500 B.R. 823
Bankr. W.D. Tex.2013Background
- Debtor Bradley L. Croft (pro se) filed Chapter 7 on Aug. 23, 2011 seeking discharge of substantial unsecured debt; U.S. Trustee and Lowry Plaintiffs challenged discharge and some debts’ dischargeability.
- Croft and his then-wife created the Willawall Trust (2009) and transferred nearly all personal/business assets (real property remainder interest, motor home, vehicles, stock, computers, and ~$322,000) to the Trust for little or no consideration while Croft retained effective control.
- Croft sold an encumbered motor home in May 2011; proceeds (~$189,000) were deposited into a new Trust account and withdrawn in numerous sub-$10,000 cash withdrawals; $166,000 of those proceeds were purportedly invested in a dog-training venture (Universal K-9), but records and witness testimony were inconsistent and the money/dogs could not be accounted for.
- Croft repeatedly amended his Schedules and Statements of Financial Affairs and omitted or inconsistently disclosed Trust accounts, transfers, business interests (Universal K-9/Redonte), and cash on hand.
- Barbara Lowry sued under the FCRA after her TransUnion credit report (including sensitive personal data) was posted on a website Croft controlled; the District Court referred the FCRA claims against Croft to the Bankruptcy Court.
- After a six-day trial the Court: (1) found Croft willfully violated the FCRA and awarded statutory and punitive damages plus fees; and (2) denied Croft’s Chapter 7 discharge under 11 U.S.C. § 727(a)(2)–(5) and held certain state-court sanctions and the FCRA award nondischargeable under § 523(a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Croft violate the FCRA by obtaining/using/posting Lowry’s consumer report? | Lowry: Croft obtained and posted her TransUnion report on a website he controlled without any permissible purpose. | Croft: He did not directly obtain it; if he did, it was for a legitimate business purpose and not covered by the FCRA. | Held: Croft willfully violated §1681b(f); he obtained/used and posted the report without a permissible purpose; statutory damages $1,000, punitive $75,000, plus fees/costs. |
| Should Croft’s Chapter 7 discharge be denied under § 727(a)(2) for transfers to the Trust and concealment of assets? | U.S. Trustee/Lowry: Croft transferred assets to a Trust he controlled to hinder/defraud creditors, retained benefit/use of assets, and concealed accounts and cash withdrawals. | Croft: Transfers were for his child’s benefit or legitimate trust/business purposes; omissions were inadvertent or due to poor nonlawyer advice; Universal K-9 was a bona fide investment. | Held: Denial under §727(a)(2)(A) and (B). Court finds transfers lacked consideration, Trust was Croft’s alter ego, he retained control/use, and conduct showed intent to hinder/defraud. |
| Did Croft fail to keep/preserve records or make false oaths in bankruptcy (§ 727(a)(3) & (4))? | Plaintiffs: Croft’s records were incomplete/conflicting (no clear accounting for motor-home proceeds/Universal K-9), and he made repeated false or inconsistent sworn statements/omissions about assets/accounts. | Croft: Omissions were mistakes, corrected by amendments, or caused by poor informal advice; no fraudulent intent. | Held: Denial under §727(a)(3) and §727(a)(4)(A). Court found material record failures, inconsistent sworn statements, and reckless/knowing omissions supporting fraudulent intent. |
| Are state-court sanctions and FCRA damages nondischargeable under § 523(a)(6) (willful and malicious injury)? | Lowry: Croft acted willfully and maliciously (litigation campaign, website attacks, posting credit report) to injure Lowry/AMS; sanctions and FCRA award should be nondischargeable. | Croft: Actions lacked the required willful malicious intent; some acts defensible as business or investigative conduct. | Held: Sanctions and FCRA judgment are nondischargeable under §523(a)(6). Court finds objective substantial certainty and subjective intent to injure (implied malice). |
Key Cases Cited
- Safeco Ins. Co. v. Burr, 551 U.S. 47 (2007) (standard for willful/reckless violation analysis under FCRA)
- TRW Inc. v. Andrews, 534 U.S. 19 (2001) (FCRA purpose and scope regarding consumer-report protections)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) ("willful" in §523(a)(6) modifies "injury," requiring deliberate or intentional injury)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) (Due Process guideposts for punitive damages proportionality)
- BMW of N. Am. Inc. v. Gore, 517 U.S. 559 (1996) (factors for assessing reprehensibility in punitive-damages analysis)
- Cousin v. Trans Union Corp., 246 F.3d 359 (5th Cir. 2001) (evidence required for emotional damages and analysis of FCRA claims)
- Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174 (5th Cir. 1992) (plaintiff’s burden to prove §727 discharge objections by preponderance)
- In re Miller, 156 F.3d 598 (5th Cir. 1998) (definition of implied malice for §523(a)(6) purposes)