In re Spiech Farms, LLC
| Decision Date | 03 July 2019 |
| Docket Number | Case No. GK 17-05398-jtg |
| Citation | 603 B.R. 395 |
| Parties | IN RE: SPIECH FARMS, LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Cody H. Knight, Esq., RAYMAN & KNIGHT, Kalamazoo, Michigan for Spiech Farms, LLC; Elisabeth M. Von Eitzen, Esq., Robert H. Skilton, III, Esq. and Stephen B. Grow, Esq., WARNER NORCROSS & JUDD, LLP, Grand Rapids, Michigan for Laura J. Genovich, Chapter 7 Trustee
Jason R. Klinowski, Esq. and Katie E. Willoughby, Esq., WALLACE JORDAN RATLIFF & BRANDT, LLC, Birmingham, Alabama for Produce Pay, Inc., BW Orchards, LLC, C & D Fuehring Farms, Inc., Golden Hart Fruit Farms, LLC, Green Ventures, LLC, Herrygers Farms, LLC, James Jensen d/b/a Jensen Farms, Lakeshore Farms, Inc., LK VanSickle Farms, LLC, Malburg Acres, LLC, Randy A. Fedo d/b/a Ran-Mark Company, Paul Oomen d/b/a Paul Oomen & Sons, Slocum Farms, LLC, and Villadsen Tree Farms, Inc.
Laura J. Genovich, the chapter 7 trustee (the "Trustee") for the estate of Spiech Farms, LLC (the "Debtor"), alleges that Produce Pay, Inc. ("Produce Pay") and thirteen other creditors (the "Growers", and together with Produce Pay, the "Plaintiffs")1 violated the automatic stay when they asserted claims that are property of the Debtor's estate in the United States District Court for the Southern District of Georgia. The Trustee also contends that the Plaintiffs collaterally attacked at least one order of this court when they raised issues in the Southern District of Georgia that were previously adjudicated by this court. Accordingly, the Trustee requests that the Plaintiffs be found in contempt of court and sanctioned.
The Plaintiffs deny that any violation of the automatic stay occurred because they have neither named the Debtor as a defendant nor asserted claims that constitute property of the Debtor's estate. The Plaintiffs further maintain that they are not collaterally attacking an order of this court because the claims and issues in the Southern District of Georgia are completely different from those previously decided by this court. As such, the Plaintiffs argue no basis exists upon which to hold them in contempt.
For the following reasons, the court shall grant the motion in part and deny the motion in part.
The court has jurisdiction pursuant to 28 U.S.C. § 1334(a) and (e). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). See Amedisys, Inc. v. Nat'l Century Fin. Enter., Inc. (In re Nat'l Century Fin. Enter., Inc.) , 423 F.3d 567, 573-74 (6th Cir. 2005) (citations omitted) (motion to enforce automatic stay is core proceeding); Mountain Am. Credit Union v. Skinner (In re Skinner) , 917 F.2d 444, 448 (10th Cir. 1990) (); New Prods. Corp. v. Dickinson Wright PLLC (In re Modern Plastics Corp.) , 577 B.R. 690, 702 (W.D. Mich. 2017) (citations omitted) (civil contempt claim arising out of core proceeding is itself core proceeding).
The Debtor is a Michigan limited liability company. Together, Timothy M. Spiech, Robin L. Spiech, Bradley A. Spiech and Steven Spiech (collectively, the "Spieches") own 100% of the membership interests of the Debtor. The Debtor, in turn, owns 100% of the membership interests of Spiech Farms Georgia, LLC ("Spiech Georgia"), a Georgia limited liability company.
Prepetition, the Debtor grew, purchased and sold blueberries, grapes and asparagus. Unable to satisfy the debts it owed to the Growers, Produce Pay, and its other creditors, the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on November 22, 2017.3 Spiech Georgia did not file for bankruptcy at that time, however.
From the beginning, nearly every aspect of the Debtor's case was disputed. At the forefront of these disputes was Produce Pay's contention that it was a beneficiary of a trust under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499 et seq . ("PACA"). This court ultimately determined that because Produce Pay did not buy, sell and/or supply produce or otherwise succeed to the Debtor's rights in produce, it was not a PACA trust beneficiary. In re Spiech Farms, LLC , 592 B.R. 152 (Bankr. W.D. Mich. 2018).4 The Growers, too, claimed that they were beneficiaries of a PACA trust. When the Growers did not timely respond to the Debtor's objections, the court determined they were not PACA trust beneficiaries [Dkt. Nos. 220, 426, 428, 429, 431, 433, 434, 435, 436, 442, 443, 444, 445, 447].
Unsatisfied with their remaining claims against the Debtor's estate, the Plaintiffs filed a seventeen-count complaint, as amended (the "Complaint"), against the Spieches, Eva M. Stone ("Stone", and together with the Spieches, the "Principals"), and Spiech Georgia in the Southern District of Georgia on January 9, 2019. BW Orchards, LLC et al. v. Spiech Farms Georgia, LLC et al ., Case No. 2:19-cv-00007 (S.D. Ga.).5 The Complaint contains the following causes of action:
For each cause of action, the Plaintiffs seek damages in the same amounts sought against the Debtor in this case. (See, e.g. , Hr'g Tr. at 36: 6-23).
After the Complaint was filed, Spiech Georgia filed a voluntary petition for relief under chapter 7 with this court on February 22, 2019. In re Spiech Farms Georgia, LLC , Case No. 19-00661 (Bankr. W.D. Mich.).6 To date, the Debtor's estate and the Spiech Georgia estate have not been substantively consolidated.
The Debtor filed its motion to enforce the automatic stay and for related relief [Dkt. No. 611] (the "Motion") on March 11, 2019. Shortly thereafter, the Debtor's case was converted to chapter 7 and the Trustee was appointed [Dkt. Nos. 623, 625].7 After briefing was completed [Dkt. Nos. 632, 636], the court held a hearing and took the matter under advisement.8
This dispute requires the court to consider the following issues: (i) whether the Plaintiffs violated section 362(a)(3) by asserting causes of action in the Southern District of Georgia that constitute property of the Debtor's estate; (ii) whether the Plaintiffs have collaterally attacked this court's decision denying Produce Pay the status of a PACA trust beneficiary; and (iii) whether the Plaintiffs should be held in contempt and sanctioned under section 105(a).9
In the Motion, the Trustee contends the Plaintiffs have violated the automatic stay by asserting causes of action that are in reality nothing more than claims for fraudulent transfers and breach of fiduciary duties that should be liquidated for the benefit of all creditors of the estate. The Trustee further argues that even if some of the Plaintiffs' causes of action could be construed as personal, the Plaintiffs' recovery would directly interfere with the estate's recovery.
The Plaintiffs generally disagree. The Plaintiffs argue that because they did not name the Debtor as a defendant, they have not violated the automatic stay. Furthermore, the Plaintiffs summarily state that because they "are seeking money damages from non-debtors for harm done to them by the non-debtors in breach of the duties that the non-debtors owed to the [Plaintiffs]," they are not interfering with property of the Debtor's estate. (Resp. at ¶ 9). Finally, the Plaintiffs contend that the Trustee lacks standing to pursue piercing the veil/alter ego claims against the Principals.
As an initial matter, the Plaintiffs are mistaken when they argue that no violation of the automatic stay occurred because the Debtor was not named as a defendant. The Plaintiffs are correct in that the automatic stay does not extend to non-debtors absent the issuance of an injunction under section 105(a). See Parry v. Mohawk Motors of Mich., Inc. , 236 F.3d 299, 314-15 (6th Cir. 2000) ; Patton v. Bearden , 8 F.3d 343, 349 (6th Cir. 1993). However, unlike section 362(a)(1), which prohibits acts "against the debtor," section 362(a)(3) addresses acts "to exercise control over property of the estate," including causes of action. 11 U.S.C. § 362(a)(3) ; In re Nat'l Century Fin. Enter., Inc. , 423 F.3d at 577-78 (citation omitted). It therefore does not matter whether the Debtor is named as a defendant for purposes of section 362(a)(3). See id. at 578.
Whether specific causes of action are property of the estate is a more difficult issue. Upon the filing of any bankruptcy case, an estate is created by operation of law. 11 U.S.C. § 541(a). Subject to certain exceptions, section 541 provides that the bankruptcy estate is 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) ; see, e.g. , Tyler v. DH Capital Mgmt., Inc. , 736 F.3d 455, 462 (6th Cir. 2013) (citations omitted) (debtor's prepetition causes of action constitute property of the estate). Any "actions taken in violation of the stay are invalid and voidable and shall be...
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