Opinion
Bankruptcy Case No. 03-42400-JDP.
July 14, 2009
Byron and Marilyn Thomason, Rexburg, Idaho, Pro Se.
W. Brent Eames, Rexburg, Idaho, Attorney for Greg V. Thomason and Diana Thomason.
Craig Christensen, Pocatello, Idaho, Attorney for New Britain Investors.
Monte Gray, SERVICE SPINNER GRAY, Pocatello, Idaho, Attorneys for R. Sam Hopkins, Trustee.
R. Sam Hopkins, Pocatello, Idaho, Chapter 7 Trustee.
MEMORANDUM OF DECISION
Introduction
In a prior episode in this bankruptcy saga, the Court determined that Thomason Farms, Inc. ("TFI") owned an undivided two-thirds interest in a certain parcel of real estate, generally referred to in these proceedings as Teton Pastures, and that the remaining one-third interest became property of the bankruptcy estate when Greg and Diana Thomason filed their chapter 7 petition. In that same decision, the Court also determined that Teton Pastures was subject to a valid first priority mortgage in favor of New Britain Investors, LLC ("New Britain").
A full discussion of the Court's findings and conclusions with respect to Teton Pastures is contained in its Memorandum of Decision entered in Adversary Proceeding No. 04-6134, at Docket Nos. 138 and 204.
TFI and several of the individual Thomasons appealed the Court's ruling to the Bankruptcy Appellate Panel of the Ninth Circuit, which affirmed this Court's decision in all respects. See Adv. Proc. No. 04-6134, Docket No. 291. Thereafter, the Court approved the request of Sam Hopkins, chapter 7 trustee ("Trustee"), to sell Teton Pastures free and clear of TFI's co-ownership interest therein, as provided in § 363(h). See Docket No. 276. The Court's sale order authorized the closing agent to pay all closing costs and real property taxes from the proceeds of the sale and to disburse the balance to Trustee to hold pending further order of the Court. Id. Pursuant to the Court's order, Trustee indeed sold Teton Pastures at a public auction, and the net sale proceeds were disbursed to Trustee.
References to "the Thomasons" are intended to include Byron, Sandra, Nicholas, and Marilynn, unless otherwise indicated.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101 — 1330 and to the Federal Rules of Bankruptcy Procedure, Rules 1001 — 9036, in effect prior to the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub.L. 109-8, 119 Stat. 23 (Apr. 20, 2005).
Trustee now seeks the Court's approval to administer the Teton Pasture sale proceeds. On April 24, 2009, Trustee filed a motion for approval and authorization to pay the auctioneer's fees and costs for conducting the sale. See Docket No. 297. The same day, Trustee filed a separate motion in which he sought authority to satisfy the balance owed to New Britain on its mortgage, and to allocate the remaining proceeds between the bankruptcy estate and a fund to be held in trust on behalf of TFI. See Docket No. 299. New Britain filed its own motion requesting to be paid from the Teton Pasture sale proceeds. See Docket No. 293.
On May 19, 2009, the Court conducted a hearing concerning these motions. New Britain's motion was granted, and Trustee was authorized and ordered to pay New Britain the sum of $344,626.87. Docket No. 314. Trustee's motion to approve auctioneer's fees and costs was also granted, and Trustee was authorized to pay $30,523.20 to the auctioneer and realtors for professional compensation, together with $9,477.71 as reimbursement of expenses associated with the sale. Docket No. 315. With respect to Trustee's motion concerning allocation of the remaining proceeds, the Court directed Trustee to file a supplemental brief by May 22, 2009, and allowed other parties an opportunity to respond by May 29, 2009, at which time the motion would be deemed under advisement.
On May 27, 2009, Marilynn Thomason filed a notice pointing out that Trustee had yet to file his supplemental brief. Docket No. 318. The following day, Trustee filed his brief, along with a motion to extend the time in which to submit the same. Docket Nos. 319, 320. On May 29, 2009, the Thomasons filed a document titled "Post Trial Closing Brief." Docket No. 322. Although the Court did not authorize the filing of any other briefs, the Thomasons submitted yet an additional document, entitled "Post Trial Reply Brief" on June 5, 2009. Docket No. 326. Then, on June 29, 2009, the Thomasons filed a "Second Notice" indicating that Trustee had yet to file his supplemental brief and serve it upon the Thomasons.
This same document was filed at the conclusion of the trial relating to the distribution of the proceeds for the Agren Property. See Adv. Proc. No. 08-8032, Docket No. 73. This document does not specifically address the issues raised in Trustee's motion in this case. Rather, it recounts the Thomasons' version of the history of this lengthy and protracted litigation, and advances arguments pertaining to issues which this Court has previously decided. As such, it adds little to the record before the Court.
This document was also filed in the related adversary proceeding. See Adv. Proc. No. 08-8032, Docket No. 74. Like the Thomasons' other submission, this document fails to address the substance of Trustee's instant motion — the allocation of proceeds from Teton Pastures.
Byron, Nicholas, and Sandra joined Marilynn in this filing.
Notwithstanding the Thomasons' contentions in this notice, the Court's docket shows that Trustee's brief was filed one month earlier. Moreover, the certificate of service attached to Trustee's supplemental brief indicates that a copy of the brief was, at that time, mailed to the Thomasons and to TFI. See Docket No. 320. The addresses listed for Marilynn and Byron Thomason and for Nicholas and Sandra Thomason in the certificate of service match the addresses found in the Thomasons' submissions. Compare Docket No. 320 with Docket No. 329.
The Court has reviewed all of these submissions, the arguments advanced at the hearing, as well as the applicable law. The following decision disposes of the issues.
This Memorandum constitutes the Court's findings of fact and conclusions of law. Rules 7052, 9014.
Factual Background
On July 28, 1993, Byron, Marilynn, Nicholas, Sandra, Greg and Diana Thomason all signed a promissory note agreeing to repay Robert Erickson $100,000 which they had borrowed from him. The note was secured by a mortgage on Teton Pastures. The Thomasons defaulted on the payments due under the note. Though it was in default, New Britain purchased the note from Erickson; the corresponding mortgage was also assigned to New Britain. After sending notices of default to each of the Thomason couples, New Britain filed a foreclosure action in state court on March 23, 2000. Byron, Marilynn, Nicholas and Sandra filed an answer to the state court complaint. However, Greg and Diana did not respond to the complaint, and the state court entered a money judgment against them by default on October 10, 2000, in the amount of $123,147.95. The judgment included an award of attorneys' fees and costs in the amounts of $5,000 and $182, respectively.
New Britain then filed a motion for summary judgment against the remaining defendants — Byron, Marilynn, Nicholas and Sandra. Prior to the hearing on that motion, TFI, which had been in a chapter 12 bankruptcy case since March 23, 1998, amended its bankruptcy schedules to add the previously unlisted Teton Pastures property as an asset of TFI and New Britain as a secured creditor. As a result of this maneuver, the parties all assumed the state court foreclosure action was stayed.
Thereafter, New Britain received several adequate protection payments from TFI between November 2002 and December 2003, when TFI's bankruptcy case was dismissed. These adequate protection payments amounted to $19,200. New Britain credited the payments against the total amount owed on the promissory note.
The litigation over Teton Pastures and other issues continued before this Court. In its Memorandum of Decision, dated June 9, 2006, the Court found that Greg and Diana Thomason (and as a result, their bankruptcy estate) owned an undivided one-third interest in Teton Pastures, and that the remaining two-third interest in Teton Pastures was owned by TFI. These interests were all subject to New Britain's mortgage. See Adv. Proc. No. 04-6134, Docket No. 138. The Court also found that New Britain was, at that time, owed $159,138.75 on the promissory note, which included the principal amount due plus interest which had accrued at the default rate since the loan became due. In its judgment, the Court awarded attorneys' fees and costs in favor of New Britain and against Byron, Marilynn, Nicholas and Sandra Thomason in the amount of $75,091.35 and $2,853.01, respectively. See Adv. Proc. No. 04-6134, Docket No. 204.
On January 8, 2009, the Court authorized Trustee to sell Teton Pastures. Docket No. 276. A public auction was conducted on February 6, 2009, which resulted in a gross sale price of $610,464. When the sale closed, the closing agent paid real property taxes and closing costs in the amount of $3,594.80, as authorized by the Court's prior order. The balance of the sale proceeds, amounting to $606,869.20, were paid over to Trustee.
As indicated above, the Court approved the fees and costs of the auctioneer at the hearing in the total amount of $40,000.91. Docket No. 315. These fees and costs, along with the closing costs and real property taxes are shared between TFI and the bankruptcy estate according to their pro-rata ownership interests in Teton Pastures. See Docket No. 267.
The Court also authorized Trustee to pay New Britain the sum of $344,626.87 from the sale proceeds of Teton Pastures. See Docket No. 314. This amount is comprised of the judgment amount of $237,083.11, additional accrued interest on this sum calculated at the statutory rate of 8.375% per annum in the amount of $58,316.22, and additional attorney fees and costs in the amount of $47,595.50 and $1,630.04, respectively. Id. The additional fees and costs were awarded only as against Byron, Marilynn, Nicholas, and Sandra.
Amount due on note, ($159,138.75) plus attorneys fees ($75,091.35) plus costs ($2,853.01) equals total judgment ($237,083.11). See Adv. Proc. No. 04-6134, Docket No. 204.
Discussion
At the hearing, Trustee conceded that $344,626.87 was the proper amount due to New Britain based on this Court's prior rulings, and acknowledged that amount should be paid immediately. However, Trustee argued that because part of that sum represented attorneys fees and costs which were awarded only against TFI and the individual Thomasons, the amount paid to New Britain should not be allocated between the estate and TFI strictly according to their respective ownership interests in Teton Pastures. Rather, Trustee argued that the bankruptcy estate should only be responsible for one-third of the amount due on the note, along with interest on that amount through the date of the hearing, and that TFI should be responsible for the balance.
Trustee calculates the amount due on the note plus interest through the date of the hearing at the statutory rate of 8.375% per annum to be $198,501.61.
After reviewing the judgment entered in the earlier adversary proceeding, the Court confirmed that all of the attorneys' fees and costs which it had awarded were assessed only against TFI and the individual Thomasons. However, the Court reminded Trustee that the state court had entered a default judgment against Greg and Diana Thomason in connection with New Britain's foreclosure proceedings, which judgment included an award of attorneys fees in the amount of $5,000 and costs of $182. The Court was concerned that Trustee had failed to account for these sums in his calculations, and charged Trustee to determine whether the estate had paid its portion of the fees and costs and to remark on that issue in his supplemental brief.
Trustee's supplemental brief includes a specific breakdown of how the proceeds should be allocated as between the bankruptcy estate and TFI. But Trustee's calculations do not specifically address the state court's award of attorneys fees and costs against Greg and Diana Thomason as requested by the Court.
At the hearing, Trustee's counsel attempted to explain that he felt the Court's judgment in the earlier adversary proceeding included the state court default judgment against Greg and Diana Thomason. It did not. That judgment included only those amounts due under the note, as well as the attorneys' fees and costs awarded by this Court against the individual Thomasons. The state court judgment for attorneys' fees and costs is a separate and distinct liability of Greg and Diana's bankruptcy estate, and it appears that it remains unpaid. Trustee should pay this amount to New Britain from the assets of the estate.
The state court default judgment accrues interest at the rate of 11.25% per annum. See Idaho Code § 28-22-104.
Aside from this point on the bankruptcy estate's liability to New Britain for attorneys' fees and costs, Trustee's analysis of the allocation of the remaining proceeds appears correct. Trustee has explained this allocation as a two-step process. The first step is to deduct all items for which both the bankruptcy estate and TFI share liability. These items include real property taxes and standard closing costs ($3,594.80), approved commissions and advertising costs ($40,000.91), and the amount due on the promissory note plus interest through the date of the hearing ($198,501.61). The balance, or $368,366.68, represents the equity in the property, which can be bifurcated between the estate and TFI according to their respective ownership interests. Since the estate had a one-third interest in Teton Pastures, $122,788.89 is the estate's share of the proceeds; $245,577.79 is TFI's share of the proceeds.
The respective shares will be augmented, of course, by any interest which has been earned while these funds have been held by Trustee.
The next step in the analysis is to account for the liabilities that are not shared between all parties. As indicated earlier, TFI was solely liable for the attorneys' fees and costs which were awarded to New Britain. Trustee has already paid this debt from the proceeds of the sale, so Trustee may deduct $146,125.26 from the amount payable to TFI. In addition to that amount, this Court concluded that TFI was liable for $3,806.03 in costs which the estate had incurred in connection with the earlier adversary proceeding. See Adv. Proc. No. 04-6134, Docket No. 241. That amount, plus interest thereon at the rate of 8.375%, must also be deducted from TFI's share of the proceeds.
After adding interest from the date of the order, December 7, 2006, through the date of the hearing, May 19, 2009, the total amount due to the estate from TFI is $4,586.76.
Conclusion
From the remaining proceeds of the Teton Pastures property, Trustee is authorized to allocate the estate's one-third share of the equity, or $122,788.89, plus one-third of any interest which the proceeds have earned while held in trust, plus the costs awarded against TFI and interest thereon of $4,586.76, to the bankruptcy estate of Greg and Diana Thomason. TFI's share of the proceeds, or $245,577.79, plus two-thirds of any interest earned while held in trust, less the $146,125.26 already paid to New Britain for fees and costs, and less the $4,586.76 in costs awarded to the bankruptcy estate, will be payable by Trustee to the clerk of the state court in which the action for judicial dissolution of TFI is pending for distribution as ordered by that court. Trustee is reminded that the bankruptcy estate continues to be liable for attorneys' fees and costs which were awarded to New Britain in the state court default judgment.
Trustee requested this same treatment with respect to TFI's portion of the Agren Property sale proceeds, and no party to that action objected to that procedure. See Adv. Proc. No. 08-8032, Docket No. 75. While neither Trustee nor the Thomasons have requested that treatment in this case, the Court finds that such would the most appropriate manner of preserving all parties' rights with respect to such funds.
A separate order will be entered.