In re Fellheimer

• Decision Date: 13 October 2010
• Docket Number: No. 03–33298bf.,03–33298bf.
• Citation: 443 B.R. 355
• Parties: In re Robert M. FELLHEIMER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

443 B.R. 355

In re Robert M. FELLHEIMER, Debtor.

No. 03–33298bf.

United States Bankruptcy Court, E.D. Pennsylvania.

Oct. 13, 2010.

Jonathan J. James, Philadelphia, PA, Robert W. Small, Abington, PA, for Debtor.

MEMORANDUM

BRUCE FOX, Bankruptcy Judge.

Presently before me is a motion filed by Ms. Alice Overlander to reopen the debtor's closed bankruptcy case under 11 U.S.C. § 350(b) and Fed. R. Bankr.P. 5010. Ms. Overlander seeks to reopen this bankruptcy case in order to file an adversary proceeding to seek a declaration of nondischargeability of the movant's debt under 11 U.S.C. § 524(a)(2), (4) and to seek revocation of his chapter 7 discharge under 11 U.S.C. § 727(d).¹ Essentially, Ms. Overlander contends that the debtor, Mr. Robert Fellheimer, committed fraud in obtaining loans from her in 2000 and 2001, and did so while acting as her attorney. She further maintains that the debtor then concealed this fraud for many years, so that she took no action against him during the pendency of his bankruptcy case and for more than three years thereafter.

Mr. Fellheimer has filed an answer in opposition to this motion, denying therein that he committed any fraud against Ms. Overlander, either prior to or during his bankruptcy case, and further denying that any loans made to him occurred while he was acting in a fiduciary capacity to Ms. Overlander. He disputes taking any actions during his bankruptcy case to mislead Ms. Overlander into relinquishing her rights. He further maintains that there is no basis to revoke his discharge.

In addition, Mr. Fellheimer argues that there is no purpose to reopening his bankruptcy case because the ultimate relief sought by Ms. Overlander in this forum—revocation of discharge and determination of nondischargeability under sections 523(a)(2) and (a)(4)—are barred by the relevant limitations periods.² As will be discussed below, Ms. Overlander counters that the limitations periods are not preclusive, owing to the doctrines of equitable tolling and promissory estoppel. Mr. Fellheimer rejoins that those equitable doctrines are not applicable to revocation and nondischargeability claims and, if they were, these doctrines should not apply, owing to Ms. Overlander's lack of diligence as well as unreasonable delay in raising her fraud issues before this court.

I.

Section 350(b) of the bankruptcy code provides for the reopening of a bankruptcy case “to administer assets, to accord relief to the debtor, or for other cause.” Whether to reopen a closed bankruptcy case is committed to the discretion of the bankruptcy court. See, e.g., Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir.1997); Judd v. Wolfe, 78 F.3d 110, 116 (3d Cir.1996); Matter of Case, 937 F.2d 1014, 1018 (5th Cir.1991) (“This discretion depends upon the circumstances of the individual case and accords with the equitable nature of all bankruptcy court proceedings.”); Hawkins v. Landmark Finance Co., 727 F.2d 324 (4th Cir.1984); Matter of Becker's Motor Transp., Inc., 632 F.2d 242, 245 (3d Cir.1980); Urbanco, Inc. v. Urban Systems Streetscape, Inc., 111 B.R. 134 (W.D.Mich.1990).

In general, when a party in interest seeks to reopen a closed bankruptcy case the court should consider a variety of non-exclusive factors including: the length of time that the case has been closed, see Matter of Case, 937 F.2d at 1018; whether a non-bankruptcy forum, such as state court, has the ability to determine the dispute to be posed by the debtor were the case reopened, see, e.g. In re Tinsley, 98 B.R. 791 (Bankr.S.D.Ohio 1989); In re E.A. Adams, Inc., 29 B.R. 227 (Bankr.D.R.I.1983); In re Hepburn, 27 B.R. 135 (Bankr.E.D.N.Y.1983); whether prior litigation in bankruptcy court implicitly determined that the state court would be the appropriate forum to determine the rights, post-bankruptcy, of the parties; whether any parties would be prejudiced were the case reopened or not reopened; the extent of the benefit which the moving party seeks to achieve by reopening; and (most germane here) whether it is clear at the outset that the moving party would not be entitled to any relief if the case were reopened. See generally Arleaux v. Arleaux, 210 B.R. 148, 149 (8th Cir. BAP 1997); In re Rashid, 2004 WL 2861872, at *5 (E.D.Pa.2004); In re Carberry, 186 B.R. 401, 402 (Bankr.E.D.Va.1995) (a bankruptcy court “should not reopen a bankruptcy case where it appears that to do so would be futile and a waste of judicial resources”); In re Nelson, 100 B.R. 905, 907 (Bankr.N.D.Ohio 1989):

[T]he court will not grant a motion to reopen when no clear benefit is shown to creditors.... Because no benefit will inure to Debtors' estate or their creditors, Debtors' motion should be denied.

Moreover, “[t]he burden of demonstrating circumstances sufficient to warrant reopening a case is on the moving party.” In re Redcay, 2007 WL 4270378, at *2 (Bankr.E.D.Pa.2007); see, e.g., In re Gutches 430 B.R. 342, 344 (Bankr.E.D.Pa.2009).

Given that Mr. Fellheimer argues that there is no valid purpose in reopening this closed bankruptcy case in light of the limitations periods found in Fed. R. Bankr.P. 4007(c) and section 727(d), and given that it is usually inappropriate to determine the merits of an underlying fraud allegation in the context of a motion to reopen under section 350(b), see Arleaux v. Arleaux, 210 B.R. at 149,³ I requested that the parties focus upon whether Ms. Overlander can now obtain any relief from this bankruptcy court were this case reopened. To that end, an evidentiary hearing was held over a two-day period.⁴

The following facts, as germane to the issue of reopening and the ability of Ms. Overlander to now seek her desired relief, were proven.⁵

II.

A.

In 1989, Ms. Overlander and her husband allegedly suffered personal injuries after exposure to Dursban, a termiticide. Ms. Overlander, now 63, purportedly suffered injuries including cognitive impairment, immune and pulmonary disorders, chemical sensitivity, peripheral neuropathies and liver disease. 1 N.T. at 35–36. Her husband died shortly after exposure to the termiticide. Id.

In June 1995, Ms. Overlander, individually and representing the estate of her husband, ultimately retained Mr. Fellheimer, an attorney, to represent her in both capacities in a toxic tort lawsuit she initiated in Pennsylvania. 1 N.T. at 56–57. Mr. Fellheimer had been practicing law since 1973. 1 N.T. at 103–04.

Using expert reports that supported Ms. Overlander's injury claims, in July 1997 Mr. Fellheimer obtained a $3.8 million settlement of the tort litigation. 1 N.T. at 36–37. In accordance with a previously signed retainer agreement, Ms. Overlander received about $1.5 million from the settlement proceeds; the balance was distributed for attorney's fees, expert fees, and court costs (and possibly distributed to other beneficiaries of the estate of Mr. Overlander).

Shortly after Ms. Overlander's tort lawsuit was settled in 1997, Mr. Fellheimer, who was married, and Ms. Overlander began a romantic relationship. 1 N.T. at 37–38; 2 N.T. at 149; ex. P–10, Fellheimer deposition at 88. ⁶ The debtor's Statement of Financial Affairs reveals that a divorce decree was entered April 21, 2003.⁷ See also 1 N.T. at 149.

A few years later, and while that relationship continued, in March of 2000, Mr. Fellheimer requested funds from Ms. Overlander. 1 N.T. at 38. Over the course of a year and a half, she wrote checks payable to him in amounts ranging from $15,000 to $50,000, and totaling at least $200,000.⁸ See ex. P–1. ⁹ Although Ms. Overlander provided these funds to Mr. Fellheimer, although these transfers were considered by the parties to be loans, and although Ms. Overlander anticipated being repaid, there was no discussion or agreement as to a date of repayment or payment of interest. 1 N.T. at 43.

Mr. Fellheimer testified that at the time of borrowing these funds from Ms. Overlander he intended to repay her, but that he was unable to do so. 1 N.T. at 150. “Even after the last of the money was lent to me, I struggled for two additional years trying to pay it back.” Id. It is agreed that no portion of the borrowed funds were ever repaid. The evidence is also clear that before taking action in this court in 2009 Ms. Overlander never demanded repayment.

In lending money to Mr. Fellheimer, Ms. Overlander testified that Mr. Fellheimer initially explained that he needed funds to litigate a tort case, referred to as the “Canoe” lawsuit. In other words, Ms. Overlander swore that she believed that her loan proceeds would be used by Mr. Fellheimer to represent a client in a contingent fee case and that he would repay her when it concluded, which she believed would be in a matter of months. 1 N.T. at 40, 72–73, 89. Mr. Fellheimer disagrees to a certain extent. He testified that most of the expenses for the Canoe litigation had already been paid by 2000 when he began borrowing from Ms. Overlander. 1 N.T. at 161–62. Instead, he testified that he told Ms. Overlander that he needed funds for his basic living expenses and office overhead, 2 N.T. at 19, and that winning the pending Canoe litigation presented the best prospect of being able to repay her. 1 N.T. at 161–62; ex. P–10, Fellheimer deposition, p. 108–109.

In support of his then need for funds for personal expenses, Mr. Fellheimer testified that he was “desperate” and “depressed” during this period. 1 N.T. at 150, 151. His law partnership was dissolving. 1 N.T. at 150, 157. His marital assets were frozen and he was “tapped out” on a credit line. 2 N.T. at 19. His Statement of Financial Affairs also lists 10 separate lawsuits naming him as defendant, including a $10,000 judgment entered against him in December 2002, a pending foreclosure action, and a lawsuit seeking $55,000.

After the first two or three loans (totaling $50,000 to $75,000), at Mr. Fellheimer's suggestion Ms. Overlander met with a financial advisor, where she revealed having made loans to Mr. Fellheimer. 1 N.T. at...