Bd. of Educ. of Chi. v. Monarrez (In re Monarrez)

• Decision Date: 06 August 2018
• Docket Number: Adversary No. 16ap00004,Case No. 15bk31790
• Citation: 588 B.R. 838
• Parties: IN RE: Diana Marie MONARREZ, Debtor. The Board of Education of the City of Chicago, Plaintiff, v. Diana Marie Monarrez, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

588 B.R. 838

IN RE: Diana Marie MONARREZ, Debtor.

The Board of Education of the City of Chicago, Plaintiff,

v.Diana Marie Monarrez, Defendant.

Case No. 15bk31790

Adversary No. 16ap00004

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed August 6, 2018

Attorneys for the Board of Education: David A. Bonomi and Carlyle J. Sutton, Linebarger Goggan Blair & Sampson, LLP, Chicago, IL, Jeffrey C. Dan, Crane, Simon, Clar & Dan, Chicago, IL

Attorney for Diana Marie Monarrez: Robert V. Schaller, Schaller Law Firm, Oak Brook, IL

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court is the Adversary Complaint [Adv. Dkt. No. 1] (the "Complaint"), filed by the Board of Education of the City of Chicago (the "Plaintiff" or the "Board"), seeking a finding that debt allegedly incurred by Diana Marie Monarrez (the "Debtor") is nondischargeable pursuant to section 523(a)(2) of title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). Prior to the commencement of her bankruptcy case, the Debtor enrolled three of her children in Chicago Public Schools, where they attended as Chicago residents tuition-free for several years. The debt was allegedly incurred when the Debtor was determined by individuals working for the Board to have been residing outside of the City of Chicago while her children were enrolled in school. As Chicago residency is a condition of attending Chicago Public Schools tuition-free, upon determining the Debtor to be a nonresident, individuals under the Board's employ determined that the Debtor owed a debt of $172,087.93 to the Plaintiff in unpaid tuition.

For the reasons stated herein, the court finds that the Plaintiff failed to carry its burden to demonstrate that collateral estoppel applies, or to prove by a preponderance of the evidence that the Debtor was not a resident of the City of Chicago from 2006 to 2013. As a result, there is no debt owed to the Plaintiff and no cause of action under section 523(a)(2)(A) of the Bankruptcy Code. Even had the Plaintiff carried its burden as to the existence of a debt, the Plaintiff failed to show by a preponderance of the evidence that the Debtor intentionally incurred the debt through false pretenses, false representation, or actual fraud. As a result, the Debtor will not be denied a discharge of the alleged debt.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under the Bankruptcy Code. 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

In addition to the foregoing considerations, a bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or where the matter is either one that falls within the public rights exception, id ., or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See e.g. , Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

The Complaint is based on section 523(a)(2)(A) of the Bankruptcy Code, which provides an exception to discharge for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud. Accordingly, the matter is expressly a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). In accordance with Stern , 564 U.S. at 499, 131 S.Ct. 2594, the bankruptcy court has authority to decide matters of nondischargeability, as the dischargeability of a debt is necessarily a matter that would stem from the bankruptcy itself. "A bankruptcy judge has constitutional authority to enter final judgment as to dischargeability." Parkway Bank & Tr. v. Casali (In re Casali ), 526 B.R. 271, 274 (Bankr. N.D. Ill. 2015) (Schmetterer, J.); see also Wan Ho Indus. Co., Ltd. v. Hemken (In re Hemken ), 513 B.R. 344, 350 (Bankr. E.D. Wis. 2014). Further, each of the parties has either expressly or impliedly consented to this court's exercising authority over this matter.

As a result, the court has jurisdiction, statutory authority and constitutional authority to hear and enter final judgment on this matter.

BACKGROUND

This case turns on the location of the Debtor's residence from 2006 to 2013. The Debtor grew up in the Pilsen neighborhood of Chicago, in a home she refers to as her "birth home." When she was sixteen and expecting her first child, the Debtor moved into a property (the "Chicago Property") owned by her husband's parents, also in the Pilsen neighborhood. There she lived with her daughters, her husband, and her husband's family until 1999.

In 1999, the Debtor moved with her mother, husband and two children to Mamou, Louisiana. There she lived for two years, working as a school teacher, until better wages enticed her to move back to Chicago in 2001. Upon relocating to Chicago, the Debtor moved back into the Chicago Property, where she claims she continued to reside with her children through 2013. The Debtor appreciated the assistance in child care that she received from her husband's parents and wanted her children to continue to be exposed to the Spanish language at home, an advantage the Chicago Property provided.

Upon moving back to Chicago in 2001, the Debtor obtained a position as a teacher in the Chicago Public Schools. The Debtor testified that she was aware at the time she accepted the position that teachers in the Chicago Public School system are required to reside within the City of Chicago as a term of employment. When she later enrolled three of her children in the Chicago Public School system, she was aware that in order for a student to attend the Chicago Public Schools tuition-free, that student must reside within the City of Chicago.

In 2004, the Debtor, along with her husband, Mr. Monarrez, purchased a home from her sister located in Burbank, Illinois (the "Burbank Property"). The Debtor's sister had filed for bankruptcy and was facing foreclosure on her home. According to the Debtor, the Debtor purchased the Burbank Property in order to help her sister and to provide a location outside of Chicago in which her husband could reside, as the Debtor and Mr. Monarrez had decided to live separately.

The Debtor testified that, due to Mr. Monarrez's ongoing legal and medical difficulties, she believed that the best arrangement for her family would be for Mr. Monarrez to live in the Burbank Property while the Debtor and her children continued to reside in the Chicago Property. The Debtor regularly brought her children to visit their father in Burbank and sometimes slept over at the Burbank Property. The frequency of visits to the Burbank Property fluctuated with the severity of Mr. Monarrez's issues, but for the most part the Debtor maintained a routine of visiting Mr. Monarrez with her children in the later part of the week about every or every other week, and then returning to the Chicago Property on Sunday in preparation for the upcoming school week. This pattern continued until 2009.

In June 2009, while the Debtor and her children were present, the Chicago Police Department conducted a raid of the Burbank Property. The Debtor's relationship with her husband deteriorated further at that point and the Debtor ceased bringing her children to visit Mr. Monarrez. The Debtor testified that she would visit her husband alone, but that she was uncomfortable bringing her children. The Debtor and her children continued to reside in the Chicago Property with Mr. Monarrez's family at this time. As Mr. Monarrez's condition improved, the Debtor and her children resumed visiting Mr. Monarrez in Burbank, spending about four days a month in the Burbank Property. By 2013, the frequency and length of the family's visits to Burbank had increased significantly.

In 2013, the Board received a tip alleging that the Debtor did not reside in the City of Chicago. The Board directed its Office of the Inspector General (the "OIG") to investigate, which investigation consisted of six observations of the Burbank Property. During these observation periods, investigators from the OIG parked their...