Judith Grant v. Alan Granader , 657 F. App'x 554 ( 2016 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0566n.06
No. 16-1224
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
In re: ALAN GRANADER, )
FILED
Oct 12, 2016
)
DEBORAH S. HUNT, Clerk
Debtor. )
)
_____________________________________ )
) ON APPEAL FROM THE UNITED
JUDITH GRANT, ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
Appellant, ) MICHIGAN
)
v. )
)
ALAN GRANADER, )
)
Appellee. )
BEFORE: BOGGS, SUHRHEINRICH, and McKEAGUE.
PER CURIAM. Judith Grant appeals the district court’s judgment affirming the
bankruptcy court’s denial of her motion to reopen the Chapter 7 case of Alan Granader.
Grant is Granader’s ex-wife. On August 18, 2005, Granader borrowed $350,000 from
the Alan Granader Irrevocable Family Trust (“Alan Granader Trust”) and signed a promissory
note agreeing to repay the loan. Grant filed for divorce from Granader on May 26, 2006. In
2008, following an eleven-day divorce trial, the Oakland County Circuit Court entered a
judgment of divorce, awarding Grant monthly annuity payments of $21,531 from the trust. In
2010, the circuit court entered a stipulated order and nondischargeable money judgment against
Granader personally in the amount of $47,146, which Granader has since paid in full. Also in
2010, the trust assigned the $350,000 promissory note to Grant. Granader was not a beneficiary
No. 16-1224, Grant v. Granader
of the Alan Granader Trust, and it is undisputed both that Granader was not a party to the
transfer of the promissory note to Grant and that the divorce judgment is silent as to the
promissory note.
Granader filed for Chapter 7 bankruptcy on February 8, 2011. Granader listed the
$47,146 judgment on Schedule E (creditors holding unsecured priority claims) and the $350,000
promissory note on Schedule F (creditors holding unsecured nonpriority claims). Granader
received a discharge on July 19, 2011, and the bankruptcy court closed the case on August 26,
2011.
On June 29, 2014, Granader married his current wife, Rosellen Gliner. Ten months later,
in April 2015, Grant filed three pleadings in the divorce case: a motion for preliminary injunction
against Gliner, Granader’s mother, and a trust in the name of Granader’s mother; a motion to
rescind and void a 2010 agreement between Grant and the trustee of the Alan Granader Trust;
and a motion to hold Granader’s brother Dan in contempt. Grant subsequently withdrew each of
these motions. On April 28, 2015, Grant also filed a motion in Oakland County Circuit Court
seeking a “Declaratory Ruling that Alan Granader is Personally Liable” for the monthly
payments that Grant was owed from the Alan Granader Trust under the divorce judgment. In
May 2015, Grant filed three new lawsuits, also in Oakland County Circuit Court: one against
Gliner alleging receipt of fraudulent transfers; one against Granader’s mother and the trust in her
name, alleging the same; and one against the trustee of the Alan Granader Trust. Of these, the
first two were dismissed by the court with prejudice, and Grant voluntarily dismissed the third
without prejudice.
The Oakland County Circuit Court denied Grant’s April 28 motion on June 3, 2015,
explaining that it was “bound by [the] judgment of divorce,” and that Grant’s remedy in the
event that the monthly trust payments failed was not to hold Granader personally liable for the
-2-
No. 16-1224, Grant v. Granader
debt of the trust, but rather to seek from the divorce court relief such as spousal support from
Granader, the availability of which would depend on Grant’s financial circumstances and
Granader’s ability to provide such support.
Nine days later—and nearly four years after Granader’s discharge in bankruptcy—Grant
filed a motion to reopen Granader’s Chapter 7 case, seeking (1) to file an adversary proceeding
to determine that the $350,000 debt owed by Granader to her was nondischargeable “as this debt
relates back to a domestic support obligation arising under the divorce judgment,” (2) to recover
allegedly fraudulent transfers made by Granader to his mother and her trust and to his current
wife, and (3) to refer Granader to the Department of Justice for investigation of alleged tax and
bankruptcy fraud. The bankruptcy court denied Grant’s motion on the basis that she lacked
standing to file a motion to reopen. Grant filed a motion for reconsideration, which the
bankruptcy court granted because she did have standing. The bankruptcy court then went on to
deny Grant’s motion to reopen, addressing and rejecting each of Grant’s three arguments in turn,
for reasons we discuss below. Grant appealed the bankruptcy court’s denial of her motion to
reopen to the district court. The district court affirmed, and this timely appeal followed.
“When reviewing an order of a bankruptcy court on appeal from a decision of a district
court, we review the bankruptcy court’s order directly and give no deference to the district
court’s decision.” In re Lee, 530 F.3d 458, 463 (6th Cir. 2008). The bankruptcy court may
reopen a case “to administer assets, to accord relief to the debtor, or for other cause.” 11 U.S.C.
§ 350(b). The decision as to whether to reopen a case is “committed to the sound discretion of
the bankruptcy judge and will not be set aside absent abuse of discretion.” In re Rosinski,
759 F.2d 539, 540–41 (6th Cir. 1985).
In its Supplemental Opinion Denying Creditor Judith Grant’s Motion to Reopen Debtor’s
Case, issued on July 22, 2015, the bankruptcy court first addressed Grant’s argument that
-3-
No. 16-1224, Grant v. Granader
reopening the bankruptcy case was necessary in order to determine whether the $350,000
promissory note was a dischargeable debt. The court correctly held that although no time limit
applies to filing an action to determine the dischargeability of certain debts, including those
“incurred by the debtor in the course of a divorce . . . or in connection with a . . . divorce decree”
(see 11 U.S.C. § 523(c), (a)(15)), the $350,000 debt was incurred neither in the course of a
divorce nor in connection with a divorce decree, and thus was discharged in the 2011 bankruptcy
proceeding. Grant argued in reply before the district court, “why would [Granader] agree to
voluntarily pay the $47,146.00 owed under the Stipulated Order and Money Judgment” if he
“actually disputed the validity of the lawsuit.” What Grant fails to distinguish is that the $47,146
debt was nondischargeable because it, unlike the $350,000 promissory note, arose in the course
of the divorce proceeding. Accordingly, the bankruptcy court was well within its discretion to
determine both that the $350,000 debt was discharged and that reopening the bankruptcy case
was not necessary in order to hold the debt discharged.
The bankruptcy court then turned to Grant’s second argument, which is that Granader
allegedly made preferential or fraudulent transfers prior to filing for bankruptcy and failed to
disclose those transfers, such that reopening the bankruptcy case would allow a Chapter 7
Trustee to recover those transfers for the benefit of creditors. The bankruptcy court held that
there was insufficient cause to reopen the bankruptcy case because Grant had a remedy under
state law: specifically, recourse to Michigan’s fraudulent transfer laws, which Grant appears
already to have employed in the suits filed in Oakland County Circuit Court in May 2015. The
bankruptcy court further noted that whereas any recovery in a reopened Chapter 7 proceeding
would necessarily be divided among all creditors pro rata, Grant would enjoy a greater recovery
(if she is entitled to any) under state law. Notably, Michigan law provides a six-year statute of
limitations for recovering fraudulent transfers under its version of the Uniform Fraudulent
-4-
No. 16-1224, Grant v. Granader
Transfer Act. M.C.L. §§ 566.39(a), 600.5813, 600.5855. Again, the bankruptcy court did not
exceed the scope of its discretion in declining to reopen the bankruptcy case for the purpose of
recovering allegedly fraudulent transfers.
Finally, the bankruptcy court turned to Grant’s third argument for reopening the Chapter
7 case, which is that Granader orchestrated a fraud upon the bankruptcy court by failing to
disclose fraudulent transfers and sources of income. To the extent that this argument is
duplicative of Grant’s second argument (that is, to the extent that Grant makes this argument in
order to recover fraudulent transfers), the bankruptcy court was within its discretion to dismiss
the argument. To the extent that this argument extends further and seeks to refer Granader to the
Department of Justice for committing bankruptcy fraud, the bankruptcy court could still
reasonably have found that reopening the Chapter 7 case was not a necessary step in order for
such reference to be made. After all, statutory authority for a judge to report fraud upon a
bankruptcy court to the United States Attorney’s Office exists when the judge has “reasonable
grounds for believing” that a violation has occurred, and in no way depends on the status of a
bankruptcy proceeding as open or closed. See 18 U.S.C. § 3057(a). Thus, the bankruptcy court
did not abuse its discretion in denying Grant’s motion to reopen.
On appeal, the parties discuss at length the bankruptcy court’s use of the doctrine of
laches, which the bankruptcy court employed as an alternative means for denying the motion to
reopen. Bankruptcy courts have held that the doctrine of laches may justify the denial of a
motion to reopen. See In re Nelson, 100 B.R. 905, 906 (Bankr. N.D. Ohio 1989). “Laches
requires proof of (1) lack of diligence by the party against whom the defense is asserted, and
(2) prejudice to the party asserting the defense.” Costello v. United States, 365 U.S. 265, 282
(1961). The bankruptcy court here found lack of diligence but failed to address whether the
delay in reopening the case would result in any prejudice to Granader. “Passage of time in itself
-5-
No. 16-1224, Grant v. Granader
does not constitute prejudice.” In re Bianucci, 4 F.3d 526, 528 (7th Cir. 1993). Ordinarily,
dismissing an action on the basis of laches without analyzing prejudice would constitute an abuse
of discretion. See In re Yonish, No. 15-8006, 2016 WL 832587, at *3-4 (B.A.P. 6th Cir. Mar. 3,
2016). Here, however, because the bankruptcy court’s opinion did not rely on the doctrine of
laches but rather used it as an alternative ground on which to deny Grant’s motion to reopen, and
because the court had sufficient other basis on which to conclude there was no “cause” to reopen
the Chapter 7 case, there was no abuse of discretion.
Accordingly, we AFFIRM the bankruptcy court’s order denying Grant’s motion to
reopen.
-6-