KSB

15-06101 State of Kansas Department of Labor v. Singleton (Doc. # 20)

State of Kansas Department of Labor v. Singleton, 15-06101 (Bankr. D. Kan. Jul. 7, 2016) Doc. # 20

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 7th day of July, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

SHEILA DIANE SINGLETON, Case No. 15-21936
Debtor. Chapter 13

STATE OF KANSAS DEPARTMENT OF LABOR,
Plaintiff,

 v. Adversary No. 15-6101
SHEILA DIANE SINGLETON,
Defendant.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFF’S AND DEFENDANT’S MOTIONS FOR SUMMARY JUDGMENT

Plaintiff and Defendant moved for summary judgment on Plaintiff’s complaint seeking a

finding that its claim against Defendant for fraudulently receiving unemployment benefits was

nondischargeable under 11 U.S.C. §§ 523(a)(2) and 1328.1 The parties appear by counsel.2

1 Doc. 1, 11, and 12. All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise
specifically noted.
2 Plaintiff, State of Kansas Department of Labor, appears by its attorney, Thomas Britt Nichols, Topeka, KS.
Defendant, Sheila Diane Singleton, appears by her attorney, Hilliard L. Moore, Lenexa, KS.


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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 28 U.S.C.
§ 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.

BACKGROUND

On September 4, 2015, Defendant Sheila Singleton (Sheila) filed a voluntary Chapter 13
petition and Chapter 13 plan.4 On October 2, 2015, the Kansas Department of Labor (KDOL)
filed a complaint seeking a finding that its claim against Sheila for fraudulently receiving
unemployment benefit overpayments was nondischargeable under §§ 523(a)(2) and 1328.5
Sheila responded on November 3, 2015, largely admitting KDOL’s allegations.6 Sheila admits
she:

knowingly and willfully misrepresented to KDoL that Defendant [Sheila] was not
employed, was unemployed, was otherwise entitled to unemployment insurance
benefits, or that Defendant earned wages for respective weeks in amounts
differing from Defendant’s true and correct factual earnings, for the express
purpose of fraudulently obtaining unemployment benefits . . . .7

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
4 Doc. 1 and 6, Case No. 15-21936.
5 Doc. 1, Case No. 15-6101. Unless otherwise noted, future references to Doc. numbers are to pleadings filed in the
instant adversary proceeding, Case No. 15-6101.
6 Doc. 6, at 1 ¶ 1 (“Defendant admits the allegations of Paragraphs 1-24 of said Complaint.”).
7 Doc. 1, at 2–3 ¶ 8, Doc. 6.


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Sheila concedes her misrepresentations caused her to improperly receive: (1) $3,8618 in
unemployment benefits from September 25, 2004, to December 4, 2004, when she should have
received $0.00 (the 2004 Overpayment); and (2) $2,776 in unemployment benefits from
August 27, 2011, to October 15, 2011, when she should have received $0.00 (the 2011
Overpayment).9 Sheila also concedes that the KDOL would not have paid her but for her
application, statements, and misrepresentations regarding her employment status and earnings.10
On February 3, 2005, the KDOL issued a final administrative order finding that Sheila
fraudulently obtained or received the 2004 Overpayment.11 On March 31, 2012, the KDOL
issued a final administrative order finding that Sheila fraudulently obtained or received the 2011
Overpayment.12 Under K.S.A. § 44-719, the KDOL assessed a penalty of $0.00 on the 2004 and
2011 Overpayments.13

The KDOL alleges the 2004 and 2011 Overpayments are subject to a monthly 1.5 percent
interest rate—18 percent annually—under K.S.A. § 44-719(d)(2).14 Sheila admits KDOL
accurately states the substance of K.S.A. § 44-719(d)(2), “but denies that interest at such a high
rate is part of Plaintiff’s [KDOL’s] non-dischargeable claim in a Chapter 13 case pursuant to
§§ 523(a)(2)(A) and 1328(a)(2).”15 Sheila relies on In re Andrews16 for the proposition that
“additions to the principal amount of a benefit overpayment were considered differently than the
overpayment itself, and were dischargeable in Chapter 13 since penalties owed to a government
unit are non-dischargeable in that chapter.”17 Sheila suggests that “interest at 18%, being so

8 Doc. 1, at 15.
9 Doc. 6.


10 Id.
11 Doc. 1, at 8 ¶ 12.
12 Id. at 9–10 ¶ 20.
13 Id. at 8 ¶ 13, and at 10 ¶ 21.
14 Id. at 10 ¶ 25.
15 Doc. 6, at 1 ¶ 2.
16 Mich. Unemployment Ins. Agency v. Andrews (In re Andrews), 2015 WL 5813418 (Bankr. E.D. Mich. Oct. 2,
2015).
17 Doc. 6, at 1 ¶ 2.


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much higher than the interest for other kinds of judgments and higher than the Till rate in this
district, is more in the nature of a penalty for the overpayment and less in the nature of
compensatory interest for the time value of money.”18 Therefore, Sheila denies the accumulated
pre-petition interest of $8,829.19

Sheila raises two affirmative defenses in her answer. First, she asserts the 2004
Overpayment is dischargeable because more than five years have passed from the February 3,
2005, administrative order on the 2004 Overpayment. The 2004 Overpayment was not reduced
to a civil judgment and, even if considered a judgment, it has not been renewed pursuant to

K.S.A. § 60-2403(a). Second, laches, waiver, and estoppel bar the 2004 Overpayment because
the KDOL had the ability to offset its claim against Sheila’s 2011 unemployment benefits.
On January 8, 2016, Sheila filed a motion for summary judgment requesting: (a) a
discharge of the 2004 Overpayment principal and interest; (b) a discharge of the 2011
Overpayment interest; and (c) nondischarge of the 2011 Overpayment principal.20 Sheila argues
summary judgment is appropriate because she largely admitted the facts contained in KDOL’s
complaint and requests a finding that: (a) the 2004 Overpayment is time barred under K.S.A.
§ 60-2403(a); (b) the 2004 Overpayment is barred by the equitable doctrines of waiver, estoppel,
and laches; and (c) an 18 percent annual interest accruing on the 2004 and 2011 Overpayments is
effectively a government penalty and dischargeable under §§ 523(a)(2)(A) and 1328(a)(2).
Sheila asserts the interest rate is “not to compensate Plaintiff [the KDOL] for the lost time value
of its money, but to penalize those who receive benefits they are not entitled to, and to deter
others from engaging in such conduct.”21

18 Doc. 6, at 1 ¶ 2.
19 Id. at 2 ¶ 3.
20 Doc. 11.
21 Id. at 6 ¶ 18.

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On January 15, 2016, the KDOL filed a cross motion for summary judgment.22 The
KDOL requested: (a) judgment of nondischargeability on the principal amount of $2,776 on the
uncontested 2011 Overpayment; (b) a judgment of nondischargeability on the principal amount
of $3,861 on the 2004 Overpayment; and (c) a judgment of nondischargeability of $7,390.56 and
$1,832.16 in interest, and further accruing, on the 2004 and 2011 Overpayments respectively.23
The KDOL restated that Sheila did not dispute the majority of factual allegations in KDOL’s
complaint.24 The KDOL also noted that Sheila previously filed for bankruptcy relief.25

This Court’s review reveals Sheila previously filed a voluntary Chapter 13 petition on
April 6, 2006, and received a full compliance discharge under § 1328(a) on January 13, 2010.26
Sheila’s 2006 Schedule F lists the 2004 Overpayment.27 However, the record does not reflect
that KDOL either filed a proof of claim or a complaint to determine the dischargeability of the
2004 Overpayment. Therefore, on May 27, 2016, the Court directed Sheila and the KDOL to
submit simultaneous briefs with respect to whether Sheila’s 2006 bankruptcy discharged the
2004 Overpayment.

The KDOL responded, asserting that Sheila’s prior discharge did not discharge
§ 523(a)(2) debts.28 The KDOL believes Sheila’s answer admits the 2004 Overpayment is not
dischargeable.29 In regards to the 2004 Overpayment, the KDOL admits that in Sheila’s 2006
case it: (a) did not file a proof of claim; (b) did not object to Sheila’s bankruptcy plan; (c) did not
file an adversary proceeding to determine dischargeability; and (d) did not request an exception

22 Doc. 12.
23 Id. at 5–6 ¶¶ a–c.
24 Id. at 9.
25 Id. at 9 ¶ 9. The KDOL asserts Sheila filed for bankruptcy protection in 2005, citing Case No. 15-20432. However,
this information is erroneous. Sheila previously filed for bankruptcy in 2006. In re Singleton, Case No. 06-20432
(Bankr. D. Kan. Apr. 6, 2006).
26 Doc. 1 and 93, Case No. 06-20432.
27 Doc. 7, at 21, Case No. 06-20432.
28 Doc. 17.
29 Doc. 6.


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from discharge under § 523(c).30 However, the KDOL feels that § 523(a)(2) debts “are
automatically excepted from the scope of the section [sic] § 1328(a) discharge . . .” and views
“[t]he exception to the scope of discharge for subsection 523(a)(2) debt [as] automatic.”31 The
KDOL feels that “the mandated request and motion seeking nondischargeability processes
provided for in § 523(c) apply in Chapters 7, 11, and 12 actions and in Section 1328(b)
discharges but not to § 1328(a) discharge orders.”32 In summary, KDOL feels the Code allows it
to “stand pat and passively undertake no act as KDoL did with respect to Singleton’s 2006
Chapter 13 bankruptcy and be assured of nondischargeability even without court order. Or can
choose to avoid future disputes by seeking nondischargeability orders as KDoL is doing now.”33

Sheila responded, asserting that the 2004 Overpayment was discharged in her 2006 case,
and asserts that portions of the KDOL’s complaint regarding the 2004 Overpayment constitute a
violation of the discharge injunction.34 Sheila feels the KDOL’s “position makes an absurdity of
the Rule 4007(c) time limitations to the extent that it alleges that a creditor need not obey those
limitations in seeking a dischargeability determination . . . .”35 Sheila requests her 2006
discharge receive preclusive effect.

ANALYSIS

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.36 All
justifiable inferences must be drawn in favor of the nonmoving party to determine whether a

30 Doc. 17, at 3 ¶¶ 8–11.
31 Id. at 4–5.
32 Id. at 5.
33 Id. at 9.
34 Doc. 18, at 2.
35 Id. at 3. Referencing FED.R. BANKR. P. 4007(c).
36 FED.R.CIV. P. 56 is applicable to adversary proceedings pursuant to FED.R.BANKR. P. 7056.


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genuine dispute as to a material fact exists.37 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.”38 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.39 If
the movant meets its initial burden, then the nonmoving party cannot simply reply on its
pleadings. “[T]he burden shifts to the nonmovant to go beyond the pleadings and set forth
specific facts that would be admissible in evidence” at trial.40 When parties file cross-motions
for summary judgment, the Court is “entitled to assume that no evidence needs to be considered
other than that filed by the parties . . . .”41 Cross-motions are to be considered independently,
and summary judgment is not appropriate if disputes remain as to any material fact.42 Here,
summary judgment is appropriate as both the KDOL and Sheila do not dispute the material facts.
The Court’s findings regarding the remaining legal issues are outlined below.

B. KDOL IS ENTITLED TO JUDGMENT OF $2,776 ON THE 2011
OVERPAYMENT
Both Sheila and the KDOL agree that there is no legal or factual dispute as to the
nondischargeability of the principal obligation in the amount of $2,776 on the 2011
Overpayment. Therefore, KDOL is entitled to judgment in the amount of a $2,776
nondischargeable claim on the principal amount of the 2011 Overpayment.

C. SHEILA’S 2006 BANKRUPTCY CASE DISCHARGED THE PRINCIPAL AND
ASSOCIATED INTEREST ON THE 2004 OVERPAYMENT
KDOL’s position that § 523(a)(2) debts are automatically excepted from a § 1328(a)
discharged is incorrect.

37 Magnus, Inc. v. Diamond State Ins. Co., 545 F. App’x 750, 752 (10th Cir. 2013) (citation omitted).
38 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
39 Id. at 322–23.
40 Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citation omitted).
41 James Barlow Family Ltd. P’ship v. David M. Munson, Inc., 132 F.3d 1316, 1319 (10th Cir. 1997).
42 Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000).


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Section 523(c)(1) provides that debts of a kind specified in paragraph[] 2
(obtaining money, credit, etc. by false pretenses or fraud) . . . of section 523(a)
will be automatically discharged unless the creditor to whom such a debt is owed
obtains a determination of the bankruptcy court that the particular debt is
nondischargeable.43

Most exceptions to discharge do not require compliance with § 523(c) and the attendant
Rules. That is, a creditor does not need to take action unless there is a dispute between the
parties as to dischargeability. The debt simply survives discharge without court action because
of the nature of the debt. However, because § 523(c) requires creditors bringing § 523(a)(2)
complaints to do so exclusively in the bankruptcy court, Fed. R. Bankr. P. 4007 applies. Under
Fed. R. Bankr. P. 4007, a creditor holding a § 523(a)(2) debt must file a complaint seeking
nondischargeability no later than 60 days after the first date set for the § 341 meeting of
creditors.44 “A failure to timely file such a complaint will result in the discharge of those
debts.”45 For purposes of § 1328(a), to determine whether a debt is of a kind specified in
§ 523(a)(2), the KDOL’s compliance with § 523(c) and Rule 4007 is required.46 Sheila’s 2006
Notice of Chapter 13 Bankruptcy listed July 3, 2006, as the deadline to file dischargeability
complaints and October 4, 2006, as the deadline for governmental units to file a proof of claim.47
Additionally, that same notice contained the following disclosure:

The debtor is seeking a discharge of most debts, which may include your debt. A
discharge means that you may never try to collect the debt from the debtor. If you
believe that a debt owed to you is not dischargeable under Bankruptcy Code § 523
(a)(2) or (4), you must start a lawsuit by filing a complaint in the bankruptcy
clerk’s office by the “Deadline to File a Complaint to Determine Dischargeability

43 4 COLLIER ON BANKRUPTCY ¶ 523.03, at 523-17 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2016)
(emphasis added).
44 FED.R.BANKR. P. 4007(c). See also Palmer v. Nordin (In re Nordin), 299 B.R. 915 (B.A.P. 8th Cir. 2003) (“[A]
creditor who has a debt of the kind described in subsection [] (2) . . . of § 523 must file a complaint and have the debt’s
dischargeability determined by the bankruptcy court.”).
45 Hathorn v. Petty (In re Petty), 491 B.R. 554, 558 (B.A.P. 8th Cir. 2013) (citing In re Everly, 346 B.R. 791, 796


(B.A.P. 8th Cir. 2006)).
46 8 COLLIER ON BANKRUPTCY, supra note 43, ¶ 1328.02[d], at 1328-15–16.
47 Doc. 4, Case No. 06-20432.
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of Certain Debts” listed on the front side. The bankruptcy clerk’s office must

receive the complaint and any required filing fee by that deadline.48

However, the KDOL did not file a complaint or proof of claim, despite Sheila listing
them as an unsecured creditor on Schedule F. To have a kind of debt excepted from discharge
under § 523(c), there must be an adjudication in conformity with § 523(c). Section 1328
incorporates by reference § 523(a)(2) and, as such, also incorporates by reference the procedures
to adjudicate dischargeability of such debts. Thus, Sheila’s 2006 bankruptcy discharged the
2004 Overpayment principal and interest because KDOL failed to file a complaint seeking
nondischargeability of its debt in Sheila’s 2006 bankruptcy. “[T]he scope of a discharge is final
when entered and subsequent events do not change what debts were or were not discharged by
that discharge.”49 The KDOL did not object to Sheila’s plan that provided for the treatment and
discharge of unsecured claims and thus the KDOL is bound by its treatment in Sheila’s 2006
plan under § 1327(a).50

D. AN 18 PERCENT ANNUAL INTEREST RATE UNDER K.S.A. § 44-719(d)(2) ON
THE 2011 OVERPAYMENT IS EXCEPTED FROM DISCHARGE UNDER
§§ 523(a)(2)(A) AND 1328(a)(2)
Sheila admits that the KDOL is statutorily entitled to an 18 percent annual interest rate on
unemployment benefit overpayments under K.S.A. § 44-719(d)(2).51 However, Sheila contends
that interest at 18 percent: (a) exceeds the rate applicable to civil judgments under K.S.A. § 16204(
e); (b) exceeds the rate specified for limited actions under K.S.A. § 16-204(e)(2); and (c) “is
more in the nature of a penalty for the overpayment and less in the nature of compensatory
interest for the time value of money.”52 Thus, Sheila believes the 18 percent annual interest rate
is fully or partially punitive and, as such, acts as a government penalty that is dischargeable

48 Id.
49 In re Anderson, 72 B.R. 495, 496 (Bankr. D. Minn. 1987).
50 United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010).
51 Doc. 6, at 1 ¶ 2, Doc. 11, at 5 ¶ 17.
52 Doc. 6, at 1 ¶ 2.


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under §§ 523(a)(2)(A) and 1328(a)(2).53 Importantly, Sheila argues that an 18 percent annual
interest rate is dischargeable but her argument implies that some other—lower—interest rate
would be nondischargeable. Sheila does not strenuously dispute that the KDOL is entitled to any
interest on a § 523(a)(2) debt, merely that interest at 18 percent qualifies as a dischargeable
government penalty. Sheila cites In re Andrews54 for the proposition that the portion of an
unemployment overpayment constituting a penalty is dischargeable in a Chapter 13 case.55
However, the Court declines to accept Sheila’s assertions that 18 percent annual interest under

K.S.A. § 44-719(d)(2) constitutes a government penalty under § 523(a)(7). Kansas law
separately provides for the imposition of penalties and future benefit disqualifications for those
fraudulently receiving unemployment benefit overpayments.56 Further, the Court will not disturb
an 18 percent annual interest rate expressly provided for in the Kansas statutes. Thus, K.S.A. §
44-719(d)(2) interest on a § 523(a)(2) claim is nondischargeable because it is not a § 523(a)(7)
government penalty. “[W]here the debt is nondischargeable, interest on the debt is also
nondischargeable.”57 Pre-petition and post-petition interest pursuant to K.SA. § 44-719 on the
2011 Overpayment is excepted from discharge under §§ 523(a)(2)(A) and 1328(a)(2) because it
does not qualify as a § 523(a)(7) dischargeable government penalty.
CONCLUSION

The Court grants both Plaintiff’s and Defendant’s motions for summary judgment in part.
IT IS ORDERED that the KDOL is entitled to a judgment of nondischargeability in the
amount of $2,776 as to the principal amount of the 2011 Overpayment.

53 Doc. 11, at 6 ¶ 18.
54 2015 WL 5813418 (Bankr. E.D. Mich. Oct. 2, 2015).
55 Doc. 11, at 6 ¶ 19.
56 K.S.A. § 44-719(a), (b), and (c); K.S.A. § 44-706.
57 Supercom, Inc. v. Levitsky (In re Levitsky), 137 B.R. 288, 291–92 (Bankr. E.D. Wis. 1992). See also Gosney v.
Law (In re Gosney), 205 B.R. 418, 421 (B.A.P. 9th Cir. 1996) aff’d, 161 F.3d 12 (9th Cir. 1998) (“when an underlying
debt is nondischargeable, ‘prepetition interest . . . is also nondischargeable’” Estate of Ekelund v. Dawson (In re
Dawson), 163 B.R. 421 (Bankr. D.R.I. 1994)).


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IT IS FURTHER ORDERED that Sheila’s 2006 bankruptcy discharged the principal
balance of $3,861 and associated interest on the 2004 Overpayment.

IT IS FURTHER ORDERED that pre-petition and post-petition interest pursuant to
K.SA. § 44-719(d)(2) on the 2011 Overpayment is excepted from discharge under
§§ 523(a)(2)(A) and 1328(a)(2) because it is not a § 523(a)(7) government penalty.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
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16-06031 State of Kansas Department of Labor v. Zuo (Doc. # 12)

State of Kansas Department of Labor v. Zuo, 16-06031 (Bankr. D. Kan. Jun. 9, 2016) Doc. # 12

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED.
SIGNED this 9th day of June, 2016.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

MORRIS FLOMO ZUO, Case No. 15-22656
Debtor. Chapter 13

STATE OF KANSAS DEPARTMENT OF LABOR,
Plaintiff,

 v. Adversary No. 16-06031
MORRIS FLOMO ZUO,
Defendant.

MEMORANDUM OPINION AND ORDER
GRANTING DEFENDANT’S MOTION TO DISMISS


Defendant moves to dismiss the instant proceeding under Fed. R. Bank. P. 70121 and

Fed. R. Civ. P. 12(b)(6).2 The parties appear by counsel.3 The Court grants Defendant’s motion

because Plaintiff’s complaint was not timely filed under Bankruptcy Rule 4007(c).

1 Hereinafter, Fed. R. Bankr. P. is referred to as Bankruptcy Rule.
2 Doc. 10, Case No. 16-06031.
3 Plaintiff, State of Kansas Department of Labor, appears by its attorney, Thomas Britt Nichols, Topeka, KS.
Defendant, Morris Flomo Zuo, appears by his attorney, Nancy L. Skinner, Lenexa, KS.


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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 28 U.S.C.
§ 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, 2013.4 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.

BACKGROUND

Morris Flomo Zuo (Defendant) filed a voluntary Chapter 13 petition for relief on
December 28, 2015.5 Defendant’s 11 U.S.C. § 3416 meeting of creditors was held and concluded
on January 27, 2016.7

On March 29, 2016, the Kansas Department of Labor (Plaintiff) filed a complaint under
§§ 523(a)(2), (c)(1), and 1328 seeking nondischargeability of its claim against Defendant for
fraudulently receiving unemployment benefit overpayments.8

On April 29, 2016, Defendant filed a motion to dismiss the instant proceeding with
prejudice under Fed. R. Civ. P. 12(b)(6) and Bankruptcy Rule 7012.9 Defendant asserts
Plaintiff’s complaint was not timely filed under Bankruptcy Rule 4007 and that Plaintiff never
requested an extension.10 Plaintiff did not file a response to Debtor’s motion to dismiss.

4 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
5 Doc. 1, Case No. 15-22656.
6 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
7 Docket Entry 13, Case No. 15-22656.
8 Doc. 1, Case No. 16-06031.
9 Doc. 10, Case No. 16-06031.
10 Id. at 1 ¶ 3–4.


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ANALYSIS

In bankruptcy proceedings, Bankruptcy Rule 4007(a) allows a creditor to commence an
adversary proceeding by “fil[ing] a complaint to obtain a determination of the dischargeability of
any debt.”11 A complaint is the essential element that commences a civil action.12 Bankruptcy
Rule 4007(c) specifies the time for filing complaints under § 523(c) in Chapter 13 cases. That
rule provides in pertinent part as follows:

[A] complaint to determine the dischargeability of a debt under § 523(c) shall be
filed no later than 60 days after the first date set for the meeting of creditors under
§ 341(a). . . . On motion of a party in interest, after hearing on notice, the court
may for cause extend the time fixed under this subdivision. The motion shall be
filed before the time has expired.13
Further, Bankruptcy Rule 9006(a)(1) provides the following rule for computing time

periods stated in days.

When the period is stated in days or a longer unit of time:

(A) exclude the day of the event that triggers the time period;
(B) count every day, including intermediate Saturdays, Sundays, and legal
holidays; and
(C) include the last day of the period, but if the last day is a Saturday, Sunday,
or legal holiday, the period continues to run until the end of the next day that
is not a Saturday, Sunday, or legal holiday.
Thus, Plaintiff’s deadline to file a complaint to challenge the dischargeability of certain
debts under § 523(a)(2) was March 28, 2016, because Defendant’s § 341 meeting of creditors
was scheduled for January 27, 2016.14 Plaintiff filed its § 523 complaint one day late on March
29, 2016.

Bankruptcy Rule 4007(c)’s strict deadlines to dispute the dischargeability of certain debts
may only be extended for cause, after a hearing, if a motion is filed before the deadline expires.15

11 FED. R. BANKR. P. 4007(a).
12 FED. R. CIV. P. 3 made applicable to adversary proceedings by FED. R. BANKR. P. 7003.
13 FED. R. BANKR. P. 4007(c) (emphasis added).
14 Doc. 6, at 2 ¶ 7–8, Case No. 15-22656. See also 11 U.S.C 4007(c).
15 See In re Yohler, 127 B.R. 492, 493 (Bankr. S.D. Fla. 1991) (citing Byrd v. Alton, 837 F.2d 457, 459 (11th Cir.
1988) (“There is [generally] no discretion to allow a late-filed complaint unless a motion to extend the deadline has


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This deadline is strictly enforced. In In re Nondorf, a Kansas Bankruptcy Court dismissed a
§ 523 complaint filed four minutes late.16 Here, Plaintiff did not request additional time beyond
the March 28, 2016, deadline.

CONCLUSION

Plaintiff filed its complaint one day late in violation of Bankruptcy Rule 4007(c) and did
not present any argument as to why Defendant’s motion to dismiss should not be granted.

IT IS ORDERED that Defendant’s motion to dismiss is granted because Plaintiff’s
complaint was not timely filed under Fed. R. Bankr. P. 4007(c). Accordingly, this proceeding is
dismissed.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
been filed prior to the expiration of the specified time period.”). See also Neeley v. Murchison, 815 F.2d 345 (5th Cir.
1987); Loma Linda Univ. Med. Ctr. v. Neese (In re Neese), 87 B.R. 609 (B.A.P. 9th Cir. 1988); Garza v. Remund (In
re Remund), 109 B.R. 492 (Bankr. M.D. Fla. 1990); In re Cintron, 101 B.R. 785 (Bankr. M.D. Fla. 1989)).
16 Yarnevich & Williamson, Chtd. v. Nondorf (In re Nondorf), 2008 WL 544502 (Bankr. D. Kan. Feb. 27, 2008).

16.06.08 Zuo Order Granting MTD
Case 16-06031 Doc# 12 Filed 06/09/16 Page 4 of 4



15-06108 First National Bank of Omaha v. Thill (Doc. # 12)

First National Bank of Omaha v. Thill, 15-06108 (Bankr. D. Kan. May 3, 2016) Doc. # 12

PDFClick here for the pdf document.


 The relief described hereinbelow is SO ORDERED. SIGNED this 3rd day of May, 2016.


IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS
In re: Tanner Ray Thill Case No. 15-21670-13 Amanda Sue Thill, Debtors.
First National Bank of Omaha, Plaintiff,
v. Adv. No. 15-6108
Tanner Ray Thill, Defendant.

Order Granting in Part and Denying in Part
Defendant’s Motion to Dismiss

This matter is before the Court on Defendant Tanner Thill’s motion to dismiss1 the
adversary complaint filed against him by Plaintiff First National Bank of Omaha. The adversary

1 Doc. 6.
complaint seeks the denial of discharge of up to $5424.27 in credit card charges under 11 U.S.C.
§§ 523(a)(2)(A) and (a)(2)(C),2 which excepts from an individual’s Chapter 13 discharge debts “for money . . . obtained by . . . false pretenses, a false representation, or actual fraud” and creates a presumption of nondischargeability for “consumer debts . . . aggregating more than $[650] for luxury goods or services incurred by an individual debtor on or within 90 days” of filing a bankruptcy petition. Defendant has moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6),3 arguing that the allegations made fail to support § 523(a)(2) claims.
The Court finds that Plaintiff’s complaint states a legally cognizable claim under             § 523(a)(2)(A), but that Plaintiff has not properly stated a claim under § 523(a)(2)(C). The Court therefore grants in part and denies in part Defendant’s motion to dismiss.

I. Background and Findings of Fact
The following allegations are made in Plaintiff’s complaint, or are found by combing the attachment incorporated thereto.4 Defendant opened a credit account with Plaintiff on February 20, 2015. When Defendant accepted and opened the credit card, he agreed to abide by the terms of the account agreement, and represented that he had the intention to repay the debt pursuant to the account agreement terms. Each time Defendant incurred charges on the account, he
2  All future statutory references are to title 11 of the United States Code, unless otherwise specified.
3  Rule 12(b) is made applicable to bankruptcy through Federal Rule of Bankruptcy Procedure 7012(b).
4 See Robbins v. Okla., 519 F.3d 1242, 1247 (10th Cir. 2008) (stating the “bedrock principle” that the allegations in the complaint must be accepted as true when assessing a motion to dismiss).
represented that he agreed to abide by the account agreement’s terms.
Over a month passed before Defendant used his new credit card for the first time. No charges were made on the credit card until March 31, 2015, at which time Defendant charged $1821.21 to “Mustangs Unlimited.” About a week later, on April 8 and 9, Defendant charged another $219.90 to this same entity. A few days after that, on April 13, Defendant charged $457.50 to “Kuiken Auction.” Throughout the month of April, Defendant used the credit card every day or every other day, sometimes a couple of times a day. He paid bills (e.g., $125.63 on April 13 to “AT&T Bill Payment” and $91.14 on April 14 to “Dish Network”) and used the card at restaurants and gas stations (e.g., $35.19 to a Mexican restaurant on April 18 and $20 at a gas station on April 20). Larger purchases were made at Wal-Mart ($79.47 on April 16, $174.84 and $193.79 on April 19), but after his initial large purchases at Mustangs Unlimited and Kuiken Auction, most other purchases ranged from a few dollars to forty dollars.
The charges made during May 2015 followed much the same pattern. There were occasional larger purchases (e.g., $205.90 charged to “Vivid Seats LTD” on May 16 and $150.82 charged to “Jim Carter Truck Parts” on May 18) but the majority of purchases made were at restaurants and gas stations. A significant pattern change occurred in June 2015, however. The credit card was used one time, on June 1 for $25 at “Short Stop 23,” but it was not used the rest of the month. At that point, the balance on the card had reached $5400.99, exceeding the $5350 credit limit. The credit card was used one more time, on July 16, 2015, at Wal-Mart, for $51.03. Ultimately, between March 31 and July 16, 2015, Defendant made purchases on the credit card totaling $5424.27. It appears one payment of $100 was made on May 13, 2015.
Shortly after the conduct described above, on August 3, 2015, Defendant (and his wife,
who is not a party to this adversary proceeding) filed for Chapter 13 bankruptcy protection. Plaintiff is listed as an unsecured creditor. According to Defendant’s Schedule I filed with his bankruptcy petition, Defendant has been employed by Wal-Mart for thirteen years, and at the time of filing his petition he listed his position as “Order Filler.” According to his Statement of Financial Affairs, Defendant may also earn income from purchasing old/vintage cars and reselling them, but it is unclear how much or when this has happened. Defendant stated his net monthly household income as $3587.93: of this, Defendant earns $2887.96 per month from his employment at Wal-Mart and his wife earns $700 per month from self-employment. According to Defendant’s Schedule J filed with his bankruptcy petition, Defendant stated his monthly household expenses as $2816, leaving a net of $771.93 to make a proposed plan payment of $771 per month.5 Based on minimum monthly payments estimated at between 2 and 3 percent of the outstanding principal balances on the unsecured debt listed in Defendant’s petition (totaling $72,695), the minimum monthly payments on this debt would be between $1454 and $2181 per month. Based on Defendant’s monthly income, expenses, and debt load, at the time Defendant incurred the $5424.27 in charges on the credit card, his monthly disposable income was nowhere near sufficient to pay the minimum monthly payments on his unsecured debts.
Plaintiff timely filed its adversary complaint against Defendant stating two causes of action. First, Plaintiff states a claim under § 523(a)(2)(C)(i)(I), alleging that Defendant made $1230.69 in charges in the ninety day period prior to filing his Chapter 13 petition (beginning
5  The majority of this plan payment is presumably going toward the significant tax debt owed by Defendant and his joint-debtor wife. Per the filed proofs of claim, they owe $34,264 to the Internal Revenue Service and $5670.64 to the Kansas Department of Revenue.
May 5, 2015), and that these charges were for luxury goods or services. Plaintiff seeks a finding
that the purchases exceeding the statutory limit of $650 are nondischargeable.6 Second, Plaintiff states a claim under § 523(a)(2)(A), alleging that Plaintiff justifiably relied on Defendant’s representation that he intended to repay his credit card debt under the terms of their account agreement. Plaintiff alleges the charges made were incurred at a time when Defendant was unable to meet his existing financial obligations, and that Defendant intended to deceive Plaintiff because he knew or should have known that he had no ability to repay his debt. As a result, Plaintiff seeks a finding that the total amount charged to the credit card ($5424.27) should be nondischargeable because it was obtained by false pretenses, a false representation, or actual fraud under § 523(a)(2)(A).
Defendant seeks dismissal of the adversary proceeding in its entirety under Rule 12(b)(6). He argues that Plaintiff’s complaint does not allege sufficient facts to create an inference that the purchases made were of luxury goods to support the § 523(a)(2)(C) claim or to create an inference of intent to defraud to support the § 523(a)(2)(A) claim.
II. Analysis
A. Legal Standard for Assessing a Motion to Dismiss
An adversary proceeding to determine the dischargeability of particular debts is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this Court may exercise subject matter
6  At the time the complaint was filed, the statutory limit was $650, and under § 104(c), that limit continues to apply despite being adjusted upward to $675 on April 1, 2016. See § 104(c) (stating that adjustments to dollar amounts in the Code do not apply “to cases commenced before the date of such adjustments”).
jurisdiction.7
Defendant’s motion to dismiss is filed under Federal Rule of Civil Procedure 12(b)(6), which permits a motion for “failure to state a claim upon which relief can be granted.” The requirements for a legally sufficient claim stem from Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.”8 To survive a motion to dismiss, a complaint must present factual allegations that, when assumed to be true, “raise a right to relief above the speculative level.”9 The complaint must contain “enough facts to state a claim to relief that is plausible on its face.”10 “[T]he complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.”11
The plausibility standard does not require a showing of probability that a defendant has acted unlawfully, but requires more than “a sheer possibility.”12 “[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim.”13 Finally, the Court must accept the nonmoving party’s factual allegations as true and may not dismiss on the ground that
7 28 U.S.C. § 157(b)(1) and § 1334(b).
8  Rule 8 is made applicable to adversary proceedings via Federal Rule of Bankruptcy
Procedure 7008(a).
9 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
10 Id. at 570.
11 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).
12 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
13 Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting
Twombly, 550 U.S. at 555). -6­
it appears unlikely the allegations can be proven.14
Where, as here, a party alleges fraud, Federal Rule of Civil Procedure 9(b) requires the party to “state with particularity the circumstances constituting fraud,” with general allegations only allowed for “malice, intent, knowledge, and other conditions of a person's mind.”15 To survive a motion to dismiss, the party alleging fraud must “‘set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof.’”16 In other words, the alleging party must specify the “who, what, where, and when of the alleged fraud.”17

B. Legal Sufficiency of Plaintiff’s § 523(a)(2) Claims
Section 523(a)(2)(A) states: “A discharge . . . does not discharge any 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 or an insider’s financial condition.” Section 523(a)(2)(C)(i)(I) then offers creditors an avenue to raise a presumption of fraud in the               § 523(a)(2)(A) context. That subsection states: “[F]or purposes of subparagraph (A)– (I) consumer debts owed to a single creditor and aggregating more than $[650] for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under
14 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). 15  Rule 9 is made applicable to adversary proceedings via Federal Rule of Bankruptcy Procedure 7009. 16 Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir. 1991). 17 Plastic Packaging Corp. v. Sun Chem. Corp., 136 F. Supp. 2d 1201, 1203 (D. Kan. 2001). -7­
this title are presumed to be nondischargeable[.]” In summary, a creditor can argue a debt is
nondischargeable either directly under § 523(a)(2)(A), in which case the creditor bears the burden of establishing false pretenses, a false representation, or actual fraud, or through              § 523(a)(2)(C)(i)(I), which raises a rebuttable presumption of nondischargeability once the creditor shows that the elements of the luxury goods subsection are met.18
This Court takes each of Plaintiff’s claims under § 523(a)(2) separately. First, the luxury goods claim: to state a claim under § 523(a)(2)(C)(i)(I), a creditor must allege facts showing: “(1) a consumer debt; (2) owed to a single creditor; (3) aggregating more than $[650]; (4) for luxury goods or services; (5) incurred by an individual debtor; and (6) on or within 90 days before the filing of the petition.”19 Defendant challenges the fourth prong of this test, arguing that Plaintiff has not pleaded sufficient facts to show his purchases within 90 days of filing bankruptcy were for “luxury goods or services.”
The phrase “luxury goods or services” is not defined by the Bankruptcy Code, but the Code states what it does not mean. Section 523(a)(2)(C)(ii) states that luxury goods or services do not include “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” No circuit courts have addressed the definition of “luxury” in this context, but several bankruptcy courts have loosely defined the term, and “have considered whether the items are extravagant, indulgent, or nonessential or alternatively whether the items purchased served any important family function and evidence some fiscal
18 Discover Bank v. Hankins (In re Hankins), No. 12-5114, 2012 WL 5409629, at *3 (Bankr. D. Kan. Nov. 5, 2012).
19 Id.
responsibility.”20
What is a luxury good depends on the facts of each case.21 And although at this stage of the adversary proceeding a plaintiff need only state a plausible claim, the case law shows plaintiffs must do more than merely say: “everything purchased within 90 days of bankruptcy was a luxury item.” They must state facts to support that claim. The Court in Discovery Bank v. Hankins (In re Hankins),22 held that alleging luxury purchases, but then supporting that allegation in the complaint only by reference to a credit card statement that showed the identity of the merchant, was insufficient to survive a motion to dismiss.23 This was especially true when the identity of the merchants alleged to have sold the luxury items were “discount or low-end retailers and restaurants,” as this was not enough to raise the presumption of luxury goods for nondischargeability under § 523(a)(2)(C)(i)(I).24 The Court in Hankins concluded: “At the pleading stage, it was incumbent upon [the creditor] to allege the credit card charges were for luxury goods, coupled with factual allegations from which the ‘luxury’ characterization could be inferred. . . .[I]t has done neither and this is fatal to maintaining its presumptive nondischargeability claim.”25
20 Cong. Fed. Credit Union v. Pusateri (In re Pusateri), 432 B.R. 181, 202 (Bankr.
W.D.N.C. 2010). 21 Sears Roebuck & Co. v. Faulk (In re Faulk), 69 B.R. 743, 751 (Bankr. N.D. Ind.
1986).
22  No. 12-10884, 2012 WL 5409629 (Bankr. D. Kan. Nov. 5, 2012).
23 Id. at *4.
24 Id.; see also In re Pusateri, 432 B.R. at 203 (concluding that small dollar restaurant
charges of approximately $12 to $30 are clearly not luxury goods or services). 25 In re Hankins, 2012 WL 5409629, at *5. -9­
In this case, like in Hankins, Plaintiff’s complaint fails to do anything other than make a
blanket charge of luxury goods. Without discrimination, Plaintiff alleges every purchase made by Defendant from May 5, 2015 to filing was for a luxury item or service. But in the complaint, Plaintiff does not even give an example, let alone any facts that this Court could view to support the claim. Instead, Plaintiff leaves it to Defendant and the Court to comb through the attached credit card statement to determine what purchases were made and the identity of the merchant. After doing so, the Court notes that most purchases are small dollar amounts at what appear to be vending machines, gas stations, and low-end restaurants. There are purchases at Walmart, but no facts alleged that what was purchased there was anything other than typical, everyday household items. And while Defendant charged a significant amount on the credit card in April 2015, he charged less in May 2015, and almost nothing in June and July 2015.26 There is nothing in the facts alleged for the Court to see how Plaintiff’s claim of luxury goods is anything but speculative.
As stated above, the plausibility standard for assessing a complaint under Rule 12(b)(6) does not require a showing of probability that a defendant has acted unlawfully, but it requires more than “a sheer possibility.”27 Yes, it is possible that a charge for $51.03 at Wal-Mart on July 16 was for luxury items, but there are no facts showing that it is probable. It is just as possible
26  In his first month of using the credit card, Debtor charged $3627.97, and the remaining approximately $2300 was charged on his card over the next three months. While some of the items charged by Defendant in that first month may have been for luxury items, specifically those at Mustangs Unlimited for $1821.21 and $219.90, and $457.50 to Kuiken Auction, these purchases are outside the relevant window for the presumption to arise under § 523(a)(2)(C)(i)(I), and are therefore irrelevant to the “luxury goods” discussion. See Chase Bank
v. Hampson (In re Hampson), 429 B.R. 360, 362–63 (Bankr. N.D. Ga. 2009) (concluding that cash advances obtained outside the presumption period “are irrelevant.”).
27  Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
-10­
that the $51.03 was spent on “goods or services reasonably necessary for the support or
maintenance of the debtor or a dependent of the debtor.”28
Finding Plaintiff is not entitled to a presumption of nondischargeability in this case under § 523(a)(2)(C)(i)(I), the Court next assesses whether Plaintiff has stated a viable claim under     § 523(a)(2)(A). Under § 523(a)(2)(A), a creditor may state a claim by alleging facts that meet the following elements: “(1) the debtor made a representation; (2) at the time of the representation, the debtor knew it to be false; (3) the debtor made the representation with the intent to deceive the creditor; (4) the creditor justifiably relied on the representation; and (5) the creditor sustained damage as a proximate result of the debtor making the representation.”29 Defendant argues Plaintiff has not alleged facts that could satisfy the third factor to create an inference of intent to defraud.
The Tenth Circuit BAP has addressed credit card use in the context of § 523(a)(2)(A) in Chevy Chase Bank FSB v. Kukuk (In re Kukuk).30 The BAP held that “for purposes of dischargeability under § 523(a)(2)(A), the use of a credit card creates an implied representation that the debtor intends to repay the debt incurred thereby, but does not create any representation
28  § 523(a)(2)(C)(ii). The only items in the relevant time period with names that lend themselves to a guess for this Court that they are entertainment purchases are: “Redbox DVD Rental” on 5/29/2015 for $6.53, “Netflix” on 5/23/2016 for $11.99, two charges at “AMC Studio KC” on 5/17/2015 for $10 and $20.88, “Aramark Kauffman Stadium” on 5/17/2015 for $21.50, “Vivid Seats Ltd.” on 5/16/2015 for $205.90, and “AMC Studio KC” on 5/10/2015 for $32.72. Even if Plaintiff had alleged some facts by which the Court could know anything at all about these purchases—and it did not—the purchases total only $309.52, far below the monetary limit established in § 523(a)(2)(C)(i)(I).
29 See Barenberg v. Burton (In re Burton), No. CO-10-022, 2010 WL 3422584, at *4 (10th Cir. BAP Aug. 31, 2010).
30 225 B.R. 778 (10th Cir. BAP 1998).
regarding the debtor’s ability to repay the debt.”31 Because of this, the ultimate question is
whether the implied representation regarding a debtor’s intent to repay is fraudulent.32 The BAP stated: This issue requires a determination as to whether the debtor subjectively intended to repay the debt when he or she made the implied representation that in fact he or she intended to do so, i.e., when the credit card was used to incur the debt subject to discharge. An implied representation of intent to repay will be fraudulent if the credit card issuer demonstrates that at the time the debtor used a credit card he or she had
no intent to repay the debt incurred.33 According to the BAP, the “debtor’s intent cannot be inferred solely by the fact that the debtor does not repay the credit card used and seeks bankruptcy protection. Rather, since a debtor will rarely admit a lack of intention to repay, such intent must be inferred by the totality of the circumstances of the case at hand.”34
A nonexclusive, totality of the circumstances list of factors was provided by the Kukuk court to assist in this analysis. Those factors are:
(1)
 the length of time between the charges made and the filing of bankruptcy;

(2)
 whether the debtor consulted an attorney regarding bankruptcy prior to the charges being made;

(3)
 the number of charges made;

(4)
 the amount of the charges;

(5)
 the financial condition of the debtor at the time the charges were made;

(6)
 whether the charges were above the credit limit of the account;

(7)
 whether the debtor made multiple charges on any given day;

(8)
 whether or not the debtor was employed;

(9)
 the debtor's employment prospects;

(10)
 the debtor’s financial sophistication;

31 Id. at 785.
32 Id. at 785–86.
33 Id. at 786.
34 Id. (internal citations omitted).


(11)
 whether there was a sudden change in the debtor's buying habits; and


(12) whether the purchases were made for luxuries or necessities.35 The BAP emphasized that no one factor should be determinative, and that an inability to pay the debt incurred or make minimum monthly payments thereon should not, standing alone, be dispositive.36
In this case, there are several allegations that could support factors for finding Defendant’s alleged fraudulent intent. Plaintiff alleges that the credit card was opened and then maxed out within months of Defendant filing bankruptcy. In addition, Plaintiff alleges a significant number of charges in a short time period: between his first purchase on March 31, 2015, and his last purchase on July 16, 2015—a period of 108 days, Debtor made 111 purchases. Most of these purchases were made in the first two months of using the account, with some days having multiple charges. Many charges—in fact, most charges—were small: Defendant regularly charged items at vending machines, gas stations, and low-end restaurants. But there are several large purchases as well, at the beginning of his use of the credit account. For example, within about a ten day time period when he first started using his card, Defendant charged $2041.11 to Mustangs Unlimited. In addition, the small charges certainly added up, as Defendant ultimately exceeded his credit limit on the account.
Although Defendant has been gainfully employed by the same employer for thirteen years and has steady employment, he was apparently living beyond his means and had been doing so for some time. Plaintiff has alleged that Defendant’s household unsecured debt limit was so high, totaling $72,695, that based on minimum monthly payments estimated at between 2
35 Id.
36 Id. at 787.
and 3 percent of the outstanding principal balances, Defendant would have needed to make minimum monthly payments of between $1454 and $2181. As a result, Plaintiff alleges, based on Defendant’s monthly income, expenses, and debt load, at the time Defendant incurred the $5424.27 in charges on the credit card held by Plaintiff, Defendant’s monthly disposable income was nowhere near sufficient to pay the minimum monthly payments on his unsecured debts.
Admittedly, Plaintiff’s complaint is not a model pleading. But the complaint alleges false representations, known by Defendant to be false. It alleges many of the Kukuk factors that could imply fraudulent intent. The complaint alleges justifiable reliance, and damages. And although the facts of this claim will ultimately need to be resolved via an evidentiary hearing, where the specific dynamics can be ascertained, Plaintiff’s complaint states a sufficiently viable claim under § 523(a)(2)(A) to survive dismissal of that claim.

III. Conclusion
For the reasons set forth above, the Court finds that Plaintiff’s complaint states a legally cognizable claim under § 523(a)(2)(A), and Defendant’s motion to dismiss this claim must be denied. However, Plaintiff has failed to state claim under § 523(a)(2)(C), and Defendant’s motion to dismiss that claim is granted.
It is, therefore, by the Court ordered that Defendant’s motion to dismiss37 is GRANTED in part and DENIED in part, as stated more fully herein.  IT IS SO ORDERED. ###
37 Doc. 6.
ROBERT D. BERGER
U.S. BANKRUPTCY JUDGE DISTRICT OF KANSAS
-15­
Case 15-06108 Doc# 12 Filed 05/03/16 Page 15 of 15



15-06112 State of Kansas Department of Labor v. Hunter (Doc. # 19)

State of Kansas Department of Labor v. Hunter, 15-06112 (Bankr. D. Kan. Jun. 9, 2016) Doc. # 19

PDFClick here for the pdf document.


 IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

 

In re:

 

TANISHA EVON HUNTER, Case No. 15-21892

 Debtor. Chapter 13

 

 

STATE OF KANSAS DEPARTMENT OF LABOR,

 Plaintiff,

 

 v. Adversary No. 15-06112

 

TANISHA EVON HUNTER,

 Defendant.

 

 

MEMORANDUM OPINION AND ORDER

GRANTING DEFENDANT’S MOTION TO DISMISS

 

 Defendant moves to dismiss the instant proceeding under Fed. R. Bank. P. 7012 and Fed.
R. Civ. P. 12(b)(4).1 The parties appear by counsel.2 The Court grants Defendant’s motion
because Plaintiff’s complaint was not timely filed under Fed. R. Bankr. P. 4007(c) and there are
no grounds for an extension under Fed. R. Bankr. P. 4007(c) or Fed. R. Civ. P. 15.

1 Doc. 16.

2 Plaintiff, State of Kansas Department of Labor, appears by its attorney, Thomas Britt Nichols, Topeka, KS.
Defendant, Tanisha Evon Hunter, appears by her attorney, Hilliard L. Moore, Lenexa, KS.


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 28 U.S.C.
§ 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.

3 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).

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

5 Doc. 1.

6 Doc. 3.

7 Doc. 4–6.

BACKGROUND

 On November 23, 2015, the last day to file a 11 U.S.C. § 523(c)4 complaint to determine
dischargeability of a debt, the Kansas Department of Labor (Plaintiff) attempted to initiate an
adversary proceeding against Tanisha Evon Hunter (Defendant) for a finding that its claim
against Defendant for fraudulently receiving unemployment benefit overpayments was
nondischargeable under §§ 523(a)(2), (c)(1) and 1328. Plaintiff filed a Main Document, Exhibit,
and Covef [sic] Sheet with the Court under the heading Complaint.5 However, Plaintiff’s filings
did not contain a complaint—only two copies of an insufficient cover sheet and an exhibit.
Plaintiff also requested the issuance of a summons.6

 On November 24, 2015, the Clerk of the Court issued three orders to correct defective
pleadings because Plaintiff: (a) did not include the complaint; (b) did not complete the cover
sheet; (c) did not complete the summons; and (d) did not pay the 28 U.S.C. § 1930 filing fee.7


 On November 28, 2015, Plaintiff filed a second request for the issuance of a summons8
and the Clerk of the Court issued a summons on November 30, 2015, requiring an answer by
December 30, 2015.9 The filing fee was paid on November 30, 2015.

8 Doc. 7.

9 Doc. 8.

10 Doc. 11.

11 Doc. 16. Hereinafter, Fed. R. Bankr. P. is referred to as Bankruptcy Rule.

12 Doc. 16, at 2.

13 Id. at 3. With the exception of § 523(a)(6), this is the § 523(c) deadline. FED. R. BANKR. P. 4007(c) and (d).

14 Doc. 17, at 1.

 On December 2, 2015, Plaintiff filed a pleading titled Support Document.10 In actuality,
Plaintiff’s Support Document is Plaintiff’s complaint.

 On January 7, 2016, Defendant filed a motion to dismiss under Fed. R. Civ. P. 12(b)(4)
and (6) and Fed. R. Bankr. P. 7012.11 Defendant asserts that Plaintiff did not properly
commence the instant adversary action because: (a) no complaint was ever formally filed; (b) the
earliest the action arguably commenced was December 2, 2015—when Plaintiff’s Support
Document was filed; and (c) the November 30, 2016, summons was improper because no
complaint was on file with the Court on November 30, 2016.12 Defendant requests dismissal for
insufficient process under Fed. R. Civ. P. 12(b)(4) because the instant action is time barred under
Fed. R. Civ. P. 12(b)(6) since Plaintiff did not commence these proceedings before the
November 23, 2015, deadline to challenge the dischargeability of certain debts.13 Alternatively,
Defendant seeks the Court’s permission to file a response out of time.

 On January 19, 2016, Plaintiff responded arguing that the Defendant relies on facts that
“do not conform to [the] requirement for establishing uncontroverted facts to permit the Court to
entertain a fact-based dismissal . . . .”14 Plaintiff asserts that “bankruptcy filings are limited and
constrained to the (almost always) accurate functioning of on-line digital transmission via


CM/ECF.”15 Plaintiff blames several technical blunders for failing to meet the November 23,
2015, filing deadline. First, the dischargeability complaint on Plaintiff’s sending computer did
not attach but was somehow, in the filing process, substituted with the aforementioned
insufficient cover sheet.16 Second, Plaintiff’s firewall system when working from outside the
office and line-latency are responsible for the failure of the complaint to be the initial filing in
CM/ECF and the blank appearance of the filed forms.17 Plaintiff does not contest that an actual
complaint was not filed on November 23, 2015, and admits that the complaint on Plaintiff’s
sending computer did not attach and “the forms appear blank in essential items.”18

15 Id. (italics in original). This assertion is misplaced as the option of physically filing papers at the courthouse still
exists.

16 Id. at 2.

17 Id. at 3.

18 Id. at 2.

19 Id. at 3–4.

20 Id. at 4.

21 Id. at 4–5.

22 Id. at 5.

23 Id.

 Nevertheless, Plaintiff feels these failures are not detrimental to its claims because: (a)
the Clerk’s orders to correct defective pleadings serve to provide a curative opportunity to bring
filings in conformity with applicable rules and should relate back to the November 23, 2015,
starting point; (b) any defects were cured because Defendant does not assert that she has not
learned of the basis of Plaintiff’s complaint or was not actually served;19 (c) the Bankruptcy
Rules merely state that the complaint served be the same as the complaint filed;20 (d) Defendant
has not suffered any prejudice by the timing of the foregoing events and future potential
beneficiaries would be prejudiced if the foregoing complaint were dismissed based on technical
difficulties;21 (e) the interests of justice weigh in favor of not dismissing the instant case;22 and
(f) the Defendant should have additional time to answer or respond to the complaint.23

ANALYSIS


 In bankruptcy proceedings, Bankruptcy Rule 4007(a) allows a creditor to commence an
adversary proceeding by “fil[ing] a complaint to obtain a determination of the dischargeability of
any debt.”24 A complaint is the essential element that commences a civil action.25 Bankruptcy
Rule 4007(c) specifies the time for filing complaints under § 523(c) in Chapter 13 cases. That
Rule provides in pertinent part as follows:

24 FED. R. BANKR. P. 4007(a).

25 FED. R. CIV. P. 3 made applicable to adversary proceedings by FED. R. BANKR. P. 7003.

26 FED. R. BANKR. P. 4007(c) (emphasis added). Here, the deadline was November 23, 2015.

27 Yarnevich & Williamson, Chtd. v. Nondorf (In re Nondorf), 2008 WL 544502 (Bankr. D. Kan. Feb. 27, 2008).

28 Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’Ship, 507 U.S. 380 (1993).

29 FED. R. BANKR. P. 9006(b)(3). See also In re Tench, 2016 WL 2858792 (B.A.P. 6th Cir. May 11, 2016) (disallowing
excusable neglect as grounds to have a claim filed after the bar date in Chapter 13 cases).

30 6 BANKR. SERV. L. ED. § 54:195 (Apr. 2016); KBHS Broadcasting Co., Inc. v. Sanders (In re Bozeman), 226 B.R.
627, 632 (B.A.P. 9th Cir. 1998) (adversary cover sheet filed before the final deadline for filing dischargeability
complaints does not constitute pleading); Schmidt v. Goscicki (In re Goscicki), 207 B.R. 893, 896 (B.A.P. 9th Cir.
1997) (adversary cover sheet insufficient to operate as complaint); Wood v. Jasperson (In re Jasperson), 116 B.R. 740,
745 (Bankr. S.D. Cal. 1990) (adversary cover sheet is not a substitute for required pleadings).

[A] complaint to determine the dischargeability of a debt under § 523(c) shall be
filed no later than 60 days after the first date set for the meeting of creditors under
§ 341(a). . . . On motion of a party in interest, after hearing on notice, the court
may for cause extend the time fixed under this subdivision. The motion shall be
filed before the time has expired.26

 

 Bankruptcy Rule 4007(c) sets a strict deadline to dispute the dischargeability of certain
debts. The deadline can only be extended for cause, after a hearing, if a motion is filed before
the deadline expires. The deadline is strictly enforced. In In re Nondorf, a Kansas Bankruptcy
Court dismissed a § 523 complaint filed four minutes late.27 Further, Bankruptcy Rule
9006(b)(1) allowing late filings for “excusable neglect”28 is not applicable because 9006(b)(3)
provides that an extension under 4007(c) may be granted only to the extent and under the
conditions stated in 4007(c).29

 Plaintiff unsuccessfully attempted to initiate the instant action on November 23, 2015,
by filing two copies of an insufficient cover sheet and an exhibit. A timely filed cover sheet
cannot be treated as a substitute for a complaint so as to render a complaint timely.30 These


16.06.09 Order Granting MTD 6
documents do not meet the requirements of a complaint as set out in Bankruptcy Rules 7008 and
7010. Plaintiff’s filings did not contain: (a) a statement that the proceeding is core or non-core;
(b) a short and plain statement of the claim showing that the pleader is entitled to relief; or (c) a
demand for the relief sought. Plaintiff must comply with Bankruptcy Rule 7009 because it seeks
a judgment of nondischargeability for fraud under § 523. Rule 7009 requires that “[i]n alleging
fraud or mistake, a party must state with particularity the circumstances constituting fraud or
mistake.”31 Plaintiff’s initial filing did include an exhibit outlining Plaintiff’s audit finding that
Defendant “willfully and knowingly made false representations to receive benefits not due
. . . .”32 However, this exhibit does not cure Plaintiff’s noncompliance with Rules 7008 and
7010. Plaintiff’s filing of an incomplete cover sheet does not act as a substitute for the filing of a
complaint. Thus, Plaintiff’s initial filings are substantively and procedurally insufficient because
they contain few, if any, elements allowing the Court to treat the November 23, 2015, filings as a
complaint.
Ultimately, Plaintiff filed its § 523 complaint nine days late on December 2, 2015. The
60-day deadline for filing such complaints expired on November 23, 2015, because Debtor’s
original § 341 meeting was scheduled for September 23, 2015. Plaintiff now urges this Court to
consider its late-filed complaint despite Plaintiff’s failure to comply with Bankruptcy Rule
4007(c). “There is [generally] no discretion to allow a late-filed complaint unless a motion to
extend the deadline has been filed prior to the expiration of the specified time period.”33
However, at least one court allowed a late-filed complaint when the initial complaint was not
31 FED. R. CIV. P. 9 made applicable to adversary proceedings through FED. R. BANKR. P. 7009.
32 Doc. 1-1, at 1.
33 In re Yohler, 127 B.R. 492, 493 (Bankr. S.D. Fla. 1991) (citing Byrd v. Alton, 837 F.2d 457, 459 (11th Cir. 1988);
Neeley v. Murchison, 815 F.2d 345 (5th Cir. 1987); Loma Linda Univ. Med. Ctr. v. Neese (In re Neese), 87 B.R. 609
(B.A.P. 9th Cir. 1988); Garza v. Remund (In re Remund), 109 B.R. 492 (Bankr. M.D. Fla. 1990); In re Cintron, 101
B.R. 785 (Bankr. M.D. Fla. 1989)).
Case 15-06112 Doc# 19 Filed 06/09/16 Page 6 of 8

16.06.09 Order Granting MTD 7
accompanied by a cover sheet or filing fee.34 In Cosper, the clerk received the complaint before
the deadline, but returned it for failure to include a cover sheet and payment of the filing fee.
The instant case is distinguishable because the Clerk of the Court did not received a complaint
with the attempted initial filing before the November 23, 2015, deadline.
Plaintiff suggests that a late filed complaint relates back to a bungled initial filing.35
Here, there can be no relation back because there was no initial complaint. Under Fed. R. Civ. P.
15(c)(1):
An amendment to a pleading relates back to the date of the original pleading
when: (A) the law that provides the applicable statute of limitations allows
relation back; (B) the amendment asserts a claim or defense that arose out of the
conduct, transaction, or occurrence set out—or attempted to be set out—in the
original pleading; or (C) the amendment changes the party or the naming of the
party against whom a claim is asserted . . . .
The lynchpin in Fed. R. Civ. P. 15(c)(1) provisions is that all require an initial
pleading—something that did not exist in this case until December 2, 2015. An amended
pleading may relate back to the date of the original pleading if the claims in the amended
pleading “arose out of the conduct, transaction, or occurrence set out . . . in the original
pleading.”36 The initial filings were so bare that, even if construed as an original pleading, they
did not sufficiently described the “conduct, transaction, or occurrence.”
Plaintiff requests the case not be dismissed to prevent fraud or injustice. This assertion
suggests the Court act under its inherent § 105(a) equitable authority. However, § 105(a) does
not give this Court authority to extend the Bankruptcy Rule 4007(c) deadline under these
circumstances. Section 105(a) authorizes courts to “issue any order, process, or judgment that is
34 Cosper v. Frederick, 73 B.R. 636 (Bankr. N.D. Fla. 1986).
35 Plaintiff cites to Pfeiffer v. Rand (In re Rand), 144 B.R. 253 (Bankr. S.D.N.Y. 1992), and Gamble v. Mendenhall
(In re Mendenhall), 2014 WL 4494811 (Bankr. S.D. Ala. Sept. 10, 2014). Doc. 17, at 3–4. However, these cases
involve pro se creditors and are factually distinguishable.
36 FED. R. CIV. P. 15(c)(1).
Case 15-06112 Doc# 19 Filed 06/09/16 Page 7 of 8

16.06.09 Order Granting MTD 8
necessary or appropriate to carry out the provisions of this title.”37 “It is hornbook law that
§ 105(a) does not allow the bankruptcy court to override explicit mandates of other sections of
the Bankruptcy Code. Section 105(a) confers authority to ‘carry out’ the provisions of the Code,
but it is quite impossible to do that by taking action that the Code prohibits.”38 The Code and
Bankruptcy Rules provide that untimely complaints are disallowed. Section 105(a) may not be
employed in contradiction of the Code and Bankruptcy Rules to allow late-file complaints, even
under the weight of equity.
CONCLUSION
Counsel failed by waiting until the last business day to attempt an adversary filing.
“Prudent lawyers act sooner, so that Murphy’s Law will not undermine a client’s interests.”39
Counsel did not present any information as to why he could not have acted sooner so that he
could recover from any gaffe.
IT IS ORDERED that Defendant’s motion to dismiss is granted because Plaintiff’s
complaint was not timely filed under Fed. R. Bankr. P. 4007(c) and there are no grounds for an
extension under Fed. R. Bankr. P. 4007(c) or Fed. R. Civ. P. 15.
IT IS SO ORDERED.
###
ROBERT D. BERGER
U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
37 § 105(a).
38 In re Mackinder-Manous, 2015 WL 790883, at *6 (Bankr. E.D. Ky. Feb. 24, 2015) (citing Law v. Siegel, 134 S. Ct.
1188, 1194 (2014)).
39 Johnson v. McBride, 381 F.3d 587, 589 (7th Cir. 2004).
Case 15-06112 Doc# 19 Filed 06/09/16 Page 8 of 8


12-22932 Asset Resolution Corp (Doc. # 212)

In Re Asset Resolution Corp, 12-22932 (Bankr. D. Kan. May 13, 2016) Doc. # 212

PDFClick here for the pdf document.


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


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

Asset Resolution Corp., Case No. 12-22932
Debtor. Chapter 7

MEMORANDUM OPINION AND ORDER DISMISSING CASE

The matter before the Court arises from this Court’s issuance of an order to show cause1

why Asset Resolution Corp.’s case should not be dismissed for cause under 11 U.S.C. § 707(a)2

or certain claims abandoned under § 554.3 The parties filed pleadings and oral arguments were

held on April 17, 2015.4 The parties have not shown why the case should not be dismissed for

cause under § 707(a). The Court finds that the objectives of the Code are not met by continuing

the case and the interests of the creditors are best served through dismissal.

1 Doc. 196.
2 All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. §§ 101–1532, unless otherwise specifically noted.
3 Trustee, Eric C. Rajala, appears in person. Combat Brands LLC, Exemplar Holdings, and Greg Orman appear by
their attorney, Mark A. Shaiken. Everlast World’s Boxing Headquarters Corporation appears by its attorneys, Alan

M. Feld and Jed R. Schlacter.
4 The Court heard oral arguments addressing the Trustee’s motion for an intended compromise and § 105(a) injunction
and considered the parties’ pleadings in response to this Court’s show cause order.
16.05.12 Order Dismissing Case
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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 28 U.S.C.
§ 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, 2013.5 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)(A). The parties do not object to venue or
jurisdiction.

BACKGROUND6

John Brown (Brown) founded Ringside, Inc. (Asset Resolution Corp.), in 1977. Ringside
manufactured and sold boxing and fitness equipment for several decades.

In 2009 and 2010, Ringside and Everlast World’s Boxing Headquarters Corporation7
(Everlast) entered into several licensing agreements. Ringside agreed to make royalty payments
to Everlast in exchange for use of Everlast trademarks. In early 2012, Ringside defaulted on
multiple obligations, including royalty payments to Everlast. As a result, Everlast terminated the
licensing agreements on June 14, 2012.

In late 2010 or early 2011, Brown hired Greg Orman (Orman) of Exemplar as a business
consultant to help find purchasers or investors for Ringside. Orman formed Combat on June 19,
2012, and Brown formed RAL, LLC (RAL) on June 21, 2012. On June 25, 2012, Ringside sold
the bulk of its assets to Combat, including inventory, intellectual property, and the ringside.com
website (the Sale).

5 D. Kan. Standing Order No. 13-1, printed in D. Kan. Rules of Practice and Procedure at 168 (March 2016).
6 The material facts are not disputed.
7 Everlast designs, manufactures, licenses, and markets boxing, mixed martial arts, and fitness related sporting goods.


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On July 9, 2012, Everlast filed a complaint against Ringside, Combat, and RAL in the
United States District Court for the Southern District of New York8 (the District Court Action),
alleging that the Sale was not made in good faith or for reasonably equivalent value and that
Combat continued selling licensed products in violation of Everlast’s trademarks and licensing
agreements. Everlast asserted numerous causes of action against defendants, ranging from
breach of contract to trademark infringement, including claims against Combat and RAL based
on alter-ego, successor liability, and de facto merger. The District Court Action was transferred
to the United States District Court for the District of Kansas in July 2012.9

On October 29, 2012, Ringside filed a Chapter 11 petition as Asset Resolution Corp. The
case was converted to Chapter 7 on May 7, 2013. Eric C. Rajala was appointed as the Chapter 7
Trustee (Trustee) and the Law Office of Eric C. Rajala was appointed as counsel for the Trustee
on July 11, 2013. The Trustee engaged Vincent F. O’Flaherty (O’Flaherty) to investigate the
circumstances surrounding the Sale and to determine whether the Trustee had any claims against
Combat Brands, LLC (Combat), Exemplar Holdings, LLC (Exemplar), Orman (collectively, the
Combat Parties), Ringside, and RAL. The Trustee and O’Flaherty investigated whether:

(i) Premier Bank [Debtor’s main prepetition secured lender] and its successor
failed to perfect and continue its perfection in the personal property assets of
Ringside; (ii) Combat was the alter ego of Ringside and therefore had liability for
the debts of Ringside; (iii) the [] Sale could be avoided pursuant to §§ 544–550 of
the [] Code; (iv) the Combat Parties were successors to Ringside and therefore
had liability for the debts of Ringside; (v) the Combat Parties violated duties they
owed to Ringside and its creditors when they pursued the [] Sale after they had
consulted for and provided advice to Ringside; (vi) the Combat Parties were liable
for some or all of the debts or contractual obligations of Ringside; and (vii) any
other claims the Trustee could make against the Combat Parties (collectively, the
“Claims”).10
8 Case No. 12-cv-5297-PAE.
9 Everlast World’s Boxing Headquarters Corporation v. Ringside, Inc. et al., Case No. 13-cv-2150.
10 Doc. 203, at 1–2.


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The Trustee and O’Flaherty determined the estate could not pursue the Claims and
entered into a settlement agreement. On January 16, 2015, the Trustee filed a motion for
approval of a proposed agreement with the Combat Parties and entry of a permanent injunction.11
The proposed agreement provided that in exchange for $30,000, the Trustee would release all
Claims he could make against the Combat Parties and it enjoined all creditors and parties in
interest from pursuing the same. Everlast objected to the motion. At the hearing on the motion,
the Trustee reported that he did not have any credible claims against Ringside, Combat, or RAL,
and that the Claims have no value.

On August 5, 2015, this Court denied the Trustee’s motion to approve the settlement and
directed the Trustee and parties in interest to show cause why the Claims that the Trustee asserts
are valueless, should not be abandoned, or why the bankruptcy case should not be dismissed (the
Denial Order).12

On August 10, 2015, the Trustee and the Combat Parties (collectively, the Appellants)
jointly appealed the Denial Order to the United States Tenth Circuit Bankruptcy Appellate Panel
(the BAP). That same day, the BAP issued an order to show cause why the appeal should not be
dismissed as interlocutory. On August 24, 2015, Appellants filed a response to the BAP’s show
cause order and a contemporaneous Fed. R. Bankr. P. 8004 motion for leave to appeal. On
August 31, 2015, Appellee filed a reply to the BAP’s show cause order and elected to have the
appeal heard by the United States District Court for the District of Kansas. The BAP transferred
the appeal on September 9, 2015, to the United States District Court for the District of Kansas,
leaving the interlocutory issue untouched.

11 Doc. 177.
12 Doc. 196.

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On January 21, 2016, the United States District Court for the District of Kansas denied
the Combat Parties and the Trustee’s motion for leave to appeal an interlocutory order and
dismissed the appeal as interlocutory.13 The District Court stated that the Denial Order

. . . sets out alternative, further steps needed to conclude the bankruptcy case. The

Trustee admits that his claims against the Combat Parties are meritless and

valueless. Thus, they will eventually be abandoned, whether compelled under

§ 554(b) or naturally at the time of the closing under § 554(c). The show cause

order simply hastens the administration and liquidation of the estate.14

Pending resolution of the Denial Order’s appeal, the Trustee filed a response to this
Court’s show cause order requesting the Court refrain from entering an order abandoning the
Claims or dismissing the case.15 The Trustee noted that he was “still pursuing administration of
the Claims to yield value to the estate” and that “[a]t the time of the Denial Order, there was and
is neither a pending motion to dismiss the bankruptcy case under § 707(a) . . . nor a motion to
abandon the Claims under § 554(a) . . . .”16 The Trustee argued that he “has located no published
cases in which a bankruptcy court has ordered, sua sponte, the abandonment of an asset, let alone
an asset that the Trustee is pursuing”17 and “only two published cases in which the court
dismissed, sua sponte.”18 The Trustee also alleged that “the Court appears to be of the view that
the Claims are worth more than $30,000.00. . . . [and] contends that, if in fact the Claims are
worth more than $30,000.00, they are neither valueless nor burdensome.”19 This argument
misconstrues this Court’s prior ruling; this Court was and remains of the opinion that the Claims
are worthless. What the Trustee proposed was in effect to sell a third-party injunction. The

13 United States District Court for the District of Kansas, Case No. 15-cv-09255-JTM, Doc. 3.
14 Doc. 207, at 5.
15 Doc. 203.
16 Id. at 2 ¶ 8.
17 Id. at 2 ¶ 9.
18 Id. at 3 ¶ 10.
19 Id. at 3 ¶ 11.


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Combat Parties joined the Trustee’s response to the Court’s show cause order, requesting the
Court refrain from entering an order abandoning the Claims or dismissing the case.20

Everlast filed a reply to the Trustee’s response, requesting that the Claims be deemed
abandoned, or the case dismissed.21 Everlast contends that the Trustee’s argument that he is still
pursuing administration of the Claims contradicts his prior position that the Claims were
worthless.22 Everlast asserts that “[t]he Trustee’s own actions and positions demonstrate that he
believes the subject claims to be both burdensome to the estate and of inconsequential or no
value.”23 Everlast takes the position that the Court has the ability to sua sponte raise
abandonment and dismissal, stating that “this response also serve[s] as an informal motion by
Everlast (i) for an order deeming the subject claims abandoned or in the alternative, (ii) for
dismissal of the Bankruptcy case for cause.”24

This Court has considered extensive pleadings and oral arguments in this case, including,
the Trustee’s motion to approve a proposed compromise and a § 105(a) injunction.25 This Court
denied the Trustee’s motion and ordered the parties to show cause why abandonment or
dismissal was not appropriate.26 Contrary to the Trustee’s argument, this Court did not sua
sponte dismiss this case, but provided the parties an opportunity to show cause why dismissal is
not appropriate. The parties have filed their responses, and an additional hearing was not
requested. This Court has afforded the parties sufficient due process in a case that is well into its
fourth year.

20 Doc. 204.
21 Doc. 205.
22 Id. at 1.
23 Id. at 2 (emphasis in original).
24 Id. at 2–3.
25 Doc. 177.
26 Doc. 196.


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On March 16, 2016, the Trustee filed a supplemental response to the Court’s show cause

order, stating that he is holding estate property consisting of a $2,416.67 bank deposit that

represents the net proceeds of the former debtor-in-possession’s DIP account.27 The Trustee

requests use of the funds to pay his duly appointed accountant for preparing the estate’s federal

and Kansas income tax returns. The Trustee asserts these funds are sufficient to compensate the

accountant and they should not be abandoned.

LAW

Section 105(a) provides:

The court may issue any order, process, or judgment that is necessary or appropriate
to carry out the provisions of this title. No provision of this title providing for the
raising of an issue by a party in interest shall be construed to preclude the court
from, sua sponte, taking any action or making any determination necessary or
appropriate to enforce or implement court orders or rules, or to prevent an abuse of
process.

 Section 330 provides:

(a)(1) After notice to the parties in interest and the United States Trustee and a
hearing, and subject to sections 326, 328, and 329, the court may award to a trustee
. . . or a professional person employed under section 327 or 1103—

(A) reasonable compensation for actual, necessary services rendered by the
trustee, . . . professional person . . . ; and
(B) reimbursement for actual, necessary expenses.
Section 554(c) provides:

Unless the court orders otherwise, any property scheduled under section 521(a)(1)
of this title not otherwise administered at the time of the closing of a case is
abandoned to the debtor . . . .

 Section 707 provides:

(a) The court may dismiss a case under this chapter only after notice and a hearing
and only for cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28;
and
27 Doc. 209.

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(3) failure of the debtor in a voluntary case to file, within fifteen days or such
additional time as the court may allow after the filing of the petition
commencing such case, the information required by paragraph (1) of section
521(a), but only on a motion by the United States trustee.
Chapter 7 of the Code permits the Court to dismiss a case “for cause” under § 707(a).

Further, § 105(a) allows the Court to sua sponte dismiss a case “for cause” under § 707(a).28 The

Court may dismiss a case under Chapter 7 “only after notice and a hearing and only for

cause . . . .”29 Cause is not defined under the Code, but courts considering dismissal agree that

cause minimally requires a debtor’s creditors not be prejudiced.30 “[L]egislative history makes it

clear that the three subsections of § 707(a) are merely illustrative, rather than exclusive,

examples of cause.”31 To decide whether cause exists for dismissal, the Court must analyze

. . . all of the facts and circumstances leading up to the filing of this case to
include the debtor’s motive in filing the case, the purposes which will be achieved
in this case, and whether the debtor’s motive and purposes are consistent with the
purpose of chapter 7, that is, to provide an honest debtor with a fresh start in
exchange for the debtor’s handing over to a trustee all of the debtor’s non-exempt
assets for liquidation for the benefit of the debtor’s creditors.32

The determination of “cause” under “for cause” dismissal turns on the totality of the

circumstances.33 “A Chapter 7 case may also be dismissed for other reasons which constitute

cause.”34 However, even if cause exists, the Court should not dismiss the case if there is a

showing of prejudice to creditors.35 The inquiry must consider “all parties in interest, not just

28 In re Jakovljevic-Ostojic, 517 B.R. 119, 125 (Bankr. N.D. Ill. 2014). See also Matter of Jones, 1990 WL 300922,
at * 1 (Bankr. N.D. Ind. Sept. 13, 1990) (finding that pursuant to § 105(a), “the bankruptcy court may dismiss cases
sua sponte where to do [so] perpetuates the proper use of the bankruptcy mechanism” quoting In re Ray, 46 B.R. 424,
426 (S.D. Ga. 1984)); Tennant v. Rojas (In re Tennant), 318 B.R. 860, 869 (B.A.P. 9th Cir. 2004) (“The court can
dismiss a case sua sponte under Section 105(a).”).
29 11 U.S.C. § 707(a).
30 In re Stairs, 307 B.R. 698, 702 (Bankr. D. Colo. 2004).
31 In re Cleland, 150 B.R. 63, 64–65 (Bankr. D. Kan. 1992) (citations omitted).
32 In re Bilzerian, 258 B.R. 850, 857 (Bankr. M.D. Fla. 2001), aff’d, 276 B.R. 285 (M.D. Fla. 2002), aff’d sub nom.
Bilzerian v. SEC, 82 F. App’x 213 (11th Cir. 2003).
33 In re Kaur, 510 B.R. 281 (Bankr. E.D. Cal. 2014).
34 Cleland, 150 B.R. at 65 (citing In re Campbell, 124 B.R. 462, 464 (Bankr. W.D. Pa. 1991)).
35 In re Maixner, 288 B.R. 815 (B.A.P. 8th Cir. 2003); In re Foster, 316 B.R. 718 (Bankr. W.D. Mo. 2004).


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one creditor constituency . . . . [T]he pool of interested parties must also include the estate
itself.”36 “[A] debtor’s lack of good faith is a valid cause for dismissal.”37 The Court may
dismiss the Chapter 7 case “if judicial economy would be furthered with no substantial detriment
to the debtor or creditors.”38 “Ultimately, the decision to dismiss a Chapter 7 case for cause rests
within the sound discretion of the bankruptcy court.”39

ANALYSIS

Here, there is no reason for Asset Resolution to remain in Chapter 7. This is not a
Chapter 7 case filed to maximize value for creditors, corporations do not receive a discharge,40
the Debtor has no business to reorganize, and there are no assets for the Trustee to liquidate. The
circumstances of this case suggest Asset Resolution is employing the instant bankruptcy case as
a litigation tactic to delay adjudication of the District Court Action, for the benefit of not only the
Debtor, but also the Combat Parties. Debtor is not pursuing a fundamental Chapter 7 bankruptcy
purpose—liquidating assets for the benefit of creditors. Thus, dismissing the instant case does
not prejudice estate creditors.

The Trustee argues that he is still pursing administration of the Claims to yield value to
the estate. However, the facts do not support this finding. The Trustee previously admitted that
the “he had no credible Claims he could pursue against the Combat Parties . . .”41 Further, “[t]he
Trustee has determined that it would not be in the best interests of the estate or its creditors to

36 Kaur, 510 B.R. at 286 (emphasis in original). Notably, this would include the estate’s administrative expenses.
37 6 COLLIER ON BANKRUPTCY ¶ 707.03[2], at 707-19 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2016).
38 Id. at 707-18.
39 Kaur, 510 B.R. at 286. See also Cleland, 150 B.R. at 65 (quoting Matter of Atlas Supply Corp., 857 F.2d 1061,
1063 (5th Cir. 1988)).
40 § 727(a)(1). See also In re CCR Fin. Planning, Ltd., 199 B.R. 347, 349 (Bankr. E.D. Va. 1996) (“corporate debtors
do not receive a discharge under § 727”).
41 Doc. 177, at 3 ¶ 10.


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pursue Claims against the Combat Parties . . . .”42 In fact, this admission was the basis for the
proposed settlement agreement.

As set out in the Court’s Denial Order,43 a § 105(a) injunction is not an asset of the
bankruptcy estate that can be sold. Section 105(a) third-party injunctions are issued only in the
rare circumstance that there is an extraordinary benefit to the estate and unsecured claimants.
Some courts allow nonconsensual third-party releases when “the recipient was making a
substantial contribution to the debtor’s case.”44 A $30,000 settlement in exchange for a global
injunction does not produce an extraordinary or substantial benefit to the estate and unsecured
claimants.

Finally, courts may dismiss Chapter 7 cases contingent on the debtor paying outstanding
administrative claims.45 The Trustee’s accountant acted properly for the estate and should not be
compelled to absorb the related unpaid expenses of that administration. Filing federal and
Kansas income tax returns was necessary to the administration of the estate and payment of the
accountant does not discriminate against the estate’s creditors. The Trustee asserts he is holding
$2,416.67 in estate funds that are sufficient to compensate his accountant. Thus, the Trustee
shall pay his accountant $2,416.67 as an administrative claim pursuant to § 330(a)(1) within 30
days of the entry of this order. To the extent necessary, the Trustee should coordinate payment
to the accountant with the United States Trustee; however, such payment need not be approved
by this Court.46

CONCLUSIONS OF LAW

42 Doc. 177, at 4 ¶ 16.
43 Doc. 196.
44 Matt Chiappardi, Bankruptcy Judges Beginning To Sour On Third-Party Releases,
http://www.law360.com/articles/778601/bankruptcy-judges-beginning-to-sour-on-third-party-releases.
45 Cleland, 150 B.R. at 65; Kaur, 510 B.R. at 289; In re Chavez, 157 B.R. 30, 32 (D. Colo. 1993) (permitting dismissal
subject to the payment of the trustee’s administrative expenses); In re Bancroft Laundry Ctr., Inc., 164 B.R. 586
(Bankr. N.D. Ohio 1994); In re Todd, 2015 WL 5042116, at *5 (Bankr. N.D. Ga. Aug. 6, 2015).
46 Kaur, 510 B.R. at 289.


16.05.12 Order Dismissing Case
Case 12-22932 Doc# 212 Filed 05/12/16 Page 10 of 11


The Court finds that these circumstances furnish sufficient cause to justify dismissal of
this case under § 707(a). The Trustee shall pay $2,416.67 as administrative fees and expenses of
the estate to his accountant within 30 days of the entry of this order. Upon expiration of 30 days
from the date of entry of this order, this case shall be deemed dismissed.

IT IS SO ORDERED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
16.05.12 Order Dismissing Case
Case 12-22932 Doc# 212 Filed 05/12/16 Page 11 of 11



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