Richard Lamar Burkhart

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 7
R ICHARD L AMAR B URKHART 	:
Debtor 	: 	Case No. 05-28300 (JKF)
________________________________
MEMORANDUM OPINION
This matter is before the court on the Joint Motion of Interim Capital (“Interim”)
and Christine C. Shubert, Chapter 7 Trustee, for Approval of Stipulation Regarding
Release of Funds (the “Motion”). For reasons discussed in open court at the hearing
on the Motion on November 7, 2006 and in the Order memorializing that hearing, the
Motion is granted but only if and to the extent that it ultimately is determined Interim is
entitled to the funds. The purpose of this Memorandum is to address the arguments
and related motions raised by the Debtor at and subsequent to the November 7th
hearing.
Richard Lamar Burkhart (the “Debtor”) filed for protection under Chapter 7 of the
Bankruptcy Code on October 14, 2005. The Debtor’s Schedule A lists his residence at
360 Watersedge Drive in Lancaster, Pennsylvania (the “Property”). On May 24, 2006,
and pursuant to an Order of this court, the Property was sold and, after payment of
expense and certain secured claims, $175,619 was left from the sale. By order of the
court, these funds have been held in an interest bearing account by the Trustee since
that time and are currently worth approximately $176,052 (the “Sale Proceeds”).
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Interim Capital is successor-in-interest to a judgment against the Debtor and in
favor of Citizens Bank of Pennsylvania entered on July 8, 2005 in the amount of
$1,562,155 plus accrued and accruing interest (the “Judgment”), which Judgment is a
lien against the Property and against other property of the Debtor and/or the estate.
The Trustee and Interim reached an agreement providing for release of a portion
of the Sale Proceeds currently being held by the Trustee to Interim in exchange for a
carveout for the estate. This agreement is codified in a Stipulation, which the Trustee
and Interim sought to have approved by the Court via the Motion. The Stipulation calls
for the release of the Sale Proceeds to Interim, less a carveout of $34,800 for the
benefit of the estate. In exchange, the Trustee agrees to waive any claims against
Interim that the estate may have under 11 U.S.C. §506(c) and the interest accruing on
the Judgment would be marginally reduced.
The Debtor filed an “Answer” to the Trustee and Interim’s Stipulation on
September 26, 2006, denying what the Debtor saw to be allegations contained in the
Motion and asserting “Affirmative Defenses.” Paragraphs 3 through 6 of Debtor’s
Affirmative Defense state, in relevant portion:
Trustee is not holding the proceeds as Property of Debtor’s, but only as
the Custodian of the funds pending the resolution of an issue as to
whether Interim Capital must liquidate or otherwise “marshal” its security
on a commercial property at 1590 Manheim Pike by selling or otherwise
valuing that premises which is held in equal shares as Tenants in
Partnership by Debtor and his parents, before the funds placed in escrow
are distributed… in the event the Joint Stipulation is approved without
either the Trustee abandoning or Interim Capital “marshaling” the
Manheim pike property, Trustee would potentially receive a “windfall” by
receiving Debtor’s partnership share if and when the Manheim Pike
commercial property is sold.
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The Debtor’s subsequent pleadings related to this matter make similar
arguments. On October 19, 2006, the Debtor filed two pleadings: a Motion for an
Expedited Hearing and to Limit Notice and a Motion for Temporary and Preliminary
Injunction. The former motion seeks an expedited hearing on the later motion. The
Motion for Temporary and Preliminary Injunction (the “Motion for Injunction”) argues
that the Stipulation by the Trustee and Interim is “an attempt to circumvent the rights
and protections of the Pennsylvania Deficiency Judgment Act (the “DJA”) given to
Debtor by depriving him of his rights and benefits of the Fair Market Value in the
Manheim Pike Premises prior to exercising its rights against him as Guarantor.” (Mtn,
¶13). The Motion for Injunction asks the Court to enjoin Interim from both proceeding
against the Sale Proceeds until Interim establishes a deficiency judgment under the
DJA and from proceeding with the Stipulation. The Motion for Injunction also asks the
Court to prohibit Interim from pursuing the Debtor for any deficiency without first
complying with the DJA.
On October 23, 2006, the Debtor’s Motion for Injunction was denied without
prejudice by this Court, as injunctions must be sought by means of an adversary
proceeding. On October 31, 2006, the Debtor and his spouse filed an adversary
proceeding (06-02276) seeking injunctive relief. On November 1, 2006, the Debtor filed
a “Motion for Continuance of Hearing Scheduled for November 7, 2006 on the Joint
Motion Filed by Interim Capital LLC and Christian C. Shubert, Chapter 7 Trustee, for
Approval of Stipulation Regarding Release of Funds” (the “Motion for Continuance”).
The Motion for Continuance asks for the hearing on the Motion regarding the Joint
Stipulation to be continued “indefinitely” due to the fact that the Debtor and his wife are
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currently residing in California (due to their work) and cannot easily afford to travel back
to Pennsylvania to participate in hearings. (Mtn. Pg.3).
Because this was the Debtor’s second request for a continuance, the Court was
willing to hear from him telephonically and because it was apparent that a final
resolution of the Stipulation was unlikely at this time, the Court determined to proceed
with the hearing in order to hear from counsel on the issues. The hearing on the Motion
was lengthy and the Court heard and considered arguments from the Trustee and her
counsel, Interim’s counsel, and Debtor’s counsel. For reasons stated and discussed on
the record - primarily to avoid the loss of the carveout and because, since money is
fungible, the Court was able to authorize the release of the funds while still reserving
and protecting all of Debtor’s arguments about and possible rights in the Sale
Proceeds - the Court approved the Stipulation agreed to by the Trustee and Interim, if
and only to the extent it is later determined that the Sale Proceeds properly belong to
Interim and that the DJA is in no way violated by the distribution of these funds. The
Court made clear that, pursuant to the Debtor’s objections, it was expressly not
determining that the Sale Proceeds were owed to Interim. Such a determination is left
for a later date, to be made in connection with the sale of the Manheim Pike property
and any DJA action necessary in connection with that sale.
Following the November 7th hearing, the Debtor’s counsel continues to argue
both that the Debtor’s rights are being violated by the Stipulation and that he does not
“recall ever receiving Notice of the Grant or Denial of my Motion for Expedition or a
ruling on my Motion for a Continuance.” (Letter to the Trustee, dated November 10,
2006).
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To the extent that the Court has not explicitly ruled on the Debtor’s Motion for an
Expedited Hearing and to Limit Notice and Motion for Continuance of Hearing
Scheduled for November 7, 2006, they are hereby both denied for several reasons.
First, the Motions ask for contradictory relief. One asks for immediate attention to this
matter; the other asks for the hearing on the subject to be postponed “indefinitely.”
(Mtn for Continuance, pg.3). Second, neither the Motion for an Expedited Hearing nor
the Motion for Continuance states colorable grounds for relief. There is no longer a
need for an expedited hearing on Debtor’s Motion for Injunction, as that Motion was
considered (and denied) by the Court by virtue of its ruling on November 7, 2006.
The Motion for Continuance states that the Debtor will be prejudiced due to the
fact that he was unable personally to participate in the November 7th hearing in
Pennsylvania. The Court finds this argument unpersuasive. The Debtor was ably
represented by the counsel of his choice at that hearing, there was no need for
testimony, and the Debtor was authorized to participate telephonically in the hearing.
The Debtor was thus allowed to make any and all arguments against the Stipulation,
and he cannot credibly now assert that he was prejudiced by his being in California at
the time of the hearing on the Motion. Neither does the fact that the Court may not
have explicitly denied each Motion of the Debtor prior to ruling on the Motion for entry of
the Stipulation mean that the Debtor did not receive a fair hearing. The record makes
clear that the Court heard and considered all arguments prior to ruling on this matter.
As explained at length during the hearing on November 7th, in provisionally
granting the Motion and approving the Stipulation, the Court ensured that the Sale
Proceeds will end up with their rightful owner following a subsequent determination of
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who that is. Until then, it is important to preserve for the benefit of the estate the
$34,800 carveout that the Stipulation sets aside. It is the bankruptcy court’s “mandate
to protect property of the estate for the benefit of creditors.” In re Nat’l Cattle Congress,
Inc., 179 B.R. 588, 599 (Bankr. N.D. Iowa 1995). See also In re Keul, 76 B.R. 79, 82
(Bankr. E.D. Pa. 1987) (“courts are empowered, by virtue of section 105(a), to… protect
property of the estate when warranted”). Allowing the Debtor to postpone or otherwise
threaten such provisional approval of the Stipulation reached by Interim and the Trustee
could well have cost the estate valuable dollars. Preventing such a loss to the estate,
and preserving the $34,800 carveout which benefits the estate, was reason alone for
the Court to approve the Stipulation at this time, especially as Interim stipulated on the
record that it would be prepared to return the funds upon order of the Court or, indeed,
if the Judgment was satisfied by a sale of other property subject to its judgment lien.
Furthermore, the Debtor is not prejudiced by the decision of the Court both
because, as discussed, ownership of the Sale Proceeds remains subject to a final
determination and because the Sale Proceeds themselves are money, which is freely
exchangeable and entirely replaceable. See Koslow v. Commonwealth of
Pennsylvania, 302 F.3d 161, 176 (3d Cir. 2002) (“[l]egally as well as economically,
money is fungible”) (internal citations and quotations omitted). Debtor cannot therefore
argue that he is prejudiced when the asset he seeks - cash - can readily be returned to
him, if it is later determined that the funds in question are properly due to him. The
Court’s November 7th ruling in no way prejudices the Debtor’s right to seek the Sale
Proceeds or diminishes the funds themselves. Rather, the decision of the Court merely
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preserves the carveout in the Stipulation for the benefit of the estate, while reserving for
another day the knotty question of to whom the Sale Proceeds belong.
What is more, the Debtor’s central objection to the Stipulation - that it violates the
DJA by “depriving him of his rights and benefits of the Fair Market Value in the
Manheim Pike Premises” is not justiciable at this time because the Manheim Pike
property has not yet been sold. (Motion for Injunction, ¶13). The Pennsylvania DJA
states that “[w]henever any real property is sold… to the judgment creditor in execution
proceedings and the price for which such property has been sold is not sufficient to
satisfy the amount of the judgment… the judgment creditor seeks to collect the balance
due on said judgment… the judgment creditor shall petition the court to fix the fair
market value of the real property sold.” 42 Pa.C.S. §8103(a) (emphasis added). See
also In re Zinchiak, 406 F.3d 214, 221 n.5 (3d Cir. 2005) (“The provisions of the DJA
protect judgment debtors whose real estate is sold in execution”) (citation omitted and
emphasis added). Therefore, the Debtor cannot state a claim at this time under the
DJA regarding the Manheim Property because this property has not been sold, much
less been sold to the judgment creditor. Any relief sought by the Debtor in connection
with such a cause of action is thus not ripe for adjudication. See Black Horse Lane
Assoc., L.P. v. Dow Chem. Corp., 228 F.3d 275, 300 n.15 (3d Cir. 2000) (“The function
of the ripeness doctrine is to prevent federal courts, through avoidance of premature
adjudication, from entangling themselves in abstract disagreements”). The fact that the
Debtor’s fundamental objection presents an unripe controversy is yet another reason
that the Court was able to find that the provisional approval of the Stipulation between
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Interim and the Trustee was in the best interest of the estate despite the Debtor’s
protests to the contrary.
Conclusion
For the reasons stated in this Memorandum Opinion and in open court at the
hearing on the Joint Motion of Interim and the Trustee for Approval of Stipulation
Regarding Release of Funds, and in the Order accompanying the November 7, 2006
hearing, the Motion is provisionally granted. Debtor’s Motions for Expedited Hearing
and to Limit Notice and for Continuance of Hearing Scheduled for November 7, 2006
are both denied.
Dated: November 17, 2006 	_______________________________
HONORABLE JEAN K. FITZ S IMON
United States Bankruptcy Judge
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 7
R ICHARD L AMAR B URKHART 	:
Debtor 	: 	Case No. 05-28300 (JKF)
________________________________
............................................................
ORDER
............................................................
This 17th day of November, 2006, after a hearing being held on the Joint Motion
of Interim Capital and Christine C. Shubert, Chapter 7 Trustee, for Approval of
Stipulation Regarding Release of Funds (the “Motion”), Debtor’s Motion for Continuance
of Hearing Scheduled for November 7, 2006 on the Motion, and the Debtor’s Motions
for Expedited Hearing and for a Continuance of Hearing, and after notice and hearing,
It is hereby ORDERED that all funds currently being held in escrow by the
Trustee from the sale of the Debtor’s property located at 360 Waters Edge Drive,
Lancaster, Pennsylvania shall be immediately released by the Trustee (“Turnover
Funds”) to Interim Capital, LLC (“Interim”) except that the sum of $34,800.00 shall be
retained by the Trustee for the benefit of the Estate (“Carveout Funds”) as set forth in
the Joint Stipulation dated September 11, 2006 presented to this Court;
It is further ORDERED that should the commercial property located at
1590 Manheim Pike, Lancaster, Pennsylvania the (“Manheim Pike Property”) be sold at
sheriff’s sale, and should the requirements set forth by the Pennsylvania Deficiency
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Judgment Act be applicable to the sale, then Interim shall file a motion to determine the
fair market value of the Manheim Pike Property, and there will be a determination made
by the Court as to the Manheim Pike Property’s fair market value; and
It is further ORDERED that should the fair market value of the Manheim Pike
Property be determined at said hearing to be in excess of the net amount remaining on
Interim’s claim after the application of the Turnover Funds, that Interim shall, pursuant
to order of this Court, return the excess funds, with interest, to the Trustee and such
excess funds and the Carveout Funds shall be retained by the Trustee and not be
distributed until further order of this Court.
Debtor’s Motions for an Expedited Hearing and to Limit Notice and for a
Continuance of Hearing Scheduled for November 7, 2006
are DENIED.
_______________________________
HONORABLE JEAN K. FITZ S IMON
United States Bankruptcy Judge
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Copies to:
Jacques H. Geisenberger, Jr., Esquire
Geisenberger Cooper & Lanza
941 Wheatland Avenue, Suite 201
Lancaster, PA 17603-3180
Camille Spinale, Esquire
Maschmeyer Karalis P.C.
1900 Spruce Street
Philadelphia, PA 19103-6697
Phillip D. Berger, Esquire
Lundy, Flitter, Beldecos & Berger, P.C.
450 North Narberth Avenue
Narberth, PA 19072-1898
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