864 F.3d 344
5th Cir.2017Background
- Cowin and co-conspirators used Texas tax-transfer loans (through companies WCL and Dampkring) to obtain tax-transfer liens after condominium association foreclosure sales and diverted excess foreclosure proceeds away from preexisting mortgage holders.
- Deeds of trust drafted by Cowin omitted language directing trustees to pay amounts required by law before distributing excess proceeds, facilitating diversion to entities controlled by conspirators.
- Countrywide (and Deutsche Bank) and Bank of America were deprived of excess proceeds from multiple properties; separate adversary proceedings were brought in bankruptcy court to determine nondischargeability under 11 U.S.C. § 523.
- Bankruptcy court found Cowin personally participated in the scheme, that the conduct amounted to larceny and willful/malicious injury, and entered a nondischargeability judgment against him; district court affirmed; appeals consolidated.
- Cowin argued (inter alia) that the debts were dischargeable because the court improperly imputed co-conspirators’ intent to him, that the Chapter 7 automatic stay barred entry of the Countrywide judgment, and that preexisting settlement or agency issues barred nondischargeability findings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cowin’s debts arising from the foreclosure-proceeds scheme are nondischargeable under § 523(a)(4) (larceny/defalcation) | Countrywide: debt arises from larceny; Cowin liable for scheme and debts are nondischargeable | Cowin: court improperly imputed co-conspirators’ wrongful intent to him and lacked personal culpability | Held: Affirmed — factual findings show Cowin’s own conduct and intent; debts arise from larceny and are nondischargeable (character of debt controls) |
| Whether Cowin’s debts are nondischargeable under § 523(a)(6) (willful and malicious injury) | Countrywide: Cowin acted with subjective motive or objective substantial certainty to harm creditors | Cowin: co-conspirators’ intent cannot be imputed; Cowin lacked the requisite personal action/intent | Held: Affirmed as to § 523(a)(6) for Countrywide — bankruptcy court found Cowin had requisite subjective motive or objective substantial certainty; court did not rely solely on co-conspirators for § 523(a)(6) |
| Whether entering the Countrywide Adversary Judgment after Cowin’s Chapter 7 filing violated the automatic stay and rendered the judgment void | Cowin: judgment entered in same court after Chapter 7 filing violated § 362(a) and is void | Creditors/Court: adversary in same bankruptcy court is permitted; even if error, any stay violation was harmless and court would have lifted stay | Held: Affirmed — any automatic-stay problem was harmless; court would have lifted stay and Cowin suffered no prejudice |
| Whether findings/judgments from Countrywide proceeding have preclusive effect in BANA adversary; and whether BANA settlement extinguished nondischargeability claims | BANA/Creditors: collateral estoppel applies; settlement preserved right to seek nondischargeability via agreed judgment | Cowin: settlement/agreement and agency arguments bar relitigation and imputation of Dampkring acts to him | Held: Affirmed — collateral estoppel and factual findings bind; settlement terms permitted Bank of America to seek entry of agreed judgment and nondischargeability was properly determined |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (establishing burden of proof for nondischargeability and fresh-start principle)
- Deodati v. M.M. Winkler & Assocs. (In re M.M. Winkler & Assocs.), 239 F.3d 746 (5th Cir.) (character-of-debt focus: debts arising from fraud/acts of conspirators can be nondischargeable)
- Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348 (5th Cir. 2008) (automatic stay does not bar actions expressly permitted by Bankruptcy Code filed in bankruptcy court, e.g., proofs of claim)
- Miller v. J.D. Abrams, Inc. (In re Miller), 156 F.3d 598 (5th Cir. 1998) (standard for willful and malicious injury: subjective motive or objective substantial certainty)
- Cohen v. de la Cruz, 523 U.S. 213 (statutory construction: "debt for" means "debt arising from")