Case No. 94-14656-AM, Contested Matter No. 95-0040United States Bankruptcy Court, E.D. Virginia
March 21, 1995
MEMORANDUM OPINION
STEPHEN MITCHELL, Bankruptcy Judge
This matter is before the Court on the motion of the debtor/respondent filed February 22, 1995, to alter or amend the order signed February 14, 1995, and entered on the docket on February 23, 1995, granting relief from the automatic stay in order to permit the movants to prosecute a fraudulent conveyance action in the Circuit Court of Prince William County, Virginia, to which the debtor is a party defendant.
The background and procedural posture of this case are set forth in the Memorandum Opinion of this Court filed February 28, 1995, and will not be repeated here except to note that the debtor has appealed from the order of this Court denying confirmation of his chapter 13 plan. After the memorandum opinion and order were issued setting this matter down for argument, the movants filed a memorandum in opposition to the debtor’s motion, and argument was heard in open court on March 14,
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1995. At the conclusion of the hearing, the Court took the matter under advisement. The debtor subsequently filed, and the Court has carefully considered, the debtor’s pro se brief further addressing the issue of collateral estoppel which had been argued at the hearing.
The judgment creditors’ argument, couched in its simplest terms, is that the question of whether the entire value of the debtor’s stock in National Sportsman Association, Inc. was effectively exempted in the debtor’s prior chapter 7 case, or only $10.00 worth, has already been ruled upon by the Circuit Court of Prince William County, and further litigation of the issue in this court is barred by res judicata
or collateral estoppel. From copies of pleadings presented by the judgment creditor, it appears that NSA filed in the state court chancery suit a plea in bar asserting that the complainants were barred by res judicata from relitigating the value of the NSA stock, since the complainants, who were creditors and participated in the debtor’s chapter 7 case, had never objected to the debtor’s $10.00 valuation of the stock on his bankruptcy schedules and homestead deed. In a brief filed in the state court in support of the plea in bar, NSA specifically called the Circuit Court’s attention to the Supreme Court’s decision in Taylor v. Freeland Kronz, — U.S. —, 118 L.Ed.2d 280, 112 S.Ct 1644 (1992). The complainants, in response, argued tha Taylor was distinguishable and invited the Circuit Court’s attention to the decision of the United States District Court i Addison v. Reavis, 158 B.R. 53 (E.D.Va. 1993), aff’d sub.nom Ainslie v. Grablowsky, 32 F.3d 562 (4th Cir. 1994) (unpublished). On November 23, 1993, the state Circuit Court entered an order overruling the plea in bar in which it ruled:
that Defendant National Sportsman Association, Inc.’s Plea in Bar based upon the preclusive effect of Charles Rogers stating a $10.00 value for the stock of National Sportsman
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Association, Inc. on his homestead deed is dismissed, and the Court finds that the Complainants are not estopped from challenging the value of the stock of National Sportsman Association, Inc. at the time of its transfer.
The ruling made by the Circuit Court, although not specifically addressing each of the components of the argument made by the debtors in this Court, focuses on the same subject matter, namely the issue of what it was the debtor exempted in his chapter 7 case — the entire stock interest in NSA or only $10.00 worth of the stock. The debtor proffered, and the Court accepts as true for the purposes of ruling on the present motion, that his subjective intent was to exempt the entire stock interest. The debtor also argues, and the Court concurs, that the Circuit Court’s ruling cannot technically operate as collateral estoppel with respect to the present motion before the Court, since the order overruling the plea in bar is not a final or appealable order but is purely interlocutory in nature.[1]
Nevertheless, apart from issues of res judicata and collateral estoppel, there is an issue here of judicial comity, that is to say, the deference which the courts of one jurisdiction will give the decisions of courts in another jurisdiction, not as a matter of obligation, but out of respect. This motion involves an action pending in another court having proper jurisdiction of the parties. The trial is set for the very near future. The state court has addressed and ruled upon essentially the same issue the debtor now seeks to raise. That ruling is fully subject to appeal in the event the trial court ultimately enters a
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judgment against the debtor on the merits. While the ruling may or may not be the ruling which this Court would reach presented with the same question, it is not plainly wrong or without a substantial basis in applicable case law. At best, it is a ruling on which reasonable minds might differ. Under such circumstances, respect for the state court dictates that this court not unnecessarily substitute its own judgment for that of the state court, particularly as the debtor has and claims no current interest in the NSA stock, which he transferred to his wife back in 1990. Thus whether or not the judgment creditors are successful in their efforts to subject the NSA stock to the payment of their judgment, as sought in Count I of the bill of complaint, can have no effect on the debtor’s chapter 13 case or his ability to formulate or implement a plan.[2] Similarly, the debtor’s chapter 13 estate will not be adversely affected by any ruling avoiding the transfer of NSA’s assets to American Sportsman Association, Inc., as sought in Count II, nor would the chapter 13 estate be affected by a ruling that NSA and ASA are alter egos of the debtor, as sought in Count III, since the debtor does not claim an ownership interest in either corporation. Only a ruling on Count IV of the complaint — which seeks damages for an alleged conspiracy[3] by the debtor and his wife to defraud the complainants by transferring assets and diverting income-could have an impact on the chapter 13 case, and the Court in granting relief from the stay on February 14, 1995, specifically limited the complainants to liquidating their claim in the state court and prohibited execution on any judgment that
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might be obtained without further order of this Court or unless the chapter 13 case is dismissed.
Accordingly, having considered the arguments of the parties, the Court concludes that the debtor’s motion to alter or amend the order dated February 14, 1995, granting relief from the automatic stay, should be denied. A separate order will be entered.