In re Scheu

• Decision Date: 29 November 2006
• Docket Number: Adversary No. 05-8121.,Bankruptcy No. 04-42473.
• Parties: In re Ralph John SCHEU, Debtor. R. Sam Hopkins, Trustee, Plaintiff, v. Donald W. Lojek, Defendant. Donald W. Lojek, Third-Party Plaintiff, v. Zhao Hui and Ralph John Scheu, Third Party Defendants.
• Court: U.S. Bankruptcy Court — District of Idaho

356 B.R. 751

In re Ralph John SCHEU, Debtor.

R. Sam Hopkins, Trustee, Plaintiff, v. Donald W. Lojek, Defendant.

Donald W. Lojek, Third-Party Plaintiff, v. Zhao Hui and Ralph John Scheu, Third Party Defendants.

Bankruptcy No. 04-42473.

Adversary No. 05-8121.

United States Bankruptcy Court, D. Idaho.

November 29, 2006.

Jim Spinner, Service, Spinner & Gray, Pocatello, ID, for Plaintiff R. Sam Hopkins, Pocatello, Idaho, Chapter 7 Trustee.

Donald W. Lojek, Boise, ID, Pro Se Defendant.

Ralph John Scheu, Sun Valley, ID, Pro Se Third-Party Defendant.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

Plaintiff, R. Sam Hopkins, chapter 7 trustee, commenced this adversary proceeding against Defendant Donald W. Lojek, alleging that he received an avoidable post-bankruptcy transfer of property of the bankruptcy estate under § 549(a).¹ Defendant denies the transfer should be avoided, but if it is, in a third-party complaint, Defendant seeks to recover a judgment against the chapter 7 debtor, Ralph John Scheu and another party, Zhao Hui, in a like amount.²

At the conclusion of the trial, conducted on October 13, 2006, the Court took the issues under advisement. The Court has considered the evidence, testimony and arguments presented by the parties, as well as the applicable law. This Memorandum constitutes the Court's findings of fact, conclusions of law and decision. Fed. R. Bankr.P. 7052; 9014.

Findings of Fact

Defendant, an attorney, and his law firm, Lojek Law Offices, Chartered ("Lojek, Chtd."), represented Scheu in a personal injury suit against another party in state court. Scheu was awarded a default judgment for $561,197.42, although he has been unable to collect it.

When Scheu failed to pay for the legal services, Lojek, Chtd. sued Scheu in state court. Prior to trial in that action, the parties settled. As agreed by the parties, on June 22, 2004, Scheu executed a promissory note which required him to pay Defendant $3,000 with interest. Ex. 1.³ Scheu also signed a security agreement in which he granted Lojek, Chtd. a security interest in his 1981 Jeep to secure payment of the note. Ex. J.⁴ Scheu also gave Defendant the certificate of title to the Jeep. On July 27, 2004, a judgment in the amount of $3,000 was entered against Scheu in favor of Lojek, Chtd. However, the judgment provided that if Scheu made the promised payments, Lojek, Chtd. could not execute on the judgment. Ex. E.

On November 23, 2004, Scheu sold the Jeep to Zhao Hui. Ex. DD. Scheu testified that he used a portion of the sale proceeds to buy food and pay living expenses. However; he also used some of the sale proceeds to purchase two cashier's checks.

The first check, dated November 23, 2004, was made payable to "DONALD W. LOJEK" in the amount of $3,075. Ex. 2. Scheu testified he went to the bank during the morning hours, obtained the cashier's check, and immediately went to the post office, where he mailed the check to the Lojek, Chtd. post office box listed on Defendant's correspondence. He sent the check to Defendant via overnight mail in a specially-designated envelope he obtained from the post office, for which he had to pay substantially more than the ordinary first-class letter rate.⁵ Scheu testified that he intended this check to constitute payment in full of his debt for legal services, and he expected to receive a release of the lien on the Jeep so he then could convey clear title to the purchaser, Hui.

The evidence does not conclusively establish the date and time the check reached the law firm's post office box. Scheu supposed it would have arrived the morning following the date it was mailed, but of course, this is speculation. Because Defendant had been on vacation, and given the intervening Thanksgiving holiday, it is also unclear exactly when the check was retrieved from the post office box. However, Defendant testified that November 29, 2004 was the first day he personally had possession of the check. It is undisputed that on that date, Defendant endorsed the check over to Lojek, Chtd., and deposited it in the firm's bank account. He also remitted a small amount to Scheu by return mail, because he felt Scheu had erred in calculating the interest due on the debt.

Scheu also used some of the Jeep sale proceeds to pay his bankruptcy filing fees. He testified that later the same day he mailed the check to Defendant, he returned to the bank and obtained a second cashier's check, also dated November 23, 2004, for $209, payable to the "US BANKRUPTCY COURT OF ID." Ex. BB.⁶ He testified that he took the check to the office of his attorney, Mr. Kraynick, and then finalized his bankruptcy petition. Late on the afternoon of that same day, November 23, 2004, Scheu mailed his completed bankruptcy petition and the check for the filing fees, also via overnight mail, to the clerk of this Court. See, Scheu's Deposition Transcript, Ex. 6, at 27; 34. It is undisputed that Scheu's petition and check were received by the clerk at some time the following day, November 24, 2004.⁷

The Pleadings

Plaintiff was appointed to serve as trustee in Scheu's chapter 7 bankruptcy case. On November 7, 2005, Plaintiff filed an adversary complaint against Defendant seeking to recover the $3,100 payment made by Scheu to Defendant.⁸ Docket No. 1. In response, Defendant denied the transfer could be avoided and recovered. Defendant also filed a third-party complaint against Scheu and Hui, the purchaser of the vehicle, asserting that if the transfer was avoided, then Scheu and Hui should reimburse Defendant for any amounts he must pay to Plaintiff, together with his attorney fees and expenses. Docket Nos. 5, 6.

Conclusions of Law and Disposition of Issues

I.

Plaintiff contends that when Defendant negotiated the $3,075 check, Scheu's bankruptcy case had already been filed, and therefore the payment constituted a post-petition transfer which Plaintiff, as trustee, may avoid and recover from Defendant under §§ 549(a) and 550(a).⁹

Section 549(a) provides that a trustee may avoid a transfer of property of a bankruptcy estate that occurs (1) after the commencement of the bankruptcy case, and (2) that is not authorized either under the Code or by the Court. In re Mora, 199 F.3d 1024, 1026 (9th Cir.1999) (holding that Trustee "must show that a transfer occurred after the filing of the bankruptcy petition and that the transfer was not authorized by either the bankruptcy court or the Code."); Fitzgerald v. Beesley (In re Beesley), 92 I.B.C.R. 82, 82 (Bankr.D.Idaho 1992). Defendant has not argued, nor was any evidence offered to show, that the payment of the $3,075 by Scheu was approved by the Court or otherwise authorized by any provision of the Bankruptcy Code. Therefore, the second prong of the statute is not at issue. Instead, the outcome of this contest turns on whether the subject transfer occurred before the filing of Scheu's bankruptcy petition.

The Code "grants a trustee an impressive array of powers to avoid transfers of a debtor's property." Fitzgerald v. Bauer Pontiac-Cadillac-Buick-GMC, Inc. (In re Nedrow), 95 I.B.C.R. 198, 199 (Bankr.D.Idaho 1995). In the Code, the term "transfer" is defined as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property ...[.]" § 101(54). The payment from Scheu to Defendant therefore constitutes a transfer for avoidance purposes.

Plaintiff's evidence demonstrates that the cashier's check was cashed by Lojek, Chtd. on November 29, 2004, five days after the filing of Scheu's bankruptcy petition. Because Plaintiff has presented a prima facie case that the transfer can be avoided under § 549(a), Defendant bears the burden of proving that the transfer was valid. Rule 6001 ("Any entity asserting the validity of a transfer under § 549 of the Code shall have the burden of proof."). See also, In re Mora, 199 F.3d at 1026; In re HMH Motor Services, Inc., 259 B.R. 440, 448 (Bankr.S.D.Ga.2000); In re American Way Service Corp., 229 B.R. 496, 525-26 (Bankr.S.D.Fla.1999).

The Ninth Circuit Court of Appeals, in In re Mora, supra, decided a related question: "[D]oes a transfer of an interest in a cashier's check occur at the time the check is mailed, for purposes of avoiding post-petition transfers under section 549(a) of the United States Bankruptcy Code?" Id. at 1025. The Mora court's answer to the question was "no," holding that "placement in the United States mail system does not constitute `delivery' of a cashier's check to the payee under section 549." Id. at 1028. Citing other cases, Mora established that "the transfer of a cashier's check for purposes of section 547(b) occurs at the time a cashier's check is `delivered' rather than at the time the check is honored." Id. at 1027, (citing In re Lee, 179 B.R. 149, 161 (9th Cir. BAP 1995), aff'd, Hall-Mark Elecs. Corp. v. Sims, 108 F.3d 239 (9th Cir.1997)).

In Lee, the BAP determined that a cashier's check is transferred upon delivery to the payee, because it is at that point that the obligation to pay a cashier's check becomes fixed. In re Lee, 179 B.R. at 161.¹⁰ The panel explained that "[a]lthough a purchaser cannot stop payment of the cashier's check, he or she could return the cashier's check or seek to have it cancelled as long as it is in his or her possession. Therefore, until delivery, the purchaser's property rights in the cashier's check are not transferred to the payee/holder." Id. at 161-62.¹¹

Under the controlling case law, it is the point in time when Scheu's cashier's check was delivered to Defendant that is crucial to the analysis in this action. Plaintiff has shown by competent evidence that Defendant did not have physical possession of the cashier's check until after the bankruptcy petition was filed. That evidence would be sufficient to render the transfer avoidable under § 549(a). Therefore, Defendant had the burden to show that the check...