Opinion
Case No. 15-20746-TPA
09-09-2015
IN RE: LORI L. POOLE, a/k/a LORI L. HAGER, Debtor TOTAL RESTORATION SERVICE, Movant v. LORI L. POOLE, a/k/a LORI L. HAGER, DALE R. HAGER, ALLSTATE INSURANCE COMPANY, GREEN TREE SERVICING, LLC and its AFFILIATES and JEFFREY J. SIKIRICA, ESQ., TRUSTEE, Respondents
Chapter 7 Related to Doc. No. 38 MEMORANDUM ORDER
Presently before the Court for determination following an evidentiary hearing held on July 13, 2015, is a Motion for Relief from Automatic Stay ("Motion"), filed on May 7, 2015, at Doc. No. 38 by Total Restoration Service ("TRS"). For the reasons that follow the Motion will be granted, albeit on different grounds than argued by TRS.
The case is a core matter under 28 U.S.C. §157(b)(2)(A), (G) and (K) and the Court has jurisdiction over the matter pursuant to 28 U.S.C. §1334. No Party has ever raised an issue regarding jurisdiction or core status.
BACKGROUND
The relevant facts are largely undisputed and are established by the Motion, the Response thereto filed by the Debtor (none of the other Respondents filed a response), the testimony and exhibits that were presented at the evidentiary hearing, and the records of the Court.
The Debtor and her then-husband, Dale Hager ("Dale"), purchased a residence located at 132 Stratford Court, New Stanton, Pa. ("the Property") on December 29, 2004, as tenants by the entireties. They borrowed money in connection with that transaction and gave a mortgage on the Property to the lender, Sirva Mortgage, Inc. That mortgage was subsequently assigned and is currently being serviced by Respondent, Green Tree Servicing, LLC ("Green Tree"). A complaint in mortgage foreclosure against the Debtor and Dale was filed in Westmoreland County at No. 11-CJ-07185 on November 3, 2011. It appears that the foreclosure action is still pending, intermittently having been stayed for periods of time by several bankruptcy filings as described further below.
The Debtor and Dale filed a joint bankruptcy petition under Chapter 13 on June 26, 2012, at Case No. 12-23230. Upon a subsequent motion by them indicating that they intended to pursue a divorce, that case was dismissed without prejudice on August 7, 2013, and closed on January 15, 2014. On September 17, 2013, the Debtor then did file an action for divorce against Dale in Westmoreland County at Case No. 13DO00800, which resulted in a divorce decree being entered on April 8, 2014.
On or about January 31, 2014, the Property was extensively damaged when a water pipe froze and burst. Although the record is not entirely clear on the point, it appears the Property was vacant at the time, both the Debtor and Dale having by then parted ways and moved elsewhere. The Property was insured by Respondent Allstate Insurance Company ("Allstate") at the time of this loss. Records indicate that a damage claim for the Property was received by Allstate on February 12, 2014, designated as Claim No. 0315873018. An inspection of the Property was conducted by an Allstate representative on March 5, 2014. On March 10, 2014, Allstate issued a check in the amount of $57,280.97, with the notation "in payment of freezing loss on 1/31/2014," payable to "Dale R & Lori Hager and Green Tree Servicing LLC" (hereinafter, "Allstate Check"). The current whereabouts or status of the Allstate Check is not alleged in the Motion and did not come up at the hearing. The Court will presume that either the Allstate Check remains unnegotiated, or that it has been negotiated and the resulting funds have been traceably placed into an account. In either case, the proceeds represented by the Allstate Check will be referred to hereinafter as the "Allstate Funds."
For instance, a Marital Settlement Agreement dated March 21, 2014 entered into by them in connection with the divorce action states that the Property "is presently subject to a foreclosure action, which has resulted [sic] both vacating the [P]roperty."
TRS is a company that specializes in commercial and residential disaster restoration, repair and construction services. Robert J. Black, Sr. ("Black") is the owner of TRS and he testified at the evidentiary hearing that his company was contacted by both Allstate and the Debtor asking that TRS provide emergency and repair services on the Property. Black was vague in his testimony as to when these first contacts occurred, but from the entire context the Court gathers that it must have been around mid-March 2014. TRS also received by e-mail from Allstate a copy of a written estimate of damages to the Property that Allstate had prepared following its inspection. TRS informed Green Tree that it would be providing services to repair the damage to the Property.
On April 7, 2014, a "Construction Agreement" was signed by TRS and the Debtor (then known as Lori Hager) as the "Owner" of the Property whereby the Debtor agreed to pay TRS $76,726.34 for work to be done on the Property. The extent of work to be done set forth in the Construction Agreement appears to have been based on a detailed analysis of the damage that had been prepared by Allstate and was attached to the Agreement. The Construction Agreement called for $25,000 to be due on signing and the balance to be paid in two further stages, one after completion of the drywall and the other upon completion of the entire job. Dale Hager did not sign the Construction Agreement. However, Black testified that two or three weeks earlier Dale Hager had given him verbal approval for TRS to do the work and the Court finds that testimony to be credible.
The typed date on the Construction Agreement is April 1, 2014, but the hand-written date appearing by both signatures is April 7, 2014 and there does not seem to be any dispute that the latter date is the one when it was actually signed.
The Court presumes this is the same document as the estimate of damages that TRS received from Allstate by e-mail.
In addition to the Construction Agreement itself, the Debtor also signed a "To Whom It May Concern" letter that same date on TRS letterhead that references Loan No. 82026793 (the purchase money loan on the Property) and states:
I, Lori Hager, have contracted with Total Restoration Service to perform the restoration activities on my home located at 132 Stratford Ct, New Stanton, PA 15218. I authorize Green Tree to discuss any and all restoration activities with Total Restoration Service (642 Mt. Pleasant Street, Greensburg, Pa.). I further authorize Green Tree to
release payment directly to Total Restoration Service, for the service that they perform in conjunction with cleaning and restoration.
This letter was included within the "Construction Agreement" that was alleged to have been entered into between the Debtor and TRS that was attached to the Motion as Exhibit B. See Motion at Paragraph 6 and Exhibit B. TRS also submitted the "Construction Agreement" into evidence at the evidentiary hearing as Exhibit CR-9 and Black identified it as having been signed by the Debtor. The version of the Construction Agreement submitted at the hearing was longer than the one attached to the Motion because it also included the detailed damage analysis prepared by Allstate. Curiously, however, the letter was not included with Exhibit CR-9, and it is unclear whether that was by design or merely an oversight. Regardless, it raises the question whether the Court can consider the letter in deciding the Motion. The Court notes that while in her Response to the Motion the Debtor denied Paragraph 6, she did so only on the grounds that she, individually, lacked authority to enter into the agreement. She did not deny having signed the Construction Agreement documents that are attached as Exhibit B, including the letter.
Additionally, the letter was included within the attachment of the Construction Agreement to TRS proof of claim 11 filed in the case on April 6, 2015, to which the Debtor has never objected. The proof of claim is therefore presumed valid and the Court may take judicial notice of it, including the existence of the letter as part of the writing upon which the TRS claim is based. See F.R.E. 201, Fed.R.Bankr.P. 3001(c)(1) and (f), and, e.g., In re Mahmud, 2008 WL 809115 *68 (Bankr. E.D. Pa. 2008). Therefore, while it would have been better if TRS had introduced the letter into evidence at the hearing along with the rest of the Construction Agreement, the Court nevertheless can and does take judicial notice of it. If the Debtor disagrees with this she may request to be heard pursuant to F.R.E. 201(e) via a timely filed motion for reconsideration.
TRS performed restoration services on the Property and on May 12, 2014, it sent a billing invoice to the Debtor for payment of $22,796.65. This bill has never been paid. It was not explained in the Motion or at the hearing why the billed amount differs from what is stated in the Construction Agreement, but the Debtor has not contested the reasonableness of the amount being sought by TRS, nor has she questioned the quality of the work that was performed. TRS has also filed a proof of claim in the amount of $22,796.65 to which the Debtor has never objected. The Court therefore finds the amount owed to TRS is not in dispute.
Dale Hager, by then divorced from the Debtor, filed an individual Chapter 7 case on May 3, 2014, at Case No. 14-21849. He claimed an exemption of $10,600 in the Allstate Funds pursuant to 11 U.S.C. § 522(d)(5). The case was noted to be a "no asset" case by the Chapter 7 Trustee, and Hager was ultimately discharged on September 24, 2014, with the case closed on January 29, 2015. It is unclear whether Dale ever obtained his exemption from the Allstate Funds, however, as indicated previously, he did not file a response or otherwise participate at all in the present matter so the Court presumes he has no interest in the outcome of the Motion.
The Debtor's present case was filed on March 5, 2015, under Chapter 7. The Statement of Intention she filed that same date indicated that the Property would be surrendered. In her original Schedule C, the Debtor claimed a $20,000 exemption in the Property pursuant to 11 U.S.C. §522(d)(1), while noting that the Property had been abandoned. There was no claimed exemption in the Debtor's original filing for any of the Allstate Funds. On May 29, 2015, the case was converted to Chapter 13 upon motion by the Debtor. On July 21, 2015, the Debtor filed an Amended Schedule C, adding a claim for an exemption of $28,640.48 in the Allstate Funds pursuant to 11 U.S.C. §522(d)(7) and dropping her exemption claim in the Property. TRS objected to the claim of an exemption in the Allstate Funds on the ground that they were not from a life insurance contract. That objection was granted on August 12, 2015, after the Debtor failed to file any response to it.
DISCUSSION
The issue presented for the Court's determination is a fairly simple one. Does TRS have any rights in the Allstate Funds such that it should be granted relief from stay so it can make a recovery directly therefrom, as TRS asserts, or is it merely like any other unsecured creditor of the Debtor that will have to await payment over time through her Chapter 13 plan, as the Debtor proposes?
The Court will first examine the Debtor's argument because it can be quickly dealt with. The only authority provided by the Debtor in her brief opposing the Motion, In re Okwonna-Felix, 2011 WL 3421561 (Bankr. S.D. Tex. 2011) is completely inapposite. That case dealt only with the question of whether a debtor could claim an exemption in the proceeds from an insurance settlement stemming from property damage caused by a hurricane.
Unlike the present case, in Okwonna-Felix there was no contractor who had done work to repair damage to the debtor's property also claiming a right to the proceeds. Furthermore, even though the Okwonna-Felix court allowed the debtor's claimed exemption in the proceeds, it also found that the debtor would not have "unfettered use" of the proceeds. Instead, because the mortgagee also had a lien interest in the insurance proceeds, the debtor simply could hold the monies to ensure that the proceeds were actually used to repair the damaged property and not for something else. Id. at **8-9. The Court thus finds that the Debtor has provided no credible legal argument to counter the Motion.
The lack of such argument by the Debtor does not, of course, mean the Motion must therefore be granted, particularly since TRS carries the burden of proof. In the Motion, TRS asserts that it has a lien interest in the Allstate Funds, which it says are being held in a constructive trust by Allstate. The TRS argument is set forth in more detail in the brief it filed. TRS argues that the Allstate Funds are not part of the Debtor's estate. It cites a number of treatises and cases, including Brockway Pressed Metals, Inc., 363 B.R. 431 (Bankr. W.D. Pa. 2007), aff'd. 304 Fed. Appx. 114 (3d Cir. 2008), that discuss when it is appropriate to make a determination that funds are being held in a constructive trust. Although TRS accurately sets forth the applicable law concerning constructive trusts, the Court does not find the constructive trust argument persuasive under the facts of this case.
This suggests that TRS believes the Allstate Funds are currently being held by Allstate, which seems inconsistent with the undisputed fact that the Allstate Check was issued back in March 2014, though perhaps it means to suggest that the check was never negotiated and has gone stale. As was indicated above, the Court was not provided with any evidence at trial to show who is currently holding the Allstate Funds, which is contrary to what the Court would have expected going into the trial. At any rate, the lack of this information, while puzzling, is not germane to the Court's decision. It will be up to TRS to track down the Allstate Funds if it does not now know where they are.
"The propriety for imposition of a constructive trust is governed in the first instance, by applicable state law." Brockway, 363 B.R. at 453 (citing cases). All relevant events in the present case occurred in Pennsylvania, so there is no question but that the law of this state must be consulted to determine whether a constructive trust should be imposed. Pennsylvania allows the imposition of a constructive trust as an equitable remedy to prevent unjust enrichment where the party against whom the trust is to be imposed "acquires property in a manner which creates an equitable duty in favor of the party seeking the constructive trust." Id. At 454 . A constructive trust remedy may only be imposed, however, in the presence of fraud, duress, undue influence, mistake, or abuse of a confidential relationship. 363 B.R. at 454 (citing Yohe v. Yohe, 466 Pa. 405 (Pa. 1976)). Furthermore, the party seeking to have a constructive trust imposed bears a "heavy burden" and must present evidence that is "clear, direct, precise and convincing." Id. (Citing cases).
If the property which is claimed to be subject to a constructive trust is of particular federal concern, then federal common law rather than the law of the state may be applied. See, e.g., In re Columbia Gas Systems, Inc. 997 F.2d 1039 (3d Cir. 1993) (federal common law would be applied to impose constructive trust on customer refunds being held by pipeline operator where applying state law would frustrate federal regulatory policy). No particular federal interest exists in the present case.
Given this demanding standard, the Court has some difficulty in justifying the imposition of a constructive trust remedy in the present case. TRS has not even alleged, let alone proven, anything in the conduct of the Debtor or the overall transaction that bears resemblance to fraud, duress, undue influence, mistake, or abuse of a confidential relationship. TRS has not directed the Court to any Pennsylvania authority that would allow for a constructive trust to be imposed in circumstances outside the ambit of these categories, and the Court is reluctant to take that step in the absence of such authority.
The Court notes that, although the Parties did not cite to any cases involving the specific question of whether a constructive trust could be imposed over property insurance proceeds in favor of a contractor who had done repair work on the property, its own research disclosed several such cases, though none applying Pennsylvania law. See, e.g., In re Rowland, 140 B.R. 206 (S.D. Ohio 1992) (applying Ohio law and finding proceeds not held in constructive trust), In re Stafford, 2011 WL 10894608 (Bankr. W.D. N.C. 2011) (applying North Carolina law and imposing a constructive trust).
Additionally, the Court is mindful that extreme caution is in order before an "after-the-fact" constructive trust is imposed by a bankruptcy court because the result of doing so runs counter to one of the overarching principles of bankruptcy law, namely, the ratable distribution of the bankruptcy estate to creditors. As one court cogently noted:
At a minimum, the greatest caution should be exercised before bankruptcy courts enter the postpetition thicket to remediate by establishing, in the first instance, a constructive trust. Indeed, many of the purported precedential cases for any such extraordinary bankruptcy court actions have tight tethering to prepetition judicial determinations, well-established prepetition federal or state statutory or regulatory policy regimes, or the clearest footing in trust law.In re Day, 443 B.R. 338, 346 (Bankr. D. N.J. 2011). None of these circumstances exists in the present case: TRS had initiated no judicial action prior to the bankruptcy, no statutory or regulatory policy regime has been implicated, and it is far from clear that Pennsylvania law would recognize a constructive trust under the facts of this case. For all these reasons, the Court will not impose a constructive trust on the Allstate Funds.
That is not the end of the matter, however, because the Court finds that TRS is entitled to the relief it seeks, though for a different reason than set forth in the Motion and brief. The Court reaches this conclusion because it finds that the April 7th letter signed by the Debtor operated as an assignment of the Allstate Funds to TRS to pay for the services it provided on the Property. After reciting that TRS had been contracted to repair the Property, the April 7th letter states:
I further authorize Green Tree to release payment directly to Total Restoration Service, for the service that they perform in conjunction with cleaning and restoration.Even though the letter does not use the word "assign," that is in substance just what it did. An assignment having occurred, even if the Debtor somehow can still be said to have some bare legal title in the Allstate Funds because her name is on the Allstate Check or the account into which the funds have been deposited, the equitable interest of TRS is not property of the bankruptcy estate. 11 U.S.C. §541(d).
Under Pennsylvania law, no words of art are required to constitute an assignment; any words that fairly indicate an intention to make the assignee the owner of a claim are sufficient. Robertshaw v. Pudles, 2014 WL 1789307 *12 (E.D.Pa. 2014) (quoting 29 Williston on Contracts § 74:3 p. 59-60 (4th ed.)). Had the April 7th letter stated that the Debtor intended to pay TRS out of the insurance proceeds, or had the Allstate Check not yet been issued when the letter was signed by the Debtor, it is questionable whether the letter could be considered an assignment. See, e.g., Western United Life Assur. Co. v. Hayden, 64 F.3d 833, 838 (3d Cir. 1995) (a contract to make a future assignment of a right or to transfer proceeds to be received in the future is not an assignment). But that is not what happened here.
The language authorizing Green Tree to pay TRS directly is phrased in the present tense and in unconditional language. Furthermore, it will be recalled that the Allstate Check had been issued on March 10th, so there was not just an expectation that insurance proceeds would be forthcoming at the time the April 7th letter was signed; they had already been paid. A debtor's present authorization for a creditor to be paid from funds being held by a third party can constitute an assignment. See, Huff v. Nationwide Ins. Co., 167 B.R. 53, 60 (W.D. Pa. 1992), aff'd. 989 F.2d 487 (3d Cir. 1993) (document signed by debtor that stated "I hereby authorize you to make a deduction from my commissions and other amounts due me as outlined below, and deposit same currently to the account of Nationwide Credit Union..." held to constitute an assignment), In re Robert T. Noel Coal, Inc., 82 B.R. 778, 780 (Bankr. W.D. Pa. 1988). Additionally, since TRS has given consideration for the Debtor's assignment, by the work it did on the Property in reliance thereon, the assignment is irrevocable. Brager v. Blum, 49 B.R. 626, 629 (E.D. Pa.1985).
It should be noted that Pennsylvania actually recognizes two different types of assignment:
There are two types of assignments recognized under Pennsylvania law - legal assignments and equitable assignments. A legal assignment is a transfer or setting over of property, or some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, chattel or other thing. In Re Purman's Estate, 358 Pa. 187, 56 A.2d 86 (1948). A party that cannot demonstrate a legal assignment may nevertheless invoke the doctrine of equitable assignment, which is any order, writing or act by the assignor which makes an absolute appropriation of a chose in action or fund to the use of the assignee with the intention to transfer a present interest, although not amounting to a legal assignment. Id.In re Independent Pier Co.,209 B.R. 333 (Bankr.E.D.Pa.,1997) , aff'd. 210 B.R. 261 (E.D. Pa. 1997). See also, Moeser v. Schneider, 158 Pa. 1088 (Pa. 1893). The Court believes that the April 7th letter was sufficient to act as a legal assignment of the Debtor's rights in the Allstate Funds to the extent of the TRS bill. At the very least, it was an equitable assignment. In either case, it divested the Debtor of her interest in the assigned property.
Although there are two other Parties that potentially have an interest in the assigned Allstate Funds-Dale Hager and Green Tree-the Court also finds that they have waived any claim to such interest. Both are named as respondents in this action, but neither responded in any way to the Motion. Furthermore, and in any event, both appear to have knowingly accepted the benefit of the services provided by TRS, so it is highly questionable whether they would have any meritorious basis to challenge the outcome reached here. --------
AND NOW , this 9th day of September , 2015 , for the reasons stated above, it is ORDERED , ADJUDGED and DECREED that the Motion is GRANTED , as follows,
(1) The Debtor is found to have assigned all of her interest in the Allstate Funds to TRS on April 7, 2014, to the extent of the amount owed to TRS for the work it performed on the Property, that being $22,796.65, and therefore to that extent the Allstate Funds are not property of the bankruptcy estate.
(2) TRS is given relief from stay as necessary to pursue recovery of the portion of the Allstate Funds that has been assigned to it.
/s/_________
Thomas P. Agresti, Judge
United States Bankruptcy Court
Case Administrator to serve:
Patrick Mahady, Esq.
Donald Moreman, Esq.
Debtor