Shults v. Faulkiner (In re Faulkiner), Case No. 17-13231-MKN

594 B.R. 426

IN RE: Laura L. FAULKINER, Debtor.

Christopher Shults, Plaintiff,

v.Laura L. Faulkiner, Defendant.

Case No. 17-13231-MKN

Adv. Proc. No. 17-01236-MKN

United States Bankruptcy Court, D. Nevada.

November 19, 2018

Rena M. McDonald, McDonald Law Group, Henderson, NV, for Plaintiff

Seth D. Ballstaedt, The Ballstaedt Law Firm, Las Vegas, NV, for Defendant

MEMORANDUM DECISION AFTER TRIAL¹

Honorable Mike K. Nakagawa, United States Bankruptcy Judge

On October 30, 2018, a trial was conducted in the above-captioned adversary proceeding. The appearances of counsel were noted on the record.

After consideration of the evidence and arguments presented at trial, the court enters this Memorandum Decision, which constitutes the court's findings of fact and conclusions of law pursuant to FRBP 7052 and FRCP 52.

FACTUAL AND PROCEDURAL BACKGROUND

On June 15, 2017, a "skeleton" Chapter 13 petition was filed by Laura L. Faulkiner ("Debtor"). (ECF No. 1). Administration of the Debtor's Chapter 13 proceeding was assigned to panel trustee Kathleen A. Leavitt and the Debtor's meeting of creditors was scheduled for July 25, 2017. (ECF No. 4).

On July 18, 2017, Debtor filed her schedules of assets and liabilities ("Schedules"), Statement of Financial Affairs ("SOFA"), and other required information. (ECF No. 12). In response to Question 9 of the SOFA, Debtor disclosed that a lawsuit entitled Christopher Shults ("Plaintiff") v. Laura Faulkiner, Case No. A-16-734705-C ("State Court Action") was pending in the Eighth Judicial District Court, Clark County, Nevada ("State Court").² On her Schedule "A/B," Debtor listed her current residence located at 6048 Tokara Avenue, Las Vegas, Nevada, as well as a variety of personal property assets. On her Schedule "C," she claimed all of the equity in her scheduled assets as exempt under Nevada law. Her meeting of creditors was concluded on July 25, 2017 (ECF No. 20), and no one objected to her claimed exemptions.

On September 25, 2017, Plaintiff commenced the instant adversary proceeding against the Debtor by filing a "Complaint for Determination of Dischargeability and Objecting to Debtor's Discharge Pursuant to Section 523 of the Bankruptcy Code ("Complaint").³ (AECF No. 1). Plaintiff alleges that the Debtor borrowed funds from him before the Chapter 13 proceeding was commenced and that the Debtor's personal liability for those funds is excepted from discharge under Sections 523(a)(2)(A) and 523(a)(2)(B).⁴

On November 22, 2017, Debtor filed an answer ("Answer") to the Complaint. (AECF No. 7).

On November 28, 2017, an order was entered confirming the Debtor's Chapter 13 plan. (ECF No. 36).⁵

On November 29, 2017, Debtor filed an amended answer to the Complaint. (AECF No. 9).

On February 21, 2018, Debtor filed a modified Chapter 13 plan. (ECF No. 38).⁶

On March 7, 2018, a joint discovery plan was filed, wherein the parties agreed that discovery would close by July 23, 2018. (AECF No. 11).

On March 30, 2018, an order was entered scheduling a pretrial conference for October 11, 2018, and a one-day trial for October 30, 2018. (AECF No. 12).

On May 25, 2018, an order was entered confirming the modified Chapter 13 plan. (ECF No. 47).⁷

On September 27, 2018, Plaintiff filed his trial statement ("Plaintiff Trial Statement"). (AECF No. 14).

On October 4, 2018, Debtor filed her trial statement (AECF No. 17).⁸

On October 8, 2018, Debtor filed an amended trial statement to correct the adversary case caption ("Debtor Trial Statement"). (AECF No. 20).

On October 11, 2018, the pretrial conference was completed.

THE EVIDENTIARY RECORD

Both the Plaintiff and the Debtor were subject to direct and cross-examination at trial. Prior to trial, Plaintiff provided a binder that included nine exhibits, but only Exhibit "7" consisting of Debtor's response to Plaintiff's request for admissions ("ROA")⁹ propounded in the State Court Action,¹⁰ was admitted at trial. Similarly, Debtor provided a binder that included seven exhibits, but only Exhibit "A" and Exhibit "F" were admitted at trial. Exhibit "A" consists of a copy of a transcript of the Debtor's deposition taken on April 18, 2017, in the State Court Action ("Depo Transcript")¹¹ and Exhibit "F" consists of an email string between the parties on October 9, 2014, and another email on November 16, 2014.

The October 9, 2014, email is in two parts. The first part is from the Plaintiff to the Debtor and states as follows:

Laura

As you know it's been a year since the condo was purchased. I would like to know what your intentions are to either pay interest on the loan or purchase the property outright. As I recall we discussed an interest payment of $215 per month plus the reimbursement of the moving expenses I advanced.

Let me know what your thoughts are.

Chris

The second part of the October 9, 2014 email is from the Debtor to the Plaintiff and states as follows:

Hi Chris,

Your note caught me by surprise for a few reasons. Mostly because, as I (and others) recall, this was something we were going to deal with in two years, not one. Please be assured when I can, I will reimburse you, but it is not possible for me to do so at this time.

I won't go into details of my finances, which you were aware of last year. They really are not much better now. As you know, it helps when your house sells. I hope mine will do so in the spring. Meanwhile, I continue to have living expenses in Kansas, help support my mother, and help Janet with the kids' expenses. Jane and Emma still love coming to Vegas, and as long as I can afford to bring them, I will. You promised if I got the condo you would fly them out twice a year, but obviously things changed. This year I could only take them for spring break, which is still a wonderful gift to them and to Janet as it gives her a break. I have done the best I can with the limited resources I have. The condo is a luxury that I may have to do without someday. Until then, please don't dampen my joy unnecessarily. I appreciate everything you have done for me and my family.

You have moved on, and I wish you well. But some things are between you and me. The condo is one of them. We had lots of conversations about a lot of things. Again, I won't go into details. Life changes things. I promise to do my best to make it right when I can, just as you helped me when you could.

So those are my thoughts.

The November 16, 2014 email is from the Debtor to the Plaintiff and states as follows:

Chris,

There was never an agreement between us regarding funding the condo other than that I would pay you back sometime; most likely when I sold the condo. Details were bandied about, but nothing actually agreed upon. It was a loose, friend-to-friend transaction – everything to be determined in the future. To say otherwise, is simply not true.

I didn't come close to getting $5000 from my adjusted income tax returns. From the much smaller amount I received, Janet's fee was $450, which I paid immediately. The balance was used to pay the taxes I owed for the current tax year. We did not discuss that money going to you at all. The only comment about the amended returns was when you asked the receptionist to put my fee on your bill. She said she could not, but that you could pay it when I was billed. Again, that was a generous offer, but I did not ask (or expect) you to pay for it.

You clearly know what my financial situation has been and still is. I believed that knowledge and our friendship is why you helped me and my family until you took on Jana and her family to care for and help. I mention that because I feel Jana's resentment toward me is the reason you are pressuring me now. That does not mean you should come to me and expect immediate compensation for your previous generosity. You did what you could when you could. Thank you; I will do the same.

Furthermore, interest is not an issue as there was no agreement on interest at all. In fact, you totally resisted any conversation about interest and/or payback until now. Hopefully you will, in the future, reach a clear and firm agreement with people – like having a legal pre-nup, for instance – to avoid misunderstandings.

As I said earlier, I will let you know when I sell my house or the condo and am able to return the money you offered me so willingly. I suggest you accept that and leave me alone in the meantime.

Thank you.

Laura.

Other than the copies of the ROA response, Depo Transcript, and emails, no other written materials were admitted at trial.

APPLICABLE LEGAL STANDARDS

Under Section 1328(a), a Chapter 13 discharge is entered as soon as practicable after the debtor completes all payments required under the confirmed plan. Section 1328(a) also provides that the Chapter 13 discharge does not include debts of the kind specified, inter alia , under Section 523(a)(2). See 11 U.S.C. § 1328(a)(2).

Section 523(a)(2) excepts from discharge debts "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; [or]

(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..."

11 U.S.C. § 523(a)(2) (A and B) (emphasis added).¹²

Unlike Section 523(a)(2)(B), the elements that must be proven by the objecting creditor under Section 523(a)(2)(A) are not set forth in the statute. The elements required under Section 523(a)(2)(A), however, have been established under case law. In this circuit, a claim for actual fraud under Section 523(a)(2)(A) requires a creditor to prove: "(1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his statement or...