The debtor, as an individual and as president of a plumbing company, signed an indemnity agreement as an inducement for the creditor to issue surety bonds on behalf of the company. The company and the debtor agreed that all funds coming due on certain projects that the company was working on would be trust funds. The debtor, individually and on behalf of the company, received funds but failed to use the funds to pay the obligations on the projects. The creditor contended that, as a result of the debtor's failure to properly use the trust funds, it had to pay claims for which debtor was liable under the indemnity agreement and that the debtor's obligation was nondischargeable as the result of a fraud or defalcation while acting as in a fiduciary capacity under 11 U.S.C. § 523(a)(4). The court held that the debtor was acting in a fiduciary capacity because under the indemnity agreement he had agreed and declared that the funds due under the projects were trust funds to be held for payment of certain claims. The court did not reach, on the debtor's motion to dismiss, the question of whether the debtor's action was a defalcation.
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Judge James P. Smith
The debtor's representative executed two promissory notes which were secured by a deed to secure debt. The debtor contended that the mortgagee's representative had stated that the debtor would not be required to repay the notes, but that one note would be repaid through the sale of certain real property owned by a third party and that the other notes. repayment would be treated as a distribution from a certain trust. The debtor later sought to rescind or cancel the notes. The court held that the debtor could not sue for breach of contract because the merger clause in the deed to secure debt prevented the debtor from asserting that the mortgagee's representative made fraudulent misrepresentations concerning repayment of the notes. The court held that the debtor could not rescind the notes and sue for fraud because the debtor was not able to return to the mortgagee the money it had received under the notes.
The debtor's Chapter 13 plan proposed to separately classify a non-dischargeable student loan debt and pay that debt more than other general unsecured creditors. The debtor would be eligible for a Public Service Loan Forgiveness Program if she made 120 consecutive payments without default on her student loan. This would allow the debtor to write off $50,000 in student loans. The plan as proposed would give the other unsecured creditors a 15 percent distribution. Without the separate classification, the distribution would be 20 percent, with an additional amount of $5,000, to the other unsecured creditors. The court held that this separate classification was not unfair discrimination under 11 U.S.C. § 1322(b)(1) and that the Chapter 13 plan could be confirmed over the trustee's objection.
The creditor filed a motion to extend the deadline to file a complaint objecting to the dischargeability of debt after the deadline for filing such complaint had expired. The creditor had received the notice from the court which contained the deadline to file complains but failed to do so. The creditor asked that the deadline be equitably tolled because, the creditor alleged, he missed the deadline because he allowed the debtor to induce him to take no action in the bankruptcy case. The court denied the request for equitable relief, finding that there had been no deception or act of fraud about the dischargeability objection deadline by the debtor in his communications with the creditor.
The Chapter 13 debtor contended that his obligation to buy a replacement home for his former spouse was a dischargeable property division rather than a nondischargeable domestic support obligation. The court disagreed and held that the debtor's obligation to buy a replacement home was a nondischargeable support obligation.
Judge James D. Walker, Jr.
The Court confirmed a Chapter 11 plan over the objection of a secured creditor. The creditor was a participant in a syndicated loan agreement, which had designated an agent to vote on the plan on behalf of all lenders who were party to the agreement. The agent voted for the plan. Thus, the objecting creditor had agreed to the plan and its treatment under the plan through its agent.
Debtor retained no interest in real property that was the subject of a foreclosure sale prior to the petition date. The security deed had originally been granted to the lender's nominee (MERS). Prior to the foreclosure sale, MERS transferred its interest in the security deed back to the lender. Neither the transfer of the security deed nor the foreclosure sale were defective; therefore, the debtor's rights in the property were cut off when the highest bid was made at the foreclosure sale.
The Court sua sponte dismissed an involuntary Chapter 7 against an individual when the Court could determine as a matter of law that the filing creditor did not hold a valid claim and, thus, was ineligible to file petition.
A creditor who filed three proofs of claim for a single judgment debt was entitled to only vote on the Debtor’s Chapter 11 plan. The Court found that the three proofs of claim represented a single debt capable of a single satisfaction and, therefore, must be treated as one claim for voting purposes.
Chief Judge John T. Laney, III
The plaintiffs in this adversary proceeding moved to amend its complaint after the time to amend as a matter of right had passed. The plaintiffs wanted to add facts they were aware of but forgot to tell their attorney. The defendants objected to the amendment as an attempt to delay, as creating further expenses, and as untimely. The Court found that the defendants had not put forth any facts or legal arguments demonstrating any prejudicial delay or undue expenses. The Court further concluded that the amendments can be read such that they do not add a new claim and thus need not relate back to the original complaint, and even if the amendments added a new claim, the new claim would arise out of the same conduct, transaction, or occurrence set out in the original complaint, and thus the amendments would relate back.