458 B.R. 301
Bankr. E.D. Va.2011Background
- Dunlap, a retired Air Force Major, received a lump-sum purchase of his pension payments from SICO in October 2008 totaling $104,354.44.
- Pension payments were deposited by DFAS into a Dunlap-designated SICO account, with Dunlap directing the payment flow.
- SICO required Dunlap to forward checks and stubs to SICO before the lump-sum funds were released to creditors, enabling SICO to pay specified creditors.
- Dunlap made twelve payments to SICO, and DFAS began depositing pension payments into a different account in December 2009, after which Dunlap ceased payments to SICO.
- The Dunlaps filed for Chapter 7 bankruptcy in December 2009, triggering the adversary proceeding by SICO seeking to classify the lump-sum arrangement as non-dischargeable and to assert SICO’s ownership/interest in the pension payments.
- The court ultimately held that SICO had no property interest in the pension payments not yet due and payable when the agreement was entered, and granted summary judgment for Dunlap on Counts One, Two, Three, and Five.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SICO has a property interest in the Dunlaps’ pension payments before they are due and payable. | SICO possessed an equitable interest/constructive trust in payments. | Under 37 U.S.C. § 701(a) (anti-assignment), no vested interest exists before due and payable. | No; Moorhous controls; no valid interest before due. |
| Whether Dunlap’s Lump Sum transfer constitutes a nondischargeable debt under § 523(a)(2)(A). | Dunlap misrepresented use of funds and intended to deceive SICO. | SICO cannot prove false representation given Dunlap’s compliance with the payment process. | Summary judgment for Dunlap; Count Two dismissed. |
| Whether Dunlap’s written financial statements were materially false under § 523(a)(2)(B). | Dunlaps’ disclosures understated liabilities and misrepresented income/expenses. | Disclosures were accurate for July 2008; later schedules do not prove falsity at the time of application. | Summary judgment for Dunlap; Count Three dismissed. |
| Whether Dunlap’s conduct supports nondischargeability under § 523(a)(6). | Failure to remit funds shows willful/malicious injury and conversion. | No enforceable property interest; no dischargeability basis without such an interest. | Count Five dismissed; no § 523(a)(6) nondischargeability due to lack of property interest. |
Key Cases Cited
- In re Moorhous, 108 F.3d 51 (4th Cir. 1997) (anti-assignment provision bars pre-due transfer of military pay)
- In re Price, 313 B.R. 805 (Bankr. E.D. Ark. 2004) (price-like analysis; true-sale/assignment considerations under § 701; Moorhous relied upon)
- In re Bowden, 326 B.R. 62 (Bankr.E.D.Va.2005) (misrepresentation of use; debt consolidation context; no trust res)
- In re Berghman, 235 B.R. 683 (Bankr.M.D. Fla. 1999) (true-sale factors in evaluating equitable assignments)
- Barker v. Kansas, 503 U.S. 594 (1992) (tax treatment context; defer pay; not controlling for this case)