Johnson v. RFF Family P'ship, LP (In re Johnson), Case No. 14-57104

554 B.R. 448

In re: John Joseph Louis Johnson, III, Debtor.

John Joseph Louis Johnson, III, Plaintiff

v.RFF Family Partnership, LP, Defendant.

Case No. 14-57104

Adv. Pro. No. 16-2088

United States Bankruptcy Court, S.D. Ohio, Eastern Division, at Columbus .

Signed August 16, 2016

Daniel A. DeMarco, Cleveland, OH, Marc J. Kessler, Hahn Loeser & Parks LLP, Columbus, OH, for Plaintiff.

Jeffrey Mark Levinson, Cleveland, OH, for Defendant.

OPINION AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (ADV. DOC. 4)

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

This matter is before the Court on the motion for summary judgment (the “Motion”) (Adv. Doc. 4) filed by John Joseph Louis Johnson, III (the “Debtor”). By the Motion, the Debtor seeks a judgment as a matter of law against RFF Family Partnership, LP (“RFF”) on his complaint for declaratory relief. Specifically, the Debtor seeks a declaration that: (1) RFF does not have a valid security interest in, or assignment of, the Debtor's player contract or the salary payments under the contract; and (2) even if it did, RFF's interest with respect to the salary the Debtor earned postpetition was cut off by § 552 of the Bankruptcy Code when he filed his bankruptcy petition. For the reasons stated below, the Court grants the Motion.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this adversary proceeding under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(K). The Court also has the constitutional authority to enter a final judgment as to the validity of RFF's security interest under California law. See, e.g. , GMAC Mortg. v. Orcutt , 506 B.R. 52, 62 (D.Vt.2014) (“[Bankruptcy judges] may hear cases ... when the claim becomes ‘integral to the restructuring of the debtor-creditor relationship,’ as was the case here given GMAC's insistence upon secured creditor status under the Plan.” (internal quotation marks omitted) (quoting Ortiz v. Aurora Health Care, Inc. (In re Ortiz) , 665 F.3d 906, 914 (7th Cir.2011) )); Pulaski v. Dakota Fin., LLC (In re Pulaski) , 475 B.R. 681, 688 (Bankr.W.D.Wis.2012) (“There is arguably no determination more integral to the bankruptcy system than one which ascertains the status of claims asserted against the debtor or estate property.”). The Court's constitutional authority to enter a final judgment also extends to its declaration as to the effect of § 552 of the Bankruptcy Code. See In re Benanti , No. 15–71018, 2015 WL 6460010, at *2 (Bankr.C.D.Ill. Oct. 26, 2015) (holding that issue of whether creditor had a perfected security interest in postpetition rents pursuant to § 552(b)(2) “stem[s] from the bankruptcy itself and arise[s] specifically under the provisions of the [Bankruptcy] Code and therefore may be constitutionally decided by a bankruptcy judge”); cf. Rhiel v. Cent. Mortg. Co. (In re Kebe) , No. 10–2172, 2014 WL 8276561, at *1 (Bankr.S.D.Ohio Dec. 23, 2014) (holding that issue of whether Chapter 7 trustee could sell property of the estate free of the interests of the property's co-owner pursuant to § 363(h) “arises under the Bankruptcy Code and ‘stems from the bankruptcy itself [.]’ ” (quoting Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) )).

III. Background

The Court has detailed in two prior opinions some of the events that led to the Debtor's bankruptcy filing and his relationship with RFF. See In re Johnson , 546 B.R. 83 (Bankr.S.D.Ohio 2016) (“Johnson I ”); In re Johnson , 548 B.R. 770 (Bankr.S.D.Ohio 2016) (“Johnson II ”). In short, the Debtor plays hockey for the Columbus Blue Jackets¹ of the National Hockey League under a contract providing him with $30.5 million over seven years from January 2011 (the “Player Contract”) (Adv. Doc. 9).² Johnson I , 546 B.R. at 100. The Debtor took out several large loans with RFF in the fall of 2013, and in January 2014, he issued a final promissory note (the “Note”) (Ex. E) to RFF for the sum of $1,862,500. See Johnson II , 548 B.R. at 776. In conjunction with the Note, the Debtor executed three other documents that are relevant to this adversary proceeding: (1) a security and pledge agreement (the “Security Agreement”) (Ex. F); (2) an assignment of contracts (the “Assignment”) (Ex. H); and (3) a notarized letter directing the Blue Jackets to direct payments under the Player Contract to RFF (the “Letter Agreement”)³ (Ex. I) (collectively with the Note, the Security Agreement and the Assignment, the “Loan Documents”).⁴

Under the Security Agreement, the Debtor “pledges and grants to [RFF] a first priority security interest in and lien upon” substantially all of the Debtor's property then existing or to be acquired, including “the payment, proceeds, and rights under and related to the [Player Contract].” Sec. Agreement ¶ 2(a). Under the Assignment, the Debtor “[a]ssign[s], transfer[s] and set[s] over to [RFF] all of [his] right, title and interest in and to the payment, proceeds, and rights under and related to the [Player Contract] and such sums due thereunder as and when payable to [the Debtor].” Assignment ¶ 1(a). The Assignment includes representations by the Debtor that: (1) “No person or entity is required to consent to the assignment herein;” and (2) “[The Debtor] has not made any prior assignment of any right, title or interest in the [Player Contract] to any person or entity.” Assignment ¶ 3(d), (e).⁵ Finally, the Letter Agreement directs the Blue Jackets to make “all payments due and owing” under the Player Contract to RFF and purports to be irrevocable by the Debtor. Letter Agreement at 2–3. RFF sought to perfect its alleged security interest by filing Uniform Commercial Code financing statements in multiple jurisdictions (Ex. G).

The Debtor filed his voluntary petition for relief under Chapter 11 of the Bankruptcy Code on October 7, 2014 (the “Petition Date”). Since then, RFF has repeatedly asserted that the Note is secured by the Player Contract. See Johnson II , 548 B.R. at 779–80. In an effort to finally resolve the issue of RFF's secured status, the Debtor filed an adversary complaint (the “Complaint”) (Adv. Doc. 1) against RFF on May 11, 2016. The Complaint seeks a declaratory judgment that RFF does not hold a valid assignment of the Player Contract or the Debtor's wages and that, in any event, § 552(a) of the Bankruptcy Code “cuts off any alleged security interest claimed by RFF with respect to the Player[ ] Contract, or any wages, earnings, and/or proceeds thereof.” Compl. at 8. The Debtor filed the Motion, and RFF thereafter filed its answer to the Complaint (the “Answer”) (Adv. Doc. 6) and the Response to the Motion, to which the Debtor filed his reply (the “Reply”) (Adv. Doc. 8).

IV. Legal Analysis

A. Summary Judgment Standard

Under Rule 56 of the Federal Rules of Civil Procedure, made applicable in this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, a court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The party moving for summary judgment “always bears the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “If the movant satisfies this burden, the nonmoving party must then assert that a fact is genuinely disputed and must support the assertion by citing to particular parts of the record.” Stubbins v. BAC Home Loans Servicing, LP (In re Sunnafrank) , 456 B.R. 885, 888 (Bankr.S.D.Ohio 2011). A dispute is genuine only if it is “based on evidence upon which a reasonable [finder of fact] could return a [judgment] in favor of the non-moving party.” Gallagher v. C.H. Robinson Worldwide, Inc. , 567 F.3d 263, 270 (6th Cir.2009) ; see also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). And “[a] factual dispute concerns a ‘material’ fact only if its resolution might affect the outcome of the suit under the governing substantive law.” Gallagher , 567 F.3d at 270.

B. California Labor Code Section 300

“Assignments of personal earnings are not favored.” In re Pierson , 447 B.R. 840, 846 (Bankr.N.D.Ohio 2011) (citing Dorfman v. Moorhous (In re Moorhous) , 108 F.3d 51, 55–56 (4th Cir.1997) ). “Based on this [public policy], the permissibility of wage assignments and assignments of other personal earnings is normally governed by statute, with many statutes either prohibiting or constraining a person's ability to assign their wages.” Id. ; see also 49 Fed. Reg. 7740, 7756 (Mar. 1, 1984) (listing state statutes prohibiting or restricting wage assignments).

The Note, the Security Agreement, the Assignment and the Player Contract are all governed by California law. California law therefore applies.⁶

Section 300 of the California Labor Code (“Section 300 ”) prohibits wage assignments unless certain “rigorous requirements” are met. Fitch v. Pac. Fid. Life Ins. Co. , 54 Cal.App.3d 140, 126 Cal.Rptr. 445, 448 (1975). In particular, Section 300(b) sets out a list of seven conditions that all must be satisfied for a purported assignment of wages or salary to be valid:⁷

(1) The assignment is contained in a separate written instrument, signed by the person by whom the wages or salary have been earned or are to be earned, and identifying specifically the transaction to which the assignment relates.

(2) Where the assignment is made by a married person, the written consent of the spouse of the person making the assignment is attached to the assignment. ...

(3) Where the assignment is made by a minor, the written consent of a parent or guardian of the minor is attached to

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