In re Chu
| Decision Date | 10 April 2019 |
| Docket Number | Case No. 18-12487-BFK |
| Citation | 599 B.R. 519 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | IN RE: Bogart CHU, Debtor. |
Robert R. Weed, Law Offices Of Robert Weed, Woodbridge, VA, for Debtor.
This matter came before the Court for a hearing on: (a) the Debtor's Objection to Claim No. 8-1 of PPE Casino Resorts Maryland, LLC, t/a Maryland Live! Casino ("PPE") (Docket No. 28); and (b) PPE's Objection to Confirmation of the Debtor's Amended Chapter 13 Plan. Docket No. 16. PPE filed a Memorandum in Support of its Objection to Confirmation of the Debtor's Amended Plan. Docket No. 16-1. The Debtor filed a Memorandum in Support of Confirmation. Docket No. 31. The Court held a hearing on February 7, 2019, at which PPE and the Debtor were represented by counsel. The Chapter 13 Trustee also was present at the argument.
For the reasons stated below, the Court will: (a) overrule the Debtor's Objection to PPE's Proof of Claim; and (b) sustain PPE's Objection to confirmation of the Debtor's Plan.
The following facts are not genuinely in dispute.
1. The Debtor, Bogart Chu, resides in Falls Church, Virginia. Docket No. 1 (Voluntary Petition). He is employed as a Systems Engineer with Blue Glacier Management Group, Inc. in Arlington, Virginia. Id ., Schedule I.
2. In September 2015, Mr. Chu executed an Application for Casino Credit with Maryland Live! in the State of Maryland. Docket No. 16-1, Ex. B. The Credit Agreement contained the following choice of law provision:
I agree that this application, the Marker Signing Privileges, all credit issued by Maryland Live! Casino and all Markers signed by me shall be governed, construed and interpreted pursuant to the laws of the State of Maryland (without regard to choice of law principles).
Id ., Ex B, p. 17.
3. The Credit Agreement also contained a consent to jurisdiction and venue in the Maryland courts. Id. ( )
4. Pursuant to the terms of the Credit Agreement, Mr. Chu obtained credit in the amount of $ 10,000.00, which was later increased to $ 15,000.00. Id ., Ex. B, p. 18 . This amount was increased again to $ 20,000.00. Id . It was then decreased back to $ 10,000 before it was ultimately increased back to $ 15,000.00. Id. , Ex. B, pp. 19-20.
5. On June 22, 2017, Mr. Chu, executed a negotiable instrument commonly known as a Marker in favor of PPE in the amount of $ 15,000.00. Id ., Ex. C, pp. 22-23. The Marker was returned twice to PPE for insufficient funds. Id.
6. Mr. Chu filed a Voluntary Petition under Chapter 13 with this Court on July 16, 2018. Docket No. 1.
7. PPE filed Proof of Claim No. 8-1, asserting an unsecured claim in the amount of $ 17,336.00.
8. Mr. Chu's Amended Chapter 13 Plan calls for him to pay $ 2,190.00 per month to the Chapter 13 Trustee for 60 months, for a total of $ 131,400. Docket No. 12, ¶ 2.
9. The Amended Plan provides for a 52% return to unsecured creditors. Id ., ¶ 5(A). It separately classifies the PPE debt (and other gambling debts to MGM Grand Las Vegas and MGM National Harbor), and provides a 0% return to these creditors on the ground that the debts violate public policy. Id ., ¶ 5(B).1
10. PPE, as noted, objected to the Debtor's Amended Chapter 13 Plan.
11. The Chapter 13 Trustee supported the separate classification of the PPE claim in the Debtor's Amended Plan on the ground that casino debt is different from other creditors' claims. He did not take a position on the choice of law and public policy questions addressed below.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the U.S. District Court for this District on August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) () and (L) confirmations of plans.
Bankruptcy Section 1322(b)(1) provides as follows:
11 U.S.C. § 1322(b)(1) (emphasis added).
Separate classification usually arises in the context of classifying non-dischargeable debts such as student loans for which the debtor may continue to be liable after her discharge; there is an incentive to treat non-dischargeable debts separately, and more favorably, than ordinary, dischargeable debts. See, e.g., In re Birts , 2012 WL 3150384 (E.D. Va. 2012) (). The difficulty in applying Section 1322(b)(1)'s "unfair discrimination" test is that the statute allows some level of discrimination, but it forbids unfair discrimination. Id., at *2 ()
The Debtor, joined by the Chapter 13 Trustee, argues that separate classification is justifiable here because the Debtor's gambling-related debts are different than ordinary credit card debt or other unsecured debt. According to the Debtor and the Trustee, the other creditors provided actual credit, goods or services, while Maryland Live! only provided credit to gamble within its own facility – in the Trustee's view, "the casino never loses." This argument, however, loses sight of the fact that gambling is inherently a risk-taking opportunity and there is the cognizable risk that the casino could lose more than the credit that it affords to the debtor (albeit, it is generally acknowledged that in the long run, the odds favor the house). The Court does not see how affording the Debtor credit to gamble is any different for classification purposes than unsecured debts for other entertainment venues, such as concerts, movie theaters or season tickets for sports teams.
Mr. Chu's Schedules indicate that he has $ 267,112.00 in unsecured debt at the time that he filed his petition, including the disputed PPE indebtedness. Docket No. 1, Schedule E/F, p. 31. Subtracting the PPE Debt of $ 17,336.00, and the now-disallowed MGM claims totaling $ 23,137.00, the total unsecured debt would be $ 226,639.00, for which Mr. Chu's Plan proposes to pay a 52% dividend. If the PPE claim is added back in to the claims pool, and is treated ratably with the other unsecured debts, Mr. Chu would pay all of his unsecured creditors roughly 49% on their claims. Alternatively, Mr. Chu would have to increase his monthly Plan payment by approximately $ 150.25 in order to maintain the 52% dividend to all of the unsecured creditors including the PPE claim.2
PPE's debt is an unsecured debt just like all of the Debtor's other unsecured debts. The Debtor's Plan requires him to pay 52% to his non-priority unsecured creditors and nothing to PPE. The basis for the Debtor's separate classification of the PPE claim is that the Debtor asserts that the claim is unenforceable as a matter of public policy. See Plan, ¶ 5(B). Assuming that the PPE debt represents an allowed unsecured claim (See Part II, below), the Court finds that the Debtor's separate classification of the claim is not justifiable and represents unfair discrimination. The Court addresses whether or not the claim is allowable, below.
The Court, therefore, sustains PPE's Objection to confirmation of the Debtor's Amended Plan on the ground of unfair discrimination.
A properly filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. Bankruptcy Rule 3001(f). When a claim is objected to, the initial burden is on the objecting party. In re Haymarket Transp., Inc ., Case No. 09-20389-SSM, 2011 WL 1871112, at *2 (Bankr. E.D. Va. 2011). If the objecting party meets its burden in objecting to the validity or the amount of the claim, then the burden shifts to the claimant. Id .; see also In re Falwell , 434 B.R. 779, 784 (Bankr. W.D. Va. 2009) ; In re Williams-Johnson , Case No. 00-61211-DOT, 2006 WL 384989, at *2 (Bankr. E.D. Va. 2006). In this case, the Debtor's Objection to PPE's claim presents a single legal issue – whether a gambling debt legally contracted in another State under a contract containing choice of law, submission to jurisdiction and venue provisions represents an enforceable claim.3
The Debtor relies on Virginia Code Section 11-14, which states as follows:
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