This matter came before the Court on the Defendant’s motion to dismiss the Plaintiff’s adversary proceeding. The Defendant argued that the Plaintiff did not meet the heightened pleading requirements for fraud as required by Federal Rules of Bankruptcy Procedure Rule 7009 and that the statute of frauds prohibited the enforcement of the Defendant’s supplemental oral promise. The parties also disagreed as to whether the prohibition against parol evidence barred the Plaintiff’s introduction of the oral promise to prove fraudulent inducement. The Court found that the Plaintiff did not meet the requirements of Rule 7009, granting the Defendant’s motion in part. The Court allowed the Plaintiff fourteen days to amend his complaint or the adversary proceeding will otherwise be dismissed. The Court also found that both the statute of frauds and parol evidence did not apply in this case because the Plaintiff has elected to pursue a fraud claim, not a breach of contract claim, and, therefore, denied the Defendant’s motion on her other grounds.
Opinions
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Please note: These opinions are not a complete inventory of all judges' decisions and are not documents of record. Official court records are available at the clerk's office.
Judge John T. Laney, III
This matter was tried before the Court on November 8, 2023. The Trustee objected to the Debtors’ discharge under Bankruptcy Code §§ 727(a)(2) through (5). The Court found that that the Trustee did not meet her burden as to §§ 727(a)(2) and (4) but did through §§ 727(a)(3) and (5). Therefore, the Court denied the Debtors’ discharge.
The Movants, Rodney and Greda Tyson, asked the Court to reopen the Debtor's bankruptcy case and annul the stay as to their personal injury case. The Movants were not listed as creditors in the Debtor's bankruptcy case and the statute of limitations has expired barring them from refiling their personal injury suit against the Debtor now that the Debtor's case has been dismissed. The Court found cause to reopen the case and annul the stay and granted the Movants' motion.
The Movant, Roger Munn, moved the Court to reconsider its April 4, 2023 order and opinion denying his objection to discharge and to the confirmation of the Debtor’s, Esther Collins, plan. The Court found that the Movant did not meet his burden under Rule 9023 to demonstrate “newly discovered evidence or manifest errors of law or fact.” In re Kellogg, 197 F.3d 1116, 1119 (11th Cir. 1999).
The Movant, Mr. Roger Munn, filed this motion to object to discharge and objection to confirmation of the Debtor’s plan. The Court found the motion to object procedurally deficient and otherwise lacking in merit. The Court overruled the Movant’s objection under § 1325(a)(3) because it found the Debtor filed her case in good faith in accordance with the factors in In re Kitchens, 702 F.2d 885. The Court also overruled the Movant’s objection under § 1325(b)(3) and § 1325(a)(4) because it found the Debtor’s income and estate do not include child support arrearages.
The Chapter 7 Trustee, Walter Kelley, filed a motion for the Court to reconsider its previous memorandum opinion and order in this case. The Court considered the Trustee’s arguments and denied the motion. The parties stipulated that at least one institution should have been served in accordance with 7004(h), but the Court found that the Trustee did not prove the error justified the use of Rule 59. The Court reconsidered its previous finding that the Trustee was bound by res judicata and did not find it had made a manifest error of law. The Court also found the Trustee’s arguments about the Debtors’ motivation for converting their case untimely. Finally, the Court was unpersuaded by the Trustee’s oral motion under Rule 60(b)(6).
The Debtors in this case had previously motioned to the Court and received permission to sell two loaders and a lawn mower in satisfaction of a claim by the Creditor, Southern Pine Credit Union. In exchange for the proceeds from the sale, the Creditor would release the liens on the three pieces of equipment and a Nissan Armada owned by the Debtors. The Chapter 13 Trustee consented to the Debtors’ motion to sell. After the order of sale was entered but before the proceeds were received by the Creditor, the Debtors converted their case to Chapter 7. Shortly after the conversion, the Creditor filed a motion to relief from the stay. The proceeds have since been received.
The Chapter 7 Trustee investigated and contests the validity of the liens on the two loaders and the lawn mower, but not the Nissan Armada, and has demanded turnover of the sale proceeds as part of the Chapter 7 estate. The Trustee responded to the Creditor’s motion for relief from the stay on those grounds. The Debtors filed a motion for turnover against the Creditor requesting clear title be transferred on the Armada because the proceeds had been paid in accordance with the Court’s previous order to sell. The Creditor filed a motion for relief from order claiming the Chapter 7 Trustee is barred by res judicata and, in the alternative, requesting relief from the Court’s order requiring the liens be released.
The Court found the proceeds from the sale are part of the Chapter 7 estate under § 348(f)(1)(A), but the Trustee is barred by res judicata from contesting the liens because the Chapter 13 Trustee consented to validity of the liens in the Debtors’ motion to sell.
Judge James P. Smith (Retired)
Petitioners filed an involuntary Chapter 7 petition against Debtor which, in turn, filed an answer controverting the petition. 11 U.S.C. §303(a), (b). Petitioners hold judgment liens against Debtor’s real property, some 334 acres of land (the “property”). For the past twenty years, a motorbike racing facility known as Durham Town has been operated on the property by Mike McCommons. About ten years ago, Mike’s son, Steven, suffered a serious and permanent injury. Mike formed Debtor, an irrevocable trust, to make long-term plans for Steven, who is the sole beneficiary of the trust. Mike, and one of his corporations then conveyed the 334 acre property to Debtor. Mike continued to operate the motorbike racing and other related business on the property. Those businesses paid rent not to Debtor which owns the property, but to other entities owned by Mike.
Petitioner Coleman Rogers suffered a catastrophic injury while racing at Durham Town and he, along with his parents, the other petitioners, now hold judgment liens against Debtor’s property. Petitioners filed this involuntary Chapter 7 case against Debtor in order to collect on their judgments. Debtor asserted three defenses.
First, the Court held that Debtor is not a “business trust” and therefore cannot be a debtor under 11 U.S.C. §§101(9), 101(41) and 109(b). Debtor, an irrevocable trust, was created to preserve property for the benefit of Mike’s son and includes a spendthrift clause. Until 2020, Debtor received no rent, had no bank account, had no business expenses, and filed no tax returns. Debtor simply existed. A business trust, on the other hand, is created and maintained for business purposes and its interests are transferable.
Second, the Court held that Debtor was not generally paying its debits as they become due. Debtor has few debts. The 2021 and 2022 property taxes have not been paid, two secured loans against the property are in default, and Petitioners’ and another creditor’s judgments are not being paid. Debtor’s legal fees in this case are being paid by Mike’s brother.
Finally, the Court held that the involuntary petition was filed in bad faith and was an abuse of the bankruptcy process because a bankruptcy case would serve no purpose that creditors of Debtor could not achieve under state law. The unpaid property taxes are first priority liens under state law. The secured mortgage debts can be foreclosed upon. Petitioners’ judgment liens can be collected under state law. If a bankruptcy trustee were appointed in this case, the trustee would immediately abandon the property under §554(a) as burdensome to the estate or of inconsequential value.
The Court dismissed the involuntary petition.
Plaintiff filed an action in Nevada state court in 2018 alleging that Defendant/Debtor had breached her duties as trustee of a Family Trust. There, Plaintiff and Debtor disputed when the state statute of limitations had began to run. Debtor’s bankruptcy in 2022 stayed the state court action. Plaintiff filed a complaint in this Court alleging that Debtor breached her fiduciary duty and that her debt was nondischargeable under 11 U.S.C. §523 (a)(2)(A), (4) and (6). The Court denied Debtor’s motion to dismiss the complaint because, in his complaint, Plaintiff alleged that he first learned of Debtor’s breach of fiduciary duty on a certain date that was within the state statute of limitations. However, the Court did permissively abstain from hearing Plaintiff’s claims that are controlled by Nevada state law. 28 U.S.C. §1334 (c)(1) Once the Nevada case has been resolved and Plaintiff’s claims determined, this Court will make a final determination as to whether the claims, if any, are nondischargeable.
Debtor agreed to help finance a concrete business owned by a long-time friend and former roommate, Hill. Debtor’s loans were to be used to purchase materials with Hill supplying the labor. Debtor’s profit was 30% of the loan amount. Debtor issued a check for each loan and Hill issued a repayment check. Debtor and Hill used different banks and multiple loan and repayment checks were sometimes deposited the same day. For six months, all checks cleared the respective bank. Then Hill deposited checks totaling $550,000 into Debtor’s account and Debtor had his bank issue a cashier’s check for $535,000 to Hill. Hill’s checks were dishonored causing Debtor’s account to be overdrawn. Debtor’s bank obtained judgment against Debtor for the overdraft.
After Debtor filed a Chapter 7 case, his bank alleged that Debtor and Hill participated in a check kiting scheme and that Debtor’s debt arose from actual fraud and was nondischargeable under 11 U.S.C. §523(a)(2)(A).
The court analyzed the swapping of checks between Debtor and Hill and determined that there was no check kiting at least prior to the end of November 2017. The time gap between some deposits and debits exceeded the float time between the banks.
The court determined that the transactions over the next twenty days suggested that kiting was occurring but that Debtor was not a knowing participant, did not attempt to defraud his bank and that his debt to the bank was dischargeable in bankruptcy.