In re Buckridge, RS 04-17991 PC.

• Decision Date: 12 March 2007
• Docket Number: No. RS 04-17991 PC.,RS 04-17991 PC.
• Citation: 367 B.R. 191
• Parties: In re Charles Russell BUCKRIDGE, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Central District of California

367 B.R. 191

In re Charles Russell BUCKRIDGE, Jr., Debtor.

No. RS 04-17991 PC.

United States Bankruptcy Court, C.D. California, Riverside Division.

March 12, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gary Swanson, San. Bernardino, CA, for Debtor.

Mark C. Schnitzer, Reid & Hellyer APC, Riverside, CA, Robert S. Whitmore, Chapter 7 Trustee.

Robert S. Whitmore, Riverside, CA, Chapter 7 Trustee.

MEMORANDUM DECISION

PETER H. CARROLL, Bankruptcy Judge.

Reid & Hellyer ("R & H"), general counsel for the chapter 7 trustee, Robert S. Whitmore ("Whitmore"), seeks allowance of a "fee enhancement" in the amount of $34,779.20, which constitutes the entire surplus of estate funds that would otherwise be returned to the Debtor, Charles Russell Buckridge, Jr. ("Buckridge") after the payment of allowed claims and administrative expenses in this case. Buckridge objects to the fee enhancement, claiming that R & H's request for a "bonus" is not 'supported by the evidence and should be denied. At the hearing, Whitmore appeared as chapter 7 trustee, Mark C. Schnitzer appeared on behalf Whitmore and R & H, and Gary Swanson appeared for Buckridge. The court, having considered R & H's final fee application and Buckridge's objection thereto, the evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law¹ pursuant to Fed. R.Civ.P. 52, as incorporated into Fed. R. Bankr.P. 7052 and made applicable to contested matters by Fed. R. Bankr.P. 9014(c).

I. STATEMENT OF FACTS

On July 6, 2004, Buckridge filed his voluntary petition under chapter 7 of the Bankruptcy Code.² Whitmore was appointed as trustee. In his schedules, Buckridge disclosed assets valued at $8,041 and liabilities in excess of $553,189.³ According to Schedule A, Buckridge did not own an interest in any real property on the petition date. The assets valued at $8,041 were disclosed in Schedule B as cash, checking accounts, household furniture, audio, video and computer equipment, clothing, pictures, videos and DVDs. In response to Question # 19 of Schedule B, Buckridge declared under penalty of perjury that he did not own an interest in the estate of a decedent or a trust at the time of bankruptcy.

On August 10, 2004, Buckridge appeared and was examined by Whitmore under oath at a meeting of creditors conducted pursuant to § 341(a).⁴ Based upon Buckridge's schedules and sworn testimony, Whitmore concluded that there were no non-exempt assets which could be liquidated for the payment of claims in the case. On August 12, 2004, Whitmore filed a Report of Trustee in Chapter 7 No Asset Case. Buckridge was granted a discharge on October 19, 2004. On November 3, 2004, an order was entered discharging Whitmore as trustee and closing the case.

On March 24, 2005, Whitmore received a tip from the IRS that Buckridge's father had passed away on June 15, 2004, and that Buckridge had inherited approximately $1,000,000 as the beneficiary of a trust which had not been disclosed in Schedule B. Whitmore contacted the United States Trustee ("UST"), who immediately filed a motion to reopen the case. On March 30, 2005, an order was entered granting the UST's motion, reopening the case, and ordering the appointment of a trustee. On March 31, 2005, the UST reappointed Whitmore as chapter 7 trustee. Whitmore then employed R & H as general counsel to assist him in investigating and locating the undisclosed asset.⁵

Shortly after its employment, R & H confirmed through an attorney in Florida representing the probate estate of Buckridge's father that Buckridge had, in fact, received a distribution from his father's estate in the sum of $1,000,000 shortly after filing his bankruptcy petition. R & H was provided with a copy of the $1,000,000 check which reflected that it had been deposited by Buckridge in an account at Washington Mutual Bank in Yucaipa, California.

On April 15, 2005, R & H filed a complaint on behalf of Whitmore in Adversary No. 05-01128, styled Robert S. Whitmore, Chapter 7 Trustee v. Charles Russell Buckridge, Jr., seeking revocation of Buckridge's discharge for allegedly concealing receipt of a $1,000,000 distribution on July 16, 2004, from Sharon L. Dalton, as Personal Representative of the Estate of Charles R. Buckridge, Sr., and Trustee of the Charles R. Buckridge Revocable Trust of 1993, dated May 7, 1993, as amended and restated on June 8, 2004, and as further amended on June 10, 2004 ("the Inheritance"). Whitmore also sought an order enjoining Buckridge from transferring, encumbering, concealing or otherwise disposing of the Inheritance pending an adjudication of the estate's interest in the Inheritance. The court issued a temporary restraining order prohibiting Buckridge from transferring, concealing or disposing of the Inheritance, and ordering Buckridge to appear on April 25, 2005, to show cause why a preliminary injunction should not be granted pending a trial on the merits.

On April 25, 2005, the court issued a preliminary injunction enjoining Buckridge from "selling, transferring, encumbering, concealing or otherwise disposing of the Inheritance and any real or personal property belonging to Buckridge traceable to the Inheritance⁶ While securing Buckridge's accounts at Washington Mutual, R & H learned that Buckridge maintained several other accounts at Washington Mutual with his former wife, Nancy K. Norris ("Norris"). R & H also discovered that Norris owned the real property where Buckridge resided on the date of bankruptcy.

On April 29, 2005, Whitmore amended his complaint to restate his causes of action against Buckridge and to name Norris as a defendant in the adversary proceeding. According to the amended complaint, Norris opened an account at Washington Mutual Bank in her name only with an initial deposit of $950,000 on July 26, 2004. Buckridge was listed as the beneficiary on the account. The account was closed on November 9, 2004. To the extent that Buckridge transferred any portion of the Inheritance to Norris, Whitmore sought a turnover of the funds under § 542(a) or, alternatively, avoidance of the unauthorized post-petition transfer and recovery of the funds pursuant to § 549 and § 550.

On April 29, 2005, the court issued a temporary restraining order prohibiting Norris from transferring, concealing or disposing of any portion of the Inheritance in her possession, custody or control, and ordering Norris to appear on May 9, 2005, to show cause why a preliminary injunction should not be granted as to her pending a trial on the merits. Neither Buckridge or Norris responded to either Whitmore's amended complaint or the court's orders to show cause.⁷ Instead Buckridge requested conversion of his chapter 7 case to a case under chapter 13 pursuant to § 706(a).⁸ Because the case had not previously been converted, the court granted Buckridge's ex parte application and converted the case to chapter 13 on May 4, 2005.⁹

On May 11, 2005, R & H filed a motion on behalf of Whitmore, as former chapter 7 trustee, seeking, a reconversion of the case to chapter 7. After a hearing held on shortened notice, the court reconverted the case to chapter 7 for "cause" finding that Buckridge was ineligible to be a debtor under chapter 13 on the date of filing and had falsely represented in his conversion application that he was eligible to be a debtor in chapter 13.¹⁰ The court further found that Buckridge's application was filed in bad faith and primarily for the purpose of frustrating the chapter 7 trustee's efforts in the pending adversary proceeding to revoke his discharge and recover the Inheritance alleged to be an undisclosed asset of the chapter 7 estate. An order reconverting the case to chapter 7 was entered on May 16, 2005, and Whitmore was again appointed as chapter 7 trustee.

On May 23, 2005, the court issued a preliminary injunction enjoining Norris from "transferring, encumbering, concealing, or otherwise disposing of any portion of the Inheritance subject to her possession, custody or control.¹¹ Buckridge and Norris were each properly served with a Summons and a copy of Whitmore's amended complaint, but neither filed an answer or other responsive pleading by the deadline of June 17, 2005. On June 21, 2005, R & H filed and served a request for entry of default. On June 29, 2005, the defaults of Buckridge and Norris were entered by the clerk of the court.¹²

For the next four months, Whitmore and R & H continued doggedly to trace the Inheritance and assets purchased with the Inheritance by Buckridge and Norris. Ultimately, Whitmore and R & H were successful in freezing an annuity policy issued to Norris by Jackson National Life Insurance Company and the assets of Buckridge and Norris in five separate accounts at Washington Mutual Bank, including an account in which Buckridge and Norris maintained a balance in excess of $300,000. Buckridge did not begin to cooperate with Whitmore nor disclose facts concerning the Inheritance until after these assets were frozen and the depositions of Buckridge and Norris were scheduled to be taken in the adversary proceeding.

On November 15, 2005, the court approved a Stipulation between Whitmore, Buckridge and Norris under the terms of which Buckridge agreed to a revocation of his discharge and payment of the sum of $300,000 to Whitmore, as chapter 7 trustee, for the payment of all allowed claims and administrative expenses in the case.¹³ In consideration therefor, Whitmore agreed to dissolve the Buckridge Injunction and Norris Injunction and dismiss the adversary proceeding. Buckridge's discharge was revoked upon approval of the Stipulation. Whitmore ultimately received the sum of $300,000 from Buckridge pursuant to the Stipulation, and the adversary proceeding was dismissed on February 1, 2006. Whitmore filed his "final report as trustee on December 13, 2006.

On February 5, 2007, the court considered the final applications for compensation filed by Whitmore...