Part One: Just the Facts, Ma’am…
As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. I was lucky to find this wonderful case from the Western District of Missouri (whence lay Kansas City, Independence, Branson, etc.).
What a wonderful case this is: an excellently written opinion dealing with fraud, the means test and other topics important in bankruptcy.
This isn’t an opinion, this is a text book. It should be on the curriculum of anyone teaching bankruptcy law. It is that good!
Part One deals with the facts of the case:
UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF MISSOURI
IN RE SHARON LEE WEST, Debtor.
RANDY AND SHERRI’ JAMES, Plaintiffs, v. SHARON LEE WEST, Defendant. )
Case No. 16-40358; Adv. No. 16-04083
MEMORANDUM OPINION AND ORDER DENYING AMENDED MOTION TO DISMISS OR CONVERT AND ENTERING JUDGMENT FOR DEFENDANT ON PLAINTIFFS’ COMPLAINT FOR NONDISCHARGEABILITY
This matter is before the Court on two matters consolidated for discovery and hearing by agreement of the parties and the Order of the Court: (1) the Amended Motion of Randy and Sherri’ James to dismiss or convert the Debtor Sharon West’s Chapter 7 case under 11 U.S.C. §§ 707 and 706 and the objection of the Debtor thereto, and (2) the Jameses’ complaint pursuant to 11 U.S.C. § 523 to determine dischargeability of their debt.
The Court, having reviewed the Amended Motion, objection, complaint and answer; having heard statements and arguments of counsel; having considered the demeanor and credibility of the witnesses; and having considered the evidence introduced at the hearing, makes the following Findings of Fact and Conclusions of Law (In this opinion the Court refers to matters in the Court’s record. “It is generally accepted that a bankruptcy judge may take judicial notice of the bankruptcy court’s records pursuant to Federal Rule of Evidence 201.” In re Tessier, 333 B.R. 174, 175 n.1 (Bankr. D. Conn. 2005) (citing BARRY RUSSELL, BANKRUPTCY EVIDENCE MANUAL, § 201.5 (2005 ed.)):
The motion to dismiss or convert under 11 U.S.C. §§ 706 and 707 is a contested matter governed by Rule 9014. The § 523 complaint is an adversary proceeding under Rule 4007 and Rule 7001. This Court has jurisdiction over both of these matters under 28 U.S.C. § 1334 and 28 U.S.C. § 157(a). These matters are statutorily and constitutionally core under 28 U.S.C. § 157(b)(2)(A), (I), & (O). This Court therefore has the authority to hear these matters and make a final determination. No party has contested jurisdiction or the Court’s authority to make final determinations.
Note Regarding Structure of the Opinion
The Court will first address the undisputed facts and then move to the law and the disputed facts regarding the Amended Motion to Dismiss or Convert and then the law and disputed facts regarding the dischargeability action. Some of the facts and conclusions are mixed facts and conclusions, which will be noted where appropriate.
Part I: Motion to Dismiss or Convert
Undisputed Findings of Fact (Throughout this opinion, the Court will refer to the Debtor Sharon West as the “Debtor,” and Randy and Sherri James collectively as the “Jameses.” All references to Code sections will be to Title 11 of the United States Code, and all references to Rules will be the Federal Rules of Bankruptcy Procedure, unless otherwise noted.)
The Court finds the following facts undisputed based on the allegations, answers, admissions, and other evidence:
- On April 1, 2013, the Debtor signed an Exclusive Buyer Agency Contract with Chartwell Realty and agent John Strong (“Strong”). The Contract provided that “buyer desires to purchase real property described as follows,” and a box was checked that said “residential,” with a general location of Jackson and Cass County, Missouri, and for an approximate price range of $450,000 to $1,000,000.
- On April 6, 2013, the Debtor signed a residential real estate sale contract (the “Contract”), making an offer to buy from the Jameses their house on 24 acres at 24704 Haines Road, Greenwood, Missouri for the price of $999,500. The purchase price was payable with earnest money in the form of a personal check of $10,000 plus certified funds for the balance of $989,500 on or before the closing date of May 2, 2013.
- The Jameses signed the Contract on April 9, 2013.
- The Contract had no financing contingencies.
- Paragraph 7 of the Contract had a box checked next to the statement: “This is a cash sale. Buyer must provide written verification from a depository of funds on deposit within ___ calendar days (5 days if left blank) which are sufficient to complete the closing on this contract.”
- The Debtor did not tender the $10,000 earnest money at the time she signed the Contract or at any later time.
- The Debtor did not tender written verification from a depository of funds at the time she signed the Contract or at any later time.
- The Debtor did not have the personal income or assets to fund the $10,000 earnest money at the time she signed the Contract or at any later time.
- The Debtor did not have personal income or assets to fund the $989,500 purchase price at the time she signed the Contract or at any later time.
- The Contract also provided that “time was of the essence.”
- The Contract did not close on May 2, 2013.
- The Jameses orally extended the closing date twice but the sale did not close.
- Shortly thereafter, the Jameses sued the Debtor, her boyfriend at the time, Robert Knowles (“Knowles”), Strong, and Chartwell Realty for breach of contract, specific performance, and fraud in Jackson County Circuit Court, Case No. 1316-CV11728.
- The Debtor was served by residential service through Knowles.
- Knowles had lived with the Debtor for 10 years.
- Knowles had been present when she looked at the Property and signed the Contract.
- Knowles had been involved after the Debtor signed the Contract, and had communicated with Strong on the Debtor’s behalf.
- Knowles did not tell the Debtor about the lawsuit.
- Knowles did not tell the Debtor he hired an attorney on their joint behalf to defend them in the lawsuit.
- The attorney never talked to his purported client, the Debtor, and later withdrew from the representation.
- Neither the Debtor nor Knowles answered the discovery or attended the depositions scheduled by the Jameses.
- The Jameses filed a motion against the Debtor and Knowles seeking sanctions under Missouri Rule 61.01, “including the striking of defendant’s pleadings and entering judgment against them.” The Jackson County Circuit Court granted the motion, finding that the Debtor’s and Knowles’ failure to appear or answer discovery was unexcused and had prejudiced the Jameses, and that the “severest of sanctions authorized by Rule 61.01 was justified.”
- The state court struck the Debtor and Knowles’ answer and entered default judgment against them. The state court later conducted an evidentiary hearing on damages, after which the court entered judgment on September 18, 2014 for $139,534.73 in actual and compensatory damages and $999,500 in punitive damages, for a total damage award of $1,139,034.73, accruing interest at the judgment rate of 9%.
- The Debtor did not discover the judgment until she learned from her payroll department that the Jameses had garnished her wages in January 2015.
- The Debtor filed a voluntary petition for Chapter 7 relief on February 17, 2016.
- The Debtor scheduled the Jameses’ judgment on her Schedule E/F in the amount of $1,139,034.73.
- The Debtor scheduled other unsecured debts in the amount of $18,034.88, making her total unsecured debt $1,157,069.61.
- The Debtor also scheduled a car loan of $5,274 secured by a 2010 Hyundai Elantra she valued at $6,000.
- The Debtor does not own any real estate. Her personal property assets as scheduled were otherwise minimal and were all claimed exempt without any objection.
- Debtor is a single woman with no dependents of approximately 60 years of age, who has worked for approximately seven years (by the time of the trial) as a nurse supervisor at a hospital clinic.
- She earns approximately $80,000 per year, or $6,630.33 per month gross.
- On her Schedule I of income, the Debtor deducted the Jameses’ pending garnishment of approximately $1,120.54 per month as a deduction from gross income, resulting in adjusted gross income (after payroll deductions) of $2,995.46.
- On her Schedule J of expenses, the Debtor listed $3,093.70 in monthly expenses, resulting in a Schedule J showing negative monthly income of $98.24.
- After the bankruptcy filing, the Debtor’s lawyers filed a motion in state court seeking to vacate the default judgment.
- After the Jameses filed the original motion to dismiss or convert, the state court entered an order voiding the punitive damages portion of the judgment as a due process violation.
- The Jameses’ amended proof of claim reflects that the balance of their judgment as of the date of filing, after credit for amounts garnished and after vacation of the punitive damages, is $145,117.89.
- The Jameses then filed their amended motion to dismiss or convert.
- In the interim, the Debtor filed an amended Schedule I and J, which removed the garnishment deduction but increased certain food and other expenses, leaving approximately $592 of disposable income.
- The Court will make additional findings of fact and mixed findings where appropriate.
Got it? Good, next time the opinion will dig in to a practical discussion of the Means Test!
About the blogger:
Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, and throughout Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!