Court Opinion

ID: 166318
Source: CourtListenerOpinion
Date Created: 2010-08-14 09:10:57+00
Date Added: 2024-06-11T17:24:50.429917
License: Public Domain

F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                       August 22, 2005
                              FOR THE TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

    In re: Jay Lynn Murphy,

                Debtor.

                                                      No. 03-4289
    JAY LYNN MURPHY,                           (D.C. No. 2:02-CV-1365-TC)
                                                         (D. Utah)
                Appellant,

    v.

    DAVID MCARTHUR, as
    representative limited partner for
    Bison Investment Group No. One,
    Ltd., and others; DOROTHEA
    MCARTHUR, as representative
    limited partner for Bison Investment
    Group No. One, Ltd., and others,
    KEVIN R. ANDERSON, Standing
    Chapter 13 Trustee,

                Appellees.

                              ORDER AND JUDGMENT        *

Before SEYMOUR , KELLY , and MURPHY , Circuit Judges.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

      Debtor-appellant Jay Lynn Murphy appeals a district court order affirming

a bankruptcy court order dismissing his Chapter 13 bankruptcy petition. We

exercise jurisdiction under 28 U.S.C. §§ 158(d) and 1291 and affirm.

                                            I.

      Murphy filed a voluntary petition under Chapter 13 in bankruptcy court.

The Trustee   1
                  filed an objection and a motion to dismiss or convert Murphy’s

petition on the basis that his unsecured debt exceeded the jurisdictional limit

established in 11 U.S.C. § 109(e). The appellees, David and Dorothea McArthur,

filed derivative proofs of claim on behalf of three California limited partnerships

of which they were limited partners. The McArthurs also moved for conversion

or dismissal of Murphy’s case pursuant to § 109(e) based on the amount of his

unsecured debt. Murphy objected to the derivative proofs of claim and to the

Trustee’s and the McArthurs’s motions for dismissal or conversion. The

bankruptcy court held a trial and issued findings of fact, conclusions of law, and

1
      The Trustee did not enter an appearance in the district court proceedings
and has not entered an appearance in these proceedings.

                                            -2-
an order overruling Murphy’s objections and dismissing his Chapter 13 case. In

the order, the bankruptcy court offered two separate and alternative grounds for

the dismissal: 1) that Murphy’s unsecured debt surpassed the jurisdictional limit

of $290,525 for noncontingent, liquidated, unsecured debt; and 2) that he failed to

prosecute his Chapter 13 case in good faith.

       The district court affirmed the bankruptcy court’s dismissal on both

grounds. On appeal, Murphy challenges both of the bankruptcy court’s grounds

for dismissal. Because we conclude that the bankruptcy court properly found that

Murphy was ineligible to be a Chapter 13 debtor because his noncontingent,

liquidated, unsecured debt exceeded the limit identified in § 109(e), we will not

address the bankruptcy court’s other ground for dismissal or Murphy’s challenge

to that dismissal. We review the bankruptcy court’s legal determinations de novo

and its factual findings for clear error.   Phillips v. White (In re White ), 25 F.3d

931, 933 (10th Cir. 1994).

                                             II.

       Murphy is the sole shareholder, director, and officer of a corporation, Bison

Inc., that serves as a General Partner for three Limited Partnerships (Bison One,

Bison Opportunity, and Bison Development). The McArthurs are beneficial

owners, through investment, of an interest in each of the Limited Partnerships.

Murphy exercised sole and exclusive control over the Limited Partnerships’

                                            -3-
business and financial affairs. Between Spring 1997 and Spring 1999, Murphy

caused the Limited Partnerships to transfer substantial sums from the Limited

Partnerships to Bison Inc. and himself. Murphy used the funds transferred to him

to pay miscellaneous bills, taxes, and to finance the remodeling of his residence.

Bison Inc. used the funds transferred to it to pay miscellaneous business expenses

and taxes. Murphy did not disclose and concealed the transfers from the limited

partners by failing to provide complete financial information in quarterly and

annual financial reports which he provided.

      In April 1999, after receiving demands from certain of the limited partners

to provide more complete financial reports, Murphy disclosed the transfers to the

limited partners. In written communications between May 1999 and October

1999, Murphy acknowledged his personal indebtedness for the transfers and

pledged his personal assets to pay back everything that was owed. On August 7,

2000, Murphy, for the first time, claimed that his indebtedness to the Limited

Partnerships was offset by management fees that Bison Inc. had been accruing

since the inception of the Limited Partnerships but had never been paid. On

June 13, 2001, Murphy filed his Chapter 13 bankruptcy petition.

                                        III.

      Murphy spends much of his brief complaining about the bankruptcy court’s

treatment of Bison Inc., a non-debtor corporation. Murphy, however, sought to

                                         -4-
bring Bison into the bankruptcy proceedings because he consolidated the Limited

Partnerships claims against him and Bison and asserted that the Limited

Partnerships claims against him should be reduced and offset by the amount of

unpaid management fees and costs that the Limited Partnerships owed Bison.

Prior to filing for bankruptcy, Murphy borrowed money for himself personally

(“personal debt”) from the Limited Partnerships. Bison, through Murphy, also

borrowed money from the Limited Partnerships (“corporate debt”). But when

Murphy filed for bankruptcy, he listed the personal debt and the corporate debt as

one combined claim (“combined debt”). Murphy then asserted Bison’s right to

set-off for management fees against the combined debt, including the portion that

was Murphy’s personal debt and not subject to set-off.

       Murphy’s first argument is that the bankruptcy court lacked subject matter

jurisdiction because the McArthurs lacked standing “to seek or obtain the rulings

that were essential to the result of dismissal, namely, the   alter ego ruling that

collapsed [Murphy] into [Bison] . . . and the ruling that invalidated [Bison’s]

assets that were earmarked for payment of the claims in question.” Aplt. Br. at

30. In the bankruptcy proceedings, the Trustee filed an objection and a motion to

dismiss or convert Murphy’s petition on the basis that his unsecured debt

exceeded the jurisdictional limit established in 11 U.S.C. § 109(e). The

McArthurs also moved for conversion or dismissal of Murphy’s case pursuant to

                                             -5-
§ 109(e) based on the amount of his unsecured debt– the same relief sought by the

Trustee. Although the ultimate relief sought by the McArthurs was the dismissal

or conversion of Murphy’s Chapter 13 petition, Murphy attempts to characterize

subsidiary legal issues that arose in the dismissal proceedings as separate

“avoiding actions.”    See id . Murphy then argues that these “avoiding actions”

could only have been asserted by the Trustee.

         Murphy’s argument fails. First, the alter ego and set-off issues were not

being litigated as separate actions before the bankruptcy court; rather, they arose

in the context of the court’s determination as to whether Murphy was eligible for

Chapter 13 relief and were necessary because of Murphy’s attempts to use Bison’s

debts and assets to avoid personal liability for amounts he owed to the Limited

Partnerships. Second, and more significantly, the Trustee sought the same relief

from the bankruptcy court that the McArthurs sought–the dismissal of Murphy’s

Chapter 13 petition. In its order, the bankruptcy court sustained the Trustee’s

objection and motion, and granted the McArthur’s motion to dismiss. Aplt. App.,

Vol. II at 333-36. The Trustee and the McArthurs were therefore granted the

same relief. Murphy has never challenged the Trustee’s standing before the

bankruptcy court, the district court or this court. Accordingly, the question of

Murphy’s eligibility for Chapter 13 relief was properly before the bankruptcy

court.

                                           -6-
      Murphy then argues that the bankruptcy court lacked subject matter

jurisdiction to adjust the assets and liabilities of Bison and lacked personal

jurisdiction over Bison. Murphy brought Bison’s corporate debt into the

bankruptcy and then asserted Bison’s right to set-off in an attempt to avoid

liability for his own personal debt. Because Murphy was using Bison’s right to

set-off in an attempt to characterize his personal debt as secured so that he could

be eligible for Chapter 13 relief, the bankruptcy court had to determine whether

Murphy had standing to assert claims for Bison and whether the set-off claims

were valid in order to make the Chapter 13 eligibility determination. Murphy now

complains on appeal that the bankruptcy court lacked jurisdiction over Bison and

therefore the dismissal order should be reversed. This argument is meritless.

      At trial, Murphy introduced evidence showing that the alleged management

fees and expenses owed to Bison had been assigned by Bison to the Limited

Partnerships for the purpose of satisfying Murphy’s indebtedness prior to

Murphy’s bankruptcy filing. Based on the existence of these assignments, the

bankruptcy court determined that Bison had irrevocably assigned to the Limited

Partnerships its rights to receive the management fees and expenses and that it

had no control over the assets assigned. The court determined, however, that

because the assignments were made for the benefit of satisfying claims against

Murphy, Murphy had standing as an intended third-party beneficiary to enforce

                                          -7-
the assignments. Accordingly, the bankruptcy court concluded that as to the

matter of the offset of the management fees owed to Bison, that issue was

properly before the court without the formal joinder of Bison based on Murphy’s

standing to assert those claims. The bankruptcy court did not err in this

determination.

      Murphy argues also that the bankruptcy court erred in its application of 11

U.S.C. § 109(e). That section states that “[o]nly an individual with regular

income that owes, on the date of the filing of the petition, noncontingent,

liquidated, unsecured debts of less than [$290,525.00]   2
                                                             . . . may be a debtor under

chapter 13 of this title.” The bankruptcy court concluded that Murphy was not

eligible for Chapter 13 relief because his noncontingent, liquidated, unsecured

debt exceeded $290,525. In reaching this conclusion, the bankruptcy court found

that Murphy had the following noncontingent, liquidated, unsecured debt: 1)

$87,102.87 that Murphy admitted to in his amended schedules; 2) $142,342.89

from unsecured claims filed in Murphy’s bankruptcy owed to creditors other than

the Limited Partnerships; 3) $272,608.01 that Murphy admitted owing to the

Limited Partnerships on the basis of transfers made to him, as opposed to Bison

2
       According to the Adjustment of Dollar Amounts notes to 11 U.S.C.
§ 109(e), this was the amount at the time of the filing of the petition. The dollar
amount has been adjusted to $307,675, but that adjustment is not applicable to
cases commenced before April 1, 2004.    See 11 U.S.C. § 109(e) (2005).

                                           -8-
Inc. Aplt. App., Vol. II at 314-15 ¶¶ 138-140. These findings total $502,053.77,

well in excess of the $290,525 limit.

       Murphy does not challenge the findings listed above. Instead, he argues

that the bankruptcy court erred because it concluded that Murphy was personally

liable for Bison’s corporate debt in determining that Murphy exceeded the

§ 109(e) limit, but then failed to make findings about the nature of that corporate

debt, i.e., whether it was non-contingent, liquidated, and unsecured. Murphy

misapprehends the bankruptcy court’s ruling. In its findings of fact described

above, the bankruptcy court clearly identifies all of the debt that it is considering

for the purposes of determining Murphy’s § 109(e) eligibility. There is no

mention of Bison’s corporate debt in those findings. Rather, the court

emphasized that it was counting Murphy’s personal debt from the money he

transferred to himself, “as opposed to Bison Inc.”     Id. at 315 ¶ 140. Moreover,

the amount identified in that paragraph–$272,608.01–is consistent with the

court’s accounting that separated out Bison’s corporate debt and Murphy’s

personal debt. That accounting reflects that Murphy’s personal debt, established

from his testimony, was $272,608.01 (including interest) and that Bison’s

corporate debt was $149,740.52 (including interest).     See id. at 294-95 ¶ 17.

       Murphy also argues that the bankruptcy court erred in its consideration of

Murphy’s claim that his debt to the Limited Partnerships should be set-off by fees

                                            -9-
owed to Bison. Murphy argues that the assertion of a set-off right creates a

secured claim and that therefore at the time he filed his petition he did not exceed

the § 109(e) jurisdictional amount. While the right to a set-off does create a

secured claim, after Murphy filed his petition, both the Trustee and the McArthurs

made good faith objections to Murphy’s Chapter 13 eligibility. At that point, it

was proper for the bankruptcy court to look past the characterization of Murphy’s

claims in his schedules and consider other evidence.      See, e.g. , Quintana v.

Internal Revenue Service (In re Quintana)     , 107 B.R. 234, 238 n.6 (B.A.P. 9th Cir.

1989) (“If the debtors' schedules were dispositive, then eligibility could be

created by improper or incomplete scheduling of creditors. A bankruptcy court

should look past the schedules to other evidence submitted when a good faith

objection to the debtor's eligibility has been brought by a party in interest.”

(quotation omitted)). At the hearing on eligibility, the parties submitted evidence

and had experts testify regarding Murphy’s set-off claim. Aplt. App., Vol. II at

308-09 ¶¶ 88-94. The bankruptcy court then determined that Murphy was not

entitled to any set-off.   Id. at 324 ¶ 32. Murphy has not challenged the

bankruptcy court’s merits determination that he was not entitled to a set-off.

Accordingly, we conclude that the bankruptcy court properly found that Murphy’s

noncontingent, liquidated, unsecured debt exceeded the § 109(e) limit of

$290,525 and that he therefore was not entitled to Chapter 13 relief.

                                            -10-
      Finally, Murphy argues that the bankruptcy court erred on the merits of its

ruling that Murphy and Bison were alter egos. We do not need to reach this issue

because it is not necessary to the determination that Murphy is ineligible for

Chapter 13 relief. As discussed above, the bankruptcy court’s findings separated

out Murphy’s personal debt and used that debt in its findings for Chapter 13

eligibility. The bankruptcy court’s conclusion that Murphy was Bison’s alter ego

and therefore personally liable for Bison’s corporate debt does not alter Murphy’s

eligibility for Chapter 13 relief. Accordingly, the judgment of the United States

District Court for Utah is AFFIRMED.

                                                    Entered for the Court

                                                    Paul J. Kelly, Jr.
                                                    Circuit Judge

                                        -11-