In re Stoltz, Bankruptcy No. 97-12879 cab.

Decision Date29 August 2001
Docket NumberBankruptcy No. 97-12879 cab.,Adversary No. 00-1031 cab.
Citation286 B.R. 283
CourtU.S. Bankruptcy Court — District of Vermont
PartiesIn re Laura Ann STOLTZ, Debtor. Brattleboro Housing Authority, Plaintiff, v. Laura Ann Stoltz, Defendant.

Geoffry Walsh, Esq., Vermont Legal Aid, Inc., Springfield, VT, for Laura Ann Stoltz.

Rebecca A. Rice, Esq., Cohen & Rice, Rutland, VT, for Brattleboro Housing Authority.

MEMORANDUM OF DECISION GRANTING PLAINTIFF'S MOTION TO DISMISS COMPLAINT AND GRANTING DEFENDANT'S MOTION FOR COSTS AND FEES UNDER 11 U.S.C. § 523(d)

COLLEEN A. BROWN, Bankruptcy Judge.

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334, and finds that this is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and (O).

BACKGROUND

The complaint filed in this action sought a determination that certain rent the defendant, Laura Ann Stoltz, allegedly owed to the plaintiff, Brattleboro Housing Authority (hereafter "BHA"), for the months of September and October, 1999, in the amount of $722, was non-dischargeable pursuant to 11 U.S.C. § 523(a)(2). The defendant filed a motion seeking summary judgment on June 20, 2001 [Dkt. # 22-1], accompanied by a Motion for Assessment of Attorney's Fees and Costs Pursuant to 11 U.S.C. § 523(d) [Dkt. # 23-1], a Statement of Uncontested Facts and a Memorandum in Support of Motion for Summary Judgment and for Assessment of Costs and Fees Pursuant to 11 U.S.C. § 523(d). Upon consent of the defendant, the plaintiff was given an extension of time to file a response to the summary judgment motion. The plaintiff's response alleged the existence of various genuine issues of material fact and further alleged that an award of attorney's fees should be denied on the grounds that the plaintiff was substantially justified in filing the complaint. Defendant filed a Reply re-asserting the merits of her summary judgment motion and taking issue with the plaintiff's contention that the complaint as substantially justified. The plaintiff never filed an objection to the defendant's statement of uncontested facts. The Court scheduled a hearing on the motion for summary judgment for August 21, 2001, and informed counsel that it intended to issue a ruling at that time. Prior to the hearing, however, counsel for the parties jointly contacted the Clerk's Office and informed the courtroom deputy that they wanted to put new information on the record before the Court issued its ruling.

At the outset of the August 21st hearing, the plaintiff's counsel made an oral motion to dismiss its complaint. The defendant's counsel indicated he did not object to the voluntary dismissal of the complaint provided the Court allowed the defendant's claim for attorney's fees and costs to proceed notwithstanding the complaint being dismissed. Pursuant to Rule 7041 Fed. R.B.P and Rule 41(a)(2) of the Fed. R.Civ.P., after an answer or motion for summary Judgment has been filed, as in this adversary proceeding, "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." On August 21st, this Court ruled from the bench and, applying Rule 41(a)(2), ordered that the complaint would be dismissed but that the dismissal was without prejudice to the defendant proceeding with its pending request for an assessment of attorney's fees and costs. The Court also informed counsel for both parties that it would consider memoranda of law on the question of the Court's authority to award attorney's fees under § 523(d) in light of the fact that the defendant has been represented by Vermont Legal Aid, Inc.

FACTS

The Court finds that the material facts are the facts asserted in the Defendant's Statement of Uncontested Facts and the Court hereby adopts them as its factual findings:

1. Plaintiff Brattleboro Housing Authority ("BHA") filed this action on May 22, 2000 seeking a determination that a portion of two months of unpaid residential rental charges of the debtor were non-dischargeable debts under 11 U.S.C. § 523(a)(2). (Complaint, Exhibit 18).

2. In the Complaint, BHA alleged that a portion of the debts for September and October 1999 public housing rent could be traced to a failure of the debtor to report increased earnings for two earlier months, July and August 1999. (Complaint, Exhibit 18).

3. In the summer of 1999 the debtor changed jobs, leaving her position at Omega Optical to take a new position at C & S Wholesale grocers. However, the debtor had no increased earnings during July and August 1999 that would have caused her rent for September and October 1999 to be calculated at higher levels. (Stoltz Declaration, Exhibit 16, para. 5-15).

4. The debtor's average weekly earnings for the first eight weeks at her new C & S job were less than her average weekly earnings for her last eight weeks at her old (Omega) job. (Stoltz Declaration, Exhibit 16, para. 11, 12).

5. Overall, for similar time worked, the debtor earned slightly less for the last six months of 1999 (working for C & S) than she had earned during the first six months of 1999 (working for Omega). (Stoltz Declaration, Exhibit 16, para. 13).

6. Before it filed this action in May 2000, BHA had the information within its own records necessary to determine whether the debtor had increased unreported income for the months of July and August 1999. (Exhibits 3H, 3J and 4F, 3A; Deposition of Ruth Williams).

7. Before it filed this action in May 2000 BHA had the ability to obtain earnings information about the debtor form Omega and C & S in order to verify the precise earnings of the debtor both before and after her job change in the summer 1999. (Ruth Williams Deposition).

8. Despite its ability to obtain complete and correct information about the debtor's 1999 earnings, BHA filed this action in May 2000 based upon factual contentions that were not true.

STANDARD FOR AWARDING ATTORNEY'S FEES AND COSTS UNDER 11 U.S.C. § 523(d)

The matter before the Court is the defendant's request for an assessment of costs and attorney's fees pursuant to 11 U.S.C. § 523(d). That statute provides as follows:

If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust.

The gravamen of the complaint is straightforward. The plaintiff alleges that the lease between these parties requires the debtor to inform plaintiff of any change in her income within 10 days of the change; that the debtor's income increased significantly in July, 1999; that the debtor failed to notify the plaintiff of this change in income until October, 1999; that as a result of the change in income the debtor's rent "increased dramatically"; and that as a result of the debtor's failure to report her change of income, the debtor was undercharged rent for the months of September, 1999 and October, 1999 in the amount of $722. The complaint seeks to except this alleged $722 claim from discharge based upon the provisions of § 523(a)(2), which directs that any debt that was obtained by false pretenses or representation, actual fraud, or a materially false writing by the debtor shall be excepted from discharge. The plaintiff has withdrawn the complaint on the grounds that the creditor has come to a determination that in light of the small amount actually at stake further proceedings are not warranted.

To prevail on her request for attorneys fees and costs under § 523(d), the petitioning debtor must demonstrate: (1) the action sought relief under § 523(a)(2); (2) the action was based upon a consumer debt; and (3) the debt in question has, or will be, discharged. See In re Harvey, 172 B.R. 314, 317 (9th Cir. BAP 1994); In re Randolph, 28 B.R. 811 (Bankr.E.D.Va.1983). Once the debtor establishes these elements, the burden shifts to the creditor to prove that its actions were substantially justified or that special circumstances exist which would render the award unjust. See In re Hunt 238 F.3d 1098 (9th Cir.2001) (creditor has the burden of proving that its position is substantially justified); In re Grant, 237 B.R. 97, 120 (Bankr.E.D.Va.1999); In re Harvey, 172 B.R. at 317; In re Woods, 69 B.R. 999 (Bankr.E.D.Pa.1987).

DISCUSSION

The complaint clearly asserts that the BHA is seeking relief under § 523(a)(2) and therefore the first element of the § 523(d) inquiry is satisfied. [See complaint, at paras. 1, 13] Likewise the complaint identifies the debt in question to be one that the creditor claims is owed for residential rent in its housing. This Court finds that a debt for an individual's unpaid residential property rent fits within the definition of consumer debt set forth in 11 U.S.C. § 101(8). See In re Grant, 237 B.R. at 120. It is undisputable that this debt will be discharged because the subject complaint has been dismissed, there is no other complaint pending challenging the debtor's right to discharge this obligation, the time for filing a complaint objecting to the discharge of this debt has expired, and there is no other basis for excepting this debt from discharge. Therefore, the Court finds that the debtor has met her burden of proof and has specifically established the threshold requirements for an award of attorney's fees and costs under § 523(d).

The issue hence becomes whether the plaintiff has demonstrated that its position was substantially justified or whether there are special circumstances in this proceeding which would make an award of fees and costs unjust. Based upon the Statement of Uncontested Facts and the exhibits submitted in support...

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