Gonsalves v. Gonsalves (In re Gonsalves)

CourtU.S. Bankruptcy Court — District of Maryland
Citation519 B.R. 466
Docket NumberAdversary No. 13–00023.,Bankruptcy No. 12–30233.
PartiesIn re Michael GONSALVES, Debtor. Monica Gonsalves, Plaintiff v. Michael Gonsalves, Defendant.
Decision Date01 October 2014

L. Norman Sanders, Upper Marlboro, MD, for Debtor.


THOMAS J. CATLIOTA, Bankruptcy Judge.

Before the Court is a motion for summary judgment filed by defendant Michael Gonsalves requesting dismissal of plaintiff Monica Gonsalves's claim that a $75,000 monetary award issued in their divorce proceeding should be excepted from discharge under 11 U.S.C. § 523(a)(2)(A). Plaintiff opposes the motion. The issue presented is whether findings made in the divorce proceeding should be given preclusive effect establishing the elements of a claim under § 523(a)(2)(A). For the reasons stated herein, the court concludes that the findings do not establish the elements for a claim of dischargeability under § 523(a)(2)(A). The court will deny the motion and set the matter for trial.

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334, 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

Material Facts Not in Dispute

Plaintiff and defendant were married in 2000 and separated in 2008. Plaintiff filed for divorce on July 14, 2010.

A hearing was held before the Master for Family Division (the “Master”), who issued a report of findings and recommendations in August, 2011 (the “Master's Report”). Docket No. 1–3. The Master considered, among other issues, whether any extant property should be included in the property available for a monetary award. Id. at 4–6. In particular, the Master addressed the proceeds from the sale of a condominium that the parties had purchased in Greenbelt, Maryland. The sale generated net proceeds of $130,985.00. Upon analyzing the evidence concerning the disposition of the funds, the Master found that the proceeds were extant property and available for consideration in a monetary award. The Master found, among other things,

The parties purchased a condo located in Greenbelt, Maryland in 2001. The purchase price of the condominium was $85,000.00. The parties sold the condominium for $220,000.00 in 2006. After expenses, the net proceeds were $130,985.00. The proceeds of the sale of the condo were placed in a joint checking account in Chevy Chase Bank. Thereafter, Plaintiff transferred $50,000 from the joint account at Chevy Chase Bank into a certificate of deposit in a different account at Chevy Chase Bank in the sole name of the Plaintiff. At the request of the Defendant, Plaintiff transferred the $50,000 certificate of deposit in her sole name to an account in Chevy Chase Bank in the sole name of the Defendant. Thereafter Defendant made a series of transactions from the parties' joint account. Defendant transferred money in and out of various accounts titled in his own name and made payments to various relatives. Plaintiff states she was unaware of the transactions. Defendant used $20,000 to pay back a loan to his aunt he states was borrowed in 2001 and another $20,000 was loaned to his brother. Defendant states the loan from his brother was paid back in 2008 and used for household expenses. Defendant claims the loan was paid back and this money also used for family purposes. No documentation was submitted to support any of the expenses claimed in this case. Finally, Defendant withdrew funds for the children's college fund. No further information was provided about the fund. I find $130,985.00 is extant property and should be included as marital property.

Id. at 5.

The Master further found

As indicated above, I find $130,985.00 is extant property and available for consideration in a monetary award. Plaintiff testified and I find the funds were acquired during the course of the marriage and she did not know how the funds were used and the funds were not used for family purposes. Plaintiff testified, when she asked the Defendant about the money she was told to mind her business and the money belonged to him, the Defendant. Defendant testified that the funds were expended for family expenses. Some of Defendant's testimony was not credible.

Id. at 7.

The Master considered the eleven factors set forth in Md.Code Ann., Fam. Law § 8–205(b) in determining whether a monetary award should be made “to adjust the equities of the parties.” Id. The Master recommended that a $75,000 monetary award should be given from the defendant to the plaintiff to adjust the equities. Id. at 8.

The Circuit Court for Prince George's County, Maryland, granted plaintiff a Judgment of Absolute Divorce on April 5, 2012. Docket No. 1–2. The Circuit Court accepted the findings and recommendations of the Master and granted plaintiff the recommended monetary award of $75,000. Id. The Circuit Court ordered defendant to pay the $75,000 within six months, otherwise a money judgment would be entered in favor of plaintiff for any unpaid amount.1

Defendant filed for chapter 13 bankruptcy relief on November 9, 2012, before any part of the award was paid. Plaintiff filed this adversary proceeding on January 8, 2013, seeking to except the marital award from discharge because it resulted from defendant's fraudulent dissipation of marital property. Plaintiff brought her claims under 11 U.S.C. §§ 523(a)(2)(A), (a)(6) and (a)(15). The court previously dismissed plaintiff's claims under §§ 523(a)(6) and (a)(15) and denied defendant's motion to dismiss the complaint on statute of limitations grounds. Docket No. 25.

Conclusions of Law

Federal Rule of Bankruptcy Procedure 7056 provides that Federal Rule of Civil Procedure 56 applies in adversary proceedings. Under Fed.R.Civ.P. 56, the court shall enter summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).

In evaluating a summary judgment motion, a court “must consider whether a reasonable [factfinder] could find in favor of the non-moving party, taking all inferences to be drawn from the underlying facts in the light most favorable to the non-movant.” [In re ] Apex [Express Corp.], 190 F.3d [624] at 633 [ (4th Cir.1999) ]. In doing so, a court is not entitled to either weigh the evidence or make credibility determinations. See Anderson [v. Liberty Lobby, Inc.], 477 U.S. [242] at 255, 106 S.Ct. 2505 [91 L.Ed.2d 202 (1986) ] (“Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge”). If the moving party is unable to demonstrate the absence of any genuine issue of material fact, summary judgment is not proper and must be denied. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Mercantile Peninsula Bank v. French (In re French), 499 F.3d 345, 351–52 (4th Cir.2007).

Plaintiff brings her claim under § 523(a)(2)(A). [A] central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), (citations and internal quotations omitted). However, this fresh start is limited, and [t]he Bankruptcy Code has long prohibited debtors from discharging liabilities incurred on account of their fraud, embodying a basic policy animating the Code of affording relief only to an honest but unfortunate debtor.” Cohen v. de la Cruz, 523 U.S. 213, 217, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998) (citations and internal quotation marks omitted). This policy, codified in § 523(a)(2)(A), provides in pertinent part:

(a) A discharge under section 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual debtor from any debt—
* * * * *
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;

Id. While exceptions to discharge are narrowly interpreted to protect the policy of a fresh start, it is equally important that “perpetrators of fraud are not allowed to hide behind the skirts of the Bankruptcy Code.” Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 130 (4th Cir.1999).

The Fourth Circuit has considered § 523(a)(2)(A) on several occasions. It has held that to prevail on a § 523(a)(2)(A) claim, “a plaintiff must prove four elements: (1) a fraudulent misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the plaintiff; and (4) plaintiff's justifiable reliance on the misrepresentation.” In re Biondo, 180 F.3d at 134. Accord, Nunnery v. Rountree, 478 F.3d 215, 218 (4th Cir.2007). To prevail on a claim that a debt should be excepted from discharge, a creditor must prove all elements of § 523(a)(2) by a preponderance of the evidence. Grogan, 498 U.S. at 291, 111 S.Ct. 654.

Plaintiff contends that the Biondo test is not the exclusive standard for establishing a § 523(a)(2)(A) claim. She argues that § 523(a)(2) excepts from discharge debts that arise from “actual fraud,” and therefore a § 523(a)(2) claim can be made without the need for a fraudulent misrepresentation or creditor reliance. She asks the court to adopt the test for actual fraud set forth in McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir.2000). There the court held that a plaintiff can establish a § 523(a)(2)(A) claim by proving “any deceit, artifice, trick, or design involving direct and active operation of the mind, used...

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    ...law with respect to collateral estoppel because the judgments at issue were rendered by Illinois state courts. See In re Gonsalves , 519 B.R. 466, 473–74 (Bankr. D. Md. 2014) ("Determinations regarding the preclusive effect of state court judgments are made using the law of the state in whi......

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