In re Fulayter

615 B.R. 808

IN RE: Louis F. FULAYTER, Jr., a/k/a Louie F. Fulayter, Debtor.

Case No. 19-53196

United States Bankruptcy Court, E.D. Michigan, Southern Division, (Detroit).

Signed on April 22, 2020

Stuart A. Gold, Gold, Lange & Majoros PC, Jason Patrick Smalarz, Southfield, MI, for Holly Fulayter.

Aaron J. Scheinfield, Goldstein Bershad & Fried PC, Southfield, MI, Charles J. Schneider, Livonia, MI, for Louis F. Fulayter, Jr.

OPINION GRANTING DEBTOR'S MOTION TO DISMISS CHAPTER 13 CASE AND DENYING CREDITOR'S MOTION TO CONVERT CHAPTER 13 CASE

Phillip J. Shefferly, United States Bankruptcy Judge

Introduction

Before the debtor filed this Chapter 13 case, the debtor and his former spouse were involved in a long and acrimonious divorce proceeding that eventually resulted in a judgment. The judgment did not bring them closure. They continued to fight in multiple courts, about multiple issues.

The debtor, apparently thinking that he might have good luck in continuing the fight in a bankruptcy court, filed this Chapter 13 case. Predictably, the Chapter 13 case brought the debtor a new set of problems with his former spouse, his other creditors, and the trustee.

With his Chapter 13 case mired in disputes, and in the midst of a falling out with his lawyer, the debtor no longer saw the bankruptcy court as a good place to be and moved to dismiss his case. Ordinarily that would be no problem in a Chapter 13 case. But the tables had turned. The debtor's former spouse, apparently now thinking that the bankruptcy court gives her a friendly forum to continue the fight, filed a motion to convert the debtor's case to Chapter 7 because of bad faith conduct by the debtor. The debtor says he has an absolute right to dismiss. His former spouse says he forfeited that right by his conduct, and the case should be converted. For the reasons set forth in this opinion, the Court will grant the debtor's motion to dismiss and deny the former spouse's motion to convert this Chapter 13 case.

Jurisdiction

This is a core proceeding under 28 U.S.C. § 157(b)(A) over which the Court has jurisdiction under 28 U.S.C. § 1334(a).

Facts

There are many disputed facts in this case. The following facts are not in dispute, and are all taken from the voluminous papers in the Court file.

Louis Fulayter, Jr. ("Louie") and Holly Fulayter ("Holly") married in 1994. Before they were married, Louie had started a business known as Louie's Tree Service. After they were married, they both worked in the business, which grew, became successful, and provided them with a very good living. They accumulated substantial real and personal property assets over the years.

On October 28, 2015, Holly filed for divorce ("Divorce Case") in the Oakland County Circuit Court for the State of Michigan ("Michigan Court"). Louie and Holly agreed to the appointment of an arbitrator. The arbitration was vigorously litigated, to say the least, encompassing six days of hearings, with multiple lay and expert witnesses, and volumes of documents. On September 5, 2018, the arbitrator issued a lengthy and detailed Final Opinion and Award ("Arbitration Opinion") that comprehensively addressed the parties' assets, debts, support, lawsuits, business, discovery disputes and allegations of misconduct against each other.

On October 16, 2018, the State Court entered, by consent of Holly and Louie, a Judgment of Divorce ("JOD"). The JOD expressly recognizes the appointment of the arbitrator and states that the JOD is made "in accordance with" the Arbitration Opinion.

While Holly and Louie were litigating the Divorce Case, on August 15, 2016, their three grown children, Andrew, Louie III, and Lindsay ("Children"), filed a lawsuit of their own ("Illinois Case") against Holly and Louie in Pike County Circuit Court for the State of Illinois ("Illinois Court"). The Children alleged that their parents owned multiple parcels of farmland property in Pike County, Illinois ("Pike Farm"), and that they had worked for many years on the Pike Farm without compensation based on their parents' promise to someday transfer the Pike Farm to them. The Children alleged that their parents broke that promise and requested that the Illinois Court order Holly and Louie to transfer the Pike Farm to them.

A few months after the State Court entered the JOD in the Divorce Case, Holly and Louie settled the Illinois Case with the Children. On January 4, 2019 the Illinois Court entered an "Agreed Order" — signed by Holly, Louie, and the Children — that provided for Holly and Louie to establish an irrevocable trust, with the Children as the sole beneficiaries, and to transfer the Pike Farm into the trust by quit claim deed. On May 31, 2019, Holly, Louie, and the Children all signed a document titled "Trust Agreement Louis and Holly Fulayter Irrevocable Trust" ("Trust"). The same day, the Illinois Court entered an order that directed the parties to the Illinois Case "to comply with the Trust." Despite this order, no quit claim deed for the Pike Farm was ever executed and delivered to the Trust.

Although Holly and Louie settled the Illinois Case with the Children, they continued to fight with each other over the enforcement of the JOD.

One of the provisions of the property settlement in the JOD awarded Louie the marital home at 4910 Carroll Lake Road, Commerce Township, Michigan ("Marital Home"). Holly was granted a lien on the Marital Home to secure a $285,000.00 payment to her. The JOD provided that if Louie did not make the payment within 60 days, the State Court would order the sale of the Marital Home. When the Debtor failed to make the payment, the State Court appointed a receiver to sell the Marital Home. On August 26, 2019, the receiver sold the Marital Home for $475,000.00. After paying some of the expenses of sale, the receiver placed the balance of the sale proceeds in a separate account and filed a motion in the State Court on September 4, 2019 for approval of his final report and for authority to disburse the remaining proceeds.

On September 16, 2019, before the State Court ruled on the receiver's motion, Louie filed this Chapter 13 case.

From the outset, the bankruptcy case was contentious. The receiver appointed in the Divorce Case moved for authority to disburse the proceeds of the sale of the Marital Home and for an award of administrative expenses. Farmers State Bank ("Bank"), holding a mortgage on the Pike Farm, moved to lift the automatic stay to permit it to foreclose on its mortgage. Holly requested an order under Fed. R. Bankr. P. 2004 requiring Louie to produce a long list of documents about his financial affairs dating back to January 1, 2017, and sit for an examination about them. The Chapter 13 Trustee ("Trustee"), Holly, the Bank, and the Internal Revenue Service ("IRS") all objected to Louie's plan. In addition, the Trustee filed an application seeking to employ a law firm to avoid alleged fraudulent transfers, including the purported transfer of the Pike Farm to the Trust.

While all this was going on, Goldstein, Bershad & Fried, P.C. ("GBF"), the law firm representing Louie, filed a motion to withdraw. On February 4, 2020, the Court heard the motion. It was clear that Louie and GBF had a serious falling out and that there were ample grounds to grant the motion to withdraw.

Although not opposing the motion to withdraw, Holly informed the Court at the hearing that, just a few days earlier, on January 31, 2020, she had filed a motion to convert this case to Chapter 7 ("Motion to Convert") (ECF No. 108). Holly alleged in the Motion to Convert that Louie was not eligible to be a debtor in Chapter 13 because his debts exceed the statutory limits, that he had failed to make payments to her for support under the JOD, and that he had acted in bad faith by making fraudulent transfers of property, including the transfer of the Pike Farm to the Trust. Louie, who appeared pro se at the hearing, informed the Court that he had written, and brought with him for filing, a response (ECF No. 110) to GBF's motion to withdraw. The response did not oppose GBF's withdrawal, but requested that this Chapter 13 case be dismissed.

At the conclusion of the hearing, the Court granted GBF's motion to withdraw. The Court next stated that it would construe Louie's written response to GBF's motion as a motion for dismissal ("Motion to Dismiss"), even though it was not styled as a motion, because Louie had filed it pro se, and in it specifically requested that his case be dismissed under § 1307(b) of the Bankruptcy Code. No party objected. The Court then set a deadline for all parties at the hearing to respond to both motions and set them for hearing on April 2, 2020.

Holly and the Trustee filed responses and appeared and argued at the hearing. They want the case converted. Louie, now represented by a new law firm, filed a response and argued at the hearing against conversion. He wants the case dismissed. Although no longer representing Louie, GBF — asserting an administrative expense claim for attorney fees — filed a response and argued at the hearing in support of Louie against conversion and in favor of dismissal. Two other creditors filed responses, one supporting conversion, Logan Agri-Credit AG, and one supporting dismissal, Vanessa Hoffman, but neither appeared at the hearing. Two other creditors, the Bank and the IRS, did not file responses but did appear at the hearing. Neither of them took a position on whether the case should be dismissed or converted.

At the end of the hearing, the Court took the two motions under advisement.

Discussion

Chapter 13

Before turning to the specific statutory provisions governing the two motions before the Court, a little context regarding Chapter 13 is useful. The Bankruptcy Code permits individuals and entities to seek various forms of relief from their creditors under different chapters, each of which has its own features and requirements. Section 301(a) of the Bankruptcy Code provides that a bankruptcy case may...