O'Sullivan v. Loy et al

Filing 4

FINAL ORDER ADOPTING REPORT AND RECOMMENDATIONS - this Court ADOPTS the Bankruptcy Court's August 2, 2012, Report and Recommendation in its entirety. The Clerk is DIRECTED to enter a judgment granting a declaratory judgment pursuant to 28 U.S.C. § 2201 that the October 24,2007, Deed and the October 29, 2007, Deed of Trust were void ab initio. Count VII is DENIED without prejudice, and the Court does not reach Counts I-V because Count VI provides complete relief to Plaintiff O'Sullivan. Signed by District Judge Raymond A. Jackson on 2/11/13 and filed on 2/12/13. Copies mailed as directed and copy mailed to U.S. Court of Appeals for the Fourth Circuit. (jcow, )

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF VIRGINIA

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/ *"tB T2 2013

Newport News Division

JEREMIAH ANTHONY O'SULLIVAN,
Plaintiff,
v.

ACTION NO. 4:12cvl51

JONATHAN LOY et al.,
Defendants.

FINAL ORDER ADOPTING REPORT AND RECOMMENDATION

Before this Court is a Report and Recommendation issued by the United States Bankruptcy
Court for the Eastern District ofVirginia on August 2,2012, in an Adversary Proceeding, Adv. Pro.

No. 09-05034(the "Report"). The Report recommends that Count VI of the AdversaryProceeding
Complaintbe granted, and that Count VII be denied because it is not yet ripe. Jonathan Loy, Susan
Loy,and Leo Perk objected to the Report with regardto Count VI. O' Sullivan did not object to any
ruling.

After due consideration and de novo review, this Court has determined that the Report should

be adopted in its entirety.

The Adversary Proceeding at issue commenced when Plaintiff O'Sullivan, Bankruptcy

Trustee, filed a complaintagainst Jonathan Loy, Susan Loy, Joseph Pinard, and Leo Perk. Each of
these individuals named as Defendants purportedly had an interest in a certain parcel of real estate

in Hampton, Virginia, referred to as the Creekview Property. The Complaint alleged that the
Defendants had engaged in avoidable transactions regarding the Creekview Property because the
transactions had occurred within two years of the August 26, 2009, Order for Relief in Jonathan

Loy's Chapter 7 bankruptcy proceeding.

The firsttransaction occurredon October 24,2007, when JonathanLoy transferred title from

himself as sole owner to he and his wife, Susan Loy ("Mrs. Loy"), as tenants by the entireties. The
second transaction followed on October 29,2007, when the Loys transferred and recorded a Deed
of Trust on the Creekview Property for the benefit of Pinard, with Perk as Trustee on the Deed of
Trust.

Following additionallitigationin England(where the first bankruptcy proceeding againstLoy
was initiated) and in this Court, an Amended Complaint was filed in the Adversary Proceeding. One
of the counts in the Amended Complaint, Count VI, requested a declaratory judgment finding that
the two transfers discussed above were void ab initio because title to the Creekview Property had

vested in the Bankruptcy Trustee at the time of the purported transfers under valid Orders of the

English Bankruptcy Court. The Trustee claimed thatbecausehe hadtitle andhad not authorizedthe

purported transfers, the purported transfers were void. The Bankruptcy Court found (and no
Defendant contests otherwise) that each of them had knowledge of the English Bankruptcy

proceeding as of the date ofthe purported transfers. CountVI reliedupon the English Bankruptcy
Court's Orders, which are final and entitled to comity. The English Bankruptcy Court Order at issue

vested title in all Loy's property, including the Creekview Property, in the Trustee as of August 17,
2006. The Order specifically noted, however, that its rulings did not limit or "preclude Mrs. Loy
from arguing that she held an interest" in the Creekview Property as that date.
In the Adversary Proceeding, O'Sullivan filed a Motion for Summary Judgment as to Count
VI. The Loys opposed the Motion for Summary Judgment, asserting the defense of equities by

exoneration under English law. Most simplistically, Mrs. Loy claimed that the funds to purchasethe

CreekviewProperty should beregarded as"hers." Thus, sheargued thatthe CreekviewProperty was
not an asset available to satisfy her husband's debts. The Bankruptcy Court denied the Motion for
Summary Judgment so that Mrs. Loy would have a full opportunity to establish her interest, if any,
in the Creekview Property. O'Sullivan then issued written discovery to Mrs. Loy and noticed her
deposition. Mrs. Loy, citing financial constraints, indicated that she would not respond to discovery
or attend her deposition. O'Sullivan then filed a Motion for Sanctions. Mrs. Loy then filed a
document puportedly responsive to the discovery requests. The Bankruptcy Court heard the Motion
for Sanctions and denied the Motion without prejudice, again giving Mrs. Loy an additional
opportunity to present any evidence. The Bankruptcy Court ordered Defendants to provide complete

discovery responses by January 4,2012, and to set a deposition date for Mrs. Loy no laterthan May
1, 2012. Mrs. Loy supplemented the discovery on January 9, 2012.

The Bankruptcy Court then issued a Scheduling Order, which specifically advised that Mrs.

Loy must identify by May 1,2012, the exhibits shewould introduceattrialandthat shemust identify
the portions of testimony from prior proceedings held on January 7 and 8, 2009, that she intended

to rely upon. The Scheduling Order further specified that if Mrs. Loy failed to abide by the terms
of the Scheduling Order that "she will not be permitted to present any evidence, and the Court will
strike any affirmative defense she intends to assert." Mrs. Loy did not identify any documents or

exhibits or priortestimony that she intended to rely upon by May 1,2012. She was not deposed, and
she indicated that she would not attend the trial.

O'Sullivan then filed a Renewed Motion for Summary Judgment. The Bankruptcy Court

found that Mrs. Loy had failed to comply with the Scheduling Order. As a result and in accordance
with the Scheduling Order's terms, it struck her affirmative defense. The Bankruptcy Court waited

to rule on the merits of the action until the scheduled trial date, May 31,2012. None of the named

Defendants appeared in person at the trial date; Jonathan and Susan Loy appeared by phone. The
Bankruptcy Court subsequently issued the Report to resolve all the issues presented at trial.
This Court has considered the Objections ofthe pro se Loys and Perk to the Report. Rather
than "identify[ing] the specific proposed recommendations" being objected to as is required, the

Objections are not specific in challenging any particular finding of fact or conclusion of law in the

Report. Rather, the Loys and Perk merely rail at the end result of the Adversary Proceeding. Their

basic position is that the Bankruptcy Court "knew" the facts (which they contend support their
position) because of the 2009 proceedings before it during which relevant evidence was presented.

Thus, they claim that it was not necessary for them to present again the same evidence in the
Adversary Proceeding. The Objections contend that the Bankruptcy Court "ignored" the earlier
proceeding.

To the contrary, the Bankruptcy Court gave Mrs. Loy ample opportunity to identify the

portions of testimony she wanted to introduce, and she failed to do so. She was expressly told that
she must identify the evidence upon which she would rely by the date set in the Scheduling Order.
She was told that if she did not identify the evidence she intended to rely upon at the trial, that she
would not be permitted to introduce any evidence. The requirement of identifying exhibits is
standard in any case. The Scheduling Order specifically advised her ofthe consequences of failing

to identify her exhibits. The Bankruptcy Court did not err or abuse its discretion in striking the
affirmative defense because of Mrs. Loy's non-compliance with its Order.

The Objections do not demonstrate that the Bankruptcy Court erred in making any finding
of fact or conclusion of law. Therefore, this Court ADOPTS the Bankruptcy Court's August 2,

4

2012, Report and Recommendation in its entirety. The Clerk is DIRECTED to enter a judgment
granting a declaratory judgment pursuant to 28 U.S.C. § 2201 that the October 24,2007, Deed and

the October 29,2007, Deed of Trust were void ab initio. Count VII is DENIED without prejudice,
and the Court does not reach Counts I-V because Count VI provides complete relief to Plaintiff
O'Sullivan.

The Loys and Perk are ADVISED that each may appeal from this Final Order Adopting
Report and Recommendation by forwarding a written notice of appeal to the Clerk of the United
States District Court, Newport News Division, 2400 West Avenue, Newport News, Virginia
23607. Said written notice must be received by the Clerk within thirty (30) days from the date of

this Final Order. If an appellant wishes to proceed informa pauperis on appeal, the application
to proceed in forma pauperis is to be submitted to the Clerk, United States Court of Appeals,
Fourth Circuit, 1100 E. Main Street, Richmond, Virginia 23219.
The Clerk is DIRECTED to send a copy of this Final Order Adopting Report and

Recommendation to the parties as set forth in the Report at pages 11 through 12.
IT IS SO ORDERED.

Raymond A. Jackson
UNITED STATES DISTRICT JUDGE

Norfolk, Virginia

February |\,2013