Opinion
CASE NO. 84-00833-5-ATS.
March 25, 2008
ORDER DENYING MOTION TO REOPEN CASE
Charles H. Cross and Myrtle B. Cross filed a petition for relief under chapter 11 of the Bankruptcy Code on May 29, 1984, a plan was confirmed and consummated, a final decree was entered on March 4, 1993, and the case was closed over 15 years ago. Mr. Cross passed away some time after the bankruptcy case was closed, and Mrs. Cross has, on several occasions, contacted the court seeking an explanation of what happened in their case. On February 27, 2008, Mrs. Cross delivered to the court a three-inch stack of documents, along with a letter that stated:
My husband has a lot of land in Holly Springs, and he went down [there] and got it and Russell sold. My Husband was real sick and pass on. He took all that land House the homeplace and sold it. I just can't believe it. The Land belong to his family. We look after it. He took that and sold it too. The other side of the family is real mad. . . . I need my money to live on. I work for the Internal Revenue for about 12 years before I stop. Please ask Judge Small to help me.
Included in the stack of documents were copies of cancelled checks, adding machine tape, deeds of trust, copies of documents from lawsuits filed against bankruptcy counsel, and lists of debts. There were notations on some of the documents, from which the court discerns that Mrs. Cross does not believe there was sufficient debt to support a bankruptcy filing and that she believes a deed of trust in favor of the Internal Revenue Service was forged. Though the letter accompanying these documents does not ask for any specific relief, the court will treat it as a motion to reopen the case. Motions to reopen are within the court's discretion, Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324, 326 (4th Cir. 1984), and the motion here will be denied for two reasons: first, the motion is simply too late. Second, the court cannot find, from the many documents provided, that anything improper happened in this case or that cause exists to grant relief.
The court retrieved the file from the archives in Atlanta, Georgia and reviewed the case history. As previously noted, the chapter 11 petition was filed on May 29, 1984. Harold E. Russell of the law firm Russell Brewer represented the debtors. Mr. Cross operated the Cross Poultry Company as a sole proprietorship, and the financial distress of that company precipitated the bankruptcy. An order confirming the plan and disclosure statement was entered on April 18, 1986. The plan provided for the sale of all assets of the estate to the extent necessary to pay all creditors in full. The debts consisted primarily of unsecured trade debt related to the poultry plant operation, tax debt owed by the poultry company, and a business debt to First Citizens Bank and Trust Company that was secured by the poultry plant owned by Mr. Cross, several lots owned by Mr. Cross, and the house owned by Mr. and Mrs. Cross.
The status of the case through September 7, 1990, is derived from the Modified Disclosure Statement filed by the debtors on that date, Docket No. 135.
Pursuant to the plan, all property related to the business, both real and personal, was sold post-petition and the proceeds were deposited in the Debtor-in-Possession ("DIP") checking account. Mr. Cross individually owned the real property on which the business was operated, but some of the personal property was marital property in which Mrs. Cross owned a one-half interest. Mr. Cross also owned several other parcels of real property individually that were also sold, and the proceeds were deposited into the DIP account. A lot owned by Mr. and Mrs. Cross in Holly Springs was also sold postpetition, and the proceeds were deposited into the DIP account.
As of September 7, 1990, all of the assets of the debtors had been liquidated with the exception of the house, two adjacent lots, and household goods. Cash proceeds were used to pay the costs of administration and First Citizens, and at that time $191,000 remained in the DIP account. The IRS held a secured claim of $200,000 that remained unpaid at that time. There also remained priority tax claims of $50,000 and unsecured trade claims of $158,000, some of which were disputed. Because Mrs. Cross was not an owner of Cross Poultry Company, she maintained that she was not liable for any of the business debt, including the tax debt, and that the tax lien did not attach to the entireties property. Thus, as of September 7, 1990, the debtors contended that all non-exempt assets of the estate had been liquidated and were available for distribution.
The debtors also contended that proceeds derived from the sale of personal property, in which Mrs. Cross held a one-half interest, should be divided in the DIP account into balances for Mr. Cross and for Mrs. Cross. The debtors' proposed division of the remaining $191,000 was $124,000 for Mr. Cross and $67,000 for Mrs. Cross. Thus, only $124,000 would be available for distribution to the remaining creditors, and after payment to the IRS for its secured claim, no funds would remain for payment of the priority and unsecured claims. In a proposed modification to the confirmed plan, Mrs. Cross made an offer of compromise in which she would pay 50% of each allowed priority and unsecured claim, in the total amount of $53,137.93, leaving $13,862.07 to be returned to Mrs. Cross. Several objections were filed to the proposed modification, and confirmation of the modified plan was denied on December 18, 1990.
At some time while the case was pending, the debtors' attorney, Mr. Russell, changed law firms and became employed with Smith Debnam Hibbert Pahl. In May 1991, Mr. Russell left Smith Debnam, and on June 5, 1991, the debtors filed an application to employ J. Larkin Pahl and Cindy G. Oliver of Smith Debnam as co-counsel with Mr. Russell. On August 27, 1991, Ms. Oliver filed on behalf of the debtors a Motion to Approve Compromise, which was allowed on September 24, 1991. The motion and order set forth the history of the case after September 1990, noting that the debtors' two lots adjoining their residence had been sold since that time. The only remaining property was the debtors' residence, which was owned free and clear of liens and had an estimated value of $100,000. Because the Crosses were elderly and had limited income, the debtors and their creditors sought a compromise that would allow the Crosses to keep their home.
The final fee application indicates that Mr. Russell spent only 7 hours on the Crosses' case after October 1, 1990, and the majority of the file was handled thereafter by Ms. Oliver.
The order of September 24, 1991, further sets forth that the IRS tax claim against Mr. Cross exceeded $330,000, while joint priority and unsecured claims totaled $165,317.30. The DIP account balance was $228,000, consisting of $49,817.85 from the sale of the entireties properties and $178,182.15 from the sale of personal property owned by Mr. Cross individually. The IRS and the debtors disagreed on the priority in which the sale proceeds should be distributed, and they proposed a settlement in which the IRS would be paid all cash in the DIP account, less proceeds from the entireties property, less attorney's fees not to exceed $9,500 and minus $841.08 to be paid to remaining creditors, for a total of approximately $163,841.07. In addition, the IRS would receive a first deed of trust on the Crosses' home. The Crosses would not be required to make any payments, and the IRS would be able to foreclose on the property only after both debtors ceased using the property as their primary residence. The other proceeds in the DIP account, totaling $50,658.93, were to be distributed to the other creditors in full settlement of their claims.
This was the amount that would have been paid to creditors in a chapter 7 liquidation.
On September 25, 1992, Mr. Pahl filed an application for final decree, indicating that all property proposed by the plan to be transferred had been transferred and that the debtors had commenced distribution under the plan. The final decree was entered on March 4, 1993.
Among the documents provided to the court by Mrs. Cross was the deed of trust to the IRS entered pursuant to the offer of compromise. The deed of trust, which refers specifically to this court's order of September 24, 1991, is dated October 23, 1991, and secures a debt of $156,784.97. A notation by Mrs. Cross at the top states, "We didn't sign this Deed." However, the signatures appear to be the same as all of the other signatures of Mr. and Mrs. Cross found throughout the file and within Mrs. Cross' other submitted documents, including one that Mrs. Cross noted was a "correct signature." Even if the signatures are not those of the debtors, however, the motion to approve compromise and order approving the compromise set forth the debtors' agreement to sign the deed of trust in favor of the IRS, and the debtors are bound by the order.
Mrs. Cross also seems to contest the use of the sale proceeds to pay the IRS and the other creditors, and in particular the payment of the other creditors prior to paying the IRS in full. Mrs. Cross is bound by the plan confirmed by this court, which provided for the liquidation of all of the debtors' assets except for the residence, and the subsequent orders that provided for the use of proceeds from the sale of joint property to pay joint debts as well as her own offered compromise to settle the claims of joint creditors.
The stack of documents provided by Mrs. Cross also show that she filed suit against her attorneys in 1993 and 1996 in state court, and that she filed a complaint with the State Bar in 2007. Each court or agency that has reviewed this matter has not found anything to be improper.
The Crosses went to Mr. Russell with a combination of business and joint debts, and under the law as it existed at the time it was necessary to liquidate most of the debtors' property for the debtors to receive a chapter 11 discharge. When there was insufficient property to pay all the claims, the debtors made a deal with their creditors that included giving the IRS a deed of trust on their property, which allowed the debtors to remain in their residence indefinitely without having to make any payments to the IRS. The compromise resolved, in part, a legitimate uncertainty as to how the sale proceeds should be distributed and avoided the expenditure of substantial funds on attorney's fees to litigate the issue. As a result of the compromise, the Crosses received a discharge of all of their debts except the remaining balance due to the IRS, and they were able to keep their residence until they no longer live there.
Chapter 11 debtors must provide a return to creditors that is at least as great as the creditors would receive if the case were filed under chapter 7 and the assets liquidated by a trustee.
The debtor's plan was completed and the case was fully administered more than 15 years ago. A thorough review of the file shows no irregularities, and no purpose would be served in reopening the case. Reopening the case at this late date would, instead, disrupt the finality of the case on which all of the other parties depend. "It is . . . no exaggeration to say that the very functioning of the bankruptcy system is dependent on its finality." Bosiger v. U.S. Airways, 510 F.3d 442, 450 (4th Cir. 2007). The debtor's request to reopen the case is DENIED. SO ORDERED.