2013 Chief Judge Burns - Opinions
Chief Judge Gloria Burns -- Opinions signed in 2013
Plaintiffs sought imposition of sanctions pursuant to Bankruptcy Rule 9037 in the form of striking Debtor’s Answer and Entering Default Judgment on their §523(a)(4) claim against Debtor. Prior to the Debtor’s bankruptcy filing, a state court judgment had been entered which specifically imposed a constructive trust over all life insurance proceeds received by the Debtor on account of her husband’s death and further ordered her to turn over $277,600 to the Plaintiffs, the deceased’s adult sons. Weeks after the state court judgment was entered, the Debtor received over $195,000 in life insurance proceeds and failed to turnover said funds to Plaintiffs and made substantial transfers to undisclosed locations. In the course of the adversary proceeding, Plaintiffs sought discovery related to the monies that were spent by Plaintiff post-judgment. The Debtor was dilatory throughout all aspects of the adversary proceeding, for example, by filing her answer late necessitating vacation of default, by failing to abide by discovery orders, by failing to produce discovery, and by requesting late adjournments. Plaintiffs’ motion for summary judgment was denied by the court because the Plaintiffs were unable to produce sufficient evidence pertaining to the disposition of the funds post-judgment. Plaintiffs pointed out that the Debtor was the cause of this deficiency and her failure to produce discovery was solely within her control. Thereafter, the Court directed the Debtor to produce the discovery as requested or else suffer the consequences of Rule 37 sanctions, including striking answer and entering default. Debtor failed to produce the requested discovery and Plaintiffs filed a renewed motion for sanctions, seeking to strike answer and enter default. After an extensive review of the six Poulis factors, the Court determined that such sanctions were appropriate in this case. Poulis v. State Farm Fire and Casualty Co., 747 F.2d 863 (3d Cir. 1984).
Plaintiff sought to have the debt owed to her by debtor, a real estate developer, deemed non-dischargeable pursuant to §523(a)(2)(A). Plaintiff sold her “shore” motel to the debtor in 2004 and agreed to reinvest/loan $400,000 of the sale proceeds back into debtor’s business venture, which aimed to purchase other shore properties and develop them for resale. The Plaintiff admitted at trial that debtor made an effort to repay her consistent with their agreement, but that he eventually was unable to make any further payment. When asked why she continued to partially discharge the mortgage which served as the only security for her investment, eventually rendering her loan/investment unsecured, the plaintiff conceded that she was just trying to “help the debtor out.” The court ultimately found that the plaintiff failed to allege any of the elements of a §523(a)(2)(A) fraud claim. The plaintiff could not point to any misrepresentations made by the debtor and also noted that had any such representations been alleged, the element of reasonable reliance was found wanting. The court found it significant that, while the plaintiff proceeded pro se in the adversary, she was represented by counsel at all times during the underlying transactions. The court concluded by noting that the unfortunate truth was that the real estate market collapse left the plaintiff, debtor and other similarly situated parties with tremendous financial losses. However, plaintiff in this case failed to prove by a preponderance of the evidence that her claim against the Debtor was procured by fraud.
Pending before the Court was a motion by Advanced Telecommunications Network, Inc., (“ATN”), a judgment creditor of debtor’s husband, for relief from the automatic stay, or in the alternative, to dismiss debtor’s bankruptcy case for bad faith filing. By way of background, ATN obtained its $6 million judgment against debtor’s husband in or around 2009 on account of a constructively fraudulent transfer which occurred in 1999 (the “ATN Litigation”). ATN had no judgment against the debtor, Stacy Allen, and, as it appeared from the record before the court, the debtor did not participate in any of the nearly decade long ATN Litigation against debtor’s husband.
ATN asserted several legal theories in support of its motion, including the Princess Lida Doctrine and application of non-party issue preclusion or res judicata. These arguments, and others espoused by the movants, rested upon ATN’s assertion that due to the “close relationship” between the debtor and her spouse, any and all orders entered in the ATN litigation against debtor’s husband were binding on her as a “privy” or a “party in privity” with her husband. The court first found that the movant failed to establish that the debtor was a privy or party in privity with her husband, solely as a result of their spousal relationship. In addition, the court found that the Princess Lida Doctrine was inapplicable to the debtor’s case herein, because the judgment entered in the ATN Litigation was in personam in nature and not in rem or quasi in rem.
In sum, aside from ATN’s allegations regarding the debtor’s husband’s conduct in the ATN litigation and the debtor’s husband’s conduct in his own bankruptcy, ATN offered nothing by way of evidence to show that debtor in the instant case, Stacy Allen, acted in bad faith in filing her petition or that cause existed to grant ATN relief from the automatic stay.