Szafron v. Wielogosinski (In re Wielogosinski)
| Decision Date | 24 March 2021 |
| Docket Number | Adversary No. 19 A 00018,Case No. 18 B 22666 |
| Citation | 628 B.R. 547 |
| Parties | IN RE: Angie & Krzysztof WIELOGOSINSKI, Debtors. Christine Szafron, Plaintiff, v. Angie Wielogosinski, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Ariane Holtschlag, Law Office of William J. Factor, Ltd., Chicago, IL, for Defendant.
Angie Wielogosinski, Homer Glen, IL, Pro Se.
David P. Lloyd, David P. Lloyd, Ltd., LaGrange, IL, for Plaintiff.
LaShonda A. Hunt, United States Bankruptcy Judge This adversary complaint is before the court for ruling after trial. Plaintiff Christine Szafron alleges that defendant/debtor Angie Wielogosinski obtained an $80,000 loan from her through false representation and actual fraud, and so the debt is nondischargeable under 11 U.S.C. § 523(a)(2). Szafron further alleges that Wielogosinski should be denied a bankruptcy discharge for violating 11 U.S.C. § 727(a)(6) when she failed to comply with a prior court order to respond to overdue discovery requests. The court has considered the evidence presented and the arguments of the parties at the half-day Zoom trial. This decision constitutes the court's findings of fact and conclusions of law under Fed. R. Civ. P. 52(a), made applicable by Fed. R. Bankr. P. 7052. For the reasons that follow, the court finds that Szafron has not met her burden of proof on either claim; therefore, judgment will be entered in favor of Wielogosinski on all counts of the complaint.1
The facts are taken from the pleadings in the bankruptcy case and adversary proceeding,2 pretrial stipulations, admitted trial exhibits, and the trial testimony of Szafron and Wielogosinski, the sole witnesses.3 The parties were friends whose families had a long personal history. In early 2006, Wielogosinski was living in Florida in a home that she had been unsuccessfully trying to sell. At some point, either during a telephone conversation or an in-person discussion, Wielogosinski told Szafron that she was buying a condo in Homer Glen, Illinois and had put down some earnest money but needed $80,000 more to finish the deal. Szafron withdrew the funds from her personal home equity line of credit and loaned the money to Wielogosinski.
The parties memorialized their deal with a written promissory note. (Trial Exhibit 3). The Note, as admitted into evidence, provides that Wielogosinski4 acknowledges she is borrowing $80,000 from Szafron "to be used towards purchase of my new residence in Homer Township, Illinois" and her "intention [is] to pay back the $80,000 in full within two months or at time of sale/closing (whichever comes first) of my home at 5233 Algarine, Zephyr Hills, Florida." It was purportedly signed by "Angie Stekala Wielgosinski" before a notary public on March 20, 2006. At trial, Wielogosinski agreed that she signed a note for the loan but expressed reservations about whether this exhibit was the note. She suggested that Szafron had drafted this particular document and signed Wielogosinski's name, and the notary stamp was a forgery.5 Still, Wielogosinski did not dispute that she had previously signed some document evincing a loan of $80,000 from Szafron for a real estate purchase in Illinois that she agreed to potentially repay with money from the sale of her Florida property.
In April 2006, Wielogosinski and her husband bought the Homer Glen property for $314,990. (Tr. Exs. 4-6). They funded the purchase with a mortgage for $267,700. (Tr. Ex. 7). Wielogosinski testified that she made monthly payments on the Szafron loan from April 2006 until April 2016 and gave Szafron $40,000 in June 2008 from the sale proceeds of her Florida property. Although her interrogatory response lists total repayments of $77,800, (Tr. Ex. 16), Wielogosinski clarified that the referenced ring allegedly worth $5,000 was given to Szafron's daughter as a gift. Wielogosinski said she stopped paying on the debt after Szafron hired a lawyer to sue her. Szafron confirmed that Wielogosinski began making interest-only payments directly to the bank for her line of credit, albeit during a slightly different timeframe—October 2006 until July 2014 when a balloon payment became due. Sometime thereafter, Szafron retained counsel to recover the loan balance from the Wielogosinskis. In 2017, she obtained and recorded a judgment for $40,083 against their Homer Glen property. (Tr. Ex. 4).
Wielogosinski and her husband filed a joint chapter 7 petition on August 10, 2018, listing Szafron as a creditor. Szafron hired bankruptcy counsel, David Lloyd, and sought leave to conduct a Rule 2004 examination of Wielogosinski about the loan, proceeds, and repayment history. That motion was granted on September 14, 2018. (Tr. Ex. 9). Szafron issued interrogatories and document requests to Wielogosinski through her bankruptcy attorney, Rayed Yasin. (Tr. Exs. 10, 11). Although those responses were due October 20, 2018, nothing was tendered. Lloyd wrote to Yasin inquiring about the overdue discovery. (Tr. Exs. 12, 13). Lloyd eventually filed a motion to compel discovery that was granted on December 7, 2018, giving Wielogosinski two weeks to respond to the outstanding requests. (Tr. Exs. 14, 15).6
Yasin finally sent Lloyd a one-page document containing interrogatory responses signed by Wielogosinski, on January 11, 2019. (Tr. Ex. 16). A few days later, Szafron timely initiated an adversary proceeding objecting to Wielogosinski's discharge and seeking a determination about the dischargeability of the judgment debt. The complaint raised three grounds for relief. Counts I and II sought to deny Wielogosinski a discharge based on her failure to fully respond to the Rule 2004 discovery requests. Count I alleged a violation of 11 U.S.C. § 727(a)(3) for concealing or destroying evidence or disregarding her duty to preserve information about her financial condition and business transactions. Count II alleged a violation of 11 U.S.C. § 727(a)(6) for refusing to obey a lawful court order. Count III challenged the dischargeability of the judgment debt under 11 U.S.C. § 523(a)(2), alleging Wielogosinski made false representations about how the proceeds would be used and her intent to repay the debt within two months in order to induce Szafron to agree to the loan.
Szafron abandoned count I at trial. See n. 1 , supra. With respect to the remaining claims, Wielogosinski averred that she had to pay $37,000 directly to the builder for custom upgrades on her unit that were not included in the purchase price. She then used the remaining $43,000 towards the down payment. Furthermore, Wielogosinski pointed to the $40,000 lump-sum she gave Szafron from the Florida sale proceeds and her consistent monthly payments for ten years as evidence of her intent to repay. Finally, Wielogosinski asserted she kept all paperwork relating to the condo purchase, the "real" promissory note, and payments on the loan, in a book that was stolen from her house. She accused Szafron of taking the documents during a visit. That, Wielogosinski said, is the reason she could not produce any responsive documents.
The court has jurisdiction over this matter under 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(I) and (K).
The goal of the bankruptcy process is to give the "honest but unfortunate debtor" a fresh start. Marrama v. Citizens Bank of Massachusetts , 549 U.S. 365, 127 S. Ct. 1105, 1107, 166 L.Ed.2d 956 (2007). As such, objections to discharge will be construed strictly against the opposing party and in favor of the debtor. See Grochocinski v. Eckert (In re Eckert) , 375 B.R. 474, 478 (Bankr. N.D. Ill. 2007). Debts are presumed dischargeable and objecting creditors bear the burden of demonstrating nondischargeability. Bank of Commerce & Trust Co. v. Strauss (In re Strauss) , 523 B.R. 614, 625 (Bankr. N.D. Ill. 2014). The proper burden of proof for establishing that the discharge should not be given or that a debt is excepted from discharge is preponderance of the evidence. Kontos v. Manevska (In re Manevska), 587 B.R. 517, 529 (Bankr. N.D. Ill. 2018) ; Strauss , 523 B.R. at 625. Szafron did not meet her burden here.
Section 727(a)(6) provides that a court shall grant the debtor a discharge unless, "[t]he debtor has refused, in the case—to obey any lawful order of the court, other than an order to respond to a material question or to testify." 11 U.S.C. § 727(a)(6)(A). Szafron argues that Wielogosinski failed to comply with the court's order compelling her to respond to interrogatories and to produce responsive documents pursuant to requests issued under Fed. R. Bankr. P. 2004, by December 21, 2018. That is an accurate statement. Wielogosinski did not tender signed interrogatory responses until January 2019, three weeks after the deadline, and she never produced any documents. Her only explanation at trial was that the records were no longer in her house and must have been stolen, possibly by Szafron.
This court has discretion "to determine if a violation of a court's order is so severe as to require denial of discharge." Manevska , 587 B.R. at 540. A movant seeking such extraordinary relief "has the burden to prove a debtor ‘refused’ to obey a lawful order of the court." Eckert , 375 B.R. at 480. Mere failure to obey resulting from inadvertence, mistake, or inability to comply, without more, is insufficient. Id. Indeed, the statute requires a "refusal," which indicates "some degree of willfulness on the part of the debtor." Id.
Here, at most, Szafron has shown that Wielogosinski likely knew about and received the court order—the docket reflects electronic service on her bankruptcy counsel only—but still failed to comply with its terms. True, Wielogosinski has offered no explanation for her...
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