Memorandum of Decision Re: Attorney Fees for Oversecured Creditor

DO NOT PUBLISH This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
Decisions
UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA
In re TERRYL LOFRANO,                                                       No. 98-10991      Debtor(s). ______________________________________/ GARY RADZAT,      Plaintiff(s),    v.                                                                                    A.P. No. 98-1173 TERRYL LOFRANO, et al.,      Defendant(s). _______________________________________/
Memorandum of Decision
     The complaint in this matter is a 19-page hodgepodge of allegations centering around $200,000.00 held in a bank account and another $50,000.00 paid out of the account before Chapter 11 bankruptcy proceedings were commenced. The debtor and some 15 nondebtors are named defendants Now before the court is the motion of some defendants to dismiss the complaint and assess sanctions for violation of the automatic stay. The court will grant the motion with leave to amend, and issues this decision to extricate all parties from the procedural morass created by the plaintiffs.      Pursuant to FRBP 7001, certain disputes arising during bankruptcy proceedings must be resolved by adversary proceeding rather than motion. These matters are those determined to be of sufficiently serious impact to require the due process protections available in a federal lawsuit. It is not a violation of the automatic stay to file an adversary proceeding in bankruptcy court pursuant toFRBP 7001. In re North Coast Village, Ltd., 135 B.R. 641 (9th Cir.BAP 1992). However, that rule does not create any rights. An adversary proceeding cannot be used to circumvent any of the provision of the Bankruptcy Code. Id., at 644. Plaintiffs' complaint has not been drafted with this principle in mind.      A debtor cannot be sued for money on a prepetition obligation. Such an action is nothing more than a claim. As such, it can only be made by the filing of a proof of claim pursuant to section 501 of the Bankruptcy Code and FRBP 3002(a) ("An unsecured creditor . . must file a proof of claim . .."). An adversary proceeding seeking monetary damages is nothing more than a procedurally improper attempt to file a proof of claim. As the court in North Coast Village noted:
              [A]n adversary proceeding against the debtor seeking            to recover on a pre-petition dischargeable claim . . .            could . . . be dismissed and sanctions could be            awarded . . . because the claim should have been            asserted through the claims allowance process.            135 B.R. at 644.
     The complaint here seeks damages against the debtor. To the extent plaintiffs seek money from the estate, the only proper avenue for them is the filing of a proof of claim. To the extent they seek a nondischargeable judgment against the debtor personally, their remedy is to file an adversary proceeding contesting dischargeability of the debt. Plaintiffs' claims for money against the debtor will accordingly be dismissed, without prejudice to the filing of either a proof of claim or a nondischargeability action, or both.      The complaint seeks monetary damages against nondebtor entities. Not only is the court's jurisdiction over these entities questionable, but they might be entitled to jury trials which this court is not interested in undertaking, since they do not involve the estate. Accordingly, the court will abstain from hearing those issues pursuant to 28 U.S.C. § 1334(c)(1). All such claims will be dismissed, without prejudice to proceedings in other courts.      The complaint seeks to impose a constructive trust on funds paid to Sonoma Valley Bank. Since this claim does not appear to impact the bankruptcy estate, the court will abstain from hearing this claim as well.      The complaint is vaguely drafted as to the $200,000.00. To the extent that plaintiffs claim that this money belongs to them, they have raised an issue under sections 541(a)(1) and 541(d) of the Bankruptcy Code which this court must resolve as a core matter pursuant to 28 USC section 157(b)(2).(1) In re United Marine Shipbuilding, Inc., 198 B.R. 970, 975 (Bkrtcy.W.D.Wash.1996); In re Schraiber, 97 B.R. 937, 940 (Bkrtcy.N.D.Ill.1989). Plaintiffs may name nondebtors as defendants in such a claim, but only for the purpose of determining their rights in the funds.      To the extent plaintiffs admit that the bankruptcy estate owns the funds but that this court should impose a constructive trust on them, such a claim may also be made. However, plaintiffs are reminded that imposition of a constructive trust is rare in bankruptcy court, as it would prefer one creditor over others. Bankruptcy policy is generally not served by creating trusts which eat up an estate, leaving little or nothing for other creditors. U.S. v. Randall, 401 U.S. 513, 517 (1971); In re North American Coin & Currency, Ltd., 767 F.2d 1573, 1575 (9th Cir.1985)      To summarize, the only proper issue raised in this adversary proceeding is ownership of the $200,000.00. All other matters may be raised only by proof of claim or dischargeability proceeding as to the debtor or by action in another court as to nondebtors. No sanctions will be assessed unless further improper claims are made.      Counsel for moving defendants shall submit an appropriate form of order.
Dated: October 28, 1998                                                                               ____________________________                                                                                                                      Alan Jaroslovsky                                                                                                                      United States Bankruptcy Judge
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     1. For an appellate case dealing with a creditor's claim to funds held in a bank account in the debtor's name, see In re Foam Systems Co., 92 B.R. 406 (9th Cir.BAP