In re Lemiszka

In re: Tomasz Lemiszka, Debtor.

Polish & Slavic Federal Credit Union, Plaintiff, v. Tomasz Lemiszka, Defendant.

Bankruptcy No. 19-82572

Adversary No. 19-96032

United States Bankruptcy Court, N.D. Illinois, Western Division

July 29, 2021

Chapter 7

MEMORANDUM OPINION

THOMAS M. LYNCH, UNITED STATES BANKRUPTCY JUDGE

In December 2016, the Debtor, Tomasz Lemiszka, secured a loan from Plaintiff, Polish & Slavic Federal Credit Union (the "Credit Union") in order to refinance his purchase of a 2010 BMW 5 series automobile (the "vehicle"). But shortly after this seemingly smooth start, things began to run off the road. The Credit Union never received title to the vehicle and its lien was not shown on the document when the car was wrecked in a February 2019 accident. Although the Credit Union was properly listed as a loss payee on the vehicle's insurance policy, the check for the insurance proceeds was issued solely in the Debtor's name. At the end of the day, the Credit Union never saw any of the insurance money as Debtor used the proceeds for his own purposes, including to pay past-due rent owed by his struggling children's entertainment venue. That business failed and the Debtor filed for bankruptcy relief.

The Credit Union now asks the court to except the debt due it from discharge under sections 523(a)(2)(A), (a)(2)(B), and (a)(6) of the Bankruptcy Code, and to award it a money judgment of $13, 201.43, plus interest, costs and attorney's fees.

After trial, the court finds that the Credit Union has failed to meet its burden of demonstrating that the debt is non-dischargeable.

JURISDICTION

Discharge is a right expressly created by title 11 and would have no existence if not created by the Bankruptcy Code. Thus proceedings on an objection to a debtor's discharge or an objection to the dischargeability of a debt arise in a case under title 11. Kontrick v. Ryan, 540 U.S. 443 447-48 (2004). This court has subject matter jurisdiction under 28 U.S.C. § 1334(b) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). "A bankruptcy judge has constitutional authority to enter final judgment as to dischargeability." Bukovics v. Navient (In re Bukovics), 612 B.R. 174, 178 (Bankr. Ill. N.D. 2020). See also Stern v. Marshall, 564 U.S. 462 (2011) (matters of nondischargeability stem from the bankruptcy itself).

PROCEDURAL HISTORY

The Debtor filed his voluntary chapter 7 petition on November 5 2019. The Credit Union commenced this adversary proceeding action on December 23, 2019. The parties conducted discovery following which the Credit Union moved for summary judgment on four of the five counts in its complaint.^[1] The court denied the motion, explaining in its Memorandum Opinion (ECF No. 38) that several issues of material fact needed to be resolved at trial, most notably whether the Debtor intended to deceive or defraud the Credit Union for purposes of section 523(a)(2)(A) and whether his conduct amounted to an intentional tort for purposes of section 523(a)(6) and not merely a breach of contract.

The Credit Union then requested leave to amend its complaint to add a claim under 11 U.S.C. § 727(a). Its request was heard and denied as untimely (ECF No. 52), and the case was set for trial to begin on May 17, 2021. The parties timely filed stipulations of fact ("Stipulation," ECF No 59), and the trial commenced as scheduled.

Two witnesses testified. The Debtor, who was first called adversely by the Credit Union and then testified on his own case, generally testified about the loan agreement. He unequivocally claimed to have intended to fully perform his obligations under the contract when he obtained the loan, but later ran into financial problems in 2018. He further testified that he is a self-employed truck driver and that he and his spouse had operated their own business. They launched their endeavor, "Big Wave Bounce Park," during the summer of 2018 as a venue for children's birthday parties. The Debtor testified that the rent for the bounce park facility was about $6, 000 per month but business proved to be unexpectedly slow. The Credit Union also called its representative, Peter Chaber, an employee of the Credit Union since July 2000 whose current title is Assistant Vice President, Senior Business Lending and Loss Mitigation Manager. Chaber testified that he has worked in the field of loss mitigation for the past 11 years. His principal responsibility in that capacity is to redeem and "find defaulted funds" for the Credit Union, including via repossessions and foreclosures. Chaber was not the loan officer who worked with the Debtor on the loan. Instead, Chaber testified, without objection, that he is familiar with the loan process at and procedures of the Credit Union in general, and that his particular familiarity with the Debtor's account is based on his review of the Plaintiff's business records.

FINDINGS OF FACT

The court has reviewed and considered the procedural background stipulations, and the evidence and argument presented at trial, evaluating the credibility of the witnesses and the weight to the evidence received.^[2] From this review, the court makes the following findings of fact and determines the salient facts to be as follows pursuant to Fed.R.Bankr.P. 7052.^[3]

The Debtor has been a member of the Credit Union since 2014.^[4] On or around December 5, 2016, he applied for a loan to refinance the BMW Bank of North America ("BMW Bank") loan which originally financed his purchase of the vehicle. The Credit Union approved the loan in the amount of $21, 675, to be paid back in monthly installments of $399.54 beginning January 4, 2017. (Pl. Ex. 2.) Although the Debtor testified that he did not review the document before signing it, it is undisputed that the Debtor executed the instrument at or around the date indicated. (Stipulation ¶ 8.)

Under the loan agreement, the Debtor agreed that the vehicle would secure his debt and "to have the [Credit Union's lien] shown on the title". (Pl. Ex. 2 at 1, 4; Stipulation ¶ 9.) The Debtor also promised to keep the vehicle insured against loss and damage, to "make the insurance policy payable" to the Credit Union, and to promptly notify the Credit Union if the vehicle was damaged. (Pl. Ex. 2 at 4; Stipulation ¶ 9.)

On December 5, 2016, the Debtor entered into an additional "agreement" with the Credit Union to authorize BMW Bank, upon full settlement of its loan, to forward title to the vehicle directly to the Credit Union.^[5] (Pl. Ex. 4; Stipulation ¶ 10.) This was memorialized by a standard form letter which, according to Chaber, borrowers sign at closing. Chaber further testified that the Debtor signed all the documents that were provided to him and that there was nothing more the Debtor could have done at closing to ensure that the title was delivered to the Credit Union.

Pursuant to the loan agreement and the letter to BMW Bank, the Credit Union disbursed funds to BMW Bank totaling $24, 932.85, which included $21, 580 from the loan proceeds^[6] and an additional $3, 352.85 from the Debtor's account at the Credit Union. (Pl. Ex. 5.) After receiving this payoff amount, BMW Bank released its lien on the vehicle on January 2, 2017, recording its release on the original certificate. (Pl. Ex. 11.) Despite the Debtor's signed request that it forward the title directly to the Credit Union, BMW Bank sent it to the Debtor at his home address. (Id.) There was no evidence presented to suggest that the Debtor contacted BMW Bank or otherwise took any steps to revoke his letter directing it to forward the certificate directly to the Credit Union.

The Debtor implausibly claimed that he did not know that the certificate of title he eventually received from BMW Bank was to be provided to the Credit Union. His testimony that the Credit Union had not explained to him what was supposed to happen with the title when he signed the loan agreement, however, was uncontroverted and credible. In any event, it is undisputed that the Debtor never provided the title to the Credit Union.

According to Mr. Chaber, the Credit Union normally gives its members four months to provide the title after refinancing before a loan servicing specialist follows up with a phone call, leaving the inference, not explored by further examination, that the lender would sometimes have to remind borrowers to send it certificates of title. Although he could not provide any specific dates and little foundation, Chaber testified, without objection, that the loan servicing specialist made several attempts to contact the Debtor by phone, but was not able to leave any messages because the Debtor's voicemail was not "set up." On cross-examination, the Plaintiff's representative admitted that the loan servicing specialist never spoke with the Debtor about the missing title. Likewise, Mr. Chaber had no knowledge of any email or letter sent to the Debtor regarding the missing title.

Aside from the certificate of title being sent to the Debtor rather than the Credit Union, nothing remarkable occurred in the initial months following the loan. According to Mr. Chaber the Debtor likely had signed an automatic transfer agreement at closing to authorize automatic transfers of the monthly loan installment payments from his bank account to the Credit Union. It is uncontroverted that the first thirteen loan installments, January 2017 through January 2018, were paid via automatic transfer without issue. (Pl. Ex. 9.) The next four payments, February 2018 through May 2018, were also made by automatic transfer. However, these payments were late, and the Debtor paid a late fee of $25 for each. (Id.) After that, the payments...