In re Ibbott

637 B.R. 567

IN RE: Denis Stanton IBBOTT, Debtor.

Case Number: 21-15920-MCR

United States Bankruptcy Court, D. Maryland, at Greenbelt.

Signed March 8, 2022

Richard B. Rosenblatt, The Law Offices of Richard B. Rosenblatt, Rockville, MD, for Debtor.

Benjamin J. Beatty, Brian Andrew Tucci, Office of Rebecca A. Herr, Annapolis, MD, for Trustee.

AMENDED MEMORANDUM OPINION IN CONNECTION WITH ORDER DETERMINING DEBTOR IS INELIGIBLE FOR RELIEF UNDER CHAPTER 13 AND GRANTING MOTIONS TO CONVERT OR DISMISS SUBJECT TO FURTHER PROCEEDINGS ¹

MARIA ELLENA CHAVEZ-RUARK, U.S. BANKRUPTCY JUDGE

Before the Court are two motions to convert or dismiss this Chapter 13 case filed by Denis Stanton Ibbott (the "Debtor"). The movants are the Chapter 13 trustee, Rebecca A. Herr (the "Trustee"), and the Debtor's largest creditor, Cantwell-Cleary Co., Inc. ("Cantwell-Cleary"). They argue that cause exists to convert the case to a Chapter 7 proceeding or to dismiss the case because the Debtor is ineligible to seek relief under Chapter 13. Based on the undisputed facts and applicable law on the legal issues presented, the Court concludes that the Debtor is not eligible to be a Chapter 13 debtor and grants the motions subject to further proceedings to enable the Court to determine whether conversion or dismissal is in the best interests of creditors and the estate.²

At the heart of this dispute are two state court money judgments awarded to Cantwell-Cleary and against the Debtor before the Debtor commenced his bankruptcy case but entered on the state court's docket after the Debtor commenced the bankruptcy case. The Trustee and Cantwell-Cleary argue that the judgments cause the Debtor's total unsecured debt to exceed the statutory debt ceiling for a Chapter 13 debtor imposed by the Bankruptcy Code.³ The Debtor argues that the judgments are not final, nonappealable judgments and therefore are contingent and unliquidated debts that must be excluded from any eligibility analysis.

For the reasons set forth below, the Court finds that cause exists to convert or dismiss this case because the debt arising from the judgments is noncontingent and liquidated debt that renders the Debtor ineligible for relief under Chapter 13. Therefore, the Court will grant the motions subject to further proceedings to enable the Court to determine whether conversion or dismissal of the case is in the best interests of creditors and the estate.

I. THE STATE COURT LITIGATION

The Debtor, Cantwell-Cleary and the Trustee stipulated to the following facts.

On September 19, 2018, Cantwell-Cleary sued the Debtor, Timothy Ingram and Kevin Barstow in the Circuit Court for Anne Arundel County (the "State Court") for breach of contract, violations of the Maryland Uniform Trade Secrets Act, breach of the duty of loyalty and civil conspiracy in the case styled Cantwell-Cleary Co., Inc. v. Denis Ibbott, et al. , Case No. C-02-CV-18-002875 (the "State Court Action").⁴ See tr. of Sept. 2, 2021 hearing in State Court Action attached to Claim No. 1-1 (cited herein as "Tr.") at 3:14-4:9;⁵ Trustee's Mot. to Convert to Chapter 7 or, in the Alternative, to Dismiss with Prejudice, and Notice and Opportunity to Respond [Dkt. No. 34] at ¶ 5; Cantwell-Cleary's Mot. to Convert Chapter 13 Case to Chapter 7 or, in the Alternative, to Dismiss Case [Dkt. No. 35] at ¶ 4.

On September 2, 2021, after a multi-day bench trial, the State Court issued a bench ruling that:

1. Found the Debtor, Mr. Ingram and Mr. Barstow liable to Cantwell-Cleary for breach of contract, violation of the Maryland Uniform Trade Secrets Act and breach of the duty of loyalty. Tr. at 90:6-90:16.

2. Found the Debtor and Mr. Ingram liable to Cantwell-Cleary for civil conspiracy. Tr. at 90:6-90:16.

3. Awarded a judgment in the amount of $273,004.72 against the Debtor, jointly and severally with Mr. Ingram, and granted a permanent injunction precluding certain conduct by the Debtor. Tr. at 125:12-125:21.

4. Awarded a judgment in the amount of $867,335.44 against Mr. Ingram, jointly and severally with the Debtor, and granted a permanent injunction precluding certain conduct by Mr. Ingram. Tr. at 125:12-125:21.

5. Awarded a judgment in the amount of $780,757.32 against Mr. Barstow and granted a permanent injunction precluding certain conduct by Mr. Barstow. Tr. at 125:12-125:21.

6. Reserved on the issue of an award of attorneys’ fees and costs to Cantwell-Cleary. Tr. at 125:4-125:7.

The State Court stated in its ruling that the judgments against the Debtor, Mr. Ingram and Mr. Barstow would not be final for purposes of appeal until the State Court ruled on the request for attorneys’ fees and costs and that the permanent injunctions would go into effect the day the State Court signed them. Tr. at 127:9-127:17. At the end of its ruling, the State Court asked counsel for Cantwell-Cleary to draft the judgment and injunctions and present them to the State Court for entry.

Tr. at 126:13-126:19 and 127:9-127:22. Notably, the State Court also asked counsel for the Debtor, Mr. Ingram and Mr. Barstow to approve the form of the judgment and injunctions being submitted to the State Court. Tr. at 126:13-126:19 and 127:9-127:22. On September 10, 2021, Cantwell-Cleary filed a petition for an award of attorneys’ fees in the amount of $336,401.65 in the State Court Action. See pet. for fees attached to Claim No. 1-1.

On September 22, 2021, the State Court signed a judgment and three permanent injunctions, one against each defendant, consistent with its oral ruling. Ex. List in Connection with Mot. to Convert to Chapter 7 or, in the Alternative, Dismiss Case [Dkt. No. 58] at Ex. 4 (exhibits are cited herein as "Ex. ____"). Two days later, the State Court entered the judgment and permanent injunctions on the docket of the State Court Action. Ex. 4.

II. THE BANKRUPTCY CASE AND SUBSEQUENT STATE COURT PROCEEDINGS

On September 17, 2021 (the "Petition Date") – after the State Court gave its oral ruling and before the State Court signed the judgment and entered it on the docket in the State Court Action – the Debtor commenced the above-captioned case by filing a voluntary petition for relief under Chapter 13 of the Bankruptcy Code.

On September 21, 2021, Cantwell Cleary filed a Motion for Relief From Automatic Stay to Conclude State Court Litigation [Dkt. No. 8] (the "Lift Stay Motion"). The Lift Stay Motion requested that the automatic stay be modified to allow the State Court to conclude the State Court Action by "(i) entering judgments on the monetary and injunctive relief claims against the Debtor and (ii) adjudicating the pending Motion for Attorney's Fees against the Debtor[.]" Lift Stay Mot. at p. 11.

On October 15, 2021, the Debtor filed his original Schedules and Statement of Financial Affairs [Dkt. No. 23] (collectively, the "Schedules"). Relevant to the issue before the Court is the Debtor's Schedule E/F, which lists two claims by Cantwell-Cleary – one in the amount of $273,004.72 (i.e. , the judgment against the Debtor for which Mr. Ingram is jointly and severally liable) and one in the amount of $336,401.65 (i.e. , the attorneys’ fees requested by Cantwell-Cleary). The Debtor indicates on Schedule E/F that both claims are contingent, unliquidated and disputed. The Debtor's Schedules do not list the $867,335.44 judgment against Mr. Ingram for which the Debtor is jointly and severally liable.

On October 21, 2021, the Debtor filed an Opposition to Motion for Relief From Automatic Stay [Dkt. No. 25], and the next day, the Debtor filed an Amended Opposition to Motion for Relief From Automatic Stay [Dkt. No. 26] (the "Amended Opposition"). The Court held a hearing to consider the Lift Stay Motion and the Amended Opposition on November 4, 2021, at which the parties informed the Court that they had reached an agreement and would submit to the Court a consent order modifying the automatic stay subject to certain terms and conditions.

On November 15, 2021, the Court entered an Order Modifying the Automatic Stay to Permit Conclusion of State Court Litigation [Dkt. No. 30] (the "Lift Stay Order").⁶ The Lift Stay Order modifies the automatic stay imposed by Section 362(a) of the Bankruptcy Code to the extent necessary to permit conclusion of, and resolution by, the Maryland courts of appeal of any appeal related to the State Court Action but requires that Cantwell-Cleary first obtain orders from the State Court that vacate the judgment, injunction and notice of recordation of the money judgment as they relate to the Debtor. In addition, the Lift Stay Order allows the State Court to enter a new judgment and permanent injunction against the Debtor in the same form and substance as the judgment and permanent injunction dated September 22, 2021 and entered on September 24, 2021. Finally, the Lift Stay Order modifies the automatic stay to the extent necessary to permit the State Court, and any Maryland courts of appeal of any appeal related thereto, to resolve Cantwell-Cleary's motion for an award of attorneys’ fees and reduce any such award to final judgment.

On November 22, 2021, Cantwell-Cleary filed its proof of claim [Claim No. 1-1] (the "Proof of Claim"). The Proof of Claim asserts a general unsecured claim against the Debtor in the amount of $1,476,741.81, which includes: (i) the $273,004.72 judgment against the Debtor; (ii) the $867,335.44 judgment against Mr. Ingram for which the Debtor is jointly and severally liable; and (iii) attorneys’ fees in the amount of $336,401.65.

On December 8, 2021, the Trustee filed her Motion to Convert to Chapter 7 or, in the Alternative, Dismiss with Prejudice, and Notice and Opportunity to Respond [Dkt. No. 34] (the "Trustee's Motion"). On the same day, Cantwell-Cleary filed its Motion to Convert Chapter 13 Case to Chapter 7 or, in the Alternative, Dismiss Case [Dkt. No. 35] ("Cantwell-Cleary's Motion"; together with Trustee's Motion, the "Motions"). The Motions request that the Court convert the Debtor's bankruptcy case to a case under ...