Linda S. Parks v. FIA Card Services, N.A. (In re: Bryan K.
Marshall and Julie M. Marshall);
Case No. 05-18216; Adversary Case No. 06-5181
(Somers) (July 23, 2007)
MEMORANDUM AND ORDER DENYING TRUSTEE’S COMPLAINT TO RECOVER
PREFERENCE FROM DEFENDANT FIA CARD SERVICES
• 11 U.S.C. §547(b)
Facts:
The Trustee sought to recover payments credited to
the Debtors’ two
credit card accounts with MBNA made at the Debtors’ request by transferring
the balances on the MBNA accounts to the Debtors’ Capital One Platinum
Visa Accounts. The dispute was whether the transactions constituted transfers
of “an interest of the debtor in property” within the meaning of
11 U.S.C. §547(b). The Trustee characterized the payments as the transfers
of borrowed funds, which are transfers for preference purposes. The Debtors
contended that the transfers were not preferential because they were from bank
to bank and did not diminish the estate.
Holding:
Under 11 U.S.C. §547(b), a transfer is avoidable
if it: 1. is of an interest of the debtor in property; 2. is for the benefit
of a creditor; 3.
is made for or on account of antecedent debt owed by the debtor before the
transfer was made; 4. is made while the debtor was insolvent; 5. is made on
or within ninety days before the date the bankruptcy petition was filed; and
6. allows a creditor to receive more than the creditor would otherwise be entitled
to receive from the bankruptcy estate.
The fundamental inquiry under 11 U.S.C. §547(b) is whether the debtor
had a legal or equitable interest in the property transferred such that the
transfer at issue diminished or depleted the Debtor’s estate. In preference
litigation, the form of the transaction must satisfy the statutory elements;
the “debtor’s intent or motive is not material.”
The Court further noted that Capital One, not the Debtors, paid MBNA. The
Debtors did not transfer an interest in property to MBNA. The Debtors exercised
a right to draw on a line of credit offered by Capital One. Credit is not an
interest available for satisfaction of creditors’ claims in bankruptcy.
Neither Debtors’ assets nor their liabilities changed. For the foregoing
reasons, the Court found that the Trustee had not sustained her burden of proof.
Shirley Elaine Walker; Case No. 07-10498 (Somers) (July 24, 2007)
OPINION DENYING TRUSTEE’S MOTION TO RECONSIDER ORDER GRANTING DEBTOR’S
APPLICATION FOR WAIVER OF THE CHAPTER 7 FILING FEE
• 28 U.S.C.A. §1930(f)(1)
Facts:
Debtor filed for voluntary bankruptcy relief under
Chapter 7 on March 14, 2007. On the same day, the Debtor filed an application
for waiver of the Chapter
7 filing fee. The Court granted the application for waiver. Soon after the
11 U.S.C. §341 meeting the Trustee filed a motion to reconsider the fee
waiver ruling. The Trustee claimed that the $768.00 the Debtor listed as income
on her Schedule I was inaccurate because the Debtor failed to disclose several
other sources of income.
Holding:
The option for individual debtors to request a waiver of the fee usually
imposed for filing a Chapter 7 bankruptcy case was created by the Bankruptcy
Abuse Prevention and
Consumer Protection Act of 2005. The option appears at 28 U.S.C.A. §1930(f),
the relevant portion of which states:
1. Under the procedures prescribed by the Judicial Conference of the United
States, the district court or the bankruptcy court may waive the filing fee
in a case under Chapter 7 of title 11 for an individual if the court determines
that such individual has income less than 150 percent of the income official
poverty line . . . applicable to a family of the size involved and is unable
to pay that fee in installments.
When a trustee brings a motion to reconsider, the debtor carries the burden of proving by a preponderance of the evidence that the court justifiably granted the waiver. Here, the Debtor carried her burden of showing that the fee waiver was justified, and the Trustee’s argument to the contrary was tenuous at best. The Court held that the Debtor satisfied the first prong of the fee waiver test set by 28 U.S.C.A. §1930(f)(1) because her income was less than 150 percent of the poverty line. Further, the Court held that the Debtor satisfied the second prong of the test because she was unable to pay the filing fee in installments. The Court ruled that a fee waiver under 28 U.S.C.A §1930(f)(1) was appropriate in this case. The Trustee’s motion to reconsider was therefore denied.
Diane Henry v. Traci Leann Everett (In re: Traci Leann Everett);
Case No.
06-11802; Adversary Case No. 06-5472 (Nugent) (July 16, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §523(a)(6)
Facts:
The plaintiff accused the defendant Debtor of willful
and malicious damage to her property when defendant without complying with
the provisions of the
Kansas Residential Landlord Tenant Act, caused plaintiff’s possessions
to be removed from a rental property that plaintiff had vacated, and disposed
of them as trash. Plaintiff sued defendant in state court and obtained a judgment
against defendant for conversion and damages of $33,000.00 and then sought
to have the debt excepted from defendant’s discharge under 11 U.S.C. §523(a)(6).
Holdings:
In construing the willful and malicious injury exception
to discharge, the Supreme Court in Kawaauhar v. Geiger held that the standard
of conduct for
nondischargeability requires an intentional act with an actual intent to cause
injury. The willful and malicious standard is not satisfied by an intentional
act that merely leads to a reasonably foreseeable injury. The Tenth Circuit
Bankruptcy Appellate Panel has discussed the showing necessary to prove that
the defendant acted with the intent to injure the creditor or the creditor’s
property, noting that a willful injury may be proven directly, with specific
intent to harm, or indirectly, by showing the defendant knew of the creditor’s
rights and knew that her conduct would cause particularized injury. In re Longley,
235 B.R.651 (10th Cir. BAP 1999)
Here, there was no direct evidence that defendant intended to harm plaintiff
or her property. There were no statements, or threats communicated by defendant
that she intended to throw away valuable possessions of plaintiff that plaintiff
had requested be preserved or saved.
For these reasons, the Court denied plaintiff’s complaint.
Conway Bank, N.A. f/k/a First National Bank, Conway Springs v. Janee M. Phillips,
a/k/a Janee M. Comley
(In re: Janee M. Phillips, a/k/a Janee M. Comley); Case
No. 05-19790; Adversary Case No. 06-5018(Nugent)
(July 17, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §523(a)(6)
• Fed. R. Bankr. P. 17(a)
• Fed. R. Bankr. P. 7017
Facts:
Debtor filed her voluntary Chapter 7 petition on October
15, 2005. The Debtor’s
relationship with Conway Bank started in 1999 after her divorce became final.
Debtor admitted to making a promissory note dated June 21, 2000 in the amount
of $230,000.00. Debtor also entered into a security agreement on November 17,
1999 and granted a purchase money security interest in furniture and appliances
and a security agreement in her divorce settlement. Debtor sold certain collateral
pledged to Bank and claimed that she did not understand the Bank’s security
agreement and that she could not sell the furniture without first notifying
the Bank. Bank filed a discharge complaint action against Debtor under 11 U.S.C. §523(a)(6).
Holding:
The Court noted that to except this debt from discharge
under 11 U.S.C. §523(a)(6),
the Bank had the burden to prove by a preponderance of the evidence that Debtor
willfully and maliciously injured the Bank’s property interests. In the
context of sold collateral, Collier’s suggests that such proof requires
a showing that the debtor 1. knew of the security interest; 2. knew that the
transfer was wrongful as to the creditor; and 3. knew that the transfer would
cause financial harm to the creditor.
The Bank did not prove that the Debtor knew the transfer was wrongful as
to the Bank or that she knew it would cause financial harm to the Bank. There
was no proof that she intended to harm the Bank. The Court denied Bank’s
complaint.
Louis M. Novello; Case No. 06-21029-13 (Berger) (July 25, 2007)
MEMORANDUM AND ORDER DENYING UNITED STATES’ MOTION TO DISMISS AND GRANTING
DEBTOR’S MOTION TO REOPEN THE §341(a) MEETING
• 11 U.S.C. §1307(e)
•
11 U.S.C. §1308
Facts:
The Internal Revenue Service (“IRS”) sought dismissal of Debtor’s
Chapter 13 case for Debtor’s failure to file prepetition tax returns.
Debtor filed for Chapter 13 relief on July 17, 2006. At that time, the Debtor
had not filed federal tax returns for the years 2001, 2002, 2003, 2004 and
2005. Debtor alleged that he had little or no income in those years. The meeting
of the creditors was scheduled for August 16, 2006, and continued to September
6, 2006, at which time it was concluded. At the conclusion of the meeting of
the creditors, Debtor had filed all the tax returns except the 2002 returns.
The Debtor expected to submit an affidavit averring that he was not required
to file a return for 2002.
The IRS filed a Motion to Dismiss on September 21, 2006. By October 10, 2006,
the Debtor had filed his 2002 tax return. The tax return showed the Debtor
received $0.00 in taxable income.
Holding:
The IRS’s Motion was based on two new provisions of the BAPCPA. 11
U.S.C. §1308 requires debtors to complete all tax returns for the four
years preceding the petition date and returns are due the day before the 11
U.S.C. §341 meeting unless the trustee holds open the 11 U.S.C. §341
meeting to allow the debtor more time to comply. Failure to comply can lead
to dismissal or conversion pursuant to 11 U.S.C. §1307(e). The Court noted
that by 11 U.S.C. §1308’s terms, debtors are allowed an opportunity
to extend the deadline to file their returns according to 11 U.S.C. §1308(b).
The Court analyzed what happens to a compliant debtor who suffers the misfortune
of failing to request additional time, or as in the case at hand, adequate
time under 11 U.S.C. §1308(b)(1).
The Court balanced the factors in this case noting the harm to the Debtor
and the estate if the case is dismissed or converted, the lack of harm to the
IRS, and no identified benefit to the other creditors, the Court held that
11 U.S.C. §105 relief was proper under these specific and limited circumstances
and ordered the 11 U.S.C. §341 meeting of the creditors reopened through
October 11, 2006. The Court denied the United States’ Motion to dismiss.
Edgar Eagle v. Carl W. Johnson, Deanna F. Johnson, and Edward J. Nazar (In
re. Carl Johnson and Deanna F. Johnson);
Case No. 06-11024; Adversary Case
No. 06-5404 (Nugent) (July 26, 2007)
OPINION DENYING TRUSTEE’S MOTION TO RECONSIDER ORDER GRANTING DEBTOR’S
APPLICATION FOR WAIVER OF THE CHAPTER 7 FILING FEE
• Fed.R.Bankr.P.7056
•
K.S.A.§33-105
•
K.S.A.§33-106
•
K.S.A.§58-2502
Facts:
In this adversary proceeding, plaintiff Edgar Eagle
sought a declaratory judgment that his farm lease to debtor Carl Johnson had
either expired by its
terms or by virtue of Johnson’s breaches of the lease. Eagle moved for
summary judgment, claiming that the lease had been properly terminated as a
matter of law.
The facts included: Eagle leased a one-half section of land to Johnson on
a crop share basis on or about February 26, 2001. The written lease expired
by its terms on February 28, 2006, but Johnson remained in tenancy. In December
of 2006, Eagle gave written notice to Johnson that his holdover year-to-year
tenancy was terminated as of February 28, 2007. Johnson asserted that, in fact,
he and Eagle entered into an oral agreement in 2004 to renew and extend the
lease for another eight years if Johnson would replace the flood irrigation
system with a sprinkler system. Johnson filed a Chapter 12 case on June 20,
2006. Eagle commenced this adversary proceeding on August 24, 2006 seeking
a declaratory judgment that the lease upon which Johnson relied had terminated.
While there was a dispute about whether the oral agreement was ever made, there
were no other material uncontroverted facts.
Holding:
Eagle contended that the purported oral lease ran
afoul of the Statute of Frauds as enacted in Kansas. K.S.A §33-105 requires that any lease for
a duration exceeding one year be in writing and §33-106 bars actions on
oral contracts for the conveyance of land. Eagle argued that the leasehold
interest held by Johnson was a holdover, year to-year tenancy that was created
by statute under K.S.A §58-2502. He also argued that such a lease may
be terminated by written notice given under K.S.A §58-2506(d) not later
than thirty days before the anniversary date of the termination date set out
in the original lease. Thus Eagle reasoned that the farm lease terminated February
28, 2007 by his proper notice of termination in December 2006. Johnson countered
that by arguing that his supplying the sprinkler in 2004, paying his one-fourth
share rent, and remaining in possession, he had partially performed the oral
lease, taking it outside the Statute of Frauds.
The Court noted that the leading case is Stuber v. Sowder, in which the Kansas
Supreme Court, relying on prior Kansas cases, held that “parol leases
for more than one year, in order to become valid by a part performance, should
generally be such as would by such part performance, become substantially a
purchase of an interest in the real estate….” The Court further
noted that supplying the sprinkler, retaining possession, and paying the rent
did not equate to purchasing an interest in the real estate. The Court ruled
that Eagle’s motion for summary judgment should be granted and judgment
entered on the complaint for Eagle declaring that the only leasehold interest
possessed by Johnson at the date of the petition was that of a holdover year-to-year
tenant.
El Charro; Case No. 05-60294 (Nugent) (July 26, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §506(a)
•
11 U.S.C. §1129
Facts:
The Court held a confirmation hearing in this Chapter
11 case on April 25, 2007. At the hearing, the Debtor and Commerce Bank, the
Debtor’s principal
creditor, announced that confirmation would largely turn on the Court’s
determination concerning the value of the Bank’s remaining collateral,
the El Charro Restaurant in Dodge City. Confining the scope of the hearing
to the valuation issue, the Court heard the testimony of Richard and Patricia
Rodriguez, the owners of the Debtor; John Ploger, the Debtor’s appraiser;
and William Miller, the Bank’s appraiser.
The Court commented at trial, both of the parties’ appraisers were
credible and their respective analyses seemed valid. The Court also noted that
commercial appraisal is, to some degree, a speculative pursuit. In order to
understand the differences between the appraisers’ ultimate conclusions,
the Court looked at the variations in how they approached their respective
assignments. Both appraisers gave an opinion of value of the property by using
the three common appraisal approaches: cost, income, and sales. Ploger, the
Debtor’s appraiser valued the property at $316,000.00 while Miller, the
Bank’s appraiser valued it at $400,000.00.
Holding:
As a plan proponent, the debtor had the burden to
demonstrate by a preponderance of the evidence its valuation of the Bank’s collateral. The Court concluded
that the preponderance of the evidence weighed heavily in favor of the Debtor’s
proposed valuation for the following reasons. While both appraisers weighed
the comparable sales approach most heavily in their process, the Court looked
to their income capitalization estimates as means of testing or validating
their sales value conclusions. Miller apparently used his income valuation
of $430,000.00 to support an ultimate valuation of $400,000.00 when his sales
approach estimate was only $378,000.00. As noted above, the Court found a flaw
in Miller’s income analysis, and its failure to consider an extraordinary
income item in 2005.
The Court found that the Bank’s secured claim in this case should be
allowed in the amount of $316,000.00, the value assessed by Ploger, the Debtor’s
appraiser. With this determination, the Court believed the Debtor’s amended
plan dated April 20, 2007 was ready for a hearing on confirmation.
United States of America and Linda S. Parks v. Gary Krause and Richard Krause
(In re: Gary E. Krause);
Case No. 05-17429; Adversary Case No. 05-5775 (Nugent)
(August 3, 2007)
MEMORANDUM OPINION
• Fed. R. Civ P. 62(c)
Facts:
Following a three day evidentiary hearing on the Trustee’s motion for
sanctions for spoliation of evidence and the Government’s motion for
contempt, the Court assessed several discovery sanctions against the Debtor,
Gary Krause (“Krause”) as a result of its determination that Krause
had committed spoliation of electronic evidence by utilizing computer wiping
software to erase computer hard drives; and had violated orders compelling
discovery and a preliminary injunction entered December 5, 2005 that froze
the accounts and assets of various trusts and Krause-related entities, and
the Court’s asset disclosure orders of April 14, 2006. Some of the sanctions
assessed by the Court required Krause to affirmatively divulge electronic evidence
and perform other acts to make discovery.
Following the Court’s issuance of its decision on the Trustee’s
and the Government’s motions assessing various sanctions against Krause,
Krause filed a notice of appeal to the BAP. Krause also filed a motion to stay
the imposition of sanctions pending appellate review of this Court’s
sanctions order.
Holding:
The Court noted that whether to grant a stay pending
appeal rests in the bankruptcy court’s discretion. The factors to be
considered in determining whether to grant a stay pending appeal are as follows:
1.the likelihood that
the party seeking the stay will prevail on the merits of the appeal; 2. the
likelihood that the moving party will suffer irreparable injury unless the
stay is granted; 3. whether granting the stay will result in substantial harm
to the other parties to the appeal; and, 4. the effect of granting the stay
upon the public interest.
The Court noted that Krause failed to address all
but the second factor (irreparable injury) in his stay motion. The Court
held that Krause had not identified the
irreparable injury he would suffer if a stay of the order of judgment was not
imposed pending his appeal.
The Court also held that Krause wholly failed to address the likelihood that
he would succeed on the merits of his appeal. The Court’s sanctions order
was entered for Krause’s willful spoliation of electronic evidence, non
compliance with orders compelling discovery and turnover of computers, failure
to disclose all his assets, and violation of the preliminary injunction. Krause
failed to comprehend that the sanctions the Court ordered, including default
judgment on some of the Trustee’s and Government’s claims, were
entered because of his discovery abuses and failings as a debtor in a bankruptcy,
not on the merits or quality of proof of the Governments or Trustee’s
substantive claims. The Court denied Krause’s motion.
Christopher Joseph Seferyn; Case No. 05-26556 (Somers) (August 13, 2007)
MEMORANDUM OPINION AND ORDER DENYING OBJECTION TO EXEMPTION OF IRA
• Fed.R.Bankr.P.
4003(c)
•
K.S.A. §60-2308
Fact:
Debtor filed for relief on October 14, 2005, and in his Schedule C claimed
as exempt an
IRA entitled “Bank of Onaga IRA,” valued in excess of 1.1 million
dollars. On January 4, 2006, Missouri Building, LLC (“Creditor”)
objected to exemption of the IRA on the basis that “upon information
and belief, the assets do not appear to be property placed within and subject
to protection of an IRA.” The matters before the Court were cross motions
for summary judgment on the objection by Creditor to Debtor’s claimed
exemption of his IRA account.
Holding:
The Court noted that the Creditor, as the party
objecting to exemptions, carries the burden of proving the exemptions are not
properly claimed. Creditor
is entitled to summary judgment only “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that
the Creditor is entitled to judgment as a matter of law.” In this case,
Creditor had failed to provide sufficient facts and authorities to show that
it was entitled to judgment as a matter of law.
Creditor relied upon a two-step
argument when it objected to the exemption of the IRA. The first premise relied
upon was that the “ESOP was not
qualified by reason of its noncompliance with Rev. Rul. 2004-4.” The
second step was that “if the ESOP did not comply, then the IRA assets
are not exempt.” The Court rejected Creditor’s position based upon
lack of proof of the first contention. As to the alleged nonqualification of
the ESOP, Creditor presented no expert opinion, cited to no pension authorities,
and presented insufficient facts supporting its position. The Court denied
Creditors’ motion for summary judgment. The Court held that the IRA was
a retirement plan entitled to exemption status under K.S.A. §60-2308.
G.E. Money Bank v. Youseff Mohamad Yousseff (In re: Youseff Mohamad Yousseff);
Case No. 05-17457; Adversary Case No. 06-05053 (Somers) (August 14, 2007)
MEMORANDUM OPINION AND ORDER DENYING DISCHARGEABILITY COMPLAINT
• 11 U.S.C. §523(a)(2)(A)
•
11 U.S.C. §523(a)(2)(C)
Facts:
Bank filed a complaint alleging that because of fraud,
Debtor should not be allowed to discharge Bank’s $10,169.85 claim, pursuant to 11 U.S.C. §523(a)(2)(A).
Bank also contended Debtor should not be allowed to discharge its $7,976.99
claim, because Debtor’s purchases of electronics and other miscellaneous
items were made within 60 days pre-petition, constituting an 11 U.S.C. §523(a)(2)(C)
claim for purchases of luxury goods and services. Debtor responded that he
had every intention of paying for the goods purchased, made no misrepresentations
to the Bank, and he was not responsible for interest or attorney fees. Debtor
also contended the items purchased within 60 days before the petition date
were not luxury goods.
Holding:
The Court noted that the Supreme Court in Field v.
Mans construed 11 U.S.C. §523(a)(2)(A)
to incorporate the general common law of torts as stated in the Restatement
(Second) of Torts (1976). The Tenth Circuit BAP, following the Field v. Mans
analysis, when considering whether alleged misrepresentations were sufficient
to deny discharge of credit card debt, relied on the Restatement §525,
addressing liability for fraudulent misrepresentation. It provides: A misrepresentation
is fraudulent if the maker had knowledge of the untrue character of his representation.
The Court noted that it is the duty of the Court to consider whether the totality
of the circumstances presents a picture of deceptive conduct by the debtor
which indicates an intent to deceive the creditor. The Court further noted
that establishing an exception to discharge based upon misrepresentation is
often stated to require the following elements: 1. The debtor made a representation;
2. at the time of the representation, the debtor knew it to be false; 3. the
debtor made the representation with the intention and purpose of deceiving
the creditor; 4. the creditor justifiably relied on the representation; and
5. the creditor sustained the alleged loss and damage as a proximate result
of the representation having been made.
The debtor’s intention to mislead
the creditor need not be proved with direct evidence; it may be inferred from
the totality of the circumstances.
The following is a list of factors frequently considered by the courts:
1. the
length of time between the charges made and the filing of bankruptcy; 2. whether
the debtor consulted an attorney regarding bankruptcy prior to the
charges being made; 3. the number of charges made; 4. the amount of the charges;
5. the financial condition of the debtor at the time the charges were made;
6. whether the charges were above the credit limit of the account; 7.whether
the debtor made multiple charges on any given day; 8.whether or not the debtor
was employed; 9. the debtor’s employment prospects; 10. the debtor’s
financial sophistication; 11. whether there was a sudden change in the debtor’s
buying habits; and 12. whether the purchases were made for luxuries or necessities.
11 U.S.C. §523(a)(2)(C), on which the Bank also relied, places the burden on the credit card issuer. 11 U.S.C. §523(a)(2)(C) provides as follows:
…consumer debts owed to a single creditor and aggregating more than $1,225.00 for “luxury goods or services” incurred by an individual debtor on or within 60 days before the order for relief under this title . . . are presumed to be nondischargeable;…
The Court applied the above law to the facts of the case, denied the Bank’s Complaint, and held that claim of the Bank is dischargeable.
David A. Hunt and Bobbi J. Hunt; Case No. 07-20627 (Berger) (August 14, 2007)
MEMORANDUM OPINION AND ORDER DENYING OBJECTION TO EXEMTION OF IRA
• 11 U.S.C. §1325(a)
• K.S.A. 84-9-103(e)
•
R.S. Mo. §400.9-103
Facts:
The case presented the Court was a question of law
regarding whether 11 U.S.C. §1325(a)’s
hanging paragraph applied to a 910-car purchase which included refinanced negative
equity from a prior loan.
Debtors filed for Chapter 13 relief on March 28, 2007.
They scheduled a 2005 Ford Freestar van as securing Wells Fargo’s claim.
Debtors valued the van at $13,335.00 and acknowledged a claim amount of $21,177.28,
leaving $7,842.28
as unsecured. Their plan proposed to pay Wells Fargo $13,335.00 at 7 percent
interest. Wells Fargo did not file a proof of claim but did file an objection
to its claim being crammed down and asserted a 910-car claim in the contract
balance amount of $27,637.67.
The contract was made under Missouri law.
Holding:
The Court noted that Kansas and Missouri law differ
significantly regarding a purchase money security interest (“PMSI”)
consolidated with unsecured debt. As this Court and other courts in the district
have previously held,
a 910-car claim is limited to the PMSI which is the purchase price of the vehicle.
Any debt from a previous vehicle refinanced with the purchase of the new car
is not included in the 910-car claim.
For contracts made under Kansas law, a secured
debt may be comprised of both a purchase money component representing the collateral’s price and a
nonpurchase money component representing any other additional debt associated
with the transaction. K.S.A. §84-9-103(e) allocates payments between PMSI
and consolidated unsecured debt. However, in Missouri, R.S.Mo. §400.9-103
is unchanged from the uniform law and remains limited to nonconsumer goods
transactions.
Under Missouri law, the previously established approach in consumer
goods transactions is the transformation rule. The transformation rule extinguishes
the PMSI in all items, including the most recently purchased items, when debts
from prior purchases are consolidated and refinanced into a new loan. Thus,
under post-BAPCPA law, Missouri’s transformation rule aligns Missouri
with those jurisdictions which have already applied the transformation rule
to a 910-car claim under 11 U.S.C. §1325(a)’s hanging paragraph.
In those cases, it was decided that the creditor does not have a PMSI. As a
result, the hanging paragraph of 11 U.S.C. §1325(a) does not prevent the
debtors from bifurcating the creditors’ claims into secured and unsecured
portions. Accordingly, Wells Fargo’s loan to Debtors is a nonpurchase
money transaction which was held not subject to the hanging paragraph of 11
U.S.C. §1325(a).
Donald Michael Kellerman and Jennifer Lynn Kellerman; Case No. 06-22028 (Berger)
(August 15, 2007)
ORDER REGARDING DEBTORS’ OBJECTION TO CLAIM NO. 14 AND CREDITOR’S
OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN
• 11 U.S.C. §1325
• K.S.A. 84-9-103(e)
Facts:
DaimlerChrysler Financial Services Americas, L.L.C.
(“Creditor”)
objected to confirmation based on the plan’s treatment of its 910-car
claim. In a related matter, Debtors objected to the amount of Creditor’s
910-car claim. The issue considered by the Court was a question of law about
how prepetition payments are to be allocated between the refinanced negative
equity and the purchase money security interest (“PMSI”) in a 910-car
claim under 11 U.S.C. §1325(a)’s hanging paragraph.
Holding:
Under Kansas law, the PMSI is the purchase price
of the vehicle for 910 – car
claim purposes. Any debt from a previous vehicle refinanced with the purchase
of the new car is not included in the 910-car claim. Vega and Hernandez-Simpson
held that the PMSI was the purchase price of the vehicle, plus accrued interest,
less payments made. However, neither Hernandez-Simpson nor Vega discussed a
method of allocating prepetition payments between the unsecured negative equity
and the PMSI. In both cases, the debtors filed bankruptcy before making a payment.
K.S.A. §84-9-103(e) provides for the application of payments between PMSI
and consolidated non-PMSI debt.
To determine the 910-car claim’s value, the vehicle’s cash purchase
price is the starting point. Thereafter, prepetition payments are to be applied
pursuant to the parties’ written or manifest agreement. In the absence
of any agreement or manifested intent, the prepetition payments shall be applied
to the unsecured negative equity first, then to the PMSI. The record did not
include the payment history so the Court was unable to calculate the claim
value. The parties were directed to calculate the claim pursuant to this Order,
and in accordance with K.S.A. §84-9-103(e) and advise the Court within
30 days of the date of this Order, or the matter would be set for an evidentiary
hearing.
United States of America v. Randy Gene Kurtz (In re: Randy Gene Kurtz);
Case
No. 05-18508; Adversary Case No. 06-5118 (Somers) (August 17, 2007)
OPINION DENYING THE PARTIES; OPPOSING MOTIONS FOR SUMMARY JUDGMENT
• Fed.R.Civ.P.56(c)
•
11 U.S.C. §523(a)(2)(A)
Facts:
The facts included: Debtor had chronic liver disease
and had had two liver transplants. He had difficulty working because of this
medical condition, and
qualified to receive Social Security disability benefits. Despite the condition,
the Debtor was able to work full-time from August 2001 through April 2005.
The Government claimed he falsely represented to the Social Security Administration
(“SSA”) during those years that he was unable to work and was therefore
entitled to receive disability benefits. As a result, the Government claimed
the Debtor is obliged to repay it over $54,000.00 in benefits received. The
Government claimed the debt owed arose from false pretenses, false representations,
or actual fraud, so it should be excepted from the Debtor’s discharge
by 11 U.S.C. §523(a)(2)(A). The Debtor conceded he owed the benefit repayment
debt, but he contended that he made no false representations because: 1. he
was not aware he was supposed to report his jobs to the SSA, and if he was
ever told that, his medical treatment caused him to forget it; 2. on occasion,
he did tell the SSA that he was working; and 3. he told the SSA about his jobs
whenever he was asked. Both parties sought summary judgment. After considering
the materials presented, the Court concluded both motions should be denied.
Holding:
The Court reviewed 11 U.S.C. §523(a)(2)(A) of the Bankruptcy Code, under
which debts “for money, property, services, or an extension, renewal,
or refinancing of credit, to the extent obtained by — (A) false pretenses,
a false representation, or actual fraud” may be excepted from discharge.
In assessing claims under this provision, “the bankruptcy court must
consider whether the totality of the circumstances presents a picture of deceptive
conduct by the debtor which indicates an intent to deceive the creditor.”
Given the facts of the case, the Court concluded that neither the SSA nor
the Debtor has established that summary judgment should be granted. The Court
was convinced the evidence presented was such that the factfinder would be
authorized to decide this case in either party’s favor. The Court denied
the opposing summary judgment motions.
Jodie Mosier and Tamara Mosier v. Eric John Oxley (In re: Eric John Oxley,
et al.);
Case No. 05-12382; Adversary Case No. 05-5831 (Somers) (August 20,
2007); and
Jodie Mosier and Tamara Mosier v. Bryan J. Oxley (In re: Bryan J. Oxley, et
al.);
Case No. 05-12384; Adversary Case No. 05-5832 (Somers) (August 20, 2007)
MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S DISCHARGEABILITY
COMPLAINTS
• Fed.R.Civ.P.56(c)
•
11 U.S.C. §523(a)(2)(A)
•
11 U.S.C. §523(a)(4)
Facts:
Debtors contracted with Plaintiffs pre-petition to
build a custom home. The home was substantially completed, and a warranty deed
was conveyed by Oxley
Construction, Inc. to Plaintiffs. Following closing, various punch list items
were not completed by Debtors and four mechanic’s liens were filed against
the property. Plaintiffs filed discharge complaints requesting that they be
permitted to proceed in state court against Debtors to determine their damages,
and that such damages be held not dischargeable pursuant to 11 U.S.C. §§ 523(a)(2),
(a)(4), or (a)(6).
Holding:
The Court conducted a trial. The Court observed that
establishing an exception to discharge based upon 11 U.S.C. §523(a)(2)
is often stated to require the following elements: 1. The debtor made a representation;
2. at the time
of the representation, the debtor knew it to be false; 3. the debtor made the
representation with the intention and purpose of deceiving the creditor; 4.
the creditor justifiably relied on the representation; and 5. the creditor
sustained the alleged loss and damage as a proximate result of the representation
having been made.
In this case, Plaintiffs alleged fraud at two times. First they
alleged fraud when the construction contract was executed in September, 2002.
Plaintiffs
contended that Debtors misrepresented their financial ability to perform the
contract. Plaintiffs also claimed that discharge of their claim should be denied
because of Debtors’ fraudulent misrepresentations regarding the payment
of outstanding bills for supplies and subcontractors and the completion of
the punch list warranty work. The Court concluded that an Affidavit made by
Debtors contained false statements regarding the existence of unpaid debts
for goods, labor, and material used in construction of the home, and that the
Debtors knew that these statements were false. The first and second elements
of a 11 U.S.C. §523(a)(2) claim were present.
However, the remaining three
elements were not satisfied. As to the third element, there was no evidence that
the false statements in the Affidavit were
made with intent and purpose of deceiving Plaintiffs. As to the fourth element,
there was no question that Plaintiffs knew of outstanding charges. Therefore
Plaintiffs could not have justifiably relied upon the false representations
in the Affidavit. Finally, there was no evidence that Plaintiffs sustained
any loss because of the falsity of the Affidavit. The Court also found there
was no fraud for purposes of 11 U.S.C. §523(a)(2)(A) arising from Debtors’ failure
to complete the punch list items.
As an alternative basis to except their claim from discharge, Plaintiffs
allege Debtors engaged in fraud or defalcation while acting in fiduciary capacity,
or embezzlement, within the meaning of 11 U.S.C. §523(a)(4).
Two elements are required to prevent discharge of a debt under the fraud
or defalcation portion of this subsection: 1. A fiduciary relationship between
the debtors and the creditor; and 2. fraud or defalcation committed by the
debtor in the course of that fiduciary relationship.
The Court found that since there was no fiduciary relationship between the
parties, and that, there was no misappropriation of trust funds held in a fiduciary
capacity.
For the foregoing reasons, the Court denied Plaintiffs’ dischargeability
complaints.
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