Holley v. Corcoran (In re Holley), Case No. 20-11096

In Re: Ralph F. Holley, Melonee L. Monson, Debtors.

Ralph F. Holley and Melonee L. Monson, Appellants, v. Collene Corcoran, Chapter 7 Trustee, Appellee.

Case No. 20-11096

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

October 7, 2020

Sean F. Cox United States District Court Judge

OPINION & ORDER

This is a bankruptcy appeal from a Chapter 7 proceeding. This is the third appeal and it involves a dispute over an order concerning $6,506.68. In this appeal, the Debtors challenge the bankruptcy court's decision denying their Motion to Compel Trustee to Turnover Exempt Property. For the reasons below, the Court affirms the bankruptcy court's ruling.

BACKGROUND

This a bankruptcy appeal from a Chapter 7 proceeding that has been before this Court, and the Sixth Circuit, several times.

In the last appeal, Trustee Colleen K. Corcoran appealed an order issued by the bankruptcy court that required her to turn over $20,036.68 in administrative fees that she retained from the sale of the Debtors' home. This Court rejected all of the arguments made by the Trustee and affirmed the bankruptcy court's order.

The Trustee appealed this Court's judgment affirming the bankruptcy court's order requiring her to turn over $20,036.68 to the Debtors, Ralph Holley and Melonee Monson-Holley.¹ (In re Holley, Case No. 18-2375 (6th Cir. July 17, 2019)). In its order affirming this Court's ruling, the United States Court of Appeals for the Sixth Circuit concisely summarized the relevant background in this matter:

In 2012, Holley and Monson-Holley filed separate bankruptcy petitions in which both debtors claimed property located at 7545 Heather Mead Lane, West Bloomfield, Michigan, as exempt under Michigan Compiled Laws §600.5451(1)(o). After the Debtors' cases were consolidated, the bankruptcy court authorized the sale of the Heather Mead property free and clear of liens pursuant to 11 U.S.C. §363(f). Upon completing the administration of the Debtors' estate, the Trustee filed a final report and account, in which she proposed paying herself $97,734.32 in administrative fees from the proceeds from the sale of the Heather Mead property. The Debtors objected to the final report, contending that proceeds from the sale of the Heather Mead property could be used to pay only secured creditors not administrative claims. The Debtors also filed a motion for reconsideration of the order authorizing the sale of the Heather Mead property, alleging that the Trustee engaged in self-dealing. The bankruptcy court denied the motion for reconsideration, overruled the objections to the final report, and awarded administrative expenses and fees to the Trustee. The district court affirmed the orders denying the motion for reconsideration and the objections to the final report. In re Holly, Nos. 12-33873/15-12144, 2015 WL 9245284 (E.D. Mich. Dec. 18, 2015). This court affirmed the order denying the motion for reconsideration but vacated the order overruling the objections to the final report after determining that "11 U.S.C. §522(k) prohibits a bankruptcy court from charging exempt property for administrative expenses." In re Holley, 661 F. App'x 391, 396 (6th Cir. 2016).

On remand, the bankruptcy court ordered the trustee to pay the Debtors $84,204.32. The Debtors then filed a motion for reconsideration, arguing that the Trustee failed to turn over fully exempt tax refunds and that the prior order did not require the Trustee to turnover administrative expenses relating to the sale of the Heather Mead property. The bankruptcy court granted the motion forreconsideration after determining that the tax refunds were exempt pursuant to a prior order and that the administrative expenses relating to the sale of the Heather Mead property could not be charged against the Debtors' validly claimed exemptions. Subsequently, the Trustee filed a post-hearing brief, arguing that she had turned over all exempt assets and that she could not turnover the administrative expenses relating to the sale of the Heather Mead property pursuant to the doctrine of equitable mootness as to third parties and because the estate was administratively insolvent. The bankruptcy court declined to address the Trustee's post-hearing brief and ordered the Trustee to turn over an additional $20,036.68 to the Debtors. The Trustee appealed, and the district court affirmed. In re Holley, 594 B.R. 872, 879 (E.D. Mich. 2018).

(Id. at 1-2).

In its July 17, 2019 Order, the Sixth Circuit rejected the Trustee's arguments that were properly before it² and affirmed this Court's judgment. In doing so, the court noted that the "bankruptcy court did not exceed the scope of this court's mandate when it ordered the Trustee to turn over the Debtors' 2009-2012 tax refunds." (Id. at 3). It also explained that the "bankruptcy court did not err by including previously incurred sale expenses in its calculation of administrative expenses" and stated:

The Trustee argues that because the Debtors did not obtain a stay pending appeal or argue that the purchaser of the Heather Mead property acted in bad faith, 11 U.S.C. §363(m) prevented the bankruptcy court from ordering the turnover of administrative expenses relating to the sale of the property that had been previously authorized. Although the Trustee is correct that §363(m) can prevent appellate courts from reviewing a consummated sale, the Debtors are not challenging the validity of the sale. See In re Nashville Sr. Living, LLC, 620 F.3d 584, 591 (6th Cir. 2010). Instead, the Debtors merely seek the turnover of all exempt property used to pay administrative expenses as previously ordered by this court. Because this court explicitly determined that "11 U.S.C. §522(k) prohibits a bankruptcy court from charging exempt property for administrative expenses" and because there is no dispute that the sale expenses were administrative fees paid from the proceeds from the sale of the Heather Mead property, the bankruptcy court did not err in includingpreviously incurred sale expenses in its calculation of administrative expenses. See In re Holley, 661 F. App'x at 396.

(Id.).

While the above appeal was pending in the Sixth Circuit, on June 5, 2019, the bankruptcy case was reassigned from Judge Daniel S. Opperman to a newly-appointed bankruptcy judge, Judge Joel D. Applebaum.

Following remand to the bankruptcy court, the Trustee disgorged all of her fees, along with all fees and expenses of her professionals, and a real estate commission of $13,530.00, to the Debtors. Even having returned all of that, there remains unpaid a balance due of $6,506.68 to the Debtors under the Turnover Order. (ECF No. 451 in Bankruptcy Case 12-33873).

The Trustee asserts, and the Debtors do not dispute, that amount consists of real property transfer taxes paid to the State of Michigan and Oakland County Treasurer, title insurance, closing fees, and other closing expenses incurred in the sale of the Property. Those expenditures were all authorized to be paid under the Order Approving the Sale of the Real Property and Order for Distribution.

The matter then came before Judge Applebaum on the Debtors' Motion to Compel Trustee to Turnover Exempt Property. In that motion, the Debtors asked the bankruptcy court to compel the Trustee to turnover Debtors' exempt property to them.

On May 5, 2020, Judge Applebaum issued an "Opinion Denying Debtors' Motion To Compel Trustee To Turnover Exempt Property." (ECF No. 1 in this Case).

In that Opinion, Judge Applebaum explained that "[a]fter the Trustee disgorged all of her fees, together with all fees and expenses of her professional and, subsequent to the filing of the instant motion, a real estate commission of $134,530.00, there remains unpaid a balance due toDebtors under the Turnover Order of $6,506.68. The Trustee is unable to recover funds to pay this balance, the estate's coffers are completely empty and no further distributions to Debtors will occur." (Id. at 2). "The sole issue now before the Court is whether the Trustee is personally liable to Debtors because she cannot fully comply with the Court's Turnover Order." (Id.). Judge Applebaum concluded that the "Trustee is not personally liable," and therefore denied the Debtors' motion. (Id. at 2). The bankruptcy judge ruled as follows on this issue:

Whether the Trustee is personally liable for the unpaid balance of $6,506.68 requires consideration of the Trustee's immunity. As the Sixth Circuit has recognized, "[C]ase law governing personal liability for trustees has been described by several courts as confusing and sometimes contradictory." Grant, Konvalinka & Harrison, PC v. Banks (In re McKenzie), 716 F.3d 404, 412 (6th Cir. 2013), cert. den. 571 U.S. 955 (2013)(internal citations omitted). Nevertheless, all courts that have considered the issues agree that bankruptcy trustees "are entitled to absolute immunity for all actions taken pursuant to court orders." Baron v. Sherman (In re Ondova Ltd. Co.), 914 F.3d 990,993(5th Cir. 2019). Accord, Gross v. Rell, 695 F.3d 211, 216 (2^nd Cir. 2012); Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 753 (4^th Cir. 1993); Gregory v. U.S., 942 F.2d 1498, 1500 (10^th Cir. 1991); Lunan v. Jones (In re Lunan), 489 B.R. 711, 730 (Bankr. E.D. Tenn. 2012). See McKenzie, 716 F.3d at 414 ("a trustee may shield himself from personal liability for breach of his fiduciary duties by obtaining prior approval for actions within the scope of his official duties").

In the present case, in a good faith effort to comply with the Turnover Order, the Trustee disgorged all of her fees, and successfully sought and obtained recovery of all sale proceeds distributed to her professionals in payment of fees, real estate broker commissions and expenses. The Trustee has no ability to satisfy the outstanding balance owing under the Turnover Order other than to draw on her own personal assets. Requiring her do so, however, would be tantamount to imposing personal

...