William Earl Shaw

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
WILLIAM EARL SHAW, JR.,
DEBTOR
CHAPTER 7
CASE NO. 09-04409-8-RDD
ORDER DENYING MOTION TO REOPEN CASE
Pending before the Court is the Motion to Reopen Case for Cause filed by Paul and Mary
Tortorete (the “Movants”) on November 16, 2010 (the “Motion”) and the Response and Objection
to Motion to Reopen Case filed by William Earl Shaw, Jr. (the “Debtor”) on December 2, 2010 (the
“Response”). The Court conducted a hearing on December 21, 2010 in Wilson, North Carolina to
consider the Motion and the Response.1
1Counsel for the Movants moved to admit into evidence the affidavit of Mary Lou
Tortorete, in lieu of live testimony. Counsel objected to the Court allowing this affidavit based
on hearsay. Counsel for the Debtor stated that he had no opportunity to cross exam Mary Lou
Tortorete regarding the statements contained in the affidavit. 	The affidavit attempts to introduce
an out of court statement that is being offered to prove the truth of the matter asserted. Hearsay
is inadmissible unless it falls within a recognized exception to the hearsay rule. The affidavit of
Mary Lou Tortorete does not fall within any of the exceptions. 	Therefore, the affidavit
constitutes improper hearsay evidence that is inadmissible. As a result, the objection to
admitting the affidavit as evidence was sustained.
SO ORDERED.
SIGNED this 02 day of February, 2011.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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BACKGROUND
On May 27, 2009, the Debtor filed a voluntary petition for relief under Chapter 7 of the
Bankruptcy Code. The Debtor was the president and fifty percent (50%) owner of Cornerstone Log
& Timber Homes, Inc. (“Cornerstone”). Cornerstone also filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code on May 30, 2009.2 The Schedule F filed by the Debtor, listed the
Movants as possessing an unsecured claim in the amount of $41,500.00 based on a debt owed by
Cornerstone.3 The debt was listed as disputed.
In the Debtor’s proceeding, the deadline for filing a complaint objecting to the discharge of
the Debtor was August 24, 2009. On August 24, 2009, the Movants filed an Amended Motion to
Extend Time to File a Complaint Objecting to Dischargeability of Debt, for the purpose of
determining whether an objection should be filed. The Debtor did not oppose such extension. The
Court entered an order, on August 28, 2009, granting extension of time and the deadline to file a
complaint was extended by sixty (60) days “up to and including October 23, 2009.” On October 23,
2009, the Movants filed their Second Motion to Extend Time to File a Complaint Objecting to the
2On December 6, 2010, the Movants filed a Motion for Relief From Automatic Stay in
the Cornerstone bankruptcy case. See, Case No. 09-04503-8-JRL. Movant’s Motion for Relief
From Automatic Stay requests relief for the same purpose as stated in the current Motion, which
is to report, to the extent of their knowledge, conduct that may give rise to criminal liability to an
appropriate law enforcement agency. A hearing was held on January 24, 2011, and the matter is
currently under advisement.
3While Schedule F listed the amount of unsecured debt as $41,500.00, Movants’ Motion
states that the Movants “paid a total of approximately $233,199.41 towards the acquisition of
materials and construction of the log home, . . . and none of the money . . . was ever returned.”
Additionally, the construction contract, submitted in connection with the Motion, states that
deposits in the amounts of $13,500.00 and $47,300.00 are both due upon execution of contract.
Cornerstone’s Schedule F, lists the Movants as possessing an unsecured claim in the amount of
$41,500.00 based on the balance owed for cancellation of contract. The debt is not listed as
disputed.
2
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Debtor’s Discharge and Dischargeability of Certain Debts, for the purpose of reviewing documents
provided pursuant to [Cornerstone’s] Rule 2004 production and to determine whether Movants
should pursue a cause of action. 	The Debtor did not oppose the second extension. 	The Court
entered an order on October 26, 2009 granting the extension of time and the deadline to file a
complaint was extended by 15 days 	“up to and including Monday, November 9, 2009.” 	The
Movants failed to file a complaint objecting to the discharge of the Debtor or the dischargeability
of the debt owed to them. Subsequently entered an Order Discharging the Debtor on December 23,
2009.
At the hearing on December 21, 2010, counsel for the Movants represented that the Movants’
claim arises from the purchase of a log home. The Movants entered into a construction contract with
Cornerstone for a turnkey log home material package. Counsel represented that the Movants paid
a total of $233,199.41 towards the acquisition of materials and construction of the log home. The
log home was never delivered to the Movants by Cornerstone and none of the money the Movants
paid towards the log home was ever refunded.
The Movants now seek to reopen the Debtor’s case, for the purpose of determining whether
the Movants are enjoined under 11 U.S.C. § 524(a) from presenting the facts of their dealings with
Cornerstone and Debtor to the appropriate law enforcement agencies or other governmental
authorities. Specifically, Movants contend that the Debtor’s conduct was criminal and fraudulent
when the Debtor, individually, and as president of Cornerstone, accepted funds from the Movant and
failed to deliver the log home materials package to Movants.4
4An argument can be made that such criminal investigations or referrals may not violate
the discharge injunction of 11 U. S. C. § 524(a), in that this section contains no specific
reference to commencement or continuation of criminal proceedings, being enjoined by the
3
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The Debtor contends that the Movants had ample opportunity to review all documents to
which the Movants, Cornerstone and the Debtor were parties, prior to the Debtor’s discharge and
that the Movants have failed to establish cause to reopen the Debtor’s case.
11 USC § 350(b) provides that a bankruptcy court may reopen a case “to administer assets,
to accord relief to the debtor, or for other cause.” Reopening a closed case is within the court’s
discretion. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324, 326 (4th Cir. 1984).
To reopen a case, the party moving bears the burden of proof. In re Lee, 356 B.R. 177, 180 (Bankr.
N.D.W.Va. 2006) (citing In re Cloniger, 209 B.R. 125, 126 (Bankr. E.D.Ark. 1997).
The Court agrees with the Debtor and finds that the Movants have failed to carry their
burden of proof. The case will not be reopened to allow the Movants the opportunity to then file a
discharge. 11 U.S.C. § 524(a) (a discharge in a bankruptcy case “operates as an injunction
against the commencement or continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of the debtor, whether or not
discharge of such debt is waived . . . .”). But see, In re Jesse Negrete and Joyce Negrete, Case
No. 07-00540-8-JRL (Bankr. E.D.N.C. August 10, 2009) (observing that:
[o]nce a debtor files a petition for bankruptcy, a disgruntled creditor may not then
approach a governmental prosecutorial entity in order to prompt a criminal action
to recover debt. If the creditor already has complained to authorities by the time a
petition is filed, those authorities may commence or continue a criminal
prosecution . . . as they see fit. But if the debtor files for bankruptcy before a
creditor complains to prosecuting authorities, that complaint . . . may constitute a
violation of the automatic stay or discharge injunction.
(citing In re Byrd, 256 B.R. 246, 252 (Bankr. E.D.N.C. 2000); See also, In re Dalton, 966 F.2d
1025, 1028 (6th Cir. 1992) (noting that creditors cannot employ the criminal process to collect
otherwise dischargeable debts. However, “[t]he mere fact that a debt has been discharged in
bankruptcy does not preclude a criminal action from proceeding based on the debtor’s alleged
criminal conduct in relation to the debt.”). Therefore, was it even necessary for Movants to
move to reopen the case for the purpose of the Movants to then file a motion for the purpose of
determining whether discussing the matter with law enforcement or the Office of the District
Attorney would violate the discharge injunction? This issue is not before the Court at this time
and probably would not come before the Court, unless the Movants sought to institute a criminal
proceeding against the Debtor, and the Debtor moved to hold the Movants in willful contempt
for violation of the discharge injunction.
4
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motion for this Court to determine if the pursuit of a criminal investigation, criminal action or
criminal proceeding against the Debtor, approximately one year after the Debtor’s discharge, is not
a violation of the discharge injunction. Prior to the Debtor’s discharge, the Movants were granted
two extensions of time for the purpose of reviewing documents provided in connection with the Rule
2004 Examination of Cornerstone and to consider filing a complaint. 5 The Movants had ample
opportunity to pursue criminal proceedings against the Debtor prior to the entry of the Debtor’s
discharge and have failed to establish cause as to why the Court should reopen the Debtor’s case at
this late date.6 “It is . . . no exaggeration to say that the very functioning of the bankruptcy system
5Although, there is no time limit on the bankruptcy court’s ability to reopen a case, “the
length of time between the estate’s closing and the motion to reopen it should be ‘of crucial
significance’ to the bankruptcy court.” In re Plumlee, 236 B.R. 606, 610 (E.D.Va. 1999) (citing
Reid v. Richardson, 304 F.2d 351, 355 (4th Cir. 1962). “[A]s the time between closing of the
estate and its reopening increases, so must also the cause for reopening increase in weight.” Id.
Motions to reopen should be brought without unnecessary delay and within a reasonable time.
In re Borer, 73 B.R. 29, 31 (Bankr. N.D.Ohio 1987) (denying motion to reopen case, when
movant showed lack of diligence, and neglect when he did not file application for attorney’s fees
until eight months after the case was closed.) Here, it appears from the docket that the Movants
had counsel on August 20, 2009, and on September 30, 2009, the Movants obtained different
counsel. Movants have had active counsel for a year and a half. After obtaining two extensions
of time, Movants failed to file a complaint objecting to the Debtor’s discharge. Debtor’s
discharge was entered December 23, 2009 and this motion to reopen was not filed until
November 16, 2010, some eleven months after entry of the discharge. Because the Movants did
not proceed without unnecessary delay, the “cause for reopening increases in weight.” In re
Plumlee, 236 B.R. at 610 (citing Reid v. Richardson, 304 F.2d 351, 355 (4th Cir. 1962)).
6The Court makes no determination as to whether or not the providing of evidence in a
criminal investigation, criminal action, or criminal proceeding involving the debtor by a
scheduled creditor is a violation of the discharge order. The motion under consideration in the
case at bar is simply a motion to reopen the case pursuant to 11 U. S. C. § 350(b), and not a
motion to determine whether or not such actions might violate the discharge injunction. Movant
states that if the case is reopened, a motion to determine if such actions would be a violation of
the discharge injunction would be forthcoming. 	Such a request might well be a request for this
Court to give an advisory opinion, and would not rise to the level of a case or controversy, as is
constitutionally required. U.S. Const. Art. III § 2. Had Movants more timely desired to pursue a
criminal investigation, criminal action, or criminal proceeding involving the Debtor while his
bankruptcy case was pending and prior to the entry of the discharge, a motion for relief from
5
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is dependent on its finality.” In re Cross, 2008 WL 824282 at * 3 (Bankr. E.D.N.C. 2008) (citing
Bosinger v. U.S. Airways, 510 F.3d 442, 450 (4th Cir. 2007). At least where the administration of
this bankruptcy case is concerned, there comes a time for finality to attach, and in this case, that
point has passed.
Therefore, the Motion to Reopen Case for Cause is DENIED.
SO ORDERED.
END OF DOCUMENT
stay, or in the alternative, a motion to determine if the 11 U. S. C. § 362(b)(1) exception to the
automatic stay applied, may have been more appropriate as Movants have done in the
Cornerstone case. See supra note 2.
6
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