Opinion
Case No. 02-02780-TOM-11.
January 12, 2007
MEMORANDUM OPINION AND ORDER DENYING MOTION TO REOPEN CASE
This matter came before the Court for hearing on January 8, 2007 on the Debtor's Motion to Reopen Case (the "Motion") (docket no. 140) and the Objection to Debtor's Motion to Reopen Case and Request for Hearing (the "Objection") (docket no. 148) filed by Leigh M. Hackney (the "Creditor"), a creditor and party-in-interest. This Court has jurisdiction under 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The Court has considered the pleadings, including the Creditor's Supplemental Response to the Motion (docket no. 152), the Debtor's Response to the Objection (docket no. 153), and the Debtor's Motion to Expedite Ruling on Pending Motions (the "Motion to Expedite") (docket no. 157), and the law and finds and concludes as follows.
A courtesy copy of the Motion to Expedite was provided to the Court shortly after the hearing on January 8, 2007 though the motion was not actually filed until 8:29 A.M. the following morning, January 9, 2007. The Court is unclear how the outcome of the underlying Motion, whether positive or adverse, affects the Debtor's incarceration for civil contempt, as claimed by the Debtor in the Motion to Expedite. Regardless, the Motion to Expedite will be moot by virtue of this Order.
This Memorandum Opinion constitutes findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, applicable to contested matters in bankruptcy pursuant to Rules 7052 and 9013 of the Federal Rules of Bankruptcy Procedure.
Background
On April 20, 2000, Debtor and Creditor were divorced. The divorce decree required the Debtor to transfer certain assets, including certain real property known as the "Blue Springs" property, to the Creditor and to pay alimony and child support to the Creditor in addition to certain other obligations. With respect to the Blue Springs property, the divorce decree required the Debtor to obtain a release of the $500,000 lien held by First National Bank of Talladega or, alternatively, to substitute collateral so the property would be free of all liens. The Blue Springs property was transferred to the Creditor; however, the lien was not released nor was the mortgage re-collateralized, as required by the divorce decree.
Hackney v. Hackney, Circuit Court of Jefferson County, Alabama, Domestic Relations, Case No. DR-99-039-RAF.
Sometime after the divorce decree was finalized, the Creditor filed a petition for rule nisi. One part of the petition related to the Debtor's failure to re-collateralize the Blue Springs property. In July 2001, the domestic relations court found that the Debtor failed to re-collateralize the property and held him in contempt for certain other violations of the divorce decree. Following the order, the Creditor sought to collect and obtained a judgment against the Debtor and filed a second petition for rule nisi.
On April 8, 2002, in part in response to the Creditor's collection attempts, the Debtor filed for chapter 11 protection. The second petition for rule nisi was pending in the domestic relations court when the bankruptcy case was filed. On August 9, 2002, the Creditor filed two proofs of claim, claim #10 and claim #11, after the July 15, 2002 bar date established by the Court, for an unknown amount for amounts due and owing under the divorce decree. The proofs of claim include a demand resulting from the Debtor's failure to re-collateralize the Blue Springs property. On August 22, 2002, because the claims were late-filed, the Creditor filed a Motion to Allow Late Filed Claim (docket no. 41). Additionally, on August 13, 2002, the Creditor filed an adversary complaint, Adv. Proc. No. 02-00198, to determine damages and to have those damages declared non-dischargable. While the adversary proceeding was pending, First National Bank of Talladega filed suit for judicial foreclosure on the Blue Springs property against the Creditor. The Debtor was not originally named in the Talladega lawsuit. Meanwhile, in this Court, in an attempt to resolve the Motion to Allow Late Filed Claim, liquidate the proofs of claims and resolve the adversary proceeding, the parties were ordered to mediation. After three days of mediation, the parties reached an agreement and submitted a Motion to Approve Compromise (the "Compromise") (docket no. 70 and Adv. Proc. No. 02-00198, docket no. 11), which was approved by order of this Court on January 24, 2003 (docket no. 82 and Adv. Proc. No. 02-00198, docket no. 16). The order approved the Compromise, granted the Creditor a $650,000 judgment against the Debtor. Subsequently, a satisfaction of the judgment was filed on June 17, 2003 (Adv. Proc. No. 02-00198, docket no. 18). The pending state court litigation between the parties was likewise due to be dismissed with prejudice, as per the Compromise. The complaint by First National Bank of Talladega against the Creditor, however, was not dismissed.
First Nat'l Bank of Talladega v. Excel Health Servs. of Alabama, Inc., Circuit Court of Talladega County, Alabama, Case No. CV 02-709.
As noted at the January 8, 2007 hearing, this Court consulted with the domestic relations' judge (Hon. R.A. Ferguson, Jr.) and, with his agreement, all matters pending in both courts, the parties and all counsel were sent to mediation.
As per the Compromise, the judgment for $650,0000 could be satisfied by paying $450,000 provided the funds were received within 120 days of entry of the order approving the Compromise.
The Memorandum and Settlement Agreement, attached as Exhibit A to the Compromise, states that the parties "shall dismiss with prejudice all proceedings against each other including all post-divorce matters presently pending in state court, the adversary proceeding in bankruptcy, and the motion for late filed claim" (emphasis added).
Even after resolving the dispute with the Creditor, the Debtor filed an amended disclosure statement and plan (docket nos. 103, 104) on October 14, 2003, as further amended on December 15, 2003 (docket no. 116, 117), but was not able to obtain confirmation and on March 15, 2004 filed a voluntary Motion to Dismiss (docket no. 134). In the motion to dismiss, the Debtor notes that even after resolution of the Creditor's claims, the Debtor had two potentially significant, unliquidated claims: First National Bank of Talladega and the Internal Revenue Service. The motion to dismiss explains that the claim of First National Bank of Talladega was contingent upon the outcome of Talladega litigation, which was in the early stages of discovery and not set for trial. The Debtor's motion also alleges that because this obligation, and the obligation to the IRS, were unliquidated, the Debtor was unable to propose a plan that would adequately deal with all possible outcomes. Further, the motion asserts that no creditor would be prejudiced by the dismissal because the Debtor can deal with both creditors when and if those obligations were determined. An order dismissing the bankruptcy case was entered on March 18, 2004 (docket no. 136) subject to a twenty-day objection period. No objections were filed and the bankruptcy case was closed on May 26, 2004 (docket no. 138).
After the dismissal, on October 30, 2003, the Creditor filed, in the original domestic relations court, a third petition for rule nisi seeking criminal and civil contempt charges against the Debtor for the Debtor's alleged failure to remove the lien or re-collateralize the Blue Springs property. At a hearing on January 30, 2006 in the domestic relations court, Debtor's counsel argued res judicata based on the Compromise. At that time, the bankruptcy and adversary proceeding documents were presented to the state court and considered by that court. On February 15, 2006, the domestic relations court issued an order rejecting Debtor's arguments and finding the Debtor in civil and criminal contempt for failing to either remove the lien or to re-collateralize the Blue Springs property. Debtor's counsel filed a Motion to Alter, Amend or Vacate on March 15, 2006, as amended on March 16, 2006, and again argued res judicata. A hearing was held on April 18, 2006 and the motion was denied. The Debtor has now, pro se, appealed that ruling and the issue is pending before the Court of Civil Appeals for Alabama.
Additionally, after dismissal of the bankruptcy case, the Debtor filed a negligence action against his former chapter 11 counsel, Hackney v. Glass, Circuit Court of Jefferson County, Alabama, Case No. CV-04-7374, alleging that his counsel breached her duty to him because this re-collateralization issue regarding the Blue Springs property was not included in the Compromise. The dismissal of this lawsuit in state court is also currently on appeal by the Debtor.
Section 350(b)
The Debtor filed the instant Motion seeking to re-open his case pursuant to Section 350(b) of the Bankruptcy Code to enforce the order approving the compromise in the adversary proceeding. An order was entered on November 28, 2006 (docket no. 143) re-opening the case subject to a twenty-day objection period. The Creditor filed its Objection on December 11, 2006 and the matter was set for hearing and heard, as noted above.
The Motion was filed in the main bankruptcy case and was not filed in the adversary proceeding. The Court noted at the hearing that the adversary proceeding and the bankruptcy case are distinct cases and it is possible that the adversary proceeding could proceed despite dismissal of the underlying bankruptcy case and without re-opening the underlying bankruptcy case. See Fid. Deposit Co. of Maryland v. Morris (In re Morris), 950 F.2d 1531 (11th Cir. 1992) (bankruptcy court has discretion to retain jurisdiction of adversary proceeding where bankruptcy case was dismissed). Debtor's counsel noted that the Motion itself states that it is for the limited purpose of enforcing the Compromise. The Court, however, finds that it does not need to address whether a motion to re-open the adversary proceeding only would be successful since the issue is not currently before the Court.
Section 350(b) provides that a "case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." To be entitled to relief under Section 350, the case must have been closed after a full administration of the estate and completion of the bankruptcy process. As this Court has previously ruled, Section 350 deals with cases that have been closed, not cases that have been dismissed. See In re Woodhaven, Ltd., 139 B.R. 745, 747 (Bankr. N.D. Ala. 1992). Section 350 applies only to closed cases and cannot be used to resurrect a dismissed case. Id. at 748. The Debtor's bankruptcy case was voluntarily dismissed, not closed. Accordingly, Section 350 offers no relief to the Debtor. While at least one other court has reached a different conclusion on this issue, this Court sees no reason to deviate from its prior holding in Woodhaven, especially in light of the facts of this particular case.
See In re Ross, 278 B.R. 269 (Bankr. M.D. Ga. 2001) (court could re-open dismissed case but denied motion to re-open where goal was to amend schedules and amendment would serve no purpose). But see In re Archer, 264 B.R. 165 (Bankr. E.D. Va. 2001) (section 350 does not apply to case that was terminated prior to completion of proceedings); In re Garcia, 115 B.R. 169 (Bankr. N.D. Ind. 1990).
Alternatively, even if this Court were inclined to re-open a dismissed case, in direct contrast to its holding in Woodhaven, the same outcome would result. The decision to re-open a case is a decision solely within the discretion of the bankruptcy court.In re Ross, 278 B.R. at 273 (citing to In the Matter of Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991). The Shondel court noted that, in applying its discretion, courts should exercise their equitable power "with respect to substance and not technical considerations that will prevent substantial justice." 950 F.2d 1304. Re-opening the Debtor's case would not serve the interests of justice. In fact, quite the contrary would result. Debtor's counsel seeks to re-open the case to litigate its Motion to Enforce Order Approving Compromise (docket no. 141). That motion asks this Court to find that the Blue Springs property was dealt with in the Compromise thus undoing the order and findings of contempt of the domestic relations court. As noted above, this issue has already been adjudicated by the domestic relations court. It is undisputed that the domestic relations court considered all of the bankruptcy and adversary proceeding pleadings in issuing its order on the third petition for rule nisi on February 15, 2006 and in denying the Debtor's Motion to Alter, Amend or Vacate the same. In fact, the domestic relations court has been dealing with these parties since the domestic case was filed in 1999. This Court is no better situated than the domestic relations court to resolve this dispute. Further, with respect to dischargability, this Court and the domestic relations court have concurrent jurisdiction, thus that court had and has jurisdiction to interpret this Court's rulings and orders in resolving their issues before it. Cummings v. Cummings, 244 F.3d 1263, 1267 (11th Cir. 2001). The dispute has been resolved and this Court will not re-open a bankruptcy case to allow an issue previously litigated in state court be re-litigated in this Court.
Based on the foregoing, is hereby
ORDERED, ADJUDGED AND DECREED that the Creditor's Objection is SUSTAINED and the Debtor's Motion is DENIED; and it is further
ORDERED, ADJUDGED AND DECREED that the Debtor's Motion to Expedite is MOOT.