Opinion
Jointly Administered Under Case Nos. 89-41420-BJH-7 through 89-41422-BJH-7
July 13, 2001
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Before the Court are Frank Wolfe's ("Wolfe") Motions to Reopen Bankruptcy Cases filed in Bankruptcy Case Nos. 89-41421-BJH-7 (the case of ABC Asphalt, Inc. ("Asphalt")) and 89-41422-BJH-7 (the case of Utilities Equipment Leasing Corp.("Uelco")) (collectively, the "Motions to Reopen"). The parties have consented to the Court considering the Motions to Reopen solely on the pleadings and without oral argument. Pursuant to Federal Rule of Civil Procedure 52, made applicable here by Bankruptcy Rule 7052, the Court makes the following findings of fact and conclusions of law.
I. FINDINGS OF FACT
1. The history of these affiliated bankruptcy cases is long and complex, and is described in detail in other opinions of this Court, as well as the District Court and the Fifth Circuit Court of Appeals. Facts relevant to the Motions to Reopen are set forth below.
2. On April 20, 1989, ABC Utilities Service, Inc. ("Utilities Services"), Asphalt, and Uelco (collectively, the "Debtors") filed voluntary petitions under chapter 11 of the Bankruptcy Code.
3. On June 6, 1989, the Court entered an Order administratively consolidating the Debtors' cases. The Debtors' cases were never substantively consolidated.
4. On July 29, 1991, Joseph Colvin ("Colvin" or the "Trustee") was appointed as chapter 11 trustee for Utilities Services and Uelco. Colvin was appointed as the chapter 11 trustee for Asphalt on January 15, 1993. On September 13, 1993, each of Debtors' cases was converted to chapter 7, and Colvin was appointed as the chapter 7 trustee for each of the Debtors.
5. On March 4, 1996, Colvin filed a Motion to Determine Priority of Unpaid Chapter 11 Administrative Claims (the "March 4, 1996 Motion"), seeking approval of his proposal to pay certain chapter 7 and chapter 11 administrative claims and expenses (and the order in which those claims and expenses would be paid). See March 4, 1996 Motion. The March 4, 1996 Motion listed various administrative claims, and detailed the claimant, the claim amount, the estate in which the claim had been filed, and whether the claim had been incurred with or without court approval. See id. The March 4, 1996 Motion sought authority to pay chapter 7 administrative claims first, followed by chapter 11 administrative claims authorized by the Court, followed by chapter 11 administrative claims filed by non-insiders, followed by chapter 11 administrative claims filed by insiders (including Wolfe). See id. The order of payment proposed in the March 4, 1996 Motion did not identify the source of funds which would be used to pay each of the administrative claims (i.e., while each chapter 11 administrative claim was identified by the estate for which it was incurred, the source of the funds to be used to pay the claim was not identified).
6. At a June 24, 1996 hearing on the March 4, 1996 Motion, Colvin announced a settlement with those parties who had objected to the March 4, 1996 Motion; and thus, on August 22, 1996, this Court entered an Order consistent with the announced settlement (the "August 22, 1996 Order"). The August 22, 1996 Order aggregated the chapter 11 administrative claims to be paid (non-insider vs. insider) and did not identify the source of the funds (i.e., which estate owned the funds) to be used to pay each of the administrative claims. See id. No party objected to, or otherwise sought relief from, the August 22, 1996 Order following its entry.
7. On March 6, 2000, Wolfe filed a Motion for Order Requiring Trustee to Pay Administrative Claims (the "Motion for Order to Pay Administrative Claims"). Wolfe amended the Motion for Order to Pay Administrative Claims on March 7, 2000 and May 18, 2000. At a hearing on the Motion for Order to Pay Administrative Claims held on May 23, 2000, this Court denied the Motion, but directed the Trustee to provide Wolfe and other allowed administrative claimants with further information regarding the timing of expected disbursements pursuant to the August 22, 1996 Order "to better position [the] cases to be closed." See Proceeding Memorandum, May 23, 2000.
8. On January 16, 2001, Wolfe filed a Motion for Order Permitting Creditor to Initiate Litigation and Brief (the "Motion to Initiate Litigation"). In the Motion to Initiate Litigation, Wolfe seeks authority to bring suit on behalf of all three of the Debtors against ORIX Credit Alliance, Inc., n/k/a ORIX Financial Services, Inc. ("ORIX"), to, inter alia, set aside a previous judgment of this Court, as affirmed on appeal, which had overruled Wolfe's objection to ORIX's claims and had thereby allowed ORIX's claims in the Debtors' cases and to recover damages against ORIX for the filing of false claims in these bankruptcy cases. See Motion to Initiate Litigation. A hearing on the Motion to Initiate Litigation commenced on March 13, 2001 and, after many hours of testimony, concluded on May 30, 2001.
At the conclusion of the hearing, the parties requested the opportunity to submit post-hearing briefs. A timetable for the submission of those briefs was agreed to by the parties. Thereafter, the parties requested a delay in the briefing schedule so that the Motions to Reopen could be filed, briefed and decided before post-hearing briefs on the Motion to Initiate Litigation would be due. The Court entered its Order Modifying Briefing Schedule to accommodate the parties' subsequent request. See Order Modifying Briefing Schedule.
9. On April 20, 2001, the Trustee filed a 1 page form document entitled "Report of Trustee and Application for Closing of a No Asset Case" (the "No Asset Report") in the Asphalt and Uelco cases (the "Related Cases"). In each No Asset Report, the Trustee checked the box that stated that he had "examined the debtor's scheduled exemptions and have determined that such are lawfully claimed and allowable," and that "[a]fter investigating the facts and records of this case, and upon examining the debtor at the § 341 meeting, I have determined that all known assets of the estate, scheduled and discovered, are properly exempt, abandoned or of such inconsequential value that they should be deemed abandoned upon the closing of the case." See No Asset Report. That same day, the Bankruptcy Clerk's Office entered an Order Approving the Trustee Report and Discharging Trustee, and the Related Cases were closed. See Order Approving the Trustee Report and Discharging Trustee (Asphalt); Order Approving Trustee Report and Discharging Trustee (Uelco).
10. ORIX and Wolfe were not served with a copy of either No Asset Report or the Order Approving the Trustee Report and Discharging Trustee entered in the Related Cases. In fact, ORIX and Wolfe learned of the filing of each No Asset Report and the closing of the Related Cases during the last day of the hearing on the Motion to Initiate Litigation. During the course of the Trustee's testimony (i.e., that he had no objection to the Motion to Initiate Litigation), the Trustee mentioned his filing of each No Asset Report and the closing of the Related Cases. The parties were obviously surprised by this information and agreed to confer with each other to attempt to resolve the issues surrounding the closing of the Related Cases while the Motion to Initiate Litigation was pending.
11. The parties were unable to agree to a reopening of the Related Cases, and on June 20, 2001, Wolfe filed the Motions to Reopen. On June 21, 2001, ORIX filed its Opposition to Reopening of the Cases of Asphalt and Uelco (the "ORIX Response"). Thereafter, Wolfe replied to the ORIX Response and ORIX responded to the Wolfe reply.
12. In the Motions to Reopen and Wolfe's reply, Wolfe contends that the Related Cases should not have been closed, and that cause exists to reopen them, because there are still assets to administer — specifically, the claims against ORIX which Wolfe seeks authority to bring on behalf of the estates if the Motion to Initiate Litigation is granted. Wolfe further contends that he is a creditor, and therefore has standing to bring the Motions to Reopen, pursuant to his proof of claim filed in the Utilities Service case, and his recently acquired claims in the Related Cases. See Notices of Transferred Claims and Assignments of Claims, attached as Exhibits to Wolfe's reply.
13. In the ORIX Responses, ORIX contends that Wolfe never filed a proof of claim in either of the Related Cases, is not a creditor of those estates, and thus, lacks standing to request a reopening of the Related Cases. ORIX further contends that Wolfe's recent acquisition of claims in the Related Cases should not be recognized because: (i) the claims were acquired in already closed cases; (ii) there are irregularities in the assignments of the claims; and (iii) Wolfe acquired the claims solely to have standing to request a reopening of the Related Cases. In a more complicated argument, ORIX contends that Wolfe should be estopped from asserting claims on behalf of Asphalt and Uelco against ORIX because Wolfe caused settlement proceeds which should have been received by the Asphalt and Uelco estates to be paid to the Utilities Services estate so that Wolfe's administrative claims against that estate could be paid.
14. Because the Motion to Initiate Litigation was pending in each of the Related Cases when the No Asset Reports were filed, the Court finds that the Related Cases were closed by the Bankruptcy Clerk's Office in error. Because the Related Cases were administratively consolidated with the Utilities Services case, the Motion to Initiate Litigation was only docketed in that case. However, the Motion to Initiate Litigation deals with all of the estates and, if granted, could affect the Related Cases as well as the Utilities Services case. In addition, if the Motion to Initiate Litigation is granted and the underlying litigation is pursued successfully, there will be additional assets to administer in the Related Cases.
15. Where appropriate, any Finding of Fact may be construed as a Conclusion of Law.
II. CONCLUSIONS OF LAW
1. The Court has jurisdiction to decide the Motions to Reopen pursuant to 28 U.S.C. § 1334 and 157. A motion to reopen a bankruptcy case is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).
2. Bankruptcy courts have broad discretion in deciding whether to reopen a bankruptcy case. A decision to reopen is reviewed only for an abuse of discretion. See Williams v. Lemons, 977 F.2d 597, 1992 WL 279885, **2 (10th Cir. 1992) ("Our review of the bankruptcy court's decision to reopen an estate or proceeding is governed by the abuse of discretion standard. Absent a clear showing that the court abused its discretion, the decision to grant or deny a motion to reopen under § 350 is binding on review.") (citations omitted); In re Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991) ("A decision to reopen a case for `other cause' lies within the discretion of the bankruptcy court and will be reversed only for an abuse of that discretion."); Citizens Bank Trust Company v. Case (In re Case), 937 F.2d 1014, 1018 (5th Cir. 1991) ("Our review of the bankruptcy court's decision to reopen an estate or proceeding is governed by the abuse of discretion standard."); In re Ellis, 112 B.R. 182, 183 (Bankr.S.D.Tex. 1989) ("The decision to reopen a case is discretionary with the court.") (citing Wragg v. Federal Land Bank, 317 U.S. 325 (1943)); Virgin Islands Bureau of Internal Revenue v. St. Croix Hotel Corp., 60 B.R. 412, 414 (D.V.I. 1986) ("It is beyond dispute that § 350(b) gives the bankruptcy court broad discretion in deciding whether to reopen a case. Absent a clear showing that the court abused its discretion, the decision to grant or deny a motion to reopen is binding on review.") (citations omitted).
3. Reopening of a bankruptcy case is governed by § 350(b) of the Bankruptcy Code and Bankruptcy Rule 5010. Bankruptcy Rule 5010 provides that a "case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code." FED R. BANKR. P. 5010. In turn, § 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." 11 U.S.C. § 350(b).
The court may also reopen a bankruptcy case on its own motion. See Donaldson v. Bernstein, 104 F.3d 547, 552 (3rd Cir. 1997) ("While no party sought the reopening, 11 U.S.C. § 105(a) empowered the bankruptcy court to reopen the case on its own motion.").
4. While the term "other cause' is not defined in the Bankruptcy Code, see In re Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991) ("The Bankruptcy Code does not define `other cause.'"), the term is applied broadly by the courts and is guided by equitable considerations. See Williams v. Lemons, 977 F.2d 597, 1992 WL 279885, **2 (10th Cir. 1992) ("Under § 350(b), `[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.' The `phrase `or for other cause' is a broad term which gives the bankruptcy court discretion to reopen a closed case or proceeding when cause for such reopening has been shown.'"); In re Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991) ("In exercising its discretion to reopen a case, `the bankruptcy court should exercise its equitable powers with respect to substance and not technical considerations that will prevent substantial justice.' The trend in reopening cases under section 350(b) has thus been `to allow the bankruptcy judge broad discretion to weigh the equitable factors in each case.'") (citations omitted); Citizens Bank Trust Company v. Case (In re Case), 937 F.2d 1014, 1018 (5th Cir. 1991) ("The phrase `or other cause' as used in § 350(b) is a broad term which gives the bankruptcy court discretion to reopen a closed estate or proceeding when cause for such reopening has been shown. This discretion depends upon the circumstances of the individual case and accords with the equitable nature of all bankruptcy court proceedings.") (citations omitted); Poole v. Money Mortgage Corp. of Am. (In re Hofmann), 248 B.R. 79, 88 (Bankr. W.D. Tex. 2000) ("`Other cause' is a generous term indeed, designed to encompass a broad panoply of circumstances which could not be anticipated by the drafters of the statute.").
5. In addition, while the time limits of Federal Rule of Civil Procedure 60(b) do not apply to motions to reopen a case pursuant to § 350(b), see FED. R. BANKR. P. 9024, the amount of time between the closing of the case and the filing of the motion to reopen may be considered by the court in deciding such a motion — i.e., the shorter the delay between the case closing and the motion to reopen being filed, the less cause needs to be shown. See Citizens Bank Trust Company v. Case (In re Case), 937 F.2d 1014, 1018 (5th Cir. 1991) ("The longer the time between the closing of the estate and the motion to reopen, however, the more compelling the reason for reopening the estate should be."); Virgin Islands Bureau of Internal Revenue v. St. Croix Hotel Corp., 60 B.R. 412, 414 (D.V.I. 1986) ("The consensus of authority holds that the most important consideration in deciding whether to reopen the case is the timeliness of the motion. At the heart of this view is the doctrine of laches, which not only applies in bankruptcy proceedings but is `an important consideration because the chief purpose of the bankruptcy laws is `to secure a prompt and effectual administration and settlement of the estate of all bankrupts within a limited period of time.''") (citations omitted).
6. Upon review of the Notice of Transferred Claim and Assignments of Claims, attached as Exhibits to Wolfe's reply, the Court concludes that Wolfe is a creditor in the Related Cases and thus, has standing to bring the Motions to Reopen. To the extent that there are any irregularities in the assignments, a matter not properly before the Court and upon which the Court expresses no opinion, ORIX lacks standing to make an objection to the assignment. See Fed.R.Bankr.P. 3001(e)(2), (4) (providing means of noticing and/or objecting to a transfer of claims only for the transferor and transferee); Troy Sav. Bank v. Travelers Motor Inn, Inc., 215 B.R. 485, 491 (N.D.N.Y. 1997) ("The bankruptcy judge correctly informed the Appellant that (e)(2) only permits the transferor to object to the transfer. Likewise, only the transferor is entitled to notice and hearing under (e)(2)."); see also In re Crosscreek Apartments, Ltd., 211 B.R. 641 (Bankr.E.D.Tenn. 1997) (finding that failure to comply with rule governing transfer of claims does not affect validity of transfer where there is no prejudice to estate or any party in interest). Moreover, Wolfe's motivation in acquiring the claims is not relevant. Cf. In re Embrace Systems Corp., 178 B.R. 112, 121 (Bankr.W.D.Mich. 1995) ("Denying standing to purchasers of claims, however, would effectively discourage postpetition transfers of claims, in contravention of the intended purpose of Bankruptcy Rule 3001. In addition, no other Bankruptcy Rule provides or implies that the postpetition purchaser of a claim lacks standing to participate in the bankruptcy case in which it has purchased a claim."); In re First Humanics Corp., 124 B.R. 87 (Bankr.W.D.Mo. 1991) (finding that a party which purchased a claim of the Debtor post-petition for the sole purpose of acquiring standing to propose a competing plan of reorganization was "party in interest" with standing to file such a plan). Wolfe now holds claims in the Related Cases and, as such, is a party in interest in the Related Cases with standing to request a reopening of those cases.
7. ORIX attempts to make the issue presented by the Motions to Reopen far more complex than it is. The issue is quite simple — should the Court exercise its discretion to reopen the Related Cases? The Court concludes that the Related Cases should be reopened for several reasons. First, the Court concludes that the Related Cases should be reopened because they were closed through a clerical error. The Related Cases should not have been closed while the Motion to Initiate Litigation was pending. The Court would have reopened the Related Cases on its own motion to cure this error irrespective of the filing of the Motions to Reopen by Wolfe. Second, the Related Cases should be reopened because there may be additional assets to administer depending upon the outcome of the Motion to Initiate Litigation. Third, the equities weigh in favor of reopening the Related Cases because Wolfe, a creditor, sought to reopen the Related Cases shortly after they were closed. Finally, the Motion to Initiate Litigation should be decided on the merits, not on technicalities created by the inadvertent closing of the Related Cases.
8. Where appropriate, any Conclusion of Law may be construed as a Finding of Fact. An appropriate Order will be entered separately.