IN RE: BERTHA C. WRIGHT CASE NO. 93-50224

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

BERTHA C. WRIGHT CASE NO. 93-50224

DEBTOR

DONALD PUCKETT, NANCY A. PUCKETT,

MICHAEL SWEENEY, Assignees of

PNC Bank, Kentucky, Inc., f/k/a

Citizens Fidelity Bank & Trust Co. PLAINTIFFS

vs. ADVERSARY NO. 95-5034

CASTIL WILLIAMS, Trustee of the

bankruptcy estate of Wright

Enterprises DEFENDANT AND

THIRD-PARTY PLAINTIFF

vs.

DONALD PUCKETT, NANCY A. PUCKETT,

MICHAEL SWEENEY, Assignees of

PNC Bank, Kentucky, Inc., f/k/a

Citizens Fidelity Bank & Trust Co.;

MATTHEW ROBEY, Administrator of the

Estate of Lyle G. Robey, deceased;

NATIONAL CITY BANK;

AKRO TRANSMISSION CO.; and

SEQUA CORPORATION THIRD-PARTY DEFENDANTS

MEMORANDUM OPINION

This adversary proceeding came on for hearing before the court on October 2, 1996, on the motion of the third-party defendant, Matthew Robey, administrator of the estate of Lyle Robey, requesting the court to abstain from hearing this matter and to remand this action to the Fayette Circuit Court.

The bankruptcy of the above-named debtor, Bertha C. Wright, the bankruptcies of other members of the Wright family and this litigation are spinoffs of the chapter 11 bankruptcy case of Calumet Farm, Inc. filed July 11, 1991, case no. 91-51414.

The decedent, Lyle Robey, was a director of and in-house counsel for Calumet Farm, Inc. He was also the CEO of Wright Enterprises, a partnership formed by Bertha Wright and her four children, Warren Wright, III, Thomas Cochran Wright, Lucille (Cindy) Wright Lundy, and Courtenay Wright Lancaster. J.T. Lundy, the president of Calumet Farm, Inc. from 1982 until April 1991 and the husband of Cindy Lundy, was also a member of the partnership.

Under the will of Warren Wright, Sr., each of the four children of his son Warren Wright Jr. and Bertha C. Wright inherited a fractional interest in Calumet Farm. Ultimately, in the settlement of the estate of Warren Wright, Sr., each of the children received a 9.375% interest in Calumet Farm. Through the exercise of a power of appointment granted to him by his father's will, Warren Wright, Jr. transferred the major interest in the farm, 62.5%, to a trust created by his will. Bertha Wright, the surviving spouse of Warren Wright, Jr., is the life income beneficiary of the trust.

The farm was incorporated in September 1982 at which time the Wright children and the trust created by the will of Warren Wright, Jr. conveyed their interest in the farm to Calumet Farm, Inc. in exchange for stock. The trust and the Wright children became stockholders of Calumet Farm, Inc., the new owner of the farm. The Wrights and a representative of the bank designated as trustee of the trust served as members of the board of directors of Calumet Farm, Inc.

During the period between 1982 and July 11, 1991, when Calumet Farm, Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code, members of the Wright family obligated themselves as guarantors of numerous debts incurred by Calumet Farm, Inc. Because these farm debts remain largely unsatisfied following liquidation of the assets of Calumet Farm, Inc., creditors commenced collection efforts against the Wrights as guarantors. These collection efforts forced Bertha Wright and three of her four children to file individual petitions for relief under the Bankruptcy Code. Bertha Wright filed February 12, 1993, Case No. 93-50224. Lucille Wright Lundy filed on May 3, 1993 in the Southern District of Florida, Case No. 93-31460FL. Her husband, J.T. Lundy, filed a separate petition for relief, also in the Southern District of Florida. His case was subsequently removed to this court, Case No. 93-50775. Courtenay Wright Lancaster and her husband, James Estill Lancaster, filed on January 3, 1994, Case No. 94-50001. Warren Wright, III and his wife, Donna Wright, filed on May 7, 1996, Case No. 96-50958. Thomas Cochran Wright is the only member of the family who has not filed.

The Wright Enterprises partnership was formed by the Wrights on the advice of Robey and Lundy for the purpose of investing in business ventures other than the farm. Investment capital consisted of Bertha Wright's income from the trust and the children's income from oil and gas interests which they had inherited under their grandfather's will. As CEO of Wright Enterprises Robey was responsible for managing partnership investments.

Sometime in 1987, in connection with a revision of Robey's employment contract, the partnership obtained from Pacific Corinithian Life Insurance Company a $500,000 insurance policy on Robey's life. The partnership was the named beneficiary of the policy.

The demise of the partnership was concomitant with the demise of Calumet Farm, Inc. In 1991 Robey was fired from his position as CEO of Wright Enterprises. Shortly thereafter he filed in the Fayette Circuit Court an action against the partnership for a declaration of rights and for damages for breach of his employment contract with the partnership, Fayette Circuit Court Civil Action No. 91-CI-2407. Robey died while this action was pending. Presumably, his administrator, the movant herein, has revived that action.

On February 14, 1992, PNC Bank, Kentucky, formerly known as Citizens Fidelity Bank & Trust Company, which held a substantial claim against Wright Enterprises, commenced in the Fayette Circuit Court, a civil action against Wright Enterprises, the Wrights individually and J.T. Lundy on the claim, Fayette Circuit Court Civil Action No. 92-CI-0563. On December 3, 1993 an agreed judgment in the amount of $1,532,807.25 and interest in the amount of $319,642.35 was entered in that action against Wright Enterprises. The agreed judgment also determined the liability of Warren Wright III, Courtenay Wright Lancaster, and Thomas C. Wright, the members of the Wright family who, as of the date of the judgment, had not sought bankruptcy protection.

On April 22, 1994, PNC Bank assigned to Donald Puckett, Nancy A. Puckett and Michael Sweeney its interest in Civil Action No. 92-CI-0563 and the agreed judgment entered therein.

On September 22, 1994 Wright Enterprises received the sum of $523,422.12 from Pacific Corinthian Life Insurance Company as beneficiary of the policy the partnership had taken out on the life of Lyle Robey.

On January 20, 1995 the Fayette Circuit Court permitted the Wrights individually and Wright Enterprises to file a Third-Party Interpleader Complaint in Civil Action No. 92-CI-0563 in which the judgment in favor of Donald Puckett, Nancy A. Puckett and Michael Sweeney as assignees of PNC Bank had been entered.

Named as defendants in the third-party interpleader complaint were Donald Puckett, Nancy Puckett and Michael Sweeney, assignees of PNC Bank and Amsouth Bank, as well as Karen Compton, Administratrix of the Estate of Lyle Robey, National City Bank, Frank Rhodus, Ralph Rhodus, Louise Rhodus and Midlantic National Bank. These were apparently thought to be all of the creditors of Wright Enterprises. In furtherance of its third-party interpleader action Wright Enterprises, on March 7, 1995, paid into the registry of the Clerk of the Fayette Circuit Court $500,904.11 of the insurance proceeds it had received from Pacific Corinthian Life Insurance Company as beneficiary of the life insurance policy on Robey. The Third-Party Interpleader Complaint asked the court to determine entitlement of the defendants to the insurance proceeds.

On March 8, 1995 the Wrights and Wright Enterprises filed a First Amended Third-Party Interpleader Complaint in Fayette Circuit Court, Civil Action No. 92-CI-0563, naming as additional defendants, Lucinda Masterton Hall, the chapter 7 trustee in Bertha Wright's pending bankruptcy case, AKRO Transmission Co. and Sequa Corporation. The naming of Ms. Hall (now Ms. Masterton) as a defendant in the interpleader action was precipitated by the fact that on February 13, 1995 she, acting as the representative of the estate of Bertha Wright, filed an adversary proceeding, Adv. No. 95-5013, against Wright Enterprises to set aside as fraudulent certain transfers of property Bertha Wright had made to Wright Enterprises. Thus the estate of Bertha Wright was claiming to be a creditor of Wright Enterprises.

Meanwhile, on December 15, 1995, the debtor, Bertha C. Wright, her trustee in bankruptcy, Lucinda Masterton, and Central Bank, as successor trustee of the trust established by the will of Warren Wright, Jr., entered into a Settlement Agreement. In exchange for consideration as set out in the Settlement Agreement, including the release by Bertha Wright of any claim to $548,679.15 trust income in the possession of the bankruptcy trustee, the bankruptcy trustee assigned to Bertha Wright the bankruptcy trustee's cause of action against Wright Enterprises as set out in Adversary Proceeding No. 95-5013. After substitution of Bertha C. Wright as the plaintiff in that action she, by counsel, voluntarily dismissed the action by an order entered September 18, 1996. Consequently, the bankruptcy estate of Bertha C. Wright is no longer asserting a claim against Wright Enterprises. Thus, it might appear the outcome of the litigation over entitlement to the proceeds of the policy insuring the life of Lyle Robey will have no effect on the bankruptcy estate of Bertha C. Wright.

However, PNC Bank, Kentucky, Inc., the successor in interest to Citizens Fidelity Bank and Trust Company, has filed a claim in the Bertha C. Wright bankruptcy case. This claim, claim no. 11, as amended by claim no. 14, for the amount of $1,713,356.66, is based on the same note on which judgment was entered in the bank's action in Fayette Circuit Court, Civil Action No. 92-CI-0563, against Wright Enterprises and three of the Wright children. This claim has been assigned to Donald Puckett, Nancy A. Puckett and Michael Sweeney. See assignment filed August 30, 1995, Document No. 232 in the Bertha C. Wright case.

Also, Frank Rhodus and Ralph Rhodus, who are creditors of Wright Enterprises, have filed a claim in the Bertha C. Wright case for $168,522.16 based on guarantees executed by Wright Enterprises. This claim has likewise been assigned to the Pucketts and Sweeney.

Finally, Castil Williams, as trustee in the Wright Enterprises case, has filed in the Bertha C. Wright case an omnibus claim in behalf of all of the creditors of Wright Enterprises.

Insofar as the court can determine from the record all of these claims appear to be timely in that an expiration date for filing claims has not yet been fixed in the Bertha C. Wright case.

The trustee of Wright Enterprises has timely filed an omnibus proof of claim in behalf of the creditors of Wright Enterprises in the Warren Wright III and Donna Wright bankruptcy case no. 96-50958, claim no. 7.

Donald and Nancy Puckett and Michael Sweeney as assignees of creditors of Wright Enterprises, Amsouth Bank of Alabama, Frank Rhodus and Ralph and Louise Rhodus, and PNC Bank, Kentucky, Inc., have also timely filed claims in the case of Warren Wright III and Donna Wright, claims 8, 9 and 10.

PNC Bank, Kentucky, Inc., formerly Citizens Fidelity Bank and Trust Company, has filed a claim in the Courtenay Wright Lancaster and James Estill Lancaster case no. 94-50001, based in part on indebtedness for which the Lancasters are jointly obligated to the bank on the agreed judgment entered in favor of the bank against Wright Enterprises, claim no. 4.

Donald and Nancy Puckett and Michael Sweeney have filed in the Courtenay Wright Lancaster case claims as assignees of the note on which the aforementioned judgment was entered, claim no. 17, and as assignees of the claims of Frank Rodus and Ralph and Louise Rhodus, claim no. 24.

The trustee of Wright Enterprises has filed a claim in the Courtenay Wright Lancaster and James Lancaster case in behalf of the creditors of Wright Enterprises, claim no. 36.

On March 31, 1995, Karen Compton, administratrix of the estate of Lyle Robey, filed an Answer, Counterclaim and Cross-claim to the Third Party Interpleader Complaint and First Amended Third Party Interpleader Complaint of Wright Enterprises. The counterclaim adopts and incorporates by reference the allegations of the complaint in the breach of employment contract action which Robey previously had filed in the Fayette Circuit Court, Civil Action No. 91-CI-2407. By his complaint therein Robey seeks a declaration that Wright Enterprises was obligated to honor his employment contract, including payment of his salary and providing the fringe benefits enumerated in the contract, through September 30, 1993, the expiration date of the contract.

The counterclaim in behalf of Robey's estate further alleges that Robey has a claim to and equitable lien against, and a right to possess and retain the entire amount of, the funds received by Wright Enterprises as proceeds of the insurance policy on Robey's life.

On April 10, 1995, within 30 days after she was served with a copy of the First Amended Third-Party Interpleader Complaint naming her as a defendant, the chapter 7 trustee filed in the Bertha C. Wright bankruptcy case a notice of removal of the interpleader action from the Fayette Circuit Court to this court. The style of the action is now as indicated by the above caption of this adversary proceeding.

On April 26, 1995 Wright Enterprises, Thomas C. Wright, and Warren Wright, III, by counsel, requested by motion that this court abstain from accepting removal jurisdiction or remand this interpleader action to the Fayette Circuit Court. On May 8, 1995 Donald Puckett, Nancy A. Puckett, and Michael Sweeney joined in the motion to abstain or remand.

The foregoing motions came on for hearing before the court on May 17, 1995, at which time the court indicated it was inclined to remand the interpleader action to state court. However, on June 6, 1995, before an order of remand was entered, a petition for an order placing Wright Enterprises in bankruptcy involuntarily was filed by National City Bank, Kentucky, trustee of the trust created by the will of Warren Wright, Jr. This operated to stay the claims being asserted in the interpleader action by the defendant creditors against Wright Enterprises. The court abated the motion to abstain or remand pending a determination of the status of the involuntary proceedings against Wright Enterprises, which by answer was contesting the involuntary petition. Ultimately, after considerable discovery, Wright Enterprises, on May 29, 1996, consented to the entry of an order for relief under chapter 7 in the involuntary proceedings. Castil Williams is the chapter 7 trustee in the Wright Enterprises case.

On July 8, 1996 the estate of Lyle Robey, by counsel, filed a proof of claim in the Wright Enterprises bankruptcy case asserting entitlement to the insurance proceeds involved in this removed interpleader action and reiterating the claim of the Robey estate for breach of contract as set forth in the complaint in Fayette Circuit Court Civil Action 91-CI-2407. The claim is supported by exhibits which include the pleadings in the aforementioned civil action and the counterclaim of the Robey estate in this removed adversary proceeding. See Proof of Claim No. 1 in Wright Enterprises case.

On July 15, 1996, Matthew Robey, administrator of the estate of Lyle Robey, by counsel, filed a motion in the Wright Enterprises case requesting relief from stay for the purpose of filing an amended answer, cross-claim and counterclaim in Adversary Proceeding No. 95-5034, this removed interpleader action, and for the purpose of requesting remand of this action to the Fayette Circuit Court. The hearing on the motion was by agreement of the parties continued from August 21, 1996 to September 4, 1996.

On August 23, 1996 Castil Williams, the trustee of the bankruptcy estate of Wright Enterprises, moved for an order requiring the clerk of the Fayette Circuit Court to turn over to him the $500,914.11 deposited with that court by Wright Enterprises when this interpleader action was commenced.

At the hearing on September 4, 1996 the court sustained the motion of Matthew Robey, administrator of the estate of Lyle Robey, for relief from stay. An order permitting the Robey estate to file an amended answer, cross-claim and counterclaim in the removed interpleader action was entered September 16, 1996. The order also permitted the Robey estate to seek remand of this interpleader action to the Fayette Circuit Court.

The Robey estate's motion for remand of this Adversary Proceeding, No. 95-5024, this interpleader action, came on for hearing before the court on October 2, 1996, as did the motion of Castil Williams in the Wright Enterprises case for an order directing the clerk of the Fayette Circuit Court to turn over funds deposited with that court in this action.

On October 2, 1996, Castil Williams, the chapter 7 trustee in the Wright Enterprises case, filed a notice of removal of this already removed civil action, which is the subject of the motion to abstain and remand filed by Robey's administrator. The chapter 7 trustee apparently is relying on Rule 9027(a)(2)(B) of the Federal Rules of Bankruptcy Procedure, which permits removal within 30 days after entry of an order terminating stay.

CONCLUSIONS OF LAW:

The fact the chapter 7 trustee in the Bertha C. Wright case has settled adversary proceeding no. 95-5013 and is no longer asserting a claim against Wright Enterprises is not dispositive of the pending motion to abstain or remand.

As partners of Wright Enterprises, Bertha C. Wright and her children and their bankruptcy estates are jointly and severally liable for the debts of Wright Enterprises.

The creditors of Wright Enterprises have filed claims in the Bertha C. Wright bankruptcy case and in the bankruptcy cases of the Wright children pending in this court.

Obviously, there is a relationship between the disposition of the insurance proceeds at issue in this removed interpleader action and the bankruptcy cases of Bertha C. Wright and her children. To the extent claims of creditors of Wright Enterprises may be satisfied from the insurance proceeds on deposit in the interpleader action only the unpaid amount of such claims will be allowable against the bankruptcy estates of Bertha C. Wright and her children. Consequently, the outcome of the litigation in the interpleader action will have an impact on the distribution to creditors in the Bertha C. Wright bankruptcy case and similarly will have an impact on the distribution to creditors in the individual bankruptcy cases of the Wright children.

Accordingly, it is inaccurate to state that the disposition of the interpleader action will have no effect on the Bertha C. Wright bankruptcy case. The interpleader action was properly removed pendent to the Bertha C. Wright bankruptcy case and remains in this court properly pendent to that case. It may be viewed as properly pendent to the bankruptcy cases of the Wright children or of Wright Enterprises as well.

This interpleader action had been removed from the Fayette Circuit Court and was pending in this court when the involuntary petition against Wright Enterprises was filed. Upon the filing of the involuntary petition the monies previously deposited with the Fayette Circuit Court Clerk pursuant to the interpleader action became subject to the exclusive jurisdiction of this court. 28 U.S.C. 1334(e). In such circumstance Congress contemplated that competing claims to monies deposited in an interpleader action should be adjudicated in the course of bankruptcy proceedings. NTL Computer Services v. Capital Computer Systems, 755 F.2d 1253, 1264 (6th Cir. 1985).

The administrator of the estate of Lyle Robey filed an answer and counterclaim to the Third-Party Interpleader Complaint prior to removal of the interpleader action to this court. The counterclaim in behalf of Robey's estate adopts the separate cause of action which Robey previously had filed in the Fayette Circuit Court seeking a declaration that Wright Enterprises was obligated to honor his employment contract with the partnership through September 30, 1993. Robey also sought damages for breach of the employment contract.

The counterclaim in behalf of the Robey estate also alleges Robey has a claim to and equitable lien against, and a right to possess and retain the entire amount of the funds received by Wright Enterprises as proceeds of the policy insuring his life.

As a consequence of the bankruptcy of Wright Enterprises the aforementioned claims by Robey's administrator are claims against the Wright Enterprises bankruptcy estate and have been transmuted into core proceedings. 28 U.S.C. 157(b)(2)(A),(B),(K),(O).

Unquestionably this court has jurisdiction over these claims against the bankruptcy estate of Wright Enterprises, and, because the determination of these claims is a core proceeding, the mandatory abstention provisions of 28 U.S.C. 1334(c)(2) do not apply. In re Dow Corning Corp., 86 F.3d 482, 497 (6th Cir. 1996).

Also, because the claims asserted in behalf of Robey under the procedural context here presented have been converted into equitable claims against a bankruptcy estate there is no longer a right to a jury trial on the claims. Langenkamp v. Culp, 111 S. Ct. 330 (1990). Therefore, the court perceives no grounds for equitable abstention in this matter.

The motion of Matthew Robey, Administrator of the Estate of Lyle Robey, requesting this court to abstain from hearing and to remand this adversary to the Fayette Circuit Court shall be overruled.

The prior motion of the debtor, Wright Enterprises, and Thomas C. Wright and Warren Wright III, joined in by the Pucketts and Sweeney, for abstention or remand, which was held in abeyance by this court's order of November 16, 1995, likewise shall be overruled.

In view of the fact that the estate of Lyle G. Robey has filed a claim in the Wright Enterprises case, claim no. 1, which is based on the same claims asserted by Robey in the pleadings in this removed interpleader action, this adversary proceeding shall be consolidated for purposes of trial with any objections to the

 

allowance of the claim of the Robey estate in the Wright Enterprises case.

Dated:

By the court -

 

 

________________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Frank T. Becker, Esq.

Castil Williams, Esq.

Karen J. Greenwell, Esq.

Jeff Landen, Esq.

Steve Wilson, Esq.

Harvie Wilkinson, Esq.

U.S. Trustee

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

BERTHA C. WRIGHT CASE NO. 93-50224

 

DEBTOR

 

 

 

DONALD PUCKETT, NANCY A. PUCKETT,

MICHAEL SWEENEY, Assignees of

PNC Bank, Kentucky, Inc., f/k/a

Citizens Fidelity Bank & Trust Co. PLAINTIFFS

 

vs. ADVERSARY NO. 95-5034

 

CASTIL WILLIAMS, Trustee of the

bankruptcy estate of Wright

Enterprises DEFENDANT AND

THIRD-PARTY PLAINTIFF

 

vs.

 

DONALD PUCKETT, NANCY A. PUCKETT,

MICHAEL SWEENEY, Assignees of

PNC Bank, Kentucky, Inc., f/k/a

Citizens Fidelity Bank & Trust Co.;

MATTHEW ROBEY, Administrator of the

Estate of Lyle G. Robey, deceased;

NATIONAL CITY BANK;

AKRO TRANSMISSION CO.; and

SEQUA CORPORATION THIRD-PARTY DEFENDANTS

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered all pending motions to remand this interpleader action to the Fayette Circuit Court should be and hereby are overruled.

The motion of Castil Williams, the chapter 7 trustee in the Wright Enterprises bankruptcy case, for an order authorizing and directing the Clerk of the Fayette Circuit Court to turn over to him the funds deposited with that court in connection with this interpleader action is sustained.

Dated:

By the court -

 

________________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Frank T. Becker, Esq.

Castil Williams, Esq.

Karen J. Greenwell, Esq.

Jeff Landen, Esq.

Steve Wilson, Esq.

Harvie Wilkinson, Esq.

U.S. Trustee

 

 

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