In re Kearney

• Decision Date: 22 July 2021
• Docket Number: No. 17-12274 t11,17-12274 t11
• Parties: In re: VICTOR P. KEARNEY, Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

In re: VICTOR P. KEARNEY, Debtor.

No. 17-12274 t11

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

Filed: July 23, 2021

July 22, 2021

OPINION

Before the Court is Debtor's motion for an order instructing the New Mexico Court of Appeals ("NMCOA") that the automatic stay does not prevent it from resolving three pending appeals. The appeals arise from a decision made by the state district court (Hon. Alan Malott) that allowed certain modifications to two spendthrift trusts. Debtor is the lifetime income beneficiary of the trusts. The trust modifications are a crucial part of the Unsecured Creditors Committee's ("UCC's") competing plan of reorganization. This Court modified the automatic stay to allow Judge Malott to decide whether the trust modifications could be made. The stay relief order is silent about appeals. In his motion, Debtor advances four reasons why the Court should enter a supplemental order that grants stay relief for the appeals. None of the reasons has merit. Debtor made a better argument at the final hearing on the motion, i.e., that the stay relief order included appeals, so no additional relief is needed. The Court agrees; no other interpretation of the stay order makes sense. The motion therefore will be granted.

A. Facts.

The facts of this case are well known to the Court and the parties and are recited herein only to the extent necessary to provide context for the Court's discussion.

The will of Debtor's deceased wife, Mary Pat Abruzzo Kearney, bequeathed 18.5% of the stock of Alvarado Realty Company ("ARCO") to two spendthrift trusts (together, the "Trusts"). During his lifetime, Debtor is the income beneficiary of the Trusts. Upon his death, the corpus of the Trusts is to be distributed to Mary Pat's brothers or their children. Mary Pat's will designated her brothers, Louis and Benjamin Abruzzo (the "Abruzzos"), and Debtor as co-trustees of the Trusts.¹

The Abruzzos and Debtor have an extremely contentious and hostile relationship. The nearly four years of prepetition litigation² between them over the Trusts is well documented in this Court's prior opinions and, more recently, in the Tenth Circuit's opinion, Kearney v. Unsecured Creditors Committee, 987 F.3d 1284 (10th Cir. 2021). That litigation was stayed when Debtor filed this chapter 11 bankruptcy case on September 1, 2017.

Debtor proposed seven plans of reorganization, none of which ever made it to a final confirmation hearing. The UCC filed a competing plan on July 12, 2018, and an amended plan on August 13, 2018 (the "Amended UCC Plan"). The Amended UCC Plan required state court approval of the following changes to the Trusts:

1. ARCO would pay $12,571,799.00 to the Trusts in exchange for all ARCO stock held by the Trusts;

2. The Trusts would pay $3,000,000.00 to Mr. Kearney, who in turn would deliver the funds to a Creditor Trustee (as defined in the plan); and

3. The Allowed Priority Tax Claim of the IRS would be paid over five years from the Petition Date, in February and August of each year, from the net income that would otherwise be distributable to Mr. Kearney from the Trusts.

These changes have been referred to as the "Three Actions." The Amended UCC Plan also contained the following provisions:

I. RULES OF INTERPRETATION; DEFINED TERMS; COMPUTATION OF TIME; AND GOVERNING LAW

. . .

b. Defined Terms. . .

"Final Order" means an order of the Bankruptcy Court or the State Court, that has not been stayed by order of a court of competent jurisdiction and does not remain subject to further appeal.

. . .

VII. CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN, EFFECT OF CONFIRMATION OF PLAN, EFFECTIVE DATE

A. Conditions Precedent to Effective Date

The Effective Date shall not occur until the following conditions have been satisfied or waived: (i) the Confirmation Order shall have been entered and shall be a Final Order; (ii) an order approving as proper actions of the MPK Trustees . . . [the Three Actions] . . . shall be a Final Order . . . .

On August 30, 2018, the Abruzzos filed a motion for relief from the automatic stay so they could ask Judge Malott for a hearing date on the Three Actions. Over Debtor's objection, the Court granted the relief. Judge Malott gave the Abruzzos a hearing on September 27, 2018. They then filed a supplemental stay relief motion, asking that they be able to attend the September 27, 2018, hearing and argue in favor of the Three Actions. Debtor objected. By an order dated September 18, 2018, the Court granted the supplemental motion (the "Stay Relief Order"), stating in part:

IT IS HEREBY ORDERED that the automatic stay imposed under 11 U.S.C. § 362(a) is hereby modified, effective immediately, to allow the Trustees to proceed in the State Court Action (as defined in the memorandum opinion) to determine whether the [Three Actions] would be proper actions of the Trustees . . . .

Debtor appealed the Stay Relief Order and asked this Court and the District Court for a stay pending appeal. The requests were denied.³

On October 18, 2018, Judge Malott entered an order approving the Three Actions (the "Three Actions Order"). On October 31, 2018, Debtor appealed the Three Actions Order to the NMCOA.⁴ On January 15, 2019, he filed a motion requesting that the NMCOA stay the ThreeActions Order pending the outcome of the appeal. On January 30, 2019, the NMCOA denied the motion.

Based on the Three Actions Order, on November 7, 2018, the UCC filed a Second Amended Plan of Reorganization (the "Confirmed UCC Plan"), which contained the following provisions:

I. RULES OF INTERPRETATION; DEFINED TERMS; COMPUTATION OF TIME; AND GOVERNING LAW

. . .

b. Defined Terms

. . .

"Asset" or "Assets" means all assets of the Debtor of any nature whatsoever, including, without limitation, all . . . Causes of Action. . . .

. . .

"Causes of Action" means any and all rights, claims, demands, and causes and rights of action of the Debtor . . . including but not limited to . . . the State Court Litigation . . . .

. . .

"Creditor Trust" means the trust established by this Plan for the benefit of the creditors that will be administered by the Creditor Trustee and in which Creditor Trust Assets will be held until distributed.

"Creditor Trust Assets" means the Trust Payment and the Assets.

. . .

"Effective Date" means the date ten (10) business days after all of the following conditions have been satisfied: (i) the Confirmation Order shall have been entered and shall be a Final Order; (ii) all documents, action, and agreements necessary to implement the Plan have been executed; (iii) closing on the ARCO Stock Redemption shall have occurred; and (iv) receipt by the Creditor Trustee of the Trust Payment.

"State Court Litigation" means the state court case filed by Debtor in the Second Judicial District, County of Bernalillo, New Mexico, Case No. D-202-CV-2013-07676, related to the testamentary trusts created by Mary Pat Kearney upon her death pursuant to her Last Will and Testament, against defendants Louis Abruzzo and Benjamin Abruzzo as Trustee.

. . .

VI. MEANS FOR IMPLEMentation

A. Plan Duration and Implementation of the Plan

. . .

Implementation

1. Establishment of Creditor Trust. On the Confirmation Date, the Creditor Trust shall be established . . . ."

. . .

3. Approval of ARCO Stock Redemption, Trust Payment, and IRS Payment. Pursuant to the Court's "Findings of Fact and Conclusions of Law and Order Related Thereto" entered in the State Court Litigation on October 31, 2018, Louis and Benny Abruzzo, in their roles as Trustees of the MPK Trust have obtained approval of the ARCO Stock Redemption, the Trust Payment, and the IRS Payment, the appointment of Successor Trustee of the Trust, and the modification of the Trust in the State Court Litigation, and no further State Court approval is required.

. . .

6. Release of Abruzzo/ARCO Parties. Upon receipt of the Trust Payment by the Creditor Trust, the Abruzzo/ARCO Parties are hereby released and forever discharged from all Causes of Action, as defined above, with Debtor fully, finally, and forever waiving relinquishing, releasing and discharging all such Causes of Action.

. . .

I. Rights to Pursue Causes of Action

The State Court Litigation and Causes of Action against any of the Abruzzo/ARCO Parties will be released upon the Effective Date of this Plan. . . .

. . .

VII. CONDITIONS PRECEDENT TO EFFECTIVENESS OF PLAN; EFFECT OF CONFIRMATION OF PLAN, EFFECTIVE DATE

A. Conditions Precedent to Effective Date

The Effective Date shall not occur until the following conditions have been satisfied or waived: (i) the Confirmation Order shall have been entered and shall be a Final Order; (ii) all documents, actions, and agreements necessary to implement the Plan have been executed; (iii) closing on the ARCO Stock Redemption shall have occurred; and (iv) receipt by the Creditor Trustee of the Trust Payment.

The "Findings of Fact and Conclusions of Law and Order Related Thereto" entered in the State Court Litigation on October 31, 2018 constitutes an order approving as proper actions of the MPK Trustees the ARCO Stock Redemption, the Trust Payment, and the IRS Payment, and therefore such approval is no longer a condition precedent to confirmation of this Plan or to the Effective Date.

The Court confirmed the Confirmed UCC Plan by an order entered February 28, 2019. Debtor appealed the confirmation order to the Tenth Circuit BAP, and then to the Tenth Circuit Court of Appeals. Both courts affirmed the confirmation order. Debtor's counsel has stated that Debtor intends to file a petition for a writ of certiorari in the United States Supreme Court. His deadline to do so is September 3, 2021.

The only requirement for the Confirmed UCC Plan to become effective is that the confirmation order be a "final order."⁵ If Debtor's petition for certiorari is denied, the confirmation order will be a final order and the plan will be "effective."

On September 19, 2019, Debtor filed a motion in state district court for reconsideration of the Three Actions Order. Jud...