Porretto v. Nelson (In re Porretto)
| Decision Date | 18 October 2012 |
| Docket Number | Adversary No. 11-03226,Case No. 09-35324 |
| Parties | In re: Sonya M. Porretto, Debtor. Sonya M. Porretto, Plaintiff, Randy W. Williams, Trustee, Plaintiff-Substitute v. Darryl A. Nelson, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
This dispute underscores how far-reaching § 542(b) of the Bankruptcy Code1 really is, and that is the reason the Court chooses to write this Memorandum Opinion.
Debtor Sonya M. Porretto (the Debtor) and Defendant Darryl A. Nelson (Nelson) entered into an Agreed Final Decree of Divorce whereby Nelson was obligated to pay certain creditors and to indemnify the Debtor and hold her harmless for any damages arising from his failure to pay. Nelson did, in fact, fail to pay and, when the Debtor filed for bankruptcy, those creditors were allowed claims against her bankruptcy estate. The Chapter 7 Trustee brings the instant action on the estate's behalf under § 542(b), and seeks an order requiring Nelson to turnover funds sufficient to satisfy these claims.
The Court now makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52, as incorporated into Federal Rule of Bankruptcy Procedure 7052. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.
1. On February 10, 2008, an Agreed Final Decree of Divorce (the Agreed Divorce Decree) was entered between the Debtor and Nelson in their divorce proceeding styled "In the Matter of the Marriage of Sonya P. Nelson and Darryl Arthur Nelson and in the Interest of [their minor children], No. 2007-22219, 245th Judicial District, Harris County, Texas." [Adv. Doc. No. 38, Ex. No. 3].
2. Pursuant to the Agreed Divorce Decree, Nelson was ordered to pay certain debts as part of the division of the marital estate. [Id.]. The exact language of the relevant portion of the Agreed Divorce Decree reads as follows:
[Id. at pg. 29] (emphasis added).5
3. Nelson signed the Agreed Divorce Decree and specifically indicated his approval as to both form and substance. See [Id. at pg. 42]. Nelson was represented by counsel in connection with the Agreed Divorce Decree. See [Id. at pg. 41].
4. On July 27, 2009, the Debtor filed a Chapter 11 petition. [Main Case Doc. No. 1]. Her Chapter 11 case was converted to Chapter 7 on December 19, 2011. [Main Case Doc. No. 243]. Randy Williams (the Trustee) was appointed the Chapter 7 Trustee.
5. Nelson did not pay the Anderson Debt when it became due. Anderson brought suit against both Nelson and the Debtor in state court (the Anderson Lawsuit). On October 22, 2009, the Anderson Lawsuit was removed to this Court, instituting Adversary Proceeding No. 09-03417. [Adv. No. 09-03417, Doc. No. 1].
6. On August 5, 2010, a default judgment was entered in favor of Anderson against Nelson. [Adv. No. 09-03417, Doc. No. 27].
7. The Debtor—who was still in Chapter 11 at this time—retained counsel and defended the Anderson Lawsuit. On August 5, 2010, this Court approved a compromise and settlement between the Debtor and Anderson. [Main Case Doc. No. 172]; [Adv. Doc. No. 30]. Pursuant to the settlement, Anderson was allowed a secured claim in the Debtor's bankruptcy in the amount of $304,780.21, "secured by a lien on the proceeds and/or property received by Debtor from the sale or other disposition of the Galveston Property . . . ." [Main Case Doc. No. 172]; [Adv. Doc. No. 30]. Andersonwas also granted an allowed unsecured claim in the amount of $152,390.10. [Main Case Doc. No. 172]; [Adv. Doc. No. 30].
8. Nelson also did not pay the Christiansen Debt or the Ford Debt. Christiansen and Ford sued both Nelson and the Debtor in state court (the Christiansen and Ford Lawsuit). On October 22, 2009, the Christiansen and Ford Lawsuit was removed to this Court, initiating Adversary Proceeding No. 09-03418. [Adv. No. 09-03418, Doc. No. 1].
9. On December 2, 2010, a default judgment was entered in favor of Christiansen and Ford against Nelson. [Adv. No. 09-03418, Doc. No. 30].
10. The Debtor—who was still in her Chapter 11 at this time—retained counsel and defended the Christiansen and Ford Lawsuit. On December 29, 2010, this Court approved a compromise and settlement between the Debtor and Christiansen and Ford. [Main Case Doc. No. 200]; [Adv. Doc. No. 38]. Pursuant to the settlement, Christiansen was granted an allowed secured claim in the Debtor's bankruptcy in the amount of $250,000.00, "secured by a lien on the proceeds and/or property received by Debtor from the sale or other disposition of the Galveston Property . . . ." [Main Case Doc. No. 200]; [Adv. Doc. No. 38]. Christiansen was also granted an allowed unsecured claim in the amount of $124,109.50. [Main Case Doc. No. 200]; [Adv. Doc. No. 38]. Ford was granted an allowed secured claim in the Debtor's bankruptcy in the amount of $150,000.00, "secured by a lien on the proceeds and/or property received by Debtor from the sale or other disposition of the Galveston Property . . . ." [Main Case Doc. No. 200]; [Adv. Doc. No. 38]. Ford was also granted an allowedunsecured claim in the amount of $74,466.00. [Main Case Doc. No. 200]; [Adv. Doc. No. 38].
11. The bankruptcy estate has not made any distributions to pay down any of the allowed claims of Anderson, Christiansen, and Ford. The Debtor—while she was still in Chapter 11—instituted the instant adversary proceeding against Nelson on May 19, 2011. [Adv. Doc. No. 1]. In this adversary proceeding, the Debtor was seeking a judgment ordering Nelson to turnover funds to pay in full the allowed claims of Anderson, Christiansen, and Ford, as well as the funds necessary to pay the reasonable attorneys' fees incurred in defending the suits brought by Anderson, Christiansen, and Ford and prosecuting this adversary proceeding. [Id.].
12. On June 13, 2011, Nelson filed his original answer in this adversary proceeding.6 [Adv. Doc. No. 5].
13. On March 8, 2012, the Trustee was substituted in as plaintiff in this adversary proceeding, as the Debtor's Chapter 11 case had been converted to a Chapter 7. [Adv. Doc. No. 23].
14. On March 29, 2012, Nelson—now represented by counsel—filed an amended answer to the cornplaint. [Adv. Doc. No. 30]. Nelson asserted that his obligation to the Debtor under the Agreed Divorce Decree is one of indemnification and that "[t]he estate has not made any distributions for which the Trustee may seek indemnification." [Id. at ¶ 11].
15. The Trustee filed a motion for partial summary judgment (the Motion) on August 24, 2012. [Adv. Doc. No. 38]. Nelson filed a response opposing the Motion on September 19, 2012. [Adv. Doc. No. 43].
16. The Trustee filed a Memorandum in Support of the Motion on October 4, 2012. [Adv. Doc. No. 45]. On the same day, this Court heard oral arguments on the Motion from counsel for the Trustee and counsel for Nelson. The Court continued the hearing until October 11, 2012 for two reasons. First, the Court wanted to give counsel for Nelson the opportunity to review the Trustee's memorandum so that he could make any rebuttal arguments. Second, the Court wanted to give counsel for Nelson the opportunity to file an affidavit from Nelson giving testimony as to whether he has made any payments to reduce the Debts.
17. On October 10, 2012, Nelson's counsel filed an affidavit from Nelson setting forth that Nelson had made a few payments to reduce the Debts. [Adv. Doc. No. 48]. There is no dispute, however, that a substantial portion of the Debts has not been paid.
18. On October 11, 2012, the Court heard additional arguments from counsel, and then issued an oral ruling granting the Motion with one exception: the exact amount that Nelson must turnover to the Trustee remains a genuine issue of material fact to be tried.7 This Memorandum Opinion memorializes the Court's reasons for its ruling.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) because it is a matter affecting the administration of the Chapter 7 estate. It is also a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E) because the Trustee is requesting an order requiring Nelson to turnover property of the estate—i.e., to turnover funds pursuant to the Agreed Divorce Decree sufficient to pay the Debts. Further, this dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(0) because the dispute affects the debtor-creditor relationship. Finally, this dispute is a core proceeding under the general "catch-all" language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999) (); De Montaigu v. Ginther (In re Ginther Trusts), Adv. No. 06-3556, 2006 WL 3805670, at *19 (Bankr. S.D. Tex. Dec. 22, 2006) (...
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