UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

ASHLAND DIVISION

IN RE:

WILLIAM ERIC CHARLES and

SUSANNA D. CHARLES d/b/a

C & C AUTO SALES CASE NO. 90-00307

BRUCE A. LEVY, TRUSTEE PLAINTIFF

VS. ADV. NO. 91-0063

JOE MCKENZIE d/b/a

DELTA AUTO SALES

and

BARRY ADKINS f/d/b/a

DELTA AUTO SALES DEFENDANTS

MEMORANDUM OPINION

This matter is before the Court on cross Motions for Summary Judgment filed by the former debtors-in-possession, the original plaintiffs herein, and by each of the defendants. Defendant Adkins has filed a Crossclaim against defendant McKenzie. The bankruptcy case has been converted from a Chapter 11 to a Chapter 7 case during the pendency of this adversary proceeding. The former debtors-in-possession (hereinafter "the debtors") have alleged in their Complaint that this is a core proceeding pursuant to 28 U.S.C. '157, characterizing it as an action to turn over property. It is the opinion of this Court, however, that it is a pre-petition, state law contract dispute and therefore a non-core matter pursuant to Northern Pipeline Const. v. Marathon Pipeline Co., 102 S.Ct. 2858 (1982). The Crossclaim is clearly non-core.

Bankruptcy Rule 7012(b) requires that a responsive pleading shall admit or deny that a proceeding is core or non-core. Neither defendant has responded by way of a pleading as to the core or non-core nature of the proceeding, although defendant McKenzie has argued that the matter is core in his Motion for Summary Judgment against the debtors and defendant Adkins.

In In re Pioneer Investment Services Company, ___F.2d___ (6th Cir. 1991), the Court considered the question of the bankruptcy court's jurisdiction to hear and determine a non-core proceeding. It pointed out that 28 U.S.C. '157(c)(2) permits the bankruptcy court to hear and determine a non-core proceeding if the parties consent. It then went on to hold that failure to raise any objection to the bankruptcy court's jurisdiction constituted implied consent to that jurisdiction. This Court therefore concludes that it may hear and determine this case pursuant to 28 U.S.C. '157(c)(2).

This proceeding was commenced by the filing of the debtors' Complaint on March 13, 1991. Therein they claimed that the defendants were indebted to them in the amount of $16,000.00. Neither defendant filed a timely Answer, and on May 2, 1991, the debtors filed a Motion for Default Judgment. Defendant McKenzie filed his Response to Motion for Default Judgment, Motion for Leave to File Late Answer, and Answer on May 8, 1991. At the pre-trial conference on May 9, 1991, this Court gave both defendants twenty days to answer.

Defendant Adkins filed his Answer and Crossclaim on May 30, 1991. The Crossclaim alleges that McKenzie agreed to purchase Adkins's share of Delta Auto Sales for the sum of $20,300.00 plus the assumption of certain debts, and that McKenzie agreed to indemnify Adkins against all claims in regard to those debts. Attached to Adkins's Crossclaim are copies of the Agreement dated August 11, 1990, and the Contract Addendum dated November 29, 1990. McKenzie filed his Answer to Crossclaim on July 8, 1991. The debtors moved for Summary Judgment as to both defendants on July 29, 1991. The Motion was supported by the affidavit of Adkins wherein he admitted that he and McKenzie owed the debtors $13,000.00.

Adkins moved for Summary Judgment against McKenzie on July 29, 1991. McKenzie filed his Response to Adkins's Motion for Summary Judgment, and a Motion for Summary Judgment against the debtors and Adkins on July 31, 1991. In his Response, McKenzie acknowledges that Delta Auto Sales owed "C & C" $13,000.00. Adkins filed his Response to McKenzie's Motion for Summary Judgment and Reply to McKenzie's Response to Adkins's Motion for Summary Judgment on August 5, 1991.

The debtors filed their Response to McKenzie's Motion for Summary Judgment on August 15, 1991. McKenzie filed his Reply to the debtors' Response on August 23, 1991. The debtors' Chapter 11 bankruptcy case was converted to a Chapter 7 on ________________. Adkins noticed his filing of a Chapter 7 petition in the Southern District of Ohio on November 5, 1991.

The debtors' Motion for Summary Judgment contends that there is no genuine issue as to any material fact and that they are entitled to judgment as a matter of law, based on the fact that the August 11, 1990, Agreement between the defendants evidences a $13,000.00 debt to C & C, and per the terms of the Agreement, McKenzie assumed that debt. Adkins has admitted the debt. McKenzie counters in his Motion for Summary Judgment against the debtors that an agreement entered into on December 4, 1990, between him and the debtors was intended to provide for the satisfaction of that debt and superseded any previous agreement among them.

The December 4, 1990 Agreement, which provides for the sale of automobiles on consignment and a split of the profits between Delta and C & C, makes no reference to the satisfaction of an existing debt. Moreover, McKenzie provides no evidence of what C & C earned under this Agreement, if anything. There is nothing else in the record of this case to suggest that this arrangement was intended to satisfy the $13,000.00 liability. It is therefore the opinion of this Court that the debtors' Motion for Summary Judgment should be sustained and that defendant McKenzie's Motion for Summary Judgment as to the debtors should be overruled.

The remaining issue to be addressed is whether, by the terms of the August 11, 1990 Agreement, McKenzie indemnified Adkins against C & C's claim on account of the $13,000.00 debt that McKenzie assumed. The Agreement clearly states in paragraph (G):

In addition Buyer assumes all debts, liabilities, and assets designated (BUYERS) Seller assumes all debts, liabilities, and assets designated (SELLER) as attached on 'Exhibit A' and shall save each other harmless on same.

Exhibit A notes that the $13,000.00 debt to C & C is "(BUYERS)". The Contract Addendum of November 29, 1990, did not modify this provision, but ratified it. The plain language of the Agreements between the defendants admits of no other conclusion than that McKenzie did indeed indemnify Adkins against C & C's claim, and that Adkins should therefore have Summary Judgment on his Crossclaim.

A separate order will be entered designating Summary Judgments for the appropriate parties as set out above.

Dated:

By the Court -

___________________________

Judge

Copies to:

Neil M. Bordy, Esq.

Charles Leadingham, Esq.

Lanna Kilgore, Esq.

Bruce Levy, Esq., Trustee

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