Johnson v. Johnson

13-1034 unpublished
The Court of Appeals upheld the trial verdict that Debtor-brother's discharge should be vacated. First, the Court found the bankruptcy court could rely on the same evidence to establish both a contract for deed or equitable mortgage. Second, the evidence presented at trial was sufficient to prove Debtor had an equitable mortgage in the property sold to his parents. Third, the Court found Debtor was adequately on notice that the equitable mortgage issue would be raised at trial, although the technical term was not used in pre trial pleadings. Finally, even if Debtor did not intend to hinder, delay, or defraud with the nondisclosure, this would constitute harmless error because vacatur of discharge was also supported by an actual finding of fraud.
Procedural context:
After Debtor received his discharge, Trustee learned of the Debtor's reversionary interest in the lakeside home. Creditor-brother then brought an adversary proceeding against his brother, to vacate the discharge granted. Creditor-brother prevailed at trial and Debtor-brother appealed. District Court affirmed and Debtor-brother further appealed to the Court of Appeals.
Two brothers (and their respective wives) were business partners in a construction business which fell behind on payments to their bank. Post-default, one brother sued the other brother for the business failure, and the latter brother filed bankruptcy. Prior to filing bankruptcy, the Debtor-brother apparently sold a lakeside home he owned to his parents, but retained the right to live in the home. Debtor also had the option of redeeming the property upon repaying the amount paid him by his parents. Debtor never disclosed this reversionary interest in the property in his bankruptcy schedules.
Gruender, Beam, Shepherd

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