2009 Decisions

Charles L. Nail, Jr.,  Chief Bankruptcy Judge

Numerical Listing

2009 DECISION SUMMARIES

Charles L. Nail, Jr., Chief Bankruptcy Judge

1.  January 20, 2009.  NINAS, ROBERT R. and JANET M., Case No. 05-50342, Chapter 13.  Issue: Whether, on Debtors' motion, the Court's order granting in part and denying in part Debtors' motion to discharge judgments should be altered or amended?  Ruling: The Court's order was amended only to better describe the nature of the judgment creditor's claim and to preserve Debtors' right to commence an appropriate adversary proceeding to determine whether that claim had been discharged. The Court concluded that issue and the related issue of whether the judgment creditor's liens had been voided were better resolved through an adversary proceeding, when neither the judgments nor the judgment liens were acknowledged, identified, or provided for in Debtors' chapter 13 plan, when Debtors' plan did not state what would happen to claims held by unsecured or undersecured creditors who did not timely file proofs of claim, and when neither the judgment creditor nor Debtors timely filed a proof for the claim.

2.  January 23, 2009.  BENEDICT, LEROY DENNIS and BETTY L. FAIRBANKS-BENEDICT.  Case No. 08-30008, Chapter 7.  Issue:  Whether sanctions should be imposed against Debtors and their attorney for an alleged violation of Fed.R.Bankr.P. 9011?  Ruling:  Debtors' legal contention that their accrued but unpaid wages were provisions within the meaning of S.D.C.L. § 43-45-2(6) and their legal contention that their bank accounts were excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(d) and S.D.C.L. §§ 55-1-6 through -11 were not warranted by existing law, and Debtors failed to make a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. Debtors and their attorney thus violated Fed.R.Bankr.P. 9011(b)(2). The Court could not impose monetary sanctions against Debtors for their violations of Rule 9011(b)(2) because they were represented by an attorney, Fed.R.Bankr.P. 9011(c)(2)(A), but it imposed a monetary sanction of $1,000 against their attorney for his violations of Rule 9011(b)(2).

3.    February 10, 2009.  BEELER, GEORGE WALLACE, JR. and CAROLYN JEANNE BEELER (First Midwest Bank - Deerfield Branches v. Beeler).  Case No. 07-40603, Adv. No. 08-4006, Chapter 7.  Issues: Whether Debtors were entitled to summary judgment on Plaintiff Bank's complaint seeking a determination that: (1) the debt owed the Bank was nondischargeable under 11 U.S.C. § 523(a)(2)(B); (2) the debt owed the Bank was nondischargeable under 11 U.S.C. § 523(a)(6); and (3) Debtors should be denied a discharge under 11 U.S.C. § 727(a)(2)?  Rulings: Yes. (1) The Bank showed the record established one of the debtors used a written statement that was materially false with respect to her financial condition. However, Debtors showed the record established the Bank did not reasonably rely on that written statement, and the Bank did not show there was a genuine issue of material fact regarding that element of § 523(a)(2)(B). Consequently, the debt owed the Bank was not excepted from discharge under § 523(a)(2)(B).  (2) All but one of the acts about which the Bank complained were at most simple breaches of contract, not intentional torts that would implicate § 523(a)(6). With respect to the one act that could be considered an intentional tort, the Bank did not point the Court to anything in the record that would support either a finding that Debtors desired to cause the Bank not to receive payment in full on its claim or a finding that Debtors were substantially certain the Bank would not receive payment in full as a consequence of their acts. Consequently, the debt owed the Bank was not excepted from discharge under § 523(a)(6).  (3) The Bank showed the record established each of the acts about which it complained was done either within one year before, or on or after, the petition date and each of those acts was that of Debtors.  The property involved (Debtors' former home) was Debtors' property prior to the petition date and was property of the estate thereafter. However, the Court concluded the flooding and mold about which the Bank complained did not "destroy" or "mutilate" Debtors' home within the meaning of § 727(a)(2), so Debtors could not be found to have destroyed or mutilated their home or to have allowed it to be destroyed or mutilated. Moreover, the Bank did not point the Court to anything in the record that would constitute direct evidence that Debtors actually intended to hinder, delay, or defraud the Bank, another creditor, or the case trustee or that would permit the Court to infer such intent. Consequently, Debtors were not barred from receiving a discharge by § 727(a)(2).

4.  February 13, 2009.  PERRY, MARYBETH. Case No. 06-50237, Chapter 7.  Issue:  Whether a claim for unpaid child support was property of the estate within the meaning of 11 U.S.C. § 541 and was thus subject to turnover pursuant to 11 U.S.C. § 542?  Ruling:  No. Under South Dakota law, Debtor held the child support payments as trustee for her children. Debtor did not have an equitable interest in the child support arrearage. Thus, the arrearage was not property of the estate and was not subject to turnover.
 

5.  February 18, 2009.  YOUNG, WILLIAM EDWARD and JAMI DAWN YOUNG, Bankr. No. 08-50148, Chapter 7 (Bench Ruling, February 18, 2009).  Issue: Whether Debtor's contractual right to a share of certain real estate sales commissions, which was contingent on successful closings that did not take place until after the filing of Debtors' petition, was property of the estate?  Ruling: Yes. Property of the estate includes contingent interests such as Debtor's contractual right to a share of the real estate sales commissions.

APPEAL RECORD:

6.    March 13, 2009.  PORTER, JAMES WRIGHT (Trustee Allred v. Beverly Porter & Atlantic Auto Group, Inc.), Bank. No. 06-10119, Adv. No. 07-1012, Chapter 7.  Issue: (1) Whether certain pre-petition transfers by Debtor of real property in South Dakota and Florida should be avoided as fraudulent? (2) Whether a constructive trust or equitable lien should be imposed on real property in Florida and a Florida corporation?  Ruling: (1) Debtor's pre-petition transfer of his interest in a lake home in South Dakota was avoided as both actually fraudulent and constructively fraudulent. (2) Record did not support the imposition of a constructive trust or equitable lien on the subject Florida real property or Florida corporation.

7.    March 26, 2009.  CAPLE, WILLIAM GUY.   Bank. No. 08-50029, Chapter 13 (Bench Ruling, March 26, 2009).  Issue:  Whether a proof of claim filed by the trustee on behalf of an unsecured creditor within the time allowed by Fed.R.Bankr.P. 3004 should be disallowed on the grounds that 11 U.S.C. § 501(c) was not intended to allow a trustee to rehabilitate a creditor's untimely proof of claim?  Ruling:  No. Nothing in either 11 U.S.C. § 501(c) or Fed.R.Bankr.P. 3004 suggests a trustee may only file a proof of claim on behalf of a creditor under certain circumstances. Moreover, even if that were not the case, the proof of claim at issue, which was mistakenly sent to the trustee rather than the Court, would constitute an informal proof of claim that was effectively amended when the trustee forwarded it to the Court for filing.

8.  July 1, 2009.  STABLER, BRAD ALLEN AND BRENDA LEE (Stabler v. Beyers).  Bank. No. 03-10179, Adv. No. 09-1002, Chapter 7 (Bench Ruling, July 1, 2009)  Issue: (1) Whether Debtors-Plaintiffs' adversary complaint should be dismissed for failure to state a claim upon which relief could be granted, when the adversary complaint sought a determination the debts described in counts 1, 3, and 4 of Defendant's state court counterclaim against them had been discharged in Debtors-Plaintiffs' chapter 7 case and related damages and injunctive relief, but the state court had already entered a letter decision in Defendant's favor on count 1 of his state court counterclaim holding the subject debts had not been discharged in bankruptcy, and Defendant was seeking to recover in counts 3 and 4 of his state court counterclaim only those amounts that were determined not to have been discharged in Debtors-Plaintiffs' chapter 7 case? (2) Whether the Court should abstain from hearing Debtors-Plaintiffs' complaint?  Ruling: (1) Yes. With respect to count 1 of Defendant's state court counterclaim, the Rooker-Feldman doctrine did not apply, because the mere pendency of the state court action did not deprive the Court of jurisdiction.  Res judicata (or claim preclusion) likewise did not apply, because the cause of action in count 1 of Defendant's state court counterclaim (recovery on a note) was not the same as the cause of action in the adversary proceeding (an alleged violation of the discharge injunction).  However, collateral estoppel (or issue preclusion) did apply, and the Court was bound by the state court's determination that the debt described in count 1 of Defendant's state court counterclaim had not been discharged in Debtors-Plaintiffs' chapter 7 case. With respect to counts 3 and 4 of Defendant's state court counterclaim, Debtors-Plaintiffs offered no reasonable interpretation of the language in those counts that would permit the Court to conclude defendant was in any way attempting to collect, recover, or offset a debt discharged in Debtors-Plaintiffs' bankruptcy.  (2) Yes.  The majority of the 12 factors set forth in In re Williams, 256 B.R. 885, 893-94 (B.A.P. 8th Cir. 2001), supported abstention. The remaining factors were either neutral or perhaps tipped the scales slightly against abstention, but none of them was sufficient to outweigh the factors that supported abstention.

9.  July 24, 2009.  DE JAGER, RICKY LEE AND CAROLYN DAWN (Ortman v. DeJager).  Bankr. No. 09-40031, Adv. No. 09-4008, Chapter 11.  Issue: Whether certain insurance proceeds being held in constructive trust pursuant to a state court order were property of Debtors' bankruptcy estate?  Ruling:  No. The subject insurance policy did not name Debtors as insureds, and nothing in the policy suggested Debtors were entitled to receive the proceeds. Consequently, neither the policy nor the proceeds were property of Debtors' bankruptcy estate. Moreover, even if Debtors had been named as insureds and would otherwise have been entitled to the proceeds, the constructive trust imposed on the proceeds by the state court would have had the effect of excluding the proceeds from Debtors' bankruptcy estate.

10.  September 17, 2009.  WOLK, THEODORE STEPHEN.  Bankr. No. 09-50082, Chapter 7 (Bench Ruling, September 17, 2009).  Issue: Whether Debtor's estranged spouse was entitled to relief from the automatic stay to permit the state court to equitably divide the parties' marital property, including property of the bankruptcy estate? Ruling: No. The filing of Debtor's chapter 7 petition created a bankruptcy estate over which the bankruptcy court has exclusive jurisdiction. The chapter 7 trustee has a duty to liquidate all property of the bankruptcy estate and distribute the proceeds in the manner specified in the bankruptcy code, which would include a distribution to Debtor's creditors but would not include a distribution to Debtor's estranged spouse (who would not have a claim against Debtor until the state court entered a final decree). Granting Debtor's estranged spouse the relief requested would thus violate several provisions of the bankruptcy code, including §§ 541, 704, and 726. However, Debtor's estranged spouse did not need relief from the automatic stay to proceed with the divorce, request an order for domestic support, or seek an equitable division of any property that was not property of the estate (e.g., exempt property, post-petition earnings, property excluded from the estate, property abandoned by the chapter 7 trustee, and any surplus under § 726(a)(6)). In addition, while Debtor's estranged spouse could not seek an equitable division that would involve a distribution in kind of any property that was property of the estate, the Court did not find anything in the bankruptcy code that would prevent the state court from taking the value of that property into account in crafting an equitable division of property between the parties. Finally, whatever claim Debtor's estranged spouse may ultimately have against Debtor following their divorce would be a post-petition claim and would not be discharged in, or otherwise affected by, Debtor's bankruptcy.