Jane Powell, Individually, And, & Irvin Robinson, Receiver for Bee Jay's Hairstyling Acad., Inc. v. Yarbrough (In re Yarbrough)

• Decision Date: 02 October 2015
• Docket Number: Case No. 4:12–bk–17234J
• Citation: 540 B.R. 647
• Parties: In re: Terry Alan Yarbrough and Trace Poole Yarbrough, Debtors. Jane Powell, Individually, and as Trustee, and Irvin Robinson, Receiver for Bee Jay's Hairstyling Academy, Inc., Movants v. Terry and Trace Yarbrough, Debtors, and James F. Dowden, Chapter 7 Trustee, Respondents
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

540 B.R. 647

In re: Terry Alan Yarbrough and Trace Poole Yarbrough, Debtors.Jane Powell, Individually, and as Trustee, and Irvin Robinson, Receiver for Bee Jay's Hairstyling Academy, Inc., Movants

v.Terry and Trace Yarbrough, Debtors, and James F. Dowden, Chapter 7 Trustee, Respondents

Case No. 4:12–bk–17234J

United States Bankruptcy Court, E.D. Arkansas, Little Rock Division .

Signed 10/02/2015

James Howard Smith, Attorney at Law, Little Rock, AR, for Debtor.

ORDER

Phyllis M. Jones, United States Bankruptcy Judge

Before the Court is the Renewed Motion to Lift Stay, to Abandon Property, and for Scheduling Order filed on April 13, 2015, by Jane Powell individually and as trustee,¹and by Irvin Robinson, as Receiver for Bee Jay's Hairstyling Academy, Inc. (“Bee Jay's”) (Doc. No. 209) and the Debtors' Response and Objection to Renewed Motion to Lift Stay, to Abandon Property, and for a Scheduling Order filed by Terry Alan Yarbrough and Trace Poole Yarbrough (the “Debtors”) on April 23, 2015 (Doc. No. 212). The matter was heard beginning on April 28, 2015, and was continued to and concluded on June 9, 2015. Jane Powell and Irvin Robinson appeared in person and by and through their attorneys Sutter & Gillham, P.L.L.C., by Mr. Luther Sutter. Debtor Terry Yarbrough appeared in person and the Debtors also appeared by and through their attorney, Mr. James Howard Smith. The Chapter 7 Trustee, James F. Dowden, appeared by and through his attorneys, Keech Law Firm, P.A., by Mr. Seth Hyder. At the close of the hearing the Court took the matter under advisement. For the reasons stated below, the motion will be granted, in part, and denied, in part.

I. JURISDICTION

This Court has jurisdiction over the matter presented pursuant to 28 U.S.C. §§ 1334and 157. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (G), and (O). The following shall constitute the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 9014.

II. BACKGROUND

This matter involves a dispute between a brother and sister. The dispute has resulted in litigation before the Circuit Court of Pulaski County, Arkansas; the Arkansas Court of Appeals; and this Court. The current motion before the Court is the third motion for relief from stay²filed by Mrs. Powell and Irvin Robinson (together “Movants”) in this bankruptcy case. As more fully described below, the matter involves a $400,000 judgment entered in favor of Mrs. Powell against Terry Yarbrough by the Pulaski County Circuit Court. The Movants have claimed the $400,000 judgment constitutes a lien on the following: (1) the Debtors' residence located in Roland, Arkansas (the “Residence”), (2) a five acre tract of land titled in the name of Terry Yarbrough³(the “Five Acre Tract”), and (3) over twenty acres of real property involved in transactions between Terry Yarbrough and his deceased father (the “Twenty Acres”). In addition to the $400,000 judgment lien, the Movants assert that Bee Jay's holds a note secured by a mortgage on the Debtors' Residence. The Movants seek relief from stay to pursue foreclosure of the note and mortgage in order to wind up the business affairs of Bee Jay's, and they seek abandonment of the Five Acre Tract from the estate, among other things.

A. Prepetition Events

The following is a summary of the events leading up to the Debtors' bankruptcy filing as described in a recent opinion by the Arkansas Court of Appeals:⁴

Terry [Yarbrough] and Jane [Powell] are the children of the late Betty Yarbrough. Before Betty [Yarbrough] died, she and [Mrs. Powell] owned and operated Bee Jay's Hairstyling Academy, a cosmetology school. In 2008, Betty [Yarbrough] and [Mrs. Powell] severed their business relationship, though [Mrs. Powell] retained her forty-percent interest in the company. Betty [Yarbrough] then brought [Mr. Yarbrough] into the business and amended her living trust to distribute her sixty-percent ownership to him upon her death. The trust named [Mr. Yarbrough] and his brother Denzil as trustees upon Betty [Yarbrough's] death and, among other things, provided for distribution of certain real property.

Following Betty [Yarbrough's] death in 2009, [Mrs. Powell] sued [Mr. Yarbrough] for an accounting of the trust's assets, distributions, and expenses, in particular with regard to the real property. She later filed a supplemental complaint, adding Bee Jay's as a defendant and accusing [Mr. Yarbrough] of spending company funds for personal matters and failing to pay [Mrs. Powell] her share of the company's profits. [Mrs. Powell] asked for an accounting; for [Mr. Yarbrough's] removal as an officer; for appointment of a receiver; and for damages....

....

Around [November 2011, Mrs. Powell] filed a “Second Supplemental Complaint,” alleging that [Mr. Yarbrough] had signed a document releasing a mortgage that secured a loan to him from Bee Jay's. [Mrs. Powell] asked that the release be set aside and for various other relief. Neither [Mr. Yarbrough] nor Bee Jay's answered the second supplemental complaint, and [Mrs. Powell] asked for a default judgment thereon.

After several hearings, the circuit court granted [Mrs. Powell] a default judgment on her second supplemental complaint; granted her a $400,000 judgment against [Mr. Yarbrough] based on [Mr. Yarbrough's] operation of Bee Jay's; found that [Mrs. Powell] was entitled to an accounting; dissolved Bee Jay's; and appointed a receiver to wind up the company. The court also stated that it would award [Mrs. Powell] attorney's fees and costs in an amount yet to be determined.

Once the above judgments were entered, [Mr. Yarbrough] asked for a new trial. Before his motion could be heard, however, he obtained counsel and filed for bankruptcy. The bankruptcy filing automatically stayed the circuit-court action....

Yarbrough v. Powell, 2015 Ark. App. 218, at 1–3, 459 S.W.3d 329, 330–31.

B. Bankruptcy Filing and Postpetition Events

The Debtors filed their voluntary bankruptcy petition under the provisions of Chapter 7 of the United States Bankruptcy Code on December 16, 2012. James F. Dowden was appointed as the Chapter 7 Trustee (the “Trustee”).

On April 18, 2013, the Movants filed a Motion to Abandon and Relief from Stay (the “First Motion for Relief”). (First Mot. for Relief, Doc. No. 76). In the First Motion for Relief, the Movants sought, among other things,⁵an order (1) granting Movants relief from stay to foreclose a mortgage held by Bee Jay's on the Debtors' Residence in order to conclude corporate business and (2) granting Mrs. Powell relief from stay to liquidate her pending request for attorney fees and costs related to the $400,000 judgment. (First Mot. for Relief ¶¶ 2–3, Doc. No. 76).

The First Motion for Relief was set for hearing on August 28, 2013. On the day of the hearing, the parties announced to the Court they had reached a settlement on the First Motion for Relief and would submit an agreed order to the Court. Also set for hearing on August 28, 2013, was an objection filed by Mrs. Powell to the Debtors' claim of a homestead exemption on the Debtors' Residence. The hearing on the objection to exemptions was held and the matter was taken under advisement. Because the parties announced that they had reached a settlement as to the First Motion for Relief prior to the hearing on the objection to exemptions, any settlement reached at that time would have necessarily been reached prior to the parties' knowledge of the Court's ruling on Mrs. Powell's objection to the homestead exemption. On September 10, 2013, the Court entered an order overruling Mrs. Powell's objection to the Debtors' homestead exemption and allowing the Debtors' homestead exemption in the Residence in the amount of $385,000.00. (Order Overruling Objection to Exemptions, Doc. No. 133; Debtors' Schedule C, Doc. No. 25).

On September 19, 2013, an agreed order approved by the Debtors, Mrs. Powell, Mr. Robinson, and the Trustee was entered⁶denying, in part, and granting, in part, the relief requested in the First Motion for Relief (the “First Relief Order”). (First Relief Order, Doc. No. 136). Pursuant to the First Relief Order, the parties agreed that relief from stay to foreclose the mortgage on the Debtors' Residence should be denied, but relief from stay to liquidate Mrs. Powell's pending request for attorney fees and costs related to the $400,000 judgment should be granted. (First Relief Order at 1, Doc. No. 136). In the First Relief Order, the parties also agreed relief from stay should be granted to allow the state court to rule on Mr. Yarbrough's pending motion to set the $400,000 judgment aside. (First Relief Order at 1, Doc. No. 136). In addition, the First Relief Order provided:

The Court further finds and orders that there shall be no collection efforts while the Pulaski Circuit Court is making its determination as to the judgment and as to any attorney fees and costs arising therefrom. The state court decision, when final under state law, shall be the final determination as to the amount of the judgment and as to the amount of any attorney fees and costs arising from the judgment. When those two matters are final under state law, this Court will conclude the issues that remain in this bankruptcy case.

(First Relief Order at 1–2, Doc. No. 136).

In addition to the First Relief Order, another agreed order was entered in the case on September 19, 2013 (the “Insurance Order”). The Insurance Order was approved by the Debtors, Mrs. Powell, and the Trustee. It required Mr. Yarbrough to maintain insurance on the Residence and to include Bee Jay's as a loss payee on the insurance policy. (Insurance Order, Doc. No. 135).

After the First Motion for Relief was settled and the First Relief Order entered, the following events occurred in state court, as stated by the Arkansas Court of Appeals:

A hearing was held, and the circuit court denied [Mr. Yarbrough's] motion to set aside

...