Appendix — Mulligan v. Associates Leasing, Inc., 120 S. Ct. 286 (1999) (No. 99-132)
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Supreme Court, U.8.
FILED
_99 132 JuL6 199
CIn O) he OFFICE OF THe
Supreme Court of the (Clhited States
JOANNE ARMSTRONG ALLNUTT,
Petitioner,
ASSOCIATES LEASING, INCORPORATED;
MILLER & MILLER AUCTIONEERS, INCORPORATED;
URBAN N. ZINK CONTRACTORS, INCORPORATED;
MARK J. FRIEDMAN;
CHARLES J. MILLER, INCORPORATED,
Respondents.
ON PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Appendix to Petition for Writ of Certiorari
Tracy Ellsworth Mulligan, Jr.
Counsel of Record
ATTORNEY AT LAW
416 Hungerford Drive
Suite 204
Rockville, Maryland 20850
(301) 340-9670
Counsel for Petitioner
THE LEX GROUP ¢ 1205 East Main Street @ Suite 2 East ¢ Richmond, VA 23219
(804) 644-4419 @ (800) 856-4419 @ Fax: (804) 644-3256
TABLE OF CONTENTS
Appendix to the Petition
ORDERS AND OPINIONS:
Order,
United States Court of Appeals
for the Fourth Circuit
entered March 9, 1999........... pracensisietiaieaimedaiadia App. |
Memorandum Opinion,
United States District Court
for the District of Maryland
entered September 25, 1998 ooo....ccccccccccecseeees App. 4
Order,
United States District Court
District of Maryland,
entered September 25, 1998 o.......cccccccceeecee. App. 7
Memorandum Opinion
United States Bankruptcy Court
for the District of Maryland,
with Attachments,
entered March 20, 1998 ...........ccccccscsscesceseees App. 9
ORDER REGARDING REHEARING:
Order Denying
Petition for Rehearing, and
Petition for Rehearing En Banc,
United States Court of Appeals
for the Fourth Circuit
entered April 6, 1999..............ccccsccscsscsssesseees App.69
App. i
OTHER MATERIALS:
Relevant Constitutional Provision ...................c00008 App. 72
Relevant Portions of Title 11 United States Code.... App. 73
Affidavit of Joanne Armstrong
Gated September 23, 199G........sscscccvvsessaccvssees App. 81
Order and Judgment,
United States District Court
for the District of Maryland
Friedman y. Allnutt, et al.
COTO FUNG 21, F9FS saci\iesveninanwnnun App. 86
Memorandum Opinion,
United States District Court
for the District of Maryland
Friedman vy. Allnutt, et al.
|retered Fume 21, UDBPS ..cccirccerecersssvesseccesceneeses App. 89
App. ii
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 98-2630
(CA-98-1212-WMN
In Re: FRED W. ALLNUTT, SR.,
Debtor,
JOANNE ARMSTRONG ALLNUTT,
Plaintiff - Appellant,
versus
ASSOCIATES LEASING, INCORPORATED;
MILLER & MILLER AUCTIONEERS, INCORPORATED;
URBAN N. ZINK CONTRACTORS, INCORPORATED,
MARK J. FRIEDMAN,
CHARLES J. MILLER, INCORPORATED,
Defendants - Appellees,
OFFICE OF THE US TRUSTEE,
Party-in-Interest.
No. 98-2678
(CA-98-1212-WMN)
In Re: FRED W. ALLNUTT SR.,
Debtor,
JOANNE ARMSTRONG ALLNUTT,
Plaintiff - Appellee,
App. |
a
versus
ASSOCIATES LEASING, INCORPORATED,
Defendant - Appellant,
OFFICE OF THE US TRUSTEE,
Party-in-Interest,
and
MILLER & MILLER AUCTIONEERS, INCORPORATED;
URBAN N. ZINK CONTRACTORS, INCORPORATED;
MARK J. FRIEDMAN; CHARLES J. MILLER,
INCORPORATED,
Defendants.
FILED: March 9, 1999
ENTERED: March 9, 1999
ORDER
Associates Leasing, Incorporated has filed a motion
for sanctions, for an injunction and for an order entering final
judgment against Joanne Allnutt and Tracy Mulligan.
Associates Leasing has also filed a petition for extraordinary
writ. Joanne Allnutt has filed responses to the motions.
The Court grants the motion for sanctions, in the
amount of costs and attorneys’ fees relating only to the
appeal from the district court, grants the motion for an
extraordinary writ, affirms the judgment of the district court
and denies the motion for injunction.
Entered at the direction of Judge Luttig with the
concurrence of Judge Williams and Judge Motz.
For the Court
App. 2
/s/ William M. Nickerson
United States District Judge a
App. 3
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Case No. 92-5-7401-JFS
(Chapter 11)
Civil Action No. WMN-98-1212
(consolidated with
Civil Action No. WMN-98-1706)
In Re: Fred W. Allnutt, Sr.
* * of * bd ~ ba *
JOANNE A. ALLNUTT
v.
ASSOCIATE LEASING, INC.
et al.
ENTERED: SEPTEMBER 25, 1998
FILED: SEPTEMBER 25, 1998
MEMORANDUM
These consolidated appeals challenge various orders
issued by Bankruptcy Judge James F. Schneider in
Adversarial Action No. 96-5598-JFS. In Civil Action No.
WMN-98-1212, Appellants JoAnne Allnut and her attorney,
Tracey Mulligan, challenge an order issued on March 20,
1998 in which Judge Schneider:
1) granted the motion to intervene
filed by the Chapter 11 trustee of the
bankruptcy estate of Fred W. Allnut;
App. 4
2 2) denied Appellants’ motion to
remand the adversarial proceeding to the
Circuit Court for Howard County from
whence it was removed;
3) granted the motions of
Appellees to dismiss Appellant JoAnne
Allnut’s claims; and
4) granted Appellees’ motion for
sanction against Ms. Allnut and Mr. Mulligan
and imposed sanction against them, jointly
and severally, in the amount of $66,929.01.
In Civil Action No. 98-1706, Appellants appeal from
orders issued April 24, 1998 granting Appellees final money
judgments in the amount of the sanctions imposed in the
March 20, 1998 order. Also in Civil Action No. WMN-98-
1706, Appellants filed a motion asking this Court to issue an
order declaring that the Bankruptcy Court lacks subject
matter jurisdiction and to set aside all orders issued by the
Bankruptcy Court in Adversarial Action 96-5598-JFS.
The legal conclusions of the Bankruptcy Court are
reviewed by this Court de novo. Caswell v. Jeffrey Lang,
757 F.2d 609 (4 Cir. 1985). Having reviewed the pleadings,
the transcript of the proceedings below, and the relevant case
law, the Court determines that no hearing is necessary
(bankruptcy Rule 8012) and that the decision of the
Bankruptcy Court should be affirmed.
Judge Schneider issued a thorough and well-reasoned
65 pages opinion addressing all of the arguments that
Appellants now raise. Those arguments were totally devoid
of merit when raised before Judge Schneider, and remain
equally without merit when reraised here. Appellants raise
nothing new. Accordingly, the undersigned sees little point
in adding more paper to a bankruptcy file that, as Judge
Schneider has noted, already consumes over four feet of
shelf space. Therefore, this Court will affirm the decision of
the Bankruptcy Court for the reasons stated in Judge
App. 5
Schneider’s March 20, 1998 Memorandum Opinion. This
Court will briefly address, however, two issues related to the
imposition of sanctions.
The first issue related to the amount of sanctions
awarded by Judge Schneider. The $66,929.01 sanction
imposed is equal to the sum of the attorneys’ fees claimed by
the Appellees. —- Appellants argue that these fees are
unreasonable but that “[iJt did not appear feasible” to
challenge the amount claimed as fees given the “climate that
existed” in the Bankruptcy Court. Appellants’ Brief at 46. |
have reviewed the documentation submitted with the
motions for sanctions and find the fees to be fair and
reasonable. The amounts spent by Appellees to address
Appellants’ claim are particularly fair and reasonable given
that Appellants sought as damages against Appellees over
Sixty-One Million Dollars.
The second issue relates to Appellees’ request that
this Court impose further sanctions against Appellants for
pursuing a plainly meritless appeal. This Court will deny
that request. In the hearing before Judge Schneider, Mr.
Mulligan specifically requested an assurance that an appeal
of the Bankruptcy Court’s decision would not be deemed
improper conduct and thus, would not be the basis for
increased sanctions. Judge Schneider assured Mr. Mulligan
that it would not. 2/24/97 Trans. at 122. While I am not
certain that I am bound by that assurance, I will honor it
nonetheless.
A separated order consistent with this memorandum
will issue.
/s/ William M. Nickerson
United States District Court
Dated: September 25, 1998
App. 6
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
In Re: Fred W. Allnutt, Sr.
* * * * * * *
JOANNE A. ALLNUTT
v.
ASSOCIATE LEASING, INC.
et al.
Case No. 92-5-7401-JFS
(Chapter 11)
Civil Action No. WMN-98-1212
(consolidated with
Civil Action No. WMN-98-1706)
ENTERED: SEPTEMBER 25, 1998
FILED: SEPTEMBER 25, 1998
ORDER
For the reasons stated in the foregoing memorandum,
IT IS this 25" day of September, 1998, by the United States
District Court for the District of Maryland, ORDERED:
l. That the decisions and orders
of the Bankruptcy Court issued March 20,
1998 and April 24, 1998 are AFFIRMED;
2. That Appellant’s motion for
declaratory judgment, Paper No. 7 in Civil
Action No. 98-1709, is DENIED;
App. 7
a That Appellees’ request for
additional sanctions related to this appeal is
hereby DENIED;
4. That Civil Action Nos. WMN-
98-1212 and WMN-98-1709 are hereby
CLOSED;
a That the Clerk of the Court
shall mail copies of this Memorandum and
Order to all counsel of record.
/s/ William M. Nickerson
United States District Judge
App. 8
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: FRED W. ALLNUTT, SR.,
Debtor.
JOANNE A. ALLNUTT,
Plaintiff.
¥.
ASSOCIATES LEASING, INC.,
MILLER & MILLER AUCTIONEERS; INC.,
CHARLES J. MILLER; INC.,
URBAN N. ZINK CONTRACTORS, INC., and
MARK J. FRIEDMAN, Chapter 11 Trustee of the Estate of
Fred W. Allnutt, Sr.
Defendants.
Case No. 92-5-7401
Chapter 11
Adversary No. 96-5598-JS
(Case No. 96-CA-32296 in the Circuit Court
for Howard County, Maryland.)
ENTERED: March 20; 1998
FILED: March 20, 1998
MEMORANDUM OPINION IMPOSING
SANCTIONS JOINTLY AGAINST
PLAINTIFF AND PLAINTIFF'S COUNSEL IN THE
AMOUNT OF $66,929.01
During the pendency of the debtor's Chapter 11
bankruptcy case, his non-filing spouse filed the instant
complaint in a state court against nondebtor defendants for
wrongful detainer and conversion of property which she
App. 9
alleged was sold by her husband's Chapter 11 trustee and in
which the plaintiff alleged she held an undivided interest as
tenant by the entireties. The defendants removed the suit to
this Court, where the Chapter 11 bankruptcy case of the
plaintiffs husband, Fred W. Allnutt, Sr. ("Allnutt,” or
"debtor"), is pending. The plaintiff moved to remand. The
Chapter 11 trustee, who was not sued with the original
defendants, filed a motion to intervene. The defendants
moved to dismiss the complaints and to impose sanctions
against the plaintiff and her counsel. The plaintiff filed
oppositions to the motions to dismiss and the motion for
sanctions. For the reasons stated, the Chapter 11 trustee's
motion to intervene will be granted, the plaintiff's motions to
remand will be denied, the motions to dismiss will be
granted, and the motion for the imposition of sanctions
against both the plaintiff and her attorney will be granted. In
addition, a permanent injunction will issue against the
debtor, his insiders and agents, including his, her, or their
attorneys, from contesting the validity of sales of property of
the bankruptcy estate by the Chapter 11 trustee, subject to
additional sanctions.
FINDINGS OF FACT
On September 27, 1996, the plaintiff, Joanne
Armstrong Allnutt, a resident of Maryland and the wife of
the Chapter 11 debtor in this case, filed the instant suit in the
Circuit Court for Howard County, Maryland. The suit stated
that the plaintiff and Fred W. Allnutt, Sr., have been husband
and wife since 1958.
The defendants sued in the state court were Miller &
Miller Auctioneers, Inc. (Miller & Miller"), a Texas
corporation; Associates Leasing, Inc. ("Associates"), a
Virginia corporation; Charles J. Miller, Inc. ("Charles J.
Miller"), a Maryland corporation; and Urban N. Zink
Contractors, Inc. ("Zink"), also a Maryland corporation
(collectively, "the original defendants"). They removed the
App. 10
gots barter!
POLS St ay ete o.
suit to this Court.
The cause of action which forms the gravamen of the
complaint arose out of actions taken by the debtor's Chapter
11 trustee in the bankruptcy court in connection with a court-
approved sale of assets of the bankruptcy estate. The eight-
count complaint sought the return of the property or damages
in the amount of $40,555,167.23, from Miller & Miller; the
retum of property or damages in the amount of
$19,720,464.74, from both Miller & Miller and Associates;
the return of property or damages in the amount of
$523,182.00, from Charles J. Miller; and the return of
property or damages from Zink in the amount of
$281,167.00. Exhibit A to the complaint was the bill of sale
dated September 29, 1993, signed by the trustee and Miller
& Miller; Exhibit B to the complaint identified the property
sought to be recovered by the plaintiff as the same inventory
of assets sold by the trustee to Miller & Miller. The
complaint was signed by "Tracy E. Mulligan, attorney for
Plaintiff."
The notorious career of Fred W. Aillnutt,
Sr.,("Allnutt" or "debtor") as a tax protester has inspired a
well-documented odyssey of seemingly endless litigation in
the state and federal courts over the past 14 years.
Allnutt v. State, 59 Md.App. 694, 478 A.2d 321 (1984), cert.
denied, 301 Md. 639, 484 A.2d 274 (1984), appeal dismissed, 471 U.S.
1050, 105 S.Ct. 2108, 85 L.Ed.2d 474 (1985)(criminal conviction of
debtor for willful failure to file a 1981 state income tax return, sales tax
returns and to pay sales tax); Allnutt v. Comptroller of Treasury, 61
Md.App. 517, 487 A.2d 670 (1985) cert. denied, 303 Md. 295, 493 A.2d
349 (1985) (no right to jury trial in the Maryland Tax Court); Howard
County V. Fred W. Allnutt, Inc., 74 Md.App. 422, 538 A.2d 321
(1988)(priorities of liens for unpaid sales tax); Allnutt v. Comptroller of
Treasury, 77 Md.App. 424, 550 A.2d 728 (1988), cert. denied, 315 Md.
307, 554 A.2d 393 (1989)(denial of injunction to debtor to enjoin
assessment and collection of Maryland income tax and imposing $1,275
sanction against Allnutt and counsel); Allnutt v. Commissioner, No.
9225-89, 1991 WL 2061 (U.S. Tax Ct. Jan. 14, 1991), aff'd by
unreported opinion, 956 F.2d 1162 (4th Cir. 1992), cert. denied, 506
U.S. 816, 113 S.Ct. 57, 121 L.Ed.2d 25 (1992)(upholding debtor's federal
App. 11
On October 2, 1992, the Internal Revenue Service
("IRS") filed suit in the U.S. District Court for the District of
Maryland and obtained an order permitting it to seize the
assets of the debtor's company, then known as JFC
Excavating ("JFC").? Thereafter, the IRS seized and
impounded the heavy equipment of JFC for non-payment of
taxes.
On October 7, 1992, JFC, Christopher Allnutt, the
son of Fred W. Allinutt, Sr., together with Sovereign
Equipment Association, Constitution Leasing Association,
income tax liability for tax years 1981 through 1986, and imposing
sanction of $25,000 against the debtor); Allnutt v. U.S., Etal, No. 92-
9778 (D.Md. June 21, 1993)(holding that Allnutt was the sole owner of
entities created by him to thwart collection of taxes); Allnutt v. Aronin,
8 F.3d 816, 1993 WL 431064 (4th Cir. 1993)(affirming removal from
state court and dismissal of Allnutt's complaint for damages against the
U.S. and others, including Marc Aronin, the IRS agent involved in the
seizure of JFC assets); In re Allnutt, 16 F.3d 408, 1994 WL 5128 (4th
Cir. 1994)(denying Allnutt's petition for mandamus to order the U.S.
district court to remand his complaint against the U.S. to the state court);
Allnutt v. Friedman (In re Allnutt), Nos. 94-2957, 94-3612, 1995 WL
45797 (D.Md. January 20, 1995)(moot issues of debtor's tax liability);
Allnutt v. Friedman (In re Allnutt), No. 95-11, 1995 WL 222067
(D.Md. April 10, 1995)(affirming refusal by bankruptcy court to vacate
district court orders determining debtor to be owner of assets of entity
owned or controlled by debtor, and imposing $28,121 sanction against
debtor and additional $1,404 sanction against debtor and counsel jointly
for filing frivolous appeal); Allnutt v. IRS, No. 93-5121
(Bankr.D.Md.)(dismissed by order [Teel, B.J.] entered October 28,
1997); Allnutt v. IRS, No. 94-CV-3491 (D.Md. 1994)(complaint
brought under the Freedom of Information Act, dismissed upon motion
for summary judgment, November 9, 1995).
?
The debtor's company was formerly known as "Fred W. Allnutt,
Inc." Howard County v. Fred W. Allnutt, Inc., 74 Md.App. 422, 538 A.2d
321 (1988)(priorities of liens for unpaid sales tax); Fred W. Allnutt, Inc
v. Commissioner of Labor and Industry, 289 Md. 35, 421 A.2d 1360
(1980).
’ Incomplete schedules were also filed by Allnutt's counsel that
did not contain a list of property claimed as exempt.
App. 12
a Pt aah Ae Be
and Ellicott Building Association, filed suit against the IRS
in the U.S. District Court for the District of Maryland to
recover the assets of JFC, a company owned and controlled
by Allnutt. JFC was identified in the complaint as "an
unincorporated Maryland partnership," while each of the
other three associations was identified as "a Maryland trust."
The three associations were created by Fred W. Allnutt, Sr.,
to hold title to the assets of JFC for the purpose of evading
the payment of various federal, state and local taxes. The
suits were later consolidated, and on January 20, 1993,
Allnutt joined the suit.
On October 9, 1992, one day after the U.S. District
Court [Northrop, J.] denied the plaintiffs' request for an
interlocutory injunction against the IRS, Allnutt filed a
voluntary Chapter 11 bankruptcy petition? in the U.S.
Bankruptcy Court for the District of Maryland. On the same
day, Allnutt filed Adversary Proceeding No. 92-5475 in this
Court, seeking an injunction to require the IRS to return the
JFC property to him. In light of Allnutt's public record as a
tax protestor and the U.S. District Court's refusal to order the
IRS to return the JFC property, this Court declined to order
the IRS to unconditionally return the assets of JFC to Allnutt
to operate as a debtor in possession. However, on October
27, 1992, upon the suggestion of this Court, and by
agreement of Allnutt and the IRS, the United States Trustee
appointed Mark J. Friedman, Esquire, as operating Chapter
11 trustee. This facilitated the turnover of excavating
equipment by the IRS to Mr. Friedman and the resumption of
the business of JFC under the aegis of the U.S. Bankruptcy
Court.
Except for the aforementioned suit against the IRS,
Allnutt steadfastly disavowed owning the assets of JFC in an
effort to avoid the tax consequences of that ownership. At no
time during the administration of the bankruptcy case did
Allnutt claim that the assets of JFC were exempt from
App. 13
administration by the trustee as property held by the
entireties or otherwise.’ Instead, he disputed the inclusion of
JFC in the bankruptcy estate by renouncing his ownership of
its assets. At no time during the administration of the
bankruptcy case did Mrs. Allnutt assert a claim to the assets
of JFC. If there ever was property of JFC held by the
entireties by Allnutt and the plaintiff, they concealed this fact
from the trustee and this Court.
On February 9, 1993, the Chapter 11 trustee filed an
objection [P. 94] to the exemptions which the debtor claimed
merely "to state a position as to the Proposed Exemptions,"
namely that they were not properly claimed in accordance
with the state exemption statute. In his objection, the trustee
set forth an enumeration of the assets that were subject to his
administration:
In addition to the Debtor as an
individual, the Chapter 11 Trustee is also
administering a business known as JFC
Excavating which is engaged in business as
an excavation contractor. In addition and in
connection with the JFC Excavating business,
the Chapter 11 Trustee is administering the
following:
(a) the real property and building
located at 10370 Baltimore national
a
On January 22, 1993, the Chapter 11 trustee filed unsigned
schedules and statements of affairs prepared by Allnutt [P. 64]. The
trustee noted that Allnutt had claimed exemptions in certain property not
relevant here under the federal exemptions contained in Section 522 of
the Bankruptcy Code, which are not available to debtors in Maryland.
The only property claimed exempt by Allnutt and the plaintiff were
household items characterized as “community property." The trustee
informally agreed not to sell any property which Allnutt and the plaintiff
claimed to own jointly. Affidavit of Mark J. Friedman dated February 7,
1997, 93 (Exhibit 8 to Trustee's motion to dismiss and for sanctions) [P.
16].
App. 14
r wee
ee
Pike, Ellicott City, Maryland which
serves as the business premises for
JFC Excavating and for which the
recorded owner is an entity identified
as Ellicott Building Association;
(b) the vehicles which are and have
been used in the JFC Excavating
business, which are registered in the
name of an _ entity known as
Constitution Leasing Association;
(c) various off-road excavation and
related equipment which has been and
is used in the JFC Excavating business
and which is represented by the
Debtor to be owned by an entity
known as Sovereign Equipment
Association.
Trustee's objection to exemptions [P. 94].
The Chapter 11 trustee intervened in the district court
litigation and filed a counterclaim and third-party complaint
for turnover of property, avoidance of fraudulent
conveyances and injunctive relief. The trustee alleged that
JFC and the associations were the alter egos of the debtor
who exercised such dominion and control over them that
they were his instrumentalities, and that he was their
beneficial owner.
On June 21, 1993, Allnutt's assertions to the contrary,
U.S. District Judge Frederic N. Smalkin upheld the trustee's
contentions, and held that JFC and its related entities were
indeed the sole property of Fred W. Allnutt, Sr., therefore
includable in the debtor's bankruptcy estate, and entered
summary judgment in favor of the IRS on Allnutt's claim of
wrongful levy. Essential to Judge Smalkin's decision in the
U.S. District Court litigation was the following finding of
fact:
App. 15
[T]he devices employed by Mr. Allnutt, Sr.,
to hide his assets from the tax collector are so
transparently shams and fraud that no
reasonable fact-finder could give credence, by
any known standard of evidence, to the
wrongful levy plaintiffs’ ownership claims to
the property in question. Indeed, no fact-
finder functioning within the realm of
intelligence and common sense, let alone
guided by reason, could so find.
Allnutt v. U.S., Etal, No. 92-9778, Memorandum Opinion at
p.4.
On September 29, 1993, this Court entered an order
[P. 236] authorizing the Chapter 11 trustee to sell
substantially all equipment, vehicles and miscellaneous parts
used in the JFC Excavating business free and clear of liens
and encumbrances to Miller & Miller Auctioneers, Inc., for a
: After Allnutt and the plaintiffs in the wrongful levy action filed
an appeal to the U.S. Court of Appeals for the Fourth Circuit, they
entered into a settlement agreement with the trustee which this Court
approved by order [P. 335] entered on June 22, 1994, supplemented as to
the IRS by order [P. 395] entered on September 8, 1994, which dismissed
the appeal. The agreement between the Chapter 11 trustee, Allnutt and
his children, and one Marsden Furlow stated in pertinent part, as follows:
In accordance with, and based upon, the District Court
Judgment, the Settling Defendants agree, for the
purposes of the Bankruptcy Case and any other action,
proceeding or matter involving the Trustee, Mark J.
Friedman, individually and/or the bankruptcy estate,
that all the property administered by the Trustee,
presently or in the past, is property of the Bankruptcy
Estate (specifically including, but not limited to, JFC
Excavating, all revenues derived therefrom and the
proceeds of the JFC Excavating Sale) and the Settling
Defendants acknowledge no further rights therein.
Settlement Agreement, 98 [P. 326].
App. 16
purchase price of $6.6 million; authorizing the trustee to sell
real property known as 10370 Baltimore National Pike’, and
furniture, fixtures and related office equipment to Nicholas
B. Mangione, Sr.; and authorizing the trustee to assume and
assign certain executory contracts to Nicholas B. Mangione,
Sr., for a purchase price of $800,000. Allnutt, who was
represented by counsel, endorsed the sale as approved. The
order approving the sale pursuant to Section 363 of the
Bankruptcy Code was entered at the conclusion of a two-day
hearing and contained the following provisions:
The notice of the Original Motion served
upon creditors and other parties in interest
adequately explains the basis for the chapter
11 Trustee's decisions to sell the Inventory,
Real property and FFE [furniture, fixtures and
equipment] and the assumption and
assignment of the executory contracts and no
additional notice for the Amended Motion is
required.
The notice of the hearing on the
Original Motion was timely served upon all
creditors and other parties in interest upon
whom service was required and the notice
satisfies the provisions of Bankruptcy Rules
2002, 6004 and 9006.
This Court finds that M&M [Miller &
Miller] and Mangione have acted, and that
their offer was submitted, in good faith.
M&M and Mangione are entitled to the
: By stipulation and order [P. 241] entered on the record on
October 29, 1993, this Court approved an agreement between the trustee
and Smith W. Allnutt and Margaret G. Allnutt, the debtor's parents, to the
effect that the mortgage lien held by the debtor's parents on the real estate
known as 10370 Baltimore National Pike in the amount of $61,618.90,
would attach to the proceeds of sale and that they would be paid in full
no later than October 31, 1993.
App. 17
protection of Section 363(m) of the
Bankruptcy Code in connection with the
consummation of the Agreement to be entered
into by them with the Chapter 11 Trustee,
attached hereto, which is hereby approved.
The consideration of offers by the Chapter 11
Trustee was conducted upon fair and
reasonable terms calculated to achieve the
highest and best value for the assets used in
connection with the JFC Excavation Business.
Paragraphs C, D and G, Order of September 29, 1993 [P.
236].
After the sale was approved, Miller & Miller resold
equipment, vehicles and miscellaneous parts used in the JFC
Excavating business to Associates, Charles J. Miller,
Inc.,and Zink.
Associates’ parent company, Associates Commercial
Corporation, was a prepetition secured creditor of Allnutt's
bankruptcy estate by reason of its security interests in heavy
construction equipment of JFC, doing business as Sovereign
Equipment Company. Claim No. 17 filed February 11, 1993,
in the secured amount of $244,528.05. On March 4, 1993,
Associates Commercial Corporation filed a motion for relief
from stay in the Allnutt bankruptcy case[P. 120], but
consented to defer the motion pending a sale. Associates
leased the items it purchased to Mr. Mangione, in lieu of
granting him a chattel mortgage. Charles J. Miller, a small
company owned by three brothers, bought one excavator.
Zink bought one power grader.
By order [P. 573] entered on March 30, 1995, this
App. 18
Court confirmed the Chapter 11 trustee's plan of liquidation’
[P. 489], that extinguished the rights of the debtor and those
claiming through him to property of the estate.®
The Plan contained the following relevant provisions:
6.4. Cancellation of Debtor's Interest in the Estate.
On the Effective Date of the plan, all of the Debtor's
Interest in assets and property of the Estate shall be
canceled without further action by the Trustee or the
Court except as otherwise provided in the Plan and
except to the extent the Court allows the Debtor 1
exempt, or otherwise exempts, any property from the
estate consistent with Section 522 of the Bankruptcy
Code.
8.1. General Discharge of and Release from
Claims and Interests.
(a) Except as expressly otherwise provided in
the Plan and except as provided by Section
523 of the Bankruptcy Code, or by Order of
the Court, effective on the Effective Date,
confirmation of the Plan shall fully discharge
and release the Debtor, pursuant to section
: 1141(d)(1)(A) of the Bankruptcy Code, from
; any and all Claims, including, without
limitation, debts, demands and labilities, that
arose before the Confirmation Date and all
debts of a kind specified in Section 502(g),
502(h) or 502(i) of the Bankruptcy Code
whether or not:
ee 98s eeetee oe
(i) a proof of claim based on
such Claim has been or is deemed to
have been filed under Section 501 of
the Bankruptcy Code;
(ii) such Claim is an Allowed
Claim or disallowed under Section
502 of the Bankruptcy Code;
(iii) such Claim arises. in
connection with a cause of action
pending against the Debtor on the
Confirmation Date; or
App. 19
(iv) any Claimant has accepted
the Plan.
(b) The distributions and rights afforded in
the Plan to Claimants, unless otherwise
provided in the Plan, the Bankruptcy Code or
by Order of the Court, shall be in complete
and full satisfaction , discharge and release of
all Claims against the Debtor and the Estate or
any of their respective assets or properties of
any nature whatsoever and, except as
expressly provided in the Plan, _ the
Bankruptcy Code or by Order of the Court, all
creditors shall be precluded forever from
asserting against the Debtor, the estate or their
assets and properties any other or further
liabilities, liens, Claims, encumbrances,
obligations, or equity interests, including, but
not limited to all principal and accrued and
unpaid interest on the debts of the Debtor
based on any act or omission, transaction or
other activity or security instrument or other
agreement of any kind or nature occurring,
arising or existing prior to the Confirmation
Date, that was or could have been the subject
of any Claim, whether or not allowed.
(c) On and after the Confirmation Date, as to
every discharged Claim, every holder of a
discharged Claim shall be precluded from
asserting against the Debtor and the Estate or
their respective assets or properties any further
Claim based on any document, instrument or
act, omission, transaction or other -activity of
any kind or nature that occurred prior to the
Confirmation Date. In accordance with the
foregoing, except as provided in this Plan, the
Confirmation order, the Bankruptcy Code or
by Order of the Court, the Confirmation order
shall be a judicial determination of discharge
of all such Claims and other debts and
liabilities against the Debtor and the Estate.
Pursuant to Sections 524 and 1141 of the
Bankruptcy Code, such discharge shall void
any judgment obtained against the Debtor or
App. 20
the Estate, at any time, to the extent that such
judgment relates to a discharged Claim.
8.2. Bankruptcy Injunction. Except as otherwise
provided in this Plan or the Confirmation Order,
effective on the Confirmation Date, all persons that
have held, currently hold or may hold a Claim or other
debt or liability that is discharged or a Claim against
the Debtor or the Estate that is terminated, or canceled
pursuant to the terms of this Plan, are permanently
enjoined from taking any of the following actions
against the debtor, the Estate and the respective
property and assets: (a) commencing or continuing, in
any manner or in any place, any action or other
proceeding; (b) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree
or order; (c) creating, perfecting or enforcing any lien
or encumbrance; (d) asserting a setoff, right of
subrogation or recoupment of any kind against any
debt, liability or obligation due to the Estate or the -
debtor; and (e) commencing or continuing any action
in any manner or any place that does not comply with
4 or is inconsistent with the provisions of the Plan.
8.6. Rights_of Action. Pursuant to Section
1123(b)(3) of the Bankruptcy Code, the Estate will
retain, and the Trustee will have the exclusive right to
enforce, any and all present or future rights or causes of
action against any Person and rights of the Estate that
arose before or after the Filing Date, including but not
limited to, avoidance powers granted to the Trustee
under the Bankruptcy Code and all causes of action and
remedies granted pursuant to Sections 502, 510, 541,
544, 545, 547 through 551 and 553 of the Bankruptcy
code, other than those specifically compromised as part
of the Plan or previously waived by the Trustee.
Trustee's plan of liquidation [P. 489], 99] 6.4, 8.1, 8.2,
8.6.
8. The order of confirmation contained the following provisions:
; 3. On the Effective Date, all legal right, title and
interest in and to the assets and property of the
bankruptcy estate shall remain subject to
App. 21
Allnutt's obstructionist tactics have prolonged the
duration of this Chapter 11 and so multiplied the proceedings
that the files in his bankruptcy case, exclusive of appeals and
adversary proceedings, extend nearly four feet in length,
comprising some 24 file folders, not counting a claims file.
Allnutt has filed untold numbers of groundless objections in
the bankruptcy court and numerous appeals to the U.S.
district and circuit courts. In addition, he has actively
pursued various sellers and purchasers of bankruptcy estate
assets by filing nuisance suits against them in state courts,
\
administration by the Trustee in order to implement the
Plan and shall not revest in the Debtor.
4. Pursuant to Article 6.4 of the Plan, on the
Effective Date of the Plan, all of the Debtor's interest in
assets and property of the bankruptcy estate shall be
canceled without further action by the Trustee or by the
Court.
5. As of the Effective Date of the Plan, the
Debtor shall be fully discharged and released, except as
otherwise provided by the Plan, pursuant to Section
1141(d)(1)(A) of the Bankruptcy Code, from any and
all claims, including without limitation, debts, demands
and liabilities that arose before the Confirmation Date,
except as provided by Section 523 of the Bankruptcy
Code or otherwise by order of this Court. . .
8. Notwithstanding anything to the contrary, this
Court retains jurisdiction in this bankruptcy case in
accordance with the provisions of Article 11 of the
Plan.
Order of confirmation [P. 573], entered March 30, 1995, 4 3-5, 8.
App. 22
ae
ee Cee Tee
which the defendants later removed to this Court.? The
instant adversary proceeding came about when, for the
second time in two years, Joanne A. Allnutt, the Chapter 11
debtor's non-filing spouse, sued purchasers of bankruptcy
estate property in a non-bankruptcy forum'®.
Although the Chapter 11 case involving the plaintiff's
husband was and is still pending, the plaintiff did not obtain
leave to file the state court complaints, nor did she pursue
any of her alleged rights before this Court. Instead, on
September 27, 1996, two days short of the third anniversary
of the bankruptcy court order that approved the sale, Joanne
A. Allnutt filed an eight-count complaint in the Circuit Court
for Howard County against Miller & Miller, Associates,
Charles J. Miller, and Zink, for detinue and conversion of the
property “sold out of bankruptcy by Mark J. Friedman,
Trustee." The plaintiff alleged that "all property claimed
herein has been acquired by the plaintiff, Joanne Armstrong
9
Allnutt v. Lewis, No. 94-5195-JS (Bankr.D.Md., removed April
29, 1994) (Charles Lewis was an employee of Miller & Miller
Auctioneers); Allnutt v. Miller & Miller Auctioneers, No. 94-5328-JS
(Bankr.D.Md., removed July 28, 1994); Allnutt v. Wilcoxson, No. 94-
$413-JS (Bankr.D.Md., removed September 28, 1994), 105 F.3d 646,
1997 WL 9762 (4th Cir. 1997)(Stephen L. Wilcoxon was the vice
president of Atlantic Auctions, which sold the race car assets).
" On November 16, 1994, Mrs. Allnutt filed suit in the Circuit
Court for Howard County against the purchasers of the so-called "race
car assets" obtained by sale conducted by the Chapter 11 trustee under
the auspices of the U.S. Bankruptcy Court. She was represented by Tracy
E. Mulligan, Esquire, the same attorney who is representing her in the
instant suit. The claim in that suit was the same as the instant suit,
namely, that assets of the estate sold by the Chapter 11 trustee were
owned by Mr. and Mrs. Allnutt as tenants by the entireties. After the case
was removed to the U.S. Bankruptcy Court, this Court denied the
plaintiff's motion to remand, deferred the defendants’ motions to dismiss,
and ordered the plaintiff to join the Chapter 11 trustee as a defendant.
Allnutt v. Metro Recovery, Ltd., et. al., No. 94-5501-JS (Bankr.D.Md.,
order entered Sep. 26, 1995). Instead, the plaintiff filed a motion for
interlocutory appeal to the U.S. District Court, and while the motion was
pending, dismissed the suit on March 5, 1996.
App. 23
Allnutt, and Fred W. Allnutt, Sr., during their marriage,
through their joint efforts, and is owned by the plaintiff,
Joanne Armstrong Allnutt as tenant by the entirety." The
plaintiff further alleged that the assets sold were first
acquired from a loan on a residence held by the debtor and
plaintiff as tenants by the entireties. The complaint sought
the return of the property or the value of the property and
damages for its wrongful retention. The total value the
plaintiff attributed to the property was $15,716,650. Total
damages sought from all defendants was $45,363,330.97.
Exhibits to the pleadings included joint tax returns
filed by Mr. and Mrs. Allnutt during the period covering the
late 1960s and early 1970s that indicated JFC was an
excavating business operated as a sole proprietorship and
owned solely by Mr. Alinutt. Other exhibits included various
promissory notes bearing the sole name of Fred W. Allnutt,
Sr., as the stated owner. While the plaintiff's name and
signature did appear on several documents, they were co-
signed by her individually or as secretary. In the debtor's
attempts to deny ownership of the business, his statements
taken at various depositions indicated that he was operating
as a sole proprietorship and that he sold the business to his
sons in 1983. The affidavit of one son, Christopher S.
Allnutt, stated that he and his brother became the owners of
their father's excavating business in 1983. All of this
evidence was elicited in the bankruptcy case at a time when
the debtor was attempting to repudiate his ownership of the
assets. The plaintiff now claims, in spite of all the statements
of her family to the contrary, that she held an interest as a
tenant by the entireties in the property sold by the Chapter 11
trustee to the defendants.
On December 30, 1996, Associates Leasing, Inc.
removed the plaintiff's suit against it to the U.S. Bankruptcy
Court (Adversary Proceeding No. 96-5598). This was
followed on January 2, 1997, by the removal of the plaintiff's
suit by Miller & Miller Auctioneers, Inc. (Adversary
Proceeding No. 97-5017), and on January 15, 1997, by the
App. 24
removal of the suit by Charles J. Miller, Inc. (Adversary
Proceeding No. 97-5047). The Chapter 11 trustee was not
sued in the state court, but filed a motion to intervene after
the suit was removed to the bankruptcy court.
The plaintiff filed objections to removal and motions
to remand each adversary proceeding to the Circuit Court for
Howard County. The defendants moved to dismiss the
complaints and the plaintiff filed oppositions to those
motions. Associates filed a motion to impose sanctions
against both the plaintiff and her attorney, in which the other
defendants joined.''
At the hearing before this Court on February 24,
1997, Tracy E. Mulligan stated that he practices in the state
and federal courts of Maryland. His federal practice is
primarily centered in the Greenbelt division of the U.S.
Bankruptcy Court for the District of Maryland. Mr. Mulligan
angrily charged that the Chapter 11 trustee did not properly
administer the bankruptcy case. The fact that the Chapter 11
trustee's conduct is at the center of this controversy is evident
from Mr. Mulligan's comments on the record:
The statutes and the cases are what
have guided me in this case. The statutes tell
me that this case was not handled properly
and that an attempt has been made to sell
something that should not have been sold and
could not have been sold out of the
bankruptcy court under the procedures that
were followed.
Mr. Mulligan defended the proposition that the
debtor would recover much of the property that the trustee
had sold with bankruptcy court approval if this suit were
successful and argued that such a recovery would be proper.
When asked by this Court if he did not agree that a lawsuit
a a po
On February 13, 1998, this Court consolidated the three separate
adversary proceedings into the instant pending adversary proceeding.
App. 25
against innocent purchasers was outrageous, Mr. Mulligan
replied: "The way that they [the debtor and the plaintiff]
have been financially destroyed is also a bit outrageous.”
Questioned further by this Court as to whether the debtor
was the moving force behind this lawsuit, Mr. Malligan
significantly replied:
I did not even know the Allnutts. They
came to me after the sale.
[Emphasis supplied.] After stating that he was
ignorant as to what had happened in the Allnutt bankruptcy
case, Mr. Mulligan contradicted himself and said:
I presented this in good faith. I made a
careful study of the facts and as I saw the
facts and applied them to the law, it seemed to
me that [the plaintiff's] interests had not been
properly handled by the bankruptcy trustee
but that the sale was complete and the proper
forum to determine whether she had title to
the property or not is the state court. That's
consistent with many of the cases that I have
carefully researched.
Mr. Mulligan was completely unrepentant for
bringing the instant lawsuit and argued that this Court could
not impose sanctions under Federal Rule of Civil Procedure
11 because the lawsuit was filed in state court, rather than
federal court.
_ This Court reminded Mr. Mulligan that he might
have been ignorant of the facts of this case at one time, but
that by the date of the hearing he could no longer claim
ignorance of those facts. Since the time of the filing of the
earlier lawsuit in 1994, he has been in full possession of
those facts, this Court having advised him that a valid sale
had occurred under the aegis of the bankruptcy court as to
App. 26
ne ised ae ee ee . ee
en
the race car assets. Mr. Mulligan voluntarily dismissed that
suit after suing innocent purchasers in the state court and
after filing an interlocutory appeal of this Court's
requirement that he join the trustee as a necessary party.
Mark J. Friedman, the Chapter 11 trustee, stated that
Mrs. Allnutt also knew and understood that a valid sale of
the JFC assets had taken place in the bankruptcy court,
because she was present at the hearing on the motion to sell
before this Court and was also present at the Chapter 11
trustee's office when the sale agreement was executed. As
further confirmation that the plaintiff knew exactly what was
happening, the trustee indicated that on the latter occasion,
Mrs. Allnutt "asked me whether any further actions would be
initiated by me to recover any other assets of the bankruptcy
estate." Affidavit of Mark J. Friedman dated February 7,
1997, §| 4,5, and 6 (Exhibit 8 to Trustee's motion to dismiss
and for sanctions) [P. 16].
CONCLUSIONS OF LAW
There is no doubt, based upon the record in this case,
that the debtor is the sponsor of the instant lawsuit, as its true
beneficiary and real party in interest. As the wife of the
debtor, the plaintiff is an insider who shares with him an
identity of interest. 11 U.S.C. §101(31). As an insider, the
plaintiff's close relationship with the debtor subjects her
conduct to greater scrutiny than those dealing with the debtor
at arm's length.
The plaintiff's claim of ownership in JFC as a tenant
by the entireties is but the latest in a long line of legal
maneuvers employed by the debtor and others under his
control and direction to thwart the IRS and frustrate the
jurisdiction of this Court. As Allnutt's spouse, the plaintiff
was on notice that he had filed bankruptcy, and that the
Chapter 11 trustee was liquidating estate property in which
she later claimed an interest.
-
The state court complaint was an implicit attack upon
both the jurisdiction of the bankruptcy court to validly sell
the debtor's property and the Chapter 11 trustee, who
conducted the sale and who was not joined as a party.
THE BANKRUPTCY COURT HAS SUBJECT MATTER
JURISDICTION OVER THE INSTANT ADVERSARY
PROCEEDING
This Court has subject matter jurisdiction over the
instant suit because its outcome could have a substantial
impact upon the administration of the Allnutt bankruptcy
case by nullifying a court-approved sale of estate assets and
by revesting those assets in the debtor in contravention of the
order of confirmation. Sales of property are core proceedings
arising under Title 11, as defined in 28 U.S.C. §157(b)'”,
_
. Section 157(b) of Title 28 of the U.S. Code provides as follows:
(b)(1) Bankruptcy judges may hear and determine all
cases under title 11 and all core proceedings arising
under title 11, or arising in a case under title 11,
referred under subsection
(a) of this section, and may enter appropriate
orders and judgments, subject to review under Section
158 of this title.
(2) Core proceedings include, but are not limited
to—
(A) matters concerning the administration of
the estate;
(B) allowance or disallowance of claims
against the estate or exemptions from property
of the estate, and estimation of claims or
interests for the purposes of confirming a plan
under chapter 11, 12, or 13 of title 11 but not
the liquidation or estimation of contingent or
unliquidated personal injury tort or wrongful
App. 28
over which this Court has jurisdiction pursuant to 28 U.S.C.
death claims against the estate for purposes of
distribution in a case under title 11;
(C) counterclaims by the estate against
persons filing claims against the estate;
(D) orders in respect to obtaining credit;
(E) orders to turn over property of the estate;
(F) proceedings to determine, avoid, or
recover preferences;
(G) motions to terminate, annul, or modify
the automatic stay;
(H) proceedings to determine, avoid, or
recover fraudulent conveyances;
(I) determinations as to the dischargeability
of particular debts;
(J) objections to discharges;
(K) determinations of the validity, extent, or
priority of liens;
(L) confirmations of plans;
(M) orders approving the use or lease of
property, including the use of cash collateral;
(N) orders approving the sale of property
other than property resulting from claims
brought by the estate against persons who
have not filed claims against the estate; and
(O) other proceedings affecting the
liquidation of the assets of the estate or the
adjustment of the debtor-creditor or the equity
security holder relationship, except personal
injury tort or wrongful death claims. /d
App. 29
§1334(a)'?. a
Section 1334 of Title 28 of the U.S. Code provides:
(a) Except as provided in subsection (b) of this
section, the district courts shall have original and
exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that
confers exclusive jurisdiction on a court or courts other
than the district courts, the district courts shall have
original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or
related to cases under title 11.
(cl) Nothing in this section prevents a district
court in the interest of justice, or in the interest of
comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising
under title 11 or arising in or related to a case under
title 11.
(2) Upon timely motion of a party in a proceeding
based upon a State law claim or State law cause of
action, related to a case under title 11 but not arising
under title 11 or arising in a case under title 11, with
respect to which an action could not have been
commenced in a court of the United States absent
jurisdiction under this section, the district court shall
abstain from hearing such proceeding if an action is
commenced, and can be timely adjudicated, in a State
forum of appropriate jurisdiction. Any decision to
abstain or not to abstain made under this subsection is
not reviewable by appeal or otherwise by the court of
appeals under section 158(d), 1291, or 1292 of this title
or by the Supreme Court of the United States under
section 1254 of this title. This subsection shall not be
construed to limit the applicability of the stay provided
for by section 362 of title 11, United States Code, as
such section applies to an action affecting the property
of the estate in bankruptcy.
(d) The district court in which a case under title
11 is commenced or is pending shall have exclusive
App. 30
Core proceedings are those matters necessarf),
incidental to a bankruptcy case that affect the restructurne o|
debtor-creditor relations and the liquidation of estate assets
Edgcomb Metals Co. v. Eastmet Corp., 89 BR. 546, S48
(D.Md 1988). This action is a core proceeding because
calls into question the power of the bankruptcy court to
conduct a core proceeding, namely a sale of estate property
Allegations of impropriety in the conduct of bankruptcy
sales are core proceedings pursuant to 28 USC.
§157(b)(2)(A),(N) and (0).
Although the instant suit was filed as a claim under
state law for conversion and detinue in a state court by an
insider of a debtor while the bankruptcy case is still open, in
reality the suit is a challenge to a Chapter 11 trustee's
bankruptcy sale approved by the bankruptcy court. A
proceeding is not deemed to be "non-core" merely because
its outcome may be influenced by state law. 28 U.S.C.
§157(b)(3); Arnold Print Works v. Apkin (In re Arnold Print
Works), 815 F.2d 165, 169 (1st Cir. 1987). Assuming that the
plaintiff's complaint were justified and she were found to be
entitled to relief, the effect would be to void the sale
conducted by the Chapter 11 trustee under the aegis of the
bankruptcy court.
The power of this Court to consider such allegations
is SO essential to its ability to administer assets of bankruptcy
estates that such power is beyond question. It is irrelevant to
the exercise of this power that the property which is the
subject of the suit has been sold, because the object of the
suit is the return of that property to the possession and
control of the debtor or the recovery of damages for its
deprivation during the pendency of the bankruptcy case. Part
of the determination of whether the bankruptcy court has
subject matter jurisdiction is whether the court has the power
jurisdiction of all of the property, wherever located, of
the debtor as of the commencement of such case, and
of property of the estate.
Id.
App. 31
vw
to grant the requested relief within its core functions. Strictly
for purposes of the jurisdictional inquiry, the Court assumes
that the plaintiff would be entitled to obtain the requested
relief, exclusive of any procedural or substantive defenses to
the suit. Because the instant suit concerns the approval of a
sale of estate assets, and assuming the plaintiff's allegations
to be well-taken and the requested relief to be justified, the
bankruptcy court has subject matter jurisdiction over the
instant controversy because it has the power to void the sale.
In other words, assuming that the instant suit alleged
sufficient grounds to entitle the plaintiff to have the sale
voided, it is this Court, the bankruptcy court which approved
the sale in the first place, that has the theoretical power to set
the sale aside or afford the plaintiff other ancillary relief. If
the debtor is entitled to be put back in possession of
property, it is this Court, which dispossessed him of that
property, that has the theoretical power to restore the
property to his possession, while the bankruptcy case
remains open.
Because the plaintiff would have no cause of action
except for the bankruptcy sale, the present suit is one “arising
in" the jurisdiction of the bankruptcy court. Simmons v.
Johnson, Curney & Fields, P.C. (In re Simmons), 205 B.R.
834, 840 (Bankr.W.D.Tex. 1997); Bergstrom v. Dalkon
Shield Claimants Trust (In re A.H. Robins, Inc.), 86 F.3d 364
(4th Cir.), cert. denied, US. _, 117 S.Ct. 483, 136
L.Ed.2d 377 (1996). "Matters ‘arising in’ Title 11 ‘are those
not based on any rights expressly created in Title 11, but
those which nevertheless would have no existence outside
the bankruptcy.” Celotex Corp. v. AlU Ins. Co. (in the
Matter of the Celotex Corp.), 152 B.R. 667, 672, fn. 7
(Bankr.M.D.Fla. 1993), quoting Wood v. Wood (In re Wood),
825 F.2d 90, 97 (Sth Cir. 1987). Although none of the parties
to the suit is a debtor, the plaintiff is an insider who, as the
debtor's non-filing spouse, is claiming ownership in the
debtor's property as his co-tenant in privity with the debtor.
Because the plaintiff and Allnutt are still husband and wife,
App. 32
her recovery of damages and/or property from the
defendants would have the consequence of restoring the _
debtor to possession of money and assets of the bankruptcy
estate as a tenant by entireties with the plaintiff. Assuming a
favorable verdict for the plaintiff, the outcome of the suit
would undo the work of the trustee in liquidating property of
the bankruptcy estate and would return that property to the
debtor's possession, as if a bankruptcy case had never been
filed, as if no bankruptcy trustee had ever been appointed to
take control of the assets, as if U.S. District Judge Smalkin
had not decided that the assets of JFC were subject to the
claims of the IRS. Cf In the Matter of Betty A. Linton, __
F.3d, 1998 WL 63841 (7th Cir. 1998).
The plaintiff's counsel argued that this Court no
longer has subject matter jurisdiction over this controversy
because the res in which the plaintiff is asserting an interest
is no longer property of the bankruptcy estate. This Court
disagrees. The cases that stand for the proposition that a
bankruptcy court has no subject matter jurisdiction to decide
questions of title to property after a bankruptcy sale do not
apply to the instant case which concerns lawsuits brought by
debtors and their agents against purchasers of estate property
during the pendency of the case. See for example In the
Matter of Edwards, 962 F.2d 641 (7th Cir. 1992)(suit by
second mortgagee against bona fide purchaser to determine
priority of lien); Wisconsin Department of Industry, Labor
and Human Relations v. Marine Bank Monroe (Matter of
Kubly), 818 F.2d 643 (7th Cir. 1987)(suit to determine
priority of liens on proceeds of assets sold out of bankruptcy
estate); Elscint, Inc. v. First Wisconsin Financial Corp.(In
the Matter of Xonics, Inc.), 813 F.2d 127 (7th Cir.
1987)(unrelated dispute between two creditors to property
that formerly belonged to debtor); Cook v. Griffin, 102 B.R.
875 (N.D.Ga. 1989)(title dispute between nondebtors over
real property alleged to be owned by debtors); Miller v.
Kemira, Inc. (In the Matter of Lemco Gypsum, Inc.), 910
F.2d 784 (11th Cir. 1990)(action for contempt brought by
App. 33
debtor's former landlord against purchaser of debtor's
property); and Blaustein v. Aiello, 229 Md. 131, 182 A.2d
353 (1962), cert. denied, 371 U.S. 233, 83 S.Ct. 326, 9
L.Ed.2d 494 (1963)(objections to foreclosure sale filed by
purchaser of property from bankruptcy trustee). These cases
are distinguishable from the case at bar, where the subject
matter of this suit is the right of a debtor and his insider, who
have been dispossessed of property by bankruptcy court
orders, to contest those orders by means of vexatious
litigation brought in a nonbankruptcy forum during the
pendency of the bankruptcy case in the absence of
bankruptcy court approval. The instant case is also
distinguishable because here federal bankruptcy law will
provide the rule of decision.
THE PLAINTIFF'S MOTIONS TO REMAND
WILL BE DENIED
The state court in which the complaint was filed did
not have subject matter jurisdiction to set aside the
bankruptcy court-approved sale, based upon facts set forth
on the face of the complaint. The plaintiff's rights to such
property could only be derived from a properly-claimed
exemption filed in the bankruptcy case, followed by an
objection to the trustee's sale pursuant to 11 U.S.C. §363. As
cogently stated by Judge Keir of this Court:
In Maryland, “conversion has been
gencrally defined as the wrongful exercise of
dominion by one person over the personal
property of another." Kalb v. Vega, 56
Md. App. 653, 665, 468 A.2d 676, 683 (1983).
In order to successfully plead conversion, it
must be shown that the appropriation of
property was unauthorized or without the
consent of the owner. Matter of Burdick, 65
B.R. 105, 108 (Bankr.N.D.Ind. 1986). An act
App. 34
which would otherwise constitute a
conversion may be precluded from having
that effect vy a plaintiff's consent to the act.
Restatement (Second) of Torts § 252 (1965).
Nonconsent to the possession and disposition
of the property by the Defendant are therefore
indispensable. If an owner expressly or
impliedly assents to, or ratifies the taking,
use, or disposition of the property, the owner
cannot recover for conversion. Rose Brothers,
Inc. V. City of Alva, 536 P.2d 1083, 1085
(Okla. 1960).
Nationsbank of D.C., N.A. v. Blier (In re Creative
Goldsmiths of Washington, D.C), 178 B.R. 87, 93
(Bankr.D.Md. 1995).
The plaintiffs motions to remand will be denied
because the instant complaint filed in the Circuit Court for
Howard County was properly removed to the US.
Bankruptcy Court for the District of Maryland. 28 U.S.C.
§1452(a)'*. In the case of Allnutt v. Wilcoxson, 105 F.3d 646,
1997 WL 3762 (4th Cir. 1997), in which Allnutt was
sanctioned for harassing a purchaser of the so-called race car
Section 1452(a) provides:
§ 1452. Removal of claims related to bankruptcy cases
(a) A party may remove any claim or cause
of action in a civil action other than a
proceeding before the United States Tax Court
or a civil action by a governmental unit to
enforce such governmental unit's police or
regulatory power, to the district court for the
district where such civil action is pending, if
such district court has jurisdiction of such
claim or cause of action under section 1334 of
this ttle.
28 U.S.C. §1452(a).
assets by haling him into a state court for a deposition
supposedly to preserve testimony in advance of the filing of
a suit challenging the sale, the Fourth Circuit upheld the
removal jurisdiction of the bankruptcy court in these words:
Allnutt's subpoena for a deposition to
perpetuate evidence was to obtain evidence
for use in filing an action to challenge the
bankruptcy court's sale of the race car assets.
Challenges to the propriety of sales of assets
of the bankruptcy estate are core bankruptcy
proceedings pursuant to 28 USC. §
157(b)(2)(A)(1994). See In re Elegant
Equine, Inc., 155 B.R. 189, 191 (Bankr.D.II1.
1993); In re American Solar King, 142 B.R.
772 (Bankr.W.D.Tex. 1992). Because the
bankruptcy court would have jurisdiction over
the anticipated underlying action, the
subpoena action to perpetuate testimony was
properly removed to.the bankruptcy court. See
11 U.S.C. Rule 9027.
Id.
Although artfully pleaded to avoid the appearance of
coming within the subject matter jurisdiction of the
bankruptcy court, the instant complaint on its face attacked
the bankruptcy court-approved sale of the debtor's property
in which the plaintiff untimely asserted an interest, and
therefore was properly removed. Remand was properly
denied because this Court is the only tribunal having
original, exclusive jurisdiction over the subject matter of the
complaint. 7
On February 24, 1998, while this opinion was
nearing completion, the Supreme Court handed down a
decision in the case of Rivet v. Regions Bank of Louisiana,
___ US. _: , 1998 WL 71832, which reversed 108 F.3d 576
(Sth Cir. 1997). The decision held that where. removal on
s
App. 36
ss es: dthittetats
Pa sanbibiticiags ? reas on
grounds of a federal question was premised upon a prior
federal judgment entered by a bankruptcy court that
precluded the state law claim, the defensive plea of claim
preclusion did not provide a proper basis for removing a
state lawsuit to a U.S. district court. Instead, the Court stated,
"The defense of claim preclusion . . . is properly made in the
state proceeding, subject to this Court's ultimate review."
Rivet, 1998 WL 71832, at 2. The opinion supports the
decision in the instant case to uphold removal and deny
motion to remand.
At the time the suit was removed in Rivet, the
bankruptcy case in which the preclusive orders had been
issued was closed. The suit was removed to a U.S. district
court pursuant to 28 U.S.C. §1441(a), the general federal
removal statute, rather than the bankruptcy removal statute,
28 U.S.C. §1452(a). Cf Things Remembered, Inc. v.
Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461
(1995). Therefore, Rivet did not concern the jurisdiction of
the state court being preempted by the subject matter
jurisdiction of a bankruptcy court.
The decision in Rivet turned upon claim preclusion,
rather than claim preemption, as in the instant case, where
this Court has held that the subject matter jurisdiction
conferred upon the bankruptcy court by federal law
completely preempted the state court from entertaining the
instant case. While the application of the doctrine of claim
preclusion may determine the outcome of the instant case,
the Court finds that federal jurisdiction, specifically
conferred upon this Court by the Bankruptcy Code and the
Judicial Code, completely preempted the jurisdiction of the
state court so that removal of the plaintiffs claim to the
bankruptcy court was proper. The language of the Supreme
Court in Rivet as its relates to the instant case confirms this
conclusion:
We have long held that "[t]he presence
or absence of federal-question jurisdiction is
App. 37
governed by the 'well-pleaded complaint rule,’
which provides that federal jurisdiction exists
only when a federal question is presented on
the face of the plaintiff's properly pleaded
complaint." Caterpillar Inc. v. Williams, 482
U.S. 386, 392, 107 S.Ct. 2425, 2429, 96
L.Ed.2d 318 (1987); see also Louisville &
Nashville R. Co. v. Mottley, 211 U.S. 149,
152, 29 S.Ct. 42, 43, 53 L.Ed. 126 (1908). A
defense is not part of a plaintiff's properly
pleaded statement of his or her claim. See
Metropolitan Life Ins. Co. V. Taylor, 481 US.
58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55
(1987); Gully v. First Nat. Bank in Meridian,
299 U.S. 109, 112, 57 S.Ct. 96, 97, 81 L.Ed.
70 (1936)("To bring a case within the
[federal-question removal] statute, a right or
immunity created by the Constitution or laws
of the United States must be an element, and
an essential one, of the plaintiff's cause of
action."). Thus, "a case may not be removed
to federal court on the basis of a federal
defense, .. . even if the defense is anticipated
in the plaintiffs complaint, and even if both
parties admit that the defense is the only
question truly at issue in the case." Franchise
Tax Bd. of Cal. v. Construction Laborers
Vacation Trust for Southern Cal., 463 U.S. 1,
14, 103 S.Ct. 2841, 2848, 77 L.Ed.2d 420
(1983).
Allied as an “independent corollary"
to the well-pleaded complaint rule is the
further principle that "a plaintiff may not
defeat removal by omitting to plead necessary
federal questions." /d., at 22, 103 S.Ct., at
2853. If a court concludes that a plaintiff has
"artfully pleaded" claims in this fashion, it
App. 38
may uphold removal even though no federal
question appears on the face of the plaintiff's
complaint. The artful pleading doctrine allows
removal where federal law completely
preempts a plaintiff's state-law claim. See
Metropolitan Life Ins. Co., 481 U.S., at 65-66,
107 S.Ct., at 1547-48 (upholding removal
based on the preemptive effect of §
502(a)(1)(B) of the Employment Retirement
Income Security Act); Avco Corp. V.
Machinists, 390 U.S. 557, 560, 88 S.Ct. 1235,
1237, 20 L.Ed.2d 126 (1968)(upholding
removal based on the preemptive effect of §
301 of the Labor Management Relations Act).
Although federal preemption is ordinarily a
defense, "[o]nce an area of state law has been
completely pre-empted, any claim purportedly
based on that pre-empted state-law claim is
considered, from its inception, a federal
claim, and therefore arises under federal law.
Caterpillar, 482 U.S., at 393, 107 S.Ct., at
2430.
Rivet v. Regions Bank of Louisiana, __ U.S. __, 1998 WL
71832, at 4.
THE TRUSTEE'S MOTION TO INTERVENE
WILL BE GRANTED
The trustee will be permitted to intervene because the
trustee is a necessary party as the representative of the
debtor's estate. Heyman v. M.L. Marketing Co., 116 F.3d 91,
94-95 (4th Cir. 1997). The bankruptcy estate has an interest
in these proceedings because the outcome could nullify the
sale of substantially all of the assets and revest them in the
debtor's possession, thereby nullifying the order confirming
the trustee's plan of liquidation. The trustee's joinder on
App. 39
behalf of the estate is necessary because this suit challenges
the propriety of the trustee's conduct in the administration of
the bankruptcy case that the trustee should defend on the
estate's behalf.
No suit may be brought in a state court against a
trustee or counsel to a debtor in possession for alleged
misconduct in liquidating assets of a bankruptcy estate
without leave of the bankruptcy court. Hallock v. Key
Federal Savings Bank (In re Silver Oak Homes, Ltd.), 167
B.R. 389, 394-95 (Bankr.D.Md. 1994). "It is well settled that
leave of the appointing forum must be obtained by any party
wishing to institute an action in a non-appointing forum
against a trustee, for acts done in the trustee's official
capacity and within the trustee's authority as an officer of the
court." Allard v. Weitzman (In re DeLorean Motor Co.), 991
F.2d 1236, 1240 (6th Cir. 1993), citing the doctrine of
Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). By
failing to join Mark J. Friedman, the Chapter 11 trustee, a
necessary party to the state court action,’® the plaintiff
attempted to circumvent the procedure of obtaining leave of
court to file the state court suit.'®
Most recently, a decision in the case of /n the Matter
of Betty A. Linton, __ F.3d __, 1998 WL 63841 (7th Cir.
1998), decided February 18, 1998, held that the doctrine of
Barton v. Barbour prevents a suit against a trustee without
leave of court after the bankruptcy case has been closed.
” Even though Mr. Friedman was an operating trustee, the
doctrine of Barton v. Barbour has been held to be applicable to a cause of
action that relates to the trustee's conduct in liquidating assets of a
bankruptcy estate. Missouri Dept. Of Nat. Resources v. Valley Steel
Products Co, Inc. (In re Valley Steel Products Co., Inc.), 157 B.R. 442,
448 (Bankr.E.D. Mo. 1993); Mangun v. Bartlett (In re Balboa
Improvements, Ltd.), 99 B.R. 966, 970 (9th Cir. BAP 1989).
7 The plaintiff selected her targets with care, failing to join Mr.
Mangione, who is now her husband's employer, and Mr. Friedman, the
trustee, whose joinder would have raised a red flag indicating that the
complaint should have been filed in the bankruptcy court.
App. 40
Speaking on behalf of the Seventh Circuit, Chief Judge
Posner wrote:
At stake in the present case, however,
is a concern . . . with the integrity of the
bankruptcy jurisdiction. If debtors, creditors,
defendants in adversary proceedings, and
other parties to a bankruptcy proceeding
could sue the trustee in state court for
damages arising out of the conduct of the
proceeding, that court would have the
practical power to turn bankruptcy losers into
winners, and vice versa. A creditor who had
gotten nothing in the bankruptcy proceeding
might sue the trustee for negligence in failing
to maximize the assets available to creditors,
or to the particular creditor. A debtor who had
failed to obtain a discharge might through a
suit against the trustee obtain the funds
necessary to pay the debt that had not been
discharged.
Of course principles of res judicata
and the good faith of state courts would head
off the worst consequences of the kind of
divided jurisdiction over bankruptcy matters
that we have just described. But a simpler and
more secure protection is to require the person
wanting to bring a suit in state court against a
trustee in bankruptcy to obtain leave to do so
from the bankruptcy court. We can draw an
analogy between federal officers and
bankruptcy trustees, and hence between the
federal officers’ removal statute, 28 U.S.C. §
1442, see Arizona v. Manypenny, 451 U.S.
232, 241-42, 101 S.Ct. 1657, 68 L.Ed.2d 58
(1981), and the judge-made doctrine requiring
leave of the bankruptcy court to sue the
App. 41
trustee. The latter has actually a more secure
constitutional pedigree, because it responds to
the concern that motivated the framers of the
Constitution in authorizing Congress to enact
uniform, nationwide bankruptcy laws. Art. I,
§ 8, cl. 4 -- concern that states might favor
debtors, or creditors, unduly. Joseph Story,
Commentaries on the Constitution of the
United States § 540, pp. 386-87 (1833).
1998 WL 63841, at 2.
THE INSTANT COMPLAINT
WAS PROCEDURALLY IMPROPER
During the administration of a bankruptcy case, it is
not proper for an insider to keep silent regarding her co-
ownership of property of the debtor that was being
administered by his trustee. The concealment of the
plaintiff's interest from the trustee and the bankruptcy court
and her suit against the purchasers of assets in a state court
after the consummation of the sale without seeking approval
of the bankruptcy court was manifestly improper. Instead,
the plaintiff should have sought an order from the U.S.
bankruptcy court before the sale, pursuant to Section 363(e)
of the Bankruptcy Code, which provides, inter alia:
\
Id. Section 363 was the mechanism pursuant to which this
Court approved the sale of the JFC assets to the defendants.
Notwithstanding any other provision
of this section, at any time, on request of an
entity that has an interest in property used,
sold, or leased, or proposed to be used, sold,
or leased, by the trustee, the court, with or
without a hearing, shall prohibit or condition
such use, sale, or lease as is necessary to
provide adequate protection of such interest.
App. 42
Despite protections to a co-owner of property subject to sale
in a bankruptcy estate found in Section 363,'’ the plaintiff
did not raise the issue of her alleged entireties ownership in
the bankruptcy court or attack the sale in this Court, either
before or after it took place.'® "[A]fter the time for appeal
had lapsed, the order could not be attacked in a new lawsuit
brought by a party to the sale proceeding or by a successor to
that party or by anyone else so far identified with such a
party as to be classified as being in privity with him; such a
suit would be barred by res judicata. The only other remedy
would be a motion to vacate the judgment under Rule 60(b)."
Gekas v. Pipin (In the Matter of Met-L-Wood Corp.), 861
F.2d 1012, 1016 (7th Cir. 1988), cert. denied, 490 U.S. 1006,
109 S.Ct. 1642, 104 L.Ed.2d 157 (1989).
The burden was upon the debtor and those claiming
derivative rights to property of the estate through him to
assert claims to that property against the right of the trustee
to administer those assets during the pendency of the
bankruptcy case. Section 363(h) requires that a trustee who
wishes to sell a co-owner's interest in property of the estate
‘f Section 363(h) provides that when four conditions are met, "the
trustee may sell both the estate's interest . . . and the interest of any co-
owner in property in which the debtor had . . . an undivided interest as . .
. tenant by the entirety." Section 363(i) provides that prior to the
consummation of a sale of property, a debtor's spouse, who is a tenant by
. the entireties, "may purchase such property at the price at which such
sale is to be consummated{[;]" Section 363(j) provides that after the sale
of property held in a tenancy by the entireties, "the trustee shall distribute
to the debtor's spouse . . . and to the estate, the proceeds of such sale. . .
according to the interests of such spouse .. ." 11 U.S.C. §363(h).
Section 363(m) provides that "The reversal or modification on
appeal of an authorization under subsection (b) or (c) of this section of a~
sale or lease of property does not affect the validity of a sale or lease
under such authorization to an entity that purchased or leased such
property in good faith, whether or not such entity knew of the pendency
of the appeal, unless such authorization and such sale or lease were
stayed pending appeal.” 11 U.S.C. §363(m).
App. 43
file an adversary proceeding against the co-owner prior to
the sale of the co-owner's interest. 11 U.S.C. §363(h).
However, in the absence of knowledge of the existence by
the trustee of a co-owner's claim, the trustee need not initiate
a declaratory judgment action in the bankruptcy court to
determine the nature of the debtor's ownership interest in
property of the estate. Any rights the plaintiff may have had
to claim an interest in property of the bankruptcy estate as
the debtor's spouse were cut off when the property was sold
by the Chapter 11 trustee after the debtor failed to exempt
the property as that held by tenants by the entireties, and/or
when the plaintiff, with full knowledge of the sale, failed to
object to it. Veltman v. Whejzal, 93 F.3d 517, 522 (8th Cir.
1996). The Seventh Circuit went even farther, stating in
Gekas v. Pipin (In the Matter of Met-L-Wood Corp.), 861
F.2d 1012, 1017 (7th Cir. 1988):
A proceeding under section 363 is an
in rem proceeding. It transfers property rights,
and property rights are nghts good against the
world, not just against parties to a judgment
or persons with notice of the proceeding.
Id.
The sale in this case was properly conducted by the
Chapter 11 trustee. The sale was properly approved by order
of this Court and conveyed good title to the property that was
conveyed. The order approving the sale determined the
buyers to be bona fide purchasers.
A bankruptcy court has the powers of a court of
equity. U.S. v. Energy Resources Co., 495 U.S. 545, 110
S.Ct. 2139, 109 L.Ed.2d 580 (1990). Section 105(a) of the
Bankruptcy Code provides that a bankruptcy court "may
issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title." /d.
During the pendency of a Chapter 11 proceeding, and in aid
of its jurisdiction, the bankruptcy court having been clothed
App. 44
with the exclusive jurisdiction to deal with property of a
Chapter 11 estate, has the inherent power to enjoin debtors,
insiders and their agents, including attorneys, from attacking
sales of estate property in State courts, to prevent a debtor
from regaining title to estate property by circumventing and
negating the bankruptcy process, to enforce its valid orders,
and to prevent the debtor and the debtor's agents from
injuring third parties by misconduct which is determined to
be both fraudulent and vexatious. Cf Celotex Corp. v.
Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403
(1995); WBQ Partnership v. Commonwealth of Virginia
Department Of Medical Assistance Services (In re WBQ
Partnership), 189 B.R. 97 (Bankr.E.D.Va. 1995); In re
G.S.F. Corp., 938 F.2d 1467 (1st Cir. 1991); Menard-
Sanford v. Mabey (In re A.H. Robins), 880 F.2d 694 (4th
Cir.),cert. denied, 493 U.S. 959, 110 S.Ct. 376, 107 L.Ed.2d
362 (1989); MacArthur Co. V. Johns-Manville Corp. (In re
Johns-Manville Corp.), 837 F.2d 89 (2d Cir.), cert. denied,
488 U.S. 868, 109 S.Ct. 176, 102 L.Ed. 2d 145 (1988).
A permanent injunction will issue against the debtor,
his insiders and agents, including his, her, or their attorneys,
from contesting the validity of sales of property of the
bankruptcy estate by the Chapter 11 trustee, subject to
further severe sanctions.'”
" The Chapter 11 trustee's confirmed plan [P. 489] contained a
reservation of jurisdiction in this Court for these and other purposes, as
follows:
11.1 The-Court will retain jurisdiction after the
Confirmation Date of the Plan for the following:
(a) Except as to the Allowed Secured Tax
Claims, the allowance and classification of
any Claim, the estimation of any Claim, the
re-examination of any Claim which has been
allowed for purposes of voting, and the
determination of any objections that may be or
may have been filed to Claims (the failure by
the Trustee to object to, or to examine for the
purposes of voting, any Claim as of the
App. 45
Confirmation Date shall not be deemed a
waiver of the trustee's right to object to, or to
re-examine, the Claim in whole or in part after
the Confirmation Date);
(b) The determination of all questions and
disputes regarding title to assets of the Estate,
approval of distributions and payments under
the Plan and determination of all causes of
action, controversies, disputes, conflicts or
Claims involving the Estate or the Trustee
including, but not limited to, all litigation or
contested matters pending before the Court on
the Confirmation Date, any litigation or
contested matters filed subsequent to the
Confirmation Date, and any right of the Estate
to recover assets pursuant to the provisions of
the Bankruptcy Code;
-(c) The correction of any defect, the curing
of any omission, or the reconciliation of any
inconsistency in the Plan or the Confirmation
order as may be necessary to carry out the
purposes and intent of the Plan;
(d) The modification of the Plan after the
Confirmation Date pursuant to applicable
Bankruptcy Rules and the Bankruptcy Code;
(e) The enforcement, implementation and
interpretation of the terms of the Plan and the
resolution of any objections which may be
filed or issues which may arise with respect to
any actions taken or proposed to be taken
pursuant to the provisions of the Plan;
(f) The entry of any order, including
injunctions, necessary to enforce the title,
rights and powers of the Estate and the trustee
under the Plan and to impose such limitations,
restrictions, terms and conditions of such title,
rights and powers as the Court may deem
necessary;
App. 46
THIS COURT WILL TREAT THE DEFENDANTS’
MOTIONS TO DISMISS AS
MOTIONS FOR SUMMARY JUDGMENT
AND WILL GRANT THEM
Pursuant to Federal Rule of Civil Procedure 12(b),
made applicable to the instant adversary proceeding by
Bankruptcy Rule 7012(b), the defendants’ motions to dismiss
shall be treated as motions for summary judgment. The
parties to this action have presented documents outside the
pleadings that have not been excluded by this Court. When
matters outside the pleadings are “presented to and not
excluded by the court, the motion [to dismiss] shall be
treated as one for summary judgment and disposed of as
provided in Rule 56. . ." Fed.R.Civ.P. 12(b); Finley Lines Jt.
Protect. Bd. v. Norfolk So. Corp., 109 F.3d 993, 995 (4th Cir.
1997).
Motions for summary judgment are governed by
Bankruptcy Rule 7056, which makes Fed.R.Civ.P. 56
applicable to adversary proceedings. The standard for
granting summary judgment is as follows:
Summary judgments are appropriate
in those cases where there is no genuine
dispute as to a material fact and it appears that
the moving party is entitled to a judgment as a
matter of law. Fed.R.Civ.P. 56(c); Adickes v.
S.H. Kress & Co., 398 U.S. 144, 157, 90S.
Ct. 1598, 1608, L. Ed. 2d 142 (1970)... .
However, where the record taken as a whole
(g) The allowance of Professional Claims;
(h) Any claim against or related to the trustee
or the Trustee's Professionals; and
(i) The entry of an order concluding and
terminating this bankruptcy case.
Id.
App. 47
could not lead a rational trier of fact to find
for the non-moving party, disposition by
summary judgment is appropriate. Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 587, 106 S. Ct. 1348, 1356, 89 L.
Ed.2d 538 (1986).
Miller v. F.D.1.C., 906 F.2d 972, 973-74 (4th Cir. 1990).
The defendants are entitled to summary judgment
without regard to the inconsistent positions on the record that
the plaintiff and Allnutt have taken regarding title to the
property. He has always disavowed owning the business; she
now claims that the business was acquired during her
marriage to the debtor, and that she jointly owned it with him
as tenants by the entireties. The plaintiff has failed to
produce any persuasive evidence from which such an
inference could be drawn. In order to find that the plaintiff
was the owner of an interest in JFC as a tenant by the
entireties, it is axiomatic that Allnutt, the plaintiff's spouse,
must also hold an ownership interest therein as a tenant by
the entireties.
The plaintiff has never contested the decision of the
U.S. District Court which held that the debtor was the sole
owner of JFC, nor decisions of this Court disposing of JFC
as property of Allnutt's bankruptcy estate. Collateral estoppel
is properly applicable to a bankruptcy proceeding to prevent
relitigation of issues actually and necessarily resolved in a
prior nonbankruptcy proceeding. Grogan v. Garner, 498
U.S. 279, 111 S.Ct. 654, 658, 112 L.Ed.2d 755 (1991).
The plaintiff claims to have been the owner of
bankruptcy estate property as "a tenant by the entireties.”
However, one spouse cannot be the joint owner of property
by the entireties without the other spouse (in this case, the
debtor) being the co-owner. In Maryland, the transfer of
property to a husband and wife gives rise to a presumption
that the property is held as tenants by the entireties unless a
contrary intention is indicated. Columbian Carbon Co. y.
App. 48
Kight, 207 Md. 203, 114 A.2d 28 (1955); Kolker v. Gorn,
193 Md. 391, 67 A.2d 258 (1949); Marburg v. Cole, 49 Md.
402 (1878).
Maryland law retains the traditional form of the
tenancy by the entireties estate. "By common law, a
conveyance to husband and wife does not make them joint
tenants, nor are they tenants in common; they are in the
contemplation of the law but one person, and hence they
take, not by moieties, but by the entirety." Beall v. Beall, 29|
Md. 224, 234, 434 A.2d 1015, 1021 (1981). The Court of
Appeals of Maryland has described an estate held as tenants
by the entireties estate as follows:
[T]he tenancy by which husband and
wife at common law hold land conveyed or
devised to them by a single instrument which
does not require them to hold it by another
character of tenancy. The title of both
husband and wife arises out of the instrument,
whether deed, devise or gift, by virtue of
which they become seized of the estate. A
tenancy by the entirety cannot be created
unless the four essential common law unities,
namely, interest, title, time and possession,
CO-eXxist.
Bruce v. Dyer, 309 Md. 421, 427, 524 A.2d 777, 780
(1987) (quoting 2 H. Tiffany, The Law of Real Property §
430 (B. Jones, 3d ed. 1939 & 1987 Supp.)). "Neither [tenant]
can alienate [the tenancy by the entireties property] without
the consent of the other, and the survivor takes the whole."
Beall, 434 A.2d at 1021, 291 Md. at 234 (citing Marburg vy.
Cole, 49 Md. 203 (1878)).
Mr. Mulligan's argument that this Court has no
subject matter jurisdiction in this case proceeds from the
false assumption that the plaintiff's claim to an ownership
interest in the real property has already been established
App. 49
under state law, which is not true. The record title to all of
the property of JFC was in the names of the three entities
created by the debtor to thwart the tax collector, namely
Sovereign Equipment Association, Constitution Leasing
Association, and Ellicott Building Association. These were
the entities that Judge Smalkin decided were mere shams to
camouflage Allnutt's sole ownership. No evidence was
produced to support the claim that the business assets were
conveyed to the plaintiff and the debtor as a marital unit. The
plaintiff did not present any evidence or documents tending
to establish any of the four unities. Therefore, because the
four essential common law unities, namely, interest, title,
time and possession were not demonstrated to co-exist, the
plaintiff's claim that she and Allnutt owned the assets of JFC
as tenants by the entireties must fail.
While questions of the ownership of property
involved in a bankruptcy estate are determined by state law,
whether property in which the debtor has an interest is
property of the bankruptcy estate is a federal question.
Barnhill v. Johnson, 503 U.S. 393, 398, 112 S. Ct. 1386,
1389, 118 L. Ed. 2d 39, 46 (1992); Butner v. United States,
440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136, 141-42
(1979); Board of Trade of Chicago v. Johnson, 264 U.S. 1,
44 S.Ct. 232, 68 L.Ed. 533 (1924).
The filing of the bankruptcy petition in this case
created a bankruptcy estate that included "all legal or
equitable interests of the debtor in property as of the
commencement of the case." 11 U.S.C. §541(a). However, a
debtor may exempt certain property from _ estate
administration to obtain a fresh start. Cheeseman vy.
Nachman,(In re Cheeseman), 656 F.2d 60, 63 (4th Cir.
1981)(citing H.R. Rep. No. 595, 95th Cong., Ist Sess. 126
(1977), reprinted in U.S. Code Cong. & Ad. News 5963,
6087 (1978). See also 11 U.S.C. §522 (setting forth federal
exemption law). Maryland has "opted out" of the federal
exemption scheme. See 11 U.S.C. §522(b)(1); Md. Cts. &
Jud. Proc. Code Ann. §11-504(g); Jn re Ginn, 186 B.R. 898
App. 50
Re ee ee
(Bankr.D.Md. 1995). The failure of both the debtor and the
plaintiff to claim exemptions of so-called "entireties
property" from administration by the Chapter 11 trustee
waived their right to any such exemptions. See 11 U.S.C.
§522(1); 4 Collier on Bankruptcy 9522.07 (15th ed. 1997).
The trustee was therefore within his rights to sell the
property of JFC after notice pursuant to order of the
bankruptcy court. §363(g),(h) and (i). The failure of a co-
owner to object to a trustee's notice of sale has been held to
authorize a sale free and clear of all liens, encumbrances and
interests, such as the interest claimed here by the plaintiff.
Veltman v. Whetzal, 93 F.3d 517 (8th Cir. 1996). Once the
sale became final, by the failure to file a timely appeal or to
obtain a stay pending appeal, the order approving the sale is
no longer reviewable, pursuant to 11 U.S.C. §363(m).
Veltman, 93 F.3d at 521, citing In re CGI Indus., Inc., 27
F.3d 296 (7th Cir. 1994).
Citing Jn re Ford, 3 B.R. 559 (Bankr.D.Md. 1980),
aff'd. sub. nom. Greenblatt vy. Ford, 638 F.2d 14 (4th Cir.
1981), the plaintiff argued that because Only the debtor's
interest in entireties property became property of the estate,
the plaintiff's interest in entireties property could not be sold
by the trustee. The problem with that argument is that the
debtor did not claim that he owned the property, either solely
in his own right, or jointly with the plaintiff. All of the
property that was later administered by the trustee came into
the estate when the case was filed, as confirmed after the fact
by the decision of the U.S. District Court [Smalkin, J.]
This Court need not rely upon the voluminous
documents attached to the pleadings that support the finding
that JFC was a sole proprietorship owned solely by the
debtor.”° Mr. and Mrs. Allnutt filed joint income tax returns
The joint tax returns of the plaintiff and the debtor
supplementing the pleadings reported Allnutt as self-employed. The tax
returns also reported Allnutt's earnings from the sole proprietorship.
Despite a variety of trade names, the business was a sole proprietorship”!
App. 51
that identified JFC as a sole proprietorship owned solely by
Mr. Allnutt. Therefore, the plaintiff is estopped from now
characterizing the business as jointly-held. See Robb-Fulton
v. Robb (In re Robb), 23 F.3d 895 (4th Cir. 1994)(taxpayer
who deducted payments as alimony on his income tax
retums was estopped from later claiming them as
dischargeable support payments after he filed his bankruptcy
petition).
The U.S. District Court (Smalkin, J.] conclusively
determined that Allnutt was the sole owner of JFC.
Collateral estoppel prevents the plaintiff, who is necessarily
in privity with Allnutt, from later challenging that
determination. Harnett v. Billman, 800 F.2d 1308 (4th Cir.
1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1571, 94
L.Ed.2d 763 (1987); Reddick v. State, 213 Md. 18, 30, 130
A.2d 762, 768, cert. denied, 355 U.S. 832, 78 S.Ct. 50, 2
L.Ed.2d 44 (1957); Lichtenberg v. Sachs, 200 Md. 145, 159,
88 A.2d 450, 456 (1952); Ugast v. LaFontaine, 189 Md. 227,
232-33, 55 A.2d 705, 708 (1947).
This Court's determination that the plaintiff may not
now assert a claim to the assets of JFC is not only consistent
with Judge Smalkin's decision, but is required by the
preclusive effect of the order approving the sale pursuant to
Section 363 of the Bankruptcy Code, Matter of Edwards,
962 F.2d 641 (7th Cir. 1992); and by reason of res judicata,
collateral estoppel, equitable estoppel and waiver effected by
the Chapter 11 trustee's confirmed plan of liquidation. First
Union Commercial Corp. v. Nelson (In re Varat Enterprises,
Inc.), 81 F.3d 1310, 1315 (4th Cir. 1996), citing Stoll v.
Gottlieb, 305 U.S. 165, 170-71, 59 S.Ct. 134, 136-37, 83
L.Ed. 104 (1938).
The instant cause of action is so transparently sham
and fraudulent that no reasonable finder of fact could
21.
The pleadings indicate that the sole proprietorship was
incorporated at some point. See footnote 2. The business assets were
subsequently taken out of the corporate shell, although the business
continued to operate as it always had. ""-'-""'
App. 52
determine there to be a genuine dispute as to a material fact.
The plaintiff's suit is premised upon a claim that she and the
debtor kept secret between themselves during the pendency
of the bankruptcy case. To give legal effect to the clandestine
claim of a debtor and those in privity with him against
property of a bankruptcy estate that a trustee has already
administered for the benefit of creditors is to damage the
credibility of the judicial process in general and the
bankruptcy process in particular. The highly prejudicial
impact on the liquidation of the bankruptcy estate caused by
the plaintiffs claim, raised as it was at such a late date,
renders highly suspect the timing of the instant complaint.”
The plaintiffs suit was frivolous and the defendants are
entitled to judgment as a matter of law.
For all these reasons, the instant complaint must be
dismissed, but not before the Court has considered the
imposition of sanctions upon those who perpetrated this
nefarious scheme.
THE IMPOSITION OF SANCTIONS UPON THE
PLAINTIFF AND HER ATTORNEY
The plaintiff and her attorney have continued the
debtor's efforts to obstruct the orderly administration of the
bankruptcy estate by repeated and unwarranted lawsuits filed
in the state court against bona fide purchasers of bankruptcy
estate property. Principles of res judicata and collateral
estoppel prevent the debtor and those acting on his behalf
from attacking orders of this Court outside the usual
appellate procedures during the pendency of the bankruptcy
case. However, the plaintiff disregarded those strictures by
The claim of the IRS arose from the operation of the excavating
business. Were the plaintiff indeed an owner of the assets by the
entireties, the IRS would be a joint creditor and the proceeds of the sale
could be used to satisfy the joint obligation. The plaintiff did not address
this point or attempt to distinguish the instant case from Sumy v.
Schlossberg, 777 F.2d 921 (4th Cir. 1985).
App. 53
filing this frivolous and fraudulent claim in a non-bankruptcy
forum that did not enjoy a knowledge of the history of the
bankruptcy case. Mrs. Allnutt and Mr. Mulligan knew that
they could not prevail in the bankruptcy court on her
tenancy-by-the-entireties theory in light of the past
admonitions of this Court. Instead, they filed this groundless
suit in the state court and prayed a trial by jury.
The plaintiff's complaint exhibits a blatant disregard
for the jurisdiction and authority of the federal courts,
including the U.S. bankruptcy court, in which her husband,
the debtor, voluntarily sought relief from debt. Instead of
pursuing remedies provided by the Bankruptcy Code to
protect her alleged interests in the JFC assets, the plaintiff
filed a suit in state court without leave of this Court. The
bankruptcy court is clothed with the authority to stop such
antics in the exercise of its jurisdiction to liquidate property
of the estate and to bring the administration of the
bankruptcy case to a proper conclusion.
This is the second frivolous lawsuit brought by the
debtor's spouse, an insider, in which innocent parties have
been haled into court to respond to groundless claims. In
advancing the discredited tenancy-by-the-entireties theory
for the second time and attempting to side-step the effects of
a sale approved by this Court on an inapplicable theory of
law, the plaintiff and her attorney have attacked the
jurisdiction and authority of this Court. Such an attack is an
affront to the dignity of the judicial system, in bad faith,
vexatious and wanton.
The instant complaint was filed in the state court in
bad faith and without substantial justification, for the
improper purposes of unreasonable delaying the
administration of the- Chapter 11 case, to frustrate the
jurisdiction of the bankruptcy court by preventing the orderly
liquidation of the debtor's estate, overturn decisions of the
U.S. bankruptcy court and the U.S. district court, and harass
and damage innocent parties whose only offense was to
purchase estate assets from the trustee.
App. 54
ee eee ee eee
Ce a eT |
After the suit was removed to the bankruptcy court,
the plaintiff and her attorney continued to insist that they
were justified in bringing this action. However, this Court
finds that Mrs. Allnutt and Mr. Mulligan could not have held
a reasonable basis for believing that the instant complaint
was justified, or that it would generate serious issues of fact,
particularly in light of their previous attempt to use the
tenancy-by-the-entireties theory. Under these circumstances,
the bad faith and lack of substantial justification evident in
this second suit merit the imposition of sanctions against
both the plaintiff and her attorney. Mr. Mulligan argued that
this Court may not impose sanctions pursuant to Federal
Rule of Bankruptcy Procedure 9011.2? This Court disagrees.
Federal Rule of Bankruptcy Procedure 901 l(a) provides:
(a) Signature. Every petition, pleading, motion
and other paper served or filed in a case under the Code
on behalf of a party represented by an attomey, except
a list, schedule, or statement, or amendments thereto,
shall be signed by at least one attorney of record in the
attorney's individual name, whose office address and
telephone number shall be stated. A party who is not
represented by an attorney shall sign all papers and
state the party's address and telephone number. The
signature of an attorney or a party constitutes a
certificate that the attorney or party has read the
document; that to the best of the attorney's or party's
knowledge, information, and belief formed after
reasonable inquiry it is well grounded in fact and is
warranted by existing law or a good faith argument for
the extension, modification, or reversal of existing law;
and that it is not interposed for any improper purpose,
such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation or
administration of the case. If a document is not signed,
it shall be stricken unless it is signed promptly after the
omission is called to the attention of the person whose
signature is required. If a document is signed in
violation of this rule, the court on motion or on its own
initiative, shall impose on the person who signed it, the
represented party, or both, an appropriate sanction,
App. 55
While it is correct that Rule 11 sanctions may not be
imposed for merely signing a complaint that is filed in a
State court and is subsequently removed to a federal court,
Kirby vy. Allegheny Beverage Corporation, 811 F.2d 253 (4th
Cir. 1987), the maintenance of a frivolous and vexatious
complaint after it was removed is a different story. The
pleadings and other documents filed in this adversary
proceeding on behalf of the plaintiff by her counsel after it
was removed to this Court violated Federal Rule of
Bankruptcy Procedure 9011. Mr. Mulligan filed various
pleadings on the plaintiffs behalf after this adversary
proceeding was removed to this Court, including motions to
remand, objections to removal, oppositions to the motion to
dismiss, and memoranda of law without substantial legal
justification.
The plaintiff's counsel, Tracy E. Mulligan, departed
from the objective standard of reasonableness, expressed in
Cabell v. Petty, 810 F.2d 463, 466 (4th Cir. 1987), that
necessarily governs the proper conduct of an attorney. An
inquiry into an attorney's conduct "focuses only on whether a
reasonable attorney in like circumstances could believe his
actions to be factually and legally justified." Cabell, 810
F.2d at 466. This standard explains the language of Federal
Rule of Civil Procedure 11, which is identical to the
language of Rule 9011 of the Federal Rules of Bankruptcy
Procedure as to certification. This Court finds that Mr.
Mulligan's arguments were not well-grounded in fact or in
law.
It is not necessary to determine whether a reasonable
inquiry into the court-approved sale would have led an
attorney to the provisions of Section 363 of the Bankruptcy
Code. The pleadings filed by Mr. Mulligan in this adversary
which may be include an order to pay to the other party
or parties the amount of the reasonable expenses
incurred because of the filing of the document,
including a reasonable attorney's fee.
Id
App. 56
ree ny ee ee
proceeding on behalf of the plaintiff cited Section 363 and
evidenced a familiarity with that and other Code provisions.
The failure of the plaintiff and her attorney to obtain leave of
this Court to file the state court action, and her failure to file
a proper and timely challenge to the sale in the bankruptcy
court is merely the latest attempt by Allnutt, his family and
agents acting on his behalf to disrupt the ongoing
proceedings in the bankruptcy court involving his
bankruptcy estate.
A reasonable attorney in the circumstances of this
case could not believe that this action, motivated as it was by
malice, was factually or legally justified. Therefore, this
Court finds that Mr. Mulligan committed willful and
unethical misconduct in bringing this suit in the state court in
the first place, and later by advocating its merits in the
bankruptcy court, because in so doing, he advanced an unjust
cause for lucre and malice. It was Mr. Mulliganavho used his
legal training to devise the fallacious entireties argument and
who then employed sophistry, including the citation of
authorities out of context, to support the claim.
As the represented party, the plaintiff is also subject
to sanction. Fed. R. Bankr. P. 9011. "Quite often it is the
client, not the attorney, who is better positioned to
investigate the facts supporting a paper or pleading."
Business Guides, Inc. v. Chromatic Comm. Enterprises, Inc.,
498 U.S. 533, 548, 111 S. Ct. 922, 112 L.Ed.2d 1140 (1991)
(finding the same standard of reasonable inquiry into the
facts and law before filing applies to represented parties).
The primary purpose of sanctions is to deter future
litigation abuse. Robeson Defense Comm. vy. Britt (In re
Kunstler), 914 F.2d 505, 522 (4th Cir. 1990), cert. denied.
499 U.S. 969, 111 S.Ct. 1607, 113 L.Ed.2d 669 (1991). The
other purposes of Rule 11 include punishing present
litigation abuse, compensating the victims of the violation
and streamlining court dockets. /d. The least severe sanction
available that serves the purpose of the sanction should be
imposed. Cabell, 810 F.2d at 466 (quoting Schwarzer,
App. 57
Sanctions under the New Federal Rule 11, A Closer Look,
104 F.R.D. 181, 201 (1985)). Costs and attorney's fees, as
well as fines, dismissals, reprimands and admonitions are
among the sanctions a court may impose.
In addition to the authority of Rule 9011, this Court
has the inherent power to impose sanctions against the
plaintiff and her attorney in order to protect and maintain the
authority and dignity of the court. Chambers v. NASCO, Inc.,
501 U.S. 32, 45-6, 111 S. Ct. 2123, 2133, 115 L. Ed. 2d 27,
46 (1991); Roadway Express, Inc. v. Piper, 447 U.S. 752,
764, 100 S. Ct. 2455, 65 L. Ed. 2d 488 (1980).
Several factors enumerated by the Tenth Circuit in
White v. General Motors Corp., 908 F.2d 675 (10th Cir.
1990), formed a part of the Fourth Circuit's analysis in
Kunstler. In particular, the reasonableness of the opposing
party's attorney's fees, minimum to deter, ability to pay and
factors relating to the severity of the Rule 11 violation,
should be considered when determining the amount of an
appropriate sanction. /n re Kunstler, 914 F.2d at 523. With
this framework in mind, this Court makes the following
determinations, which shall serve as the foundation upon
which sanctions will be imposed.
Warnings by this Court to the plaintiff and her
attorney before they dismissed the first suit were not
sufficient to deter them from filing the instant suit. Mr.
Mulligan was not deterred by this Court's public criticism of
his conduct expressed in the form of a written opinion from
which he took an appeal that he later dismissed in the case
involving the race car assets. The plaintiff's actions, taken by
her attorney, have unnecessarily prolonged the duration of
the underlying bankruptcy case. The imposition of a
monetary sanction is warranted as a deterrent to the debtor,
his agents, or those purporting to act in his behalf, including
Tracy E. Mulligan, from continuing to file similar suits in the
future.
Relying upon its inherent authority to impose
sanctions, as well as the specific authority conferred by Rule
App. 58
——
9011, and in the exercise of its discretion, see Cooter & Gell
v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2461,
110 L.Ed. 2d 359, 381-82 (16 = :. and Cox v. Saunders (In re
Sargent), _ _ F.3d __, 1998 Wx 57546 (4th Cir. 1998), this
Court finds that the proper sanction that should be imposed
as the minimum necessary to deter future litigation abuse is
the reimbursement of the defendants’ reasonable legal
expenses generated in defending this groundless action. The
imposition of sanctions in the amount of the defendants’
reasonable costs and attorney's fees is necessary to deter
future litigation and to educate the plaintiff and her attorney.
The defendants** submitted affidavits delineating their
respective legal expenses as follows:
Associates $ 34,988.36
Miller & Miller 4,962.63
Charles J. Miller, Inc..2,527.52
Mark J. Friedman, + 24,450.50
Chapter 11 trustee
TOTAL $ 66,929.01
The disparity in the amounts claimed to have been
expended by the four parties is attributable to the fact that
counsel for the trustee and Associates bore the lion's share of
the work in defending against the complaint. The plaintiff
has never disputed the amount of the defendants’ expenses.
This Court finds the foregoing amounts claimed as
legal expenses by the defendants to be fair and reasonable
under the circumstances of this case, particularly in light of
the huge amount claimed as damages by the plaintiff in her
groundless complaint. The plaintiff and her counsel will be
ordered to reimburse to the defendants counsel fees and costs
in the total amount of $66,929.01, as the defendants’
24
F. Thomas Rafferty, Esquire, counsel to the defendant, Urban N.
Zink Contractors, Inc., did not file a request for reimbursement of
counsel fees and expenses on behalf of his client.
App. 59
legitimate expense in having to defend against this
groundless suit.
The plaintiff has not provided any information to
suggest that her financial condition is such that she will be
unable to pay a monetary sum calculated to be the least
severe but still act as a deterrent to future litigation. The
sanctions imposed on the plaintiff are not calculated to
unfairly restrict her access to the courts. Similarly, the
attorney for the plaintiff has not presented any information to
suggest that he is unable to pay a sanction calculated to be
the least severe and yet continue to act as a deterrent to
future abuse. The sanctions imposed on the plaintiff's
attorney are not so large as to curtail his ability to practice
law or cause him great financial distress. These sanctions are
not being imposed in anger or in a spirit of vindictiveness,
but in a sincere attempt to dissuade the debtor, the plaintiff,
and their agents, assigns, and privies from attempting to
undo the work of liquidating the debtor's estate.
WHEREFORE, sanctions will be imposed against
Tracey E. Mulligan, Esquire, and Joanne A. Allnutt,
plaintiff, jointly and severally, in the amount of $66,929.01,
which is determined to be the amount necessary to
compensate the defendants for their costs, attorneys’ fees,
and other charges incident to this groundless litigation
brought by the plaintiff, which this Court has determined to
have been filed and maintained without legal justification.
ORDERS ACCORDINGLY.
March 20, 1998
/s/ James F. Schneider
U.S. Bankruptcy Judge
cc:
Mark J. Friedman, Esquire
Piper & Marbury
1100 Charles Center South
App. 60
36 South Charles Street
Baltimore, Maryland 21201
Chapter 11 Trustee
Jeffrey L. Friedman, Esquire
Friedman & Kline
100 Owings Court, Suite 13
Reisterstown, Maryland 21136
Attorney for Miller & Miller Auctioneers, Inc.
Steven N. Leitess, Esquire
Leitess & Associates, P.A.
201 Pomona Square
1700 Reisterstown Road
Baltimore, Maryland 21208
Attorney for Associates Leasing, Inc.
Tracy E. Mulligan, Esquire
416 Hungerford Drive
Suite 216
Rockville, Maryland 20850
Attorney for Joanne A. Allnutt
F. Thomas Rafferty, Esquire
Blum, Yumkas, Mailman,
Gutman & Denick, P.A.
1200 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201-2914
Attorney for Urban N. Zink Contractors, Inc.
Elwood E. Swam, Esquire
1326 Main Street
P.O. Box 176
Hampstead, Maryland 21076
Attorney for Charles J. Miller, Inc.
Office of the U.S. Trustee
300 W. Pratt Street, Ste. 350 _
Baltimore, MD 21201
App. 62
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
Inre: FRED W. ALLNUTT, SR.,
Debtor.
JOANNE A. ALLNUTT,
Plaintiff.
V.
ASSOCIATES LEASING, INC., ET AL,
Defendants.
Case No. 92-5-7401
Chapter 1]
Adversary No. 96-5598-JS
(Case No. 96-CA-32296 in the Circuit Court
for Howard County, Maryland.)
ORDER GRANTING THE CHAPTER 11 TRUSTEE'S
MOTION TO INTERVENE, DENYING MOTIONS TO
REMAND, GRANTING AND DEFERRING MOTIONS
TO DISMISS, AND IMPOSING SANCTIONS
AGAINST PLAINTIFF AND PLAINTIFF'S COUNSEL
For the reasons set forth in the memorandum opinion filed
simultaneously herewith, the motion to intervene filed by the
Chapter 11 trustee, Mark J. Friedman, is hereby GRANTED.
The motions of the plaintiff to remand _ this adversary
proceeding to the Circuit Court for Howard County,
Maryland, are hereby DENIED. The motions of the
defendants to dismiss are hereby GRANTED, but
DEFERRED, this Court reserving jurisdiction for the
purpose of imposing sanctions against the plaintiff and
plaintiffs counsel. The motion of the defendants for the
imposition of sanctions against the plaintiff and plaintiff's
App. 63
counsel is hereby GRANTED. Sanctions are hereby imposed
against Tracey E. Mulligan, Esquire, and Joanne A. Allnutt,
plaintiff, jointly and severally, in the amount of Sixty-six
Thousand, Nine Hundred Twenty-nine Dollars, and one cent
($66,929.01), the amount determined to be necessary to
compensate the defendants for their costs, attorneys’ fees,
and other charges incident to this groundless litigation
brought by the plaintiff, which this Court has determined to
have been filed and maintained without legal justification.
The said amount shall be paid by cashier's check(s) made
payable to the Clerk of the U.S. Bankruptcy Court for the
District of Maryland within thirty (30) days hereof. The
Court shall thereafter order the Clerk to disburse funds to the
defendants in the respective amounts claimed.
SO ORDERED.
March 20, 1998
/s/ James F. Schneider
U.S. Bankruptcy Judge
ce:
Mark J. Friedman, Esquire
Piper & Marbury
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
Chapter 11 Trustee
Jeffrey L. Friedman, Esquire
Friedman & Kline
100 Owings Court, Suite 13
Reisterstown, Maryland 21136
Attorney for Miller & Miller Auctioneers, Inc.
App. 64
ee
oe eae
Steven N. Leitess, Esquire
Leitess & Associates, P.A.
201 Pomona Square
1700 Reisterstown Road
Baltimore, Maryland 21208
Attorney for Associates Leasing, Inc.
Tracy E. Mulligan, Esquire
416 Hungerford Drive
Suite 216
Rockville, Maryland 20850
Attorney for Joanne A. Allnutt
F. Thomas Rafferty, Esquire
Blum, Yumkas, Mailman,
Gutman & Denick, P.A.
1200 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201-2914
Attorney for Urban N. Zink Contractors, Inc.
Elwood E. Swam, Esquire
1326 Main Street
P.O. Box 176
Hampstead, Maryland 21076
Attorney for Charles J. Miller, Inc.
Office of the U.S. Trustee
300 W. Pratt Street, Ste. 350
Baltimore, MD 21201
App. 65
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
Inre: FRED W. ALLNUTT, SR.,
Debtor.
JOANNE A. ALLNUTT,
Plaintiff.
V.
ASSOCIATES LEASING, INC., ET AL,
Defendants.
Case No. 92-5-7401
Chapter 11
Adversary No. 96-5598-JS
(Case No. 96-CA-32296 in the Circuit Court
for Howard County, Maryland.)
PERMANENT INJUNCTION
As set forth in the foregoing memorandum opinion,
pursuant to 11 U.S.C. §§105 and 363, provisions of the
Chapter 11 trustee's confirmed plan of liquidation, and the
inherent power of a court of equity in aid of its jurisdiction to
properly administer the instant bankruptcy case, for the
purposes of preventing the debtor from circumventing and
negating the bankruptcy process in order to regain title to
estate property validly sold by the Chapter 11 trustee and to
enforce this Court's valid orders against the fraudulent and
vexatious attacks by the debtor, the plaintiff and their
counsel, this Court hereby enjoins the debtor, his insiders,
heirs, assigns and agents, including the plaintiff and her
attorney, from filing suits and/or instigating the filing of suits
in state or federal courts attacking sales of estate property or
seeking damages from the purchasers of said property.
App. 66
WHEREFORE, the debtor, the plaintiff, and their
insiders and agents, including his, her, or their attorneys,
ARE HEREBY PERMANENTLY ENJOINED from filing
lawsuits in state and federal courts contesting the validity of
sales of property of the bankruptcy estate by the Chapter 11
trustee, without leave of this Court and subject to further
severe sanctions.
SO ORDERED.
March 20, 1998
/s/ James F. Schneider
U.S. Bankruptcy Judge
cc: Mark J. Friedman, Esquire
Piper & Marbury
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
Chapter 11 Trustee
Jeffrey L. Friedman, Esquire
Friedman & Kline
100 Owings Court, Suite 13
Reisterstown, Maryland 21136
Attorney for Miller & Miller Auctioneers, Inc.
Steven N. Leitess, Esquire
Leitess & Associates, P.A.
201 Pomona Square
1700 Reisterstown Road
Baltimore, Maryland 21208
Attorney for Associates Leasing, Inc.
App. 67
Tracy E. Mulligan, Esquire
416 Hungerford Drive
Suite 216
Rockville, Maryland 20850
Attorney for Joanne A. Allnutt
F. Thomas Rafferty, Esquire
Blum, Yumkas, Mailman,
Gutman & Denick, P.A.
1200 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201-2914
Attorney for Urban N. Zink Contractors, Inc.
Elwood E. Swam, Esquire
1326 Main Street
P.O. Box 176
Hampstead, Maryland 21076
Attorney for Charles J. Miller, Inc.
Office of the U.S. Trustee
300 W. Pratt Street, Ste. 350
Baltimore, MD 21201
App. 68
—
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 98-2630
CA-98-1212-WMN
BK-92-57401-JFS
AP-96-5598-JFS
In Re: FRED W. ALLNUTT, SR.
Debtor
JOANNE ARMSTRONG ALLNUTT,
Plaintiff-Appellant,
V.
ASSOCIATES LEASING, INCORPORATED;
MILLER & MILLER AUCTIONEERS; INCORPORATED;
URBAN N. ZINK CONTRACTORS, INCORPORATED;
MARK J. FRIEDMAN;
CHARLES J. MILLER, INCORPORATED,
Defendants-Appellees,
OFFICE OF THE US TRUSTEE,
Party-in-interest.
No. 98-2678
CA-98-1212-WMN
AP-96-5598-JFS
BK-92-57401-JFS
In Re: FRED W. ALLNUTT, SR.,
Debtor
App. 69
JOANNE ARMSTRONG ALLNUTT,
Plaintiff-Appellee,
Ve
ASSOCIATES LEASING, INCORPORATED,
Defendant-Appellant,
OFFICE OF US TRUSTEE,
Party-in-interest,
and
MILLER & MILLER AUCTIONEERS, INCORPORATED;
URBAN N. ZINK CONTRACTORS, INCORPORATED;
MARK J. FRIEDMAN;
CHARLES J. MILLER, INCORPORATED,
Defendants.
ENTERED: APRIL 6, 1999
FILED: APRIL 6, 1999
On Petition for Rehearing and Rehearing En Banc
Appellant/cross-appellee’s petition for rehearing and
rehearing en banc was submitted to this Court. As no
member of this Court of the panel requested a poll on the
petition for rehearing en banc, and
As the panel considered the petition for rehearing and
is of the opinion that it should be denied,
IT IS ORDERED that the petition for rehearing and
rehearing en banc is denied.
For the Court,
/s/
App. 70
Patricia S. Conner
CLERK
App. 71
CONSTITUTION OF TH UNITED STATES
AMENDMENTS OF THE CONSTITUTION
[AMENDMENT V]
No person shall be held to answer for a capitol, or
otherwise infamous crime, unless on a presentment or
indictment of a Grand Jury, except in cases arising in the
land or naval forces, or in the Militia, when in actual service
in time of War or public danger; nor shall any person be
subject for the same offense to be twice put in jeopardy of
life or limb; nor shall be compelled in any criminal case to
be a witness against himself, nor be deprived of life, liberty,
or property, without due process of law; nor shall private
property be taken for public use, without just compensation.
App. 72
UNITED STATES BANKRUPTCY CODE
(TITLE 11 UNITED STATES CODE)
Sec. 101. Definitions
In this title
ee
(31) “insider" includes -
(A) if the debtor is an individual -
(1) relative of the debtor or of a
general partner of the debtor;
(i1) partnership in which the debtor
is a general partner;
(iii) general partner of the debtor;
or
(iv) corporation of which _ the
debtor is a director, officer, or
person in control;
OK
(37) “lien” means charge against or interest in -
property to secure payment of a debt or
performance of an obligation;
a KK
(43) "purchaser" means transferee of a voluntary
transfer, and includes immediate or mediate
transferee of such a transferee;
eK
(45) "relative" means individual related by affinity
or consanguinity within the third degree as
App. 73
determined by the common law, or individual
in a step or adoptive relationship within such
third degree;
“**
(58) ‘Transfer’ means every mode, direct or
indirect, absolute or conditional, voluntary or
involuntary, of disposing of or parting with
property or with an interest in property,
including retention of title as a_ security
interest and foreclosure of the debtor’s equity
of redemption.
** *
Sec. 102. Rules of construction
In this title
(1) "after notice and a hearing", or a similar
phrase -
(A) means after such notice as _ is
appropriate — in the __ particular
circumstances, and such opportunity
for a hearing as is appropriate in the
particular circumstances; but
(B) authorizes an act without an actual
hearing if such notice is given
properly and if -
(1) such a hearing is not requested
timely by a party in interest; or
(11) there is insufficient time for a
hearing to be commenced
before such act must be done,
and the court authorizes such
act;
App. 74
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
"claim against the debtor" includes claim
against property of the debtor;
"includes" and "including" are not limiting;
"may not" is prohibitive, and not permissive;
"or" is not exclusive;
"order for relief’ means entry of an order for
relief,
the singular includes the plural;
a definition, contained in a section of this title
that refers to another section of this title, does
not, for the purpose of such reference, affect
the meaning of a term used in such other
section; and
"United States trustee" includes a designee of
the United States trustee.
*
Sec. 105. Power of court
(a)
(b)
(c)
The court may issue any order, process, or
judgment that is necessary or appropriate to
carry out the provisions of this title. No
provision of this title providing for the raising
of an issue by a party in interest shall be
construed to preclude the court from, sua
sponte, taking any action or making any
determination necessary or appropriate to
enforce or implement court orders or rules, or
to prevent an abuse of process.
Notwithstanding subsection (a) of this
section, a court may not appoint a receiver in
a case under this title.
The ability of any district judge or other
officer or employee of a district court to
exercise any of the authority’ or
responsibilities conferred upon the court
under this title shall be determined by
App. 75
reference to the provisions relating to such
judge, officer, or employee set forth in title
28. This subsection shall not be interpreted to
exclude bankruptcy judges and other officers
or employees appointed pursuant to chapter 6
of title 28 from its operation.
bl lia
Sec. 363. Use, sale, or lease of property
(a) In this section, "cash collateral" means cash,
negotiable instruments, documents of title,
securities, deposit accounts, or other cash
equivalents whenever acquired in which the
estate and an entity other than the estate have
an interest and includes the proceeds,
products, offspring, rents, or profits of
property subject to a security interest as
provided in section 552(b) of this title,
whether existing before or after the
commencement of a case under this title.
(b)(1) The trustee, after notice and a hearing, may
use, sell, or lease, other than in the ordinary
course of business, property of the estate.
(2) If notification is required under subsection (a)
of section 7A of the Clayton Act (15 U.S.C.
18a) in the case of a transaction under this
subsection, then -
(A) notwithstanding subsection (a) of such
section, such notification shall be
given by the trustee; and
(B) notwithstanding subsection (b) of such
section, the required waiting period
— Shall end on the tenth day after the
date of the receipt of such notification,
App. 76
unless the court, after such notice and
hearing, orders otherwise.
(c)(1) If the business of the debtor is authorized to
(3)
(4)
be operated under section 721, 1108, 1203,
1204, or 1304 of this title and unless the court
orders otherwise, the trustee may enter into
transactions, including the sale or lease of
property of the estate, in the ordinary course
of business, without notice or a hearing, and
may use property of the estate in the ordinary
course of business without notice or a
hearing.
The trustee may not use, sell, or lease cash
collateral under paragraph (1) of this
subsection unless -
(A) — each entity that has an interest in such
cash collateral consents; or
(B) — the court, after notice and a hearing,
authorizes such use, sale, or lease in
accordance with the provisions of this
section.
Any hearing under paragraph (2)(B) of this
subsection may be a preliminary hearing or
may be consolidated with a hearing under
subsection (e) of this section, but shall be
scheduled in accordance with the needs of the
debtor. If the hearing under paragraph (2)(B)
of this subsection is a preliminary hearing, the
court may authorize such use, sale, or lease
only if there is a reasonable likelihood that the
trustee will prevail at the final hearing under
subsection (e) of this section. The court shall
act promptly on any request for authorization
under paragraph (2)(B) of this subsection.
Except as provided in paragraph (2) of this
subsection, the trustee shall segregate and
App. 77
(d)
(d)
(f)
(g)
account for any cash collateral in the trustee's
possession, custody, or control.
The trustee may use, sell, or lease property
under subsection (b) or (c) of this section only
to the extent not inconsistent with any relief
granted under section 362(c), 362(d), 362(e),
or 362(f) of this title.
Notwithstanding any other provision of this
section, at any time, on request of an entity
that has an interest in property used, sold, or
leased, or proposed to be used, sold, or leased,
by the trustee, the court, with or without a
hearing, shall prohibit or condition such use,
sale, or lease as is necessary to provide
adequate protection of such interest.
The trustee may sell property under
subsection (b) or (c) of this section free and
clear of any interest in such property of an
entity other than the estate, only if -
(1) applicable nonbankruptcy law permits
sale of such property free and clear of
such interest;
(2) such entity consents;
(3) such interest is a lien and the price at
which such property is to be sold is
greater than the aggregate value of all
liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a
legal or equitable proceeding, to
accept a money satisfaction of such
interest.
Notwithstanding subsection (f) of this section,
the trustee may sell property under subsection
(b) or (c) of this section free and clear of any
vested or contingent right in the nature of
dower or curtesy.
App. 78
(h)
(1)
G)
Notwithstanding subsection (f) of this section,
the trustee may sell both the estate's interest,
under subsection (b) or (c) of this section, and
the. interest of any co-owner in property in
which the debtor had, at the time of the
commencement of the case, an undivided
interest as a tenant in common, joint tenant, or
tenant by the entirety, only if -
(1) partition in kind of such property
among the estate and such co-owners
is impracticable;
(2) sale of the estate's undivided interest
in such property would realize
significantly less for the estate than
sale of such property free of the
interests of such co-owners;
(3) the benefit to the estate of a sale of
such property free of the interests of
co-owners outweighs the detriment, if
any, to such co-owners; and
(4) such property is not used in the
production, transmission, or
distribution, for sale, of electric energy
or of natural or synthetic gas for heat,
~ light, or power.
Before the consummation of a sale of
property to which subsection (g) or (h) of this
section applies, or of property of the estate
that was community property of the debtor
and the debtor's spouse immediately before
the commencement of the case, the debtor's
spouse, or a co-owner of such property, as the
case may be, may purchase such property at
the price at which such sale is to be
consummated.
After a sale of property to which subsection
(g) or (h) of this section applies, the trustee
App. 79
(m)
shall distribute to the debtor's spouse or the
co-owners of such property, as the case may
be, and to the estate, the proceeds of such
sale, less the costs and expenses, not
including any compensation of the trustee, of
such sale, according to the interests of such
spouse or co-owners, and of the estate.
eK
The reversal or modification on appeal of an
authorization under subsection (b) or (c) of
this section of a sale or lease of property does
not affect the validity of a sale or lease under
such authorization to an entity that purchased
or leased such property in good faith, whether
or not such entity knew of the pendency of the
appeal, unless such authorization and such
sale or lease were stayed pending appeal.
App. 80
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
BALTIMORE DIVISION
In re:
FRED W. ALLNUTT, SR.,
Debtor,
Case No. 92-5-7401-JS
Chapter 11
JOANNE A. ALLNUTT,
Plaintiff,
Vv. *
i] ASSOCIATES LAESING, INC., .
Defendants.
Adversary No. 96-5598-JFS
(Case No. 96-CA-32296 in the Circuit Court for
Howard County, Maryland)
AFFIDAVIT OF JOANNE ARMSTRONG ALLNUTT
I , the undersigned Joanne Armstrong Allnutt, a
competent adult older than 18 years of age, do hereby file the
following Affidavit:
1. That on January 10, 1958 I married Fred W. Allnutt.
é That I have from January 10, 1958 to the present,
remained the wife of Fred W. Allnutt.
3. That when I married my husband in 1958, neither of
us owned any money or property.
App. 81
10.
11.
12.
13.
That during our marriage, neither of us had any
inheritance of any kind, nor have either of us
received any significant gifts of money or property.
That all property described in the Complaint was
obtained by us through our joint efforts during our
marriage, and was jointly owned according to the
legal principle of tenants by the entirety.
That in August, 1967, my husband and | started an
excavation business that we named "Fred Allnutt
Excavating".
That my husband and I started our excavating
business with the purchase of a Caterpillar
Traxcavator, a lowboy trailer, an International tractor,
an automobile, a typewriter, and a file cabinet at a
cost of $35,186.34.
To finance the start of our business, we used personal
money saved during our marriage and also obtained a
loan from First National Bank, Sandy Springs,
Maryland, which I co-signed in the amount of
$30,000 (Exhibit 1).
That these purchases, and the receipts from our
_ business, were declared on our jointly filed Income
Tax Return for the year 1967 (Exhibit 2).
That in 1968 my husband and I purchased a pick-up
truck, a chain saw , a Case 450 dozer, and a transit at
a cost of $12,399.80.
That these 1968 purchases, and the receipts from our
business, were declared on our jointly filed Income
Tax Return for the year 1968 (Exhibit 3).
That in 1969 my husband and I purchased a Case 450
dozer at a cost of $15,139.02. Financing was
obtained from First National Bank, Sandy Spring,
Maryland (Exhibit 4).
That this 1969 purchase, and the receipts from our
business, were declared on our jointly filed Income
Tax Return for the year 1969 (Exhibit 5).
App. 82
14.
15.
16.
17.
18.
19.
That in 1970 my husband and | purchased a file
cabinet, a pan, a Caterpillar loader, a 2-way radio, a
pick-up truck, an Allis-Chamers dozer, and a
Caterpillar grader at a cost of $38,615.39.
That these 1970 purchases, and the receipts from our
business, were declared on our jointly filed Income
Tax Return for the year 1970 (Exhibit 6).
That in 1971 my husband and I purchased at a cost of
$151,856.86, four Caterpillar loaders, three pick-up
trucks, two Caterpillar scrapers, a Chevrolet Vega
automobile, a case dozer, a John Deere dozer, a
compactor, two 2-way radios, a chain saw, and a set
of tool boxes. Part of these purchases were paid from
our personal funds and the balance was financed
through First National Bank, Sandy Spring, Maryland
(Exhibit 7).
That these 1971 purchases, and the receipts from our
business, were declared on our jointly filed Income
Tax Return for the year 1971 (Exhibit 8).
That in 1972 my husband and I purchased additional
equipment at a cost of $124,098.53. Part of these
purchases were paid from our personal funds.
Additionally, a loan was obtained First National
Bank, Sandy Spring, Maryland, which I co-signed
(Exhibit 9).
That these 1972 purchases, and the receipts from our
business, were declared on our jointly filed Income
Tax Return for the year 1972 (Exhibit 10).
That between August 1967 and December 1972, my
husband and I operated our excavating business from
our home in Highland, Maryland, and during this
time I performed all office functions for the business.
That in December 1972, on advice of certain
professionals, my husband and I incorporate our
business and changed our business name from "Fred
Allnutt Excavating" to "Fred W. Allnutt, Inc."
App. 83
23.
24.
a:
26.
27.
27.
28.
29.
That in January 1973, my husband and I placed all of
our jointly owned assets relating to our excavation
business into our new corporation. These assets
including all vehicles, equipment, office furniture,
jointly held operating capital, and accounts
receivable.
That I thereafter continued to operate the business
with my husband under the corporate name from our
home in Highland and I continued to perform all
office functions for the business.
That after incorporating our business in 1973, |
continued to jointly borrow money by co-signing on
loans to purchase vehicles and equipment to expand
our business under the "umbrella" of our new
corporation (Exhibit 11).
That in 1981, my husband and I ceased to operate our
business as a corporation. Thereafter, we operated
our business as "Fred W. Allnutt Excavating".
On the advice of financial professionals, my husband
and I purchased all of the corporate assets from "Fred
W. Allnutt, Inc.
That even though I had not received any
compensation for my property when it was placed
into the corporation in 1973, my husband and |
jointly purchased those assets from the corporation in
1981-82.
That after purchasing the vehicles and equipment
from the corporation, I continued to jointly borrow
money with my husband to purchase additional
vehicles and equipment (Exhibit 13).
That at no time have I knowingly relinquished or
given up my ownership rights to the property I have
obtained during the course of my marriage to Fred
W. Allnutt.
That all of the property described in the Complaint is
mine.
App. 84
I solemnly affirm under the penalties of perjury and
upon personal knowledge that the contents of the forgoing
paper are true.
Date: /s/ September 23, 1996
/s/ Joanne Allnutt
Joanne Allnutt
App. 85
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN THE MATTER OF THE
THE TAX INDEBTEDNESS OF FRED W. ALLNUTT, SR.
MARK J. FRIEDMAN, Trustee of Fred W. Allnutt, Sr.
V.
CHRISTOPHER ALLNUTT
JFC EXCAVATING SOVEREIGN
EQUIPMENT ASSOCIATION
CONSTITUTIONAL LEASING
ASSOCIATION ELLICOTT BUILDING ASSOCIATION
JFC EXCAVATING, et al.
V.
UNITED STATES OF AMERICA, et al
Chapter 11
CIVIL NO. S 92-2778
CIVIL NO. S 92-2834
(consol. with S 92-2778)
ENTERED: June 21, 1993
FILED: June 21, 1993
ORDER AND JUDGMENT
For the reasons stated in the foregoing Memorandum
Opinion, IT IS, this 21th day of _June, 1993, by the Court,
ORDERED and ADJUDGED:
_ App. 86
1. That the motion of the Chapter 11
Trustee, for summary judgment BE, and it
hereby IS, GRANTED;
y That summary judgment BE, and it
hereby IS, entered on all counts of the
counterclaim and the third party complaint in
favor of the bankruptcy trustee, and the Court
DECREES that the assets in question (those
levied upon by the IRS) are the assets of the
bankruptcy estate of Fred W. Allnutt, Sr., in
Civil No. S 92-2778;
3. That the motion of Herbert D.
Howard, Trustee for Ellicott Building, for
partial summary judgment BE, and it hereby
IS, DENIED;
4. That the motion of the United States
for summary judgment BE, and it hereby IS,
GRANTED;
> That summary judgment BE, and it
hereby IS, entered in favor of the defendants
and against the plaintiffs on all remaining
issues in Civil No. S 92-2834 (the wrongful
levy caseJ,
6. That all interests of any party hereto
other than the bankruptcy estate of Fred W.
Allnutt, Sr., (subject to the rights of the
United States Government in respect of his
tax indebtedness) BE, and they hereby ARE,
FORECLOSED as to the assets in question;
7. That this Order BE, and it hereby IS,
entered as a final judgment, disposing of all
remaining issues, claims, and parties in this
case;
8. That costs be assessed in favor of the
defendants in Civil No. S 92-2834 and in
favor of the bankruptcy trustee in Civil No. S
92-2778; and
App. 87
9. That the Clerk of Court mail copies of
the foregoing Memorandum Opinion and of
this Order and Judgment to counsel for the
parties and to Mr. Fred W. Allnutt, Sr.
/s/ N. Smalkin
United States District Judge
App. 88
ee ee ee
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
IN THE MATTER OF THE
THE TAX INDEBTEDNESS OF FRED W. ALLNUTT, SR.
MARK J. FRIEDMAN, Trustee of Fred W. Allnutt, Sr.
v.
CHRISTOPHER ALLNUTT
JFC EXCAVATING
SOVEREIGN EQUIPMENT ASSOCIATION
CONSTITUTIONAL LEASING ASSOCIATION
ELLICOTT BUILDING ASSOCIATION
JFC EXCAVATING, et ai.
V.
UNITED STATES OF AMERICA, et al
Chapter 11
CIVIL NO. S 92-2778
CIVIL NO. S 92-2834
(consol. with S 92-2778)
ENTERED: July 21, 1993
FILED: July 21, 1993
MEMORANDUM OPINION
This matter, which arises out of the failure of the
Chapter 11 debtor, Fred W. Allnutt, Sr., to pay his income
taxes for a number of years, see Allnutt v. Commissioner of
Internal Revenue, 956 F.2d 1162 (4th Cir. 1992 Table) (text
App. 89
in Westlaw) and see Court's Memorandum Opinion and
Order in this case entered April 27, 1993, is before the Court
on various motions for total or partial summary judgment.
Although this case has generated a tremendous volume of
paper, including a number of depositions and other exhibits
submitted in support of various motions, oppositions, etc., as
well as a number of interlocutory orders, the issues involved
are simple and are entirely susceptible of summary
disposition under Fed. R. Civ. P. 56(c), as interpreted in
Celotex Corp. v. Catrett, 477 U.S. 317 (1986), and Anderson
v. LibertV Lobby, Inc., 477 U.S-242 (1986). No oral hearing
is required. Local Rule 105.6, D. Md.
It is, by now, well settled that summary judgment is
to be awarded to a movant who properly applies for it under
Rule 56, and who is clearly entitled to prevail at law, unless
the opponent brings forth evidence that a reasonable
fact-finder could use, under the appropriate proof burden, as
a basis for finding in the opponent's favor. Celotex, supra,
and Anderson, supra. In this case, there can be no possible
genuine dispute of material fact, within the framework of
Celotex_and Anderson, and both the Internal Revenue
Service (IRS) and the Chapter 11 Trustee have clearly
demonstrated that they are plainly entitled to judgment in
their favor as a matter of law. Fed. R. Civ. P. 56(c).
Although the plaintiff and Mr. Allnutt, Sr. have
submitted a number of self-serving affidavits (some of them
having frustrated defendants, discovery by fifth amendment
privilege claims) in opposition to the pending motions, none
of the assertions therein generates a genuine dispute of fact
warranting trial on the cardinal issue, viz., where did the
property of Fred W. Allnutt, Sr., subject to levy for his
failure to pay taxes, go? The only answer that could be
supplied by a reasonable fact-finder is that it went into
hiding behind various "front" businesses assertedly run by
his then young children and nominal trustees, but controlled
and used by him as alter egos to frustrate and defeat the
collection of taxes.
App. 90
The Court's reasoning in support of its conclusions will be
set forth very briefly below.
In the years prior to 1982, Mr. Fred W. Allnutt, Sr.,
owned and operated an excavation business, which was
originally conducted as Fred W. Allnutt, Inc., which later
became a sole proprietorship known as Fred W. Allnutt
Excavating, and which later still became known as JFC
Excavating. At all relevant times, the books, business
methods, and key personnel of the business remained the
same, and Mr. Allnutt, Sr., remained the boss, in substance,
if not in title. Mr. Allnutt has stayed in the same office, has
used his Social Security number to report payments to JFC to
the IRS, and has, most significantly to this case, created a
number of "common law trusts" or "associations" to which
substantial business assets were transferred. Such assets,
seized by the IRS, are the subject of the current litigation.
A number of records pertaining to Mr. Allnutt, Sr., and the
various entities involved in these lawsuits have been
destroyed, and others have admittedly been fabricated after
the fact, as was admitted in certain depositions recanting
perjured testimony. The so-called trusts were in the
trusteeship of an individual who was sentenced to prison for
failure to file state income taxes, and of a minister, both of
whom essentially did nothing active in connection with the
trusts, although they did apparently execute some minimal
paperwork from time to time.
In short, the purported transfers of assets from Mr.
Allnutt, Sr., to the various entities that brought this wrongful
levy case were obviously shams and transactions calculated
to evade the IRS as a tax creditor. The form of a transaction
does not govern over the substance when federal tax issues
are involved. See Gregory v. Helbring, 293 U.S. 465 (1935).
Although it appears from the trust documents that Mr.
Allnutt attempted to insert a third party "creator" into the
organization of these "common law trusts" viz., one Larry L.
Courtney, the devices employed by Mr. Allnutt, Sr., to hide
his assets from the tax collector are so transparently shams
App. 91
and frauds that no reasonable fact-finder could give
credence, by any known standard of evidence, to the
wrongful levy plaintiffs’ ownership claims to the property in
question. Indeed, no factfinder functioning within the realm
of normal intelligence and common sense, let alone guided
by reason, could so find. The plaintiffs, motion for partial
summary judgment is simply ridiculous in its claims of
laches and is devoid of any arguable merit in contending for
the bona fides of the various trusts and other sham
transactions involved in this suit.
The Chapter 11 Trustee, in essence, seeks the same
relief as the Government with regard to the title to the
property, that is, the bankruptcy trustee essentially seeks a
~ determination by the Court that the assets in dispute are, in
fact, those of Mr. Allnutt, Sr., who placed himself within the
aegis of the bankruptcy court by his Chapter 11 filing,
which, not coincidentally, came the day after Senior Judge
Northrop of this Court denied the plaintiffs, motion for
interlocutory relief from the IRS seizure. The Court sees
absolutely no point in the deposition of Mr. Friedman (the
Chapter 11 trustee) other than to harass him and further
delay this lawsuit.
In short, not only did the transfers of assets to the
wrongful levy plaintiffs in this case have the badges of fraud,
they reeked of it. No extended discussion of facts or law is
required to support that conclusion, which is writ large all
over the record of this case, to the extent of excluding any
possibility that a reasonable fact-finder could determine
otherwise.
Finally, the Court addresses the summary judgment
motion of Mr. Howard, as Trustee of Ellicott Building. The
motion is utterly specious on each and every ground raised
therein, and, in the circumstances of this case, it comes
perilously close to transgressing Rule 11. Therefore, it will
be denied.
For the reasons stated, an order will be entered: (1)
granting summary judgment on all counts of the bankruptcy
App. 92
trustee's counterclaim and his third party complaints, in favor
of the bankruptcy trustee, and decreeing the assets in
question (i.e., those levied upon by the IRS) to be assets of
the debtor Fred W. Allnutt, Sr. , in Civil No. S 92-2778 (the
bankruptcy case); (2) granting summary judgment in favor of
the defendants and against the plaintiffs on all remaining
issues in Civil No. S 92-2834 (the wrongful levy case); (3)
foreclosing all interests of any party to this suit, other than
the bankruptcy estate of Fred W. Allnutt, Sr., (those rights
being subject to the rights of the United States Government
in respect of his tax indebtedness) to the assets in question;
and (4) denying the partial summary judgment motion of
Herbert D. Howard, as Trustee for Ellicott Building. That
order will be entered as a final judgment, disposing of all the
remaining issues, claims, and parties in this case.
/s/ N. Smalkin
United States District Judge
Dated: June 21th, 1993
App. 93
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.