In re Mehlhose
| Decision Date | 22 March 2012 |
| Docket Number | No. 11–64190.,11–64190. |
| Citation | 469 B.R. 694 |
| Parties | In re Matthew Michael MEHLHOSE, and Erin Hanson Hardcastle–Mehlhose, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
OPINION TEXT STARTS HERE
Kevin F. Carr, Mt. Clemens, MI, for Debtors.
For the reasons stated in this opinion, the Court concludes that the Debtors in this bankruptcy case, Michael Mehlhose and Erin Hardcastle–Mehlhose, each filed this case in bad faith, lied under oath about their income in their Schedule I, and have abused the bankruptcy system. Because this cannot be tolerated, the Court will dismiss this case for cause, bar Debtors from filing any new bankruptcy case for two years, and require Debtors to pay the attorney fees and expenses of the creditor who moved to dismiss this case.
This Chapter 13 case is before the Court on a motion by creditor J.L. Gislason, II, Trust u/a/d February 3, 2001 (the “Trust”), entitled “Motion to Dismiss, For Filing Bar, and For Appropriate Sanctions” (Docket # 13, the “Motion”). The Court held two hearings on the Motion, including an evidentiary hearing held on February 13, 2012. For the reasons stated in this opinion, the Court will grant the Motion in its entirety.
This is the third bankruptcy case that Debtors have filed since August 2009. 1 The following is a brief summary of the relevant events in the Debtors' three bankruptcy cases.
Debtors filed the first bankruptcy case (Case No. 09–65691) on August 19, 2009, through attorney Robert J. McClellan, under Chapter 7.2 On Schedule F, Debtors listed the Trust as a judgment creditor with a claim of $1.00.3 This filing was shortly after the Trust obtained a default judgment against Debtors in the Livingston County, Michigan Circuit Court, for $106,970.40 (the “Livingston County Default Judgment”).4
The Trust filed an adversary proceeding against Debtors, seeking (1) the denial of Debtors' discharge under 11 U.S.C. §§ 727(a)(2)(A) and 727(a)(4); and (2) a determination that a judgment debt owed to the Trust was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6).5 After Debtors failed to timely respond to the adversary proceeding in any way, the Court entered a default judgment against Debtors on December 16, 2009 (the “Default Judgment”).6 The Default Judgment stated, in relevant part:
IT IS ORDERED that Default Judgment is entered in favor of the Plaintiff, against the Defendants, Erin Hardcastle and Matthew Mehlhose.
IT IS FURTHER ORDERED that pursuant to 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6), the Defendants' indebtedness in the amount of $106,500.00, pursuant to a Judgment in Livingston County Circuit Court, in a case captioned J.L. Gislason III, Trust U/A/D 2/3/2001 v. Erin Hardcastle, et al., Case # 09–24337–CZ to the Plaintiff is excepted from discharge.
IT IS FURTHER ORDERED that pursuant to 11 U.S.C. §§ 727(a)(2)(A) and 727(a)(4) the Defendants' discharge is denied.7
On December 21, 2009, acting without an attorney, Debtors filed a motion for relief from the Default Judgment (the “First Reconsideration Motion”), which, in relevant part, made the following allegations regarding why Debtors had not timely answered the complaint:
1. Defendants were attempting to retain their Bankruptcy attorney to represent them [in] this Adversary Proceeding but were unable to do so.
2. Defendants had obtained an application for Pro Bono counsel and were in the process of completing and submitting it to the Court at the time that the answer time expired.8
On January 8, 2010, the Court entered an order denying the First Reconsideration Motion.9
On February 4, 2010, again acting without an attorney, Debtors filed a second motion for relief from the Default Judgment (the “Second Reconsideration Motion”).10 In this motion, the Debtors made allegations that were inconsistent with the allegations they made in the First Reconsideration Motion. The Second Reconsideration Motion alleged, in pertinent part:
1. Defendants had an agreement with their Bankruptcy attorney that he would file an appearance for the Advers[ary] Proceedings to allow for time to answer. The Bankruptcy attorney failed to file that motion and purposely allowed the deadline to lapse. The Bankruptcy attorney's actions were a breach of contract with Defendants and breach of professional duty to act in a manner in clients' best interests. Attorney committed professional malpractice and fraud by representing to clients that a response would be filed or had been filed with the Court then failing to do so....
2. Defendants had to repeatedly request the application for Pro Bono counsel over a three week period and did not receive it from the Bankruptcy attorney until the time of the answer had lapsed without allowing an opportunity to prepare and submit an answer to the Court prior to the expiration of the deadline.11
On February 22, 2010, the Court denied the Second Reconsideration Motion, noting that the First Reconsideration Motion did not allege that “[Debtors'] bankruptcy attorney had agreed to file an appearance and a motion to extend the answer deadline in this adversary proceeding.” The Court noted that “[i]f anything, [the First Reconsideration Motion] contradicts this allegation,” because it alleged only that “Defendants were attempting to retain their Bankruptcy attorney to represent them [in] this Adversary Proceeding but were unable to do so.” 12
Debtors' first bankruptcy case was closed on March 5, 2010, with no discharge.
On February 28, 2010, six days after the Court denied the Second Reconsideration Motion and before their first bankruptcy case was closed, Debtors filed a new bankruptcy case, this time under Chapter 13, Case No. 10–46231.13 For this case, Debtors had a new attorney, Brian Rookard. On Schedule F, Debtors listed the Trust as a creditor, with a claim of $107,000.00 based on a 2009 judgment.14
The Trust also filed an adversary proceeding in Debtors' second bankruptcy case. The adversary complaint noted that the Trust had obtained a default judgment in Debtors' prior bankruptcy case denying Debtors a discharge, and holding that Debtors' debt to it was nondischargeable.15 The complaint sought, in relevant part, a declaratory judgment that Debtors' debt to the Creditor Trust was nondischargeable in this Chapter 13 bankruptcy case. 16 Before any determination was made in the adversary proceeding, however, Debtors' second bankruptcy case was dismissed. The case was dismissed before confirmation of a Chapter 13 plan, because of Debtors' “failure to comply with the terms and conditions set forth in the Order Adjourning the Confirmation hearing entered on ... 7/2[3]/10 by failing to be 100% current [in required plan payments] on Trustee records by 9/23/10.” 17 Debtors had only a 67.6% pay history at the time of dismissal on September 27, 2010. 18
After Debtors' second bankruptcy case was dismissed, Debtors returned to state court. They sought and obtained relief from the Livingston County Default Judgment. The state court vacated the default judgment in 2010. 19 The Trust then sought to invoke an arbitration clause in the construction contract which was the subject of its claim against the Debtors. On July 8, 2011, the state court entered a stipulated order requiring the Trust and the Debtors to engage in binding arbitration of the Trust's claims.20 Debtors' stipulation to this arbitration order was signed by Debtors' attorney, Robert W. Lee. Among other things, the state court order required each party to pay one half of the initial deposit required by the American Arbitration Association. The Trust paid the entire $975.00 deposit and Debtors refused to reimburse the Trust for their half of the deposit. And the Debtors failed to cooperate in scheduling an arbitration hearing and picking an arbitrator. Instead, the Debtors filed their third bankruptcy case.
On September 13, 2011, through attorney Robert W. Lee, Debtors filed the current bankruptcy case, their third bankruptcy case, this time under Chapter 7 (Case No. 11–64190).21 On Schedule F, Debtors listed the Trust as a judgment creditor with a claim incurred in 2009, listing the amount of the claim as “Unknown.” 22
Debtors' Schedule I, filed with the petition, stated that Debtor Matthew Mehlhose's average monthly income was $3,336.00, and that Debtor Erin Hardcastle–Mehlhose's average monthly income was $975.00, for a combined average monthly income of $4,311.00.23 Debtors' Schedule J, also filed with the petition, states that Debtors have average monthly expenses of $4,303.00, leaving Debtors with a net monthly income of $8.00.24
On October 10, 2011, the Trust filed the present Motion.25 The Motion alleges, in part:
9. As noted on the schedules, almost all of the listed debts were incurred prior to the Debtors' 2009 bankruptcy filing.
10. This case appears to have been filed without any valid bankruptcy purpose as almost all of the debts listed in the Debtors' [bankruptcy schedules] would be excluded from discharge pursuant to 11 U.S.C. § 523(a)(10).
11. Upon information and belief, this case was inappropriately filed, not for a fresh start, but for the purpose of frustrating collection efforts of the listed creditors.26
The Motion sought dismissal of this bankruptcy case, a 180–day bar to refiling any new bankruptcy case under any chapter of the Bankruptcy Code, and attorney fees and costs.
In Debtors' response to the Motion, filed by their attorney Mr. Lee on October 31, 2011, Debtors stated that in 2010, the Livingston County Circuit Court set aside the Livingston...
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