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Summarizing by Amir Shachmurove

Zolnier v. Collins

Case Type:
Case Status:
Affirmed in part and Reversed in part
21-20260 (5th Circuit, Dec 06,2021) Not Published
Court of Appeals agreed with the bankruptcy court that debts were dischargeable. The debtors' removal of furniture during state court litigation was not a "transfer." Even if such disposals constituted "fraudulent transfers," the plaintiff failed to prove that the unpaid rents were a product of the transfers. Thus, section 523(a)(A)(2) was inapplicable. Similarly, the plaintiff failed to carry his burden under section 523(a)(6). Even if the debtor removed furniture to evade collection, plaintiff offered no evidence of the value of such furniture and, thus, no proof of damages.
Procedural context:
Appeal of order from U.S. District Court for the Southern District of Texas, which reversed the order of the Bankruptcy Court Court concluding that the plaintiff-creditor failed to carry his burden of proof in establishing that certain debts were non-dischargeable under section 523(a)(2)(A) or 523(a)(6).
The plaintiff Dr. Collins was the owner of commercial real estate known as the "Big Red Barn," which he leased to the debtor for her furniture business. After she fell into rental arrears, the parties executed a new lease that included a promise to pay the arrears over time, secured by liens in the debtor's furniture inventory. When she failed to pay the arrears, Dr. Collins sued her in state court. During the litigation, the parties entered into a Rule 11 agreement through which the debtor agreed not to sell or dispose of the inventory. Despite this agreement, Dr. Collins alleged that the debtor removed substantially all of the inventory. A jury awarded Dr. Collins a verdict for $218,649.15 for back rent, costs and attorneys' fees. When the debtor filed a chapter 7 petition, Dr. Collins sought an exception to her discharge for this debt. He alleged that the debt was either procured by fraud, under section 523(a)(2)(A), because of the debtor's fraudulent transfer of her furniture collateral; or that her disposal of furniture collateral caused willful injury to the plaintiff, under section 523(a)(6).
Per curiam (Higginbotham, Stewart and Wilson)

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