BOWER v. StephensonBOWER v. Stephenson
Signed: December 12 2022
DISTRICT OF COLUMBIA, Plаintiff, v. THOMAS K STEPHENSON, Defendant. Adv. Pro. 21-10002-ELG
KAREN A. BOWER, Plaintiff, v. THOMAS K STEPHENSON, Defendant. Adv. Pro. 21-10003-ELG
The Court has before it the fully briefed Defendant‘s Motion for Summary Judgment or Partial Summary Judgment (the “Motion“),1 Bower, Def.‘s Mot., ECF No. 70; Dist., Def.‘s Mot., ECF No. 50, filed by Thomas K. Stephenson (the “Debtor“) in opposition to both the Complaint to Deny Discharge of Debtor and Complaint to Determine Debt to be Non-Dischargeable filed by Karen A. Bower (“Ms. Bower“), Bower, Compl., ECF No. 1, and the Complaint to Deny Discharge of Debtor filed by the District of Columbia (the “District“). Dist., Compl., ECF No. 1 (collectively the “Complaints“). Prior to the filing of the Debtor‘s Motion, the Court dismissed the counts of Ms. Bower‘s complaint that sought to determine certain debts to be non-dischargeable, leaving the only issues remaining in these cases the Plaintiffs’ claims under sections of
These cases present an issue of first impression for this Court, whether, in an individual case converted to chapter 7 after confirmation of a chapter 11 plan but prior to the effective date of the plan or the entry of a chapter 11 discharge, the doctrine of res judicata bars the reliance on pre-confirmation acts or omissions in support of a complaint objecting to the individual debtor‘s chapter 7 discharge. As more fully set forth herein, the Court finds that res judicata does not apply, and the Plaintiffs are not prohibited from relying on acts or omissions that occurred prior to plan confirmation in support of the relief requested under
I. Relevant Background
i. The Superior Court Case
Prior to filing this Case, the Debtor owned and operated several real properties, some of which were rental residential housing accommodations located in the District of Columbia. Dist., Compl. ¶¶ 3-4, ECF No. 1-1; Dist., Debtor‘s Answer ¶¶ 3-4, ECF No. 26. In June 2018, the District of Columbia (the “District“) commenced a lawsuit against the Debtor in the Superior Court for the District of Columbia seeking to hold him liable for the alleged sub-standard condition of the District of Columbia rental properties (the “DC Properties“).3 Dist., Compl. ¶ 6; Dist., Def.‘s Answer ¶ 4. A preliminary injunction order was issued in October 2018 requiring the Debtor to abate certain housing and other code violations in the DC Properties. Dist., Compl. ¶ 8.
ii. The Debtor‘s Bankruptcy Cases
In January 2019, after the appointment of Ms. Bower, the Debtor filed a chapter 13 petition which was subsequently dismissed on the chapter 13 trustee‘s motion because he was over the statutory debt limits for chapter 13 in effect at the time. See generally In re Stephenson, Case No. 19-00043-SMT. Shortly thereafter, on March 3, 2019, the Debtor commenced this Case under chapter 11 of the Bankruptcy Code. In re Stephenson, Case No. 19-00149-ELG, Chapter 11 Vol. Pet., ECF No. 1.5 On March 19, 2019, the Court issued its Official Form 309E Notice of Chapter 11 Bankruptcy Case, which stated that the deadline for filing objections to the discharge under
On June 13, 2019, the District filed a motion to appoint a chapter 11 trustee alleging several shortcomings of the Debtor as debtor-in-possession including failing to account for monies that should have
On November 26, 2019, the Trustee filed his Plan of Liquidation (the “Plan“) which proposed to pay the Debtor‘s creditors through liquidation of all or part (as necessary), of the Debtor‘s real property. Stephenson, Plan, ECF No. 200. January 29, 2020 was set as the first date for the hearing on plan confirmation, and therefore was also the deаdline to object to the Debtor‘s discharge under
iii. Confirmation, Conversion, and the Sale of the Eastern Avеnue Property
A notice of the confirmation hearing on the Plan was served on all creditors, including Plaintiffs. See Stephenson, ECF Nos. 203, 204. There were no objections to the Trustee‘s Plan except by the Debtor, who objected to the proposed sale of all of his properties, instead seeking to retain some or all through a competing plan. Stephenson, Debtor‘s Plan of Reorganization, ECF No. 210; Stephenson, Debtor‘s Obj. to the Chapter 11 Trustee‘s Plan of Liquidation, ECF No. 217.7 On January 29, 2020, a confirmation hearing was held on the Trustee‘s Plan (the “Confirmation Hearing“) and on February 18, 2020, the Court entered an order confirming the Plan (the “Confirmation Order“), overruling the Debtor‘s objection, and denying confirmation of the Debtor‘s cоmpeting plan. Stephenson, Order Confirming Trustee‘s Plan of Liquidation, ECF No. 239.
Despite complications caused by the onset of the COVID-19 pandemic a month after entry of the Confirmation Order, by September 1, 2020 the Trustee had sold all but one of the Debtor‘s real properties. Stephenson, Trustee‘s Mot. Convert ¶¶ 6, 8, ECF No. 289. The sales resulted in the Trustee holding $979,611.07 after payment of secured claims, with an estimated $1,890,910.57 in claims remaining against
While the Debtor‘s objection was pending, the Trustee filed a motiоn to convert the Debtor‘s case to chapter 7 after determining that the chapter 11 estate was administratively insolvent, and that any sale proceeds realized from the Eastern Avenue Property would be insufficient to pay all claimants in full as required by the Plan. Stephenson, Trustee‘s Mot. Convert, ¶ 24, ECF No. 289. On October 28, 2020, the Court issued an order converting the Debtor‘s case to chapter 7. Stephenson, Order Converting Case from Chapter 11 to Chapter 7, ECF No. 303. The Trustee was appointed chapter 7 trustee.8 Subsequently, on December 3, 2020, the chapter 7 § 341 meeting of creditors was held, making the deadline to object to the Debtor‘s chapter 7 discharge February 1, 2021. Stephenson, Notice of Chaptеr 7 Bankruptcy Case, ECF No. 305; Stephenson, Minute Entry*9;
After the Case was converted to chapter 7, the Debtor and the Trustee reached a compromise wherein the Debtor agreed to purchase the Eastern Avenue Property from the Trustee for $250,000 upon obtaining financing, otherwise the Trustee was authorized to sell the property pursuant to
iv. The Adversary Proceedings and the Debtor‘s Pro Bono Application
Plaintiffs commenced their respective adversary proceedings on February 1, 2021. On May 13, 2021, the Debtor filed an Application for Appointment of Pro Bono
The Complaints of the District and Ms. Bower are similar on many elements and allegations in seeking the denial of the Debtor‘s discharge. Both the District and Ms. Bower seek denial of the discharge under
Due to the overlapping nature of the allegations, the two Complaints have proceeded on parallel tracks in the Court. Additionally, the Debtor‘s Motion was a joint motion filed in both cases and was heard at a combined hearing as to both Complaints. Other than the additional causes of action included in Ms. Bower‘s Complaint as specifically addressed herein, any minor differences in the Complaints are immaterial to this Opinion.
v. The Debtor‘s Motion for Summary Judgment
In November 2021, after the conclusion of unrelated issues in these adversary procеedings, the Court entered a scheduling order in this matter, which order was subsequently
The Debtor‘s Motion argues that he is entitled to summary judgment because the entry of the Confirmation Order and lack of any timely
In the Plaintiffs’ oppositions to the Debtor‘s Motion, neither the District nor Ms. Bower dispute the procedural facts identified by the Debtor as undisputed in support of his Motion and instead contend that that the Debtor‘s reliance on the preclusive effect of the Confirmation Order is misplaced.11 The Plaintiffs argue that because the Plan was a liquidating plan,
to bring the Complaints and because the Plan was never effective, they cannot be precluded from now asserting the Complaints. See Bower, Opp‘n at 16-18, ECF No. 79; Dist., Opp‘n at 11, ECF No. 59.
The Debtor‘s reply argues that the Plaintiffs’ reliance on
II. Jurisdiction
This Court has jurisdiction over this matter pursuant to
III. Discussion
a. Summary Judgement Standard
Summary judgment is proper where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
b. No Genuine Dispute of Material Fact as to the Pre-Confirmation Activities
The Complaints contain significant and substantial numbers of factual allegations
c. The Res Judicata Effect of the Confirmation Order on Pre-Confirmation Actions
Under the doctrine of res judicata (or claim preclusion), “a subsequent lawsuit will be barred if there has been prior litigation (1) involving the same claims or cause of action, (2) between the same parties or their privies, and (3) there has been a final, valid judgment on the merits, (4) by a court of competent jurisdiction.” Smalls v. United States, 471 F.3d 186, 192 (D.C. Cir. 2006); see also In re Greater S.E. Cmty. Hosp. Corp., 333 B.R. 506, 533 (Bankr. D.D.C. 2005). “The common-law principle of res judicata, however, does not apply ‘when a statutory purpose to the contrary is evident.‘” In re Witkowski, 16 F.3d 739, 744 (7th Cir. 1994) (quoting Astoria Fed. Sav. & Loan Ass‘n v. Solimino, 501 U.S. 104, 108 (1991), quoting Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783 (1952)). Thus, the doctrine of res judicata does not apply if the plain language of a statute makes it clear that it does not apply. Witkowski, 16 F.3d at 745. As set forth below, the plain language of
The Debtor relies on the pre-BAPCPA12 opinion of Bank of Louisiana v. Pavlovich (In re Pavlovich) in support of the preclusive nature events in the chapter 11 portion of this case on the use of the Pre-Confirmation Actions in the Complaints. Bower, Def.‘s Mot. at 16, ECF No. 70. In
Pavlovich, the Fifth Circuit held that an order confirming an individual chapter 11 plan and granting the debtor their discharge was res judicata to a creditor‘s reliance on pre-confirmation events in a later complaint objecting to the debtor‘s (“Pavlovich“) discharge or the dischargeаbility of certain debts after the case converted from chapter 11 to chapter 7. Bank of La. v. Pavlovich (In re Pavlovich), 952 F.2d 114, 119 (5th Cir. 1992). The Court further held that the confirmation order was preclusive notwithstanding the finding that a new filing period for objections to the discharge commences under
Before the addition of
While the Pavlovich court did recognize the general rule that plan confirmation has res judicata effect on issues determined at confirmation, it was not subject to the limitations of
(A) unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any debt provided for in the plan until the court grants a discharge on completion of all payments under the plan;
(B) at any time after the confirmation of the plan, and after notice and a hearing, the court may grant a discharge to the debtor who has not completed payments under the plan if—
(i) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 on such date;
(ii) modification of the plan under
section 1127 is not practicable; and(iii) subparagraph (C) permits the court to grant a discharge; and
(C) the court may grant a discharge if, after notice and a hearing held not more than 10 days before the date of the entry of the order granting the discharge, the court finds that there is no reasonable cause to believe that—
(i)
section 522(q)(1) may be applicable to the debtor; and(ii) there is pending any proceeding in which the debtor may be found guilty of a felony of the kind described in
section 522(q)(1)(A) or liable for a debt of the kind described insection 522(q)(1)(B) ;and if the requirements of subparagraph (A) or (B) are met.
converts to chapter 7 ”
Post-BAPCPA, individual chapter 11 debtors are only discharged when “the court grants a discharge on completion of all payments under the plan” making the discharge both contingent and delayed.
However, that is not the question in this case and under the current language of the Bankruptcy Code. The Debtor was not discharged in this chapter 11 case upon confirmation of the chapter 11 trustee‘s liquidating plan. Thus, there is no need or factual basis to move under
The Court‘s reasoning herein is consistent with the only other court to discuss the issue of the right of a party to file a post-confirmation objection to discharge in an individual chapter 11 case post-BAPCPA. In In re Ballas, No. 09-12545, 2012 Bankr. LEXIS 1156, at *11-12 (Bankr. S.D. Fla. Mar. 16, 2012), the Bankruptcy Court for the Southern District of Florida recognized that “[t]he right of a party in interest to object to entry of discharge under Section 1141(d)(5) is preserved post-confirmation until such time as the court is asked to grant a discharge for a debtor who is an individual.” In re Ballas, No. 09-12545, 2012 Bankr. LEXIS 1156, at *11-12. The Ballas Court further found that
Moreover, nоthing in the language of the Plan, including Sections B and K changes this outcome. Under the Plan, the Debtor would have been discharged under
Therefore, for the reasons stated above, the Confirmation Order is not res judicata as to the Plaintiffs’ reliance on the Pre-Confirmation Actions in the Complaints and the Defendant‘s Motion for summary judgmеnt must be denied.
d. Genuine Issue of Material Facts as to the Post-Confirmation Activities
The Debtor‘s Motion relies upon the exclusion of the Pre-Confirmation Actions in his argument that the Post-Confirmation Actions are not sufficient to state a claim under
Conclusion
For the reasons stated, it hereby ORDERED that the Debtor‘s Motion is DENIED. The Court‘s previous Scheduling Orders is VACATED, and the Parties are instructed to submit an amended scheduling order no later than five days after this order becomes a final order.
[Signed and dated above]
Service to: Debtor; recipients of electronic notices.
Notes
(5) In a case in which the debtor is an individual—