In re Ball, 06-1002.

Citation362 B.R. 711
Decision Date31 January 2007
Docket NumberNo. 06-1002.,06-1002.
CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Northern District of West Virginia
PartiesIn re John Patrick BALL, Debtor.

Lynn M. Mentzer, Spilman, Thomas & Battle, PLLC, Charleston, WV, for Plaintiff.

John Patrick Ball, Morgantown, WV, pro se.


PATRICK M. FLATLEY, Bankruptcy Judge.

On December 21, 2006, this court granted John Patrick Ball (the "Debtor") permission to sell a condominium, located at 2 Waterfront Plaza, Morgantown, West Virginia (the "Condominium") that he claims to own jointly with is wife, Anita Ball, to Rita and Stephen Tanner for the sum of $885,000. The United States Trustee (the "USTE"), the West Virginia University Foundation, Inc. (the "Foundation"), and Ward D. Stone,1 all object to Ms. Ball receiving any portion of the sale proceeds at the closing of the real estate transaction that purportedly represent her interest in the Condominium. They argue that Ms. Ball's purported one-half interest should be placed in an escrow account pending further orders of the court on the basis that she may not have any interest in, the Condominium, and if she does, then the extent of that interest has not yet been determined. Additionally, Ms. Ball may be liable to the bankruptcy estate for preferential and/or fraudulent transfers. Ms. Ball demands that one-half of the net sale proceeds (about $225,000) be immediately paid over to her.

The court held a hearing in this case on December 12, 2006, in Wheeling, West Virginia at which time the parties agreed to allow the sale of the property to close, and to allow the proceeds of that sale to be held in an escrow account for a short period of time to allow briefing on the issue of whether the court should order an indefinite escrow of the funds purportedly belonging to Ms. Ball. That briefing is now complete, and for the reasons stated herein, the court will continue the Debtor's motion to approve of the distribution of sale proceeds, convert the objections to the Debtor's proposed distribution of sale proceeds into a motion for a preliminary injunction under Fed. R. Bankr.P. 7065 and 9104, and hold a hearing on February 14, 2007 at 10:30 a.m. in the U.S. Bankruptcy Courtroom, located at 1125 Chapline Street, 3rd Floor, Wheeling, West Virginia 26003, at which time the parties will be given the opportunity to prove that a preliminary injunction is appropriate.


The Debtor was admitted to practice law in West Virginia in 1963, and one of his practice areas was estate planning. In the course of that practice, he prepared the wills for three individuals: Vivian D. Michael, Gladys G. Davis, and Earle L. Elmore, all of whom are now deceased. The Debtor's preparation and administration of those wills formed the basis of a disciplinary action against the Debtor by the West Virginia Office of Disciplinary Counsel, which ultimately led to a five-year revocation of his license to practice law, and a $2,978,848 July 17, 2006 order of restitution. On October" 31, 2006, the Debtor filed his Chapter 11 bankruptcy petition.

On November 7, 1996, the Debtor prepared the wills of two sisters: Ms. Michael and Ms. Davis. Both wills left all tangible personal property, including personal effects, household goods, and jewelry to Ms. Ball, and Ms. Michael bequeathed an automobile to the Debtor. The total value of those gifts was $64,000. After Ms. Michael died, the Debtor assisted Ms. Davis in changing the beneficiary of an annuity from her deceased sister to the Debtor's two adult children. After Ms. Davis's death, the Debtor's children received $487,783 from that annuity. Additionally, the Debtor was named the executor of both Ms. Michael's and Ms. Davis's wills, and the stated compensation for him as executor was 7.5% of the total gross estates at a time when the generally accepted maximum charge was 5%. As executor, the Debtor received $785,966 in fees from Ms. Michael's estate, and $837,362 from Ms. Davis's estate. Moreover, the wills also gave the Debtor the right to oversee funds given to the Foundation — with an associated fee of 1% of the market value of the funds. The Debtor received a total of $336,889 from the Foundation based on that oversight fee.

On September 17, 1997, the Debtor prepared a will for Mr. Elmore. The will appointed the Debtor as executor of the estate and authorized him to receive compensation at the rate of 7.5% of the total gross estate. Mr. Elmore died in 2003 leaving an estate valued at $1,388,579. Mr. Elmer also provided that the bulk of his estate would be paid to the Foundation, and allowed the Debtor to set the annual fee that he would charge for overseeing that gift. The will suggested that the fee could be 1% of the gross assets of the funds.

Based on the above-stated actions, the West Virginia Supreme Court of Appeals determined that the Debtor drafted three wills in which he gave himself excessive fees as executor, drafted two wills that improperly conveyed property to himself and his wife, and assisted in changing a client's annuity to benefit his adult children. As' a result, the Supreme Court of Appeals determined that the Debtor violated West Virginia Rule of Professional Conduct 1.5(a) (prohibition on excessive fees); 1.7(b) (prohibiting representation of a client when that representation is materially limited by the lawyer's own interests); 1.8(c) (prohibition on preparing a will that gives the lawyer or a relative of the lawyer a substantial gift from the client); and 8.4(a) (prohibition against attempting to violate the Rules of Professional Conduct). Based on these ethical violations, the Supreme Court of Appeals ordered full restitution of all unethically retained funds, which was later determined to be $2,978,848.

The Debtor and Ms. Ball purchased the Condominium on December 5, 2003, for $665,135. Centura Bank has a deed of trust on the property, which had an outstanding balance of $394,681 as of December 20, 2006. The deed to the property states that the Debtor and Ms. Ball hold the property as joint tenants with the right of survivorship. Although she is listed on the deed as a joint tenant, Mr. Stone and the Foundation allege that Ms. Ball has not been employed, and has not received other earned income, for a period of at least ten years, and that she did not contribute financially to the acquisition of the Condominium.

Additionally, the USTE has identified several potential causes of action against Ms. Ball that could be asserted on behalf of the bankruptcy estate. The USTE estimates that Ms. Ball's total potential liability could be $171,000, representing an $ 82,-000 gift made by the Debtor to Ms. Ball in the year preceding the bankruptcy filing, the $25,000 transfer of the automobile from the estate of Ms. Michael to Mr. Ball, and the transfer of $64,000 in personal goods from the estate of Mses. Michael and Davis to Ms. Ball.


Ms. Ball argues that she is immediately entitled to her one-half interest in the Condominium on the following grounds: she a joint tenant, 11 U.S.C. § 363(j) mandates that she be paid her share on the sale of jointly-owned property, any attempt by the Debtor's creditors to deny her access to her property is a prohibited pre-judgment attachment of her property, and that this court does not have jurisdiction to impose a constructive trust (even if one were appropriate) over non-estate property.

Mr. Stone, the Foundation, and the USTE argue that it is unclear, at this time, exactly what Ms. Ball's interest — if any — is in the Condominium. Mr. Stone contends that the Debtor unethically accepted $1,942,291 from the estates of Mses. Michael and Davis before the purchase of the Condominium for $665,000, and the Debtor had notice of the charges against him by the Office of Disciplinary Counsel before its purchase. Given these allegations, Mr. Stone contends that an inquiry must be made into whether the joint deed, and the joint loan from Centura Bank, was done with the intent to hinder, delay, or defraud creditors.

The USTE states that § 363(j) does not require an immediate distribution of funds to a co-owner of property when that property is sold by the Debtor, and that this court has the inherent power under § 105(a) to escrow the proceeds to allow a reasonable investigation into pre-petition transactions.

The Foundation argues that significant questions exist as to whether the Condominium was obtained with funds to which neither the Debtor nor Ms. Ball were entitled, and that significant questions exist regarding whether Ms. Ball's interest in the property may be subject to avoidance under federal or state fraudulent transfer laws. Until the exact nature of Ms. Ball's interest is determined, no payment pursuant to § 363(j) is appropriate. Moreover, the Foundation argues, an escrow of Ms. Ball's alleged entitlement to her interest in the sale proceeds is required to protect the public interest based on the Debtor's unethical acts.

A. Presumption of One-Half Ownership

Ms. Ball contends that because she is listed on the deed to the Condominium as a joint tenant, a presumption exists under West Virginia law that she owns an undivided one-half interest in the property. Ms. Ball further states that no party has produced sufficient evidence to rebut that presumption and that she is therefore entitled to her one-half interest in the proceeds from the sale of the Condominium.

"In the absence of any controlling federal law, `property' and `interests in property' are creatures of state law." Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992); see also In re Oswald, 90 B.R. 218, 221 (Bankr. N.D.W.Va.1988) ("West Virginia law on joint tenancies is controlling in determining what the debtor's interest and, therefore, the estate's interest is in the jointly owned property."). Pursuant to West Virginia law, when a husband...

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