Opinion
20-53411
12-15-2022
IN RE: IDEA BUYER, LLC, Debtor.
ORDER APPROVING TRUSTEE'S FINAL REPORT AND OVERRULING OBJECTION OF JAMES BOBRESKI
C. KATHRYN PRESTON, UNITED STATES BANKRUPTCY JUDGE.
This matter came on for evidentiary hearing before the Court on October 27, 2022, to consider approval of the Trustee's Final Report (Doc. # 207) (sometimes referred to as "the Final Report") and the objection (Doc. # 212) filed by Creditor James J. Bobreski. Present at the hearing were Larry J. McClatchey, Trustee and counsel for the Trustee, and Mr. Bobreski, pro se.
The Notice of Hearing actually stated that a hearing was scheduled to consider the Amended Notice of Trustee's Final Report and Applications for Compensation and Deadline to Object (Doc. #210) filed by the Trustee, but the parties understood that Mr. Bobreski's Objection was to the Trustee's Final Report filed July 5, 2022 (Doc. #207) and therefore the hearing considered Mr. Bobreski's Objection to the Trustee's Final Report.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §1334 and Amended General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(A).
Upon the evidence adduced at the hearing and the arguments of the parties, the Court finds and concludes as follows:
BACKGROUND
Idea Buyer, LLC (hereafter, the "Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on July 15, 2020. Larry J. McClatchey was duly appointed the Chapter 7 trustee (the "Trustee"). Over the course of the case, the Trustee conducted the §341 Meeting of Creditors, gathered available assets of the Debtor, investigated the Debtor's financial circumstances and prepetition transfers, sold some assets and abandoned others that had no value to the bankruptcy estate. He also reviewed and monitored the companion bankruptcy case filed by the Debtor's principal, Mr. Eric Corl, and provided certain information to Mr. Bobreski upon his request. Mr. Corl testified at the §341 Meeting of Creditors that the business had been successful but fell victim to a nefarious hack from which the business could not recover.
In due course the Trustee filed his Final Report (Doc. #207) and sent proper notice thereof to all creditors and parties in interest. See Notice of Trustee's Final Report, and Applications for Compensation and Deadline to Object (Doc. #210). The Final Report reflects that the bankruptcy estate holds approximately $44,282, and proposes payment of (1) the Trustee's commission of $5,260.37, and (2) the Trustee's legal fees and expenses of $22,810.55.The balance of approximately $16,211 will be paid pro rata to creditors holding priority claims. Priority claims total over $34,885; inasmuch as there are insufficient assets to pay priority claims in full, priority claims in the amount of approximately $18,676 will be unpaid and there will be no dividend paid to unsecured creditors.
The fee application by counsel for the Trustee reflected time expended which supported a fee of $37,134, but in light of the scarcity of assets, counsel requested compensation of only $20,000 plus expenses. The Court granted the Trustee's counsel's fee application in the amounts sought. See Order Granting Final Application for Compensation and Reimbursement of Expenses of Attorney for Trustee and Overruling Objection (Doc. #216).
Mr. Bobreski timely filed his Objection to the Final Report. As the Court understands it, Mr. Bobreski specifically objects to the proposed fees to be paid the Trustee, as set forth in the Final Report, on the basis that the Trustee failed to comply with the Bankruptcy Rules, and failed to completely and properly execute the duties of a Chapter 7 trustee.
DISCUSSION
In his Objection, Mr. Bobreski posits that (1) the Trustee failed to conduct sufficient investigation in search of undisclosed assets; (2) the Trustee failed to conduct a meaningful investigation of the Debtor's business model and operations; and (3) the Trustee failed to provide records to Mr. Bobreski upon request. Mr. Bobreski also asserts that the Trustee improperly failed to communicate information to various law enforcement entities and the Office of the United States Trustee, and the Trustee failed to commence any adversary proceedings.
Section 704(a) of the Bankruptcy Code outlines the duties of a Chapter 7 trustee. It provides in pertinent part:
(a) The trustee shall-
(1) collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest;
(2) be accountable for all property received; . . .
(4) investigate the financial affairs of the debtor;
(5) if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper;
. . .
(7) unless the court orders otherwise, furnish such information concerning the estate and the estate's administration as is requested by a party in interest;
. . .
(9) make a final report and file a final account of the administration of the estate with the court and with the United States trustee;
. . . .11 U.S.C. § 704.
(1) The Trustee sufficiently investigated the Debtor's assets.
The Trustee thoroughly investigated the Debtor's assets, and reviewed pre-petition transfers of the Debtor's assets. He saw no credible evidence that the Debtor concealed assets, or that the Debtor surreptitiously transferred or disposed of assets and failed to disclose the transfer or disposal, or that there was an unexplained loss of cash assets. Mr. Bobreski has not presented any competent evidence that the Debtor has actively engaged in concealment or inappropriately disposed of assets. Even if he had pointed to assets in which the Trustee should have been interested, Mr. Bobreski failed to illustrate how those assets would have benefitted the bankruptcy estate. He presented no competent evidence of the value of any alleged undisclosed assets. Moreover, most of the Debtor's assets were subject to the security interest of FC Marketplace, LLC to which is due $224,927.82. See Claim #29-1. Therefore, any funds derived from liquidation likely would have been paid to FC Marketplace, not the unsecured creditors. Chapter 7 trustees do not typically liquidate such assets when there is no benefit to the bankruptcy estate.
It is true that the Debtor failed to disclose certain prepetition transfers of equipment in the initial Statement of Financial Affairs, but when brought to Debtor's attention that it had owned certain equipment prior to commencement of this case, Debtor promptly filed an Amended Statement of Financial Affairs (Doc. #160) on March 8, 2022, disclosing the transfers and disposition of equipment. Mr. Bobreski did not demonstrate that Debtor's initial failure to disclose was borne of nefarious intent. While any failure to disclose by a debtor is not optimal, it is not unusual for a debtor to overlook or not recall certain required information and amend later when reminded of the overlooked or forgotten facts.
Mr. Bobreski also harps on the amount of money that, according to him, the Debtor charged its customers for its services, perhaps suggesting that there should be a pot of money somewhere. But he completely ignores two things: one, it costs money to pay payroll, to rent business premises, compensate vendors and suppliers and independent contractors, purchase and maintain equipment, pay utilities and office expenses, pay for advertising and marketing, and cover other legitimate business expenses; and two, unless the Trustee has reason to suspect nefarious conduct, the particulars of the Debtor's revenues and sources of revenue are irrelevant to the Debtor's current financial condition. The Trustee found no evidence of fraudulent behavior on the part of the Debtor or any of its employees. Mr. Bobreski complained that the Debtor expended too much of its income on (a) payment of excessive salaries to the Debtor's principle and his close associates, and (b) commissions to independent contractors retained to market the Debtor's services. However, Mr. Bobreski presented no evidence that these salaries and commissions were in inappropriate amounts or were unearned by the recipients. In contrast, as the Trustee explained, the Trustee did not find any excessive compensation, and even if he had, such a cause of action is very speculative, the estate did not have funds to pursue such an action, and, as for the time periods highlighted by Mr. Bobreski, such an action likely would be barred by the statute of limitations.
Mr. Bobreski also complained that the Debtor's disposition of certain pieces of equipment was inappropriate. The Debtor had represented it gave away or abandoned certain equipment because some of the equipment was "broken" and other equipment (a paint booth) was incapable of easy removal from the Debtor's former business premises. Mr. Bobreski testified, taking issue with the Debtor's representations, asserting that the malfunctioning equipment was easily fixed and that the paint booth was, in fact, mobile. However, Mr. Bobreski did not testify that he had personally seen or inspected the Debtor's equipment in question or assessed its condition, nor did he testify that he had specialized knowledge or expertise pertaining to the Debtor's equipment and its condition. Nor did he present a witness who had personally inspected and assessed the equipment in question, or an expert competent to render an expert opinion regarding the equipment.
Finally, Mr. Bobreski insists that the Debtor has made numerous inconsistent statements or outright lied at various times but he has failed to illustrate to the Court how any alleged statements or lies have resulted in malfeasance or misfeasance by the Trustee. In short, Mr. Bobreski failed to present any evidence that the Trustee failed to discharge his duty to locate and liquidate the Debtor's assets.
(2) The Trustee had no duty to investigate the Debtor's business model and operations.
Mr. Bobreski complains that the Trustee failed to investigate the Debtor's business model and operations, insisting that the Debtor's business was some kind of fraud and that the Debtor's claim of a hack was disingenuous. Moreover, says Mr. Bobreski, the Debtor's business model was unsustainable. The term" business operations" is used to encompass a broad range of activities. In essence, it "refers to the day-to-day tasks that a business performs in order to run and
ultimately make a profit. More specifically, business operations are the core activities that transform inputs like raw materials, labor, and capital into outputs like products and services." Anna Fitzgerald, Understanding Business Operations & How to Improve Them, Discover what business operations is, how to improve it at your organization, and how to create a business operations strategy (Jul. 20, 2022), https://gocatalant.com/business-operations/the-ultimate-guide-to-business-operations. "The term business model refers to a company's plan for making a profit. It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses." Carol Kopp, What is a Business Model with Types and Examples, Learn to understand a company's profit-making plan (Aug. 1, 2022), investopedia.com/terms/b/ businessmodel.asp#toc-what-is-a-business-model.
As observed by the Trustee, Mr. Bobreski's objections largely stem from a misunderstanding of the bankruptcy process. The Trustee's primary duties are to liquidate the assets of the bankruptcy estate and to distribute the proceeds to creditors in order of priority. The Trustee does not dispute that he elected to forego an investigation into the Debtor's business model or operations, because, as explained by the Trustee, those matters are irrelevant to his duties. Indeed, while §704 imposes a duty on the Trustee to investigate the Debtor's financial affairs (ie., assets, liabilities, claims, preferential transfers, etc.), it does not require a trustee to delve into the areas of concern articulated by Mr. Bobreski. Even if it were true that the Debtor's business constituted a fraud or a pyramid scheme, that the business model was unsustainable, and that the Debtor's failure was not the result of a hack, all as Mr. Bobreski insists, those conclusions would not result in a more assets or greater value in the bankruptcy estate. Thus, those issues are irrelevant to the Trustee. Mr. Bobreski's complaints about the legitimacy of the Debtor's business are not pertinent to the Trustee's efforts to discharge his duties and do not speak to whether he accomplished those duties. Mr. Bobreski has not cited any authority to the contrary.
(3) The Trustee provided sufficient records to Mr. Bobreski upon his request.
The Trustee's duty to provide records is limited to records pertaining to the bankruptcy estate and administration of the estate. See 11 U.S.C. § 704(a)(7). The statute does not impose an obligation on the Trustee to provide anyone with the Debtor's prepetition business records. Nonetheless, the Trustee's uncontested testimony at the hearing revealed that he provided numerous documents to Mr. Bobreski, including business records regarding the Debtor's prepetition affairs. However, some of the records were in electronic form, and some contained confidential or proprietary information. The Trustee asked Mr. Bobreski to contact him to discuss how to deal with the electronic records and the confidential or proprietary information, but Mr. Bobreski did not follow up. In light of that, Mr. Bobreski's complaints about production of documents are not well taken.
(4) The Trustee had no obligation to communicate information to law enforcement authorities.
Mr. Bobreski feels that the Trustee should have delivered information to the State of Ohio Attorney General's office, asserting that there was evidence of a pyramid scheme and numerous inconsistent statements by the Debtor and/or Mr Corl. However, Mr. Bobreski presented no evidence of a pyramid scheme at the hearing. Although Mr. Bobreski presented to the Court information suggesting that Mr. Corl gave inconsistent statements at various times regarding various matters, the Trustee did not find that Mr. Corl gave false testimony at any time. Nor did the Trustee see any fraud in the structure of the Debtor's business or fraud on the part of any employee of the Debtor. The Trustee did not have any concerns that mandated he make a referral to the Attorney General's office. The Trustee is not a law enforcement officer, or engaged in investigation of criminal conduct. Drawing no conclusion that the Debtor or Mr. Corl engaged in fraud or false testimony, the Trustee had nothing to report to the Attorney General. Mr. Bobreski failed to articulate any other basis for the Trustee to convey information to the Attorney General's office.
(5) The Trustee did not fail to commence pursue legitimate causes of action. Mr. Bobreski failed to demonstrate that the Trustee has neglected to pursue legal causes of action. Neither in his filings or at the hearing did Mr. Bobreski identify any viable claims that the Trustee should have brought or identify the persons or entities that the Trustee should have pursued. The Trustee evaluated all legal claims that the Debtor listed in its schedules, but found none that had merit.
CONCLUSION
Sadly, Mr. Bobreski has expended a great deal of the Court's and the Trustee's time complaining about matters that are not relevant to the Trustee's duties or to the administration of the estate. He has questioned the credibility of the Debtor's principle, Eric Corl, questioned the sustainability of the Debtor's business model, questioned whether Mr. Corl has or intends to start another business similar to that of the Debtor, suggested that Mr. Corl will use Debtor's assets to start another business, questioned what assets that the Trustee actually sold and to who, and questioned whether the Debtor's business failure actually resulted from a hack. He has frequently stated that certain information he has gleaned "raised" his eyebrows, and insists that it should have raised the Trustee's eyebrows as well. Rarely, however, did he present competent evidence on these matters, rarely did he illustrate the relevance of these points, and at no time did he demonstrate that any of these issues impaired the Trustee's performance of his duties or compromised the bankruptcy estate.
Accordingly, it is ORDERED and ADJUDGED that James Bobreski's Objection (Doc. #212) to the Trustee's Final Report is overruled, and the Trustee's Final Report (Doc. #207) is approved.
IT IS SO ORDERED.