Smyrna Childcare Ctrs., LLC v. Melton (In re Melton)
| Decision Date | 20 May 2013 |
| Docket Number | NO. 10-6697,CASE NO. 10-89519-WLH,10-6697 |
| Parties | In re: TERALD L. MELTON, Debtor. SMYRNA CHILDCARE CENTERS, LLC, Plaintiff, v. TERALD L. MELTON, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
ADVERSARY PROCEEDING
MEMORANDUM OPINIONThis adversary proceeding comes before the Court on the complaint of Smyrna Childcare Centers, LLC ("SCC") against Terald L. Melton. Plaintiff seeks a judgment against Mr. Melton in the amount of $50,000 with interest, attorney's fees and punitive damages and a determinationthat the claim is non-dischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). After trial held on February 19 and 20, 2013, at which both parties were represented by counsel, the Court determines SCC holds a claim against Mr. Melton in the amount of $50,000.00 plus interest, which is non-dischargeable. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and by reference under 28 U.S.C. § 157(a).
Mr. Melton argued at the pre-trial conference that, in light of the Supreme Court decision of Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), this Court lacks constitutional authority to enter a final judgment on the underlying claim of SCC.
Under 28 U.S.C. § 157(b)(1), bankruptcy judges may hear and enter final judgments in "all core proceedings arising under title 11 or arising in a case under title 11." 28 U.S.C. § 157(b)(1). Section 157(b)(2)(I) provides that "determinations as to the dischargeability of particular debts" are core proceedings. 28 U.S.C. § 157(b)(2)(I). The Debtor has not questioned the Court's constitutional authority to hear and make a final determination as to each of the elements of 11 U.S.C. §§ 523(a)(2)(A),(4), and (6). The Debtor questions whether Stern prohibits the Court from exercising authority to enter a final judgment as to the amount of the Plaintiff's claims in the bankruptcy case.
Since the issuance of the Stern opinion, courts have debated whether to read it narrowly and restrict its application to similar facts or to read it broadly to significantly limit the bankruptcy court's authority. This Court agrees with the courts which conclude the Supreme Court's holding was narrow: as an Article I court, a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the processof ruling on a creditor's proof of claim" in a bankruptcy proceeding. Stern, 1315 S.Ct. at 2620. Stern did not question the Court's authority to determine the claim itself. Id. at 2616-17.
Since Stern was decided, multiple courts have addressed the extent of a Bankruptcy Court's constitutional authority to enter a final judgment on a non-dischargeability complaint. Not surprisingly, the opinions have varied.1 Compare Pearson Educ., Inc. v. Almgren, 685 F.3d 691 (8th Cir. 2012) (); Deitz v. Ford (In re Deitz), 469 B.R. 11 (B.A.P. 9th Cir. 2012) (); with In re Aslansan, 2013 WL 1458855 (Bankr. E.D. Pa.) ().
This action is a dispute over the scope of the Debtor's discharge, a right established by the Bankruptcy Code. Section 727(b) discharges a debtor from "all debts that arose before the date of the order for relief" subject to the provisions of Section 523. Receiving a discharge is integral to the bankruptcy scheme, is unique to bankruptcy law, and is a core matter under 28 U.S.C. § 157(b)(2)(I). No court has held that the Bankruptcy Court has no constitutional authority to make final determinations of dischargeability. "When a bankruptcy court determines the extent of a creditor's non-dischargeable claim, the court simply decides that a particular creditor is entitled to something more than the creditor would otherwise get out of the bankruptcy bargain." In re Laughlin, 2012 WL 1014754, at *8 (Bankr. S.D. Tex. Mar. 23, 2012). But in order for this Court to decide whether Plaintiff's claims are non-dischargeable, the Court must first ascertain the claim. Plaintiff alleges the claim is non-dischargeable under Section 523(a)(2), (4) and/or (6). Each of the sections provides that a discharge under Section 727 does not discharge a debtor from "any debt for" .... Before the Court can determine if a debt is non-dischargeable, it must determine the debt because only then can it determine if it was "for" fraud, willful and malicious injury and the like. Dischargeability and validity and amount of the claim are intertwined. This case is also distinguishable from Stern because here it is the Debtor who invoked the bankruptcy court jurisdiction by filing the bankruptcy case who now objects to the entry of a final judgment. The creditor here has no objection to the Court entering a final judgment, while in Stern, it was the creditor who objected to jurisdiction. This posture makes a difference in the outcome because, in Stern, the creditor found itself involuntarily litigating certain issues in bankruptcy court, while here the Debtor chose this forum and the protection the Bankruptcy Code provides.
The Court concludes that, by filing bankruptcy and attempting to obtain a discharge of all pre-petition debts, Defendant has acknowledged this Court's authority to enter a final judgment as to non-dischargeability as well as consented to a final adjudication of all matters involved in making a non-dischargeability determination.
Accordingly, this decision constitutes the court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052, some of which were stipulated to by the parties in the pre-trial order. However, if the United States District Court disagrees on any appeal and determines this Court does not have the authority to enter a final judgment in this action, then this Memorandum Opinion shall constitute the Court's proposed findings of fact and conclusions of law to the District Court pursuant to 28 U.S.C. § 157(c)(1).
1. Prior to filing bankruptcy, Mr. Melton was in the real estate business. He was part owner in various projects. He also raised money for and managed real estate projects through Ivy Ridge Capital Consulting, Inc. ("IRCC").
2. In 2008 and 2009, Mr. Melton's primary source of income was IRCC, which was owned and controlled 100% by Mr. Melton.
3. Mr. Melton personally owned 44% of Melco Investments, LLC ("Melco"), a real estate holding company. Another 44% of Melco was owned by Stephen Cohen, and the remaining 12% was owned by Rafik B. Kashlan (Def. Ex. 2).
4. Melco invested in several real estate projects, one of which was Laurel Commons II, LLC a/k/a The Shoppes at Smyrna Heights ("LCII"). LCII was formed to construct a 17,000 square foot retail building located on Concord Road in Smyrna, Georgia. Melco held a 90% interest in LCII. The remaining 10% interest was held by an unrelated party.
5. Melco also owned 100% of Melco Residential Rentals, LLC ("MRR"), which owned 10 residential units located in Atlanta, McDonough, and Fayetteville, Georgia. Melco also owned a 90% interest in Laurel Commons, LLC ("Laurel Commons"), a 10,000 square foot retail/office building located on Concord Road in Smyrna, Georgia.
6. IRCC was the manager of Melco and the related entities including LCII, Laurel Commons and MRR and operated them on a day-to-day basis.
7. Mr. Melton had exclusive control over all bank accounts of IRCC.
8. Mr. Melton had check-writing authority over all Melco accounts, including the accounts of LCII, Laurel Commons and MRR for all amounts up to $50,000.00. Any check in excess of $50,000.00 required the signature of both Mr. Melton and Mr. Cohen.
9. Melco was the primary investor in three projects financed by Midtown Community Bank, a division of Buckhead Community Bank. Mr. Melton testified that, prior to 2008, he was able to refinance the loans whenever they matured, which typically occurred every 12 to 18 months.
10. In April 2008, any increased financing of the LCII project, as well as various other projects owned by Melco, was becoming increasingly unlikely from Midtown Community Bank. The note held by Midtown Community Bank secured by the LCII property matured in June 2008. (Def. Ex. 4). Mr. Melton began actively seeking new financing in early 2009, a process which continued for the next 18 months. During this time, Mr. Melton had active negotiations with lenders but none of the negotiations were successful. Unbeknownst to Mr. Melton at the time, Midtown Community Bank had been issued a cease and desist order by the FDIC. It and Buckhead Community Bank were closed by the FDIC on December 4, 2009. (Def. Ex. 4).
11. In early 2009, Buckhead Community Bank, holder of the various Midtown Community Bank notes, sued LCII, Mr. Melton, Mr. Cohen, MMR and Laurel Commons for over $4 million on several notes involving several properties, including The Shoppes at Smyrna Heights. On September 17, 2009, summary judgment was entered against all defendants for the full amount sought in the State Court of Cobb County.
12. SCC is a child day care center owned and operated by Lisa Abernathy-Taylor and her husband. Mr. Melton knew Ms. Taylor because his daughter attended another day care center operated by Ms. Taylor.
13. In June 2009, Ms. Taylor had closed her prior childcare center due to issues with mold, and was actively seeking a new location. Upon discovering Ms. Taylor was looking for a new building to lease for her day care center, Mr. Melton suggested she move her business to The Shoppes at Smyrna Heights.
14. The Shoppes at Smyrna Heights was directly across the street from Ms....
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