IN RE: JAMES P. HOOK CASE NO. 86-50361

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

JAMES P. HOOK CASE NO. 86-50361

DEBTOR

MEMORANDUM OPINION

This case is before the court on motion of the debtor, James P. Hook, to reschedule a section 341 meeting of creditors and to grant the debtor a discharge. The motion was heard on January 22, 1996, at which time the motion was taken under submission.

FINDINGS OF FACT:

The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code on April 14, 1986. A trustee was appointed and qualified in the case. A meeting of creditors, which the debtor attended, was held on June 10, 1986. However, the debtor did not produce any documents for examination by the trustee.

In the schedules to the petition the debtor indicated he was the "proprietor" of Plaza Bottle Shop, Inc. Actually, Plaza Bottle Shop, Inc. was a separate corporate entity in which the debtor owned stock.

In approximately May of 1980 the debtor had purchased 100% of the outstanding shares of stock of the corporation (1604 shares) from the former owner, Harry C. Gorman, and had assumed operation of the liquor store owned by the corporation.

The debtor conveyed to Gorman real and personal property in which the debtor alleges he had equity of approximately $27,000 and executed a note in the amount of $40,000 payable to Gorman. The debtor also assumed a note of Plaza Bottle Shop, Inc. in the amount of $58,035 payable to Citizens Union Bank and Trust Company.

Thereafter, the debtor defaulted in payment of a $40,000 note he had issued to Gorman for the purchase of the stock. Gorman obtained a judgment against the debtor for the balance due on the purchase price of the note. The debtor appealed the judgment but did not post a supersedeas bond to stay enforcement of the judgment. Gorman caused the stock to be sold at a constable's sale and allegedly bought in the stock for $3,500.00. Gorman ousted the debtor and resumed operation of the liquor store. Gorman then caused a writ of execution to be issued against a 1985 Lincoln Town car owned by the debtor. The vehicle was taken into custody and stored by the sheriff of Bourbon County. This was the state of affairs when the debtor sought relief under the Bankruptcy Code.

On June 27, 1986 the chapter 7 trustee filed an adversary proceeding, 86-0168, seeking to have the sale of the debtor's stock set aside on several grounds, including the ground that the stock was not properly levied upon. The complaint also sought an order directing that the debtor's 1985 Lincoln Town car be turned over to the trustee.

The allegation that the debtor's shares of stock were not properly levied upon was based on the fact that shortly after acquiring ownership of the shares of stock of Plaza Bottle Shop, Inc. the debtor sold one-half of the stock, 802 shares, to Leonard Mills for $80,000 and used the proceeds of this sale to pay off the $58,035 note owed by the corporation to Citizens Union Bank and Trust Company. Thereafter, Mills sold his shares of stock to Jeanne Klump for $48,000. In June of 1984 Klump agreed to sell the stock back to the debtor for $30,000, but she retained possession of the stock until the purchase price was paid. Later the debtor borrowed $5,000 from Klump and pledged his remaining 802 shares of stock to her to secure payment of the loan. Thus it appears that on the date of bankruptcy all of the 1604 shares of stock of Plaza Bottle Shop, Inc. were in the possession of Jeanne Klump whom the debtor at that time owed in all approximately $28,625.

The debtor's assets consisted of the 1985 Lincoln Town car, subject to the judicial lien of Gorman, a 1968 Pontiac automobile valued at $300, a boat valued at $400, miscellaneous wearing apparel and personal possessions valued at $1,000, and the 1604 shares of stock of Plaza Bottle Shop, Inc. held by Jeanne Klump to secure payment of the indebtedness in the amount of $28,625 owed to her by the debtor.

On July 7, 1986, before the adversary proceeding by the trustee to invalidate the sale of the stock of Plaza Bottle Shop, Inc. to Gorman and for turnover of the 1985 Lincoln Town car could be resolved, the debtor filed a petition converting his case from a case under chapter 7 to a case under chapter 11 of the Bankruptcy Code. This had the effect of terminating the service of the chapter 7 trustee and the authority of the trustee to pursue adversary proceeding no. 86-0168.

Shortly thereafter the debtor as debtor in possession filed a complaint that replicated the complaint of the trustee in adversary proceeding 86-0168, essentially seeking the same relief the chapter 7 trustee had sought plus an order restoring the debtor to possession and operation of Plaza Bottle Shop, Inc. and restoring the debtor to possession of the 1985 Lincoln Town car. The adversary proceeding commenced by the debtor is identified as adversary proceeding no. 86-0202 filed August 20, 1986.

Following a trial held in this adversary proceeding on February 24, 1987, the court entered orders in accordance with its ruling at the trial.

An order was entered on May 13, 1987 restoring the debtor to possession of the 1985 Lincoln Town car.

An order was entered on June 23, 1987 setting aside the constable's sale of the debtor's interest in the shares of stock of Plaza Bottle Shop, Inc. However, the debtor was not restored to operation of the liquor store owned by the corporation. Instead, on motion of Harry C. Gorham filed on March 26, 1987, and heard by the court on June 22, 1987, the court entered an order on June 23, 1987 appointing Fred E. Fugazzi, Jr. as trustee to take possession of and operate the liquor store owned by Plaza Bottle Shop, Inc. The court was persuaded to do so because of the fact the debtor appeared to have a gambling problem. According to the schedules to the petition the debtor had lost $10,000 betting on horses at race tracks during the first three months of 1986. Also, a motion filed by the Internal Revenue Service indicated the debtor had not filed his individual U.S. income tax return for the year ending December 31, 1985.

On August 24, 1987, in adversary proceeding no. 86-0202, the court entered an order directing the chapter 11 trustee to sell the 1985 Lincoln Town car and from the proceeds of sale pay accrued storage charges and $2,500 to the debtor in satisfaction of the exemption he had been allowed in the automobile. The balance of the proceeds of sale were to be retained by the trustee pending further orders of the court. The debtor, by counsel, appealed the order directing sale of the 1985 Lincoln Town car.

Pending the appeal the trustee requested that the 1985 Lincoln Town car be delivered to him for safekeeping. The debtor failed to comply with this request and continued to operate the automobile. On June 21, 1988, on motion of the trustee, the court entered an order directing the debtor to show cause why he should not be held in contempt of court for failure to deliver the automobile to the trustee. At the hearing held on July 1, 1988, the trustee withdrew his motion to hold the debtor in contempt for failure to turn over possession of the motor vehicle, apparently on representation of counsel for the debtor that the debtor was prepared to surrender the motor vehicle.

However, on November 3, 1988, the trustee renewed his motion for an order directing the debtor to surrender the 1985 Lincoln Town car. On December 5, 1988, the court entered an order sustaining the trustee's motion. The vehicle was placed in storage at Autotech, Inc. on North Martin Luther King Boulevard, Lexington, Kentucky. By this time the debtor had had possession and use of the car since May of 1987 or approximately a year and a half and for more than a full year after the court had determined the vehicle should be sold as an asset of the debtor's estate.

On October 13, 1989, the district court entered a memorandum opinion and order dismissing the debtor's appeal from the order of August 27, 1987 authorizing the trustee to sell the 1985 Lincoln Town car.

On November 14, 1989, the trustee was permitted to sell the 1985 Lincoln Town car at private sale to Lynn Tutt for $4,500 plus forgiveness of $500 in storage charges. The vehicle had been damaged while it was in the possession of the debtor and had been operated for a total of 72,000 miles. At the time the court had ordered the vehicle sold in August of 1987 it had an approximate value of $16,000 according to the NADA guide book.

The chapter 11 trustee appointed by the court on June 23, 1987 took over operation of Plaza Bottle Shop, Inc. on or about July 1, 1987 and operated the store until June 30, 1988, on which date the lease of the premises in which the store was located expired. The landlord, Clyde Asher, refused to renew the lease. He leased the premises to Andy martin. Ultimately, the equipment in the premises was sold to Mr. Martin for $2,000. The freezer equipment had essentially become a fixture, as had other equipment, and could not be removed without destruction of the premises.

An accounting of receipts and disbursements for the period July 1, 1987 to June 30, 1988, during which the chapter 11 trustee operated the Plaza Bottle Shop, Inc., was filed by the chapter 11 trustee on November 9, 1988.

On March 3, 1989, the United States of America Internal Revenue Service moved the court for an order requiring the debtor to prepare and file U.S. Individual Tax Returns for the periods ending December 31, 1985, December 31, 1986, and December 31, 1987. An order mandating that the debtor do so was entered on July 31, 1989.

On November 13, 1989, the U.S. IRS moved for an order holding the debtor in contempt of court for failure to comply with the order of July 31, 1989. The motion was heard on December 31, 1989, and was renoticed for hearing on February 16, 1990. The hearing on the motion was continued to February 28, 1990, and heard at the same time as a motion of the United States Trustee to dismiss the debtor's chapter 11 case or convert the case to a case under chapter 7.

The motion of the United States Trustee to dismiss the debtor's chapter 11 case or convert the case to a case under chapter 7 was filed on January 19, 1990. The motion alleged the debtor had failed to respond to requests for information issued by the United States Trustee on August 11, September 22, and November 16, 1989.

At the hearing on February 28, 1990, the motion of the IRS to hold the debtor in contempt for failure to comply with the order of the court of July 31, 1989, directing him to file tax returns was sustained.

The motion of the United States Trustee to dismiss the debtor's chapter 11 case or convert the case to a case under chapter 7 was continued until May 30, 1990, at which time the motion to reconvert the case to a case under chapter 7 was sustained.

On May 31, 1990, an order was entered converting the debtor's chapter 11 case to a case under chapter 7. The debtor was given 15 days to update the schedules to his original petition filed on April 14, 1986. The debtor did not file amended schedules as directed by the court.

Upon conversion of the case to a case under chapter 7 the chapter 11 trustee was continued in office as trustee in the chapter 7 case.

On February 24, 1993, on notice to the debtor and his attorney, a meeting of creditors was held in the debtor's chapter 7 case. Neither the debtor nor his attorney attended the meeting.

On motion of the United States Trustee, pursuant to order of the court, the chapter 7 trustee filed a final accounting in the debtor's case on March 22, 1995.

On May 22, 1996, the court issued an order directing the debtor to show cause why his case should not be dismissed for failure to update the schedules to his petition as ordered by the court. The show cause order directed the debtor to appear on July 6, 1995. The debtor failed to appear on that date.

On July 18, 1995, an order was entered finding the debtor was not entitled to have an order of discharge entered by reason of his failure to attend the section 341 meeting held after conversion of his case to a case under chapter 7 and his failure to cooperate with the court in the administration of this case. Notice of the entry of this order was mailed to the debtor on July 25, 1995.

A final order of distribution was entered in the debtor's case on November 28, 1995. In this order the court denied the debtor an exemption in the proceeds of the sale of the 1985 Lincoln Town car by reason of the action of the debtor in continuing to operate the car for approximately a year and a half after he had been directed to surrender the car to the trustee.

The motion of the debtor to reschedule the section 341 meeting and grant him a discharge in this case states that he did not receive notice of the meeting from the court or his former counsel. The motion states the case has been dormant for years and the debtor was recently contacted by the IRS and told it intended to begin collection efforts against him as his case was being dismissed.

The debtor filed his original petition on April 14, 1986, the day before the taxes he owed for 1985 became due. The taxes owed by the debtor for the year 1985 and thereafter arose postpetition and are not dischargeable in bankruptcy in any event.

Pursuant to Rule 4002 of the Federal Rules of Bankruptcy Procedure the debtor is required to file with the court a statement of any change of address and to attend and submit to examination at the times ordered by the court.

Although the court has sent notices to several different addresses in an attempt to keep the debtor advised of the progress of this case there is no indication in the record that the debtor or his former attorney ever filed statements advising the court of changes of his address. The failure of the debtor to receive notices in this case is not an excuse on which he can rely in view of his failure to comply with Rule 4002. As a matter of fact, the motion of the debtor presently before the court does not reveal the debtor's address.

In reviewing the record in this case the court can find no equitable grounds for granting the relief requested by the debtor.

Accordingly, the motion of the debtor to reschedule the section 341 meeting and to grant him a discharge in this case is overruled.

The best the court can do for the debtor is order this case dismissed. This may not preclude the debtor from receiving in a later case a discharge from debts that were dischargeable in this case. 11 U.S.C. 349(a). However, the dismissal shall not revest title to any property of the estate in the debtor or affect the disbursement of funds heretofore approved by the court in this case.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Kevin L. Nesbitt, Esq.

Fred E. Fugazzi, Esq.

Richard J. Getty, Esq.

U.S. Trustee

 

 

 

 

f:\opinions\1996\hook

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

 

 

IN RE:

 

JAMES P. HOOK CASE NO. 86-50361

 

DEBTOR

 

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the motion of the debtor to reschedule the section 341 meeting and to grant a discharge in this case is overruled.

IT IS FURTHER ORDERED that this case be and the same is hereby dismissed.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Kevin L. Nesbitt, Esq.

Fred E. Fugazzi, Esq.

Richard J. Getty, Esq.

U.S. Trustee