Thomson v. Short (In re Short)

• Docket Number: 19-29471,Adv. Proc. 22-02004
• Decision Date: 02 May 2023
• Parties: In re: DOUGLAS RAYMOND SHORT, Debtor. v. RAYMOND SHORT, Defendant. MICHAEL THOMSON, Chapter 7 Trustee for the Douglas Short Bankruptcy Estate, Plaintiff, RAYMOND SHORT, Counterclaimant and Third-Party Plaintiff, v. MICHAEL THOMSON, Chapter 7 Trustee; YAN ROSS; JOHN BOGART; and TELOS VENTURE GROUP PLLC, Counterclaim and Third-Party Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah

1

In re: DOUGLAS RAYMOND SHORT, Debtor.

MICHAEL THOMSON, Chapter 7 Trustee for the Douglas Short Bankruptcy Estate, Plaintiff, v. RAYMOND SHORT, Defendant.

RAYMOND SHORT, Counterclaimant and Third-Party Plaintiff, v. MICHAEL THOMSON, Chapter 7 Trustee; YAN ROSS; JOHN BOGART; and TELOS VENTURE GROUP PLLC, Counterclaim and Third-Party Defendants.

No. 19-29471

Adv. Proc. No. 22-02004

United States Bankruptcy Court, D. Utah, Central Division

May 2, 2023

MEMORANDUM DECISION ON MOTIONS FOR SUMMARY JUDGMENT

Hon Kevin R. Anderson, U.S. Bankruptcy Judge.

Even in bankruptcy, "blood is thicker than water." In this case, the debtor is an attorney; the debtor's father filed a secured claim for $182,300 against his son's bankruptcy estate; the Trustee objected to the claim; and the debtor, acting as his father's attorney, has advocated for the allowance of the claim. Because of the father's insider status; a lack of objective, supporting evidence; and because many of the claim components arose post-petition, the Court reduces the father's secured claim to $31,300.^[1]

I. UNDISPUTED MATERIAL FACTS

A. The Judgment Against the Debtor and Raymond Short's Posting of the Supersedeas Bond.

1. In July 2015, the Utah Third Judicial District Court (the "Utah State Court") entered a judgment against Douglas Short (the "Debtor") and in favor of Yan Ross and Randi Wagner (the "Judgment Creditors") in the amount of $27,981.07 with interest at 2.27% from March 11, 2015 (the "2015 Judgment").^[2]

2. The Judgment Creditors thereafter commenced collection efforts against the Debtor on the 2015 Judgment.^[3]

3. The Debtor approached his father, Raymond Short ("Short"), about funding a supersedeas surety bond to stay the Judgment Creditors' collection efforts while the Debtor appealed the 2015 Judgment.^[4] 4. Short agreed to post the bond in exchange for the Debtor's promise to repay the bond cost plus a $40,000 debt from 1998.^[5]

5. The Debtor and Short memorialized these terms in a signed agreement dated October 15, 2015, titled Loan and Security Agreement (the "Bond Loan Agreement") that contains the following provisions:^[6]

a Short would "commit to provide the supersedeas bond."

b The Debtor "also hereby expressly recognizes that he already owes Raymond W. Short Forty Thousand Dollars ($40,000) in connection with an equipment lease Raymond Short previously provided to Priority Press and Marketing, which lease Douglas Short personally guaranteed, which lease was not in fact repaid."

c The Debtor "hereby agrees to repay all amounts owed to Raymond Short hereunder, or as may become owed hereunder, on such terms as the parties may agree dependent on Douglas Short's variable financial circumstances."

d "In order to secure the surety bond, any cash advances, and the prior lease obligation, Douglas Short hereby pledges any and all of his personal property . . . and agrees that Raymond Short may take such steps as desired to perfect such security interests."

6. In response to interrogatories, Short disclosed that the $40,000 debt was incurred in approximately 1998 (the "1998 Loan").^[7] However, Short admitted that he had no documents evidencing the 1998 Loan other than the Bond Loan Agreement.^[8] Finally, Short did not produce any evidence that he had actually advanced funds for the 1998 Loan or that the Debtor had ever made any prior payments on the 1998 Loan.^[9] Thus, the only evidence of the 1998 Loan is the Debtor's admission of liability in the Bond Loan Agreement.

7. On October 17, 2015, Short filed with the Utah Division of Corporations and Commercial Code a UCC-1 Financing Statement (the "UCC-1") that covered essentially all of the Debtor's personal property, including "all accounts receivable; all rights to payment including wages, salaries, and distributions from any company . . . ."^[10]

8. On December 11, 2015, Short posted with the Utah State Court a $30,000 "Supersedeas Bond - Surety" to secure the amounts owed by the Debtor to the Judgment Creditors (the "Supersedeas Bond").^[11] On February 10, 2016, Short posted an amended Supersedeas Bond with the Utah State Court in the same amount.^[12]

9. The Debtor lost his appeal,^[13] and on March 19, 2019, the Judgment Creditors sought to collect on the Supersedeas Bond.^[14]

10. By this time, accrued interest had increased the amount owing on the 2015 Judgment to more than $30,000.^[15]

11. On April 9, 2019, the Utah State Court ordered Short to pay the Judgment Creditors $30,000 under the Supersedeas Bond by May 9, 2019.^[16] 12. In November 2019, Short employed attorney Mark Shurtleff ("Attorney Shurtleff") to contest the Judgment Creditors' efforts to collect the Supersedeas Bond.

13. On May 13, 2020, and after many unsuccessful legal challenges before the Utah State Court, Short finally paid the Judgment Creditors $31,300 under the Supersedeas Bond.^[17]

14. On June 19, 2020, and because of his refusal to timely pay the Supersedeas Bond, the Utah State Court found that "Short did not have a justification or excuse for his failure to comply with the Court's orders and lacked any good faith basis for failing to comply with the Court's orders." As a result, the Utah State Court held Short in contempt of court.^[18]

15. On July 1, 2020, and pursuant to the contempt findings, the Utah State Court ordered Short to pay the Judgment Creditors $28,896.50 in fees and costs within fourteen days with interest at 3.53%.^[19]

B. The Debtor's Bankruptcy Filing.

16. On December 31, 2019, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code.^[20]

17. The Chapter 7 Trustee^[21] investigated the Debtor's financial affairs and found that he held an interest in $48,527.50 in funds held by the law firm Blood & Jensen, P.C. (the "Funds"). The Trustee recovered the Funds, and they are presently in the Trustee's possession.

C. Short's Proof of Claim.

18. The deadline to file proofs of claim in the Debtor's case was June 23, 2020.^[22]

19. Short filed proof of claim no. 3-1 on the deadline date. He then amended his claim three days later (the "Proof of Claim" or the "Claim").^[23]

20. The Proof of Claim asserts a secured claim of $182,300.00 consisting of the following components with the following descriptions:^[24]

“Original [1998 Loan] with interest up to petition”

$105,000.00

“Payment of supersedeas bond/judgment”

$31,300.00

“Shurtleff fees estimated to date”

$16,000.00

“Attorneys' fees etc. awarded”

$30,000.00

AMOUNT OF CLAIM

$182,300.00

21. Short attached the following documents to the Proof of Claim:

a The Bond Loan Agreement.

b A copy of the "Notice of Surety's Payment of 2015 Judgment Against Douglas Short to Yan Ross and Randi Wagner."

c A copy of Short's cashier's check dated May 13, 2020, in the amount of $31,300 and payable to Sean Egan in trust for the Judgment Creditors.

D. The Adversary Proceeding Objecting to Short's Claim.

22. On January 21, 2022, the Trustee commenced this adversary proceeding by filing a complaint objecting to the allowance of the Proof of Claim (the "Claim Objection").

23. The Claim Objection asserts that the Bond Loan Agreement is unenforceable and the Proof of Claim lacks documentation supporting its four discrete components as well as proof that the security interest asserted therein is perfected.

24. Short answered by raising sixteen defenses to the Trustee's complaint and then asserting ten counterclaims: six against the Judgment Creditors, including an objection to their proof of clam; four counterclaims against John Bogart and Telos Ventures Group PLLC objecting to their proof of clam; and one counterclaim against the Trustee for hiring the Trustee's own law firm to prosecute the complaint. Other than the Trustee, Short has not served the other counterclaim defendants.

E. Documents Subsequently Produced in Support of the Claim.

25. During discovery, the Trustee took Short's deposition and obtained responses to discovery requests to flesh out the background of the Claim's four components. The documents produced during discovery included: (1) an invoice that Attorney Shurtleff billed to Short in the amount of $14,395 for legal services covering November 22, 2019 through June 25, 2020, which period overlaps with the Debtor's petition date of December 31, 2019;^[25] and (2) copies of the Utah State Court's orders for sanctions and contempt against Short and requiring him to pay the Judgment Creditors $28,896.50 in attorney's fees.^[26] 26. Although required by Bankruptcy Rule 3001(d), Short failed to attach to his Proof of Claim "evidence that the security interest has been perfected." What's more, he did not produce a copy of his UCC-1 financing statement during discovery. Only after oral argument was completed on the motions for summary judgment did Short finally produce his UCC-1.^[27]

27. No party filed a continuation statement with respect to the UCC-1, and it lapsed on October 18, 2020, which was after the petition date.

F. The Motions for Summary Judgment.

28. On October 17, 2022, the Trustee filed a motion for summary judgment (the "Trustee's MSJ")^[28] seeking disallowance of all or a portion of the Claim based on the following arguments: (1) the Bond Loan Agreement is illusory and thus unenforceable; (2) Short lacks proof of and does not hold a perfected security interest in the Funds; (3) there are no written documents supporting the 1998 Loan, either in its original sum of $40,000 or in its presently asserted amount of $105,000 due to $65,000 of accrued interest; (4) most of the $16,000 in Attorney Shurtleff's fees arose post-petition; (5) because Short is the Debtor's father the Claim is subject to heightened scrutiny; and (6) except for Short's payment on the Supersedeas Bond, which should...