USC claims that it incurred significant expenses and, as a non-party to NRIA’s case, they are entitled to reimbursement for its expenses from the requesting party under Fed. R. Civ. P. 45(d). The Committee argues that USC’s expenses are not significant due to USC’s large financial stake in Debtors’ case and it should, therefore, pay its own expenses related to discovery.

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USC—a target of substantial claims by the Debtors’ estate and allegedly one of the largest creditors in this chapter 11 case—is an interested party, so this factor weighs heavily against reimbursing USC for its discovery costs under Rule 45(d).

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USC can more readily bear the costs than the Liquidation Trust. The operative inquiry is whether the non-party can better bear the cost, “not whether the requesting party is able to do so.”

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Because the Liquidation Trust’s investigation of fraudulent conveyances to USC is a matter of public importance, the third factor weighs in favor of requiring USC to bear its own costs.

The Bankruptcy Code contains special provisions for small businesses.2 So does the Internal Revenue Code.3 The Florida Business Corporation Act4 (“FBCA”) does not. The same corporate formation, organization, and governance rules that apply to a large company like Publix Supermarkets, Inc. also apply to a small family-owned paving business. Those rules provide, among other things, that ownership of a corporation is evidenced solely by shares of stock in the corporation. No unwritten agreements among principals, or representations to third parties about ownership percentages, have any relevance in determining ownership of stock in a corporation. When family members choose to do business as a corporation (instead of using a more flexible entity, like a limited liability company) – but fail to comply with statutory corporate formation, organization, and governance requirements – they do so at their own risk.

And when family disputes over ownership of a corporation devolve and must be resolved by a court, the court must look only to the law to resolve them. Here, the law dictates that ownership of a corporation is determined solely by ownership of shares of stock in that corporation – and not by anything else. In this case, Patrick and Elizabeth Daly, the parents of Debtor Daren Daly, contend that they own 87.5% of a small, family-owned paving business, All Paving, Inc. But after a 9-day trial with mostly irrelevant testimony about various purported agreements between family members and representations to third parties, the only relevant evidence – a corporate stock ledger and stock certificates – leads the Court to an easy conclusion: Daren owns all 100 shares – representing 100% of the issued and outstanding stock – of All Paving, Inc.

Further, neither his parents (Patrick and Elizabeth), nor the separate limited liability company of which they own the majority of the equity (All Paving and Sealcoating, LLC), have proven any claim against Daren as of the date he filed for bankruptcy.

In this chapter 7 case, Sam M. Mirian (the “Debtor”) seeks to bifurcate his interest in a condominium unit (“Property”) which he owned with his wife1 as tenants by the entirety to claim a portion as exempt. While it is common for a debtor to claim a homestead exemption in a residence, this exemption is not available to the Debtor because the Property is not his residence. Instead, the Debtor is claiming an exemption in his survivorship interest pursuant to 11 U.S.C. §522(b)(3)(B). His purpose in doing so is twofold - to insulate half of the value from the chapter 7 trustee’s reach and to avoid a judicial lien held by M. Newtown Associates, Limited Partnership (the “Creditor”) on the Debtor’s interest in the Property on the basis that it impairs his claimed exemption. The relevant statute requires that under applicable state law the subject property must not be subject to process. The Debtor claims that under New York law, his survivorship interest in the Property, which both he and his wife had at the inception of the case by virtue of their ownership as tenants by the entirety, is not subject to process and is therefore exempt. The chapter 7 trustee and the Creditor object to this claimed exemption, which the Debtor is relying on to avoid the Creditor’s lien under 11 U.S.C. § 522(f).

The Debtor’s legal sleight of hand does not withstand a careful reading of the statute and relevant case law. In states where property held as tenancy by the entirety is exempt from process, federal law preserves that position. However, in states like New York, where such property is subject to process, federal law preserves that position. The Debtor’s argument is based on an incorrect premise and fails for a fundamental reason. No portion of his interest in the Property is shielded from process under New York law and therefore the federal bankruptcy statute relied upon by the Debtor is not available. In fact, the exemption described in §522(b)(3)(B) does not apply when the subject property is in New York. If a person holds property as tenants by the entirety with his spouse, either spouse is free to solely encumber their interest and there is no portion that is insulated from process. If a judgment creditor were to sell that interest, the purchaser would take that debtor’s entire interest, with nothing left over for the debtor to retain. The Debtor is simply not entitled to claim an exemption equal to half the value of the Property, or any exemption at all under §522(b)(3)(B). Only the spouse who did not encumber his or her interest holds the Property free of any lien or encumbrance made by the other spouse, and that is only if the other spouse dies first. Since the Debtor’s entire interest in the Property was encumbered upon the attachment of the Creditor’s lien, the Trustee’s objection to the Debtor’s claimed exemption is sustained. Without an exemption to claim in the Property, the Debtor’s motion to avoid the Creditor’s lien must be denied as well.

Where this Court parts ways with the Genesys analysis and similar analyses of other courts, however, is the use of § 363(f)(4) to allow a sale when the dispute, however bona fide, regards whether the interest to be sold is indeed property of the estate to begin with. The Genesys court stated that the Code is silent as to “when a court should determine whether property subject to a proposed sale is property of the estate.” This Court disagrees. By its very structure, the Bankruptcy Code requires a determination of whether property is property of the estate (and thus may be sold) prior to any analysis as to whether a particular interest in property is in bona fide dispute under subsection (f)(4).

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Here, the Debtor is not proposing to sell merely its contingent or disputed interests in the Disputed Land and the Development Rights – a sale that would likely be permissible, see Atlantic Gulf, 326 B.R. at 300 (allowing the sale of property by the trustee by quitclaim deed, which would “convey whatever interest the estate may have in the Disputed Property”). Instead, the Debtor’s Chapter 11 Plan contemplates the sale of the Disputed Land and the Development Rights themselves, free and clear of any asserted ownership interest or argument that the Development Rights are nonexistent, prior to a resolution of the disputes regarding those property interests. Because the ownership of the Disputed Land and the existence of the Development Rights must be adjudicated in order to determine if they are property of the Debtor’s bankruptcy estate, they cannot be sold under § 363(b) or (c) and pursuant to § 363(f)(4) prior to a resolution of those issues.

“If at first you don’t succeed, try, try again.”

No one likes to lose. When it comes to summary judgment, rarely do the parties take a second, let alone a third, bite at the apple; most judges, this one included, think one try is enough. In this case, however, both parties, having lost part of the battle not only in their first, but also the second summary judgment skirmish, have found what they hope is another path to victory or partial victory at least. Only one is correct.

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Trustee’s Motion is granted. The Court finds the Roth IRA Rollover of $42,033.93, transferred from E*Trade account #0106 into the Disputed Account on January 19, 2021, is property of Debtor's estate to which no federal exemption applies. Trustee is granted summary judgment on this issue. The Court further finds the 401k Loan Proceeds in the Disputed Account on the Petition Date, in the amount of $48,500, are property of Debtor’s estate to which no federal exemption applies. Trustee is also granted summary judgment on this issue.

The Supreme Court “disfavor[s] these kinds of mootness arguments.” MOAC, 598 U.S. at 295. Transform’s arguments in any event relate to remedies, not to our Article III jurisdiction. As it did in the Supreme Court, “MOAC simply seeks ‘typical appellate relief: that [we] reverse the District Court and that the District Court undo what it has done.’” Whether the Bankruptcy Code permits the District Court to do so is a merits question. See Chevron Corp. v. Donziger, 833 F.3d 74, 127 (2d Cir. 2016) (“An argument that claims mootness based on a challenge to ‘the legal availability of a certain kind of relief [] confuses mootness with the merits.’” Transform may raise those merits questions with the District Court, subject to the doctrines of waiver, forfeiture, abandonment, and estoppel.

Nor would we be persuaded that the case is moot under Article III even if we agreed with Transform’s argument concerning the Bankruptcy Court’s in rem jurisdiction. As the Supreme Court explained, we cannot view a bankruptcy court’s jurisdiction as “purely in rem.” Rather, under the Bankruptcy Code, “courts can touch – and affect the validity of – certain sales or leases . . . even though the property concerned has left the estate.” Thus, the previously authorized sale of the lease to Transform does not strip us of jurisdiction under Article III.

In its answer, the defendant asserts, as an affirmative defense, that the layoffs in question were the result of unforeseen business circumstances within the meaning of 29 U.S.C. § 2102(b). Plaintiffs moved to strike that affirmative defense, arguing that the written notice defendant provided to members of the class failed to provide a sufficient explanation of the unforeseen business circumstances. For the reasons set forth herein, the Court will deny the motion.

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The reason the motion to strike fails, however, is that it relies on material outside the pleadings. The pleadings themselves say nothing about the manner in which the defendant provided notice of the unforeseen business circumstances. Plaintiffs have relied on documents obtained in discovery in support of its motion, which itself makes clear that the motion is not properly brought under Rule 12(f). Defendant responds by seeking leave to amend its answer.

All of this highlights that this question would be more properly teed up in the context of a motion for partial summary judgment, after both parties have been given a reasonable opportunity to develop an appropriate factual record. The Court understands that the plaintiffs seek to present a purely legal question on which there appear to be conflicting decisions.8 Here, plaintiffs contend that the defendant’s written notice was inadequate. Defendant responds by saying that more extensive notice was provided in a meeting. Plaintiffs contend, however, that only the written notice matters, and that anything said in a meeting that was not committed to in writing does not count as “notice” for that purpose. Both parties have cited to case law supporting their positions on this issue.

This Court is by no means opposed to resolving that question promptly and in a way that might streamline the litigation. That said, it is not clear to the Court whether the factual record before it that bears on this issue is fully developed. When a motion seeks to rely on material outside the pleadings, Rule 56 provides a mechanism for giving both sides the opportunity to put forward the facts that they believe are material to the Court’s consideration of the issue – or to ask the Court for the opportunity to take further discovery if they have not had an adequate opportunity to learn the relevant facts. Rule 12(f) contains no such mechanism, which is why a dispute that relies on material outside the pleadings cannot be presented under Rule 12(f).

[T]he question remains as to how those sale proceeds are to be distributed: all to the mortgage holder or divided between the mortgage holder and the Debtors. The determination of that issue rests on whether the real estate mortgage executed by the Debtors is security not only for the debt represented by the Promissory Note executed in conjunction with the Mortgage but also security for a series of eight subsequent loans incurred by the Debtors under security agreements secured by personal property. Put more succinctly, does the “dragnet” clause in the Mortgage secure all of the Debtors’ obligations to the creditor regardless of when those obligations arose or the purpose for which such obligations were incurred.

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For the reasons set forth above, the Court finds that the “limitation of crosscollateralization” provisions in the eight Security Agreements which provides that there is no collateral for such Security Agreements other than the collateral described therein negates the “dragnet” (or future advances) clause in the Mortgage to make the real property collateral for the debts evidenced by the eight subsequent Security Agreements.

The Court agrees with the Trustee and Mr. Hardin that the Debtor does not have a present possessory interest in the Property, given the parties’ stipulation that he voluntarily moved out in June of 2022 and in light of the provisions of the Divorce Decree divesting the Debtor of “all right, title, interest, and claim in and to [the Property.]” The Court finds Rivera to be instructive in this case. As such, the Court concludes that the Debtor did not, at the time in which he filed his voluntary petition commencing this bankruptcy case, hold a valid homestead exemption in the Property under the Texas Constitution.

However, similar to the conveying spouse in Rivera, the Court believes that it is worth noting that the Debtor retains his rights to “his interest” in the proceeds of either the refinancing or sale of the Property under the Divorce Decree. Despite the fact that exemptions are usually determined shortly after the bankruptcy case is filed, the Fifth Circuit has held that “it is the entire state law applicable on the filing date that is determinative” of a debtor’s right to a homestead exemption. See Zibman, 268 F.3d at 304. Under the Texas Proceeds Rule, where a court orders the sale of homestead property in a divorce proceeding, the full proceeds of that sale retain their exempt status for six months after the proceeds are received.

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Noting that strict enforcement of the “snapshot rule” is not in line with Zibman, the Fifth Circuit explained, in In re Frost, that its prior ruling in Zibman gives effect to the fact “that the state’s law remains equally enforceable with regard to those in bankruptcy and non-bankruptcy.” Therefore, the Court concludes that even though the Debtor may not be able to claim a homestead exemption in the Property as of the petition date, if Ms. Powell were to successfully refinance or sell the Property, the Debtor’s “interest” in the proceeds from such refinance or sale would become property of the estate by operation of law subject to a valid homestead exemption under the Texas Proceeds Rule.

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The Debtor is not entitled to his claimed homestead exemption in the Property under the Texas Constitution. As such, the Court will sustain the objections of the Trustee and Mr. Hardin as to the Debtor’s claimed exemption regarding the Property on Schedule C at this time. However, the Court would stress that this is a narrow ruling, based solely on the facts presented to the Court in the instant case and the specific requirement that a homestead claimant must have a present possessory interest in the property in question. Nevertheless, the Court will reiterate that the Debtor’s current interest, albeit an equitable interest, constitutes property of the estate protected by section 362(a)(3) of the Bankruptcy Code over which this Court has exclusive jurisdiction under 28 U.S.C. § 1334(e). The Court strongly cautions any party not to attempt to exert control over, transfer, use, devise, or otherwise hypothecate such interest without first obtaining an order from this Court granting specific authority to do so.