Opinion
Case No: 03-81667, Adversary No. 03-8042.
July 30, 2004
REASONS FOR DECISION
This matter comes before the Court on Plaintiff's Motion for Summary Judgment and the Defendant's Motion to Dismiss for Failure to State a Claim Upon Which Relief may be Granted. This is a Core Proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and (J). This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and by virtue of the reference from the District Court pursuant to Local District Court Rule 22.01 incorporated into Local Bankruptcy Rule 1.2. No party at interest has sought to withdraw the reference to the bankruptcy court, nor has the District Court done so on its own motion. This Court makes the following findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. Pursuant to these reasons, the Motion for Summary Judgment is DENIED and the Motion to Dismiss is GRANTED.
Findings of Fact and Conclusions of Law
Debtor filed a voluntary petition under Chapter 7 on September 12, 2003. Plaintiff held a secured interest in a new 2003 Chevrolet Silverado vehicle owned by the debtor in the amount of $31,304.47. Debtor's statement of intentions filed in accordance with 11 U.S.C. § 521 indicated his intent to surrender the vehicle to the secured creditor.
In August of 2003, plaintiff failed to pay the premium for the insurance policy insuring this vehicle, thereby allowing the coverage to lapse on September 25, 2003. On October 5, 2003, the debtor wrecked the vehicle, and subsequently pled guilty to a state court charge of reckless operation of a vehicle in connection with that accident. Because the policy of insurance had lapsed, the former insurer refused to pay plaintiff for the loss of its collateral. The statement of undisputed facts reveals that the vehicle would have had a retail value of $22,050.00, in an undamaged condition. (Doc. no. 21.)
During the Chapter 7 case, the plaintiff filed a claim in the amount of $31,052.58. The trustee moved to sell the vehicle, which was granted by Order of the Court dated January 29, 2004. That Order shows that the plaintiff purchased the vehicle from the estate, in satisfaction of $14,900.00 of the claim, reserving its right to proceed with an unsecured claim for the remainder of the original claim, i.e., for $16,152.58. The plaintiff alleges that due to the damaged condition of the truck, it sold the vehicle for only $6,200.00.
Plaintiff filed this complaint on December 10, 2003, seeking declaratory judgment that the obligation is not discharged, stating, "The actions of the debtor constitute negligence that occurred after the bankruptcy case was filed and the order of relief entered." (Doc. no. 1, ¶ 6.) Although the plaintiff does not allege a claim under 11 U.S.C. 523(a)(6) by number, it does title its complaint as one objecting to the dischargeability of this debt, rather than objecting to the discharge in its entirety, under § 727. However, the plaintiff asks for another kind of relief in its Motion for Summary Judgment, stating, "[The plaintiff] respectfully requests that the court recognize that the credit union has a right to proceed with a claim for damages under Louisiana laws against the debtor, Felix Sexton, for damage he caused after he filed his Chapter 7 bankruptcy case." This statement suggests that the plaintiff is really seeking a judgment not merely stating that the debt is nondischargeable, but that the debtor may be held personally liable to the creditor in tort, as opposed to enforcement of the original debt.
Applicable Law and Analysis
Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings pursuant to Bankruptcy Rule 7056, provides in pertinent part: "The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that the moving party is entitled to judgment as a matter of law." Summary judgment is appropriate only if the movant demonstrates that there are no genuine issues of material fact and that it is entitled to a judgment as a matter of law. F.R.C.P. 56(c); H.R. Resources, Inc. v. Wingate, 327 F.3d 432, 439 (5th Cir. 4/8/2003). If the moving party meets its burden, the non-movant must designate specific facts showing there is a genuine issue for trial. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).
Regarding the debtor's Motion to Dismiss, debtor asserts that plaintiff has failed to state a claim upon which relief may be granted. In considering a motion to dismiss, the district court must take the facts as alleged in the complaint as true, and may not dismiss the complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Brown v. Nationsbank Corp., 188 F.3d 579, 585 (5th Cir. 1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99 (1957)). 11 U.S.C. § 727 seeks to protect the bankruptcy system by allowing the discharge to be extended to "honest but unfortunate" debtors deserving of a fresh start. The burden of proof in objections to the discharge and in objections to dischargeability of particular debts is the preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 St. Ct. 654 (1991); Matter of Beaubouef, 966 F.2d 174 (5th Cir. 1992).
These reasons will first address whether the plaintiff is entitled to relief under 11 U.S.C. § 523(a)(6), for the alleged failure to maintain insurance on the vehicle. This Court is unaware of any holding in the Western District of Louisiana or the Fifth Circuit concluding that the failure to maintain insurance vel non justified a holding in favor of the secured creditor or any similarly situated lender under § 523. Rather, the Court relies on the holdings to the contrary in Broussard v. Fields, 203 B.R. 401 (Bankr.M.D.La. 12/1/3/96) and Gene Koury Auto v. Westmoreland, 99-2020 (Bankr.W.D.La. 1/3/01) (unreported), affirmed, (W.D. La. 01-341 (4/19/01) (unreported), affirmed, (31 Fed. Appx. 838, 5th Cir. 1/30/02).
It should be noted that the original Fifth Circuit opinion in Corley v. Delaney, 97 F.3d 800 (5th Cir. 1996), discussed at length in Broussard, adopts the 11th Circuit opinion in In re Walker, 48 F.3d 1161 (11th Cir. 1995), which held that the failure to statutorily required worker's compensation insurance did not amount to "wilful and malicious injury" under § 523(a)(6). Broussard dealt with the debtor's failure to maintain liability insurance on a vehicle. The instant case deals with the failure to maintain collision coverage to protect the interest of the lender.
Next, is the plaintiff entitled to relief under § 523(a)(6) for the acts of the defendant, other than the failure to maintain insurance? The complaint focuses exclusively on post petition conduct, including negligence in connection with the wreck of the vehicle, and an alleged failure to surrender the vehicle. Debtor's pleadings deny the negligence, and seek to shift the blame to the plaintiff, asserting its failure to recover the vehicle and obtain its own insurance coverage. Debtor allegedly operated the vehicle on only one occasion after the insurance lapsed, and that occasion ended badly, with the vehicle being seriously damaged in the accident, culminating in the entry of a guilty plea to reckless operation.
The case of Cottonport Bank v. Reason, 255 B.R. 829 (Bankr. W.D. LA 2000) is instructive. There, the plaintiff challenged both the dischargeability of the debt under § 523(a)(6) and the discharge under 11 U.S.C. § 727(a)(2)(A). There, the debtor engaged in a series of pre-petition action involving the lender's collateral, including removing fixtures and inventory from a store. The lender had a security interest on the items. Reason then filed a Chapter 7 petition and agreed to surrender his home, on which the lender also had a mortgage, to the lender. Nevertheless, he removed a metal storage building from the realty, leaving only a slab, and removed a light pole from its concrete base and light fixtures and ceiling fans from the home. Debtor left a sign posted at the home, expressing his animus toward the lender in profane terms. Then, adding injury to insult, he held a garage sale to dispose of items removed from both the residence and the store. This court held that the lender was entitled to relief under both 11 U.S.C. § 727(a)(2)(A) and 11 U.S.C. § 523(a)(6). In a footnote, this Court noted that the evidence clearly indicated Reason's intention to "deprive Cottonport of its collateral by any means at his disposal." Reason, 255 B.R. at 833.
In this context, it is important to note that the conduct at issue in Reason began pre-petition and continued well after filing. Here, however, there are no allegations of wrongful pre-petition conduct: the actions complained of occurred exclusively post-petition. Thus, § 523(a)(6) does not come into play, for that section deals with exceptions to the discharge for pre-petition debts. However, even had the conduct complained of occurred pre-petition, it simply does not rise to the level that would justify recovery under that section, for debts arising from injuries that were recklessly or negligently inflicted do not fall within the § 523(a)(6) exception to the discharge. Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974 (1998). The same result would obtain even had debtor both allowed the insurance to lapse pre-petition and thereafter negligently or recklessly destroyed the vehicle. Put another way, there is no proof of either an objective substantial certainty of harm or a subjective motive to cause harm required by the Fifth Circuit test for "willful and malicious injury." Miller vs. Abrams, 156 F.3d 598 (5th Cir. 1998).
Although it is unclear whether the plaintiff actually intends to challenge the debtor's eligibility for the discharge itself under § 727(a)(2)(A), the plaintiff does seek a declaratory judgment recognizing its right to proceed in state court for the alleged tortious post-petition conduct. The Court construes this request as encompassing a challenge to the discharge itself. Under 11 U.S.C. § 727(a)(2)(A), a debtor shall be granted a discharge unless he has ". . . with the intent to hinder, delay or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed — (A) property of the estate, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition."
These reasons have already noted that plaintiff complains of no pre-petition conduct. Regardless, there must be a showing of actual intent rather than constructive intent to satisfy the requirements of § 727(a)(2)(A). Reason, 255 B.R. at 833, citing Collier on Bankruptcy, 15thEd. Revised, ¶ 727.02[3][a], citing, inter alia, Matter of Reed, 700 f.2d 986 (5th Cir. 1983). There is simply no evidence that debtor's post-petition use of the uninsured vehicle was intended to harm the plaintiff or its interest in the collateral.
Thus, while there may be no genuine issue of material fact, the plaintiff is not entitled to judgment as a matter of law. As to the Motion to Dismiss, there are no set of facts pled herein that would allow plaintiff to recover in this Court, which, simply put, has no jurisdiction over such a claim not involving dischargeability, the discharge or the bankruptcy estate.
One more matter, however, deserves mention in passing. We reject the notion, argued by debtor, that the plaintiff here was negligent in failing to obtain its own insurance or in delaying to obtain the surrendered collateral. This is not unlike the specious argument made by the debtor in the Reason case that the bank left the house unlocked and failed to take timely possession of the same. Until such time as the vehicle was sold pursuant to this Court's order, the vehicle was property of the estate. While plaintiff could have sought relief from the stay, or had itself appointed keeper by the trustee, debtor, by the same token, could have delivered the vehicle to a representative of the plaintiff.
This Court would not view a peaceable recovery of a vehicle that debtor intended to surrender as a violation of the stay.
CONCLUSION
Accordingly, the Motion for Summary Judgment is DENIED and the Motion to Dismiss the Adversary Proceeding is GRANTED. A separate and conforming Order shall be entered.