Davis, Trustee v. Graves et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
In re:
Mattie M. Graves, Jr.,
Debtor.
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Steven Davis, Ch. 7 Trustee,
Plaintiff,
v.
Mattie and Julius Graves,
Defendants.
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Chapter 7 Proceedings
Case No. 09-15610
Judge Arthur I. Harris
Adversary Proceeding
No. 09-1354
MEMORANDUM OF OPINION 1
This matter is currently before the Court on the motion of the Chapter 7
Trustee (trustee) for summary judgment. At issue is whether the trustee is entitled
to the turnover of $6,000.00 which the debtor, Mattie M. Graves, Jr. (debtor),
1 This Memorandum of Opinion is not intended for official publication.
The court incorporates by reference in this paragraph and adopts as
the findings and orders of this court the document set forth below.
This document was signed electronically on May 21, 2010, which may
be different from its entry on the record.
IT IS SO ORDERED.
Dated: May 21, 2010
_____________________________
Arthur I. Harris
United States Bankruptcy Judge
__________________________________________________________________________________________
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received as part of a postpetition settlement of a prepetition lawsuit. For the
reasons that follow, the motion of the trustee for summary judgment is granted.
FACTS AND PROCEDURAL HISTORY
Unless otherwise indicated the following facts are undisputed. On
June 18, 2009, the debtor filed a voluntary petition under Chapter 7 of the
Bankruptcy Code (Case # 09-15610). The debtor’s spouse and co-defendant in this
adversary proceeding, Julius Graves, did not file for bankruptcy. Steven Davis was
appointed as Chapter 7 Trustee. On December 3, 2009, the debtor received her
discharge.
1. Litigation and Settlement Agreement
On or about July 9, 2001, the debtor obtained a mortgage for $70,200.00
from Aames Funding Corporation on property located at 11915 Corlett Avenue in
Cleveland, Ohio (property). Aames Funding Corporation subsequently assigned
the mortgage. It is unclear from the record how many times the mortgage was
reassigned to a different lender, but eventually the mortgage was assigned to
Deutsche Bank.
In March 2002, Bankers Trust of California commenced a foreclosure action
against the debtor in the Cuyahoga County Court of Common Pleas
(Case # CV 02- 465018). The court ruled against Bankers Trust, finding that
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Bankers Trust could not demonstrate that it was the holder of the mortgage.
On or about November 16, 2005, Deutsche Bank commenced a foreclosure
action against the debtor in the Cuyahoga County Court of Common Pleas
(Case # CV 05-577387). 	On January 3, 2006, the debtor and Julius Graves filed a
counterclaim against Deutsche Bank, Countrywide Home Loans (Countrywide),
and RDM Property Maintenance (RDM).
On July 3, 2009, about two weeks after the debtor filed her voluntary
petition under Chapter 7, the parties entered into a settlement agreement
(agreement). Under the agreement the debtor was to: (1) receive a payment of
$6,000.00, and (2) convey the property to BAC Home Loans Servicing (BAC).
According to the agreement, Deutsche Bank would consider the mortgage paid in
full once the debtor transferred the property to BAC.
2. Current Adversary Proceeding
On October 28, 2009, the trustee filed this adversary proceeding against the
debtor and Julius Graves seeking: (1) a judgment against the debtor in the amount
of $6,000.00, and (2) an order directing Julius Graves to set forth any claim he has
on the $6,000 proceeds from the agreement or forever be barred from making a
claim on the agreement. On February 16, 2010, the trustee filed a motion for
summary judgment. On March 23, 2010, Julius Graves filed a response. The
briefing on the trustee’s motion for summary judgment is now complete, and the
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Court is ready to rule.
JURISDICTION
The Court has jurisdiction over this action. Actions seeking turnover of
property of the estate are core proceedings under 28 U.S.C. § 157(b)(2)(E). The
Court has jurisdiction over core proceedings under 28 U.S.C. § 1334 and 157(a)
and Local General Order No. 84, entered on July 16, 1984, by the United States
District Court for the Northern District of Ohio.
SUMMARY JUDGMENT STANDARD
Rule 56(c) of the Federal Rules of Civil Procedure, as made applicable to
bankruptcy proceedings by Rule 7056 of the Federal Rules of Bankruptcy
Procedure, provides that a court shall render summary judgment:
if the pleadings, depositions, answers to interrogatories, and admissions on
file together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a
matter of law.
The party moving the court for summary judgment bears the burden of showing
that “there is no genuine issue as to any material fact and that [the moving party] is
entitled to judgment as a matter of law.” Jones v. Union County, 296 F.3d 417,
423 (6th Cir. 2002). See generally Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). Once the moving party meets that burden, the nonmoving party “must
identify specific facts supported by affidavits, or by depositions, answers to
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interrogatories, and admissions on file that show there is a genuine issue for trial.”
Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997). See, e.g., Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 252 (1986) (“The mere existence of a scintilla of
evidence in support of the plaintiff’s position will be insufficient; there must be
evidence on which the jury could reasonably find for the plaintiff.”). In
determining the existence or nonexistence of a material fact, a court will review the
evidence in a light most favorable to the nonmoving party. See Tennessee
Department of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466,
1472 (6th Cir. 1996).
DISCUSSION
A. $6,000.00 Settlement as Property of the Estate
Before addressing the trustee’s motion for turnover the Court must first
determine whether the $6,000.00 that the debtor received as part of the agreement
is property of the estate. The trustee is only entitled to a turnover of property
which is part of the debtor’s bankruptcy estate. See In re Osterwalder,
407 B.R. 291, 294 (Bankr. N.D. Ohio 2008) (“Thus, although not specifically
stated in § 542, fundamental to the concept of ‘Turnover’ is that the asset to be
turned over must be property of the debtor’s bankruptcy estate.” (citing In re
Bracewell, 454 F.3d 1234, 1243 (11th Cir. 2006))). Section 541 of the Bankruptcy
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Code defines “property of the estate.” Subject to a few, specifically enumerated
exceptions, the estate consists of all legal and equitable interests in property a debtor
has at the commencement of a Chapter 7 case. See 11 U.S.C. § 541.
The Sixth Circuit has held, “the scope of section 541(a)(1) is broad,
includes tangible and intangible property, and allows the bankruptcy ‘trustee to
regain possession of property in which the debtor had equitable as well as legal
title.’ ” Demczyk v. Mutual Life Ins. Co. (In re Graham Square), 126 F.3d 823, 831
(6th Cir. 1997) (quoting United States v. Whiting Pools, 462 U.S. 198, 204 (1983)).
Relying on the broad language of section 541, many courts have held that the
debtor’s interest in a cause of action is property of the estate. See Cottrell v.
Schilling (In re Cottrell), 876 F.2d 540, 542 (6th Cir. 1989); Sierra Switchboard
Co. v. Westinghouse Electric Corp., 789 F.2d 705, 707 (9th Cir. 1986) (“The scope
of section 541 is broad and includes causes of action.”); Tignor v. Parkinson, 729
F.2d 977, 981 (4th Cir. 1984) (“The debtor’s claims for injuries to the person,
whether unliquidated as when the petition was filed, or settled as occurred during
the proceeding, are thus property of the bankrupt estate”). Courts have also held
that proceeds from a settlement of a cause of action are property of the estate. See
Wischan v. Adler (In re Wischan), 77 F.3d 875, 877 (5th Cir. 1996) (“The fact that
the causes of action may have borne fruit in settlement or judgment after
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commencement of the bankruptcy case does not transform them into post-petition
property of the debtor – excluded from the bankruptcy estate.”); In re Wiley, 184
B.R. 759, 765 (N.D. Iowa 1995); Walro v. Striegel (In re Striegel),
131 B.R. 697 (S.D. Ind. 1991); In re Robinson, 292 B.R. 599, 606 (Bankr. S.D.
Ohio 2003); Doucet v. Cooper (In re Cooper), 263 B.R. 835, 837 (Bankr. S.D.
Ohio 2001) (“Prepetition personal injury claims, as well as the settlement proceeds
from such claims are property of the bankruptcy estate.”).
In November 2005, Deutsche Bank initiated a foreclosure action. On
January 3, 2006, the debtor and Julius Graves filed a counterclaim against
Deutsche Bank, Countrywide, and RDM. On June 18, 2009, the debtor filed for
Chapter 7 bankruptcy protection. A few weeks later, on July 3, 2009, the parties
reached a settlement resolving both the foreclosure action and the counterclaim.
As part of the settlement the debtor received $6,000.00. The agreement states that
the $6,000.00 was to be paid to the debtor. Julius Graves was not listed as a
recipient of any part of the $6,000.00. The trustee asserts the settlement proceeds
are property of the estate. Based on the broad scope of section 541 of the
Bankruptcy Code, and the relevant case law the Court finds that the $6,000.00 the
debtor received as part of the agreement is property of the bankruptcy estate.
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B. Turnover of the Settlement Proceeds to the Trustee
The trustee seeks an order directing the debtor to turnover the $6,000.00 she
received as part of the agreement pursuant to 11 U.S.C. § 542(a) . Section 542(a)
provides in pertinent part:
(a) 	an entity, other than a custodian, in possession, custody, or
control, during the case of property that the trustee may use, sell, or lease
under section 363 of this title, or that the debtor may exempt under section
522 of this title, shall deliver to the trustee, and account for, such property
or the value of such property, unless such property is of inconsequential
value or benefit to the estate.
The plain language of § 542(a) is clear that subject to a few, specifically
enumerated exceptions a party holding valuable property of the debtor’s bankruptcy
estate that is not exempt under § 522 must surrender the property to the trustee.
See In re Osterwalder, 407 B.R. at 294 (citing Whiting Pools, Inc., 462 U.S. at
202-03); French v. Johnson (In re Coomer), 375 B.R. 800, 803 (Bankr. N.D. Ohio
2007).
The Court has determined that the $6,000.00 the debtor received as part of
the agreement is property of the estate. The debtor has not claimed the $6,000.00
as exempt. Accordingly, the trustee is entitled to an order directing the debtor to
turnover $6,000.00.
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C. Defenses of Mattie and Julius Graves
In his pro se response to the trustee’s motion for summary judgment,
defendant Julius Graves raises a number of arguments, none of which is sufficient
to defeat the grant of summary judgment in favor of the trustee. For example, the
fact that Julius Graves paid legal fees in connection with the litigation that gave
rise to the agreement is irrelevant. Once Mattie and Julius Graves agreed that the
litigation would be settled with a $6,000.00 payment to Mattie Graves, Mattie
Graves could no longer argue that the $6,000.00 proceeds was not property of her
bankruptcy estate. Also irrelevant to the issue of summary judgment is the claim
that Mattie Graves’s bankruptcy attorney had told her that she could keep any
proceeds under $10,000. Mattie Graves has not claimed any exemption with
respect to either the real property located at 11915 Corlett Avenue or the
counterclaim in the state foreclosure case that gave rise to the $6,000 proceeds.
Therefore, any theoretical claim of exemptions is not properly before this Court.
CONCLUSION
For the reasons stated above, the trustee’s motion for summary judgment is
granted. The Court holds that the defendant Julius Graves has no claim or interest
in the $6,000.00 proceeds, and the debtor is ordered to turnover $6,000.00 to the
trustee within 21 days of the date of the Memorandum of Opinion. Each party
shall bear its own costs and attorney’s fees.
IT IS SO ORDERED.
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