Opinion
Case No. 10-07746-PB7
01-31-2012
In re SHARON BROWN-MORK, Debtor.
WRITTEN DECISION - NOT FOR PUBLICATION
ORDER ON OBJECTION
CLAIM NUMBER 7
After debtor filed her Chapter 7 petition, her brother, Michael, and ex-sister-in-law filed a proof of claim for a debt incurred in April, 1999. The amount they sought was $37,086.00. Michael attached to the proof of claim form a written "Explanation of claim". He stated:
Due to the time that has passed the cashed bank check from Wells Fargo is unavailable. Below is my statement of facts, and under perjury I swear these are true statements.Also attached is a memo from Michael's ex-wife, Cynthia, who stated:
Sharon Brown-Mork is my sister. She called me in April 1999 and said that she needed to borrow 23,000.00 for a down payment/refinance of her Loma Verde property. I agreed with the understanding that I would be paid back within 3 0 days. After one year I received 10,000.00 from Sharon, at this
point she stated that I have been paid back. To me and my ex-wife's dismay Sharon continued to repeat that she paid us back, which was not true. I calculated the balance of 13,000.00 plus 10% annual interest over 11 years. The interest compounded is 24,086.00 with a total amount due of 37,086.00.
I, Cynthia Brown was married to Michael Brown in 1999. We lent Michael Brown's sister Sharon Mork, $23,000.00. We had a verbal agreement with Sharon Mork that she would repay the money with ten per cent interest within 30 days. The money we loaned her was a down payment for her property on Loma Verde in Rancho Sante [sic] Fe. She did repay us $10,000 of the money in good faith. However we never received the rest. To this date the money was never repaid. We have tried to collect from her but she refuses to co-operate.
Debtor objected to the claim filed by Michael and Cynthia. She asserted:
Michael Brown is fraudulently claiming $37,086.00. It is embarrassing to see my brother get on the band wagon. I do not owe him any monies. I do not have a paper/contract or anything he may have filed to confirm this. Any money he had given me I paid back in full cash and furthermore he owes me for rent while staying at my house with his three children and dog for three months . . .. If he provided any written form, then it is not valid. Cynthia Brown isn't even married to him and she claims I do not owe them as well.Debtor also attached a paragraph which stated:
Furthermore, I spoke with Cindy Brown and she did not write and sign the letter or is it written under declaration of perjery [sic]. Michael Brown actually owes me and there was never any discussion of interest or 3 0 days, etc.
Debtor supplemented her objection to Claim number 7 on or about September 15, 2011 with what she styled "points and authorities". In it, she stated, in relevant part:
1. Amount given to me by Michael Brown was not $23,000.00; it was $20,000.00.
2. No repayment was discussed, especially interest.
3. Was used to pay family law attorney Steven Striker, not towards my house.
4. He, Michael Brown was paid over $15,000.00 in cash in $5,000.00 incriments [sic] where I drove to meet him and he drove his BMW motorcycle to San Clemente off a freeway stop.
5. Michael Brown stayed at my house for a summer promising me to help with utilities and to pay rent. He was at my house with his three children and dog.
Michael Brown responded to the foregoing with a declaration under penalty of perjury of his own. In it, he makes a number of statements and arguments. He begins:
2. It is my sister's position that the statute of limitations has expired with respect to my loan of $23,000 to her. While I agree that it has been a long time since the loan was originally made, my sister has made repeated promises to re-pay the loan over the past many years. Further, she continually acknowledged the debt in conversations, until these recent objectionsMichael then goes through a curious set of calculations, asserting a value of his 2009 three month occupancy as being $1500, then reducing the unpaid principal balance of the loan to $18,500, and states:
filed with this Court in which she is now claiming that my loan is unenforceable and that she has already repaid the debt. I specifically recall during conversations in the summer of 2009 (June through August of 2009), when my children and I were living in her home, she repeatedly acknowledged the outstanding obligation and stated that while I was living with her, the rent I would otherwise pay for occupying a portion of her home was to be used to reduce the amount owed on the loan. My sister admits in her objections filed with this Court that I lived with her as recently as August of 2009 . . ..
3. It is well settled law in California that the statute of limitations on a debt such as the one owed by my sister to me begins to run from the date of the last payment made on the account. My sister clearly acknowledges in her . . . objections to my claim that she was not letting me stay in her house "gratis," and that she expected to be paid rent for the time I lived in a part of her home. At the time, she still owed me the entire balance on this loan (with the exception of $3,000 repaid almost immediately after the loan was made), so any amounts I may have owed her were applied against the unpaid principal of the loan which she owed to me, constituting a "payment" on the account which extended the statute of limitations. As the last date on which I occupied a portion of her home was less than two years prior to the filing of this Bankruptcy case, the statute of limitations has not expired, and I am still fully entitled to my claim in her bankruptcy, as amended herein.
It was mere inadvertent oversight on my part not to have credited my sister for these payments or setoffs, and I ask that the Court
through this hearing on my sister's objection, amend my claim number 7 to reflect a balance as of the date of filing of the bankruptcy of $32,773.86.
Debtor's claim objection to Claim number 7 finally came on for evidentiary hearing. However, debtor contacted the court staff to advise that she would not attend. Michael did appear, and was asked if he had anything to add to the papers already filed. The Court offered to place him under oath for any fact testimony he wanted to bring out, but he declined, presumably because he had nothing to add to his last written response. Thereafter, the matter was taken under submission.
Section 502 of Title 11, United States Code, provides in relevant part:
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . objects.Rule 3001(f), Fed. R. Bankr. P. states: "A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim." The Court had indicated at prior hearings on this matter that an evidentiary hearing was necessary because debtor had successfully rebutted the prima facie validity of proof of Claim number 7. Indeed, Michael's last written statement acknowledged errors in both the amount claimed and in asserting the claim was entitled to priority in payment. Having rebutted the claim's validity, the claimant has the burden of proof on both the validity and amount of the claim.
(b) [I]f such objection to a claim is made, the court . . . shall determine the amount of such claim . . ., except to the extent that
(1) such claim is unenforceable against the debtor and property of the debtor . . ..
A central issue is the statute of limitations. Michael has asserted that the loan was made in 1999, pursuant to an oral agreement. The loan was to be repaid within 30 days, but was not. A sum of $10,000 was repaid within a year - therefore, sometime in 2000. At the time of that payment, debtor asserted the loan had been repaid, and continued to so claim according to Michael's statement in support of the proof of claim. Under applicable California law, the statute of limitations for enforcement of an oral contract is two years. So, by sometime in 2002, the statute of limitations would have run, and any such obligation would no longer be enforceable.
Michael's argument appears to be twofold: 1) debtor repeatedly said she still considered the obligation an outstanding one; and 2) the payments Michael should have made or credited as rent in 2009 somehow revived the debt that became unenforceable in 2002. Neither argument is persuasive. First, the notion of debtor agreeing the obligation remained outstanding over all those years is directly impeached by Michael's and Cynthia's written statements attached to the proof of claim where they declared that debtor consistently said the loan had been fully repaid. To Michael's argument that debtor listing a debt to him was some sort of admission, it may admit that an obligation is claimed by a creditor to exist, and should be scheduled whether agreed to or not.
Second, Michael's argument that in 2009 he incurred an obligation to debtor for rent, etc., which he most recently unilaterally offset (post-petition) against the alleged debt does not revive the earlier obligation -- whatever it was. Any loan debt of debtor owed to Michael had long since become unenforceable, and there is no evidence of any reaffirmation by the debtor between 2002 and 2009. Moreover, if one were to conclude that such a revival had occurred, that could create new problems for Michael, including a constructively fraudulent conveyance from debtor to Michael since the debtor got no consideration for reviving a defunct debt. If it were found to be a fraudulent conveyance under 11 U.S.C. § 544, Michael could be obliged to repay the estate the payment he did receive before he could press his claim against the estate, as provided in 11 U.S.C. § 502(d). Moreover, the estate would have a direct claim against him for the value of three months' housing, utilities, etc.
For all the foregoing reasons, debtor's objection to Claim number 7 is sustained, and the claim is disallowed in its entirety.
IT IS SO ORDERED.
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PETER W. BOWIE, Chief Judge
United States Bankruptcy Court