In re Newpower
| Decision Date | 22 January 1999 |
| Docket Number | No. 1:98-CV-418.,1:98-CV-418. |
| Citation | 229 BR 691 |
| Parties | In re George D. NEWPOWER, Debtor. Robert Kitchen, Harriet Kitchen and New Properties, Inc., Appellants, v. James W. Boyd, Appellee. |
| Court | U.S. District Court — Western District of Michigan |
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Jonathan R. Moothart, Bowerman, Droste, Bowden, Haring & Moothart, PC, Traverse City, MI, for Robert Kitchen, Harriet Kitchen, appellant, New Properties, Inc., debtor.
Ronald A. Schuknecht, Lewis & Schuknecht, PC, Traverse City, MI, for James W. Boyd, appellee, George D. Newpower, debtor.
This is an appeal from the bankruptcy court's partial denial of appellants' motion for lift of the bankruptcy stay or for abandonment. At issue in this matter is the bankruptcy court's determination of what property properly should be included in the bankruptcy estate. Upon review, I am persuaded that the bankruptcy court erred in refusing to lift the stay on $582,463 of property traceable to appellants' assets.
The facts of this case are not in material dispute. Debtor George Newpower was a licensed Michigan real estate broker. In early 1996, Newpower entered into an agreement with appellant Robert Kitchen ("Kitchen") under which they formed a corporation named New Properties, Inc. The corporation's purpose was to purchase real property in northern Michigan for subsequent development by the company. Kitchen and Newpower were the sole shareholders and directors of the corporation. Kitchen was named as vice president and secretary. Newpower was president and treasurer.
Because Kitchen resided in Alaska for most of the year, most of the meetings of the shareholders were conducted by telephone. Kitchen and Newpower agreed that Newpower, using his experience as a real estate broker, would identify properties for purchase and development by the corporation. He then would recommend purchase of the properties and, if both shareholders agreed, the properties would be purchased in the name of the corporation, appellant New Properties, Inc., through loans made by the shareholders to the corporation. Each time the shareholders agreed to buy a particular piece of property, and after a price had been negotiated, Newpower and Kitchen were each to transfer 50% of the purchase price to the corporation as a loan. No salaries or wages were paid to the shareholders, although the parties anticipated that at some point in the future, Newpower might be paid a real estate commission on parcels later developed and sold. (Kitchen testimony, Transcript p. 34.)
The first property that the shareholders agreed to purchase was an 80-acre parcel in Garfield Township, in Kalkaska County, Michigan, for which a $400,000 price was set. Upon being told the purchase price, Kitchen and his wife sent a check to Newpower for $200,000. The memo portion of the check stated that the check was for New Properties, Inc., and contained a portion of the legal description of the property to be purchased. (Trans. p. 36.) Unknown to Kitchen, Newpower deposited the check in his personal account. He failed to make the property purchase, instead using the $200,000 for his personal use.
Thereafter, for the remainder of 1996, Kitchen and Newpower conducted regular telephone meetings regarding the Kalkaska property, as well as four other parcels. Each time a closing was to occur, Newpower would tell Kitchen how much money was needed to be paid into the corporation to make the purchase. After the first transfer of funds, the Kitchens made wire transfers to the corporate account. Each wire transfer made by the Kitchens was for the purchase of a specific piece of real property. Newpower was the sole authorized signatory on the corporate account.
At no time were properties purchased by Newpower. Instead, he misappropriated for his own use all of the funds transferred to New Properties. Meanwhile, Newpower continued to report to his co-director, Kitchen, regarding the alleged development of the properties. In October 1996, Newpower traveled to Alaska to meet with Kitchen. At that time, he delivered to Kitchen fraudulent "copies" of the deeds to the five properties. Later that month, Newpower telephoned Kitchen and informed him that he had negotiated for $400,000 the purchase of 80 acres in East Mancelona Township on Sand Lake. On October 24, 1996, the Kitchens made two more wire transfers totaling $200,000.
In December 1996, the Kitchens returned to Michigan to check on the status of the properties. Their investigation disclosed that no properties had been purchased as they had been led to believe and that all of the deeds provided to them were forgeries. Following their complaint to the Michigan Attorney General's office, a Michigan State Police investigation was commenced. After being contacted by the police, Newpower fled.
The Kitchens investigated and learned from various checking account and other financial records that, among other things, Newpower had purchased a Corvette, a fourwheel drive pickup truck, and a Larson powerboat; that a new house was built for Newpower's girlfriend Rita Jacobs; that a $60,000 loan was made by Newpower to his former fiancee, Ryan Dobry; and that Newpower had financed $50,000 on the production of a music CD for another girlfriend, Pamela Cannon. The Kitchens filed suit against the transferees of the funds.
Later in the summer of 1997, Newpower turned himself in to authorities, pleaded guilty to embezzlement, and was sentenced to six-to-ten years in prison. In addition, he was ordered to pay $755,000 in restitution to the Kitchens. When he returned, however, Newpower declared bankruptcy. The Kitchens' lawsuit against the transferees was then stayed by the automatic stay issued by the bankruptcy court on November 7, 1997. The Kitchens and New Properties, Inc. moved to lift the stay or order an abandonment so that they could proceed with their state court action.
In total, during the year preceding the bankruptcy filing, Newpower had only $33,000 in legitimate income. The remaining $754,999.64 of funds used by Newpower in 1996 — $495,000 that passed through his personal bank account and the remainder transferred from New Properties directly to third parties — came from the loans made by the Kitchens to New Properties. (Tr. p. 140.)
Following a hearing, the bankruptcy court granted the creditors' motion to stay in part and denied it in part. The bankruptcy court concluded that all witnesses were credible and that no substantial facts were in dispute. The bankruptcy court concluded that those monies which were transferred by Newpower directly from the New Properties account to a third party without passing through Newpower's personal account were not property of the estate and that the Kitchens were entitled to proceed on their actions. The bankruptcy court concluded, however, that monies that passed through Newpower's hands in any way or that were used to purchase assets titled in Newpower's name constituted property of the estate. The bankruptcy court specifically reached the following conclusions about eleven items of property:
1. $200,000 check for
Kalkaska property deposited
by Newpower
into his personal account: Estate
property
2. $295,000 transferred
from New Properties
corporate account to
Newpower's personal Estate
account: property
3. $30,000 transferred
from New Properties
corporate account to Appellants'
Lakes of the North: property
4. $84,000 transferred
from New Properties
corporate account to Appellants'
William Kitchen: property
5. $35,530.85 cashier's
check from New Properties
corporate account
to purchase land Appellants'
for Rita Jacobs: property
6. $60,000 cashier's
check from New Properties
corporate account
to Newpower
signed over to Ryan
Dobry to remodel her Estate
house: property
7. $24,963 check from
New Properties corporate
account for Larson
power boat in Estate
Newpower's name: property
8. $14,780.63 check from
New Properties corporate
account for building
supplies for Rita Appellants'
Jacobs' house: property
9. $6,000 check from
New Properties corporate
account to David
Bihlman for interest Appellants'
on $50,000 loan: property
10. $2,500 in checks from
New Properties corporate
account to Newpower Estate
himself: property
11. $1,205 check from
New Properties corporate
account for digging
Rita Jacobs' Appellants'
basement: property
Taken together, the bankruptcy court's decision lifted the stay on $171,516.48, but declined to lift the stay on the remaining $582,463 of assets traceable to the New Properties' corporate account. Kitchen and New Properties, Inc. now appeal that ruling.
Pursuant to 28 U.S.C. § 158(a), this court has "jurisdiction to hear appeals from the final judgments, orders and decrees of bankruptcy judges entered in cases or proceedings referred to the bankruptcy judges under 28 U.S.C. § 157." An order lifting a bankruptcy stay is a final decision for purposes of appellate review. See In re Sun Valley Foods Co., 801 F.2d 186, 190 (6th Cir.1986). A denial of a motion for lift of stay is also appealable as a final decision because it amounts to a permanent injunction against the moving creditor. In re Chateaugay Corp., 880 F.2d 1509 (2d Cir.1989).
This court reviews factual findings of the bankruptcy court for clear error. Fed....
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