Opposition Brief — Sosne v. Reinert & Duree, 118 S. Ct. 364 (1997) (No. 96-2045)

Supreme Court, Ut’. S.

FILE D

SEP 29 1997

No. 96-2045 ae

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1996

DAVID A. SOSNE, TRUSTEE,

Petitioner,

REINERT & DUREE, P.C., GARY ROBBINS, ROBBINS

& ASSOCIATES, INC., ESTES & ESTES, INC. AND

JAMES C. LANDES,

Respondents.

On Petition For Writ Of Certiorari To The United

States Court of Appeals For The Eighth Circuit

RESPONDENT’S BRIEF IN OPPOSITION

DAVID M. DUREE*

REINERT & DUREE, P.C.

Attorneys for Respondents

812 North Collins

St. Louis, MO 63102-2174

(314) 621-5743

*Counsel of Record

QUESTIONS PRESENTED

1. Whether claims for alleged violations of the

automatic stay under 11 U.S.C. §362 may be used as a

substitute for the statutory method of avoiding pre-petition

assignments and the recovery of the proceeds under 11

U.S.C. §§547, 548 and 550?

2. Whether 11 U.S.C. §362 automatically bars a

party from collecting property to satisfy a pre-petition

judgment against the bankruptcy debtor, when neither the

bankruptcy estate nor the debtor has an interest in that

property?

li

STATEMENT PURSUANT TO RULE 29.6

The names of all parties to the proceedings in the

Court whose judgment is sought to be reviewed here appear

in the caption of the case. There is no parent or subsidiary

company of any party to be listed.

med AKitca'a

Bern bat AE Takin Mi i a eae rn

lil

TABLE OF CONTENTS

Page

A a i

Statement Pursuant to Rule 29.6..000000000.0000....ccccceceeeeeee il

i ndbnsansidaadsceblbcbwoes IV

EE l

Reasons for Denying the Petition .............00...000cccce 7

I. The Eighth Circuit’s decision requiring

the trustee to prove claims for

avoidance of a pre-petition assignment

and recovery before permitting the

trustee to recover damages for alleged

violations of the automatic stay for

dealing with the subject of such claims

does not warrant review.

ee dcenmiladann 8

iV

TABLE OF AUTHORITIES

Page

CASES CITED

Celotex Corporation v. Bennie Edwards, 514 U.S. 300,

131 L. Ed.2d 403, 115 S. Ct. 1493 (1995). ......... 6

Edwards v. Armstrong World Industries, Inc.,

GEIB FIA OG OE kg eee c. 6

Gelb v. Royal Globe Ins. Co., 798 F.2d 38

Cea ee oe ak a oe nek 3

In Re: Jameson’s Foods, Inc., 35 B.R. 433

in. kos Se ee i vk os 6

In the Matter of Sims, 994 F.2d 210

Cr ee ea rn ee eon, 3

In Re: Morning Treat Coffee Co., Inc., 77 B.R. 62

ot eR. ee rae Vere eis 6

In Re: N.S. Garrott & Sons, 772 F.2d 462

Pree Se ec oa ae cee edcea bata 3

In Re: Springfield Furniture, Inc., 145 B.R. 520

Pe WU POS 5 6 05 shale ebanerei seas, 6

Kahn v. Royal Banks of Missouri, 790 S.W.2d 503

ee Seer eee ee 2

Vv

Table of Citations continued

Page

Loe v. Downing, 325 S.W.2d 479 (Mo. 1959)... .... 2

STATUTES CITED

Ce St Es Shins char cuee a ee 6, 7

ee NE ik ie ee ns Pe ee 5

Ll U.S. GOR)... ek ewes 5

AE OBA. GO. wk ec ec eee 5

11 U.S.C. §541(a)(1) & (3)... 6

11 U.S.C. §546(a) (1991)... 02. 8

OY MP Ps og ec oo keke, 4,5, 6, 7,8

OB i ks ev ke ev avcbuceeedl eee 4,5, 6, 7,8

iL) 2 eS merr 4,5,6,7,8

l

No. 96-2045

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1996

DAVID A. SOSNE, TRUSTEE,

Petitioner,

V.

REINERT & DUREE, P.C., GARY ROBBINS, ROBBINS

& ASSOCIATES, INC., ESTES & ESTES, INC. AND

JAMES C. LANDES,

Respondents.

On Petition For Writ Of Certiorari To The United

States Court of Appeals For The Eighth Circuit

RESPONDENT’S BRIEF IN OPPOSITION

STATEMENT OF THE CASE

On or before June 26, 1997, David A. Sosne,

bankruptcy trustee, filed his petition for a writ of certiorari

with this Court, Case No. 96-2045.

Respondents did not file a brief in opposition.

2

However, respondents, as petitioners, filed a separate petition

for a writ of certiorari from the same Eighth Circuit decision

on June 27, 1997, Case No. 97-7.

David Sosne filed a brief in opposition to

respondents’ petition, but filed it in Case No. 96-2045 instead

of Case No. 97-7. Respondents assume the clerk renumbered

it and filed it in Case No. 97-7 instead of Case No. 96-2045.

On August 28, 1997, respondents were advised by the

clerk that they were requested to file a brief in opposition to

the petition of David Sosne in Case No. 96-2045.

It is respondents’ position that the Court should grant

certiorari in this case, but for the reason asserted by

respondents, as petitioners, in Case No. 97-7, and not for the

reasons asserted by David Sosne in Case No. 96-2045.

Reinert & Duree, P.C. are the attorneys for the other

respondents, Gary Robbins, Robbins & Associates, Inc.,

Estes & Estes, Inc. and James C. Landes, who obtained a

judgment for fraud against Just Brakes Corporate Systems,

Inc. (“Just Brakes”) in 1988. Just Brakes appealed that

decision which was affirmed by the Missouri Court of

Appeals.

On January 10, 1991, Just Brakes assigned all right,

title and interest in its only asset, the trademark “Just Brakes”

to F.G.R. Management, Inc.

Under Missouri law, which applies to determine the

nature and extent of a debtor’s interest in property, this pre-

petition assignment is valid as to Just Brakes even if it is void

as to its creditors. Kahn v. Royal Banks of Missouri, 790

S.W.2d 503, 506 [1,2] (Mo. App. 1990), Loe v. Downing,

325 S.W.2d 479, 482 [2] (Mo. 1959). State law controls this

issue. Jn Re: N.S. Garrott & Sons, 772 F.2d 462, 467 [7,8]

3

(8" Cir. 1985). Just Brakes will never be restored to an

ownership interest in the trademark no matter how fraudulent

the assignment.

Respondents filed several ancillary lawsuits in St.

Louis County, Missouri to facilitate execution of their

judgment on the only asset of Just Brakes, its trademark,

beginning in January, 1991.

After obtaining a court order compelling the sale of

the trademark (which did not implicitly restore ownership of

the trademark to Just Brakes, as asserted by petitioner), a

sheriff's sale was scheduled for July 30, 1991.

Immediately before the sale, Just Brakes filed for

Chapter 11 bankruptcy. The only significant claimed asset

listed was the trademark which had already been assigned to

F.G.R. Management, Inc. Almost all of the creditors listed

were either the respondents or the owners of Just Brakes

which had assisted it in committing the fraud resulting in

respondents’ judgment, or the attorneys or consultants

representing Just Brakes in the fraud suit.

Respondents moved to dismiss the Chapter 11 case

and the bankruptcy court granted the motion on September

24, 1991. App. 6. The Bankruptcy Court stated that the

“claim for avoidance” of the pre-petition assignment of the

trademark was an asset of the bankruptcy estate, while

dismissing the Chapter 11 case. App. 6. Since the Chapter

‘1 bankruptcy case was dismissed, the respondents could not

appeal that order, and had no need to. Jn the Matter of Sims,

994 F.2d 210, 214 [1,2] (5™ Cir. 1993). Asa result, that

statement in the order of dismissal is not binding on the

respondents under any principle of preclusion. Gelb v. Royal

Globe Ins. Co., 798 F.2d 38, 44 [3] (2™ Cir. 1986).

4

The Court of St. Louis County then scheduled

another sheriff's sale of the trademark for October 15, 1991.

On that date, Just Brakes filed its second single asset

bankruptcy, this time under Chapter 7, again listing an

interest in the trademark as its, essentially, sole claimed asset.

With few exceptions only the respondents and the parties that

assisted Just Brakes in defrauding them or that represented or

consulted with Just Brakes in the fraud suit were listed as

creditors.

The Sheriff of St. Louis County (not the respondents

as asserted by petitioner) proceeded with the sale of the

trademark on October 15, 1991. App. 6. No one has

challenged the propriety of proceeding with that foreclosure

sale. App. 7, n. 1.

Respondents are accused of violating the automatic

stay by applying for and obtaining a court order for the

payout of the net proceeds of the sheriff's sale on October

24, 1991. App. 6, 7.

At that time the trustee had not filed any actions for

avoidance of the pre-petition assignment of the trademark or

for the recovery of the proceeds. Even the filing of such

claims would not have vested any property rights in either the

debtor or the trustee.

One year later the trustee filed an adversarial

complaint for avoidance of the pre-petition assignment of the

trademark and for, allegedly, violation of the automatic stay

by requesting and obtaining the proceeds of the sheriff's sale.

App. 7.

In 1993, the trustee dismissed his claims for avoidance

and recovery under 11 U.S.C. §§547, 548 and 550, in order

to avoid a jury trial at the District Court level, and, for

5

strategic purposes, limited his claim to alleged violations of

the automatic stay. App. 7.

In this fashion the trustee attempted to substitute a

claim for violation of the automatic stay, with respect to a

claimed property interest in the trademark which had been

assigned by the debtor more than nine months before the

bankruptcy petition was filed, for claims for avoidance and

recovery of the trademark or its proceeds under 11 U.S.C.

§§547, 548 and 550.

The automatic stay bars actions against property of

the debtor or the bankruptcy estate at the time the bankruptcy

petition is filed. 11 U.S.C. §362.

Respondents respectfully submit that 11 U.S.C.

§362(a)(6) must be read together with 11 U.S.C. §362(a)(2)

which provides that the enforcement of a pre-petition

judgment must be against the debtor or bankruptcy estate,

not merely that the pre-petition judgment, which is being

enforced, is against the debtor.

The trademark was not the property of the debtor at

the time the bankruptcy petition was filed, since Just Brakes

had assigned it to F.G.R. Management, Inc. more than nine

months earlier.

The bankruptcy estate could acquire an interest in the

trademark only through actions by the trustee for avoidance

of the pre-petition assignment and recovery under 11 U.S.C.

§§547, 548 and 550.

The Eighth Circuit held it was not necessary to

determine whether a “claim for avoidance” of the pre-petition

assignment of the trademark constituted property of either

the debtor or the bankruptcy estate at the time Chapter 7

petition was filed. App. 9.

6

The statutes, 11 U.S.C. §§541(a)(1) & (3), 547, 548

and 550 and the cases, Jn Re: Morning Treat Coffee Co.,

Inc., 77 B.R. 62, 65 [4] (M.D. La. 1987), In Re: Springfield

Furniture, Inc., 145 B.R. 520, 529 [6, 7] (E.D. Va. 1992), In

Re: Jameson's Foods, Inc., 35 B.R. 433 [1] (D.S.C. 1983) all

hold that a claim for avoidance is not the property of the

debtor at the time the bankruptcy petition is filed and does

not become the property of the bankruptcy estate until the

trustee successfully pursues a claim for avoidance under 11

U.S.C. §§547 or 548 and thereafter recovers the proceeds

under 11 U.S.C. §550.

The automatic stay simply did not apply to property in

which neither the debtor nor the bankruptcy estate had an

interest.

Edwards v. Armstrong World Industries, Inc., 6 F.3d

312, 316, 317 [2-6] (5™ Cir. 1993) held that the automatic

stay did not bar the judgment creditors from collecting the

proceeds of an appeal bond to satisfy a pre-petition judgment

against the debtor, the Celotex Corporation, out of property

in which the debtor no longer held an interest. That issue was

not appealed further. However, if the automatic stay would

have barred collection of a pre-petition judgment against the

debtor, out of property in which neither the debtor nor the

bankruptcy estate held an interest, the central issue in the

same case on certiorari, Celotex Corporation v. Bennie

Edwards, 514 U.S. 300, 131 L. Ed.2d 403, 115 S. Ct. 1493

(1995), would have been mooted. Celotex concerned the

authority of the bankruptcy court to issue an injunction under

11 U.S.C. §105 under circumstances which are essentially

identical to those presented here. If the automatic stay barred

such post-petition efforts to collect a pre-petition judgment

ee

7

against the debtor, out of property in which neither the debtor

nor the bankruptcy estate held an interest, an injunction under

11 U.S.C. §105 would have been completely unnecessary.

An 11 U.S.C. §105 injunction was neither requested nor

issued in the case at bar.

The respondents submit that the automatic stay did

not bar them from satisfying a pre-petition judgment against

the debtor out of property in which neither the debtor nor the

bankruptcy estate held an interest. There was no violation of

the automatic stay.

REASONS FOR DENYING THE PETITION

L The Eighth Circuit’s decision requiring the trustee

to prove claims for avoidance of a pre-petition

assignment and recovery before permitting the

trustee to recover damages for alleged violations of

the automatic stay for dealing with the subject of

such claims does not warrant review.

The trustee did not appeal the bankruptcy court’s

denial of his claim for punitive damages. App. 12. The

Eighth Circuit correctly held that the trustee could not

recover damages (of any kind) for an alleged violation of the

automatic stay, where the trustee’s alleged property interest

was a “claim for avoidance” of the pre-petition assignment of

the trademark, and the trustee had never established the

claims for avoidance and recovery under 11 U.S.C. §§547,

548 and 550.

The trustee has attempted to avoid the need of

proving his claims for avoidance of the pre-petition

assignment and for recovery under the statutes provided for

such actions by substituting a claim for an alleged violation of

the automatic stay for such statutory actions. The Eighth

8

Circuit correctly determined that, as a first step, the trustee

must establish his claims for avoidance and right of recovery

under 11 U.S.C. §§547, 548 and 550 before he can claim

damages for an alleged violation of the automatic stay with

respect to the property that is the subject of such claims.

The trustee, however, dismissed all claims for

avoidance and recovery, for strategic purposes, and the time

for re-filing such claims has long passed. Any attempt of the

trustee to re-plead claims for avoidance and recovery under

11 U.S.C. §§547, 548 and 550 is barred by the statute of

limitations, and has been for many years. 11 U.S.C. §546(a)

(1991). The subsequent amendment of §546(a) applies only

to bankruptcy cases filed after October 22, 1994. The

Chapter 7 case in question was filed on October 15, 1991.

Under the specific facts of this case, the questions

presented for review in this petition will never be reached.

Supreme Court review is certainly not warranted at this

juncture.

CONCLUSION

For the reasons set forth above, the trustee’s petition

for a wmit of certiorari should be denied. However,

respondents respectfully submit that their petition for a writ

of certiorari, No. 97-7, should be granted for the reasons

stated therein.

9

Respectfully submitted,

DAVID M. DUREE*

REINERT & DUREE, P.C.

Attorneys for Respondents

812 North Collins

St. Louis, MO 63102-2174

(314) 621-5743

*Counsel of Record

Dated September 29, 1997