In re Estes, Bankruptcy No. 07-04648-BGC-7.

• Decision Date: 24 March 2009
• Docket Number: Adversary No. 07-00235-BGC-7.,Bankruptcy No. 07-04648-BGC-7.
• Citation: 415 B.R. 568
• Parties: In re Debra Bond ESTES, Debtor. Bettye Ann Anglin and Forrest Anglin, Plaintiffs, v. Debra Bond Estes, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

Page 568

415 B.R. 568

In re Debra Bond ESTES, Debtor.

Bettye Ann Anglin and Forrest Anglin, Plaintiffs, v. Debra Bond Estes, Defendants.

Bankruptcy No. 07-04648-BGC-7.

Adversary No. 07-00235-BGC-7.

United States Bankruptcy Court, N.D. Alabama, Southern Division.

March 24, 2009.

COPYRIGHT MATERIAL OMITTED

Andre' M. Toffel, Andre' M. Toffel, P.C., James Franklin Walsh, Rumberger Kirk & Caldwell, Birmingham, AL, for Plaintiffs.

Ted R. Pearson, Birmingham, AL, for Defendants.

MEMORANDUM OPINION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT

BENJAMIN COHEN, Bankruptcy Judge.

The matter before the Court is a Motion for Summary Judgment filed on January 28, 2008, by the plaintiffs Bettye Ann Anglin and Forrest Anglin in Adversary Proceeding No. 07-00235.¹ Docket No. 9. After notice, a hearing was held on May 8, 2008. Mr. Andre M. Toffel and Mr. James Franklin Walsh, attorneys for the plaintiffs, and Mr. Ted R. Pearson, attorney for the debtor/defendant, appeared. The matter was submitted on the pleadings, motions, briefs, exhibits, arguments, and the records in seven related actions.²

I. Background

The plaintiffs and the debtor, along with the debtor's husband James Estes, share a long history. In a prior memorandum opinion, this Court described their early relationships. It wrote:

In 1997, Mr. Anglin was working for a commercial printing company. He invited Mr. Estes, who he had known for some time, to join the company and run its printing operations. He and Mr. Estes anticipated at the time that they might one day buy the company and go into business together. Pursuant to that plan, in July or August 1997, Mr. Anglin and Mr. Estes formed Office Source Printing, Inc. Their wives were the nominal stockholders of the corporation. Mr. Anglin purchased the assets of the company that he and Mr. Estes worked for at the time and transferred those assets to the new company. In the new company, Mr. Anglin was in charge of sales and marketing and Mr. Estes was in charge of the printing operations, office operations and keeping the company's books. Mr. Anglin was the president of the company and Mr. Estes was its vice-president. The records of the Alabama Secretary of State's office reflect that Betty Ann Anglin and Debbie B. Estes each owned fifty percent of the corporation's stock. Neither paid any consideration for that stock. The company was represented by the law firm of Galese & Ingram.

In March or April of 1998 the name of the corporation was changed to Print Solutions, Inc. The quantity of their business was good and growing fast, according to Mr. Anglin. When the business started, it was billing around twenty or thirty thousand dollars a month. When Mr. Anglin left the company in March of 2000, it was billing around $100,000 to $150,000 a month. The Anglins were receiving over $100,000 a year in cumulative salaries. The company leased automobiles for their use and provided them with health insurance. Likewise, the Esteses were receiving over $100,000 a year in cumulative salaries. The company also leased automobiles for their use and provided them with health insurance.

Of course, as in the case of most business enterprises, Print Solutions had to incur debt in order to operate its business. Mr. Anglin and Mr. Estes were required to personally guarantee over a million dollars of that debt. And a smaller portion of the company's debt was guaranteed by Mrs. Estes and Mrs. Anglin.

Memorandum Opinion on Complaint and Objection to Discharge Pursuant to 11 U.S.C. §§ 523 and 727, entered March 22, 2005. A.P. No. 02-00209, Docket No. 33.

The most recent years have not been as pleasant for the Anglins and the Estes. Their relationship over the next several years became litigious. The immediate proceeding is their latest court action.

II. Findings of Fact

Much of the activity in this, the debtor's fourth Chapter 7 case, revolves around her third Chapter 7 case filed jointly with her husband, James H. Estes, on March 7, 2002. Case No. 02-01867.³ That third case is frequently referred to by the parties and this Court as, "the debtor's prior case."

Among the debts Mr. and Mrs. Estes listed in that third case was one for $300,000 to Bettye Ann Anglin. That listing referred to two state court civil lawsuits. Proceeding No. 7, Schedule F.⁴ After that third case was filed, judgments were entered against Print Solutions, Inc., but not the debtor, in those two state court actions.⁵ The first was entered on April 10, 2002, in Civil Action CV 2001-1834 in favor of Bettye Ann Anglin for $1,000,000. Exhibit 4 to Anglin's Reply to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket No. 26-8 (State court docket sheet for Case No. CV 2001-1834). The second was entered on October 23, 2002, in Civil Action CV 2002-0820 in favor of Forrest Anglin for $1,000,000.⁶ Exhibit 4 to Anglin's Reply to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket No. 26-8 (Order by Circuit Judge Houston L. Brown in Case No. CV 2002-0820).⁷

On August 30, 2002, the plaintiffs filed a complaint in bankruptcy case number 02-01867 ("the debtor's prior case") against the debtor and her husband to determine the dischargeability of a debt and to deny the Estes' discharges. A.P. No. 02-00209, Proceeding No. 1.⁸

After a trial, this Court entered an order on March 22, 2005, holding that certain debts owed by the debtor to the plaintiffs were dischargeable, but that the debtors' discharges were denied pursuant section to 727(a)(4)(A) of the Bankruptcy Code, 11 U.S.C. § 727(a)(4)(A). That order read:

In conformity with and pursuant to the Memorandum Opinion entered contemporaneously herewith, it is ORDERED, ADJUDGED AND DECREED that:

1. Judgment is entered in favor of the Defendants and against the Plaintiffs as to any Section 523 causes of action;

2. Judgment is entered in favor of the Plaintiffs and against the Defendants as to the Section 727 cause of action;

3. The Plaintiffs' Complaint is DENIED as to the Section 523 causes of action;

4. The Plaintiff's Objection to Discharge Pursuant to Section 727 is SUSTAINED;

5. A discharge shall not be granted to the defendants in this case.

Order, entered March 22, 2005, A.P. No. 02-00209, Docket No. 34. A Memorandum Opinion accompanying that order was entered the same day. Docket No. 33.

On April 1, 2005, the plaintiffs filed an appeal to the United States District Court for the Northern District of Alabama. A.P. No. 02-00209, Docket No. 39.

On April 19, 2005, the plaintiffs filed Civil Action CV 2005-2348 in the state court against the debtor seeking to hold the debtor personally responsible for the Print Solutions judgments. Exhibit 8 to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket Nos. 24-11 and 24-12. Their one count complaint alleged breach of contract, namely a breach of the parties' "Pre-suit Mediation Settlement Agreement."

On April 10, 2006, the district court entered an order affirming this Court's March 22, 2005, order. A.P. No. 02-00209, Docket No. 48.

On June 27, 2006, the plaintiffs amended their complaint and alleged: (1) the debtor was the alter ego of Print Solutions, Inc.; (2) the corporate veil of the corporation should be pierced; and (3) liability should be imposed on the debtor personally for the state court judgments which had been entered against Print Solutions. Exhibit 9 to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket No. 24-13.

After a bench trial, the state court entered an order on August 16, 2007, in CV 2005-2348 which: (1) found the debtor to be the alter ego of Print Solutions, Inc.; (2) declared the corporate veil of Print Solutions should be pierced to permit imposition of personal liability on the debtor for debts of the corporation; and (3) declared the debtor to be personally liable for the judgments previously entered against Print Solutions in CV 2001-1834 and CV 2002-0820. Exhibit 3 to Anglin's Reply to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket No. 26-7 (Final Order of the state court in CV 2005-2348).

Based on that order, this Court finds that the state court's judgment regarding the debtor's personal liability for the judgments against the corporation was based solely on the plaintiffs' amended count, that is the count regarding the piercing of the corporation's veil. The state court did not determine, declare, rule, or otherwise hold that the debtor personally breached the "Pre-suit Mediation Settlement Agreement." Similarly, the state court's Final Order reads, "A bench trial was held on the plaintiffs' remaining claim which seeks to impose personal liability on the defendant for the indebtedness of Print Solutions, Inc." Exhibit 3 to Anglin's Reply to Memorandum in Opposition to Motion for Summary Judgment, A.P. No. 07-00235, Docket No. 26-7 (Final Order of the state court in CV 2005-2348) (emphasis added).⁹

The debtor filed the current Chapter 7 case on October 15, 2007.

III. Issue and Contentions

A. Issue

The issue is: Are the judgments against Print Solutions, for which the debtor has been held personally liable, debts that are not dischargeable in the current case because they were, under section 523(a)(10) of the Bankruptcy Code, debts, "that ... [were] or could have been listed or scheduled by the debtor in a prior case ... in which the debtor ... was denied a discharge. ..." 11 U.S.C. § 523(a)(10) (parenthetical added).¹⁰

B. Contentions

The plaintiffs contend that the subject judgments qualify as nondischargeable debts under section 523(a)(10) because the debts existed before the debtor filed her prior case, a case in which this Court denied the debtor's discharge. The debtor contends that the debts did not come into existence until after the debtor filed that prior case.

IV. Conclusions of Law

A. Summary Judgment

Under Rule 56(c) of the Federal Rules of Civil Procedure,...