Matter of Richardson

• Decision Date: 09 August 1985
• Docket Number: Bankruptcy No. 84-01253-SJ-W-7.
• Citation: 52 BR 527
• Parties: In the Matter of Lyle DeWayne RICHARDSON and Nellie Jane Richardson, Debtors. UNITED STATES of America, FARMERS HOME ADMINISTRATION, Plaintiff, v. Darold W. JENKINS, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Missouri

52 B.R. 527 (1985)

In the Matter of Lyle DeWayne RICHARDSON and Nellie Jane Richardson, Debtors.

UNITED STATES of America, FARMERS HOME ADMINISTRATION, Plaintiff, v. Darold W. JENKINS, Defendant.

Bankruptcy No. 84-01253-SJ-W-7.

United States Bankruptcy Court, W.D. Missouri, St. Joseph Division.

June 28, 1985.

Opinion on Reconsideration August 9, 1985.

David Detar Newbert, Asst. U.S. Atty., Kansas City, Mo., for plaintiff.

Darold W. Jenkins, Independence, Mo., for debtor.

ORDER DENYING THE PLAINTIFF'S MOTION FOR AN AWARD OF ATTORNEY'S FEES FROM THE DEFENDANT

DENNIS J. STEWART, Bankruptcy Judge.

Formerly, the plaintiff filed an adversary action in this court to reclaim certain chattels in which it claimed a valid and perfected security interest. See United States of America v. Richardson, Adversary Action No. 85-0101-3 (Bkrtcy.W.D. Mo. April 15, 1985). As the issues arose and were adjudicated by this court, they materially and principally involved the debtors' contention that the plaintiffs' security interest was not perfected because there was no manual signature of the plaintiff on the financing statement. The evidence demonstrated, however, that there was a typewritten signature. Under the governing law of the State of Missouri, this court therefore found and concluded in its findings of fact, conclusions of law and judgment issued on April 15, 1985, that the security interest was in fact perfected. The following passage therefrom embodies the reasoning employed by the court in that case:

"The debtors\' only contention as to absence of perfection is that the secured party did not sign one financing statement and signed another only by a secretary. But these contentions evaporate in light of the plain letter of the law . . . See, e.g., Darr v. Brennan Cattle Co., 658 S.W.2d 906, 909 (Mo.App.1983), to the following effect:

"The only reasonable attack which could be made on the technical sufficiency of the Bank\'s security interest would be that the financing statement in this regard was not manually signed by the Bank as secured party. However the deficiency of the financing statement in this regard has been cured by the typewritten designation of the Bank as secured party and the Bank\'s authentication of that designation by filing the financing statement. Benedict v. Lebowitz, 346 F.2d 120 (2nd Cir.1965); Matter of Save-On-Carpets, 545 F.2d 1239 (9th Cir.1976); Peoples Bank of Bartow County v. Northwest Ga. Bank, 139 Ga.App. 264, 228 S.E.2d 181 (1976); In re Horvath, (D.C.Conn.1963), 1 UCC Reporting Service 624."

The plaintiff now contends, in a motion to assess attorney's fees against the counsel for the debtors, that the contention of nonperfection was frivolous; that accordingly the debtor's counsel could not have signed the pleadings which raised such a frivolous contention in good faith within the meaning of Rule 11 of the Federal Rules of Civil Procedure; and that, therefore, sanctions are appropriate within the meaning of that rule in the form of attorney's fees.¹

The modern bankruptcy court is met, at the outset, with the issue of jurisdiction. The Bankruptcy Amendments and Federal Judgeship Act of 1984 charges the bankruptcy judge with the duty of determining the court's jurisdiction at the commencement of the case sua sponte when the issue is raised by no other party.² In this action, the request is for recovery of attorney's fees from the attorney for the debtor. Both of the litigants are thus strangers to the estate in the sense that neither of them is either a trustee or a debtor. Further, the property sought to be recovered — a simple money judgment against the debtor's counsel — is not property of the estate, nor is it in any way apt to result in roundabout depletion of the estate. It must be observed that, in this sense, the action now before the court is wholly different from an action to recover attorney's fees paid by the debtor to the debtor's attorney or to determine the amount of such fees payable to the debtor's attorney from the estate.³ Such subject matter is wholly within the jurisdiction of a bankruptcy court. But the action before this court does not involve monies or property which have been, are now, or will be within the actual or constructive possession of the bankruptcy estate. Traditional bankruptcy jurisdictional principles have been to the effect that bankruptcy court jurisdiction does not exist in such a case. Even when consent was recognized as a valid basis for subject matter jurisdiction, it was held that "consent cannot operate to confer jurisdiction on the bankruptcy court as to a claim asserted by strangers to the proceedings over a matter in no way connected with the administration or distribution of the bankrupt estate." 2 Collier on Bankruptcy para. 23.08, p. 534 (14th ed. 1976). And even when bankruptcy court jurisdiction was at its very zenith, in the halcyon days of section 1471(c), Title 28, United States Code, it was still held that there was no statutory basis for bankruptcy court jurisdiction when two strangers to the estate joined an issue not related to administration or distribution of the estate. See In re Systems Marketing Consolidated, 19 B.R. 519, 8 B.C.D. 1335 (Bkrtcy.N.D. Ill.1983).

If the sanctions which were requested were not a money judgment, in substance, the chances of bankruptcy court jurisdiction might be better. But the powers to impose the sanctions which are provided for in Rule 11 and elsewhere are conferred exclusively on the district court except as they may see fit to confer them on the bankruptcy court by local rule.

The plaintiff may therefore, it seems, request disciplinary action by the district court on matters which sound in the general professional responsibility of the defendant. But it appears that there is no independent jurisdiction in the district court to award the attorney's fees requested. In acting as a court of bankruptcy on substantive matters, the district court may be said to act generally within the same confines of jurisdiction as the bankruptcy court. Its jurisdiction is generally restricted to matters affecting administration and distribution of the bankruptcy estate which the law has placed in its actual and constructive possession.⁴ Otherwise, because of the abstention statutes, absent an independent nonbankruptcy basis of jurisdiction, district court jurisdiction as to "related" cases is but an evanescent and fleeting thing.⁵ And it does not appear that there is an independent basis of federal district court jurisdiction, insofar as the definitional limits imposed by section 1331, Title 28, United States Code, are not met.⁶

But, separately and independently, even if this court should be deemed to have the jurisdiction and power necessary to grant the monetary award and impose the discipline on defendant's counsel which is sought by plaintiff, this would not be an appropriate case for it. The actions of counsel for the defendant in raising the defense of nonperfection did not constitute "bad faith" within the meaning of Roadway Express v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980), and Davidson v. Allis Chalmers, Inc., 567 F.Supp. 1532 (W.D.Mo.1983). In this case, the standards for determining the crucial issue of perfection vel non of the security interest were not as "easily ascertainable" as were the material and governing standards in Piper, supra, and Davidson, supra. It is true that, at the time of the trial of this action, the rule that it was not a necessary prerequisite to perfection that a secured party manually sign the financing statement was in the ascendancy. But it had had a difficult and uncertain nascence. In Matter of Save-On-Carpets of Arizona, Inc., 545 F.2d 1239 (9th Cir.1979), for instance, one of the cases relied upon by the Missouri Court of Appeals in Darr v. Brennan Cattle Co., supra, both the bankruptcy court and the district court had held a manual signature to be necessary. But the appellate court reversed on the grounds that:

"The appellant\'s intent to authenticate the financing statement is objectively manifested by the direction that its corporate name and its credit manager\'s name be typed in the appropriate spaces, and by the submission of the financing statement to the Arizona Secretary of State for filing. Any other interpretation would be contrary to commercial experience and our knowledge of business practices." 545 F.2d at 1240.

And see Matter of E.A. Fretz Co., Inc., 565 F.2d 366, 373 (5th Cir.1978), adopting the reasoning of In re Murray, 2 U.S.C.Rep. 667 (D.Ore.1964), to the effect that signature by all secured parties was a necessary prerequisite to perfection. See also Sommers v. International Business Machines, 640 F.2d 686, 691-692 (5th Cir.1981) ("(I)n In re E.A. Fretz Co., Inc., (supra) . . ., when faced with a financing statement that had not been signed by the secured parties . . ., this court held the non-signing secured parties' interest in the collateral to be unperfected.") So the issue could not be regarded as free from all doubt and, accordingly, Mr. Jenkins can, under such circumstances, hardly be considered as acting irresponsibly to request the court to act on general legal principles which he may have felt — with some reason, it appears from the foregoing — outweighed the last holding from the Missouri Court of Appeals.

This court does not presume to declare which of the two conflicting rules is correct, nor to deny that state law controls the issue of perfection. That principle, indeed, is so well settled that it requires no citation of authority. And it is also true that the holding in Darr v. Brennan Cattle Co., supra, was plainly and unequivocally expressed. But the subject of perfection of security interests is one on which the law changes from time to time, and it is not unusual for the state courts to reconsider and modify or even repudiate their holdings on this subject. See, e.g., United States v....