Proudfoot Consulting Co. v. Gordon (In re Gordon)

• Citation: 465 B.R. 683
• Decision Date: 24 January 2012
• Docket Number: No. 11–62509–WLH.,11–62509–WLH.
• Parties: In re Derrick Dewayne GORDON, Debtor.Proudfoot Consulting Company (n/k/a Alexander Proudfoot Company), Movant, v. Derrick Dewayne Gordon, Respondent.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

465 B.R. 683

In re Derrick Dewayne GORDON, Debtor.Proudfoot Consulting Company (n/k/a Alexander Proudfoot Company), Movant,

v.Derrick Dewayne Gordon, Respondent.

No. 11–62509–WLH.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Jan. 24, 2012.

Sage M. Sigler, William Stewart Sugden, Alston & Bird LLP, Atlanta, GA, for Plaintiff/Petitioner.

Karen Fagin White (Lead), Bruce Z. Walker, Cohen Pollock Merlin & Small, Atlanta, GA, for Defendant/Respondent.

Donald F. Walton, United States Trustee, Guy G. Gebhardt, Assistant United States Trustee, Lindsay N.P. Swift, United States Department of Justice, Office of the United States Trustee, Sally Quillian Yates, United States Attorney, Lena Amanti, Assistant U.S. Attorney, Atlanta, GA, Tracy J. Whitaker, Victor W. Zhao, United States Department of Justice, Washington D.C., for Intervenors.

ORDER ON MOTION TO CONVERT CHAPTER 7 CASE TO ONE UNDER CHAPTER 11

WENDY L. HAGENAU, Bankruptcy Judge.

Proudfoot Consulting Company (“Proudfoot”) filed a Motion to Convert Debtor's Chapter 7 Case to a Case under Chapter 11 of the Bankruptcy Code (“Motion to Convert”) on August 12, 2011 [Docket No. 55]. The Debtor opposed the Motion on multiple grounds, including that any such conversion is unconstitutional, and a hearing on the same was held on September 8, 2011. The parties stipulated that the evidence submitted to the Court in connection with Proudfoot's Motion to Dismiss, which was heard on July 12, 2011, should be considered by the Court in connection with the Motion to Convert, together with all the matters of record in the referenced bankruptcy case. After service of notice of the constitutional question, the United States intervened in the case and filed a brief in support of the constitutionality of conversion, to which the Debtor responded further. After review of the same and the arguments of counsel, the court concludes the case should be converted to one under Chapter 11. The following are the Court's Findings of Fact and Conclusions of Law under Fed. R. Bankr.P. 7052.

FINDINGS OF FACT

Mr. Gordon is an operational consultant who works internationally with companies to improve efficiencies in their organization. Mr. Gordon holds an MBA in Finance. Mr. Gordon is a former employee of Proudfoot, where he was its Vice President for business delivery in Europe. Mr. Gordon voluntarily left Proudfoot in June 2006. While Mr. Gordon was employed at Proudfoot, he was party to a written employment agreement which contained several restrictive covenants applicable for a period of six months following the conclusion of his employment. After Mr. Gordon left Proudfoot, he began working for Highland Consulting Group (“Highland”). On August 22, 2006, Proudfoot filed a suit against Mr. Gordon in Palm Beach County, Florida, which was then removed to the U.S. District Court for the Southern District of Florida. In April 2008, the District Court entered a judgment in favor of Proudfoot imposing injunctive relief against Mr. Gordon prohibiting him from working for Highland for a period of six months and also awarding Proudfoot $1,659,000.00 in damages. Subsequently, on September 15, 2008, the District Court entered an additional judgment in favor of Proudfoot and against Mr. Gordon in the amount of $335,050.55, for attorneys' fees and costs incurred by Proudfoot in the district court action. Mr. Gordon appealed the $1.6 million judgment to the Eleventh Circuit Court of Appeals. On July 30, 2009, the Eleventh Circuit Court of Appeals entered an order reversing the damages portion of the district court judgment but affirming the injunctive provisions of the judgment. Both parties filed motions seeking appellate attorneys' fees and costs in connection with this appeal, and the motions were remanded to the District Court for determination. Mr. Gordon also filed a Rule 60(b)(5) motion in the District Court seeking to vacate the portion of the District Court's judgment awarding the attorneys' fees of $335,050.55. The District Court initially vacated the attorneys' fees award to allow for further briefing, but ultimately reinstated the judgment as of February 25, 2011. Mr. Gordon appealed this decision of the District Court. Nevertheless, the judgment for $335,050.55 was not stayed and Proudfoot began garnishing Mr. Gordon's wages on April 14, 2011. Mr. Gordon then filed his Chapter 7 case on April 26, 2011 (“Petition Date”), noting his debts were not consumer debts. All legal fees in the bankruptcy case are being paid by Highland.

Mr. Gordon is married, but his wife is not a co-debtor and is not presently employed. Contemporaneously with the filing of this Chapter 7 bankruptcy case, Mr. Gordon filed his Schedules, Statement of Financial Affairs, Schedules I and J reflecting current income and expenses, certain payment advices and his Creditor Matrix. Mr. Gordon's schedules show secured debt of $413,163.00. Mr. Gordon and his wife own three rental condos, all of which are under water, a home which has little equity and a Jaguar. They also lease a Mercedes SUV. The unsecured debt evidenced on Mr. Gordon's schedules totals $412,109.55, including the $335,000.00 Proudfoot judgment. According to Mr. Gordon's schedules, the likely deficiency on the three condos is $33,230.00. Additionally, Chase Auto Finance stated in its Motion for Relief from Stay that the remaining amount due on the Mercedes is $4,500.00. Adding these potential deficiencies to the scheduled unsecured debt gives the Debtor a total possible unsecured debt of approximately $450,000.00. Mr. Gordon intends to retain his residence, which secures approximately $215,000.00 of debt. The Debtor and Proudfoot have continued to stipulate that Mr. Gordon's debts are business debts and not consumer debts. Relief from the automatic stay has been granted to two of the lenders on the rental condos owned by the Debtor, as well as to the holder of the lien on one of the Debtor's vehicles. The Debtor has filed a motion to reaffirm his debt with Chase Auto Finance for a Jaguar. No order approving the reaffirmation has been entered.

Much evidence was submitted regarding the amount of Mr. Gordon's monthly income. According to his Schedule I ¹, his monthly income is $13,856.00 (which, multiplied by 12, is $158,232.00 a year). Mr. Gordon testified, however, his base salary is $250,000.00. He is also eligible for up to an additional $40,000 a year in bonuses but the bonuses are discretionary. His year-to-date income as of April 26, 2011 was $96,610.00 (which suggests average monthly income of $24,152.50), and his historical income was approximately $285,000.00 per year, including base salary and historical bonuses. Mr. Gordon defends his Schedule I by pointing out he receives his paychecks bi-weekly. Therefore, in most months he receives only two paychecks (the amount shown on Schedule I). Additionally, Mr. Gordon's position is that, because his bonuses are discretionary, he does not include those in his Schedule I income. Although Mr. Gordon is correct that he does not always have 1/12th of his income within a month, his Schedule I fails to take into account the additional two paychecks that he receives in the course of the year. The Court finds the minimum income Mr. Gordon expects is $250,000.00 a year, with it being extremely likely the actual income will be in excess of that amount. At the rate of $250,000.00 a year, the average monthly income is $20,833.00 per month.² This would increase the monthly income on Schedule I by approximately $1,600.00. However, Mr. Gordon has indicated his intent to surrender the three condos and relief from the stay has already been granted as to two of them. His Schedule I includes $1,400.00 in rental income, which must then be eliminated in evaluating possible projected disposable income. ³ Therefore, the net difference in these adjustments to his Schedule I is negligible and, for purposes of the Court's analysis, the Court will accept the Debtor will have monthly net income of at least $13,846.00 on an average basis.

There is also conflicting evidence as to Mr. Gordon's expenses. On Schedule J, Mr. Gordon shows his monthly expenses as $13,446.00 ⁴ for a net monthly income of $400.00. However, Schedule J includes payments on the rental property and the car to be surrendered of about $3,300.00. Schedule J also includes an expense of $2,800.00 for credit card payments, furniture bills and student loans, most of which would be discharged in this case. The evidence does not show how much of the $2,800.00 is for student loans, but the balance of the student loans is $4,400.00 so the monthly payment is a small part of the $2,800.00 allocated. Based on the surrender of the rental properties and the car alone, the Debtor's average monthly expenses decrease to $10,146.00.⁵ The Court believes the actual amount of expenses will be significantly less, given the lack of repayment of the credit cards and the furniture loan. Mr. Gordon explained in his testimony that there were other expenses he incurred which are not included in his budget, such as expenses for vacations and to assist his parents. Vacation expenses would not be appropriately included in the calculation of projected disposable income. There has been insufficient evidence for the Court to make any finding as to whether assistance to the parents is required, necessary or would be permitted as an allowable expense under the definition of projected disposable income. Based on the foregoing, the Court assumes expense of no more than $10,146.00 and finds that Mr. Gordon would have net monthly income of over $3,400.00 after surrender of the rental condos and the Mercedes. It is likely the net monthly income will be significantly higher with the payment of bonuses and the reduction of additional expenses.⁶ The Court notes Proudfoot submitted its own recalculation of the Debtor's average monthly net income [Docket No. 77, Ex. D], which assumes a...