Kerns v. First State Bank of Ben Wheeler (In re Kerns)
| Docket Number | 19-60808,Adversary 21-06018 |
| Decision Date | 24 August 2023 |
| Parties | IN RE: MATTHEW J. KERNS Debtor v. FIRST STATE BANK OF BEN WHEELER Defendant MATTHEW J. KERNS Plaintiff |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
This case requires the Court to consider whether a bank may be held liable for violating the automatic stay or a discharge order after making a report resulting in Debtor's criminal prosecution for an allegedly criminal sale of cattle and farm equipment. The Court finds that under the circumstances of this case the bank should not be held liable, but cautions that this result should not be understood as an invitation for unhappy creditors to seek redress for unpaid debts in the criminal justice system. Today's decision results solely from the safe harbor provision applicable to financial institutions, which most creditors do not enjoy.
The Court has jurisdiction of this matter pursuant to 28 U.S.C §§ 1334 and 157. The Court has the authority to enter a final judgment in this adversary proceeding because it constitutes a statutorily core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (G), and (O), and meets all constitutional standards for the proper exercise of full judicial power by this Court.
Plaintiff, Matthew J. Kerns, was a member and manager of Glade Creek Livestock, LLC.[1] The LLC authorized Plaintiff to obtain credit on its behalf using the company's assets as collateral.[2] Under that authority, Plaintiff approached Defendant, the First State Bank of Ben Wheeler, to obtain a loan.[3]Plaintiff offered as security equipment valued at $258,000.00 and 206 head of cattle valued at $209,280.00.[4] Defendant inspected the equipment and cattle to be pledged, and prepared an itemized list using information provided by Plaintiff which Plaintiff signed.[5] After inspection, Defendant agreed to make a loan to the LLC, and two separate security agreements were signed dated May 24, 2017.[6]Defendant filed UCC financing statements on May 25 and May 26 of 2017 to perfect its liens on the collateral.[7] Plaintiff admits he guaranteed the loan, though no such guaranty was submitted into evidence by Defendant.[8]
In 2019, the LLC experienced financial difficulties and Plaintiff approached Defendant about a possible loan workout regarding repayment.[9]Defendant conducted a collateral inspection, but was unable to find some of the pledged equipment and cattle.[10] Defendant alleges that only 55 of the approximately 200 cattle remained.[11] Defendant, no longer willing to entertain a possible loan workout, instead demanded repayment and threatened to repossess all remaining collateral if not repaid.[12] The loan was not repaid and all remaining collateral Defendant could find was repossessed.[13] Plaintiff admits that some of the cattle had been already been sold when the demand was made, while certain equipment securing the loan remains missing.[14]
Plaintiff filed his voluntary Chapter 7 petition on November 11, 2019.[15]After Plaintiff filed bankruptcy while the automatic stay was in effect, Defendant contacted Special Ranger Jimmy Dickson.[16] Defendant's representatives reported Plaintiff for "possible violations of state law."[17] Ranger Dickson is a licensed peace officer who was employed as a Special Ranger by the Texas and Southwestern Cattle Raisers Association.[18]
Special Ranger Dickson proceeded to conduct an investigation of Plaintiff.[19] After investigating, Special Ranger Dickson found information to "support[] a Hindering a Secured Creditor case against Glade Creek Livestock, LLC with Matthew J. Kerns as manager."[20] He thereafter reported Plaintiff to the Van Zandt County District Attorney.[21] Plaintiff received a discharge on February 21, 2020.[22] Plaintiff was indicted on June 26, 2020 by a grand jury, and arrested on July 21, 2020 by Special Ranger Dicksonon on charges of hindering a secured creditor.[23]
Plaintiff filed this proceeding on December 31, 2023, seeking damages for alleged violations of the automatic stay of 11 U.S.C. § 362(a) and Plaintiff's discharge under 11 U.S.C. § 524(a).[24] Defendant timely answered.[25] Defendant file its Motion for Summary Judgment on December 14, 2022.[26] Defendant's motion asks this Court to find that its reporting of Plaintiff to Special Ranger Dickson falls within the § 362(b)(1) exception to the automatic stay, and that as a financial institution it cannot be found liable for violating either § 362(a) nor § 524(a) due to the safe harbor provision of the Annunzio-Wylie Act.[27] Plaintiff timely responded.[28]
A court may grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catlett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). Thus, if summary judgment is appropriate, the Court may resolve the case as a matter of law.
The moving party always bears the initial responsibility of informing the court of the basis for its motion and producing evidence which it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. How the necessary summary judgment showing can be made depends upon which party will bear the burden of proof at trial. See Little v. Liquid Air Corp., 37 F.3d 1069, 1077 n.16 (5th Cir. 1994). "A fact is material only if its resolution would affect the outcome of the action . . ." Wiley v. State Farm Fire and Cas, Co., 585 F.3d 206, 210 (5th Cir. 2009). "All reasonable inferences must be viewed in the light most favorable" to the nonmoving party, and "any doubt must resolved in favor of the nonmoving party." In re Louisiana Crawfish Producers, 852 F.3d 456, 462 (5th Cir. 2017) (citing Matsushita Elec. Indus. Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
The Court first considers whether Defendant's actions fall into the safe harbor provision of the Annunzio-Wylie Act. If the safe harbor applies, then the Court needs not decide the questions regarding §§ 362 and 524.
The purpose of the Annunzio-Wylie Act has been described by at least one Court as follows:
Quiles-Gonzalez v. United States, No. CIVIL 09-1401CCC, 2010 U.S. Dist. LEXIS 33111, at *10-11 (D.P.R. 2010). Specifically, the Act contains the following safe harbor provision:
"Any financial institution that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this subsection or any other authority, and any director, officer, employee, or agent of such institution who makes, or requires another to make any such disclosure, shall not be liable to any person under any law or regulation of the United States" (emphasis added).
31 U.S.C. § 5318(g)(3). Courts have generally agreed on the breadth of this safe harbor. See Stoutt v. Banco Popular de P.R., 158 F.Supp.2d 167, 173 (D.P.R. 2001); Lee v. Bankers Tr. Co., 166 F.3d 540, 544 (2d Cir. 1999); Gregory v. Bank One, Indiana, N.A., 200 F.Supp.2d 1000, 1002-03 (S.D. Ind. 2002); Bank of Eureka Springs v. Evans, 353 Ark. 438, 451, 109 S.W.3d 672, 680 (2003); Gibson v. Regions Financial Corp., 2008 WL 110917 at *3 (E.D. Ark. January 9, 2008).
Courts have not agreed on whether the safe harbor contains a requirement that to receive protection a financial institution may only make a criminal report in good faith. Most courts considering this question have relied upon the broad plain language of the safe harbor and corresponding regulation to hold that protection is not contingent on good faith. "There is not even a hint that the statements must be made in good faith in order to benefit from immunity." Lee v. Bankers Tr. Co., 166 F.3d 540, 544 (2d Cir. 1999); see also Joseph v. BancorpSouth Bank, 414 F.Supp.2d 609, 612 (S.D.Miss. 2005). Compare these cases to the Eleventh Circuit's Lopez decision, which found the safe harbor was subject to a good faith requirement. Lopez v. First Union Nat'l Bank, 129 F.3d 1186, 1195 (11th Cir. 1997). The Lopez decision has, however, "been the subject of significant criticism." Whitney Nat'l Bank v. Karam, 306 F.Supp.2d 678, 680 (S.D. Tex. 2004).
This Court could find no Fifth Circuit decision on this issue. There is significant authority, however, that an unambiguous statute should be read according to its plain meaning. "The task of statutory interpretation begins and, if possible, ends with the language of the statute." Trout Point Lodge, Ltd. v. Handshoe, 729 F.3d 481 486 (5th Cir. 2013); see also BedRoc Ltd. v. United States, 541 U.S. 176, 183 (2004) () (quoting Conn. Nat'l Bank...
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