Le Van-Voegler v. Myrtle (In re Myrtle)

• Decision Date: 15 October 2013
• Docket Number: Adversary No. 12–05074.,Bankruptcy No. 12–51281.
• Citation: 500 B.R. 441
• Parties: In re Walter T. MYRTLE and Amanda M. Myrtle, Debtors. Laura A. Le Van–Voegler And Christoph J. Voegler, Plaintiffs, v. Walter T. Myrtle and Amanda M. Myrtle, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Virginia

500 B.R. 441

In re Walter T. MYRTLE and Amanda M. Myrtle, Debtors.

Laura A. Le Van–Voegler And Christoph J. Voegler, Plaintiffs,

v.Walter T. Myrtle and Amanda M. Myrtle, Defendants.

Bankruptcy No. 12–51281.

Adversary No. 12–05074.

United States Bankruptcy Court,

W.D. Virginia,

Harrisonburg Division.

Oct. 15, 2013.

Brian Keith Brake, Lenhart Obenschain, P.C., Harrisonburg, VA, for Plaintiffs.

Douglas W. Harold, Jr., White Post, VA, for Defendants.

MEMORANDUM OPINION DENYING DEBTOR–DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

REBECCA B. CONNELLY, Bankruptcy Judge.

Laura Van–Voegler and Christoph Voegler filed this adversary proceeding seeking a determination that the debt they allegedly hold against the debtors, Walter and Amanda Myrtle, is non-dischargeable under 11 U.S.C. § 523(a)(2)(A). On the eve of the pre-trial conference, the debtors filed a motion for summary judgment alleging that they were entitled to judgment as a matter of law on Plaintiffs' complaint. The Court held a hearing on Defendants' motion for summary judgment on August 13, 2013. At the hearing, the Court raised questions regarding the existence of a debt and the Court's authority to determine the existence of said debt. Following the hearing, the Court took Defendants' motion under advisement and invited the parties to submit post-hearing briefs. Each party submitted a brief. Based on the pleadings, exhibits, arguments presented at the hearing, and the briefs, the Court makes the following findings of fact and conclusions of law.

Undisputed Facts

The following facts are undisputed. On June 25, 2011, the Plaintiffs entered into a contract with Serenity Pool & Spa.¹ Serenity Pool & Spa is a trade name for Walter Myrtle and possibly Amanda Myrtle. Plaintiffs paid the Myrtles a total of $31,000.00 in connection with the contract. ²

A building permit was issued by Warren County to Serenity Pool & Spa.³ Mr. Myrtle held a valid Class B Contractor's License t/a/ Serenity Pool & Spa prior to April 3, 2012.⁴

Mr. Myrtle's license was revoked on April 3, 2012, by the Virginia Department of Professional and Occupational Regulation Compliance and Investigation Division.⁵

Months later, on July 27, 2012, Plaintiffs filed a state court action against Mr. and Mrs. Myrtle that alleged breach of contract, fraud in the inducement, and violations of the Virginia Consumer Protection Act.⁶ On September 28, 2012, before the trial, Mr. and Mrs. Myrtle filed a voluntary Chapter 7 petition with this Court.⁷

Mr. and Mrs. Myrtle listed Plaintiffs in their bankruptcy schedules as holding a potential unsecured, non-priority claim for $443,000.00 based on the pending state law action.⁸ Plaintiffs did not file a claim in this case. ⁹ The Voeglers filed this adversary proceeding on December 12, 2102.

Jurisdiction and Authority

Mr. and Mrs. Myrtle are debtors in this Court. The Voeglers have a proceeding against the debtors pursuant to Bankruptcy Code section 523(a)(2)(A). The action is a core proceeding under 28 U.S.C. § 157(b)(2)(I) as it pertains to the question of whether the debt allegedly owed to the Voeglers is excepted from Mr. and Mrs. Myrtle's discharge. Pursuant to 28 U.S.C. §§ 1334 and 157, this Court has jurisdiction over this case and statutory authority to determine the question of dischargeability under 11 U.S.C. § 523(a)(2)(A).

In addition to the issue of dischargeability, Plaintiffs' complaint asks this Court to resolve the underlying question of liability, liquidate damages, and award punitive damages and attorney's fees.¹⁰ At the hearing on Defendants' motion for summary judgment, the Court requested that the parties submit case law on the issue of whether the Court has the authority to determine liability, liquidate Plaintiffs' claim, and award punitive damages,¹¹ in light of the United States Supreme Court's ruling in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).¹² After review of the materials submitted by the parties and the case law of our sister courts, this Court concludes that it has authority to adjudicate these integral and necessary issues associated with the Plaintiffs' nondischargeability action. In re Deitz, 469 B.R. 11 (9th Cir. BAP 2012) (holding that Stern does not preclude a bankruptcy court from liquidating a creditor's claim through the non-dischargeability process); In re Cowin, 492 B.R. 858 (Bankr.S.D.Tex.2013) (holding that liquidating state law claims against a debtor is closely integrated into the Code, is a necessary element to determining dischargeability, and, therefore, is not precluded by Stern ); In re Conley, 482 B.R. 191 (Bankr.S.D.Ohio 2012) (holding that the bankruptcy court had the constitutional authority to enter a final judgment liquidating the creditor's claim before determining dischargeability); In re Boricich, 464 B.R. 335 (Bankr.N.D.Ill.2011) (holding that the authority to liquidate judgments in order to adjudicate non-dischargeability was not impaired by Stern ). The Court concludes it has constitutional authority to issue a final ruling in this matter, even though liability on the non-bankruptcy law cause of action has not been determined.

Standard of Review on Summary Judgment

Defendants have filed a motion for summary judgment on the Plaintiffs' complaint. Summary judgment should be granted if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. News and Observer Publishing Co. v. Raleigh–Durham Airport, 597 F.3d 570, 576 (4th Cir.2010). Facts are considered material when they might be outcome determinative. Id. An issue is considered to be genuine when the evidence is such that a reasonable juror could return a verdict for the non-moving party. Id. Lastly, the moving party is entitled to judgment as a matter of law if the non-moving party fails to make an adequate showing as to an essential element for which he has the burden of proof. Id. In making these determinations, the non-moving party's evidence is to be believed and the Court must make all justifiable inferences in the non-moving party's favor. Id. The non-moving party, however, cannot make bare assertions and survive a motion for summary judgment; rather, the non-moving party must set out specific facts showing a genuine issue for trial. Id.

In this case, the Voeglers are the non-moving party. They are seeking a determination under 11 U.S.C. § 523(a)(2)(A) that the debt allegedly owed them by Mr. and Mrs. Myrtle is non-dischargeable. At trial, the Voeglers carry the burden of establishing all the elements necessary for the Court to determine that they hold a debt and that it is non-dischargeable. At this stage, the Voeglers simply must set out specific material facts that establish a genuine issue as to each element of section 523(a)(2)(A) to survive Defendants' motion and proceed to trial. If the Voeglers fail to set out such facts, Mr. and Mrs. Myrtle are entitled to judgment as a matter of law, and the Voeglers may not proceed to trial.

Alleged Facts, Evidentiary Support, and Defendants' Corresponding Responses

Plaintiffs have alleged the following facts. Mr. and Mrs. Myrtle knowingly and with the intent to deceive led Plaintiffs to believe that Serenity Pool & Spa was a valid Virginia corporation authorized to perform construction work in the Commonwealth. Plaintiffs had no knowledge that Serenity's corporate status had been terminated and that they were entering into a contract with Mr. Myrtle d/b/a Serenity Pool & Spa or possibly Mr. and/or Mrs. Myrtle d/b/a Serenity Pool & Spa. Plaintiffs never would have entered into the contract if they had known that Serenity Pool & Spa was not a valid Virginia corporation, was not licensed to perform construction work in Virginia, or that Mr. and/or Mrs. Myrtle had no intention of performing under the contract. Finally, but for Mr. and/or Mrs. Myrtle's false and misleading statements regarding Serenity's corporate status, authority to perform construction work in Virginia, and their intent to perform, Plaintiffs never would have entered into the contract and never would have paid Defendants the sum of $31,000.00.

In support of these allegations, Plaintiffs cite their sworn answers to Defendants' interrogatories, as to their belief that Serenity Pool & Spa was a valid Virginia corporation licensed to perform construction work in Virginia. Additionally, Plaintiffs intend to testify as to their reliance and the damage they suffered as a result of Defendants' statements. Furthermore, Plaintiffs anticipate entering into evidence certain documents that support Plaintiffs' belief, including advertising materials, the contract, permit applications, change orders, and a fictitious name certificate.

Defendants generally dispute these allegations. In particular, Defendants deny taking any actions to intentionally deceive or mislead Plaintiffs to believe that Serenity Pool & Spa was a Virginia corporation. More to the point, Defendants allege that Plaintiffs knew that Serenity Pool & Spa was not a Virginia corporation. In fact, the Defendants cite to Mrs. Van–Voegler's admission of her knowledge that Serenity Pool & Spa is unincorporated. Additionally, Defendants deny they lacked the intention to perform the contract. Defendants charge that Plaintiffs thwarted efforts to complete the project, the project was substantially completed, and Plaintiffs' unavailability excused Defendants' performance under the contract.

In support of these denials and allegations, Defendants plan to present the following evidence. First, Defendants identify the contract and advertising materials. They assert that nothing in the contract or advertising materials constitutes a representation that Serenity Pool & Spa was a Virginia corporation, and they will testify that no such representations were ever made. Second, Defendants plan to introducea letter in which Mrs. Van–Voegler stated she believed Serenity Pool & Spa to be an unincorporated...