In re Duncan

• Decision Date: 14 May 2009
• Docket Number: No. 07-61053-7.,07-61053-7.
• Citation: 406 B.R. 904
• Parties: In re Gregory B. DUNCAN, and Laurie L. Duncan, Debtors.
• Court: U.S. Bankruptcy Court — District of Montana

406 B.R. 904

In re Gregory B. DUNCAN, and Laurie L. Duncan, Debtors.

No. 07-61053-7.

United States Bankruptcy Court, D. Montana.

May 14, 2009.

MEMORANDUM OF DECISION

RALPH B. KIRSCHER, Bankruptcy Judge.

The following contested matters are pending in this Chapter 7 case: (1) the Trustee's second motion (Docket No. 340) for authority to sell personal property, vehicles, and boats free and clear of liens, filed February 6, 2009, and Debtors' objection thereto; and (2) the Debtors' motion to determine their homestead exemption and to compel the Trustee to release homestead proceeds (Docket No. 337) and objections thereto filed by the Trustee, by the Montana Department of Revenue ("DOR"), and by the United States of America, Internal Revenue Service ("IRS"). Hearing on these matters was held at Missoula on March 12, 2009. The Trustee Darcy M. Crum appeared. Debtors were represented by attorney Harold V. Dye ("Dye"), and Debtor Gregory B. Duncan testified. The IRS was represented by assistant U.S. Attorney Victoria Francis. The DOR was represented by attorneys Keith Jones and Lynn Hamilton Butler ("Butler"). Debtors' Ex. 2, a seller's statement from an $8,000,000 sale of estate real property to Birch Point Properties, LLC, was admitted into evidence. The Court was asked to take judicial notice of Debtors' Schedule C and the fact that no objection was filed to allowance of the Debtors' homestead exemption. After the parties concluded their cases-in-chief the Court took both matters under advisement. For the reasons set forth below the Trustee's second motion to sell property free and clear of liens will be granted and Debtors' objection overruled, and Debtors' motion to determine homestead exemption and compel the Trustee to release homestead proceeds will be denied by separate Order.

This Court has jurisdiction in this bankruptcy case under 28 U.S.C. § 1334(a). The Trustee's second motion to sell property free and clear of liens and Debtors' motions to determine homestead exemption and to compel the Trustee to release homestead proceeds are core proceedings under 28 U.S.C. § 157(b)(2). The Court has reviewed the motions, the record and applicable law, and these matters are ready for decision.

FACTS & PROCEDURAL HISTORY

The Debtors Gregory B. Duncan and Laurie L. Duncan filed a Chapter 11 petition on September 11, 2007. Their Schedules were filed on October 9, 2007. Schedule A lists their residence at 706 Birch Point Drive in Whitefish, Montana, and other real property with a total value of $8,840,090¹. Schedule C lists their homestead exemption claimed under Montana statute in the amount of $250,000. No objection was filed to the allowance of Debtors' homestead exemption. Pursuant to a stipulation with creditors and the U.S. Trustee, the case was converted to Chapter 7 by Order entered on August 18, 2008 (Docket No. 161).²

The IRS filed Proof of Claim No. 7 on October 22, 2007, and has filed a total of six amendments. Claim 7 first asserted a total claim in the amount of $2,059,392.63, including unsecured and priority claims and a secured portion in the amount of $1,721,821.50, which was secured by federal tax liens against the Debtor's real estate and vehicles. The second amendment to Claim 7 filed on January 2, 2008, reduced the secured portion to $1,697,275.38 and stated the total as $2,168,280.34. The third amendment filed on April 24, 2008, stated the secured portion as $1,672,650.16. The fourth amendment filed on August 18, 2008, stated the secured portion as $1,672,650.16. The fifth amendment filed on August 28, 2008, states the secured portion as $1,778,132.29. The last amendment to Claim 7 was filed on November 10, 2008, and includes only priority and unsecured claims in the total amount of $605,795.28, but the attachment states that the IRS "retains its lien." No objection has been filed to the IRS's Proof of Claim, and it constitutes prima facie evidence of its validity and amount under F.R.B.P. 3001(f).

The DOR has filed several claims. DOR filed Claim Nos. 13 and 14 on November 27, 2007, and filed amendments to Claims 13 and 14 on August 25, 2008. Claim 13 now asserts a secured claim in the amount of $229,634.94 secured by real estate and warrants for distraint. Claim 14 now asserts a secured claim in the amount of $187,174.62. No objections have been filed to Claims 13 or 14. The DOR filed Proofs of Claim Nos. 31, 32, and 33, and amended those claims on May 6, 2009, asserting unsecured and priority claims, to which no objections have been filed.

Darcy M. Crum ("Crum") was added as Trustee on September 2, 2008. She filed a motion to sell real property free and clear of liens on September 23, 2008 (Docket No. 220), listing seven (7) tracts of real property which she wished to sell to Public Realty Capital, Inc., for the sum of $8,000,000. The 6 tracts were allocated values totaling $8 million, and Debtors' residence at 706 Birch Point Drive, "Tract 3", was allocated $2,700,000 of the purchase price. Objections were filed but were withdrawn by the time a hearing was held on October 9, 2008. An Order (Docket No. 247) was entered on October 20, 2008, granting the Trustee's motion for sale free and clear of liens, with all valid liens attaching to the proceeds of the sale of properties and providing: "Nothing contained herein shall affect the validity, priority of classification of any such lien, claim, interest or encumbrance" and listing the valid liens. Federal tax liens in the amount of $1,778,132.29 and state tax liens (warrants for distraint) in the amounts of $187,174.62 against Laurie Duncan and $229,634.94 against Gregory Duncan are listed on page 3 of the Order. No motion to amend or for reconsideration of the Order Docket No. 247 was filed, and no timely notice of appeal of that Order was filed.

On November 3, 2008, the Trustee filed a notice of intent to sell 12 vehicles including two boats³ to the same buyer as the real estate for the total sum of $115,000 (Docket No. 254). The Debtors filed an objection, and after Debtors moved for a continuance a hearing on that sale was held on January 15, 2009. After that hearing the Court sustained the Debtors' objection and denied approval of the Trustee's proposed sale by Order entered on January 16, 2009 (Docket No. 328). The Court denied approval of the Trustee's first proposed sale of the boats because she exposed the boats only to the market for sale in and around Great Falls, Montana, and the Court determined that the boats should be exposed to the Flathead market.

The Trustee's second motion to sell (Docket No. 347) seeks to correct that deficiency by proposing to sell the property through Gardner's Auction Service to the highest bidder. Both boats have been held in storage, and incurring storage costs, at Captain's Marine in Kalispell, Montana, since the time of the January 15, 2009, hearing.

DISCUSSION

I. Trustee's Second Motion for Sale.

The Trustee's second motion to sell seeks authority to sell, free and clear of liens, household furnishings and contents, guns, furs, furniture, artwork, vehicles, the 2 boats and other miscellaneous items out of Debtors' residence, at an auction through Gardner's Auction Service to the highest bidder.

The Debtors' objection to the Trustee's second motion to sell (Docket No. 350) states that they assumed that their claim of homestead would attach to the proceeds of the Trustee's sale of the real property, which they assert totaled $225,317.35 after the Trustee paid all secured claims. Debtors argue at pages 3-4 that the Court should not authorize the sale of the boats and other personal property "until such time as it resolves the issue of the extent to which funds in the Trustee's possession represent exempt homestead funds which Debtors could use to purchase their personal property at auction." Debtors have not initiated an adversary proceeding under F.R.B.P. 7001(2) to determine the validity, priority or extent of a lien or other interest in property.

Debtors stressed that they are not interested in reacquiring the boats and "have no objection in principal" to the Trustee selling them, but they are interested in the Trustee getting the maximum value from the boats and argue that a sale at a consignment sale through a boat dealer would bring more than at a general auction sale. Debtors offered no testimony or other evidence at the hearing that a consignment sale was possible, or that it would bring more than an auction sale, and Debtors did not offer to pay the storage and upkeep on the boats which continues to accrue or explain how that would be paid.

The Trustee is authorized to sell property free and clear of liens and interests under 11 U.S.C. § 363(f) and § 363(b) under several conditions⁴, including if an entity consents. In re Miller, 20 Mont. B.R. 297, 315 (Bankr.D.Mont.2003). The Debtors have claimed no exemption in their boats or other personal property which is the subject of the Trustee's second motion to sell, other than their homestead exemption. The IRS and DOR which continue to assert tax liens do not object to the sale of the boats and other personal property.

The Trustee has the duty under 11 U.S.C. § 704(a)(1) to collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interests. The Trustee's second motion to sell corrects the lack of local market exposure which was the ground for the Court's denial of the Trustee's first attempt to sell the boats. The Debtors argue that a sale of the boats at auction will result in a lower sales price, but they offered no evidence in support and that contention is merely attorney argument, and attorney argument is not admissible in evidence and therefore not relevant. Hurley v. Student Loan Acquisition Auth. of Ariz., et al. (In re Hurley), 258 B.R. 15, 23 (Bankr.Mont.2001) (An attorney's argument is not evidence...