Opinion
Case No. 12-60556 Adv. Pro. No. 13-2286
03-19-2015
In re: LINDA SWITZER, Debtor. Susan L. Rhiel, Chapter 7 Trustee, Plaintiff, v. Linda Switzer, Defendant.
Chapter 7
OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter is before the Court upon the motion for partial summary judgment ("Motion") (Doc. 13) filed by Susan L. Rhiel, the plaintiff and Chapter 7 trustee ("Rhiel"), the response in opposition to the Motion ("Response") (Doc. 14) filed by Linda Switzer, the defendant/debtor ("Switzer"), and Rhiel's reply memorandum ("Reply") (Doc. 15).
By her complaint ("Complaint") (Doc. 1), Rhiel asserts the following objections to Switzer's discharge under 11 U.S.C. § 727(a):
Count I - Based on § 727(a)(6)(A)
Rhiel alleges that Switzer refused to comply with a Court order entered in the underlying bankruptcy case ("Turnover Order") requiring the turnover of the non-exempt portion of certain insurance proceeds ("Insurance Proceeds"). Compl. ¶¶ 24-30.
Count II - Based on § 727(a)(2)(B)
Rhiel asserts that Switzer removed or transferred the Insurance Proceeds after filing her bankruptcy case "with the intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of [the] property." Id. ¶¶ 31-34.
Count III - Based on § 727(a)(4)
According to Rhiel, Switzer made certain false oaths in the schedules and statement of financial affairs that she filed along with her bankruptcy petition. Id. ¶¶ 35-48.
Seeking partial summary judgment on Count I of the Complaint, Rhiel argues that Switzer's noncompliance with the Turnover Order establishes that she is entitled to judgment as a matter of law on her § 727(a)(6)(A) claim. Mot. at 3-4. In response, Switzer points to the statutory language of § 727(a)(6)(A), which provides that "[t]he court shall grant the debtor a discharge, unless—the debtor has refused . . . to obey any lawful order of the court[.]" Resp. at 4 (quoting 11 U.S.C. § 727(a)(6)(A)) (emphasis added). Given this statutory language—that is, use of the term "refused" rather than "failed"—Switzer argues that her "mere failure [to comply with the Turnover Order] does not equal refusal where [Rhiel cannot] show wilful or intentional disobedience, as opposed to inability, inadvertence or mistake." Id.; see also Switzer Aff. ¶ 12 ("I have been unemployed and unable to work since July 2011 and did not have the means to comply with the court order of August 22, 2013.").
Courts have diverged on the question of whether, in using the term "refused," Congress intended to require an element of willfulness or intent to establish a valid objection to discharge under § 727(a)(6)(A). A majority of courts—including the only federal circuit courts that have addressed the issue—hold that the use of the word "refused" in § 727(a)(6)(A) requires a showing of a willful or intentional act on the part of the debtor as opposed to merely a mistake or inability to comply. Standiferd v. United States Tr. (In re Standiferd), 641 F.3d 1209, 1212 (10th Cir. 2011); Smith v. Jordan (In re Jordan), 521 F.3d 430, 434 (4th Cir. 2008); Missouri ex rel. Nixon v. Foster (In re Foster), 335 B.R. 709, 716 (Bankr. W.D. Mo. 2006); Gillman v. Green (In re Green), 335 B.R. 181, 183-84 (Bankr. D. Utah 2005); LaBarge v. Ireland (In re Ireland), 325 B.R. 836, 838 (Bankr. E.D. Mo. 2005); In re Harmon, 324 B.R. 383, 388 (Bankr. M.D. Fla. 2005); Katz v. Araujo (In re Araujo), 292 B.R. 19, 24 (Bankr. D. Conn. 2003); Jeffrey M. Goldberg & Assocs., Ltd. v. Holstein (In re Holstein), 272 B.R. 463, 480 (Bankr. N.D. Ill. 2001); D'Agnese v. Cotsibas (In re Cotsibas), 262 B.R. 182, 186 (Bankr. D.N.H. 2001); Solomon v. Barman (In re Barman), 237 B.R. 342, 349-50 (Bankr. E.D. Mich. 1999); Hays v. Cummins (In re Cummins), 166 B.R. 338, 358 (Bankr. W.D. Ark. 1994); Wilmington Trust Co. v. Jarrell (In re Jarrell), 129 B.R. 29, 32-33 (Bankr. D. Del. 1991). The minority view, however, holds that "the use of the word 'refused' in § 727(a)(6)(A) denotes that an action brought under this section should, in substance, simply be treated as a civil contempt proceeding, thereby implicitly negating the intent requirement from the word 'refused' as willfulness is not an element to a proceeding in civil contempt." Hunter v. Magack (In re Magack), 247 B.R. 406, 409-10 (Bankr. N.D. Ohio 1999); see also Hazlett v. Gorshe (In re Gorshe), 269 B.R. 744, 746 (Bankr. S.D. Ohio 2001); Hunter v. Watson (In re Watson), 247 B.R. 434, 436 (Bankr. N.D. Ohio 2000); United States v. Richardson (In re Richardson), 85 B.R. 1008, 1011 (Bankr. W.D. Mo. 1988).
Switzer urges the Court to follow the majority view, under which "a mere 'failure' to comply with a court order resulting from inadvertence, mistake, or inability to comply does not constitute a refusal to obey which would justify denial of discharge under § 727(a)(6)(A)." Resp. at 5. Rhiel, by contrast, suggests that the Court should adopt the minority approach and thus follow the line of cases "opin[ing] that [a claim brought under §] 727(a)(6) is akin to a charge for civil contempt." Reply at 2. Under this line of authority, to obtain a judgment Rhiel need establish only that "(1) [Switzer] had knowledge of the order which [she] is said to have violated; (2) [Switzer] did in fact violate the order; and (3) the order violated must have been specific and definite." Id. Even if the Court were to follow the decisions holding that an objection to discharge action based on § 727(a)(6)(A) should be treated as a civil-contempt proceeding, Rhiel acknowledges that "[i]mpossibility or an inability [by Switzer] to comply" would constitute a valid defense. Id. Rhiel maintains, however, that it would be incumbent on Switzer to show that she "undertook all reasonable efforts in her power to [obey the Turnover Order], but was still unable to comply." Id. (quoting Gorshe, 269 B.R. at 746).
The Court concludes that it is unnecessary for it to weigh in on this issue in order to dispose of the Motion. Because it is clear—under either interpretation of the statute—that there exist genuine issues of material fact that preclude the grant of partial summary judgment on Rhiel's § 727(a)(6)(A) claim.
If the Court ultimately were to follow the majority approach, then Rhiel would be required to establish that Switzer's failure to comply with the Turnover Order resulted from a willful or intentional act, as opposed to merely a mistake or inability to comply. Here, the summary judgment record contains no evidence that would support such a finding. See Simmons Capital Advisors, Ltd. v. Bachinski (In re Bachinski), 393 B.R. 522, 534 (Bankr. S.D. Ohio 2008) ("The [debtors] are not entitled to summary judgment . . . because there exist disputed issues of material fact, including [the debtors'] state of mind."); Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 635 (Bankr. S.D. Ohio 2006) ("Because the Debtor's subjective intent is in issue, summary judgment is generally not an appropriate mechanism for adjudication . . . [of the dispute].").
Given the separate and independent grounds for relief asserted by Rhiel in Counts II and III of the Complaint, it is possible that the Court may enter a final judgment in this adversary proceeding without ever reaching the issue of whether Switzer's failure to comply with the Turnover Order constituted a refusal to do so within the meaning of § 727(a)(6)(A). --------
And as Rhiel concedes, even under the more lenient civil contempt standard she asks the Court to adopt, Switzer can establish a valid defense to the § 727(a)(6)(A) claim if she shows that "she undertook all reasonable efforts in her power to [comply with the Turnover Order], but was still unable to comply." See Reply at 2 (quoting Gorshe, 269 B.R. at 746). Again, the summary judgment record is silent as to what, if any, efforts were undertaken by Switzer to comply with the Turnover Order and whether such efforts were reasonable. See Hawkesworth v. Nationwide Mut. Ins. Co., No. 2:10-cv-232-GZS, 2011 WL 2471741, at *9 (D. Me. 2011) ("[T]he inherent nature of a 'reasonableness' determination, simply do[es] not allow this issue to be resolved on summary judgment."); Darian v. Univ. of Mass. Boston, 980 F. Supp. 77, 88 (D. Mass. 1997) ("Typically, this inquiry is resolved at trial rather than on summary judgment because a reasonableness determination implicates both law and fact.").
Rhiel argues that, in opposing the Motion, it was incumbent upon Switzer to offer evidence that she undertook all reasonable efforts to comply with the Turnover Order. Switzer's failure to do so, Rhiel contends, should result in the entry of summary judgment in her favor. Reply at 3 ("The Debtor's blanket statement that her unemployment is sufficient to demonstrate inability to comply with the Turnover Order should be rejected. As was the case with the debtor in In re Gorshe, supra, the Debtor herein has failed to demonstrate that she took reasonable steps to comply [with the Turnover Order].”). This argument is untenable. The Motion filed by Rhiel is a bare-bones submission less than four pages in length. In it Rhiel simply points out that Switzer’s answer admits her failure to comply with the Turnover Order. And on that basis alone Rhiel asserts an entitlement to summary judgment on Count I of the Complaint. Notably, Rhiel does not even argue in the Motion that Switzer's failure to abide by the terms of the Turnover Order constituted a "refusal' to comply with a lawful court order—which is a necessary prerequisite for relief under § 727(a)(6)(A). Indeed, not until after Switzer filed her Response to the Motion did Rhiel, in her Reply, first make clear that she was relying on the minority rule. This is important, because under the majority rule (1) Rhiel would have the burden of establishing willfulness on Switzer's part and (2) until Rhiel did so, Switzer would not have to show that she undertook all reasonable efforts to comply with the Turnover Order. Thus, it would be manifestly unfair to require Switzer, in framing her Response to the Motion, to have the prescience necessary to anticipate an argument not yet made by Rhiel and come forward with evidence to counter it.
For the foregoing reasons, the Motion is DENIED. A trial in this adversary proceeding will be set by separate order.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
John E. Hoffman, Jr.
United States Bankruptcy Judge Dated: March 19, 2015 Copies to: Attorney for Plaintiff
Attorney for Defendant