Walsh v. Free (In re Free)

466 B.R. 48
CourtUnited States Bankruptcy Court, W.D. Pennsylvania
DecidedFebruary 27, 2012
DocketNo. 10-25460-CMB
StatusPublished
Cited by11 cases

This text of 466 B.R. 48 (Walsh v. Free (In re Free)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Walsh v. Free (In re Free), 466 B.R. 48 (Pa. 2012).

Opinion

MEMORANDUM OPINION

CARLOTA M. BÓHM, Bankruptcy Judge.

The matter before the Court is the determination of appropriate sanctions pursuant to a finding of civil contempt. The Honorable Bernard Markovitz, to whom this case was previously assigned, heard argument on the Trustee’s Motion for Finding of Civil Contempt, Imposition of Sanctions, for Authority to “Junk” Assets, and Request for Expedited Hearing (“Motion”) and, by Order dated December 20, 2011, found the Debtor in contempt of the [51]*51Court’s April 1, 2011 Order and Court directives. After the case was transferred to the undersigned, a hearing solely on the matter of sanctions was held on January 31, 2012. For the reasons set forth below, sanctions for civil contempt will be imposed in the form of rental payments due to the bankruptcy estate, compensation of the Trustee and his counsel for fees and costs resulting from Debtor’s violations of Court Orders and his duties under the Bankruptcy Code, and daily fines for failure to comply going forward.

I. Jurisdiction

The Court has subject jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A), (E), (0).

II. Background

On July 30, 2010, Michael J. Free d/b/a Electra Lighting commenced this bankruptcy case by filing a petition for relief under Chapter 13. On February 1, 2011, the case was converted to a case under Chapter 7 and James R. Walsh was appointed as trustee. At the time of conversion, the case was assigned to the Honorable Bernard Markovitz.

At the Meeting of Creditors, the Trustee requested that Debtor produce within ten days, inter alia, the keys to Debtor’s North Huntingdon Property,1 keys to two ski chalets located in Westmoreland County near Seven Springs, an accounting of rent from the Seven Springs properties, and the rent itself. The Debtor was also advised that he must cease business operations. When the Trustee did not receive the items requested, he reiterated his demands and warned that he would be forced to commence turnover litigation if he could not obtain cooperation. His efforts were to no avail.

On March 30, 2011, the Trustee filed at Adv. No. 11-2187 a Complaint to Compel Turnover of Property of the Bankruptcy Estate Pursuant to 11 U.S.C. § 542, Recover Unauthorized Post-Petition Transfers Pursuant to 11 U.S.C. § 549, to Deny Discharge Pursuant to 11 U.S.C. § 727, for Injunctive Relief and/or Temporary Restraining Order Pursuant to Rule 7065, and Request for an Expedited Preliminary Hearing Thereon. The Complaint was premised upon Debtor’s failure to turnover assets as requested by the Trustee, his continued business operations, and post-petition sale of inventory.

On April 1, 2011, an expedited hearing before the Honorable Jeffrey A. Deller was held on the Trustee’s request for a preliminary and permanent injunction. At the hearing, no defense was offered in response to the request for preliminary injunction. In ruling, Judge Deller stated the undisputed facts: Debtor continued to dispose of property of the bankruptcy estate in violation of the automatic stay, breached his duties pursuant to §§ 521, 541, and 542 of the Bankruptcy Code, in[52]*52terfered with the Court’s jurisdiction, and hindered the Trustee’s ability to liquidate assets.

Therefore, for the reasons stated on the record at the hearing, an Order was entered enjoining the Debtor and his agents from accessing the commercial buildings housing the Electra Lighting business, operating the business, and selling or transferring inventory of the business. In addition, the Debtor was ordered to turn over all keys and access devices to the business and to any and all rental properties. The Order provided Debtor with five days to “submit a written accounting to the Trustee of all rental income received after the date of the conversion of this case” and directed Debtor to immediately turn over all rental income received post-conversion. Debtor was also directed to submit a written accounting within five days “of all business inventory or other assets sold or transferred after the conversion of this case.... ” The Order provided clear consequences for non-compliance: “[fjailure to immediately and completely abide with the terms of this Order shall constitute contempt of Court and will subject the Debtor to sanctions and penalties, including but not limited to the United States Marshal taking Debtor into custody and bringing him before the Court to answer for his conduct.” The April 1, 2011 Order was not appealed.

Shortly thereafter, on April 8, 2011, the Trustee filed a Motion for Finding of Civil Contempt and Imposition of Sanctions due to Debtor’s failure to comply with the terms of the April 1, 2011 Order. At the hearing on May 5, 2011, Judge Markovitz recognized the shocking level of disregard for Court orders and found the Debtor’s behavior to be among the worst he had seen in twenty-five years on the bench. (Audio Recording of Hearing Held in Courtroom B on May 5, 2011 (9:56-57 AM)). In an attempt to express the gravity of the situation to the Debtor, who was present at the hearing, Judge Markovitz noted the potential for criminal repercussions. (Audio Recording of Hearing Held in Courtroom B on May 5, 2011 (9:58-10:02 AM)). Following the hearing, the parties entered into a consent order whereby the Debtor voluntarily agreed to waive his entitlement to discharge and his right to claim any exemptions.

Subsequently, all matters in the Adversary Proceeding were resolved pursuant to the entry of an Order on May 18, 2011. In that Order, Debtor was found “liable for each and every transfer of estate property from February 1, 2011, forward, plus all costs of this action and interest....” Thereafter, the adversary proceeding was closed. Despite being found liable for post-conversion transfers and the significance of the loss of his discharge and exemptions, these consequences proved insufficient to coerce Debtor to cooperate and comply in the future.

On October 17, 2011, the Trustee filed the Motion currently before the Court seeking a finding of civil contempt and imposition of sanctions. The first hearing on the Motion was held on October 25, 2011, before Judge Markovitz. The Court was informed that, although the Trustee changed the locks at the North Hunting-don property, Debtor managed to enter and operate the business in violation of the April 1, 2011 injunction. Apparently without any defense to the accusations, Counsel for the Debtor stressed to the Court that, despite the Debtor’s conduct, significant assets existed to pay creditors in full. Judge Markovitz again remarked several times on the record that Debtor was very close to imprisonment. The Debtor was warned not to enter the property, obstruct the Trustee, utilize estate assets, or violate court orders as such conduct would result [53]*53in the Debtor being taken into custody by the United States Marshal.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Tracy L Brown
N.D. Georgia, 2023
EHT US1, Inc.
D. Delaware, 2021
Winnecour v. Ocwen Loan Servicing, LLC (In re Ransom)
599 B.R. 791 (W.D. Pennsylvania, 2019)
Springel v. Prosser
Virgin Islands, 2018
Crawford v. Margabandhu (In re Maya Rests., Inc.)
585 B.R. 761 (W.D. Pennsylvania, 2018)
United States v. Michael Free
839 F.3d 308 (Third Circuit, 2016)
Livecchi v. Gordon
513 B.R. 209 (W.D. New York, 2014)
In re Grasso
490 B.R. 500 (E.D. Pennsylvania, 2013)

Cite This Page — Counsel Stack

Bluebook (online)
466 B.R. 48, Counsel Stack Legal Research, https://law.counselstack.com/opinion/walsh-v-free-in-re-free-pawb-2012.