In re Bednar

634 B.R. 1

IN RE: Alexander Louis BEDNAR, Debtor.

Case No. 19-14021-SAH

United States Bankruptcy Court, W.D. Oklahoma.

Signed September 30, 2021

David S. Burge, Oklahoma City, OK, for Trustee.

ORDER

Sarah A. Hall, United States Bankruptcy Judge

To quote the Bankruptcy Appellate Panel for the Tenth Circuit (the "BAP"), "the present saga" arises out of the third and final chapter 13 bankruptcy case of Alexander Bednar ("Debtor") filed in 2019 (the "Third Bankruptcy Case"). Order [Doc. 122], entered by the BAP on April 27, 2021 (the "Order"). After the Third Bankruptcy Case was dismissed by this Court (Honorable Tom R. Cornish)¹ the chapter 13 trustee, John Hardeman ("Trustee"), was left holding $29,266.15 in plan payments made by Debtor pending confirmation of his chapter 13 plan (the "Funds"). Identifying the Funds as a possible source of recovery, judgment creditors Rick Warren, Oklahoma County Court Clerk, and Jennifer Byler, Deputy Courtroom Clerk (collectively, "Oklahoma County"), and Jill Bednar ("J Bednar") sought leave to file garnishment summons against the chapter 13 trustee. The Court denied leave, and Oklahoma County and J Bednar appealed to the BAP. On April 27, 2021, the BAP reversed and concluded the Funds were not shielded from garnishment by Oklahoma County and J Bednar upon dismissal of the Third Bankruptcy Case under 11 U.S.C. § 1326(a)(2). The BAP remanded the case for further proceedings consistent with the BAP's Order. The only question for this Court on remand is consideration and application of the Barton doctrine² to the requests for leave to file and serve garnishment summonses on Trustee in an effort to reach the Funds.

FACTS

1. Rather than appearing at a hearing on assets set by Oklahoma County in Oklahoma County District Court (the "Oklahoma County District Court"), Debtor filed his first 2019 bankruptcy case (Case No. 19-12312) on June 6, 2019, and said case was dismissed on July 9, 2019, for failing to obtain credit counseling.³ Order, p. 2; Docket in Case No. 19-12312.

2. Debtor filed his second 2019 bankruptcy case (Case No. 19-12845) on July 11, 2019, once again in order to avoid appearing at a hearing on assets set by Oklahoma County in Oklahoma County District Court, which second bankruptcy case was dismissed because Debtor failed to appear for the Section 341 meeting of creditors. Order, p. 3; Docket in Case No. 19-12845. 3. Oklahoma County again reset the hearing on assets, but Debtor then filed the Third Bankruptcy Case on October 1, 2019. Order, p. 3; Doc. 1.

4. Oklahoma County filed a proof of claim in the Third Bankruptcy Case, Claim No. 5-1, in the amount of $30,582.50 based on judgments awarded Oklahoma County against Debtor for frivolous and vexatious litigation conduct. Claim No. 5-1.

5. J Bednar filed a proof of claim in the Third Bankruptcy Case, Claim No. 8-1, in the amount of $141,469.56 for unpaid domestic support obligations under a Decree of Divorce and Dissolution of Marriage. Claim No. 8-1.

6. After eight months, and notwithstanding numerous failed confirmation attempts by Debtor, the Court denied confirmation and dismissed the Third Bankruptcy Case on June 24, 2020, finding Bednar was ineligible to be a chapter 13 debtor. Order, p. 4; Doc. 81.

7. At the time the Third Bankruptcy Case was dismissed, Trustee was holding the Funds, $29,266.15, comprised of payments Debtor was required to pay Trustee while confirmation was pending. See Trustee's Memorandum Brief with Certificate of Service [Doc. 149], filed on August 30, 2021. Trustee continues to hold the Funds. Doc. 149, p. 1.

8. On June 26, 2020, Oklahoma County filed its Motion for Leave to Authorize Oklahoma County to Garnish Funds Held by Trustee ("Oklahoma County Motion"). Doc. 83.

9. On July 9, 2020, J Bednar filed Jill Bednar's Motion for Leave to Authorize Her to Garnish Funds Held by Trustee And Notice of Opportunity for Hearing ("J Bednar Motion," collectively with the Oklahoma County Motion, "the Motions"). Doc. 88.

10. At the Court's request, Trustee filed the Statement of Chapter 13 Trustee Regarding Motions or Leave to Authorize Garnishment (Documents 83 and 88) [Doc. 94] on July 29, 2020 ("Trustee Opposition").⁴ Trustee opposed allowing garnishment of the Funds. Order, p. 5; Trustee Opposition.

11. After reviewing the Motions and Trustee Opposition, and considering the arguments of the parties and applicable legal authorities, the Court denied the Motions based on good cause. See Order Denying Motions for Leave to Garnish Funds [Doc. 99], entered on September 2, 2020 (the "BK Order"). Specifically, the Court found:

A. The Motions and their corresponding requests for leave to file and serve garnishment summonses on Trustee fall within the parameters of the Barton doctrine.

B. Given the possible administrative and financial burdens that may be imposed on Trustee due to garnishment proceedings not only in the Third Bankruptcy Case but also in all other chapter 13 cases he administers dismissed prior to confirmation, the Barton doctrine bars garnishments on the trustee; and

C. The clear language of 11 U.S.C. § 1326(a)(2) requires chapter 13 trustees to return plan payments previously paid by chapter 13 debtors whose cases are dismissed prior to confirmation.

BK Order, pp. 5 and 7.

12. Oklahoma County and J Bednar filed separate notices of appeal of the BK Order on September 15, 2020 [Docs. 103 and 104]. The two separate appeals were companioned for briefing, oral argument, and decision. Order, p. 7.

13. At the request of Oklahoma County and J Bednar, the Court stayed the BK Order pending appeal. See Order Granting Motions for Stay Pending Appeal, entered on October 19, 2020 [Doc. 120], p. 6.

14. On April 27, 2021, the BAP issued the Order reversing and remanding the BK Order as follows:

• "[T]he Barton doctrine required [Oklahoma County] and J Bednar obtain approval of the Bankruptcy Court before commencing their garnishment actions.... [T]he Bankruptcy Court abused its discretion by denying Barton leave based upon unsupported allegations of potential inconvenience to the Trustee without weighing the other important factors bearing upon such a decision." Order, pp. 15-16.

• When making the Barton determination, the Court is required to gather all relevant facts, and then consider the merits of the garnishment claims, and the other factors identified in In re VistaCare Group, LLC, 678 F.3d 218 (3d Cir. 2012) and Kashani v. Fulton (In re Kashani ), 190 B.R. 875 (9th Cir. BAP 1995). Order, p. 16.

• If the Barton doctrine does not prohibit a proposed garnishment proceeding against a trustee, the "trustee sits in a similar position to any other party holding money for another and subject to garnishment." Order, p. 29.

15. The Order reversed and remanded the BK Order and instructed this Court to conduct further proceedings, and make a determination, on the application of the Barton doctrine to the Third Bankruptcy Case and the requests for leave of Oklahoma County and J Bednar to file garnishment actions consistent with the Order. Order, p. 30.

16. On July 29, 2021, the Court entered its Order Directing Briefing [Doc. 145], directing J Bednar, Oklahoma County, and Trustee to file memoranda discussing the application of the Barton doctrine to the Motions and the application of VistaCare Group, 678 F.3d 218, and Kashani, 190 B.R. 875, thereto.

17. J Bednar, Oklahoma County, and Trustee filed their memoranda (the "Memoranda") on August 30, 2021. Docs. 148, 149, and 150.

18. By its Order Directing Parties to Request Evidentiary Hearing [Doc. 151], entered on September 1, 2021, the Court directed the parties to advise the Court if an evidentiary hearing was desired by September 9, 2021; otherwise, the Court would consider the parties having consented to ruling on the Motions based on the Memoranda. No party expressed a desire for an evidentiary hearing by such deadline. Docket generally.

JURISDICTION

On remand, this Court has jurisdiction over the Third Bankruptcy Case and matters relating thereto after dismissal pursuant to 28 U.S.C. § 157(a). Satterfield, 700 F.3d at 1236. The Court has jurisdiction to determine whether leave should be granted under the Barton doctrine to allow garnishment of Trustee Funds because such affects the final administration of the bankruptcy estate. In re Jankauskas, 593 B.R. 1, 4 (Bankr. N.D. Ga. 2018). Matters concerning administration of the bankruptcy estate are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A) and (O). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), as a motion for leave to file claims against a trustee is a matter which concerns the administration of the estate, and as such, falls within this Court's jurisdiction to finally determine. In re World Mktg. Chicago, LLC, 584 B.R. 737, 740 (Bankr. N.D. Ill. 2018) (citing 28 U.S.C. § 157(b)(1) ). Additionally, all parties have consented to this Court's adjudication of the Motions. World Marketing, 584 B.R. at 740 (first citing Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) ; and then citing Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough")).

CONCLUSIONS OF LAW

"If a plaintiff wants to bring suit against a bankruptcy trustee in a forum other than the bankruptcy court, the Barton doctrine requires approval of the bankruptcy court in order to proceed in the alternate forum." World Marketing, 584 B.R. at 743. The Barton doctrine protects bankruptcy trustees from litigation which may adversely affect their ability to fulfill their duties under the Bankruptcy Code. Order, p. 29. The Barton doctrine serves three primary purposes:

1. Maintain the integrity of the bankruptcy court's jurisdiction;

2. Control burdensome litigation that may impede the trustee's work as an officer of the court; and

3. Allow the bankruptcy court to monitor effectively the trustee's work.

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