- Legendary Stone Arts, LLC v. Maness (In re Maness), Case No. 13-6037 (BAP 8th Cir., August 29, 2013)
- The BAP affirmed the bankruptcy court's ruling that the defendant in this adversary action, Legendary Stone, LLC, had met its burden of presenting evidence that its representatives were not attempting to use the criminal proceeding previously brought against the Debtors to collect a debt and the debtors had failed to rebut such evidence.
- Procedural context:
- The Debtors appealed from the bankruptcy court's order granting summary judgment in favor of Legendary Stone on the Debtors' counterclaim which asserted that Legendary Stone's pursuit of the criminal complaint previously brought against the Debtors were attempts to collect a debt and willful violations of the automatic stay.
- Wendell and Carolyn Maness (the "Debtors") owned MO Housing Corp, d/b/a Top Shop North ("Top Shop"), which was in the business of customizing and installing granite countertops in homes. Over a number of years, Top Shop obtained the raw material for the construction of the countertops from Legendary Stone. In 2010, Top Shop had a severe downturn in business, which led the Debtors to close the business and file bankruptcy. Legendary Stone filed an adversary proceeding from which this appeal arose. The adversary proceeding asserted that Legendary Stone had supplied material and labor to Top Shop totaling more than $66,000, which went unpaid despite Top Shop receiving payment from the homeowner or contractor. The adversary complaint sought a determination that the indebtedness due from Top Shop was nondischargeable under Section 523(a)(2)(A) and that the debtors were liable for such amounts under Missouri's lien fraud statute, Mo.Rev.Stat. Section 429.014. The owners of Legendary Stone were Jeff Williams and Aaron Toney. Prior to the Debtors' bankruptcy filing, Williams contacted the Jackson County prosecutor's office to relay facts of his dealings with Mr. Maness, and apparently brought the Missouri lien fraud statute to the attention of the prosecutor. Subsequently and still prior to the Debtors' bankruptcy filing, Williams and Toney filed a criminal complaint against Mr. Maness. Two days later, the bankruptcy petition was filed by Mr. Maness. Mr. Maness was subsequently charged with theft under the Missouri lien fraud statute and he was arrested, booked, and released on bond. After the criminal complaint and the bankruptcy petition were filed, Williams initiated several contacts with the police department, consisting of six phone calls and two e-mails. The evidence showed that Williams' phone calls were to check on the status of the criminal case. In his e-mails, he informed the police detective of the time of Mr. Maness meeting of creditors and offered to provide any additional information the detective might need. Subsequently, the Jackson County prosecutor dismissed the criminal charges against Mr. Maness. Prior to that dismissal, the Debtors filed a counterclaim against Legendary Stone in the adversary proceeding asserting that Legendary Stone's pursuit of the criminal complaint and William's contacts with the police department were attempts to collect a debt and willful violations of the automatic stay. The only issue on appeal was the bankruptcy court's grant of summary judgment in favor of Legendary Stone on this counterclaim. The court acknowledged the automatic stay under Section 362(a), which prohibits any act to collect or recover a claim against the debtor that arose before the commencement of the case. However, the court then noted the exception under Section 362(b)(1) which provides that Section 362(a) does not operate as a stay "of the commencement or continuation of a criminal action or proceeding against the debtor." The court observed the differing views of certain courts as to whether a creditor's action in encouraging criminal prosecution with the intent of securing payment in preference over other creditors fits within the definition of an act precluded by the automatic stay. The court observed that the bankruptcy court and the parties in the instant action ultimately proceeded on the premise that while criminal prosecution of a debtor is excepted from the automatic stay, there is an exception to the exception where the "principal purpose" of the prosecution is to collect a dischargeable debt. The Debtors argued that the bankruptcy court had erred in granting summary judgment in ruling that no genuine issues of fact existed as to Legendary Stone's intent in making post-petition contacts with the police, and insisted that a trial was necessary to determine such intent. The court held that that argument failed as a matter of summary judgment law. The court noted that Legendary Stone had produced evidence in the form of deposition testimony of Williams and the two police detectives handling the criminal proceeding. The deposition testimony was devoid of any indication that the representatives of Legendary Stone were attempting to use the criminal prosecution to collect a debt. On the contrary, the evidence was the that phone calls were nothing more than routine checks on the status of the case and to provide potentially relevant information. In particular, the detectives each testified that restitution to the creditor was never mentioned in any of the conversations with Legendary Stone's representatives. Further, as the bankruptcy court had noted, there was no suggestion that Williams or Toney ever contacted Mr. Maness, pre- or post-petition, to threaten that they would pursue criminal charges unless payment was made, and there was no evidence to refute Williams' testimony that his continued interest in the criminal proceeding was not to collect a debt, but rather was to stop it from happening to someone else. Legendary Stone having met its initial burden of proof, the burden then shifted to the Debtors to come forward with facts supporting a finding that Legendary Stone's intent in pursuing the criminal prosecution was to collect a debt. The Debtors argued that the court should look to the "totality of the circumstances" to infer that an intent to collect a debt could have been the motivating factor for Legendary Stone's representatives and, therefore, a trial should be had to determine its intent. Such totality of circumstances, according the to Debtors, included: (1) Legendary Stone's adversary proceed seeking a nondischargeability determination; (2) Williams purported knowledge that restitution was a potential remedy in a criminal proceeding; (3) Williams bringing the lien fraud statute to the police's attention; and (4) the sheer number of contacts with the police department regarding the prosecution. The BAP disagreed. In responding to a motion for summary judgment which has been supported with detailed testimony sufficient to defeat the claim, the Debtors had to do more than provide innocuous facts from which one could "infer" that someone "might" have an intent to collect a debt. The Debtors had failed to submit any probative evidence of such intent. No genuine issue of material fact remained for trial. It was undisputed that the criminal proceeding was commenced prior to the bankruptcy and, thus, was not a stay violation. Criminal prosecution is clearly excepted from the automatic stay, and the court emphasized that the exception does not contain any further express exceptions or conditions. The evidence showed that Legendary Stone had no post-petition contact with the Debtors and that all of its contacts with the police department were status-related. Nothing in the record suggested that the representatives of Legendary Stone sought, asked for, or pushed for criminal restitution as part of the criminal prosecution. In fact, the record showed that restitution was never mentioned. Finally, the court declined to adopt the rule apparently suggested by the Debtors that if restitution to the victim is a potential remedy of a criminal prosecution, the crime victim must have no further contact with the prosecuting authorities. The court stated that hat is simply not the law.
- Kressel, Saladino, and Shodeen
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