In re Derryberry, Bankruptcy No. 81-02210
| Decision Date | 24 April 1987 |
| Docket Number | 81-01855.,Bankruptcy No. 81-02210 |
| Citation | 72 BR 874 |
| Parties | In re Quentin M. DERRYBERRY, II. In re PIGS ARE BEAUTIFUL, INC., Debtor. In re James Ross HARTLEY and Sharon Lee Hartley, etc., Debtors. (And order in 50 other cases removing Quentin M. Derryberry, II as trustee and appointing successor trustees in Chapter 7 cases). (And order appointing successor trustee in 85 Chapter 13 cases). |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Kenneth Sullivan, Chicago, Ill., for Derryberry.
Howard B. Hershman, Toledo, Ohio, for BancOhio.
This matter came on for hearing on April 3, 1987 upon the motion of creditor BancOhio National Bank for an order directing that Quentin M. Derryberry, II, (Derryberry) trustee of the estate of Pigs are Beautiful, Inc. (PAB) comply with the order of the court dated January 8, 1987, to pay the 7.8350% dividend declared to unsecured creditors. This matter also came on to be heard upon the court's own motion for Derryberry to show cause why he should not be removed from office as trustee, why the order allowing his compensation in the amount of $7,710.15 vacated and he be ordered to return said fees and the remaining undistributed funds of the estate of PAB to a successor trustee and why his name should not be removed from the roll of attorneys admitted to practice before this court on the following grounds:
Upon consideration of the evidence adduced at the hearing, the court finds that Derryberry should be removed from office as trustee, his compensation for fees in the amount of $7,710.15 returned to the estate, a successor trustee appointed and that his name be removed from the roll of attorneys admitted to practice before this court.
Debtor Pigs are Beautiful, Inc.'s initial voluntary petition in bankruptcy was filed under Chapter 11 of Title 11 on October 22, 1981. As a result of Debtor's conversion from a chapter 11 case to a chapter 7 case, Derryberry was appointed trustee of Debtor's estate on December 10, 1982. On December 29, 1982, Derryberry made application for authority to conduct the business of Pigs are Beautiful, Inc. until it could be sold, which application was granted by the court on January 7, 1983. See Court's Exhibits 1 and 2, In Re Pigs are Beautiful, Inc. (Case No. 81-02210) (hereinafter Court's Exhibit). Derryberry employed three individuals to run this business until it was sold on or about October 3, 1983. Derryberry filed his report of sale on December 2, 1983. See Court's Exhibit 6. Derryberry filed a first closing report on January 18, 1985. See Court's Exhibit 22.
On August 8, 1986, creditor BancOhio National Bank filed a motion for order discharging trustee and appointing replacement trustee for the reason that "the trustee's response to the court's order to show cause why the case should not be closed does not disclose any significant reason for the delay in distribution." See Court's Exhibit 7. This motion was later dismissed by BancOhio as a result of Derryberry's representation that "all matters necessary to be done by the trustee for the closing of the above captioned case had been done" and that, therefore, BancOhio's motion was moot. See Court's Exhibit 10. On August 19, 1986, Derryberry filed a second closing report showing additional receipts and disbursements. See Court's Exhibit 23. He also filed a certification of claims review on that date, indicating that all issues had been resolved and the case could proceed to distribution. See Court's Exhibit 8. On December 4, 1986, he filed a third "amended" closing report which again reflected additional receipts and disbursements. See Court's Exhibit 9. This final "amended" closing report indicated receipts in the amount of $719,771.54 and disbursements in the amount of $630,925.22 and a balance on hand in the amount of $88,846.32 for distribution. On that same date, Derryberry filed a memorandum indicating that because deductible expenses exceeded income, no tax would be due by the estate. See Court's Exhibit 9. A hearing on the final account was held on January 6, 1987, and finding of allowances and order upon trustee to distribute funds was entered by the court on January 8, 1987. See Court's Exhibits 11 and 14. To date, only Derryberry and his attorney have received monies. Derryberry failed to comply with the order to distribute the remaining funds to creditors.
The initial issue before the court concerns Derryberry's failure to distribute the funds in accordance with this court's January 8, 1987 order. Derryberry testified that the reason he did not distribute the funds pursuant to the court's order was that there exists tax problems. See Defendant's Exhibit M, In Re Pigs are Beautiful, Inc. (Case No. 81-02210) (hereinafter Defendant's Exhibit). One tax issue concerns the amount of interest and penalties to which the Internal Revenue Service may be entitled on their proofs of claim filed with the court. The other issue concerns the withholding of FICA and federal income tax on wages paid to the three individuals employed while Derryberry operated the business.
The first issue concerns interest and penalties due IRS. 11 U.S.C. § 502 indicates that a properly filed proof of claim is deemed allowed unless an objection is made thereto. Derryberry filed his certification of claims review on August 19, 1986, indicating that he had examined all proofs of claim and that said claims should be allowed as filed. See Court's Exhibit 8. These properly filed claims are, then, paid the face amount of the claims. The January 8, 1987 order upon trustee to distribute funds proposed payment of the IRS claims in full. See Court's Exhibit 14. Derryberry testified that he believed the U.S. Bankruptcy Court Clerk's office was responsible for contacting IRS Special Procedure Section and obtaining an amount representing interest and penalties on their claims to date. Such a belief is not founded as such an obligation is not imposed on the clerk's office. This belief is also unfounded in view of Derryberry's testimony which indicated that his experience included service as a bankruptcy trustee for 17 years and administrating hundreds of bankruptcy cases and distributing funds in accordance with hundreds of orders. He also testified that he had never questioned an order to pay dividends or requested an amended order of distribution. Undoubtedly, IRS claims requesting interest and penalties have been filed in cases assigned to Derryberry in the past.
Additionally, Derryberry testified that he did not make distribution in accordance with the January 8, 1987 order as upon his review of that order it was obvious that no interest and penalties had been calculated on IRS' claims. The problem with this testimony is that the order was mailed from the clerk's office after its entry on January 8, 1987. See Court's Exhibit 14. At the earliest, Derryberry would have received his copy at his business office in Wapakoneta, Ohio, January 9 or January 10, 1987. He testified that he could not recall the date he received the order. Derryberry further testified that he came to Toledo on January 12, 1987 for the start of his criminal trial. See infra, at 883. He stated that he contacted the clerk's office early on in his trial, presumably before January 15th, the date he was required to file his final account evidencing that distribution was made in compliance with the order. While Derryberry would have the court believe he contacted the clerk's office upon receipt of the January 8, 1987 order, it seems unlikely that he would have received and reviewed that order prior to January 12, 1987.
The estate administrator testified that the tax issues first came to his attention in the middle of February. At that time, one of the deputy clerk brought him the bank statement and cancelled checks for the estate of PAB which reflected that distribution had only been made to Derryberry and his attorney. See Court's Exhibits 12 and 13. The estate administrator subsequently contacted Derryberry regarding his failure to make distribution to creditors in accordance with the January 8, 1987 order. Derryberry indicated in that conversation that there was an IRS tax issue and that he had, therefore, concluded that it would be inappropriate to make distribution at this time. The estate administrator testified that Derryberry did not contact him orally or in writing prior to his...
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