In re Aubry

• Decision Date: 22 September 2016
• Docket Number: Case No. 2:13-bk-25295-RK
• Citation: 558 B.R. 333
• Parties: In re: Divine Meda Aubry, Debtor.
• Court: U.S. Bankruptcy Court — Central District of California

558 B.R. 333

In re: Divine Meda Aubry, Debtor.

Case No. 2:13-bk-25295-RK

United States Bankruptcy Court, C.D. California, Los Angeles Division .

Signed September 22, 2016

Michael F. Chekian, Los Angeles, CA, for Debtor.

MEMORANDUM DECISION AFTER TRIAL ON CONTESTED MATTER OF TRUSTEE'S MOTION FOR ORDER: (1) DISALLOWING DEBTOR'S AMENDED EXEMPTION IN STRUCTURED SETTLEMENT ANNUITY AND PROCEEDS THEREOF; OR (2) IN THE ALTERNATIVE, IF THE COURT DECIDES TO ALLOW SUCH AMENDED EXEMPTION, CONDITIONING ALLOWANCE OF AMENDED EXEMPTION ON PAYMENTS OF FEES OF TRUSTEE AND HIS GENERAL COUNSEL

Robert Kwan

, United States Bankruptcy Judge

Pending before the court is the Motion of the Chapter 7 Trustee Jason M. Rund (“Trustee”) for Order: (1) Disallowing Debtor's Amended Exemption In Structured Settlement Annuity and Proceeds Thereof; or (2) In the Alternative, if the Court Decides to Allow Such Amended Exemption, Conditioning Allowance of Amended Exemption On Payments of Fees of Trustee and His General Counsel (“Motion”). ECF (Electronic Case Filing or Docket Number) 45. Debtor Divine M. Aubry (“Debtor”) filed an opposition to the Motion, ECF 47, and Trustee filed a reply thereto, ECF 48. Trustee then filed evidentiary objections to Debtor's declaration, which was attached to Debtor's opposition, ECF 49, and a supplemental reply to Debtor's opposition, ECF 50.

The Motion initially came on for hearing before the undersigned United States Bankruptcy Judge on June 30, 2015. At this hearing, the court determined that because the Motion raised disputed factual and legal issues regarding Debtor's good or bad faith to warrant application of equitable estoppel, the Motion would be treated as a contested matter under Rule 9014 of the Federal Rules of Bankruptcy Procedure

. Thereupon, the court set a pre-trial conference for September 8, 2015, and at the pre-trial conference, the court set trial dates for November 12 and 13, 2015, which were then continued by stipulation and order to January 7 and 8, 2016. ECF 55 and 57. On November 17, 2015, the parties filed and lodged a joint pretrial stipulation, ECF 69 and 74, which the court approved by order entered on January 6, 2016, ECF 75. The court then vacated the January 7, 2016 trial date, ECF 70, and conducted the trial of this contested matter on January 8, 2016.

At trial, Matthew F. Kennedy of the law firm of Robert A. Hessling, APC, appeared on behalf of Trustee, and Michael F. Chekian, Attorney at Law, appeared on behalf of Debtor. Following trial, the court directed the parties to lodge proposed findings of fact and conclusions of law. On February 17, 2016, Trustee lodged his proposed findings of fact and conclusions of law, ECF 77, and on March 18, 2016, Debtor lodged her proposed findings of fact and conclusions of law, ECF 78. On March 31, 2016, Trustee filed objections to Debtor's proposed findings of fact and conclusions of law. ECF 79. Thereafter, the court took the matter under submission.

Having considered the moving and opposing papers, the exhibits and declarations attached therein, the undisputed facts set forth in their joint pretrial stipulation, ECF 69, approved by order entered on January 6, 2016, ECF 75, the evidence admitted at trial, the oral and written arguments of the parties, and the record before the court, the court makes the following findings of fact and conclusions of law pursuant to Rules 7052

and 9014 of the Federal Rules of Bankruptcy Procedure and Rule 52 of the Federal Rules of Civil Procedure. The court adopts as its findings of fact the Admitted Facts Nos. 1–55 at pages 1 through 8 of the Pretrial Stipulation, ECF 69, filed on November 17, 2015, as approved by order of this court on January 6, 2016, ECF 75, which are otherwise incorporated by reference herein to the extent not otherwise expressly referred to below. Any finding of fact that should be properly characterized as a conclusion of law should be considered as such, and any conclusion of law that should be properly characterized as a finding of fact should be considered as such.

I. BACKGROUND

A. Debtor's Background, Pre-Bankruptcy Dealings with Zwerdling, and Debtor's Annuity

Debtor has a high school diploma and three and one-half years of college where she studied business administration with an emphasis in accounting but did not receive a degree. Trial Testimony of Divine Meda Aubry , January 8, 2016 at 11:28 a.m. Debtor worked in accounting for many years, as an office manager for an insurance agency, and later became a pharmaceutical sales representative. Id. , January 8, 2016 at 11:29 a.m. In about 2007, Debtor started a small business, Divine Blessings, a yoga-inspired clothing line. Id.

In or about late 2011 or early 2012, Debtor befriended creditor Helene Barbara Zwerdling (“Zwerdling”) at the Agape International Spiritual Center in Culver City, California, where they both attended services. Pretrial Stipulation, ECF 69, at 3, ¶ 9. Debtor often conducted trade shows at the Agape International Spiritual Center where she displayed and sold Divine Blessings's clothing products. Id. at 3, ¶ 10.

During 2012, Zwerdling's relationship with Debtor grew to the point where they talked on nearly a daily basis, and in or about September 2012, Debtor requested that Zwerdling loan Debtor the sum of $1,356 to pay for the fees associated with a trade show at the Long Beach Convention and Entertainment Center. Pretrial Stipulation at 3, ¶¶ 11 and 13.

Pursuant to an oral agreement, Zwerdling loaned Debtor the requested $1,356 for the Long Beach trade show, which Debtor repaid several weeks later. Pretrial Stipulation at 4, ¶ 14. Pursuant to a separate written loan agreement, Zwerdling loaned Debtor an additional $2,500. Id. at 4, ¶ 15. In connection with the written loan agreement, Debtor told Zwerdling that Debtor had an annuity (the “Annuity”), that the annual Annuity payment would become due and payable to Debtor in mid-December 2012, and that Debtor would repay the loan out of the Annuity proceeds in late December 2012, which Debtor subsequently did. Id. at 4, ¶¶ 16 and 18. The Annuity was payable in 31 annual payments of $8,381, beginning December 19, 2008 and continuing through and including December 19, 2038. Id. at 6, ¶ 39. Thus, Debtor was aware that she owned an interest in the Annuity at least as of December 2012 and before she met with and retained Lisa F. Collins-Williams as her bankruptcy attorney to file her bankruptcy petition in this case in June 2013 as discussed below.

In December 2012, Zwerdling loaned Debtor an additional $36,000 pursuant to a separate, written loan agreement, which required that Debtor make minimum payments of $8,000 per year with the payments to commence on January 10, 2013 and continue on the tenth day of each successive month. Pretrial Stipulation at 4, ¶ 19; Trustee's Trial Exhibit D, Loan Agreement between Debtor and Helene Barbara Zwerdling. The total minimum loan payment of $8,000 per year approximated the annual Annuity payment collected by Debtor each December. Pretrial Stipulation at 4, ¶ 20.

B. Debtor's Dealings with Her Bankruptcy Counsel, Lisa F. Collins-Williams, Initial Petition Documents and 341(a) Meeting of Creditors

Fearing that a creditor, Debtor's landlord, might levy one of her bank accounts, on June 3, 2013, Debtor went to the Law Offices of Lisa F. Collins-Williams to obtain legal assistance. See Pretrial Stipulation at 5, ¶¶ 29 and 30; Trial Testimony of Divine Meda Aubry , January 8, 2016 at 11. While there, Debtor completed a bankruptcy questionnaire, Debtor's Trial Exhibit 2 , Bankruptcy Questionnaire, and met with Attorney Lisa F. Collins-Williams (“Collins-Williams”) for about 30 minutes to discuss Debtor's financial situation and eligibility for relief under the Bankruptcy Code. Trial Testimony of Divine Meda Aubry , January 8, 2016 at 11:36-11:37 a.m.

On June 11, 2013, Debtor filed her petition for relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. Trustee's Trial Exhibit U , Voluntary Chapter 7 Petition, ECF 1, filed on June 11, 2013. Jason M. Rund was duly appointed as the Chapter 7 Trustee of Debtor's bankruptcy estate. See Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines , ECF 4, filed on June 11, 2013. Debtor's bankruptcy schedules as part of her initial bankruptcy petition documents did not disclose any interest in the Annuity. Trustee's Trial Exhibit V , Schedules and Statement of Financial Affairs , ECF 8, filed on June 25, 2013. Specifically, Item 10 on Schedule B-Personal Property, requested the Debtor to disclose any annuities (“10. Annuities. Itemize and name each issuer.”), but “None” was checked off on this item. Id., ECF 8 at 5.

According to Debtor, when she met with Collins-Williams in preparing to file for bankruptcy, she filled out a bankruptcy questionnaire from Collins-Williams, which had no written inquiries about annuities or worker's compensation awards, Collins-Williams did not review each line of the questionnaire, Collins-Williams did not ask her “if she had any retirement,” and Collins-Williams did not ask her any questions about her assets, except her clothing line. Debtor's Proposed Findings of Fact and Conclusions of Law, ECF 78, filed on March 18, 2016, at 2, citing, Trial Testimony of Divine Meda Aubry, January 8, 2016, at 11:37-11:40 a.m. and Trial Testimony of Lisa F. Collins-Williams, January 8, 2016, at 1:02-1:03 p.m. and 1:30 p.m. In other words, Debtor's excuse for not listing the Annuity as either an asset or an income item on her petition and original bankruptcy schedules is that she did not tell her lawyer about the Annuity because her lawyer did not ask. The court does not find that Debtor's excuse to be satisfactory because the bankruptcy questionnaire, Debtor's Trial Exhibit 2 , Bankruptcy Questionnaire, asks for disclosure by Debtor of assets and income items, which the Annuity was both, that is, an asset and an income item, and Debtor and her counsel met for 30...