In re Avery, Case No. A06-00455-DMD (Bankr.Alaska 6/13/2007)

Decision Date13 June 2007
Docket NumberCase No. A06-00455-DMD.,Adversary No. A07-90018-DMD.
PartiesIn re: MARK J. AVERY, Chapter 7, Debtor. WILLIAM M. BARSTOW, TRUSTEE and SECURITY AVIATION, INC., Plaintiffs, v. ROBERT F. KANE and KAREN KANE, Defendants.
CourtU.S. Bankruptcy Court — District of Alaska

DONALD MacDONALD IV, Chief Bankruptcy Judge.

Robert Kane started working for Mark Avery in the fall of 2004. The scope of his duties are not clear. He received a salary of $5,500.00 a month from Avery's corporation, Avery and Associates, and other compensation. On June 28, 2005, Avery purchased a Winnebago motorhome for $100,871.00. Title to the Winnebago was placed in the name of Regional Protective Services, LLC, or Mark James Avery. Some time after its purchase, Avery endorsed the Winnebago's certificate of title to Kane. Kane took possession of the motorhome but didn't register the transfer of title with the Department of Motor Vehicles. He retains possession of the motorhome today.

Mark Avery pre-signed Avery and Associates checks for use when he was out of town. Robert Kane used one of these pre-signed checks to pay a local jeweler $92,000.00 for a 6.01 carat diamond ring on December 13, 2005. Later, on January 30, 2006, Kane took another pre-signed check and paid the same jeweler an additional $34,000.000. The second check paid for a new mounting for the 6.01 carat diamond ring and a pair of 6.05 carat diamond stud earrings. The rings and earrings were given to Robert Kane's wife, Karen. The jewelry is now stored in a safe controlled by the Kane's attorney, Kevin Fitzgerald.

Mark Avery filed a chapter 7 bankruptcy on October 23, 2006. Security Aviation, Inc., an entity wholly owned by Avery, filed for chapter 11 relief on December 21, 2006. Avery's chapter 7 trustee and Security Aviation initiated this adversary proceeding against the Kanes on May 9, 2007, seeking various forms of relief, including recovery of the jewelry and motorhome or a money judgment for their value, a money judgment for an additional $3.4 million on preference and fraudulent conveyance theories, disallowance or subordination of claims, and punitive damages. A temporary restraining order was entered May 9, 2007, that prohibited the Kanes from disposing of the motorhome and jewelry. Through stipulation, that order was continued until a hearing on the plaintiffs' application for a preliminary injunction, which was held on June 11, 2007.

To obtain a preliminary injunction, the plaintiffs must show "either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in [the plaintiffs'] favor."1 I find that it is likely, though not certain, that the plaintiffs will succeed on their claims to invalidate the transfers of property to the Kanes. There are serious questions going to the merits of these unusual transactions. Further, if the defendants abscond with the assets, the plaintiffs will be irreparably harmed. The defendants will suffer minor hardships if a preliminary injunction is issued. But these hardships, essentially consisting of the inability to wear expensive jewelry or use a motorhome, are nothing compared to the hardships the plaintiffs would face if these assets were to be disposed of by the defendants before a trial on the merits. I find that the plaintiffs have satisfied the standard for obtaining a preliminary injunction. An order has been issued which prohibits any use, sale or other disposition of the motorhome or the jewelry by the Kanes or their attorneys or agents through entry of a final judgment in this adversary proceeding.

There is one issue that remains with regard to the plaintiffs' motion for preliminary injunction: whether the plaintiffs are entitled to an order directing turnover of the motorhome and jewelry as a pre-judgment remedy. The plaintiffs are pressing the court on this point because they want to sell the motorhome during the narrow window of marketability offered during the short Alaskan summer. They say the funds can be retained, after sale, pending the outcome of the other issues in this case. The Kanes do not agree with this proposal. They are losing their home and want to move into the motorhome.

The plaintiffs ask the court to order Kane to turn over the jewelry and motorhome at this stage of the proceedings under a variety of theories. First, they ask for a preliminary injunction compelling turnover. Injunctive relief of this sort is not typically granted, however, unless the moving party has made a clear or substantial showing of a likelihood of success on the merits.2 At this stage of the proceedings, I don't feel that the plaintiffs have met this more demanding standard for injunctive relief. They have shown a likelihood of success on the merits, but there are factors weighing in Kane's favor in this case as well. Given the issues which are contested here, a mandatory injunction will not be granted.

Typically, a preliminary injunction is entered to preserve the status quo pending a trial on the merits.3

The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held. Given this limited purpose, and given the haste that is often necessary if those positions are to be...

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