IN RE: VERA FORD CASE NO. 82-70135

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE

IN RE:

VERA FORD CASE NO. 82-70135

DEBTOR

AND

IN RE:

WINSTON FORD, JR. CASE NO. 82-70136

CAROLYN FORD

DEBTORS

MEMORANDUM OPINION

These cases are before the court on the motion in each case of Lucinda Masterton, formerly Lucinda Masterton Hall, by counsel, for an order directing Archer-Music Enterprises, Inc. to dismiss the third-party complaint it filed against her in Civil Action No. 95-260, U.S. District Court, Eastern District of Kentucky, Pikeville Division. Ms. Masterton is named as a third-party defendant in that action in her capacity as trustee of the bankruptcy estate of Winston Ford, Jr. and Carolyn Ford in their joint husband and wife bankruptcy case and of the bankruptcy estate of Vera Ford, in her separate bankruptcy case. Vera Ford, a widow, is the mother of Winston Ford, Jr.

The trustee contends the third-party complaint was filed in violation of the automatic stay provided for by 11 U.S.C. 362(a). Archer-Music Enterprises, Inc., by counsel, has countered with a motion for relief from stay permitting it to pursue or reinstate its third-party complaint against the trustee in the U.S. District Court action.

FINDINGS OF FACT:

On November 17, 1982 Winston Ford, Jr. and his wife Carolyn Ford filed a joint petition for relief under chapter 7 of the Bankruptcy Code. On the same date, Vera Ford, the mother of Winston Ford, Jr., filed her separate petition for relief under chapter 7 of the Bankruptcy Code.

The interests of these Ford family members in several tracts of real estate in Floyd County became assets of their respective bankruptcy estates. The tract of real estate involved in this controversy is known as the Wickes property located in Floyd County on U.S. Highway 23 outside Prestonsburg, Kentucky.

The property was acquired by Winston Ford, Jr. and Vera Ford, his mother, by two separate deeds. Tract I was conveyed to them by deed dated June 25, 1973 from Roy Baisden and Odelia Mae Baisden, his wife, recorded in the office of the Floyd County Clerk in Deed Book No. 213, at page 42. Tract II was conveyed to Winston Ford, Jr. and Vera Ford, widow of Winston Ford, by deed dated July 10, 1980 from the Commonwealth of Kentucky, recorded in Deed Book No. 236, at page 74, Floyd County Clerk's office. The latter deed conveyed to the Fords a small strip of excess right of way along U.S. Highway 23. This latter tract was added to the property after Tract I had been leased to the Wickes Corporation.

On September 20, 1977, Winston Ford, Jr. and his wife Carolyn Ford, and Vera Ford, a widow, as landlord, leased Tract I and the improvements thereon to the Wickes Corporation, as tenant. The lease was for a period of five years with an option to renew the lease for nine additional five-year periods, or a total of 50 years.

On December 29, 1981, approximately one year prior to their bankruptcies, Winston Ford, Jr. and Carolyn Ford, his wife, and Vera Ford, widow, mortgaged Tract I and the add-on Tract II, to First Commonwealth Bank of Prestonsburg, Kentucky, to secure an indebtedness of $100,000. As further security for the $100,000 loan and two prior loans made to Winston Ford Company, Inc. in the aggregate amount of $400,000, of which the Fords were guarantors, the Fords assigned to the bank all sums becoming due to them under the Wickes lease.

This was the situation when bankruptcy intervened on November 17, 1982. During the course of the bankruptcy case the indebtedness to the bank was reduced by the lease payments made by Wickes. On April 27, 1988 Wickes Lumber Company assumed the lease from Wickes Companies, Inc. This did not affect the stream of payments to the bank from the lease.

At the time of this assumption of the lease the leased premises was described as follows:

A 4.94 acre tract of land on the westerly side of Route 23 north of the City of Allen to be more particularly described by survey and set forth in the lease to be executed upon the exercise of the option herein before granted.

 

Said description is more fully set forth in Exhibit "A" attached hereto and by reference incorporated herein.

 

Exhibit "A" provides a description by metes and bounds as follows:

A certain tract of land lying in Dwale, Floyd County, Kentucky and described as follows: Beginning at a concrete right-of-way marker located on the south right-of-way of U.S. Highway 23 & 460; said concrete marker being located 270 feet right of highway Station 245-00; thence along the right-of-way, N 83-30 E, 497.40 feet to a concrete right-of-way marker; thence along the right-of-way, N 71-00 E, 130.00 feet; thence leaving the right-of-way, S 21-30 W, 266.50 feet; thence S 87-30 W, 256.00 feet; thence S 80-30 W, 155.00 feet; thence s 66-00 W. 288.00 feet; thence N 71-00 W, 195.00 feet; thence N 42-00 E, 379.31 feet to a point on the right-of-way; thence along the right-of-way, S 62-30 E, 93.42 feet to the point of beginning and containing 4.28 acres.

The possible increase the amount of the property leased from 4.28 acres to 4.94 acres apparently takes into account the small tract, approximately .4 of an acre of excess right of way, that had been added to the property by deed from the Commonwealth of Kentucky after the original lease was executed. It should be noted, however, that this small additional footage was adjacent to U.S. Highway 23 and was not in the vicinity of the high wall, which is located on the tract described in Exhibit A. It should also be noted that the original tract is described in accordance with a survey of the property. This property had been excavated and the buildings occupied by Wickes constructed thereon before the small contiguous tract of right-of-way property was acquired.

After her appointment on April 8, 1992 as successor trustee, Ms. Masterton continued the efforts of the predecessor trustee to sell the interest of the two bankruptcy estates in the Wickes property.

On December 16, 1991 the court approved the application of the predecessor trustee to employ Judy Walters of Walters and Associates, Inc., Pikeville, Kentucky to appraise the Wickes property.

By her appraisal dated January 14, 1992 Judy Walters fixed the aggregate value of the fee simple interest in the property at $398,000. The appraisal report states:

[T]he purpose of this appraisal report is to estimate the market value of the leasehold estate of the 4.28 acre site known as Wickes Lumber Company located on the West side of Route 23 North of the City of Allen, Kentucky. The objective of this appraisal assignment is to conduct the investigations and analyses required to reach a supportable value estimate for the leasehold position of Wickes Lumber Company.

 

The report further states that approximately 2.9 acres of the 4.28-acre tract is level. The main building on the property, a metal building consisting of 21,525 square feet, provided Wickes with office, sales, storage and warehouse areas. There were three other smaller buildings on the property the value of which were also considered in the report.

On April 13, 1993 the trustee gave notice of the proposed sale of the Wickes property at private sale for the sum of $200,000. First Commonwealth Bank of Prestonsburg timely objected to the sale on the ground that the value of the property according to records at the Floyd County Property Valuation Administrator's office was $358,000. At the hearing on the objection the court directed the trustee to advertise the property for 30 days as investment property. Thereafter, the court entered an agreed order submitted by the trustee and counsel for First Commonwealth Bank providing that the property would be sold at auction by the trustee in the U.S. Bankruptcy Courtroom at Pikeville, Kentucky at 11:45 a.m. on July 30, 1993. At this auction Archer-Music Enterprises, Inc., the successful bidder, agreed to purchase the property for $390,000.

By deed dated August 30, 1993 the trustee in bankruptcy conveyed the property to Archer-Music Enterprises, Inc. by a special warranty deed.

The property is described in the trustee's deed as follows:

Tract No.

 

Being the same property conveyed to Winston Ford, Jr., and Vera Ford, his wife, from Roy Baisden and Odelia May Baisden, his wife, by deed dated June 25, 1973, of record in Deed Book 213, Page 42, in the office of the Floyd County Court Clerk, and being a certain tract or parcel of land lying in Floyd County, Kentucky, on the water of the Big Sandy River, which is more particularly described as follows:

 

BEGINNING at a rock marked "S" near the branch adjoining the Charles Clay property: thence a south course up the center of the point to the top of the ridge to the Johns' back line to a rock marked with an "S" on top of the knob; thence an easterly course down the point and with the wire fence to the branch; thence down the branch opposite the rock; thence a south course to the rock, the place of beginning.

 

Being the same property conveyed to Winston Ford, Jr., and Vera Ford, his wife, from the Commonwealth of Kentucky, by deed executed July 10, 1978, of record in Deed Book 236, Page 74, in the office of Floyd County Court Clerk, and being a certain tract or parcel of land lying in Floyd County, Kentucky, on the south side of existing US 23 (Prestonsburg-Pikeville), which is more particularly described as follows:

 

PARCEL NO. 45

Beginning at a point on the proposed and existing right of way lines, said point being further described as being in the center of an unnamed drain, said point is also understood as lying 255 feet right of station 244+35; thence in an northeast direction with the center of said drain which is also the proposed right of way line and leaving the existing right of way line to a point lying 240 feet left of station 244+40; thence turning in another northeast direction and leaving the unnamed drain to a point lying 190 feet right of station 245+50; thence turning in an east direction with the said proposed right of way line to a point on the existing right of way line said point being further understood as lying 170 feet right of station 249+00; thence turning in a southwest direction with the existing right of way line and leaving the proposed right of way line to a point lying 270 feet right of station 245+00; thence turning in a northwest direction and continuing with the existing right of way line to a point lying 270 feet right of station 244+50; thence continuing with the existing right of way line to the point of beginning.

 

The above described parcel consists of 17,444 square feet, more or less.

 

The description for the above described property was taken from the plans for the project designated SP 36-206-2R which are on file and open for inspection in the Department of Transportation, Frankfort, Kentucky.

 

There is an error in the trustee's deed, but the error is in the recitation of the source of title, rather than in the description of the property conveyed. This error was precipitated at least in part by the title opinion prepared by the attorneys for the purchaser Archer-Music Enterprises, Inc. under date of August 17, 1993 and Exhibit A thereto which in two places refers to Tracts I and II as being the same property conveyed to Winston Ford, Jr. and Vera Ford, his wife. The properties were indeed conveyed to Winston Ford, Jr. and Vera Ford, but as previously indicated, Vera Ford is the mother of Winston Ford, Jr. Deeds of correction should be prepared, but this obvious error in no way relates to the contention that Archer-Music Enterprises, Inc. did not purchase all of the 4.78-acre tract on which the Wickes Lumber Company store was located. The record reflects that the deed to this tract follows the description set out in Exhibit A to the title opinion letter of counsel for Archer-Music Enterprises, Inc., which was forwarded to the trustee along with the request for a deed to the property. Also, as hereinabove noted the property covered by the lease was surveyed in connection with the execution of the lease.

Apparently more than one year after the execution and recording of the trustee's deed on or about August 30, 1993 conveying the Wickes property to Archer-Music Enterprises, Inc. the high wall embankment partially collapsed causing damage to the buildings leased to Wickes. The complaint of Wickes Lumber Company in the U.S. District Court action alleges this incident occurred during the 1994 Thanksgiving weekend.

On August 9, 1995 Wickes Lumber Company commenced the action in the U.S. District Court at Pikeville, Kentucky for damages for breach of the lease agreement, for damages to the leased premises and for lost profits. Jurisdiction of the action is grounded on diversity of citizenship of the parties. 28 U.S.C. 1332.

The third-party complaint (crossclaim) of the defendant Archer-Music Enterprises, Inc. alleges that the high wall is outside the leased boundary, but if that is not so the trustee's deed should be reformed, and that the bankruptcy estates of Winston Ford, Jr. and Carolyn Ford and Vera Ford are responsible for any damages suffered by Wickes. The prayer for relief requests that the trustee in bankruptcy of the estates of Winston Ford, Jr., Carolyn Ford, and Vera Ford be adjudged to be solely responsible for any damages determined by the court.

CONCLUSIONS OF LAW:

The third-party complaint filed by Archer-Music Enterprises, Inc. in the U.S. District Court action at Pikeville may very well have been initiated in violation of Title 11 U.S.C. 362(a)(3). This Code section stays any act to obtain property from a bankruptcy estate.

More basically, the third-party complaint contravenes the well settled rule that leave of the appointing forum must be obtained by any party wishing to institute an action in a non-appointing forum against a trustee, for acts done in the trustee's official capacity and within the trustee's authority as an officer of the court. In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993); In re Lehal Realty Associates, 101 F.3d 272, 276 (2d Cir. 1996).

These are chapter 7 bankruptcy cases in which the trustee merely liquidated the assets of the debtors. The trustee was not authorized under 11 U.S.C. 721 to operate any business of the debtors. Thus, the exception to court approval provided for in title 28 U.S.C. 959(a) is not applicable to the facts of this case.

There are numerous creditors who are claimants to the funds held by the trustee whose interests therein may be affected by the damage claim of Archer-Music Enterprises, Inc. against the bankruptcy estates being administered by this court. These claimants, whose rights may be adversely affected, are not parties to the action in the United States District Court.

Consequently, this court declines to give permission for the cause of action set out in the third-party complaint of Archer-Music Enterprises, Inc. to proceed in the nonbankruptcy forum in which it is now pending. The relief sought by Archer-Music Enterprises, Inc. must be requested in an adversary proceeding in this court. Such an action asserting a contract reformation claim and a claim for damages against a bankruptcy estate is equitable in nature and is not an action in which the claimant is entitled to a jury trial. Edgcomb Metals Co. v. Eastmet Corp., 89 B.R. 546, 551 (D. Md. 1988).

Dated:

By the court -

 

____________________________
JOE LEE, CHIEF JUDGE

 

Copies to:

 

John T. Hamilton, Esq.

Lucinda Masterton, Esq.

Philip D. Damron, Esq.

Charles W. Arnold, Esq.

U.S. Trustee

j:\opinions\1997\ford

 

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE

 

 

IN RE:

 

VERA FORD CASE NO. 82-70135

 

DEBTOR

 

 

AND

 

 

IN RE:

 

WINSTON FORD, JR. CASE NO. 82-70136

CAROLYN FORD

 

DEBTORS

 

 

 

ORDER

In conformity with the Memorandum Opinion of the court this day entered, the motions of the trustee for an order directing Archer-Music Enterprises, Inc. to dismiss its third-party complaint against the trustee filed in Civil Action No. 95-260, U.S. District Court, Eastern District of Kentucky, at Pikeville, Kentucky, is sustained. Archer-Music Enterprises, Inc. is directed to cause the third-party complaint to be dismissed, without prejudice to its right to assert its claim in an adversary proceeding in the bankruptcy court for this district.

 

The motion of Archer-Music Enterprises, Inc. for relief from stay in order that it may pursue or reinstate its third-party complaint in said district court action is denied.

Dated:

By the court -

 

__________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

John T. Hamilton, Esq.

Lucinda Masterton, Esq.

Philip D. Damron, Esq.

Charles W. Arnold, Esq.

U.S. Trustee