In re Treasures, Inc., BANKRUPTCY NO: 12-06689-MM7
| Decision Date | 10 September 2013 |
| Docket Number | BANKRUPTCY NO: 12-06689-MM7 |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Southern District of California |
| Parties | In re: TREASURES, INC., Debtor, |
CIVIL CONTEMPT ORDER TO PAY
DAMAGES FOR FAILING TO TURN
As the Court approved auctioneer for the Debtor's furniture sales, APJL had possession and control of a bank account that held the sales proceeds of Debtor's furniture. When the auctions were over in September 2012, APJL did not pay Debtor its share of the proceeds, totaling $184,000. When Debtor made a demand for turnover of the funds and an accounting, APJL refused to pay Debtor its money and has to date not provided a full accounting. Nor has APJL sought relief from stay to retain the money. By the time the Court entered the OSC in April 2013, APJL had spent much of the money for its own benefit. APJL's defense to turnover and the OSC has primarily been that it was entitled to keep the money under the parties' agreement. This defense, even if asserted in good faith, and there is significant evidence to the contrary, does not release APJL's obligation to seek stay relief before retaining Debtor's money. Due to the fiduciary duties it owed the estate as a Court approved professional, APJL had no justification for its retention of the funds without an accounting.
As a result of APJL's stay violations, the estate has incurred actual damages measured by the loss of its funds, and attorneys' fees attempting to correct the stay violation. The Court will thus award both attorneys' fees and actual damages against APJL to Debtor by this Contempt Order.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b) and 1334, and constitutional authority to enter final findings of fact and conclusions of law in this dispute. Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2601-02 (2011). Bankruptcy courts have authority to enter final orders to address violations of the automatic stay. See Turner v. FirstCmty. Credit Union (In re Turner), 462 B.R. 214, 220 (Bankr. S.D. Tex. 2011) (); Heflin v. Santander Consumer USA, Inc. (In re Heflin), 464 B.R. 545, 547 (Bankr. D. Conn. 2011) (same).
Because of the gravity of civil contempt proceedings, the Court has given APJL multiple opportunities to explain its conduct over the past year. The shifting explanations APJL has provided have led the Court down a convoluted path to this resolution. Yet while the process has been somewhat confusing, it has generated an extensive record of evidence, including contradictory admissions by APJL's principal, Allen Parvizian, in the six declarations he has filed with the Court regarding the OSC proceedings.1 While the Court has generally found Parvizian not to be credible for this reason, the factual findings made in support of this Contempt Order need not be based upon a credibility determination. Instead, this ruling is based on facts on which there is no material dispute. For this reason, an evidentiary hearing is not necessary to award the contempt damages here. See ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1008 (9th Cir. 2006) ().
Specifically because the facts are admitted by APJL, the record reflects no dispute as to the facts as to the following legal issues germane to this Contempt Order:
There remain hotly disputed issues regarding the parties' rights under their agreement and as to whether APJL's actions were taken in bad faith. These disputed issues are reserved to be resolved in the adversary proceeding pending for this purpose. After the adversary proceeding is resolved, it may be that APJL can establish a secured or administrative claim to the funds it is paying back to the estate as actual damages, but it may also be that Debtor prevails. In either case, the automatic stay protected these funds so that they would be available for allocation in the proper manner, and APJL violated the stay by unilaterally taking the funds before the Court could resolve the dispute.
Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on May 8, 2012. At that time, APJL had been providing liquidation and augmentation services to Debtor pursuant to an earlier agreement dated July 11, 2011 (the "Agreement"), under which APJL agreed to provide necessary personnel, such as the auctioneer and office manager, for Debtor's furniture sales. APJL also provided financing for Debtor to purchase furniture to augment the Debtor's inventory and improve the auction outcome. The Agreement provided APJL signatory control over a bank account (the "Augmentation Account") that held theproceeds from sale of Debtor's furniture. Although other bank accounts were anticipated in the Agreement, the undisputed evidence is that the Augmentation Account was the only one actually established; and it is the only account at issue here. Under the Agreement, APJL was to disburse the funds in the Augmentation Account according to the following terms of the Agreement:
(i) first, to pay the Consultant Fee, (ii) second, if Additional Furniture is provided by Consultant to the Sale on a consignment basis, to pay for such Additional Furniture as it is sold and delivered; and if Additional Furniture is provided by Consultant other than on a consignment basis, to pay the invoice cost plus billed freight of such Additional Furniture, (iii) third, to pay for the PMST Fee due to the Consultant, (iv) fourth, to pay back all monies advanced by the Consultant to the Sale, and (v) fifth, a draw from the Augment Account to the Company of 30% all deposits during an Accounting Week; [and (vi)] sixth, to the remainder to the Company.
Agreement, Docket 105-4, Exhibit A, ¶7. Whether APJL did allocate the funds as provided in the Agreement will be resolved in the adversary proceeding.
According to the Agreement, APLJ was to forward to Debtor all sales taxes collected from customers so Debtor could pay these taxes, but further specified that any funds so forwarded were first to be considered a payment of sales taxes collected. Id. at ¶6. Despite these provisions of the Agreement, the parties actually handled the sales taxes in a different manner: APJL provided a weekly accounting of sales taxes collected and then Debtor provided an invoice to APJL for it to pay. Also in August 2012, APJL increased Debtor's draw to 40% instead of the 30% specified in the Agreement.
On application by Debtor, and supported by Parvizian's declaration, the Court approved APJL continuing to provide these services under the Agreement nunc pro tunc to the petition date. Debtor claimed it was winding down its business and needed APJL's services for its "going out of business sales." Although Debtor and APJL claimed they sought Court approval of APJL's employment only out of an abundance of caution, neither 11 U.S.C. § 327(a)2 nor BankruptcyRule 6005, deems court approval of the estate's retention of auctioneers to be optional. The US Trustee initially objected to APJL's employment due to inadequate disclosure by APJL of its connections with parties in interest. The US Trustee specifically sought clarification of whether APJL was a creditor from its previous dealings with Debtor. The US Trustee also sought further explanation regarding APJL's consignment of furniture for the auction and its affiliated entity's involvement, HFR Rugs.
In response, APJL filed a second declaration signed by Parvizian3 that provided some additional detail about the US Trustee's questions. Although APJL admitted that it had been providing services to and had received payments from Debtor post-petition, it stated that it had no other connections with Debtor. APJL did not disclose any of the following in response to the US Trustee's objection:
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