In re: ELIZABETH ANN RAMSEY
- Summarized by Michael Myers , Ballard Spahr LLP
- 1 year 9 months ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- BAP No. NV-22-1202-BGC (9th Circuit, Mar 23,2023) Not Published
- Tag(s):
-
- Ruling:
- The Bankruptcy Appellate Panel (BAP) for the Ninth Circuit affirmed the bankruptcy judge's denial of a debtor defendant's motion for attorneys' fees under Section 523(d) after the debtor prevailed in a Section 523(a)(2) non-dischargeability trial because the plaintiff creditor's prosecution of the complaint was substantially justified.
- Procedural context:
- Plaintiff creditor filed a non-dischargeability action under Section 523(a)(2) based on the debtor's alleged fraud. After a 2-day trial, the bankruptcy court denied the 523(a)(2)(A) claim. However, the bankruptcy court denied the debtor's motion for fees under Section 523(d) because: (1) the debt at issue was not "consumer debt" and (2) the plaintiff creditor's prosecution of the action was "substantially justified". The BAP affirmed based only on the finding that the creditor's position was "substantially justified."
- Facts:
- Plaintiff creditor, debtor, and non-debtor were listed as parties on two 1-page agreements for the purchase and renovation of two adjacent residential properties. Pursuant to those agreements, the creditor would invest money for the purchase and renovation while debtor and non-debtor (debtor's fiance) would renovate and flip the properties, and the parties would then split the profits according to specified percentages. Creditor sued debtor and non-debtor in state court after the renovation projects were not proceeding. After debtor failed to answer and was unsuccessful in setting aside an entry of default, she and non-debtor settled with the creditor. However, debtor and non-debtor failed to satisfy the settlement obligations and creditor obtained a judgment against them for $221,735.99 and an order allowing him to foreclose on the properties. The state court denied the claimed homestead exemptions of the properties by the debtor and non-debtor and creditor obtained ownership of both properties through sheriff's sales. Debtor redeemed her interest in one of the properties, but a state court again denied her claimed homestead exemption based on a finding that it "did not apply because an individual using fraudulently obtained funds to purchase real property should not be protected because the exemption's purpose is to provide protection to individuals who file the homestead exemption in good faith[.]"
Debtor then filed a chapter 7 bankruptcy in which the bankruptcy court denied the debtor's claimed homestead exemption based on a state court ruling that she was not entitled to the exemption. Plaintiff creditor filed a non-dischargeability action under Section 523(a)(2) based on the debtor's alleged fraud. At trial, debtor denied that she had signed the agreements and it was undisputed that creditor had transferred the money to the non-debtor.
After a 2-day trial, the bankruptcy court denied the 523(a)(2)(A) claim based on findings that the debtor had not signed the agreement and that she was not in a joint venture with the non-debtor defendant and, thus, any fraud by the non-debtor defendant could not be imputed to the debtor. However, the bankruptcy court denied the debtor's motion for fees under Section 523(d) because: (1) the debt at issue was not "consumer debt" and (2) the plaintiff creditor's prosecution of the action was "substantially justified". The BAP affirmed based only on the finding that the creditor's position was "substantially justified." Even though the bankruptcy court had apparently mistakenly put the burden on debtor rather than creditor to prove substantial justification, the court had found that the creditor was substantially justified because: (1) creditor's complaint had survived a motion to dismiss; (2) neither party sought summary judgment prior to trial; (3) the validity of the underlying agreements had not been determined prior to the 523(a) proceeding. Moreover, debtor had filed a declaration in the state court admitting to a business relationship with the non-debtor and receipt of monies, which debtor only contradicted in the context of the 523(a) proceeding.
- Judge(s):
- BRAND, GAN, and CORBIT
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