Vallecillos v. Salgado (In re Salgado), Case No. 15bk33812

588 B.R. 209

IN RE: Adan SALGADO, Debtor.

Hector Vallecillos, Plaintiff,

v.Adan Salgado, Defendant.

Case No. 15bk33812

Adversary No. 16ap00511

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

Signed August 16, 2018

Attorneys for Plaintiff: Danya Shakfeh, Shakfeh Law LLC, Oak Brook, IL, David R. Sweis, The Sweis Law Firm, Oak Brook, IL

Attorney for Debtor/Defendant: Colette Luchetta-Stendel, Colette Luchetta-Stendel, Attorney at Law, Lombard, IL

MEMORANDUM DECISION ¹

TIMOTHY A. BARNES, Judge

This matter comes before the court on the Creditor's First Amended Complaint for Determination of Dischargeability and Objecting to Debtor's Discharge Pursuant to Section 727 of the Bankruptcy Code [Adv. Dkt. No. 12] (the "Complaint") filed by Hector Vallecillos (the "Plaintiff") in the above-captioned adversary proceeding (the "Adversary"). Despite the title of the Complaint, the Complaint seeks only the denial of the discharge of Adan Salgado (the "Debtor") under section 727 of title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code").

Each of the two counts of the Complaint is promulgated under section 727(a)(4)(A) of the Bankruptcy Code, the provision regarding false oaths or accounts. Count I alleges that the Debtor misrepresented under oath his previous ownership of three pieces of real property. Count II alleges that the Debtor made false statements under oath regarding his possession of tools and employment status.

The matter was tried before the court in a two-day trial that began on July 17, 2018 and concluded on July 18, 2018 (the "Trial"). Having considered all the evidence and arguments and for the reasons set forth herein, the court finds that the Plaintiff fails to satisfy the statutory requirements of Count II. The Plaintiff has, however, carried his burden with respect to Count I. Accordingly, the Debtor's discharge will be denied.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under the Bankruptcy Code. 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 23 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

In addition to the foregoing considerations, a bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or where the matter is either one that falls within the public rights exception, id. at 493, 131 S.Ct. 2594, or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g. , Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

An adversary proceeding to deny the debtor's discharge may only arise in a case under the Bankruptcy Code and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J). Kontrick v. Ryan , 540 U.S. 443, 452, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004) ; Steege v. Johnsson (In re Johnsson ), 551 B.R. 384, 389 (Bankr. N.D. Ill. 2016) (Barnes, J.) (" Section 727 is unequivocally a bankruptcy cause of action."). The matter is therefore core and within the court's jurisdiction, as each of the parties agree. See Compl., at ¶¶ 6, 7; Debtor's Answer to Creditor's First Amended Complaint [Adv. Dkt. No. 40] (the "Answer"), at ¶¶ 6, 7. In light of these admissions and as neither party has raised a challenge to the court's constitutional authority, the court concludes that it either has constitutional authority directly or through the parties' consent.

Accordingly, the court has the jurisdiction, statutory authority and the constitutional authority to hear and determine this Adversary.

PROCEDURAL HISTORY

In considering the relief sought by the Plaintiff, the court has considered the evidence and arguments presented by the parties at the Trial, has reviewed the Complaint, the attached exhibits submitted in conjunction therewith, and has reviewed and found each of the following of particular relevance:

(1) Answer;

(2) Plaintiff-Creditor's Answer to Defendant-Debtor's Affirmative Defenses [Adv. Dkt. No. 43];(3) Order Granting and Denying Plaintiff-Creditor's Motion for Summary Judgment [Adv. Dkt. No. 78];

(4) Order Granting and Denying Debtor/Defendant's Motion for Summary Judgment [Adv. Dkt. No. 79] (together with Adv. Dkt. No. 78, the "Partial Summary Judgment Orders");

(5) Final Pretrial Order Governing Creditor's Complaint for Determination of Dischargeability and Objecting to Debtor's Discharge Pursuant to Section 727 of the Bankruptcy Code [Adv. Dkt. No. 112] (the "Final Pretrial Order");

(6) Joint Pretrial Memorandum [Adv. Dkt. No. 125] (the "Pretrial Statement"); and

(7) Stipulations [Adv. Dkt. No. 126] (the "Stipulations").

The court has also taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though these items do not constitute an exhaustive list of the filings in the Adversary, the court has taken judicial notice of the contents of the docket in this matter and in the underlying bankruptcy case, In re Adan Salgado , Case No. 15bk33812 (Bankr. N.D. Ill. filed Oct. 10, 2015) (Barnes, J.). See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

Prior to proceeding to the Trial, each of the parties sought summary judgment in the matter. See Joint Motion for Summary JudgmentAgainst [sic] Defendant-Debtor and in favor of Plaintiff-Creditor Hector Vallecillos [Adv. Dkt. No. 61]; Debtor's Motion for Summary Judgment [Adv. Dkt. No. 62]. On October 10, 2017, the court conducted a hearing on the crossing motions. At that hearing, the court determined that there was no material dispute regarding three of the elements of Count I: (1) the statements being made under oath; (2) the statements being false; and (3) the statements being materially related to the bankruptcy case. The court found the facts and applicable law favored the Plaintiff, thus finding the Plaintiff satisfied these three elements required under section 727(a)(4)(A) of the Bankruptcy Code.

The court found there to be a material dispute regarding the Debtor knowingly and fraudulently making the false statements, however. Summary judgment will almost never be available when fraudulent intent is a part of the cause of action. This is because intent is a factual issue that is ordinarily a subjective inquiry, making the Debtor's testimony and credibility germane to this determination.

Through the motions for summary judgment, the court was also able to resolve the Debtor's affirmative defenses. The court determined that English as a second language is not an affirmative defense, but rather is part of the analysis when determining fraudulent intent. The court also determined that unclean hands is not an applicable defense under section 727 as a violation of section 727 is an offense against the bankruptcy estate, not any individual creditor. As a result, the court entered orders granting in part and denying in part each of the respective motions. See Partial Summ. J. Orders.

EVIDENTIARY RULINGS

On February 27, 2018, the court entered the Final Pretrial Order in the Adversary. The Final Pretrial Order states that:

No motion in limine is necessary for any objection raised in the Pretrial Statement. Any other motions in liminewill be due with the Pretrial Statement unless the court orders otherwise. Any exhibit to which an objection is not raised in the Pretrial Statement will be received in evidence without the need to establish foundation. Any objection to an exhibit (other than weight/relevance) which is not raised in the Pretrial Statement will be waived. Whether evidence is considered by the court and what weight the court gives the evidence depends upon the party relying on such evidence to demonstrate at the trial the relevance and reliability of that evidence in relation to the party's case. If an exhibit is not mentioned by the parties at the trial, it will not be considered to be relevant by the court.

Final Pretrial Order, at p. 1.

On June 29, 2018, the parties jointly submitted the...