Plaintiff reopened the bankruptcy cases of defendants and filed separate complaints against each defendant seeking a declaratory judgment on the dischargeability of particular debts for postpetition extensions of credit based on a guaranty signed prepetition. The Court concluded that the chapter 7 discharge orders did not discharge liability under the guaranty for the postpetition extensions of credit.
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The summaries on this website are summaries of the opinions issued by the judges of the Bankruptcy Court for the Western District of Virginia from October 2004 to date. The opinions may be searched by year, judge, category and chapter. For a more detailed search, enter a keyword in the search box above. This opinion bank, however, is not an exhaustive list of opinions issued by the judges of the Western District. These summaries are not intended to replace other research methods, but may be used as a starting point for your research. These summaries do not contain information as to whether an opinion has been published, appealed or the disposition of any such appeal, or otherwise overruled or affected by subsequent case law or statute. These summaries have been prepared for the convenience of the researcher and in no way constitute an interpretation by the Court of the opinion summarized. Please rely on the opinion not the summary. Please contact Judge Connelly's chambers or Judge Black's chambers regarding any questions or errors.
The United States Trustee filed adversary proceedings against certain parties involved in a multi-jurisdictional law practice seeking disgorgement of attorney's fees, cancellation of fee agreements between the debtors and their attorneys, an injunction against the parties enjoining them from violating 11 U.S.C. § 526, and the imposition of civil penalties and sanctions against the parties. While the Court expressed concern about the way the multi-jurisdictional law firm conducted its business and the lack of proper oversight of its employees, the Court found the Rule 2016(b) statements were not actionable on the grounds the local partners were not sharing compensation with members of the same law firm. However, the Court found the law firm was an active participant in promoting and participating in an improper scheme called a "New Car Custody Program" to have consumers' vehicles towed out of state to facilitate the payment of the law firm's attorney's fees and filing fees by the towing company. The Court ordered disgorgement of attorney's fees received under 11 U.S.C. § 329, with the funds to be paid to the debtor's estates. Further, under its inherent authority pursuant to 11 U.S.C. § 105(a), the Court sanctioned the "local partner" attorneys by revoking their privileges to conduct and file cases in the Western District of Virginia for one year and eighteen months, respectively, and also monetarily sanctioned them $5,000.00 each. The Court also separately fined the law firm and certain of its members and affiliated persons the sum of $250,000 and revoked the law firm's privilege to conduct and file cases in this District for five years. The managing partner was fined $50,000 personally. The Court further ordered the towing defendant in default to, among other things, disgorge all funds received from residents of this district in connection with the vehicle recovery program.
The Court considered whether to reopen a closed chapter 7 no-asset bankruptcy case to allow the debtor to amend his schedules to add two creditors, whom the debtor had not scheduled or noticed during his case. The Court noted that the Bankruptcy Code, in particular sections 523 and 727, addresses the effect of the entry of a discharge order on unscheduled debts. The Court found that the debtor had not met his burden to prove compelling circumstances to reopen for the purpose of scheduling debts he did not previously disclose on his bankruptcy filings. Because reopening to amend the schedules would not alter the effect of sections 523 and 727, the Court determined that reopening would be futile and a waste of judicial resources. The Court denied the motion to reopen.
The Debtor filed an adversary proceeding against the U.S. Department of Defense and the U.S. Department of the Treasury seeking a declaration that her debt to the Department of Defense under the ROTC/SOAR program is dischargeable under 11 U.S.C. § 727 or alternatively that any such debt excepted from discharge under 11 U.S.C. § 523(a)(8) constitutes an undue hardship on the Debtor and should be discharged. The Debtor also asserted that the Defendants’ actions were arbitrary and capricious and that no reason exists for disparate treatment of the Debtor and sought declaratory judgment that the Defendants’ decision to recoup certain expenses because of her disenrollment from the Air Force based solely on her sexual preference is in violation of 5 U.S.C. §706(2) and her right to due process and equal protection under the Fifth Amendment of the Constitution. In response, the Defendants filed a motion to dismiss pursuant to Rule 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. The Court granted the Defendants’ Motion to Dismiss in part and denied it in part, denied the Debtor’s Motion to Amend the Complaint as futile, but allowed the Debtor to amend her complaint as to whether the debt can be discharged as an undue hardship under the Brunner v. N.Y. State Higher Educ. Servcs. Corp. test.
The Debtors filed an adversary proceeding pursuant to 11 U.S.C. §§ 542(a) and 547(b) seeking to recover a federal tax refund the United States Department of the Treasury setoff prepetition within 90 days of their petition date in partial satisfaction of a foreclosure deficiency that the Debtors owed to HUD. HUD contends that the setoff is not recoverable under either section, nor is it recoverable under 11 U.S.C. § 553, the provision of the Bankruptcy Code governing setoffs. The Court held that the validity of the setoff had not been called into question by any allegation of the Complaint and a cause of action to recover it is not available under Section 547(b). The Court also held that Section 553(b)(1) does not bar the creation of an insufficiency during the 90 day prepetition period, but permits the trustee to recover the setoff amount only if the insufficiency is less at the time of set off than when it arose. In the instant case, there was no reduction in the insufficiency, therefore section 553(b) does not allow recovery by the trustee. As HUD did not improve its position within 90 days preceding the filing of the petition, the Court granted HUD’s motion for summary judgment and dismissed the adversary proceeding.
Prior to trial, the Court granted the Defendants’ motion to file confidential exhibits under seal temporarily. Upon conclusion of the trial, the parties were directed to submit a brief to justify the continued sealing of exhibits and an explanation as to why alternatives to sealing would not provide sufficient protections. The Defendants’ motion for continued sealing of exhibits is now before the Court. While the presumption is that all documents filed in a bankruptcy case are accessible to the public; under 11 U.S.C. § 107(b), the Court may protect an entity with respect to a trade secret or confidential research, development or commercial information and defamatory or scandalous material. The Court held that the seal would be maintained pending its decision on the merits of this case on scripts and training materials for employees, partner handbooks, tax returns and financial information, but not on partner newsletters that contain publicly available information. The Defendants also requested that they be allowed to withdraw from the public record any proposed trial exhibits previously filed under seal that were not admitted into evidence. The Court kept those documents under seal upon final resolution of the case, will not consider the documents in its ruling on the merits and will permit the Defendants to withdraw the documents upon final resolution of the case.
The Debtor filed a complaint against HUD and several other defendants seeking to determine the validity, priority or extent or her interest in a residential leasehold and its federal subsidy. The Defendants filed a Motion to Abstain and Motions to Dismiss for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). After a hearing, the Court held that the Adversary Proceeding did not arise under the Bankruptcy Code as it was based on state law breach of contract claims and claims against HUD that arise under the Administrative Procedures Act. Therefore, the matter was not a core proceeding within the scope of 28 U.S.C. § 157. The Court found that the litigation could alter the Debtor’s “rights, liabilities, options or freedom of action”, but nothing that occurs in the litigation would “impact the handling and administration of the bankruptcy estate.” As the estate has been administered and the Trustee filed his Report of No Distribution, there are no assets of the Debtor to be administered or creditors to be paid. As the Adversary Proceeding will have no effect upon the estate whatsoever, the Court held that the test for “related to” jurisdiction was not met and dismissed the complaint for lack of subject matter jurisdiction.
Consumer debtors filed complaints, asserting two counts against Midland Funding, LLC, and Midland Credit Management, Inc. (collectively, “Midland”). In Count I, the plaintiffs alleged Midland violated the Fair Debt Collection Practices Act, specifically sections 1692e and 1692f. In Count II, the plaintiffs alleged Midland violated Federal Rule of Bankruptcy Procedure 3001. Midland moved to dismiss the complaints for failure to state claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court granted in part and denied in part the motion to dismiss. The motion to dismiss was denied as to Count I. The motion was granted without prejudice as to Count II, Count II of plaintiffs’ complaint was dismissed without prejudice, and plaintiffs were granted leave to amend Count II of the complaint.
The Chapter 13 Trustee objected to the Debtors’ claim of exemptions under Virginia law. The Debtors live close to the Virginia-Tennessee state line and have taken steps toward changing their residence from Virginia to Tennessee, including buying a house in Tennessee, but have not physically moved. The question before the Court is whether buying a residence in another state with the intention to move is enough to change one’s domicile. The Court held that, under the circumstances of this case, it was not. In this case, the Debtors vote in Virginia, register their cars in Virginia, have Virginia driver’s licenses and attend church and work in Virginia. As the Debtors can only maintain one domicile, that domicile is Virginia and the court overruled the Trustee’s objection.
Creditor filed adversary proceeding seeking a determination that certain property damages caused by the Debtor to a rental mobile home were non-dischargeable under 11 U.S.C. § 523(a)(6) as debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.” The Court found that the majority of the damages to the mobile home were a consequence of slovenly living habits, negligence and deplorable housekeeping, but did not rise to the level of malicious or willful action. However, certain damages related to the destruction of a bathroom vanity and ceiling fan were held to be non-dischargeable because the Debtor knew “with objective substantial certainty” his actions would injure the creditor’s property.