(7th Cir. Apr. 2, 2015)
The Seventh Circuit affirms the bankruptcy court’s decision that a debt found nondischargeable in an agent’s bankruptcy is not necessarily nondischargeable in the principal’s bankruptcy. The debtor’s loan broker had obtained a $250,000 loan for the debtor from the broker’s friend by misrepresenting that a bank had approved a $1 million line of credit for the debtor which would be used to pay back the loan in a few weeks. The debtor was not aware of the misrepresentation. The loan broker and the debtor gave promissory notes to the lender. Both the broker and the debtor filed bankruptcies. The debt was held nondischargeable in the broker’s bankruptcy. The lender argued in the debtor’s bankruptcy that because the debt was obtained by fraud, it could not be discharged by the debtor, even if he had no knowledge of the fraud. The court holds that, absent any showing that the debtor knew or should have known of the fraud, the debt was properly discharged in the debtor’s bankruptcy. Opinion below.
2015-04-02 – sullivan v glenn
Author: Matt Lindblom
(Bankr. W.D. Ky. Mar. 25, 2015)
The bankruptcy court grants the plaintiff’s motion for summary judgment in this nondischargeability action. The plaintiff obtained a jury verdict against the debtor in state court based on a claim of fraud in selling to the plaintiff worthless stock. The bankruptcy court holds that the state court judgment precludes the debtor from defending against the plaintiff’s allegations under § 523(a)(2)(A). Opinion below.
2015-03-25 – richardson v caswell
Author: Matt Lindblom
(S.D. Ind. Feb. 27, 2015)
The district court affirms the bankruptcy court’s decision dismissing the creditor’s nondischargeability claim. The creditor had paid child support payments to the debtor, his ex-wife, prepetition. He sought reimbursement of payments made after his daughter stopped attending school, and the debtor then filed bankruptcy seeking to discharge the claim. The creditor sought to declare the debt nondischargeable under § 523(a)(2)(A), asserting that the payments were obtained under false pretenses. The debtor and creditor had little to no communications during the relevant time period, and the creditor had not been made aware of the fact that his daughter had stopped attending school. The court holds that the bankruptcy court may have erred in requiring the creditor to put forward evidence of a false statement by the debtor (the Seventh Circuit does not necessarily require such a showing), but it was a harmless error because the debtor failed to prove the debtor had the requisite fraudulent intent in accepting the payments. The bankruptcy court’s decision on that point was not clearly erroneous. Opinion below.
2015-02-27 – evans v evans
Author: Matt Lindblom
(S.D. Ind. Jan. 14, 2015)
The district court affirms the bankruptcy court’s nondischargeability judgment in the amount of $3 million. The debtor obtained $3 million from a business contact to invest in certain stock. The debtor proceeded to use the funds for other purposes until the investor requested return of the funds, at which time the funds had been spent or lost by the debtor on other ventures. The debtor argued on appeal that if the funds had been invested per the agreement, there would have been a loss based on the drop in value of the stock over the time period in question. Thus, the debtor argued, that drop in value should reduce the amount of the judgment. The court holds that the bankruptcy court properly held that the full $3 million was obtained through fraud and that while the stock may have dropped in value the investor never had an opportunity to take the risk because the debtor failed to comply with the agreement. Opinion below.
2015-01-14 – yeley v forsythe
Author: Matt Lindblom
(Bankr. N.D. Ind. Nov. 6, 2014)
The bankruptcy court denies the debtor’s motion to dismiss the complaint seeking to declare a particular debt nondischargeable under 11 U.S.C. § 523(a)(2) and denial of the discharge generally under § 727(a)(2). The plaintiff alleged that the debtor misrepresented his ownership interest in certain property. The debtor argued this was a statement of financial condition and that because it was not in writing it could not support a denial of discharge under § 523(a)(2). The bankruptcy court holds that statements related to an interest in property are not statements of financial condition, and the alleged misrepresentation was sufficient to state a claim under § 523(a)(2). The plaintiff also alleged the debtor was the alter ego of his corporation, and that the debtor caused the corporation to transfer property without consideration to another entity. The debtor argued the plaintiff failed to state a claim under § 727(a)(2) because the property transferred was not property of the debtor. The bankruptcy court held that a claim was properly stated because the plaintiff alleged the corporation was the alter ego of the debtor and thus the property was alleged to be property of the debtor. Opinion below.
2014-11-06 – wells v lorenz
(7th Cir. Dec. 23, 2014)
The Seventh Circuit affirms the district court’s reversal of the bankruptcy court’s order discharging the debtor’s obligation to pay costs pursuant to an arbitration award. The creditor sued the debtor in state court for fraud and negligence in managing a trust, of which the creditor was trustee. The parties then agreed to arbitrate, but the debtor filed a chapter 7 petition prior to commencement of the arbitration. After the creditor filed the nondischargeability action, the parties again agreed to arbitrate the negligence and fraud claims. All but the fraud claim was settled, and the arbitration panel then ordered that the debtor pay the arbitration costs, rather than deciding the fraud claim. The debtor refused to pay the costs, and the creditor sought an order from the bankruptcy court directing him to do so. The bankruptcy court declined, and the district court reversed. The debtor argued that the arbitration award for costs was a prepetition debt that should be discharged because it only arose as a result of the prepetition claims. The Seventh Circuit disagrees. The debtor chose to arbitrate post petition and thus assumed the risk that he would be liable for the costs. Further, the arbitration panel implied in its award that the debtor had committed fraud, and thus the prepetition debt would not likely have been dischargeable. Opinion below.
2014-12-23 – in re ruben
(7th Cir. Nov. 19, 2014)
The Seventh Circuit holds the debtor’s discharge should be denied, affirming the district court’s reversal of the bankruptcy court’s ruling in favor of the debtor in the nondischargebility action. The Chapter 7 debtor had omitted certain creditors from her Schedule F. She testified at trial that she had done so because she intended to pay those creditors (friends and family members) on their claims after the bankruptcy. The creditor-plaintiff sought denial of her discharge under § 727(a)(4)(A), alleging the omissions (and other discrepancies in her schedules) constituted her knowingly and fraudulently making a false oath or account in the case. The Seventh Circuit held that this satisfied the statute, even though her fraudulent acts were not to her pecuniary benefit. Opinion below.
2014-11-19 – skavysh v katsman
(N.D. Ind Nov. 14, 2014)
The district court affirms the bankruptcy court’s decision to revoke the debtor’s discharge pursuant to § 727(d)(1), (2), and (3). The debtor obtained a tax refund and transferred the bulk of it ($6,400) from her bank account to a relative’s account in the days leading up to the filing of her chapter 7 petition. The refund and transfer were not disclosed to the trustee. The trustee repeatedly requested copies of her bank account statement for the three months leading up to the bankruptcy, among other documents, but the debtor refused to produce the documents despite entry of an agreed order compelling their production more than a year after the 341 meeting. The documents were eventually produced before trial. The district court held the bankruptcy court’s order revoking the discharge was appropriate—the debtor failed to comply with a court order, fraudulently obtained her discharge, and fraudulently failed to report property of the estate. Opinion below.
2014-11-14 – roberts v kleven
(Bankr. N.D. Ind. Oct. 10, 2014)
The bankruptcy court grants the bank’s motion for summary judgment and dismisses the debtors’ adversary complaint against it. Prepetition, the bank had foreclosed on the debtors’ mortgage in state court. The debtors’ complaint alleged that the bank knew it had an invalid mortgage when it sought the relief in state court, which constituted fraud and an abuse of process. The court held that the Rooker-Feldman doctrine barred the complaint. That doctrine prohibits a lower federal court from reviewing a state court’s final judgment. Because the state court enforced the mortgage in favor of the bank, the bankruptcy court could not reconsider whether the mortgage was valid. Opinion below.
2014-10-10 – in re kotsopoulos
(Seventh Circuit July 2, 2014)
The Seventh Circuit affirms the bankruptcy court’s order granting the creditor’s motion for judgment on the pleadings in the nondischargeability action. The debtor’s fraudulent intent was established in the prior state court action, in which he was held liable for fraud and slander of title. Thus, the debtor was collaterally estopped from raising the issue of his fraudulent intent in the nondischargeability action. Opinion below.
2014-07-02 – gambino v koonce