Matter of Plunkett

Decision Date11 July 1995
Docket NumberBankruptcy No. 82-21119-CNC.
Citation191 BR 768
PartiesIn the Matter of Oliver PLUNKETT, Monica Plunkett, Debtors.
CourtU.S. Bankruptcy Court — Eastern District of Wisconsin

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Mark L. Metz of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, Milwaukee, WI, for Ralph C. Anzivino, Trustee.

Kevin J. Sjostrom of Sjostrom & Assocs., Brookfield, WI, for Emerald Builders, Inc.

MEMORANDUM DECISION

C.N. CLEVERT, Chief Judge.

This contested matter is before the court on the Chapter 11 trustee's objection to the amended proof of claim and the "Motion to Allow Informal Proof of Claim and Amendment to Proof of Claim and In the Alternative to Enlarge Time to File Proof of Claim" (motion) filed by Emerald Builders, Inc.

I. FINDINGS OF FACT1

1. Emerald Builders, Inc. (Emerald) is a Wisconsin corporation whose stock is owned 50% by William B. Bayliss and 50% by Rudolph Umbs. It was formed by Bayliss and Umbs in 1961 to build, own and manage various real estate projects, including certain residential rental property located at 2424-34 West Wells Street in Milwaukee, Wisconsin (the property).

2. On October 19, 1966, Emerald gave the Wauwatosa Savings & Loan Association (WSLA) a mortgage on the property to secure payment under a note that was personally guaranteed by Bayliss and Umbs.

3. In 1974, Emerald sold the property to Robert Bello on a land contract and Bello assumed the WSLA mortgage. Emerald remained liable on the WSLA Note and mortgage, and Bayliss and Umbs remained liable on their personal guaranties.

4. On May 30, 1975, Bello assigned his land contract vendee interest in the property to Oliver Plunkett (Plunkett or debtor).

5. When Bello assigned his land contract vendee interest in the property to Plunkett, Plunkett also assumed the WSLA Note and mortgage and thereafter remained liable thereon. Emerald remained liable on the WSLA Note and mortgage, and Bayliss and Umbs remained liable on their personal guaranties.

6. When Bello assigned his interest in the property to Plunkett, the outstanding indebtedness was approximately $950,000. Approximately $650,000 was owed on the WSLA Note and mortgage, and approximately $300,000 was owed to Emerald on the land contract.

7. In early 1982, Plunkett defaulted on his payments and on April 8, 1982, WSLA commenced a foreclosure action against Plunkett and Emerald in the Milwaukee County Circuit Court.

8. On April 15, 1982, Oliver and Monica Plunkett filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code (the Code) and Thomas Korb was appointed interim trustee.

9. Emerald sent a letter dated May 7, 1982, to the court and Korb (the May 7 letter), advising them of Emerald's interest in the property under the land contract and the amount due Emerald.2

10. The letter, which contained an offer by Emerald to manage the property, was not entered by the clerk on either the case docket or the claims docket.3

11. At that time the property was encumbered by liens totaling $810,000, of which $510,000 was owed to WSLA, and $300,000 was owed to Emerald.

12. Although Plunkett's original schedules did not list Emerald as a creditor, supplemental schedule A-2 filed May 13, 1982, listed Emerald as having a contingent, secured claim in the amount of $299,528.49.

13. Emerald never inquired and was never notified of how its debt had been scheduled by Plunkett.

14. Also, Emerald did not receive notice of the § 341 hearing held the day after it was listed as a creditor.

15. In a letter to Korb dated May 24, 1982, either Emerald or Bayliss offered to purchase the property for $880,000, a figure arrived at by computing the approximate amount owed under the land contract, including amounts owed to WSLA. Bayliss and Umbs, subject to suit on their personal guarantee of Emerald's debt on the property, were distraught over the management of the property and feared substantial damage to the building and a resulting loss of value. The trustee did not respond to the offer.

16. On May 27, 1982, Professor Ralph C. Anzivino accepted appointment as Chapter 11 trustee.

17. Although Anzivino did not recall seeing the May 7 letter until Emerald filed the instant motion, a copy was in the files transferred from Korb.

18. WSLA and Emerald instituted an adversary proceeding on June 11, 1982, seeking to modify the automatic stay to allow WSLA's pending state court foreclosure action to proceed.

19. At the time of the lift stay proceeding, approximately $840,000 was due and owing to WSLA and Emerald. WSLA's expert testified that the property was worth approximately $840,000 and the trustee's expert testified that the property was worth approximately $950,000.

20. At a hearing on August 5, 1982, the court determined that there was equity in the property, and that the property was worth at least $870,000. The court therefore denied the request for a modification of the automatic stay and the trustee was instructed to make monthly adequate protection payments of $4,901.54 to WSLA and $2,720.06 to Emerald. Neither Emerald nor WSLA appealed from this order.

21. The trustee made the required payments for approximately one year, until he abandoned the property, with notice to Emerald, effective August 31, 1983.

22. An order denying the debtor's discharge was entered on July 8, 1983. Thereafter, on September 13, 1983, the court formally terminated the automatic stay, allowing the state court foreclosure action to proceed. WSLA took judgment in that foreclosure action on November 17, 1983.

23. Bayliss and Umbs obtained the property at the foreclosure sale, subject to back taxes of approximately $60,000, with a personal bid of $535,000.

24. In an order dated April 9, 1984, the Milwaukee County Circuit Court confirmed the sale to Bayliss and Umbs, noting that $532,069.75 was to be paid to WSLA on account of its first mortgage, with the excess amount ($2,930.25) to be applied to Plunkett's debt to Emerald under the land contract. This left an unsatisfied balance due to Emerald of approximately $300,000. There were no objections to the confirmation of the sale and no appeal was taken.

25. Emerald did not seek a deficiency judgment in the state court foreclosure proceeding or relief from the judgment of foreclosure and order of confirmation.

26. The purchase extinguished Bayliss and Umbs' personal guarantee on the WSLA Note and allowed them to take advantage of certain tax benefits.

27. Bayliss and Umbs borrowed the funds for the purchase from Emerald, which in turn, borrowed funds to make the loan.

28. Bayliss and Umbs paid the back taxes on the property and sold the property to an unknown third party in August, 1987, for $600,000.

29. After the court's order terminating the automatic stay was entered in September, 1983, neither Emerald, Bayliss nor Umbs contacted the Bankruptcy Court or the trustee until December, 1992.

30. On December 5, 1986, Emerald moved from its office at 9431 West Beloit Road, Milwaukee, Wisconsin, to an office in Mr. Bayliss' home at 3344 South 95th Street, and there is no evidence that the Bankruptcy Court or the trustee was notified of the address change.

31. Emerald's change of address notice expired December 5, 1987, at which time the U.S. Postal Service ceased automatically forwarding first class mail.

32. On December 22, 1987, the court entered an order pursuant to Fed.R.Bankr.P. 3003(c)(3) setting January 22, 1988, as the last date for filing claims against the debtors (the Bar Date).

33. Pursuant to Rule 3003(c)(2), all creditors in the bankruptcy case were required to file a proof of claim on or before the Bar Date, unless such claim was scheduled and identified as undisputed, noncontingent or liquidated.

34. On or about December 28, 1987, the trustee mailed a Notice of the Bar Date to all known creditors, with certain limited exceptions, and to Emerald at 9431 W. Beloit Road, Milwaukee, Wisconsin.

35. The trustee's assistant, Patricia Purtell, executed a certificate of service, by first-class mail, which was filed in January, 1993.

36. The trustee's records do not show that he received any returned mail from Emerald after mailing the Notice of Bar Date.

37. Neither Bayliss nor any representative of Emerald actually received the mailed Notice of Bar Date.

38. Pursuant to an order of this court, the trustee also published the Notice of Bar Date for three consecutive days on December 28, 29 and 30, 1987, in the Milwaukee Sentinel and in the Wall Street Journal, as notice to "Missing Creditors" and as a supplement to the mailed notices.

39. On December 26, 1987, Bayliss and his wife left Milwaukee for Florida and did not see either the Milwaukee Sentinel or the Wall Street Journal on the dates the Notice of Bar Date was published.

40. Emerald did not file a formal proof of claim by the Bar Date.

41. Emerald believed that the May 7, letter notified the court of its claim and that the letter protected its interest in the bankruptcy case.

42. On December 15, 1992, the trustee filed a Second Amended Joint Plan of Distribution (the Plan) and disclosure statement with the court, which Plan was confirmed on January 21, 1993. The Plan provides for payments to unsecured creditors, that the trustee estimates will approach 40-50% of allowed general unsecured claims, based on assumptions concerning the net proceeds the estate will realize from the sale of certain real estate in the Virgin Islands.

43. After reading about the Plan and potential distribution to creditors in the December 5, 1992, Milwaukee Business Journal, Bayliss contacted the trustee's attorneys on December 7, 1992. Bayliss was told that Emerald was not considered to be a creditor entitled to a distribution under the Plan. Thereafter, Bayliss retained counsel and filed a document designated "Amended Proof of Claim" on January 3, 1993, purporting to amend and set forth with greater particularity Emerald's informal claim...

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