Smith v. Wall (In re Wall)

• Decision Date: 24 March 2017
• Docket Number: Case No. 16-60490-7,Adv. No. 16-00050
• Parties: In re JULIA MARION WALL, Debtor. JOAN SMITH, ESTATE OF MERWIN SMITH, GREGORY TRENT WALL, Plaintiffs. v. JULIA MARION WALL, Defendant.
• Court: U.S. Bankruptcy Court — District of Montana

In re JULIA MARION WALL, Debtor.

JOAN SMITH, ESTATE OF MERWIN SMITH,GREGORY TRENT WALL, Plaintiffs. v. JULIA MARION WALL, Defendant.

Case No. 16-60490-7

Adv. No. 16-00050

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

March 24, 2017

MEMORANDUM OF DECISION

At Butte in said District this 24^th day of March, 2017.

Pending in this Chapter 13 case and adversary proceeding are: (i) Defendant/Debtor Julia Marion Wall's (hereinafter "Julia" or "Debtor") combined Motion to Dismiss Smiths' complaint under Rule 12(b)(6) and Motion for Summary Judgment on her counterclaims for violation of the discharge injunction, filed on February 23, 2017 (Docket No. 42); and the (ii) Debtor's Objection to Proof of Claim No. 6 filed by Smiths in Debtor's Case No. 16-60490-13 (the "Dispositive Motions"). Joan Smith ("Joan") and the Estate of Merwin Smith (together hereinafter "Smiths") filed a brief in opposition. These matters were combined for trial and are addressed in this

Memorandum of Decision.

INTRODUCTION

A pretrial status hearing was held in this adversary proceeding at Missoula on March 9, 2017. The parties were represented by counsel. Attorney Nik G. Geranios of Missoula appeared for the Debtor, and attorney Howard Toole ("Toole") of Missoula appeared representing the Plaintiffs. Smiths requested and were granted two extensions of time to file Smiths' brief in opposition to the Dispositive Motions, which seek dismissal of Smiths' complaint under Rule 12(b)(6), Fed. R. Civ. P. (applicable in adversary proceedings under F.R.B.P. 7012(a)), for failure to state a claim upon which relief can be granted, and further seeks summary judgment on Debtor's counterclaims for violation of the discharge injunction of 11 U.S.C. § 524(a)(2).

The Court has reviewed the Dispositive Motions and Debtor's Objection to Proof of Claim No. 6, Smiths' Opposition to the Dispositive Motions, the Debtor's Statement of Uncontroverted Facts and briefs, supporting documents, and Smiths' opposition brief, and related submissions. The pending Dispositive Motions and Objection to Proof of Claim are interrelated, and are ready for decision. For the reasons set forth below, Debtor's Motion to Dismiss and Motion for Summary Judgment each will be granted, Smiths' claims for relief asserted in their First Amended Complaint ("FAC") will be dismissed, and Debtor's Objection to Proof of Claim No. 6 will be sustained by separate Orders. Trial will be scheduled by future Order in this adversary proceeding for the limited purpose of determining the amount of damages to be awarded to the Debtor against the Smiths for their violations of the discharge injunction of § 524(a)(2).

JURISDICTION

This Court has original and exclusive jurisdiction of Julia's Chapter 13 bankruptcy case under 28 U.S.C. § 1334(a). In addition the Court has jurisdiction in this adversary proceeding under § 1334(b) as Smiths' claims seeking exception of their debt from, and revocation of, Debtor's discharge arise in and are related to a case under Title 11, U.S.C. The parties' pleadings agree that this Court has jurisdiction.

Smiths' claims seeking exception from Defendant's discharge and revocation of discharge are core proceedings under 28 U.S.C. §§ 157(b)(2)(I). Debtor's counterclaims alleging violations of the discharge injunction are core proceedings under § 157(b)(2). Debtor's Objection to Smiths' Proof of Claim No. 6 is a core proceeding under § 157 (b)(2)(B).

BACKGROUND FACTS & PROCEDURAL HISTORY

Several facts are undisputed and can be verified by simply looking at the docket maintained by this Court in a prior case involving the Debtor. Under Rule 201, Fed. R. Evid., the Court may take judicial notice of undisputed matters of public record, including documents on file in federal or state courts. Harris v. County of Orange, 682 F.3d 1126, 1131-32 (9^th Cir. 2012); see Bennett v. Medtronic, Inc., 285 F.3d 801, 803 n.2 (9^th Cir. 2002) ("[W]e 'may take notice of proceedings in other courts, both within and without the federal judicial systems, if those proceedings have a direct relation to matters at issue.'", quoting United States ex rel. Robinson Rancheria Citizens Council v. Borneo, 971 F.2d 244, 248 (9^th Cir. 1992)). The court may use judicially noticed facts to establish that a claim does not state a claim for relief. Intri-Plex Techs. v. Crest Grp., Inc., 499 F.3d 1048, 1052 (9^th Cir. 2007). The court also can take judicial notice of papers filed in related litigation, Estate of Blue v. County of Los Angeles, 120F.3d 982, 984 (9^th Cir. 1997), and papers filed in an underlying bankruptcy case are subject to judicial notice in related adversary proceedings. O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9^th Cir. 1989). At Debtor's request the Court took judicial notice of the dockets in this adversary proceeding, the Debtor's pending Chapter 13 case, and Julia's prior chapter 7 bankruptcy case, Case No. 12-60657-7 (the "Prior Bankruptcy Case").

A. Debtor's Prior Bankruptcy Case.

On April 26, 2012, Julia, along with co-debtor, Gregory Trent Wall ("Gregory") filed a Chapter 7 bankruptcy petition commencing Case No. 12-60657-7. At the time of filing, Julia and Gregory were married. Joan Smith is Gregory's mother and Merwin Smith ("Merwin"), deceased, was Gregory's stepfather.

Prior to April 26, 2012, Gregory suffered a disabling injury and Joan and Merwin provided Gregory and Debtor financial assistance, including loans for various purposes, including: (i) funds to move from Sacramento, California, to the Bitterroot Valley in Montana in 2004 or 2005; (ii) funds to acquire a mobile home after they arrived in Montana; and (iii) funds to purchase real property in Montana. Debtor signed a note promising to repay Smiths the amount of $125,000. Debtor and Gregory made several payments on the indebtedness to Joan and Merwin for years. Ultimately, the balance increased to approximately $165,000 (the "Smith Debt"), prior to filing the Prior Case. The Smith Debt was not scheduled in the Prior Case.

Along with the Smith Debt, Gregory and Debtor also owed Joan and Mervin $750.00 in connection with a debt secured by a Honda 4 wheeler (the "Smith Secured Debt"). The Smith Secured Debt was included on Schedule D in the Prior Case. Schedule D incudes Joan's address as 175 Orr Loop Road, Darby, MT 59829. On their Statement of Intention Gregory and Juliastated their intention to reaffirm the Smith Secured Debt.

The Bankruptcy Noticing Center ("BNC") mailed Joan the usual "Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines" on April 28, 2012, at 175 Orr Loop Road, Darby, MT 59829¹. The notice informed Joan of the meeting of creditors to be held on June 4, 2012. It also gave Joan notice of the August 3, 2012 deadline to object to the debtors' discharge or to challenge dischargeabiliity of certain debts. The notice included the following explanation of a "Discharge:

The debtor is seeking a discharge of most debts, which may include your debt. A discharge means that you may never try to collect the debt from the debtor. If you believe that the debtor is not entitled to receive a discharge under Bankruptcy Code §727(a) or that a debt owed to you is not dischargeable under Bankruptcy Code §523(a)(2), (4), or (6), you must file a complaint -- or a motion if you assert the discharge should be denied under §727(a)(8) or (a)(9) -- in the bankruptcy clerk's office by the "Deadline to Object to Debtor's Discharge or to Challenge the Dischargeability of Certain Debts" listed on the front of this form. The bankruptcy clerk's office must receive the complaint or motion and any required filing fee by that deadline.

See, Dkt. 4 of Case No. 12-60657-7 (Emphasis added).

The notice instructed creditors not to file a proof of claim at that time, but that they would be sent another notice if it later appeared that assets would be available to pay creditors. Such a "Notice to File Claims" was issued by the Clerk of Court on June 5, 2012. It informed the creditors that they had until September 3, 2012 to file a Proof of Claim in order to share in distribution of assets "or be forever barred." The BNC mailed the Clerk's Notice to File Claims to Joan Smith at 175 Orr Loop Road, Darby, MT 59829, on June 7, 2012. Smiths did not file a Proof of Claim in the Prior Case. Neither did Smiths file a complaint seeking exception of the Smith Debt from the debtors' discharge in the Prior Case.

A discharge was entered in the Prior Case on August 6, 2012. The discharge (Dkt. in Case No. 12-60657-7) contains the following provisions on the back side:

Collection of Discharged Debts

The discharge prohibits any attempt to collect from the debtors a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtors. A creditor who violates this order can be required to pay damages and attorney's fees to the debtor.

However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtors' property after the bankruptcy, if that lien was not avoided or eliminated in the bankruptcy case. Also, a debtor may voluntarily pay any debt that has been discharged.

Debts that are Discharged

The chapter 7 discharge order eliminates a debtor's legal obligation to pay a debt that is discharged. Most, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed. * * * *

Debts that are Not Discharged.

* * * *

g. Some debts which were not properly filed by the debtor;

h. Debts that the bankruptcy court specifically has decided or will decide in this bankruptcy case are not discharged;

i. Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements

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