In re Wolf

556 B.R. 676

In re: Alan Wolf, Debtor.

Bky. No. 15-10768 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed September 15, 2016

Erik B. Jensen, Erik B. Jensen, Esquire, Philadelphia, PA, for Debtor.

OPINION

ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

Alan Wolf (“the Debtor”) commenced this chapter 13 bankruptcy case on February 2, 2015. His third amended chapter 13 plan (“the Plan”) was confirmed on March 8, 2016. The Plan provided for a 100% distribution on all allowed claims. The Plan was funded by a number of monthly payments to the Trustee, followed by the sale of the Debtor's residential real estate.

The Debtor has performed all of his obligations under the confirmed plan. He sold his real estate and made the required payments to the chapter 13 trustee. As a result, there are sufficient funds available to pay in full all of the proofs of claim that have been filed—assuming that they are allowed. This includes the $85,186.89 proof of claim filed by Edward Jordan (“Jordan”).

Before me is the Debtor's objection to Jordan's proof of claim (“the Objection”). For the reasons explained below, I will sustain the Objection and disallow Jordan's claim.

II. PROCEDURAL HISTORY

On May 15, 2015, Jordan filed a proof of claim, Claim No. 4, asserting a general unsecured claim in the amount of $85,186.89. The Debtor filed the Objection on July 9, 2015. (Doc. # 36). Jordan filed an Answer to the Objection on July 23, 2015. (Doc. # 39).¹ On August 20, 2015, the court entered a pretrial order that, inter alia, set deadlines for completion of discovery and the filing of dispositive motions. (Doc. # 47).

On December 21, 2015, Jordan filed a motion for summary judgment. See Fed. R. Bankr. 9014 (Rule 7056 applies in contested matters). The Debtor filed a response to the motion on January 27, 2016. I denied the motion on March 7, 2016.

On April 4, 2016, the court held a hearing on the Objection. The parties filed post-trial briefs, the last of which was filed on May 31, 2016.

III. LEGAL STANDARDS: OBJECTIONS TO PROOFS OF CLAIM

The legal standard governing objections to proofs of claim are well established. Earlier this year I summarized them as follows:

In analyzing the parties' respective burdens in connection with the adjudication of an objection to a proof of claim, bankruptcy courts must consider three (3) sources of law: the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and, of course, applicable case law. ...

Section 502(a) of the Code provides that a proof of claim “is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. § 502(a). In the face of an objection to a proof of claim ... if the proof of claim alleges facts sufficient to support the legal liability asserted, the claimant's initial obligation to go forward is satisfied, i.e., the proof of claim itself makes out a prima facie case. The burden of production then shifts to the objector to offer evidence sufficient to negate the prima facie validity of the filed claim.

Fed. R. Bankr. P. 3001(f) also addresses the evidentiary burdens in claims objection litigation. Rule 3001(f) provides: A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim. If a claimant complies with the rules of court, the proof of claim achieves prima facie evidentiary status through Rule 3001(f). In effect, a proof of claim that complies with the rules of court serves as both a pleading and as trial evidence, even in the face of an objection to the claim. It follows that if the claimant's proof of claim satisfies Rule 3001(f), the burden of going forward with evidence contesting the validity or amount of the claim shifts to the objector. To meet this burden, the objector's evidence if believed, [must] refute at least one of the allegations that is essential to the claim's legal sufficiency.

In a claims objection contested matter in which a proof of claim is prima facie valid and the objector meets its burden of production, the ultimate burden of proof remains with the claimant. Thus, once the objector has presented evidence, the claimant may then need to offer additional evidence to carry its burden of persuasion.

In re Henry, 546 B.R. 633, 634–35 (Bankr.E.D.Pa.2016) (quotations and citations omitted) (italics in original).

In this matter, the Debtor indisputably met his burden of production with evidence disputing the validity of Jordan's claim. Therefore, the shifting burdens culminate simply as follows: Jordan bears the burden of proof as to the validity of his claim.

IV. FINDINGS OF FACT

The Debtor and Jordan testified at trial. In addition, they offered into evidence a Stipulation of undisputed facts and a number of exhibits.

Set forth below are my findings of fact. To the extent the witnesses offered conflicting testimony on issues relevant to the disposition of this matter, my findings reflect a resolution of those conflicts based on my assessment of the witnesses' demeanor, motivations, credibility and related factors.

The Debtor's Business Entity: Modern Classics, Inc.

1. Modern Classics, Inc. (“Modern Classics”) was a licensed dealership of collector cars that was incorporated in 1975 and operated at 4920 North 20^thStreet, Philadelphia, PA. (N.T. 5-6).

2. The Debtor was the principal shareholder with a 90% ownership of Modern Classics. (Id. at 7).²

3. The Debtor controlled Modern Classics, handling most (if not all) of its transactions. (Id.).

The Initial Transaction: The “Eldorado”

4. In early 1999, the Debtor advertised the sale of a 1953 Cadillac Eldorado Danbury mint automobile (“the Eldorado”). (Ex. A, ¶1; N.T. 7-8).

5. Jordan contacted the Debtor in response to the advertisement. (N.T. 8).

6. On Modern Classics stationery, the Debtor provided Jordan with certain additional information about the Eldorado, including the proposed payment price ($59,000.00) and instructions to make out a check “payable to Alan D. Wolf,” if Jordan wished to purchase the vehicle. (Ex. C).

7. On February 7, 1999, Modern Classics entered into a contract (“the Contract”) with Jordan, in the form of a bill of sale for a sales price of $59,000.00 (Ex. A, ¶4; Ex. D).³

8. The Contract has the words “Modern Classics” under the heading “Invoice” and includes the Debtor's signature over the words “Alan D. Wolf/Seller.” (Ex. D; N.T. 28).

9. The Contract stated a sales price of $59,000.00 and provided for Debtor to make certain improvements to the car. (Ex. A ¶¶3, 4; Ex. D).

10. Jordan accepted the Contract and sent the Debtor a check dated February 12, 1999, in the amount of $59,000.00, payable to the Debtor as an individual. (Ex. A, ¶ 6; N.T. 27).

11. The Debtor endorsed the check and deposited it into his personal bank account at Sovereign Bank. (Ex. A ¶¶7, 8; Ex. F; Ex. O at 24-25; N.T. 29-30).

12. The Debtor carried out and completed the promised improvements on the Eldorado. (N.T. 10, 13).

13. The Debtor never transferred title nor delivered the Eldorado to Jordan. (N.T. 13).⁴

14. Around August, 2000, the Debtor sold the Eldorado to someone else for $48,000.00 (N.T. 14, 39).

The Replacement Car: The “Speedster”

15. After selling the Eldorado, the Debtor initially offered to refund Jordan's payment. (Ex. G).

16. Subsequently, however, in early 2001, the Debtor offered Jordan a replacement car in lieu of a refund. (Ex. A ¶10; N.T. 70; Ex. H).

17. The Debtor offered to sell Jordan a 1953 custom-body Cadillac (“the Speedster”). To match the Eldorado, the Speedster required some work, such as chrome removal, painting and reupholstering with leather seats. (Ex. A ¶10; N.T. 16-17).

18. Jordan accepted the Debtor's offer of the Speedster as a replacement car. (N.T. 78).

19. The additional work on the Speedster took much longer than expected—at least 10 years, if it was completed at all. (N.T. 19).

The Repayment Agreement in 2010

20. On July 29, 2010, Jordan's trust attorney, Scott Williams (“Williams”), sent the Debtor a letter demanding repayment of $60,000.00 and threatening legal action if the Debtor failed to repay within 10 days of receipt. (Ex. D-1; N.T. 85).⁵

21. On August 5, 2010, the Debtor faxed Williams a proposal to repay the $60,000.00 through five (5) monthly installments of $12,000.00 starting September 6, 2010, and continuing through February 15, 2011 (“the Repayment Agreement”). (Ex. A ¶12; Ex. J; N.T. 22, 34).

22. The Debtor signed the Repayment Agreement as “Alan D. Wolf” above the words “Modern Classics.” (Ex. J).

23. The Debtor did not pay the first scheduled payment on September 6, 2010 (Ex. J; N.T. 35).

24. On September 22, 2010, the Debtor sent Williams a $3,000.00 check (from his personal account), postdated dated September 27, 2010 and payable to Jordan. (Exs. K & L; N.T. 35-36).

25. Jordan received and cashed this check. (N.T. 72).

26. The Debtor discussed with Jordan's counsel the possibility of selling personal assets in order to make the payments under the Repayment Agreement. (Ex. N at 17; N.T. 34).

27. After September 22, 2010, the Debtor made no further payments to Jordan. (See Ex.A, ¶ 19; N.T. 79).

28. The Debtor never delivered any automobile to Jordan. (Ex. A, ¶17).

Jordan's Lawsuit in 2012 Against Modern Classics

29. On April 25, 2012, Jordan filed a complaint (“the 1st CP Complaint”) against Modern Classics in the Court of Common Pleas of Philadelphia County (“the CP Court”), docketed at No. 12-0402956.⁶

30. On February 19, 2013, Jordan obtained a judgment by default against Modern Classics in the amount of $69,280.00.

31. The CP Court granted Modern Classics' petition to open judgment on April 19, 2013.

Modern Classics' Chapter 7 Bankruptcy in 2013

32. Modern Classics ceased its business operations in February 2013. (Ex. O, at 7).

33. On September 9, 2013, Modern Classics filed a chapter 7 bankruptcy case in this court at Bky. No. 13-18021, which stayed Jordan's state court action against Modern Classics.

34. The bankruptcy case was administered as a no-asset case and closed on

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