Wood v. Wheatley (In re Wood)

Decision Date13 December 2022
Docket Number22-8003
Citation647 B.R. 165
Parties IN RE: Julie Marie WOOD, Debtor. Jack D. Wood, Defendant-Appellant, v. Michael Wheatley, Trustee, Plaintiff-Appellee.
CourtU.S. Bankruptcy Appellate Panel, Sixth Circuit

ARGUED: Andrew S. Zeh, MAPLE LAW PLLC, Louisville, Kentucky, for Appellant. Neil C. Bordy, SEILLER WATERMAN LLC, Louisville, Kentucky, for Appellee. ON BRIEF: Andrew S. Zeh, MAPLE LAW PLLC, Louisville, Kentucky, for Appellant. Neil C. Bordy, Joseph H. Haddad, SEILLER WATERMAN LLC, Louisville, Kentucky, for Appellee.

Before: DALES, GUSTAFSON, and MASHBURN, Bankruptcy Appellate Panel Judges.

SCOTT W. DALES, Chief Bankruptcy Appellate Panel Judge.

Although this appeal involves what we view as a sea of red herrings, when the waters clear we base our decision upon a litigant's failure to meet the well-settled requirements for opposing a properly-supported summary judgment motion. For the following reasons, the panel will affirm the Bankruptcy Court's judgment.

JURISDICTION

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Kentucky has authorized appeals to the Panel, and no party timely elected to have the district court hear the appeal. 28 U.S.C. § 158(b)(6) and (c)(1).

Under 28 U.S.C. § 158(a)(1), the Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by a bankruptcy court. "Orders in bankruptcy cases qualify as ‘final’ when they definitively dispose of discrete disputes within the overarching bankruptcy case." Ritzen Grp., Inc. v. Jackson Masonry, LLC , ––– U.S. ––––, 140 S. Ct. 582, 586, 205 L.Ed.2d 419 (2020) (citing Bullard v. Blue Hills Bank , 575 U.S. 496, 501, 135 S. Ct. 1686, 1692, 191 L.Ed.2d 621 (2015) ).

The bankruptcy court entered a final judgment in the adversary proceeding after the parties stipulated to resolve the valuation question that remained following the court's decision on the motion for partial summary judgment. The final judgment resolved the last issue in the case. A judgment disposing of all claims against all parties in an adversary proceeding is a final order from which appeal as of right will lie. Matteson v. Bank of America, N.A. (In re Matteson ), 535 B.R. 156, 158–59 (B.A.P. 6th Cir. 2015).

This appeal also involves a challenge to the bankruptcy court's decision to deny a motion to amend a pleading under Federal Rule of Civil Procedure 15(a).1 "Although the denial of a motion to amend an answer is generally a non-final order that is not immediately appealable, it is appealable after the entry of a final order which resolves all issues between the parties." Pittman ex rel. Sykes v. Franklin , 282 F. App'x 418, 423 (6th Cir. 2008).

At oral argument, Michael Wheatley ("Appellee") challenged the Panel's authority to hear this appeal by contending that it has become moot2 because (1) one of the debtor's family members paid the claim of the principal creditor; (2) the debtor disclaimed any right to surplus from the Appellee's collection activity; and (3) Appellee had no present intention of pursuing collection from Jack Wood ("Appellant") or his property. When pressed, however, counsel for Appellee reported that his client would not waive any claims against Appellant, given the possibility, however remote, that Appellee may need to look to Appellant or his property to satisfy administrative or other claims.

Without an irrevocable waiver,3 the Panel does not regard this appeal as moot because it is still possible to give Appellant effective relief:4 a decision in his favor would absolve him from liability on the judgment from which he appeals, either to the estate or perhaps to codefendants who did not appeal, should they assert claims in the future for contribution.

Consequently, the appeal is not moot, and the Panel may address it.

BACKGROUND

Long before his daughter, Julie Wood ("Debtor"), filed her chapter 7 bankruptcy petition, Appellant opened several bank accounts in her name with himself as either custodian or joint account holder. In addition, according to his testimony at one stage of his daughter's bankruptcy proceedings, he, his wife, the Debtor and his other daughter, held interests in an informal real estate business as joint venturers. This arrangement, according to his testimony as a witness in support of the Debtor's motion to convert her case from chapter 7 to chapter 13, permitted him to sprinkle losses from the real estate business for income tax purposes among his wife and two daughters according to their share of the business. He further testified that his handwriting on the bottom of his daughter's 2016 tax return, showing various percentages across from the initials of each family member, reflected each family member's share of what he testified was a "joint venture" (the "Joint Venture").

During the same hearing on his daughter's conversion motion, Appellant admitted that after it became clear that his daughter's ex-mother-in-law and principal creditor (Janice Gerstenecker), would begin collecting on a judgment, Appellant transferred the money out of bank accounts (the "Bank Accounts") that were held in his and his daughter's name to other accounts he controlled. Likewise, according to his own testimony, sometime later he and his wife removed the Debtor from the Joint Venture—again to put the property beyond the reach of Janice Gerstenecker. Although the point of making these transfers was readily apparent without Appellant's admission, he plainly admitted his intent to put these assets beyond the reach of his daughter's main creditor.

Based in large part on Appellant's testimony in support of the Debtor's conversion motion, the bankruptcy court denied the motion so that Appellee (as chapter 7 trustee) could administer the Debtor's share of the business or pursue chapter 5 and other claims related to the business and the Bank Accounts that Appellant testified about in open court.

Having participated in that same hearing where Appellant testified regarding the Joint Venture, the Debtor's tax returns, the Bank Accounts, and the transfers to prevent Janice Gerstenecker from reaching this property, Appellee, as the Debtor's bankruptcy trustee, filed a complaint against Appellant, Jennifer D. Wood (the Debtor's sister), and Margaret E. Wood (her mother and collectively, the "Defendants") seeking to avoid and recover the transfers on preference and fraudulent conveyance theories.

After full discovery and mediation, the parties entered into a settlement and sought approval from the bankruptcy court. Janice Gerstenecker strenuously objected, ultimately persuading the bankruptcy court not to approve the settlement. Ever mindful of the Appellant's self-damning admissions during the hearing on the conversion motion, the bankruptcy court scrutinized the record and refused to approve the settlement, lifting up as reasons (1) the paltry recovery for the Debtor's principal creditor if the settlement were approved; and (2) the court's greater confidence in the trustee-plaintiff's likelihood of success premised, in part, on a prediction that the doctrine of judicial estoppel might support a greater recovery. The bankruptcy court applied well-settled factors in evaluating the proposed compromise. Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson , 390 U.S. 414, 88 S. Ct. 1157, 20 L.Ed.2d 1 (1968) (discussing settlement factors); Bard v. Sicherman (In re Bard ), 49 F. App'x 528, 530 (6th Cir. 2002) (same).

In evaluating the likelihood of success, the bankruptcy court treated the Defendants’ answer, which admitted the existence of the Joint Venture, directly and indirectly, in at least five places, as a "judicial admission" establishing the portion of the case that the Appellee regarded as deficient, and the court observed that "even without the conclusive nature of the judicial admission, the Trustee could still prevail on this issue through the application of judicial estoppel." (Mem. at 23, Adv. P. 19-03041, ECF No. 71 (Aug. 17, 2021) (emphasis added).) The court did not opine that Appellee would prevail under the doctrine of judicial estoppel, but simply suggested that he "could," a reading Appellant's counsel confirmed during oral argument when reporting that his client no longer challenges the bankruptcy court's refusal to approve the settlement.

Promptly after the bankruptcy court rejected the settlement, the Defendants moved to amend their answer ("Motion to Amend"), asserting that the bankruptcy court had misconstrued it as conceding the existence of the Joint Venture or the Debtor's interest in the Joint Venture. Around that same time, Appellee moved for partial summary judgment ("Motion for PSJ") on all counts and all issues, save for the value of the Debtor's interest in the alleged Joint Venture.

The bankruptcy court denied the Motion to Amend, finding unreasonable delay and prejudice, but also futility premised on the application of the judicial estoppel allegedly flowing from Appellant's earlier testimony about the Joint Venture. The court entered the order denying the amendment on October 12, 2021, which gave the Defendants approximately twenty days to oppose Appellee's Motion for PSJ. In fact, they timely filed a response. Thereafter, the bankruptcy court entered summary judgment against the Defendants, finding that (i) the Appellee had met his summary judgment burden of establishing a prima facie case; (ii) the burden of raising a genuine issue for trial shifted to the Defendants; but (iii) the Defendants failed to raise a genuine issue as to any material fact regarding the Debtor's ownership in the Bank Accounts, her share of the Joint Venture, and other elements of various causes of action under 11 U.S.C. §§ 544 (and related state fraudulent conveyance statutes), 547, 548, and 550. More specifically, the court first entered an order granting...

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