Lunan v. Jones (In re Lunan)

• Decision Date: 21 November 2012
• Docket Number: Adversary No. 12–5033.,Bankruptcy No. 08–52584.
• Citation: 489 B.R. 711
• Parties: In re Susan H. LUNAN, Debtor. Larry N. Lunan, Plaintiff, v. David H. Jones, Chapter 7 Trustee, an individual, Ken Phillips, an individual, and John Doe 1 and 2, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

489 B.R. 711

In re Susan H. LUNAN, Debtor.

Larry N. Lunan, Plaintiff,

v.David H. Jones, Chapter 7 Trustee, an individual, Ken Phillips, an individual, and John Doe 1 and 2, Defendants.

Bankruptcy No. 08–52584.

Adversary No. 12–5033.

United States Bankruptcy Court,

E.D. Tennessee.

Nov. 21, 2012.

Larry N. Lunan, Kingsport, TN, pro se.

Michael S. Kelley, Esq., Knoxville, TN, for David H. Jones and Ken Phillips.

MEMORANDUM

MARCIA PHILLIPS PARSONS, Chief Judge.

In this action removed from state court, the husband of the chapter 7 debtor seeks damages from the debtor's chapter 7 trustee and her court-appointed auctioneer for conversion, intentional infliction of emotional distress, violation of civil rights under 42 U.S.C. § 1983, and violation of due process rights under the Tennessee Constitution. The allegations arise out of the plaintiff's contention that the defendants illegally sold his property and that of his adult children when they sold the debtor's property pursuant to orders of this court.

Presently before the court is the plaintiff's request to remand this suit to state court based on the allegation that removal was untimely and improper. Also before the court is the defendants' motion to dismiss for failure to state a claim upon which relief may be granted based on the Barton doctrine, see Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), and on the assertion that the defendants are protected by quasi-judicial immunity. As discussed hereafter, the plaintiff's request for remand will be denied and the defendants' motion to dismiss will be granted, the court having concluded that they are protected by immunity. This is a core proceeding. See28 U.S.C. § 157(b)(2)(A) and (O).

I. The Bankruptcy Case

Susan H. Lunan, (hereinafter “Debtor”), filed a voluntary petition for chapter 11 relief on December 24, 2008. More than nine months later the case was converted to chapter 7 on October 9, 2009, after the Debtor failed to file a chapter 11 plan within the time contemplated by an agreed order. David H. Jones was thereafter appointed chapter 7 trustee (“Trustee”).

In her schedules filed shortly after the commencement of her chapter 11 case, the Debtor listed ownership of numerous assets. On Schedule A, the Debtor scheduled three parcels of real property with a total value in excess of $1.5 million, including her residence located at 3520 Orebank Road, Kingsport, Tennessee with a scheduled value of one million dollars. On Schedule B, the Debtor listed personal property of almost seven million dollars, including household furniture, appliances, electronics and lawn equipment valued at $15,000; art and collectibles valued at $50,000; jewelry valued at $25,000; and six Mercedes vehicles with a total value of $491,000.

On March 24, 2009, the Debtor amended Schedule B to increase the stated value of her household furniture, appliances, electronics and lawn equipment to $25,000; to add sporting and hobby equipment valued at $10,000; to add horses valued at $30,000; and to add three additional vehicles, a 2006 Mercedes SL 500, a 1968 Camaro, and a 1981 DeLorean.

After the bankruptcy case's conversion from chapter 11 to chapter 7, the first mortgage holder on the Debtor's residence filed on December 22, 2009, a motion for relief from the automatic stay, alleging that the Debtor had not made any payments on the obligation since the bankruptcy filing and that the outstanding debt against the residence, including two other junior liens, totaled $1,163,993.87. By consent order entered on July 19, 2010, the first mortgage holder agreed to allow the Trustee to market the residence for sale.

On April 21, 2011, two and a half years after the initial bankruptcy filing and more than 18 months after the conversion to chapter 7, the Trustee filed a notice of intent to sell by public auction on June 2, 2011, the Debtor's real property located at 3520 Orebank Road, Kingsport, Tennessee. Also on April 21, 2011, the Trustee filed a notice of intent to sell by public auction on June 2, 2011, the following:

certain personal property, including, but not limited to, furniture, appliances, dishes, crystal, jewelry, electronics, including televisions, rugs, paintings, lawn equipment, etc., owned by the Debtor. The trustee also intends to sell the following automobiles: “(1) 1968 Camero [sic]; (2) 1981 DeLorean; (3) 2006 Mercedes ML 63; (4) 2002 Mercedes ML 55; and (5) 1987 Mercedes 560 SEL.

Both notices stated that the planned public auction of the realty and personalty would be conducted by Ken Phillips, an auctioneer who had been employed by the Trustee on behalf of the estate by order entered January 28, 2010. The Trustee served both notices on the debtor personally, her attorneys and all parties in interest, and stated that any objections to the proposed sales must be filed within 21 days as contemplated by E.D. Tenn. LBR 9013–1(h). No objections or responses were filed to either of the notices.

On May 7, 2011, the Trustee filed a motion to compel the Debtor to turn over to the Trustee the Debtor's personal property that the Trustee had noticed for sale, and scheduled a May 24, 2011 hearing on the motion. On the morning of the scheduled hearing, the Debtor filed an objection to the Trustee's turnover motion. Notwithstanding her previous failure to object to the Trustee's notice of intent to sell her personal property, the Debtor stated that she opposed the planned auction because it would result in less than fair value being paid for her assets, she had a friend who would assist her in obtaining a bank loan to pay her unsecured debt, and selling just a portion of her personalty would be sufficient to pay her debts in full, with the exception of one claim which was otherwise subject to setoff. The Debtor also stated that she needed her vehicles for transportation, and that some of the personal property in the residence that the Trustee was planning to sell was the sole property of her husband, belonged to her son, or was jointly-held property. Specifically, the Debtor asserted that certain artwork belonged to her husband, and attached to her objection receipts or certificates of ownership for the artwork. Also attached to the objection were two appraisal certificates for some jewelry items which listed both the Debtor and her husband as owners of the jewelry. Lastly, the Debtor requested in the objection that the 1981 DeLorean be removed from her list of property because it had been purchased by her husband prior to their marriage and her name added to the title for insurance purposes.

The Debtor, her attorney, and her husband Larry N. Lunan appeared at the May 24, 2011 hearing, as did the Trustee. In a proffer of proof, the Trustee stated that shortly after the case converted to chapter 7, he and Mr. Phillips met with the Debtor at her residence and questioned her as to who owned the furniture, artwork, jewelry, and vehicles located there and she advised that she did. The Trustee also stated that the debtor and her attorney had indicated at that time that the debtor wanted to pay off her unsecured creditors to avoid having her assets sold, so the Trustee advised her as to the amount necessary to pay unsecured claims and administrative expenses. The Trustee stated that after that meeting he waited over a year for the Debtor to come up with the necessary funds to pay unsecured creditors, and when she failed to do so, noticed the assets of the estate for sale. The Trustee objected to the Debtor's last-minute attempt to stop the planned sale by claiming that some of the property belonged to others, but stated that he had no desire to sell Mr. Lunan's property, and that he had advised Mr. Lunan to remove his personal property from the residence before the planned auction. In response, the Debtor did not contradict the Trustee's statements, but stated that she had recently come across some receipts that indicated that her husband had purchased some of the artwork that she had listed in her schedules. The Debtor also stated that one of the Mercedes was in both her and her husband's names, that her husband had purchased the DeLorean automobile prior to their marriage although title was in both of their names, and that one of the Mercedes actually belonged to her son, although titled in her name. The Debtor indicated that she planned to amend her schedules, consistent with these statements.

At the conclusion of the hearing, the court overruled the Debtor's objection to turnover and granted the Trustee's motion. The court cited the fact that the case had been pending in chapter 7 for more than a year and a half, such that the Debtor had had ample opportunity to make other arrangements to pay off her unsecured creditors and avoid a sale of her assets. Similarly, as to ownership of her scheduled assets, the court noted that the Debtor had scheduled all personal property as being solely owned by her when she first filed for bankruptcy relief two and a half years previously, that she had continued to list these assets as her property in the eight monthly operating reports that she had filed while she was in chapter 11, and that she had not amended her schedules to state otherwise, despite having ample opportunity to do so.¹ The court observed that the mere fact that Mr. Lunan may have purchased the artwork did not make it solely his, as it could have been a gift to the Debtor or to the household. Lastly, the court cited the Debtor's unexplained failure to object to the Trustee's prior notice of intent to sell.

Consistent with the ruling announced by the court at the conclusion of the May 24, 2011 hearing, the court entered an order on June 1, 2011, granting the Trustee's motion to compel turnover. The order stated in part the following:

It is, therefore, ORDERED that:

1. The Trustee's Motion to Compel Debtor to Turn Over Property to the Trustee is hereby granted in its entirety.

2. All of Larry Lunan's personal property, including...