy it, JRH asked the Debtor for more money to purchase the lot. The Debtor gave JRH $1,200,000 more or $1,800,000 total. The Debtor assumed that JRH had already started construction, and when he found out that construction had not yet begun; the Debtor demanded the return of the funds he already paid.

JRH refused and litigation ensued, initially commenced by the Debtor, who was attempting to recover the down payment from JRH. The suit was filed in the state court in the State of Michigan, which was removed by JRH to the district court where the suit is still pending. The Debtor was advised by an attorney, for whatever reason, that he would obtain greater success if he filed an involuntary petition under Section 303 of the Code against JRH. Following that advice, the Debtor did file an involuntary petition in the Eastern District of Michigan. The Petition was immediately attacked by JRH with the filing of a Motion to Dismiss the Involuntary Case and a Motion for Compensation and Punitive Damages. JRH, in its Motion, contended that the involuntary petition was improper because only one petitioning creditor filed it and JRH has more than twelve creditors. The Bankruptcy Court in the Eastern District of Michigan considered the Motion in due course and on July 15, 2002, entered an order (Doc. No. 29, in the involuntary of JRH) and dismissed the involuntary case. The Bankruptcy Court expressly reserved jurisdiction to consider the Motion for Compensation and Punitive Damages against the Debtor pursuant to Section 303(i) of the Code.

That Motion was heard in due course and at the conclusion of the hearing, on April 25, 2003, the Bankruptcy Court entered an order and awarded sanctions against the Debtor for a total of $6,413,230.68 (Sanction Award). The entry of the Sanction Award generated a flurry of motions filed by JRH who immediately took steps to enforce the Sanction Award. For instance, JRH requested issuance in excess of 32 writs of garnishment beginning on May 12, 2003. In the interim, JRH was successful to cause the Debtor's personal properties to be seized in Michigan, which was ultimately sold by the U.S. Marshall, without notice to the Debtor.

The record reveals that after the entry of the Sanction Award, the Debtor sold approximately eleven to thirteen high-end vintage cars for $536,000, which according to the Debtor, were worth at least $700,000 to $800,000; cashed in Treasury bills in the amount of $1,700,000; and wire transferred these funds to his attorney's in Florida, including $300,000 he withdrew from his checking account.

The Debtor arrived in Florida on May 5, 2003. On May 6, 2003, he engaged the services of a real estate broker, and immediately took steps to establish his residency in Florida. He registered to vote in Florida, he registered his automobile in Florida, and he obtained a fishing license. After spending the day looking at thirteen houses, he signed a contract to purchase a house for $2.8 million. The record reflects that the funds he had previously transferred to his attorney in Florida were not enough. He was short $400,000. He called his father and asked him to lend him the shortfall of $400,000. His father agreed and wired the sum to his son's attorney in Florida. The contract was signed on May 7, 2003, and the deal was closed on May 8, 2003, or two days after he found the house.

On May 19, 2003, the Debtor filed a suit for declaratory relief in the Circuit Court in and for Collier County, seeking a determination that the property he just bought qualified for the protection granted to homesteads by Art. X, Sec. 4 of the Florida Constitution. JRH removed the declaratory relief action to the Bankruptcy Court for the Middle District of Florida, even though at that time, there was no bankruptcy case pending in this District. JRH promptly filed a motion to transfer the removed action to the Eastern District of Michigan, which was granted and the suit was transferred to the Eastern District of Michigan on June 9, 2003.

On May 21, 2003, JRH filed a motion for miscellaneous post-judgment relief and sought an order from the Bankruptcy Court to force a sale of the Naples residence of the Debtor. The Debtor, who claimed that the home was homestead and could not be reached by creditors of the homeowner, resisted the motion. JRH also requested an order requiring the Debtor to turn over certain personal property to the U.S. Marshal. Additionally, JRH sought an order requiring the Michigan Secretary of the State to record liens on several of the Debtor's vehicles.

On September 17, 2003, the Bankruptcy Court in the Eastern District of Michigan entered an Order (Homestead Order) that determined that the home the Debtor purchased in Naples did not qualify as homestead because (1) whatever homesteads are available in Florida are trumped by Section 303(i) of the Code; and (2) the Debtor did not qualify for homestead because he was not a bona fide resident of Florida. The Bankruptcy Court ordered the Debtor to sell the home within 60 days and directed the Debtor to turn over some other properties to the U.S. Marshal. The Debtor did not sell the homestead but turned over a gold Rolex and gold money clip to the U.S. Marshal, which were sold.

The Debtor promptly appealed the Homestead Order and filed a Motion for Stay Pending Appeal. The Bankruptcy Court denied the Motion. On October 14, 2003, approximately one month after the Bankruptcy Court had rendered its decision; the Debtor filed an Emergency Motion for Stay Pending Appeal in the District Court. Counsel for the Debtor neither in the Motion for Stay filed in the Bankruptcy Court nor the same Motion filed in the District Court, contended that the Debtor was...