In re Venuto

629 B.R. 331

IN RE: Peter M. VENUTO, Debtor.

Case No. 16-41070-EDK

United States Bankruptcy Court, D. Massachusetts, Central Division.

Signed July 2, 2021

David S. Levinson, Turk & Quijano, LLP, Braintree, MA, John M. McAuliffe, McAuliffe & Associates, P.C., Newton, MA, for Debtor.

MEMORANDUM OF DECISION

Elizabeth D. Katz, United States Bankruptcy Judge

Before the Court is a motion filed by the debtor in this Chapter 7 bankruptcy case requesting a finding of contempt and the imposition of sanctions against a creditor holding a claim that arose prior to the commencement of the debtor's case. Through the motion, the debtor seeks an award of damages for the creditor's alleged violation of the injunction imposed by 11 U.S.C. § 524(a) against any attempt to "collect ... [a discharged] debt as a personal liability of the debtor." Resolution of the motion requires the Court to determine whether the debt at issue was excepted from the debtor's discharge pursuant to 11 U.S.C. § 523(a)(3) as having been "neither listed nor scheduled" in the bankruptcy case.

I. FACTS AND TRAVEL OF THE CASE

The factual findings contained in this Memorandum are based on the parties' testimony, the parties' joint pretrial stipulation, the admitted evidence, and the Court's own records.¹ See LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir. 1999).

On June 20, 2016, Peter M. Venuto (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code").² Several years prior to the bankruptcy filing, the Debtor was involved in a business relationship with Erich AmRhein ("AmRhein"). Unfortunately, that relationship went awry. In October 2011, the Debtor and AmRhein joined forces to make a profit in the rock crushing business.

AmRhein supplied the deposit for a rock crushing machine while the Debtor took charge of the task of actually crushing the rocks. AmRhein alleges that he was entitled to revenues from the business but that certain checks provided to him by both the Debtor and a business wholly owned by the Debtor (totaling approximately $109,000) were returned either for insufficient funds or because the accounts on which they had been drawn were closed.

In addition to the rock crushing business, the parties had at least one other financial link. At some point prepetition, AmRhein also became the holder of a mortgage on the Debtor's property located at 3 Ronald Road in Sudbury, Massachusetts (the "Mortgage"). Exactly how AmRhein came to hold the Mortgage is not clear, but it appears that AmRhein, acting through a trust, purchased an existing mortgage debt on the property.

On the list of creditors filed in the bankruptcy case (the "creditor matrix"), the Debtor included "Erik Hans Amrhein [sic], P.O. box [sic] A, Natick, MA 01760." ECF No. 8, June 28, 2016. On his Schedule D: Creditors Who Have Claims Secured by Property, at entry number 2.2, the Debtor included the following information:

Creditor's Name: Erik Hans Amrhein/Francesco Martinez

Number, Street, City, State & Zip Code: P.O. box A Natick, MA 01760

Amount of Claim: $2,000,000.00

Value of collateral that supports this claim: $1,200,000.00

ECF No. 17, July 15, 2016.³ The Debtor indicated that the claim was disputed. The nature of the lien was left blank. Schedule D does not ask or provide space for any additional information, and none was supplied.

While Schedule E/F: Creditors Who Have Unsecured Claims was the more appropriate schedule on which to include the unsecured debt⁴ owed to AmRhein on account of the rock crushing business and dishonored checks, the Court finds that the entry at number 2.2 on Schedule D was intended by the Debtor to include both the secured Mortgage debt and the unsecured non-Mortgage debt owed to AmRhein.⁵ On cross examination, when presented with a copy of his Schedule D and asked whether "entry 2.2. relates completely to a mortgage debt that you allegedly owed to Mr. AmRhein," the Debtor answered, "According to this, it looks that way, yes." Trial Tr. 64:17-19. Regardless of how it may have "looked," however, the Court finds, in keeping with the remainder of the Debtor's consistent testimony, that the Schedule D entry was intended by the Debtor to include "everything and anything [the Debtor] may have owed Erich AmRhein." Trial Tr. 88:19-20.⁶ This assertion is bolstered by the fact that the $2 million claim included on Schedule D exceeds the actual amount of the Mortgage debt by $700,000, lending credence to the contention that the Schedule D entry was intended to also include non-Mortgage debt. Further, there was no argument or testimony to indicate that any purpose would have been served, nor can this Court conjure up a purpose, for the Debtor to include the Mortgage debt in his schedules while omitting other unsecured debts owed to AmRhein.

On June 29, 2016, the bankruptcy court clerk's office issued a standard notice of the filing of the Debtor's Chapter 7 bankruptcy case (the "Notice of Case"). That notice provided interested parties with, inter alia , notice of the bankruptcy case, the date of the scheduled 341 meeting, the September 26, 2016 deadline for filing objections to the Debtor's discharge or to the dischargeability of a particular debt, and the deadline for filing objections to the Debtor's claimed exemptions. The Notice of Case was served on interested parties through the Bankruptcy Noticing Center (the "BNC"). According to the certificate of notice issued by the BNC, the Notice of Case was sent by first class mail to "Erik Hans Amrhein, P.O. box A, Natick, MA 01760-0002" on July 1, 2016. ECF No. 10. As indicated in the certificate of notice, the BNC automatically added the last 4 digits of the zip code to the address included on the Debtor's creditor matrix, but that automatic adjustment did not render the address incorrect or undeliverable, as at least one notice sent to that address by the BNC was received by AmRhein.⁷

AmRhein claims that he never received the Notice of Case and, therefore, had no knowledge that the Debtor's bankruptcy case had been filed. At trial, AmRhein testified that he had used that post office box address for approximately 30 years and regularly received mail there. He also testified that he had at times failed to receive mail that was supposed to be delivered to him at that address and at other times received mail addressed to other addresses. Thus, he opines, the Notice of Case must have been lost in the mail. Regardless of whether AmRhein actually received a copy of the Notice of Case, he testified that he did receive a document from this Court in December 2016 which he somewhat cursorily reviewed and then provided to his attorney.

At trial, AmRhein described the document received in December 2016 as a "court judgment" related to the Debtor's bankruptcy case. Trial Tr. 126:24. Based on a review of the docket, it is clear that the only communication sent to AmRhein from the Court related to the Debtor's bankruptcy case in December 2016 was the Court's December 12, 2016 Order of Discharge (the "Discharge Order"). The certificate of notice issued by the BNC indicates that the Discharge Order was mailed to AmRhein on December 14, 2016 at the same address used for the Notice of Case. Accordingly, the Court concludes that the Discharge Order was the "judgment" received by AmRhein in December 2016 and that AmRhein had notice of the entry of discharge in the Debtor's case.

The Discharge Order informed parties that the Debtor had been granted a discharge under § 727 of the Bankruptcy Code and further explained that:

The chapter 7 discharge order eliminates a debtor's legal obligation to pay a debt that is discharged. Most, but not all, types of debt are discharged if the debt existed on the date the bankruptcy case was filed.

...

Collection of Discharged Debts Prohibited

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor.

ECF No. 27, Dec. 12, 2016.

The Debtor's bankruptcy case was officially closed on September 6, 2017.⁸ Prior to the case closing, AmRhein took out a private civilian criminal complaint against the Debtor related to the prepetition dishonored checks. In February 2017, the Debtor was arraigned on a charge of larceny by check but was found not guilty in October 2018. More importantly for present purposes, AmRhein also commenced a civil action against the Debtor on October 10, 2017 by filing a complaint in the Superior Court of Middlesex County (the "State Court Action").

Through the original and amended complaints filed in the State Court Action, AmRhein sought various forms of relief against the Debtor based on claims arising from their prepetition rock crushing business, including AmRhein's claims based on the dishonored checks. The amended complaint acknowledged that the Debtor had filed a Chapter 7 bankruptcy case in June 2016 but stated that the Debtor had "committed bankruptcy fraud and perjury, when he failed to disclose all his assets" in connection with the bankruptcy case and that "[s]ince the debts owed by [the Debtor] to AmRhein ... were incurred as a direct result of [the Debtor's] fraud ..., those debts were ineligible for discharge in bankruptcy and were therefore never discharged." Debtor Ex. 10. Notably, AmRhein has not raised those arguments before this Court, and the amended complaint did not state that the debt was omitted from the Debtor's bankruptcy schedules.

When a hearing on AmRhein's motion for a temporary restraining order and trustee process in the State Court Action was set for May 2019, the Debtor filed a motion to reopen the bankruptcy case (which was granted) and filed the "Debtor's Motion for Order of Contempt ...