In re Olszewski

• Decision Date: 21 February 1991
• Docket Number: Adv. No. 3-90-0108.,Bankruptcy No. 3-90-00380
• Citation: 124 BR 743
• Parties: In re Stanley N. OLSZEWSKI and Mary M. Olszewski DBA Stan's IGA, Debtors. Alan RODECK and Dione Rodeck, Plaintiffs, v. Stanley N. OLSZEWSKI, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

124 B.R. 743 (1991)

In re Stanley N. OLSZEWSKI and Mary M. Olszewski DBA Stan's IGA, Debtors Alan RODECK and Dione Rodeck, Plaintiffs, v. Stanley N. OLSZEWSKI, et al., Defendants.

Bankruptcy No. 3-90-00380, Adv. No. 3-90-0108.

United States Bankruptcy Court, S.D. Ohio, W.D.

February 21, 1991.

John D. Squires, Dayton, Ohio, for plaintiffs.

Ruth A. Slone, Dayton, Ohio, for defendants/debtors.

Ronald D. Keener, New Lebanon, Ohio, Attorney for defendants, W. Wayne and Mary E. Bell.

Kate A. Oklok, Asst. Atty. Gen., Columbus, Ohio, for defendant, State of Ohio, Bureau of Employment Services.

Thomas B. Talbot, Jr., Dayton, Ohio, for defendant, Frito-Lay, Inc. Pamela M. Stanek, Asst. U.S. Atty., Dayton, Ohio, for I.R.S.

Carol E. Carlson, Dayton, Ohio, for First Nat. Bank.

DECISION ON ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT IN PART AND DENYING MOTION FOR SUMMARY JUDGMENT IN PART

WILLIAM A. CLARK, Bankruptcy Judge.

Before the court is a motion for summary judgment filed by the plaintiffs, Alan Rodeck and Dione Rodeck. The court has jurisdiction to render a decision with respect to part of this proceeding pursuant to 28 U.S.C. § 1334 and the standing order of reference entered in this district, and is without jurisdiction as to the remaining portion of the proceeding. The portion of the proceeding over which the court has jurisdiction involves a determination of whether certain assets are assets of debtors' bankruptcy estate and is, therefore, a core proceeding under 28 U.S.C. § 157(b)(2)(A).

PROCEDURAL POSTURE

In their complaint, the plaintiffs, Alan Rodeck and Dione Rodeck, have alleged that, since 1985 and pursuant to an oral agreement, they have owned and operated certain rental properties with the defendants-debtors, Stanley N. Olszewski and Mary M. Olszewski. Plaintiffs have requested the following relief from the defendants-debtors and six other named defendants:

1) a determination that ten real estate parcels are partnership assets under Ohio law;

2) a determination that specific assets of the partnership are exempt under Ohio law from direct attachment by general creditors of the debtors' estate;

3) a determination that the bankruptcy estate's interest in the partnership is personalty consisting only of the right to share in profits and surplus remaining after all debts and liabilities of the partnership are first satisfied;

4) a determination of the cash value of the estate's interest in the partnership and an authorization for plaintiffs to purchase the estate's interest for the fair market value of the interest, free and clear of all claims and liens against the debtors as individuals;

5) a quieting of plaintiffs' title in the real estate against all liens filed against the individual interests of debtors;

6) authorization for the plaintiffs to satisfy general liabilities of the partnership out of any proceeds received from the sale of partnership assets;

7) an order dissolving the partnership.

Plaintiffs have moved for summary judgment and accompanied their motion with their affidavit which essentially states that:

1) since 1985, the plaintiffs and debtors have been associated pursuant to an oral agreement and have operated for profit certain rental properties under the trade name of "Properties Four";

2) plaintiffs and debtors, as co-owners, have purchased, operated, and sold various rental properties. On the date the debtors filed their bankruptcy petition, plaintiffs and debtors held joint title to ten parcels of real estate described in Exhibit A;

3) plaintiffs and debtors have shared equally in the profits and losses of these properties;

4) plaintiffs and debtors have regularly consulted and made business decisions concerning the properties;

5) plaintiffs and debtors have regularly co-mingled all rents and profits from the properties in a business account maintained solely for the partnership under the trade name of "Properties Four." Plaintiffs and debtors were originally each signatories on the business account, but plaintiffs are the only current signatories;

6) none of the claims described in plaintiffs' Exhibit B arose out of the partnership business or operation of "Properties Four."

Plaintiffs' motion for summary judgment is opposed by the United States which asserts that:

a) the partnership did not file a certificate as required by Ohio Rev.Code § 1775.02;

b) the partnership did not keep partnership books as required by Ohio Rev.Code § 1775.18;

c) the properties were not purchased under the partnership name;

d) the partnership did not file a Form 1065 income tax return;

e) the parties did not file Schedule K-1 with their 1040 tax returns.

In the alternative, the United States maintains that if a partnership did exist, the partnership has been dissolved, the debtors' estate has an interest in the real estate in connection with winding up the partnership, and the liens of the Internal Revenue Service are effective against the real estate assets because they represent the debtors' personal property share of the partnership. No affidavit or other material accompanied the "United States' Reply to Plaintiffs Motion for Summary Judgment."

CONCLUSIONS OF LAW

With respect to summary judgment, Fed. R.Civ.P. 56(c) provides that:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

In the present case, it must be emphasized that a primary rule of bankruptcy law is that a partnership is a distinct legal entity, separate and apart from the partners who formed it, and that the Bankruptcy Reform Act of 1978 continued this entity principle. In re Wallen, 43 B.R. 408, 410 (Bankr.Idaho 1984); Dominican Fathers of Winona v. Dreske (In re Dreske), 25 B.R. 268, 270 (Bankr.E.D.Wisc. 1982). A partnership is recognized as a "person" by the Bankruptcy Code¹ and may itself be a debtor under § 109, but there is no provision in the Bankruptcy Code authorizing a partnership to jointly file for relief with any other person. L.D. Fitzgerald v. Hudson (Matter of Clem), 29 B.R. 3, 5 (Bankr.Idaho 1982).

Pursuant to § 541 of the Bankruptcy Code, commencement of a bankruptcy case creates an estate, and the estate is generally comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Although the debtors, here, have an interest in the partnership and that interest is property of their bankruptcy estate, any property owned by the partnership itself is not considered estate property:

Where the debtor is a member of a partnership, the debtor\'s interest in the partnership is included in the estate. However, assets held by the partnership itself are not included in the estate. E.A. Martin Machinery Co. v. Williams (Matter of Newman), 875 F.2d 668, 670 (8th Cir.1989).

Accord, Matter of Pentell, 777 F.2d 1281, 1285 (7th Cir.1985).

In part this is due to the fact that partners' rights in partnership property are not superior to the rights of partnership creditors. "Until the creditors of the partnership are satisfied, each partner has no right to any distribution from the partnership." Johnson v. Investment Leasing, Inc. (In re Johnson), 51 B.R. 220, 222 (Bankr.Colo. 1985).

As a result, assets of a partnership are not administered in the bankruptcy cases of the individual partners. For example, a trustee or a debtor in possession has the power to sell property of a bankruptcy estate as well as the undivided interest of co-owners under § 363, but that power does not include the right to sell an interest of a co-tenant in a partnership. Thus, a trustee or a debtor in possession lacks authority under § 363(f) to sell partnership property free and clear of the interests of the partnership entity and of the nonbankrupt partners. In re Manning, 831 F.2d 205, 211 (10th Cir.1987).² While the bankruptcy of any partner causes the dissolution of a partnership by virtue of Ohio Rev.Code § 1775.30, the partnership is not terminated upon dissolution. The partnership continues until a winding up of partnership affairs is completed. Ohio Rev.Code § 1775.29. Thus, the debtors did not acquire a direct interest in the real estate merely because the partnership dissolved; the real estate remains an asset of the partnership pending a winding up of the partnership.

Therefore, with respect to the requests set forth by the plaintiffs in their motion for summary judgment, the court will find, based upon the unopposed affidavit of the plaintiffs, that the plaintiffs and debtors have been engaged in "an association of two or more persons to carry on as co-owners of a business for profit" and, pursuant to Ohio Rev.Code § 1775.05, have been members of a partnership. In addition, the court will find that the ten parcels of real estate described in Exhibit A are partnership assets, and that the debtors' estate has no direct interest in the real estate. Finally, the plaintiffs request this court in their motion for summary judgment to determine the effect on the real estate of certain certificates of judgments filed against the debtors individually. The court finds that the plaintiffs have failed to demonstrate that this court has jurisdiction to determine the effectiveness of liens on parcels of real estate that are not part of the debtors' bankruptcy estate.

The current grant of bankruptcy jurisdiction to district courts, which is found at 28 U.S.C. § 1334(a)-(b),³ is extraordinarily broad, Kelley v. Nodine (In re Salem Mortgage Co.), 783 F.2d 626, 634 (6th Cir. 1986), and, therefore, the present adversary proceeding "need not necessarily be against the debtors or against the debtors' property." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984) (emphasis supplied). In this circuit, ...