In re Painter

595 B.R. 226

IN RE: Donald Jeffrey PAINTER, Debtor.

Case No. 17-33009

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed December 5, 2018

Nima Taherian, Houston, TX, for Debtor.

Allison D. Byman, Hughes Watters Askanase LLP, Houston, TX, for Trustee.

MEMORANDUM OPINION ON CHARLES RIVER ASSOCIATES' OBJECTION TO THE DEBTOR'S CLAIM OF EXEMPTIONS

[This Relates to Doc. Nos. 55, 58, 97, 99, 104, 105]

Jeff Bohm, United States Bankruptcy Judge

I. INTRODUCTION

On January 16, 2018, Charles River Associates ("CRA") filed an objection (the "Objection") to certain IRA accounts that Donald Jeffrey Painter (the "Debtor") claims as exempt.¹ [Doc. No. 55]. On February 5, 2018, the Debtor filed a response to the Objection (the "Response"). [Doc. No. 58]. On February 28, 2018, this Court held a hearing (the "Hearing") on the Objection and the Response. The only person to testify at the Hearing was the Debtor. The Court admitted exhibits 1, 7, 11, and 12 submitted by CRA and exhibits 1-10 submitted by the Debtor. After listening to the testimony, reviewing exhibits, and hearing closing arguments, the Court directed CRA and the Debtor to submit proposed findings of fact and conclusions of law. The Court also continued the Hearing to June 19, 2018. At the continued Hearing on June 19, 2018, the Court heard additional argument from the parties. At the conclusion of the Hearing, the Court requested additional briefing and continued the Hearing to August 10, 2018. At the August 10, 2018, Hearing the Court heard additional argument from counsel for CRA and counsel for the Debtor. At the conclusion of the Hearing on August 10, 2018, the Court took the matter under advisement.

Pursuant to Federal Bankruptcy Rules 7052 and 9014,² the Court now issues these Findings of Fact and Conclusions of Law explaining its decision to overrule the Objection. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such; and to the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as it deems appropriate.

II. FINDINGS OF FACT

1. The Debtor was employed by CRA from approximately July 22, 2015, to May 15, 2016.

2. Upon the termination of the Debtor's employment with CRA, CRA made a demand that the Debtor return a sum

certain of money that CRA had previously given to the Debtor as a "forgivable loan."³

3. Subsequently, in August of 2016, CRA filed a civil lawsuit in Massachusetts state court to recover the funds related to the "forgivable loan" that the Debtor refused to return. This lawsuit was styled as CRA International, Inc. v. Donald J. Painter, Civil Action No. 16-2417 BLS 2 (the "State Court Action"). On September 26, 2016, the court in the State Court Action entered a "Stipulated Order Regarding Defendant's JP Morgan Chase & Co. Account" (the "Stipulated Order"). [CRA Ex. 1]. The Stipulated Order provides, in part, the following:

Pursuant to Superior Court Rule 9A, Plaintiff CRA International, Inc. ("CRA") served a Motion for Attachment by Trustee Process of Defendant Donald J. Painter's ("[the Debtor]") bank accounts with JP Morgan Chase & Co. (the "Chase Account(s)") in an amount up to $933,550.68. Painter served an Opposition pursuant to Rule 9A. The parties have resolved the issues raised in the Motion for Attachment, and are filing this Stipulated Order instead of the motion papers.

CRA hereby moves, and [the Debtor] hereby stipulates and consents, that the Court enter the following order concerning the Chase Account(s):

1. [The Debtor] represents to CRA and the Court that he currently has more than $1 million in the Chase Account(s).

2. Absent further order of this Court or by written agreement signed by the parties or their counsel, [the Debtor] is prohibited from withdrawing funds from the Chase Account(s) that would bring the collective balance of the Chase Account(s) below $750,000 or from otherwise allowing the collective balance of the Chase Account(s) to drop below $750,000.

[CRA Ex. 1]. The Stipulated Order was signed by counsel for both CRA and the Debtor, as well as by the judge in the State Court Action.

4. At the time of entering into the Stipulated Order, the Debtor held six accounts at Chase: (1) a checking account; (2) a savings account; (3) a brokerage account; (4) a business account; (5) a second business account; and (6) an IRA (the "Chase IRA") (all six of these accounts will hereinafter be collectively referred to as the "Chase Accounts"). The Chase IRA is a "managed" account. The Debtor testified that the term "Chase Account(s)," as it is defined in the Stipulated Order, included all of the Debtor's accounts at Chase, including the Chase IRA.

5. At the time of entering into the Stipulated Order, the collective amount in the Chase Accounts was approximately $1,534,000.00. Of this amount, approximately $634,000.00 was in the Chase IRA and the remainder of $900,000.00 was spread amongst the other accounts. Accordingly, at the time the Stipulated Order became effective, the Debtor had sufficient non-retirement account holdings to satisfy his obligation to maintain the minimum $750,000.00 balance in the Chase Accounts.

6. At some point after entering into the Stipulated Order and prior to the Petition Date, the Debtor transferred significant amounts from his Chase checking, savings, and brokerage accounts into accounts with Fidelity.

7. On or around April 11, 2017, judgment was entered against the Debtor in the amount of $1,007,104.44 in the State Court Action (the "Judgment"). [Claims Register, Claim No. 4-2].

8. On May 15, 2017, (the "Petition Date") the Debtor filed for bankruptcy under Chapter 7. In his Schedule C, the Debtor claimed the Chase IRA as exempt. [Doc. No. 13].

9. As of the Petition Date, there was approximately $760,300.00 in the Chase Accounts; of the $760,300.00, approximately $70,000.00 was comprised of non-IRA funds, thus making approximately $690,300.00 the total amount in the Chase IRA as of the Petition Date. Therefore, as of the Petition Date, in order to satisfy the requirement in the Stipulated Order that there be at least $750,000.00 in the Chase Accounts, the funds in the Chase IRA needed to be included to meet that requirement.

10. On September 12, 2017, CRA filed a claim in the amount of $1,007,104.44, related to the Judgment. [Claims Register, Claim No. 4-1]. CRA represented that this claim was a secured claim. [Id. ]. On May 23, 2018, CRA filed an amended claim in the amount of $1,007,104.44 (again related to the Judgment); however, this time CRA represented that the claim was unsecured. [Claims Register, Claim No. 4-2].

11. Only the Debtor testified at the Hearing. There was no testimony from any representative of CRA.

III. CONCLUSIONS OF LAW

A. Jurisdiction, Venue, and Constitutional Authority to Enter a Final Order

1. Jurisdiction

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [of the Code], or arising in or related to cases under title 11." District courts may, in turn, refer these proceedings to the bankruptcy judges for that district. 28 U.S.C. § 157(a). In the Southern District of Texas, General Order 2012-6 (entitled General Order of Reference) automatically refers all eligible cases and proceedings to the bankruptcy courts. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (b)(2)(B), and (b)(2)(O). This matter is core pursuant to § 157(b)(2)(A) because its resolution concerns the administration of this Chapter 7 estate. Here, CRA has objected to the Debtor's claim of exemptions. These circumstances fit within the "matters concerning the administration of the estate" category of 28 U.S.C. § 157(b)(2)(A). This matter is also core pursuant to 28 U.S.C. § 157(b)(2)(B) because it concerns the Debtor's claim of exemptions from property of the estate. Last, this matter is core pursuant to 28 U.S.C. § 157(b)(2)(O) because it involves the adjustment of the debtor-creditor relationship.

2. Venue

Venue is proper pursuant to 28 U.S.C. § 1408(1) because the Debtor resided in the Southern District of Texas for the 180-day period immediately preceding the filing of the petition initiating the pending Chapter 7 case.

3. Constitutional Authority

In the wake of the Supreme Court's issuance of Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), this Court is required to determine whether it has the constitutional authority to enter a final order in any matter brought before it. In Stern, which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme Court held that a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Id. at 503, 131 S.Ct. 2594. As already noted above, the pending matter before this Court is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (b)(2)(B), and (b)(2)(O). Because Stern is replete with language emphasizing that the ruling is limited to the one specific type of core proceeding involved in that dispute, this Court concludes that the limitation imposed by Stern does not prohibit this Court from entering a final order here. A core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (b)(2)(B), or (b)(2)(O) is entirely different than a core proceeding under 28 U.S.C. § 157(b)(2)(C). See, e.g., Badami v. Sears (In re AFY, Inc.), 461 B.R. 541, 547-48 (B.A.P. 8th Cir. 2012) ("Unless and until the Supreme Court visits other provisions of Section 157(b)(2), we take the Supreme Court at its word and hold that the balance of the authority granted to bankruptcy judges by Congress in 28 U.S.C. § 157(b)(2) is constitutional."); Tanguy...