In re Engman
| Decision Date | 08 October 2008 |
| Docket Number | No. HG 01-13070.,HG 01-13070. |
| Citation | 395 B.R. 610 |
| Parties | In re John August ENGMAN, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
John August Engman, pro se.
Larry A. Ver Merris, Damon, Ver Merris, Boyko & Witte, PLC, John T. Gregg, Barnes & Thornburg LLP, Michael V. Maggio, Trial Attorney, Office of the U.S. Trustee, Grand Rapids, MI, for Trustee.
OPINION SUPPLEMENTING COURT'S AUGUST 21, 2008 SCHEDULING ORDER
On August 21, 2008, the court entered a scheduling order concerning the October 9 2007 motion James W. Boyd ("Trustee") has filed. That motion seeks: (1) the approval of settlements reached by Trustee with various lienholders and the co-owners of property in which the bankruptcy estate also holds an interest; and (2) the authority to then make distributions on account of those liens and co-interests. An evidentiary hearing is currently scheduled for this month.
The August 21, 2008 scheduling order sets out the standard the court will use in assessing the relief requested by Trustee in his motion. The purpose of this opinion is to provide further explanation as to the court's reasons for adopting that standard.
John Engman is an attorney. He, along with his former wife, Linda Leverich, co-developed a residential condominium project known as Sun-Da-Go. The project had 18 unsold building lots when Mr. Engman filed for Chapter 7 relief. It also included common areas and room for the development of seven additional lots.
The project has sparked controversy since its inception. Mr. Engman and Ms. Leverich spent years contesting ownership and control of the development during their divorce. Mr. Engman also had numerous disagreements with the Sun-Da-Go condominium owners' association concerning both the governance of the association and Mr. Engman's responsibilities as the project's developer.
These disputes have resulted in several claims being asserted against either Mr. Engman individually or against Ms. Leverich and him together. First, Robert Schellenberg has a claim against Mr. Engman for fees and expenses due him as the receiver for the Sun-Da-Go project. A state court had ordered Mr. Schellenberg's appointment in connection with Mr. Engman's divorce. Mr. Schellenberg contends that his claim is secured by a mortgage lien against Mr. Engman's undivided interest in the Sun-Da-Go property.
Mr. Engman also hired attorneys to represent him. Michael B. Quinn, P.C. was retained in connection with his divorce and Wrigley & Hoffman was retained in connection with the related Sun-Da-Go disputes. Both of these law firms claim that Mr. Engman owes them money for their services and that these obligations are also secured by mortgage liens in Mr. Engman's undivided interest in the Sun-Da-Go property.
And last, the condominium association asserts that both Mr. Engman and Ms, Leverich are indebted to it as the project's joint venturers. However, in this instance, the association contends that its claim is secured by not only a lien against Mr. Engman's undivided interest in the project's properly but by a lien against Ms. Leverich's undivided interest as well.
Trustee's motion describes settlements he has reached with all of these lienholders concerning their shares in the Sun-Da-Go property. The amounts originally claimed and the related settlements are:
Amount Settlement
Claimed Amount
Robert Schellenberg $ 78,816.31 68,816.31
Michael B. Quinn, PC 30,500.00 26,500.00
Wrigley & Hoffman 225,999.61 85,708.00
Sun-Da-Go Condominium 101,042.80 $60,000.00
Association
Trustee requests that the court approve these settlements pursuant to Rule 9019(a) of the Federal Rules of Bankruptcy Procedure.1
Trustee's motion also includes a proposed accounting for Ms. Leverich's separate share in the Sun-Da-Go project. The state court had ordered the project to be maintained as a joint venture between Mr. Engman and his former wife after their divorce. Consequently, only Mr. Engman's undivided interest in the realty that comprised the joint venture became property of the estate when Mr. Engman later filed his petition for relief.
As for the other undivided interest, Ms. Leverich delivered a quitclaim deed to Stephanie Scruggs and Sari Jousma, who are Ms. Leverich's and Mr. Engman's daughters, shortly before she passed away in 2003. Trustee's agreement with Ms. Scruggs and Ms. Jousma is to give to them one-half of the proceeds from the Sun-Da-Go property but only after he has first accounted to the condominium association for its claimed lien against both co-owners' interests. Trustee requests that this settlement also be approved pursuant to Rule 9019(a).
Finally, Trustee's motion requests that he be authorized to immediately distribute the settlement amounts to these parties in satisfaction of their claimed liens and co-interests. The distributions are to be made from roughly $325,000 in proceeds realized from lot sales. The former trustee2 had sold the estate's undivided interests in these lots free and clear of all liens, including those claimed by Mr. Schellenberg, the two law firms, and the condominium association. See, 11i U.S.C. §§ 363(b) and (1). Those liens then attached to the proceeds that Trustee now wants to distribute.
As for the co-owner's interests in the lots, the former trustee sold those interests pursuant to Section 363(h).3 However, he did not secure that authority through the commencement of an adversary proceeding. Cf., FED.R.BANKR.P. 7001(3). Rather, he relied upon Ms. Scruggs' and Ms. Jousma's consent and his promise in return to account for their share of the proceeds realized.4
Trustee's plan is to first distribute $60,000 to the condominium association on account of its settled Hen amount, to then distribute to Ms. Scruggs and Ms. Jousma their half of the remainder, and then to distribute from the estate's own share the settled lien amounts to Mr. Schellenberg, Wrigley & Hoffman, and Michael B. Quinn, P.C. However, Trustee recognizes that there is a separate set of creditors who have asserted claims against only Ms. Leverich's undivided interest Therefore, Trustee further proposes that the amount to be paid on account of the other undivided interest be interpled with this court in the event any of these other claimants oppose Trustee's outright turnover of Ms. Leverich's share to Ms. Scruggs and Ms. Jousma.
Trustee served his motion upon the mailing matrix filed in this case as permitted by local bankruptcy rules. LBR 9013 (Bankr.W.D.Mich.).5 Karen Ludwick was the only person to object apart from Mr. Engman. Ms. Ludwick has standing because she is an unsecured creditor. As for Mr. Engman, his standing derives from Trustee's past acknowledgment that Mr. Engman may be eligible for a Section 726 distribution because of the estate's potential solvency.6
Both Mr. Engman's and Ms. Ludwick's objections are long and convoluted. It appears, though, that they support Trustee's proposal with respect to Michael B. Quinn, P.C. and Wrigley & Hoffman but that they oppose his proposal with respect to the condominium association and Mr. Schellenherg.
As for Ms. Scruggs and Ms. Jousma, Mr. Engman challenges their claimed co-owner's interest altogether. Mr. Engman contends that Ms. Leverich's attempted conveyance of her undivided interest in the Sun-Da-Go property to her daughters was invalid because it purportedly violated an anti-alienation provision imposed upon both Ms. Leverich and him by their judgment of di voice. Mr. Hngman also contends that he, as the surviving joint venturer, was entitled to Ms. Leverich's undivided interest when she passed away in 2003. Mr. Engman has conceded during these proceedings that this survivorship interest would have transferred to his bankruptcy estate when he commenced his case in 2001. Nonetheless, Mr. Engman contends that Trustee thereafter abandoned to him Ms. Leverich's undivided interest in 2006. Therefore, it is Mr. Engman's position that it is he, as opposed to Ms. Scruggs and Ms. Jousma, who is entitled to Trustee's accounting for the other undivided interest in the Sun-Da-Go project.
Trustee's motion focuses almost exclusively upon whether the settlements Trustee has reached should be approved under Rule 9019(a). His fixation on Rule 9019(a) approval is certainly understandable, for in fairness, this court on several prior occasions has itself steered both Trustee and the former trustee in this direction as they have attempted to administer an extremely difficult case over Mr. Engman's and Ms. Ludwick's repeated objections. For example, this court adjudicated a prior effort by the former trustee to distribute proceeds from the sale of Sun-Da-Go lots to the condominium association on account of its claimed lien on the sole issue of whether the underlying settlement the former trustee and the association had reached concerning the same should be approved pursuant to Rule 9019(a).7 Limiting the adjudication in that fashion was then instrumental in this court's subsequent decision to deny the former trustee's attorneys' request for the considerable fees they had incurred in attempting to procure that approval.8
However, it now appears that more was at issue than merely whether the accommodations that have been reached should be approved or not. What prompts this observation is a too frequently overlooked provision of the Bankruptcy Code:
After the commencement of a case under this chapter, but before final distribution of property of the estate under section 726 of this title, the trustee, after notice and a hearing, shall dispose of any property in which an entity other than the estate has an interest, such as a lien, and that has not been disposed of under another section of this title.
11 U.S.C § 725.9
This section by no means negates Trustee's request for the...
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