The Trustee alleges that Honda Aircraft and Honda Service were subsequent transferees of the aircraft from whom he can recover the aircraft or their value. § 550(b). Honda Aircraft argues that it acquired the interest under a lease for which it gave value (in the form of rent payments), that it acted in good faith at the time of the lease (after all, Honda Aircraft accepted phony notes just as Wing Spirit did), and that, at the time of the lease, it did not know that Wing Spirit’s transfer of the aircraft was avoidable.

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The Trustee cannot plausibly allege that Honda Aircraft did not take the leasehold rights for reasonably equivalent value, in good faith, and without knowledge of the voidability of the initial transfer. See § 550(b)(1). It is particularly relevant that Honda Aircraft accepted promissory notes from the same nonexistent maker that issued notes to Wing Spirit. Therefore, the Trustee may not recover the leasehold interest in the aircraft from Honda Aircraft.

Later, Honda Aircraft acquired outright ownership of the aircraft as a part of the June 2021 settlement. The Trustee cannot plausibly allege that Honda Aircraft did not give value for the ownership interest in the aircraft. Nor can the Trustee plausibly allege that Honda Aircraft did not take the transfer of the ownership interest in good faith: the lease unconditionally obligated Honda Aircraft to pay the residual value of the aircraft and entitled Honda Aircraft to obtain ownership when it did so; and one cannot plausibly allege that Honda Aircraft did not act in good faith when it paid its own debt. But by then, Honda Aircraft arguably knew that the notes given to Wing Spirit were phony (because the phony notes made in favor of Honda Aircraft had become due and were not paid), and that the underlying transfer of the aircraft from Wing Spirit was an avoidable fraudulent transfer. Therefore, the Trustee can plausibly allege that, insofar as the transfer of the ownership interest in the aircraft is concerned, Honda Aircraft is not entitled to the protections afforded to a subsequent transferee. Accordingly, Honda Aircraft’s motion is denied.

As noted in the Previous Decision, the circumstances in this case are similar to those in Martin. The Debtor, acting as a trustee in this case, had an agreement with the Insurers, and had filed a motion seeking approval of that agreement when a more favorable arrangement became available. Although the Insurers allege that the Debtor cannot point to any changed circumstances, this is not the case. Here, the Debtor agreed to the terms of the Insurance Settlement when there was no settlement offer on the table from the Committee. However, after months of negotiations, of which the Court and the Insurers were aware and even involved in to at least some degree, the Committee made an offer of settlement the Debtor found preferable. This is similar to Martin, where the trustee made an agreement with the buyer when she did not have a trial date set in the state court action, but later found that an expedited trial date made proceeding with the state court action preferable. As such, the court finds, as it did in the Previous Decision, that the Committee Settlement constitutes a change in circumstances and Martin is applicable.

The Amended Complaint alleges that the Debtor unilaterally repudiated the Insurance Settlement, threatened to withdraw the Insurance Settlement, and filed an incompatible plan in violation of the Insurance Settlement. The Insurers argue these asserted breaches distinguish this case from Martin, in which the trustee did not breach her agreement. However, the Previous Decision discussed these allegations and determined that requiring the Debtor to support a plan incorporating the Insurance Settlement which the Debtor did not believe was in the best interest of the estate directly conflicted with the Debtor's fiduciary duty to other creditors.

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A debtor in possession has a duty under Martin to apprise the court of all relevant information regarding potential settlements. At times, this may require a debtor to cross-examine witnesses, or to file responses including objections to settlement it has made, to ensure the court is aware that changed circumstances may make another offer more beneficial to the estate. This is because a debtor in possession has a fiduciary duty, not only to counterparties to agreements, but to all creditors and the estate as a whole. As a result, the allegations of the Debtor's conduct in the Amended Complaint do not constitute a breach of contract under Martin. The Motion is granted and counts 1 and 2 of the Amended Complaint are dismissed without prejudice to the Insurers filing a further amendment within thirty days. The case may alternatively move forward based on the remaining count.

Orly Genger (“Orly”) is a chapter 7 debtor herein. Prior to the Petition Date, Eric Herschmann (“Herschmann”), Orly’s husband, gifted her an undivided one-half interest in a condominium located at 210 Lavaca Street, Unit 1903, Austin, Texas 78701 (the “Condo”), exclusive of any parking or storage units associated with the Condo (the “Condo Interest”). Thereafter, Sagi Genger (“Sagi”), Orly’s brother, obtained a Judgment against Orly. His counsel purported to register the Judgment in Texas by filing the Abstract of Judgement and the Dellaportas Affidavit in the real property records of Travis County, Texas, purportedly causing a lien (the “Lien”) to attach to the Condo Interest (the “Lien Transfer”).

The Trustee contends that Sagi failed to domesticate the Judgment in Texas. In this adversary proceeding (the “Adversary Proceeding”), the Trustee seeks a declaratory judgment finding that in filing the Abstract of Judgment, Judgment and/or Dellaportas Affidavit in the Travis County land records, Sagi did not cause a valid lien to attach to the Condo Interest. Alternatively, she seeks to avoid the Lien Transfer under section 547(b) of the Bankruptcy Code, and to recover it under section 550(a)(1) of the Bankruptcy Code. The Trustee also seeks to disallow certain of Sagi’s claims under section 502(d) of the Bankruptcy Code.

The matter before the Court is Herschmann’s motion to intervene as a plaintiff in this Adversary Proceeding pursuant to Rule 24 of the Federal Rules of Civil Procedure (“Rule 24”), made applicable to this proceeding under Rule 7024 of the Federal Rules of Bankruptcy Procedure (the “Motion”). The Trustee did not respond to the Motion. Sagi filed a response in opposition to the Motion (the “Response”). Herschmann filed a reply in further support of the Motion (the “Reply”).

The Court heard arguments on the Motion. For the reasons set forth herein, the Court grants the Motion.

The bankruptcy estate in this case was comprised of real property that was encumbered by multiple liens, subject to remediation orders for landslides that had occurred on the property, and which was in danger of further erosion and landslides. After engaging in years of litigation, Ronald E. Stadtmueller ("Trustee"), the chapter 7 trustee in this case, entered into a global tripartite settlement that resolved all of the litigation issues, resulted in the transfer of the subject property to one of the creditors, and allowed for the closing of the case. The bankruptcy court approved the settlement and at the same time denied a motion for summary judgment filed by Appellants, chapter 7 debtor Homesite Holdings LLC ("Debtor") and its principal Michael R. Cartwright, II (together "Appellants"), that would have disallowed the claims of creditors SMDL, LLC ("SMDL") and T2, LLC ("T2") (together "SMDL/T2"), the proposed purchasers of the property under the global settlement.

Appellants appeal three orders in these related appeals: (1) the order granting the joint motion to settle claims between multiple parties, sell Debtor's real property to SMDL/T2, and dismiss several adversary proceedings; (2) the order denying Appellants' motion for summary judgment as to proofs of claim and the complaint filed against Debtor by SMDL/T2; and (3) an order denying Appellants' motion for reconsideration of both of the above orders. Seeing no reversible error by the bankruptcy court as to any of its rulings, we AFFIRM.

Defendants’ Motion to Dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) is granted with respect to the claims that: (a) Defendants violated 11 U.S.C. § 524(a)(2) by reactivating and proceeding with the Reformation Action; (b) Defendants violated 11 U.S.C. § 524(a)(2) by instituting a foreclosure proceeding against the Real Property; (c) Defendants violated 11 U.S.C. § 524(a)(2) by sending the Requests for Contact reflected in ECF No. 1-9; and (d) the Reformation Judgment is void under 11 U.S.C. § 524(a)(1).

Defendants’ Motion to Dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) is denied with respect to the claim that Defendants violated 11 U.S.C. § 524(a)(2) by sending the August 13, 2023 Letter and the Mortgage Statements to Plaintiff.

McGriff urges the Court to dismiss the Debtor’s case for cause because it was not filed in good faith. McGriff advances four arguments as to why the case was not filed in good faith:

1) The filing of the bankruptcy case two days after the text order was entered in the District Court Action was done solely to evade the imminent order that would be entered against the Debtor.

2) The Debtor’s pre-petition and post-petition conduct.

3) This is a two-party dispute, and the Debtor had few debts and little or no pressure from his other creditors.

4) The Debtor maintains a lavish lifestyle and is not an honest but unfortunate debtor.

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McGriff has not met its burden to establish that cause exists to dismiss the case for lack of good faith. Although the timing of the petition suggests the text order prompted the filing, the Debtor’s unrefuted testimony indicates he consulted with Stone & Baxter [bankruptcy counsel] in March of 2024 after the unsuccessful attempt to settle the District Court Action at mediation and again after the hearing on July 23, 2024. Unlike the Debtor in Dixie Broadcasting, the Debtor did not file his bankruptcy petition to get him out of a bad deal. Instead, the Debtor filed his bankruptcy petition to shield him from the mounting defense costs associated with the District Court Action and to repay his creditors through a restructuring.

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The Debtor’s pre-petition and post-petition conduct are also not indicative of a level of bad faith to dismiss the case. McGriff alleges the Debtor’s pre-prepetition conduct including scheming with a competitor to steal McGriff’s customers, employees and trade secrets indicates bad faith. The Court dismisses this argument because there was no ruling as of the petition date in the District Court Action on the parties’ summary judgment motions. Furthermore, there is a procedure in place in the Bankruptcy Code for McGriff to file a complaint objecting to the Debtor’s discharge or the dischargeability of the debt.

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The Debtor argues that the listing of McGriff’s claim as liquidated to the extent of $355,085 is a judicial admission, so the debt is liquidated by operation of law. The Debtor’s bankruptcy schedules are not the only source of information to determine the amount of debt and whether the debt is unliquidated. Some courts review the schedules and the proofs of claim. McGriff’s proof of claim was not admitted into evidence, so the Court will not review its proof of claim. However, the Debtor’s testimony is instructive on whether the debt is liquidated. When asked how he came up with the number in the schedules, the Debtor testified that he got the number from his trial counsel in the District Court Action. That explanation is insufficient to support the amount shown in the schedules. McGriff’s claim is not subject to allow for a ready determination and precision in computation of the amount due. McGriff’s debt is unliquidated, so it will not be included in the debt limit calculation. The Debtor has not met his burden that not less than 50 percent of his debts arose from commercial or business activities, so he is not a small business debtor pursuant to 11 U.S.C. § 101(51D) and is ineligible to proceed for relief under Subchapter V.

The filing of this case is yet another thread in the sprawling tapestry of bad faith abuse of the bankruptcy process by the principals of 700 Trust, Gregory Brian Myers (“Mr. Myers”) and Barbara Ann Kelly (“Ms. Kelly”), and to a certain degree Debtor’s counsel, to avoid adverse consequences of a myriad of legal actions spanning over a decade. Mr. Myers and Ms. Kelly have a long and well-documented history of abusing the Bankruptcy Code, the bankruptcy system, and other federal and state courts.

The NBC Entities and Buyer implore this Court to enforce, and require Mr. Myers, Ms. Kelly, and their counsel to abide by the injunction and equitable servitude imposed by the United States Bankruptcy Court for the District of Maryland (“Maryland Bankruptcy Court”). That relief is due to be granted. This Court must give full faith and credit to the rulings of the Maryland Bankruptcy Court. Further, this Court does not intend to permit Mr. Myers’ and Ms. Kelly’s and their cohorts’ abuse of the bankruptcy process to continue. Certainly not here.