In re Yelverton

• Decision Date: 08 August 2012
• Docket Number: No. 09–00414.,09–00414.
• Citation: 477 B.R. 282
• Parties: In re Stephen Thomas YELVERTON, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

477 B.R. 282

In re Stephen Thomas YELVERTON, Debtor.

No. 09–00414.

United States Bankruptcy Court,

District of Columbia.

Aug. 8, 2012.

Stephen Thomas Yelverton, Washington, DC, Pro se.

MEMORANDUM DECISION RE DEBTOR'S MOTION TO VACATE ORDER APPROVING SETTLEMENT

S. MARTIN TEEL, JR., Bankruptcy Judge.

The debtor has filed a Motion to Vacate Order and for New Trial As to Trustee's Settlement. The motion seeks to set aside this court's approval of a settlement that the chapter 7 trustee reached with certain entities (“the Defendants”) with whom the debtor (and then the trustee in place of the debtor) had been engaged in litigation concerning the debtor's shares in Yelverton Farms, Ltd. and other claims. The motion will be denied for the following reasons.

I

Among other things, the settlement called for the trustee to endorse in blank his shares in Yelverton Farms, Ltd. and transfer possession of such shares to the Defendants. The debtor argues that the settlement cannot be approved because his ex-wife, Alexandra N. Senyi de Nagy–Unyom, has an ownership interest in those shares pursuant to her statutory right of equitable distribution under D.C.Code § 16–910 in a divorce proceeding between the debtor and her that was commenced before the filing of the debtor's bankruptcy petition. The Superior Court for the District of Columbia issued a judgment of divorce postpetition, but has not yet entered a § 16–910 decree. D.C.Code § 16–910, provides in relevant part:

upon entry of a final decree of ... divorce, ... and the filing of a petition for relief available under this section, in the absence of a valid antenuptial or postnuptial agreement resolving all issues related to the property of the parties, the court shall:

(a) assign to each party his or her sole and separate property acquired prior to the marriage ... his or her sole and separate property acquired during the marriage ... by gift, bequest, devise, or descent, and any increase thereof, or property acquired in exchange therefor; and

(b) value and distribute all other property and debt accumulated during the marriage ... that has not been addressed in a valid antenuptial or postnuptial agreement, or decree of legal separation, regardless of whether title is held individually or by the parties in the form of joint tenancy or tenancy by the entireties, in a manner that is equitable, just, and reasonable, after considering all relevant factors, including, but not limited to:

[Twelve enumerated factors omitted.]

[Emphasis added.]

A

In his opposition to the motion to approve the settlement, however, the debtor merely characterized Senyi as having nondischargeable statutory spousal rights. Opposn. to Trustee's Mtn. (Dkt. No. 464) 2, 14. Nondischargeability is a concept addressed to a creditor's being barred from collecting a monetary claim against the debtor as a personal liability of the debtor, not to issues of ownership of property. Similarly, Senyi only asserted, by way of her proof of claim, a right to payment from the estate with respect to the debtor's interest in Yelverton Farms, Ltd., and never filed a proceeding to assert an ownership interest in those shares.

To elaborate, a discharge under 11 U.S.C. § 727(a) discharges the debtor from debts that arose prepetition, 11 U.S.C. § 727(b), and gives rise to a discharge injunction under 11 U.S.C. § 524(a)(2) barring collection of the debt as a personal liability of the debtor unless the debt is excepted from discharge under 11 U.S.C. § 523 or the debt is reaffirmed under 11 U.S.C. § 524(c). A debt is a liability on a claim, and, in turn, a claim is a right to payment, or a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment....” 11 U.S.C. § 101(5). A creditor (which, under 11 U.S.C. § 101(10), includes an entity holding a claim in existence on the bankruptcy petition date) may assert the creditor's claim by filing a proof of claim against the estate. 11 U.S.C. § 501(a).

Filing a proof of claim is what Senyi did with respect to the debtor's stock ownership in Yelverton Farms, Ltd. That entity owned a pig farm operation in North Carolina. Senyi filed a proof of claim that included a claim described as follows:

CLAIM DETAILS: 100,000$ FROM THE SALE OF THE YELVERTON PIG FARM OPERATION IN NORTH CAROLINA

Mr. Yelverton signed a notarized document on April 2, 2008, wherein he promised the first $100,000 in proceeds from the North Carolina Pig Farm Operation, to his wife Alexandra N. Senyi de Nagy–Unyom. The pig farm has not yet been sold, to the knowledge of Ms. Senyi.

The proof of claim attached the April 2, 2008 document in which Yelverton stated:

I, Stephen Thomas Yelverton, agree to give my wife, Alexandra–Nicole Senyi de Nagy–Unyom, the first $100,000 in proceeds that I receive from the sale of my interest in my family's pig operation in North Carolina.

The debtor would have realized proceeds from the sale of his interest in the pig farm operation via a sale of his stock ownership in Yelverton Farms, Ltd. Accordingly, Senyi's proof of claim was asserting a right to payment as a creditor with respect to the promissory note of April 2, 2008,¹ relating to the debtor's rights as a shareholder in Yelverton Farms, Ltd. That a claim by Senyi against the estate based on spousal rights arising under D.C.Code § 16–910 might (as contended by the debtor) be nondischargeable and unaffected by a discharge would have no impact on the liquidation of the estate, and would not affect whether the settlement ought to have been approved.

Senyi and the debtor never clearly articulated an argument that Senyi had an ownership interest in the debtor's shares in Yelverton Farms, Ltd. After the court has already held a lengthy hearing to consider approval of the settlement agreement, and issued a decision approving the settlement at the conclusion of that hearing, it is too late for the debtor to inject a new issue into the proceeding.

B

In any event, any assertion that Senyi would eventually be entitled to an ownership interest in his Yelverton Farms, Ltd. shares is plainly in error.

First, the 2008 promissory note did not confer an ownership interest in Senyi. Indeed, in seeking to set aside the order approving the settlement, the debtor has not contended that his promise in 2008 “to give my wife ... the first $100,000 in proceeds that I receive from the sale of my interest in my family's pig operation in North Carolina” (emphasis added) conveyed an ownership interest in the debtor's shares in Yelverton Farms, Ltd. to Senyi. Under 11 U.S.C. § 726, the trustee must first distribute the proceeds of the shares in Yelverton Farms, Ltd. towards payment of administrative claims and creditors' claims before the debtor will be entitled to receive any of the proceeds. There will be inadequate funds to pay such claims in full. Accordingly, the promise to give Senyi the first $100,000 in proceeds “that I receive” will be ineffective.

Second, because the debtor has acknowledged in hearings before this court that he acquired his shares in Yelverton Farms, Ltd. prior to his marriage to Senyi, he will be unable to show that Senyi would be entitled pursuant to D.C.Code § 16–910 to an ownership interest in the shares. The debtor specifically contends that “[u]nder D.C.Code, Section 16–910, Senyi would have 50% ownership of the 1333 shares of stock that are owned by Debtor Yelverton in Yelverton Farms, Ltd.”

The debtor's shares in Yelverton Farms, Ltd. would be assigned to him under § 16–910(a) if the shares were his “sole and separate property acquired prior to the marriage.” Indeed, the spouses' prenuptial agreement expressly provided that “[p]ersonal items acquired before the marriage shall remain the property of the person who acquired them.” ² The debtor has not articulated any reason for believing that the Superior Court would be authorized under § 16–910 to make an award of the shares to Senyi.

C

If the debtor had opposed the proposed settlement by arguing that under § 16–910, or under the 2008 promissory note, Senyi could be viewed as having an ownership interest with the debtor in the debtor's shares in Yelverton Farms, Ltd. the settlement was effectively a sale to the Defendants of the debtor's shares in Yelverton Farms, Ltd. (and of Yelverton's claims against the Defendants), including a sale of whatever potential rights, if any, that Senyi held in those shares by reason of her inchoate rights under D.C.Code § 16–910. In effect, if pending a issuance of a § 16–910 decree, § 16–910 could be viewed as giving the spouses joint ownership of the debtor's shares in Yelverton Farms, Ltd., then until entry of such a decree the spouses would be tenants in common or joint tenants with respect to ownership of the shares. Under 11 U.S.C. § 363(h), the court could sell the shares as tenants in common property. Treating the settlement as a sale of the Yelverton Farms, Ltd. shares, the criteria of § 363(h) for such a sale were satisfied here.

D

Under 11 U.S.C. § 544, the trustee has the status of a hypothetical judgment lien creditor as of the petition date. If the filing of the divorce proceeding acted as notice to a judgment lien creditor of lis pendens regarding Senyi's potential § 16–910 rights, and, in turn, that lis pendens notice resulted in any judgment lien as of the bankruptcy petition date being subject to the eventual § 16–910 decree, that might affect the trustee's § 544 rights. See Webster v. Hope (In re Hope), 231 B.R. 403, 424 (Bankr.D.D.C.1999) (addressing lis pendens effect of a divorce proceeding with respect to real property). The divorce action, however, did not act as a lis pendens notice with respect to a judgment lien creditor, executing on the debtor's Yelverton Farms, Ltd. shares, without notice of the pending divorce proceeding.

The common law doctrine of lis pendens arose with respect to real property. See Anderson v. Reid, 14 App.D.C. 54 (D.C.Cir.1899); Wilkinson v....