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In re Spenlinhauer

United States District Court, D. Massachusetts

March 23, 2017

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



         This is 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.

         For the reasons stated below, the decision of the bankruptcy court appointing a Chapter 11 trustee will be affirmed.

         I. Background

         On 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).

         Spenlinhauer 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).

         The 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. (Id.).

         Spenlinhauer 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).

         Spenlinhauer 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).

         On 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).

         Spenlinhauer 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).

         The 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).

         On 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 expiring ...

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