In re Burbridge

585 B.R. 16

IN RE: Nancy Jean BURBRIDGE, Debtor.

Case No. 15–10839

United States Bankruptcy Court, N.D. New York.

Signed May 3, 2018

Kevin Laurilliard, Esq., McNamee, Lochner, Titus & Williams, PC, P.O. Box 459, 677 Broadway, Albany, NY 12201, Attorneys for Nancy Burbridge.

Kevin S. Brotspies, Esq., McElroy, Deutsch, Mulvaney & Carpenter, LLP, 88 Pine Street, 24^th Floor, New York, NY, Attorneys for Endurance American Insurance Company.

Francis J. Brennan, Esq., Nolan & Heller, LLP, 39 North Pearl Street, Albany, NY 12207, Attorneys for Laurie A. Todd.

Lisa M. Penpraze, Esq., William K. Harrington, Office of the United States Trustee, 74 Chapel Street, Suite 200, Albany, NY 12207, United States Trustee for Region 2.

Andrea E. Celli, Esq., Andrea E. Celli, Esq., 7 Southwoods Boulevard, Albany, NY 12211, Chapter 13 Standing Trustee.

MEMORANDUM–DECISION AND ORDER

Robert E. Littlefield, Jr., United States Bankruptcy JudgeCurrently before the Court is Endurance American Insurance Company's ("Endurance") Motion to Reconsider and/or Vacate the Dismissal Order, Convert to Chapter 7, and to hold the Debtor in Contempt (the "Motion"). The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 157(a), (b)(1), and (b)(2).

PROCEDURAL HISTORY AND FACTS

The Debtor filed a voluntary chapter 13 petition on April 21, 2015, and the Debtor's Schedule C claims an inherited Individual Retirement Account ("inherited IRA") in the approximate value of $800,000 as exempt pursuant to New York Civil Practice Law and Rules § 5205(c). After considerable litigation regarding the Debtor's exemption, including two attempts at mediation with Chief Bankruptcy Judge Margaret Cangilos–Ruiz, Endurance filed a motion seeking, among other relief, to preserve the Debtor's inherited IRA. (ECF No. 152.) The Court entered an Interim Order resolving the inherited IRA portion of that motion on February 2, 2018. (ECF No. 163.) The Interim Order permitted the Debtor only to receive her required minimum distribution ("RMD") from the inherited IRA and directed the Debtor to provide Endurance with specific documentation regarding the inherited IRA. Further, the Court expressly retained jurisdiction "regarding the interpretation, implementation and enforcement" of the Interim Order and "to hear and determine any matters or disputes arising from or related to this Order." On March 19, 2018, the Debtor filed a Notice of Voluntary Dismissal, which the Court ‘So Ordered’ the same day. (ECF Nos. 166, 167.)

Endurance filed this Motion on April 2, 2018, and, after learning new facts through the state court process, filed a declaration in further support of its Motion on April 12, 2018. Endurance's supplemental declaration includes Charles Schwab's response to an information subpoena that indicates the Debtor depleted the entirety of her inherited IRA nearly two years prior to dismissal of her case. Based on the additional submission, the Court advanced the scheduled hearing on the Motion and issued a Sua Sponte Order to Show Cause for Contempt. Over the course of evidentiary hearings held on April 16, 2018 and April 17, 2018, the Debtor confirmed that she transferred the entirety of her Charles Schwab inherited IRA to a Fidelity Investments inherited IRA on or about April 2016. (Trial Tr. 20:11–12, 27:3–4, April 16, 2018; Trial Tr. 28:11–17, April 17, 2018.) By that time, the Debtor indicated she had also depleted two Charles Schwab investment accounts worth approximately $200,000. (Trial Tr. 32:20–33:4, April 16, 2018; Trial Tr. 29:14–30:7, April 17, 2018.) All of the Debtor's actions relating to the three Charles Schwab accounts were taken without Court approval.

After the Debtor transferred the inherited IRA, she continued to withdraw funds from her Fidelity account for the remainder of her case. According to a Fidelity account statement for February 2018, the Debtor's inherited IRA had a balance of $630,659.18 on February 1, 2018, and she withdrew $6,000 that month.¹ (Debtor's Ex. 3.) The Debtor testified that she withdrew all of the remaining funds within the Fidelity account after her dismissal and transferred $300,000 to her son, Matthew, and $25,000 to her other son, David. (Trial Tr. 31:1–5, 62:4–8, April 17, 2018.) At the time of the second evidentiary hearing, she estimated that she still had between $200,000 and $210,000 in her possession—$170,000 in a bank account and $30,000 to $40,000 in cash. (Trial Tr. 14:7–11, 18:22–19:2, April 17, 2018.) The Court has not heard testimony or received evidence that accounts for the remaining funds withdrawn from the Fidelity inherited IRA. When asked about her intent, the Debtor testified that part of the reason why she withdrew the funds from her inherited IRA was to put the money beyond the reach of Endurance and her other creditors. (Trial Tr. 51:6–13, 52:12–17, April 17, 2018.) After completion of the two evidentiary hearings, the United States Trustee, Laurie Todd,² and the Chapter 13 Trustee all filed submissions in support of the Motion, and the Debtor filed opposition.

The Court directed the Debtor to produce account statements for her inherited IRA in advance of the adjourned hearing on April 26, 2018. Prior to the hearing, the Debtor produced yearly statements for 2015, 2016, and 2017, but the Debtor did not produce a monthly statement for March 2018. At the hearing on April 26, 2018, the Debtor submitted the March 2018 statement and it contradicts the Debtor's testimony that she closed her Fidelity inherited IRA after her case was dismissed. Instead, the statement establishes that the Debtor withdrew $17,000 on March 9, 2018, and withdrew $600,296.44 on March 15, 2018.³ Based on the March 2018 statement, the Debtor's violation of the Interim Order is far worse than anticipated after the evidentiary hearings.

STANDARD

Reconsideration pursuant to Federal Rule of Civil Procedure 59(e), made applicable to this proceeding pursuant to Federal Rule of Bankruptcy Procedure 9023, is warranted "when there has been a clear error or manifest injustice in an order of the court or if newly discovered evidence is unearthed." Bace v. Babitt (In re Bace) , 2012 WL 2567153, at *13, 2012 U.S. Dist. LEXIS 92441 at *35 (S.D.N.Y. May 10, 2012) (quoting Key Mech. Inc. v. BDC 56 LLC , 2002 WL 467664, at *3, 2002 U.S. Dist. LEXIS 5005 at *2–3 (S.D.N.Y. Mar. 26, 2002) ). The moving party "must show that the court overlooked factual matters or controlling precedent that might have materially influenced its earlier decision." Bace , 2012 WL 2567153, at *13, 2012 U.S. Dist. LEXIS 92441 at *35.⁴

ARGUMENTS

Endurance argues that the Court should reconsider and/or vacate the dismissal order as the Court was not aware that the Debtor dissipated more than $1,000,000 of estate assets during her case without Court approval, of which more than $600,000 was in direct violation of the Interim Order limiting the Debtor's access to her inherited IRA. Additionally, Endurance, with the support of the other parties, asserts that it should have had an opportunity to respond to the Debtor's request for voluntary dismissal because the Supreme Court's decision in Marrama v. Citizens Bank, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), abrogated Second Circuit precedent such that the right to voluntarily dismiss a case is no longer absolute. In response, the Debtor disputes Endurance's interpretation of Marrama and argues that Marrama did not affect the Debtor's absolute right to dismiss a chapter 13 case.

DISCUSSION

I. 11 U.S.C. § 1307(b)

Pursuant to 11 U.S.C. § 1307(b), "[o]n request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter." In 1999, when presented with two competing motions, a trustee's motion to convert and a debtor's motion to dismiss, the Second Circuit held in Barbieri v. RAJ Acquisition Corp. (In re Barbieri ), 199 F.3d 616 (2d Cir. 1999), that the Debtor's right to voluntarily dismiss a chapter 13 case under 11 U.S.C. § 1307(b) is absolute. Until Barbieri is overruled or abrogated, lower courts within this Circuit are bound by that decision. See Procel v. United States Trustee (In re Procel) , 467 B.R. 297, 305 (S.D.N.Y. 2012). Therefore, the threshold issue before the Court is not whether Barbieri 's holding is correct but rather, to what extent, if any, did Marrama overrule or abrogate Barbieri . If Barbieri has not been overruled or abrogated, the right to voluntarily dismiss remains absolute and the Court must deny the Motion.

II. Marrama v. Citizens Bank , 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007)

In Marrama , a chapter 7 debtor misrepresented the value of certain real estate and concealed that he transferred it during the year preceding his bankruptcy filing. Marrama, 549 U.S. at 368, 127 S.Ct. 1105. Once the Chapter 7 Trustee discovered the transfer and indicated his intention to recover the property as an avoidable transfer, the debtor attempted to convert to chapter 13 pursuant to 11 U.S.C. § 706(a). Id. at 368–69, 127 S.Ct. 1105. This provision states that "[t]he debtor may convert a case under this chapter ... to a case under chapter 13 of this title at any time ...." Notwithstanding the seemingly absolute language within that provision, as well as the legislative history referring to conversion under § 706(a) as an absolute right, the Supreme Court determined that a debtor's right to convert is not absolute. Id. at 371, 127 S.Ct. 1105.

To reach this conclusion, the Supreme Court considered the interplay between §§ 706(a), 706(d), and 1307(c). See id. at 371–73, 127 S.Ct. 1105. First, the Court noted that a chapter 7 debtor's right to convert in § 706(a) is expressly limited by § 706(d), which prohibits conversion to "another chapter of this title unless the debtor may be a debtor under such chapter." Id. at 371–72, 127 S.Ct. 1105. Second, based on this limitation, the Court looked to § 1307(c),...