In re Crilly
| Decision Date | 30 June 2020 |
| Docket Number | Case No. 20-11637-SAH |
| Parties | In re: SAMUEL LEE CRILLY and KIMBERLY DEANE CRILLY, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
The following is ORDERED:
On June 10, 2020, this Court heard the Motion for Continuation of Automatic Stay with Brief Combined with Notice of Opportunity for Hearing [Doc. 11], filed on May 14, 2020 (the "Motion"), by debtors Samuel Lee Crilly and Kimberly Deane Crilly ("Debtors"), in their second chapter 11 case to pend this calendar year (the "Second Case"). Their previous chapter 11 case, Case No. 18-13849 (the "First Case"), was dismissed by agreement of the parties on May 13, 2020, for cause pursuant to 11 U.S.C. § 1112(b). A few hours after the dismissal, Debtors filed the Second Case under the recent amendments to the Bankruptcy Code made by the Small Business Reorganization Act of 2019, which became effective on February 19, 2020 (the "SBRA"). SBRA was designed "to broaden the opportunity for small businesses to successfully utilize the benefits of chapter 11" and created subchapter V to chapter 11 for "small business debtors." In re Ventura, 615 B.R. 1, 6 (Bankr. E.D. N.Y. 2020).
Because Debtors had a prior bankruptcy case pending during the year preceding the filing of this bankruptcy case that was dismissed, the automatic stay of 11 U.S.C. § 362(a) terminates thirty days after the filing of the Second Case. The automatic stay can be extended by the Court on the motion of a party in interest provided such party establishes the filing of the second case was in good faith as to the creditors to be stayed. 11 U.S.C. § 362(c)(3). Accordingly, Debtors filed the Motion seeking a continuation of the automatic stay, arguing the Second Case was filed in good faith. Both the United States Trustee ("UST") and creditors Rita Jacks and Joe Jacks (the "Jacks") objected to the Motion, claiming the Second Case was filed in bad faith.1
Having presided over the First Case and an associated adversary proceeding, the Court is more than familiar with the background facts and takes judicial notice2 of the First Case and matters filed and determined therein.
1. Rita Jacks is the mother of debtor Samuel Crilly.
2. The Jacks financed the build-out and completion of the second floor of Debtors' residence (the "Second Floor") for the purpose of providing the Jacks with a home as they aged. The Jacks lived in the Second Floor only briefly until Debtors removed them.
3. Thereafter, the Jacks filed a state court action against Debtors, Case No. CJ-2017-1075, Cleveland County District Court, State of Oklahoma (the "State Court Action").3
4. Following the Jacks' departure, debtor Kimberly Crilly's father moved in and lived in the Second Floor. After his death, Debtors did not have renters for the Second Floor until late 2018. After the commencement of the First Case in October 2018, they began to regularly have renters for the Second Floor.
5. The Jacks obtained a judgment against Debtors in the State Court Action for $400,000.00 ($200,000.00 in actual damages and $200,000.00 in punitive damages) plus post-judgment interest, and were later awarded $61,650.00 in attorneys' fees and costs of $3,591.03 in the State Court Action (collectively, the "Judgment"). State Court Action Docket generally; UST Exhibit 16. Debtors subsequently appealed the Judgment.
6. On September 12, 2018, Debtors filed the First Case. Docket in Case No. 18-13849.
7. Debtors did not identify any leases, renters, or rental income for the Second Floor in their Schedules in the First Case.
8. Debtors did not identify themselves as a sole proprietor of any full or part-time business in the First Case nor did they claim to be a small business debtor in the First Case. UST Ex. 7, p. 4, questions 12 and 13.9. Debtors also did not identify any income from operating a business for calendar years 2016 and 2017 and for January 1 through September 12, 2018. UST Ex. 7, pp. 35-36, question 4.
10. Further, Debtors did not identify any business or connection to any business involving the rental of the Second Floor of their residence in the First Case. UST Exhibit 7, p. 41, question 27.
11. Debtors filed a motion for relief from the automatic stay to continue their appeal of the Judgment (the "Debtors Stay Motion"). First Case Doc. 14.
12. The Jacks also filed a motion for relief from the automatic stay to proceed with their motion for allowance of attorneys' fees and costs in the State Court Action (the "Jacks Stay Motion"). First Case Doc. 25.
13. On October 12, 2018, Debtors filed their plan and disclosure statement in the First Case. First Case Doc. 44 & 45. A first amended plan was filed on October 15, 2018, to correct the absence of Debtors' signatures. First Case Doc. 51.
14. The Court entered orders granting the Debtors Stay Motion and the Jacks Stay Motion on October 22, 2018. First Case Doc. 58 & 59.
15. On November 16, 2018, Debtors filed a second amended plan and first amended disclosure statement. First Case Doc. 72 & 73.
16. On December 13, 2018, an order was entered in the State Court Action requiring Debtors to post a $530,482.00 appeal bond within twenty days after conclusion of the First Case. UST Exhibit 16.
17. The Court held multiple hearings on January 3, 2019, including a hearing on the Jacks' objection to Debtors' claimed exemption in two retirement accounts, which were inherited by joint debtor Kimberly Crilly from her deceased father (the "Inherited IRAs"). The Jacks' objection was sustained, and the exemption in the Inherited IRAs was denied. First Case Doc. 103.
18. The Court also held a hearing on approval of Debtors' first amended disclosure statement on January 3, 2019. However, because the Court's denial of Debtors' claimed exemption with respect to the Inherited IRAs significantly changed the liquidation analysis in the disclosure statement, the first amended disclosure statement and second amended plan required further amendments. Consequently, approval of the disclosure statement was denied. First Case Doc. 103.
19. Debtors filed their third amended plan and second amended disclosure statement on February 25, 2019. First Case Doc. 116 & 117.
20. On February 27, 2019, the Court conducted a status conference and discovered that the second amended disclosure statement lacked important information, the third amended plan lacked feasibility, and the plan was not confirmable on its face based on violations of the absolute priority rule. Debtors were, therefore, directed to file a third amended disclosure statement and a fourth amended plan no later than March 14, 2019. First Case Doc. 118.
21. At Debtors' request, the Court extended the time for the fourth amended plan and third amended disclosure statement to be filed to April 4, 2019. First Case Doc. 120.
22. On April 4, 2019, Debtors filed their third amended disclosure statement and fourth amended plan. First Case Doc. 123 & 124.
23. A hearing was held on May 22, 2019, to consider approval of the third amended disclosure statement. The Court denied approval based on inadequate information regarding feasibility and failure to comply with the absolute priority rule. The Court cautioned Debtors to carefully consider and provide for satisfaction of the absolute priority rule in any future plan and disclosure statement. First Case Doc. 131.
24. Additionally, at the May 22, 2019, hearing, it was brought to the Court's attention that, in the Monthly Operating Report for March 2019 [First Case Doc. 129], filed on May 10, 2019, Debtors identified $37,059.00 received from the Inherited IRAs in their personal cash receipts for March 2019, possibly to pay attorney fees (based on a designation therein). As a consequence, Debtors were directed to immediately remit the $37,059.00 withdrawn from the Inherited IRAs to their counsel to be held in his trust account pending further order of the Court. Debtors were further instructed to take no further voluntary withdrawals from their Inherited IRAs without prior Court approval. Additionally, Debtors were directed to immediately remit all prior and future required minimum distributions received from the Inherited IRAs on account of applicable federal law to their counsel to be held in his trust account pending further order of the Court. First Case Doc. 131.
25. The Court subsequently entered an order setting a July 17, 2019, deadline for Debtors to file their fifth amended plan and fourth disclosure statement complying with the absolutepriority rule and containing adequate financial projections for a feasibility analysis. First Case Doc. 135.
26. Debtors filed their fourth amended disclosure statement and fifth amended plan on July 17, 2019. First Case Doc. 138, 139 & 141.
27. On September 4, 2019, the fourth amended disclosure statement was approved. First Case Doc. 152 & 153.
28. The confirmation hearing on the fifth amended plan was held on October 17, 2019, and confirmation was denied based on lack of feasibility and failure to satisfy the absolute priority rule. First Case Doc. 163 & 165.
29. A status conference was held on December 4, 2019, and the Court set a deadline of December 9, 2019, for Debtors to file a plan demonstrating feasibility and compliance with the absolute priority rule. First Case Doc. 172.
30. Debtors filed their sixth amended plan and fifth amended disclosure statement on December 9, 2019, First Case Doc. 173 & 174.
31. On January 10, 2020, the Court entered an order approving the fifth amended disclosure statement and setting the hearing on confirmation of the sixth amended plan. First Case Doc. 182.
32. On February 19, 2020, the confirmation hearing on the sixth amended plan was held. The Jacks' objection to confirmation was sustained, and confirmation was denied because of the lack of feasibility and good faith based on distributions taken from the Inherited...
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