In re Durant

586 B.R. 212

IN RE: Damond and Sharae DURANT, Debtors.

Case No. 17–20232–MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed June 19, 2018

Jeffrey M. Sirody, Jeffrey M. Sirody and Associates, P.A., Baltimore, MD, for Debtors.

MEMORANDUM OPINION REGARDING THE MOTION OF THE UNITED STATES TRUSTEE FOR PARTIAL SUMMARY JUDGMENT

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

This matter presents what would appear to be a relatively simple question—i.e., what qualifies as a "consumer debt" under the U.S. Bankruptcy Code.¹ But appearances can be deceiving. The Code defines a consumer debt as one incurred for a personal, family, or household purpose. 11 U.S.C. § 101(8). The purpose of the debt is the critical inquiry. The debt at issue in this matter is multi-faceted and, as such, has potentially more than one purpose. It arises both from use of certain specified funds by one of the above-captioned Debtors, as well as from a state court judgment imposing actual damages, non-economic damages, and punitive damages. As more fully explained below, based on a review of the relevant facts and applicable law, the Court concludes that a portion of the subject debt qualifies as a consumer debt for purposes of sections 101(8) and 707(b) of the Code. The Court does not determine whether this conclusion requires the dismissal or, with the Debtors' consent, conversion of the Debtors' chapter 7 case under section 707(b). That determination must await additional briefing and action by the parties.

I. Relevant Background

Damond Durant, Sr. (the "Debtor") and Sharae Durant (collectively with the Debtor, the "Debtors") filed this chapter 7 case on July 28, 2017. The Debtors list approximately $452,146.00 in debt on the schedules to their chapter 7 petition. The overwhelming majority of this debt relates to a single judgment entered against the Debtor by the Circuit Court for Baltimore City on April 12, 2016 (the "State Court Judgment"). See Ex. 2, Mot. Part. Summ. J., ECF 29–2. The State Court Judgment is based on the Debtor's conduct with respect to certain inheritance funds in the amount of $75,803.83 (the "Inheritance Funds") belonging to the Debtor's son, Damon Durant, Jr. (the "Creditor").See id. ; see also Transcript of Feb. 17, 2016 State Court Hearing ("State Court Tr.") 36–41.²

The Creditor's late grandmother left him the Inheritance Funds in her Last Will and Testament (the "Will"). See Mot. Part. Summ. J. at 3, ECF 29. Under the terms of the Will, the Debtor was given custody of the Inheritance Funds because the Creditor was still a minor at the time. Id. When the Creditor turned 21 years old, the Debtor gave him $100.00. Id. According to the Creditor, the Debtor told him that the remainder of the Inheritance Funds was gone and that he should do whatever he needed to do. Id. ; State Court Tr. 19–20.

The Creditor initiated litigation against the Debtor in the Circuit Court for Baltimore City (the "State Court") on January 16, 2015. The Creditor's complaint against the Debtor contained four counts sounding in fraud/intentional theft, breach of fiduciary duties, conversion, and unjust enrichment. See Ex. 2, Mot. Part. Summ. J., ECF 29–2. The complaint sought actual damages, attorneys' fees, and other appropriate relief. Id. The State Court's docket indicates that the Writ of Summons was served on the Debtor on March 19, 2015, but that no Answer or other response was filed by the Debtor.³ See Ex. F, Durant Mot. Summ. J., ECF 24–7. Accordingly, the State Court entered a default judgment against the Debtor on September 29, 2015. See id.

The State Court then held an evidentiary hearing on damages relating to the default judgment. Only the Creditor and his counsel appeared at the damages hearing. See State Court Tr. 37. The State Court proceeded to hear evidence on the damages request, including the Creditor's testimony. The Creditor testified that the Debtor would not allow him to use any of the Inheritance Funds until he turned 21 years old, but then when he requested the money, the Debtor told him that all of the money was gone. See id. at 14–16, 18–20. Although the Creditor testified that he did not know what happened to the money, he observed certain changes in the Debtor's spending habits, including the purchase of a motorcycle shortly after the Debtor received the Inheritance Funds, and various vacations that the Debtor and his wife took after that time. See id. The State Court made several findings and observations in connection with that matter, including:

• "[The Debtor] has failed to appear having been given notice of today's hearing, having failed to respond to any process or notices from this Court." Id. at 37.

• "I've looked at the conduct of [the Debtor] and I find it to be, as I said at the outset, aside from being heartbreaking to hear that somebody's been treated like this, it's reprehensible." Id. at 39.

• "The fact that [the Debtor] made repeated statements to [the Creditor] knowing full well that they were false, that he couldn't touch the money while he was spending it on himself, to me, clearly shows, by clear and convincing evidence, that there was actual malice, that [the Debtor] knew exactly what he was doing." Id.

After a full review of the record, the State Court entered the State Court Judgment, awarding the Creditor $75,804.83 in actual damages ("Actual Damages"), $70,000.00 in non-economic damages ("Non–Economic Damages"), and $227,414.49 in punitive damages ("Punitive Damages"). See Ex. 2, Mot. Part. Summ. J., ECF 29–2.

The United States Trustee ("U.S. Trustee") filed a Motion to Dismiss Case ("Motion to Dismiss") on November 6, 2017. ECF 18. The Motion to Dismiss asserts various grounds for dismissal of the Debtors' chapter 7 case under section 707(b) of the Code. The Creditor has joined the U.S. Trustee's Motion to Dismiss. ECF 20. The Debtors then filed an amended chapter 7 petition, changing the designation of their debt to primarily "non-consumer" debt, and a response to the Motion to Dismiss. ECF 23, 24.

The matter before the Court is the U.S. Trustee's Motion for Partial Summary Judgment that Debtor, Damon Durant's Debts are "Primarily Consumer Debt" ("Motion for Partial Summary Judgment"). ECF 29. The Motion for Partial Summary Judgment relates to the Motion to Dismiss. The U.S. Trustee filed a Memorandum in Support of the Motion to Dismiss, as well as a Request for Admissions of Fact (the "Requests for Admissions"), which the Court granted. ECF 28, 30, 34. The Debtor filed a response to the Motion for Partial Summary Judgment, and the Court held a hearing on the Motion for Partial Summary Judgment and the related pleadings on April 26, 2018 (the "Hearing"). ECF 32.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This matter is a "core proceeding" under 28 U.S.C. § 157(b)(2).

Rule 56 of the Federal Rules of Civil Procedure, made applicable to this contested matter by Bankruptcy Rule 7056, governs the Motion for Partial Summary Judgment. A moving party may be entitled to judgment as a matter of law under Civil Rule 56 in the absence of any genuine issue of material fact. Fed. R. Civ. P. 56. See Emmett v. Johnson , 532 F.3d 291, 297 (4th Cir. 2008) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). See also Guessous v. Fairview Prop. Inv., LLC , 828 F.3d 208, 216 (4th Cir. 2016) (discussing standards for summary judgment). "When a party has submitted sufficient evidence to support its request for summary judgment, the burden shifts to the nonmoving party to show that there are genuine issues of material fact." Emmett , 532 F.3d at 297. Courts generally will grant summary judgment "unless a reasonable jury could return a verdict for the nonmoving party on the evidence presented." Stanley Martin Cos. v. Universal Forest Prods. Shoffner LLC , 396 F.Supp.2d 606, 614 (D. Md. 2005) (citations omitted).

A court must view the evidence on summary judgment in the light most favorable to the nonmoving party and "draw all justifiable inferences" in its favor, "including questions of credibility and of the weight to be accorded to particular evidence." Masson v. New Yorker Magazine , 501 U.S. 496, 520, 111 S.Ct. 2419, 115 L.Ed.2d 447 (1991) (citations omitted). Under Civil Rule 56, a party may support assertions made in a motion for summary judgment by citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations, admissions, interrogatory answers or other materials.⁴

Fed. R. Civ. P. 56(c). A court has some flexibility in the kinds of evidence that it can consider in resolving a motion for summary judgment. See, e.g., Humphreys & Partners Architects , 790 F.3d 532, 538–539 (4th Cir. 2015).

The Court notes that the material facts in this contested matter are not disputed for purposes of the Motion for Partial Summary Judgment. See Mot. Part. Summ. J., ECF 29; Response to Mot. Part. Summ. J., ECF 32; Order, ECF 30. Rather, the dispute concerns the application of sections 101(8) and 707(b) and relevant case law to those facts. Accordingly, the resolution of the legal issue presented by the Motion for Partial Summary Judgment is appropriate and warranted under Civil Rule 56.⁵

III. Analysis

Section 707(b) provides, in relevant part, that "[a]fter notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor's consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions...