Wednesday, December 14, 2011

Recent Decisions Regarding Bankruptcy & Foreclosure in the 1st Circuit (December 2011) Part 2 of 4

District court would not allow debtor to pursue pre-petition claims that she had not scheduled on her bankruptcy petition, as they were property of the estate that had not been disclosed or formally abandoned by the Chapter 7 trustee:

ROGGIO v. CITY OF GARDNER, 2011 U.S. Dist. LEXIS 141121 (D. Mass. 12/8/2011)(F. Dennis Saylor, IV, District Judge).
MEMORANDUM AND ORDER ON PLAINTIFF CALLIE ROGGIO'S MOTION THAT DISMISSAL OF HER CLAIMS BE WITHOUT PREJUDICE:  This is a civil action involving alleged privacy rights violations. Plaintiffs Victor and Callie Roggio allege that defendants improperly conspired to access and disseminate Mr. Roggio's criminal record from a federal computer database. Plaintiff Callie Roggio filed for bankruptcy after the claims asserted in this proceeding arose. In her schedule of assets and liabilities in that proceeding, she failed to list those claims. The bankruptcy case was eventually closed without the trustee ever having been made aware of the claims, as required by 11 U.S.C. § 521(a)(1). This Court ordered those claims to be dismissed after Mrs. Roggio failed to demonstrate that the claims were not part of the bankruptcy estate and that she had standing to assert them.

Callie Roggio now moves that the dismissal of her claims be without prejudice. For the reasons stated below, the Court will deny the motion.  On March 30, 2011, on motions to dismiss filed by the defendants, this Court stayed all claims asserted by Mrs. Roggio. The basis for the stay was that the claims were not included in Mrs. Roggio's schedule of assets in the Chapter 7 proceeding and so were not abandoned by the bankruptcy trustee at the conclusion of that case. See
11 U.S.C. § 554(d). Although Mrs. Roggio therefore lacked standing to pursue her claims, the Court stayed the action instead of dismissing it to give her an opportunity to correct her error with the Bankruptcy Court and to seek authority to pursue the claims herself once they were determined to be abandoned by the estate.

In response to the Court's order, Mrs. Roggio filed an affidavit of Peggy E. Stalford, the former trustee of the bankruptcy estate. Ms. Stalford affirmed that the lawsuit against the FBI had been disclosed in the schedule of assets and that she, as bankruptcy trustee, decided not to pursue the claim. Ms. Stalford also stated that had the present case "been disclosed among the debtor's assets, [she] would have likewise declined to pursue the claim." Finally, she proffered that "[e]ven if the debtor's case were reopened for the purpose of scheduling the claims, [she] would not engage counsel to prosecute" them.

After filing Ms. Stalford's affidavit, Mrs. Roggio filed a submission requesting that this Court lift the stay on her claims. Defendants City of Gardner and Grasmuck filed a response in opposition, arguing that the affidavit and submission do not comply with the March 30 order because they do not demonstrate "authority from the Bankruptcy Court" to pursue the claims. On September 16, 2011, this Court issued an order holding that the affidavit and submission were insufficient to demonstrate that the claims had been abandoned by the bankruptcy estate to Mrs. Roggio, and her claims were dismissed for lack of standing.  A debtor must identify all assets, including contingent claims, in a bankruptcy petition, and must amend the relevant schedules if necessary.
11 U.S.C. § 521(a)(1); Jeffrey v. Desmond, 70 F.3d 183, 186 (1st Cir. 1995).   Mrs. Roggio learned of the present claims no later than two weeks after the filing of the bankruptcy petition, but failed to list the claims or amend her schedules. Mrs. Roggio was certainly put on notice that the claims had not been properly scheduled when defendants filed their motion to dismiss on June 29, 2010, but again failed to seek to reopen the bankruptcy proceeding. Finally, March 30, 2011, this Court issued an order permitting Mrs. Roggio to seek authority from the Bankruptcy Court to pursue the claims. Again, she failed even to attempt to reopen the bankruptcy proceeding. Thus, despite having multiple opportunities to properly schedule her claims, Mrs. Roggio has not done so.
Any legal system has to operate by a series of rules, to promote the just and orderly handling of matters and to reduce unnecessary expense and delay. Mrs. Roggio broke the rules of the Bankruptcy Court when she failed to list her claims as an asset. She was given opportunities to revisit the matter and set it right, but failed to do so. At some point, enough is enough.  For the foregoing reasons, plaintiff Callie Roggio's motion that dismissal be without prejudice is DENIED.

Mass. District court allowed Pension Plan to recoup against Chapter 7 debtor’s future pension payments for pre-petition over-payments, even though pre-petition judgment for over-payments was discharged:

PLAN, 2011 U.S. Dist. LEXIS 136514 (D. Mass. 11/28/2011)(Denise J. Casper, District Judge).
MEMORANDUM AND ORDER:  Celi brings this action against the Pipefitters Local 537 Pension Plan (the "Plan") and the Trustees of the Pipefitters Local 537 Pension Plan ("Trustees") (collectively, "Defendants"), under the ERISA and the Declaratory Judgment Act seeking a declaratory judgment that the Fund is improperly recovering prior overpayments of disability benefits through a monthly reduction of his retirement benefits. The Defendants and Celi have now both moved for summary judgment. For the reasons set forth below, the Defendants' motion for summary judgment is GRANTED and Celi's motion for summary judgment is DENIED.

DISCUSSION: Celi is a pipefitter by trade. In October 1990, Celi became disabled due to a back injury sustained while working as a pipefitter. In November 1991, he applied for a "Total and Permanent Disability Pension" under the Plan. The Plan entitles an eligible participant found to be "totally and permanently" disabled to retire on a "Total and Permanent Disability Retirement" pension. In February 1992, the Plan approved Celi's application for disability benefits. In July 1993, the Trustees sent a notice to all disability pensioners, including Celi, informing them that disability pension payments would be discontinued if they returned to work or had sufficiently recovered from their disability so that they were able to return to any gainful employment and it further requested each recipient to notify the Trustees if he or she was currently employed, noting that not all employment would necessarily disqualify a recipient from receiving a disability pension. In January 1994, without notifying the Fund, Celi began to work as a real estate agent. In July 1995, the Trustees became aware of Celi's employment and terminated his disability pension on the basis that he was no longer totally and permanently disabled. Celi appealed the termination and after a hearing before the Trustees in October 1995, the Trustees denied Celi's appeal.

In February 1996, Celi brought an action in this Court against the Fund and the Trustees claiming, among other things, that the Trustees' termination of his disability pension violated the terms of the Plan. The Fund counterclaimed for restitution of the disability pension benefits in the amount of $24,310.50 it had overpaid Celi. Id. On July 28, 1997, after a bench trial, the Court (O'Toole, J.) upheld the Trustees' decision and ordered that judgment be entered for the Fund in the amount of $26,273.41 ($24,310.50 plus prejudgment interest).

Five months later, Celi and his wife filed for Chapter 7 bankruptcy. On March 18, 1998, the Fund filed a "proof of claim" in the bankruptcy proceeding for the amount of the judgment awarded by this Court on July 28, 1997. In connection with its proof of claim, the Fund asserted a "right of recoupment of overpayments made incorrectly" to Celi which the Fund stated was approved by the Court from Celi's vested, beneficial interest in the same Plan or, in the alternative, "a right to setoff." Celi filed an objection to Defendants' proof of claim. On June 23, 1998, the bankruptcy court ordered that all Celi's dischargeable debts be discharged. (bankruptcy court's discharge order)). The bankruptcy court held a hearing on September 9, 1998 on Celi's objection to the Fund's proof of claim and issued an order stating that "[t]he Court abstains from further consideration, with the parties' rights fully reserved, since this is a no asset case and the res in dispute is not property of the estate."  Celi did not appeal this order.

More than ten years later, in January 2009, Celi contacted the Fund to inquire about applying for a pension under the "Normal Retirement" provisions of the Plan. On February 18, 2009, the Fund notified Celi that he owed the Fund $49,075.10 and that if he did not repay the Fund before he began receiving retirement pension payments, the Fund would recoup that amount by deducting 20% of each monthly pension payment until the entire amount was satisfied.

The complaint seeks declarations pursuant to the Declaratory Judgment Act that the Trustees' reduction of Celi's pension benefits is barred by the bankruptcy discharge and that he is entitled to unreduced monthly retirement pension payments. By its express language, section 5.9(d) authorizes the Fund to recoup overpayments of pension payments by reducing future retirement payments by up to 25 percent where a participant receives benefits under the Plan to which he is not entitled. That is precisely what the Fund did here.

The Fund's Right to Recoup the Overpayments Was Not Discharged or Otherwise Affected by the Bankruptcy Proceeding:  Celi argues that since Defendants' unsecured judgment for $26,273.41 from this Court in Celi I, was subsequently discharged per the bankruptcy court's discharge order, their claim to recover disability pension overpayments is forever extinguished.

As both parties acknowledge, the First Circuit has recognized a creditor's right to recoup pre-bankruptcy petition overpayments from post-petition obligations to a debtor. In this Circuit, recovery of overpayments constitute transactions in the "nature of recoupment," unaffected by bankruptcy proceedings, if the debt owed to the creditor arises out of the "same transaction" as the debt the creditor owes the debtor. Here, the debt Celi owes the Fund (overpayments of disability pension) and the debt the Fund owes Celi (retirement pension payments) arise out of the same contract - the Plan. The bankruptcy discharge order did nothing to alter that right.
To find that Celi should retain payments not due to him under the Plan due to bankruptcy proceedings would frustrate the purpose of ERISA, namely "protect[ing] the interest of employees by ensuring that they receive[] the pension benefits to which they [are] entitled,", not Celi, who improperly received disability pension overpayments which the Fund is attempting to recoup.

Debtor’s discharge denied due to transfer made to hinder and delay (but not defraud) creditor:

(In re: McCRORY) SACHUK v McCRORY, 2011 Bankr. LEXIS 4666 (Bankr. D.R.I. 11/29/2011)(Arthur N. Votolato, Bankrutpcy Judge).
DECISION AND ORDER DENYING DISCHARGE: Heard on Sachuk’s Complaint to Deny Debtor’s Discharge. Sachuk alleges that under 727(a)(4)(A), discharge should be denied on the grounds that: (1) McCrory knowingly and fraudulently made a false oath in not disclosing a 26 foot 1987 Thompson power boat as "Property Held for Another Person" in his Statement of Financial Affairs; and (2) under 727(a)(2)(A) for transferring the boat to his son with "intent to hinder, delay or defraud" the Plaintiff.

Sachuk relies on McCrory's Statement of Financial Affairs as proof that the false oath was made knowingly and fraudulently. Question 14 plainly asks for a list of "all property owned by another person that the debtor holds and controls." McCrory did not disclose the boat which he transferred to his son but which remained on his (McCrory's) property. Interestingly, McCrory did disclose rental security deposits held in the names of tenants. Under cross-examination, McCrory stated that he did not "hold title" to the boat as the reason why he did not list the boat in response to Question 14 in the Statement of Financial Affairs. The disclosure of the rental security deposits is compelling evidence that McCrory understood the difference between ownership (as represented by title) versus possession and control. Further, as McCrory is a former Realtor, it would be naive to buy the assertion that he does not understand the distinction between ownership and possession. This contention is, at best, disingenuous, along with most of McCrory's sworn testimony. As to all of his relevant testimony, McCrory is not credible, and this Court thus has no difficulty in finding the answer to Question 14 to constitute a false oath.

It is also clear that the false oath concerned a material matter. A matter is material if it "bears a relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of property," and the transfer of property within one year of the bankruptcy filing is material, as it concerns the "existence and disposition of property."

In response to the allegation that he acted with fraudulent intent, McCrory references Question 3 of the same Statement of Financial Affairs in which he listed the transfer of the boat to his son "in partial satisfaction of debt," and states that, if he were attempting to hide the existence or disposition of property, it is unlikely that he would have listed the boat in the same document. In short, he argues that although the answer to Question 14 is a false statement related to a material matter, it is unclear whether that oath was made knowingly and fraudulently. Because the same relief (i.e., denial of discharge) is sought in Count II, where the fraudulent intent is clear, it is not necessary for this Court, for purposes of Count I, to determine whether McCrory's false oath in Question 13 was knowing and fraudulent.

In Count II, Sachuk claims that McCrory's transfer of the boat to his son was done with intent to hinder, delay "and or defraud," and as such was a violation of
11 U.S.C. § 727(a)(2)(A). The First Circuit Bankruptcy Appellate Panel ("BAP") has held that to deny discharge under 727(a)(2)(A), the movant must prove four elements by a preponderance of the evidence:
1) the debtor transferred, removed, concealed, destroyed or mutilated,
2) his or her property,
3) within one year of the bankruptcy petition's filing,
4) with the intent to hinder, delay or defraud a creditor.
The first three elements are not in dispute. The fourth element "must be read in the disjunctive;" where there is intent to hinder or delay a creditor, 727(a)(2) "does not require a finding of intent to defraud." The issue, as Sachuk's counsel correctly points out, is whether McCrory made the transfer with intent to hinder or delay Sachuk. It is not necessary for the court to find an intent to defraud. Such intent must be actual, but can be inferred "from the facts and circumstances surrounding [the debtor's] actions and the trier of fact is not required to rely on a hypothetical crystal ball to divine McCrory's intent. Instead, he or she may draw real inferences from real evidence. In Barry, Judge Boroff considered several factors (or, "badges") to determine whether the debtor intended to hinder or delay creditors. Barry, 431 B.R. at 540. These factors include:
(1) whether the transaction is conducted at arms-length;
(2) whether the debtor is aware of the existence of a significant judgment or overdue debt;
(3) whether a creditor is in hot pursuit of its judgment/claim and whether the debtor knows this; and
(4) the timing of the transfer, relative to the filing of the petition.
In this Court's opinion, all four badges point inescapably to the intent to hinder or delay. It is worth noting, as well, that "while just one of the 'badges' of intent to impermissibly hinder or delay is sufficient for §727(a)(2) purposes, 'the accumulation of several factors indicates strongly that [a] debtor possessed the requisite intent.'"

McCrory's transfer of the boat to his son in partial satisfaction of an obligation for which the son was not pressing for payment, and then selling the boat to a third-party on behalf of the son, while Sachuk was being frustrated at every turn in his attempt to collect from McCrory, is itself more than sufficient evidence. However, when viewed in the context of McCrory's other actions (transferring the Florida home to one son, then taking it back shortly thereafter, failing to seek financing until the eleventh hour, after having been specifically ordered to do so by the Family Court), as well as his transparent and consistent lack of candor while testifying before this Court, the finding that McCrory intended to hinder and delay Sachuk is a no brainer.  In summary, I find that McCrory transferred the boat to his son four months prior to filing bankruptcy with the intent to hinder or delay Sachuk's collecting a $60,000 judgment. As stated earlier in this opinion, because the same relief is sought in Count I, it is not necessary to rule on the 727 (a)(4)(A) issue. On Count II, because McCrory violated
§ 727(a)(2)(A), discharge is DENIED.

Creditor’s Proof of claim denied as to most counts due to lack of proof:

(In re KEVEN A. MCKENNA)MCKENNA v. STONE, 2011 Bankr. LEXIS 4690 (Bankr. D.R.I 12/2/2011)(Arthur Votolato, Bankruptcy Judge).
DECISION AND ORDER RE: TRUSTEES' OBJECTIONS TO STONE’S CLAIMS:  Heard on the Trustees'/Plaintiffs' Complaints objecting to the validity and amount(s) of multiple proofs of claim ("POC") filed by Defendant, Sumner D. Stone, in both the corporate ("P.C.") and the individual Keven A. McKenna ("McKenna") cases. On May 4, 2011, the United States Trustee's (the "UST") Motion to Convert the individual case to Chapter 7 was granted, for cause, on the ground that McKenna failed to file a confirmable reorganization plan within the applicable time limits. Thereafter, Lisa A. Geremia, Esq., was appointed Chapter 7 Trustee in the individual case. On July 22, 2011, the adversary proceedings were consolidated and A.P. No. 10-1069 was designated as the lead case. The appointment of a Chapter 11 trustee, on a close call, was in-lieu-of granting the UST's alternative request to convert the corporate case to Chapter 7. Both trustees have continued to prosecute their objections to Stone's claims.

In late 2008, Stone was hired by McKenna as an "at-will employee" to perform paralegal services for P.C., McKenna's law practice. When his employment with the McKenna entities ended on March 30, 2009, Stone filed for Workers' Compensation benefits, alleging that "he suffered an injury in the workplace on March 30, 2009 that resulted from an assault by his employer [McKenna or P.C.]." The Workers' Compensation Court ("WCC") found that Stone sustained a work related injury resulting in partial incapacity, that P.C. had no insurance coverage on March 30, 2009, and that the Workers' Compensation award of benefits and attorney's fees had not been paid. Instead of making arrangements to pay Stone, McKenna on behalf of P.C. and individually, filed numerous pleadings in the WCC, lawsuits in the state courts, and eventually the bankruptcy cases and adversary proceedings in this Court.  The Chapter 11 trustee filed a motion to compromise Stone's Workers' Compensation litigation which was approved on July 8, 2011. In that compromise Stone was awarded $33,173.39 in weekly benefits payable from March 30, 2009 through April 29, 2011, medical expenses of $5,881, and settled all future benefit claims for $1.00. It also awarded Stone's Workers' Compensation attorney fees in the amount of $21,000. Before the settlement, Stone had filed proofs of claim for such benefits in both bankruptcy cases, but the parties agree that such claims are now moot, and not being litigated in this action. Stone filed claims totaling $677,263 in P.C., and claims of $642,450 in McKenna's individual case. Many of the claims are identical, e.g., Claim 5-1 in the individual and Claim 6-1 in P.C., and Stone concedes that in such instances he does not seek double recovery. Stone's claims fall into four general categories: (1) a claim for unpaid wages: (2) claims arising from defamatory statements made or published by McKenna; (3) actions for abuse of process; and, (4) a general claim for damage resulting in loss of equity after the foreclosure of rental property formerly owned by Stone. Stone failed to present specific evidence or documentation to support any of his claims.

WAGES: The evidence is that Stone has a maximum wage claim for $2,000.

DEFAMATION: Defamation is a state law cause of action, and in Rhode Island the elements of this tort are: (1) a false and defamatory statement concerning a person; (2) unprivileged publication to a third party; (3) fault on the speaker's part that is at least negligent; and (4) damages. Hence, the "'basic federal rule' in bankruptcy is that state law governs the substance of [such] claims." Since "the burden of proof is an essential element of the claim itself; one who asserts a claim is entitled to [and, more accurately, bears] the burden of proof that normally comes with it." Consequently, under the Supreme Court's ruling in Raleigh, Stone has the burden of proof on each element of his claim for defamation, as he would in the state courts.  Stone also testified that McKenna had expressed criticism of his (Stone's) paralegal skills to other attorneys, precluding him from getting work. But Stone was unable to identify anyone who denied him work based on McKenna's comments, and offered no evidence as to damages resulting from McKenna's disparaging remarks.

ABUSE OF PROCESS: Stone's claims for damages for abuse of process are, like defamation, based on state law and, again, Stone has the burden of proof as to both the validity and amount of claims filed under this theory. "In order to prove abuse of process, a plaintiff must demonstrate: (1) that 'the defendant instituted proceedings or process against the plaintiff'" and (2) that "the defendant used these proceedings for an ulterior or wrongful purpose that the proceedings were not designed to accomplish."  Stone's testimony on this theory also fails for lack of specificity, harping on the multiplicity of legal proceedings which have consumed he and McKenna since 2008. Basically, he asks the Court to find that such a large number of proceedings, in and of itself, establishes that McKenna had a wrongful purpose, but offers no support for that proposition, other than the level of acrimony that has existed throughout his relationship with McKenna. While McKenna's jousting with the Rhode Island Workers' Compensation system has a clearly Quixotic character, Stone has not shown that those proceedings were instituted for any ulterior motive directed to accomplish a wrongful purpose toward him.

CONSEQUENTIAL DAMAGES: These claims are the most amorphous that Stone has filed.  As to the grounds, Stone contends that his loss, through foreclosure, of a rental property in East Providence in May 2010, and an alleged resulting loss of equity in the property of around $100,000, is attributable to McKenna. This claim includes legal fees that were incurred by the bank when it initiated foreclosure proceedings, but how all that ends up as McKenna's responsibility is not explained.
As to all of his claims discussed above, Stone alleges many things, blaming all of his misfortune on McKenna, then leaves it in the lap of the Court to sort through the rhetoric, to determine if there is any substance to his accusations. Causation and foreseeability are still probably the first legal terms explained to students during their first days in law school. Mr. Stone has completely bypassed these and all other legal and factual hurdles in his quest for "justice."

Stone also filed claims under Rhode Island's crime victim compensation statute, R.I. Gen Laws § 9-1-2, but presented no information of any result or disposition of those claims. Without such evidence, those claims are waived, or, to the extent they may somehow be in the record, Stone has failed to carry his burden of persuasion on any claim brought under that statute.

CONCLUSION:  Except for his wage claim, there is no evidence that Stone holds a valid claim against either bankruptcy estate, and his testimony was merely a long ipse dixit, proving nothing except how much these men dislike one another.

McKenna's irresistible and signature impulse to issue bombastic statements and pleadings, neither adds to nor takes away anything from the merits of the McKenna/Stone disputes, and they in no way affect our legal analysis or otherwise have any impact on this decision. So, for the reasons expressed above, Stone's claim for unpaid wages is ALLOWED in the amount of $2,000, and his other claims are DISALLOWED.

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