Whiteley v. Slobodian (In re Mechanicsburg Fitness, Inc.), Case No. 1:16-bk-01897-HWV
| Decision Date | 02 November 2018 |
| Docket Number | Case No. 1:16-bk-01897-HWV |
| Citation | 592 B.R. 798 |
| Parties | IN RE: MECHANICSBURG FITNESS, INC., Debtor Joyce S. Whiteley, Movant v. Markian Slobodian, Trustee; Respondent |
| Court | U.S. Bankruptcy Court — Middle District of Pennsylvania |
Bret P. Shaffer, Schiffman Sheridan & Brown PC, Harrisburg, PA, for Debtor.
Markian R. Slobodian, Harrisburg, PA, for Trustee.
In this case the court considers the Motion of Joyce S. Whiteley ("Whiteley") Seeking Leave to Object to Proofs of Claim filed by Susan J. Hildebrand ("Hildebrand") and Kevin E. Keefer ("Keefer"). Whiteley has filed a proof of claim in this case and is asserting standing to file the objections pursuant to section 502(a) of Title 11, U.S.C.1 The Chapter 7 Trustee, Markian Slobodian (the "Trustee"), has objected to the Motion on several grounds, including lack of standing.
This court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(a). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(a) and (b)(1) and (b)(2)(O).
Mechanicsburg Fitness, Inc. (the "Debtor") is a defunct fitness center that initiated this chapter 7 case on April 29, 2016. Prior to filing its petition, the Debtor was defending a civil suit ("Civil Suit") brought by Keefer and Hildebrand in the Cumberland County Court of Common Pleas (the "State Court"). In the Civil Suit, Keefer and Hildebrand sought damages for the alleged breach of two agreements they entered into with the Debtor to provide personal training services at the Debtor's Mechanicsburg location (the "Complaint"). The Debtor filed preliminary objections ("Preliminary Objections") to the Complaint in the Civil Suit, which were overruled without opinion on April 29, 2015 (the "State Court Order"). Thereafter, the Debtor filed an answer with new matter in the Civil Suit, to which Keefer and Hildebrand responded. The Debtor filed bankruptcy on April 29, 2016 before the Civil Suit could proceed further. The Trustee was also appointed on April 29, 2016.
Following the conclusion of the section 341 meeting, the Trustee filed a Notice of Change from a No Asset Chapter 7 Case to an Asset Chapter 7 Case (the "Asset Notice"). The Asset Notice instructed creditors to file a proof of claim on or before October 6, 2017 if they wished to share in the distribution of funds.
Three timely claims were filed in response to the Asset Notice. The first was filed by Hildebrand asserting a general unsecured claim in the amount of $130,950.00 (the "Hildebrand Claim"). The basis of the Hildebrand Claim is breach of contract arising from the same facts and circumstances asserted in the Civil Suit. The second claim was filed by Keefer asserting a general unsecured claim in the amount of $283,240.00 on similar grounds to the Hildebrand Claim (the "Keefer Claim"). The third and final claim was filed by Whiteley asserting a general unsecured claim in the amount of $1,973,856.21 for money loaned (the "Whiteley Claim").
On January 19, 2018, Whiteley filed the instant Motion Seeking Leave to Object to the Claims of Hildebrand and Keefer (the "Motion"). The Trustee filed his Response to the Motion on February 5, 2018 (the "Response") and a hearing was conducted on February 6, 2018. During the hearing, and as set forth in his Response, the Trustee objected to the Motion on multiple grounds, many of which relate to Whiteley's standing.2 The Trustee also asserted that absent his refusal to pursue possible objections to certain claims, he has the exclusive right to object to proofs of claim and leave to object should generally not be granted to a third party. In addition to the foregoing, the Trustee argued that Whiteley's proposed objections to the Hildebrand and Keefer Claims are barred by the doctrines of issue preclusion, claim preclusion, and by the Rooker-Feldman Doctrine. Finally, the Trustee argued that Whiteley's proposed objections were premature and not ripe at that time because there were no assets in the case other than a potential fraudulent transfer claim against Whiteley (the "Asset"), which had not yet been brought by the Trustee.
In response to the Trustee's last argument, and to provide him with the opportunity to determine whether pursuit of the Asset was appropriate, the court continued the hearing to a future date. On April 25, 2018, the Trustee demonstrated his intent to pursue the Asset by filing an adversary complaint pursuant to sections 548 and 550 naming Whiteley as Defendant (the "Adversary Complaint"). The Adversary Complaint seeks to avoid certain pre-petition transfers and to recover the value of same from Whiteley for the benefit of the Debtor's estate.
A final hearing on the Motion was held on June 26, 2018 where additional arguments were heard. The matter is now ripe for a decision.
The Bankruptcy Code establishes an orderly and centralized liquidation process where creditors of equal priority receive ratable and equitable distributions. These distributions are designed to serve "the prime bankruptcy policy of equality of distribution among creditors of the debtor." Union Bank v. Wolas , 502 U.S. 151, 161, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991) (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 177–78 (1977) ). In a chapter 7 liquidation, this translates to a pro-rata distribution of the debtor's nonexempt assets to creditors. 11 U.S.C. § 726(b). In furtherance of those objectives, the Code provides that a creditor's claim, "proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a).3 Claims that are deemed "allowed" are eligible for distributions, while claims that are not "allowed" generally do not receive distributions. 11 U.S.C. § 726.
In this case, the court is asked to determine what rights a chapter 7 creditor has to object to claims pursuant to section 502(a). This determination necessarily includes an examination of a creditor's standing under section 502(a). The meaning of section 502(a), and the rights it confers upon a chapter 7 creditor as a matter of law, is therefore the central question presented in this case. For the reasons that follow, this court concludes that Whiteley is a party in interest with the right to object to the Hildebrand and Keefer Claims pursuant to section 502(a).
Bankruptcy standing is governed by both Article III of the Constitution and the Bankruptcy Code. The Constitution limits the judicial power of the United States to "Cases" and "Controversies." U.S. Const. art. III. "[A]n essential and unchanging part of the case-or-controversy requirement" is the doctrine of standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). To have standing under Article III, "a plaintiff must present an injury that is concrete, particularized, and actual or imminent; fairly traceable to the defendant's challenged action; and redressable by a favorable ruling." Horne v. Flores, 557 U.S. 433, 445, 129 S.Ct. 2579, 174 L.Ed.2d 406 (2009). The injury need not be great, however, and "some specific, ‘identifiable trifle’ of injury" suffices. Bowman v. Wilson, 672 F.2d 1145, 1151 (3rd Cir. 1982) (quoting United States v. Students Challenging Regulatory Agency Procedures (SCRAP), 412 U.S. 669, 689 n. 14, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973) ). The critical question is whether a plaintiff "has ‘alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction.’ " Horne, 557 U.S. at 445, 129 S.Ct. 2579 (quoting Summers v. Earth Island Inst., 555 U.S. 488, 493, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009) ).
The right to be heard in a bankruptcy case is also governed by the Bankruptcy Code. See e.g. 11 U.S.C. §§ 1109(b) and 502(a) ; see also In re Global Indus. Tech., Inc. , 645 F.3d 201, 210 (3rd Cir. 2011) ; Mt. McKinley Ins. Co. v. Pittsburgh Corning Corp. , 518 B.R. 307, 318 (W.D. Pa. 2014). Section 502, for example, governs the allowance of claims and interests and provides any "party in interest" with standing to object. See 11 U.S.C. § 502(a). Unfortunately, the Bankruptcy Code does not expressly define who qualifies as a "party in interest" for purposes of section 502. The Third Circuit Court of Appeals, however, has stated that a "party in interest" is "anyone who has a legally protected interest that could be affected by a bankruptcy proceeding." Global Indus. Tech., Inc. , 645 F.3d at 210.4
Careful examination of the above principles demonstrates that the assessment for standing under Article III coincides with the test for standing as a "party in interest" under the Bankruptcy Code. Indeed, the Third Circuit has observed that "[p]ersuasive authority indicates that Article III standing and standing under the Bankruptcy Code are effectively coextensive." Id. at 211. Therefore, the relevant query for this matter is whether Whiteley has a legally protected interest that could be affected by this bankruptcy proceeding. This court has little difficulty concluding that she does.
Section 502(a) provides statutory protection to any "claim or interest, proof of which is filed under section 501 of this title" by deeming it "allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a). Presently, no one has objected to Whiteley's Claim, proof of which was filed under section 501. As such, Whiteley's Claim is currently deemed "allowed". This allowed claim represents Whiteley's legally protected interest in this case.5 As indicated above, however, the inquiry does not end there. To have standing, Whiteley must also show that her legally protected interest could be affected by this bankruptcy proceeding. For the reasons that follow, this court resolves that Whiteley's legally protected interest could be affected by this bankruptcy proceeding.
Consider the application of section 726 to ...
To continue reading
Request your trial