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