Francis v. National Revenue Service, Inc. (In Re Francis)Francis v. National Revenue Service, Inc. (In Re Francis)
ORDER DENYING IN PART AND GRANTING IN PART PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
This matter came before the Court upon the Motion for Summary Judgment (DE #49) filed by Plaintiff Keithroy Francis, the Response (DE # 53) filed by Defendant National Revenue Service, Inc. (“National”), and the Plaintiffs Reply (DE # 54). For the reasons stated below, the Plaintiffs Motion for Summary Judgment is DENIED in part and GRANTED in part.
BACKGROUND FACTS 1
The Plaintiff, Mr. Francis, filed his Chapter 7 petition on October 16, 2005. On December 30, 2005, the Trustee issued his Report of No Distribution. No proofs of claim were filed in the bankruptcy case *400 and the Court entered an order discharging the Plaintiffs debts on April 4, 2006. On October 5, 2006, National served Mr. Francis with a Summons for a suit brought in Miami-Dade County Court. A default final judgment in the amount of $4,201.99 plus interest was entered against Mr. Francis on November 13, 2006. Mr. Francis appeared at a deposition held at National’s counsel’s office on October 24, 2007 in aid of execution. At some point subsequent to this deposition, Mr. Francis entered into a payment plan with National. Mr. Francis subsequently defaulted on his payment plan and National filed a Motion for Continuing Writ of Garnishment in Miami-Dade County Court. On May 30, 2008, the parties entered into a Stipulation for Entry of a Final Judgment of Garnishment (the “Stipulation”). The state court proceeded to enter an Order Ratifying the Parties’ Stipulation on June 12, 2008. In its Order, the court noted that the parties stipulated that Mr. Francis owed National $5,020.74 with interest continuing to accrue as of May 30, 2008.
On January 30, 2009, Mr. Francis filed a motion to reopen his bankruptcy case in order to add certain omitted creditors. 2 On April 15, 2009, this Court entered an Order reopening Mr. Francis’ bankruptcy case. Approximately two months later, on June 12, 2009, Mr. Francis commenced this adversary proceeding against National seeking a judgment that his debt to National was dischargeable under 11 U.S.C. § 523(a)(3). National filed its Answer and Affirmative Defenses on July 8, 2009. In its Answer, National alleged that Mr. Francis purposefully omitted his debt to National in his bankruptcy petition and accompanying schedules. National contended that Mr. Francis had many opportunities to reopen his bankruptcy case after it was closed in April 2006, yet chose not to do so, thus illustrating that Mr. Francis deliberately omitted the National debt from his bankruptcy schedules. Moreover, National argues, National has suffered undue expense and prejudice due to this delay and therefore, the relief sought by Mr. Francis is time-barred. National also argues that the Stipulation serves as an enforceable post-petition contract and is a novation of Mr. Francis’ pre-bankruptcy obligation.
Mr. Francis filed the Motion for Summary Judgment on November 11, 2009. Mr. Francis contends that National’s affirmative defenses are inapplicable, that because his was a no-asset case National suffered no prejudice, and that Mr. Francis is entitled to judgment as a matter of law as there is no genuine issue of material fact. National filed its Response on December 2, 2009, alleging that there are genuine issues of material fact in dispute. Mr. Francis filed his Reply on December 4, 2009.
STANDARD OF REVIEW
Rule 56 of the Federal Rules of Civil Procedure is applicable to this adversary proceeding by virtue of Fed. R. of Bankr.P. 7056. Summary judgment is appropriate where 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 fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c);
see also Celotex Corp. v. Catrett,
In deciding whether a genuine issue of material fact remains for trial, “the court must construe the facts and draw all reasonable inferences therefrom in the light
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most favorable to the party opposing summary judgment.”
In re John’s Bean Farm of Homestead, Inc.,
ANALYSIS
1. The Plaintiff is not entitled to Summary Judgment merely because his bankruptcy case was a no asset case.
“Exceptions to a debtor’s general discharge are controlled by § 523(a), which encompasses congressional policy that certain debts should be excluded from discharge because of overriding public policy concerns relating to the type of debt, the manner in which the debt was incurred, or the underlying social responsibility that the debt represents.”
In re Riley,
Section 727 of the Bankruptcy Code governs the discharge of debtors who have filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code. Section 727(b) provides in pertinent part that “[ejxcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter ...” 11 U.S.C. § 727(b). Exceptions to discharge are covered in Section 523 of the Bankruptcy Code. Section 523(a)(3)(A) provides:
(a) A discharge under section 727, 1141, 1228(a) 1228(b), or 1328(b) of this title does not discharge an individual debt- or from any debt—
(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom the debt is owed, in time to permit—
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing.
11 U.S.C. § 523(a)(3)(A). Section 350(b) of the Bankruptcy Code provides that “[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for
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other cause.” 11 U.S.C. § 350(b). If a creditor does not have notice or actual knowledge of the case in time to file a proof of claim, debts other than the intentional tort debts specified in sections 523(a)(2), (4) and (6) will not be discharged if they are not scheduled in time for the creditor to file a proof of claim.
In re Cruz,
In
Samuel v. Baitcher (In re
Baitcher),
The Eleventh Circuit held that summary judgment was inappropriate, observing that there were “contested issues of fact” in the case. Id. at 1534. The court noted that the bankruptcy court is ultimately a court of equity and that, therefore, the issue of whether an omitted debt should be discharged should depend, initially, on whether the debtor’s omission of the creditor was innocent, or was intentional or fraudulent, an issue that cannot be resolved on summary judgment. Id. The court declined to articulate a per se rule on whether a debtor could discharge a debt that she failed to schedule in a no-asset case. Id. 3
Mr. Francis cites
In re Anderson,
a case may be reopened for the purposes of determining whether the debt has been already discharged and to give the omitted creditor an opportunity to object to the discharge of its claim. Once the case has been reopened, the debtor *403 has the burden of proving that the failure to schedule the creditor was not due to fraud or intentional design.
Id. at 526. The court ultimately held that the case should be re-opened solely to establish whether the omission of the VA was done intentionally or fraudulently. Id.
Mr. Francis also cites
Watson v. Parker (In re
Parker),
Mr. Francis argues that his failure to include National in his initial bankruptcy schedules was “inadvertent,” and nothing more than an honest mistake. Compl. ¶ 5. Mr. Francis further contends that there is “nothing in the pleadings and there is no discovery made to show the presence of fraud, false pretenses, or willful injury.” Pl.’s Mot. to Dismiss, p. 5. National, in contrast, argues that Mr. Francis intentionally left this debt off his bankruptcy petition. Answer ¶ 5. The parties do not dispute the fact that on May 30, 2008, they entered into the Stipulation. The parties do, however, disagree as to the import of the Stipulation and the factual inferences that can be drawn therefrom. National contends that Mr. Francis voluntarily entered into the Stipulation as evidence that Mr. Francis did not make a mistake in leaving National off of his petition. Mr. Francis counters by arguing that he believed he had to pay National the debt he owed them since he had not listed it in his bankruptcy petition and that he was unaware that he could include the debt on his bankruptcy case. Pl.’s Aff., p. 1.
In weighing all the facts in the light most favorable to National, the non-mov-ant, summary judgment is inappropriate. Given the competing factual inferences that can be drawn based on the pleadings and the record, the granting of summary judgment would be improper. There does not appear to be anything unique regarding the debt owed to National such that it should have been omitted from Mr. Francis’ schedules. Moreover, the fact that Mr. Francis voluntarily entered into the Stipulation with National after he had received his discharge provides at least some plausible support for the argument that Mr. Francis had purposefully left this debt off his bankruptcy petition. One could reasonably argue that Mr. Francis purposefully omitted this claim based on these facts. Conversely, Mr. Francis’ assertion that he did not know he could add this debt to his bankruptcy case is also plausible. It is this very conflict that makes this case inappropriate for summary judgment.
2. The Stipulation between the Parties does not meet the Reaffirmation Requirements under the Bankruptcy Code and is therefore unenforceable.
Under Florida law, a novation is a mutual agreement between the parties
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for the discharge of a valid existing obligation by the substitution of a new valid obligation.
Aronowitz v. Health-Chem Corp.,
National contends that a novation occurred when Mr. Francis voluntarily entered into the Stipulation. Mr. Francis argues novation is not recognized as an exception to discharge under the Bankruptcy Code or any other applicable rules. Moreover, Mr. Francis contends that even if novation could apply as an exception to discharge, it would not apply here because there was no consideration. Finally, Mr. Francis argues the debt is subject to the reaffirmation provisions of the Bankruptcy Code.
It well settled that reaffirmation agreements entered into after a debtor’s discharge are unenforceable.
In re Le-Beau,
Commentators have suggested that any agreement to pay a discharged or
dischargeable
debt which does not meet the reaffirmation requirements set forth in sections 524(c) and (d) will not be given legal effect.
5
4
Collier on Bankruptcy,
¶ 524.04. The protections of these Bankruptcy Code sections apply to those agreements not necessarily labeled “reaffirmations” but that nonetheless have the substantive effect of waiving the protections of the discharge.
See Rein v. Providian Fin. Corp.,
In
In re Cruz,
the Bankruptcy Court for the Southern District of New York considered whether a post-petition settlement agreement could serve as an enforceable reaffirmation agreement of a debt that was never listed in a “no-asset case.” In
Cruz,
a creditor, whose claim had not been listed in a “no-asset” bankruptcy case, secured a
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subsequent judgment against one of the debtors in state court.
Cruz,
In arriving at its conclusion, the
Cruz
court relied heavily on the holding in
In re Grabinski,
ment as it did not comply with the requirements of section 524. The court noted that even if the state court had decided that the letter constituted a novation under state law such a decision would not trump the statutory requirements of section 524 of the Bankruptcy Code. Id. at 433. In support of its position, the court observed that “[ujnder the Supremacy Clause, Article VI(2) of the United States Constitution, the finding of a novation by the state court judge cannot be allowed to create a debt in violation of the Bankruptcy Code.” Id.
Here, there is no question that the Stipulation did not comply with the reaffirmation requirements set forth in section 524. There is also no question that the Stipulation is based, in whole or in part, on what may be a dischargeable debt owed to National. Neither National nor Mr. Francis addressed directly the issue of whether the Stipulation does or does not need to comply with the reaffirmation requirements of the Bankruptcy Code. However, the Stipulation clearly does not satisfy section 524 of the Bankruptcy Code and is therefore not enforceable. Accordingly, Mr. Francis is entitled to summary judgment on this issue. Since the Stipulation does not serve as the functional equivalent of a reaffirmation of debt, this Court need not address the issue of whether any new consideration was given in exchange for the Mr. Francis’ agreement to pay.
3. It is not appropriate to strike the Response
In his reply brief, Mr. Francis asserts that National’s Response is untimely pursuant to the Court Order (DE # 50) entered on November 16, 2009 giving the defendant fifteen days from the entry of the Order to respond to the Motion for Summary Judgment. The Response was filed one day late on December *406 2, 2009. The plaintiff has failed to demonstrate how a one-day delay has in any way caused it undue prejudice. While the Court certainly does not condone the defendant’s late filing, striking the Response for this reason alone would be an unnecessary exercise in elevating form over substance. Even if this Court were inclined to strike the Response, the defendant has alleged facts in its Answer and Affirmative Defenses which give rise to a genuine issue of material fact and therefore, preclude summary judgment.
CONCLUSION
Just as the court in Baitcher noted that the debtor could have her chance to demonstrate the “absence of fraud or intentional design,” Mr. Francis will also have his opportunity to do the same. However, he cannot seek to accomplish this on a motion for summary judgment, when the factual record needs to be more fully developed to determine whether he failed to schedule his debt to National as a result of mere inadvertence or as a result of intentional omission. However, National is not entitled to use novation as a defense.
For the reasons stated herein, it is ORDERED:
Plaintiffs Motion for Summary Judgment is DENIED in part and GRANTED in part.
. These facts are taken from the Complaint, the Motion for Summary Judgment, Plaintiff's Affidavit attached as an exhibit to the Summary Judgment Motion, the Response, and the Reply.
Notes
. National was not one of the creditors listed in Mr. Francis’ motion.
. In
In re Keenom,
. Assuming Mr. Francis is able to demonstrate his innocence in omission, Mr. Francis will still need to demonstrate the debt to National is dischargeable. There is no clear description of the nature of National's claim against Mr. Francis upon which this Court can render a decision on this issue.
. Section 524(c) of the Bankruptcy Code provides, in pertinent part, that:
(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankrupt-cy law, whether or not discharge of such debt is waived, only if—
(1) such agreement was made before the granting of the discharge under section 727, 1141, 1228, or 1328 of this title ...