AgChoice Farm Credit, ACA v. Glenn (In Re Glenn)AgChoice Farm Credit, ACA v. Glenn (In Re Glenn)
OPINION
Bеfore me is the motion of AgChoice Farm Credit, ACA (“AgChoice”) for partial summary judgment on its complaint against Albert and Janet Glenn (“Debtors”). AgChoice is a creditor holding a claim secured by an interest in Debtors’ former residence. In its complaint, AgCh-oice alleges that after it commenced foreclosure proceedings, Debtors willfully and maliciously removed fixtures from the residence, converted them to their own use, and damaged the premises in the process. For the reasons set forth below, AgCh-oice’s partial motion for summary judgment will be denied.
The complaint consists of four counts, but AgChoice has since abandoned the claims for denial of Debtors’ discharge and for declaratory relief. 1 In the first of two remaining counts, AgChoice avers that Debtors inflictеd willful and malicious damage to AgChoice’s collateral, therefore, the underlying debt should be excepted from discharge under 11 U.S.C. § 523(a)(6). In the second count (Count III), AgChoice avers that Debtors’ actions constitute conversion under state law.
I. Factual Findings
On November 23, 2005, May 2, 2006, and October 18, 2006, Debtors obtained personal loans from AgChoice in the principal amounts of $160,000, $280,000, and $100,000, respectively. In exchange for these loans, Debtors executed three promissory notes (hereinafter “the Notes”) and three mortgages (hereinafter “the Mortgages”). The property subject to the Mortgages was Debtors’ home, a dwelling consisting of approximately 6600 square feet of living space located on a fourteen-acre parcel of real estate near Dillsburg, York County, Pennsylvania (hereinafter “the Property”). After making the loans to Debtors, AgChoice loaned $550,000 to Grogle Development Company, LLC (“Grogle”), in which Debtor Albert Glenn (“Albert”) held a 50% interest. Debtors guaranteed the Grogle loan and executed a fourth mortgage on the Property to secure the guaranty.
On or about August 31, 2010, AgChoice notified Debtors that they were in default under the terms of the Notes. On or about September 2, 2010, AgChoice issued pre-foreclosure notices to Debtors as required by Pennsylvania law. In response, Debtors notified AgChoice that they intended to sell the Property, and soon thereafter, they listed the Property for sale through а realtor at a price of $689,900. Debtors’ sales literature described the Property, built in 2007, as including three separate living quarters with seven bedrooms, five full baths and two kitchens. Other advertised features included geothermal heating and cooling, two fireplaces with wood burning stoves, ceiling fans, garage door openers, and smoke detectors. Photographs of the Property used in thе sales literature displayed large kitchens with custom-built cabinetry, rooms with raised-panel doors and moldings, and bathrooms with attached fixtures, vanities and counter tops. Generally, the photographs showed a well-appointed home in good repair.
In January 2011, AgChoice entered judgment in the amount of $457,123.54 against Debtors on the guaranty of the Grogle loan. In March, AgChoice obtained a judgment in the aggregate amount of $541,561.54 on the Notes. Responding to the entry of these judgments, Debtors filed the instant bankruptcy petition on March 29, 2011. On schedule A of their petition, Debtors stated that the Property was worth $689,900, the same value Debtors gave when they listed the Property for sale. After they vacated the Property and filed bankruptcy, Debtors reduced the asking price for thе Property from $689,900 to $465,000.
On April 21, 2011, AgChoice obtained an Order granting it relief from the stay to pursue its state court remedies against the Property. Debtors had previously vacated the Property and did not contest the motion. When they left the Property, Debtors removed numerous items attached to the structure when it was valued at $689,900. These items include: two garage door openers; five thermostats; two wood stoves; approximately fifteen (15) kitchen cabinets; a kitchen island; the kitchen sink; kitchen counter tops; nine (9) ceiling lights and fixtures; sixteen (16) doors; numerous door knobs and handles; the door frames and trim of three door units; three commodes; four bathroom mirrors; two bathroom lights; and two bathroom vanity tops with sinks and faucets. Photographs of the premises taken after Debtors vacated the Property show large holes in the wall where items were removed and damage to the floors. One of the kitchens was stripped bare to the walls.
Debtor Janet Glenn (“Janet”) testified at deposition that she and her husband believed that the items they removed were personal property and, thus, were not subject to AgChoice’s mortgages. The advice Debtors reсeived that these items could be removed was not obtained from their bankruptcy counsel, but from their daughter-in-law, who is a real estate agent, and from other unidentified individuals. Janet also stated that they took the items because they “needed to use them in [their] new house” and explained that they were living with their son and his family in a
II. Procedural History
On July 1, 2011, AgChoice filed thе instant adversary complaint. On August 10, 2011, Debtors filed a pro se answer to the complaint admitting that they had removed many of the items as alleged by AgChoice. 2 On November 22, 2011, AgChoice filed the motion for summary judgment that is now before me. Several exhibits were attached to the motion, including copies of the Mortgages and Notes, photographs of the interior of the Property taken both beforе and after Debtors removed numerous items of property attached to the interior of the dwelling, and transcripts of the depositions taken of both Debtors on September 26, 2011. On December 7, 2011, Debtors filed an answer to AgChoice’s summary judgment motion. The matter is ready for decision. 3
III. Discussion
In the motion before me, AgChoice seeks a determination that, based upon the exhibits and Debtors’ testimоny at deposition, it has established that its claim arose from a willful and malicious injury to its property interest inflicted by Debtors through the conversion of its collateral. Therefore, AgChoice argues, its claim should be excepted from discharge under 11 U.S.C. § 523(a)(6). 4
A. Summary Judgment
A court may grant summary judgment when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material facts” such that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c) (as incorporated by Fed. R. Bankr.P. 7056). In deciding a
The party moving for summary judgment has the initial burden of establishing the basis for its motion.
Celotex Corp. v. Catrett,
B. Section 523(a)(6)
“A discharge under section 727 ... does not discharge an individual debtor from any debt ... for willful and malicious injury by the debtor to another entity or the property of another entity.” 11 U.S.C. § 523(a)(6). The creditor asserting that its debt is excepted from discharge under § 523(a)(6) bears the burden of proving its case by a preponderance of the evidence.
Grogan v. Garner,
Conversion of a secured party’s collateral can be both a breach of contract and an intentionаl tort. Every act of conversion, however, does not produce a willful and malicious injury.
See Davis v. Aetna Acceptance Co.,
In the record before me, Debtors admit to having intentionally removed numerous items of personal property affixed to the Property, including interior doors and door moldings, toilets, vanities, kitchen cabinets and countertops, and even the proverbial kitchen sink. They contend that it was their understanding that they were within their rights to remove these items because they were “personal property” and not part of AgChoice’s collateral—the real estate. AgChoice counters that the items were affixed to the Property and, thus, became part of the real estate and subject to its liens.
Pennsylvania lаw on the rights of personal property affixed to real estate is settled. Personal property used in connection with real estate may be divided into one of three classes. Items such as furniture that are not designed to be used in connection with a particular parcel of real estate remain personal property. In contrast, personal proрerty that has been affixed to real estate such that either the real estate or the personal property will be materially damaged if the personal property is removed is considered real property. Finally, some personal property attached to real estate may be removed without destroying or materially injuring either the personal prоperty or the real estate. This latter type of property may be viewed either as part of the real estate or personal property, depending upon the intention of the parties when the property was affixed to the real estate.
Clayton v. Lienhard,
The Pennsylvania Supreme Court has described personal property in the second category as “fixtures.” When personal property becomes a “fixture,” it may not be removed without the consent of all parties who have an interest in the real estate.
Lehmann v. Keller,
In Pennsylvania, a mortgage is a trаnsfer of a fee simple interest in real property to the creditor.
Sovereign Bank v. Schwab,
Debtors do not dispute that they removed cabinetry, light fixtures, doors and moldings, door hardware, counters and sinks, toilets and bathroom vanities from the Property. The photographic evidence submitted in support of the motion for summary judgment clearly demonstrates that the real estate was damaged by the removal of these items. One of the kitchens was stripped of cabinetry, exposing bare, unpainted walls. There are numerous lighting receptacles with exposed wiring hanging from gaping holes. Bare bathroom walls are gouged where mirrors or other items were forcibly removed. Unfinished flooring is exposed where toilets once stood. Doors once equipped with handles and deadbolts are non-functional without the necessary hardware. All of these items were fixtures under the ruling of
Clayton v. Lienhard.
Therefore, I conclude that Debtors intentionally removed fixtures that should have remained attached to the Property and that the Property was damaged through the process.
5
Debtors’ actions constitute conversiоn. Under Pennsylvania law, conversion is the deprivation of another’s right in property or the use or possession of property without the owner’s consent and without legal justification.
Universal Premium v. York Bank & Trust Co.,
In their depositions and pleadings, Debtors deny that their actions were willful or malicious, averring that they held a sincere belief, however misguided, that the items they removed were their personal property and were not subject to the terms of the Mortgages. When intent is at issue, it is difficult to resolve an adversary complaint by summary judgment. Evaluating state of mind often requires the Court to draw inferences from the conduct of parties about which reasonable persons might differ.
Justofin v. Metropolitan Life Ins. Co.,
Intent is an integral element of a ease for nondischargeability under § 523(a)(6). For summary judgment to be granted in favor of AgChoice, the Court must be convinced that there is indisputable evidence that Debtors intended to injure AgChoice or that they must have known that the injury was substantially certain to occur. The question before thе Court is thus—accepting as true Debtors’ averments regarding their beliefs, does the record demonstrate as a matter of law that Debtors’ actions were willful and malicious within the meaning of those terms? Although I readily conclude that Debtors intentionally removed fixtures from the Property, converting them to their own use, and damaged the real estate in the process, I am unable to cоnclude on the record before me that their actions were malicious.
For these reasons, summary judgment will be denied. Trial will be scheduled for the purpose of receiving evidence on Debtors’ intent in regard to their conversion of AgChoice’s property and, if I find that Debtors’ actions were willful and malicious, to receive evidence on AgChoice’s claim for damages. An appropriate Order will be entered.
Notes
. In Count II, AgChoice sought denial of Debtors' discharge under 11 U.S.C. § 727(a)(2). In its brief, AgChoice stated that it was no longer pursuing this count of the complaint. AgChoice also acknowledged in its brief that the relief sought in Count IV was moot because Debtors' conduct at issue occurred pre-petition, and declaratory relief was not appropriate. Thеrefore, Counts II and IV will be deemed withdrawn.
. Debtors were represented by counsel when they filed their Chapter 7 petition, but they are not represented by counsel in this adversary case.
.In its brief, AgChoice requests summary judgment on Count III (conversion), which is based on the same factual allegations as its cause of action under § 523(a)(6). Because the state law claim for conversion is subsumеd in its claim for willful and malicious injury under § 523(a)(6), I will only address AgChoice’s motion for summary judgment on Count I.
. AgChoice also claims damages due to Debtors' removal of certain appliances from the Property, including a dishwasher, microwave, range, refrigerator, and water softener. AgChoice asserts that these items are fixtures based upon Debtors’ October 2010 sale advertisement for the Property, which indicated that these items were included in the asking price. Debtors willingness to sell these items with the real estate for a certain price does not necessary make these items "fixtures.” The evidence submitted in support of summary judgment does not conclusively show that these appliances were attached to the Property or that physical damage was caused by their removal. Therefore, whether these items constituted "fixtures” is reserved for trial.