Honorable Diane Davis, United States Bankruptcy Judge.
This contested matter is before the Court for decision upon motion of Clarkson University ("Clarkson") seeking entry of an order pursuant to 11 U.S.C. §§ 105, 362(d)(1) and 363 and Federal Rules of Bankruptcy Procedure 4001 and 6004 modifying the automatic stay to enforce a post-petition state court judgment directing specific performance by James P. Engels ("Debtor"); to compel Debtor to comply with the post-petition state court judgment requiring Debtor to obtain bankruptcy court approval for the sale of real property; and to compel Debtor (i) to sell certain real property located at 152 Maple Road in Potsdam, New York (the "Property"), pursuant to the terms of a certain asset purchase agreement and (ii) to consummate all transactions related to the same (the "Amended Motion," ECF No. 61).
Debtor filed a Voluntary Petition for chapter 13 relief under Title 11 of the United States Code
On May 16, 2014, during the second year of Debtor's plan, Debtor and Clarkson executed a post-petition asset purchase agreement, wherein Debtor agreed to sell the Property to Clarkson subject to Debtor obtaining bankruptcy court approval of the same (the "APA"). When Debtor failed to obtain this Court's approval of the APA within the time specified by its terms, Clarkson sought and obtained a judgment
Debtor thereafter failed to specifically perform pursuant to the Judgment within the mandated fourteen day period and Clarkson filed the Amended Motion with this Court on October 30, 2014, seeking relief from the automatic stay and an order compelling Debtor to comply with the terms of the APA. The Amended Motion was returnable on the Court's regular motion calendar in Utica, New York on December 9, 2014, and continued on February 10, 2015.
The Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 157(a), and 157(b)(1). This matter constitutes a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (G), and (N).
Between August 2, 1988 and December 20, 2010, Debtor filed eleven Voluntary Petitions for chapter 13 relief and one Voluntary Petition for chapter 7 relief in the United States Bankruptcy Court for the Northern District of New York, all of which were dismissed. Debtor filed the instant Voluntary Petition for chapter 13 relief on March 23, 2012.
On Schedule A of the March 23, 2012 Voluntary Petition, titled "Real Property," Debtor identified an ownership interest in the subject Property, which he valued at $90,000.00 "because Clarkson College [sic] [was] interested in buying the property,"
The Confirmation Order further requires Debtor to pay all allowed claims in full over the sixty month term and identifies taxes owed to St. Lawrence County, the New York State Department of Tax and Finance, and the Internal Revenue Service, totaling $126,149.80 together with statutory interest. The Plan and Confirmation Order do not, however, identify the judgment lien held by the Albert Jakobson Trust against Debtor in the amount of $38,492.83, plus statutory interest. Furthermore, the chapter 13 trustee indicates that there are additional creditors who have not been listed in Debtor's schedules and accordingly, the trustee has a filed a second motion to dismiss or convert for unfeasibility (the "Motion to Dismiss," ECF No. 105), which is being carried pending the Court's issuance of this Memorandum-Decision and Order.
In October 2012, just prior to the filing of Debtor's first amended plan, Debtor's real estate broker, Sandstone Realty, contacted Clarkson to ascertain whether Clarkson would be interested in purchasing the Property. Thereafter, between October 2012 and May 16, 2013, Debtor and Clarkson negotiated the sale of the Property to Clarkson. The Plan was confirmed on January 24, 2013. On or about May 16, 2013, Debtor and Clarkson executed the APA, a post-petition contract for sale, subject to this Court's approval.
The APA provided that Debtor was to sell the Property to Clarkson for $150,000.00 and that Debtor was not to operate his automotive repair business within a certain distance of Clarkson's campus, as defined by the APA, in exchange for a payment of $175,000.00, resulting in total consideration in the amount of $325,000.00. On the date of execution, Clarkson delivered to Debtor a $30,000.00 deposit, which Debtor was to place in escrow until closing.
The APA also provided for the treatment of certain environmental concerns associated with the Property. Debtor was required to remove underground storage tanks from the Property and obtain a Phase I Environmental Site Assessment (the "Phase I Assessment"). Clarkson, at its own expense, was required to obtain a Phase II Environmental Site Assessment (the "Phase II Assessment"), if necessary. The Phase I Assessment revealed petroleum-impacted soil from surface spillage of petroleum product on the property, identified by New York State Department of Environmental Conservation's ("NYSDEC") July 1995 records as Petroleum Spill No. 9505218. Thereafter, Clarkson hired Atlantic Testing Laboratories to conduct the Phase II assessment, which revealed subsurface soil and groundwater petroleum contamination. NYSDEC's
The APA further provided that Debtor would bear the remediation costs unless Clarkson was willing to accept the Property with the outstanding environmental issues, to be credited against the purchase price at closing. On or about December 16, 2013, Clarkson notified Debtor that Clarkson would accept a reduced credit of $50,000.00 against the purchase price to remediate the environmental issues. This agreement resulted in a net purchase price of $265,000.00, less the $30,000.00 deposit, which Debtor had already received.
Debtor did not seek this Court's approval of the APA within fourteen days of its execution, as required by the terms of the APA. As a result, Clarkson commenced an action in state court, seeking specific performance of Debtor's obligation to obtain bankruptcy court approval of the APA and to consummate the transaction. On July 23, 2013, the state court entered the Judgment, thereby sending the parties back to this Court for further adjudication.
Debtor did not comply with the Judgment directing him to file a motion seeking bankruptcy court approval, and although Debtor filed an appeal of the Judgment to the New York State Appellate Division, Third Department, he failed to perfect the appeal
Debtor filed the Pro Se Response on November 25, 2014, requesting an adjournment of the hearing on the Amended Motion scheduled for December 9, 2014, in order to allow Debtor time to seek representation and to obtain a signed stipulation for a stay pending appeal to the New York State Supreme Court, Appellate Division, Third Department. As an exhibit to the Pro Se Response, Debtor attached a letter purportedly mailed to Harris Beach LLC, dated November 12, 2014, wherein Debtor assessed the merits of his case in support of his request for representation in connection therewith. On December 1, 2014, Debtor's counsel of record, Attorney Gruenewald, filed Counsel's Response, wherein he adopted the Pro Se Response and additionally argued that counsel had not negotiated the terms of the APA, counsel had no knowledge of the same at the time of execution, and that the chapter 13 trustee had not approved the APA.
On December 2, 2015, Clarkson filed a letter on the docket, indicating its assumption that Counsel's Response mooted Debtor's request for an adjournment in the Pro Se Response, such that the request was
Debtor thereafter wrote a letter, pro se, to the Court, dated December 3, 2014, opposing Clarkson's request that the Court deny the adjournment of the hearing scheduled for December 9, 2014. (ECF No. 78.) Debtor indicated that while Attorney Gruenewald was counsel of record, Debtor was seeking to retain new counsel given the complexity of the case. Debtor also addressed other issues, including, generally, the subject of Debtor's communications with Clarkson's counsel, a dispute regarding an unrelated judgment, a dispute regarding an unrelated proof of claim, and a dispute regarding estimated remediation costs.
On December 4, 2015, Clarkson filed the Reply Memorandum, wherein Clarkson contended that: (1) Debtor is barred by the doctrines of res judicata and collateral estoppel from re-litigating the issues decided by the state court in issuing the Judgment in opposing the Amended Motion; and (2) that Debtor was free to enter into, post-petition, the APA with Clarkson, absent approval from the chapter 13 trustee, pursuant to § 1303. Further, Clarkson, through the Declaration of Suzanne M. Messer, Esq., opposed Debtor's request for an adjournment on the grounds that Debtor's substantive opposition mooted the request for an adjournment. (ECF No. 76.)
Hearing was held on January 9, 2015, and adjourned until January 13, 2015. On January 12, 2015, Debtor filed the Reply, wherein he requested an adjournment of the hearing scheduled for January 13, 2015 until February 12, 2015. Clarkson consented to the adjournment, and requested that all responsive pleadings regarding the same be filed by January 30, 2015.
On January 30, 2015, Clarkson filed the Supplemental Memorandum, wherein Clarkson reiterated that the APA is a post-petition contract, such that enforcement is not barred by the automatic stay. Debtor did not file anything further.
The Court heard oral argument on the Supplemental Memorandum on February 10, 2015, on which date the matter was fully submitted.
Clarkson primarily seeks relief under §§ 362 and 363,
Clarkson contends that "cause" exists for modification of the stay within the meaning of § 362(d)(1) where Clarkson holds a post-petition Judgment directing Debtor to specifically perform pursuant to
Clarkson argues that Debtor was permitted to execute the APA on May 16, 2013, without the approval of the chapter 13 trustee
Absent Debtor's motion seeking Court approval of the APA, Clarkson maintains that it was permitted to obtain the Judgment directing Debtor's specific performance based on the distinction between actions to obtain a judgment and actions to enforce a judgment. Conner v. Howe, 344 F.Supp.2d 1164, 1172 (S.D.Ind.2004); My Favorite Muffin Too, Inc. v. DK Holdings, Inc. 61 F.Supp.2d 781, 783 (N.D.Ill.1999). Clarkson cites numerous cases for the proposition that the automatic stay does not bar litigation of an action against a debtor based upon a claim that arose after the filing of the petition. See e.g., Conner v. Howe, 344 F.Supp.2d 1164; Turner Broadcasting Sys., Inc. v. Sanyo Elec., Inc., 33 B.R. 996, 999 (N.D.Ga.1983); Acevedo v. Van Dorn Plastic Mach. Co., 68 B.R. 495 (Bankr.E.D.N.Y.1986). Consequently, because Clarkson's state court action sought to obtain judgment on a post-petition claim, but not necessarily enforce it, Clarkson argues that it is not void as a violation of the automatic stay.
The effective relief Clarkson seeks, however, is sought under § 363. Clarkson contends that if the Court finds the APA is the highest and otherwise best offer for the Property, and is in the best interest of creditors pursuant to § 363(b), Debtor must be compelled to comply with the terms of the APA and consummate the transaction pursuant to § 363(f). In support of the requested relief, Clarkson cites a leading bankruptcy treatise for the proposition that "a debtor can be compelled to file a motion to approve a settlement even if the debtor has changed its mind." 10 COLLIER ON BANKRUPTCY ¶ 9019.02A (Alan N. Resnick & Henry J. Sommer, eds. 16th ed.). "The fact that a contract is entered into subject to approval of the bankruptcy court does not create a right of unilateral repudiation pending that approval." Musselman v. Stanonik (In re Seminole Walls & Ceilings Corp.), 388 B.R. 386, 396 (M.D.Fla.2008).
Debtor's opposition to Clarkson's motion is substantively limited on the merits. Notwithstanding Debtor's active participation in this case pro se, neither Debtor nor counsel filed a single memorandum of law in support of Debtor's position. Rather, the record evidences Debtor's repeated requests for adjournment and other delay tactics.
The Court notes that there is no basis to modify the automatic stay if the Court cannot compel a chapter 13 debtor to consummate the sale of property of the estate in the first instance. See 8-1303 COLLIER ON BANKRUPTCY ¶ 1303.03 ("The use, sale or lease of property of the estate by ... the chapter 13 debtor, whether or not in the ordinary course of business, must be consistent with any relief from the automatic stay obtained pursuant to subsections 362(c), (d), (e) and (f)."). While Clarkson contends that sale of the Property is authorized by § 363(b) where such sale is in the best interests of Debtor, his creditors, and the estate, the Court has no sale motion by Debtor and in fact, Debtor opposes the sale. Thus, the primary issue before this Court is whether a bankruptcy court can compel a chapter 13 debtor to sell property of the estate in the absence of a sale motion by Debtor himself.
Section 363(b)(1) provides that "[t]he trustee, after notice and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the state." 11 U.S.C. § 363(b). In determining whether to approve a § 363 sale, the bankruptcy court must make a finding that "the proposed sale is fair and equitable, that there is a good business reason for completing the sale, and that the transaction is in good faith." In re Phoenix Steel Corp., 82 B.R. 334, 335 (Bankr.D.Del. 1987). In a chapter 13 case, however, the right to sell property of the estate is exclusive to the debtor pursuant to § 1303 [which specifically incorporates § 363(b)]. In re Hammons, No. 1050025-C, 2010 WL 3447689, at *2-3, 2010 Bankr. LEXIS 2981, at *6 (Bankr.W.D.Tex. Aug. 27, 2010) (In a chapter 13 case, section 1303 expressly permits a chapter 13 debtor to employ the rights and powers of a trustee under § 363(b), (d), (e), (f), and (l)). This right is exclusive in that the "chapter 13 debtor, rather than the trustee, is the only person with the power to sell such property under the statute." In re Moore, No. DM 15-90015, 2015 WL 1569848, at *1, 2015 Bankr. LEXIS 1284, at *2-3 (Bankr. W.D.Mich. Mar. 30, 2015). "Section 1303[, however,] operates in conjunction with other provisions of the Code, such as ... section 1306[(b)], which gives the debtor the exclusive right to possession of property of the estate, unless a confirmed plan, or order confirming a plan, provides otherwise." 8-1303 COLLIER ON BANKRUPTCY ¶ 1303.01. Thus, a chapter 13 debtor not only possesses the exclusive right to sell property of the estate pursuant to § 1303, but has the exclusive right to possession of the same pursuant to § 1306, unless the plan or order confirming the plan provides otherwise.
In this case, after filing his petition, Debtor, through his real estate broker, contacted Clarkson to solicit the sale of the Property. Debtor and Clarkson negotiated the sale of the Property over the course of several months. On May 16, 2013, after Debtor's plan had been confirmed, Debtor executed the APA, which expressly required bankruptcy court approval of the sale. Thus, while Debtor had the right to execute the APA pursuant to §§ 1303 and 1306, he was limited by the terms of the APA, premised on the Confirmation Order, which provides that "no article of property, real or personal, with any value of more than $2,500.00 may be sold, transferred or otherwise disposed of, without prior order of this court[]." Debtor's right to sell the Property was therefore contingent upon Debtor seeking the approval of this Court. Notwithstanding his acceptance of the $30,000.00 deposit, however, Debtor failed to make such motion.
Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 383 (6th Cir.2001) (internal case citations omitted). Thus, while the state court appropriately decided the validity of the post-petition APA, this Court cannot ignore the state court's failure to consider the implications of § 362(a)(3) in directing Debtor to sell property of the estate. See 11 U.S.C. § 362(a)(3) (the automatic stay applies to any act to obtain possession of property of the estate ... or to exercise control over property of the estate). Accordingly, this Court is not bound by the Judgment as it applies to Debtor's bankruptcy proceedings herein.
Clarkson alternatively argues that this Court may compel debtor to consummate the transaction, relying on both cases and treatises which discuss judicial enforcement of settlements made pursuant to Bankruptcy Rule 9019. Musselman v. Stanonik (In re Seminole Walls & Ceilings Corp.), 388 B.R. 386, 396 (M.D.Fla. 2008) ("The fact that a contract is entered into subject to approval of the bankruptcy court does not create a right of unilateral repudiation pending approval."); In re Metaldyne Corp., 409 B.R. 661, 669 (Bankr. S.D.N.Y.2009); 10-9019 COLLIER ON BANKRUPTCY ¶ 9019.02A ("[A] debtor can be compelled to file a motion to approve a settlement even if the debtor has changed its mind."). While Clarkson contends that Debtor may be compelled to consummate the APA, as if it were a settlement under Bankruptcy Rule 9019, its reasoning is flawed. As the court noted in Seminole Walls & Ceilings Corp., "[t]here is a fundamental
In re Reynard, 250 B.R. 241 (Bankr. E.D.Va.2000) (emphasis added); see First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 177 n. 16 (2d Cir.2004) ("The reality ... under Chapter 13 is that the debtors are the true representatives of the estate and should be given the broad latitude essential to control the progress of their case.") (citing Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513, 515 (2d Cir.1998) (quoting In re Freeman, 72 B.R. 850, 854 (Bankr.E.D.Va.1987)); In re Hudson, 168 B.R. 448, 449 (Bankr.S.D.Ga. 1994); In re Shuman, 122 B.R. 317, 318 (Bankr.S.D.Ohio 1990); In re Woodall, 81 B.R. 17, 18 (Bankr.E.D.Ark.1987).
Absent Debtor's motion seeking approval of the APA, this Court cannot force Debtor to sell property of the estate while he remains in chapter 13. While the Second Circuit has noted that bankruptcy courts must have "broad discretion and flexibility ... to enhance the value of the estates before it," Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), 768 F.3d 239, 246-247 (2d Cir.2014) (quoting Consumer News & Bus. Channel P'ship v. Fin. News Network Inc. (In re Fin. News Network Inc.), 980 F.2d 165, 169 (2d Cir. 1992)), and has emphasized that the "bankruptcy court's `principal responsibility ... is to secure for the benefit of creditors the best possible bid,'" Id. the bankruptcy court cannot exercise such discretion absent a motion by Debtor.
The Court does not condone Debtor's behavior in this case, particularly as a repeat filer, and cautions Debtor with respect to future filings, in the event this case is dismissed. Unfortunately, the outcome of this dispute is mandated by the current state of the law. Accordingly, it is hereby
ORDERED that Clarkson's motion for relief pursuant to §§ 105, 362(d)(1) and 363 is denied.
IT IS SO ORDERED.