Southern Heritage Bank v. Hart (In re Hart), 09-16854
| Decision Date | 09 August 2012 |
| Docket Number | Adversary Proceeding No. 10-1304,No. 09-16854,09-16854 |
| Parties | In re: LORETTA J. HART, Debtor; SOUTHERN HERITAGE BANK Plaintiff, v. LORETTA J. HART, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
SO ORDERED.
THIS ORDER HAS BEEN ENTERED ON THE DOCKET.
PLEASE SEE DOCKET FOR ENTRY DATE.
___________
Shelley D. Rucker
Chapter 7 Debtor
MemorandumSouthern Heritage Bank ("Bank"), the plaintiff in the above styled action, filed a Motion to Amend Final Judgment entered on May 20, 2011. [Doc. No. 39].1 This motion was argued on May 31, 2012. The order in question determined the amounts owed by Loretta Hart, the debtor and defendant in this proceeding ("Debtor"), on certain debts owed to the Bank. In the order, the court found that those debts were nondischargeable. The Bank now seeks to have the order amended to include a judgment for those amounts. Based on the arguments of counsel, the record of the dischargeability trial conducted on April 6, 2011, and the briefs filed in support and in opposition to the motion, including post hearing exhibits, the court finds that it made a final determination on the Debtor's ability to raise her own counterclaims, to the extent that she had any. The court further finds that its failure to enter judgments in favor of the Bank was a mistake that should be corrected under Rule 60 of the Federal Rules of Bankruptcy Procedure, as made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 9024. For the reasons given below, the court will GRANT the Bank's motion and amend its prior order.
On February 17, 2010, the Bank filed this adversary proceeding objecting to the discharge of the Debtor. The court held the trial on April 6, 2011. Following the trial, the court signed an order on May 19, 2011 which was entered on May 20, 2011 finding that four debts owed to the Bank were not dischargeable. [Doc. No. 28, Order ("May 20 Order")]. The four debts owed to the Bank were described in the May 20 Order as follows:
May 20 Order at 2.
The May 20 Order did not expressly grant a judgment in favor of the Bank on account of each debt, but it did make specific findings of the amount of each debt which remained outstanding at the time of the trial. The Bank had asked the court for a judgment in its complaint to resolve issues that have now arisen regarding counterclaims which the Debtor is seeking to assert. It asks the court to amend the May 20 Order to include a judgment against the Debtor for the specific amounts pursuant to Federal Rules of Bankruptcy Procedure 9024 on the basis that it was a mistake for the court to have omitted a judgment in the May 20 Order. The Bank acknowledges that any judgment granted by the court will be subject to adjustment in an amount equal to the amount of any judgment obtained by Optimum Staffing, Inc. ("Optimum"), the principal obligor on the Optimum Loan guaranteed by the Debtor. If Optimum is successful, the Bank would reduce Optimum's obligation to the Bank on the Optimum Loan, and the Debtor's guaranty obligation would be reduced by an equal amount.
The Debtor has responded and opposes any amendment on four grounds. First, she contends that no evidence has been presented to support the Bank's contention that the court made a mistake by omitting a judgment and, consequently, the Bank has not carried its burdenunder Rule 9024. Second, she asks that the court abstain and allow the Bradley Court Chancery Court to adjudicate the Bank's claim and the Debtor's and Optimum's counterclaims. Third, she argues that the Bank should be estopped from seeking a judgment from this court because the Bank has filed two new lawsuits in Bradley County, Tennessee seeking a judgment against the Debtor. She argues that if the Bank is pursuing relief in Bradley County, then, as the defendant, she should be allowed to raise any counterclaims and defenses specific to her in response to those complaints. Finally, she has also raised the issue of the court's jurisdiction to enter a judgment which would cut off claims which the Debtor contends she has against the Bank based on the United States Supreme Court's ruling in Stern v. Marshall, 131 S.Ct. 2594 (2011).
At the time of the dischargeability trial, and even before the Hart bankruptcy case was filed, there was litigation pending in the Chancery Court of Bradley County, the case of Southern Heritage Bank v. Optimum Staffing, Inc., Loretta J. Hart and Jerry Scheib, Doc. No. 09-022. ("Chancery Litigation"). The Debtor was the principal of Optimum, but her exact position and ownership of the corporation were issues addressed in the dischargeability trial. The Chancery Litigation was stayed by the bankruptcy filing by Optimum, Bankruptucy Case No. 09-15008 on August 10, 2009 and the bankruptcy filing by the Debtor on October 22, 2009. Both bankruptcy cases are now closed. In re Hart, Bankr. Case No. 09-16854, Doc. No. 163, May 4, 2012; In re Optimum Staffing, Bankr. Case No. 09-bk-15008, Doc. No. 43, May 22, 2012. The Chancery Litigation remained dormant throughout the bankruptcy cases. Neither Hart's nor Optimum's trustee pursued claims against the Bank. Whatever claims were held by the estate would have been revested in each debtor upon the closing of the case. 11 U.S.C. § 554(c). Since both cases have been closed, the stay imposed by 11 U.S.C. § 362(a) has expired, and there is no longer anyneed for an order lifting the stay. 11 U.S.C. § 362(c)(2). Optimum did not obtain a discharge in its Chapter 7 case because it is not an individual. 11 U.S.C. § 727(a)(1). As to the debts owed to the Bank, the Debtor did not receive a discharge of the four debts pursuant to the court's May 20 Order, the largest of which was the Debtor's guaranty of Optimum's debt to the Bank. Both parties informed the court at the hearing on the Motion to Amend that the Chancery Litigation has resumed, and an issue has arisen over whether this court intended to enter a judgment in favor of the Bank that would now preclude the Debtor from raising any counterclaims against the Bank in the Chancery Litigation or in two new lawsuits filed by the Bank in the Chancery Court of Bradley County, Tennessee.
The Debtor did not raise any affirmative defenses to the Bank's loans in her answer to the Bank's dischargeability complaint. [Doc. No. 7]. In her trial brief, the Debtor relied on denials of the Bank's allegations that she provided it with false financial statements or made material misrepresentations on which the Bank relied. There is one sentence about "some very questionable documents which have been filed with this court on various claims of this creditor." [Doc. No.19, Debtor's Trial Brief at 2]. However, she never amended her answer to assert either a counterclaim or to raise an affirmative defense of setoff. The Debtor's witness list had no witness identified to testify about counterclaims or offsets. One witness was identified as a handwriting expert, but the issue of the authenticity of anyone's handwriting or signature was not discussed in the trial brief.
The Debtor first raised the issue of counterclaims shortly before trial when she provided the Bank with her trial exhibits. The Bank filed a motion in limine on April 4, 2011, two days prior to the trial date of April 6, 2011. The motion sought to have the court limit the proof thatcould be taken on the set off issue based on the fact that the affirmative defense had not been raised. Motion in Limine at 2, Doc. No. 24. The motion was further supplemented by the Bank with a memorandum of authorities which supported the Bank's contention that the defense was lost if not raised in a timely manner; that such claims were compulsory counterclaims which the Debtor had failed to raise; and finally, that to the extent that the set off claim was a claim of Optimum's rather than the Debtor's, the Debtor could not raise that defense in a case in which Optimum was not a party and where the Debtor had waived such defenses in the guaranty which she signed. [Doc. No. 25, Supplemental Document in Support of Motion in Limine at 3].
The Bank's counsel also represented to the court that the Debtor had asserted no counterclaim of her own against the Bank in the Chancery Litigation. The Bank's counsel argued that the Debtor had failed even to list claims against the Bank as property of the estate. Debtor's counsel countered that the answer denied the debt, and his client had never been asked in discovery for the basis of the denial. He further pointed out that the Debtor's schedules had been amended to reflect the counterclaim.
Prior to ruling on the motion in limine, the court reviewed the record and found that the Debtor had filed a Schedule B amendment which referenced a "[c]ounterclaim in Case # 09-023." [Bankr. Case No. 09-16854, Doc. No. 78, Amended Schedule B at 2, Question 18]. The Schedule B Amendment was filed on February 23, 2010. The Schedule does not disclose the party against whom the counterclaim exists and does not reflect the same case number as the Chancery...
To continue reading
Request your trial