Bank of America, N.A. v. Armstrong (In re Armstrong)

Summarized by Bruce Weiner , Rosenberg, Musso & Weiner
12 years 5 months ago

Citation:

2013 WL 5273299 (8th Cir BAP 2013)

Tag(s):

Ruling:

The Eighth Circuit BAP affirmed the Bankruptcy Court's ruling that the debt owed by the debtor to Bank of America is nondischargeable under Section 523(a)(4). The debtor received insurance checks payable to his business and the mortgage holder on the property owned by the business. The debtor used almost all the money for personal expenses instead of repairs of paying it to the mortgage holder. Bank of America succeeded to the rights of the mortgage holder. Because the mortgage holder was a loss payee on the policy, it was the owner of the insurance proceeds and therefore when the debtor failed to remit the funds, or even inform the mortgage holder about the funds, he knowingly took funds that he knew belonged to the mortgage holder. The debtor was not lawfully entitled to use the funds and therefore the obligation of the debtor to Bank of America was nondischargeable under Section 523(a)(4).

Procedural context:

Appeal from the United States Bankruptcy Court for the Eastern District of Missouri to the Eighth Circuit Bankruptcy Appellate Panel.

Facts:

Debtor owned a strip mall and one of the three buildings was destroyed in a fire. Southwest Bank held a mortgage on the property and was named as loss payee on the policy. The insurance company issued three checks naming both the debtor and Southwest Bank as payee. The debtor deposited the checks without Southwest's endorsement and used almost all of the money for his personal use. After Bank of America paid Southwest because it allowed the debtor to negotiate the checks without Southwest's endorsement, it preserved its rights against the debtor. After the debtor filed his petition, Bank of America filed an action under Section 523(a)(4) to declare the debt nondischargeable. The bankruptcy court granted Bank of America's motion for summary judgment and the debtor appealed.

Judge(s):

Federman, Shodeen, and Nail

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