3/07/08
Ron Troutman v. Official Committee of Unsecured Creditors, U.S. District Court Case # 07-6106-HO, appeal of Bankruptcy Adv. Case # 3-6317-aer
arising in Ch. 11 case In re Troutman Investment Company.
UNPUBLISHED opinion by US District Court Judge Michael Hogan on appeal of Judge Radcliffe’s unpublished findings in an adversary proceeding.
This appeal turned largely on rules of pleading and of evidence:
1) The “house account” (charges defendant had made over the years for personal purchases at Emporium and elsewhere debited to that account):
a) Pleading: “Under federal rules, a complaint need only contain a short and plain statement of the claim showing an entitlement to relief. Fed. R. Civ. P. 8(a).” So even though the complaint’s claims for relief were titled otherwise, the allegations “were sufficient to provide notice of what was being sought and why,” thus allowing “account stated” and “open account” theories of recovery to proceed to trial.
b) Sufficient evidence for an “account stated” and “open account” found through the following facts: defendant’s assertions about the “house account” in his prior divorce case, statements of account received by defendant from debtor to which he did not object, that defendant made payments on the account, and the business records of debtor showing the account.
c) The facts of the case did not support the application of Oregon statutes ORS 10.095(8) and 40.135 (1), dealing with evidentiary presumptions in situations where evidence could not be presented or was willfully suppressed.
d) Under FRPC. 9017 and the Federal Rules of Evidence 1101(b), the Oregon Rules of Evidence do not apply. Further, under Federal Rules of Evidence 302, the Oregon evidentiary presumptions sought by defendant were not applicable here because those presumptions did not pertain to an element of an Oregon claim or defense, but rather were merely “tactical” presumptions.
e) Defendant was judicially estopped from asserting the inaccuracy of the “house account’s” outstanding balance as established in his divorce case, because his new position is clearly inconsistent with his position in that prior case, he had succeeded in persuading the divorce court to accept his earlier position, and allowing him to change his earlier position now would give him an unfair advantage.
2) The $150,000 Loan (to buy out defendant’s ex-wife for her share of debtor’s stock, paid by debtor’s principal but then assigned to debtor):
a) Pleading: See above re “short and plain statement” rationale for allowing plaintiff to assert an assignment argument at trial. In addition, a deposition and the subsequent pretrial order referred clearly to this assignment argument, so defendant was sufficiently put on notice.
b) Defendant’s inability to amend answer for defenses or counterclaims to assignment argument: When defendant had notice of the assignment argument from a November 2004 deposition but did not move to amend until August 2006 at “the eve of trial” scheduled for October 2006, he was not permitted to amend because this constituted undue delay, prejudice to plaintiff in reopening discovery so late, and likely futile in any event because “the proposed counterclaims and defenses were weak at best.”
c) Since under Oregon law an “an assignment may be oral or written and no special form is necessary provided that the transfer is clearly intended as a present assignment of the interest held by assignor,” the following facts were sufficient to establish defendant’s liability for the $150,000 loan: debtor’s founder and principal’s instructed debtor’s account manager to pay off defendant’s loan, informed her that defendant would pay it off, and also instructed her to put this receivable into the general receivables account for shareholders, where she labeled it as owed by defendant, and the accounting records continued to show the receivable as still owing.
BOTTOM LINE: The brother of corporation debtor’s founder and principal must pay unsecured creditors’ committee nearly $248,000 in receivables, consisting of 1) the balance in this brother’s house account, even though that account was established in 1963, and 2) a loan paid off by the debtor to buy out brother’s ex-wife’s stock in the debtor, even though that payoff occurred 5 years pre-petition.
Watch out for those informal pre-petition family arrangements, even those, ESPECIALLY those, from years or even decades ago.
Know the federal pleading and evidence rules, especially as they interplay with Oregon substantive and evidentiary law, before venturing into bankruptcy litigation.
a) Pleading: “Under federal rules, a complaint need only contain a short and plain statement of the claim showing an entitlement to relief. Fed. R. Civ. P. 8(a).” So even though the complaint’s claims for relief were titled otherwise, the allegations “were sufficient to provide notice of what was being sought and why,” thus allowing “account stated” and “open account” theories of recovery to proceed to trial.
b) Sufficient evidence for an “account stated” and “open account” found through the following facts: defendant’s assertions about the “house account” in his prior divorce case, statements of account received by defendant from debtor to which he did not object, that defendant made payments on the account, and the business records of debtor showing the account.
c) The facts of the case did not support the application of Oregon statutes ORS 10.095(8) and 40.135 (1), dealing with evidentiary presumptions in situations where evidence could not be presented or was willfully suppressed.
d) Under FRPC. 9017 and the Federal Rules of Evidence 1101(b), the Oregon Rules of Evidence do not apply. Further, under Federal Rules of Evidence 302, the Oregon evidentiary presumptions sought by defendant were not applicable here because those presumptions did not pertain to an element of an Oregon claim or defense, but rather were merely “tactical” presumptions.
e) Defendant was judicially estopped from asserting the inaccuracy of the “house account’s” outstanding balance as established in his divorce case, because his new position is clearly inconsistent with his position in that prior case, he had succeeded in persuading the divorce court to accept his earlier position, and allowing him to change his earlier position now would give him an unfair advantage.
2) The $150,000 Loan (to buy out defendant’s ex-wife for her share of debtor’s stock, paid by debtor’s principal but then assigned to debtor):
a) Pleading: See above re “short and plain statement” rationale for allowing plaintiff to assert an assignment argument at trial. In addition, a deposition and the subsequent pretrial order referred clearly to this assignment argument, so defendant was sufficiently put on notice.
b) Defendant’s inability to amend answer for defenses or counterclaims to assignment argument: When defendant had notice of the assignment argument from a November 2004 deposition but did not move to amend until August 2006 at “the eve of trial” scheduled for October 2006, he was not permitted to amend because this constituted undue delay, prejudice to plaintiff in reopening discovery so late, and likely futile in any event because “the proposed counterclaims and defenses were weak at best.”
c) Since under Oregon law an “an assignment may be oral or written and no special form is necessary provided that the transfer is clearly intended as a present assignment of the interest held by assignor,” the following facts were sufficient to establish defendant’s liability for the $150,000 loan: debtor’s founder and principal’s instructed debtor’s account manager to pay off defendant’s loan, informed her that defendant would pay it off, and also instructed her to put this receivable into the general receivables account for shareholders, where she labeled it as owed by defendant, and the accounting records continued to show the receivable as still owing.
BOTTOM LINE: The brother of corporation debtor’s founder and principal must pay unsecured creditors’ committee nearly $248,000 in receivables, consisting of 1) the balance in this brother’s house account, even though that account was established in 1963, and 2) a loan paid off by the debtor to buy out brother’s ex-wife’s stock in the debtor, even though that payoff occurred 5 years pre-petition.
Watch out for those informal pre-petition family arrangements, even those, ESPECIALLY those, from years or even decades ago.
Know the federal pleading and evidence rules, especially as they interplay with Oregon substantive and evidentiary law, before venturing into bankruptcy litigation.
by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
© 2008 Bankruptcy Litigation Support for Attorneys
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