In re Kean
| Citation | 207 BR 118 |
| Decision Date | 01 November 1996 |
| Docket Number | Civil Action No. 93-70083-W. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re William M. KEAN, Debtor. |
William M. Kean, Pro Se.
John F. Beach, Columbia, SC, for Elizabeth and Douglas Goodenough, Marie and Walter Strakowski, Lois and Mathis Brown.
Edward David Sullivan, Columbia, SC, for James H. Sikes.
R. Geoffrey Levy, Columbia, SC, for NASD Arbitration Panel.
THIS MATTER comes before the Court upon the Debtor's pro se motion filed September 3, 1996 to reopen his Chapter 7 case pursuant to 11 U.S.C. § 350.1 After receiving the testimony at the hearing on the motion on October 15, 1996 and considering the evidence, the Court makes the following Findings of Fact and Conclusions of Law.
1. On January 7, 1993, the Debtor filed a voluntary Chapter 7 bankruptcy petition.
2. The Chapter 7 Trustee subsequently declared the case to be a "no-asset" and filed his Report of No Distribution on March 26, 1993. On May 25, 1993, the Debtor received his discharge pursuant to Rule 4004(c) of the Federal Rules of Bankruptcy Procedure and the Chapter 7 case was closed. On May 26, 1993, the discharge order captioned "Discharge of Debtor" issued by the Clerk of Court for the United States Bankruptcy Court for the District of South Carolina was mailed to all of the creditors on the Debtor's mailing matrix.
3. On September 20, 1994, Walter W. and Marie Brando Strakowski ("the Strakowski's") filed a lawsuit in the Court of Common Pleas, Richland County, South Carolina against the Debtor based upon the alleged fraudulent sale of securities. On October 20, 1994 that action was removed to the United States District Court for the District of South Carolina and then upon the request of the Debtor herein, referred to arbitration before the National Association of Securities Dealers, Inc. ("NASD") Arbitration Panel. In that proceeding, the Debtor asserted the discharge of the debt in bankruptcy as a complete defense to the Stakowski's claim. On August 6, 1996, the NASD Arbitration Panel found that the debt had not been discharged in the bankruptcy case and issued an award against the Debtor in the amount of $60,000.00 plus fees and costs.
4. On March 30, 1994, J. Mathis and Lois R. Brown ("the Browns") and Douglas A. and Elizabeth B. Goodenough ("the Goodenoughs") brought lawsuits against the Debtor in the Court of Common Pleas in Cherokee County, South Carolina.2 Also upon motion of the Debtor, these actions were consolidated for hearing and referred to the NASD Arbitration Panel and are scheduled for a hearing on November 5, 1996. In these proceedings, the Debtor also asserted his discharge in bankruptcy as an affirmative defense.
5. On June 15, 1996, James H. Sikes ("Mr. Sikes") filed a lawsuit against the Debtor in the Court of Common Pleas in Richland County, South Carolina seeking recovery pursuant to an Investment and Security Agreement entered into with the Debtor. The Debtor has failed to file an Answer to the Complaint or otherwise file an appearance.
6. The only reference to the above-referenced alleged creditors in the Debtor's Chapter 7 Schedules and Statements is a $30,000.00 debt to Mrs. Marie B. Strakowski based upon a guaranty for a "Eagle Blue Water Charter, Inc." note, which appears unrelated to the matters asserted by the Strakowskis before the NASD Arbitration Panel.
7. On September 3, 1996, the Debtor filed the within motion seeking to reopen his Chapter 7 case to bring an adversary proceeding against the Strakowskis, the Browns, the Goodenoughs, Mr. Sikes and the NASD Arbitration Panel for violation of the post-discharge injunction.
Pursuant to § 350(b), a case may be reopened "to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). The landmark decision in the Fourth Circuit on reopening of bankruptcy cases pursuant to § 350 is Hawkins v. Landmark Finance Company, 727 F.2d 324 (4th Cir.1984) in which the Fourth Circuit found that the determination of whether to reopen a bankruptcy case is left to the sound discretion of the bankruptcy court and depends upon the circumstances of the particular case.
In order to find that the alleged creditors violated the post-discharge injunction codified in § 542, there must first be a determination that the alleged creditors' claims were discharged in the Debtor's Chapter 7 case. If the claims were not discharged in the Chapter 7 case, there is no injunction as to them and can be no violation of the post-discharge injunction. The Debtor takes the position that while the creditors were not listed in the schedules and statements (except for the $30,000.00 debt to Mrs. Strakowski arising out of the guaranty of the Eagle Blue Water Charter, Inc. note), the creditors did have knowledge of the bankruptcy case and specifically alleges in an affidavit accompanying his motion to reopen that he gave telephonic notice of his Chapter 7 case to the Strakowskis, the Browns and Mr. Sikes immediately after filing his petition.3
However, the affidavits filed by Mr. Goodenough and Mr. Brown as an exhibit to their response to the within motion state that they did not learn of their possible claims against the Debtor until March of 1994, almost one year after the Chapter 7 case was closed. Mr. Strakowski's affidavit states that he and his wife were not aware that they had a claim against the Debtor based upon an alleged fraudulent sale of securities until late 1994. Mr. Sikes' affidavit states that he had no knowledge of the Debtor's bankruptcy case until the Spring of 1996.
Section 727(b) states that:
Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case, whether or not a proof of claim based on any such debt or liability is filed under section 501 of this title, and whether or not a claim based on any such debt or liability is allowed under section 502 of this title.
11 U.S.C. § 727(b) (emphasis added). Section 523(a)(3), provides that a debt is excepted from discharge if it was:
neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit — (A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or (B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request.
11 U.S.C. § 523(a)(3). The Court also recognizes that § 521(1) imposes a duty upon the Debtor to file a schedule of all liabilities to include all contingent and unliquidated liabilities known to him.
As reflected in the Findings of Fact, these alleged creditors (other than the $30,000.00 debt to Mrs. Strakowski arising out of the guaranty of the Eagle Blue Water Charter, Inc. note) were not scheduled at all during the pendency of the Chapter 7 case. "Once a debtor receives a discharge, it is up to the creditor to show that he has not been duly scheduled, and the burden then shifts to the debtor to come forward with evidence that the creditor had notice or actual knowledge of the bankruptcy proceeding." In re Gray, 57 B.R. 927, 930 (Bkrtcy.D.R.I.1986) and In re Paul, 194 B.R. 381 (Bkrtcy.D.S.C. 1995). Since it is uncontested that the alleged creditors were not duly scheduled, the burden of proof would fall on the Debtor to produce sufficient evidence that these creditors did have notice or actual knowledge of the bankruptcy case pursuant to § 523(a)(3).4 At this time, there exists a dispute between the parties regarding actual notice or knowledge and whether the alleged creditors' claims may qualify for exception from discharge pursuant to § 523(a)(3)(B). Likewise, from the evidence presented, this Court can not presently conclude whether the Debtor's omission was part of a scheme of fraud or intentional design. See In re Woolard, 190 B.R. 70 (Bkrtcy.E.D.Va.1995) citing In re Rosinski, 759 F.2d 539 (6th Cir.1985). However, for the reasons stated below, this Court does not feel compelled to reopen the bankruptcy case at this time as to all of the alleged creditors in order to resolve these disputes and will examine the motion as it applies to the circumstances of each alleged creditor identified by the motion.
As one of the grounds for the denial of the Debtor's motion to reopen, the Strakowskis and the NASD Arbitration Panel assert that the issue of whether the Strakowskis' claim, as represented by their lawsuit, was discharged in the bankruptcy case has previously been decided by the NASD Arbitration Panel and that decision must be given res judicata effect. While bankruptcy courts have jurisdiction to determine dischargeability under § 523(a)(2), (a)(4) and (a)(6), the primary initial issue in this case involves a determination of dischargeability regarding an unscheduled debt pursuant to § 523(a)(3) under which circumstances exclusive jurisdiction does not rest with this Court.
An exclusive jurisdiction exception to the general rule of concurrent jurisdiction per section 1334(b) is carved out by Bankruptcy Code § 523(c), which, in some circumstances, reserves exclusive federal jurisdiction over four of the sixteen categories of nondischargeability action, including fraud...
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