In re Wolensky's Ltd. Partnership, Bankruptcy No. 92-01435. Adv. No. 93-0025.

CourtUnited States Bankruptcy Courts. District of Columbia Circuit
Writing for the CourtS. MARTIN TEEL, Jr.
Citation163 BR 615
Docket NumberBankruptcy No. 92-01435. Adv. No. 93-0025.
Decision Date02 November 1993

163 B.R. 615 (1993)

WOLENSKY'S L.P., et al., Defendants.

Bankruptcy No. 92-01435. Adv. No. 93-0025.

United States Bankruptcy Court, District of Columbia.

November 2, 1993.

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Jeffrey M. Sherman, Trustee, Washington, DC, for debtor

Robert N. Levin, Schweitzer, Bentzen & Scherr, Washington, DC, for movant.

Margaret Earnest, Washington, DC.


S. MARTIN TEEL, Jr., Bankruptcy Judge.

The court addresses a motion for summary judgment, a motion for appropriate relief (requesting the court to act on the summary judgment motion), and a renewed motion for summary judgment filed by the defendants, John and Beverly Ball (the Balls). These motions will be denied.

I. Procedural Background

This interpleader suit began as a civil action brought by Federal Kemper Life Insurance Company (Kemper) in the United States District Court for the District of Columbia against the debtor, Wolensky's Limited Partnership, and other potential claimants to the proceeds of a life insurance policy totalling $450,000. On October 19, 1992, the civil action was transferred to the United States District Court for the Eastern District of Virginia pursuant to 28 U.S.C. § 1404(a). On December 12, 1992, an involuntary petition was filed against the debtor in this district; the petition was duly granted. On March 4, 1993, the interim trustee for the chapter 7 estate of the debtor replaced the Committee of Limited Partners1 as the representative of the debtor in the civil action. (Order by United States District Court for Eastern District of Virginia, Balls' Mot. for Approp. Relief, Ex. 1.) Upon motion of the trustee, the District Court referred the suit to the United States Bankruptcy Court for the Eastern District of Virginia which in turn transferred the suit to this court.

Meanwhile, the Balls' Motion for Summary Judgment had been filed on or about December 11, 1992; and on January 8, 1993, the United States, the limited partnership and the Balls had filed a stipulation ("Stipulation") of facts which included those that were contested.

By the time the suit reached this court, only three parties continued to assert an interest in the proceeds: (1) the Balls; (2) the trustee for Wolensky's L.P.; and (3) the United States.2 The Balls contend that they are entitled to the proceeds as a matter of

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law and thus that summary judgment is appropriate

II. Standard for Summary Judgment

The court's recent enunciation of standards for granting summary judgment in Dicello v. Jenkins, 160 B.R. 1 (Bankr.D.D.C.1993), is adopted here and will not be restated in this text. As set forth below, although many facts are not disputed, when the evidence is viewed in favor of the United States and the trustee, the law bars a grant of summary judgment in the Balls' favor.

III. Undisputed Facts

The debtor, Wolensky's L.P., was formed on or about November 1, 1984. The business of the partnership, as set forth in the Limited Partnership Agreement and Certificate, consisted of (1) leasing certain property at 2000 Pennsylvania Ave., N.W., Washington D.C.; (ii) developing and operating a restaurant known as Wolensky's — The Foggy Bottom Bar and Grill; and (iii) carrying on any and all activities necessary, proper, and convenient or advisable in connection therewith or related thereto. (Limited Partnership Agreement, U.S.Supp.Resp., Ex. F and F1.)3

On or about November 22, 1985, an application was filed with Kemper for a life insurance policy on the life of James P. Sullivan. Sullivan was the principal manager of the restaurant operated by the limited partnership, Wolensky's Bar and Grill. He was also the president and principal stockholder of the corporate general partner of the limited partnership, Wolensky's Inc.4 The application for the policy was signed by Sullivan, in his capacity as president of the corporate general partner, and by Gonzalo Munoz, another general partner of the limited partnership.5 Kemper issued the policy on December 18, 1985, in the face amount of $450,000. This policy was structured as an increasing premium whole life insurance policy which had no cash surrender value for the first fifteen years. (Stipulation ¶ 9; Ball's Statement of Uncontested Facts, Ex. 1.) Because the policy was intended to be a keyman insurance policy, the limited partnership was named as both the owner and the beneficiary.

On June 5, 1990, Sullivan signed a form requesting Kemper to change both the ownership and the beneficiary of the policy to the name of his wife, Ann Ball Sullivan. (U.S.Supp.Resp., Ex. A; Kemper's Complaint, Ex. B; Balls' Supp.Mem. in Supp. of Mot. for Summ.J., App. 3.) The form was signed by Sullivan as president of Wolensky's Inc., the debtor's then sole general partner. Although Sullivan requested the change in June of 1990, Kemper did not effect the change until May 23, 1991. (Kemper Service Documentation Sheet, U.S.Supp.Resp., Ex. A.) It appears that the change was not effected earlier due to an oversight by Kemper.6 Although it is agreed that the change in fact was made, whether the change was valid remains in dispute.

Wolensky's L.P. paid the premiums on the policy for 1990 and a part of 1991.7 The record does not indicate why the partnership stopped paying the premiums. However, on March 7, 1991, which is around the time the payments ceased, Wolensky's L.P. filed a

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voluntary Chapter 11 petition.8 The insurance policy was not listed in the limited partnership's statement of financial affairs which was signed under penalty of perjury by Sullivan himself. (Bankruptcy Petition, U.S.Supp.Resp., Ex. H.)9 On October 28, 1991, the voluntary bankruptcy case was dismissed

On or about April 15, 1992, Robert Crawley of Crawley and Thomas Insurance, who handled the purchase of insurance for the limited partnership, requested that Kemper perform an audit to determine the status of the policy. (Kemper's Statement of Uncontested Facts, Ex. 2.) By letter dated May 19, 1992, Kemper informed Crawley that due to an administrative error on the part of Kemper regarding the sending of a notice of premiums due and a notice of default, the company was willing to reinstate the policy if premiums owed were brought up to date. (Id.) On or about May 21, 1992, Sullivan paid Kemper the premiums due, thereby bringing the account current, by a check drawn on the account of The Sullivan Companies, Inc. (Copy of Check, Kemper's Statement of Uncontested Facts, Ex. 3.) This company was owned by Sullivan and was not affiliated with any of the Wolensky entities. Kemper then reinstated the policy.

On May 28, 1992, Ms. Sullivan changed the beneficiary from her name to her parents, John and Beverly Ball.

On June 9, 1992, Sullivan committed suicide.10

On September 8, 1992, the charter of Wolensky's Inc. was revoked by the District of Columbia. (Kemper's Statement of Uncontested Facts, Ex. 6.)

On December 29, 1992, an involuntary Chapter 7 petition was filed against Wolensky's L.P.

IV. Summary Judgment is Inappropriate at this Stage Because the Balls Have Not Established Authority for the Transfer or Adherence to Fiduciary Duty

Despite the existence of the undisputed facts set forth above, the Balls have failed to prove material facts that are critical to the determination of who is entitled to the proceeds as a matter of law.

A. Sullivan's Authority

One material fact at issue is whether or not Sullivan had the authority to change the owner and beneficiary of the policy from the limited partnership to his wife. There are essentially two subparts to the issue of authority: (1) was Sullivan, as president, authorized to act on behalf of Wolensky's Inc. with respect to the limited partnership's insurance policy; and (2) even if Wolensky's Inc. authorized him to act, was Wolensky's Inc. authorized as the general partner of the limited partnership to change the owner and beneficiary of the limited partnership's insurance policy.

1. Did Wolensky's Inc. Authorize Sullivan to Act?

The first issue is whether Wolensky's Inc. authorized Sullivan to represent the corporation in its capacity as general partner with respect to making a change in the insurance policy. An officer of a corporation, such as Sullivan, is only authorized to act as specified in the corporation's bylaws or in a subsequent resolution by the board of directors that is not inconsistent with the bylaws. D.C.Code § 29-343(b); See People v. Jasman, 92 Mich.App. 81, 284 N.W.2d 496 (1979) (corporate president is not presumed to have power to act on behalf of the corporation).11

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No bylaws or resolutions have been offered as evidence in this proceeding.12 Thus, the IRS correctly asserts that it is unclear based on the evidence thus far whether Sullivan possessed such authority. If not, then the transfer and change would not be effective to bind the general partner or for that matter, the limited partnership

2. Sullivan's Authority To Act As General Partner with Respect to the Partnership's Interest in the Policy

Even if Sullivan was authorized by the corporation to make such a change, it is unclear whether Sullivan, acting for the general partner of Wolensky's L.P., was capable of acting on behalf of the limited partnership with respect to such changes in the policy without authorization by the partnership. Unless provided otherwise in the limited partnership agreement, a general partner of a limited partnership has the rights and powers and is subject to the restrictions and liabilities of a partner in a partnership without limited partners. D.C.Code § 41-443(a).13 D.C. law provides that an act of a partner which is "not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership, unless authorized by...

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