In re Garafano, Bankruptcy No. 88-12589S

• Decision Date: 05 May 1989
• Docket Number: Bankruptcy No. 88-12589S,88-13964S,Adv. No. 89-0104S.
• Citation: 99 BR 624
• Parties: In re Evelyn GARAFANO, Debtor. In re Joseph GARAFANO, Debtor. Joseph GARAFANO, Plaintiff, v. TRUSTEES OF the AMALGAMATED INSURANCE FUND, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

99 B.R. 624 (1989)

In re Evelyn GARAFANO, Debtor In re Joseph GARAFANO, Debtor Joseph GARAFANO, Plaintiff, v. TRUSTEES OF the AMALGAMATED INSURANCE FUND, Defendant.

Bankruptcy Nos. 88-12589S, 88-13964S, Adv. No. 89-0104S.

United States Bankruptcy Court, E.D. Pennsylvania.

May 5, 1989.

David R. Rosenfeld, Philadelphia, Pa., for debtors.

Aris Karalis, Philadelphia, Pa., for trustee. Tali Joan Segal, Philadelphia, Pa., for the Fund.

John Judge, Philadelphia, Pa., trustee.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

INTRODUCTION

The present matter comes before us on the adversarial Complaint of Joseph Garafano to "Determine Validity of Judgment Lien" and upon an objection to a claim of exemption by Evelyn Garafano, his wife. However both matters are resolved by a determination of the Debtors' ability to collaterally attack the validity of a judgment entered against Joseph Garafano by the United States District Court for the Eastern District of Pennsylvania.

The Debtors in the present matter ask that we redetermine the liability of Joseph Garafano which was previously established by a default judgment entered by the district court against Joseph Garafano. Resolution of this issue requires us to consider the authority of this court to redetermine the liabilities of debtors in light of the policies supporting the finality of judgments. For the reasons discussed below, we conclude that the prior district court default judgment is res judicata vis-a-vis the present controversies between the parties.

PROCEDURAL HISTORY

On July 22, 1988, Evelyn Mae Garafano (hereinafter "Evelyn") filed a voluntary petition for relief pursuant to Chapter 7 of the Bankruptcy Code on behalf of herself doing business as South Philadelphia Vest (hereinafter "the Company"). Evelyn subsequently filed her Schedules and Statement of Financial Affairs on August 8, 1988. The only creditor listed on these Schedules was the Trustees of the Amalgamated Insurance Fund (hereinafter "the Fund"). The Fund's claim was initially scheduled as $153,000.00 for "withdrawal liability" under 29 U.S.C. § 1381, et seq., of the Employee Retirement Income Security Act (hereinafter "ERISA"), arising out of termination of the Company's business operations in May, 1984. This claim is listed as disputed. Schedule B-4 claims substantially all of Evelyn's scheduled property exempt as jointly-owned property pursuant to 11 U.S.C. § 522(b)(2)(B) and 42 Pa.C.S.A. § 8123.¹

On September 26, 1988, the Fund filed a Proof of Claim against Evelyn in the amount of $138,491.64 for ERISA withdrawal liability, interest, liquidated damages, costs, and attorneys fees. No Objection has been filed to this Proof of Claim to date. On October 6, 1988, the Fund filed an Objection to Evelyn's claim of exemption with respect to the residence, bank accounts, and motor vehicle. This Objection was originally scheduled for a hearing on November 10, 1988, and, after two continuances, was ultimately held on February 21, 1989.

On February 16, 1989, Evelyn filed Amended Schedules and Statement of Affairs. Again, the only creditor listed in these Amended Schedules was the Fund, although the amount of the claim was reduced to $97,957.20. Similarly, Evelyn's Amended Schedule B-4 claims substantially all of Evelyn's scheduled property as exempt because it was allegedly jointly owned with her husband, Joseph Garafano (hereinafter "Joseph") (Joseph and Evelyn shall be jointly referred to as "the Debtors").²

On November 10, 1988, the Fund filed an Involuntary Petition for relief against Joseph, doing business as the Company. Joseph's initial opposition to this Petition was eventually withdrawn, and an Order for Relief was entered on January 6, 1989. By this same Order, Joseph's Motion for Joint Administration with Evelyn's case was granted.

John P. Judge has been appointed as Trustee for both of the Debtors. A Meeting of Creditors was originally scheduled in Evelyn's case for September 6, 1988. The Meeting of Creditors was subsequently scheduled and continued on three occasions thereafter. At present the 341 Meeting in Evelyn's case has yet to be held or rescheduled. The 341 Meeting in Joseph's case has not been scheduled. We shall include in our Order accompanying this Opinion directives that the Creditors' Meetings be scheduled in both these cases in order to expedite administration of these cases.

On February 16, 1989, Joseph filed, as an adversary proceeding, a Complaint To Determine the Validity of Judgment Lien, seeking a declaration by this Court that the lien of a judgment obtained by the Fund against Joseph in District Court is invalid and disallowing the claim of the Fund against Joseph's estate. While this matter had not yet been scheduled for hearing on February 21, 1989, the parties agreed, when they appeared on that date, that the ability of the Debtor to challenge the District Court judgment should be addressed in conjunction with the Fund's Objection to Evelyn's claim of exemptions. The Trustee also appeared by counsel. He supported the Fund's Objection to the claim of exemptions, but indicated a willingness to allow the Fund to take the laboring oar.

After a colloquy with counsel at the hearing held on February 21, 1989, four transcripts of depositions taken in this matter were admitted by agreement together with documents submitted in conjunction with these depositions.³ A fifth deposition was proffered for admission by the Fund, but was objected to by Joseph. This was a deposition of Joseph taken on October 21, 1987, in connection with the District Court case. The Court reserved ruling on the admissibility of this deposition.

The parties agreed, in a colloquy with the court on February 21, 1989, that the initial issue to be decided, with respect to both the adversarial matter and the Objection to claim of exemptions, was whether the judgment previously entered by the district court would be res judicata with respect to the Fund's claim against Joseph in this court.⁴ The parties agreed to submit briefs on, inter alia, this legal issue to be considered by the court as a Motion for Summary Judgment or to Dismiss the adversarial Complaint. The only evidence presented at the hearing was the above-mentioned depositions. These depositions relate almost exclusively to assets held by the Debtors, and are not really relevant to the issues that we address here. As a result we shall not consider these depositions in our decisionmaking process here, but shall limit ourselves to the factual allegations contained in the pleadings.

Since this matter was submitted to the Court for consideration on the basis of a limited record, we shall proceed to consider the matter as one to dismiss Joseph's adversarial Complaint for failure to state a cause of action pursuant to Bankruptcy Rule 7012(b) and Federal Rule of Civil Procedure 12(b)(6). Compare In re Amatex, Amatex Corp. v. Aetna Casualty & Surety Co., 97 B.R. 220, 223 (Bankr.E.D.Pa. 1989) (case decided as if presented on a motion for summary judgment since the court considered matters presented by the parties outside of the pleadings). Since the depositions are not relevant to the issues to be addressed here, we believe that the present matter, unlike the Amatex case, may be decided as if on a motion to dismiss rather than as if presented on a motion for summary judgment. In deciding such a motion, we must assume that all of the facts alleged in Joseph's Complaint are true. See e.g., Commonwealth of PA. ex rel. Zimmerman v. Pepsico, Inc., 836 F.2d 173, 175, 181, 184 (3d Cir.1988); and In re Tucci, 81 B.R. 320, 320-21 (Bankr.E.D.Pa. 1988).

By Order dated February 22, 1989, in light of the colloquy on February 21, 1989, the parties were given an opportunity to simultaneously file briefs addressing the following issues:

1. Should the October 21, 1987, Deposition of the husband-Debtor in C.A. No. 5907 sic (E.D.Pa.) be admissible into the record of the disposition of this matter? See Bankr.Rule 7032, F.R.Civ.P. 32(a)(2).⁵

2. May the husband-Debtor attack the judgment entered against him in C.A. No. 85-5907 (E.D.Pa.) in the above adversary proceeding, or is he bound by that judgment in the administration of these cases? See In re Gulph Woods Corp., 84 B.R. 961, 970 (Bankr.E.D.Pa.1988), and cases cited therein.

3. Is an evidentiary hearing necessary on any issues prior to disposition on its merits? If so, on what issues and when should this be conducted?

4. The merits of the Fund\'s motion (presumably the same objections would be equally applicable to each of the Debtor\'s cases; indicate if this is not so).

The parties' Briefs were filed timely and this matter is ripe for adjudication.⁶ Since these consolidated matters involve a challenge to a claim of exemption and a Complaint for the determination of a judicial lien, they are core matters which may be determined by this Court. 28 U.S.C. §§ 157(b)(2)(B) and 157(b)(2)(K).

FACTUAL ALLEGATIONS

As discussed supra, the only evidence presented in these matters was the depositions admitted by agreement of counsel. However, these depositions are not relevant to the issues to be decided and are not considered here. Accordingly, we shall limit our consideration to the factual allegations contained in the adversarial Complaint.

The pertinent allegations are as follows:

1. The Fund is the sole creditor of Joseph.

2. On or about July 4, 1986, the Fund obtained a default judgment against Joseph in the matter of Trustees of the Amalgamated Insurance Fund v. Joseph Garafano t/a South Philadelphia Vest, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 85-5907.

3. The Complaint in the aforesaid civil action alleged that the Fund was the sponsor of a multiple-employee benefit retirement plan (hereinafter "the plan") within the meaning of the ERISA, 29 U.S.C. § 1001 et seq., as amended by the MultiEmployer Pension Plan Amendments Act, 29 U.S.C. § 1381 et seq. (h...