In re Horne

• Decision Date: 12 March 2002
• Docket Number: No. 01-40968.,01-40968.
• Citation: 277 B.R. 320
• Parties: In re Robert Michael HORNE, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Texas

277 B.R. 320

In re Robert Michael HORNE, Debtor.

No. 01-40968.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

March 12, 2002.

Christopher J. Moser, Quilling, Selander, Cummiskey & Lownds, Dallas, TX, for Debtor.

Janna L. Countryman, Plano, TX, trustee.

OPINION

DONALD R. SHARP, Chief Judge.

Now before the Court for consideration is the Standing Chapter 13 Trustee's Motion To Dismiss. This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr.Proc. 7052 and disposes of all issues before the Court.

FACTUAL AND PROCEDURAL BACKGROUND

On March 15, 2001, Michael Gregory Horne ("Debtor") filed a voluntary petition for relief under Chapter 13 of Title 11 of the U.S.Code. Five and one-half months later, on September 6, 2001, the State of Texas Office of the Attorney General ("Texas") filed an unsecured claim in the case in the amount of $485,375.00. The unsecured claim of Texas resulted from a judgment entered on August 17, 2001, by the United States District Court for the Western District of Texas, Austin Division against Michael Gregory Horne, Robert Michael Horne and American Blast Fax, Inc., a corporation in which the Debtor was an officer and a 50% shareholder as of the date of filing his Schedules and Statement of Financial Affairs. The Chapter 13 Trustee ("Trustee") filed this Motion to Dismiss (the "Motion"), seeking dismissal of the case on the basis that the Debtor does not qualify for relief under Chapter 13 because his unsecured debt exceeds the limits set forth in 11 U.S.C. § 109(e) of the Bankruptcy Code. The parties presented the issue to the Court as whether the unsecured claim filed by the State of Texas was liquidated on the date of the filing of the petition ("Petition Date"). If the unsecured claim filed by Texas is not a liquidated debt under 11 U.S.C. § 109(e), the Debtor qualifies for relief under Chapter 13. If, however, the claim of Texas was liquidated on the Petition Date, then the Debtor exceeds the statutory debt limitations imposed under such section of the Code and is not eligible to be a Chapter 13 Debtor.

The Motion came on for trial pursuant to regular setting and the matter was taken under advisement. At the trial, the parties submitted Stipulations and exhibits to the Court, including the Findings of Fact and Conclusions of Law ("Plaintiff's Exhibit I") entered in the District Court case which gave rise to the State's claim. The trial on the merits was held on March 16, 2001, the day after the Debtor filed his petition for relief.¹

DISCUSSION

Under to 11 U.S.C. § 109, entitled "who may be a debtor":

[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.

11 U.S.C. § 109(e).² Movant bears the burden of proof to demonstrate to the Court, by a preponderance of the evidence, that the Debtor does not comply with the § 109 debt limit. United States v. May, 211 B.R. 991, 997 (M.D.Fla.1997). It has not been contested that the Debtor was an individual with a regular income on the date of filing nor that the debt in question was unsecured. Whether the debt was noncontingent debt upon such date was not placed at issue. The Bankruptcy Code does not define "liquidated" debt.³ There is inconsistency in the jurisprudence on the issue of what constitutes liquidated debt. According to Black's Law Dictionary, a liquidated debt is one in which "it is certain what is due and how much is due." Black's Law Dictionary 930 (6th ed.1990). Black's Law Dictionary is not legal authority, notwithstanding that virtually all the cases cited herein refer to Black's definition.

Was the debt liquidated on the date of filing?

As support for the position that the claim which is the subject of the controversy was a liquidated debt as of the date of the filing, the Standing Chapter 13 Trustee relied upon In re Knight, 55 F.3d 231, 235 (7th Cir.1995). The Chapter 13 Trustee cited In re Knight for its method for determining whether a debt is liquidated: "[i]f the amount of a claim has been ascertained or can readily be calculated, it is liquidated — whether contested or not." In re Knight, Ibid at 235 citing to Norton, Bankruptcy Law & Practice § 18:12 at 18-48⁴, but also citing to In re Fostvedt, 823 F.2d 305, 306 (9th Cir.1987) ("[T]he question whether a debt is liquidated turns on whether it is subject to `ready determination and precision in computation of the amount due.'").⁵ The Chapter 13 Trustee argues that, notwithstanding that the judgment against the Debtor was entered post-petition, the debt was readily subject to computation at the time the petition was filed, given that the presiding judge calculated the amount of the judgment against the debtor based upon an equation set forth in that Court's findings of fact and conclusions of law. However, in relying upon the Knight case, the Chapter 13 Trustee misses an important distinction between that case and the instant matter. In Knight, the Debtor was a former municipal judge in the state of Indiana and had failed to report 915 traffic fines to the Department of Motor Vehicles in that state. The Indiana State Statutes provided a penalty of $100.00 per case for each failure of a municipal court judge to report a fine. An audit of the court's records had determined that there were 915 fines not reported and had also determined and calculated an additional amount of misappropriated funds. Those amounts had been calculated by an audit of the court records and a demand had been made upon the Debtor pre-petition to pay the exact amount. Debtor argued unsuccessfully that the amount was unliquidated because it had never been reduced to judgment but the bankruptcy court determined that the exact amount of the debt was clear and therefore, it was a liquidated debt. That decision was upheld by the District and Circuit Court of Appeals.

The issues at trial in the District Court were the amount of damages and the scope of injunctive relief, if any, for Blastfax's violations and whether the individual defendants could be held personally liable for these violations. The District Court found the Debtor personally liable for violations of the Texas Consumer Protection Act ("TCPA") and found the violations to have been wilful and knowing for violations that occurred from February 9, 2001 through March 15, 2001. Treble damages may be awarded for wilful violations of the TCPA at the discretion of the court. The District Court determined that the Debtor, his co-shareholder and the corporation violated the TCPA a total of 937,500 times a month from October 5, 2000 to March 15, 2001. The Court calculated the damages at $459,375 based upon a formula it devised. In short, according to the Chapter 13 Trustee, simply because the calculation took place after the bankruptcy filing, did not alter the fact that the claim was liquidated. According to the Standing Chapter 13 Trustee, the ability to calculate the damages based upon a specific formula rendered the debt liquidated.

The Debtor agrees that if one can simply calculate the damages and ascertain them with certainty in a simple fashion, a debt is a liquidated debt, but argues that if one needs to use independent judgment, or any sort of discretion at all, then the debt is unliquidated. The Debtor relied upon In re Visser, 232 B.R. 362 (Bkrtcy.N.D.Tex.1999) in which the debtor, an attorney, misappropriated funds from his law firm's IOLTA account in the amount of $363,549.⁶ The Visser Court espoused the following definition:

A debt is liquidated if the amount due and the date on which it was due are fixed or certain, or when they are ascertainable by reference to (1) an agreement or (2) to a simple mathematical formula. [In re] Flaherty, 10 B.R. at 120 [(Bankr.N.D.Ill.1981)]; In re Potenza, 75 B.R. 17, 19 (Bankr.D.Nev.1987).

Visser, Ibid at 364-365 citing to In re Pulliam, 90 B.R. 241, 244-46 (Bkrtcy.N.D.Tex.1988).⁷ The element of "discretion" being a distinguishing factor to discern whether a debt is liquidated was adopted by the Visser Court from the rationale applied by the court in the case of In re McGovern, 122 B.R. 712, 717-18 (Bkrtcy.N.D.Ind.1989)⁸, citing to a Seventh Circuit Court opinion.

[I]f the amount of the claim can be ascertained, or is capable of ascertainment by mere calculation or computation, it is liquidated; if judgment, discretion, or opinion, as distinguished from calculation or computation is required to determine the amount of the claim, it is unliquidated. First National Bank v. Insurance Co., 606 F.2d 760, 769-70 (7th Cir.1979) (applying Illinois law). See also Public Service Co. v. Bath Iron Works Corp., 773 F.2d 783, 796 (7th Cir.1985) (applying Indiana law). Thus, a claim is unliquidated when the finder of fact must rely upon its judgment to establish an appropriate amount to compensate for past and future injury. See Public Service Co. v. Bath Iron Works Corp., supra, 773 F.2d at 796. It is liquidated when judgment or discretion is not required. If not, it is liquidated. A claim is liquidated if the evidence furnishes data which, if believed, makes it possible to compute the amount with exactness, without reliance upon opinion or discretion.

In re McGovern, 122 B.R. 712, 717-18 (Bkrtcy.N.D.Ind.1989).⁹

Although the Trustee argues that the District Court in our case used a simple formula to calculate the damages, a complete reading of the District Court's reasons for judgment makes it clear that this was no...