In re Kartman

• Decision Date: 29 September 2006
• Docket Number: Bankruptcy No. 04-27371 TPA.,Adversary No. 05-2149 TPA.
• Citation: 354 B.R. 70
• Parties: In re John A. KARTMAN, Debtor. John A. Kartman, Plaintiff, v. North Suburban Tree Service Inc., Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

Page 70

354 B.R. 70

In re John A. KARTMAN, Debtor.

John A. Kartman, Plaintiff, v. North Suburban Tree Service Inc., Defendant.

Bankruptcy No. 04-27371 TPA.

Adversary No. 05-2149 TPA.

United States Bankruptcy Court, W.D. Pennsylvania.

September 29, 2006.

COPYRIGHT MATERIAL OMITTED

Mary Bower Sheath, Esq., Pittsburgh, PA, for John A. Kartman, Plaintiff.

Robert J. Williams, Esq., Schnader, Harrison, Segal & Lewis LLP, Pittsburgh, PA, for North Suburban Tree Service, Defendant.

MEMORANDUM OPINION

THOMAS P. AGRESTI, Bankruptcy Judge.

The matter currently before the Court involves the Motion to Alter or Amend Judgment Pursuant to Bankruptcy Rules 8002(b) and 7052 filed by the Debtor/Plaintiff, John A. Kartman ("Kartman"). The Motion requests this Court to "alter or amend" its oral findings of fact and conclusions of law set forth on the record following the trial on the Debtor's Amended Complaint to Avoid Lien Pursuant to 11 U.S.C. § 522(h) and § 544. The Complaint sought to avoid a judgment lien obtained by default by Defendant North Suburban Tree Service. The Motion contends that the reasons set forth in the Judgment Order entered of record following the trial incorporated factual findings and legal conclusions unsupported by the record. Although review of the record indicates that the Judgment Order and the cases cited therein appear to properly reflect the Court's oral findings and reasoning in denying Kartman's Complaint, for purposes of clarity in this regard, the Court grants Kartman's Motion and enters the within written Memorandum Order in place of its original, oral findings and conclusions. For the reasons explained below, the relief requested in Kartman's Complaint is denied.

PROCEDURAL HISTORY

On December 9, 2002 Defendant North Suburban Tree Service, Inc. ("NSTS") obtained a judgment against Kartman, his nondebtor wife, Patricia, and an entity known as West Chester Highlands, Inc. in the amount of $28,860. The judgment was obtained by default in a proceeding filed by NSTS in the Court of Common Pleas of Allegheny County, the state trial court. The complaint was initially brought by NSTS in a pro se capacity by the principals of NSTS, Mr. and Mrs. Stephen Blum and their collection agent, Mr. Belch. Counsel for the Kartmans apparently believed that he had obtained an extension of time to respond from NSTS until December 18, 2002. NSTS disputed that any such continuance was granted.

On December 20, 2002, a petition to open the default judgment was submitted to the state trial court. The petition to open indicated that meritorious defenses would be raised although it did not specify what those defenses might be. Nor did the petition attach the answer that would be filed should the request to open be granted. A Rule to Show Cause was issued dated December 23, 2002 by the state trial court which required the taking of depositions and for oral argument to be scheduled upon praecipe following completion of depositions. No depositions were taken and NSTS requested a hearing date. A hearing was set for July 15, 2003.

Neither Kartman, his co-defendants nor counsel for the defendants appeared at the scheduled hearing on the petition to open the default judgment. NSTS asserts, and nothing in the record indicates anything to the contrary, that it argued its position regarding the default judgment at the scheduled hearing despite the absence of counsel. NSTS presented to the state trial court the relevant facts in its response to the petition to open, defendants' failure to appear and failure to comply with applicable rules of court. In an order dated July 15, 2003, the state trial court denied the petition to open and allowed the original default judgment to remain of record.

Shortly after entry of the order denying the petition to reopen, Kartman filed his first bankruptcy petition on July 30, 2003. That case was subsequently dismissed on May 20, 2004. While that case was pending, the Debtor brought no action or proceeding concerning the NSTS judgment. Approximately one year later, on June 3, 2004, Kartman filed his present bankruptcy. The underlying complaint was originally filed on January 31, 2005. Pursuant to an order of this Court, upon Motion to Dismiss Complaint filed by NSTS, an amended complaint was filed by Kartman on July 16, 2005.

On June 5, 2006, trial on the matters complained of by Kartman in his Complaint took place before this Court. Upon conclusion of all the testimony and argument of Counsel, this Court denied the relief requested in Kartman's Complaint setting forth its oral findings and conclusions of law on the record. Thereafter, the Court issued its Judgment Order pursuant to Fed. R. Bankr.P. 7052 incorporating by reference its findings and reasoning but also setting forth specific reference to the controlling legal authorities relied upon by this Court in rendering its decision. Thereafter, the Debtor timely filed his current Motion.

FACTUAL BACKGROUND

West Chester Highlands, Inc. ("West Chester") was a building and development company created by Kartman for the purpose of development in Belle Vernon, PA. Kartman was the sole shareholder and Chief Operating Officer. NSTS entered into a contract with West Chester in August 2001 to clear acreage in anticipation of constructing self storage sheds. Ex. 7. After NSTS completed much of the clearing, it was learned that financing for the project had fallen through. Kartman testified that he told the principal of NSTS, Stephen Blum, that he intended to meet the obligation to NSTS and that he wanted to personally make sure that NSTS was paid. The parties met on January 31, 2002 to discuss the pending issues. Blum similarly testified that Kartman told him at the January 31, 2002 meeting as well as on other occasions, that Kartman would be "personally" liable for the obligation. A promissory note was subsequently sent by certified mail to Kartman for signature. The promissory note in the amount of $26,904.47 was drafted with the Borrowers identified as "John A. Kartman" and "____________________________ Kartman", the blank line being for the first name of Kartman's wife who was also included on the Note. Clearly, the promissory note was intended to be signed by both the Debtor and his wife. Ex. 5. The promissory note was not signed or returned to NSTS.

During the relevant time period NSTS was owned by Stephen Blum who was also its President. His wife, Kathleen, was also involved in the business as general manager and secretary.

Kathleen Blum also believed the Kartmans had assumed personal liability for the NSTS obligation based upon conversations between Kartman and her husband during which conversation Kartman requested that NSTS draft a promissory note for joint signature. Although the document was prepared, the note was neither signed nor returned. Kathleen Blum testified that in an attempt to collect the debt, NSTS enlisted the assistance of James Belsh to collect the debt. It was Kathleen Blum who, and with the assistance of Mr. Belsh, caused the complaint to be filed against Kartman, his wife and West Chester. Kartman's attorney in the state court action testified that he believed he had an oral agreement with Mr. Belsh regarding an extension of time to answer the complaint but acknowledged that there was no written agreement in this regard. Subsequently, he learned from Mr. Welsh that no extension was in fact approved and default judgment was taken. The state court default judgment was entered against all defendants including Mrs. Kartman, under the authority and name of Kathleen Blum, a non-attorney "officer" of the corporation.

ANALYSIS

The Amended Complaint seeks to avoid the judgment lien of NSTS on the basis of 11 U.S.C. § 522(h) and 11 U.S.C. § 544. In conjunction with these bases, Kartman seeks to avoid the lien on the basis of fraud. It appears on the face of the complaint that Kartman is asserting common law fraud. Counsel for the Debtor also stressed that the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. § 5101, et seq., is asserted although no such specific assertion or statutory reference was provided in either the original complaint or the Amended Complaint. The fraud asserted was that at the time of filing the complaint preceding the default judgment, NSTS knew that neither Kartman nor his wife was liable for the debt to NSTS. NSTS asserts that Kartman is precluded from proceeding on the basis of res judicata and collateral estoppel.

Standing

Whether a Chapter 13 debtor has the statutory authority to commence an avoidance action is generally the subject of some controversy. See e.g., In re Stangel, 219 F.3d 498 (5th Cir.2000), In re Knapper, 407 F.3d 573 (3d Cir.2005). However, where the avoidance action is brought within the context of a debtor's exemption, pursuant to 11 U.S.C. § 522(h), there does not appear to be such dispute. See e.g., McLean v. City of Philadelphia Water Revenue Bureau, 891 F.2d 474 (3d Cir. 1989). 11 U.S.C. § 522(h) provides that a debtor may avoid a transfer of property to the extent that the debtor could have exempted the property under 11 U.S.C. § 522(g)(1). That section, 11 U.S.C. § 522(g)(1), provides that a debtor may exempt under 11 U.S.C. § 522(b) property recovered by the Trustee to the extent the debtor could have exempted the property if it had not been transferred if the transfer was not voluntary and the debtor did not conceal the property or the transfer could have been avoided by the debtor under 11 U.S.C. § 522(f)(2). However, that is not the end of the inquiry. Even if the requirements of Section 522(g)(1) are met, Section 522(h) applies only if two additional conditions are met: first, the transfer is avoidable by the trustee under specific avoidance provisions under applicable nonbankruptcy law, and second, the trustee does not attempt to avoid it. Because the avoidance of this transfer would only benefit the Debtor and not the estate, the Trustee would...