Yaquinto v. Greer
| Decision Date | 20 January 1988 |
| Docket Number | Civ. A. No. CA3-87-1343-D. |
| Citation | 81 BR 870 |
| Parties | Robert YAQUINTO, Plaintiff-Appellee, v. F. Conrad GREER, Paul R. Steinman, and Jo Nell Pederson d/b/a Phoenix Financial Company, Defendants-Appellants. |
| Court | U.S. District Court — Northern District of Texas |
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Lewis S. Goodman and Roger L. Mandel, of Pulliam, Hale, Spencer, Goodman, Stanley, Pronske & Trust, P.C., Dallas, Tex., for Robert Yaquinto, plaintiff-appellee.
Gerald R. Velarde and Richard A. McKinney, of Dooley, Rucker, Maris & Foxman, Dallas, Tex., for Paul R. Steinman, defendant-appellant.
Robert K. Frisch, Dallas, Tex., for F. Conrad Greer and Jo Nell Pederson d/b/a Phoenix Financial Co., defendants-appellants.
The bankruptcy court sua sponte recast a third-party, state law adversary proceeding as a turnover action prosecuted by the trustee. After a hearing, the court ordered defendants-appellants to turn over certain property to the debtor's estate and sanctioned two of them for dealing in debtor in possession funds. On appeal, the court affirms in part and reverses and vacates in part, the order of the bankruptcy court.
Atlantic Richfield Company ("ARCO") filed an adversary proceeding against F. Conrad Greer ("Greer"), Paul R. Steinman ("Steinman"), Jo Nell Pederson ("Pederson"), Alex Gelman ("Gelman"), Phoenix Financial Company ("Phoenix"),1 and Greer Petroleum Corporation ("Petroleum"), a chapter 11 debtor, to recover the proceeds of a check for $182,179.42 that had been paid to Petroleum as a result of a clerical error. ARCO intended to send the check to a Fort Worth bank. It is unclear whether ARCO owed Petroleum any money or if, instead, ARCO only owed money to the bank in its capacity as an assignee of Petroleum's interests in various oil wells.
Greer, the president and sole owner of Petroleum, came into possession of the check and endorsed it to himself. Greer testified that he believed that approximately $66,000 of the amount of the check rightfully belonged to Petroleum, which was then in bankruptcy. Greer took the check, along with a notarized letter stating that Greer was authorized to execute checks and other instruments on behalf of Petroleum, to Steinman. Steinman is an attorney and personal friend and sometime business partner of Greer's.
Greer asked Steinman to deposit the check into a trust account that Steinman maintained for client funds. Greer testified that he believed he told Steinman that Petroleum was in bankruptcy. Steinman testified that Greer represented that Petroleum was formerly in bankruptcy but was no longer. Steinman was acquainted with Greer from prior business dealings and knew Greer to be the sole owner of Petroleum.
Steinman deposited the check into the trust account. Thereafter, Greer instructed Steinman to pay $32,000 of the money to Phoenix, which is solely owned by Pederson. Pederson was executive secretary and office manager of Petroleum at the time Petroleum filed for chapter 11 protection. She testified at the hearing that she had previously advanced $32,000 to Petroleum to help it financially. When Steinman was notified that the check had cleared, he wired $32,000 to Phoenix. Greer also instructed Steinman to pay $7,500 of the trust account funds to Gelman, an attorney and associate of Steinman. The money was to serve as a retainer for Gelman to represent Greer in a contempt hearing (not the hearing in question here) before the bankruptcy court. At the contempt hearing, the bankruptcy court ordered Steinman to return to the bankruptcy court the balance of the proceeds from the check that remained in the trust account, which Steinman did. Subsequently, Gelman also delivered to the court the $7,500 that he had received from Steinman.
In its adversary complaint initiating the present action ARCO alleged that the defendants had converted funds belonging to ARCO. ARCO requested damages and a turnover to ARCO of the converted funds. The bankruptcy court convened a hearing at which all parties were present, including Robert Yaquinto, who had been appointed trustee of Petroleum. At the outset of the hearing the trustee moved that ARCO's action be dismissed. The trustee argued that ARCO's claim was not a core proceeding but was, instead, a state law cause of action for conversion pending in the bankruptcy court only because Petroleum was a debtor. After considering arguments on the trustee's motion the bankruptcy court decided to recast the ARCO action as a core proceeding for the turnover of funds to the estate. The bankruptcy court then ordered Greer, Steinman, Gelman, and Pederson to show cause why the court should not direct them to turn over the $32,000 to the estate and why they should not be sanctioned for dealing in debtor in possession funds. The bankruptcy court then immediately convened an evidentiary hearing for that purpose, to which procedure none of the parties objected.
At the conclusion of the hearing, the bankruptcy court held that the action was a core proceeding under 28 U.S.C. § 157 for the turnover of property to the debtor, and that Greer, Pederson, and Steinman were jointly and severally liable for the turnover of $32,000 to the trustee. The court also imposed sanctions upon Greer and Steinman, in the respective amounts of $25,000 and $10,000, for dealing in debtor in possession funds. The court thereafter entered a written order, which contained findings.2 This appeal, by Greer, Steinman, and Pederson d/b/a Phoenix, followed.
Appellants first contend the bankruptcy court erred in entering a turnover order because ARCO's adversary complaint was not a turnover complaint under 11 U.S.C. § 542. Appellants point out that ARCO did not plead for turnover of the property to Petroleum, but instead sought damages from defendants for conversion and requested that the $32,000 be returned to ARCO. They therefore reason that the bankruptcy court erred in sua sponte characterizing the complaint as one for turnover. The trustee argues that the bankruptcy court was empowered by 11 U.S.C. § 105(a)3 to convert the hearing to a core proceeding and did so pursuant to its authority to expedite a case, which authority the trustee contends is granted by § 105(a).
This court need not decide today whether a bankruptcy court's § 105(a) powers reach as broadly as the trustee contends. This is so because appellants failed to make proper objection in the bankruptcy court and, therefore, tried the turnover action by consent.
The essence of appellants' contention is that the bankruptcy court's turnover order does not conform to the pleadings. Appellants argue that the only complaint before the court set forth a state law conversion claim which requested that converted monies be returned to ARCO rather than to the debtor's estate. In an adversary proceeding such as the one below, however, Fed.R.Civ.P. 15 applies. See Fed. R.Bankr.P. 7015. The policy of the federal rules is to permit liberal pleading and amendment, thus facilitating adjudication on the merits while avoiding excessive formalism. Jamieson By and Through Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th Cir.1985). Rule 15(b) provides that "when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." Fed.R.Civ.P. 15(b). It does not matter whether there has been a formal amendment to conform the pleadings to the evidence. Once issues are presented and argued without objection by opposing counsel, such issues are tried by the implied consent of the parties and are treated as if they had been raised by the pleadings. Apple Barrel Productions, Inc. v. Beard, 730 F.2d 384, 389 (5th Cir.1984); see also Sun-Fun Products, Inc. v. Suntan Research & Development Inc., 656 F.2d 186, 192 n. 7 (5th Cir. Unit B 1981).
"In general, a finding of implied consent `depends on whether the parties recognized that an issue not presented by the pleadings entered the case at trial.'" Domar Ocean Transportation, Ltd. v. Independent Refining Co., 783 F.2d 1185, 1188 (5th Cir.1986) (quoting Jimenez v. Tuna Vessel "Granada," 652 F.2d 415, 421 (5th Cir. Unit A 1981)). When, for example, the evidence also relates to an issue already in the case, it cannot realistically be said that a party impliedly consented to the trial of that issue. Id.; Jimenez, 652 F.2d at 421. Appellants cannot claim here that they did not recognize that an unpresented issue had entered the case.4 The bankruptcy court expressly presented the issues that it intended to decide, including whether appellants should be ordered to turn over $32,000 to the trustee. The court plainly informed the parties that it had recast the nature of the action and had altered the prosecuting party. Appellants had ample opportunity to object to the trial of a turnover action or to request additional time to prepare their respective cases. Their failure to do so necessitates the conclusion that they tried by consent the issues as restated by the bankruptcy court.5
Appellants next contend that the bankruptcy court erred in ordering a turnover because the complaint was not brought by the trustee or the debtor in possession. Relying principally upon Fed. R.Bankr.P. 7001 and 7003 and a Utah bankruptcy court decision, appellants contend the complaint could only have been filed by the trustee or the debtor because one of those parties bears the applicable burden of proof. Appellants note that the trustee not only failed to file the complaint but initially urged the bankruptcy court to dismiss the ARCO action.
The court finds nothing in Fed.R. Bankr.P. 7001 or 7003 to support the proposition that a turnover action must initially be filed by the trustee or debtor in possession. Rule 7001 has been interpreted to require that a turnover...
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