In re Stewart

• Decision Date: 20 September 2013
• Docket Number: No. 10–41342–wsd.,10–41342–wsd.
• Citation: 499 B.R. 557
• Parties: In re Michelle Denise STEWART, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

499 B.R. 557

In re Michelle Denise STEWART, Debtor.

No. 10–41342–wsd.

United States Bankruptcy Court,

E.D. Michigan,

Southern Division.

Sept. 20, 2013.

Tracy M. Clark, Southfield, MI, Marcus Evangelista, Wayne, MI, Jordan M. Sickman, Southfield, MI, Scott A. Gies, Farmington Hills, MI, for Trustee.

Andrew D. Concannon, Saginaw, MI, Raymond Mashni, Lapeer, MI, for Debtor.

OPINION REGARDING DEBTOR'S MOTIONS TO HOLD BALDWIN SUMMIT ET AL. IN VIOLATION OF AUTOMATIC STAY AND COMPEL RELEASE OF PROPERTY

WALTER SHAPERO, Bankruptcy Judge.

The Debtor Michelle Stewart filed for Chapter 7 Bankruptcy protection on January 18, 2010. She had operated a pizza establishment and several pieces of restaurant equipment were left in her vacated commercial lease space (“the premises”) and are currently in the control of Royal Management, LLC, Marcus Evangelista, and Baldwin Summit, LLC (collectively “the Creditors”). Debtor filed a Motion to Compel Release of Debtor's Property and a Motion to Hold Creditors in Violation of 11 U.S.C. §§ 362(a)(3), (a)(6), and (a)(7), and 11 U.S.C. § 727, essentially alleging that Creditors converted and failed to return her equipment. Following an evidentiary hearing, the parties submitted post-trial briefs outlining the issues. The Court finds the Creditors liable for converting the property and for violating the automatic stay with respect to some of Debtor's equipment.

Background

In March 2005, the Debtor signed a five year lease (the “Orion Lease”) with Orion Village Crossing, LLC (“Orion Village”) for commercial space within the Orion Village Shopping Center at 3647 Baldwin Road, Orion, Michigan. She used this space to operate Paesano's Pizza, a carry-out pizza restaurant, and acquired several pieces of commercial restaurant equipment and related items (“the Equipment”) which are the subject of this dispute. While the exact commencement date after March 2005 of the five year lease term is not clear (given what appears to have been certain work required to be completed by the landlord before that term officially started), what is clear is that the five year term had not expired as of January, 18, 2010 when this bankruptcy case was filed.

Paesano's Pizzeria had operating net losses from 2007–2009. By 2009, Debtor was several months delinquent on her lease payments to Orion Village. In December 2009, Orion Village initiated an action against Debtor, seeking possession of the premises and $14,543 in back rent. While the date of such is in dispute, at some point during late 2009 or early 2010, Debtor ceased operating Paesano's Pizza. Thereafter she returned to the premises several times to clean and collect smaller items, but did not have the means to move or store the larger Equipment. The landlord claimed ownership of this Equipment. On January 5, 2010, the state court entered a stipulated order under which Debtor “voluntarily agree[d] not to remove any equipment, fixtures or other items from the subject property pending the resolution of this lawsuit” effectively preserving the status quo. (Stipulated Order for Adjournment, Ex. 13, at 1). Upon later learning of the Debtor's bankruptcy, the state court ordered an administrative closing of the case pursuant to the bankruptcy stay. (Order for Administrative Closing, Ex. 14, at 1). The resolution of the ownership or of entitlement to this Equipment thereafter became a matter before this Court.

Debtor listed the remaining Orion Lease as an Unexpired Lease on her Bankruptcy Schedule G. On schedule B, she claimed assets worth $9,370, consisting of “Pizzeria Equipment, oven, scales grater, sign, fryer, tables, shelving, racks screens, pans, mixer exhaust fan, hood, sink, cooler, phones, POS system, [and] flour bin.” On April 23, 2010, the trustee filed an asset report intending to abandon the property pursuant to 11 U.S.C. § 554(c), and later filed his final report on December 3, 2010 concluding that there were no assets to distribute. As noted, this Equipment remains on the premises and is the subject of this dispute.

While the state court ejectment action against Debtor was ongoing, Orion Village defaulted on its loan from Fifth Third Bank, which held a mortgage on the Orion Village Shopping Center. Fifth Third foreclosed and Agree Realty was appointed receiver. On February 10, 2010, Agree Realty took control of the premises and states that it found the unit in a “filthy and contaminated” condition. (Cohon Aff., Ex. 4, at 1). As receiver for the property, it cleaned and sanitized the unit. Meanwhile, Fifth Third sold its interest in the Orion Shopping Center to Baldwin Summit, LLC, the closing on which occurred on April 1, 2010. As the statutory right of redemption period had not yet expired, Agree Realty continued to manage the Orion shopping center until the right of redemption expired in July 2010.

Upon expiration of the redemption period, Baldwin Summit LLC took effective control over the Orion shopping center and appointed Royal Management LLC to manage it. Dr. Stella Evangelista and Jose Evangelista are the sole managing members of both Baldwin Summit LLC and Royal Management LLC. Dr. Evangelista's son, Marcus Evangelista (“Mr. Evangelista”), is the general counsel and resident agent for both entities. Mr. Evangelista has been representing himself and both indicated Evangelista entities during the pendency of this case.

In June 2010, Debtor's counsel, Raymond Mashni contacted Mr. Evangelista regarding the Equipment. Mashni informed Mr. Evangelista of Debtor's bankruptcy filing and claimed the Equipment was property of the Debtor and she wanted access to the premises to remove it. Mr. Evangelista, relying on opinion of outside counsel, took the position that Baldwin Summit's purchase of the Orion Shopping Center included all personal property and fixtures within the leased premises. This position was apparently based upon a clause in the Orion Lease (“the Abandonment Clause”) which provides for the transfer of title to the landlord of all personal property and fixtures remaining in the premises at the end of the tenant's lease term.

Creditors argue that when Debtor allegedly vacated the premises in 2009, she abandoned the Equipment and it thereby became property of Orion Village. These rights transferred to Fifth Third Bank via the foreclosure and were ultimately sold to Baldwin Summit LLC as part of the April 1, 2010 shopping center sale transaction. Debtor claims that she never abandoned the premises. Rather, she states that for a period of time she operated Paesano's on a reduced basis as a cash business and continued to do so and only fully stopped operating and physically vacated the premises in January 2010. She also argues she was barred from returning to collect her property by the status quo order in the state court. Debtor thus argues that the Creditors, by refusing to return her Equipment, converted it and violated the automatic stay.

On November 18, 2010, Debtor filed a Motion to Compel the release of her Equipment. Five days later on November 23, 2010, Debtor filed a Supplementary Motion to Hold Royal Management, LLC, Baldwin Summit, LLC, Marcus Evangelista, and Orion Village Crossing, LLC ¹ in violation of 11 U.S.C. §§ 362(a)(3), (6), and (7) and 11 U.S.C. § 727. Creditors filed a Motion for Summary Judgment in response. The parties later entered into a stipulated order which permitted the Court in the company of the parties to conduct an on-site inspection of the premises to verify what, if any, Equipment was actually still in the premises. Though some Equipment remains in the premises, several larger, more valuable items were missing. An evidentiary hearing was held, following which, the Court took present matters under advisement.

Statement of Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) and 157(a). This is a core proceeding under §§ 157(b)(2)(A) and (E).

Issues Presented

The Court must resolve the following issues:

(1) Did the Debtor by her actions or inactions lose her rights to the Equipment, thereby transferring free and clear title to the Equipment to the landlord, whose interest was subsequently purchased by the Creditors?

(2) If not, has Debtor proven superior rights in all or some of the Equipment, thus entitling her to recover against Creditors for conversion?

(3) Did the Creditors violate the automatic stay by exercising control over this Equipment?

Discussion

I. Debtor's Ownership Rights in the Equipment

In order to determine whether or not a violation of the Bankruptcy Code occurred, this Court must first sort out the disputed property rights in the Equipment. “Whether a party has an interest in property and the extent of that interest is determined by applicable nonbankruptcy law.” In re Harchar, 694 F.3d 639, 647 (6th Cir.2012) ( citing Butner v. United States, 440 U.S. 48, 54–55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)). Thus, Michigan law determines Debtor's rights in the Equipment.

1. The Orion Village Lease Agreement

According to Michigan law, “[w]hen a lease is unambiguous in its terms, what the parties intended by the language employed in the lease is a matter of law for the court's determination....” Hull v. Detroit Equip. Installation, Inc., 12 Mich.App. 532, 534, 163 N.W.2d 271 (1968). The relevant portion of the Orion Lease incorporating the Abandonment Clause, states:

Article 42—Condition of Premises At End of Lease Term

Prior to the expiration of the Term, Tenant shall remove all of its acquisition, equipment, fixtures, interior, and nylon signage and all items of personal property and shall leave the Premises in “broom clean” condition. Tenant shall repair all damage resulting from the removal of its exterior signage. Tenant shall schedule a walk-through inspection with Landlord's management company. Upon vacating the Premises, Tenant shall promptly return all of the keys to the Premises to Landlord. Any equipment, fixtures, furnishings, or other...