KSB

15-20635 Fakhari (Doc. # 64)

In Re Fakhari, 15-20635 (Bankr. D. Kan. Feb. 23, 2016) Doc. # 64

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 22nd day of February, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

ALBOLFAZL FAKHARI, Case No. 15-20635
Debtor.

MEMORANDUM OPINION AND ORDER DENYING
RAYNE-STORM, LLC, STAY RELIEF


The Court considers the Motion for Relief from [Automatic] Stay (Doc. 27) and the
Memorandum in Support of Motion for Relief from [Automatic] Stay filed by Rayne-Storm Co.,
LLC (Doc. 41), and the Debtor Albolfazl Fakhari’s Objection thereto (Doc. 32). The parties
appear by counsel.1 The Court has reviewed the pleadings and considered oral arguments of
counsel. The Court is prepared to rule.

VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.

1 Debtor appears by his attorney, Colin N. Gotham of Evans & Mullinix, P.A., Shawnee, KS. Rayne-Storm Co., LLC,
appears by its attorney, Robert F. Flynn of The Flynn Law Firm, P.A., Kansas City, MO.

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§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by § 157(a) to
refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and all
proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.2 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G). The parties do not object to venue or
jurisdiction.

BACKGROUND

The Debtor’s residence (Residence) and homestead (Homestead) 3 was damaged during a
storm.4 The majority of the damages and the repairs were to the roof of the Residence, and the
repairs were performed by Rayne-Storm, LLC. In 2012, Rayne-Storm sued Debtor for nonpayment
and costs. During 2014, a jury returned a verdict in favor of Rayne-Storm in the
amount of $19,129.44, less $5,000 that had been paid by Debtor to Rayne-Storm, and against
Debtor for a net judgment (prior to the assessment of costs) of $14,129.44 as damages for the
Debtor’s breach of contract and non-payment of the net sum owed for repairs to the Residence.
Rayne-Storm did not file a mechanic’s lien against the Residence, but elected to proceed with
litigation against the Debtor. The Debtor unsuccessfully asserted affirmative defenses and a
counterclaim against Rayne-Storm’s owner, facts which are not relevant to this Court’s analysis.
Subsequent to the jury verdict, the state court awarded Rayne-Storm $72,000.00 in attorney’s
fees and $350.50 in costs, for a total judgment of $86,479.94 (Judgment) with post-judgment
interest accruing thereon. Both the Residence and the lawsuit are located in Johnson County,

2 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2014).
3 The homestead exemption laws are remedial in nature and not an estate, the function of which is to protect debtor’s
interest in property, in this instance, the Debtor’s Residence. Rayne-Storm does not contest that Debtor’s Residence
is his homestead.
4 It is unclear from the record, but it appears that the storm damage occurred during 2011 or 2012.


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Kansas. The initial journal entry that reflected the jury verdict in the amount of $14,129.44, plus
costs, was filed in the state court on September 19, 2014. Thereafter, Rayne-Storm filed a
motion for costs and attorney’s fees, upon which the state court entered judgment on January 13,
2015, for $72,000.00 in attorney’s fees plus $350.50 in court costs. 5 The Judgment was entered
in the same county in which the Residence is located.

This bankruptcy case was filed on April 2, 2015. The Debtor listed Rayne-Storm on
Schedule F as a general unsecured creditor in the amount of $86,479.44. On April 2, 2015,
Debtor’s counsel filed a Notice of Bankruptcy Filing in the state court proceeding, and a copy
thereof was served on Rayne-Storm’s counsel.6 The original Chapter 13 plan was confirmed by
this Court on June 26, 2015. Rayne-Storm did not file an objection to confirmation of the plan
and does not assert inadequate notice. Rayne-Storm did not timely file a proof of claim, but did
file a motion to file a proof of claim out of time,7 which this Court denied. Since Rayne-Storm
tardily filed its proof of claim, the Debtor objected to the proof of claim as untimely,8 which
objection this Court sustained.9

By virtue of Rayne-Storm’s prepetition garnishment of the Debtor’s wages, Rayne-Storm
attached and retained $379.83 of the Debtor’s post-petition wages after this case was filed.
Debtor’s counsel made demand upon Rayne-Storm for delivery of these funds as they constituted
property of the bankruptcy estate, and retention thereof was in violation of § 362(a) and § 542.
Rayne-Storm refused to turn over this property of the estate, and the Debtor on August 5, 2015,
filed a motion for contempt against Rayne-Storm, 10 which this Court heard on September 18,

5 Rayne-Storm sought total attorney’s fees in the amount of $120,000, which request was reduced by the state court
judge to $72,000.
6 See Doc. 21, Ex. 2.
7 Doc. 23.
8 Doc. 33.
9 Doc. 52.
10 Doc. 21.


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2015. This Court directed that Rayne-Storm pay the post-petition wages to the Debtor and found
that Rayne-Storm’s actions were contemptuous and violated § 362(a)11 and § 542.12

Rayne-Storm did not file an objection to allowance of the Debtor’s Residence as his
homestead and the time to do so has passed. Hence, the exemption of the Residence as a
homestead is allowed.13

Rayne-Storm did not file a complaint to determine the dischargeability of the Judgment.

LEGAL ANALYSIS

In Chapter 13, the debtor has the exclusive right to file a plan.14 “The exclusive right on
the part of the debtor to file a Chapter 13 plan is in keeping with the voluntary nature of Chapter
13 relief.”15 Confirmation of a Chapter 13 plan is binding upon the debtor and his creditors,
regardless of whether the claim of a creditor is provided for by the plan and regardless of
whether the creditor has objected to, accepted, or rejected the plan. “Upon becoming final, the
order confirming a Chapter 13 plan represents a binding determination of the rights and liabilities
of the parties as ordained in the plan.”16 Even improper provisions in a confirmed plan are
binding.17 Silence or the failure to object, is acceptance of the debtor’s plan as to procedural and
legal challenges to the content of the plan, otherwise known as the “snooze, you lose” rule.18
Recognizing that Rayne-Storm does not have an allowed proof of claim, either general unsecured

11 Doc. 46.
12 The Court found that an award of attorney’s fees to Debtor under § 362(k) was warranted; that issue remains
pending.
13 Taylor v. Freeland & Kronz, 503 U.S. 638, 642 (1992).
14 8 COLLIER ON BANKRUPTCY ¶1321 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015).
15 8 COLLIER ON BANKRUPTCY ¶¶1321.01, 1321-2 and 1321-3.
16 See 8 COLLIER ON BANKRUPTCY, ¶1327.02[1], at 1327-3.
17See United Student Aid Funds, Inc., v. Espinosa, 559 U.S. 260, 275 (2010) (concluding that a provision in the
debtor’s confirmed Chapter 13 plan that discharged student loan interest in contravention of § 523(a)(8) was binding
on the student loan creditor even though the debtor did not comply with the procedural requisites to determine that
not discharging the student loan interest was an undue hardship on him).
18 Keith M. Lundin & William H. Brown, CHAPTER 13 BANKRUPTCY,4TH EDITION, § 229.1, Sec. Rev. Oct. 8, 2010,
www.Ch13online.com.


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or secured, it is nevertheless bound by the treatment afforded general unsecured creditors in the
Debtor’s confirmed plan, which provides:

14. GENERAL UNSECURED CREDITORS: General unsecured claims will be paid
after all other unsecured claims, including administrative and priority claims, from
Debtor’s projected disposable income in an amount not less than the amount those
creditors would receive if the estate of Debtor were liquidated under chapter 7 on the date
of confirmation pursuant to 11 U.S.C. § 1325(a)(4), the “best interest of creditors” test.19
Rayne-Storm in its Memorandum in Support of Motion for Relief from Stay (Doc. 41)
alleges that by virtue of the Judgment, it has a lien in the Debtor’s Residence, that the lien is
entitled to adequate protection, and that since the Debtor has little, if any, equity in this
Residence above the alleged lien, Rayne-Storm is not adequately protected, is entitled to relief
from the automatic stay, and may foreclose upon its judgment lien in state court. The infirmity
in this argument is that Rayne-Storm does not hold a lien or any other interest in the Residence.
The Debtor’s claimed homestead exemption has been allowed as a matter of law and may not be
collaterally attacked.

Section 522(b)(2) provides the statutory framework for exemptions under the
Bankruptcy Code. Under § 522(b)(2), a debtor may exempt any property which is
exempt under federal non-bankruptcy law or, alternatively, under the laws of the
state of the debtor's domicile. However, §§ 60–2312 prohibits Kansas citizens
from electing to use federal bankruptcy exemptions, with certain exceptions
inapplicable here.20

Importantly, it is the remedial protection afforded to Debtor’s Residence by virtue of its
status as his homestead that insulates the Residence from a judgment lien. It is axiomatic that
under Kansas law a judgment lien does not attach to a homestead unless the underlying

19 Doc. 5, at 10.
20 In re Kester, 339 B.R. 764, 768 (Bankr. D. Kan. 2005) (citations omitted), aff’d, 339 B.R. 749 (B.A.P. 10th Cir.
2006), certified question answered sub nom. Redmond v. Kester, 284 Kan. 209, 159 P.3d 1004 (2007), and aff’d,


493 F.3d 1208 (10th Cir. 2007).

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obligation falls within a narrow class of exceptions.21 The homestead exemption is codified at

K.S.A. § 60-2301, which provides:
A homestead to the extent of 160 acres of farming land, or of one acre within the
limits of an incorporated town or city, or a manufactured home or mobile home,
occupied as a residence by the owner or by the family of the owner, or by both the
owner and family thereof, together with all the improvements on the same, shall be
exempted from forced sale under any process of law, and shall not be alienated
without the joint consent of husband and wife, when that relation exists; but no
property shall be exempt from sale for taxes, or for the payment of obligations
contracted for the purchase of said premises, or for the erection of improvements
thereon. The provisions of this section shall not apply to any process of law
obtained by virtue of a lien given by the consent of both husband and wife, when
that relation exists.22

Further, “the homestead exemption codified in K.S.A. § 60-2301 originates in the Kansas

Constitution, which provides in relevant part:

A homestead to the extent of one hundred and sixty acres of farming land, or one acre
within the limits of an incorporated town or city, occupied as a residence by the family of
the owner, together with all the improvements on the same, shall be exempted from
forced sale under any process of law, and shall not be alienated without the joint consent
of husband and wife, when that relation exists; but no property shall be exempt from sale
for taxes, or for the payment of obligations contracted for the purchase of said premises,
or for the erection of improvements thereon: Provided, That provisions of this section
shall not apply to any process of law obtained by virtue of a lien given by the consent of
both husband and wife....” Kan. Const. Art. 15, § 9.23

“This constitutional remedy [homestead exemption] has been zealously guarded and

enforced by the courts of this state.”24 Exemptions in Kansas enjoy a liberal reading in favor of

the debtor.25 This is particularly true with respect to the Constitutional homestead exemption.26

The homestead exemption “was created to benefit families rather than creditors by protecting the

21 In re McCoy, 204 B.R. 62, 65 (Bankr. D. Kan. 1996); In re Lewis, 2007 WL 625723, at *3 (Bankr. D. Kan.); In re

Garstecki, 364 B.R. 95, 105 (Bankr. D. Kan. 2006).

22 Redmond v. Kester, 284 Kan. 209, 210-11 (2007) (emphasis added).

23 Kester at 211 (emphasis added).

24 Kester at 211.

25 Nohinek v. Logsdon, 6 Kan. App. 2d 342, 344 (1981).

26 Garstecki 364 B.R. at 100.
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family from the destitution caused by losing the family home.27 Even bad actors enjoy the rights
of the homestead exemption.28

The Debtor’s Residence is protected by the allowed homestead exemption, so the
question remains whether one of the homestead exceptions delineated in K.S.A. § 60-2301 and
the Kansas Constitution applies. The only argument made by Rayne-Storm is that a homestead
shall not be exempt from sale for the payment of obligations contracted “for the erection of
improvements thereon.” Rayne-Storm argues that the repairs it conducted to the Debtor’s
Residence constitute improvements to the Residence. This Court disagrees and the facts and
Kansas law demand that this Court reject Rayne-Storm’s argument.

Rayne-Storm has provided copies of the following documents from the state court case:
verdict forms exhibited as A, B, and C; journal entry filed on September 19, 2014, for returned
verdicts from the jury that enters a damage judgment of $14,129.44 against Debtor; and the
journal entry filed on January 13, 2015, that provides for the allowance of $72,000.00 as
reasonable attorney’s fees and $350.50 as court costs in Rayne-Storm’s favor against Debtor.
The problem with Rayne-Storm’s argument is that it did not erect improvements on the Debtor’s
Residence and Homestead, but repaired it, the latter of which is not an obligation that is as an
exception to the homestead exemption. This analysis is performed cognizant that “exceptions to
the Constitutional and statutory homestead exemption are to be strictly construed in favor of the
one claiming the exemption.”29

27 Kester at 217.
28 Id. at 218.
29 De Priest v. Ransom, 165 Kan. 147, 152, 154 (1948), finding that the homestead “erection of improvements”
exception applied to a creditor who constructed and completed two dwelling houses on debtor’s land (a portion of
which was debtor’s homestead); also stating in dicta that in order to prevail under the homestead exception, the
judgment creditor should include language in the judgment that specifies what portion of the judgment is for the
erection of improvements.


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While it is true that Rayne-Storm holds a judgment against the Debtor and that generally

judgments constitute “a lien on the real estate of the judgment debtor within the county in which

judgment is rendered,”30 without more, the judgment lien does not attach to a judgment debtor’s

homestead interest.31 Within another statutory context, the Kansas mechanic’s lien statutes have

been interpreted to exclude repairs from the definition of “improvement of the property.”

Black’s Law Dictionary most closely defines what is meant by use of the phrase
“improvement of the property” in K.S.A. 60-1101: “A valuable addition made to real
property (usually real estate) or an amelioration in its condition, amounting to more than
mere repairs or replacement, costing labor or capital, and intended to enhance its value,
beauty or utility or to adapt it for new or further purposes.” Black’s Law Dictionary 757
(6th ed. 1990).32

The text of the homestead exemption, combined with the rule that the homestead

exception is read in a manner most favorable to the owner, establishes that the “erection of

improvements” does not include repairs to the Residence. Rayne-Storm did not erect

anything--it repaired damage to the Residence. The state court pleadings and verdict forms

submitted to this Court refer to the repair of the Debtor’s Residence, and in no instance is

improvement to the Residence referenced. Such is reflected in Rayne-Storm’s Memorandum in

Support of Motion for Relief from Stay at footnotes 9, 10 and 11:

9 Exhibit A, ¶4; Exhibit C, p. 2 [Pretrial Order]
Plaintiff’s Legal Theories . . . Rayne and Fakhari entered into a
written contract for Rayne to repair damage to Fakhari’s home as
a result of storm damages to the residence. . . . . Rayne performed
work in a timely and workmanlike manner. Fakhari breached the
parties’ contract by unilaterally rescinding the contract onNovember 2, 2011[,] and by failing to pay the amount due to Rayne
under the terms of the contract . . . . Rayne furnished labor and
roofing materials--amongst other building materials--to Fakhari
with the reasonable expectation of being compensation [sic] for
the labor and all residential building materials it provided to

30 K.S.A. § 60-2202, Judgment Liens.
31 See supra note 21.
32 Haz-Mat Response, Inc. v. Certified Waste Svcs. Ltd., 259 Kan. 166, 175-76 (1996), defining improvement to
property within the context of Kansas mechanic’s lien laws at K.S.A. § 60-1101 et seq., Liens of Contractors. Of
course, the “erection of improvements” applies to the homestead exemption and should be even more narrowly
defined. Certainly if removal of hazardous waste is not an improvement of real property under the mechanic’s lien
statute, then repair of a damaged roof is not the “erection of improvements” under the homestead exemption.

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Fakhari. Fakhari benefited from the labor and residential building
materials in the form of a roof, attic, soffits, fascia, insulation,
drywall, and more.

10 Exhibit A, ¶4; Exhibit D, Jury Instruction 7: [Jury Instructions]
Rayne-Storm Co., LLC claims that it has been damaged in that:
There was a contract between Rayne-Storm Co., LLC and Abolfazl
Fakhari for Rayne-Storm Co., LLC to perform all storm-related
repairs that the homeowner’s insurance company would pay for;
While Rayne-Storm Co., LLC was performing the contract andalready had replaced the roof, Abolfazl Fakhari refused to let
Rayne-Storm Co., LLC finish the rest of the work; Rayne-Storm
Co., LLC did its work in a timely and workmanlike manner;
Abolfazl Fakhari breached the contract by refusing to let Rayne-
Storm Co., LLC finish its work, refusing to let Rayne-Storm Co.,
LLC correct any allegedly deficient work, failing to pay what he
owed under the contract [or at the very least pay for the work
Rayne-Storm Co., LLC had already completed]; Even if the
contract is not binding, Rayne-Storm Co, LLC conferred benefits on
Abolfazl Fakhari, Abolfazl Fakhari knew he was receiving those
benefits, and it would be unjust for Abolfazl Fakhari to avoid
paying the fair market value of what he received; Abolfazl Fakhariowes money to Rayne-Storm Co., LLC for the work Rayne-Storm
Co., LLC performed on his residence in the amount of $18,090.99
plus $3,752.10 for the contractual 15%cancelation fee.. . .” [sic]).

11 Claim 3-1, p. 5: [Although referred to as a journal entry, this appears

to be the jury verdict form.]

1.
Was there a contract between Rayne-Storm Co., LLC and
Abolfazl Fakhari?
.. Yes No
2.
Did Rayne-Storm Co., LLC perform the repairs to Abolfazl
Fakhari’s residence in a workmanlike manner?
..: Yes No
3.
Did Rayne-Storm Co., LLC perform the repairs to Abolfazl
Fakhari’s residence in a timely manner?

Yes No
4.
Did Abolfazl Fakhari material breach the contract with
Rayne-Storm?
..: Yes No
5. Did Rayne-Storm Co., LLC sustain damages as a result ofAbolfazl Fakhari's breach of the parties’ contract?

Yes No33
Now that the Debtor has filed bankruptcy, Rayne-Storm unsuccessfully attempts to

construe the Judgment for repairs as a liability arising from the erection of improvements on the

Residence. In the state court pleadings and the relevant verdict form, the work performed on

Debtor’s Residence is referred to as repairs. Now that the matter is before the Bankruptcy Court,

33 Doc. 41, at 5 (emphasis added).
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Rayne-Storm makes no mention of repairs but asserts that it improved the Residence. The order
of consolidation entered in the state court on September 13, 2012, specifically states: “Both
lawsuits concern the construction contract to repair damage at the home of defendant herein
and there are common issues of fact and law.” (Emphasis added.) The state court pretrial order
refers to repairs to the Debtor’s home, the jury instruction 7 refers to storm-related repairs to
Debtor’s Residence, and the verdict form refers to the performance of “repairs” on Debtor’s
Residence.34 Rayne-Storm pursued Debtor in the state court for non-payment of the repairs it
performed on the Residence and represented that its work on the Residence was in the form of
storm-related repairs. Here, Rayne-Storm attempts to redefine its cause of action, the jury
findings, and the Judgment entered in the state court case.35 Although Rayne-Storm’s judgment
was entered in the same county in which the Debtor’s Residence is located, the judgment lien
never attached to Debtor’s Residence by virtue of the homestead exemption.36 Since Rayne-
Storm does not possess a lien or any other interest in Debtor’s Residence, it is not entitled to
adequate protection as it does not hold a secured claim, and this Court denies the motion for
relief from automatic stay accordingly.

Rayne-Storm has not established grounds to grant relief from the automatic stay under
§ 362(d)(2) because it does not hold a lien or any interest in Debtor’s Residence. To the extent
relevant, the Debtor has plentiful equity above the mortgage lien, and the Residence is necessary
to an effective reorganization. Cause is not established under § 362(d)(1) because Rayne-Storm
does not have an interest in the Debtor’s Residence that warrants adequate protection. Rayne


34 In their arguments, the parties assume that the “home” referenced in the state court is the Debtor’s Residence.
35 The Debtor does not argue, and this Court does not so rule, but Rayne-Storm’s inconsistent position in the
bankruptcy case as to the nature of the work performed on the Residence may be barred by judicial estoppel.
36 See supra note 21.

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Storm is a general unsecured creditor, with a liquidated debt, albeit without an allowed claim,
that cannot establish cause for relief from the automatic stay.

Rayne-Storm further requests relief under § 362(d)(1) through this Court’s equitable
powers37 and argues that good faith may warrant granting Rayne-Storm relief from the automatic
stay. Rayne-Storm’s arguments in this venue should have been raised prior to confirmation of
the Debtor’s plan; having failed to object to the Debtor’s confirmed plan, it is improper to raise
the issue of good faith or lack thereof in the filing of the Debtor’s bankruptcy case or in the
proposed Chapter 13 plan.38 Confirmation of the plan operates as res judicata as to all issues and
arguments that should have been raised prior to confirmation. It is inappropriate for this Court to
exercise its equitable discretionary powers to grant relief from the automatic stay so late in the
game. And one would query, what exactly would be gained by this relief? Rayne-Storm does
not have a timely filed and allowed claim in this case or a lien on the Residence; Rayne-Storm
did not object to confirmation of the Debtor’s plan; Rayne-Storm violated the automatic stay by
not turning over funds of the estate to the Debtor or to the Trustee; Rayne-Storm did not object to
the dischargeability of its debt; and Rayne-Storm only held a general unsecured claim when this
case was filed. Rayne-Storm has unsuccessfully attempted, without argument as to the
distinction, to convert a state court judgment for damages arising from repair of the Residence to
a judgment for the erection of improvements on the Debtor’s Residence. However, as clearly
established, by virtue of the homestead exemption a judgment lien never attached to the
Residence.

37 This Court is not imparted with equitable powers to modify, disrupt or surcharge an allowed exemption. See Law

v. Siegel, 571 U.S. ---, 134 S. Ct. 1188 (2014).
38 See § 1325(a)(3) and (a)(7); see also 8 COLLIER ON BANKRUPTCY ¶1325.08.
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CONCLUSIONS OF LAW

Rayne-Storm’s motion for relief from the automatic stay to enforce an alleged judgment
lien against the Debtor’s Residence and Homestead is denied for lack of cause shown under
§ 362(d). Rayne-Storm’s state court judgment is for damages for breach of contract and the
unpaid obligation for repair of the Debtor’s Residence, as well as associated attorney’s fees and
costs, but not for the erection of improvements on the Debtor’s Residence and Homestead. Since
Rayne-Storm’s Judgment does not fall within one of the limited exceptions to the homestead
exemption set out in the Kansas Constitution39 and K.S.A. § 60-2301, Rayne-Storm does not
hold an interest, whether a lien or otherwise, in the Debtor’s Homestead. An obligation and the
judgment therefor that arise from repairs to a debtor’s residence that is his homestead does not
attach to the residence and is not an exception to the Kansas homestead exemption.

IT IS SO ORDERED.
###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
39 Kan. Const. Art. 15, § 9.

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14-06018 Herman v. Brooks et al (Doc. # 40)

Herman v. Brooks et al, 14-06018 (Bankr. D. Kan. Feb. 2, 2016) Doc. # 40

PDFClick here for the pdf document.


 IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

 

 

In re:

 

Gary Wayne Brooks and

Linda Margaret Brooks, Case No. 13-22981

 Debtors. Chapter 7

 

 

Janice Herman,

 Plaintiff,

 

 v. Adv. Pro. No. 14-6018

 

Gary Wayne Brooks and

Linda Margaret Brooks,

 Defendants.

 

 

MEMORANDUM OPINION AND ORDER GRANTING IN PART

PLAINTIFF JANICE HERMAN’S MOTION FOR SUMMARY JUDGMENT

 

 Comes on for hearing Plaintiff’s Motion for Summary Judgment (MSJ).1 This is an
adversary proceeding in which Creditor-Plaintiff Janice Herman seeks nondischargeability of

1 Doc. 21. Plaintiff, Janice Herman, appears by her attorneys, Chris M. Troppito, Kansas City, MO, and Patrick J.
O’Hara, Springfield, IL, appearing pro hac vice. Defendants, Gary and Linda Brooks, appear pro se.


debts owed by Defendant-Debtors Linda M. Brooks and Gary W. Brooks pursuant to 11 U.S.C.
§§ 523(a)(2) and (4).2

2 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2014).

4 Circuit Court of Logan County (Illinois) Case No. 05L7.

5 Herman v. Hilton, 2013 IL App (4th) 120575-U, at 1 (internal citations omitted). Doc. 1-1, at 1.

VENUE AND JURISDICTION

This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C.

§§ 157(a) and 1334(a) and (b) and the Amended Standing Order of Reference of the United
States District Court for the District of Kansas that exercised authority conferred by § 157(a) to
refer to the District’s bankruptcy judges all matters under the Bankruptcy Code and all
proceedings arising under the Code or arising in or related to a case under the Code, effective
June 24, 2013.3 Furthermore, this Court may hear and finally adjudicate this matter because it is
a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). The parties do not object to venue or
jurisdiction.

FINDINGS OF FACT

 Janice Herman (Janice) and Linda Brooks are the daughters of Dortha and Marvin Hilton,
Sr., both of whom are deceased. Linda Brooks and Gary Brooks (the Brookses) are husband and
wife. In June 2005, Janice sued the Brookses in Illinois in her individual capacity and in her
capacity as the special representative of Dortha Hilton’s estate.4 Janice alleged Marvin Hilton
paid the Brookses $125,000 with the actual intent to hinder and delay a statutory custodial claim
held by Janice. On February 1, 2013, the Appellate Court of Illinois concluded that Janice,

. . . who took care of her completely disabled mother for the final three years of
her mother’s life, is the creditor for purposes of claims under the Uniform
Fraudulent Transfer Act, and therefore the amount corresponding to the value of
those caregiving services should have been awarded to plaintiff [Janice]
individually instead of to the mother’s estate.5


 On November 13, 2013, the Brookses filed for chapter 7 relief.6 The Brookses’ Schedule
F listed a $128,000 debt owed to Janice as an unsecured nonpriority claim resulting from a
“judgment awarded and sanction feess [sic] awarded.”7 The Brookses’ statement of financial
affairs indicate Janice was suing them for damages in Logan County, Illinois Circuit Court, Case
No. 2012-L-8 (the Pending Litigation).8

6 Doc. 1, Case No. 13-22981.

7 Doc. 1, at 14, Case No. 13-22981.

8 Doc. 1, at 23, Case No. 13-22981.

9 Doc. 1, Case No. 14-06018. Unless otherwise noted, future references to Doc. numbers are to pleadings filed in the
instant adversary proceeding, Case No. 14-06018.

10 Doc. 1, at 2 ¶ 5.

11 Doc. 1, at 4 ¶ 5.

12 Doc. 1, at 5 ¶ 4.

13 Doc. 1, at 6 ¶ 5.

14 Doc. 1, at 7 ¶ 5.

15 Doc. 1, at 8 ¶ 5.

 On February 7, 2014, Janice filed a six-count complaint9 seeking nondischargeability of
debts owed by the Brookses under §§ 523(a)(2) and (a)(4). Count I listed a $125,000 judgment
owed to Janice by Linda Brooks for:

. . . engaging as a transferee in a transaction constituting a fraudulent transfer to
avoid creditors pursuant to the Illinois Uniform Fraudulent Transfer Act, 740
Illinois Compiled Statutes 160/1 et seq., inasmuch as Defendant, LINDA
BROOKS, received fraudulently transferred property for inadequate consideration
so as to defraud Plaintiff, JANICE HERMAN, and which transfer was voided by
the Illinois Appellate Court for the Fourth Judicial District.10

 

The remaining five counts stem from the Pending Litigation. Count II is a cause of action
against the Brookses for willful breach of fiduciary duty.11 Count III is a cause of action against
Linda Brooks for willful fraudulent concealment.12 Count IV is a cause of action against Gary
Brooks for willful fiduciary concealment.13 Count V is a cause of action against Linda Brooks
for willful fraudulent concealment.14 Count VI is a cause of action against Gary Brooks for
sanctions of $2,626.75 awarded to Janice to cover her attorney’s fees resulting from Gary’s
submission of false pleadings to avoid service of process in the Pending Litigation.15


 On March 7, 2014, the Brookses filed an answer to the complaint.16 On Count I, they
admit the Illinois Appellate Court’s holding.17 However, the Brookses contest the
nondischargeability of the judgment under § 523(a)(2).18 The Brookses assert that Janice is not a
creditor and was not defrauded.19

16 Doc. 11.

17 See holding cited supra note 5.

18 Doc. 11, at 1 ¶ 3. The Brookses cite § 5239(a)(2) for nondischargeability. However, § 5239(a)(2) does not exist
under the Code. The Brookses’ citation is a typographical error and the Court treats the cite as one to § 523(a)(2).

19 Doc. 11, at 2 ¶ 5–6.

20 Doc. 11, at 2 ¶ 3–6.

21 Doc. 11, at 3 ¶ 3–5.

22 Doc. 11, at 3 ¶ 3–6.

23 Doc. 11, at 3–4, ¶ 4–5.

 On Count II, the Brookses contest all substantive allegations. The Brookses allege they
did not have a fiduciary duty to fulfill, Janice did not file a custodial claim, and Janice was not a
creditor at the time of transfer.20

 On Count III, the Brookses contest all substantive allegations. The Brookses allege there
was no fraudulent concealment, Janice was not a creditor, Gary Brooks was not involved with
the transfer, and that property was not transferred to defraud any creditors.21

 On Count IV, the Brookses contest all substantive allegations. The Brookses allege they
did not work together to defraud Janice, Gary Brooks was not involved with the transfer, Gary
Brooks had no fiduciary responsibilities, and Linda Brooks is in the final stages of colon
cancer.22

 On Count V, the Brookses assert that: (a) no fraud was intended; (b) Janice was not a
creditor at the time of transfer; (c) Janice filed her fraudulent transfer action prematurely; (d) the
property was transferred back to Janice; and (e) Janice sold the property below fair market
value.23


 On Count VI, the Brookses assert that they: (a) don’t understand the nature of the
sanctions; (b) are unaware how Janice received sanctions against Gary Brooks; and (c) “never
received any paperwork on this matter.”24

24 Doc. 11, at 5 ¶ 5–6.

25 Doc. 11, at 5.

26 Doc. 21.

27 Doc. 24.

28 Doc. 26.

29 Doc. 28.

30 Doc. 35.

31 Doc. 35, at 3 ¶ 2.

 Additionally, the Brookses assert their frustration with Janice, their financial condition,
the Pending Litigation, and their poor health.25

 On May 20, 2014, Janice filed her MSJ26 requesting nondischargeability of the debts
identified in her complaint and a stay of this Court’s adjudication of Counts II–VI (the Pending
Litigation debts) until the Pending Litigation was finalized.

 On July 28, 2014, Janice filed a stay relief motion to proceed with the Pending
Litigation.27 The Brookses objected due to their poor health and lack of financial resources.28
The stay relief motion was heard on September 18, 2014, and an order conditionally granting the
motion was entered September 24, 2014.29 The motion was granted for the limited purpose of
proceeding with the Pending Litigation related to the MSJ in the instant proceedings.

 On April 14, 2015, Janice filed a supplemental status report indicating Defendants
committed fraudulent misrepresentation and breached their fiduciary duties owed to the Plaintiff
in the Pending Litigation.30 As a result of the adjudication of the Pending Litigation, the Logan
County Circuit Court found, among other things, that:

Plaintiff [Janice] has been judicially determined (by the Appellate Court Fourth
District in Case No. 4-10-0735) to be a creditor in the amount of $125,000 . . . .31

 


[Actions by the Brookses] constitute[], as a matter of law, fraudulent concealment
by Defendant Linda Brooks and aiding and abetting fraudulent concealment by
Defendant Gary Brooks.32

32 Doc. 35, at 6 ¶ B.

33 Doc. 35, at 6 ¶ C. The Logan County Circuit Court defined executor de son tort as an “executor of his own wrong,
is a person who without any authority intermeddles with the estate of a decedent, and does such acts as properly
belongs to the office of executor or administrator, and thereby becomes a sort of quasi executor, although only for
purposes of being sued or made liable for the assets with which he had intermeddled. Having assumed a representative
character, he cannot deny it, and on that account has all the liabilities of an executor, but he acquires none of the rights
or privileges which belong to the office.” Grace v. Seibert, 235 Ill. 190, 192–3 (1908) (citations omitted).

34 Doc. 35, at 6–7 ¶ D.

35 Doc. 35, at 7 ¶ E.

36 Doc. 35, at 7.

37 Doc. 35, at 7–8.

 

The Defendants Linda Brooks and [Gary] Brooks took it upon themselves to
willfully take possession of, and distribute, assets of the estate of Marvin Hilton.,
Sr., while wholly disregarding the strictures of the Illinois Probate Act. As such,
Defendants Linda Brooks and Gary Brooks, were, and are, as a matter of law,
executors de son tort.33

 

Defendants Linda Brooks and Gary Brooks owed, and continue to owe, a
fiduciary duty to Plaintiff Janice Herman, as a creditor of the estate of Marvin
Hilton Sr., to preserve the estate assets and to distribute them pursuant to probate
proceedings according to 755 ILCS 5/1-1.34

 

Defendants Linda Brooks and Gary Brooks breached their respective fiduciary
duties owed to Plaintiff Janice Herman, as a matter of law, by failing to comply
with 755 ILCS 5/1-1 and taking possession of, and distributing, assets of the
estate of Marvin Hilton Sr.35

 

[It was the ruling of the Logan County Circuit Court that] Defendants LINDA
BROOKS and GARY BROOKS committed fraudulent misrepresentation by
concealment . . . by preparation and submission of false small estate affidavits that
failed to disclose known creditors of the estate, including Plaintiff JANICE
HERMAN.36

 

That Defendants LINDA BROOKS and GARY BROOKS breached their
fiduciary duties as a matter of law by: a) Failing to act with prudence in
marshaling and preserving the estate assets of the estate of Marvin Hilton, Sr.;
b) Failing to notify the creditors of the estate of Marvin Hilton, Sr.; c) Failing to
act with loyalty to the creditors, including Plaintiff, and to the beneficiaries of the
estate of Marvin Hilton, Sr., by distributing and/or confiscating and expending the
assets of said estate without notice or legal authority; d) Conducting themselves in
a manner that resulted in a patent conflict of interest in that they acted in a self-
serving manner in distributing or confiscating assets of the estate of Marvin
Hilton, Sr., to themselves and to others without legal authority and with prejudice
to the creditors, including Plaintiff, of the estate of Marvin Hilton, Sr.37


 Linda Brooks passed away in April of 2015.38

38 Doc. 16, Case No. 13-22981. “Death . . . of the debtor shall not abate a liquidation case under chapter 7 of the Code.
In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though
the death . . . had not occurred.” FED. R. BANKR. P. 1016.

39 Doc. 36.

40 Doc. 38.

41 Doc. 38, at 2.

42 Doc. 38, at 3.

43 FED. R. CIV. P. 56. is applicable to adversary proceedings pursuant to FED. R. BANKR. P. 7056.

44 Magnus, Inc. v. Diamond State Ins. Co., 545 F. App’x 750, 752 (10th Cir. 2013) (citation omitted).

 On May 21, 2015, this Court entered an order allowing Janice 30 days to
supplement her memorandum of law in support of her MSJ and granted the Brookses 21
days thereafter to file and serve a response pursuant to D. Kan. LBR 7056.1(f).39

 On June 9, 2015, Janice filed a supplemental memorandum of law in support of
her MSJ.40 Janice asserts that the Illinois Appellate Court’s judgment regarding Linda
Brookses’ fraudulent conduct is res judicata.41 Janice additionally asserts that the
findings and ruling in the Pending Litigation “operate to collaterally estop Defendant
Gary Brooks from avoiding an order of nondischargeability regarding the $125,000 debt
owed to Plaintiff.”42 Janice moved for summary judgment on Counts II, IV, and VI and
asserts the pleadings establish the $125,000 debt is nondischargeable under §§ 523(a)(2)
and (a)(4). Gary Brooks did not respond to Janice’s supplemental memorandum.

LAW

A. SUMMARY JUDGMENT STANDARD


 Summary judgment is appropriate when the movant shows that there is “no genuine issue
as to any material fact” and that the movant is “entitled to a judgment as a matter of law.43 All
justifiable inferences must be drawn in favor of the nonmoving party to determine whether a
genuine dispute as to a material fact exists.44 Summary judgment is appropriate if the
nonmoving party “fails to make a showing sufficient to establish the existence of an element


essential to that party’s case.”45 The moving party bears the initial burden of demonstrating an
absence of a genuine issue of material fact and entitlement to judgment as a matter of law.46 If
the movant meets its initial burden, then the nonmoving party cannot simply rely on its
pleadings. The burden then shifts to the nonmoving party to go beyond the pleadings and “set
forth specific facts” that would be admissible as evidence at trial.47

45 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

46 Id. at 322–23.

47 Williamson v. Whiteman (In re West), 384 B.R. 872, 877–78 (Bankr. D. Kan. 2008) (quoting Thom v. Bristol-
Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003)).

48 Doc. 26.

B. NONDISCHARGEABILITY UNDER §§ 523(a)(2) AND (a)(4).


 Janice’s dischargeability claim against the Brookses arises from §§ 523(a)(2) and (a)(4).
Section 523(a)(2) and (a)(4) provide:

(a) A discharge under section 727 . . . of this title does not discharge an individual
debtor from any debt—

(2) for money, property, services, or an extension, renewal, or refinancing of
credit, to the extent obtained, by—

(A) false pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor’s . . . financial condition;

(B) use of a statement in writing—

(i) that is materially false;

(ii) respecting the debtor’s . . . financial condition;

(iii) on which the creditor to whom the debtor is liable for such money,
property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to
deceive; . . .

(4) for fraud or defalcation while acting in a fiduciary capacity,
embezzlement, or larceny.

 

ANALYSIS

 The Brookses’ response to Janice’s MSJ is deficient. The Brookses’ response,48 a letter to
the Court, contains no legal arguments, supporting citations, and only references the record by
including the name of Janice’s MSJ. The letter signed by the Brookses states they are:

. . . objecting to the motion above [the MSJ] as we have no monies, we owe
$93,000.00 on our home.. [sic] I receive $850.00 a month on social security. We


have no assets. Linda is in the final stages of colon cancer and only have [sic]
13% lung capacity.

 

Gary also has many medical problems and is in very bad health as well. The only
thing we have is a pick up truck and this is used to transport our oxygen to get to
the doctor, Linda’s wheelchair, Gary’s scooter. It is the only vehicle we can use as
it has never been smoked in and I cannot be around any smoke. We are objecting
to the motion under these circumstances.

 

 Federal Rule of Civil Procedure 56 requires a party asserting that a fact is disputed must
support their assertion by citations to the record or by showing that the materials cited by the
movant do not support the facts.49 “[T]he non-movant then must either establish the existence of
a triable issue of fact under Fed. R. Civ. P. 56 or explain why he cannot . . . under Rule 56.”50
The Brookses have not complied with this requirement as their response was not supported by
citations to the record and does not challenge any of Janice’s assertions regarding
dischargeability. Therefore, the Court is permitted to “consider the fact[s] undisputed for
purposes of the motion”51 and “grant summary judgment if the motion and supporting
materials—including the facts considered undisputed—show that the movant is entitled to it.”52

49 FED. R. CIV. P. 56(c).

50 Diaz v. The Paul J. Kennedy Law Firm, 289 F.3d 671, 674–75 (10th Cir. 2002) (quoting United States v. Simons,
129 F.3d 1386, 1388–89 (10th Cir. 1997) (citations omitted)).

51 FED. R. CIV. P. 56(e)(2).

52 FED. R. CIV. P. 56(e)(3).

 Further, the same result is required under District of Kansas Local Bankruptcy Rule
7056.1. Rule 7056.1 requires the allegations in the Brookses’ response to “be presented by
affidavit, declaration under penalty of perjury, and/or through the use of relevant portions of
pleadings, depositions, answer to interrogatories and responses to requests for admissions.” Rule
7056.1(a) states that the “court will deem admitted for the purpose of summary judgment, all
material facts contained in the statement of the movant unless the statement of the opposing
party specifically controverts those facts.” Under Rule 7056.1, the Brookses’ response is


inadequate as they fail to support their allegations with any record citation or affidavit and fail to
controvert Janice’s factual statements.

 Additionally, the Brookses failed to respond to Janice’s supplemental memorandum of
law in support of her MSJ.53 The time for filing a response has passed and the Brookses did not
seek an extension. Further, D. Kan. Rule 56.1(a) provides that “[a]ll material facts set forth in
the statement of the movant will be deemed admitted for the purpose of summary judgment
unless specifically controverted by the statement of the opposing party.”54 Therefore, the facts
contained in Janice’s supplemental memorandum of law in support of her MSJ are deemed
admitted because the Brookses failed to controvert those facts.

53 This pleading was filed after Linda passed; however, Gary did not file a response. Regardless, this does not change
the collateral estoppel effect of the judgment entered in the Pending Litigation.

54 D. Kan. Rule 56.1(a) is adopted and incorporated into this Court’s Local Rules at D. Kan. LBR 1001.1(a).

55 West, 384 B.R. 872, 878 (Bankr. D. Kan. 2008) (quoting Reynolds v. Delmar Gardens of Lenexa, Inc., 2003 WL
192481, at *2 (D. Kan. 2003).

56 Doc. 21-1.

57 See, e.g., Garrett v. Selby Connor Maddux & Janer, 425 F.3d 836, 840 (10th Cir. 2005) (“Although a pro se litigant’s
pleadings are to be construed liberally and held to a less stringent standard than formal pleadings drafted by lawyers,
this court has repeatedly insisted that pro se parties follow the same rules of procedure that govern other litigants.”)
(internal quotations and alterations omitted).

 D. Kan. Rule 7.4 authorizes the Court to grant the MSJ without any further notice to the
Brookses. However, “[a] party’s failure to respond to a summary judgment motion is not a
sufficient basis on which to enter judgment against the party.”55 Therefore, the Court reviewed
Janice’s memorandum supporting her MSJ56 to make an independent determination that there is
a factual and legal basis for granting the requested relief.

 The Brookses’ pro se status does not relieve them of their responsibilities to follow
procedural requirements.57 Thus, the Court deems admitted Janice’s uncontroverted statements
of fact for the purpose of assessing her MSJ.

 


A. COUNT I, II, AND IV: THE BROOKSES’ DEBT OF $125,000 TO JANICE
HERMAN IS NONDISCHARGEABLE UNDER § 523(a)(4), BUT NOT
§ 523(a)(2)).


 

 The Code “has long prohibited debtors from discharging liabilities incurred on account of
their fraud, embodying a basic policy animating the Code of affording relief only to an ‘honest
but unfortunate debtor.’”58 However, “exceptions to discharge are narrowly construed, and
because of the fresh start objectives of bankruptcy, doubt as to the meaning and breadth of a
statutory exception is to be resolved in the debtor’s favor.”59 The standard of proof in § 523
actions is by the preponderance of evidence.60

58 Cohen v. De La Cruz, 523 U.S. 213, 217 (1998) (citations omitted); see also Grogan v. Garner, 498 U.S. 279, 286
(1991) (“[A] debtor has no constitutional or ‘fundamental’ right to a discharge in bankruptcy.”).

59 DSC Nat’l Properties, LLC v. Johnson (In re Johnson), 477 B.R. 156, 168 (B.A.P. 10th Cir. 2012) (internal
quotations and alterations omitted).

60 Horejs v. Steele (In re Steele), 292 B.R. 422, 424 (Bankr. D. Colo. 2003) (citing Grogan v. Garner, 498 U.S. 279,
286 (1991)).

61 Johnson, 477 B.R. at 169.

62 Id.

63 Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1375 (10th Cir. 1996) (internal quotations and citations
omitted).

 Under § 523(a)(2), Janice must prove that: (1) the Brookses made a false representation;
(2) the Brookses made the representation with the intent to defraud; (3) Janice relied on that
representation; (4) Janice’s reliance was justifiable; and (5) the Brookses’ representation caused
Janice to sustain a loss.61 The Brookses “must have acted with subjective intent to deceive”
Janice.62 Intent to deceive is inferred from the totality of the circumstances or “from a
knowingly made false statement.”63

 Here, the uncontroverted facts do not establish nondischargeability under § 523(a)(2).
Janice establishes that the Brookses made a fraudulent transfer to avoid creditors under the
Illinois Uniform Fraudulent Transfer Act and there was a breach for misappropriation and
unauthorized distribution of assets. However, Janice does not specifically allege or show that
she relied on a false representation made by the Brookses resulting in a loss as required under §


523(a)(2). Instead, the facts show the Brookses’ fraud while acting in a fiduciary capacity
resulting in nondischargeability under § 523(a)(4).

 Janice carries her burden under § 523(a)(4) to except the $125,000 debt from discharge.
Section 523(a)(4) excepts a debt from discharge “for fraud or defalcation while acting in a
fiduciary capacity.”64 For Janice to prevail on her MSJ under § 523(a)(4), she needs to show a
relationship between the Brookses and herself such that the Brookses owed her a fiduciary
duty.65 Janice must also show that the Brookses breached that duty causing her damages.66

64 11 U.S.C. § 523(a)(4).

65 Steele, 292 B.R. at 426.

66 Id.

67 Young, 91 F.3d at 1371.

68 Steele, 292 B.R. at 426 (quoting Young, 91 F.3d at 1371).

69 Duggins v. Bratt (In re Bratt), 489 B.R. 414, 426–27 (Bankr. D. Kan. 2013).

 Whether a fiduciary relationship exists is determined under federal law.67 However,
Illinois state law is relevant to the instant inquiry. A fiduciary relationship arises under
§ 523(a)(4) when an express or technical trust is present.68 Section § 523(a)(4):

. . . contemplates a trust relationship that is narrower than the general duty of one
in a fiduciary relationship. It may be an express trust, defined in a written or oral
agreement that created the relationship and identified the property held in trust
(the res), the trustee, and the trustee's duties with respect to the res. Or, it may be
a technical trust that is imposed by statute. The statute must define the res, spell
out the fiduciary duties of the party to whom the trust property is entrusted, and
the trust must have arisen on the res before the debtor took the action that created
the debt. The trust relationship must be imposed by the law rather than implied
from it.69

 

 The Brookses breached their fiduciary duty to Janice arising from a technical trust under
the Illinois Uniform Fraudulent Transfer Act. The Logan County Circuit Court found that:
(a) the Fourth District Illinois Appellate Court held that Janice is a creditor in the amount of
$125,000; (b) the Brookses committed fraudulent concealment; (c) the Brookses disregarded the
Illinois Probate Act and were executors de son tort; (d) the Brookses owed a fiduciary duty to


13
16.02.01 Order Granting MSJ In Part
Janice—as a creditor of Marvin Hilton’s estate; and (e) the Brookses breached their fiduciary
duties owed to Janice as a matter of law.70 Further, the Brookses committed fraudulent
misrepresentation by concealment when they failed to disclose Janice as a creditor.71 Therefore,
the motion for summary judgment on Count I is granted because the Brookses breached their
fiduciary duty to Janice resulting in nondischargeability of the related $125,000 debt under
§ 523(a)(4).
The aforementioned facts also require granting summary judgment as to Counts II and IV
because the Brookses breached their fiduciary duty and committed fiduciary concealment.
B. COUNT VI: GARY BROOKS’ DEBT OF $2,626.75 TO JANICE HERMAN IS
DISCHARGEABLE UNDER § 523(a)(2).
A finding of nondischargeability under § 523(a)(2) requires Janice to prove that: (1) Gary
made a false representation; (2) Gary made the representation with the intent to defraud;
(3) Janice relied on that representation; (4) Janice’s reliance was justifiable; and (5) Gary’s
representation caused Janice to sustain a loss.72 The facts easily establish that Janice met
requirements one and five. Gary did submit a false affidavit and that submission caused Janice
to incur $2,626.75 of unnecessary attorney’s fees. The second prong is not as easy as the facts
do not clearly explore Gary’s motive for submitting false and fraudulent pleadings. However,
the Court need not explore Gary’s intent as the facts fail to establish satisfaction of elements
three and four. The record indicates that as a consequence of Gary’s false submissions:
Plaintiff’s [Janice’s] counsel was required to research the law regarding
amenability to process; communicate with his client, Plaintiff Janice L. Herman;
contact and communication with Shane Hilton, the nephew of Defendant Gary
Brooks; prepare an affidavit of Shane Hilton; prepare a Response to the motion
and affidavit of Defendant Gary Brooks; and appear in Court to argue said
motion.73
70 See supra notes 26–30.
71 See supra p. 6.
72 See supra note 64.
73 Doc. 1-5, at 1 ¶ 4.
Case 14-06018 Doc# 40 Filed 02/01/16 Page 13 of 15

 

The facts fail to show Janice’s reliance on Gary’s fraudulent representations. In fact, Janice did
not rely on Gary’s submissions and instead investigated his veracity. Because element three is
not met, element four is moot.

C. COUNTS III & V: ORDER TO SHOW CAUSE WHY COUNTS III & V
AGAINST LINDA BROOKS SHOULD NOT BE DISMISSED.


 

 Janice’s original MSJ requested this Court’s abstention on Counts III and V until the
Logan County, Illinois Circuit Court resolved the Pending Litigation.74 The Pending Litigation
was resolved on March 6, 2015.75 On June 9, 2015, Janice omitted Counts III and V from her
supplemental memorandum of law in support of her MSJ.76 In Counts III and V, Janice alleged
Linda Brooks committed willful fraudulent concealment. Linda Brooks passed in April of 2015.
However, Counts III and V are still before the Court. Therefore, the Court orders that Janice
show cause why Counts III and V should not be dismissed.

74 Doc. 21.

75 Doc. 35.

76 Doc. 38.

77 Doc. 21.

CONCLUSIONS OF LAW

 

 There are no genuine issues of material fact regarding the events set forth above. Based
on the foregoing analysis, the Court finds that the debt of $125,000 owed to Plaintiff, Janice
Herman, by Defendants, Gary Brooks and Linda Brooks, is nondischargeable under § 523(a)(4).
The Court grants Plaintiff’s motion for summary judgment77 in part as follows:

(a) The Court grants Plaintiff Janice Herman’s motion for summary judgment on Counts
I, II, and IV.
(b) The Court denies Plaintiff Janice Herman’s motion for summary judgment on Count
VI.



 IT IS ORDERED that Plaintiff Janice Herman’s motion for summary judgment is
GRANTED in part as set out above.

 IT IS FURTHER ORDERED that Plaintiff Janice Herman SHOW CAUSE by written
response due within 20 days of this order why Counts III and V should not be entitled to
summary judgment or dismissed. Gary Brooks shall file a response to the aforementioned Show
Cause Order response within 40 days of this order. This Court may, in its discretion, set any
response to this Order to Show Cause for hearing.

 

 IT IS SO ORDERED.

###

 

ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE

DISTRICT OF KANSAS

 



12-20854 Spencer (Doc. # 277)

In Re Spencer, 12-20854 (Bankr. D. Kan. Jul. 7, 2015) Doc. # 277

PDFClick here for the pdf document.


The relief described hereinbelow is SO ORDERED.
SIGNED this 6th day of July, 2015.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Bobby Joe Spencer and

Diane Wiggins Spencer, Case No. 12-20854
Debtors. Chapter 13

ORDER DENYING MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC’s
MOTION TO QUASH SUBPOENA

Mortgage Electronic Registration Systems, Inc. (MERS), moves this Court to quash
Debtors’ subpoena pursuant to Fed. R. Civ. P. 45(d)(3).1 The Court, having reviewed the
pleadings, counsel’s arguments, and exhibits, denies MERS’s motion. MERS argues that the
subpoena must be quashed because it is unduly burdensome and requires compliance beyond the

1 Doc. 234. Debtors, Bobby Joe Spencer and Diane Wiggins Spencer, appear by their attorney, Constance

L. Shidler, Overland Park, KS; Mortgage Electronic Registration Systems, Inc., appears by its attorney, Michael
Wambolt, St. Louis, MO.
15.07.06 Spencer Order Denying Motion to Quash.wpd
Case 12-20854 Doc# 277 Filed 07/06/15 Page 1 of 10


100-mile limit of Fed. R. Civ. P. 45(c)(2). The Court is unpersuaded by these arguments
because: (a) MERS failed to timely serve an objection in compliance with Fed. R. Civ. P.
45(d)(2)(B); (b) MERS regularly transacts business within 100 miles of the place for compliance;
and (c) MERS does not provide a sufficient factual foundation to establish that the subpoena is
unduly burdensome.

This Court has jurisdiction under 28 U.S.C. §§ 157 and 1334 to decide the matter in
controversy.2 This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A). The parties do
not contest the core nature of this proceeding. Venue is proper pursuant to 28 U.S.C. §§ 1408.

I. FINDING OF FACTS
On March 10, 2015, Debtors issued a subpoena to MERS at its registered agent, CT
Corporation, located at 1200 South Pine Island Road, Plantation, Florida 33324.

MERS’s principal place of business is located at 1818 Library Street, Reston, Virginia
20190.

Debtors assert the subpoena is necessary to investigate whether CitiMortgage3 had the
right to foreclose on Debtors’ principal residence located at 14846 150th Street, Bonner Springs,
Kansas 66012.

Debtors’ subpoena directs MERS to produce:

2 The District Court for the District of Kansas refers all cases and proceedings in, under, or related to Title
11 to the District’s bankruptcy judges pursuant to the Amended Standing Order of Reference, effective June 24,
2013, referenced in D. Kan. Rule 83.8.5.

3 Schedule D of Debtors’ Chapter 13 Petition lists CitiMortgage as having a first mortgage on Debtors’
principal residence. Doc. 1. Whether CitiMortgage fraudulently filed a proof of claim and the secured or unsecured
nature of CitiMortgage’s claim are issues in this case.

- 2


15.07.06 Spencer Order Denying Motion to Quash.wpd
Case 12-20854 Doc# 277 Filed 07/06/15 Page 2 of 10


Documents that show the historical and current securitization on the above

identified mortgage; and
Documents that show all mortgagees and any other parties with any interest
historically in the mortgage or mortgage note such as servicers and/or investors
under MIN #: 1000115-0704475396-9 from April 5, 2002, to the current date.4

The place for compliance set forth in the subpoena is Debtors’ attorney’s office located at
750 Commerce Plaza II, 7400 W. 110th St., Overland Park, Kansas 66210 (Commerce
Plaza).5 MERS’s response was requested by March 27, 2015.6

On March 30, 2015, three days after the production deadline had passed, MERS filed a
motion to quash the subpoena.7 MERS filed an amended motion to quash the subpoena on
March 31, 2015.8 MERS asserts that Debtors’ subpoena subjects MERS to an undue burden and
that the subpoena violates Fed. R. Civ. P. 45(c)(2)(A).9

On April 17, 2015, Debtors filed a memorandum in opposition to MERS’s motion to
quash. Debtors argued the subpoena did not subject MERS to an undue burden and that MERS
regularly transacts business within 100 miles of the place for compliance.10

On May 12, 2015, the parties agreed that the matter could be submitted on the briefs and

4 Doc. 218, at 4.
5 Id. at 1.
6 Id.


7 Doc. 230.
8 Doc. 234. MERS amended its motion to quash after the Clerk of the Court issued an order requesting that
MERS correct the defective pleading (Doc. 230) by attaching the appropriate exhibits (originally omitted from Doc.

230).
9 Id. at 2.
10 Doc. 245.

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the Court took the matter under advisement.11

II. LAW
Federal Rule of Bankruptcy Procedure 9016 makes applicable Fed. R. Civ. P. 45 in cases
under the Bankruptcy Code. Rule 45(d)(3) governs quashing or modifying a subpoena as
follows:

(A) When Required. On timely motion, the court for the district where
compliance is required must quash or modify a subpoena that:
(i) fails to allow a reasonable time to comply;
(ii) requires a person to comply beyond the geographical limits
specified in Rule 45(c);
(iii) requires disclosure of privileged or other protected matter, if no
exception or wavier applies; or
(iv) subjects a person to undue burden.12
Federal Rule of Civil Procedure 45(c)(2) provides:
For Other Discovery. A subpoena may command:
(A) production of documents, electronically stored information, or
tangible things at a place within 100 miles of where the person resides,
is employed, or regularly transacts business in person.”13
MERS, as the movant, bears the burden to show that compliance with the subpoena

11 Doc. 254.

12 FED. R. CIV. P. 45(d)(3).

13 FED. R. CIV. P. 45(c)(2)(A). MERS argued that the Rule 45(c)(2)(A) test requires an analysis relating to
locations within 100 miles from its principal place of business. However, Rule 45(c)(2)(A) clearly states the
applicable test requires an analysis relating to locations within 100 miles of where the person “regularly transacts
business in person.”

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presents an undue burden.14 “Typically, a movant asserting an undue burden objection ‘must
present an affidavit or other evidentiary proof of the time or expense involved in responding to
the discovery request.’”15

Rule 45(d)(2)(B) provides:

A person commanded to produce documents . . . may serve on the party or

attorney designated in the subpoena a written objection . . . . The objection must

be served before the earlier of the time specified for compliance or 14 days after

the subpoena is served.16

III.
ANALYSIS
A.
MERS waived its right to object to the subpoena because it failed to timely file an
objection in compliance with Fed. R. Civ. P. 45(d)(2)(B).
A party waives its right to object to a subpoena “[b]y failing to object within the time
permitted by the Federal Rules.”17 Debtors’ subpoena was issued on March 10, 2015, requesting
compliance by March 27, 2015. Rule 45(d)(2)(B)’s 14-day deadline gave MERS until March 24,
2015, to file an objection. The Federal Rules state that an objection must be served by the earlier
of the two dates.18 Thus, MERS had until March 24, 2015, to object. However, MERS did not
file its motion to quash until March 30, 2015, six days outside the time limit. Therefore, MERS
waived its right to object to Debtors’ subpoena.

14 Ficep Corp. v. Haas Metal Eng’g, Inc., 2015 WL 566988, at *3 (D. Kan. Feb. 11, 2015).

15 Id. (quoting Booth v. Davis, 2011 WL 2008284, at *8 (D. Kan. May 23, 2015)).

16 FED. R. CIV. P. 45(d)(2)(B).

17 Creative Gifts, Inc. v. UFO, 183 F.R.D. 568, 570 (D. N.M. 1998) (citing Wang v. Hsu, 919 F.2d 130
(10th Cir. 1990)); see also 2015 WL 566988, at *1.

18 FED. R. CIV. P. 45(d)(2)(B).

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Some courts have considered objections after a party has failed to act in a timely manner
“in unusual circumstances and for good cause.”19

Such unusual circumstances have been found in cases where (1) the subpoena is

overbroad on its face and exceeded the bounds of fair discovery, (2) the

subpoenaed witness is a nonparty acting in good faith, and (3) counsel for the

witness and counsel for the subpoenaing party were in contact concerning the

witness’ compliance prior to the time the witness challenged the legal basis for the

subpoena.20

The Court declines to find that unusual circumstances exist in the instant case. The
subpoena is not overbroad on its face because its inquiry is limited to Debtors’ mortgage.
Further, the Debtors provided the specific MERS “MIN” number for their mortgage. Also,
courts consider late objections to subpoenas when the parties have had regular contact in an
attempt to reach a compromise regarding the subpoenaed items.21 In this case, the parties have
made no showing of regular contact to resolve the issue. Finally, while MERS is a nonparty to
the litigation, which bears consideration, MERS makes no assertions that the subpoena was filed
in bad faith without good cause. Debtors’ subpoena only requests information related to
Debtors’ mortgage. Therefore, the Court finds the subpoena is a fair discovery request to a
nonparty and cannot excuse MERS’s obligation to comply with the applicable rules. However,
even if MERS complied with Rule 45(d)(2)(B)’s time limitation, the motion to quash still fails as
set forth in sections B and C hereinafter.

19 2015 WL 566988, at *1 (quoting Premier Election Solutions, Inc. v. Systest Labs Inc., 2009 WL
3075597, at *4 (D. Colo. Sept. 22, 2009)).

20 Id.
21 See, e.g., id.


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B. MERS regularly conducts business in person within 100 miles of Debtors’ requested
place for compliance.
Debtors assert that the Court may take judicial notice that MERS regularly transacts
business in person within 100 miles of Commerce Plaza. The Federal Rules of Evidence provide
that a court may take judicial notice of a fact that “is not subject to reasonable dispute because it
. . . can be accurately and readily determined from sources whose accuracy cannot reasonably be
questioned.”22 Facts that are part of the public record fall inside the scope of this rule.23 This
Court may take judicial notice of facts at a party’s request or sua sponte during any stage of the
proceeding.24

Here, the Court takes judicial notice that MERS regularly transacts business in person
within 100 miles of Commerce Plaza. Since 2011, the United States Bankruptcy Court for the
District of Kansas has issued five separate judicial orders regarding MERS’s role in Kansas.25 In
those cases, MERS was the mortgagee to a mortgage on real property in Kansas. In each case,
the courts found a mortgage naming MERS as mortgagee was valid and enforceable against

22 FED. R. EVID. 201(b)(2).

23 JP Morgan Trust Co. Nat. Ass’n v. Mid America Pipeline Co., 413 F. Supp. 2d 1244, 1258 (D. Kan.
2006) (citing Van Woudenberg ex rel. Foor v. Gibson, 211 F.3d 560, 568 (10th Cir. 2000), abrogated on other
grounds by McGregor v. Gibson, 248 F.3d 946, 955 (10th Cir. 2001)).

24 FED. R. EVID. 201(c)–(d).

25 Martinez v. MERS and Countrywide Home Loans, Inc. (In re Martinez), 455 B.R. 755 (Bankr. D. Kan.
2011); Williams v. BAC Home Loans Servicing, L.P. (In re Williams), 2012 WL 695832 (Bankr. D. Kan. 2012); Van
Nostrand v. IBM Lender Business Process Svcs., Inc. (In re Van Nostrand), Case No. 09-24265, Adv. No. 10-06146
(Bankr. D. Kan. Apr. 30, 2012); Huerter v. Chase Home Finance, LLC (In re Huerter), Case No. 10-23175, Adv.
No. 10-06147 (Bankr. D. Kan. Apr. 30, 2012); Wilkinson v. BAC Home Loan Servicing, L.P. (In re Wilkinson), Case
No. 09-24357, Adv. No. 10-06251 (Bankr. D. Kan. Apr. 30 2012).

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debtors in bankruptcy proceedings in the District of Kansas.26 Four of the orders involved real

property located in Lawrence, Kansas. Lawrence is 34.4 miles27 from Commerce Plaza. The fifth

order involved real property located in Topeka, Kansas. Topeka is 61.5 miles28 from Commerce

Plaza. Therefore, based on those cases, it is clear MERS transacts business in Kansas and within

100 miles of Commerce Plaza.

Furthermore, MERS holds itself out and makes it publicly known that it transacts

business in Kansas. Following the conclusion of three of the aforementioned cases, MERS, in a

May 3, 2012, press release, heralded the District of Kansas Bankruptcy Courts for affirming

MERS’s model as “valid and effective in Kansas.”29 MERS advertises itself as a member-based

organization which includes members in the Overland Park, Kansas, area.30 A quick search of

MERS’s member database31 reveals that Cornerstone Bank, Valley View State Bank, Bank of

26 “MERS’s business is to hold record legal title to mortgages and deeds of trust on behalf of
the beneficial owners. MERS is structured to allow its members, which include originators,
lenders, servicers and investors, to track transfers of servicing rights and beneficial ownership
interests in notes secured by the mortgages and deeds of trust held by MERS.” Huerter v. Chase Home Finance,
LLC (In re Huerter), Case No. 10-23175, Adv. No. 10-06147 slip op. at 3 (Bankr. D. Kan. Apr. 30, 2012).

27 Distance was calculated using the shortest route of public travel. Generally, courts measure the 100-mile
limit of Rule 45(c) along a straight line or “as the crow flies” rather than along the shortest route of public travel.
Premier Election Solutions, Inc. v. Systest Labs Inc., 2009 WL 3075597, at *4 (D. Colo. Sept. 22, 2009) (citing
Weerheim v. J.R. Simplot Co., 2007 WL 2121925, at *1 (D. Id. July 23, 2007)). However, since the distance along a
straight line will always be shorter than or equal to the shortest route of public travel, the values calculated can be
accepted when within 100 miles.

28 Id.

29 U.S. Bankruptcy Court Judge Affirms MERS’ Role As Mortgagee in Kansas, 2012 press releases (May 3,
2012), http://www.mersinc.org/media-room/press-releases/archives-2012/14-media-room/press-releasesarchives/
press-releases-2012/210-u-s-bankruptcy-court-judge-affirms-mers-role-as-mortgagee-in-kansas1.

30 MERS “is a member-based organization made up of thousands of lenders, servicers, sub-servicers,
investors and government institutions.” Our Business, https://www.mersinc.org/about-us/our-business (last visited
June 16, 2015).

31 Member Search, https://www.mersinc.org/about-us/member-search (last visited June 16, 2015).

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Blue Valley, and Ameri-National all possess Overland Park, Kansas, addresses. All of these
banks are less than five miles from Commerce Plaza and two are less than two miles away.
Therefore, MERS is precluded from arguing that the subpoena violates Fed. R. Civ. P.
45(c)(2)(A).

C. MERS fails to prove why responding to the subpoena is unduly burdensome
because it presented no factual foundation for holding otherwise.
To find undue burden the Court considers “such factors as relevance, the need of the party
for the documents, the breadth of the document request, the time period covered by it, the
particularity with which the documents are described and the burden imposed.”32 A court “will
not excuse compliance with a subpoena for relevant information simply upon the cry of ‘unduly
burdensome.’”33 Inevitably, complying with a subpoena “involves some measure of burden to
the producing party. Nevertheless, the court will not deny a party access to relevant discovery
because compliance inconveniences a nonparty or subjects it to some expense.”34

MERS fails to present information sufficient to form a factual foundation to find that the
subpoena is unduly burdensome. MERS asserts that it would be an “unfair expense on a non-
party” to obtain and ship the documents over 100 miles.35 This argument is insufficient as
MERS offers no information about the number of documents involved, how they are stored, and

32 Goodyear Tire & Rubber Co. v. Kirk’s Tire & Auto Servicenter of Haverstraw, Inc., 211 F.R.D. 658, 662

(D. Kan. 2003) (quoting Concord Boat Corp. v. Brunswick Corp., 169 F.R.D. 44, 53 (S.D.N.Y. 1996)).
33 E.E.O.C. v. Citicorp Diners Club, Inc., 985 F.2d 1036,1040 (10th Cir. 1993) (citing E.E.O.C. v.
Maryland Cup Corp., 785 F.2d 471, 479 (4th Cir. 1986)).
34 Ficep Corp. v. Haas Metal Eng’g Inc., 2015 WL 566988, at *3 (D. Kan. Feb. 11, 2015) (citing Booth v.
Davis, 2011 WL 2008284, at *7 (D. Kan. May 23, 2011)).
35 Doc. 234, at 2.

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what effort is necessary to produce the requested information. Further, Debtors requested only
the specific documents related to Debtors’ mortgage by providing their MERS “MIN” number.
The inclusion of Debtors’ specific MERS “MIN” number should take MERS an electronic
mortgage registration system little time to locate the requested documents. The breadth of the
document request is narrow, even though it calls for a 13-year inquiry, because it relates only to
Debtors’ single mortgage. Without information regarding the number of documents involved or
the effort it would take MERS to produce them, the Court cannot find Debtors’ subpoena unduly
burdensome.

IV.
CONCLUSION
IT IS ORDERED that MERS’s motion to quash is DENIED.
IT IS FURTHER ORDERED that MERS shall produce the requested documents in
compliance with Debtors’ subpoena within 30 days of the entry of this order.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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14-22359 Harris (Doc. # 44)

In Re Harris, 14-22359 (Bankr. D. Kan. Jan. 12, 2016) Doc. # 44

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 12th day of January, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

GEORGE JOSEPH HARRIS, Case No. 14-22359
Debtor. Chapter 13

ORDER DENYING CONFIRMATION OF DEBTOR’S PLAN

Debtor George Joseph Harris seeks confirmation of his Chapter 13 plan.1 The Chapter 13
Trustee, William H. Griffin, appears pro se; Debtor appears through his attorney, Stephen G.
Bolton; the creditor, Kristin K. Harris, appears pro se. Kristin K. Harris timely filed an Objection
to Confirmation of Bankruptcy2 which this Court treats as an objection to confirmation of
George’s plan as not proposed in good faith and objection to the bankruptcy petition as not filed
in good faith.3 Kristin is George’s former spouse. There is no objection to venue or jurisdiction over
the parties.4

1 Doc. No. 4.
2 Doc. No. 25.
3 § 1325(a)(7).
4 This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C. §§ 157(a) and 1334(a)
and (b), and the Amended Standing Order of Reference of the United States District Court for the District of Kansas
that exercised authority conferred by § 157(a) to refer to the District’s bankruptcy judges all matters under the


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BACKGROUND

In her Objection, Kristin asserts various factual allegations:

1. That Debtor is gainfully employed by Union Pacific Railroad, has been so employed
since June 20, 2002, and receives increases in income yearly, to include cost of living increases,
overtime and bonuses;
2. That George owes to Kristin a $13,113 civil (divorce) judgment arising from their
divorce proceedings and various post-divorce proceedings wherein George was ordered to pay
this sum as a debt and property equalization payment;
3. That George received a Workers’ Compensation settlement (in reality it appears to be a
FELA claim as George is a railroad worker5) after the parties’ divorce but prior to the filing of
this bankruptcy case; the division of the FELA claim was left somewhat unsettled in the divorce
proceedings; and
4. That Debtor’s child support obligation has been reduced by $700 per month, that he has a
paid for personal vehicle, and that discharging the divorce judgment will create an undue
hardship on Kristin due to George’s financial neglect and attendant effects.
The Court’s review of documentation provided by the Debtor indicates that the net
proceeds from the FELA claim were $48,815.82 of which $34,842.82 was deposited in George’s
bank account on December 31, 2013. The Court’s review of Kristin’s objection and her
statements at the pretrial conference held in this matter indicate that Kristin’s objection is that
George’s bankruptcy was not filed in good faith.6

Bankruptcy Code and all proceedings arising under the Code or arising in or related to a case under the Code,
effective June 24, 2013. D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168
(March 2014). Furthermore, this Court may hear and finally adjudicate this matter because it is a core proceeding
pursuant to 28 U.S.C. § 157(b)(2)(L). There is no objection to venue or jurisdiction over the parties.
5 “A FELA award, which is the exclusive remedy for railroad employees injured on the job, is analogous to a Workers’
Compensation award.” In re Albrecht, 89 B.R. 859 (Bankr. D. Mont. 1988).
6 See § 1325(a)(7).


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Kristin and George were married on September 13, 2002, in Johnson County, Kansas.
They were subsequently divorced. A Decree of Divorce7 was filed with the Clerk of the District
Court of Johnson County, Kansas, on October 23, 2012, after it was approved by State of Kansas
District Court Judge Thomas Foster. At the time of the divorce, Judge Foster found that
Kristin’s monthly domestic gross income was $3,387 and that George’s was $5,652. Attached to
the Decree is the state court’s Division of Assets and Liabilities8 wherein it is stated that an
equalization payment of $13,113 is owed by George to Kristin; judgment therefor was entered in
Kristin’s favor in the Decree. At the time of the divorce, in 2012, George and Kristin had two
children, one born in August 1994 and the other born in April 2006. George was directed to pay
to Kristin maintenance in the sum of $677 per month for 27 months, subject to conditions.
Monthly child support in the amount of $1,408 was ordered to be paid by George to Kristin.
Kristin was awarded 50 percent of George’s Tier II Railroad Retirement as of April 21, 2011, as
well as 100 percent of George’s Vanguard Prime Money Market Fund. George was to execute
necessary documents to effect the transfer of the latter account to Kristin. This Court has
insufficient information to establish whether the requisite documents have been entered to effect
these transfers. Regardless, it appears that these are property interests and not claims and, hence,
are not subject to discharge. At a hearing before this Court, George’s bankruptcy attorney
provided some assurance that the necessary documents had been completed and filed as required.

The Decree also stated that “[t]he respondent [George] shall be set aside his interest in
his individual pending personal injury claim. The petitioner [Kristin] shall be set aside any
individual interest or claim she may be entitled to in that action.” This appears to be a reference
to George’s FELA claim that was pending at the time of the divorce. Judge Foster did not make

7 On January 28, 2015, this Court was provided a copy of the Decree for in camera review.
8 Since it was not attached to the Decree, this Court obtained a copy of this attachment from the District Court of
Johnson County, Kansas, on September 25, 2015.


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a determination as to what, if any, interest Kristin may have had in the FELA claim, and no one

has presented arguments relating to such. Regardless, after the divorce and prior to the filing of

George’s bankruptcy, the FELA claim was liquidated and the net proceeds of $48,815.82 were

paid to George.

A primary financial aspect of the Decree that is relevant to the Court’s review of this case

pertains to the equalization payment, as mentioned above. The Decree states:

H. Equalization Payment. Petitioner shall be granted judgment in the
amount of $13,113.00 against respondent, to equalize the division of assets and
liabilities herein. The Court shall retain continuing jurisdiction to enter orders
regarding payment of said judgment in the event the parties are not able to agree
on a reasonable payment plan.9
Kristin has filed a domestic support obligation priority proof of claim in the amount of $13,113

in this case.10 An objection has not been filed to this proof of claim.

On February 3, 2014, post-divorce proceedings were held in the District Court of

Johnson County before Judge Keven M.P. O’Grady. Judge O’Grady’s rulings were

memorialized by a journal entry filed with that court on April 1, 2014. The Journal Entry sets

out in part:

WHEREUPON, the Court swears in the parties, hears arguments of
counsel and receives evidence, and after being well and duly advised, finds and
orders as follows:

1. Respondent’s [George’s] Motion to Alter or Amend Judgment or in the
Alternative Motion to Modify and Review Child Support and Maintenance should
be and is hereby denied.
2. The petitioner’s [Kristin’s] Motion to Enforce Judgment is sustained.
Respondent [George] shall make contact with account holders and execute all
documents necessary to transfer the VanGuard Prime Money Market Fund (R10IRA)
to petitioner’s account.
3. The Court is issuing an Order to Appear to respondent [George] to
show cause on February 10, 2014, at 9:30 a.m., what has been done to accomplish
the transfer.
9 Decree of Divorce filed in the Matter of the Marriage of Kristin K. Harris and George J. Harris (the Divorce
Proceeding), Case No. 11CV3462, at 7, submitted in camera to this Court.
10 Proof of Claim 4-1 filed November 11, 2014.


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4. Respondent [George] shall make payments on the $13,113.00
equalization judgment granted to petitioner [Kristin], in the sum of $250 per
month, beginning in February, 2014 through December, 2014. Beginning
December, 2014, respondent [George] shall pay $900.00 until principal and
interest are fully paid. Statutory interest shall be assessed and will accrue
effective September 13, 2013, the date of the filing of the Motion to Enforce
Judgment. Respondent [George] will be subject to contempt if said payments are
not timely made.
5. Pursuant to the Court’s child support worksheet attached hereto and
incorporated herein, the respondent’s [George’s] child support shall be and is
hereby modified to $823.00 per month, plus one-half of the enforcement fee (now
$10.00) for a total child support of $833.00 per month, effective August 1, 2014.11
Because of the emancipation of one of the parties’ children, the child support obligation

was reduced from $1,408 to $823 per month.

DISCUSSION

This Court has the authority and an independent duty to review proposed Chapter 13
plans for compliance with the applicable Code provisions and rules.12 Kristin has filed a priority
proof of claim for a domestic support obligation in the amount of $13,113. George’s plan does
not provide for payment of this DSO as required under § 1322(a)(2). The proof of claim
represents evidence of the validity and amount of the claim,13 although in the face of a proper
objection, the ultimate burden of proof rests with the claimant (in this case, Kristin). Likewise,
entitlement to priority status must be established by a preponderance of the evidence and without
a presumptive validity for the status asserted.14 That said, Kristin’s filing of a priority claim in
conjunction with an objection to confirmation potentially requires the adjudication of the priority
status of the proof of claim. The Court only notes this matter in passing as a potential bar to

11 Journal Entry filed in the Divorce Proceeding on April 4, 2014, at 1-2, submitted in camera to this Court.
12 See United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 277, 130 S. Ct. 1367, 1381 (2010).
13 Fed. R. Bankr. P. 3001(f).
14 See Matter of Patch Graphics, Inc., 58 B.R. 743, 745 (Bankr. W.D. Wisc. 1986), determining the § 503(b) status of
a post-petition debt.


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confirmation of the plan, since there are other issues as to whether the plan is proposed in good
faith and as to whether the bankruptcy itself was filed in good faith.

The parties were divorced on October 23, 2012. On December 29, 2013, George
received the FELA recovery of $48,815.82, a portion of which in the amount of $34,842.82 was
deposited in his bank account. One week later, on January 6, 2014, George paid $14,607.80 to
satisfy the secured obligation on his 2007 Dodge Ram truck.15 Less than two weeks later, on
January 17, 2014, George purchased a 2013 Chevrolet Malibu, which was financed by Christ the
King Parish Federal Credit Union with a $25,000 loan.16 Between January 19 and March 21,
2014, the bank records provided by George reflect ATM withdrawals at local casinos in the
aggregate of $3,320.34. There were also a number of other ATM withdrawals, the purpose of
which this Court is unable to discern, but some of which were on the same day or the day before
the casino withdrawals. On February 3, 2014, in the midst of this activity, George and Kristin
appeared at the above-referenced post-divorce court hearing. George filed this Chapter 13 case
on October 1, 2014.

Through counsel, George has provided information with regard to the FELA claim
recovery and disposition of those proceeds. This information includes the settlement
disbursement sheet, copies of Commerce Bank statements from January through April 2014, and
a handwritten and typed explanation of certain payments. The statements reflect a bank deposit
in the amount of $34,842.42. There is no explanation as to the almost $14,000 difference
between the deposit to the Commerce Bank account and the FELA settlement of more than
$48,000. The bank records show a check in the amount of $14,607.80, a check which this Court

15 George claims this vehicle as exempt on his Schedule C (Doc. No. 1, at 22).
16 See Proof of Claim 3-1.

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presumes satisfied the truck loan.17 In addition, George’s cover letter indicates that he paid
significant medical bills associated with the birth of his daughter, parts for his truck, and a credit
card balance. The cover letter also indicates he paid back within a year of bankruptcy
approximately $20,000 to his parents for room and board accrued over a two-year period and for
other expenses such as attorney’s fees and court costs.

The FELA settlement was not disclosed on George’s initial schedules filed with the
Court, but was disclosed four months later by an amendment to the Statement of Financial
Affairs filed on February 15, 2015. The amendment states, “Debtor settled a Union Pacific
Railroad work related injury Claim in December of 2013 for approximately $48,000.”18 The
approximately $20,000 in payments to George’s parents was not disclosed on the Statement of
Financial Affairs. Parents are considered insiders19 and the repayment of debts to them within
one year of bankruptcy is potentially an avoidable preference.20 It is unclear whether FELA
claims may be exempted in bankruptcy;21 regardless, the use of what would otherwise be exempt
property to pay debts does not in and of itself affect the classification of a transfer as a
preference.22

George’s Chapter 13 plan proposes to pay $1,000 in attorney’s fees to his bankruptcy
counsel, and the balance of the plan payments of $520 per month are to be used to pay off the
2013 Chevrolet Malibu car loan that was incurred less than one year prior to the petition date.23
The plan does not provide distributions to general unsecured claimants, including Kristin, and

17 The clearance date for the check corresponds with the lien release date, January 6, 2014, for the 2007 Dodge Ram
truck.
18 Doc. No.34.
19 See § 101(31)(A)(i).
20 See, generally, § 547.
21 See In re Jones, 446 B.R. 466 (Bankr. D. Kan. 2011).
22 5 COLLIER ON BANKRUPTCY ¶ 547.03[2] (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015).
23 Proof of Claim 3-1 reflects a balance on the petition date of $22,492.82.


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the plan does not list or treat Kristin as a priority creditor. Excluding Kristin’s claim, the total
general unsecured debt listed on Schedule F is $1,949.

Unsecured creditors may object to a Chapter 13 plan on the grounds that it is not
proposed in good faith24 or to a Chapter 13 bankruptcy case itself if the action of the debtor in
filing the bankruptcy petition was not in good faith.25 Further, this Court has a duty to review
plans for compliance with the applicable law. A plan may not be confirmed unless it has been
proposed in good faith and not by any means forbidden by law. “Only if there has been a
showing of serious debtor misconduct or abuse should a Chapter 13 plan be found lacking in
good faith.”26 This Court will consider the totality of the circumstances to determine whether
good faith exists; a similar test is applied to both § 1325(a)(3) and (a)(7).27

A somewhat unique situation arises when divorce proceedings and bankruptcy intersect.28
Within these confines, it is possible that if the Debtor’s Chapter 13 plan were filed improperly to
circumvent domestic relations orders or the bankruptcy paperwork were not fully completed, a
finding of a lack of good faith in the proposed plan may exist.29 Similar considerations apply to
determine whether the Debtor’s case itself was filed in good faith.30 George argues that his
obligation to Kristin is not a DSO excepted from discharge under § 523(a)(5),31 instead arguing
that the debt is a non-DSO obligation to a former spouse to which the § 523(a)(15) exception to

24 § 1325(a)(3).
25 § 1325(a)(7); see also 8 COLLIER ON BANKRUPTCY ¶ 1325.08 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed.
2015).
26 8 COLLIER ON BANKRUPTCY ¶ 1325.01 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015).
27 In re Wark, 2015 Bankr. LEXIS 4214, at *18-19 n.35.
28 Robert D. Berger, Bankruptcy & Divorce: A Marriage of Inconvenience, THE JOURNAL OF THE KANSAS BAR


ASSOCIATION, February 2014, at 30.

29

See HENRY J. SOMMER & MARGARET DEE MCGARITY, COLLIER FAMILY LAW AND THE BANKRUPTCY CODE
¶ 8.05[3][c] (2015).
30 See id., 8 COLLIER ON BANKRUPTCY ¶ 1325.08 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2015).
31 To determine whether a debt is a DSO, the bankruptcy court should conduct “a ‘dual inquiry’ looking first to the
intent of the parties at the time they entered into their agreement, and then to the substance of the obligation.” In re
Okrepka, 533 B.R. 327, 335 n.30 (D. Kan. 2015), quoting In re Taylor, 737 F.3d 670, 676 (10th Cir. 2013).

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discharge applies. Although the Court does not resolve this aspect of the case, it is relevant to
the Court’s analysis since a DSO is not dischargeable under a full compliance Chapter 13
discharge.32 The distinction in this case is important because Kristin’s debt comprises over 80
percent of the general unsecured debt that George seeks to discharge in this case.33 When
George filed this case on October 1, 2014, he was not eligible for a Chapter 7 bankruptcy
discharge for less than one year.34 While the determination as to both what is a DSO and
whether a bankruptcy case or plan have been filed in good faith is made on a case-by-case basis,
under these circumstances, the filing of a Chapter 13 case is indicia of a lack of good faith.

George’s bankruptcy case was filed within ten months after he received the FELA
settlement in excess of $48,000, a settlement which initially was not revealed on the Statement of
Financial Affairs. He paid in excess of $14,000 to pay off a truck loan and then within two
weeks incurred a $25,000 loan to purchase a 2013 Chevrolet Malibu. George withdrew in excess
of $3,000 at casino ATMs. George paid back family members and friends significant sums of
money within one year of the bankruptcy filing, which transfers were not disclosed. During this
time frame, Kristin was seeking enforcement of her $13,113 judgment and George was ordered
by Judge O’Grady to make payments on that judgment or suffer contempt of court. George
chose to use the money for other purposes. Aside from the debt owed to Kristin, George owes
less than $2,000 in general unsecured debt. George’s proposed plan pays bankruptcy attorney’s
fees of $1,000 and a secured auto loan that exceeds $22,000 that was incurred the same year he
filed bankruptcy. Based on these facts, it would appear that the sole or determinant purpose for

32 The § 523(a)(15) exception does not apply to a full compliance § 1328(a) discharge, although the exception applies
to a Chapter 13 hardship discharge under § 1328(b), as well as Chapter 7 discharge.
33 Actually, based upon the filed claims, Kristin’s claim is more than 90 percent of filed unsecured claims.
34 The Court notes that although George’s original voluntary petition filed in this case failed to disclose a prior
bankruptcy filing, he filed an amendment two months later to reflect a prior filing, a Chapter 7, on September 24,
2007, in which he received a discharge.


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the filing of George’s Chapter 13 bankruptcy (assuming that someone does not file a bankruptcy
to discharge only $2,000 of debt) is to avoid payment of Kristin’s judgment. These facts
strongly indicate that the case was not filed in good faith and that the plan was not proposed in
good faith.

CONCLUSION

Confirmation of the Debtor’s plan is denied. The Debtor has 30 days from the date of
this Order within which to file an amended plan and to seek confirmation of same. Failure to file
a confirmable amended plan within 30 days of this Order will result in the dismissal of this case;
any dismissal by this Court under this Order or otherwise may be subject to conditions as set out
in § 349.

IT IS SO ORDERED.
###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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13-21559 Okrepka (Doc. # 53)

In Re Okrepka, 13-21559 (Bankr. D. Kan. Mar. 4, 2015) Doc. # 53

PDFClick here for the pdf document.


The relief described hereinbelow is SO ORDERED.
SIGNED this 4th day of March, 2015.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

OLEKSANDRA M. OKREPKA, Case No. 13-21559
Debtor. Chapter 13

MEMORANDUM OPINION AND ORDER GRANTING CREDITOR’S OBJECTION TO
PLAN CONFIRMATION, DENYING DEBTOR’S CLAIM OBJECTION, AND
GRANTING CREDITOR’S MOTION TO LIFT THE AUTOMATIC STAY


Comes on for hearing Creditor Ivan Kepych’s objection to confirmation of Debtor
Oleksandra Okrepka’s chapter 13 plan, Debtor’s claim objection, and Creditor’s motion to lift
the automatic stay.1 The parties agreed that this matter may be submitted on the pleadings and
exhibits.2 The Court, having reviewed the pleadings and counsel’s arguments, grants Ivan’s

1 Doc. 16, 24, and 28. Debtor, Oleksandra M. Okrepka, appears by her attorney, James W. Lusk, Lenexa,
KS; Creditor, Ivan Kepych, appears by his attorney, Christopher Fletcher, Olathe, KS.

2 Doc. 47, Transcript of Proceedings held March 6, 2014.

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objection to confirmation, denies Oleksandra’s claim objection, and grants Ivan’s motion to lift
the automatic stay.

The Court finds that Oleksandra’s divorce obligation to make an equalization payment to
Ivan is a property settlement obligation under 11 U.S.C. § 523(a)(15) and is not a domestic
support obligation (DSO) because it did not have the purpose and effect of providing support for
Ivan.3 However, because of the divorce court judgment, Ivan holds an in rem interest in the
marital residence for which Oleksandra’s plan does not provide treatment. Ivan’s motion to lift
the automatic stay is granted for cause under § 362(d)(1) because there is not a reasonable
likelihood Oleksandra can propose a confirmable plan.

This Court has jurisdiction under 28 U.S.C. §§ 157 and 1334 to decide the matter in
controversy.4 This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B), (G), and (L).
The pleadings do not contest the core nature of this proceeding. Venue is proper pursuant to 28

U.S.C. §§ 1408.
FACTS

Oleksandra and Ivan married on October 16, 1999, and divorced on October 3, 2007. On
July 12, 2004, they purchased a home at 8400 W. 149th Terrace, Overland Park, Kansas (the
“Marital Residence”). In May 2006, Oleksandra gave birth to their son (the “Minor Child”).
During the marriage, Ivan’s annual income from Embarq was approximately $80,000 while

3 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.

4 The United States District Court for the District of Kansas refers all cases and proceedings in, under, or
related to Title 11 to the District’s bankruptcy judges pursuant to the Amended Standing Order of Reference,
effective June 24, 2013, referenced in D. Kan. Rule 83.8.5.

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Oleksandra was a student with no income.

Ivan filed for divorce on July 7, 2007. Oleksandra did not appear at the divorce
proceedings and was found in default. On October 3, 2007, the Johnson County District Court
for Kansas (the “Divorce Court”) entered its decree of divorce (the “Divorce Decree”).5 Ivan
and Oleksandra were granted joint custody of the Minor Child. Ivan was granted residential
custody while Oleksandra was granted reasonable parenting time. Ivan was ordered to pay
Oleksandra $800 a month commencing October 1, 2007, until the: (a) expiration of 12 months;

(b) the death of either party; or (c) Oleksandra’s remarriage or cohabitation with an adult, non-
relative male in a marriage-like relationship for substantially consecutive periods of time in
excess of 30 days (the “Maintenance”). The following was assigned to Ivan: (a) the real
property located at 220 Jackson Road, Quenemo, Kansas 66528;6 (b) the VISA credit card debt;
(c) a 2005 Dodge Grand Caravan; (d) all checking and savings accounts held jointly or
individually; (e) one half of the parties’ personal property divided by their agreement; and (f)
Ivan’s ownership interest in all his retirement plans, stocks, bonds, IRAs, life insurance policies,
and other intangible assets in his name. The following was assigned to Oleksandra: (a) the
previously unencumbered Marital Residence valued at approximately $165,000; (b) all student
loans; (c) a 2002 Mitsubishi Lancer; (d) one half of the parties’ personal property divided by
their agreement; and (e) Oleksandra’s ownership interest in all her retirement plans, stocks,
5 Doc. 40-1. Ivan and Oleksandra did not agree to a joint marital settlement agreement for the division and
ownership of marital property. Instead, the Divorce Court adopted the Divorce Decree prepared by Ivan’s attorney
because Oleksandra failed to appear at the Divorce Court hearings and was found in default.

6 This property is separate real property and not part of the Marital Residence.

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bonds, IRAs, life insurance policies, and other intangible assets in her name. The Marital
Residence was assigned to Oleksandra, subject to Ivan’s right to remain in the residence for 120
days from the date of the Divorce Decree. Oleksandra was ordered to pay $55,000 to Ivan
within 90 days of Oleksandra’s college graduation or the expiration of 12 months, whichever
was sooner (the “Equalization Payment”).

Additionally, the Divorce Decree included the following clause:

That all property and monies received or retained by the parties pursuant hereto

shall be the separate property of the respective parties, free and clear of any right,

title or interest in the other party, and each party shall have the right to deal with

and dispose of his or her separate property as fully and effectively as if the parties

had never been married. . . .

[T]his Decree itself shall constitute an actual grant, assignment and conveyance of

property and rights and in such manner, and with such force and effect, as shall be

necessary to effectuate the terms hereof.7

Subsequent to the parties’ divorce, the Marital Residence became the subject of litigation
between Ivan and Oleksandra. In October 2008, Oleksandra failed to make the Equalization
Payment. In 2012, Ivan filed a Motion in Contempt and for attorney’s fees. In October 2012,
the Divorce Court appointed a special master to facilitate the sale of the Marital Residence due to
Oleksandra’s failure to either refinance or sell the Marital Residence to satisfy the Equalization
Payment. Oleksandra failed to cooperate with the special master and comply with the related
Divorce Court orders on multiple occasions and was held in contempt. This bankruptcy case
stayed enforcement of all state court orders.

On June 19, 2013, Oleksandra filed a chapter 13 voluntary petition for relief and

7 Doc. 40-1 ¶ 15–16, at 3–4.

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proposed chapter 13 plan.8 Ivan filed an objection to confirmation of Oleksandra’s chapter 13
plan on August 9, 2013.9 Ivan argued Oleksandra’s plan was not feasible and lacked good faith
because she incorrectly reported her income and failed to accurately record her monthly
expenses. On August 24, 2013, Oleksandra responded, arguing that: (a) her income is sufficient
to complete her plan payments; and (b) the Equalization Payment is not in the nature of support
and therefore dischargeable under § 523(a)(15).10

On August 12, 2013, Ivan filed Claim 8-1 in the amount of $73,251, claiming that he is
the joint owner and holds a judgment lien on the Marital Residence.11 On August 27, 2013,
Oleksandra objected to Claim 8-1, asserting that there is not a mortgage or lien on the Marital
Residence and her obligation to Ivan is dischargeable under § 523(a)(15).12 On September 10,
2013, Ivan responded, stating that he is a joint owner and holds an equitable lien in the real
property.13

On September 16, 2013, Ivan filed a motion requesting relief from the automatic stay
under § 362(d) to continue pursing satisfaction of the Equalization Payment in state court.14 Ivan
maintained that the debt owed to him is a DSO and because of his equitable lien, Oleksandra
should satisfy his claim. Ivan also argued that the Divorce Decree controls whether the debt is a

8 Doc. 1 and Doc. 2.
9 Doc. 16.
10 Doc. 21.
11 There was not a mortgage on the Marital Residence at the time of the divorce.
12 Doc. 24. Oleksandra did not object to the amount of Ivan’s claim.
13 Doc. 26.
14 Doc. 28.


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DSO. Oleksandra responded to the motion on September 26, 2013, asserting that: (a) the
Divorce Decree sets the Marital Residence over to her; (b) Ivan is not a joint tenant of the
Marital Residence; (c) she does owe a debt to Ivan, but the debt is in the nature of a property
division, not a DSO; (d) it is for this Court to decide under § 523(a)(5) if the debt is a DSO or
property division; and (e) her penurious circumstances should allow her to continue to reside in
the Marital Residence.

On March 6, 2014, Oleksandra, Ivan, and the Chapter 13 Trustee, William H. Griffin,
appeared before the Court. The parties presented arguments concerning the stay relief motion,
Oleksandra’s claim objection, and plan confirmation.15 Due to Ivan and Oleksandra’s
acrimonious relationship, the parties submitted briefs and the Court took the matter under
advisement.

LAW

Under § 1328(a), a debtor is entitled to a discharge after full compliance with his or her
chapter 13 plan. However, § 1328(a) specifies that certain debts cannot be discharged. The
2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendment to
§ 523(a)(15) provides that a property settlement under § 523(a)(15) is nondischargeable.16
However, § 523(a)(15) debts are not excepted from discharge in a full compliance chapter 13
case because the § 523(a)(15) exception was not incorporated into § 1328(a). Section 523(a)(15)

15 Doc. 28, 24, and 16.

16 4 COLLIER ON BANKRUPTCY ¶ 523.23, at 523-126 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed.
2014). This holds true in individual cases under chapters 7 and 11 and cases under chapter 12 where § 523(a)
controls dischargeability. Section 1328(a) controls dischargeability in chapter 13 cases and the § 523(a)(15)
exception was not incorporated into § 1328(a).

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provides for the nondischargeability of debts that do not constitute DSOs17 arising from family
law proceedings.18 Section 523(a)(5) “departs from the general policy of absolution, or ‘fresh
start,’” to “enforce an overriding public policy favoring the enforcement of familial
obligations.”19 In § 523(a)(5), Congress provided the non-filing former spouse the opportunity
to breach certain bankruptcy protections and render nondischargeable the debtor’s obligations to
a former spouse that are in the nature of support. Here, if the Debtor receives a full compliance
discharge under § 1328(a), a property settlement under § 523(a)(15) would be dischargeable,
while a DSO under § 523(a)(5) would not.

ANALYSIS


Debtor asserts the wrong test to determine whether
the Equalization Payment to Creditor is a debt under § 523(a)(15).


Oleksandra seeks a discharge of the Equalization Payment as a property settlement under

§ 523(a)(15). She argues that § 523(a)(15):

. . . excepts from discharge debts incurred through a divorce proceeding other than those
covered by 11 U.S.C. § 523(a)(5), unless the debtor can show an inability to pay the debt
or that discharging the debt will provide benefits to the debtor that outweighs [sic] any
detrimental effects on the former spouse and/or children of the debtor.20

However, this characterization regarding the burden of proof analysis under § 523(a)(15)

17 A domestic support obligation (DSO) is an obligation in the nature of alimony, maintenance, or support
that arises before, on, or after the filing of the bankruptcy petition under a divorce decree, separation agreement, or
other order under state or administrative law. Section 101(14A) fully defines DSOs. The dischargeability of DSOs
is addressed under § 523(a)(5).

18 COLLIER, supra note 16.

19 See In re Trump, 309 B.R. 585, 591 (Bankr. D. Kan. 2004) (citing and quoting In re Sampson, 997 F.2d
717, 721 (10th Cir. 1993)). See also HENRY J. SOMMER & MARGARET DEE MCGARITY, COLLIER FAMILY LAW AND
THE BANKRUPTCY CODE ¶ 6.03[1], at 6-13–6-17 (2014). COLLIER, supra note 16, ¶ 523.05, at 523-1.

20 Doc. 40 at 7, citing In re McFadden, Adv. No. 05-7143 (Bankr. D. Kan. Oct. 20, 2006).

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is outdated. Originally enacted in 1994, § 523(a)(15) excepted from discharge debts arising from
divorce or separation unless either: (a) the debtor lacked the ability to pay the debt; or

(b) discharging the debt would confer a benefit to the debtor that outweighed the detrimental
consequences to the spouse, former spouse, or children of the debtor.21 In 2005, BAPCPA
removed §§ 523(a)(15)(A) and (B), the balancing test controlling dischargeability.22 The burden
of proof regarding dischargeability actions is by preponderance of the evidence and rests with
the objecting nondebtor spouse, former spouse, or child.23 The objecting creditor must prove that
the debt is one that occurred in the course of a divorce or separation.24 Debts arising from a
debtor’s failure to comply with a divorce decree’s property settlement fall within the scope of
§ 523(a)(15).25 The parties’ pleadings and associated exhibits establish that the asserted debt
arose in the course of Ivan and Oleksandra’s divorce. Furthermore, the parties do not contest
that the debt arose from their separation. Thus, the Court declines to follow Oleksandra’s
characterization that the debt should be discharged because: (a) she lacks the ability to pay the
debt; or (b) discharging the debt would confer a benefit to her that outweighs the detrimental
consequences to Ivan and their Minor Child.
21 Former 11 U.S.C. § 523(a)(15)(A), (B), repealed by Pub L. No. 109-8, § 215(3).

22 Pub. L. No. 109-8, § 215(3) (2005). The change became effective in bankruptcy cases commenced on or
after October 17, 2005. Debtor cited In re McFadden, Adv. No. 05-7143 (Bankr. D. Kan. Oct. 20, 2006) (petition
filed October 12, 2005), and In re Hall, 285 B.R. 485 (Bankr. D. Kan. July 11, 2001) (petition filed July 11, 2001),
for her burden of proof analysis. Both decisions applied the pre-BAPCPA analysis in accord with the October 17,
2006, cutoff.

23 Grogan v. Garner, 498 U.S. 279, 286–87 (1991); SOMMER & MCGARITY, supra note 19, ¶ 6.07A[3][c],
at 6-107.

24 SOMMER & MCGARITY, supra note 19, ¶ 6.07A[3][c], at 6-107.

25 SOMMER & MCGARITY, supra note 19, ¶ 6.07A[2][a], at 6-103.

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The Equalization Payment to Ivan is not a DSO under § 523(a)(5)
but is a division of property under § 523(a)(15)

The Court is not bound by the labels applied by the Divorce Court when reviewing the
characterization of the Equalization Payment.26 “[N]either state law nor the parties’
characterization determine[] whether a debt [is] nondischargeable under section 523(a)(5).”27
Whether the Equalization Payment is excepted from discharge under § 523(a)(5) is a matter of
federal law based on an inquiry made on a case-by-case basis.28 Whether the obligation is
excepted from discharge under § 523(a)(5) is “a dual inquiry into both the parties’s [sic] intent
and the substance of the obligation” and the crucial issue is “whether the obligation imposed by
the divorce court has the purpose and effect of providing support for the spouse.”29 The Court
considers the parties’ shared intent at the time of the divorce, the substance of the obligation,
whether the purpose and effect of the obligation is to provide support to a spouse, a spouse’s
need for support, and what function the obligation is intended to serve.30 Here, the intent of the
Divorce Court is considered because Oleksandra and Ivan litigated their divorce—as opposed to

26 In re Rivet, No. 13-11726, 2014 WL 1876285, at *3 (Bankr. D. Kan. May 8, 2014) (This Court is not
bound by labels applied to matrimonial obligations in a state court decree.).

27 In re Sampson, 997 F.2d at 722. The Sampson court rejected the suggestion in Yeates, 807 F.2d 874
(10th Cir. 1986), that an unambiguous agreement normally controls the court’s determination.

28 In re Sampson, 997 F.2d at 721 (“Whether a debt is nondischargeable under § 523(a)(5) is a question of
federal law.”); In re Rivet, 2014 WL 1876285, at *3; In re Trump, 309 B.R. at 592; In re Busch, 369 B.R. 614, 622

(B.A.P. 10th Cir. 2007) (citing In re Sampson, 997 F.2d at 725–26).
29 In re Sampson, 997 F.2d at 723 (quoting 2 HOMER H. CLARK, JR., THE LAW OF DOMESTIC RELATIONS IN
THE UNITED STATES § 17.7, at 305 (2d ed. 1987)) (emphasis provided by the Sampson court).

30 In re Sampson, 997 F.2d at 726; In re Yeates, 807 F.2d at 879; In re Williams, 703 F.2d 1055, 1057 (8th
Cir. 1983); see also In re Taylor, 737 F.3d 670, 676 (10th Cir. 2013) (“When determining whether an obligation is in
the nature of alimony, maintenance, or support, this court conducts a ‘dual inquiry’ looking first to the intent of the
parties at the time they entered into their agreement, and then to the substance of the obligation.”).

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the state court adopting the parties’ mutual marital settlement agreement.31 The inquiry is
whether the Divorce Court believed and found the debt was in fact support, or whether that debt
was established by the state court as a means of fairly dividing the parties’ assets and liabilities.32
The burden of proof to demonstrate nondischargeability is by a preponderance of the evidence
and rests with the objecting creditor.33

The language establishing the Equalization Payment is contained in paragraph 17 of the
Divorce Decree and indicates that “[t]he assets and debts of the parties should be divided as
follows . . . .”34 This language is indicia of a property division settlement, not a DSO. The
Divorce Court’s use of the label “Equalization Payment” in the property division section is
persuasive and shows the Divorce Court’s intent to divide marital property equally between
Oleksandra and Ivan. Although the Court is not bound by the Divorce Decree’s labels, the
characterization assigned to the obligation “is persuasive evidence of intent”35 and the label
attached by the Divorce Court “is entitled to great weight.”36 Paragraph 10 of the Divorce
Decree—a separate section—addresses the Maintenance portion of the parties’ Divorce Decree.
Under the facts of this case, the separation of the Maintenance and property settlement sections
are indicia that the Equalization Payment is a property settlement obligation.

31 SOMMER & MCGARITY, supra note 19, ¶ 6.04[2], at 6-28 to 6-29.
32 In re Good, 187 B.R. 337, 338–40 (Bankr. D. Kan. 1995).
33 SOMMER & MCGARITY, supra note 19.
34 Doc. 40-1 ¶ 17, at 4.
35 In re Sampson, 997 F.2d at 723 (quoting In re Yeates, 807 F.2d at 878).
36 COLLIER, supra note 16, ¶ 523.11[6][a], at 523-85.


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The substance of Oleksandra’s obligation under the second prong of the Sampson
analysis shows the Equalization Payment is a property settlement obligation. Determining
whether Oleksandra’s obligation is in the nature of support turns on “the function served by the
obligation at the time of the divorce.”37 The function the obligation serves is examined by
“considering the relative financial circumstances of the parties at the time of the divorce.”38
Here, the function of the Equalization Payment to Ivan was intended to offset the award of the
Marital Residence to Oleksandra. The Equalization Payment is not in the nature of support
because Ivan’s income was substantially greater than Oleksandra’s. Additionally, in a
subsequent hearing regarding Oleksandra’s failure to make the Equalization Payment, the
Divorce Court stated, “Respondent [Oleksandra] was awarded the [Marital] Residence pursuant
to the [Divorce] Decree, subject to equalization payment due to Petitioner [Ivan] in the amount
of $55,000.”39 Therefore, Oleksandra’s obligation to make the Equalization Payment to Ivan is a
property settlement obligation.

Ivan holds an in rem judgment lien interest
in the Marital Residence under the Divorce Decree


A judicial lien is a “lien obtained by judgment, levy, sequestration, or other legal or
equitable process or proceeding.”40 In 1988, the United States Court of Appeals for the Tenth
Circuit held in Maus that an ex-spouse debtor could avoid her ex-spouse creditor’s judicial lien

37 In re Sampson, 997 F.2d at 725–26 (quoting In re Gianakas, 917 F.2d 759, 763 (3d Cir. 1990)).
38 In re Sampson, 997 F.2d at 726.
39 Doc. 41-5 ¶ 2, at 1.
40 11 U.S.C. § 101(36).


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on her homestead under § 522(f)(1).41 However, in 1991, the Supreme Court of the United
States in Farrey v. Sanderfoot42 abrogated Maus. The Court in Sanderfoot held that the ex-
spouse creditor’s lien could not be avoided under § 522(f)(1) because § 522(f) permits the debtor
to “avoid the fixing of a lien” and in Sanderfoot, the lien did not attach to the debtor’s interest in
the property.43 However, Sanderfoot also explains that the fixing question is a state law concern
and Sanderfoot follows Wisconsin law. In Kansas, the Hilt court held that the divorce decree at
issue granted debtor’s interest in the homestead contemporaneously with the lien given to the ex-
spouse creditor to equalize the distribution of property. Furthermore, Hilt followed Sanderfoot
in explaining that “when a divorce court grants one party the homestead and the other a
compensating lien by decree, state law determines whether the fixing of the lien has occurred.”44

In Kansas, courts have recognized the ability of the Divorce Court to impose a lien on a
homestead and allow the sale of the homestead to enforce the lien,45 ensuring the equitable
division of marital property.46 Furthermore, “[t]he divorce, and the adjustment of property
interests[] are not to be regarded as transpiring at different times, but as contemporaneous.”47 In
Kansas, a divorce decree operates simultaneously with the related judgment liens to affect the

41 In re Maus, 837 F.2d 935 (10th Cir. 1988).
42 Farrey v. Sanderfoot, 500 U.S. 291 (1991).
43 Emphasis added.
44 In re Hilt, 175 B.R. 747, 750 (Bankr. D. Kan. 1994).
45 Blankenship v. Blankenship, 19 Kan. 159 (1877). See also Bohl v. Bohl, 234 Kan. 227 (1983) (holding


that a homestead may be sold to satisfy a judicial lien arising from a debt for alimony or property division).

46 In re Hilt, 175 B.R. at 754.

47 In re Hilt, 175 B.R. at 754 (quoting Brandon v. Brandon, 14 Kan. 342, 345 (1875)).

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parties’ rights.48 Here, Oleksandra’s interest in the Marital Residence arose simultaneously with
the lien securing the Equalization Payment.49 The Divorce Court awarded the Equalization
Payment and accompanying lien to Ivan to equalize the distribution of marital assets in a just and
reasonable manner. Accordingly, Ivan holds what appears to be an unavoidable judgment lien
that created an in rem interest in the Marital Residence to the extent of the award of the
Equalization Payment and related interest, but not attorney’s fees.50 Ivan’s judgment lien
remains enforceable against the Marital Residence because the Marital Residence was awarded
to Oleksandra subject to the Equalization Payment and judgment lien.

There is not a reasonable likelihood that Oleksandra could propose a confirmable plan.
Oleksandra’ petition indicates an average monthly income of $1,004.56 with $895 in average
monthly expenses for a net monthly income of $109.56. Her plan proposes making $100
monthly payments for 48 months. Furthermore, her proposed plan does not provide for
treatment of Ivan’s secured judgment lien. Thus, Ivan’s motion for relief from the automatic
stay is granted for cause under § 362(d)(1) because there is not a reasonable likelihood
Oleksandra could propose a confirmable plan based on her income and projected plan payments.

CONCLUSION

Oleksandra’s obligation to satisfy the Equalization Payment is a dischargeable property

48 In re Hilt, 175 B.R. at 754.

49 See Doc. 40-1, supra note 7.

50 “Congress did not aim § 522(f)(1) at judicial liens created to equalize divorce property divisions.” In re
Hilt, 175 B.R. at 754. Regardless, Oleksandra has not attempted to avoid Ivan’s lien under § 522(f)(1), an action
that may very well be an exercise in futility.

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settlement obligation under § 523(a)(15).51 Ivan holds an in rem interest in the Marital
Residence.
IT IS ORDERED that Creditor Ivan Kepych’s objection to confirmation of Debtor
Oleksandra Okrepka’s chapter 13 plan is GRANTED.
IT IS FURTHER ORDERED that Debtor’s objection to Creditor’s Claim 8-1 is DENIED
as to the secured status of Creditor’s claim.
IT IS FURTHER ORDERED that Creditor’s motion for relief from the automatic stay to
proceed in rem is GRANTED.
IT IS SO ORDERED.
###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
51 Assuming that Oleksandra receives a discharge under § 1328(a).
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