In re Harmony Holdings, LLC

• Decision Date: 11 September 2008
• Docket Number: 08-00604-DD.,C/A No. 08-00599-DD.
• Citation: 393 B.R. 409
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re HARMONY HOLDINGS, LLC, Debtor. In re Spanish Moss Development, LLC, Debtor.

393 B.R. 409

In re HARMONY HOLDINGS, LLC, Debtor.

In re Spanish Moss Development, LLC, Debtor.

C/A No. 08-00599-DD.

08-00604-DD.

United States Bankruptcy Court, D. South Carolina.

September 11, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Barbara George Barton, Columbia, SC, Seann Gray Tzouvelekas, Leatherwood Walker Todd & Mann PC, Greenville, SC, for Debtor.

ORDER DENYING MOTIONS TO DISMISS AND MOTIONS FOR RELIEF FROM STAY

DAVID R. DUNCAN, Bankruptcy Judge.

This matter comes before the Court upon Motions to Dismiss filed by Barney Ng and R.E. Loans, LLC (collectively "Movants") on May 2, 2008 and Motions for Relief From Stay filed on May 1, 2008, one of each being filed in each of the above cases which are being jointly administered pursuant to an order entered on June 10, 2008. A hearing was held on the Motions August 22, 2008. Debtor and Movants appeared by and through counsel to present arguments. Counsel for the unsecured creditors committee also appeared at the hearing and indicated the constituents of the committee favored continuing with attempts to reorganize.

Movants' case consisted entirely of requests that the Court take judicial notice of the following: (1) Schedules, (2) monthly operating reports, (3) the Court's single asset real estate order, (4) a summary of pre-petition accounts payable, (5) the loan documents executed between the parties, (6) all filed proofs of claim ("POC"), (7) a newspaper article from the Georgetown Times, (8) a newspaper article from the Charleston City paper, (9) a POC from the TV Guild, (10) certain post-petition expenditure records, and (11) emails from David Eldredge, a member of the limited liability company that owns the Debtors, to Barney Ng and others. Movants also cross examined Mr. Eldredge and elicited certain testimony.

Discussion of Judicial Notice and Public Records

A judicially noticed fact "must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R.Evid. 201(b). The Honorable Barry Russell states in his Bankruptcy Evidence Manual that, "[t]he usual method of establishing the facts in litigation is through the introduction of evidence, ordinarily through the testimony of witnesses". If particular facts are outside the area of reasonable controversy, this process may be dispensed with as unnecessary; a high degree of indisputability is the essential prerequisite. Barry Russell, Bankr.Evid. Manual § 201.1 (2007 ed.).

"The Advisory Committee Notes make clear that extreme caution should be used in taking judicial notice of adjudicative facts because of the traditional belief that the taking of evidence, subject to established safeguards, is the best way to resolve controversies involving disputes of facts. The Fifth Circuit in Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 347-48 (5th Cir.1982) stated the proposition as follows: `Judicial notice applies to self-evident truths that no reasonable person could question, truisms that approach platitudes or banalities....'" Barry Russell, Bankr.Evid. Manual § 201.2 (2007 ed.). Judge Russell further explains the subtleties of taking judicial notice regarding documents filed with the Court, stating,

There exists a mistaken notion that it means taking judicial notice of the truth of facts asserted in every document in a court file, including pleadings and affidavits. However, a court may not take judicial notice of hearsay allegations as being true merely because they are part of a court record or file. It is difficult to understand why the filing of a document with a court should magically result in the contents of the document attaining a sufficient degree of reliability to overcome evidentiary objections such as hearsay to its admissibility in a trial before a bankruptcy judge.

The taking of judicial notice is often merely a way of simplifying the process of authenticating documents which would generally require certification under FRE 901 and 902, and overcoming FRE 1002 best evidence problems (i.e. the concept that because they are in the Court's own files they are accepted as genuine). It is clear however, that authenticating a document does not automatically insure its introduction into evidence in the face of other objections, such as hearsay.

"While a bankruptcy judge may take judicial notice of a bankruptcy court's records, see Fed.R.Evid. 201(c), ... we may not infer the truth of the facts contained in documents, unfettered by rules of evidence or logic, simply because such documents were filed with the court. See Barry Russell, Bankruptcy Evidence Manual § 201.5 at 201 (West 1995)." In re Scarpinito, 196 B.R. 257 (Bkrtcy.E.D.N.Y.1996).

Barry Russell, Bankr.Evid. Manual § 201.5 (2007 ed.). See also In re James, 300 B.R. 890, 895 (Bankr.W.D.Tex.2003)(quoting In re Earl, 140 B.R. 728 n. 2 (Bankr.N.D.Ind.1992)) ("Courts realize that there is a `very crucial distinction between taking judicial notice of the fact that an entity has filed a document in the case, or in a related case, on a given date, i.e., the existence thereof, and the taking of judicial notice of the truth or falsity [of the] contents of any such document for the purpose of making a finding of fact....' The Federal Rules of Evidence 104(a) and 1101(d)(1) make clear that Rule 201 typically does not apply to facts considered by a court when ruling on the admissibility of evidence.")[Brackets in original].

Thus, while the Court may take judicial notice of the fact that a document or pleading has been filed for certain purposes, See In re Gordon-Brown, 340 B.R. 751 (Bankr.E.D.Pa.2006)(A bankruptcy court may take judicial notice of the docket in a case and the content of the bankruptcy schedules for the purpose of ascertaining the timing and status of events in the case and facts not reasonably in dispute), it does not necessarily take judicial notice of the facts contained within the pleading. Admission into evidence of facts contained within a pleading filed with a court must also be evaluated using the remaining evidentiary rules, such as hearsay and exceptions thereto.

Of the eleven enumerated items above the Court will take judicial notice and admit into evidence the following for the reasons stated: The Court will take judicial notice of the schedules and the Court's single asset real estate order. The Court's order is an unappealed order, and is the law of the case for certain purposes. The Schedules shall be admitted into evidence because they are admissions of the Debtor signed under penalty of perjury. See In re Earl, 140 B.R. 728 (Bankr. N.D.Ind.1992) ("[V]erified Schedules and Statements filed by a debtors are not just pleadings, motions or exhibits thereto. They are evidentiary admissions. In re Cobb, 56 B.R. 440, 442 n. 3 (Bankr.N.D.Ill. 1985). See Fed.R.Evid. 801(d)(2) (Admission by a party opponent not hearsay)"); See also In re Reed, 293 B.R. 65 (Bankr. Kan.2003)(same); In re Camp, 170 B.R. 610, 612 (Bankr.N.D.Ohio 1994)(same); In re Snider Farms, Inc., 125 B.R. 993, 995 (Bankr.N.D.Ind.1991)(taking judicial notice of contents of court order). The Court shall also take judicial notice of the monthly operating reports as admissions of the Debtors, however, Movants stated that they offered them solely for the purpose of showing that Debtor has no employees and the Court will limit admission to that purpose.

The Court will admit the summary of accounts payable offered by Movants to the extent that David Eldredge testified about the expenses. The loan documents executed between the parties will be admitted as the parties stipulated to their authenticity. The Court will take judicial notice of all filed POCs, but only as to the fact that they are filed. The statements within the proofs of claim are hearsay. The Court will not admit the newspaper articles from either the Georgetown Times or the Charleston City paper as each contain hearsay. The POC filed by the TV Guild will be judicially noticed as filed but will not be allowed for any other purpose. Mr. Eldredge testified that he had no information concerning the claim and Movant offered no other evidence regarding the TV Guild claim. The post-petition accounts payable records will be admitted to the extend Mr. Eldredge had knowledge and testified about them. Lastly, the emails from David Eldredge to Barney Ng will be allowed. Mr. Eldredge testified that they were emails sent or received by him between several recipients. This, however, does not make the matters contained in the emails so reliable as to justify judicial notice of all of the facts stated therein. Mr. Eldredge did acknowledge sending or receiving the emails and to the extent he sent the emails they are his prior statements.

Movants argued at the hearing that the public records exception to the hearsay rule applied to all of his exhibits because they were filed with the Court. The public record exception is much more restrictive than Movants contend. Fed.R.Evid. 803(8) excepts from hearsay,

Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report, excluding, however, in criminal cases matters observed by police officers and other law enforcement personnel, or (C) in civil actions and proceedings and against the Government in criminal cases, factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.

Thus, to fit the exception the record must have been authored by a public office or agency. See Ellis v. International Playtex, Inc., 745 F.2d 292 (C.A.Va.198...