In re Troutman Enterprises, Inc.
| Decision Date | 09 September 2005 |
| Docket Number | Bankruptcy No. 99-35371.,Adversary No. 04-2029.,Former Adversary No. 02-3287. |
| Citation | 343 B.R. 590 |
| Parties | In re TROUTMAN ENTERPRISES, INC., Debtor. John Paul Rieser, Chapter 7 Trustee, Plaintiff, v. Dinsmore & Shohl, LLP, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Robert J. Sidman, Tiffany Cobb, Columbus, OH, for Defendant Dinsmore & Shohl, LLP, Vorys, Sater, Seymour and Pease, LLP.
Donald F. Harker, III, Dayton, OH, trustee for Troutman I.
Dale Ann Goldberg, Dayton, OH, Assistant U.S. Attorney.
Wayne P. Novick, Centerville, OH, Special Counsel for State of Ohio Department of Taxation.
Derek A. Farmer, Columbus, OH, for Defendants Wayne Wheat & House of Wheat Funeral Home, Inc., Derek A. Farmer & Assoc. Co., LPA.
Richard D. Palmer, Columbus, OH, for Defendant Contract Processing & Title Agency, Ltd., Richard D. Palmer Co., LPA.
Richard D. Bringardner, Columbus, OH, for Defendant AmeriCredit Financial Services, Inc.
John L. Day Jr., Laura Faulkner, Cincinnati, OH, for Defendant Citicorp Credit Services, Weltman, Weinberg & Reis Co., LPA.
John F. Kostelnik, Stephen F. Gladstone, Matthew H. Matheny, Cleveland, OH, for Defendant Bob Townsend Ford, Ford Frantz Ward LLP.
This adversary proceeding arises from an unusual procedural morass involving two separate, but related, bankruptcy estates and multiple appellate proceedings before the Sixth Circuit Bankruptcy Appellate Panel ("BAP") and Court of Appeals. At issue here is the finality of an order entered by Chief Judge Waldron on March 10, 2000 ("Distribution Order"), which authorized Firstar Bank to distribute $1 million in insurance proceeds payable to Troutman Enterprises, Inc., as the beneficiary of a life insurance policy on its deceased officer and shareholder, Roger Troutman.
Four of the Defendants1 ("Movants") have filed motions seeking summary judgment on all claims asserted against them by John Paul Rieser ("Rieser" or "Trustee"), trustee of the bankruptcy estate of Troutman Enterprises, Inc. in Case No. 99-35371, which was commenced as an involuntary Chapter 7 proceeding ("Involuntary TEI"). The Movants urge the Court to accord finality to the Distribution Order and grant them summary judgment on the Trustee's claims for avoidance and recovery of the funds that were disbursed in reliance on the Distribution Order. The Trustee opposes the motions for summary judgment, arguing that he has valid claims for avoidance and recovery of the funds in question because the nunc pro tunc order for relief entered by Chief Judge Waldron in the Involuntary TEI case effectively nullified the Distribution Order.
While the Trustee's claims stem from the complex and tortuous procedural history detailed below, the principle that governs their disposition is a simple one: parties are entitled to rely on final court orders that are neither appealed nor stayed. Because the Distribution Order, which was never appealed or stayed, relinquished the bankruptcy court's jurisdiction over the life insurance proceeds, the claims asserted in the Trustee's complaint ("Complaint") — which are based on the premise that, notwithstanding the Distribution Order, the insurance proceeds were property of the Involuntary TEI bankruptcy estate when transferred — must be dismissed.
This memorandum opinion and order constitute the Court's findings of fact and conclusions of law. Fed.R.Civ.P. 52 ().
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2).
The genesis of the litigation involving Troutman Enterprises, Inc. ("TEI") can be traced back nearly 20 years to the purchase of a life insurance policy on one of TEI's principals. On July 11, 1986, TEI purchased a $500,000 life insurance policy on Larry Troutman ("First Policy"), a shareholder and officer of TEI. TEI owned the First Policy and was its named beneficiary.
On April 23, 1992, TEI filed a voluntary Chapter 11 petition and the case was assigned to Chief Judge Waldron. See In re Troutman Enters., Inc., No. 92-31988 ("Troutman I"). On September 1, 1993, TEI's Amended Plan of Reorganization ("Plan") was confirmed. See id., Does. 134, 165. The Plan called for all allowed unsecured claims, not otherwise provided for, to be paid pro rata from a fund of $10,000. See id., Doc. 134. Following confirmation of the Plan, TEI emerged from Chapter 11 and continued operating as a reorganized debtor ("Reorganized TEI"). TEI did not disclose its interest as owner and beneficiary of the First Policy, either in the schedules filed with its bankruptcy petition or during the pendency of its Chapter 11 case. See id., Does. 1, 133.
On January 30, 1995, approximately 17 months after the order confirming the Plan was entered, Reorganized TEI purchased a $1,000,000 life insurance policy on Roger Troutman ("Second Policy"), a shareholder and officer of Reorganized TEI, and the brother of Larry Troutman. Reorganized TEI was both the owner and named beneficiary of the Second Policy.
When Reorganized TEI defaulted on its obligations under the Plan, the Internal Revenue Service ("IRS") moved to convert the case to a Chapter 7 liquidation proceeding. The Court granted the unopposed motion, and Troutman I was converted on January 4, 1996. Thus, whatever remained in the bankruptcy estate of Troutman I became "Converted TEI." See id., Doc. 247. Donald F. Harker, Jr. ("Harker") was appointed Chapter 7 trustee of the bankruptcy estate of Converted TEI. On April 22, 1996, during the pendency of the Chapter 7 case and without Harker's knowledge or consent, TEI executed documents that purported to transfer ownership of both the First and Second Policies from TEI to Roger Tee Enterprises, Inc., a related corporation. TEI, however, remained at all times the named beneficiary of both policies. On April 25, 1999, Larry and Roger Troutman died in an apparent murder-suicide and the proceeds of the First and Second Policies became payable to TEI.
On May 14, 1999, Converted TEI amended its Schedule B (Personal Property) in Troutman I and, for the first time, disclosed its interest in the First and Second Policies. See id., Doc. 284. On June 11, 1999, Harker brought an adversary proceeding — Harker v. Troutman (In re Troutman Enters., Inc.), Adv. Pro. No. 99-3099 ("Harker Proceeding") — against the life insurer that issued the First and Second Policies, seeking turnover of the proceeds of both policies. The insurer interpleaded the proceeds of the First and Second Policies and was dismissed as a defendant from the Harker Proceeding. The remaining shareholders of TEI ("Shareholders") subsequently intervened in the Harker Proceeding as third-party defendants, asserting that they were entitled to the proceeds of the First and Second Policies and moving for dismissal and summary judgment.
On October 18, 1999, while the Harker Proceeding for turnover of the insurance proceeds was pending, and despite the fact that Troutman I had converted to Chapter 7, four petitioning creditors ("Petitioning Creditors") filed an involuntary Chapter 7 petition against Reorganized TEI. The Petitioning Creditors based their filing on Reorganized TEI's failure to pay their claims in accordance with the terms of the Plan. On November 10, 1999, Reorganized TEI moved for dismissal of the involuntary petition. See In re Troutman Enters., Inc., Case No. 99-35371 ("Troutman II"), Doc. 14.
On January 24, 2000, Chief Judge Waldron issued decisions in both the Harker Proceeding and Troutman II that are described in detail below.
In the Harker Proceeding, Chief Judge Waldron made two key rulings. Although the court rejected Harker's complaint for turnover of the proceeds of the Second Policy to the Chapter 7 estate of Converted TEI, it granted turnover of the proceeds of the First Policy to the Converted TEI estate. See Harker Proceeding, 244 B.R. at 767-69. The court noted that Reorganized TEI acquired the Second Policy 17 months after confirmation of the Plan. Relying on § 1141(b) & (c) of the Bankruptcy Code,2 the court determined that the proceeds of the Second Policy were not property of the Chapter 7 estate of Converted TEI because Reorganized TEI was the original owner and, at all times, the named beneficiary of the Second Policy. See id. at 767. Chief Judge Waldron reasoned:
TEI, operating post confirmation as the Reorganized Debtor, was fully authorized to conduct its business affairs and, as a result of the Confirmed Amended Plan and the effect of § 1141(b) & (c), hold assets separate and apart from the original property of the Chapter 11 estate. Such assets [including the proceeds of the Second Policy] are not included as property of a converted debtor's estate.
Id. at 766 (citations omitted).
As for the First Policy, the court noted that it had been acquired in 1986, some six years before TEI filed for Chapter 11 bankruptcy relief, but its existence had not been disclosed until the proceeds of the First Policy became payable following the death of Larry Troutman. See id. at 768. The court held that § 1141(b)'s revesting provision did not apply with respect to the First Policy because TEI had failed to...
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