In re Kattouah

• Decision Date: 27 June 2011
• Docket Number: Bankruptcy No. 09–53287.,No. 11–10238.,11–10238.
• Citation: 452 B.R. 604
• Parties: In re Nashwa KATTOUAH, Debtor.Marc A. Goldman and Associates, P.C., Appellant,v.Nashwa Kattouah, Appellee.
• Court: U.S. District Court — Eastern District of Michigan

452 B.R. 604

In re Nashwa KATTOUAH, Debtor.Marc A. Goldman and Associates, P.C., Appellant,

v.Nashwa Kattouah, Appellee.

No. 11–10238.

Bankruptcy No. 09–53287.

United States District Court, E.D. Michigan, Southern Division.

June 27, 2011.

Marc A. Goldman, Marc A. Goldman Assoc., Farmington Hills, MI, for Appellant.Morris B. Lefkowitz, Southfield, MI, for Appellee.

OPINION AND ORDER AFFIRMING BANKRUPTCY COURT'S ORDER CONFIRMING PLAN

ROBERT H. CLELAND, District Judge.

This appeal presents the question of whether an isolated and contradictory statement made by a debtor in an answer to a complaint filed by a creditor in an adversary proceeding constitutes a binding judicial admission to a fact material to the underlying bankruptcy. The court holds that it does not.

I. BACKGROUND

The valuation of an illiquid asset, the real estate commonly known as 2812 South Telegraph Road, Bloomfield Township, Michigan 48302 (the “Property”), is the focal issue here, as it was in the bankruptcy court. Creditor–Appellant Marc A. Goldman and Associates, P.C., argued below that the Property was worth $975,000, discounted some amount to account for the decline in the value of real estate from 2007 to 2009.¹ Debtor–Appellee Nashwa Kattouah contended the Property was worth $500,000. The bankruptcy court valued the Property at $575,000, a value that was incorporated into the confirmed plan. In this appeal, Creditor contests that finding, claiming that the bankruptcy court erred because it was bound to accept Debtor's purported judicial admission in a related adversary proceeding that the Property was valued at $975,000.

Some additional, relevant procedural history puts this appeal into context. Creditor filed a judgment lien in the amount of $95,903 (plus statutory interest) on the Property on April 13, 2009.² Debtor filed a voluntary Chapter 13 petition, along with a plan, on April 28, 2009. On June 30, 2009, Creditor moved to dismiss the bankruptcy, arguing that the plan was not filed in good faith on account of various misrepresentations, one of which related to the valuation of the Property. Creditor alleged that Debtor listed the market value of the Property at $975,000 in a 2007 loan application, but listed it on her amended schedule A at $500,000; Creditor's motion concluded the Property was worth between $700,000 and $800,000. The same arguments were asserted in an objection to the confirmation of the plan filed by Creditor the same day. A first amended plan followed on August 7, 2009, and the same objection regarding the Property was filed five days later.

The court held consolidated hearings on the value of the Property—relevant to both the motion to dismiss and the objection—on January 20 and February 4, 2010. On March 31, 2010, Creditor filed an adversary proceeding (No. 10–05045) against Debtor, alleging a fraudulent transfer of the Property under Michigan and federal law. Debtor then both objected to Creditor's claim and filed her own adversary case against Creditor, each of which contested the status of Creditor's lien.³ On April 12, 2010, the defendants in the adversary case—Debtor and her husband, Andraos G. Kattouah—filed an answer to Creditor's complaint. Paragraph 25 of the answer states in full: “The Defendants deny at the time of the transfer pursuant to evidence admitted into evidence in the underlying case the debtor was clearly solvent because this property was valued at $975,000.00 and the mortgage was only $500,000.00 [.]” This lone sentence forms the entire foundation on which Creditor's appeal rests.

On June 2, 2010, the bankruptcy court issued an opinion on the value of the Property. The opinion recounts that at the hearings, Creditor relied on two facts to reach a valuation of $819,000. First, Creditor looked to the loan application's sworn statement that the Property was appraised in November 2007 at $975,000. Second, Creditor presented a real estate broker as a witness who estimated the annual reduction in market property values. From a starting value and a reduction rate, Creditor reached the $819,000 valuation. Creditor also furnished the testimony of a partner in a real estate office who estimated, in a June 2009 report, that the Property would sell for between $700,000 and $800,000. Debtor, a broker or salesperson in her own right, supported the $500,000 figure through her own testimony and that of a different broker. No licensed appraiser testified.

The bankruptcy court discounted the importance of the $975,000 value, finding, among other things, that the appraiser who asserted that figure in 2007 did not appear for cross examination, that market conditions and unique features of the Property provided only shaky ground for Creditor's proposed analysis, and that the purposes behind a mortgage and bankruptcy valuation differ, and so the outcome of the valuation may, too. The court found the Property was worth $575,000 on the day the Chapter 13 petition was filed, the relevant date for valuing the Property.

On June 16, 2010, Creditor moved for reconsideration. The court held a hearing on the motion on August 12, 2010, during which the motion was denied.

Meanwhile, on June 28, 2010, the mortgagee of the Property, The PrivateBank and Trust Company, moved for relief from the automatic stay in order to foreclose on the Property, arguing its rights were not adequately protected because Debtor (and her brother, who was making the mortgage payments) had failed to pay property taxes, exposing the mortgagee to a possible tax foreclosure. On August 2, 2010, the bankruptcy court granted the motion and lifted the stay with respect to the Property.

Debtor filed a second amended plan on October 26, 2010. Creditor refiled its objection on November 19, 2010. On December 15, 2010, the court held a hearing on and denied Creditor's motion to dismiss. The bankruptcy court issued an opinion incident to the confirmation of the plan on December 21, 2010, in which it denied Creditor's objection. On January 3, 2011, the second amended plan was confirmed. The order confirming the plan lists Creditor's claim as a Class 8 unsecured claim. Creditor stipulated to the dismissal of its adversary proceeding on January 27, 2011.

The confirmed plan includes a liquidation analysis that lists the fair market value of the Property as $575,000 (the value determined by the bankruptcy court) and lists liens against the Property in the amount of $530,000 (the amount owed on the mortgage and on property taxes). That leaves $45,000 of Debtor's equity, none of which is exempt. Deducting administrative expenses and costs in the amount of $39,950, the plan lists $5,050 as available to general unsecured creditors under Chapter 7. Under the plan, $34,053.80 will be available to unsecured creditors, whose claims total $252,856.93. Approximately 13% of all unsecured claims will be paid.

Thus, had the bankruptcy court accepted the $975,000 starting point, and as a result adopted a valuation closer to $800,000, the liquidation analysis would have looked substantially different. Under that scenario, approximately $230,000 would have been available to unsecured creditors, forcing Debtor either to amend her plan or to convert her case into one under Chapter 7. See 11 U.S.C. §§ 1307, 1325.

II. STANDARD

In reviewing a bankruptcy court's decision, the district court accepts as correct the bankruptcy court's findings of fact, unless they are clearly erroneous. Fed. R. Bankr.P. 8013; see B–Line, LLC v. Wingerter ( In re Wingerter ), 594 F.3d 931, 935–36 (6th Cir.2010). The bankruptcy court's conclusions of law are reviewed de novo. In re Wingerter, 594 F.3d at 935–36. “[W]hether a particular statement constitutes a judicial admission that excludes certain evidence [is reviewed] under the abuse of discretion standard.” MacDonald v. Gen. Motors Corp., 110 F.3d 337, 340 (6th Cir.1997); accord Roger Miller Music, Inc. v. Sony/ATV Publ'g, 477 F.3d 383, 394 (6th Cir.2007) (“We review a district court's determination as to whether a particular statement constitutes a judicial admission under the abuse-of- discretion standard.”). “[A]n abuse of discretion exists when the reviewing court is firmly convinced that a mistake has been made regarding the admission of evidence.” MacDonald, 110 F.3d at 340.

III. DISCUSSION

Creditor argues on appeal that the bankruptcy court erred by not treating paragraph 25 of the answer to the adversary complaint as a judicial admission. The court holds there was no abuse of discretion.

“ ‘Judicial admissions are formal admissions in the pleadings which have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof of the fact.’ ” Barnes v. Owens–Corning Fiberglas Corp., 201 F.3d 815, 829 (6th Cir.2000) (quoting Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir.1988)). Judicial admissions are generally binding within the proceeding in which they are made, see Brown v. Tenn. Gas Pipeline Co., 623 F.2d 450, 454 (6th Cir.1980), but are admissible only as non-binding evidence in subsequent actions, Dixie Sand & Gravel Corp. v. Holland, 255 F.2d 304, 310 (6th Cir.1958).

A statement must be “deliberate, clear, and unambiguous” to be considered a judicial admission. MacDonald, 110 F.3d at 340. In order to satisfy these elements, the statement in context must amount to an express concession of a fact. See id.; Robinson v. McNeil Consumer Healthcare, 671 F.Supp.2d 975, 981–82 (N.D.Ill.2009). “Because of their binding consequences, judicial admissions generally arise only from deliberate voluntary waivers that expressly concede ... an alleged fact....” MacDonald, 110 F.3d at 340 (alteration in original) (quoting United States v. Belculfine, 527 F.2d 941, 944 (1st Cir.1975)).

Even if a statement is an admission, the trial court has “broad discretion to relieve parties from the consequences of judicial admissions in appropriate cases.” Id. (quoting Belculfine, 527 F.2d at 944). For...