Johnson v. Md. Cent. Collections Unit

JOSEPH THOMAS JOHNSON, JR., Plaintiff, v. STATE OF MARYLAND CENTRAL COLLECTIONS UNIT, Defendant.

Civil Action No. ELH-19-2821

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

May 8, 2020

MEMORANDUM OPINION

This matter is rooted in a Chapter 7 bankruptcy proceeding filed in the District of Maryland by debtors Joseph Thomas Johnson, Jr. ("Johnson") and Heather Rebecca Johnson. See TJC-19-13235 (D. Md.). In connection with the bankruptcy proceeding, the State of Maryland Central Collection Unit (the "State" or "CCU") initiated an adversary proceeding against Johnson (ECF 4-1), contesting the dischargeability of debt under 11 U.S.C. § 523(a)(2). See Adv. Pro. 19-00183. Pursuant to Fed. R. Civ. P. 12(b)(6) and Fed. R. Bankr. P. 7056, Johnson moved to dismiss the adversary proceeding. See ECF 1 at 2, ¶ 2.¹ The Bankruptcy Court (Catliota, J.) denied the motion.

Thereafter, in this Court, Johnson filed "Debtor's Motion To Appeal Interlocutory Order," pursuant to 28 U.S.C. § 158(a)(2) and Fed. R. Bankr. P. 8001(b) and 8003. ECF 1 ("Motion"). The Motion is supported by several exhibits. ECF 1-1 to ECF 1-4. The State opposes the Motion. ECF 2. The record was transmitted to this Court and is docketed at ECF 4.²

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall deny the Motion.

I. Factual and Procedural Background³

The Johnsons filed a petition for relief under Chapter 7 of the United States Bankruptcy Code on March 12, 2019. ECF 4-1, ¶ 2. The State filed the adversary proceeding against Johnson on June 6, 2019. See ECF 4-1 at 5. The State's adversary action is captioned "Complaint To Determine Dischargeability of Debt." ECF 4-1 at 1. CCU submitted several exhibits with its suit. See ECF 4-2 to ECF 4-7.

In the adversary proceeding (ECF 4-1), CCU (denominated as plaintiff) alleged that Johnson (denominated as defendant) filed claims in 2004 with the Maryland Department of Labor, Licensing, and Regulation ("DLLR"), resulting in unemployment benefits paid to Johnson to which he was not entitled. Id. ¶¶ 9-13. According to the State, the DLLR had notified Johnson of the eligibility requirements for unemployment benefits. Id. ¶ 9. The State contends that while Johnson was receiving unemployment benefits, he "made express representations to DLLR that [he] remained unemployed or underemployed and was eligible and entitled to receive the unemployment benefit payments for each week DLLR paid the benefits." Id. ¶ 10. However, according to the State, between January 24, 2004 and April 17, 2004, Johnson knowingly and falsely certified that he remained unemployed or underemployed, collecting $2,728.00 in benefits, yet he was actually earning wages at that time. Id. ¶¶ 11-13.

The State alleges that Johnson's conduct violated, inter alia, Md. Code, § 8-1001 of the Labor and Employment Article ("L.E."). Id. ¶ 13. And, the Secretary of the DLLR determined that Johnson "was not entitled to the unemployment benefits and that the benefits were paid as a result of [his] fraudulent conduct. . . ." Id. ¶ 14. Further, the State alleged that Johnson was "advised of his right to participate in a fact finding investigation" and "was given notice of the determination and his appeal rights." Id. According to the State, Johnson did not appeal the Secretary's determination. Id. ¶ 15.

The State maintains that if the Secretary of DLLR "determines subsequent to the claim filing that a claimant was not entitled to all or a portion of the benefits received, DLLR may recover the overpaid benefits," pursuant to L.E. § 8-809. Id. ¶ 7. The State also posits that if the Secretary determines that the "claimant knowingly made a false statement or misrepresentation, or knowingly failed to disclose a material fact to obtain or increase a benefit," DLLR may also recover "interest of 1.5% per month" on the outstanding amount of benefits. Id.

DLLR averred that it referred the debt to CCU for collection on March 8, 2005. Id. ¶ 16. Because of this referral, a "statutory 17% collection fee was assessed" on the debt, id. ¶ 16, pursuant to Md. Code, State Finance and Procurement Article, § 3-304. Id. ¶ 8. As a result, CCU claimed that, as of March 12, 2019, Johnson owed the State the sum of $10,300.69. Id. ¶ 16. Moreover, according to the State, the debt owed by Johnson is not dischargeable under 11 U.S.C. § 523(a)(2)(A). Id. ¶ 17. This is because Johnson "received the money from DLLR by false pretenses, false representations, or actual fraud. . . ." Id.⁴

As noted, Johnson moved to dismiss the adversary proceeding, pursuant to Rule 12(b)(6). ECF 1, ¶ 2. He advanced two grounds. First, he claimed that "the statute of limitations precluded" the State's adversary proceeding. Second, he argued that the State's "allegations fail to meet the writing requirement of 11 U.S.C § 523(a)(2)(B)." Id.

The Bankruptcy Court held a hearing on the Motion on August 7, 2019. ECF 1-4 at 4. In a well reasoned Memorandum Decision (ECF 1-3) and Order (ECF 1-2) of August 30, 2019, Judge Caliota denied Johnson's Motion. Id.

According to the Bankruptcy Court, in the motion to dismiss, Johnson contended, inter alia, that representations with respect to unemployment constitute statements concerning financial condition. ECF 1-3 at 7. Therefore, under 11 U.S.C. § 523(a)(2)(A), the "alleged misrepresentations. . . must be in writing" in order to make them nondischargeable under 11 U.S.C. § 523(a)(2)(B). Id. at 8.

The Bankruptcy Court observed that "if all other elements are met, a materially false 'statement respecting the debtor's. . . financial condition' must be in writing to be excepted from discharge." Id. at 7. The court also noted that, under § 523(a)(2)(A), oral statements and impliedstatements "often provide a basis for a discharge exception...." Id. at 10. It explained that the significant distinction is not whether statements are oral or written. Rather, it is whether the statement is one that pertains to a debtor's financial condition. Id. And, it noted that "[m]isrepresentations that are not respecting the debtor's financial condition are excepted under § 523(a)(2)(A)." Id. at 7.

Further, Judge Catliota determined that the State had adequately alleged that Johnson "made an affirmative misrepresentation." Id. at 9. According to the bankruptcy court, the alleged misrepresentation "is not one respecting a debtor's financial condition" and therefore it "can provide the basis for a claim under [11 U.S.C.] § 523(a)(2)(A)." Id.

The Bankruptcy Court also noted that Johnson argued "that a claim for money judgment would be barred by Maryland's three-year limitations period in Md. Code Ann., Cts. & Jud. Proc. § 5-101." Id. at 10. But, the court pointed out that the State did "not seek a money judgment, but only a declaration that any amounts owed by [Johnson] to [the State] are excepted from discharge under [11 U.S.C.] § 523(a)(2)(A)." Id. Therefore, the Bankruptcy Court "declin[ed] to resolve a dispute over whether the statute of limitations bars a claim that is not asserted in the complaint." Id.

Additional facts are included, infra.

II. Discussion

A.

Johnson seeks leave to appeal the denial of the Motion under 28 U.S.C. § 158(a)(2) and Bankruptcy Rules 8001(b) and 8003. ECF 1 at 1. The jurisdiction of a district court to hear an appeal from a bankruptcy court is conferred by 28 U.S.C. § 158(a), which provides, in relevant part:

(a) The district courts of the United States shall have jurisdiction to hear appeals

(1) from final judgments, orders, and decrees;

(2) from interlocutory orders and decrees issued under section 1121(d) of title 11 increasing or reducing the time periods referred to in section 1121 of such title; and

(3) with leave of the court, from other interlocutory orders and decrees[.]

Thus, "by statute, an appeal of right exists... from a final judgment...." In re Rood, 426 B.R. 538, 546 (D. Md. 2010) (Chasanow, J.). Or, under § 158(a)(2), an interlocutory appeal may be filed as to a decree issued under Section 1121(d). Otherwise, under § 158(a)(3), an appeal from an interlocutory order "may lie only upon obtaining leave of the court." In re Rood, 426 B.R. at 546.

In ECF 1, Johnson moved for leave to appeal under 28 U.S.C. § 158(a)(2). That provision is inapposite here, because the proposed appeal does not concern a decision of the Bankruptcy Court involving 11 U.S.C. § 1121(d), as required by 28 U.S.C § 158(a)(2). Further, as discussed below, the Bankruptcy Court's denial of the Motion is not a final judgment under 11 U.S.C. § 158(a)(1). As a result, Section 158(a)(1) affords no ground for appeal at this time. Johnson's Motion should have been filed under 28 U.S.C. § 158(a)(3). See In re Minh Vu Hoang, 2011 WL 6296839, at *1; In re Rood, 2010 WL 4923336, at *4. And, because the order denying the motion to dismiss is interlocutory, Mr. Johnson may appeal only upon obtaining leave of the court. See 28 U.S.C. § 158(a)(3); see also In re Rood, DKC-10-2651, 2010 WL 4923336, at *2 (D. Md. Nov. 29, 2010).

"As a general rule, a final judgment under 28 U.S.C. § 1291 is 'one which ends the litigation . . . and leaves nothing for the court to do but execute the judgment.'" In re Hebb, 53 B.R. 1003, 1005 (D. Md. 1985) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)); see In re Rood, 426 B.R. at 546. By contrast, an interlocutory order is "one which does not finally determine a cause of action but only decides some intervening matter pertaining to the cause, andwhich requires further steps to be taken to enable the court to adjudicate the cause on the merits." In re Hebb, 53 B.R. at 1005. See BLACK'S LAW DICTIONARY (10th ed. 2014) (defining "interlocutory" as "interim or temporary; not constituting a final resolution of the whole controversy").

To be sure, the concept of a final judgment in a bankruptcy proceeding is more forgiving than the standard applied in civil proceedings under 28 U.S.C. § 1291. In Bullard v. Blue Hills...