In this appeal, we consider the "police power" exception to the Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362. The police power exception in § 362(b)(4) provides that the automatic stay does not apply to "the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power."

In this case, the Puerto Rico agency that regulates milk production and distribution revoked a bankruptcy debtor's dairy license and ordered him to sell his milk production quota rights. When the debtor failed to do so, the agency announced plans to auction those rights under the governing regulations. The bankruptcy and district courts found that planning the auction violated the bankruptcy stay under § 362. We find, however, that the agency's plan to auction the debtor's milk quota falls squarely within the police power exception in § 362(b)(4). We reverse the judgments of the bankruptcy and district courts and direct judgment in favor of the agency.

On September 18, 2024, Plaintiff filed its opposition to Defendant’s Motion, contending that: (a) the Transfers are preferential, and (b) Defendant failed to establish an ordinary course of business defense, because (i) the parties had a wholly unordinary relationship, as the loans at issue were managed in Defendant’s collections department for nearly its entire relationship with the Debtor; (ii) Defendant’s relationship with Debtor was too short to establish an ordinary course; (iii) payments were made significantly later during the preference period than during the historical period; and (iv) Defendant engaged in repeated and persistent dunning of Debtor by phone and email during the preference period.

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Plaintiff concedes that its claim that the Transfers were fraudulent conveyances is moot, as Defendant provided evidence that the Preference Period Transfers were all on account of antecedent debts. Therefore, summary judgment as to Count II will be granted.

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A reasonable trier of fact could infer from this record that the Transfers do not fall under the ordinary course of business defense. Consequently, Defendant’s Motion as to Counts I, III, and IV are denied.

Windtree has moved for an order lifting the automatic stay, so that it can proceed with the state court litigation in Texas. Windtree alleges that Residential filed its Chapter 7 petition on the eve of the hearing on Windtree’s motion to compel, in an attempt to “thwart [Windtree’s] efforts to obtain information about missing or misappropriated insurance proceeds.” (Id. at ¶ 35). Residential filed opposition to the lift stay motion, arguing that lifting the stay would interfere with Residential’s discharge and that the Texas action would be rendered moot by the granting of a discharge to Residential.2

2 It is black letter law that a corporation cannot receive a discharge in Chapter 7. 11 U.S.C. § 727(a)(1). Counsel would do well to read the Code, as that exercise may assist Counsel in avoiding embarrassingly frivolous arguments in the future.

Were the Court to reopen this case and grant the § 362(d)(4) Motion, such relief would be limited to a period of two years, presumably two years from when the case was last pending. Importantly, the relief Movant seeks would effectively give Movant the ability to affect the Property for a period of approximately four and a half years after this case was first closed in 2022; because any relief would be effective for two years after the date of the order granting the 362(d)(4) Motion, i.e. late 2026. This is far beyond what Movant would have been able to obtain were the relief sought at the time of dismissal. Indeed, had Movant sought such relief while the case was pending, the two-year period would have already expired.

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Next, and of dispositive importance in this case, is the factor which considers whether it is clear at the outset that no relief would be forthcoming to the debtor by granting the motion to reopen.

With respect to the second Brunner prong, the Plaintiff’s situation is different from the debtor in Spence. The Plaintiff is 76 years old and cares for her ailing husband. It is unlikely that the Plaintiff, if she is able to find employment, will generate sufficient income to repay the Notes.

Although the Plaintiff meets the first two prongs of the Brunner test, she fails the third part requiring that she made good faith efforts to repay the Notes, rendering the Notes nondischargeable.

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[T]he Plaintiff provided little or no explanation why she did not pursue employment in her field of study, other than occasional work in a home office. The employment at a gift shop and clothing store, without more evidence, does not support that the Plaintiff worked diligently to generate income to pay the Notes. The Plaintiff has not demonstrated good faith in her repayment efforts.

Compounding the finding of lack of good faith and failure to meet the burden under the third prong of the Brunner test is the apparent diversion of income to pay the Faulkner Note, secured by property in which the Debtor, conveniently, held no interest. The amount paid on the Faulkner Note is unknown. Assuming a zero percent interest rate, the repayment was almost $54,000. The amount repaid on the Faulkner Note would have paid a substantial part, if not all, of the Notes.

A review of the equities at play in the long history of this case, favors AAM and ETC. This Court, pursuant to In re Easley, 990 F.2d 905 (6th Cir. 1993), has the power to annul the stay under 11 U.S.C. § 362(d). “This power to annul ‘permits the order to operate retroactively, thus validating actions taken by a party at a time when he was unaware of the stay. Such actions would otherwise be void.’” Id. at 909-910, quoting 2 Collier on Bankruptcy §362.07.

The creditors in this case do not have sufficient security in the Property and cancellation of the sale will only increase the creditors’ losses in this case. Given the lengthy history of the Debtor’s repeated filings and subsequent dismissals due to a failure to make required scheduled Plan payments, the Court determines that it must deny the Debtor’s Motion to Void the Judicial Sale and enter the accompanying Order annulling the Automatic Stay.

When determining whether a debtor has been engaged in a “commercial or business activity,” “the Court will employ a ‘totality of the circumstances approach.’”

Here, similarly to In re Port Arthur Steam, the debtor’s Chief Operating Officer, Terry Shafer, testified at the hearing to actions by the debtor satisfying the “commercial and business activities” Definition. Those actions include (1) having a lease and maintaining a facility in Conroe, Texas; (2) maintaining bank accounts at Chase Bank; (3) continued attempts to generate business in Argentina; (4) Providing marketing materials for potential investors; (5) employing attorneys to protect intellectual property rights and business-related matters. Despite being labeled as a “startup,” the debtor has made significant actions which are analogous to the debtor in In re Port Arthur Steam. Thus, meeting the definition of “commercial or business activities.”

The petitioning creditors overstate the facts supporting their argument. In their Objection, petitioning creditors stated “the debtor has not ‘engaged in’ any business. There never has been a business, no ‘commercial or business activities’ have ever taken place such…” Petitioning creditor do not sufficiently rebut Mr. Shafer’s testimony to show the debtor was never a business. Petitioning creditors continue to insist that because the debtor never entered into a contract, it was never engaged in commercial or business activities. This argument seems to also conflate business operations with business activities. These definitions were distinguished in the In re offer Space case.

The source of the Escheated Funds is the core factual dispute. Plaintiff asserts that because it made the last payments to Google, the Allerand Payments were necessarily the source of the Escheated Funds. Allerand advances a "commonsense" argument: There is only one relationship between United Tax and Google, the Escheated Funds were escheated to Florida by Google, Allerand made the most recent payments on the Google account, therefore the Escheated Funds must have resulted from an overpayment by Allerand.

Trustee contends that the Escheated Funds are unrelated to the Allerand Payments and arise from pre-petition payments made to Google by or on behalf of United Tax. Trustee points to the Division's Property Detail report which lists an account number of 132586346 and argues that this is a Google account number, not a number generated by the Division. 28 The account's genesis, according to Trustee, is a deposit account established when Debtor started placing adds with Google Adworks.

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Plaintiff misses the mark. The Code defines property of the estate in a sweeping manner: It is comprised of"all legal or equitable interests of the debtor in property as of the commencement of the case" "wherever located and by whomever held. "34 It specifically includes property in which the debtor did not have a possessory interest when the petition was filed. 35 To the extent, however, a debtor only has bare legal title to an asset, only legal title comes into the estate and not the equitable interest in the asset. 36 Accordingly, if the Escheated Funds are based on the Allerand Payments, then they are not property of the estate as Debtor had, at most, bare legal title by virtue of the fact that it was the Reported Owner of the Escheated Funds. But, if the Escheated Funds are based on payments made by Debtor prepetition, then the right to receive the Escheated Funds, and the funds themselves, are property of the estate. The most probative evidence on this issue is the onepage Division Property Detail report.

[T]he United States, on behalf of the Internal Revenue Service (“IRS”), seeks a judgment excepting from discharge $1,074,180.57,2 a sum that represents fourteen years, 2002, 2003, 2005 through 2015, and 2017 (the “Period in Contention”), of Stein’s unpaid federal income taxes. The government argues that Stein’s tax liabilities should be excepted from discharge under 11 U.S.C. § 523(a)(1)(C) because, over the Period in Contention, he attempted to evade payment, or collection, of these obligations. For the reasons set forth below, this Court excepts these tax liabilities from Debtor’s discharge, finding that Stein engaged in willful attempts to evade their payment or collection.

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Stein argues that he chose to pay his bills in cash because cash was more convenient. However, as discussed above, the court does not find this statement credible. Additionally, he admitted that preventing creditor levies was a “secondary consideration” for moving to a cash-only system. Stein further argues that he never owned the Hurdle Home and that he undertook the transaction to obtain that property with the intent to create a real property investment for his sons. But Stein admitted that he created MWNM to hold title to the property because he was aware that creditors would foreclose on any real property acquired in his name.95 Further, the evidence shows that although Stein did not place his name on the deed, he paid for all expenses to acquire and maintain the property while also using and enjoying the property in a manner consistent with ownership. Therefore, the totality of Stein’s conduct indicates that he voluntarily and intentionally hid assets to prevent or delay IRS collection activities.

Third, Stein’s interactions with the IRS show that he was not forthright with the agency about his assets. For example, during a meeting with the IRS in 2012 to discuss his delinquent taxes, Stein claimed to have a settlement payment forthcoming which he would apply to his tax debt. However, Stein did not pay the IRS after he received the settlement funds. Additionally, after the IRS placed a nominee lien on the Hurdle Home, Stein told the agency that the $73,000 needed to satisfy the lien would come from his son and John Whatley because they owned the home. But Stein satisfied the loan instead, borrowing $50,000 from his wife’s cousin and paying $23,000 from funds he had on hand. Stein later repaid the loan from his wife’s cousin with interest, choosing to satisfy this obligation instead of paying his taxes. These incidents expose Stein’s mental state because they demonstrate his willingness to lie to the IRS to avoid or delay collection efforts.

[I]t is apparent Tahmisian relies on the reservation of the right to add a claim for punitive damages in his amended complaint, and the fact that such damages are intended to deter damaging conduct, as the basis for his motion. This is insufficient.

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This Court need not decide whether Idaho Code § 6-1604 strictly prohibits Tahmisian’s tardy motion, as his motion fails under either analysis. Here, Tahmisian’s complaint “reserves” the right to add a punitive damage claim, but such reservation is insufficient to satisfy Idaho Code § 6-1604. No pretrial motion was made to assert a punitive damage claim, so if such a pretrial motion is absolutely required, the instant motion to conform the pleadings after trial does not satisfy the statute. On the other hand, if a pretrial motion is not required, then at trial, an award of punitive damages is permissible where the party proves, “by clear and convincing evidence, oppressive, fraudulent, malicious or outrageous conduct by the party against whom the claim for punitive damages is asserted.”

The difficulty in this case lies with the events at trial. The evidentiary record is now closed, yet Tahmisian seeks to belatedly add a punitive damage claim which he never before raised and for which the Netacent parties have had no opportunity to defend. More to the point, during trial, Tahmisian attempted, on more than one occasion, to introduce evidence of punitive damages which drew an objection from the defendants. In each instance, the Court sustained the objection, noting there was no punitive damage claim alleged.

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Finally, even if the proper analysis were under Civil Rule 152, it is abundantly clear the issue of punitive damages was not tried by either express or implied consent. The case law instructs that this Court may not find an implicit consent where the evidence that supports punitive damages is also relevant to other claims that were plead and are clearly at issue during trial. Rather, the Netacent parties must have been put on notice that the evidence was being presented also in support of punitive damages. Given that the Court sustained the Netacent parties’ objections on the grounds that no punitive damage claim was at issue in the trial, the Court will not find that the issue of punitive damages was tried by implied consent.

The Debtors currently have sole standing to pursue estate claims and causes of action. The Standing Motion requests that the Court grant the Committee standing under Sections 105(a), 1103(c) and 1109(b) of the Bankruptcy Code to commence and prosecute claims and causes of action of the Debtors’ estates. Most notably, the Committee seeks authorization, among other things, to sue members of the Sackler family and their trusts and affiliates for actions they took with respect to the Debtors, including to recover assets that that the Committee states the Sacklers caused Purdue to transfer offshore and to family trusts. Attached as an exhibit to the Standing Motion is a draft complaint (the “Draft Complaint”) that comprises the causes of action the Committee intends to pursue, but the Committee also seeks standing to pursue any other claim held or that may be asserted by the Debtors’ estates. The Committee asserts that the value of the estate claims in question reaches into the billions of dollars.

The CMFN objectors oppose the Standing Motion on the grounds that standing here is prohibited by controlling Delaware state law, notwithstanding longstanding Second Circuit precedent that permits the grant of standing to official committees. The CMFN also argues that the Committee has not met the requirements in this jurisdiction for standing. For the following reasons, the Court grants the Standing Motion and overrules the objections.

Defendant argues that section 544 is inapplicable here because "Defendant never extended credit to the Debtor or the Debtors' company." However, Defendant misconstrues section 544. Defendant reads the statute as describing three types of creditors that may have their liens avoided by a trustee. This is incorrect. Rather, the section 544 describes three types of creditors that a trustee hypothetically becomes in order to avoid other creditors' liens.

Here, the Trustee has stepped into the shoes of an unsatisfied execution creditor pursuant to section 544(a)(2). As a hypothetical perfected lienholder, the Trustee has priority over Defendant under New Jersey law and may avoid Defendant's unperfected Judgment Lien pursuant to section 544. For these reasons, Defendant's allegations that it did not extend credit to the Debtors or their business are not material facts that would require the Court to deny the Motion.

In Edgewater’s view, everything Balfour Beatty did was motivated by ill will and designed to force Edgewater to litigate unnecessarily. While there are certain actions taken by Balfour Beatty that the Court finds, and found, were procedurally questionable, such as its Motion for Payment of Administrative Claim and its Motion for Relief from Stay, the same could be said for the Debtor, who had its own procedural missteps during the course of the bankruptcy case. Moreover, while Balfour Beatty may have selected a procedurally unusual path for some of the relief it sought, the substance of the relief it requested, although ultimately unsuccessful, was certainly well within the bounds of appropriate relief to request under the circumstances presented.

The Debtor takes particular exception to Balfour Beatty’s objection to the QBE settlement and to confirmation of the plan, arguing, that Balfour Beatty manufactured a claim to have standing. There is no question that Balfour Beatty initially took the position that it was not a creditor5, based on the Debtor’s decision to omit Balfour Beatty from the bankruptcy schedules and the creditor matrix, as well as the bankruptcy schedules. However, as the case progressed it was clear that, while Balfour Beatty’s pre-petition claim may have been contingent up until the official rejection of the Contracts by the Debtor,6 there is no question that Balfour Beatty had, at least, a contingent claim. The Debtor’s argument that Balfour Beatty would not have had a claim if it had not wrongfully failed to allow Edgewater to complete the Contracts, ignores the fact that Edgewater admitted it could not complete the Contracts under the terms of those agreements. And so, while the Debtor clearly did not agree with this Court’s ruling allowing Balfour Beatty’s claim to be estimated for confirmation purposes, the Court did estimate the claim. Therefore, Balfour Beatty had every right to object to confirmation and to the QBE settlement that was part of the confirmation, notwithstanding that the Court ultimately overruled both objections.

In sum, the Debtor has failed to identify any instance where Balfour Beatty’s litigation positions, albeit unrelenting, rose to the level of bad faith to support the drastic sanctions requested by Edgewater. The Court finds that the only attorneys’ fees to which Edgewater is entitled for sanctions are those awarded, both as actual and punitive damages, in the Damages Order.

Clareys argue Akron Lumber violated the automatic stay by filing its mechanic’s lien against their real property post-petition. Clareys filing of their bankruptcy petition on November 1, 2023, operated as a stay of “any act to create, perfect, or enforce any lien against property of the estate” and of “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title.” 11 U.S.C. §362(a)(4) and (5). Subsections 4 and 5 of 11 U.S.C. §362(a) deal with three parts of the lien – creation, perfection, and enforcement. Further, section 362(b)(3) provides an exception to the violation of the automatic stay but only with regard to perfection. It states, “any act to perfect…an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title” does not operate as a stay. 11 U.S.C. §362(b)(3). However, this exception for perfection only applies when the action is “subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection.” 11 U.S.C. §546(b)(1)(A).

The filing of the mechanic’s lien against Clareys’ real property was Akron Lumber perfecting its lien in accordance with S.D.C.L. §44-9-15. Since Akron Lumber’s filing of its mechanic’s lien was it perfecting the lien under 11 U.S.C. §362(b)(3), then in accordance with 11 U.S.C. §546(b), the automatic stay would not be violated. However, Clareys argue section 546(b) is not applicable in chapter 13 bankruptcies, but fail to provide any authority to support this claim. The Clareys’ argument is misplaced. Several courts have applied 11 U.S.C. §362(b)(3) and §546(b) in chapter 13 bankruptcy cases.

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Akron Lumber filed a mechanic’s lien with the Union County Register of Deeds against Clareys’ homestead on December 13, 2023. By filing the lien, Akron Lumber was acting to perfect its pre-petition created lien by filing a statement of the claim as required under S.D.C.L. §44-9-15. That action alone is not a violation of the automatic stay if the lien complied with South Dakota law and had not ceased to exist pre-petition. However, Clareys have failed to meet their burden of proof because the record regarding the cessation of the lien involves disputed material facts which prevent this issue from being decided through a summary judgment motion.

With respect to the damages owed by Balfour Beatty to Edgewater for the Stay Violations, Balfour Beatty must pay Edgewater $1,190,941.80 calculated as follows:

a. Actual damages for the scaffolding $40,000.00.

b. Actual damages for attorneys’ fees $375,470.90.

c. Punitive damages relating to the scaffolding $400,000.00.

d. Punitive damages for attorneys’ fees $375,470.90.

The Court holds that Balfour Beatty is not entitled to set off the sanctions awarded hereunder from its rejection claim. However, because rejection damages are considered pre-petition claims notwithstanding that they arise due to a post-petition event. See 11 U.S.C. §502(g), Balfour Beatty may setoff the amounts it owes Edgewater for the Unpaid Draws (defined hereinafter).

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2. Balfour Beatty is entitled to a rejection claim in the amount of $1,557,480.92 calculated as follows:

a. $1,771,032.92 amount of claim filed minus $198,000.00 for the use of scaffolding minus $15,552.00 for the use of stucco.

3. Balfour Beatty is indebted to Edgewater for the Unpaid Draws in the amount of $114,318.32.

4. Balfour Beatty may apply the $114,318.32 to its allowed rejection damages claim, leaving an allowed total unsecured claim of $1,443,162.60.

[T]he Motion argues that it was “an abuse of discretion” for this Court to have avoided the transfer of the 6401 Mast Property and ordered that property be recovered by the bankruptcy estate in its entirety, “where the award of the entire property with a value of $370,000 to remedy a shortfall of $155,483 creates a windfall to the estate.”

Oddly, the Plaintiff does not respond to this argument in opposing the Motion, but instead only relies on this Court’s Post-Trial Opinion to argue that the Defendant’s chances of success on appeal are “very low.”6 But the Court’s Post-Trial Opinion does not expressly address this argument by the Defendant. That is because the Defendant never made this argument at any time before the Court entered its Judgment. Rather, the Defendant made this argument for the first time when it filed the present Motion seeking a stay pending appeal.

There is a substantial chance that the Defendant’s argument will be rejected on appeal by the district court, on that ground that the Defendant has forfeited this argument, by failing ever to make the argument at any time before this Court entered its Judgment on October 18, 2024.

Plaintiff/Debtor Robert Clay Jackson, III filed a Complaint against Creditor/Defendant Paintmaster Premiere LLC, seeking the return of a 2020 Chevy Silverado (the “Vehicle”). Defendant refused to relinquish the Vehicle upon Plaintiff’s demand after Plaintiff filed a bankruptcy petition. Defendant contends Kentucky law does not require it to hand over the Vehicle. Plaintiff argues that Defendant’s conduct violates the Bankruptcy Code. The Court agrees with Plaintiff.

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While Plaintiff’s request for relief under § 362(a)(6) and entitlement to monetary damages must be decided at a trial, Plaintiff has established that there are no genuine disputes of material fact and he is entitled to a summary judgment (a) in full as to Count II on his turnover claim under § 542, and (b) as to Defendant’s liability under Count I for violating the automatic stay under § 362(a)(4). Defendant is not entitled to summary judgment.

The Seida Creditors then argued in their brief that cause existed under section 1307(c) and their preferred remedy was dismissal of Debtor’s case with a bar to refiling for at least 180 days.

At trial, at the conclusion of the presentation of evidence, both the chapter 13 trustee and the Seida Creditors asserted that cause existed under section 1307(c), but suggested that the case should be converted to chapter 7 rather than dismissed. Debtor and his counsel were both physically present in the courtroom when those requests were made.

Although Debtor had an opportunity to respond (the court explicitly gave the Debtor’s counsel the last word), Debtor did not respond in any way to these requests for conversion. Debtor did not oppose the oral requests to convert the case. Debtor did not raise any procedural objections regarding conversion or how it had been raised at trial. Debtor did not indicate that he would need additional time to respond to the requests for conversion. Debtor did not identify any additional evidence he would want to adduce regarding conversion that Debtor had not already presented in support of confirmation and opposing dismissal. Debtor did not assert that he would prefer dismissal to conversion of his case. Debtor never mentioned that he might want to exercise his right to dismiss his voluntarily case under 11 U.S.C. § 1307(b).

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In the Motion, Debtor describes the arguments he intends to make on appeal. Briefly summarized, Debtor asserts that a motion to convert a chapter 13 case to chapter 7 must be made in a written motion served on Debtor. Debtor asserts that because the chapter 13 trustee and the Seida Creditors made an oral motion to convert in open court at the evidentiary hearing, he was not given reasonable notice and an opportunity for hearing on conversion of the case. Debtor is not likely to succeed with this argument on appeal.

There is no dispute that the chapter 13 trustee and the Seida Creditors filed and served procedurally proper written motions to dismiss, and Debtor received notice and the opportunity to respond to those motions at a full evidentiary hearing. It is also true that the court treated the chapter 13 trustee’s and Seida Creditors’ requests at the conclusion of the evidence to convert the case, rather than dismiss the case, as oral motions.13

But regardless of how the chapter 13 trustee and the Seida Creditors raised conversion, or whether they ever raised conversion at all, once the motions to dismiss were filed and served, Debtor knew or should have known that the bankruptcy court would consider conversion as a potential remedy. As early as 1980, bankruptcy courts have recognized that if a party files a motion to dismiss under Section 1307(c), the court can consider whether conversion is an appropriate remedy.