614 B.R. 67
Bankr. D. Alaska2019Background
- Nabong and Zavacky lived together, formed Bloo Monkey Vapes as a partnership in 2014; Zavacky invested her savings (~$23,000), a $5,000 loan from parents, and opened credit lines to fund the business; the 2014 tax return showed a ~$94,000 loss.
- The couple split in spring 2015. Zavacky contends she relinquished her interests in the business and a four-plex in exchange for Nabong’s oral promise to repay her business investments; there was no written repayment agreement and no agreed principal or repayment schedule.
- Nabong sent a June 2015 text promising repayment and thereafter made varied monthly payments from June 2015 through December 2016 (some payments later characterized as child support); he formed Bloo Monkey Vapes LLC in December 2015 and later transferred the business to a girlfriend.
- Zavacky quitclaimed the four-plex to Nabong in August 2016 after a notice of default; a loan modification was recorded January 2017.
- Zavacky sued Nabong in state court; at a May 2018 trial the state judge orally found an oral contract and awarded $52,296.47. Nabong filed chapter 13 bankruptcy June 11, 2018 (converted to chapter 7); Zavacky timely filed an adversary complaint seeking nondischargeability under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(15).
- After trial, the bankruptcy court found Zavacky failed to prove fraud under § 523(a)(2)(A) and that the debt was not a divorce/separation-related obligation under § 523(a)(15); judgment for Nabong.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Nabong’s promise to repay is nondischargeable under § 523(a)(2)(A) (fraud/false representation) | Nabong made a false representation in June 2015; he never intended to repay and only made token payments to "string her along" until he transferred the business | Nabong intended to repay but became financially unable; he made multiple payments after the promise, showing intent to perform | Court: Zavacky failed to prove Nabong lacked subjective intent to repay. Payments and evidence of financial distress negate fraudulent intent; § 523(a)(2)(A) claim denied |
| Whether the debt is nondischargeable under § 523(a)(15) as a debt "incurred in the course of a divorce or separation" | The debt arose from the parties' separation and Zavacky needs funds to care for their child; discharge would harm family member | The debt arose from a business/contractual arrangement, not from divorce or separation; § 523(a)(15) applies only to divorce-related obligations | Court: Debt was a business/contract claim predating any domestic-relations ruling and was not incurred in course of a divorce/separation; § 523(a)(15) inapplicable |
| Whether Zavacky qualifies as a "spouse" or "former spouse" under § 523(a)(15) and her constitutional challenge to exclusion | Zavacky contends treating unmarried domestic partner differently violates equal protection and that she should be treated as a spouse for § 523(a)(15) purposes | Nabong and court note the parties were never married and procedural defects in raising constitutional claims | Court: Did not reach merits of spouse/equal protection question (procedural defects noted); unnecessary because § 523(a)(15) fails on the debt-incurred element |
Key Cases Cited
- Bendetti v. Gunness (In re Gunness), 505 B.R. 1 (B.A.P. 9th Cir. 2014) (discusses scope of § 523(a)(15) and when courts look beyond the named payee)
- Turtle Rock Meadows Homeowners Ass'n v. Slyman (In re Slyman), 234 F.3d 1081 (9th Cir. 2000) (elements for fraud nondischargeability under § 523(a)(2)(A))
- Short v. Short (In re Short), 232 F.3d 1018 (9th Cir. 2000) (§ 523(a)(15) intended to cover divorce-related property settlement debts)
- Balzano v. Farina (In re Balzano), 127 B.R. 524 (Bankr. E.D.N.Y. 1991) (promise to pay in the future not actionable under § 523(a)(2)(A) absent proof debtor lacked intent when promise made)
- Clayton v. Norrell Health Care, Inc. (In re Clayton), 168 B.R. 700 (Bankr. N.D. Cal. 1994) (exceptions to discharge are construed narrowly in favor of the debtor)
- Oney v. Weinberg (In re Weinberg), 410 B.R. 19 (B.A.P. 9th Cir. 2009) (debtor’s partial repayments weigh against finding fraudulent intent)
- Francis v. Wallace (In re Francis), 505 B.R. 914 (B.A.P. 9th Cir. 2014) (plaintiff’s burden to show debt not a support obligation and that it was incurred in course of divorce or separation)