Opinion
Case No. 03-81486-WRS.
December 8, 2006
MEMORANDUM DECISION
This Chapter 11 case is before the Court on motions filed by Kenneth Williford, William Murray, and Memory and Day. The initial motion which has in turn generated a number of filings was Kenneth Williford's motion of July 25, 2006, seeking to vacate this Court's January 30, 2006 Order confirming the Debtors' Chapter 11 Plan. (Doc. 278 — Motion to Vacate; Doc. 255 — Order Confirming Plan). The Court will begin with a review of the history of this bankruptcy case and, to the extend necessary, the litigation in state court to which Kenneth Williford was a party. In addition, this Court will discuss the following motions filed by William Murray: Motion to Intervene (Doc. 280); Motion to Correct Order for Status Hearing (Doc. 285); and Motion to Correct Docket Entry (Doc. 299). The Court will also address the following motions filed by Memory and Day: Motion to Dismiss (Doc. 279); and Motion to Withdraw (Doc. 286). For the reasons set forth below, the Motion to Withdraw filed by Memory and Day is GRANTED, and all other motions are DENIED.
I. CASE HISTORY
On October 3, 2003, Kenneth Williford, together with his former spouse Charlotte Williford, filed a joint petition in bankruptcy pursuant to Chapter 11 of the Bankruptcy Code. (Doc. 1). At that time, the Willifords jointly owned five mobile home parks in Lee and Chambers County, Alabama, which they valued in their bankruptcy schedules at $3,650,000. (Doc. 191, p. 12). The property was encumbered by mortgages in favor of Peoples Bank for about $2,800,000. (Doc. 191, p. 13). There are three parallel story lines which must also be considered here. For purposes of convenience, they will be referred to as: (1) Kenneth Williford's criminal proceedings; (2) the Emerton civil action; and (3) the divorce proceedings.
The Court has not had occasion to make a finding as to the value of the various mobile home parks, or for that matter, any of the Debtors' property. William Murray states in his most recent filing that the Bankruptcy Court should undertake to value the mobile home parks. (Doc. 313, p. 17). As this Court will not disturb the property division effected by the Divorce Court, it is not necessary to value the property here. Values stated in this Memorandum Decision are taken from filings made by the parties and are not the product a judicial finding.
Kenneth Williford was convicted of one count of rape and one count of sodomy in connection with a sequence of events which took place in an abandoned mobile home in one of Williford's trailer parks. Kenneth Williford was sentenced to 25 years on the rape conviction and 15 years on the sodomy conviction, with the sentences to run concurrently. Williford appealed his convictions, which were affirmed by the Alabama Supreme Court.See Ex parte Williford, 931 So.2d 10 (Ala. 2005). Williford has been in prison during the course of these bankruptcy proceedings.
In other proceedings, Scott and Kristi Emerton brought a civil action against Kenneth and Charlotte Williford. The Emertons purchased a mobile home from the Willifords. Kenneth Williford subsequently evicted the Emertons from the mobile home. The Emertons alleged in their civil action that the Willifords had wrongfully repossessed the mobile home. A jury in Chambers County awarded the Emertons $33,000 in compensatory damages and $350,000 in punitive damages. The trial court's judgment was appealed twice to the Alabama Supreme Court. In the first appeal, the Alabama Supreme Court remanded the case to the trial court to conduct Hammond proceedings.Williford v. Emerton, 935 So.2d 1150, 1158 (Ala. 2004) (remanding for proceedings in accordance with Hammond v. City of Gadsden, 493 So.2d 1374 (Ala. 1986)). In the second appeal, the Alabama Supreme Court affirmed the judgment of the trial court. Emerton v. Williford, 902 So.2d 658 (Ala. 2004). The liability owed to the Emertons was later compromised and its payment structured in the Chapter 11 Plan, which was confirmed by this Court on January 30, 2006. (Doc. 255).
Proceedings occurred in State Court in the Emerton case in violation of the automatic stay. By order dated August 26, 2004, this Court annulled the automatic stay to permit the Emerton case to proceed in the state court system. (Doc. 102; see also,Emerton v. Williford (In re Williford), Adv. Pro. No. 04-8003, Doc. 12).
On April 9, 2003, Charlotte Williford petitioned the Circuit Court in Lee County, Alabama for a divorce from Kenneth Williford. Williford v. Williford, Civil No. DR-2003-175. Notwithstanding the fact that they had filed a joint petition in bankruptcy, Charlotte and Kenneth Williford were unable to agree on a resolution of their divorce case, and the trial was held on September 22-23, 2003. (Doc. 306). Judgment was entered on October 31, 2003. It should be remembered that the Willifords filed their joint petition in bankruptcy on October 3, 2003. Thus, the petition in bankruptcy was filed after the trial but before entry of judgment of divorce. Both Charlotte and Kenneth Williford were represented by separate counsel at the September 22-23 trial in the divorce case. The Circuit Court in Lee County awarded most of the marital assets to Charlotte Williford. Kenneth Williford prosecuted an appeal to the Alabama Court of Civil Appeals, which affirmed the judgment of the trial court without an opinion by its order dated April 29, 2005. Williford v. Williford, Case No. 2030320. Neither Charlotte nor Kenneth filed a motion for relief from the automatic stay in this bankruptcy case.
When a husband and wife file a joint petition in bankruptcy, it is generally thought that they will work together to deal with their common financial problems. The Bankruptcy Code does not require anything more than that the joint petitioners be husband and wife, which the Willifords technically were, as of the date of the petition. 11 U.S.C. § 302. However, it is unusual for a husband and wife to go to divorce court one day, engage in a knock down drag out fight over assets and before entry of judgment of divorce, walk arm-in-arm to bankruptcy court to face their creditors together. With the benefit of hindsight, it is apparent that the joint filing was not a good idea.
Returning to the bankruptcy case, after an exhaustive three-year effort to reorganize, a Plan of Reorganization was confirmed, with all classes of creditors consenting, on January 30, 2006. (Doc. 255). Kenneth Williford moved this Court to vacate the Order of Confirmation on July 25, 2006. (Doc. 278). Kenneth Williford has made a number of filings, now acting pro se. On September 12, 2006, this Court conducted a hearing on all pending matters. Charlotte Williford, William R. Murray, Von G. Memory, James L. Day, and Bankruptcy Administrator Teresa Jacobs were present in person. Kenneth Williford appeared telephonically.
In general terms, there are two routes to confirmation of a Chapter 11 Plan. If all of the classes of creditors accept the plan, confirmation may be had pursuant to 11 U.S.C. § 1129(a). On the other hand, if there are one or more classes of dissenting class members, a more arduous route to confirmation is available pursuant to 11 U.S.C. § 1129(b), which is sometimes referred to as a "cram down" because the Plan is essentially crammed down the throats of unwilling creditors. It is worth noting here that the Debtor's Plan of Reorganization was confirmed pursuant to § 1129(a), with all classes of creditors concurring in confirmation.
Subsequent filings, as well as representations made by Kenneth Williford, suggest that he is no longer interested in vacating the Order of Confirmation. His attentions as of late appear to be centered on relitigating in bankruptcy court the state court's property division which was done in conjunction with the Judgment of Divorce.
Kenneth Williford is presently in a state prison in Bessemer, Alabama. He filed a motion asking that he be transported to the Bankruptcy Court in Montgomery for the September 12, 2006 hearing. (Doc. 292). This Court determined that it could adequately determine all pending matters without Kenneth Williford's physical presence in Court. While there are a number of factual allegations in dispute, they are not material to the resolution of the matter at hand, which is a legal dispute. The Court heard an oral presentation from Kenneth Williford on September 12, and he was given the opportunity to supplement his views with a brief. In response, Kenneth Williford has filed a number of documents that this Court will accept as briefs. (Docs. 287, 288, 291, 296, 304, 307, 310). The Court finds that Kenneth Williford has been given an ample opportunity to represent himself in these proceedings.
II. THE ORDER OF CONFIRMATION
The Court will first address the issue of whether the January 30, 2006 Order Confirming the Debtors' Chapter 11 Plan should be revoked. "On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud." 11 U.S.C. § 1144. On July 25, 2006, Kenneth Williford filed a timely motion to revoke the Order of Confirmation. (Doc. 278).
The elements of fraud are as follows:
1. A materially false statement;
2. The false statement must be known to be false by the person making the statement;
3. An intention to deceive and induce reliance;
4. Actual reliance; and
5. The order of confirmation must be entered as a consequence.
Tenn-Fla Partners v. First Union Nat'l Bank of Fla., (In re Tenn-Fla Partners), 226 F.3d 746, 750 (6th Cir. 2000); see also,Westchester Surplus Lines Ins. Co. v. Surfside Resort Suites, Inc., (In re Surfside Resort Suites, Inc.), 344 B.R. 179, 189-90 (Bankr. M.D. Fla. 2006).
Kenneth Williford alleges that a fraud was perpetrated on the Court and on the creditors in that the divorce proceedings were not disclosed in the bankruptcy case. Moreover, Kenneth Williford faults the lawyers for not advising the Circuit Court of Lee County about the filing of this bankruptcy petition while the divorce petition was still pending. On June 29, 2005, seven months before the Order of Confirmation was entered, the Debtors filed an Amended Disclosure Statement. (Doc. 191). At pages 6 and 7 of the Amended Disclosure Statement, the following is stated:
In September 2003 Charlotte Williford filed a petition for divorce against Kenneth Williford in the Circuit Court of Lee County, Alabama, Case Number DR 2003-175. Pursuant to a judgment of divorce rendered October 31, 2003 the court awarded to Charlotte Williford all property of the estate. This matter was appealed by Kenneth Williford to the Alabama Court of Civil Appeals, Case Number 2030320, and a rehearing was denied, June 17, 2005.
This representation in the Amended Disclosure Statement is in bold italics characters.
(Doc. 191, pp 6-7).
The motion to vacate the Order of Confirmation necessarily fails as no false statement was made. Because there was no false statement, Kenneth Williford's motion to revoke the Order of Confirmation is denied.
III. THE AUTOMATIC STAY
Kenneth Williford also contends that the proceedings in his divorce case subsequent to October 3, 2003, the date the bankruptcy petition was filed, were taken in violation of the automatic stay and are therefore void. He further requests that the property division effected by the Circuit Court in the divorce proceedings be vacated and that this Court schedule a hearing and make a division of the parties' marital property. Kenneth Williford seeks a share of the real property upon which the mobile home parks sit, which have featured so prominently in these proceedings.
Upon the filing of a petition in bankruptcy, an automatic stay comes into effect. 11 U.S.C. § 362; see also, In re Briskey, 258 B.R. 473 (Bankr. M.D. Ala. 2001). Most proceedings against a debtor and property of the estate are stayed by operation of law.Id. Memory and Day argue in their brief that the automatic stay does not affect divorce proceedings of joint debtors. (Doc. 301, pp. 6-7). However, the fact that the Debtors filed a joint petition does not mean that their estates are consolidated unless the bankruptcy specifically orders consolidation. 11 U.S.C. § 302(b). That has not been done in this case. Therefore, Memory and Day's theory, that a divorce property division does not impinge upon the automatic stay as the division of property is internal, necessarily fails. A division of property by a divorce court of an individual in bankruptcy necessarily entails a transfer of property which by definition violates the automatic stay. See, Elrod v. Elrod (In re Elrod), 91 B.R. 187, 189 (Bankr. M.D. Ga. 1988) (holding that the automatic stay protected debtor's property, but bankruptcy court deferred to state divorce court to make determination as to division of property). In this case, the division of property effected by the Williford divorce decree was done in violation of the automatic stay.
Under the law of this Circuit, actions taken in violation of the automatic stay are void. Albany Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670, 675 (11th Cir. 1984); see also, Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308-09 (11th Cir. 1982). It is clear that all proceedings affecting the Debtors' property which took place in the Williford divorce case subsequent to the filing of the bankruptcy petition are void as a matter of law.
At the September 12, 2006 hearing, this Court discussed with those present the available alternatives for dealing with the violation of the automatic stay. In this Court's view, there are three options. First, this Court may declare the divorce proceedings in Lee County void and proceed to hear the property division aspect of the divorce proceeding in Bankruptcy Court. Second, this Court could declare the Lee County proceedings void but grant relief from the automatic stay and remand to Lee County for further proceedings unencumbered by the automatic stay. Third, this Court could annul the automatic stay and thereby retroactively validate the proceedings in Lee County as well as those before the Alabama Court of Civil Appeals, making further proceedings here unnecessary. Kenneth Williford favored the first alternative and opposed the second and third alternatives. Charlotte Williford prefers the third alternative, leaving in place and validating the existing divorce decree.
The Bankruptcy Code gives bankruptcy courts discretion to "annul" the automatic stay. 11 U.S.C. § 362(d); see also, Albany Partners, 749 F.2d at 675 (noting that bankruptcy courts have the power to retroactively annul the automatic stay, validating actions taken in violation of the stay). Having considered the three alternatives described above, annulment of the automatic stay, retroactively giving effect to the Lee County divorce decree, is the best course of action here. The Court concludes that annulment is best for two reasons. First, Kenneth Williford voluntary proceeded with his divorce case knowing of his bankruptcy proceeding and presumably knowing that actions taken in state court were in violation of the automatic stay. Second, under the facts of this case, there is no prejudice to creditors.
As described above, Kenneth Williford, together with his then wife Charlotte, filed a voluntary petition in bankruptcy while their divorce petition was pending in Circuit Court. There were three sets of lawyers involved. Kenneth and Charlotte each had their own lawyers in the divorce proceedings, and both of them were represented by Memory and Day in this bankruptcy case. None of the lawyers advised the Circuit Court of the bankruptcy filing until considerably later, and no one moved for relief from the automatic stay here to permit the divorce case to proceed. The Circuit Court entered judgment of divorce on October 31, 2003, whereupon Kenneth Williford, through counsel, prosecuted an appeal to the Alabama Court of Civil Appeals. It is plainly inconsistent for Kenneth Williford to argue here that the proceedings in state court are void as violative of the automatic stay, as he nevertheless prosecuted an appeal in the state court system. To give Kenneth Williford a federal court "do over" here would do violence to the principle of comity with the state court system and waste scarce judicial resources.
The bankruptcy courts were not created to give parties to divorce proceedings an alternate means of effecting a division of property. The overriding interest of the bankruptcy courts in such proceedings is to protect the interests of creditors who could be harmed by collusive or fraudulent activities in connection with the division of marital property. In a common fraudulent divorce scenario, the party with the majority of the debt, usually a husband in a failed business, gives up his property to his wife for the purpose of thwarting his creditors. Once denuded of his assets, the husband can file bankruptcy and discharge his debt, while his former spouse keeps the majority of the property.
Such is not the case here. The divorce decree gives Charlotte Williford the majority of the marital assets. Yet, the confirmed Chapter 11 Plan provides that Charlotte Williford will continue to operate the business and pay all of the business debts. No creditors have been harmed. Indeed, the Court gave all parties in interest notice of the hearing on Kenneth Williford's motion, and not one creditor made an objection. The fact that no creditors are harmed is the overriding factor here. Combining the fact that Kenneth Williford continued to litigate in state court, to the extent of prosecuting an appeal, and the fact that creditors have not been harmed, weigh heavily in favor of annulling the automatic stay and leaving the existing division of property in place.
Annulment should be considered against the backdrop of deeply rooted policy concerns pertaining to the traditional reluctance of federal courts to intrude in domestic relations law, which is traditionally within the purview of the state courts. See Ankenbrandt v. Richards, 504 U.S. 689, 112 S.Ct. 2206, 119 L.Ed.2d 468 (1992) (explaining the domestic relations exception to Federal Court jurisdiction). When there are simultaneous bankruptcy and divorce proceedings pending, the bankruptcy court will usually give way and permit the state court to divide the property. Once the debtor's property interests are delineated, the bankruptcy court may take jurisdiction over the debtor's property and administer the bankruptcy proceedings. See Harrell v. Sharp (In re Harrell), 754 F.2d 902, 907 (11th Cir. 1985) (stating that a "bankruptcy court will not duplicate the functions of state domestic relations courts, and its rulings will impinge on state domestic relations issues in the most limited manner possible"). However, the bankruptcy courts may reexamine a distribution of property and make appropriate adjustments in the case of fraud, collusion, or the like. See Ingals v. Erlewine (In re Erlewine), 349 F.3d 205, 212-13 (5th Cir. 2003) (finding that the Bankruptcy Court had power to set aside the divorce decree as a fraudulent conveyance, and that it did not err in finding that debtor had received reasonably equivalent value, hence no fraudulent conveyance occurred). While this Court has jurisdiction to vacate a property division effected by state court, it will not lightly intrude upon the workings of another court and would do so only for weighty reasons, which are not present here. For these reasons, the automatic stay is annulled, thereby validating the property division in the divorce decree.
IV. WILLIAM MURRAY'S MOTIONS
William Murray has filed several motions which will be addressed. On July 30, 2006, Murray moved to intervene to protect his property interest in the contingent fee in the litigation against the Funderburk law firm. (Doc. 280). As Murray is already a party in interest, he need not intervene in order to be heard. For this reason, his motion to intervene is denied as moot.
Murray has also moved to "correct" this Court's Order of Status Hearing. (Doc. 285). Murray complains that this Court's order of July 31, 2006 is not sufficiently clear in its reference as to whom was defrauded. (Doc. 281). The purpose of the July 31, 2006 Order was to put interested parties on notice as to what the Court would hear at the September 12, 2006 hearing. For that purpose, the Order is clear enough. The motion is denied.
Murray has also moved to correct this Court's docket entry number 298. (Doc. 299). During the pendency of these proceedings, Murray had apparently filed a complaint with the Alabama Bar Association accusing Memory and Day of unethical conduct and sent a copy of the complaint to this Court. In his complaint to the Bar, Murray misrepresents the status of this Court's record. Specifically, Murray failed to advise the State Bar that the Willifords' divorce proceeding was disclosed in the Amended Statement of Financial Affairs. While one may reasonably argue that the matter should have been disclosed earlier, Murray's failure to advise the Bar that a disclosure was made seven months prior to confirmation of the Chapter 11 Plan is both a material omission and highly misleading. Murray argues that he did not "file" his complaint with this Court. (Doc. 299). As Murray submitted his complaint to the undersigned, it was clearly "filed" by him. FED. R. BANKR. P. 5005(a). Murray's motion to correct Docket Entry 298 is denied.
The Court will also address the matter of the obligation of Charlotte Williford to continue to pay Murray's expenses. This matter was discussed at the September 12, 2006 hearing and has been raised only obliquely in the pleadings and papers on file. Murray represents both Charlotte and Kenneth Williford in the Adversary Proceeding 04-8015, wherein it is alleged that the Defendants are liable for malpractice in connection with the Emerton suit. The undersigned dismissed the complaint in that Adversary Proceeding on September 1, 2005. The Plaintiffs prosecuted an appeal to the District Court which affirmed the decision of this Court on September 7, 2006. Williford v. Funderburk, Civil No. 3:05-CV-857-MHT, United States District Court for the Middle District of Alabama. Kenneth Williford and William Murray want to appeal to the Eleventh Circuit, but Charlotte Williford does not. This does not pose a problem in and of itself, but Murray wants Charlotte Williford to pay his expenses. Charlotte Williford complained that Murray had demanded that she pay him an hourly fee if she did not agree to fund the appeal. There is nothing in the application for employment, or order approving employment, which would obligate her to continue to fund an appeal which she did not wish to join. Nor is she obligated to pay him an hourly fee. The Court finds that Charlotte Williford is not required to fund an appeal that she does not wish to pursue and that she is not liable to Murray for attorney's fees.
Murray has accused Memory and Day of unethical conduct in their handling of these bankruptcy proceedings. Specifically, Murray states the following in his complaint filed with the State Bar:
ATTORNEY [Murray] submits that a "fraud" has been committed against:
* * *
b. A Bankruptcy Court, by the BANKRUPTCY ATTORNEYS' [Memory and Day] failure to advise that Court that the Joint Debtor's assets were being, or had been, divided or altered in violation of the "Automatic Stay" of 11 U.S.C. § 362.
(Doc. 298, pp. 22, which is Page 4 of 6 of Murray's letter of June 30, 2006, to Anthony McLain). As has been discussed above, the divorce proceedings were disclosed in the Amended Disclosure Statement which was filed June 29, 2005. (Doc. 191). To be sure, the divorce proceedings should have been disclosed earlier. Moreover, someone should have timely sought relief from the automatic stay to permit the division of the Willifords' property to proceed. However, not every error and omission in the filing of documents with the Court it tantamount to a fraud. Such is the case here. There is no evidence to show that the earlier omissions in the bankruptcy filings were intentionally false, and there is no evidence of reliance on the part of anyone upon any false statements. Any harm that might have resulted from the incomplete disclosures has been cured by the annulment of the automatic stay. While Memory and Day's conduct here has not been letter perfect, it should be judged in the context of a mass of rapidly moving litigation which, if unabated, would have swamped the Debtors' efforts to reorganize.
V. MEMORY AND DAY'S MOTIONS
On July 27, 2006, a Motion to Dismiss was filed by Memory and Day on behalf of the Willifords. (Doc. 279). As it appears that the motion was filed based upon a misunderstanding of Kenneth Williford's wishes, that motion is denied.
On August 8, 2006, Memory and Day moved to withdraw their appearance on behalf of the Willifords. (Doc. 286). Given the present posture of the Willifords, it does not appear that one could represent them both at the same time without an actual conflict of interest. For this reason, the motion to withdraw is granted.