Opinion ID: 2978970
Heading Depth: 2
Heading Rank: 2

Heading: Bates’s Claim Against Metro Meter

Text: Despite the conspicuous shortcomings of Bates’s filings and legal arguments and the district court’s wide discretion in determining claims in receivership cases, a remand is necessary for the district court to clarify the legal basis upon which it denied Bates’s claim and whether Bates is permitted to pursue her claim directly against Metro Meter outside of the receivership proceeding. Based on the limited record before us, Bates’s arguments that her claim against Metro Meter has priority over CAA’s interest in Metro Meter appear to be meritless. Bates’s claim against Metro Meter is best characterized as simply a contract claim because her judgment against Metro Meter from the Daviess Circuit Court was obtained during the litigation stay5 and she has not shown, or 5 The district court’s litigation stay extended to actions involving CAA’s assets. If Metro Meter is an asset of CAA, as the Receiver argues and the district court’s rulings seem to indicate, the judgment was obtained in violation of the stay. To the extent that Bates had notice of the receivership when she obtained the judgment against Metro Meter, she exposed herself to a finding of contempt. See Liberte, 462 F.3d at 552, 556-57. Regardless of notice, the fact that the judgment was obtained while the stay was in effect makes her claim based on that judgment null and void for purposes of the receivership, see United States v. ESIC Capital, Inc., 685 F. Supp. 483, 485 (D. Md. 1988), although it does not invalidate her underlying contract claim against -8- No. 08-6447 United States v. Capital Across America, L.P. even asserted, that she converted her judgment into a lien. See Ky. Rev. Stat. Ann. § 426.120; cf. Redondo Constr. Corp. v. United States, 157 F.3d 1060, 1063 (6th Cir. 1998) (“Under Kentucky law, a Kentucky judgment acts as a lien against and attaches to real property situated in Kentucky as soon as the judgment creditor complies with the statutory requirements . . . .”); S. Bay Enters., Inc. v. Mirada Bay Petroleum, Inc., 957 S.W.2d 287, 289 (Ky. Ct. App. 1997) (holding that, in a receivership proceeding, a judgment creditor lost its status as a lien creditor when the sheriff returned the writ of execution unsatisfied); 3 Ralph Ewing Clark, A Treatise on the Law and Practice of Receivers § 685 (3d ed. 1992) (“Ordinarily, judgment debts, unless they are liens and/or are based on priority claims have no priority over simple debts.”). In contrast, CAA holds a perfected security interest in substantially all of Metro Meter’s assets. Even if we assume arguendo that Bates obtained a lien on the assets of Metro Meter, her claim would still be subordinate to CAA’s claim under any of the priority schemes that might apply. Compare Ky. Rev. Stat. Ann. §§ 355.9-317, 355.9-322 with Tenn. Code Ann. §§ 47-9-317, 47-9-322 and Miss. Code Ann. §§ 75-9-317, 75-9-322. However, it is unclear whether the relative priority of these claims is at all relevant because the district court has made no finding that Metro Meter (as opposed to CAA) is insolvent or otherwise unable to pay its creditors. In fact, both Bates’s and SBA’s respective counsel indicated at oral argument that Metro Meter is operating in the ordinary course of business. If Metro Meter is solvent, then it may be that CAA’s security interest in Metro Meter’s assets would not prevent Metro Meter, see United States v. Vanguard Inv. Co., 6 F.3d 222, 227 (4th Cir. 1993) (holding that breach of contract claims not reduced to judgment before appointment of § 687c receiver can still be cognizable claims). -9- No. 08-6447 United States v. Capital Across America, L.P. Metro Meter from satisfying Bates’s claim, assuming that the claim is valid. Because the district court simply adopted the Receiver’s recommendation to deny Bates’s claim without any further analysis, it is unclear whether it denied her claim because it found that CAA’s interest had priority, because she failed to comply with the court’s procedural requirements, or for some other reason. On remand, the district court should make specific factual findings regarding whether Metro Meter is an ongoing concern able to pay its debts, whether CAA’s interest in Metro Meter has any bearing on Bates’s claim against Metro Meter, and the legal basis for allowance or disallowance of Bates’s claim. Bates also failed to follow the basic procedural requirements that the district court established for submitting claims and objecting to the denial of a claim. The district court’s order plainly and explicitly set forth the requirements for filing a claim with the Receiver, and Bates’s filings prior to the claims bar date did not meet any of these requirements. Indeed, the internal financial documents upon which Bates relied to show that CAA no longer holds a security interest in Metro Meter were submitted to the Receiver six months after the passage of the claims bar date and only after the Receiver sent her a letter requesting any additional supportive evidence. Bates again disregarded the court’s procedures in objecting to the denial of her claim. Receivership courts have broad authority in establishing claims procedures. See Liberte, 462 F.3d at 552. Although the court did not identify the basis upon which it denied Bates’s claim, it likely would not have been an abuse of discretion to deny her claim based solely on her failure to comply with the established procedures. See Callahan, 415 F.3d at 120. Despite these valid reasons for denying Bates’s claim, remand also is necessary because the - 10 - No. 08-6447 United States v. Capital Across America, L.P. district court’s orders have left unsettled whether Bates will be able to pursue her claim directly against Metro Meter outside of the receivership proceeding once the stay is lifted. When the district court denied Bates’s motion to intervene at the outset of the receivership, it stated that her motion was denied “without prejudice to renew after [Bates] has exhausted the established claim procedure.” (R.E. 30.) In contrast, the order denying her claim indicates that any claim denied in the receivership claims process is forever barred and that unsuccessful claimants are permanently enjoined from further pursuing their claims against CAA or CAA’s assets. It would appear to be inequitable to bar Bates from pursuing her claim directly against Metro Meter outside of the receivership proceeding because (1) the earlier order stated she would be able to do so, (2) she was forced to stop pursuing her claim against Metro Meter in state court and instead directed to pursue it in this receivership proceeding, and (3) her claim was denied by the district court without any stated reason. Forever barring Bates’s claim against Metro Meter in such a summary manner, in a proceeding where Metro Meter is not even a party, raises due process concerns. See Liberte Capital Group, LLC v. Capwill, 421 F.3d 377, 382 (6th Cir. 2005) (noting that district court’s discretion in fashioning relief in receivership cases is limited by due process).