In re Lake Country Investments, Bankruptcy No. 99-20287. Adversary No. 00-6057.

• Decision Date: 19 September 2000
• Docket Number: Bankruptcy No. 99-20287. Adversary No. 00-6057.
• Citation: 255 BR 588
• Parties: In re LAKE COUNTRY INVESTMENTS, Limited Liability Company, Debtors. Joseph A. Esposito, Trustee, Plaintiff, v. John E. Noyes, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

255 B.R. 588 (2000)

In re LAKE COUNTRY INVESTMENTS, Limited Liability Company, Debtors Joseph A. Esposito, Trustee, Plaintiff, v. John E. Noyes, Defendant.

Bankruptcy No. 99-20287. Adversary No. 00-6057.

United States Bankruptcy Court, D. Idaho.

September 19, 2000.

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Joseph A. Esposito, Esposito Tombari George Topliff & Campbell, P.S., Spokane, Washington, for Plaintiff.

R. Wayne Sweney, Lukins & Annis, Coeur d'Alene, Idaho, for John Noyes and Alicia Noyes.

MEMORANDUM OF DECISION

TERRY L. MYERS, Bankruptcy Judge.

I. INTRODUCTION

Lake Country Investments LLC ("Lake Country") was formed in the latter part of 1996. The members and equal owners of this limited liability company are Agincourt, LLC ("Agincourt") and Arrow Point Development Company ("APDC"). West Wood Investments, Inc. ("West Wood") owns 99% of Agincourt. West Wood is a creditor of Lake Country and was the petitioning creditor in the involuntary petition which gave rise to the chapter 11 case.

Joseph Esposito, the chapter 11 Trustee of Lake Country ("Esposito" or "Trustee") brings this adversary proceeding against John and Alicia Noyes ("Noyes")¹. He asserts four claims for relief.² Noyes moves pursuant to Fed.R.Civ.P. 56, incorporated by Fed.R.Bankr.P. 7056, for summary judgment on all four counts. Noyes has also objected to and moved to strike certain affidavits in opposition to the motion for summary judgment which were submitted by Esposito or others on his behalf.

All these matters were argued on June 14 and taken under advisement subject to Esposito's supplemental briefing concerning (a) Noyes' motion to strike portions of an affidavit of accountant Stanley Short, and (b) the issue of the amendment of certain implicated provisions of the Idaho Code relating to business corporations. Those submissions, and Noyes' reply thereto, have now been made.

Before reaching the summary judgment issues, the Court must first determine the extent of the record which may properly be considered.

II. THE RECORD³

A. As presented by the moving party

Noyes moved for summary judgment based upon the pleadings of record (the complaint, and the answer and counterclaim⁴) and an affidavit of John Noyes to which several documents are attached.

B. As presented by (or for) the non-moving party

Noyes' motion triggered Esposito's duty to respond under Rule 56(e), which provides:

(e) Form of Affidavits; Further Testimony; Defense Required. Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith. The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits. When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party\'s pleading, but the adverse party\'s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

Esposito relies upon several submissions in defense of the motion.

1. The Esposito declaration

Esposito signed and filed a declaration in which he declares he is the Trustee for Lake Country and attorney for Plaintiff. He avers nothing at all in regard to his personal knowledge, or his competency to testify. The substance of his declaration states:

2. In response to discovery requests propounded to Source Capital Corporation, files of Source Capital with respect to an Arrow Point Development Company loan were obtained. Various documents were produced, copied and delivered to defendant Noyes\' attorney. The following documents are true and correct copies of documents obtained from the file.

What follows is a listing of eight documents, all of which are attached as exhibits. No other assertions are made in the declaration.

2. The Fasnacht affidavit

An affidavit of Robert J. Fasnacht was filed in opposition to the Noyes' summary judgment motion. This pleading was filed not by the Trustee, but by West Wood.⁵ Attached to Fasnacht's affidavit are numerous documents.

The affirmative representations of this affidavit are as follows. First, Fasnacht alleges that he makes the affidavit "upon personal knowledge, and is competent to testify as to all matters contained herein." Id. at ¶ 1. He then states that, in his capacity as one of several attorneys for West Wood, he served multiple document production subpoenas upon Arrow Properties Partnership, Century 21 John Beuler Associates, Pioneer Title Company of Kootenai County, Arrow Point Joint Venture, and Brown & Delaney Certified Public Accountants. In regard to each such identified entity, he asserts that an attached exhibit represents "true and accurate copies of documents that I retrieved from that entity's files as their business records." Id. at ¶ 3.

The only exhibits not falling within this sort of foundational approach are those in Exhibit F, which Fasnacht alleges were documents obtained by his client, West Wood, from Noyes. Id. at ¶ 4.

3. The Morse affidavit

West Wood also filed an affidavit of Ed Morse in opposition to Noyes' motion. Morse is an appraiser, and testifies as to his opinion of value for several condominium units and related real estate assets of Lake Country, some of which were previously owned by APDC.

4. The Short declaration

Esposito also filed a declaration of Stanley Short in opposition to Noyes' summary judgment motion. Short is a certified public accountant, and his affidavit focuses on the issue of the insolvency of APDC in late 1995 and early 1996. The affidavit is allegedly premised on Short's review of APDC books and records, including those produced by accountants Brown & Delaney in response to discovery requests. It also appears that Short reviewed documents attached to the Esposito declaration and Fasnacht affidavit.

C. Motion to strike

Noyes objects to the Court's consideration of the Esposito declaration and its attachments on the basis that compliance with Rule 56(e) is lacking and that Esposito lacks the ability to testify from personal knowledge as to the factual matters asserted or to properly support consideration of the documents he proffers.

Noyes also objects to the Court's consideration of the Fasnacht affidavit on this same basis, alleging that Fasnacht has not established personal knowledge necessary to support consideration of the voluminous documents produced by other entities in response to discovery. Noyes also objects to the Court's considering the Fasnacht affidavit since it was filed by West Wood, which is not a party to this adversary proceeding.⁶

Noyes asks the Court to strike both the Fasnacht affidavit and the Esposito declaration in their entirety.

Noyes also objects to and moves to strike the Short declaration, in part and not in whole, to the extent that the opinions rendered are based upon speculation or upon factual assumptions not otherwise established by the record now before the Court.

1. Disposition of the motion to strike

a. Esposito declaration and Fasnacht affidavit

Rule 56(e) requires that the affidavits be "made on personal knowledge," that they set forth facts admissible in evidence, and that they affirmatively show that the affiant is qualified to testify to the matters set forth.

Neither the Fasnacht affidavit nor the Esposito declaration establishes that the declarant is competent to testify as to factual matters at issue in the litigation, or could competently testify as to the provenance of documents attached as exhibits.

The Bankruptcy Appellate Panel has held:

Affidavits by attorneys which do not comply with the personal knowledge requirement of Rule 56(e) cannot be used in opposition to a summary judgment motion.... An affidavit not based on personal knowledge is to be disregarded when considering a summary judgment motion.

Grzybowski v. Aquaslide `N' Dive Corporation (In re Aquaslide `N' Dive Corporation), 85 B.R. 545, 548 (9th Cir. BAP 1987) (citations omitted). In Foster v. AlliedSignal Inc., 98 F.Supp.2d 1261 (D.Kan.2000), the court similarly refused to consider an attorneys' testimonial assertions in an affidavit which failed to establish personal knowledge. 98 F.Supp.2d at 1265. That court also refused to consider documents attached to the attorney's affidavit:

Counsel is not competent to testify as to the attached telephone log because he has no personal knowledge of any of the information contained therein, the document\'s source, or its authenticity. Affidavits of attorneys who lack personal knowledge of information related in supporting documentation are not entitled to consideration on a summary judgment motion. See Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 643 (2d Cir.1988).

...

Accordingly, business records, which normally would be admissible at trial under the hearsay exception, may be considered to avoid summary judgment only if authenticated by a person through whom the exhibits could be admitted into evidence. See IBP, Inc. v. Mercantile Bank of Topeka, 6 F.Supp.2d 1258, 1263 (D.Kan.1998). Counsel does not attempt to authenticate the attached telephone log, nor could he unless he claimed personal knowledge of the log, its origin, and how the log was generated or kept. For all these reasons, the court strikes Counsel\'s affidavit and the attached document.

98 F.Supp.2d at 1265-66.

It is evident from the affirmative representations of both the Fasnacht affidavit and Esposito declaration that neither individual is...