After a trial, the bankruptcy court denied the U.S. Trustee’s complaint objecting to discharge under §§ 727(a)(2)(A), (a)(4)(A), and (a)(5). The debtor failed to list a business entity he had formed to replace a failing enterprise. As he liquidated the first company, he occasionally used the second company’s bank accounts for deposits and payments. Nevertheless, the evidence showed that the proceeds from the asset sales for the first business, even if funneled through other accounts, were used to pay creditors of the first business. The debtor testified that he simply forgot to list the second business because it never really got off the ground, but he amended his schedules and complied with the U.S. Trustee’s discovery requests. The court found no intent to hinder, delay, or defraud; no knowing and fraudulent false oath; and no unexplained loss of assets.
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Opinions
United States Courts Opinions (USCOURTS) collection is a collaborative effort between the U.S. Government Publishing Office (GPO) and the Administrative Office of the United States Courts (AOUSC) to provide public access to opinions from selected United States appellate, district, and bankruptcy courts.
The District of Nebraska offers a database of opinions for the years 1997 to current, listed by year and judge. For a more detailed search, enter the keyword or case number in the search box above.
The debtor in this case formerly owned an assisted living facility in Missouri. The State closed the facility due to structural issues, and the building sustained damage on a number of occasions while vacant. The debtor subsequently was authorized by the bankruptcy court to sell the property. The building’s insurer filed this adversary proceeding seeking to interplead the amount of the insurance proceeds for the initial damage claim. In the meantime, the debtor confirmed a Chapter 11 plan and filed a state court lawsuit in Missouri against the insurer and the buyer for damages under the insurance policies.
The insurance company filed a motion to amend its complaint to remove the interpleader claim and seek only declaratory relief, and to add a party who may claim an interest in the insurance proceeds. The debtor filed a motion for this court to abstain and let the state court decide the case.
The bankruptcy court dismissed the interpleader claim and granted the motion to abstain. The court ruled the plaintiff had not established grounds for interpleading the funds, in part because the plaintiff instead seemed to be attempting to limit the loss to the amount of the initial claim, instead of the total $5 million that the debtor is seeking in the state court lawsuit. “Interpleader being a remedy solely for the protection of the stakeholder, it may not be used by the stakeholder as a weapon to defeat recovery from funds other than the one before the court.”
The bankruptcy court found that abstention was appropriate because state law issues predominate over bankruptcy issues, there are no bankruptcy claims to resolve, this court’s ability to adjudicate the rights of non-debtor parties against each other is not certain, and the adversary complaint seeks only to limit the insurer’s liability rather than determine the debtor’s actual damages. Accordingly, the adversary proceeding was stayed pending the outcome of the Missouri lawsuit.
The court granted judgment on the pleadings in the debtor’s favor in this adversary proceeding by the debtor’s former wife seeking to except a property settlement debt from discharge under 11 U.S.C. §§ 523(a)(4) and (15).
The debtor-defendant moved for summary judgment but filed no evidence, so the court treated the motion as one for judgment on the pleadings under Rule 12(c). The court held, first, there is no claim to adjudicate under §523(a)(15) because if the debtor completes all payments under his Chapter 13 plan and obtains a discharge under § 1328(a), any debt under § 523(a)(15) is expressly discharged. If the debtor does not complete all plan payments or obtains a hardship discharge under § 1328(b), a claim under § 523(a)(15) is expressly not discharged. An adversary proceeding cannot change the application of the statute.
The court also found that the plaintiff had not stated a claim for fraud or defalcation while acting in a fiduciary capacity under § 523(a)(4) because no express or technical trust exists as required by the statute. The debt held by the plaintiff is a simple money judgment entered to equalize the division of marital property and does not create a fiduciary relationship or trust.
The court confirmed the debtor’s sixth amended Chapter 12 plan over the objections of a pair of unsecured creditors holding post-petition judgments who did not file timely proofs of claim. The creditors had objected on grounds of feasibility, good faith, and failure to meet the best interests of creditors test. However, the evidence showed that the debtor is making a sincere effort to salvage a substantially scaled-down farming operation. His financial projections appear to be reasonable and fact-based. He has the ability to make his first plan payment immediately upon confirmation and to make the second payment as soon as his crop is sold this year. The creditors provided little evidence to challenge the debtor’s valuation of his real estate in the liquidation analysis. The court found that the proposed plan met the requirements of §1225(a) and should be confirmed.
After a trial, the bankruptcy court entered judgment against the debtor for knowingly making multiple false representations of material fact on which the plaintiffs relied, and the court excepted the judgment from discharge under §523(a)(2)(B) because the debtor made the representations with an intent to deceive.
The plaintiffs purchased a commercial cleaning business from the debtor in 2016 after performing their due diligence. The financial statements provided by the debtor painted a promising picture of a profitable business. However, the business was not as robust as the documents made it seem, because the debtor had overstated income and accounts receivable and failed to disclose certain liabilities. Other representations by the debtor regarding the company’s job list and the qualifications and legal status of the company’s employees were also false.
The court found that the plaintiffs established all the elements of fraudulent misrepresentation under Nebraska law, as the debtor knew his representations to be false. The court awarded the plaintiffs their benefit-of-the-bargain damages, but denied the consequential damages they requested in their brief because those damages were not properly pled under Fed. R. Civ. P. 9(g) or proven. The court also declined to award pre-judgment interest under Neb. Rev. Stat. § 45-104 because the plaintiffs’ right to payment arose not from an instrument in writing, but from the tort of fraudulent misrepresentation.
The court also excepted the judgment from discharge under §523(a)(2)(B) because the debtor obtained money by use of a materially false statement in writing pertaining to his business’s financial condition on which the plaintiffs reasonably relied and which the debtor made with the intent to deceive. The court ruled that the plaintiffs established intent to deceive by showing the debtor’s actual knowledge of the false financial statements and false representations in the asset purchase agreement, as well as his conduct after the sale in which he asked the company’s accounting staff to delete information and transfer funds out of company accounts to conceal such information and funds from the plaintiffs.
After a trial, the court ruled for the plaintiff on the non-dischargeability of a debt under §§ 523(a)(2)(A), (a)(4), and (a)(6). The debt was owed by the debtor and the car dealership he owned and operated, and resulted in part from selling vehicles out of trust and pledging the same collateral to more than one lender. The debt owed by the non-debtor dealership was the full amount of the contract claim arising from the breach of the financing and security agreement and judgment was entered accordingly. Judgment was entered against the debtor only for the portion of the debt attributable to his embezzlement and his fraudulent and willful and malicious conduct, and that amount was excepted from discharge.
The court denied without prejudice a motion to compel production of documents, finding that the documents requested were covered by the attorney-client and work product privileges. This lawsuit is a contract dispute about insurance coverage. The defendant wants to see emails sent between non-attorney employees of the plaintiff concerning coverage for the loss at issue, but those emails are privileged because they discuss the advice and opinions of legal counsel. Work product privilege also applies because the plaintiff retained outside counsel for the dispute, indicating that an adversarial relationship existed.
After a trial on the debtor’s objection to the claim filed by her ex-husband, the court ruled the debtor should receive credit for alimony and property settlement payments made directly to the creditor.
The parties’ divorce decree provided for the debtor to pay her former husband monthly “alimony” payments and property settlement payments that by the terms of the decree were to be used to pay down joint debt. The debtor was not responsible for paying monthly child support to her former husband as the custodial parent, but both parties were to equally share the children’s medical and day care expenses.
The debtor paid more than $34,000 in alimony and property settlement payments directly to her former husband for four years. He considered the payments to be applicable to the children’s expenses. After her former husband made legal demands and garnished her wages for past-due alimony and property settlement payments, the debtor filed this Chapter 13 case. The former husband filed a bankruptcy claim for priority domestic support, and the debtor objected.
The bankruptcy court ruled that the debtor proved the payments were for alimony under the terms of the divorce decree, and that her payments directly to the creditor rather than through the state court does not disqualify their applicability to the alimony judgment and property settlement. As a result, the creditor has an unsecured priority claim under § 507(a)(1)(A) for unpaid alimony in the principal amount of $4,443.43, plus interest of $24.15, for a total of $4,467.58. The creditor also holds a general unsecured claim for the unpaid property settlement judgment in the principal amount of $57,600, plus interest of $1,442.60, for a total of $59,042.60.
The court denied a creditor’s motion to extend the deadline to file a complaint objecting to the debtors’ discharge or to determine the dischargeability of debts. The court declined to equitably toll the deadline because the creditor’s counsel did not act diligently to preserve the creditor’s rights, instead waiting until the afternoon of the last day to contact debtors’ counsel about extending the deadline, then encountering technical difficulties in attempting to file the agreed-upon motion. The court noted that equitable relief is granted sparingly, and is unlikely to be used to rescue a claimant who has failed to exercise due diligence in protecting his rights. Here, the court said, too many questions remain as to why creditor’s counsel did not act more promptly or take additional steps to protect the client’s rights.
On the Chapter 13 trustee’s objection to exemptions – particularly to the debtor’s use of the Schedule C check box for “100% of fair market value, up to any applicable statutory limit” – the court ruled:
A debtor is not prohibited from using the 100% FMV Box. But the box should be used sparingly. If a debtor selects the 100% FMV Box, the debtor must ensure the trustee can determine the amount of the exemption claimed from Schedule C and the applicable statute. If a debtor creates an ambiguity in claiming an aggregate exemption more than one time, an objection to exemptions will be sustained.
The 100% FMV Box may have little to no value to a debtor. If a debtor uses the 100% FMV Box and the trustee objects, Schwab makes value an issue [and an evidentiary hearing with live testimony will be required].