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Heurlin v. Cole Alexander Financial Ltd.

United States District Court, M.D. Pennsylvania

March 31, 2015

RONALD R. HEURLIN and TANYA E. HEURLIN, Appellants,
v.
COLE ALEXANDER FINANCIAL LTD., et al., Appellees

MEMORANDUM

MALACHY E. MANNION, District Judge.

Pending before the court is the appellants', Ronald R. Heurlin and Tanya E. Heurlin, appeal from an order of the Bankruptcy Court denying their motion to dismiss the Chapter 7 petition of debtor/appellee Cole Alexander Financial LTD., ("Cole Alexander"), and request for sanctions. (Doc. 1). The appellants contend that the Bankruptcy Court erred as a matter of law and/or abused its discretion in denying their motion to dismiss Cole Alexander's Chapter 7 case since the case was not filed in good faith. (Doc. 5). The appellees filed a brief in opposition, (Doc. 6), on November 21, 2014, and appellants filed a reply brief on December 5, 2014, (Doc. 7). The appeal is now ripe for the court's ruling.

I. BACKGROUND

The parties agree that the central issue on appeal is whether the Bankruptcy Court erred in its September 11, 2014 order denying the appellants' motion to dismiss the Chapter 7 case of Cole Alexander, Case Number 5-14-bk-03405, M.D.Pa., pursuant to 11 U.S.C. §707(a). The appellants concede that their appeal of the Bankruptcy Court's decision denying their request to award them sanctions against the president of Cole Alexander, Eugene Wendolowski, and its attorney, Eugene C. Kelley, pursuant to F.R.C.P. 9011(c), must be made by a separate motion. (Doc. 5, at 6 n. 2). As such, the instant appeal does not address the sanctions issue. Specifically, after a hearing held on September 11, 2014, the Bankruptcy Court issued an order, (Doc. 1-1), stating: "it is ORDERED that the Motion to Dismiss and for Sanctions is DENIED; and, FURTHER ORDERED that the Clerk's Office is directed to immediately close this Chapter 7 case. The Court's findings and conclusions were stated on the record in open court pursuant to F.R.B.P. 7052."

The Bankruptcy Court issued a final decree closing the Chapter 7 case of Cole Alexander on September 13, 2014. The appellants then filed a timely notice of appeal to this court on September 25, 2014. (Doc. 1).

The Heurlins filed an action on April 22, 2011, in the district court, Civil No. 11-0770, M.D.Pa., ("Heurlin case"), against the following Defendants: Steven Yankowski, individually and trading as Thornhurst Properties, LLC, Premier Equity Management Services, Ltd., Premier Equity Scranton, LLC, Cole Alexander Financial, LTD, Airport Office Complex, Inc., Atlantic Acquisition Group, Inc., and Premier Equity Mount Cobb, LLC. The court takes judicial notice of the Heurlin case. See Fed.R.Evid. 201. In this action, the Heurlins sought to recover over $5, 000, 000 they allegedly loaned to defendants over several dates and in various amounts commencing in February 2004. The Heurlins averred that they made the loans to defendant Yankowski and to the defendant companies so that Yankowski could purchase and develop real estate in the Scranton, Pennsylvania, area for resale. They also alleged that defendant Yankowski formed the defendant companies ostensibly to acquire and develop real estate with the loans they made.

The Heurlins alleged that defendants failed and refused to repay the loans to them. They also allege that defendant Yankowski induced them into making and later modifying the loans through false and fraudulent representations regarding the use of the proceeds from the loans, the priority of the mortgages securing the loans and values of the properties that were subject to the mortgages.

On August 9, 2011, defendant Airport Office Complex, Inc., filed a voluntary Bankruptcy Petition under Chapter 11 of the U.S. Bankruptcy Code, pursuant to 11 U.S.C. §1101, et seq. See 5:11-bk-05550, M.D.Pa. The district court issued an order on August 22, 2011, and administratively closed the Heurlin case due to the automatic stay provision of the Bankruptcy Code. On September 28, 2011, appellants filed a Notice of Voluntary Dismissal of Airport Office Complex, Inc., from the Heurlin case. On August 15, 2013, another defendant in the Heurlin Case, Atlantic Acquisition Group, Inc. ("Atlantic"), filed a Chapter 7 petition, docketed at 5:13-BK-04219-JJT ("Atlantic Bankruptcy"). Once again the district court issued an order and administratively closed the Heurlin case due to the automatic stay. A final decree was entered by the Bankruptcy Court in the Atlantic bankruptcy on March 25, 2014.

Subsequently, Cole Alexander and the other defendants in the Heurlin case refused to consent to re-open the Heurlin case, requiring the Heurlins to file a formal motion to re-open their case. The district court granted the Heurlins' motion to re-open on July 1, 2014. Cole Alexander then filed its Chapter 7 petition on July 24, 2014, (Doc. 2-1), and the Heurlin case was again stayed by the district court. The appellants then moved in the Bankruptcy Court to dismiss the Chapter 7 case on the basis that it was not filed in good faith since they argued that the Chapter 7 filing provided no benefit to Cole Alexander other than to delay the proceedings in the Heurlin case. The Bankruptcy Court denied the appellants' motion to dismiss but closed the Chapter 7 case of Cole Alexander on September 11, 2014. The appellants now appeal this decision of the Bankruptcy Court.

II. STANDARD OF REVIEW

This court has appellate jurisdiction under 28 U.S.C. §158(1)(a). Goldsmith v. Winnecour, 485 B.R. 522, 526 (W.D.Pa. 2013) (The district court has jurisdiction over "appeals from [final] judgments, orders, and decrees" of the Bankruptcy Courts.). The court in Forever Green Athletic Fields, Inc. v. Dawson, 514 B.R. 768, 778 (E.D.Pa. 2014), discussed the legal standard in such cases and stated:

Federal Rule of Bankruptcy Procedure 8013 provides that a reviewing court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr.P. 8013. In our review, we are governed by traditional standards of appellate review and accordingly review a bankruptcy court's legal determinations de novo, independent of that court and without deference to its analysis and conclusions of law. See American Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999); see also Fed.R.Bankr.P. 8013. We review its factual findings, whether based on oral or documentary evidence, for clear error, and its exercise of discretion for abuse thereof. In re Trans World Airlines, Inc., 145 F.3d 124, 130-31 (3d Cir. 1998). Mixed questions of fact and law must be broken down and reviewed under the applicable standard. See In re Montgomery Ward Holding Corp., 326 F.3d 383, 387 (3d Cir. 2003). We review a bankruptcy court's dismissal of a bankruptcy case as a bad faith filing for abuse of discretion. In re SGL Carbon Corp., 200 F.3d 154, 159 (3d Cir. 1999).

Additionally, "[a] factual finding is clearly erroneous if the district court is firmly convinced, based on all of the evidence, that the bankruptcy court made a mistake." Id . (citation omitted). The district "may not engage in independent factfinding."Id. (citation omitted). "The [bankruptcy] petitioner bears the burden to show it has acted in good faith." Id . (citing In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000) ("Once a ...


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