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In re White

United States District Court, E.D. Michigan, Northern Division

November 29, 2016

In re Michael B. White and Darla Kay White Whites IV, Debtors,
v.
COLLENE K. CORCORAN, United States Trustee, Appellee. MICHAEL B. WHITE, and DARLA KAY WHITE, Appellants,

          ORDER DENYING MOTION TO STRIKE AND GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

          THOMAS L. LUDINGTON, UNITED STATES DISTRICT JUDGE

         On April 1, 2016, Appellant Michael White, acting on his own behalf and purportedly on behalf of his deceased wife, initiated this latest appeal of his bankruptcy proceedings. See ECF No. 1. On April 19, 2016 the Trustee's former attorney Thomas J. Budzynski, purportedly acting on his own behalf as a creditor of the estate, filed a motion to dismiss White's appeal. See ECF No. 3. Mr. White responded by filing a motion to strike Mr. Budzynski's motion for lack of standing. See ECF No. 4. For the reasons stated below, White's motion to strike will be denied. Mr. Budzynski's motion to dismiss will be granted, however his request for costs will be denied without prejudice.

         I.

         Michael and Darla White were a husband and wife who resided in Birch Run, Michigan. Michael White has worked in the fields of construction and sand mining. Darla White worked for a number of years in the insurance and trucking industries. The Whites' careers changed significantly in 2007 when Darla White began suffering from a disability. She was no longer able to work and Michael, facing his own issues with employment, took time to care for her.

         Darla's health never recovered after 2007 and she was unable to return to work. She eventually passed away during the pendency of the bankruptcy proceedings, on January 1, 2015. See Tr. 299-300. While Michael White is likely to be appointed as the personal representative of her estate, at the time he filed his appeal this appointment had not yet occurred. Michael White temporarily found employment in the meat market at a local Meijer's, and now appears to be employed in the construction field.

         A.

         The Whites purchased their primary residence at 11085 Block Road, Birch Run, Michigan (“Block Road property”), in 1990. The homestead consisted of 40 acres of farmland and a farmhouse where the Whites resided. They paid the mortgage loan for the house in full in 2006. In 2007, the Whites sought a line of credit from Frankenmuth Credit Union (“FCU”). Their credit request was approved and they obtained a $100, 000.00 loan from FCU that was secured by a mortgage against the Block Road property. The loan money was withdrawn using a credit card issued to the Whites.

         The Whites withdrew the full amount of the loan within eighteen months of the account being opened. By 2010, the Whites began to fall behind on their loan payments. They stopped making payments altogether in 2011. In response, FCU initiated a foreclosure action in Saginaw County Circuit Court. The Whites defended the action, contending that FCU's mortgage was invalid, but were unsuccessful. The Saginaw County Circuit Court entered a judgment of foreclosure in favor of FCU on July 15, 2011. FCU was authorized to hold a foreclosure sale after August 5, 2011 and to recover $113, 789.23 in costs and fees. On July 30, 2015, before FCU conducted a foreclosure sale, the Whites sought bankruptcy protection and the automatic stay barred the foreclosure sale. See In Re Whites, 13-21977 (E.D. Mich. Bankr., Sept. 30, 2013).

         B.

         The Whites proposed an initial plan of reorganization ten months into the bankruptcy. All significant parties in interest objected to confirmation of the plan, including FCU, Ally Financial (holder of the Whites' car loan), and the United States Trustee, and the plan was eventually rejected. The United States Trustee then moved to have their case dismissed or converted to a Chapter 7 proceeding. FCU and Ally also moved to have the automatic stay lifted, allowing FCU to continue the foreclosure.

         In response the Whites filed a second plan of reorganization on August 21, 2014. A hearing was held the next day on the plan, the United States Trustee's motion to dismiss or convert, and the creditors' motion to lift the automatic stay. The bankruptcy court rejected the Whites' second plan and granted the motion to convert, converting the proceeding to a Chapter 7 bankruptcy, and lifted the stay imposed upon property securing the FCU and Ally loans.

         The Whites appealed to this Court on December 5, 2014. See In re Whites (Whites I), Case No. 14-cv-14599 (E.D. Mich. Dec. 5, 2014). The bankruptcy court's decision to convert the case to a Chapter 7 proceeding was affirmed on July 31, 2015, and the Whites' motion for reconsideration of that opinion was denied on March 7, 2016.

         C.

         In Schedule C of their initial Chapter 11 filing, the White's claimed a variety of exemptions under federal law. See Tr. Pg. ID 24. Prior to the conversion, the Whites amended Schedule C on June 4, 2014. See TR. Pg ID 176-79). After the bankruptcy filing was converted to a Chapter 7 proceeding, on October 15, 2014 the Chapter 7 Trustee, Colleen Corcoran, objected to the Whites claimed exemptions. Tr. Pg ID 196-98. The Trustee argued that because the White's had claimed Michigan exemptions their homestead exemption was limited to $30, 000, and generally arguing that the White's had not provided sufficient details in support of their claimed exemptions. Id. In response, the Whites again amended Schedule C on December 1, 2014. Tr. Pg ID 238-45. The Trustee again objected to the amended exemptions, and the Whites again amended Schedule C on December 23, 2014. Tr. Pg ID 247-48; 265-74. The Trustee again objected. Tr. Pg ID 294.

         D.

         In the meantime, on December 11, 2014 Trustee moved for permission to sell property of the bankruptcy estate. See Tr. Pg. ID 253-56. On March 6, 2015, the bankruptcy court issued an order permitting the sale of miscellaneous personal property, including jewelry and tools of trade, and permitted the sale of a potential medical malpractice suit held by Darla White. Tr. Pg. ID 349-54. The order also set parameters for the sale of the Whites automobile. Id. Finally, the order contemplated the sale of three different parcels of property: 11085 Block Road, the Whites' primary residence and the most valuable piece of real estate; 11255 Block Road; and one half of “Lot 35 Shay Lake Sub 2 lot on boat canal Dayton Township, Tuscola County, Michigan” (the “Shay Property”). Id.

         The 11085 Block Road property was sold at an online auction for $156, 115.23. Tr. Pg. ID 682-83. There is no record of any other property of the bankruptcy estate being sold. On April 15, 2015, the Trustee filed a motion in the bankruptcy court to abandon much of the miscellaneous personal property, including the jewelry and tools of trade, and the Whites' personal automobile, and the half lot on Shay Lake back to the Whites. Tr. Pg ID 538-540. The 11255 Block Road property was specifically not abandoned by the Trustee. Id. On July 13, 2015 the bankruptcy court issued an order restraining Michael White from interfering with the administration of the estate; particularly restraining him from entering onto 11085 Block Road or from contacting the tenants of 11255 Block Road. Tr. Pg. ID 726-27.

         The White's filed two separate appeals arising out of the bankruptcy court orders granting the Trustee leave to sell property of the estate. First, in In re Whites (Whites II), Case No. 15-cv-11310 (E.D. Mich.) the Whites appealed an order granting the Trustee permission to sell certain property of the bankruptcy estate free and clear of liens, including the property located at 11255 Block Road. It is unclear whether the sale of the 11255 property has yet been finalized. In the second appeal, In re Whites (Whites III), Case No. 15-cv-12354 (E.D. Mich.) the Whites appealed an order confirming the auction sale of the property located at 11085 Block Road for $156, 115.23, the primary real estate within the ...


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