In re Johnson

565 B.R. 835, 2017 Bankr. LEXIS 1184
CourtUnited States Bankruptcy Court, S.D. Ohio
DecidedFebruary 10, 2017
DocketCase No. 16-10798
StatusPublished
Cited by4 cases

This text of 565 B.R. 835 (In re Johnson) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Johnson, 565 B.R. 835, 2017 Bankr. LEXIS 1184 (Ohio 2017).

Opinion

MEMORANDUM OF DECISION AND ORDER GRANTING MOTION FOR RELIEF FROM STAY

Jeffrey P. Hopkins, United States Bankruptcy Judge

Before the Court is the Motion for Relief from Stay (“Motion”) (Doc. 27) under [838]*83811 U.S.C. § 362 (d)(1) filed by creditors Jeannette Crain and Joyce Chiles, individually (hereinafter referred to as “Crain,” “Chiles,” or collectively as “the Movants”) and on behalf of ET Building Partnership (“Partnership”) and Enterprise Travel, Inc. (“Enterprise Travel”).

The Motion asks that the Court grant relief “for the limited purpose of seeking [a] State Court ruling on the proper distribution of ET Building Partnership proceeds from the sale of its real property.”1

Ostensibly, the Motion asks this Court to allow the State court to wind up the Partnership under Ohio’s version of the Uniform Partnership Act and to determine the Debtor’s economic interest, if any, after those proceedings have been terminated, included as property of the bankruptcy estate. See Ohio Rev. Code § 1776.

The Debtor opposes the Motion, contending that the “automatic stay prohibits Movants from altering debtor’s status in the partnership and subsequently liening the partnership property.” See Doc. 46 at 1.

The Debtor argues that the Movants have wrongfully attempted to dissociate him from the Partnership, in violation of 11 U.S.C. § 365(e)(2)(A), under an ipso facto provision of state law, based on his having filed a petition in bankruptcy. See Ohio Rev. Code § 1776.51(F)(1). Further, the Debtor contends that the actions taken by the Movants after the bankruptcy filing have unlawfully divested him of his managing partnership interest and reduced the economic value of his Partnership ownership stake. According to the Debtor, the Court should declare any acts done in violation of the automatic stay void and should direct the removal of the mortgage placed on the Partnership’s real estate.

The parties’ lawyers were asked to file trial briefs and to present evidence in support of their arguments at a hearing on the Motion established for that purpose. On this score, however, both attorneys’ efforts fell well short of the mark. See Docs. 43 and 46. Neither side presented any witness testimony and nothing other than the Partnership Agreement was ever offered into evidence. Both attorneys stated at the hearing that the issues before the Court were purely legal. However, the Court finds that statement without merit.

Arguments of counsel are not evidence. The Court would have benefitted from having witnesses testify with firsthand knowledge of the events leading up to the April 27, 2016 Partnership meeting and the events which took place directly after-wards. As it were, the Court has had to piece together, from the briefs, the admissions of the parties through statements of counsel, and the Partnership Agreement, the facts upon which to predicate its decision.

SUMMARY OF PRE-PETITION FACTS

As can best be surmised from the scant record presented in the case, the key facts are undisputed. On November 2, 1987, the Debtor and Movants started a business called Enterprise Travel. A few years later, on June 18, 1991, the Debtor and the Movants formed E.T. Building Partnership. The Partnership was created for the sole purpose of owning and operating real estate. On the same day that it was formed, the Partnership purchased real estate located at 3508 W. Galbraith Road in Cincinnati, Ohio 45239 (“Galbraith Rd. [839]*839Property”). Enterprise Travel moved its offices into the Galbraith Rd. Property and became a tenant in the building. Enterprise Travel paid monthly rent to the Partnership, which the Partnership used to cover the mortgage, property taxes, insurance, and upkeep and maintenance costs on the Galbraith Rd. Property.

Under the terms of the Partnership Agreement, the Debtor holds a 55% interest, Crain a 35% interest, and Chiles a 10% interest. Debtor’s Schedule A/B also lists his Partnership interest at 55%. Paragraph 8.1 of the Partnership Agreement called for the Debtor to serve as managing partner of the Partnership. In addition, the Debtor served as president of Enterprise Travel. The Movants and the Debtor are the only three shareholders of Enterprise Travel. Enterprise Travel formerly employed between five to eight people. The Debtor’s duties as president of Enterprise Travel had included making monthly rental payments to the Partnership. In turn, the Debtor’s duties as managing partner had been to make the monthly mortgage, insurance, and tax payments on behalf of the Partnership.

In May of 2015, the Debtor was admitted into a rehabilitation center. Neither side presented evidence of what the Debt- or’s condition had been or how long was his stay in the Center. Subsequently, Crain assumed management responsibilities for the Partnership. The Court is left to assume that Crain became managing partner sometime around May, 2015, given the lack of testimony on the subject. After taking over those duties, Crain alleges in the pleadings that she discovered numerous accounting irregularities. These consisted of erroneous or fraudulent distributions or payments by the Partnership to unknown or fabricated payees. The Mov-ants also allege that the Debtor concealed these unauthorized distributions from them during his tenure as managing partner. Finally, the Movants allege that fraudulent payments appear on the account ledgers for both the Partnership and Enterprise Travel.2

As noted, none of the books or records of the Partnership were ever offered into evidence to support the allegations of fraud or that the Partnership’s account ledgers had been falsified. Debtor’s counsel, however, did not object to these allegations in the briefs. Nor did the Debtor’s counsel argue at the hearing that these allegations were false.

On January 26,2016, the Movants filed a complaint in State court against the Debt- or. The State court complaint was not entered into evidence. Thus, the Court must rely oh factual representations appearing in the Motion and briefs filed by the parties. Counsel for the Movants contends that the complaint seeks to dissociate the Debtor from the Partnership for wrongful conduct and to wind up the Partnership under Ohio Rev. Code § 1776. However, on March 8, 2016, the Debtor filed a bankruptcy petition under Chapter 13, which stayed any further litigation in the State court proceedings.

SUMMARY OF POST-PETITION. FACTS

On April 27, 2016, the Movants held a Partnership meeting, which the Debtor did [840]*840not attend. The Debtor did not contest whether he received notice of the meeting. At the meeting, the Movants took a vote and resolved to dissociate the Debtor, based on his past wrongful conduct towards the Partnership and other partners. The Movants also voted to dissolve and wind up the Partnership.3 The Movants subsequently elected Crain to serve as the managing partner to replace the Debtor.

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Cite This Page — Counsel Stack

Bluebook (online)
565 B.R. 835, 2017 Bankr. LEXIS 1184, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-johnson-ohsb-2017.