In re Reed
| Decision Date | 06 July 1988 |
| Docket Number | Adv. No. LA 88-00517-VZ.,Bankruptcy No. LA 86-17049-VZ |
| Citation | 89 BR 100 |
| Parties | In re Morton REED, Debtor. Steven A. SCHWABER, Trustee, Plaintiff, v. Morton REED; Safi Reed; Joseph T. Vodnoy; Lynne R. Vodnoy; Home Savings of America, F.A., a corp. and Does 1 thru 50, inclusive, Defendants. |
| Court | U.S. Bankruptcy Court — Central District of California |
Stanley E. Goldich, Pachulski, Stang & Ziehl, Los Angeles, Cal., for Chapter 7 Trustee.
Gary E. Klausner, Robinson, Diamant, Bril & Klausner, Los Angeles, Cal., for Home Savings & Loan.
Earl Hagen, Encino, Cal., for Safi Reed, Wife of debtor.
Steven Schwaber, Trustee Kadenacy, Mendelson & Schwaber, Los Angeles, Cal., for Chapter 7 Trustee.
Richard M. Moneymaker, Moneymaker & Kelley, Los Angeles, Cal., for debtor.
Steven A. Schwaber, the trustee in this Chapter 7 Bankruptcy Case ("Trustee"), filed a motion requesting a preliminary injunction compelling the turnover of proceeds from the sale of residential property located at 225 South Rodeo Drive, Beverly Hills, California 90212 ("the Property") as well as other injunctive relief. The relief is sought against Morton Reed, the debtor in this Chapter 7 case ("Debtor"), Safi Reed, his wife ("Debtor's Wife"), and Moneymaker & Kelley, the bankruptcy counsel for Debtor ("M & K").
None of the pertinent facts are in dispute. Debtor voluntarily commenced this case on September 12, 1986. Debtor filed a schedules of assets that includes a "½ joint tenancy interest with wife in the "Property"." Also in his Schedules, Debtor swears that the value of his joint tenancy interest in the Property was $300,000, estimates that the amount of secured debt encumbering the Property was $380,000 and claims a $45,000 homestead exemption Property pursuant to California Code of Civil Procedure ("CCP") Section 704.710 et seq.
Trustee filed a report with this Court on August 7, 1987, which is commonly known as a "No Asset Report." This report is a pre-printed form filed by Chapter 7 trustees after examining debtors, investigating assets and liabilities and having determined, at least preliminarily, that there are no assets worth liquidating for the benefit of creditors. On this pre-printed form, the Trustee merely types the name of the case and its number and then signs, dates, and files it with the Court.
Printed at the bottom of this form is a proposed order approving the No Asset Report of the Chapter 7 Trustee, and, most pertinent to this decision, closing the bankruptcy case. Above the signature line of this proposed order is printed the name of Jack L. Wagner, Clerk for the United States Bankruptcy Court of the Central District of California. Judges of this Court have authorized Clerk Wagner to sign and enter orders closing cases pursuant to administrative order of this Court.
The proposed Order approving the No Asset Report filed by Trustee in Debtor's case has never been signed, dated, or entered by Clerk Wagner.
One of Debtor's creditors, Robert Humiston ("Humiston"), obtained a judgment against Debtor in state court and recorded a judgment lien against the Property. Both the judgment and the lien were obtained after the commencement of Debtor's bankruptcy case. As a result, Debtor sought an ex parte order from this Court declaring Humiston's judgment and lien void as they were obtained allegedly in violation of 11 U.S.C. Section 362(a).
After the filing of the No Asset Report, and before November 6, 1987, Debtor's counsel and Trustee appeared at hearings on Debtor's request for an order declaring void Humiston's judgment and lien. Trustee appeared at these hearings because he had learned from Humiston's counsel of Debtor's efforts to sell the Property. At these hearings, Trustee stated that he intended to withdraw his No Asset Report and administer the Property for the benefit of creditors. At the second of these hearings, then presiding Bankruptcy Judge Geraldine Mund admonished Debtor not to sell the Property.
Despite Trustee's stated intention to administer the Property and Judge Mund's warning, on November 6, 1987, Debtor and Debtor's Wife executed a grant deed transferring the Property to Joseph and Lynne Vodnoy (the "Vodnoys"). The Vodnoys paid $1,000,573.15 for the Property.
After retiring the secured debts encumbering the Property, paying the costs of sale and paying $19,355.25 to M & K for attorneys fees and costs incurred in representing Debtor, Debtor and Debtor's Wife received $501,240.92 in net proceeds from the sale of the Property. To be specific, Debtor's Wife received the entire net proceeds from the sale of the Property pursuant to an Escrow Instruction executed by Debtor and Debtor's Wife.
Trustee first learned of the sale of the Property in February of 1988. Trustee filed the complaint commencing the underlying adversary proceeding on April 1, 1988 (The "Complaint"). In the Complaint, Trustee seeks, inter alia, turnover of the proceeds of the sale from Debtor, Debtor's Wife and M & K as property of the estate and an accounting of those proceeds. Trustee properly and timely served all defendants named in the Complaint except for Debtor's Wife. Trustee subsequently obtained an alias summons and served the Complaint and summons on Debtor's Wife.
On or about May 18, 1988, Trustee learned of the amount of proceeds received by Debtor and Debtor's Wife from the sale of the Property. Trustee immediately sought an application for an ex parte temporary restraining order, which was granted. The temporary restraining order ("TRO") directed the Debtor, Debtor's Wife and M & K not to transfer the proceeds of the sale of the Property and to refrain from destroying or hiding any document related to the sale or its proceeds.
The Court then held two hearings on the Order to Show Cause re Preliminary Injunction (the "OSC") obtained by Trustee. From the briefs, declarations and oral argument submitted for the Court's consideration, the following issues have arisen:
III. ISSUES
1. Does the Court have personal jurisdiction over Debtor's Wife sufficient to issue a binding injunction?
2. Was the Property deemed abandoned by Trustee pursuant to 11 U.S.C. Section 554(c)?
3. Was the Property held by Debtor and Debtor's Wife as joint tenancy property or as community property?
4. How much of the proceeds from the sale of the Property is property of the estate?
IV. DISCUSSION
Debtor and Debtor's Wife argue that this Court lacks personal jurisdiction over Debtor's Wife for the purpose of issuing a preliminary injunction because Debtor's Wife claims she was not served with the Complaint at the time of the issuance of the TRO, even though Debtor's Wife was served personally with the OSC and the TRO.
This position is contrary to the express language of Federal Rule of Civil Procedure 65 which is incorporated by reference in Bankruptcy Rule 7065. Subsection (d) of Rule 65 provides in pertinent part that:
"Every order granting an injunction in every restraining order. . . . is binding. . . . upon the parties to the action, their officers, agent, servants, employees, and attorneys and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise."
Debtor's Wife actively participated in the sale of the Property. In fact, Debtor's Wife received over $16,000 as a commission for acting as a real estate agent with regard to the sale of the Property. Further, Debtor's Wife received the entire net proceeds from the sale of the Property. There is no doubt Debtor's Wife actively participated in the sale of the Property with Debtor and that she received actual notice of the TRO and the OSC by personal service. Therefore, this Court has personal jurisdiction over Debtor's Wife for the purpose of issuing a preliminary injunction. See also 11 Wright & Miller, Federal Practice and Procedure, Section 2956 (1973).
The principal argument of Debtor and Debtor's Wife in opposition to the preliminary injunction sought by Trustee is that the Property was abandoned to Debtor by Trustee pursuant to 11 U.S.C. Section 554. Debtor and Debtor's Wife base their argument upon Trustee's filing of the No Asset Report on August 7, 1987.
There are three ways property can be abandoned under 11 U.S.C. Section 554. First, a bankruptcy trustee may obtain a court order authorizing abandonment of the property, but only after notice and hearing. 11 U.S.C. Section 554(a). Second, a party in interest may seek a court order directing the trustee to abandon the property, but again, only after notice and hearing. 11 U.S.C. 554(b). Third, once the bankruptcy case is closed, all scheduled, unadministered, and non-exempt property of the estate is deemed abandoned. 11 U.S.C. Section 554(c).
There is no serious contention that the Trustee or a party in interest obtained an order of this Court abandoning the Property under subsections (a) or (b) of Section 554. It is impossible for Debtor to argue this as no motion was ever brought before this Court for such relief. Thus, the main thrust of Debtor's and Debtor's Wife's argument is that the filing of the No Asset Report by Trustee "closed" Debtor's Chapter 7 case and effected a deemed abandonment of the Property under subsection (c) of 11 U.S.C. Section 554.
The only authority on point that Debtor and Debtor's Wife could muster to support this argument is the decision in Matter of Hunter, 76 B.R. 117 (Bkrtcy.S.D.Ohio 1987). In Hunter, a Chapter 7 trustee filed a no asset report and executed a separate notice of abandonment pertaining to an automobile belonging to the debtor in that case. The Hunter trustee subsequently filed a motion to reopen the bankruptcy case and "reopen" his no asset report in order to pursue an alleged preference in connection with the security interest in the car.
In its decision, the Hunter co...
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