Kanke v. Adams (In Re Adams)Kanke v. Adams (In Re Adams)
For the reasons explained below, we reverse the bankruptcy court’s order confirming the Debtors-Appellees’ Chapter 13 plan and remand to the bankruptcy court ' for further proceedings in accordance with this opinion.
I. Background
In 2002, Debtor Lynda Adams was appointed by a Wyoming state court as the personal representative for the probate estate of Mark Schanbacher (“Probate Estate”). She was later removed as personal representative for the Probate Estate and was replaced by Appellant Christine Ann Kanke. In February 2004, the Appellant initiated a suit against the Debtors in state court alleging that they had embezzled or stolen assets from the Probate Estate and sought to recover the value of those assets.
Shortly before the state court trial was to begin, the Debtors filed their Chapter 13 petition. In their schedules, the Debtors showed a debt to the Appellant as unliquidated and for an unknown amount. The schedules also showed other unsecured debts totaling $184,456.11. 1
The Appellant originally filed a proof of claim for $237,000, but later amended it to $353,361.38. The amended claim was for $176,680.67, which the Appellant asserts is the value of the assets stolen or embezzled by the Debtors. The $176,680.67 was then doubled pursuant to Wyoming statutes that provide for the doubling of the value of assets embezzled by a personal representative. See Wyo. Stat. Ann. § 2-7-411 & § 2-7-413(b). 2 The Debtors objected to the Appellant’s proof of claim, and the bankruptcy court abstained from determining the validity and amount of the claim in favor of the pending state court action.
Additionally, the Appellant objected to confirmation on grounds that the Debtors’ plan violated 11 U.S.C. § 1325(b)(1)(B) because the Debtors did not submit the proceeds from the sale of their homestead as part of their disposable income available for administration of the plan. The Appellant also objected alleging the Debtors’ plan was made in bad faith. The bankruptcy court overruled the Appellant’s objections and confirmed the plan, holding that the Appellant’s claim was unliquidat-ed. The bankruptcy court stated it would later consider dismissal on grounds that the Debtors were ineligible under § 109(e) should the Appellant prevail in the state court action.
In addition to her objection to confirmation, the Appellant filed a motion to dismiss the petition on the grounds that the Debtors were ineligible for Chapter 13 relief because the Debtors’ non-contingent and liquidated unsecured debts exceeded the § 109(e) threshold. The bankruptcy court denied the motion to dismiss.
The Appellant then appealed: (1) the bankruptcy court’s confirmation of the Debtors’ third amended plan, and (2) its denial of the motion to dismiss.
II. Standard of Review
Determining whether a claim is liquidated involves interpretation of the Bankruptcy Code, which is a question of law, and is reviewed
de novo. See In re Slack,
III. Discussion
Although the Appellant raises many arguments in support of its objection to confirmation of the plan, it is necessary to only address the first: whether the bankruptcy court erred in confirming the third amended plan because the Debtors are ineligible for Chapter 13 relief as their non-contingent and liquidated unsecured debts exceed the § 109(e) threshold. 3
Section 109(e) establishes who is eligible for relief under Chapter 13. Here, the pertinent portion provides that:
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than [$307,625.00] ... may be a debtor under chapter 13 of this title.
11 U.S.C. § 109(e).
The term “liquidated” is not defined in the Bankruptcy Code. However, it is well-settled that whether a debt is “liquidated” turns on whether the amount is “readily determinable.” A debt is considered non-contingent where all events that
The amount of debt is readily determinable only if the process of determining the claim is fixed, certain, or otherwise determined by a specific standard.
See In re Barcal,
While a minority of courts hold otherwise, the overwhelming body of precedent holds that a dispute regarding liability on a claim is insufficient to render a claim unliquidated.
See id.
at 304-05 (citing
United States v. Verdunn,
The key factor for determining whether a debt is liquidated or unliquidat-ed is whether the debt is subject to a simple mathematical computation or ascertainable by reference to an agreement.
See In re Barcal,
A prime example of application of this concept is found in
In re Reader.
Indeed, that case bears a striking similarity to the case at hand. There, the debtor allegedly misappropriated funds from her deceased father’s estate while acting as conservator. The bankruptcy court granted a motion to dismiss the petition on grounds that the debtor was ineligible pursuant to § 109(e) because the amount of the debt owed for misappropriated estate funds was readily determinable by reference to a special master’s report. That report did not decide the validity of the creditor’s claim but instead looked at the appropriate records to quantify the questionable transactions by the debtor as conservator.
See In re Reader,
We believe that the majority approach is the better reasoned one. Otherwise, a debtor, simply by characterizing certain claims as disputed, could ensure his eligibility to proceed under Chapter 13 in circumstances that Congress intended to exclude from that chapter.
See Mazzeo v. United States (In re Mazzeo),
In considering eligibility, it is appropriate for a court to “rely primarily upon a debtor’s schedules and proofs of claim, checking only to see if these documents were filed in good faith.”
Barcal,
Nevertheless, if the bankruptcy court’s duty is to search the record, then it is still possible to conclude that the claim in this case is at least partially liquidated.
At the confirmation hearing, the Appellant made a proffer of evidence, uncontested by the Debtors and accepted by the bankruptcy court, that reflected the testimony of Edward T. Hager, a certified public accountant, regarding his investigation into the Probate Estate’s financial records and his resulting report quantifying damages caused by the Debtors. (See Appellant’s App. at 75-82.) Hager’s report and supporting documents are attached as exhibits to the Appellant’s amended proof of claim. (See Appellant’s App. at 153-328.) The proffer and Hager’s report show a loss to the Probate Estate of $124,297.73, which includes a setoff for expenses by the Debtors of $21,750.48. Hag-er’s report shows losses for: (a) funds deposited into the Debtors’ personal bank account ($11,004.97); (b) sales identified by Mrs. Adams where funds were not fully accounted for ($3,183.24); (c) estate assets not accounted for ($3,102.00); (d) transfers from decedent’s business to Debtors’ personal account ($44,800.00); (e) rental income from decedent’s residence ($8,385.00); (f) loss of income related to decedent’s business ($68,573.00); and (g) loss of value of decedent’s Chevrolet Tahoe due to personal use by Debtors ($7,000). (See Appellant’s App. at 209.)
These items, with the exception of (f), are easily quantified by Hager’s report and supporting documents. A simple mathematical computation is all that is needed to fix an amount, or put another way, they are readily determinable. Therefore, those items are properly deemed liqui
However, at least one item of loss to the Probate Estate — which is a large dollar amount ($68,573.00) — is not' liquidated. This loss is attributed to Mrs. Adams’ breach of fiduciary duty in connection with a business owned by the Probate Estate. The decedent had owned and operated a company named Shanco, Inc., which sold garage door lubricant. In her capacity as personal representative, Mrs. Adams managed Shanco, Inc., but ultimately established a competing business named Kenco, Inc., which also sold garage door lubricant. She then marketed her garage door lubricant to Shanco’s customers who, because of her management of that company, were under the impression that they were dealing with Shanco when in fact they were dealing with Kenco.
(See
Appellant’s App. at 301-306.) Hager quantified the “loss of business value” from Adams’s mismanagement of Shanco, Inc. and her breach of fiduciary duty to the Estate at $68,573. The amount of this part of the Appellant’s claim, however, is not “readily determinable” because it is subject to a future exercise of discretion by the trier of fact.
See In re Salazar,
The Appellant’s uncontested proffer also included a calculation of damages for misappropriation of trade information under state law. This claim is based upon Mrs. Adams’ opening her own business using the decedent’s unique product. The Appellant asserts that these damages are calculated at $18,644.83, which is based upon the sales and bank records of Mrs. Adams’ business. (See Appellant’s App. at 78 & 127.) Because this amount is also readily determinable by simply adding the deposits made from Mrs. Adams’ business, it is also properly included in deciding the Debtors’ eligibility for Chapter 13 relief.
The Appellant also correctly points out these damages could be doubled under Wyoming law.
See
Wyo. Stat. Ann. §§ 2— 7-411 & 2-7-413(b) (1977). Because such a figure is easily calculated by multiplying by two, we have no difficulty concluding that it is “readily determinable.”
See In re Krupka,
Our analysis thus far includes the amount calculated by Hager’s report, plus the $18,644.83 outlined above, minus the amount attributed to loss of income related to decedent’s business. A breakdown of the figures looks like this:
Total amount from Hager’s report $124,000.00
Total amount for damages for misappropriation of trade secrets +$ 18,644.83
Sub-total $142,644.83
Loss of value to Shanco -$ 68,573.00
Grand Total $ 74,071.83
When the resulting $74,071.83 is doubled per state law, the new total is $148,143.66. Adding the $148,143.66 to the $184,456.11 listed in the schedules as non-contingent and liquidated unsecured debts gives us the sum of $332,599.77, which well exceeds the § 109(e) threshold of $307,625.00. Thus, the Debtors are not eligible for relief under Chapter 13. 4
For the reasons stated above, we hereby REVERSE the bankruptcy court and REMAND this matter to the bankruptcy court for further proceedings in accordance with this Opinion.
Notes
. None of these unsecured debts were listed as disputed, contingent, or unliquidated.
. Wyo. Stat. Ann. § 4-7-411 provides as follows:
If any person, before the granting of letters embezzles or alienates any of the monies, goods, chattels or effects of a decedent he is chargeable therewith and liable to an action by the personal representative of the estate for double the value of the property embezzled or alienated, for the benefit of the estate.
Wyo. Ann. § 2-7-411 (1977).
Wyo. Stat. Ann. § 2-7-413(b) provides as follows in pertinent part:
Any judgment recovered shall be for double the value of the property as assessed by the court, or for return of the property and damages in addition thereto equal to the value of the property.
Wyo. Stat. Ann. § 2-7-413(b) (1977).
. We also reject the Debtors’ argument that the Appellant’s notice of appeal for the orders confirming the Debtors' Chapter 13 plan and overruling the Appellant’s objection were untimely. Those orders were entered on May 19, 2006. (See Appellant’s App. at 105-107.) The applicable notice of appeal was filed on May 30, 2006. (See Appellant’s App. at 101.) Making the required allowance for the intervening Memorial Day holiday on May 29, 2006, the notice of appeal was filed within the required 10 days. See Fed. R. Bankr.P. 8002(a).
. The Appellant’s uncontested proffer also included other damages that we need not discuss. here since those already discussed render the Debtors ineligible for Chapter 13 relief.