In re Szymanski

• Decision Date: 12 August 2009
• Docket Number: Bankruptcy No. 09-10880bf.,Adversary No. 09-0068.
• Citation: 413 B.R. 232
• Parties: In re David G. SZYMANSKI, Debtor. David G. Szymanski and William C. Miller, Chapter 13 trustee, Plaintiffs v. Wachovia Bank, N.A. and Fletcher Harlee Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

413 B.R. 232

In re David G. SZYMANSKI, Debtor David G. Szymanski and William C. Miller, Chapter 13 trustee, Plaintiffs v. Wachovia Bank, N.A. and Fletcher Harlee Corporation, Defendants.

Bankruptcy No. 09-10880bf.

Adversary No. 09-0068.

United States Bankruptcy Court, E.D. Pennsylvania.

August 12, 2009.

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Paul Brinton Maschmeyer, Robert W. Seitzer, Maschmeyer Karalis P.C., Philadelphia, PA, for Plaintiffs.

William C. Miller, pro se.

Kenneth M. Portner, Weber Gallagher Simpson Stapleton Fires, Kristen Wetzel Ladd, Weber Gallagher, Philadelphia, PA, Douglas J. Smillie, Fitzpatrick Lentz and Bubba P.C., Center Valley, PA, Ethan N. Halberstadt, Halberstadt Curley LLC, Conshohocken, PA, for Defendant.

MEMORANDUM

BRUCE FOX, Bankruptcy Judge.

Two related matters are presently before me as four parties seek recovery or control of more than $200,000 deposited in bank accounts titled in the debtor's name.

The chapter 13 debtor, David G. Szymanski, and the standing chapter 13 trustee, William C. Miller, Esq., filed an adversary proceeding against Wachovia Bank, N.A. and Fletcher Harlee Corporation. The complaint, inter alia, demands turnover under 11 U.S.C. § 542 of the funds in those bank accounts held by defendant Wachovia. The complaint also seeks to avoid a prepetition garnishment of those accounts by defendant Fletcher Harlee as preferential under 11 U.S.C. §§ 522 and 547, as well as recovery against that defendant under section 550.¹ To the extent the Fletcher Harlee garnishment lien is avoided, the trustee and debtor expect to preserve that lien under sections 522 and 551.

Fletcher Harlee answered this complaint asserting that it held a valid lien on the debtor's property held by Wachovia, which lien was not preferential. It also challenged the debtor/plaintiff's standing to seek turnover. Wachovia also opposes turnover, contending that it holds a valid right of setoff of those deposit accounts under Pennsylvania law, and filed a cross-claim against Fletcher Harlee alleging that its right of setoff primes any lien held by that defendant. Fletcher Harlee disputes that contention.

Finally, in a separate motion, Wachovia seeks to terminate the bankruptcy stay under section 362(d) so that it may exercise its setoff rights. Both plaintiffs, as well as Fletcher Harlee, oppose such relief.

Trial was scheduled upon the adversary proceeding and the lift-stay motion. Owing to some last minute maneuvers by the parties, the claim and cross-claim against Fletcher Harlee were severed and will be tried at a later date. Furthermore, the parties agreed that the plaintiffs turnover claim against Wachovia and Wachovia's lift-stay motion would be heard on a consolidated evidentiary record.

At trial, the parties offered no witnesses; only a stipulation of facts and copies of certain documents were introduced into evidence.

I.

A.

The parties stipulated to the following facts as relevant to these disputes:

S & C Properties, Ltd. is indebted to Wachovia Bank, N.A. under a promissory note dated March 5, 2002, in the original principal amount of $700,000. Ex. J-1, at ¶ 1 (ex. A is a copy of the promissory note). Del Concrete Company is indebted to Wachovia under a "demand" note dated March 17, 2004, in the original principal amount of $125,000. Id., at ¶ 2 (ex. B is a copy of that promissory note). Mr. Szymanski guaranteed the loan obligations of both S & C Properties and Del Concrete pursuant to two Unconditional Guaranty Agreements dated March 5, 2002 and March 17, 2004, respectively. Id., at ¶ 3 (exs. C and D are copies of those guarantee agreements).

Payment of both promissory notes was secured by real property owned by S & C Properties, which realty is located at 845 Kiamensi Road, Wilmington, Delaware, with Wachovia holding a first mortgage position. Ex. J-1, at ¶ 4. This real property had been appraised in an amount in excess of $1,000,000. Id., at ¶ 5 (ex. E is a copy of an undated "property evaluation" prepared by Coldwell Banker Commercial).²

The debtor "is the owner" of various general deposit accounts at Wachovia, denominated accounts numbered 1010071495510, 1010119886599, and 1010158887737. Id., at ¶ 6. These deposit accounts were subject to and governed by an agreement entitled "Deposit Agreement and Disclosures for Personal Accounts" dated October 1, 2008. Id., at ¶ 7 (ex. F is a copy of the Deposit Agreement).

As of November 10, 2008, the three deposit accounts had a total balance of $218,316.02. Id., at ¶ 8. As of January 14 2009, the three deposit accounts had a total balance of $222,847.64. Id., at ¶ 9. And as of February 9, 2009, the three deposit accounts had a total balance of approximately $222,000. Id., at ¶ 10.

On October 15, 2007, the Superior Court of Pennsylvania decided an appeal in the civil action styled Fletcher Harlee v. David Szymanski and David Concrete Corporation, Inc., docketed at No. 3424 EDA 2006. Id., at ¶ 11 (ex. G is a copy of that appellate decision). The Superior Court vacated the judgment entered by the trial court and directed that judgment be entered in favor of Fletcher Harlee against the debtor. Based upon that directive, on December 24, 2008, judgment was entered in favor of Fletcher Harlee against David Szymanski in the amount of $330,195.04, plus interest at the rate of 6% per annum from October 1, 2001. Id., at ¶ 12 (ex. H is a copy of the state trial court judgment order).

On January 14, 2009, Fletcher Harlee served a writ of execution on Wachovia to garnish Mr. Szymanski's deposit accounts. Id., at ¶ 13. At the same time, it served interrogatories on Wachovia dated January 9, 2009. Id., at ¶ 13 (ex. I is a copy of those interrogatories). Wachovia answered the interrogatories on or about January 26, 2009. Id., at ¶ 14 (ex. J is a copy of Wachovia's answers). These answers were verified by John O'Donnell, "the Writ of Execution Administrator of Wachovia National Bank." Id., at ¶ 14.³

As of January 14, 2009, $415,675.44 remained due and owing to Wachovia under the S & C Properties note, and $35,148.88 remained due and owing to Wachovia under the Del Concrete note. Id., at ¶¶ 15, 16.

On February 5, 2009, S & C Properties failed to make a periodic payment of principal and interest required under the S & C Properties note. Id., at ¶ 17.

Mr. Szymanski filed a voluntary petition in bankruptcy under chapter 13 on February 9, 2009. Id., at ¶ 18. As of February 9, 2009, Wachovia had not provided any written or verbal notice of loan default to Mr. Szymanski, S & C Properties nor Del Concrete in connection with either promissory note or the loan guaranty agreements. Id., at ¶¶ 19, 20. As of February 9, 2009, Wachovia had not made a demand for payment under the Del Concrete note. Id., at ¶ 21.

As of June 9, 2009, a total of $448,461.37 remained due and owing to Wachovia under the S & C Properties and Del Concrete loan notes. Id., at ¶ 22.

Mr. Szymanski intends to partially fund his chapter 13 plan through the use of the funds in the deposit accounts. Id., at ¶ 23.

Fletcher Harlee admits that it is the initial transferee of the garnishment within the meaning of 11 U.S.C. § 550(a). Id., at ¶ 25.

B.

One or more of the parties to these disputes focus upon some of the provisions found in the documents attached to their stipulation of facts. Those provisions relevant to these disputes are as follows:

The S & C Properties promissory note, dated March 5, 2002 (Exhibit A), bears the logo of Wachovia's predecessor bank and appears to be prepared from a bank form. It called for monthly payments beginning April 2002 and was to mature in March 2017. Nonpayment, or the bankruptcy filing or "material business alteration" of the borrower or its affiliates or subsidiaries constituted an event of default. The bankruptcy filing of "any party to the Loan Documents" also represented a default.⁴ The promissory note also provided that a default occurred:

At Bank's option, any default in payment or performance of any obligation under any other loans, contracts, or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower with Bank or its affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. § 101, except that the term "Borrower" shall be substituted for the term "Debtor" therein; "Subsidiary" shall mean any business in which Borrower holds, directly or indirectly, a controlling interest).

Ex. A., at 3.⁵

Upon an event of default of the S & C Properties note, Wachovia was permitted to "[f]oreclose its security interest or lien against the Borrower's accounts without notice," and "to accelerate the maturity" of the promissory note. Ex. A, at 3. Delaware law governed interpretation of this promissory note. Ex. A, at 4.⁶

The Del Concrete promissory note, dated March 17, 2004 (Exhibit B) appears to be a later version of the promissory note form used in 2002. It called for monthly payments beginning in April 2004, ex. B, at 2, but also stated:

This is a demand Note and all Obligations hereunder shall become immediately due and payable upon demand.

Id., at 3. It also was to be governed by Delaware law. Id., at 4.⁷

The debtor signed an "Unconditional Guaranty" (Exhibit C) denoting S & C Properties, Ltd. as the borrower. This document, with a bank logo on the top, appears to be adapted from a form document. This document states that it is an "unconditional guarantee of payment and performance and not of collection." Ex. C, at 1. It also contains a "waiver" of "(f) . . . notice of default, demand for payment [and] notice of acceleration of maturity. . . ."

Under this guarantee agreement, a default arises, inter alia, from non-payment of the S & C Properties note, or bankruptcy or insolvency proceedings brought by or against the debtor. Ex. C, at 3. A default is also defined as "a breach of any...