CQM, Inc. v. VandenBush (In re Vandenbush)

614 B.R. 306

IN RE: Darrell Raifeld VANDENBUSH, Debtor.

CQM, Inc. and Ambrosious Development, LLC, Plaintiffs,

v.Darrell Raifeld VandenBush, Defendant.

Case No. 18-31066-beh

Adversary No. 19-02041-beh

United States Bankruptcy Court, E.D. Wisconsin.

Signed February 7, 2020

James E. Lewis, Lewis & Van Sickle, LLC, Green Bay, WI, for Defendant.

Aaron M. Ninnemann, Gerbers Law, S.C., Green Bay, WI, for Plaintiffs

DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

Beth E. Hanan, United States Bankruptcy Judge

Sometimes courts must state what is plain, as in, there is no marital property when there is no marriage. Here, the plaintiffs hold a sizeable judgment for fraud committed by the debtor's ex-wife. The plaintiffs settled their fraud case with the ex-wife, a former employee who pled no contest, along with the debtor who agreed at the time that the judgment could be satisfied from marital assets. But a little over a year later, the debtor and the fraudster divorced, and under their marital settlement agreement, the ex-wife fraudster retained all liability for the state court judgment. The debtor later filed for bankruptcy. This unsatisfying course of events prompted the plaintiffs to file an adversary case, seeking to collect their $772,000 judgment against the debtor from "marital property" via a non-dischargeability claim. But because there is no dispute that the debtor did not commit the underlying fraud, and post-divorce there can be no "marital assets," the Code offers no relief to these plaintiffs.

PROCEDURAL BACKGROUND AND JURISDICTION

Creditor-plaintiffs CQM, Inc. and Ambrosious Development, LLC, hold a $772,000 judgment against debtor Darrell VandenBush's ex-wife, Laurie VandenBush, and seek to preserve their ability to collect the judgment debt against the former marital property that Mr. VandenBush received in the parties' divorce. The plaintiffs have requested a determination that the judgment debt is non-dischargeable as to Mr. VandenBush under 11 U.S.C. §§ 523(a)(2)(A) and (a)(15). The debtor disputes that he owes a debt to the plaintiffs and asserts that even if he does, it (1) is dischargeable and (2) cannot be satisfied from what are now his individual assets. The plaintiffs have moved for summary judgment on their claim under § 523(a)(2)(A), and the debtor has cross-moved for summary judgment on both causes of action under §§ 523(a)(2)(A) and (a)(15).

For the reasons explained below, the Court will deny the plaintiffs' motion for summary judgment and grant the debtor's cross-motion for summary judgment in full.

The Court has jurisdiction under 28 U.S.C. § 1334 and the Eastern District of Wisconsin's July 16, 1984, order of reference entered under 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). This decision constitutes the Court's findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052.

UNDISPUTED FACTS

The following facts, taken from the complaint, answer, and the parties' briefing and affidavits, are either undisputed or not reasonably subject to genuine dispute.

A. The 2014 State Court Civil Suit

Debtor Darrell VandenBush previously was married to Laurie VandenBush. Laurie was employed by plaintiff CQM as a bookkeeper and office manager from approximately 1993 until her termination on October 15, 2014.

On November 4, 2014, plaintiffs CQM and Ambrosius Development filed a complaint in Brown County Circuit Court against both Darrell and Laurie VandenBush (among others), Case No. 14-CV-1595. In the state court complaint, CQM and Ambrosius Development alleged that, between the years of 2008 and 2014 (during which Darrell and Laurie were married), Laurie issued checks without authorization from the plaintiffs' financial accounts to herself, her daughter, and third parties as payment for her personal liabilities and loans. CQM and Ambrosius asserted several causes of action against the VandenBushes, including (1) conversion against Laurie VandenBush; (2) theft by fraud against Laurie VandenBush; (3) breach of fiduciary duty against Laurie VandenBush; and (4) a request for a declaratory judgment against Darrell VandenBush (seeking a declaration that Darrell could not maintain a marital property interest in any property or assets acquired with the money that Laurie allegedly misappropriated from the plaintiffs).

The VandenBushes and the plaintiffs ultimately entered into a stipulation in which the parties agreed that "judgment shall be entered against Laurie A. Vandenbush in the amount of $700,000 for theft by fraud, together with costs of investigation and litigation ... in the amount of $72,000.00." The stipulation further provided: "Darrell R. VandenBush agrees that plaintiffs' claims against Laurie A. Vandenbush constitute a marital obligation of said defendants and marital assets are subject to execution to satisfy plaintiffs' judgment."

Both Laurie and Darrell VandenBush each signed the stipulation individually on January 23, 2016. The state court signed an order for judgment pursuant to the stipulation on February 1, 2016, and judgment was entered on February 9, 2016.

B. The 2015 State Court Criminal Suit

Before the civil judgment was entered, in April 2015, the State of Wisconsin filed a criminal complaint against Laurie VandenBush in Brown County, Case No. 15-CF-601, charging Laurie with six crimes: (1) theft by employee; (2) forgery; (3) three counts of unauthorized use of an entity's identifying information or documents (identity theft); and (4) credit fraud—use to defraud.

In October 2015, Laurie pled no contest to four of the six counts against her (theft by employee, forgery, one count of identity theft, and credit fraud). A judgment of conviction, including a prison sentence, and order for restitution on those counts was entered in February 2016.

C. The Divorce

In April 2017, Darrell and Laurie VandenBush were divorced pursuant to a marital settlement agreement ("MSA") and judgment of divorce entered in Brown County Case No. 16-FA-781.

In the MSA, which was incorporated as the judgment of the court, the parties agreed that Laurie VandenBush "committed marital waste and greatly decreased the value of the marital estate," adding: "The Petitioner [Darrell] is also assuming all of the parties' marital debts. The Respondent's [Laurie's] debt to CQM Inc. is not a marital debt as it was not incurred for a marital purpose." The parties then were awarded the following property:

Petitioner

1. Household items and personal effects in his possession at the time of trial

2. Property located at 468 S. New Franken Road, Green Bay, WI 54311-9565

3. Life insurance policies in his name and cash surrender values, if any.

4. 2004 Chevy 2500 Pick Up

5. 1996 Ford F350 Pick lip

6. 2008 Cadillac CTE

7. Cash and deposit accounts in his name.

8. Fox Hills Resort Timeshare

9. 18450 Skid Loader

10. 2910 Kabota Tractor

11. John Deere 336 Baler

12. Case 1070 Tractor

13. Case 1030 Tractor

14. John Deere Side Rake

15. Two 18' Hay Racks

16. 32' Elevator

17. 250 Linker Welder

18. Coat 40-40 Tire Changer

19. Hand Tools

Respondent

1. Her household items and personal effects. She shall obtain her personal property from the petitioner upon her release from prison.

2. Life insurance policies in her name and cash surrender values, if any.

3. Cash and deposit accounts in her name.

4. Her horse.

See MSA section V.A, ECF Doc. No. 22-6, at 2.

The MSA included the following provision regarding the parties' debts and financial obligations:

A. Each of the parties shall be responsible for the following debts and liabilities, and each shall held the other harmless for the payment thereof:

Creditor's Name Current Monthly Responsible
and Address For Balance Payment Party
  Greenstone Farm                 Mortgage               $296,446.29   $1,707.58      Husband
  Forefront Dermatology           Medical                $571.95       Due Now        Husband
  Lyons Health                    Medical                $489.05       Due Now        Husband
  Community First CU              Vehicle Loan           $7,234.00     $648.44        Husband
  Capital One                     Credit Card            $1,469.69     $30.00         Husband
  Capital One                     Credit Card            $9,934.07     $239.00        Husband
  Fleet Farm                      Credit Card            $7,975.47     $280.00        Husband
  Kohl's                          Credit Card            $816.94       $27.00         Husband
  WDOR                            Taxes                  $7,05235      10% of gross   Husband
  Brown County                    2015 Property Taxes    $3,634.79     $300.00        Husband
  Brown County                    2016 Property Taxes    $3,980.21     $300.00        Husband
  YP Holdings (Rauch-Milliken
  International, Debt Collector)  Collections            $977.96       Due Now        Husband
  Fox Hills Owner's Association   Timeshare              $1,046.00     Due Now        Husband
  CQM, Inc.                       Restitution            $767,757.36                  Wife

See MSA section VI.A, ECF Doc. No. 22-6, at 3.

D. CQM's Attempt at Execution and the Debtor's Bankruptcy Filing

On November 7, 2018, the plaintiffs filed a Petition for Writ of Execution in the state court civil case, Brown Co. Case No. 14-CV-1595, seeking to execute against the following items of the debtor's personal property:

• 2004 Chevrolet 2500

• 2008 Cadillac CTX

• 1996 Ford automobile

• Community Bank Account

• Case Skid Steer

• Kubota Tractor

• John Deere Baler

• Case 1170 Tractor Diesel with cab

• Two (2) Hay Wagons

• Baling Elevator

• Side Rake

• Linken Welder

• Coat 40-40 Tire changer

• Various Hand Tools

A hearing on the petition was scheduled for November 30, 2018.

Also on November 30, 2018, the debtor filed his Chapter 7 bankruptcy petition. As a result, the state court hearing was canceled.

On his Schedule E/F in this bankruptcy case, the debtor listed a non-priority unsecured debt of $772,000.00 owed to CQM Inc., which the debtor described as...