Opinion
Case No. 03-22751-WS.
February 14, 2007
Several motions are before the court in this matter. First on July 5, 2006, creditor Virginia Kozlowski ("Kozlowski") filed a motion to reconsider the Court's Supplement to Order Granting Lorandos, Gravel-Henkel, Stipanovic's First Amended and Supplemental Fee Application ("Supplemental Order"). Second on July 24, 2006, creditor Lorandos, Gravel-Henkel, Stipanovic ("Lorandos") filed a motion for contempt against the debtor and Jackson National Life Insurance Company ("Jackson"). Third on August 8, 2006, Jackson filed a motion requesting the court vacate or set-aside the June 23, 2006 Supplemental Order. Additionally, Jackson's motion requested that the court award sanctions to Jackson from Lorandos under Fed.R.Civ.P. 11.
I. Introduction
E. Harold Bunting, the Debtor, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. His largest creditor is his ex-wife, Virginia Kozlowski. The Debtor was represented by Patricia Gravel-Henkel of Lorandos, Gravel-Henkel, Stipanovic PLLC. One of the Debtor's many assets were three life insurance policies issued by Jackson National Life Insurance Company. The motions addressed by this opinion were brought about by the Court's supplemental order allowing Lorandos' fees to be paid from the liquidation of the life insurance policies issued by Jackson.
This case arose prior to the enactment and effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8 119 Stat. 23. Accordingly, all references herein are to the pre-BAPCPA Code in effect when the Debtor's petition was failed. 11 U.S.C. §§ 101- 1330 (2000).
II. Facts
The Debtor filed for Chapter 11 relief in July 2003. Prior to filing his petition, the Debtor and Kozlowski divorced after over 30 years of marriage. In March 2002, Kozlowski was awarded the insurance policies, and subsequently, this judgment was affirmed by the Court of Appeals. Bunting v. Bunting. 2004 Mich. App. Lexis 2021, *1 (Mich.App. July 21, 2004).
This Court approved Patricia Gravel-Henkel's request to act as counsel for the Debtor in July 2005. Lorandos filed its first application for compensation in September 2005. The order accompanying the application proposed that the fees be paid from the Jackson National Life Insurance policy # 003-894-7970. On September 9, 2006, Kozlowski objected to the fee application and in paragraph three of the response, objected to using the insurance policies to pay the fees. The first application was withdrawn, and on October 21, 2005, an amended application was filed. Kozlowski objected to the amended application by incorporating the her previous objections.
A second supplemental application was filed on February 3, 2006. The second supplemental fee application contained language that provided for the fees to be paid out of the proceeds of the sale of the Citrus Springs property and the Jackson National Life Insurance policy. Kozlowski entered multiple objections to the charges on the fee application but did not object — either expressly or by incorporating her prior objections — to the mention of the policy or Citrus Springs property. On February 17, 2006, a partial order granting fees was entered in favor of Lorandos.
On March 3, 2005, the Debtor's Chapter 11 petition was dismissed. Kozlowski sought the appointment of a receiver in Washtenaw County Circuit Court ("Circuit Court"), and a receiver was appointed on April 28, 2006. On May 9, 2006, the Circuit Court ordered the insurance policies to be liquidated and turned over to the receiver. On May 15, 2006, the Circuit Court entered an order avoiding all liens on the insurance policies. On March 6, 2006, Lorandos sent notice of an attorney's lien on the insurance policy in connection with its supplemental fee application. On June 2, 2006, an order, without a reference to the insurance policy or Citrus Springs property, was entered awarding the remaining fees and costs. On June 23, 2006, the prior order was corrected because the language referring to the Jackson National Life Insurance policy was inadvertently left out of the previous order. Jackson sought to intervene in the Circuit Court and interplead the funds from the policy. At a hearing on July 6, 2006, the Circuit Court ordered that the policies be turned over to the receiver, and Jackson has complied with this order.
III. Motion to Vacate and Motion to Reconsider
Kozlowski's Motion to Reconsider and Jackson's Motion to Vacate are both grounded in Fed.R.Civ.P. 60(b). Kozlowski's Motion for Reconsideration argues that the supplemental order was void and requests relief under Fed.R.Civ.P. 60(b)(4). Kozlowski claims the suplemental order was void for two reasons: no notice and lack of jurisdiction. Jackson does not specify which of the six reasons in the rule justify relief, but subsections 1, 2, 3, and 5 do not to apply on their face. This leaves the bases for the motion that the supplemental order was void and the catch all provision, "any reason justifying relief." Fed.R.Civ.P. 60(b)(4), (6).
There are no allegations of mistake, inadvertence, surprise, or excusable neglect. Fed.R.Civ.P. 60(b)(1). There is no new evidence. Fed.R.Civ.P. 60(b)(2). There are no allegations of fraud. Fed R. Civ. P. 60(b)(3). The order upon which the supplemental order was based has not been reversed or otherwise vacated, and the judgement certainly has not been satisfied, released, or discharged in any way. Fed.R.Civ.Pro. 60(b)(5).
A. The supplemental order is not void for lack of due process
Kozlowski's first basis for objection to the supplemental order is a lack of notice and opportunity to be heard regarding the change in language because the request that the money be taken from the insurance policy was only in the proposed order and not the pleadings. Bankruptcy rules state that a motion "shall set forth the relief or order sought." Fed.R.Bank.P. 9013 (emphasis added). L.B.R. 9021-1(a)(4)(C) (E.D.M.) provides that, "if all filed objections to an order are withdrawn, then the Court may dispose of the order. . . ." (emphasis added). Furthermore, L.B.R. 9014-1(b) (E.D.M.) requires that a proposed order be submitted with every motion. It is apparent from the Bankruptcy Rules and the Local Rules that the proposed order is the integral part of the motion. Lorandos properly served Kozlowski with the motion and the proposed order three times. Kozlowski had ample notice that Lorandos was proposing that the insurance policies and the Citrus Springs property be liquidated to pay the legal fees.
B. The supplemental order is not void for lack of jurisdiction.
Bankruptcy jurisdiction is determined by 28 U.S.C. § 1334. The Sixth Circuit found "the case for retained jurisdiction over fees to be clear." Dery v. Cumberland Casualty Surety Co. (In re 5900 Assoc., Inc.). 468 F.3d 326, 330 (6th Cir. 2005). During his Chapter 11, Bunting was a debtor in possession with the powers of a trustee. 11 U.S.C. § 1107. Accordingly, Lorandos was hired under the authority of 11 U.S.C. § 327 as the attorney for the estate, and the fees were approved under § 328(a). Bankruptcy Courts may hear all core proceedings arising under title 11 or in a case under title 11. 28 U.S.C. § 157(b)(1). Section 157(b)(2) provides a non-exclusive list of core proceedings that includes matters concerning the administration of the estate. 28 U.S.C. § 157(b)(2)(A). The payment of a professional hired to represent the estate falls squarely within the description of matters concerning the administration of the estate, and therefore, the Court had jurisdiction to order the liquidation of property to pay professional fees.
C. No exception circumstances justify vacating the supplemental order.
Final exception in Rule 60(b) is limited to exceptional or extraordinary circumstances that are not covered by the other exceptions. Hopper v. Euclid Manor Nursing Home, Inc. 867 F.2d 291, 294 (6th Cir. 1989). The purpose of Rule 60(b)(6) broad exception is give the court a mechanism for achieving substantial justice. Id. Jackson's motion and brief are void of any exception or extraordinary circumstances that justify ordering relief. Nor does this Court see that there is any injustice in ordering the liquidation of the insurance policies to pay administrative expenses.
The Court finds that there is no basis under Fed.R.Civ.P. 60(b) to justify reconsideration or vacating the Court's supplemental order. The parties have neither demonstrated, as required by L.B.R. 9024-1(c) that there was a defect that misled the Court, nor that the correction of which would have resulted in a different disposition. The supplemental order is properly seen as a correction to a transcription error in the original order or an overlooked omission which is well within the power of the Court to correct on it's own a initiative. Olle v. Henry Wright Corp., 910 F.2d 357, 363 (6th Cir. 1991) (stating that Rule 60(a) applies to errors of transcription, copying, or calculation, and not to a fundamental failure of discovery or notification). Accordingly, the supplemental order will not be vacated or reconsidered.
IV. Contempt
Lorandos has moved for contempt against Jackson and Bunting for their failure to turnover the proceeds of the insurance policies. Lorandos, as the movant, carries the burden of showing by clear and convincing evidence that Jackson and Bunting knowingly violated this court's order. Electrical Workers Pension Trust Fund of Local Union # 58, IBEW v. Gary's Electric Service, Co., 340 F.3d 373, 379 (6th Cir. 2003). Lorandos has shown that Bunting and Jackson knowingly violated this court order by failing to turnover the proceeds of the insurance policies. Bunting and Jackson now have the burden of showing that they are presently unable to comply with this court's order, and that they have done everything in their power to comply with the court's order. Id. Jackson and Bunting have met the burden of showing that they are unable to comply with the court's order. Jackson, recognizing the conflicting orders, attempted to interplead the funds. The state court, by threat of jail time, compelled Jackson to turnover the liquidation value of the policies to the state court receiver. Jackson has taken all steps within its power to comply with this court's order, and since Bunting is dependant upon Jackson to liquidate the policies, he has done all within his power to comply with this court's order. Accordingly, Bunting and Jackson cannot be considered in contempt.
Lorandos argues that there were procedural problems with Jackson's motion to interplead the funds because they attempted to intervene in the divorce action and interplead the funds as opposed to simply interplead the funds. Review of the state court transcripts shows that procedure was not an issue. The state court judge refused to recognize the validity of this court's order.
V. Sanctions
Jackson has moved for Rule 11 sanctions against Lorandos on the basis of Lorandos's motion for contempt against Jackson. The court must consider the factual basis and legal basis of claim when determining whether to impose Rule 11 sanctions. Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 399, 110 S.Ct. 2447, 2457 (1990). Rule 11 sanctions are at the discretion of the trial court. Id. Given that Jackson failed to follow a valid order of this Court, Lorandos had a legitimate, or colorable, claim of contempt. Accordingly, sanctions will not be entered in favor of Jackson.
VII. Conclusion
Orders in accordance with this opinion will be entered. Virginia Kozlowski's motion for reconsideration is denied. Lorandos, Gravel-Henkel, Stipanovic's motion for contempt against Harold Bunting and Jackson National Life Insurance Company is denied. Jackson National Life Insurance Company's motion to vacate or set-aside is denied. Jackson National Life Insurance Company's motion for Rule 11 sanctions is denied.