Matter of McLeod, Civ. A. No. 92-3080

• Citation: 158 BR 393
• Decision Date: 12 August 1993
• Docket Number: Adv. No. 91-1128-K.,Civ. A. No. 92-3080,Bankruptcy No. 90-12174-K
• Parties: In the Matter of Rudolph A. McLEOD, Debtor. Rudolph A. McLEOD v. WESTERVILLE BROADCASTING OF FLORIDA, INC., Paul C. Major, G. Rand Smith, George E. Coles and Robert W. Harrison.
• Court: U.S. District Court — Eastern District of Louisiana

158 B.R. 393 (1993)

In the Matter of Rudolph A. McLEOD, Debtor Rudolph A. McLEOD v. WESTERVILLE BROADCASTING OF FLORIDA, INC., Paul C. Major, G. Rand Smith, George E. Coles and Robert W. Harrison.

Civ. A. No. 92-3080, Bankruptcy No. 90-12174-K, Adv. No. 91-1128-K.

United States District Court, E.D. Louisiana.

August 12, 1993.

Douglas Scott Draper, Deborah Weisler Hayes, Pamela Ann Van Geffen, Friend, Wilson, Draper, Hubbard & Bowling, New Orleans, LA, for Rudolph A. McLeod.

Westerville Broadcasting of Florida, Inc., pro se.

Paul C. Major, pro se.

Mark Christopher Landry, Newman, Mathis, Brady, Wakefield & Spedale, Metairie, LA, for G. Rand Smith.

George E. Coles, pro se.

Robert W. Harrison, pro se.

OPINION

WICKER, District Judge.

This is an appeal of a bankruptcy adversary proceeding, in which the Bankruptcy Court ruled in favor of the debtor in his suit to collect on a promissory note. After considering the record, the evidence, the law, and the briefs and arguments of counsel, the decision of the Bankruptcy Court is AFFIRMED.

Rudolph McLeod was the owner of Gulf South Communications, Ltd. He sued on a promissory note executed by Westerville Broadcasting of Florida, Inc., and on a continuing guaranty of the note signed by Paul C. Major, G. Rand Smith, George E. Coles, and Robert W. Harrison. Westerville had issued the note to Gulf South on April 20, 1983, in partial payment for Westerville's purchase of WTMP, a Florida radio station. The guarantors of the note were officers and shareholders of Westerville.

The guarantors subsequently learned that several liens had been placed against the radio station's assets by creditors of Gulf South, although Gulf South had warranted in the bill of sale that the seller was the lawful owner of the assets and that the property was free from all encumbrances.

In September 1983 defendants Smith and Coles informed McLeod by telephone that they were revoking their guaranties because they had been misled, and that they intended to sue him to void the deal. They never revoked their guaranties in writing, however, nor did they take court action.

On November 17, 1983, an agreement was executed by Gulf South's creditors, by McLeod, and by Westerville (through Major and Harrison) to eliminate the liens on the radio station's assets. The agreement released McLeod from any claims arising out of the sale, particularly as to misrepresentations and breach of warranty, and provided that Westerville's payments on the note would be made to Sun Bank, which would allocate the payments among Gulf South's creditors.

Subsequently Gulf South assigned its assets, including the note, security agreement, etc., to McLeod.¹ In 1986 Westerville filed for Chapter 11 relief in Florida.

In June 1990 McLeod, who is a Louisiana resident, filed his own Chapter 11 proceedings in Louisiana and on March 2, 1991 he filed this adversary proceeding to collect on the Westerville note. Following trial on the merits the bankruptcy judge found Westerville, Major, Smith, Coles and Harrison jointly and solidarily liable to McLeod in the amount of $870,822.98, with 10% interest until paid.

Defendant G. Rand Smith brings this appeal.² He raises six assignments of error regarding the Bankruptcy Court's ruling.

First, the record does not reflect that the bankruptcy judge made a determination of whether this matter is a core proceeding. Smith contends that the Bankruptcy Court lacked jurisdiction to enter final judgment because this proceeding is a non-core matter.

The distinction is significant because the classification as core or noncore determines the type of review this Court must accord the ruling of the bankruptcy court. In a core proceeding, the district court may not set aside the bankruptcy court's findings of fact unless they are clearly erroneous. Bankruptcy Rule 8013. In a noncore proceeding, however, the bankruptcy court makes proposed findings of fact, which are subject to de novo review by the district court. 28 U.S.C. § 157(c)(1).

In both core and noncore cases, however, the district court applies de novo review to the bankruptcy court's conclusions of law. See In re Branding Iron Motel, Inc., 798 F.2d 396 (10th Cir.1986).

Title 28 U.S.C. § 1334 grants district courts "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a)-(b). Title 28 U.S.C. § 157(b)(1) permits bankruptcy judges to hear and determine all core proceedings arising under title 11 or arising in a case under title 11, where such matters have been referred by the district court, and to enter appropriate orders and judgments, subject to review by the district court.³

Classification of a matter as a related proceeding or as a core proceeding has no relationship whatever to the jurisdiction of the Court, but merely relates to a determination of whether the bankruptcy judge issues a final order or whether the bankruptcy judge issues findings of fact and conclusions of law upon which the district court enters a final order after appropriate proceedings. In re Aaronics Equipment Rentals and Sales, Inc., 56 B.R. 297 (W.D.La.1985).

The bankruptcy judge must determine, on his own or a party's timely motion, whether a proceeding is a core proceeding; however, that determination is not to be made "solely on the basis that its resolution is affected by State law." 28 U.S.C. § 157(b)(3). See Northern Pipeline Const. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).

In a non-core proceeding that is otherwise related to a case under title 11, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court; the district court then shall enter any final order or judgment after considering the bankruptcy judge's findings and conclusions and after reviewing de novo "those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

Section 157(b)(2) provides a non-exclusive listing of core proceedings. Of particular note in this case is subparagraph (O), "other proceedings affecting liquidation of the assets of the estate or the adjustment of the debtor-creditor or equity security holder relationship, except personal injury tort or wrongful death claims."⁴

Although the Fifth Circuit has stated that a proceeding is not a core proceeding if it does not invoke a substantive right created by federal bankruptcy law and is one that could exist outside of bankruptcy,⁵ in the recent case of Matter of Baudoin, 981 F.2d 736 (5th Cir.1993), the Fifth Circuit found that a lender liability action by Chapter 7 debtors against a bank that allegedly forced them into bankruptcy was a core proceeding under 28 U.S.C. § 157(b)(2)(O):

While we recognize that § 157(b)(2)(O) is to be narrowly construed, we are confident that the Baudoins\' claim is precisely the type which fits within the catchall provision\'s narrow ambit. It would "affect the liquidation of the assets of the estate or the adjustment of the debtor-creditor . . . relationship" tremendously. See In re Branding Iron Motel, 798 F.2d 396, 399 n. 3 (10th Cir.1986) (noting that a controversy over a note and mortgage is "inextricably tied to the bankruptcy proceeding because it affects the liquidation of assets" and is, therefore, core).

981 F.2d at 742.

Therefore, this Court concludes that the promissory note is an asset of the bankruptcy estate. These proceedings affect the liquidation of that asset, resulting in the addition of some $800,000 to the funds available for distribution by the bankruptcy court. The matter is "inextricably tied" to the bankruptcy proceeding. Accordingly, this action to collect on the promissory note is a core proceeding and the bankruptcy court had authority to issue a final ruling.

Although the record on appeal does not disclose that the bankruptcy judge expressly ruled on the core/noncore status of the proceedings, given this Court's determination that the matter is a core proceeding, a remand for such a determination is unnecessary and would hinder the cause of judicial economy. Therefore, the Court will review the Bankruptcy Court's ruling as a final order and the appropriate standard of review is that of Bankruptcy Rule 8013, which provides that this Court may not set aside the bankruptcy court's findings of fact unless they are clearly erroneous.

A district court conducting a "clearly erroneous" review of a bankruptcy court's fact-findings must review the record in its entirety to determine whether it is left with a firm conviction that mistake has been committed; however, the district court is not free to weigh evidence as it would on a de novo review. Matter of Webb, 954 F.2d 1102 (5th Cir.1992.)

McLeod failed to introduce the original promissory note into evidence. At trial, he identified a copy of the promissory note and the signatures thereon, which his counsel thereafter introduced into evidence together with copies of several other documents. The bankruptcy judge specifically commented, "Hearing no objection, let them be admitted." (Tr. 9.)

Smith now asserts that McLeod's failure to introduce the original note into evidence precludes recovery.

A promissory note, mature and regular on its face, is admissible into evidence without extrinsic proof of its execution or authenticity and, as evidence, is sufficient to establish a prima facie case. All attacks upon it, or the debt it represents, must be made by way of affirmative defenses as to which the burden of proof is on the defense.

Haycook v. Ostman, 397 So.2d 743, 744 (Fla. 5th D.C.A.1981).⁶

Ordinarily a party seeking to recover on an instrument must produce it. F.S.A. § 673.307(2). In Ferris v. Nichols, 245 So.2d 660, 661 (Fla. 4th D.C.A.1971), the court denied summary judgment because the plaintiff relied on his own affidavit...