Kershaw v. Behm
| Decision Date | 12 January 1988 |
| Docket Number | 3:87-0377 and 3:87-0553.,Civ. A. No. 3:85-0360,Bankruptcy No. 383-00432 |
| Parties | In re John K. KERSHAW, et ux., Debtors-Appellants, v. Margaret L. BEHM, Trustee-Appellee (Three Cases). In re John K. KERSHAW, et ux., Debtors (Four Cases). John K. KERSHAW, et ux., Plaintiffs-Appellants, v. Margaret L. BEHM, Defendant-Appellee. Margaret L. BEHM, Plaintiff, v. Kenneth L. DeHART, Defendant. Margaret L. BEHM, Appellee, v. John K. KERSHAW, et ux., Appellants. Margaret L. BEHM, Trustee, v. John K. KERSHAW, et ux., Appellants. In re John K. KERSHAW, et ux., Debtors-Appellants. Margaret L. BEHM, Trustee, Plaintiff-Appellee, v. John K. KERSHAW, et ux., Defendants-Appellants. |
| Court | U.S. District Court — Middle District of Tennessee |
John K. Kershaw, pro se.
Lisa Cowan, Manier, Herod, Hollabaugh & Smith, Nashville, Tenn., for defendant.
NEESE, Senior District Judge, by designation and assignment.
These are appeals by the debtors Mr. John K. Kershaw and Mrs. Mary N. Kershaw of 8 separate orders entered by the Bankruptcy Court of this District. This Court consolidated all such appeals, to enable it to consider all related issues herein together. See order herein of September 28, 1987.
The debtors contend that the Bankruptcy Court erred in finding that there was no basis for finding a breach of duty by the trustee herein, or for removing her and imposing sanctions against Mr. Kershaw the debtor, Rule 9011, Bankruptcy Rules. Although the appellants originally filed for bankruptcy in February, 1983 under Chapter 13 of the Bankruptcy Code, the action was converted to one under Chapter 11 thereof in August of that same year.
In March, 1984 a trustee was appointed by the Bankruptcy Court. In March, 1985 the debtors filed a complaint against the trustee alleging that she failed to comply with her duties under 11 U.S.C. § 1106, that she jeopardized sales of the bankrupt-property that the debtors were pursuing, and that she failed to be diligent as to filing a plan of reorganization or reports.
The Bankruptcy Court, after a hearing thereon, made the following finding:
As to the trustee's duties under 11 U.S.C. § 1106(a)(3), to investigate the , the court finds she has been as diligent as she could be under the circumstances but has been prohibited from doing this because of the debtor's actions. He is, in fact, the master of his own misfortune. He has failed to comply with 11 U.S.C. § 521 and he has failed to provide the trustee with requested documents, including financial information and information regarding other pending state court actions.
The trustee could have expended a tremendous amount of time and legal expense in a case which has to date generated $250 in estate funds in possession of the trustee, or she could rely on the debtor to comply with his legal duty under the Code and send by mail or drop off at her office the requested documents. She has done exactly what this court would expect of any trustee to conserve the assets of the estate and put their faith in the law.
As to the trustee's duties under 11 U.S.C. (a)(5) to "as soon as practicable, file a plan under section 1121 of this title, file a report of why the trustee will not file a plan, or recommend conversion of the case to a case under Chapter 7 or 13 of this title or dismissal of this case", it is obvious that the trustee was unable to propose a plan because of the failure of the debtor to turn over the proper and requested information to her. Accordingly, she, certainly within a reasonable time in light of the circumstances, filed a motion to convert the case to one under Chapter 7, but withdrew it when it appeared, through statements of the debtor and his attorney, that a "deal" had been struck or was about to be struck which would sell property of the estate. She thereupon, quite reasonably, withdrew her request. If there is anything the court would fault the trustee on, it is her failure to request conversion again or file a liquidating plan sooner. It is the court's opinion that she has shown Job-like patience and has given the debtor far more time and effort than the conduct of the debtor warrants.
As to the trustee's jeopardizing or in some way undermining sales which the debtor was pursuing, the court finds the proof to be that there was no sale entered into or even imminent. The trustee has done nothing to inhibit the debtor's attempts to sell the estate's property; and the fact is that after more than two years in bankruptcy, the debtor has no contracts, or even options, to sell this property of the estate.
As to whether the trustee has inhibited the debtor from filing a plan, the proof is all to the contrary. The debtor, in fact, has filed two plans: One, according to the testimony, was not confirmed by the court; and the second has not been set for a disclosure statement and confirmation hearing, as a consequence of the debtor's failure to comply with Local Rule 16 to have the matter set. The court would note that, according to the testimony, the debtor has filed an unconfirmable plan of reorganization, because it is predicated on a creditor, who at this time, according to the proof, is unwilling to allow its property to be included in the plan and which property is outside the jurisdiction of this court. To suggest that the court can "cram down" the bank on this issue, as testified to by the debtor, shows the grossest misunderstanding of 11 U.S.C. § 1129 by an attorney that this court has heard. Any skepticism the trustee has about a successful reorganization is, after listening to the proof, certainly shared by this court.
As to the failure of the trustee to file reports, the court once again notes that the debtor has failed to provide the information which would allow her to do this. This complaint, created by the debtor's contumacious recalcitrance, points out the absurdity of the debtor's adversary proceeding. The court would note, though, the trustee has filed reports to the best of her ability in light of the lack of cooperation given her by the debtor, which filings the court finds to be in as much compliance with its Local Rules as it would require under the circumstances.
As to the general diligence of the trustee, the court finds that she has been as diligent as possible under the circumstances. She has requested appropriate information from the debtor; she has dealt with the debtor and his attorneys, she has filed actions with this court to ensure that the debtor complies with his responsibilities under the Code; and, she has filed actions with this court to ensure that the debtor complies with his responsibilities to follow the orders of this court.
The proof further reflects that the debtor has completely disregarded the Chapter 11 trustee which the court has placed in his case. He has refused to provide her with requested information; he has failed to make her aware of his efforts to sell property of the estate; he has failed to make those with whom he was negotiating to sell property of the estate aware that she was the trustee in his Chapter 11 case; and, he has expended monies of the estate, not only without authorization of the trustee but without even notifying her.
Each of the immediately foregoing findings is supported by the record, is not clearly erroneous, and is accepted by this Court. Rule 8013, Bankruptcy Rules.
In determining whether the trustee violated her fiduciary obligations and duties to the debtors, Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 461 (6th Cir.1982). The proof in this record demonstrates that the trustee passed muster comfortably under this standard; accordingly, this Court concludes there was no error in the Bankruptcy Court's finding, that there was no basis for finding a breach of duty by the trustee or for removing her.
The Bankruptcy Court further held that: "Inasmuch as the debtor filed an action complaining about a breach of fiduciary duties without even remotely proving a breach and requested damages in the amount of $400,000 without proving any damages, the court feels this is an appropriate case for sanctions under Rule 9011, Bankruptcy Rules."
When determining whether sanctions under Rule 9011, supra, are appropriate, "the focus of the inquiry is whether a competent attorney, after reasonable inquiry, could have formed a reasonable belief that the pleading was well grounded in fact or warranted by existing law of a good faith extension of such law." In re Usoskin, 61 B.R. 869 (Bank.E.D.N.Y.1986), citing Kamen v. American Telephone & Telegraph Co., et al., 791 F.2d 1006, 1010, 1012 (2d Cir.1986).
This Court concludes that the Bankruptcy Court did not abuse its discretion in imposing sanctions in this instance. The record supports its findings, that the debtors did not prove even remotely a breach of fiduciary duty by the trustee.
Counsel for the debtors conceded during opening remarks at the hearing on this issue that the debtors were in no position to prove the monetary damages they were seeking at that time. Indeed, no proof was presented relative to the damages sought. Under these circumstances, the Court cannot find that counsel for the debtors formed a reasonable belief that the complaint against the trustee was "grounded in fact...
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