PACCAR Fin. Corp. v. Dhaliwal (In re Dhaliwal)

630 B.R. 24

IN RE: Sukhdev S DHALIWAL and Kulwant Kaur, Debtors.

PACCAR Financial Corp., Plaintiff,

v.Sukhdev S Dhaliwal and Kulwant Kaur, Defendants.

CASE NO: 20-31944

ADVERSARY NO. 20-3391

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed May 18, 2021

Anis Damani, Damani Law Firm PLLC, Angeline Vachris Kell, Steven A. Leyh, Hoover Slovacek LLP, Houston, TX, for Defendants.

Paul Robert Lawrence, Lawrence Law Firm, Houston, TX, for Plaintiff.

MEMORANDUM OPINION

Jeffrey Norman, United States Bankruptcy Judge

Before the Court is the creditor/plaintiff's, PACCAR Financial Corp., request that Sukhdev S. Dhaliwal and Kulwant Kaur, debtors in the underlying bankruptcy, be denied a discharge pursuant to 11 USC § 727(a)(2)(A), or in the alternative, except from discharge the debt owed to PACCAR pursuant to 11 USC §§ 523(a)(2), 523(a)(4), and 523(a)(6). At issue is the dischargeability of a secured debt in the amount of $50,050.00. The Court finds that the debtors should not be discharged. Alternatively, the Court finds the debt of $50,050.00 owing to PACCAR is excepted from discharge.

FACTS

Defendants, Sukhdev S. Dhaliwal and Kulwant Kaur are husband and wife, who were married in 2011. In 2014, they started a trucking business, wherein they purchased their first truck.

Plaintiff, PACCAR Financial Corp., financed defendants' purchase of one (1) 2016 Kenworth T680 model bearing vehicle identification number 1XKYD49XXGJ101649 (the "Truck") on June 22, 2015, and defendants executed a Security Agreement (OTIS Web) Retail Installment Contract and Security Agreement in favor of plaintiff, giving plaintiff a perfected security interest in and to said vehicle. By that time, defendants' business had grown, and they had at least four (4) trucks which they used in their transportation business. Defendants made regular payments on the Truck for the next several years.

The Truck broke down on or about February 1, 2019, and was towed to Pape Kenworth, a major truck and trailer repair shop in Bakersfield, California. Pape Kenworth inspected the Truck and estimated the repairs would cost about $21,500. At that time Pape Kenworth sent an estimate of the repairs needed on the Truck to TruNorth Warranty ("TruNorth"). The debtors had purchased an extended warranty from TruNorth and believed the damages to the Truck were covered by the warranty. However, on or about February 5, 2019, TruNorth informed Pape Kenworth that the damage to the Truck was not covered by the warranty. After their claim was denied, the debtors moved the Truck from Pape Kenworth to JR Truck Trailer Repair ("JR Truck Repair"), also located in Bakersfield, California. Debtors continued to make payments on the truck through July 2019.

In August 2019, the defendants moved from California to Texas. Thereafter, they sold their California home on September 30, 2019. The proceeds from the sale, an estimated $90,000.00, were used to repay relatives and friends for funds that they had borrowed.

Debtors filed a Chapter 7 bankruptcy proceeding in the Southern District of Texas, Houston Division on March 26, 2020 under Case Number 20-31944. Defendants stated that the Truck would be surrendered on their Statement of Intention for Individuals Filing Under Chapter 7.¹ Defendants failed to surrender the Truck, and Plaintiff filed a Motion for Relief from Stay in the main case on May 5, 2020 to recover the vehicle.² The motion was granted on May 26, 2020, and an Order Granting Relief from Stay was entered by the Court.³ To date, the plaintiff has not been able to locate the Truck.

At trial, debtors admitted that they failed to list the payment of $90,000.00 they received from the proceeds of sale of their California home, which they used to pay to unsecured creditors within one year from date of filing of the bankruptcy case on March 26, 2020, on their Statement of Financial Affairs.⁴

On August 12, 2020, Plaintiff filed a Complaint Objecting to Discharge of Debtor and/or for Non-Dischargeability of Debt resulting in this adversary proceeding in the U. S. Bankruptcy Court Southern District of Texas Houston Division.⁵

The Court finds that defendants made false statements under oath with respect to property belonging to this estate by failing to disclose the proceeds of sale of California real estate within one year of filing, transferring $90,000.00 to friends and family, and thereby concealing and permitting this property to be concealed.

Defendant Mrs. Dhaliwal, aka Kulwant Kaur, testified the engine of the Truck was taken apart by Pape Kenworth in Bakersfield, California, that they lacked the funds to make the repairs, or to get the Truck back. The Court finds that testimony is not credible. The Truck was inspected by the Federal Motor Carrier Safety Association in August 2019, finding an audible air leak in tire and leak in sealed hub.

JURISDICTION AND VENUE

The Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and the General Order of Reference of the Southern District of Texas. The matter at bar is a core proceeding pursuant to 28 U.S.C. § 157 as it is a proceeding that, by its nature, could arise only in a bankruptcy case. Venue is proper under 28 U.S.C. § 1408(1) because the debtors resided in the Southern District of Texas for 180 days prior to the filing of this Adversary.

STANDARD OF REVIEW

"Nondischargeability must be established by a preponderance of the evidence."⁶ The preponderance of the evidence standard requires the finder of fact to believe it is "more probable than not that a fact exists in order to find for the party putting forth that fact."⁷

LEGAL ANALYSIS

11 U.S.C. § 727(a)(2)(A)

The plaintiff first seeks the Court to deny debtors a discharge pursuant to 11 U.S.C. § 727(a)(2)(A) as it claims that the defendants intentionally concealed or have permitted to be concealed property with the intent to hinder, delay, or defraud the chapter 7 trustee and creditors. To establish that discharge should be denied under § 727(a)(2)(A), a creditor must prove four elements: (1) a transfer [or concealment] of property; (2) belonging to the debtor; (3) within one year of the filing of the petition; and (4) with intent to hinder, delay, or defraud a creditor or officer of the estate.⁸

Defendants concealed or permitted concealment of the Truck with the intent to hinder, delay or defraud creditors. These events took place between February and August 2019, which was within a year of the filing of the bankruptcy. Defendants also concealed or permitted concealment of $90,000, with the intent to hinder, delay or defraud creditors. They failed to disclose the receipt of proceeds from the sale of California real estate within one year of filing, and the subsequent transfer of the $90,000.00 to friends and family; thereby concealing and permitting this property to be concealed.⁹ The failure to properly advise the Court, the trustee and the creditors about the payment of the proceeds was blamed on the debtors' failure to understand their attorney as what was required to be disclosed, and testified that it was not an attempt to defraud. The defendants stated that they made many attempts to advise the plaintiff where the Truck was, but they made no other efforts after the bankruptcy case was filed to surrender the vehicle in compliance with their Statement of Intent.¹⁰ The intent to defraud must be actual, not constructive.¹¹ Additionally, "a presumption of actual fraudulent intent necessary to bar a discharge arises when property is either transferred gratuitously or is transferred to relatives."¹² The defendants' actions were sufficient to show fraudulent intent as set forth in 11 U.S.C. § 727(a)(2)(A), and the debtors are not entitled to a discharge.

11 U.S.C. § 523(a)(2)

PACCAR further seeks the Court to find its debt non-dischargeable as a result of defendants' "deception by omission the monetary loss to the extent obtained by false pretenses, false representations and actual fraud" pursuant to 11 U.S.C. § 523(a)(2), which states a discharge will not be made for an "an individual debt (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition; (B) use of a statement in writing (i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive."

Section 523(a)(2)(A) only applies to past or current facts.¹³ It is undisputed that the Defendants obtained the loan for the Truck from the plaintiff several years before the default occurred. Plaintiff has presented no evidence that the defendants had any bad intention when they obtained the loan in year 2015. Instead, at the time when the loan was obtained by the defendants, their business was profitable, and there is no evidence of them making any false statements to obtain the loan. Plaintiff has not presented any evidence to establish that defendants made false statements to obtain the loan.

Whether or not the elements are identical for actual fraud, false pretenses and false representations, a creditor must prove that the debtor had an "intent to deceive" for the debt to be deemed non-dischargeable under § 523(a)(2)(A).¹⁴ Defendants could not keep up with their loan obligations because their business incurred losses due to repair issues with multiple trucks. The plaintiff has not shown that defendants had an intent to deceive the plaintiff. Therefore, the Court finds plaintiff failed to meet its burden as required by § 523(a)(2)(A).

11 U.S.C. § 523(a)(4)

Plaintiff next argues the Court find its debt non-dischargeable as debtors were fiduciaries, and committed fraud,...