In re Melenyzer

• Decision Date: 20 April 1992
• Docket Number: Bankruptcy No. 5-85-00338C.
• Citation: 140 BR 143
• Parties: In re Charles L. MELENYZER, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Texas

140 B.R. 143 (1992)

In re Charles L. MELENYZER, Debtor.

Bankruptcy No. 5-85-00338C.

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

April 20, 1992.

Lawrence A. Beck, Beck & Beck, P.C., San Antonio, Tex., for George A. Benz.

James S. Wilkins, San Antonio, Tex., for Trustee Martin W. Seidler.

Bill Frazell, Asst. U.S. Trustee, San Antonio, Tex.

DECISION AND ORDER ON CREDITOR BENZ' OBJECTIONS TO TRUSTEE'S FINAL REPORT AND ACCOUNTING

LEIF M. CLARK, Bankruptcy Judge.

CAME ON for hearing, the objections of Creditor George A. Benz to the Trustee's Final Report and Accounting. For the reasons discussed herein, the court finds and concludes that Creditor Benz' objections should be SUSTAINED IN PART and OVERRULED IN PART.

JURISDICTION

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334, 157 and 11 U.S.C. §§ 105, 704. This is a core proceeding, as defined by 28 U.S.C. § 157(b)(2)(A).

BACKGROUND FACTS

On September 13, 1991, Creditor George A. Benz¹ filed his objections to the Trustee's Final Report and Accounting. For the most part, Mr. Benz' objections allege various technical defects with the Final Report and Accounting. The court finds the Trustee has adequately answered these technical objections and/or remedied the problems they address in his Reply to George Benz' Objection (filed January 8, 1992), the Chapter 7 Trustee's First Amended Final Report and Account (filed January 3, 1992), and during the several days of hearings which took place in mid-January, 1992. Not yet addressed by the Amended Final Report, however, is Benz' claim to post-petition interest.² Also of continuing concern are Benz' allegations that Trustee (Martin W. Seidler) should be denied any fees from the bankruptcy estate because he has breached his duties under 11 U.S.C. §§ 704 and 345.³ In addition, Benz requests that the court (1) disapprove payment of any additional fees to Mr. Seidler in his capacity as attorney to the Trustee, to the Trustee's special counsel (James Wilkins), and to the Trustee's accountant (John C. Calhoun); (2) determine whether these same persons should disgorge any fees previously paid to them from the bankruptcy estate; and (3) surcharge the Trustee for what Benz claims was the Trustee's wrongful conduct in his administration of this estate.

DISCUSSION

Although this bankruptcy has spanned nearly seven years and has generated a dozen volumes of documents, the court has carefully reviewed (1) the entire chronology of this case, pleading by pleading, (2) the evidence presented at three days' of hearing on the Final Report, and (3) the relevant law. Certainly, given the gravity of Benz' charges of wrongdoing by officers of the court, no appropriate resolution of these matters could have been made except in the context of this case in its totality.

The Chronology of the Case

Dr. Charles Melenyzer initially filed bankruptcy under Chapter 13 on April 24, 1985, a few months after his wife of about one year, Carmen Melenyzer, filed a divorce petition in state court. Approximately three months later, on July 16, 1985, Dr. Melenyzer filed a motion to convert to Chapter 7. Among his reasons for seeking conversion, the doctor stated that he could no longer file a viable Chapter 13 plan because he had been unable to settle his tax liability with the Internal Revenue Service (I.R.S.). On July 19, 1985, an order was entered converting the case to a Chapter 7. On July 22, 1985, Martin W. Seidler was appointed interim trustee. Three days later, an order for meeting of creditors, combined with notice thereof and of automatic stay was entered. This order was stamped: "NO ASSET — DO NOT FILE A CLAIM." The order also contained a special notice:

It appears from the schedules of the debtor that there are no assets from which any dividend can be paid to creditors. It is unnecessary for any creditor to file his claim at this time in order to share in any distribution from the estate. If it subsequently appears that there are assets from which a dividend may be paid, creditors will be so notified and given an opportunity to file their claims.

In early August 1985, Carmen Melenyzer filed her notice of appearance and request for service of papers in the Chapter 7 case. The actual document is missing from the file, but according to the Clerk's records, Ms. Melenyzer filed this pleading on August 1, 1985.⁴ Since then, Carmen Melenyzer has been an active participant in this bankruptcy. On August 6, 1985, Ms. Melenyzer, as next friend of Russell Glen Melenyzer,⁵ sought relief from stay, alleging that "CHARLES MELENYZER owns sufficient property to pay his bills, and that he is not bankrupt."⁶ Further, Ms. Melenyzer claimed: "Debtor holds property, in trust, actual and/or constructive which should be available for the support of his minor son. Debtor therefore has equity in the Trust property. To allow Debtor to retain control of such property is depriving the said child of his right to obtain child support without due process of law." In paragraph 7 of the same pleading, Ms. Melenyzer stated, "In the event stays are allowed to remain in effect, Debtor will have enriched himself by false pretenses, false representations and actionable fraud which is prohibited and not dischargeable under 11 U.S.C. 523(a)(2)" (emphasis added). This motion for relief from stay was overruled by an order entered on September 17, 1985, because neither Ms. Melenyzer nor her attorney appeared or answered the call of the docket. Nevertheless, Ms. Melenyzer's motion put the Trustee on notice of the debtor's possible fraud and concealment of assets, requiring the Trustee to investigate further. See 11 U.S.C. § 704(1), (4).⁷

In the meantime, the Trustee objected to the debtor's claims of exemptions and filed an ex parte motion to compel the debtor to file a statement of affairs and amended schedules.⁸ Shortly thereafter,⁹ Ben Wallis filed a motion to withdraw as Debtor's counsel. In his motion, Mr. Wallis cited the following reasons, among others:

1. Debtor has continuously failed and refused to cooperate with his attorney in the following particulars:

(a) failure to follow instructions regarding his duty to disclose all information pertinent to this case to the attorneys

(b) failure to follow explicit instructions to return a completed 1st meeting questionnaire, before leaving the meeting, as he was ordered to do by the hearing examiner, Mr. Dan Cretaro, on August 29, 1985

(c) failure to keep the attorneys advised of his whereabouts

(d) failure to keep scheduled appointments at his attorney\'s office

(e) failure to cooperate with the office staff at said attorney\'s office, culminating in a physical confrontation with one staff member.

2. All of the above significantly impairs the ability of the undersigned attorney to represent the Debtor in an honest, forthright and competent manner in accordance with the duties imposed by the Code of Professional Responsibility.

On September 17, 1985, this motion to withdraw was granted, as was the Trustee's ex parte motion to compel. Two days later, Ms. Melenyzer filed a motion for relief from stay to permit her divorce from the debtor and the attendant suit affecting the parent/child relationship (SAPCR) to proceed in state court. An order granting this motion was entered on September 25, 1985. On the same day, pursuant to his statutory duty under 11 U.S.C. § 704(6),¹⁰ the Trustee filed a complaint objecting to the debtor's discharge under 11 U.S.C. §§ 727(a)(2), (3), (4), (6) and/or (7). In his Complaint Objecting to Discharge, the Trustee alleged, inter alia, (1) that the debtor fraudulently transferred real property worth more than $50,000; (2) that the debtor knowingly and fraudulently made various materially false statements, under oath, in preparing his schedules; (3) that the debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve records and documents regarding his financial condition and business transactions; (4) that the debtor made various false statements under oath at the Section 341 meeting; and (5) that the debtor concealed his interest in the sham Melenyzer Trust. The court ultimately found that the Debtor had indeed violated sections 727(a)(2)(B), (3), and (4)(A) and denied the debtor's discharge some years later.¹¹

On September 26, 1985, Debtor filed his First Amended Petition and Schedules. According to these documents, Debtor's debts totalled $114,320.73, and the total value of his property, including exempt property, was $223,187.27. In early October 1985, Debtor filed a motion to dismiss the Chapter 7 case, which was denied on December 19, 1985.¹²

In mid-November 1985, the Trustee filed an Interim Report, wherein he reported a bank balance of $3610.86 and that recovery of fraudulent transfers and objection to discharge were matters pending. At this point, the Trustee's anticipated closing date was late 1986. By February 3, 1986, the Trustee's Interim Report remained the same, except that the bank balance had grown to $19,242.63. On April 28, 1986, the Interim Report showed that the bank balance had dropped to $17,195.38 and that $3532.25 had been paid to John C. Calhoun & Co. for accounting services rendered to the Trustee. The fee application which led to this payment indicated that Mr. Calhoun was charging the estate for professional services related to "determining the estate's tax liability and auditing financial records to document and recover concealed estate assets" (emphasis added). Several subsequent Calhoun fee applications indicated that he continued to render the same sorts of services to the Trustee for quite some time, much to the dismay of the debtor. On February 14, 1986, Debtor objected to the first Calhoun fee application, claiming that "Debtor's estate should not be held liable for expenses for some witch hunt conducted by the Trustee which is not beneficial to either the Debtor or his creditors" (emphasis...