In re Baker Sales, Inc.

IN RE: BAKER SALES, INC., DEBTOR.

No. 13-12693

United States Bankruptcy Court, E.D. Louisiana

February 7, 2022

CHAPTER 7

SECTION A

MEMORANDUM OPINION AND ORDER

MEREDITH S. GRABILL, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the Motion for Summary Judgment by Newtek Small Business Finance, LLC, and the accompanying memorandum in support and statement of uncontested facts (collectively, the "Motion"), [ECF Doc 127], filed by creditor Newtek Small Business Finance, LLC ("Newtek"), and the Opposition filed by Baker Sales, Inc. ("BSI") and Elsa M. and Robert A. Baker (the "Bakers"), the officers and shareholders of BSI, [ECF Doc. 137]. For the reasons discussed below, the Motion is GRANTED.

JURISDICTION AND VENUE

This Court has jurisdiction to grant the relief provided for herein pursuant to 28 U.S.C. § 1334. The matter presently before the Court constitutes a core proceeding that this Court may hear and determine on a final basis under 28 U.S.C. § 157(b)(2)(A), (B) & (O). Venue is proper pursuant to 28 U.S.C. § 1408.

BACKGROUND

The following facts are undisputed and taken primarily from the record in this case.^[1]

A BSI's Bankruptcy Case

On September 30, 2013, BSI filed a petition for bankruptcy relief under chapter 7. [ECF Doc. 1]. On October 23, 2013 the chapter 7 trustee notified creditors of the need to file proofs of claim due to the recovery of assets of the estate. [ECF Docs. 6-7]. On November 7, 2013, Newtek timely filed a proof of claim, asserting a secured claim of $3, 044, 569.46 against BSI's estate. See Proof of Claim No. 5. On December 5, 2013, the Court granted Newtek's request and entered an Order lifting the stay to allow Newtek to foreclose on certain commercial real estate serving as collateral to secure repayment of BSI's debt to Newtek. [ECF Doc. 19]. The foreclosure sale occurred on October 8, 2014 (the "Foreclosure Sale"). See Newtek Statement of Uncontested Facts, ¶ 9. After the Foreclosure Sale of that collateral, Newtek amended its proof of claim on July 13, 2015, to assert an unsecured deficiency claim of $2, 963, 439.46 against the estate. See Amended Proof of Claim No. 5.

Because no party in interest objected to Newtek's Amended Proof of Claim, Newtek's $2, 963, 439.46 unsecured claim was allowed pursuant to 11 U.S.C. § 502(a) and the chapter 7 trustee distributed $24, 831.00 to Newtek. [ECF Docs. 62 & 69]. After issuing an Order approving the chapter 7 trustee's final report and account, the Court issued an Order on September 27, 2016, closing the case. [ECF Docs. 66 & 70].

B. BSI's Bankruptcy Case Is Reopened

Upon request of the United States Trustee, the Court issued an Order reopening BSI's bankruptcy case on March 25, 2019, to allow the reappointed chapter 7 trustee to administer recently discovered assets. [ECF Doc. 72]. According to the pleading filed by the United States Trustee:

Since the closing [of the bankruptcy case], the United States Trustee has received information that assets may exist that were not administered during the bankruptcy proceeding. Specifically, the estate has a potential interest in settlement proceeds relating to a BP Oil Spill Economic and Property Damage Claim, with a gross amount of $6, 400.31, which was not included in the originally filed bankruptcy schedules.

[ECF Doc. 71]. The chapter 7 trustee was also able to recoup payment on a default judgment in BSI's favor in the amount of $28, 974.85. [ECF Doc. 79].

But on November 26, 2019, BSI and the Bakers objected to Newtek's Amended Proof of Claim (the "Claim Objection"). [ECF Doc. 98]. Through the Claim Objection, BSI and the Bakers challenge the validity and amount of Newtek's unsecured claim and further object to the distribution Newtek received from the chapter 7 trustee in 2016. Id. BSI and the Bakers assert that, under the Louisiana Deficiency Judgment Act ("LDJA"), Newtek's unsecured deficiency claim should be extinguished as of October 8, 2014, the date of the Foreclosure Sale, because Newtek had allegedly foreclosed on BSI's commercial real estate using Louisiana's executory process without appraisal. See id. The Bakers and Newtek have been litigating the issue in a state court foreclosure action against residential property of the Bakers (the guarantors of the BSI debt owed to Newtek), and in 2018, a state court deemed Newtek's debt legally unenforceable under the LDJA, though that ruling is presently being considered on appeal. See id.

The hearing on the Claim Objection was initially set for January 15, 2020, but was continued several times at the request of the parties and based upon the premise that the state court's deliberations might resolve certain questions of state law that could assist in resolving the Claim Objection. [ECF Docs. 104, 106, 113, 115, 120, 122].^[2] The Scheduling Order of May 24, 2021, set the evidentiary hearing on the Claim Objection for Friday, December 10, 2021, and also set certain pretrial deadlines, including a deadline for dispositive motions to be filed and served not later than Tuesday, October 26, 2021. [ECF Doc. 122]. Newtek filed the Motion on October 26, 2021, and noticed it for hearing on November 17, 2021. [ECF Docs. 127 & 128].

On November 8, 2021, BSI and the Bakers filed a motion to continue the evidentiary hearing and the deadline to file and serve dispositive motions. [ECF Doc. 132]. Newtek opposed the motion for a continuance. [ECF Doc. 140]. After a hearing on November 15, 2021, the Court issued an Order continuing the evidentiary hearing on the Claim Objection to March 14, 2022, but declined to reset the deadline for filing and serving dispositive motions. [ECF Doc. 141].

LAW AND ANALYSIS

A. Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure is made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Fed. R. Bankr. P. 7056. Indeed, "[s]ummary judgment is warranted where, after adequate time for discovery and upon motion, a party fails to make a showing sufficient to establish the existence of an element essential to its case and upon which it carries the burden of proof at trial." In re Betteroads Asphalt, LLC, 594 B.R. 516, 541 (Bankr. D.P.R. 2018) (citing Celotex Corp., 477 U.S. at 322). "Summary judgment [should be granted] when the pleadings and evidence demonstrate that no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law." Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009); see also Warfield v. Byron, 436 F.3d 551, 557 (5th Cir. 2006). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. See Royal v. CCC & R Tres Arboles, L.L.C., 736 F.3d 396, 400 (5th Cir. 2013) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A court views the facts and evidence in the light most favorable to the non-moving party. See City & Cnty. of S.F., Cal. v. Sheehan, 575 U.S. 600, 603 (2015).

But "[a] party's standing to pursue a claim is a threshold issue in federal litigation because it determines 'the propriety of judicial intervention.'" Herendeen v. Regions Bank (In re Able Body Temporary Servs., Inc.), 626 B.R. 643, 679 (Bankr. M.D. Fla. 2020) (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)). As explained by one court:

Although under Rule 56 of the Federal Rules of Civil Procedure, the Court may not, without adequate notice, grant summary judgment with respect to any claims beyond those claims for relief requested by the parties on motion for summary judgment, the Court may, nevertheless, raise and dismiss a claim sua sponte if the plaintiff lacks standing to assert the claim. Lack of standing to pursue a claim affects the Court's subject matter jurisdiction and should be raised by the Court sua sponte if not otherwise addressed by the parties.

Thomas v. Causey (In re Causey), 519 B.R. 144, 149-50 (Bankr. M.D. N.C. 2014) (internal citations omitted). "In other words, because lack of standing is a jurisdictional bar, a court may consider questions of standing sua sponte at any time, even on appeal and even if not raised as an issue in the original proceedings." In re Able Body Temporary Servs., Inc., 626 B.R. At 680. B. BSI and the Bakers Lack Standing To Object to the Amended Proof of Claim

Section 502 of the Bankruptcy Code states that a claim is allowed unless a "party in interest" objects. 11 U.S.C § 502(a). Although "party in interest" is not defined in the Code, "a 'party in interest' must have a personal stake in the outcome of the controversy" as "federal courts are empowered to hear only cases or controversies." In re I & F Corp., 219 B.R. 483, 484 (Bankr. S.D. Ohio 1998) (citations omitted); see also In re Manshul Constr. Corp., 223 B.R. 428, 429 (Bankr. S.D.N.Y. 1998) ("The term 'party in interest' is not defined in either the Code or the Federal Rules of Bankruptcy Procedure, but the phrase has generally been interpreted in a Chapter 7 case to refer to creditors of the debtor who have claims against the estate and whose pecuniary interests are directly affected by the bankruptcy proceedings." (internal quotations and citation omitted)).^[3] "Unless the estate is solvent and there will be a distribution to the debtor, the debtor has no pecuniary interest in the reduction of a filed claim." In re I & F Corp., 219 B.R. 484...