In re Turner, Bankruptcy No. 584-501.
| Citation | 55 BR 498 |
| Decision Date | 13 November 1985 |
| Docket Number | Bankruptcy No. 584-501. |
| Parties | In re Edward Albert TURNER, Jr., dba Castlewood Kennels, Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Richard Guster and Douglas Talley, Akron, Ohio, for movants.
Mack D. Cook II, Morris Laatsch, Akron, Ohio, for debtor.
Jerome Holub, Akron, Ohio, Chapter 13 trustee.
Ronald Towne, Akron, Ohio, for Bank One of Akron.
FINDING AS TO RELIEF FROM STAY
On September 26, 1985 Bank One of Cleveland, N.A., and Bank One of Akron, N.A. (hereinafter referred to as the "Banks") filed a motion for relief from the automatic stay pursuant to 11 U.S.C. section 362(d). The motion was duly scheduled for hearing and the debtor appeared with counsel opposing the motion.
The court finds that the debtor, Edward Albert Turner, Jr., filed a chapter 13 proceeding in this court on May 1, 1984 and that Bank One of Akron and Bank One of Ravenna were duly scheduled as unsecured creditors in the petition. Bank One of Ravenna was acquired by Bank One of Akron through an acquisition and merger. The chapter 13 plan was confirmed by this court on January 18, 1985 and Bank One of Akron, aka Bank One of Ravenna, filed four proof of claims on July 31, 1984. The claims were filed through its attorney, Ronald N. Towne.
The debtor has been making payments into the plan as confirmed by the court which provided for the payment of five percent to unsecured creditors over a period of three years. The court further finds from the testimony presented that the debtor, Edward Albert Turner, Jr., was employed as a loan officer of Bank One of Ravenna. Some time after the merger, on or about October 6, 1983, the debtor was discharged from his position as a loan officer. The reason given for the dismissal was his approval of several bad loans.
On August 12, 1985, the Banks filed in the United States District Court for the Northern District of Ohio at Cleveland, Ohio complaint No. C85-2266A for civil RICO claims against 15 or more defendants, including Edward Albert Turner, Jr., the debtor. In the same district court action this court granted relief from stay to the Banks so that they could proceed against the debtors, Carolyn J. Strouse; Western Reserve Saddlery, Inc.; and W.R.S., Inc. in the district court action. On September 9, 1985 the debtor filed a motion with the district court to dismiss the RICO action, and also a motion to dismiss said proceedings because of the automatic stay as provided for under 11 U.S.C. section 362(a)(1). In support of this motion there were several affidavits filed with the district court. Because of the bankruptcy case pending before this court and the motion for relief from stay filed by the creditors on September 26, 1985 in this court, the district court is withholding ruling upon the motions pending in that court until this court makes a determination as to whether relief from stay should be granted.
The court finds that the creditors do have a blanket bond with The Buckeye Union Insurance Company, Bond No. 24 91 00, Movant's Exhibit A. Movant's Exhibit A is a fidelity bond covering officers and employees of the creditors and the debtor was one of the officers of the creditors covered by the bond. The creditors allege that it is necessary that they be allowed to proceed against the debtor in the case filed in the district court and obtain judgment against the debtor in order that they may obtain recovery on the fidelity bond. The creditors indicate to the court that they do not intend to proceed against the debtor for the deductible on the bond or otherwise against the estate of the debtor. They would look exclusively to the bonding company for any judgment obtained.
The court did admit into evidence documents 1 through 6 presented to the court as to the action pending in the United States District Court, case No. C85-2266A. It is alleged by the creditors that the RICO actions in the district court were not discovered until they were required to defend a RICO action brought in 1984 against the creditors by various defendants in a state court proceedings. The action was subsequently dismissed by the state court.
Whether the stay imposed by 11 U.S.C. section 362(a) should be modified to permit the Banks to prosecute their civil RICO action against the debtor as filed in the United States District Court for the Northern District of Ohio, Eastern Division, Case No. C85-2266A?
The creditors request a lifting or modification of the automatic stay pursuant to 11 U.S.C. section 362(d)(1):
(Emphasis supplied). The creditors have stipulated in their brief and at the hearing that as plaintiffs in the district court action they request relief from stay only for the purpose of obtaining a finding of liability against the debtor, and not for any purpose of recovering any such debt as a personal liability of the debtor, or from the property of the debtor. See Banks' Memorandum In Support of Motion for Relief From the Automatic Stay at 1-2. They are attempting to establish in that action the liability of the debtor according to a civil RICO theory of liability, and subsequently, recover on a fidelity bond from which they will seek indemnity. See Racketeer Influence and Corrupt Organization Act codified at 18 U.S.C. sects. 1961 et seq. and 18 U.S.C.A. sect. 1964 (West 1984).
Although Bank One of Ravenna has filed four proofs of claim against the debtor in this chapter 13 case, neither it nor its successor, Bank One of Akron, N.A., nor Bank One of Cleveland, N.A., have filed any proofs of claim for the alleged RICO violations of the debtor in his bankruptcy case. They are now time-barred from doing so. The kind of misconduct which the Banks assert against the debtor in the district court action is dischargeable upon completion by the debtor of all payments under the confirmed plan. 11 U.S.C. sect. 1328(a). It would be only upon the granting of a hardship discharge that the Banks could raise the spectre of nondischargeability of that alleged debt. 11 U.S.C. sect. 1328(c)(2).
At least two bankruptcy courts have considered the issue of whether the automatic stay should be modified to permit plaintiffs to proceed in district court on their RICO, and other claims, against the debtor. In In re Humphreys Pest Control Co., Inc., 35 B.R. 712 (Bankr.E.D.Pa.1984) the court granted movants modification of the stay so that they could continue litigation against the debtors in district court on claims of RICO violations, securities and common law fraud. It placed great reliance on judicial economy. If the bankruptcy court heard the claims of the movant, its jurisdiction would be limited to making findings of fact and conclusions of law not binding on the district court. The Humphreys Pest Control court noted that the legislative history to section 362(d)(1) indicates that it is sometimes more advantageous to allow an action to proceed in a tribunal other than the bankruptcy court:
Nevertheless, it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.
35 B.R. at 714 (quoting H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 341 (1977)), U.S. Code Cong. & Admin.News 1978, p. 5787. The court modified the stay but prohibited the movants from executing on the judgment without further approval of the court. See also, In re Harris, 7 B.R. 284, 6 Bankr. Ct. Dec. 1166 (S.D.Fla.1980).
In In re Hoffman, 33 B.R. 937 (Bankr.W. D.Okla.1983) plaintiffs who in a district court action sought recovery for violations of securities law and RICO violations applied to the bankruptcy court for a modification of the automatic stay to so proceed with their actions. The court lifted the stay noting that it lacked jurisdiction over several of the debtor's codefendants in the district court...
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