Sebetich v. Woods (In re Woods)
| Decision Date | 29 January 2016 |
| Docket Number | CIVIL 15-00233 LEK-BMK,ADV.NO 14-90019,Bk. No. 14-00039 |
| Parties | In re: Alvin Woods, Debtor, VICTORIA SEBETICH, Plaintiff/Appellant, v. ALVIN K. WOODS, Defendant/Appellee. |
| Court | U.S. District Court — District of Hawaii |
Before the Court is pro se Plaintiff/Appellant Victoria Sebetich's ("Sebetich") appeal from the bankruptcy court's Findings of Fact and Conclusions of Law ("FOF/COL"), issued on May 15, 2015, and the Judgment, issued on June 4, 2015, in Adversary Proceeding No. 14-90019 ("Adversary Proceeding"). On November 11, 2015, Sebetich filed a document that this Court construes as her brief ("Sebetich's Brief"). [Dkt. no. 12.] Defendant/Appellee Alvin K. Woods ("Alvin Woods") filed his brief ("Woods's Brief") on October 29, 2015.1 [Dkt. no. 9.] The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawai`i ("Local Rules"). After careful consideration of the briefs and the relevant legal authority, the bankruptcy court's FOF/COL and its Judgment are HEREBY AFFIRMED IN PART AND REVERSED IN PART, and the case is HEREBY REMANDED to the bankruptcy court for the entry of orders consistent with this Order.
Except where specified below, Sebetich does not dispute the findings of fact made by the bankruptcy court in the Adversary Proceeding ("Adversary Court").
Sebetich and Clement K. Woods ("Clement Woods") are brother and sister. Clement Woods is Alvin Woods and Clifford Woods's father, and Sebetich is their aunt. In the beginning of 2006, Alvin and Clifford Woods agreed to buy Sebetich's house in Mililani, Hawai`i ("the Property") for$500,000. They did not set a date by which Alvin and Clifford Woods would make payment. [FOF/COL at 2, ¶¶ 1-2.2] On May 16, 2006, Sebetich executed a deed conveying the Property to Alvin and Clifford Woods. [Id. at ¶ 4.]
The Adversary Court found that, on May 18, 2006, Sebetich signed a letter - addressed "to whom it may concern" - stating that she was giving the Property to Alvin and Clifford Woods ("5/18/06 Letter"). The purpose of the 5/18/06 Letter was to enable Alvin and Clifford Woods to take out a loan secured by the Property. Sebetich and Alvin and Clifford Woods knew that the letter was false because Alvin and Clifford Woods had agreed to pay Sebetich $500,000 for the Property. [Id. at ¶ 5.] Sebetich argues that the 5/18/06 Letter is fraudulent and that her signature on it is forged. [Sebetich's Brief at 3 ( ).3] Sebetich attached the 5/18/06 Letter as an exhibit to her brief and wrote "Fraud" on it. [Id. at 17.]
In July 2006, Alvin and Clifford Woods obtained a $300,000 mortgage loan secured by the Property,4 and they paid Sebetich $150,000 from the loan proceeds. On September 20, 2006, Sebetich and Alvin and Clifford Woods signed a document stating that Alvin and Clifford Woods agreed to pay $350,000 for the Property ("Note"). In the Note, Alvin and Clifford Woods also agreed that, if they were unable to pay the $350,000 to Sebetich or in the event of their death, they would give the Property to Sebetich. The Note did not include a deadline by which they were to pay the $350,000 to Sebetich. [FOF/COL at 3, ¶¶ 6-7.] Alvin and Clifford Woods did not make any payments on the $350,000 that they promised to pay Sebetich, even though they refinanced the mortgage on the Property in March 2007. The principal amount of that loan was $472,500. [Id. at 3-4, ¶¶ 9-10.]
In 2010, Sebetich sued Alvin and Clifford Woods in state court, alleging claims for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and fraud ("State Court Action"). Alvin and Clifford Woods did not answer the complaint, and Sebetich obtained a default judgment against them for the $350,000, plus attorneys' fees and costs ("Default Judgment"). Sebetich recorded thejudgment, creating a lien on the Property, but she did not file suit to foreclose on the lien until December 17, 2013. [Id. at 4, ¶¶ 11, 13.]
On February 25, 2013, Alvin and Clifford Woods signed a quitclaim deed conveying a fifty percent interest in the Property to their parents, Clement and Irmgard Woods. All four signed another quitclaim deed on May 15, 2013, apparently to correct an error in the February 23, 2013 deed. [Id. at ¶ 12.]
Alvin Woods filed a Chapter 13 bankruptcy petition ("Petition") on January 14, 2014.5 The Petition stated that he had only been employed for two weeks with Yamaguchi Business Services and that he had not begun work, but he believed he would earn gross wages of $946.00 per month. He also anticipated that he would receive $620.00 per month in family support. However, Alvin Woods's wages turned out to be less than he anticipated. [Id. at 4-5, ¶ 14.] At the time the Adversary Court issued the FOF/COL, Alvin Woods was unemployed. The Adversary Court noted that, because the Chapter 13 plan ("Plan") payments were current, Alvin Woods's family must be making the payments for him.6 [Id. at 5, ¶ 16.] In addition, Alvin Woods stated in his bankruptcyschedules that he owned a fifty percent interest in the Property. His interest was actually twenty-five percent. [Id. at ¶ 17.]
The Adversary Court found that Alvin Woods did not intend to deceive anyone in connection with his Plan. Although his statement about his wages turned out to be incorrect, when he made the statement, he believed he would earn that amount, and he did not intend to deceive anyone. The Adversary Court found that Alvin Woods's misstatement about his interest in the Property was not intentional; Alvin Woods merely misunderstood the effect of the deeds that the Woodses executed. [Id. at ¶¶ 15, 18-19.] The Adversary Court also found that Alvin Woods's report of his anticipated family support was "substantially correct." [Id. at ¶ 16.]
In addition to alleging that the 5/18/06 Letter is fraudulent, Sebetich apparently argues that Alvin and Clifford Woods later acknowledged that they could not pay, and they agreed that Sebetich could sell the house to satisfy the Note. [Sebetich's Brief at 2.] However, she argues that Alvin Woods "[h]ad no intention in selling the property." [Designation at 4.] Thus, she alleges that Alvin Woods "deliberately and intentionally" gave false testimony about the Property. [Sebetich's Brief at 2.] She also argues that Alvin Woods intentionally misstated his income in his Petition. [Id. at 2-3.]
The FOF/COL notes that the bankruptcy court in Alvin Woods's Chapter 13 Proceeding ("Chapter 13 Court") confirmed his Plan and granted his motion to avoid Sebetich's judgment lien. No appeal was taken in the Chapter 13 Proceeding.7 [FOF/COL at 5, ¶ 20.]
On April 24, 2014, Sebetich filed a Complaint against Alvin Woods, initiating the Adversary Proceeding, and she filed a First Amended Complaint on June 6, 2014. [Bankr. Adv. No. 14-90019, dkt. nos. 2, 5.] The defendants in the First Amended Complaint were Alvin K. Woods, Clifford K. Woods, Irmgard Ka`aoaolahilahi Woods, and Clement Kalawaiamoku Woods. On September 28, 2014, the Adversary Court issued an order granting Clifford K. Woods, Irmgard Ka`aoaolahilahi Woods, and Clement Kalawaiamoku Woods's Motion to Dismiss First Amended Complaint. [Id., dkt. no. 32.] On November 7, 2014, the Adversary Court issued an order granting Sebetich leave to amend, and she filed her Second Amended Complaint on November 11, 2014. [Id., dkt. nos. 42, 44.] Alvin Woods is the only defendant named in the Second Amended Complaint. The Second Amended Complaint alleges the following claims: nondischargeability of debt pursuant to 11 U.S.C. § 523(a)(2) ("Count I"); nondischargeability of debt pursuant to § 523(a)(4) ("Count II"); nondischargeability of debtpursuant to § 523(a)(6) ("Count III"); revocation of Chapter 13 plan pursuant to 11 U.S.C. § 1330 ("Count IV"); and a claim for attorneys' fees pursuant to Haw. Rev. Stat. § 607-14.5 and Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007) ("Count V"). On April 5, 2015, Sebetich and Alvin Woods filed a stipulation to dismiss Counts II and III. [Id., dkt. no. 71.]
The Adversary Court conducted a trial on April 7 and 8, 2015. [Id., dkt. nos. 72, 74 (minutes of the proceedings).] The parties previously submitted the direct testimony of their witnesses by declaration. [Id., dkt. no. 48 (), 51 (Alvin Woods's declaration with exhibits), 52 (Clifford Woods's declaration with exhibits), 53 (Clement Woods's declaration).] Sebetich also submitted a rebuttal declaration. [Id., dkt. no. 62.] After the trial, the parties submitted written closing and rebuttal arguments, [id., dkt. nos. 76-78,] and the Adversary Court issued the FOF/COL thereafter.
The Adversary Court found that, when Alvin and Clifford Woods orally agreed to pay Sebetich $500,000 for the Property and when they executed the Note as evidence of their agreement to pay her the remaining $350,000, they intended to fulfill those promises. Thus, the Adversary Court concluded that Sebetich could not prevail on her § 523(a)(2) claim that Alvin Woods'sdebt to her was nondischargeable because he obtained the Property from her by "false pretenses, a false representation, or actual fraud." [FOF/COL at 7, ¶ 5.8]
The Adversary Court also rejected Sebetich's argument that res judicata effect of the Default Judgment requires a finding that Alvin Woods defrauded her. First, res judicata - i.e. claim preclusion - does not apply in proceedings to determine whether a debt is nondischargeable. Second, although issue preclusion - i.e. collateral estoppel - applies in such proceedings, the Default Judgment...
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