United States District Court, D. Massachusetts
In re ROBERT J. SPENLINHAUER, individually and as trustee and beneficiary of RJS REALTY TRUST, C.C. CANAL REALTY TRUST, and CLASSIC AUTO REALTY TRUST, Debtor.
WILLIAM K. HARRINGTON, United States Trustee for Region 1, Appellee. ROBERT J. SPENLINHAUER, Appellant, Bankruptcy Appeal No. 15-14223-FDS
MEMORANDUM AND ORDER ON APPEAL FROM BANKRUPTCY
DENNIS SAYLOR IV UNITED STATES DISTRICT JUDGE.
an appeal from an order of the United States Bankruptcy Court
for the District of Massachusetts. Debtor-appellant Robert
Spenlinhauer has appealed the bankruptcy court's decision
to appoint a Chapter 11 trustee. He contends that the
bankruptcy court violated his due process rights by
appointing a trustee without holding an evidentiary hearing
and that the court improperly relied on an issue that was not
properly raised prior to the hearing.
reasons stated below, the decision of the bankruptcy court
appointing a Chapter 11 trustee will be affirmed.
December 16, 2013, Robert Spenlinhauer filed a voluntary
petition for Chapter 11 bankruptcy. (B.R. at 1). His
bankruptcy petition and schedules stated that he had $16.6
million in assets and $7.2 million in liabilities. (B.R. at
90). His schedules and financial statements indicated that he
owned six real properties, 27 vehicles, four boats, and
various other items of personal property. (B.R. at 91-99). He
stated that he was retired and had a monthly income of $4,
300, consisting of social security as well as payments from
the sale of a boat. (B.R. at 116-18). He also stated that
within one year prior to his petition, he had transferred
property valued at $330, 000 to his son, Eric Josephson;
vehicles valued at $195, 000 to an entity controlled by his
Josephson; and a vehicle valued at $28, 500 to a man named
Mark Germani. (B.R. at 128). And he stated that he had an
interest in a number of business ventures, including Cape
Shores Development, LLC; Classic Autos Realty Trust; RJS
Realty Trust; and C.C. Canal Realty Trust. (B.R. at 131).
twice moved for, and was granted, extensions of time to file
a Chapter 11 reorganization plan. (B.R. at 27, 31). He filed
a reorganization plan on September 8, 2014. (B.R. at 40).
After the United States Trustee and his creditors objected to
the proposed plan and disclosure statement, confirmation was
denied. (B.R. at 43). Spenlinhauer filed a first amended
reorganization plan on December 15, 2014. (B.R. at 47).
Again, the United States Trustee and his creditors objected
to the plan, and again the plan was not confirmed. (B.R. at
55). Spenlinhauer filed a second amended reorganization plan
on October 6, 2015. (B.R. at 69-70). Once again, the United
States Trustee and his creditors objected to the plan, and
once again confirmation of the plan was denied. (B.R. at 71).
Spenlinhauer received several extensions of time to file a
third amended reorganization plan, but failed to file the
plan by the extended deadline. (B.R. at 74).
Bankruptcy Court authorized Spenlinhauer to sell a property
he owned in Hingham, Massachusetts. (B.R. at 257). However,
before the property sold, it suffered extensive damage due to
a pipe burst in January 2015. (B.R. at 245). Spenlinhauer
moved to employ Ball & Boyd Public Adjusters, Inc.,
“to assist in the preparation, presentation and
adjustment of all applicable claims for the loss or damage
caused by the freeze up” at the Hingham property.
received three checks from his insurance company for damage
to the Hingham property. (App. 1 at 1; Supp. App. at 209).
The first check, for insurance proceeds totaling $109, 190,
was deposited on June 4, 2015, into Spenlinhauer's RJS
Realty Trust account at Cape Cod Savings Bank. (App. 1 at 2).
The second check, for insurance proceeds totaling $228, 685,
was deposited on October 29, 2015, into the same RJS Realty
Trust account. (App. 1 at 1; Supp. App. at 208). The third
check, for insurance proceeds totaling $198, 847, was
deposited on November 6, 2015, into the same RJS Realty Trust
account. (App. 1; Supp. App. at 209-10).
failed to timely report his receipt of the insurance proceeds
and spent a significant amount of the proceeds without prior
court authorization. (Supp. App. at 210). Between October and
December 2015, he purchased or redeemed, among other things,
a $65, 000 recreational vehicle and an $18, 202 motor
vehicle. He also spent $3, 334 at Toys “R” Us,
gave $3, 750 to his son, and paid $30, 007 to Ball & Boyd
Public Adjusters without authorization. (Supp. App. at 211;
App. 1 at 2).
December 8, 2015, the United States Trustee moved to convert
the proceeding from a Chapter 11 to a Chapter 7 proceeding,
or, in the alternative, to appoint a Chapter 11 trustee, on
the grounds that he had failed to properly report financial
information, had spent substantial sums of money without
prior court authorization, and had failed to obtain
confirmation of a reorganization plan. (App. 1 at 1-3).
opposed the motion, stating that he had sold assets
sufficient to pay all creditors. (App. 2 at 1). He also
stated that none of the complained-of actions had been
intentional, nor had they harmed the bankruptcy estate, and
that he had rectified any error by disclosing all payments.
(App. 2 at 2).
bankruptcy court held a hearing on the Trustee's motion
on December 15, 2015. (Supp. App. at 198). At the hearing,
Spenlinhauer did not dispute the facts as alleged by the
Trustee. (Supp. App. at 225-31). Spenlinhauer acknowledged
that, under 11 U.S.C. §§ 546(a)(1) and 548(a), the
limitations period to undo his pre-petition conveyance of
property to his son was going to expire the very next day,
unless a trustee was appointed. (Supp. App. at 231-32). He
admitted that he had not yet done anything to correct the
conveyance, and offered to file a complaint as soon as
possible. (Supp. App. at 232-33).
December 15, 2015, the bankruptcy court granted the
Trustee's motion to appoint a Chapter 11 trustee. (App.
5). The court stated as follows:
The [United States Trustee] has demonstrated cause for
conversion of this Chapter 11 case to a case under Chapter 7
under 11 U.S.C. Section 1112(b)(1), (4), or alternatively,
for the appointment of a Chapter 11 trustee under 11 U.S.C.
Section 1104. Such cause includes the Debtor's transfers
of insurance proceeds to non-debtor in possession bank
accounts during the pendency of this case, the payment of
[sic] an insurance adjuster of fees without Court approval,
the failure of the Debtor to disclose the accurate dates of
receipts of the insurance proceeds, and the payment to a
secured creditor in the amount of $65, 000 to redeem a
recreational vehicle and to purchase another vehicle. Those
transactions were both out of the ordinary course of business
and without proper notice and authorization as required by 11
U.S.C. Section 363(b). In addition, the Debtor has failed to
file an amended plan and disclosure statement within the
deadlines established by the Court, despite the Court having
granted the Debtor three extensions of time for filing a
Third Amended Plan and Disclosure Statement. The Court finds
that it is in the best interests of creditors and the state
to forthwith appoint a Chapter 11 trustee, in particular
where the period under 11 U.S.C. Section 546 for the debtor
in possession as estate representative to pursue actions is