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In re Breland

United States District Court, S.D. Alabama, Southern Division

September 30, 2019

In re Charles K. Breland, Jr.

          ORDER

          JEFFREY U. BEAVERSTOCK UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Appellant Charles K. Breland, Jr.’s (“Breland” or “Appellant”) Appeal from the Bankruptcy Court for the Southern District of Alabama’s Orders dated April 28, 2017, May 3, 2017, and June 21, 2017. Appellant has submitted several briefs in support of his appeal. (Docs. 11, 18, 19, and 26). The remaining interested parties have also filed briefs in opposition. (Doc. 13, 16, 25, and 27). This dispute is ripe for resolution. For the reasons stated herein, the Bankruptcy Court’s Orders are AFFIRMED.

         I. Background

         The facts of this case are well-documented in Judge Oldshue’s Order in this matter from April 28, 2017.[1] Appellant filed the relevant Chapter 11 petition on July 8, 2016. On July 25, 2016, Appellee Levada EF Five, LLC (“Levada”) filed a Motion to Dismiss Appellant’s Chapter 11 case, or in the Alternative, for the Appointment of a Chapter 11 Trustee. On September 22, 2016, Appellees Equity Trust Company, Custodian f/b/o David E. Hudgens and Hudgens & Associates, LLC (“Hudgens Creditors”) filed a motion requesting the Bankruptcy Court appoint a Chapter 11 Trustee over Mr. Breland’s case.

         On September 30, 2016, Appellant filed an omnibus brief opposing each of the Motions to Dismiss or to Appoint a Trustee. In his brief, Appellant argued that neither dismissal nor appointment of a trustee were in the best interest of creditors or the estate. On October 6, 2016, the Hudgens Creditors filed a response to the Appellant’s omnibus brief and asserted that appointing a Chapter 11 Trustee was proper. The Bankruptcy Court then held a motion hearing. On December 19, 2016, Levada filed a post-hearing brief. The Hudgens Creditors did the same on March 14, 2017. Appellant also filed a post-hearing brief and in it, argued that appointing a trustee implicated the Thirteenth Amendment based on a reading of 11 U.S.C.S. §1115 in conjunction with 11 U.S.C.S. § 1104. On March 30, 2017, the Bankruptcy Administrator filed a response to the various motions. The Bankruptcy Administrator argued that cause existed for the appointment of a Trustee and argued that the Thirteenth Amendment does not prohibit the appointment of a Trustee.

         On April 6, 2017, Appellant filed an Expedited Motion to Dismiss [his] Petition for Bankruptcy under § 1112(b). In that Motion, Appellant argued that circumstances had changed and that dismissal was in the best interest of creditors and the Estate. Appellant also reiterated his constitutional claim in this motion, arguing “appointment of a Trustee would require Debtor to provide services and his net disposable income in reorganizing thereby forcing the Debtor to work for the trustee and the estate without compensation in a state of involuntary servitude.” (see Doc. 11 at 13). The Bankruptcy Administrator filed a response on April 11, 2017, and the Hudgens Creditors filed a response on April 28, 2017. The United States and Levada filed responses on April 28, 2017. In its response, Levada argued that Appellant’s Thirteenth Amendment argument was premature because “no plan requiring the payment of post-petition income had been proposed and that appointment of a trustee would not violate the Thirteenth Amendment.” (Doc. 11 at 16).

         Appellant then filed another Brief in Support of his Expedited Motion to Dismiss. In it, he again argued that the appointment of a Trustee would be inappropriate and force him into a state of involuntary servitude. The Bankruptcy Court entered an Order and Memorandum Opinion on April 28, 2017. In it, the Bankruptcy Court found cause for the appointment of a Trustee but did not address the Appellant’s constitutional argument. (Doc. 3 at 1460 – 1472). The Bankruptcy Court entered an Order appointing a Chapter 11 trustee on May 3, 2017. On May 9, 2017, the Trustee filed an application to employ the Appellant as a consultant.[2] On May 12, 2017, the Appellant filed his motion to vacate the April 28th Order, which authorized the appointment of a Trustee, again asserting a violation of the Thirteenth Amendment and specifically requested that the Bankruptcy Court address his constitutional claim. The Bankruptcy Administrator filed a response to the Motion to Vacate on May 17, 2017, arguing that the Thirteenth Amendment question was not ripe for resolution. On June 9, 2017, Levada filed its response to the Motion to Vacate and argued, inter alia, that the Bankruptcy court implicitly denied Appellant’s constitutional argument. On June 12, 2017, the Trustee filed a response and an amended response to the Motion to Vacate, adopting the other parties’ positions. The Hudgens Creditors also filed a Motion in Response on June 12th, arguing the Thirteenth Amendment was not implicated by the appointment of a Trustee.

         On June 13, 2017, the Bankruptcy court held a hearing and discussed Appellant’s Thirteenth Amendment claim. Appellant argued that the issue was ripe for determination because 11 U.S.C.S. §§ 541 and 1115, when read together, require all post-petition income and earnings to become property of the Estate. Appellant argued that the issue was ripe because these code provisions required that such property be placed out of his reach and that his subsistence was at the behest of the Trustee. Put another way, Appellant argued that the immediate trigger of 11 U.S.C.S. § 1115, which places post-petition income into the Bankruptcy Estate, provided sufficient ripeness because Appellant’s injury-in-fact was that he had no control over his post-petition income. Appellant’s counsel highlighted testimony that the Appellant could not just simply refuse to work for the trustee because if he did not, his “business would collapse, and the Appellant’s 35 – 40 years of sweat building his business would be undone.” Appellant’s counsel also noted that the Appellant did not seek conversion to Chapter 7 because “such would not be in the best interest of creditors or the estate.” (Doc. 11 at 18).

         The Bankruptcy Court denied Appellant’s Motion, finding Appellant’s Thirteenth Amendment claim was not ripe for adjudication. (Doc. 3 at 1841 – 18562) (“This Court finds this argument to be premature as no plan of reorganization has been submitted by the Debtor or any other creditor or party in interest.”). Appellant now presents five issues for this Court to consider on appeal:

(1) Whether the Bankruptcy Court erred in appointing a Chapter 11 trustee under 11 U.S.C. § 1104 given that Chapter 11 of the Bankruptcy Code, including 11 U.S.C. §§ 541 and 1115, includes post-petition income, earnings, and/or wages of an individual debtor, here, Mr. Breland, as property of the estate, thus forcing Appellant into involuntary servitude in violation of the Thirteenth Amendment.
(2) Whether the Bankruptcy Court erred in appointing a Chapter 11 trustee under 11 U.S.C. § 1104, given that the case remained a reorganization case at the time of allowance of the appointment and at the time of appointment, requiring a Chapter 11 plan to be filed that would, by necessity under 11 U.S.C. § 1129 require an individual debtor’s projected disposable income, earnings, and/or wages to be included in such a plan, thus further forcing Appellant into involuntary servitude in violation of the Thirteenth Amendment to the Constitution of the United States of America.
(3) Whether the Bankruptcy Court erred in failing to vacate its Orders related to the appointment of a trustee by holding that Appellant’s challenge to the appointment of a Chapter 11 trustee in violation of the Thirteenth Amendment was not ripe for consideration.
(4) Whether the Bankruptcy Court erred in not dismissing the Chapter 11 case I lieu of appointing a Chapter 11 Trustee in this case, given the prohibitions of the thirteenth Amendment to the Constitution of the United States of America
(5) Whether the appointment of a trustee in an individual Chapter 11 case violates the Thirteenth Amendment to the Constitution of the United States of America

         Each issue Appellant raises concerns the Bankruptcy court’s appointment of a Trustee, save for the fourth issue, which only focuses on the Bankruptcy court’s failure to dismiss his petition outright. However, each claim centers on whether the Bankruptcy court violated the Thirteenth Amendment.

         II. Legal Standard

         Generally, district courts operate as appellate courts in bankruptcy matters. In re Sublett, 895 F.2d 1381, 1383 – 1384 (11th Cir. 1990). An appellate court reviews questions of constitutional law de novo. Graham v. R.J. Reynolds Tobacco Company, 857 F.3d 1169, 1181 (11th. Cir. 2017) (citing Nichols v. Hopper, 173 F.3d 820, 822 (11th Cir. 1999)). An appellate court also reviews a lower court’s determination of core constitutional facts de novo. FF Cosmetics FL, Inc. v. City of Miami Beach, 866 F.3d 1290, 1297-98 (11th Cir. 2017). Generally, an appellate court reviews the denial of a motion to alter or amend a judgment for an abuse of discretion. Shuford v. Fidelity Nat. Property & Cas. Ins. Co., 508 F.3d 1337, 1341 (11th Cir. 2007). However, if the ruling on a motion to alter or amend ...


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