In re Silberkraus
| Decision Date | 12 October 2000 |
| Docket Number | No. LA 00-13852-KM.,LA 00-13852-KM. |
| Citation | 253 BR 890 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re Fred Lawrence SILBERKRAUS, Debtor. |
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Thomas W. Dressler, Dressler Rein Evans & Sestanovich, LLP, Los Angeles, CA, for Debtor.
Abraham M. Rudy, Weissmann, Wolff, Bergman, Coleman & Silverman, LLP, Beverly Hills, CA, Joseph A. Eisenberg, P.C., Michael I. Gottfried, Jeffer, Mangels, Butler & Marmaro, LLP, Los Angeles, CA, for Creditor, L.E. Coppersmith, Inc.
G. Thomas Flemming, Kevin K. Fitzgerald, Jones, Bell, Abbott, Flemming & Fitzger, Los Angeles, CA, for Creditor, The Seeley Company.
Les Glenn Hardie, Santa Monica, CA, Les Glenn Hardie, Calabasas, CA, for Jeannie Silberkraus.
A. Filing of Chapter 11, State Court Litigation, Conduct in Chapter 11
On February 8, 2000, Fred Lawrence Silberkraus ("Debtor"), an individual, filed a voluntary chapter 11 petition. As of date of filing Debtor owned two major assets, as shown by his bankruptcy schedules. These were a 75,000 foot industrial building located at 2501 Santa Fe Avenue, Redondo Beach, CA 90278 (the "commercial property") and Debtor's personal residence located at 1340 Roscomare Road, Los Angeles, CA 90077 (the "residence").
The fair market value of the commercial property as of date of filing was between $6,000,000 and $7,000,000 per Debtor's Schedules and Debtor's disclosure statement filed June 7, 2000. Pursuant to Debtor's Schedule D, the liens on the commercial property totaled $2,917,420.40. Therefore, the commercial property had equity in the amount of $3,082,796.60.
According to Debtor's Schedules, the fair market value of the residence as of date of filing was $775,000. Schedule D showed liens on the residence totaling $602,000. Debtor claimed a $75,000 homestead exemption on Schedule C. Consequently, the equity above liens after paying the Debtor the exemption amount would be $98,000, minus costs of sale.
Debtor's Schedule E showed no unsecured priority claims. Schedule F showed general unsecured claims in the amount of $510,592. All but $121,092 of this unsecured debt was listed as disputed. A total of $303,000 of the disputed unsecured debt was allegedly general unsecured debts owed to L.E. Coppersmith, Inc. (hereinafter "Coppersmith") and The Seeley Company (hereinafter "Seeley"). A total of $131,000 of the scheduled general unsecured debt was incurred in January of 2000 — the month prior to the bankruptcy filing. Debtor's testimony at the 341(a) meeting revealed that $10,000 of the credit card debt was incurred for the purpose of paying part of Debtor's attorney's $50,000 pre-petition retainer. (See L.E. Coppersmith's Reply to Opposition to L.E. Coppersmith Inc. Motion for Relief from Stay, Declaration of Michael Gottfried.)
Because Debtor's assets — $3,082,796.60 in equity in the commercial property above all liens, $98,000 of equity in the residence above all liens — exceeded Debtor's remaining liabilities — $510,592 in mainly disputed unsecured claims, Debtor was very solvent on the petition date. In a chapter 7 liquidation, after selling the commercial property and residence for fair market value and paying the claimed homestead exemption in the amount of $75,000, a chapter 7 trustee would be able to pay 100% of all debts owed by Debtor (secured, priority, general unsecured).
As discussed infra, the Debtor — or a chapter 7 trustee if the case was converted to a chapter 7 — may be obligated to sell the Debtor's commercial property to creditor Coppersmith. Coppersmith claimed it had an option to purchase the building for $3,950,000, and claimed to have properly exercised this option to purchase prepetition. However, even a sale of the commercial building to Coppersmith at $3,950,000, plus sale of the residence at the fair market value of the residence, should have produced enough money to pay all creditors in this case 100%, or very close thereto, given the Debtor's liabilities as scheduled.
Throughout this bankruptcy case, Debtor responded to the creditors' contention that a sale of the commercial property, even at the $3,950,000 option price, would be sufficient to pay all creditors, by asserting that (See Debtor's Opposition to L.E. Coppersmith Motion to Lift Stay, page 2, lines 20 - 22.) Debtor contended that the "original cause of the dispute between Silberkraus and Coppersmith was Coppersmith's inexplicable refusal to honor its obligation to cooperate in arranging a tax-free exchange." (See Debtor's Opposition to L.E. Coppersmith Motion to Lift Stay, page 3, lines 9 - 11.)
However, Debtor never supported its tax liability contentions with competent evidence. Debtor initially provided a sparse analysis purportedly showing potential future capital gains tax liability; but, Debtor provided no foundation for the capital gains analysis, including that Debtor did not even identify who authored the purported capital gains analysis.1 (See Debtor's Opposition to the L.E. Coppersmith Motion to Lift Stay, Exhibit A.) Later, Debtor offered the Declaration of Herbert D. Sturman to support the Debtor's tax analysis. (See Debtor's Opposition to The Seeley Company Motion to Lift Stay, Declaration of Herbert D. Sturman.) But this Declaration was not based on personal knowledge: Sturman stated that he has "not independently verified these matters and cannot therefore opine as to the precise result reached in dollars and cents." See e.g., Edgewater Walk Apts. v. MONY Life Ins. Co., 162 B.R. 490 (N.D.Ill.1993) (). Finally, the uncontradicted declaration of Coppersmith was that Coppersmith was willing to cooperate, and had cooperated, in trying to effect a tax free exchange since April 9, 1999. (See Reply to Opposition to L.E. Coppersmith Inc. Motion for Relief from Stay, Declaration of L.E. Coppersmith, ¶ 4.) Moreover, Debtor claimed to be using the bankruptcy to reorganize by selling or leasing the property on the open market, at fair market value, to some party other than Coppersmith. If a sale at $3,950,000 would trigger tax liability, it appears that a sale at a higher figure would create even more tax liability. Yet, selling the property at a higher price is one of the alternatives Debtor was proposing.2 (See Debtor's Disclosure Statement.)
In 1993 Debtor and Seeley entered into an agreement whereby Seeley became the Debtor's agent for the sale or lease of the commercial property. In December of 1994, Debtor and Coppersmith entered into a written lease which leased the commercial property to Coppersmith for five years, with an option to purchase at the end of the term. The lease provided that Seeley was to be paid a commission upon Coppersmith's exercise of the option to purchase. (See Exhibit A to L.E. Coppersmith's Motion for Relief from Stay for a copy of the lease/option to buy contract.)
On April 9, 1999 Coppersmith exercised its option to purchase the commercial building at $3,950,000.3 (See L.E. Coppersmith's Motion for Relief from Stay, Declaration of L.E. Coppersmith, Exhibit B.) Escrow was opened on April 19, 1999. (See L.E. Coppersmith's Motion for Relief from Stay, Declaration of L.E. Coppersmith, Exhibit C.) Pursuant to the lease, escrow had to close no later than 180 days from the exercise of the option to purchase. Accordingly, escrow was scheduled to close on or before October 18, 1999. (L.E. Coppersmith's Motion for Relief from Stay, Declaration of L.E. Coppersmith, Exhibit A.) On October 15, 1999 — with the closing of escrow just 3 days away — Debtor's transactional counsel, Thomas & Walton LLP, wrote to the escrow company and stated that escrow would not be closing on October 18, 1999 because of the litigation between Debtor and Jeannie Silberkraus (Debtor's former spouse). (See L.E. Coppersmith's Motion for Relief from Stay, Declaration of L.E. Coppersmith and Exhibit E thereto.) However, pursuant to a September 15, 1999 Order of Commissioner Erdman, the Commissioner had already ruled in the litigation between Fred Silberkraus and Jeannie Silberkraus that the proceeds of the sale would be held in an interest bearing trust account pending further order from the court. (See L.E. Coppersmith's Motion for Relief from Stay, Request for Judicial Notice, Exhibit A.) The letter from Debtor's counsel to the escrow company also alluded to alleged defaults by Coppersmith which would make closing impossible; but a declaration of L.E. Coppersmith attested that Debtor had not found a single occasion of default by Coppersmith during the previous 4½ years of the lease.
On October 20, 1999, Coppersmith filed a complaint in Los Angeles Superior Court, State of California against Debtor and Jeannie Silberkraus, alleging breach of contract, and seeking specific performance to compel the sale of Debtor's commercial property to Coppersmith pursuant to the option to purchase. (See L.E. Coppersmith's Motion for Relief from Stay, Request for Judicial Notice, Exhibit B.) On November 19, 1999, Debtor answered the complaint and filed a cross complaint against Coppersmith and Jeannie Silberkraus. (See L.E. Coppersmith's Motion for Relief from Stay, Request for Judicial Notice, Exhibit C.)
On December 4, 1998, the Debtor filed a complaint against Seeley in Los...
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