In re Loy

• Citation: 448 B.R. 420,65 Collier Bankr.Cas.2d 1383
• Decision Date: 30 March 2011
• Docket Number: Adversary No. 09–51379–FJS.,Bankruptcy No. 07–51040–FJS.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re Jonathan A. LOY, Debtor.

448 B.R. 420

65 Collier Bankr.Cas.2d 1383

In re Jonathan A. LOY, Debtor.

Bankruptcy No. 07–51040–FJS.

Adversary No. 09–51379–FJS.

United States Bankruptcy Court, E.D. Virginia,Newport News Division.

March 30, 2011.

Douglas M. Foley, McGuireWoods LLP, Norfolk, VA, for Debtor.Cullen A. Drescher, Daniel F. Blanks, McGuireWoods LLP, Norfolk, VA, for Jeremiah Anthony O'Sullivan.Christopher L. Perkins, LeClair Ryan, David R. Ruby, McSweeney Crump Childress & Temple, P.C., Richmond, VA, for David R. Ruby.Kenneth N. Whitehurst, III, Norfolk, VA, for W. Clarkson McDow, Jr.

MEMORANDUM OPINION

FRANK J. SANTORO, Bankruptcy Judge.

This matter is before the Court upon the Debtor's “Motion To Revoke Recognition Of Foreign Main Proceeding Pursuant To 11 U.S.C. § 1517(d)” (the “Motion to Revoke Recognition”) filed by Jonathan A. Loy (the “Debtor”) on September 15, 2009. (Doc. No. 71.) ¹ The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia, dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (P), in which final orders of judgments may be entered by a bankruptcy judge. Venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1408(1) and 1409(a).

In seeking to revoke recognition, the Debtor is seeking an extraordinary equitable remedy. As will be explained, the Court finds that it is within its discretion to revisit the prior grant of Chapter 15 recognition. At this time and on the state of the record, the Court declines to exercise its discretion to award the Debtor any relief. As discussed below, the Court will afford the Debtor the opportunity to supplement or complete the record. If that is done, then the Court will revisit its decision, pursuant to 11 U.S.C. § 1517(d) of the Bankruptcy Code (the “Code”). Finally, the Court will direct the Chapter 7 Trustee to resume administration of the Chapter 7 case and its assets. In making this determination, the Court has considered the pleadings, the entire trial record, and the arguments of the parties. Each of this has been of assistance in reaching the Court's findings of facts and conclusions of law detailed herein.

I. INTRODUCTION

This case has taken a long, circuitous route through the bankruptcy process. ² Additional material facts and new evidence have been introduced since the hearing on the English Trustee's Petition for Recognition was convened before the Honorable Stephen C. St. John in 2007. A detailed discussion of the background and procedural history is necessary to explicate the Court's focus and legal analysis in this Opinion.

II. BACKGROUND & PROCEDURAL HISTORY

A. Background

The Debtor is a British citizen who resided lawfully in Hampton, Virginia until mid-to-late December 2010. The Court finds as a finding of fact that the Debtor resided in Hampton, Virginia beginning in November 2004.³ As will be explained below, the Debtor currently resides in Meslan, France. In May 2000, when the Debtor still resided in England, the Debtor and his brother formed Cider House Furniture, which designed and sold wood furniture. Unfortunately, the company failed. (Doc. No. 16, at 2.) In 2003, pursuant to the United Kingdom's Insolvency Act of 1986, the Debtor made a Proposal for Individual Voluntary Arrangement (the “IVA”) with creditors in the Exeter Country Court, England. Under the IVA, the Debtor proposed to sell certain property in France to satisfy his debts. (Doc. No. 3, Ex. A.) The Debtor proposed to retain real property that he purchased on August 9, 2002 in Hampton, Virginia, located at 200 Creekview Lane (the “Creekview Property”). (Doc. No. 3, Ex. A.) The IVA was approved on July 31, 2003. (Doc. No. 3, Ex. E, ¶ 4.) Christopher MacKenzie–Thorpe was appointed initially Supervisor of the IVA; Jeremiah O'Sullivan (“O'Sullivan” or the “English Trustee”) later replaced him.

On March 31, 2005, the Debtor informed O'Sullivan that he had incurred more debt, could not meet the terms of the IVA, and was, thus, in default. (Doc. No. 3, Ex. B.) In March 2006, O'Sullivan filed a Default Petition with the Exeter County Court in Devon, England, requesting that the Debtor be adjudged a “bankrupt.” (Doc. No. 3, Ex. E.) On August 17, 2006, Deputy District Judge Ayles of the Exeter Country Court issued an order adjudging the Debtor a “bankrupt” and appointing O'Sullivan as trustee to oversee the English Bankruptcy proceedings (the “English Bankruptcy Court Order”). (Doc. No. 3, Ex. F.) Following entry of the English Bankruptcy Court Order, the English Trustee, the Debtor, and the Debtor's non-bankrupt spouse, Susan J. Loy (“Mrs. Loy”), engaged in negotiations with regard to the disposition of the Creekview Property. The negotiations were unsuccessful.

From July 19, 2002 to October 24, 2007, record title to the Creekview property was in the Debtor's sole name, as reflected in the real estate records maintained by the Clerk of the Circuit Court for the City of Hampton, Virginia. (Doc. No. 3, Ex. G, at 5.) On February 1, 2007, after discovering that the Debtor was the sole record-owner of the Creekview property, the English Trustee filed in the Circuit Court for the City of Hampton, Virginia a Memorandum of Lis Pendens asserting his rights in the property (the “Lis Pendens”). (Doc. No. 3, Ex. G.) Leo Perk, Esq., (“Perk”) represented the Debtor with regard to the Lis Pendens and responded by filing a Motion to Quash the Memorandum of Lis Pendens. (Doc. No. 3, Ex. I.)

Although the Debtor was the subject of the pending bankruptcy proceeding in England and was aware of the Lis Pendens clouding title to the Creekview Property, the Debtor executed a Deed of Gift of the Creekview Property to himself and Mrs. Loy as tenants-by-the-entirety with the right of survivorship as at common law (the “Deed of Gift”). The Deed of Gift was recorded on October 24, 2007. (Doc. No. 29, Ex. D.)

Subsequently, on October 29, 2007, the Debtor and Mrs. Loy executed and recorded a Deed of Trust that encumbered the Creekview Property for the benefit of Joseph L.R. Pinard (the “Pinard Deed of Trust”). (Doc. No. 29, Ex. E.) Perk serves as trustee on the Pinard Deed of Trust. Prior to recordation of the Pinard Deed of Trust, Pinard was aware of the Lis Pendens and viewed a copy of the Lis Pendens, as well as the English Bankruptcy Court Order. (Doc. No. 40, Feb. 11, 2008 Hr'g Tr. at 16:11–24, 17:10–18.) There is no evidence in the record that the English Trustee and the English Court authorized the Deed of Gift or the Pinard Deed of Trust.

On October 28, 2007, the English Trustee filed a Petition for Recognition of Foreign Main Proceeding (the “Petition for Recognition”), pursuant to 11 U.S.C. §§ 1515 and 1517(a)(1), in the United States Bankruptcy Court for the Eastern District of Virginia, Newport News Division. (Doc. No. 1.) On that day, the English Trustee also filed a Motion to Approve Recognition of Foreign Main Proceeding (the “Motion to Approve”). (Doc. No. 3.)

B. The Recognition Proceeding

The Debtor's primary focus at the outset of the Petition for Recognition proceedings was the validity of the Lis Pendens. The Debtor appeared pro se at the November 1, 2007 preliminary hearing on the Motion to Approve, and the Debtor introduced an Exhibit: “Response to Motion by McGuire Woods on Behalf of English Trustee O'Sullivan against the property of Mr. and Mrs. Loy” (the “Response to the Motion to Approve”). (Doc. Nos. 10, 12.) The Debtor relied on the Response to the Motion to Approve for support that the Lis Pendens prevented him from securing a loan needed to develop the Creekview Property.

Subsequently, on November 20, 2007, the Debtor filed a response to the Motion to Approve, styled as a “Statement of Jonathan Loy in Support of Denial of Relief to English Trustee on Doctrine of Unclean Hands” (the “Unlcean Hands Brief”). (Doc. No. 16.) The Debtor alleged that his contribution towards the Creekview Property was only $22,000.00 and that Mrs. Loy's contribution towards the purchase price was $170,000.00. (Doc. No. 16, at 2, 4.) The Debtor contended that the Creekview Property was not subject to his English bankruptcy estate.⁴ (Doc. No. 16, at 4.) The Debtor contended that (1) the English Trustee's omission of the English Bankruptcy Proceeding rendered the Lis Pendens unenforceable; and (2) the Petition for Recognition ought to have been filed before the Lis Pendens. (Doc. No. 16, at 5–6.) The Debtor requested that he receive permission to file suit in Virginia state court in order to remove the Lis Pendens and to obtain damages for slander to the Creekview Property's title. (Doc. No. 16, at 8.)

The Court held a final hearing on the Petition for Recognition and the Motion to Approve on November 26, 2007. (Doc. No. 28.) At that hearing, the Debtor admitted under oath that the English Bankruptcy Court Order adjudged him a bankrupt and appointed O'Sullivan as the English Trustee. (Nov. 26, 2007 Hr'g Tr. 10:2–8.) The English Trustee asserted that under 11 U.S.C. § 1509(f), Chapter 15 allows claims to be filed in the courts of the United States prior to recognition of a foreign proceeding. (Nov. 26, 2007 Hr'g Tr. 41:7–20.) In addition the English Trustee argued that § 306 of the Insolvency Act of England provides that all of a bankrupt's estate vests immediately in the trustee upon appointment of that trustee and that the Lis Pendens merely provided notice of that fact. (Nov. 26, 2007 Hr'g Tr. 43:6–15.) The English Trustee requested that the Debtor be enjoined under § 1521(a) of the Code ⁵ from pursuing litigation in state court or, alternatively, that the Debtor be required to file his actions in this Court. (Nov. 26, 2007 Hr'g Tr. 45:11–46:3.) The Debtor repeated his aforementioned arguments. (Nov. 26, 2007 Hr'g Tr. 54:2–63:25.)

C. Judge St. John's Opinion And Order

In a Memorandum Opinion and an Order entered on December...