Court Opinion

ID: 3208281
Source: CourtListenerOpinion
Date Created: 2016-06-01 15:01:05.993228+00
Date Added: 2024-06-11T14:29:14.791346
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
                     of this decision is limited to the case and parties pursuant to
                  6th Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
                                       File Name: 16b0008n.06

                    BANKRUPTCY APPELLATE PANEL
                                   OF THE SIXTH CIRCUIT
                                     _________________

 In re: RICHARD T. BRUNSMAN, JR.,                           ┐
                                       Debtor.              │
                                                            │
 __________________________________________
                                                            │
 RICHARD D. NELSON,                                          >        Nos. 15-8014/8015
                                                            │
                            Plaintiff-Appellee,             │
                                                            │
       v.                                                   │
                                                            │
                                                            │
 FIFTH THIRD BANK (15-8014); CONRAD CAPITAL                 │
 COMPANY and JOSEPH C. CONRAD (15-8015),                    │
                         Defendants-Appellants.             │
                                                            ┘
                     Appeal from the United States Bankruptcy Court
                      for the Southern District of Ohio at Cincinnati.
                    No. 10-11371—Burton Perlman, Bankruptcy Judge.

                               Decided and Filed: June 1, 2016

     Before: HARRISON, OPPERMAN, and WISE, Bankruptcy Appellate Panel Judges.
                             _________________

                                            COUNSEL

ON BRIEF: Alan J. Statman, William B. Fecher, STATMAN, HARRIS & EYRICH, LLC,
Cincinnati, Ohio, for Appellant in 15-8014. Eileen K. Field, ELIEEN FIELD LAW OFFICES,
LLC, Hamilton, Ohio, for Appellants in 15-8015. Richard D. Nelson, Donald W. Mallory,
COHEN, TOOD, KITE & STANFORD, LLC, Cincinnati, Ohio, for Appellee.
                                      _________________

                                            OPINION
                                      _________________

      MARIAN F. HARRISON, Bankruptcy Appellate Panel Judge. Fifth Third Bank (“Fifth
Third”) and Conrad Capital Company and Joseph C. Conrad (collectively “Conrad”) have

                                                  1
Nos. 15-8014/8015                        In re Brunsman                                Page 2

appealed the bankruptcy court’s sua sponte granting of summary judgment to Richard D. Nelson,
Chapter 7 Trustee (“Trustee”), and the denial of their motions for summary judgment.

                                I. STATEMENT OF ISSUES

       1. Whether the bankruptcy court’s sua sponte granting of summary judgment to
       the Trustee deprived the defendants of a full and fair opportunity to respond.

       2. Whether the bankruptcy court erred by granting summary judgment to the
       Trustee.

       3. Whether the bankruptcy court erred by denying Conrad’s motion for summary
       judgment.

       4. Whether the bankruptcy court erred by denying Fifth Third’s cross-motion for
       summary judgment against Conrad.

                                     II. JURISDICTION

       The United States District Court for the Southern District of Ohio has authorized appeals
to the Panel, and no party has timely elected to have this appeal heard by the district court.
28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right
pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on
the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt
Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations and internal
quotations omitted). An order granting summary judgment constitutes a final order. Menninger
v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007)
(citation omitted). Moreover, the entry of an order granting summary judgment in favor of one
party renders the denial of summary judgment to the opposing party final as well. Rogan v. Fifth
Third Mortg. Co. (In re Rowe), 452 B.R. 591, 593 (B.A.P. 6th Cir. 2011) (citation omitted).

                               III. STANDARD OF REVIEW

       The bankruptcy court’s procedural decision to grant summary judgment sua sponte is
reviewed for an abuse of discretion. See Emp’rs Ins. of Wausau v. Petroleum Specialties, Inc.,
69 F.3d 98, 105 (6th Cir. 1995). The substantive merits of the bankruptcy court’s decision to
grant (and deny) summary judgment is reviewed de novo. Med. Mut. of Ohio v. K. Amalia
Nos. 15-8014/8015                          In re Brunsman                              Page 3

Enters., Inc., 548 F.3d 383, 389 (6th Cir. 2008) (citation omitted). “Under a de novo standard of
review, the reviewing court decides an issue independently of, and without deference to, the trial
court’s determination.” In re Morgeson, 371 B.R. at 800 (citation omitted).

                             IV. PROCEDURAL BACKGROUND

       Richard T. Brunsman, Jr. (“Brunsman”) filed a Chapter 11 petition on March 5, 2010.
On March 12, 2010, Harmony Park, LLC (“Harmony”) filed a Chapter 11 petition. On March
19, 2010, RBDB Investments, LLC (“RBDB”) filed a Chapter 11 petition. On April 13, 2010,
the bankruptcy court entered an order providing for the joint administration of these three cases.
The three cases were converted to Chapter 7 on April 16, 2010, and the Trustee was appointed.
Once appointed, the Trustee filed voluntary petitions for several other related debtors. All cases
were substantively consolidated with the exception of Harmony and RBDB.

       On November 22, 2011, the bankruptcy court approved the Trustee’s request to sell
certain aircraft and related equipment by public auction, and on January 20, 2012, the Trustee
filed a report that the estate received and was holding the net amount of $373,425.06 from the
auction. On March 3, 2012, the Trustee commenced this adversary proceeding to avoid and
preserve unperfected security interests in the aircraft and equipment and for a determination of
rights in relation to same pursuant to a declaratory judgment against the defendants. Thereafter,
the bankruptcy court approved a partial settlement, and the Trustee filed an amended complaint
against Conrad and Fifth Third only. The amended complaint sought to avoid Conrad’s and
Fifth Third’s interest in the aircraft, avoid Conrad’s post-petition transfer, recover avoided
transfers from Fifth Third and Conrad, and disallow Conrad’s and Fifth Third’s claims against
the estate. The amended complaint also sought a declaratory judgment that neither Fifth Third
nor Conrad have a security interest in the aircraft.

       On June 13, 2013, Conrad filed a motion for summary judgment. On July 24, 2013, the
Trustee filed an objection to the motion. That same date, Fifth Third filed an objection to
Conrad’s motion and filed a cross-motion for summary judgment against Conrad. Conrad filed a
reply to both on August 6, 2013.
Nos. 15-8014/8015                               In re Brunsman                                       Page 4

        On March 30, 2015, the bankruptcy court entered a decision finding that the motions for
summary judgment filed by Conrad and Fifth Third should be denied and that summary
judgment should be awarded to the Trustee. 1

                                                 V. FACTS

        This dispute revolves around the ownership and the validity, enforceability, and priority
of security interests in the following aircraft: Cessna N65772, Cessna N95637, BAE Jetstream
N723CA, Piper N2163F, Cessna N98561, Cessna N2859E, and Piper N31649 (“the aircraft”).

                                           A. Conrad’s Interest

        Conrad asserts that it has a perfected security interest in the aircraft that takes priority
over Fifth Third and the Trustee based on the following facts. Conrad sold its “Membership
Interest” in Con Air Charter, LLC (“Con Air”) to Empower Aviation, LLC (“Empower”) on
October 18, 2007, as part of a Unit Purchase Agreement. That same date, Pro Aero, Inc. (“Pro
Aero”), which appears to be wholly owned by Conrad, sold certain assets to Empower. The
assets being sold included “the aircraft set forth and generally described on Schedule 1(a). . . .”
(Conrad’s Motion for Summary Judgment, Exh. B, at 1, Adv. Case ECF No. 47). However,
Schedule 1(a) is not attached to the Asset Purchase Agreement between Pro Aero and Empower.
Also on October 18, 2007, Empower entered into a Subordinated Secured Promissory Note in the
amount of $300,000 and a security agreement with Conrad. Again, there is no list of the
collateral being pledged.        Conrad filed its security agreement with the Federal Aviation
Administration (“FAA”) on July 31, 2009. Conrad submits that it filed the bill of sale forms on
October 19, 2007, however, the forms incorrectly listed Con Air as the owner. These forms are
not in the designated record. Attached to Conrad’s motion for summary judgment are warranty
bill of sale forms, dated October 18, 2007, from Pro Aero to Empower for five of the aircraft.
There is no indication that these forms were ever filed with the FAA. According to the Aircraft
Title Reports, dated April 6, 2010, Con Air was the record owner of five of the aircraft and
Empower was the record owner of two of the aircraft, with Con Air being the previous owner.

        1
         Although the bankruptcy court’s decision indicates that the Trustee filed a motion for summary judgment,
no such motion was filed.
Nos. 15-8014/8015                        In re Brunsman                                  Page 5

According to Conrad, Empower realized that the bill of sale forms incorrectly showed Con Air as
the owner of the aircraft, and on March 10, 2010, the aircraft were transferred from Con Air to
Empower, which Conrad states was the original intent of the parties.

       With regard to Conrad’s motion for summary judgment, the bankruptcy court stated:
       Conrad argues that it has a properly perfected security interest in the aircraft and
       that its interest has priority over any interest in the aircraft held by Fifth Third.
       The October 18, 2007, unit purchase Agreement merely had Empower acquiring a
       100% ownership interest in Con-Air from Conrad. The asset purchase agreement,
       dated October 18, 2007, only provided that Empower acquired from Pro Aero,
       Inc., amongst other things, “the aircraft set forth and generally described on
       Schedule 1(a).” Schedule 1(a) which describes what aircraft were sold to
       Empower is not attached as an exhibit to Conrad’s motion for summary judgment
       or to any other filing before the Court. Additionally, while Conrad submitted to
       the Court warranty bills of sale dated October 18, 2007, that show the sale of five
       of the seven aircraft from Pro Aero Inc. to Empower pursuant to the asset
       purchase agreement, there is no evidence that the warranty bills of sale were ever
       submitted to or filed with the FAA. Accordingly, Conrad has not met its burden
       in showing that there is no issue of material fact as to its valid interest in the
       aircraft.

(Decision, at 8-9, March 30, 2015, Adv. Case ECF No. 57) (citations to the record omitted).

                                   B. Fifth Third’s Interest

       Fifth Third argues that it is entitled to summary judgment against Conrad because Fifth
Third recorded its security agreement with the FAA prior to Conrad. On October 18, 2007, Con
Air executed and delivered to Fifth Third two promissory notes in the amount of $1,188,360 and
$99,553, respectively. To secure repayment of the notes, Con Air executed and delivered to
Fifth Third a security agreement in the aircraft (with the exception of the Piper N2163F). Fifth
Third filed its security agreement with the FAA on October 19, 2007, and refiled it on November
15, 2007.

       On November 24, 2008, Con Air executed and delivered to Fifth Third another
promissory note in the amount of $70,000 and an amendment to the security agreement which
extended Fifth Third’s security interest in the aircraft to include the Piper N2163F, which the
FAA records show Con Air acquired on June 23, 2008. Fifth Third filed the amendment to the
security agreement with the FAA on November 26, 2008.
Nos. 15-8014/8015                                 In re Brunsman                                         Page 6

         The argument made by Conrad and the Trustee is that Con Air did not own the aircraft,
therefore, Con Air could not have granted a security interest in the aircraft to Fifth Third.

         To show that Con Air was the owner of the aircraft and that Fifth Third’s security interest
in the aircraft had priority over any interest Conrad held, Fifth Third relied on the Aircraft Title
Reports, dated April 6, 2010, from a search of FAA records. These Title Reports indicate the
following:

   AIRCRAFT                RECORD OWNER                        PREVIOUS OWNER                       SECURITY
                                                                                                       LIEN 2
  Cessna             Empower                               Con Air                              Fifth Third
  N65772             Bill of Sale 1/20/10,                 Registered 11/8/07                   Recorded 11/20/07
                     Recorded 3/22/10
  Cessna             Empower                               Con Air                              Fifth Third
                     Bill of Sale 1/20/10,                 Registered 11/8/07                   Recorded 11/20/07
  N95637
                     Recorded 3/22/10

  BAE Jetstream Con Air                                    Con Air                              Fifth Third
                Bill of Sale 9/29/05,                      Registered 9/16/05                   Recorded 11/20/07
  N723CA
                Recorded 12/1/05

  Piper              Con Air                               FIT Aviation, LLC                    Fifth Third
  N2163F             Bill of Sale 6/23/08,                 Registered 12/12/01                  Recorded 11/20/07
                     Recorded 9/15/08                                                           Amendment
                                                                                                Recorded 12/2/08
  Cessna             Con Air                               Pro Aero.                            Fifth Third
  N98561             Bill of Sale 10/19/07,                Registered 2/15/90                   Recorded 11/20/07
                     Recorded 11/8/07
  Cessna             Con Air                               Pro Aero                             Fifth Third
  N2859E             Bill of Sale 10/19/07,                Registered 5/20/03                   Recorded 11/20/07
                     Recorded 11/8/07
  Piper              Con Air                               Pro Aero                             Fifth Third
  N31649             Bill of Sale 10/19/07,                Registered 3/26/93                   Recorded 11/20/07
                     Recorded 11/8/07

         2
          Some of the aircraft have other security liens that were recorded but none of those creditors are parties to
this adversary.
Nos. 15-8014/8015                            In re Brunsman                                   Page 7

          Regarding Fifth Third’s cross-motion for summary judgment, the bankruptcy court
stated:

          Fifth Third also asserts that based on the documents before the Court that Fifth
          Third does have a perfected security interest in the aircraft and that this interest is
          superior to Conrad’s. Though Fifth Third has shown documentation filed with the
          FAA sufficient to grant it a security interest in the aircraft on October 19, 2007 or
          November 17, 2007, Fifth Third has not shown that Con-Air had an interest in the
          Aircraft on October 18, 2007, when it entered into the security agreement with
          Con-Air.

(Decision, at 9, March 30, 2015, Adv. Case ECF No. 57) (citations to the record omitted).

                                         C. Trustee’s Position

          The Trustee filed an objection to Conrad’s motion for summary judgment, but he did not
file his own motion seeking summary judgment. In granting summary judgment to the Trustee,
the bankruptcy court made the following findings:

          While both Conrad and Fifth Third have failed to establish the validity of their
          claims in their motions for summary judgment, the Trustee is entitled to succeed
          on his motion for summary judgment. He does so because there is no question
          that the estate owns the aircraft and the lien claimants do not have valid claims.
          Accordingly, the Trustee is entitled to judgment on his motion for summary
          judgment.

(Decision, at 9-10, March 30, 2015, Adv. Case ECF No. 57).

                                          VI. DISCUSSION

                  A. The Sua Sponte Nature of the Bankruptcy Court’s Decision

          Although “there is no per se prohibition on entering summary judgment, sua sponte,” the
granting of summary judgment sua sponte is discouraged in this Circuit. Emp’rs Ins. of Wausau,
69 F.3d 98, 105 (citation omitted). See also Salehpour v. Univ. of Tenn., 159 F.3d 199, 204 (6th
Cir. 1998). The issue is whether “‘the losing party was on notice that it had to come forward
with all of its evidence [and had a] reasonable opportunity to respond to all the issues to be
considered by the court.’” Bennett v. City of Eastpointe, 410 F.3d 810, 816 (6th Cir. 2005)
(citation omitted). In making this inquiry, the Panel must look at the totality of the proceedings
Nos. 15-8014/8015                          In re Brunsman                                 Page 8

below to determine whether the losing parties had sufficient notice of the possibility that
summary judgment could be granted against them. Excel Energy, Inc. v. Cannelton Sales Co.,
246 Fed. App’x 953, 960 (6th Cir. 2007).

       Even if adequate notice was not given, the party seeking to overturn the summary
judgment decision must also demonstrate prejudice. Yashon v. Gregory, 737 F.2d 547, 552 (6th
Cir. 1984) (citations omitted). When summary judgment is granted “in favor of an opposing
party when one party has made a motion for summary judgment . . . [it] may not be as
detrimental since the moving party is at least aware that the issue has been raised.” Emp’rs Ins.
of Wausau, 69 F.3d at 105.        In moving for summary judgment, the losing party has the
opportunity to “‘come forward with all of its evidence’ because, in seeking summary judgment,
it was required to present facts necessary to demonstrate that there was ‘no genuine dispute as to
any material fact and [that the moving party was] entitled to judgment as a matter of law.’”
Delphi Auto. Sys., LLC v. United Plastics, Inc., 418 F. App’x 374, 381–82 (6th Cir. 2011) (citing
Fed. R. Civ. P. 56(a)). See also Markva v. Haveman, 168 F. Supp. 2d 695, 706 (E.D. Mich.
2001) (citation omitted) (party moving for summary judgment is considered to have sufficient
notice of “the imminence of summary judgment in some form”).

       As pointed out by the bankruptcy court, “[t]he primary issue here is which party, Conrad,
Fifth Third, or neither, has a perfected security interest in the aircraft.” (Decision, at 8, March
30, 2015, Adv. Case ECF No. 57). Conrad filed its motion for summary judgment to assert that
its security interest in the aircraft was superior to Fifth Third and the Trustee. Fifth Third argued
in its cross-motion for summary judgment that its security interest in the aircraft was superior to
Conrad. Because ownership of the collateral was a prima facie element of determining validity
and perfection, both Conrad and Fifth Third were on notice that ownership had to be established
before either would have been entitled to summary judgment.

       The sounder approach would have been for the bankruptcy court to notify the parties that
it was considering granting summary judgment to the Trustee. This would have given Conrad
and Fifth Third an opportunity to come forth with further documentation regarding their
interests. However, neither Conrad nor Fifth Third asserted that more notice would have given
them the opportunity to present additional evidence. This implies that even if the parties were
Nos. 15-8014/8015                        In re Brunsman                                 Page 9

not on notice, any error was harmless. Hoopes v. Equifax, Inc., 611 F.2d 134, 136 (6th Cir.
1979) (“Appellant has not demonstrated that he could have produced any additional evidence on
the disputed counts if ten days notice had been given, nor that he was prejudiced in any way by
the action of the court in granting summary judgment.”).

       Regardless of whether the parties were on notice that the bankruptcy court might grant
summary judgment to the non-moving Trustee or whether there was any prejudice, the
bankruptcy court’s granting of summary judgment sua sponte in this particular case was an abuse
of discretion because the decision was not based on undisputed material facts. Instead, the
bankruptcy court relied on the lack of documentation and on assumptions as to whether relevant
documentation even existed. The record does not answer the questions regarding ownership,
security interests, or the priority of any security interests. As discussed below, a review of the
merits requires that the bankruptcy court’s decision be reversed and remanded.

                                    B. Review on the Merits

       The substantive merits of the bankruptcy court’s decision is reviewed de novo. Med.
Mut. of Ohio, 548 F.3d 383, 389 (citation omitted). Summary judgment is appropriate where
there is no genuine issue as to any material fact such that the prevailing party is entitled to
judgment as a matter of law. Bell v. United States, 355 F.3d 387, 391–92 (6th Cir. 2004)
(citations omitted). In reviewing a summary judgment decision, the Panel must view the facts
and all inferences to be drawn from the facts in the light most favorable to the party against
whom summary judgment was entered. Id. at 392 (citation omitted).

       The bankruptcy court should have viewed all the facts and inferences in the light most
favorable to Conrad and Fifth Third when considering whether to grant summary judgment to the
Trustee. See Wiley v. United States, 20 F.3d 222, 224 (6th Cir. 1994) (citation omitted) (“When
reviewing cross-motions for summary judgment, the court must evaluate each motion on its own
merits and view all facts and inferences in the light most favorable to the nonmoving party.”).

       The bankruptcy court held that there was “no question that the estate owns the aircraft
and the lien claimants do not have valid claims” but never explained how it arrived at this
conclusion. Instead, it appears that the bankruptcy court based its ruling on Conrad’s and Fifth
Nos. 15-8014/8015                               In re Brunsman                                        Page 10

Third’s failure to provide sufficient documentation to support the granting of their summary
judgment motions. In granting summary judgment to the Trustee, the bankruptcy court failed to
point to any evidence that clarified the issue of ownership, security interest, or priority. The only
way the bankruptcy court could have reached the conclusion that the estate owns the aircraft and
that neither Conrad nor Fifth Third have valid claims is by making assumptions and/or relying on
information that is not in the record. Significantly, the bankruptcy court’s ruling fails to analyze
the effect of the FAA recordings, Ohio law on the ownership of aircraft, Ohio law requirements
for attachment of a security interest, or the status of each individual aircraft. 3

                                           VII. CONCLUSION

        For the reasons stated, the bankruptcy court’s order granting summary judgment to the
Trustee is REVERSED, and the case is REMANDED for further proceedings consistent with this
opinion.

        3
          Because the Panel is reversing the bankruptcy court’s granting of summary judgment to the Trustee, there
is no need to review the denial of Conrad’s and Fifth Third’s motions. See Harrison v. Ash, 539 F.3d 510, 521 (6th
Cir. 2008) (citation omitted) (denial of summary judgment is not a final order that is immediately appealable).