In re Dietrich
| Decision Date | 01 August 2011 |
| Docket Number | Case No. 08-68294 |
| Parties | In re: Edgar Julian Dietrich, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
On November 18, 2008, Edgar Julian Dietrich filed for relief under chapter 11 of the bankruptcy code. On January 12, 2009 the case was converted to chapter 7.
The movant, Peter K. Tiernan, M.D. is a judgment creditor of Dietrich as a result of a judgment entered on May 4, 2007, by the Wayne County Circuit Court. The property involved in this motion is a cottage located in Ontario, Canada. The property is subject to a lien that Tiernan perfected before Dietrich filed this bankruptcy proceeding. When Dietrich filed for bankruptcy, his appeal of Tiernan's judgment was pending in the Michigan Court of Appeals.
On February 10, 2010, this Court entered an order approving a settlement between Tiernan and the chapter 7 trustee, Kenneth A. Nathan. Pursuant to the compromise, Tiernan transferred his security interest in the Canadian property to the trustee and the trustee transferred to Tiernan the estate's right to continue the appeal of Tiernan's judgment. The order stated:
[U]pon entry of this Order, all of the Estate of Edgar Julian Dietrich's interest as Defendant/Appellant in the state court appeal in the case of Peter K. Tiernan M.D. v. Edgar Dietrich, et al, Michigan Court ofAppeals Docket No. 278975 (hereinafter the 'Appeal') are transferred and assigned to Creditor Peter K. Tiernan, M.D., who steps into the shoes of the Appellant, and who may take appropriate steps to immediately have the Appeal dismissed with prejudice, the Stay imposed by 11 U.S.C. § 362 being hereby lifted for this limited purpose."
On July 24, 2009, Tiernan brought an adversary proceeding against Dietrich pursuant to 11 U.S.C. §§ 523 and 727. On June 3, 2010, the Court entered a default judgment against Dietrich, denying his discharge pursuant to 11 U.S.C. § 727(a) for failing to comply with the Court's discovery orders and for his dishonesty to the Court. The Court also held that any and all Dietrich family or related trusts in which Dietrich is or was a settlor or trustee were alter-egos of Dietrich, the assets of which belong to the bankruptcy estate. The Court further found that on the very day that Dietrich filed his bankruptcy petition, he fraudulently transferred the Canadian property to his son, Eric Justin Dietrich, and that the property was property of the bankruptcy estate, subject to any lien rights held by Tiernan and subject to the settlement that the Court previously approved. The Court further held the transfer from Dietrich to his son, Eric Dietrich, was null and void.
Currently before the Court is Tiernan's motion to hold Dietrich, his ex-wife, Theresita Dietrich, and her attorney, Elizabeta Misovska, in contempt for violation of the automatic stay and for other relief as described in Part III, below.
Eight months after the bankruptcy petition was filed, on July 29, 2009, Theresita Dietrich caused to be recorded in the Ontario Land Registrar a document granting her a life estate in the Canadian property. Eric Justin Dietrich was the transferor.
On December 23, 2009, Theresita Dietrich, through her attorney Misovska, filed a "Motion to Correct an Oversight and Omission in the Judgment of Divorce" in the Wayne County CircuitCourt for a 1998 Judgment of Divorce between Dietrich and Theresita Dietrich. The 1998 Judgment of Divorce states, regarding the Canadian property, "Plaintiff [Theresita Dietrich] shall have the right to use the cottage located in Canada after notifying Defendant of said intention to use the cottage and after receiving his consent which shall not be reasonably withheld." The motion claimed that the language in the judgment regarding Theresita Dietrich's interest in the property was ambiguous and sought to amend it to state, "Theresita Dietrich is hereby granted a life estate in the Canadian property." The motion also stated that the parties had inadvertently failed to place the Canadian property into an irrevocable trust and requested an amendment to include the following provision: "[The Canadian property] shall be placed into an irrevocable trust for the sole and exclusive benefit of the children of the parties, Jason Dietrich and Eric Dietrich; subject to the creation of a life estate in Theresita Dietrich hereunder." The motion further requested that these amendments be entered nunc pro tunc.
Neither the trustee nor Tiernan were given notice of these proceedings.
On February 11, 2010, the Wayne County Circuit Court entered an order granting the motion nunc pro tunc. This occurred the day after the entry of this Court's order approving the settlement between the trustee and Tiernan transferring Tiernan's security interest to the trustee.
On February 22, 2010, Tiernan reopened the appeal in the Michigan Court of Appeals for the purpose of dismissing it pursuant to the Court's Order Approving Compromise of Claim. Anthony P. Patti, Tiernan's attorney, and Catherine L. Coash, Dietrich's prior attorney, signed a stipulation to dismiss the appeal. Dietrich then sought to prevent the dismissal of the appeal by advising the court of appeals in a letter dated February 25, 2010, that he was no longer represented by Coash. On March 15, 2010, he also filed a brief in pro per seeking to prevent the dismissal. On March 31,2010, the court of appeals dismissed the appeal.
On May 12, 2010, Dietrich filed an "Application for Leave to Appeal" to the Michigan Supreme Court. The Michigan Supreme Court denied the application on November 24, 2010.
Dietrich also continued to pursue litigation in Canada. On July 28, 2010, he filed a motion with the Ontario Superior Court requesting the removal of Tiernan's lien from the Canadian property and dismissing the liquidation proceedings. However, on July 30, 2010, the Superior Court lifted the stay of enforcement proceedings against the property that had been in effect pending the resolution of the appeal in Michigan. On November 3, 2010, Dietrich further appealed the matter to the Ontario Court of Appeal.
Tiernan's motion alleges that:
1. Theresita Dietrich and Misovska's motion to modify the divorce judgment violated 11 U.S.C. § 362(a)(1) and (a)(3).
2. Theresita Dietrich's recording of a life estate interest in the Canadian property violated 11 U.S.C. § 362(a)(3) and (a)(4).
3. Dietrich's continued litigation opposing the dismissal of the appeal violated 11 U.S.C. § 362(a)(1).
4. Dietrich's appeal and petition to the Michigan Supreme Court violated 11 U.S.C. § 362(a)(1).
5. Dietrich's continued litigation in the Ontario Superior Court and the Ontario Court of Appeal violated 11 U.S.C. § 362(a)(1).
Tiernan requests an order (a) holding each of the respondents in contempt; (b) declaring nulland void ab initio the Wayne County Circuit Court order of February 11, 2010, allowing the amendments to the Dietrichs' divorce judgment; (c) awarding him attorney fees and costs of $14,947.5 for American counsel and $19,865.39 for Canadian counsel, incurred to address and correct the consequences of the various stay violations; (d) awarding the bankruptcy estate reimbursement of its expenses resulting form the several stay violations; and, (e) imposing a punitive sanction.
Dietrich, Theresita Dietrich, and Misovska challenge Tiernan's standing to assert a violation of the automatic stay, arguing that standing under § 362 is available only to a debtor. The Court will address this issue as a threshold matter.
In In re Walker, 356 B.R. 834 (Bankr. S.D. Fla. 2006), the court set forth the fundamental principal of standing:
The matter of standing to bring a cause of action is a jurisdictional issue, derived from the requirement, under Article III, § 2 of the United States Constitution, and is therefore a threshold issue in all cases seeking to be heard in federal court. To meet constitutional requirements, a party must have a "personal stake in the outcome of the controversy." Accordingly, a party must base his claim on "his own legal rights and interests, and cannot rest his claim for relief on the legal rights or interests of third parties."
Id. at 855 (citations omitted).
The court explained that, consistent with the dual purposes of the automatic stay, standing under § 362 extends to parties other than a debtor. Id. at 854 (citations omitted). The court further reasoned, "If there had been any damage as a consequence of a stay violation against estate property, it would necessarily have been damage to the estate reflected in additional attorneys' fees incurred by the estate" and "[a]s the individual charged with protection of the estate for the benefit of creditors, the Chapter 7 trustee is the party with standing to seek damages for violation of the automatic stay against property of the estate." Id. Thus the court reasoned that the stay violation aggrieved the estate and not the debtor. Accordingly, the court concluded, "the debtor is without standing to seek sanctions for violation of the stay."
In In re Mathson Indus., 423 B.R. 643 (E.D. Mich. 2010), the court further explained the creditor-protecting purpose of the automatic stay:
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of their claims in preference and to the detriment of other creditors. Bankruptcy is designed to provide an orderly...
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