In re Hoffman
| Decision Date | 14 April 1989 |
| Docket Number | Adv. No. L88-0252S,Bankruptcy No. L85-02504S,Misc. No. 89-4013. |
| Citation | 99 BR 929 |
| Parties | In re Ray A. HOFFMAN, Jr., Debtor. Ray A. HOFFMAN, Jr., Plaintiff, v. FIRST NATIONAL BANK OF AKRON, IOWA and Does, John I through XX, inclusive, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
John Harmelink, Yankton, S.D., for debtor.
Craig Raby, Sioux City, Iowa, for defendants.
The court is in receipt of the Memorandum and Proposed Order received in this case from the Honorable Michael Melloy, Chief Bankruptcy Judge, Northern District of Iowa. The court has been apprised that this matter is a non-core proceeding as contemplated by rule 9033 of the Bankruptcy Rules. The court has been apprised that the clerk of the bankruptcy court has served copies on all parties by mail; that under rule 9033(b) any party may within ten days after being served with a copy of the proposed order file any written objections which they may have to said proposed order. Said notices have been mailed, the ten days has passed, and no objections have been filed.
For good cause shown,
IT IS ORDERED that this court, pursuant to rule 9033(d), hereby accepts and adopts the Memorandum and Proposed Order and directs that the clerk of court shall enter judgment as set out in said proposed order.
Re: Motion to Dismiss
This adversary proceeding is before the Court on the Defendants' Motion to Dismiss. The motion is made with regards to Plaintiff/Debtor Ray Hoffman's petition originally filed in state court against Defendant/Creditor First National Bank of Akron. The Defendant removed the case to federal bankruptcy court and has moved to dismiss the petition. The Court submits the following proposed Findings of Fact, Conclusions of Law and Order pursuant to F.R.B.P. 9033.
Plaintiff Ray A. Hoffman, Jr. (Debtor) voluntarily filed bankruptcy on December 4, 1985. On June 16, 1986, the Debtor filed his disclosure statement and proposed plan of reorganization. During the course of the next year, Debtor filed various attachments and amendments to both his disclosure statement and proposed plan of reorganization. A third plan of reorganization was filed on June 25, 1987 and confirmed on July 21, 1987.
The Debtor's principal creditor was First National Bank of Akron, Iowa (Bank). The Bank was owed nearly $250,000 by the Debtor. The plan which was eventually filed and confirmed in this case was in great part the result of negotiation and agreement between the Bank and the Debtor. The Debtor and the Bank jointly filed a detailed seven page stipulation encompassing the agreement that the parties had reached concerning the debt owed to the Bank. This agreement was adopted verbatim by the Debtor in his plan as the proposed treatment of the Bank. Pursuant to the agreement the Bank voted for the plan which was ultimately confirmed.
On October 5, 1988, the Debtor filed suit in Iowa District Court in and for Plymouth County against the Bank on various counts including fraud, violation of fiduciary duties, misrepresentation, negligence and bad faith. Collectively, these counts constitute a cause of action generally known as a lender liability lawsuit. The lender liability lawsuit alleges that between 1980 and 1985 the Bank was guilty of various acts or omissions which ultimately led to the filing of Debtor's Chapter 11 petition on December 4, 1985.
On October 14, 1988, the Bank moved in state court to dismiss the petition. On October 24, 1988, the Bank filed this adversary proceeding and timely1 removed the state court action to this Bankruptcy Court pursuant to 28 U.S.C. § 1452. On October 26, 1988, the Bank moved to dismiss the removed action against them in Bankruptcy Court. On December 6, 1988, a hearing was held for oral arguments regarding the Motion to Dismiss. At the hearing on the Motion to Dismiss, the parties stipulated that the Court could take judicial notice of the documents and filings contained in the Debtor's Chapter 11 case.
A review of the court file shows that the Debtor did not disclose the existence of his lender liability claim against the Bank in his Schedules, Disclosure Statement or Proposed Plan of Reorganization or any of the various amendments or attachments to those documents. Schedule A-2 filed with Debtor's initial filing does not indicate that the Bank's claim was disputed, contingent or unliquidated. Likewise, throughout the proceedings leading up to the confirmation of Debtor's plan, including various stay litigation, there was never any indication given by the Debtor that the Bank's claim was in dispute. In the agreement between the Debtor and the Bank, the Debtor acknowledged that his "current obligation to the Bank" as of the date of filing bankruptcy, was $239,165.66. Additionally, the Debtor further acknowledged "that the Bank is properly perfected as to all the Debtor's livestock, machinery, . . . real estate, . . . and government deficiency payments. . . ." Stipulation and Order, April 22, 1986 (references to exhibits omitted). Subsequent to the confirmation of the plan and the initiation of the lender liability lawsuit, the Debtor has not moved to amend the disclosure statement or plan of reorganization to include the potential proceeds from the cause of action in the bankruptcy estate.
It is somewhat unclear when the Debtor became aware of the potential cause of action. Debtor's attorney indicated that at the time the bankruptcy case was commenced in 1985 they had no knowledge as to the potential cause of action. At the hearing on December 6, 1988, Debtor's attorney represented to the Court that Debtor would testify that the first time discussions were held between Debtor and Debtor's counsel about the potential claim against the Bank were after confirmation of the plan. See Tr. of December 6, 1988 Hearing, p. 18:2-5.
The court file indicates this statement by the Debtor's attorney is not true. On September 10, 1987, Debtor's attorney filed his final fee application. In that fee application, there is an entry for June 4, 1987, concerning an office conference between Debtor's counsel and the Debtor ". . . re: Possible lawsuit against Bank." Between that date and the date the plan was ultimately confirmed (July 21, 1987), there are various entries for reviewing and revising the third plan of reorganization as well as entries for research and office conferences concerning the potential lawsuit against the Bank. Research and other work on the lawsuit against the Bank continued for two or three weeks following the confirmation of the plan, including drafting of the petition against the Bank on August 5, 6, and 10. The Court must conclude from those entries that the Debtor was aware prior to the drafting and revising of the third amended plan, the plan which was ultimately confirmed in this case, that there was at least the potential of a claim against the Bank.
The first issue facing this Court is whether the Court has jurisdiction to issue a final order in this case, i.e. whether this is a core or non-core related proceeding. In a non-core related proceeding, the Bankruptcy Court is to "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions. . . ." 28 U.S.C. § 157(c)(1). This Court does have the authority to determine whether a proceeding is core or a non-core related proceeding. See 28 U.S.C. § 157(b)(3).
Debtor's lender liability claim is in this Court by virtue of the Defendant Bank's removal. The motion to dismiss which is presently before the Court is a defense to the lender liability claim. To determine core or non-core status, the Court must look to the substantive action before it.2See Matter of Wood, 825 F.2d 90, 97 (5th Cir.1987) (). Although the defense requires this Court to construe the order confirming the plan, the substantive action, i.e. the lender liability action, does not require the construction of any past orders of this Court. Indeed, a lender liability action does not specifically fit within any of the core proceedings listed in 28 U.S.C. § 157(b)(2), unless brought as a counterclaim or considered to fall within one of the "catchall" provisions, § 157(b)(2)(A) "matters concerning the administration of the estate" or § 157(b)(2)(O), "other proceedings affecting . . . the adjustment of the debtor-creditor . . . relationship." See Oneida Motor Freight, Inc. v. United Jersey Bank, 75 B.R. 235, 238 (D.N.J.1987), aff'd 848 F.2d 414 (3rd Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988).
The Eighth Circuit has cautioned against adopting a broad approach to the "catchall" provisions of 28 U.S.C. § 157(b)(2). In re Cassidy Land and Cattle Co., Inc., 836 F.2d 1130, 1132 (8th Cir.1988) (citing Matter of Wood, 825 F.2d 90, 97 (5th Cir.1987)) cert. denied, ___ U.S. ___, 108 S.Ct. 2016, 100 L.Ed.2d 603 (1988). The Wood court set forth a narrow view of the core/non-core distinction:
A proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case. If the proceeding before us does not meet this test, then accordingly, it is a non-core proceeding."
Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987).
Thus, although the lender liability action could fit within the broad provision of "matters concerning the administration of the estate," the action is precisely the sort that should not be found to fit within that section in order to effectuate the Supreme Court's...
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