In re Famisaran
| Citation | 224 BR 886 |
| Decision Date | 28 September 1998 |
| Docket Number | Bankruptcy No. 97 B 30285. |
| Parties | In re Richard FAMISARAN and Teresita Famisaran, Debtors. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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Henry W. Fruehauf, Chicago, IL, for Movant.
Susan G. Castagnoli, Law Offices of Susan G. Castagnoli & Associates, Naperville, IL, for Respondent.
Jack McCullough, Chicago, IL, Chapter 13 Trustee.
These matters come before the Court on the objections of Seoul Travel Service, Inc. ("Seoul Travel") to confirmation of the Debtors' third amended plan of reorganization, on the motion of Seoul Travel for sanctions against the Debtors pursuant to Federal Rule of Bankruptcy Procedure 9011, and on the application of Susan G. Castagnoli & Associates ("Castagnoli"), attorney for the Debtors, for fees incurred in the representation of the Debtors. For the reasons set forth herein, the Court sustains the objections of Seoul Travel to the Debtors' third amended plan and dismisses the case pursuant to 11 U.S.C. § 1307(c)(5). Further, under Federal Rule of Bankruptcy Procedure 9011, the Court imposes sanctions against the Debtors for filing false, misleading and inaccurate Schedules I and J and the Statement of Financial Affairs and dismisses the case. The Court awards Seoul Travel its reasonable attorney's fees in the sum of $8,977.50 and expenses incurred in the sum of $420.32. Finally, the Court awards Susan Castagnoli fees in the sum of $3,354.00.
The Court has jurisdiction to entertain these matters pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. They are core proceedings under 28 U.S.C. § 157(b)(2)(A), (L) and (O).
The genesis of the dispute between the Debtors and Seoul Travel dates back to 1992 regarding airline tickets obtained through use of an NFS check which prompted state court litigation among the parties. See Seoul Travel's Exhibit C1. Seoul Travel recovered a judgment against the Debtors for the amount of their NSF check plus interest, attorneys' fees, costs and punitive damages. The Debtors subsequently filed a Chapter 7 bankruptcy case in 1994, which was assigned to Judge Eugene R. Wedoff.
In a related adversary proceeding, Judge Wedoff entered an order on March 16, 1995, finding the debt owed by the Debtors to Seoul Travel in the sum of $25,151.18, inclusive of all costs, collection expenses, interest and reasonable attorneys' fees, nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6). See Seoul Travel's Exhibit C2. Seoul Travel then instituted post-judgment proceedings pursuant to Federal Rule of Bankruptcy Procedure 7069 by utilizing the citation proceedings available under Illinois law. See Seoul Travel's Exhibit C3. On August 7, 1997, the Court entered an order pursuant to 735 ILCS 5/2-1402(b)(3) and (m)(2) and Illinois Supreme Court Rule 277 which placed a lien upon the employment contract and present and future earnings of the Debtors. Id. At this point, Seoul Travel's unpaid judgment plus accrued interest totaled the sum of $29,299.63. Id.
On October 2, 1997, the Debtors filed the present case with a Chapter 13 petition and plan. The Debtors also filed their Statement of Financial Affairs and Schedules A through J. See Seoul Travel's Exhibit C4. On December 8, 1997, Seoul Travel filed an objection to that plan on the basis that the plan incorrectly treated Seoul Travel as being unsecured. Seoul Travel argued that it was a secured creditor of the Debtors by virtue of the statutory citation lien which was imposed under 735 ILCS 5/2-1402(b)(3) and (m)(2) on the Debtors' employment contracts and earnings with the postal service.
Also on December 8, 1997, the Debtors filed a first amended Chapter 13 plan. On February 25, 1998, Seoul Travel filed a supplement to its initial objections to confirmation of the Debtors' plan. Seoul Travel's supplementary objections to the first amended plan stated: (1) the plan mischaracterized Seoul Travel as an unsecured creditor; (2) the plan discriminated against Seoul Travel in favor of another secured creditor, G.E. Capital, and treated them disparately; (3) the plan failed to propose paying both secured creditors on equal terms; (4) the plan was not proposed in good faith in that it did not accurately reflect either Debtors' projected income and their actual, legitimate and reasonable expenditures; and (5) that Debtor Teresita Famisaran has a compulsive gambling problem by which thousands of dollars every year are squandered away. Seoul Travel stated that many of the representations in the Debtors' Schedules B and J were false. Specifically, Seoul Travel alleged the following misrepresentations: (1) Schedule B incorrectly referenced only one vehicle when in fact the Debtors own and insure two vehicles; (2) in Schedule J the Debtors alleged that they paid rent, but in fact paid none; (3) the Debtors' medical expenses listed in Schedule J were false and undocumented; (4) the Debtors' renters'/homeowners' insurance expense in Schedule J were false and undocumented; (5) the Debtors' water/sewer expenses in Schedule J were false and undocumented; (6) the Debtors' gas and electric expenses were false and undocumented; (7) the $100.00 monthly phone bill was unnecessary and extravagant; (8) the Debtors failed to disclose the ownership of two cellular phones and their delinquent debt for two cellular lines to MCI Cellular; (9) their clothing expense was extravagant and undocumented; and (10) their food expense was excessive given that the Debtors live with their daughter. Seoul Travel stated that the plan was not feasible and was discriminatory as well as replete with falsehoods, concealments, exaggerations and excessiveness based upon the Debtors' false Schedules.
On that same date, Seoul Travel filed the pending motion for sanctions against the Debtors for filing false and frivolous pleadings. Seoul Travel alleged that the Debtors' Schedules B and J were materially false and misleading as specifically set forth and outlined above in its supplementary objections. The attorney for Seoul Travel, Henry W. Fruehauf ("Fruehauf")1, attached a certificate to the motion for his fees and expenses incurred. Pursuant to that certificate, Fruehauf expended 70 hours of time at $175.00 per hour for a total of $12,250.00. In addition, he incurred expenses in the sum of $520.32. Fruehauf seeks a multiplier of the actual fees expended in the amount of double the fees for a sum total of $24,500.00.
On June 15, 1998, Seoul Travel filed a second amendatory supplement to its objections to confirmation of the Debtors' plan. This pleading objected to the Debtors' first amended plan that had been filed on December 8, 1997. Trial on the contested confirmation hearing began on June 19, 1998. Thereafter, on July 7, 1998, the Debtors filed their second amended plan and amendments to their Schedules I and J. On that same date, after conclusion of the admitted testimony and evidence, the Court sustained in substantial part the objections of Seoul Travel to the Debtors' plans and denied confirmation of the original and amended plans without prejudice. The evidence revealed that the Debtors made substantial unauthorized post-petition transfers to their daughters and that Debtor Teresita Famisaran utilized substantial portions of her income for gambling. The Court also determined that Seoul Travel had a secured claim to the extent of fifteen percent of the gross wages of the Debtors. The Court gave the Debtors leave to file and serve a third amended plan on August 7, 1998, and set the confirmation hearing for that plan on September 4, 1998.
On August 17, 1998, the Debtors belatedly filed a third amended plan accompanied by amended Schedules B, D, E, J and I. Seoul Travel filed an objection to the Debtors' third amended plan. This plan, running 60 months in duration with plan payments of $650.00 per month for the term of the plan, provides that Seoul Travel shall be paid the sum of $320.00 per month. The amount to be paid Seoul Travel on its secured claim represents fifteen percent of the Debtors' present wages. The most recently amended Schedules, in particular, Schedules I and J, show some change from the second amended Schedules previously filed. Amended Schedule I, which reflects the current income of the Debtors, showed that Debtor Richard Famisaran no longer had a monthly income of $540.00. Amended Schedule J, which reflects the Debtors' current expenditures, had several changes. For example, the Debtors amended their utilities for heating and fuel from $55.00 to $25.00 per month. In addition, the Debtors reduced their monthly telephone expense from $30.00 to $25.00. The Debtors also reduced their monthly food expense from $206.00 to $200.00. Finally, the dry cleaning and laundry bill was reduced from $50.00 to $39.00 per month.
No amendment to the Debtors' answers to the relevant questions on the Statement of Financial Affairs was filed to detail the prepetition and post-petition transfers to the Debtors' daughters or the expenditures for gambling losses. At the continued confirmation hearing, no party sought any further evidentiary hearing and the Court took the matters under advisement.
Seoul Travel objects to the Debtors' third amended plan for various reasons. First, Seoul Travel maintains that this plan is not feasible. Seoul Travel contends that the plan proposes to pay it $320.00 per month for 60 months for a total of $19,200.00. Seoul Travel notes that its claim, which is secured by fifteen percent of the Debtors' present and future wages from the United States Postal Service, is over $29,000.00. In addition, Seoul Travel has objected to the Debtors retaining...
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