In re Coleman

• Decision Date: 20 October 2005
• Docket Number: No. 03-2328.,No. 03-2347.,03-2328.,03-2347.
• Citation: 426 F.3d 719
• Parties: In re Molly Jane COLEMAN, Debtor. Roger Coleman, Plaintiff, and Molly Jane Coleman, Debtor-Appellant, v. Community Trust Bank, d/b/a Pikeville National Bank & Trust, Defendant-Appellee, and Internal Revenue Service, Claimant, and United States Trustee, Trustee. In re Molly Jane Coleman, Debtor. Roger Coleman, Plaintiff, and Molly Jane Coleman, Debtor-Appellee, v. Community Trust Bank, d/b/a Pikeville National Bank & Trust, Defendant-Appellant, and Internal Revenue Service, Claimant, and United States Trustee, Trustee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 719

426 F.3d 719

In re Molly Jane COLEMAN, Debtor.

Roger Coleman, Plaintiff, and Molly Jane Coleman, Debtor-Appellant, v. Community Trust Bank, d/b/a Pikeville National Bank & Trust, Defendant-Appellee, and Internal Revenue Service, Claimant, and United States Trustee, Trustee.

In re Molly Jane Coleman, Debtor.

Roger Coleman, Plaintiff, and Molly Jane Coleman, Debtor-Appellee, v. Community Trust Bank, d/b/a Pikeville National Bank & Trust, Defendant-Appellant, and Internal Revenue Service, Claimant, and United States Trustee, Trustee.

No. 03-2328.

No. 03-2347.

United States Court of Appeals, Fourth Circuit.

Argued September 22, 2005.

Decided October 20, 2005.

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John Michel Lamie, Browning, Lamie & Gifford, P.C., Abingdon, Virginia, for Appellant/Cross-Appellee. Mark Louis Esposito, Penn, Stuart & Eskridge, Bristol, Tennessee, for Appellee/Cross-Appellant.

Before WILKINS, Chief Judge, LUTTIG, Circuit Judge, and JAMES C. DEVER, III, United States District Judge for the Eastern District of North Carolina, sitting by designation.

Affirmed in part, reversed in part, and remanded by published opinion. Chief Judge WILKINS wrote the opinion, in which Judge LUTTIG and Judge DEVER joined.

OPINION

WILLIAM W. WILKINS, Chief Judge.

Molly Jane Coleman (Debtor) appeals and Community Trust Bank d/b/a Pikeville National Bank & Trust cross-appeals from a district court order affirming several bankruptcy orders arising from Debtor's Chapter 11 bankruptcy. We affirm in part, reverse in part, and remand for further proceedings.

I.

In 1995, Debtor's husband Roger Coleman and Darrell Cook were partners in several companies involved in coal mining (the Companies), each of which had petitioned for Chapter 11 bankruptcy. Mr. Coleman and Cook had obtained financing for the Companies from Pikeville National Bank, now known as Community Trust Bank (the Bank). Shortly after the Companies had filed their Chapter 11 petitions, Mr. Coleman, Cook, and counsel for the Companies met with representatives for the Bank. At that meeting, they discussed several matters, including the possibility of moving some mining equipment that secured certain of the Companies' debts and adjusting their payment schedule.

During the same time period, the Colemans were struggling with their inability to pay their 1993 income taxes. This problem arose because of substantial income generated by one of the Companies in 1993. Because the business was organized as a Subchapter S corporation, the profits were taxed to the owners personally. See Bufferd v. Comm'r, 506 U.S. 523, 525, 113 S.Ct. 927, 122 L.Ed.2d 306 (1993). However, the Colemans did not have the funds to pay their 1993 taxes because the profits had been used largely to fund another of the Companies. As a result of their tax problems, the Colemans became concerned that they would lose their home.

Eventually the Colemans decided to offer their Virginia home and a Tennessee property (the Properties), both of which they owned as tenants by the entirety, as further collateral for the debts owed to the Bank. Thus, on January 18, 1995, the Colemans executed deeds of trust granting the Bank a security interest in the Properties. The IRS filed a tax lien on the Colemans' Virginia home shortly thereafter.

The Bank subsequently initiated foreclosure proceedings against the home. However, on March 22, 2001, the day before the planned foreclosure sale, Debtor filed a Chapter 11 bankruptcy petition. The petition asserted that the aggregate value of the Properties was $745,000 and that the Bank's secured claims against the Properties amounted to $900,000. The petition also listed unsecured claims by the IRS for $260,000; Galen Med, Inc., t/a Clinch Valley Medical Center for $32,000; and Bank of America for $7,877.10. The IRS filed a proof of claim in the amount of $571,569.63. And, Galen Med, Inc. filed proof of five claims totaling $22,559.34. Bank of America did not file a proof of claim. Debtor's petition listed the claims of the Bank and the IRS as disputed. The IRS claim was listed as disputed because Debtor had claimed she was innocent of joint and several liability under 26 U.S.C.A. § 6015(f) (West 2002).¹ When the petition was filed, Debtor's application for relief under § 6015(f) had been denied, but she had appealed that denial.

Shortly after filing for Chapter 11 relief, Debtor initiated an adversary proceeding against the Bank, the trustees named under deeds of trust, and the IRS. Debtor claimed that the deeds of trust that she and her husband had given to the Bank were void as fraudulent conveyances under Virginia and Tennessee law because they represented the Colemans' improper attempt to hinder, delay, and defraud Debtor's creditors, including the IRS.² Thus, she sought to invoke her "strong arm" powers as a debtor in possession under 11 U.S.C.A. § 544 (West 2004) to set the deeds of trust aside. Under her proposed bankruptcy plan, if she were successful in avoiding the deeds of trust, she would sell the Properties as needed to pay her creditors and the administrative expenses of the estate.

On January 24, 2002, the Bank moved to dismiss Debtor's Chapter 11 petition on the ground that it was not filed in good faith. In this regard, the Bank maintained that the Chapter 11 filing was "nothing more than an attempt by the debtor to impermissibly and wrongfully clothe herself with the `strong arm' powers of a debtor in possession or bankruptcy trustee and thereby gain a strategical and tactical advantage over the Bank and the IRS with respect to the claims of said creditors." J.A. 105.

The bankruptcy court subsequently confirmed Debtor's bankruptcy plan, subject to the outcome of the adversary proceeding. See In re Coleman, 275 B.R. 763, 771-72 (Bankr.W.D.Va.2002). The court also denied the Bank's motion to dismiss, finding that Debtor's adversary proceeding was not frivolous, that Debtor's creditors would benefit from a successful prosecution of the adversary proceeding to set aside the deeds of trust, and that the relief Debtor sought under Chapter 11 was quite similar to that which she could have sought under Chapter 7. See id. at 770-71. The Bank moved for reconsideration of both rulings.

Following a trial on the adversary proceeding — as the Bank's reconsideration motion remained pending — the bankruptcy court determined that the deeds of trust were voidable fraudulent conveyances because they were motivated in part by the Colemans' desire to hinder the IRS from collecting the Colemans' back taxes and because the Bank's officer in charge of the loans was aware of that motive. See Coleman v. Cmty. Trust Bank (In re Coleman), 285 B.R. 892, 905-09 (Bankr.W.D.Va.2002). The court nevertheless ruled that the deeds of trust would be avoided only to the extent necessary to pay the claims and administrative expenses of the estate. See id. at 909-12. The deeds of trust thus would remain in effect to allow the Bank to recover any surplus. See id. at 912. The court explained that "this result most effectively upholds the policies and specific statutory provisions of the Bankruptcy Code and the laws of Virginia and Tennessee to avoid voluntary fraudulent transfers where the rights of third parties are concerned, but to uphold and enforce them as between the parties themselves." Id.

On the same day that the bankruptcy court resolved the adversary proceeding, it also denied the Bank's motion for reconsideration of the denial of the motion to dismiss. See In re Coleman, 286 B.R. 308, 309 (Bankr.W.D.Va.2002). However, the court granted the reconsideration motion with regard to its earlier confirmation of Debtor's plan (for reasons that we will discuss below) and ordered Debtor to file an amended bankruptcy plan. See id. at 309-10.

The district court affirmed the rulings of the bankruptcy court on appeal. See Coleman v. Cmty. Trust Bank (In re Coleman), 299 B.R. 780 (W.D.Va.2003).

II.

Debtor first argues that the bankruptcy court erred in ruling that her avoidance of the deeds of trust was effective only to the extent necessary to pay the creditors and administrative expenses of her estate. We agree.

We review de novo the decision of the district court, "effectively standing in its shoes to consider directly the findings of fact and conclusions of law by the bankruptcy court." Cypher Chiropractic Ctr. v. Runski (In re Runski), 102 F.3d 744, 745 (4th Cir.1996). Accordingly, "we review legal conclusions by the bankruptcy court de novo and may overturn its factual determinations only upon a showing of clear error." Id.

A ruling concerning the proper interpretation of a statute is a legal determination, which we review de novo. See Commodity Futures Trading Comm'n v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 191 (4th Cir.2002). Statutory interpretation necessarily begins with an analysis of the language of the statute. See Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985). In analyzing statutory language, we must first "determine whether the language at issue has a plain and unambiguous meaning." Robinson v. Shell Oil Co., 519 U.S. 337, 340, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997). Our determination of whether a statute is ambiguous is guided "by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole." Id. at 341, 117 S.Ct. 843. If the language is plain and "the statutory scheme is coherent and consistent," we need not inquire further. United States v. Ron Pair Enters., 489 U.S. 235, 240-41, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). In that situation, "the sole function of the courts is to enforce [the statute] according to its terms." Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917).

With certain exceptions not applicable in this case, a debtor-in-possession possesses all of the rights of a...