R. Brown & Sons, Inc. v. New England Quality Service, Inc. et al

Filing 21

OPINION AND ORDER Affirming the Bankruptcy Court's September 18, 2013 Final Order on Pre-Petition and Post-Petition Storage Claims. Signed by District Judge J. Garvan Murtha on 2/25/2015. (esb)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
R. BROWN & SONS, INC.,

:
:
Appellant,
:
:
v.
:
:
RATHE SALVAGE, INC.,
:
LAROCHE TOWING & RECOVERY, INC., and :
NEW ENGLAND QUALITY SERVICE, INC.,
:
:
Appellees.
:
__________________________________________:

Case No. 1:13-cv-00317-jgm

Opinion and Order
(Doc. 1)
I.

Introduction
R. Brown & Sons, Inc. (“R. Brown”) appeals the Bankruptcy Court’s September 18, 2013

final order on pre-petition and post-petition storage claims. For the following reasons, the
Bankruptcy Court’s decision is AFFIRMED.
II.

Background
Appellant R. Brown is a scrap metal recycling and transporting business that filed for

bankruptcy in June of 2013. Appellee Rathe Salvage, Inc. (“Rathe”), a creditor who had obtained a
$440,095 judgment against R. Brown, obtained a writ of execution on ten items of equipment,
machinery, and vehicles (“Property”) belonging to R. Brown. The Property was seized by Rutland
and Washington County Sheriffs (the “Sheriffs”) in accordance with state statutes.
Rathe arranged for Appellees LaRoche Towing & Recovery, Inc. (“LaRoche”) and New
England Quality Service, Inc., d/b/a Earth Waste & Metal Systems (“Earth Waste”) to store the
Property. In a July 26, 2013 order the Bankruptcy Court concluded the Sheriffs acted as
“custodians” as defined by 11 U.S.C. § 101(11) and LaRoche and Earth Waste acted as the Sheriffs’

agents in storing the Property. (Doc. 1-4 (Record), at 102.) LaRoche and Earth Waste stored the
property for 116 days. Because Vermont law holds a judgment debtor responsible for costs
resulting from the levy, R. Brown is responsible for expenses associated with storing the Property
for 116 days. The rates averaged between $50 and $100 a day per a piece of equipment and
ultimately totaled $73,125.
On appeal, R. Brown argues the Bankruptcy Court (1) erred as a matter of law in
determining the Sheriffs qualified as custodians under § 101(11), and (2) committed clear error in
finding the storage fees reasonable. (Doc. 16, at 10.) R. Brown filed its brief on October 30, 2014
(Doc. 16.) Earth Waste filed its brief on December 30, 2014 (Doc. 19) and Rathe filed its brief on
December 31, 2014 (Doc. 20). R. Brown did not file a reply brief.
III.

Discussion
A custodian of the debtor’s property may recover “administrative expenses” in the amount

of “actual, necessary costs of preserving the estate,” 11 U.S.C. § 503(b), and is entitled to priority in
recovering these expenses, see 11 U.S.C. § 507(a)(2). R. Brown argues the Sheriffs were not
custodians and are therefore not entitled to priority. R. Brown also argues the storage fees were
unreasonably high -- and thus not “necessary” -- and therefore LaRoche and Earth Waste, who
acted as agents of the custodian Sheriffs, should not be entitled to priority. LaRoche and Earth
Waste argue the Sheriffs were custodians and the storage fees were reasonable. (Docs. 19, 20.)
Earth Waste also argues the Court lacks jurisdiction to consider the appeal because R. Brown failed
to timely file its notice of appeal. (Doc. 19.)
A.

Standard of Review

A Bankruptcy Court’s “[f]indings of fact are reviewed for clear error, and conclusions of law
are reviewed de novo.” In re Kalikow, 602 F.3d 82, 91 (2d Cir. 2010). A district court reviews a

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bankruptcy court’s conclusions on mixed questions of law and fact de novo. See Pion v. Bean, No.
1:07-cv-272, 2008 WL 2756478, at *1 (D. Vt. July 14, 2008).
B.

Timely Filing of the Notice of Appeal

Earth Waste argues R. Brown’s Notice of Appeal was not timely filed. (Doc. 19, at 2-5.)
The time limit for appeals prescribed by the bankruptcy rules is jurisdictional. See In re Indu Craft,
Inc., 749 F.3d 107, 115 (2d Cir. 2014).
Earth Waste asserts the Federal Rules of Appellate Procedure provide the relevant time in
which to appeal, citing 28 U.S.C. § 158(a)’s general provision that bankruptcy appeals are “taken as
any other civil appeal under these rules.” 28 U.S.C. § 158(a). Earth Waste is incorrect. Section
158(c)(2) explains an appeal from a decision of a Bankruptcy Court shall be taken “in the time
provided by Rule 8002 of the Bankruptcy Rules.” 28 U.S.C. § 158(c)(2). Rule 8002(a) requires a
notice of appeal be “filed with the bankruptcy court within 14 days after entry of the judgment,
order, or decree being appealed.” Fed. R. Bankr. P. 8002(a)(1).
The Bankruptcy Court issued its final order on September 18, 2013. Fourteen days later, on
October 2, R. Brown moved to extend time to file its notice of appeal until October 23. (Record, at
15.) Rule 8002(d)(1) allows a bankruptcy court to grant this extension. See Fed. R. Bankr. P.
8002(d)(1) (the bankruptcy court may extend the time to file a notice of appeal upon a party’s
motion filed within the time prescribed by Rule 8002). The Bankruptcy Court granted the extension
on the same day (Record, at 15) and R. Brown timely filed its notice of appeal on October 23, 2013.
C.

The Sheriffs as Custodians

Earth Waste also argues that even if R. Brown timely filed its notice of appeal of the
September 18, 2013 order, the Court lacks jurisdiction to review the Bankruptcy Court’s
determination the Sheriffs were “custodians” because it made that determination in an earlier July 26

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order. (Doc. 19, at 3.) In its final order of September 18, the Bankruptcy Court clearly stated it had
previously decided the “custodian” issue. See Record, at 161 (“Based on an analysis similar, though
not identical, to that of the Okhapo court, this Court found that the custodians in this case are the
Rutland county Sheriff and Washington county Sheriff.”). Because it is clear the September 18 final
order did not decide the issue of whether the Sheriffs were custodians, and because the notice of
appeal only sought to appeal the September 18 order, this Court lacks jurisdiction to consider
whether the Bankruptcy Court correctly determined the Sheriffs were custodians. See Shrader v.
CSX Transp., Inc., 70 F.3d 255, 256 (2d Cir. 1995) (when a party does not mention a challenged
order in the notice of appeal, the appellate court lacks jurisdiction to review that earlier decision); see
also In re Dana Corp., 412 B.R. 53, 59 (S.D.N.Y. 2008) (“The Court has jurisdiction to review only
those bankruptcy orders ‘designated’ in the Notice of Appeal.”).
Even were the Court to review the Bankruptcy Court’s determination on the merits, it would
agree the Sheriffs qualified as custodians. Cf. In re Soter, 31 B.R. 986, 990 (D. Vt. 1983) (although
the bankruptcy appeal was untimely, “for purposes of possible review by the court of appeals, the
court examines the merits”). The Bankruptcy Code defines a “custodian” as a “trustee, receiver, or
agent under applicable law . . . that is appointed or authorized to take charge of property for the
debtor for the purpose of enforcing a lien against such property, or for the purpose of general
administration of such property for the benefit of the debtor’s creditors.” 11 U.S.C. § 101(11)(C).
Thus, whether the Sheriffs are custodians depends in part on Vermont law. The Bankruptcy Court
found the relevant Vermont statute, 12 V.S.A. § 2731, authorized the Sheriffs to levy the Property
and required it “shall be safely kept by the officer at the debtor’s expense, until sold or the execution
is otherwise satisfied.” Id. Because the Sheriffs were obligated to levy and “safely ke[ep]” the
Property, the Bankruptcy Court concluded the Sheriffs were custodians. Furthermore, it was

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irrelevant that Rathe, rather than the Sheriffs, arranged for LaRoche and Earth Waste to store the
Property, because the custodial duties remained imposed on the Sheriffs under Vermont Law.
(Record, at 162.) The Bankruptcy Court found support in In re Ohakpo, 494 B.R. 269 (Bankr. E.D.
Mich. 2013), where custodian sheriffs received an order to seize a debtor’s property and hired two
towing companies to physically seize the property and store it.
R. Brown argues this case is distinguishable from Ohakpo and other cases in which a
custodian sheriff actually controlled the property. See, e.g., In re Skinner, 213 B.R. 335 (Bankr.
W.D. Tenn. 1997) (finding a sheriff who levied a debtor’s truck and possessed that truck was a
“custodian”). Specifically, it argues the Sheriffs were not properly custodians because they merely
ensured the property was seized without a breach of peace, but did not “control” the disposition of
the Property -- Rathe controlled the Property, arranged for storage, and reimbursed the Sheriffs for
their costs. (Record, at 102.) Although Rathe may have physically controlled the Property, the
Sheriffs remained responsible for the disposition of the Property under Vermont law. See 12 V.S.A.
§ 2731 (the relevant court officer “shall levy” the property described in the writ and the property
“shall be safely kept by the officer at the debtor’s expense”). They were required to execute the writ
and were liable for failure to pay the creditor based on their execution of the writ. See 12 V.S.A. §
697 (a sheriff who “willfully refuses or neglects to serve or return . . . [a] writ, shall be fined”); 12
V.S.A. § 2736 (an officer who fails to pay a creditor the proceeds of an execution is subject to a tort
action). Accordingly, the Bankruptcy Court correctly found the sheriff was the designated court
officer “charged with the duty of levying and protecting the property” in question, regardless of
whether the Sheriffs enlisted LaRoche and Earth Waste as agents. (Record, at 151.)

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D.

Reasonableness of Storage Fees

R. Brown also challenges the Bankruptcy Court’s determination the Sheriffs incurred
reasonable storage fees. The reasonableness of the storage fees is a question of fact reviewed for
clear error. “A finding is ‘clearly erroneous’ when although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has
been committed.” First Brandon Nat’l Bank v. Kerwin-White, 109 B.R. 626, 631 (D. Vt. 1990)
(quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).
R. Brown argues the Bankruptcy Court committed clear error by failing to consider
customary charges for long-term storage services when finding the fees reasonable. (Doc. 16, at 16.)
R. Brown contends fees of $50 to $100 per day, although reasonable as short-term storage rates,
were unreasonable as long-term storage rates. The Bankruptcy Court, however, considered all the
evidence regarding the reasonableness of storage fees. LaRoche and Earth Waste representatives
testified the rates were customary. (Record, at 166.) The Washington County Sheriff also testified
the rates were customary and reasonable given the size of the Property. (Record, at 167.) R.
Brown’s three witnesses included (1) its own principal, Robert Edward Brown, who charged $100 a
month for storage but did not distinguish between long-term and short-term storage; (2) a storage
professional who charged a low $50 a month for long-term storage but nonetheless charged $100 a
day for short-term storage; and (3) an auctioneer who testified his company stored equipment for
$10 a day, but under a contract with the U.S. Marshal Service. (Record, at 14.)
A bankruptcy court should “measure ‘reasonableness’ and ‘benefit’ [under § 543(c)(2)]
prospectively, as of the date the services were rendered.” In re R & G Props., Inc., No. 08-10876,
2009 WL 1396285, at *4 (Bankr. D. Vt. Apr. 30, 2009). Considering the testimony given, the
Bankruptcy Court did not commit clear error in finding the Sheriffs acted reasonably in seeking

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short-term storage at customary rates for the seized Property, as they were not required to predict
the Property would be stored for 116 days. Furthermore, R. Brown had control over the length of
time the Property was stored, as filing for bankruptcy would have forced turnover of the Property.
See Doc. 20, at 6. Of the 116 days during which the Property was stored, 95 days passed before R.
Brown filed for bankruptcy. (Doc. 20, at 6.)
IV.

Conclusion
Based on the foregoing, the Order of the Bankruptcy Court is AFFIRMED.
SO ORDERED.
Dated at Brattleboro, in the District of Vermont, this 25th day of February, 2015.
/s/ J. Garvan Murtha
J. Garvan Murtha
United States District Judge

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