In re Frausto
| Citation | 259 BR 201 |
| Decision Date | 12 December 2000 |
| Docket Number | Bankruptcy No. 96-06471-BGC-13. Adversary No. 00-00129. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama |
| Parties | In re Bernardo FRAUSTO, Debtor. EconoLube N' Tune, Inc., Plaintiff, v. Bernardo Frausto, Defendant. |
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David Anderson, Birmingham, AL, for plaintiff.
Richard Shuleva, Birmingham, AL, for defendant.
Charles Denaburg, Birmingham, AL, for Compass Bank.
Richard Vincent, Birmingham, AL, for trustee.
The matters before the Court are EconoLube's Writ of Garnishment and Notice to Defendant of Issuance of Writ of Garnishment (against the Chapter 13 Trustee) filed on September 12, 2000; the Trustee's Answer and Motion to Quash Writ of Garnishment filed on September 14, 2000; and EconoLube's Motion to Enforce Garnishment, or, in the Alternative Motion to Reconsider Ruling on Administrative Claim for Marshaling, or, to Convert Case to Chapter 7 filed on October 10, 2000. After notice, a hearing was held on October 25, 2000. Richard Shuleva, attorney for the Defendant-Debtor; David Anderson, attorney for the Plaintiff; Charles King, Assistant Chapter 13 Trustee; David Rogers, Jr., the Chapter 13 Trustee; Charles Denaburg, attorney for Compass Bank; Richard Vincent, Special Attorney for the Trustee; and Jon Dudeck, attorney for the Bankruptcy Administrator, appeared.
EconoLube and the debtor entered into a post-confirmation franchise agreement. Because of the debtor's failure to make all payments due under that agreement, EconoLube sought, and obtained, a judgment against the debtor.
The current matters before the Court involve EconoLube's second attempt to collect that judgment. In its first attempt, EconoLube contended that it had an administrative expense claim against the debtor because, as EconoLube argued, revenue from the debtor's franchise operation funded the debtor's plan payments to pre-petition creditors. EconoLube also argued that its judgment represented costs that were actual and necessary expenses of preserving the bankruptcy estate. EconoLube concluded that its administrative expense claim should be satisfied from $100,000 being held by the Chapter 13 trustee, funds obtained by the debtor and the trustee in a post-confirmation settlement of a pre-petition cause of action involving an unrelated creditor of the debtor.
On October 4, 2000, this Court denied EconoLube's request for the administrative expense finding that the debtor's bankruptcy estate did not include, and could not have included, any future benefits the debtor could have gained from any post-confirmation business operations, including the EconoLube franchise.1 The Court found first, that the estate included only the assets required to make the confirmed plan payments, and second, that there was no estate other than that which was, and has continued to be, funded by those plan payments.2 The Court concluded that there were no costs to EconoLube that could now be considered actual, necessary costs and expenses of preserving that estate and therefore there was no bankruptcy estate that could have, or did, benefit from the EconoLube franchise; hence, there could be no administrative expense claim against this estate.
The facts are not disputed.3 The debtor filed the pending Chapter 13 case on September 16, 1996. According to his uncontested schedules, he had monthly income of about $16,800 and monthly expenses of about $9,500.
At confirmation, the debtor's schedules established disposable monthly income of $7,207.50. The Chapter 13 Trustee's "bench sheet" summarizing debts to be paid through the plan showed those debts to be $187,000. From that information, and the debtor's proposal of a 60-month plan, the trustee recommended monthly Chapter 13 plan payments of $4,500. Based on the schedules and the recommendation of the Chapter 13 Trustee, the Court confirmed the debtor's plan of reorganization on November 7, 1996. Order of Confirmation, entered November 7, 1996, Proceeding No. 5 in the main case.
Approximately 18 months after confirmation, the debtor entered into a franchise agreement with EconoLube n' Tune, Inc. to operate an EconoLube franchise in San Antonio, Texas. When the debtor "breached" the franchise agreement and other contracts with EconoLube, EconoLube sought and obtained relief from the automatic stay to pursue the debtor in Texas state court. Order Modifying Automatic Stay, entered June 14, 2000, Proceeding No. 48 in the main case.
During this same time, the movant filed a complaint in this Court on May 30, 2000, seeking damages for the same or similar defaults. The debtor did not answer that complaint. On August 23, 2000, and without opposition from the debtor, this Court entered a default judgment against the debtor for $94,438.09. Final Judgment, entered August 23, 2000, Proceeding No. 10 in Adversary Proceeding No. 00-00129.
Also, during this same time, the Chapter 13 Trustee and Richard Vincent, special counsel to the trustee, entered into an agreement with Doctor's Associates, Inc. and Subway Restaurants, Inc. and others compromising and settling alleged claims of the debtor against those corporate parties.4 That settlement, filed with this Court on July 19, 2000, provided that the defendants in a pending Alabama state court lawsuit would pay the Chapter 13 trustee in this case, $100,000. Agreement of Compromise and Settlement and Mutual Release, filed July 19, 2000, Proceeding No. 51 in the main case. After the Court approved that agreement on May 2, 2000, those funds were paid to the trustee on June 5, 2000, and are on deposit in an interest bearing account.5
The $100,000 Subway settlement was the result of a complaint filed in state court in 1994 by the special counsel (then counsel for the debtor); however, when the debtor filed this Chapter 13 case on September 16, 1996, he did not list the suit. On April 29, 1999, the debtor did amend his petition to include the cause of action. Petition to Modify, filed April 29, 1999, Proceeding No. 22 in the main case.
On May 30, 2000, EconoLube filed a Motion for Allowance of Administrative Expense and to Prohibit Distributions from the Estate. On August 14, 2000, Compass Bank, a pre-petition creditor of the debtor, filed an Objection to Request for Administrative Claim.
On October 4, 2000, the Court denied EconoLube's motion and sustained the bank's objection.6 In that order the Court found, based on the November 7, 1996, confirmation order and events leading to it, that after confirmation only the debtor's 60 monthly payments of $4,500 (to be harvested from monthly disposable income of $7,200) remained property of the bankruptcy estate. The Court concluded that the estate did not include, and could not have included, any future benefits the debtor could have gained from any post-confirmation business operations, including the EconoLube franchise.7 The Court then found that there was no estate other than that which was, and has continued to be, funded by the debtor's $4,500 payments.8 As to the specific question of an administrative expense, the Court concluded that there were no costs to EconoLube that could now be considered actual, necessary costs and expenses of preserving the estate. Simply put, the Court found that there was no bankruptcy estate that could have, or did, benefit from the EconoLube franchise and thus no administrative expense claim could attach to the estate.9
In the meantime, on September 12, 2000, EconoLube filed its Notice to Defendant of Issuance of Writ of Garnishment (against the Chapter 13 Trustee) and its Writ of Garnishment contending that its $94,438.09 judgment should be satisfied from the $100,000 being held by the trustee. The trustee responded on September 14, 2000, with his Trustee's Answer and Motion to Quash Writ of Garnishment.
On October 10, 2000, EconoLube filed its Motion to Enforce Garnishment, or, in the Alternative Motion to Reconsider Ruling on Administrative Claim for Marshaling, or, to Convert Case to Chapter 7.10
In support of its garnishment action, EconoLube contends that its garnishment should be enforced against the trustee and satisfied with the $100,000 because the $100,000 is not property of this estate. EconoLube relies on this Court's October 4 opinion and order.
Compass Bank, a pre-petition creditor of the debtor, (and one who opposed EconoLube's administrative expense claim based on the same "property of the estate" argument), opposes EconoLube's claim to the $100,000.11
The trustee disagrees with EconoLube and agrees with Compass Bank.
The debtor is neutral, as he was in the prior matter.
EconoLube's garnishment against the Chapter 13 Trustee should be enforced because: A. the $100,000 being held by the trustee is not property of this estate; and B. Chapter 13 does not authorize collection, liquidation, and distribution of the $100,000.
In its October 4 order this Court did not consider whether the $100,000 was property of this bankruptcy estate. However, consistent with its findings in that order, and based on the discussion below, the Court concludes now that the $100,000 is not property of this estate.12 Consequently, as a post-confirmation creditor, EconoLube is free to pursue whatever assets vested in the debtor at confirmation, including the $100,000 proceeds from the debtor's pre-petition lawsuit.13 In contrast, as a pre-petition creditor subject to the Court's confirmation order entered November 7, 2000, Compass Bank is bound by the debtor's confirmed plan and must accept its payment through that plan.
Section 541(a)(1) of the Bankruptcy Code defines "property of the estate" to include "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)...
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