Bankruptcy Circuit Update Featuring cases from June 2014

Eleventh Circuit George Crouser v. BAC Home Loan Servicing, LP, f.k.a. Countrywide Home Loans, L.P. and Office of the U.S. Trustee, 2014 WL 2444399 (11th Cir. June 2, 2014) Following confirmation of a Chapter 13 plan, the debtor filed an adversary proceeding against BAC Homes Loans Serving, LP, f.k.a. Countrywide Home Loans, L.P. for violation of the automatic stay. The adversary proceeding was settled before the Chapter 13 case was closed, and the Chapter 13 trustee argued that the proceeds of the settlement were property of the estate. The Bankruptcy Court ruled that the post-confirmation settlement proceeds were property of the estate as provided by § 1306(a)(1). The debtor appealed, and the District Court affirmed the ruling of the Bankruptcy Court. The debtor then filed an appeal to the United States Court of Appeals for the Eleventh Circuit. The Circuit Court of Appeals affirmed the District Court’s ruling based on the plain language of the statute. Harley Kane, et. al. v. Stewart Tilghman Fox & Bianchi, P.A., et. al., 2014 WL 2884603 (11th Cir. June 26, 2014) Prior to filing Chapter 7 bankruptcy, two Florida attorneys filed thousands of claims against Progressive Insurance Companies for failure to comply with the personal injury protection provisions of its insurance policies. During the litigation, the two attorneys decided to pursue derivative claims based on Progressive’s alleged bad faith refusal to settle. An agreement was reached with three other firms to handle the bad faith litigation. In exchange for handling the bad faith litigation, it was agreed that the firms would receive 60% of the attorneys’ fees collected from the bad faith litigation. The two attorneys later secretly settled all claims, including the bad faith claims. After one of the firms handling the bad faith claims learned of the secret settlement, it sued the two lawyers and their partnership in state court. The state court case resulted in a $2,000,000.00 judgment against the two lawyers and their firm. Shortly thereafter, the lawyers and the firm filed Chapter 11. The Bankruptcy Court dismissed the Chapter 11 cases based on bad faith filing. On the effective date of the dismissal, the two attorneys and the firm filed Chapter 7. The firms that handled the bad faith litigation filed adversary proceedings for denial of discharge and for exception from discharge of the full amount of the state court judgment. The Bankruptcy Court entered a judgment against both of the attorneys and their firm excepting the state court judgment from discharge. Following an appeal, the District Court affirmed the ruling of the Bankruptcy Court. The District Court’s decision was appealed to the Eleventh Circuit Court of Appeals. The Circuit Court affirmed, holding that the evidence supported the Bankruptcy Court’s finding that the two lawyers and their firm had engaged in willful and malicious injury against the firms that handled the bad faith cases. Accordingly, the Circuit Court affirmed the District Court’s ruling that the state court judgment was excepted from discharge in accordance with § 523(a)(6). Wells Fargo Bank, N.A., v. Scantling, 2014 WL 2750349 (11th Cir. June 18, 2014) The debtor filed Chapter 7 bankruptcy on November 27, 2009, and received a discharge on March 30, 2010. Approximately nine months later, the debtor filed Chapter 13 and sought to “strip off” the second and third mortgages that encumbered the debtor’s home. The Bankruptcy Court found that the balance due on the first mortgage exceeded the value of the home, and that the second and third mortgages were unsecured. The Court therefore ordered that the second and third mortgages would be extinguished without further order of the court upon the debtor’s completion of the payments under the Chapter 13 plan. The lender appealed the Bankruptcy Court’s ruling. The Circuit Court of Appeals stated that the

only issue on appeal was whether a debtor can strip off a wholly unsecured mortgage in a Chapter 20 case. The Court held that an unsecured mortgage can be stripped off following a § 506(a) valuation hearing and a determination that the mortgage is wholly unsecured. The Court further held that once that determination was made, the creditor’s rights with respect to the debtor’s home can be modified by avoiding the liens. Advanced Telecommunication Network, Inc. v. Flaster/Greenberg, P.C., et. al., 2014 WL 2528844 (M.D. Fla. June 4, 2014) The debtor filed an adversary proceeding and demanded a jury trial. The defendants consented to a jury trial on the debtor’s legal claims, but disputed which claims were triable by a jury. The debtor filed a motion to withdraw the reference to the District Court for final adjudication of the adversary proceedings. The defendants joined in the motion to withdraw the reference, but argued that the District Court should handle all pretrial matters. The District Court granted the motion to withdraw the reference, but only after all pre-trial proceedings were conducted by the Bankruptcy Court. Beth Ann Scharrer, etc., et al, v. Quintairos, Prieto, Wood & Boyer, P.A, et al, 2014 WL 2882522 (M.D. Fla. June 25, 2014) The Chapter 7 trustee filed an adversary proceeding for alleged legal malpractice and breaches of fiduciary duty. One of the defendants filed a motion to withdraw the reference, arguing that the malpractice action was a non-core proceeding and that it did not consent to a jury trial by the Bankruptcy Court. The trustee opposed the motion to withdraw on the basis that it was premature. The District Court ruled that the motion to withdraw the reference was granted only as to the jury trial and jury selection. The Court also ruled that all pre-trial matters from discovery through dispositive motions would be handled by the Bankruptcy Court. Thanh Nguyen and Luong Nguyen v. Barry Biondo, 2014 WL 2702891 (Bankr.S.D. Fla. June 13, 2014) Prior to bankruptcy, the plaintiffs sued the debtor for intentional trademark infringement, cybersquatting and other causes of action. The United States District Court entered final judgment against the debtor for $850,000.00 in statutory damages under the Lanham Act, $242,295.50 in attorneys’ fees, $120,737.20 in contract damages, $27,700.00 in sanctions and approximately $10,000.00 in costs. Following entry of the final judgment, the debtor filed bankruptcy under Chapter 13. After the case was converted to Chapter 7, the plaintiffs filed an adversary proceeding requesting a determination that $1,130,742.68 of the $1,251,479.88 District Court judgment was nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code. The debtor sought summary judgment, arguing that the plaintiffs could not prove malice. The Court applied federal estoppel law and denied the debtor’s motion for summary judgment, holding that a party which intentionally infringes a trademark and engages in cybersquatting necessarily satisfies the willful standard under § 523(a)(6) and generally satisfies the malicious standard as well. The Court found that the resulting debt arose from willful and malicious injury within the meaning of § 523(a)(6), and held that the statutory damages, plus post-judgment interest, the sanctions awarded by the District Court, plus post-judgment interest, and the attorneys’ fees and costs incurred in connection with claims of intentional infringement and cybersquatting, plus post-judgment interest thereon, were nondischargeable. In re Jorge Espinosa and Eva Jacqueline Espinosa, 2014 WL 2696959 (Bankr.M.D. Fla. June 11, 2014) The debtors owned a large office building which the Chapter 7 trustee attempted to sell. During the case, the trustee collected net rental income of approximately $45,000.00. The lender, which held the first

mortgage on the building, sought payment of the collected rents arguing that it was cash collateral. The Bankruptcy Court ruled that the lender had an enforceable assignment of rents and ordered that the funds, less the trustee’s administrative expenses, be turned over to the lender. In re Catalano, 510 B.R. 654 (Bankr.M.D. Fla. June 5, 2014) In this Chapter 7 case, the debtor attempted to “strip off” the lien of a community association after the debtor received a discharge and the case was closed. The Bankruptcy Court held that the lien could not be stripped off following the in rem foreclosure sale and the issuance of a certificate of sale. Under Florida law, the issuance of a certificate of sale terminates the property owner’s statutory right of redemption. The Bankruptcy Court stated that the debtor could have stripped off the association’s lien at any time during the Chapter 7 case or at any time after the discharge date until the certificate of sale was issued. The Court held it was too late to strip off the lien following the issuance of the certificate of sale. Carla P. Musselman, Chapter 7 Trustee v. Robert Vaughn and June Vaughn, 2014 WL 2507439 (Bankr.M.D. Fla. June 4, 2014) In this Chapter 7 case, the trustee intended to sell the debtors’ real property back to the debtors for $41,500.00. The debtors paid the trustee an escrow deposit of $30,000.00. Before the sale could be consummated however, the debtors sold the property to a third party for $70,000.00. The trustee filed a motion for turnover of $40,000.00 as soon as the post-petition sale was discovered. The Bankruptcy Court granted the motion and ordered the debtors to turn the money over to the trustee. The debtors failed to comply with the order, and the trustee argued that the debtors should not be granted a discharge. Because the debtors refused to obey the turnover order, the Court denied the debtors a discharge in accordance with the provisions of § 727(a)(6)(A). Submitted By: Lynn James Hinson Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A. 800 North Magnolia Avenue, Suite 1500 Orlando, Florida 32803 407-841-1200 . Fax 407-423-1831 Email: LHinson@deanmead.com

In re Vaughan, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2507439Only the Westlaw citation is currently available.United States Bankruptcy Court, M.D. Florida.

Orlando Division

In re Robert Vaughan and June Vaughan, Debtors.Carla P. Musselman, Chapter 7 Trustee, Plaintiff,

v.Robert Vaughan and June Vaughan, Defendants.

Case No. 6:12–bk–02798–KSJ | AdversaryNo. 6:13–ap–00168–KSJ | Signed June 4, 2014

Attorneys and Law Firms

Seldon J. Childers, Childers Law LLC, Gainesville, FL, forPlaintiff.

Patrick J. Thompson, Thompson Ryan PL, Daytona Beach,FL, for Defendants.

Opinion

Chapter 7

MEMORANDUM OPINION GRANTINGPLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

KAREN S. JENNEMANN, Chief United States BankruptcyJudge

*1 Plaintiff, Chapter 7 Trustee Carla P. Musselman, arguesthat the Debtors, Robert Vaughan and June Vaughan, shouldnot receive a discharge in their Chapter 7 case for refusal to

comply with an order issued by this Court. 1 In July 2013,this Court entered an order granting the Trustee's motion for

turnover (“Turnover Order” 2 ), in which she requested theDebtors to turn over proceeds from an unauthorized post-

petition sale of estate property. 3 The Trustee alleges that theDebtors have not turned over the funds and seeks summaryjudgment that the Debtors' discharge should be denied under

11 U.S.C. § 727(a)(6)(A). 4 Because the Debtors failed torespond to the Trustee's motion for summary judgment, andthe Trustee is entitled to judgment as a matter of law, theTrustee's motion for summary judgment is granted.

Initially, the Trustee intended to sell the real property back to

the Debtors for $41,500. 5 Debtors paid the Trustee a $30,000escrow deposit for the property, but before the sale couldbe consummated the Trustee learned that the Debtors soldthe property months earlier for $70,000, unbeknownst to the

Court or the Trustee. 6 This prompted the Trustee to withdrawher notice of sale and move for turnover of the remaining

$40,000, 7 because the real property was property of the estate

at the time of sale. 8 The Court granted the Trustee's motionfor turnover and ordered the Debtors to turn over the sum

of $40,000 by July 11, 2013. 9 Debtors have not turned overthe remaining $40,000 from the unauthorized sale of estate

property. 10

The Trustee argues, on summary judgment, that the Debtors'failure to turn over the sale proceeds constitutes refusalto comply with this Court's Turnover Order and providesgrounds for denial of discharge under § 727(a)(6) of the

Bankruptcy Code. 11

Under Federal Rule of Civil Procedure 56, made applicableby Federal Rule of Bankruptcy Procedure 7056, a court maygrant summary judgment where “there is no genuine issueas to any material fact and the moving party is entitled to

judgment as a matter of law.” 12 The moving party has the

burden of establishing the right to summary judgment. 13 Indetermining entitlement to summary judgment, “facts mustbe viewed in the light most favorable to the nonmoving party

only if there is a ‘genuine’ dispute as to those facts.” 14

“Where the record, taken as a whole could not lead a rationaltrier of fact to find for the nonmoving party, there is no

genuine issue for trial.” 15

*2 The primary purpose of bankruptcy law is to providean honest debtor with a fresh start by relieving the burden

of indebtedness. 16 “Objections to discharge are strictlyconstrued against the objecting party and liberally in favor of

the debtor.” 17 The party objecting to the debtor's dischargehas the burden of establishing that the debtor is not entitled to

receive a discharge by the preponderance of the evidence. 18

Accordingly, the Trustee must prove that the Debtors arenot entitled to receive a discharge by a preponderance of theevidence.

Section 727(a)(6)(A) provides that the Court shall grant adebtor a discharge, unless “the debtor has refused, in the

In re Vaughan, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

case to obey any lawful order of the court....” 19 Mere failureto obey a court order is insufficient under § 727(a)(6)(A);the statute requires that the debtor refuse to obey a court

order. 20 Consequently, a plaintiff must show that the debtorwas 1) aware of the order; 2) refused to comply; and 3) therefusal to obey the order was the result of “willful, intentional

disobedience, and not merely inadvertence or mistake.” 21

No material facts are in dispute. In their answer, the Debtorsadmit to being aware of the Turnover Order, and in any eventhave not alleged lack of notice or any other deficiency with

the entry of the Turnover Order. 22 To date, the undisputedrecord shows that the Debtors refused to turn over thefull $40,000 required by the Turnover Order and have nototherwise offered any defense for their refusal to turn over

the sale proceeds. 23 Debtors also admit they have not

turned over the funds to the estate. 24 Moreover, they havenot alleged any inadvertence or mistake as an affirmative

defense. 25 Debtors willfully and intentionally refused tocomply with the Turnover Order.

Accordingly, the Debtors' discharge is denied pursuant to 11U.S.C. § 727(a)(6)(A) for their refusal to comply with thisCourt's Turnover Order. The trial previously scheduled for

June 9, 2014 is cancelled. A separate Final Judgment shallbe entered in favor of the Plaintiff and against the Debtors/Defendants.

FINAL JUDGMENT

Plaintiff, Chapter 7 Trustee Carla P. Musselman, filedher Motion for Summary Judgment seeking denial of theDebtors', Robert Vaughan and June Vaughan, discharge.Consistent with the accompanying memorandum opinionentered simultaneously, it is

ORDERED:

1. Judgment is entered in favor of the Plaintiff, Chapter7 Trustee Carla P. Musselman, and against the Debtors/Defendants, Robert Vaughan and June Vaughan.

2. Debtors' discharge is denied pursuant to 11 U.S.C. § 727(a)(6)(A).

DONE AND ORDERED in Orlando, Florida, on June 4,2014.

Footnotes

1 Doc. No. 1.

2 Main Case No. 6:12–bk–02798–KSJ, Doc. No. 50.

3 Main Case No. 6:12–bk–02798–KSJ, Doc. No. 47.

4 The Court entered a discharge in error on June 15, 2012 (Doc. No. 25), which was vacated on August 23, 2013. (Doc. No. 58.)

5 Notice of Intent to Sell, Main Case No. 6:12–bk–02798–KSJ, Doc. No. 43.

6 See Trustee's Affidavit, Doc. No. 17; Trustee's Motion for Turnover, Main Case No. 6:12–bk–02798–KSJ, Doc. No. 47.

7 The $40,000 represents the $70,000 sale price of estate property the Debtors received minus the $30,000 escrow deposit the Debtors

paid the Trustee for the planned sale.

8 Trustee's Withdrawal of Intent to Sell, Main Case No. 6:12–bk–02798–KSJ, Doc. No. 45.

9 Main Case No. 6:12–bk–02798–KSJ, Doc. No. 50.

10 Doc. No. 17 at ¶ 5.

11 All references to the Bankruptcy Code refer to 11 U.S.C. § 101 et. seq.

12 Fed.R.Civ.P. 56.

13 Fitzpatrick v. Schlitz (In re Schlitz), 97 B.R. 671, 672 (Bankr.N.D.Ga.1986).

14 Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007).

15 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348 (1986).

16 Perez v. Campbell, 402 U.S. 637 (1971); In re Price, 48 B.R. 211, 213 (Bankr.S.D.Fla.1985); Matter of Holwerda, 29 B.R. 486,

489 (Bankr.M.D.Fla.1983).

17 In re Mullin, 455 B.R. 256, 261 (Bankr.M.D.Fla.2011) (citing Schweig v. Hunter (In re Hunter), 780 F.2d 1577, 1579 (11th Cir.1986)).

18 Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re Chalik, 748 F.2d 616 (11th Cir.1984); In re Metz,

150 B.R. 821 (Bankr.M.D.Fla.1993).

In re Vaughan, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

19 11 U.S.C. § 727(a)(6)(A).

20 In re Costantini, 201 B.R. 312, 316 (Bankr.M.D.Fla.1996).

21 In re Mullin, 455 B.R. 256, 263 (Bankr.M.D.Fla.2011). Accord In re Harmon, 379 B.R. 182, 189 (Bankr.M.D.Fla.2007); Costantini,

201 B.R. at 315–16.

22 Doc. No. 8 at ¶ 9.

23 See Trustee's Affidavit, Doc. No. 17.

24 Doc. No. 8 at ¶ 15.

25 Failure to plead an affirmative defense in the answer results in waiver of that defense. E.g., Steger v. General Elec. Co., 318 F.3d

1066, 1077 (11th Cir.2003) (“The pleading of an affirmative defense is mandated by Federal Rule Civil Procedure 8(c) to be presented

in a responsive pleading, and a party waives its right to advance an affirmative defense by failing to assert it in such.”).

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Catalano, 510 B.R. 654 (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

510 B.R. 654United States Bankruptcy Court, M.D. Florida.

Orlando Division

In re Donald F. Catalano, Debtor.

Case No. 6:13–bk–01417–KSJ | Signed June 5, 2014

SynopsisBackground: Chapter 7 debtor filed motion in his reopenedcase, seeking to “strip off” junior mortgage lien.

[Holding:] The Bankruptcy Court, Karen S. Jennemann,Chief Judge, held that, while debtor might have successfullymoved to “strip off” wholly unsecured junior lien while hisChapter 7 case was pending or, by reopening case, at anytime before certificate of sale was filed in connection withpostdischarge judicial foreclosure sale, debtor lost right tostrip off lien upon loss of his legal and equitable interests inproperty when certificate of sale was entered.

Motion denied.

Attorneys and Law Firms

*655 Michael J. Merrill, Kramer Law Firm, P.A., Maitland,FL, for Debtor.

Opinion

Chapter 7

MEMORANDUM OPINION DENYINGDEBTOR'S MOTION TO STRIP LIEN

KAREN S. JENNEMANN, Chief United States BankruptcyJudge

Debtor, Donald F. Catalano, seeks to strip off whollyunsecured junior liens attached to his home in Sanford,

Florida (the “Property”). 1 Although stripping off whollyunsecured junior mortgages is now permitted in a Chapter7 case pursuant to the Eleventh Circuit's decision in In re

McNeal, 2 the circumstances in this case are not typical. Here,

although the value of the Property and encumbrances are not

in dispute, 3 a certificate of sale was issued post-discharge infavor of a wholly unsecured junior lienholder, Lake ForestMaster Community Association, Inc. (the “Association”).The issue is whether a valid certificate of sale cuts off aDebtor's ability to strip off a wholly unsecured junior lienunder McNeal. The Court now holds that the Certificate ofSale prevents the Debtor from stripping off the lien and, assuch, denies the Motion.

The facts are undisputed:

*656 • January 4, 2013: The Association obtained aSummary Final Judgment of Foreclosure in County

Court, 4 which scheduled a foreclosure sale on February

6, 2013. 5

• February 6, 2013: Debtor filed his voluntary Chapter7 petition, effectively stopping the original foreclosure

sale. 6 Debtor indicated on his Statement of Intentionshe planned to retain the Property and to continue payingall creditors with a security interest in the Property “after

successful modification.” 7

• May 21, 2013: Debtor received a discharge, and the case

was closed. 8

• July 10, 2013: After the Debtor's case was closed,the Association proceeded to enforce its in rem rightsand filed a Motion to Reschedule Foreclosure Sale in

the County Court. 9 The County Court rescheduled the

foreclosure sale for August 20, 2013. 10

• July 29, 2013: The foreclosure sale was noticed for

August 20, 2013, at 11:00 a.m. 11

• August 20, 2013 at 8:10 a.m.: Debtor filed in the closedChapter 7 bankruptcy case his Motion to DetermineSecured Status of Jimmy and Patricia Ross, LakeForest Master Community Association, Inc., and AquaFinance, Inc. and to Strip Lien Effective Upon Discharge

(the “Motion to Strip”). 12

• August 20, 2013 at 11:00 a.m.: The foreclosure sale tookplace at which the Association purchased the Property

for $100.00. 13

In re Catalano, 510 B.R. 654 (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

• August 20, 2013 at 12:44 p.m.: Debtor filed his Motion

to Reopen Chapter 7 Case (the “Motion to Reopen”). 14

• August 20, 2013 at 3:17 p.m.: A Certificate of Sale

was issued in favor of the Association. 15 The Debtor'sChapter 7 case remained closed, and no automatic staywas in effect at the time of the foreclosure sale and theissuance of the Certificate of Sale.

• August 28, 2013: The Debtor filed his Objection to Salein County Court on August 28, 2013, asserting he didnot receive proper notice of the rescheduled foreclosuresale and arguing the County Court should not issue theCertificate of Title until this Court ruled on the Debtor's

Motion to Strip and the Debtor's Motion to Reopen. 16

The County Court has taken no action on the Debtor'sObjection to Sale.

• November 26, 2013: This Court reopened the Debtor'scase to determine whether it can strip the Association's

wholly unsecured junior lien. 17

*657 Debtor now moves to strip 18 the Association's lien

under § 506 of the Bankruptcy Code 19 pursuant to Eleventh

Circuit Court of Appeals' holding in In re McNeal. 20 TheAssociation concedes its junior lien is wholly unsecured andotherwise would be subject to stripping off, but for onefatal fact: the Debtor lost any right to the Property upon

the issuance of the Certificate of Sale. 21 Debtor argueshis interest in the Property is lost only after issuance of aCertificate of Title, not the Certificate of Sale, and the Court'sability to strip the lien is the same as if the request had madebefore the foreclosure sale had occurred.

[1] Florida's judicial foreclosure procedures, set forth inSection 45.031 of the Florida Statutes, authorize the sale ofreal property at public auction pursuant to a final judgment

of foreclosure. 22 After proper notice, a sale is conducted at

which a certificate of sale is issued to the highest bidder. 23

“If no objections to the sale are filed within 10 days afterfiling the certificate of sale, the clerk shall file a certificate

of title and serve a copy of it on each party....” 24 Title tothe property passes to the purchaser when the certificate of

title is filed and “the sale shall stand confirmed.” 25 Section45.031 of the Florida Statutes explicitly empowers a court inthe final judgment of foreclosure to fix the time in which the

mortgagor may redeem. 26 Where the judgment is silent onredemption, the mortgagor's redemptive rights are lost upon

the clerk's filing of a certificate of sale. 27

Paragraph 8 of the Summary Final Judgment provides: “Onfiling the certificate of sale, Defendant, and all personsclaiming under or against him since the filing of the noticeof Lis Pendens, are foreclosed of all estate or claim inthe property and the purchaser at the sale shall be let into

possession of the property.” 28 The Certificate of Sale wasissued to the Association, but no certificate of title was issued

because the Debtor timely filed an Objection to Sale. 29

The extent of the Debtor's interest in the Property after theCertificate of Sale but before the issuance of a certificate oftitle determines the Court's authority to strip the Association'slien.

[2] [3] Under normal circumstances, wholly unsecuredjunior liens surviving discharge may be subsequently strippedoff if a Chapter 7 debtor reopens his or her case and

files a motion to strip off such lien s. 30 However, suchliens must be stripped off before a debtor loses his or her

equitable interests in the real property. 31 *658 Section506(d) of the Code cannot be used to avoid a lien on property

which is not property of the estate. 32 “Congress intendedto exclude from the estate property of others in which thedebtor had some minor interest such as a lien or bare legal

title.” 33 This proposition has not been explicitly discussedwith respect to lien stripping in Chapter 7 cases, althoughit has been addressed extensively in the Chapter 13 andChapter 11 contexts. In those circumstances, the issuance ofthe certificate of sale cuts off a debtor's rights in the collateral.As examined below, it does so in Chapter 7 as well.

Similar to the instant case, the debtor's property in In re Jaarwas sold and a certificate of sale issued by the Clerk of theCircuit Court reflecting the sale of the property to a creditor

prior to the debtor filing her voluntary Chapter 13 petition. 34

The question in the case was whether the debtor's right to curethe default and reinstate the mortgage terminated as a result of

the status of the foreclosure proceeding. 35 In Jaar, the courtfound the mortgagor's/debtor's right of redemption expiredwith the filing of the certificate of sale; further, the court heldthat an objection to sale filed before the certificate of title wasissued did not affect or cloud the title of the purchase in any

manner. 36 The court went on to hold that a certificate of salemust be set aside for the mortgagor/debtor to have any right

In re Catalano, 510 B.R. 654 (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

to acquire the property. 37 The debtor was not permitted tocure and reinstate or redeem the mortgage through a Chapter

13 plan. 38

The bankruptcy court in In re Hand also found the filing ofthe certificate of sale determinative of the debtors' interest in

and right to certain real property. 39 There, the court foundthat filing of the certificate of sale terminated the debtors'right of redemption and extinguished their interest in theproperty such that the right to redeem was no longer part of

the estate. 40

Conversely, in In re Sarasota Land Co., the bankruptcy courtfound a Chapter 11 debtor's right of redemption was includedin the bankruptcy estate pursuant to § 541 of the Code wherethe debtor's real property was sold at a foreclosure sale,

but the right of redemption had not been extinguished. 41

Importantly, however, at the time In re Sarasota LandCo. was decided, the Florida statutory right of redemptionterminated upon issuance of the certificate of title, not the

certificate of sale. 42

[4] The bankruptcy courts in the abovementioned casesfound it necessary for a debtor to have a right to redeemreal property in order to take advantage of *659 BankruptcyCode provisions to use or possess the real property or tootherwise alter a creditor's interest in the real property. Here,the Debtor lost his right to redeem the Property when theCertificate of Sale was issued to the Association. Without theequitable right of redemption, the Debtor has no ability tostrip the liens attached to the Property. Debtor could haverequested the relief he now seeks during the pendency of theChapter 7 case or at any time after the Debtor's discharge upuntil the issuance of the Certificate of Sale. He simply failedto timely act to preserve his interest in the Property.

Although the Debtor timely objected to the foreclosure sale,the Objection to Sale does not serve to extend or to preservehis right of redemption. Objections may be made to theregularity of the sale or the amount of the deficiency, but, afterthe filing of the certificate of sale, the mortgagor no longerhas the ability to redeem the property. Any objection to thesale does not affect or cloud the title of the purchaser in any

manner. 43 The issuance of the certificate of title is merelya ministerial act required to complete the formal transfer of

legal title. 44

[5] [6] The substance of an objection to a foreclosure saleunder Section 45.031(5) must be directed toward conduct thatoccurred at, or which related to, the foreclosure sale itself.The purpose of allowing an objection to a foreclosure sale “isto afford a mechanism to assure all parties and bidders to thesale that there is no irregularity at the auction or any collusive

bidding, etc.” 45

In his Objection to Sale, the Debtor asserts he did not have

notice of the sale as required by the applicable statute. 46

Failure to provide adequate notice of a judicial sale mayprovide cause for setting aside the sale and not issuing the

certificate of title. 47 Denial of receipt of notice creates aquestion of fact, which requires an evidentiary hearing moreappropriately conducted by the County Court under whose

supervision the sale was conducted. 48

The County Court has the blessing of this Court to resolve theDebtor's pending Objection to Sale. But, given the issuanceof the Certificate of Sale, the Debtor has lost any interestin the Property and has forfeited his ability to strip offwholly unsecured liens. The Motion to Strip is denied withoutprejudice. In the event the Certificate of Sale is vacated,the Debtor may renew his request for relief under § 506 ofthe Bankruptcy Code. The Court will enter a separate orderconsistent with the Memorandum Opinion.

ORDER DENYING DEBTOR'SMOTION TO STRIP LIEN

This case came on for consideration on the Debtor's Motionto Strip Lien (Doc. No. 13) and the Creditor's Objection toDebtor's Motion to Strip Lien (Doc. No. 17). Consistent withthe Memorandum Opinion, entered simultaneously, it is

ORDERED:

1. Debtor's Motion to Strip Lien (Doc. No. 13) is deniedwithout prejudice.

*660 2. Creditor's Objection to Debtor's Motion to StripLien (Doc. No. 17) is sustained.

3. The Florida State Court can resolve the Debtor's pendingObjection to Sale, if appropriate.

In re Catalano, 510 B.R. 654 (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4

DONE AND ORDERED in Orlando, Florida, June 5, 2014.

Footnotes

1 The Property is located at 4981 Maple Glen Place, Sanford, FL 32771. The legal description of the property is: LOT 366, LAKE

FOREST SECION 11A, ACCORDING TO THE PLAT RECORDED IN PLAT BOOK 54, PAGE(S) 53–53, AS RECORDED IN

THE PUBLIC RECORDS OF SEMINOLE COUNTY, FLORIDA.

2 477 Fed.Appx. 562 (11th Cir.2012).

3 The Property is encumbered by four encumbrances: (i) a first mortgage executed in favor of EquiFirst Corporation, (ii) a second

mortgage executed in favor of Jimmy and Patricia Ross, (iii) a lien recorded in favor of the Association for unpaid pre-petition

homeowners' associations fees, and (iv) a financing statement form executed in favor of Aqua Finance, Inc. (Doc. Nos. 1 and 13.)

According to the Debtor, the amount due on the first mortgage is $628,138, and the value of the property is $457,332 (Doc. No. 13).

As such, only the first mortgage is secured by the value of the property. The Association does not dispute that there is not enough

equity in the property to provide for payment of its lien.

4 All reference to the County Court refers to the County Court of the Eighteenth Judicial Circuit in and for Seminole County, Florida.

5 Association's Exhibit 1.

6 Doc. No. 1.

7 Doc. No. 1.

8 Doc. No. 12.

9 Association's Exhibit 2.

10 Association's Exhibit 3.

11 Association's Exhibit 4. The foreclosure sale was also noticed by publication in the Winter Park/Maitland Observer newspaper.

(Association's Exhibit 6.)

12 Doc. No. 13.

13 Association's Ex. No. 7.

14 Doc. No. 14.

15 Association's Exhibit 7.

16 Association's Exhibit 8.

17 Doc. No. 21.

18 Doc. No. 13.

19 All references to the Bankruptcy Code or the Code refer to 11 U.S.C. Section 101, et seq.

20 477 Fed.Appx. 562 (11th Cir.2012).

21 Doc. No. 17.

22 Fla. Stat. § 45.031 (2014).

23 Fla. Stat. §§ 45.031(2), (5) (2014).

24 Fla. Stat. § 45.031(5) (2014).

25 Fla. Stat. § 45.031(6) (2014).

26 Fla. Stat. § 45.0315 (2014).

27 Fla. Stat. § 45.0315 (2014); See Emanuel v. Bankers Trust Co., N.A., 655 So.2d 247, 249 (Fla. 5th DCA 1995).

28 Association's Exhibit 1.

29 Association's Exhibit 8.

30 See generally In re McNeal, 477 Fed.Appx. 562 (11th Cir.2012).

31 See generally In re Aliu–Otokiti 6:12–BK–14850–ABB, 2013 WL 1163782 (Bankr.M.D.Fla. Mar. 19, 2013); In re Almeida 6:12–

BK–12965–ABB, 2013 WL 1163777 (Bankr.M.D.Fla. Mar. 18, 2013); In re Bustamante 6:12–bk12877–KSJ, 2013 WL 1110886

(Bankr.M.D.Fla. Mar. 15, 2013).

32 In re Israel, 112 B.R. 481, 485 (Bankr.D.Conn.1990).

33 United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n. 8, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) (citing 124 Cong. Rec. 32399,

32417 (1978) (remarks of Rep. Edwards)).

34 In re Jaar, 186 B.R. 148, 149 (Bankr.M.D.Fla.1995).

35 Id.

In re Catalano, 510 B.R. 654 (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5

36 See id. at 153–54.

37 Id.

38 Id. at 154–55.

39 In re Hand, 52 B.R. 65, 66 (Bankr.M.D.Fla.1985).

40 Id.

41 In re Sarasota Land Co., 36 B.R. 563, 565–66 (Bankr.M.D.Fla.1983).

42 Florida Legislature amended the statutory right of redemption in 1993, to specifically provide that the right to redeem terminates with

the filing of the certificate of sale, unless the foreclosure judgment specifies a later time.

43 In re Jaar, 186 B.R. 148, 153–54 (Bankr.M.D.Fla.1995).

44 In re Sarasota Land Co., 36 B.R. 563, 566 (Bankr.M.D.Fla.1983).

45 Id. at 250.

46 Association's Exhibit 8.

47 Bennett v. Ward, 667 So.2d 378, 382 (Fla. 1st DCA 1995).

48 Liberty Mut. Ins. Co. v. Lyons, 622 So.2d 621 (Fla. 5th DCA 1993); In re Jaar, 186 B.R. at 154 n.8.

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Espinosa, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2696959Only the Westlaw citation is currently available.United States Bankruptcy Court, M.D. Florida.

Orlando Division

In re Jorge Espinosa and EvaJacqueline Espinosa, Debtors.

Case No. 6:13–bk–00321–KSJ | Signed June 11, 2014

Opinion

Chapter 7

ORDER GRANTING MOTION BY REGALFOUNDATION, INC. TO PROHIBITUSE OF CASH COLLATERAL AND

TRUSTEE'S MOTION FOR PAYMENT OFADMINISTRATIVE EXPENSES AS A SURCHARGE

KAREN S. JENNEMANN, Chief United States BankruptcyJudge

*1 Debtors own a large office building in Kissimmee,Florida (the “Property”). When this bankruptcy wasconverted to a Chapter 7 liquidation case, a Chapter 7 Trustee,Richard Webber, was appointed. He made a valiant effort,but failed, to sell the building for more than the mortgageamount due to Regal Foundation, Inc. (“Regal”), who holdsa first mortgage on the Property. Regal also has an absoluteassignment of the leases, rents, and profits arising fromthe operation of the Property. From July 25, 2013 untilMarch 31, 2014, the Chapter 7 Trustee collected net rentalincome of $45,032.39. Regal now seeks the payment of

these funds 1 , less $11,890.38, which the Trustee seeks for

his administrative fees and costs 2 , asserting the moniesconstitute cash collateral and are not property of this Chapter

7 estate. The Trustee opposes the motion. 3

Pursuant to § 552(b)(2) of the Bankruptcy Code 4 , the moniesin question are cash collateral belonging to Regal pursuant tothe lender's absolute assignment of rents. Prior to filing thisbankruptcy case, the Debtors assigned to Regal all their rights,title, and interest in the leases, rents, and profits from the

Property. 5 By its terms, this assignment was “absolute.” 6

The Trustee argues that the assignment cannot be absolute asa matter of state law because Regal failed to comply with therequirements of Section 697.07 of the Florida Statutes andbecause no court has adjudicated Regal's ownership of themonies. However, as Regal argued at the hearing on May 6,2014, the 1994 amendments to § 552(b) specifically “[were]intended to obviate the need to comply with any additional

requirements imposed by state law.” 7 Under that section,the rental income collected by the Trustee is cash collateralbelonging to Regal and is not property of this Chapter 7 estate.

The Trustee next argues for an equitable exception to §

552(b)(2), 8 saying that Regal waived its claim to its cashcollateral by not objecting to the Trustee's collection of themonies and by refusing to accept less than they were duein connection with the Trustee's proposed low ball offers tobuy the Property. The circumstances here do not merit anequitable exception. Certainly Regal wished the Trustee allthe best in his marketing efforts. Regal only wants to receivepayment on its secured debt and, if others also get paid, somuch the better. But, when the offers did not materialize,Regal has no obligation to reduce its claim amount, simply tohelp the Trustee liquidate the Property for the benefit of theunsecured creditors. They understandably acted in their ownbest interest and should not be penalized by the loss of theircash collateral because the Trustee could not sell the Propertyfor as much as he hoped. Regal will get no windfall. All theyask is that they get the rental income collected by Trustee ontheir secured collateral, less administrative fees and expenseshe requests. Accordingly, it is

*2 ORDERED:

1. Regal's Motion to Prohibit Use of Cash Collateral and toRequire Disposition (Doc. No. 158) is granted.

2. The Chapter 7 Trustee's Motion for Reimbursement ofExpenses from Regal Foundation, Inc. as a Surcharge (Doc.No. 172) is granted.

3. The Trustee is directed to disburse to Regal $33,142.01,which is the amount of cash collateral being held($45, 032.39) less the Trustee's administrative expenses($11,890.38). DONE AND ORDERED in Orlando, Florida,June 11, 2014.

In re Espinosa, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

Footnotes

1 Doc. No. 158.

2 Doc. No. 172.

3 Doc. No. 173.

4 All references to the Bankruptcy Code or the Code refer to 11 U.S.C. Section 101, et. seq.

5 Doc. No. 158, Exhibit C.

6 Id. at g 6.

7 In re Wrecclesham Grange, Inc., 221 B.R. 978, 981 (Bankr.M.D.Fla.1997) (Jennemann, J.) (holding that post-petition rents subject

to a valid pre-petition security agreement will “constitute cash collateral regardless of whether all state perfection requirements are

met”).

8 11 U.S.C. § 552(b)(2) (2014) (“... except to any extent that the court ... based on the equities of the case, orders otherwise.”).

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2702891Only the Westlaw citation is currently available.United States Bankruptcy Court, S.D. Florida.

West Palm Beach Division

In re: Barry Biondo, Debtor.Thanh Nguyen and Luong Nguyen, Plaintiffs,

v.Barry Biondo, Defendant.

Case No. 13–23333–EPK | Adv. Proc.No. 13–01612–EPK | Signed June 13, 2014

Opinion

Chapter 7

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

Erik P. Kimball, Judge United States Bankruptcy Court

*1 THIS MATTER came before the Court upon thePlaintiffs', Thanh Nguyen and Luong Nguyen, Motion forSummary Judgment and Incorporated Memorandum of Law[ECF No. 19] (the “Motion”) filed by Thanh Nguyen andLuong Nguyen (the “Plaintiffs”), and the Defendant's CrossMotion for Summary Judgment [ECF No. 34] (the “Cross–Motion”) filed by Barry Biondo, the debtor in the above-captioned chapter 7 case (the “Defendant”).

The Defendant is obligated to the Plaintiffs under a judgmententered by the United States District Court for the SouthernDistrict of Florida (the “District Court”) in Case No. ll–cv–81156–DMM. The Plaintiffs move for summary judgmenton the sole count of their amended complaint requestinga determination that $1,130,742.68 of the $1,251,479.88awarded by the District Court is not dischargeable under

section 523(a)(6). 1 The Defendant also moves for summaryjudgment, arguing that he had just cause or excuse for hisactions and so the Plaintiffs cannot prove that the Defendantacted with malice as required under section 523(a)(6).

The Court considered the Motion, the Cross–Motion, theAmended Complaint to Determine Debt Non–DischargeablePursuant to 11 U.S.C § 523 [ECF No. 15], the Answer toAmended Complaint to Determine Debt Non–Dischargeable[ECF No. 43], the Defendant's Memorandum of Law inOpposition to Plaintiffs' Motion for Summary Judgment and

in Support of [ Defendant's ] Cross–Motion for SummaryJudgment [ECF No. 34–1], the Plaintiffs', Thanh Nguyen andLuong Nguyen, Reply to Defendant's Memorandum of Lawin Opposition to Plaintiffs' Motion for Summary Judgment[ECF No. 36], the Plaintiffs' Response to Defendant'sCross–Motion for Summary Judgment [ECF No. 57], theDefendant's Reply to Plaintiffs' Response to Defendant'sCross–Motion for Summary Judgment [ECF No. 60], theJoint Stipulation of Facts Re Plaintiffs', Thanh Nguyenand Luong Nguyen, Motion for Summary Judgment andIncorporated Memorandum of Law [ECF No. 33], the JointStipulation of Facts Re Debtor's, Barry Biondo, Cross Motionfor Summary Judgment [ECF No. 56], and the materials filedtherewith.

In light of the detailed findings of the District Court inawarding damages, fees and costs, and sanctions against theDefendant, which findings have preclusive effect here, andthe lack of any admissible contradictory evidence offered bythe Defendant, there is no genuine issue of material fact onmost of the claims presented in this adversary proceeding.The sums owed by the Defendant to the Plaintiffs arisingfrom Defendant's intentional trademark infringement andcybersquatting, the fees and costs awarded by the DistrictCourt that relate to such claims, and the District Court'saward of sanctions, all arise from willful and maliciousinjury within the meaning of section 523(a)(6). As a result,the statutory damages awarded by the District Court forintentional infringement of trademark and cybersquatting,in the amount of $850,000.00, and the sanctions awardedby the District Court, in the amount of $27,700.00, in eachcase with post-judgment interest, will be excepted fromdischarge in this case. However, it is not clear from theDistrict Court's order awarding fees and costs, nor can thisCourt determine based on the evidence before it on summaryjudgment, what part of the fees and costs award is attributableto prosecution of the claims of intentional infringementof trademark and cybersquatting. While the Court grantssummary judgment on the Plaintiffs' right to have such claimsexcepted from discharge under section 523(a)(6), the Courtcannot grant summary judgment as to the amount of feesand costs excepted from discharge. The only issue remainingfor determination is the amount of fees and costs previouslyawarded by the District Court that will be excepted fromdischarge in this case.

I. BACKGROUND

A. PROCEDURAL BACKGROUND

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

*2 The Defendant filed a voluntary petition under chapter13 of the United States Bankruptcy Code on June 4, 2013.On June 18, 2013, the Defendant's bankruptcy case wasconverted from chapter 13 to chapter 7.

On August 15, 2013, the Plaintiffs initiated the above-captioned adversary proceeding by filing a complaint againstthe Defendant. That complaint was dismissed and thePlaintiffs subsequently filed the Amended Complaint againstthe Defendant. The Amended Complaint comprises a singlecount seeking a determination that certain sums awarded tothe Plaintiffs in a final judgment entered by the District Courtare not dischargeable under section 523(a)(6).

On November 4, 2013, the Plaintiffs filed the instantMotion. The Plaintiffs argue that the Defendant is collaterallyestopped from re-litigating the issues decided by the DistrictCourt. The Plaintiffs argue that the findings of the DistrictCourt are dispositive here and that they are entitled tojudgment as a matter of law because there are no genuineissues of material fact in this adversary proceeding. OnNovember 27, 2013, the Defendant filed the Cross–Motion.The Defendant argues that summary judgment should begranted in his favor because the totality of the circumstancesprecludes a finding of no just cause or excuse, and so nomalicious injury exists as required by section 523(a)(6).

B. FACTS

1. Prior to Suit in the District CourtThe Plaintiffs own and operate hair and nail salons that servealcohol to customers. In late 2006, the Plaintiffs began usingthe name “Tipsy” in operation of these salons. About a monthafter the Plaintiffs began using the Tipsy mark, the Plaintiffsopened a salon in Wellington, Florida.

Shortly thereafter, Plaintiff Mr. Nguyen filed an applicationwith the United States Patent and Trademark Office to registerthe Tipsy mark. The United States granted his request, therebygiving him the right to use the Tipsy mark in connection withbar services. Plaintiff Mr. Nguyen also successfully registeredthe Tipsy mark with the State of Florida.

After filing the trademark application, but prior to receivingapproval, the Plaintiffs sold the Defendant a 50% interestin the Wellington salon. Under their oral agreement, inaddition to payment for a one-half interest in the salon, theDefendant agreed to pay a royalty fee for use of the Tipsymark. Following this oral agreement, the relationship between

the parties deteriorated, leading them to enter into a writtenagreement providing for the Defendant's purchase of thePlaintiffs' remaining interest in the Wellington salon. Thewritten agreement permitted the Defendant to use the Tipsymark for one year while he transitioned the salon to a newname. The Defendant agreed to cease using the Tipsy mark inall respects—including in connection with the salon's website—after the one-year period expired. The written agreementspecifically provided that the Defendant was not purchasingthe right to use the Tipsy mark or the name Tipsy and that allrights, marks, etc., associated with the name Tipsy were notpart of the sale and would be retained by the Plaintiffs.

After the expiration of the one-year period, the Defendantcontinued to use the Tipsy mark and even tried to register aTipsy mark of his own. He also failed to pay the majorityof the purchase price agreed upon in the written contract.Consequently, the Plaintiffs initiated an action in the DistrictCourt against the Defendant and his business entity.

2. The District Court Suit and Orders*3 In the District Court action, the Plaintiffs alleged

nine claims against the Defendant sounding in trademarkinfringement under federal law and Florida commonlaw, false designation of origin, cybersquatting, unjustenrichment, breach of contract, and trademark dilution. ThePlaintiffs sought monetary and injunctive relief, attorneys'fees, and costs.

At the summary judgment stage, the District Court entered anorder (the “Omnibus Order”) granting summary judgment in

favor of the Plaintiffs. 2 In the Omnibus Order, the DistrictCourt found the Defendant liable for each claim before itother than unjust enrichment. The District Court awarded$850,000.00 in statutory damages under the Lanham Act plusreasonable attorneys' fees and costs based on the Defendant'sintentional trademark infringement and cybersquatting. TheDistrict Court subsequently entered an order (the “Feesand Costs Order”) granting the Plaintiffs $242,295.50 inattorneys' fees and $10,747.18 in costs. Finally, as aresult of the Defendant's knowing and willful violation ofthe Omnibus Order and a related injunction, the DistrictCourt entered an order directing the Defendant to pay asanction to the Plaintiffs in the amount of $27,700.00 (the“Sanctions Order”). In the end, the District Court entereda final judgment awarding the Plaintiffs the aggregate sumof $1,251,479.88, consisting of $850,000.00 in statutorydamages, $120,737.20 in contract damages, $242,295.50

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

in attorneys' fees, $10,747.18 in costs, and $27,700.00 in

sanctions. 3 The Plaintiffs request that this Court determine$1,130,742.68 of that amount, the entire judgment excludingthe award of contract damages, is not dischargeable pursuantto section 523(a)(6).

One element of trademark infringement is that the allegedinfringer's unauthorized use was likely to result in consumerconfusion. In this regard, the District Court employed aseven-factor test that included examining the Defendant'sintent. After finding the Defendant liable for trademarkinfringement, the District Court awarded $800,000.00 instatutory damages in lieu of actual damages and permanentlyenjoined the Defendant from using the Tipsy mark.

In determining appropriate statutory damages, the DistrictCourt considered whether the Defendant's trademarkinfringement was willful, as courts may award greaterstatutory damages in cases of willful infringement. See 15U.S.C. § 1117(c). “Willful infringement has been described aswhen the infringer acted with ‘actual knowledge or recklessdisregard for whether its conduct infringed upon the plaintiff'scopyright.’ “ Arista Records, Inc. v. Beker Enters., Inc.,298 F.Supp.2d 1310, 1312 (S.D.Fla.2003) (quoting OriginalAppalachian Artworks, Inc. v. J.F. Reichert, Inc., 658 F.Supp.458, 464 (E.D.Pa.1987). While the “willful” standard under15 U.S.C. § 1117(c) may be proven by showing the defendantwas reckless with regard to infringement, in this casethe District Court found that the Defendant knew of thePlaintiffs' rights in the Tipsy mark, knew that the Plaintiffswould be harmed by the Defendant's infringement, andintentionally infringed on the mark. Specifically, the DistrictCourt found that, in the agreement between the Defendantand the Plaintiffs, the Defendant acknowledged Plaintiff Mr.Nguyen's ownership of the Tispy mark and that the Defendantwas only permitted to use the mark for one year. The DistrictCourt found that not only did the Defendant continue to usethe Tipsy mark after one year, knowing that he had no right todo so and that the Plaintiffs would be harmed, but he impededthe Plaintiffs' litigation efforts at every turn during the DistrictCourt action. Indeed, both the District Court and the EleventhCircuit characterized the Defendant as a contentious litigantwho engaged in repeated misconduct.

*4 On the claim of cybersquatting, the Plaintiffs wererequired to show that the Defendant registered or used adomain name involving the Tipsy mark with a bad faithintent to profit. In finding that the Defendant exhibited abad faith intent to profit from his use of the name Tipsy

in his salon's domain name, the District Court noted theDefendant's ongoing willful, unauthorized use of the Tipsymark, his attempt to register his own mark using the Tipsyname, and his failure to abide by the “express terms” ofthe agreement, which “explicitly precluded” him from usingTipsy as part of the salon's domain name after one year.The District Court determined an award of $50,000.00 forcybersquatting to be reasonable based on the Defendant's“intentional infringement.” Viewing as a whole the DistrictCourt's findings relating to cybersquatting, the District Courtdetermined that the Defendant knew he was not entitled to usethe Tipsy name as part of the salon's domain name, knew thatthe Plaintiffs would be harmed by his use of the Tipsy name,and intentionally used the Tipsy name in his salon's domainname in violation of the parties' written agreement.

In the Omnibus Order, the District Court ruled that thePlaintiffs were entitled to reasonable fees and costs resultingfrom the Defendant's “intentional infringement” of the Tipsymark. In so ruling, the District Court relied on EleventhCircuit precedent that fees and costs should be awarded onlyin cases where the infringement is malicious, fraudulent,deliberate, and willful—a standard that requires a showing ofeach of those factors. Thus, consistent with existing law, indetermining that fees and costs should be awarded the DistrictCourt found that the Defendant's infringement of the Tipsymark was malicious and fraudulent and deliberate and willful.

The District Court did not set the amount of reasonablefees and costs in the Omnibus Order. The District Courtlater entered its Fees and Costs Order, assessing reasonablecosts at $10,747.18 and awarding attorneys' fees in theamount of $242,295.50. The Fees and Costs Order awardssuch amounts in connection with not just the intentionaltrademark infringement and cybersquatting claims, but alsoin connection with the Plaintiffs' breach of contract claim. It isnot clear from the text of the Fees and Costs Order, or from theother evidence before this Court on summary judgment, whatportion of the awarded fees and costs relates to the claims forinfringement of trademark or cybersquatting as opposed tobreach of contract.

In spite of the District Court's issuance of the Omnibus Orderand a permanent injunction prohibiting the Defendant fromusing the Tipsy mark, his infringement continued. As a result,the District Court issued an order to show cause, permittedthe Defendant to respond (which he did), and held a hearingon his continued infringement. In the subsequently issuedSanctions Order, the District Court found that the Defendant

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4

violated the District Court's injunction by continuing to usethe Tipsy mark in connection with signage at his businesslocation, a menu provided to customers at that location,and the business's website. While the Defendant arguedthat a stay pending appeal excused his compliance with theOmnibus Order and injunction, the District Court rejected thatargument, noting no motion for stay had even been filed. TheDistrict Court found the Defendant knowingly violated theOmnibus Order, pointing to the Defendant's statement that“I am also aware that your decision is permanent and thefact that I filed an appeal does not give me the right to defyyour orders.” The District Court found that the Defendantknowingly and intentionally violated the injunction, furtherharming the Plaintiffs, found that the Defendant failed toprovide any reason to excuse his compliance with theOmnibus Order and injunction, and ordered the Defendant topay the Plaintiffs $27,700.00 in sanctions.

It is telling to review the Omnibus Order, the Fees and CostsOrder, and the Sanctions Order together. The findings of theDistrict Court, as a whole, show that the Defendant knewthat the Plaintiffs owned the Tipsy mark, that the Defendantknew he did not have a right to continue to use the markafter the one year transfer period permitted in the parties'written agreement, that the Defendant knew that the Plaintiffsand their property (the mark itself) would be harmed if hecontinued to use the Tipsy mark in violation of the writtenagreement, and that he intentionally continued to use theTipsy mark in spite of the agreement and even in spite oforders of the District Court directing him not to use it.

II. SUMMARY JUDGMENT STANDARD*5 Federal Rule of Civil Procedure 56(a), made applicable

to this matter by Federal Rule of Bankruptcy Procedure 7056,provides that “[t]he court shall grant summary judgment ifthe movant shows that there is no genuine dispute as to anymaterial fact and the movant is entitled to judgment as amatter of law.” Fed.R.Civ.P. 56(a); see also Celotex Corp.v. Catrett, All U.S. 317, 323 (1986); Anderson v. LibertyLobby, Inc., All U.S. 242, 247–48 (1986). “An issue of factis ‘material’ if it is a legal element of the claim under theapplicable substantive law which might affect the outcome ofthe case.” Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11thCir.1997). In considering a motion for summary judgment,the Court must construe all facts and draw all reasonableinferences in the light most favorable to the non-movingparty. Id.

The moving party has the burden of establishing that there isan absence of any genuine issue of material fact. Celotex, AllU.S. at 323. Once the moving party meets that burden, theburden shifts to the non-movant, who must present specificfacts showing that there exists a genuine dispute of materialfact. Walker v. Darby, 911 F.2d 1573, 1576 (11th Cir.1990)(citation omitted). “A mere ‘scintilla’ of evidence supportingthe opposing party's position will not suffice; there must beenough of a showing that the jury could reasonably find forthat party.” Id. at 1577 (citing Anderson, All U.S. at 252).

III. COLLATERAL ESTOPPEL STANDARDCollateral estoppel principles apply in discharge exceptionproceedings under section 523(a) of the Bankruptcy Code.Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991). “Abankruptcy court may rely on collateral estoppel to reachconclusions about certain facts, foreclose relitigation ofthose facts, and then consider those facts as ‘evidence ofnondischargeability.’ “ Thomas v. Loveless (In re Thomas),288 F. App'x 547, 548 (11th Cir. 2008) (citation omitted).“Collateral estoppel, or issue preclusion, bars relitigationof an issue previously decided in judicial or administrativeproceedings if the party against whom the prior decision isasserted had a ‘full and fair opportunity’ to litigate that issuein an earlier case.” St. Laurent v. Ambrose (In re St. Laurent),991 F.2d 672, 675 (11th Cir.1993).

Because the judgment at issue in this case was rendered by afederal court, this Court must apply federal collateral estoppellaw. See CSX Transp., Inc. v. Bhd. of Maint. of Way Emps.,327 F.3d 1309, 1316 (11th Cir.2003) (” [F]ederal preclusionprinciples apply to prior federal decisions, whether previouslydecided in diversity or federal question jurisdiction.”). Underfederal law, the application of collateral estoppel requiressatisfying the following prerequisites:

(1) the issue at stake must be identicalto the one involved in the priorlitigation; (2) the issue must havebeen actually litigated in the priorsuit; (3) the determination of theissue in the prior litigation must havebeen a critical and necessary part ofthe judgment in that action; and (4)the party against whom the earlierdecision is asserted must have had afull and fair opportunity to litigate theissue in the earlier proceeding.

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5

Id.at 1317 (citation omitted). If all four requisites aresatisfied, “estoppel operates to bar the introduction orargumentation of certain facts necessarily established in [the]prior proceeding.” Tampa Bay Water v. HDR Eng'g, Inc., 731F.3d 1171, 1180 (11th Cir.2013) (citation omitted).

IV. ANALYSISA discharge under section 727 “does not discharge anindividual debtor from any debt ... for willful and maliciousinjury by the debtor to another entity or to the property ofanother entity.” 11 U.S.C. § 523(a)(6). There are two generalcomponents of this provision. There must be a debt owingfrom the debtor to the plaintiff, and that debt must arise fromwillful and malicious injury.

*6 Statutory damages, as opposed to actual damages, mayconstitute a debt for purposes of section 523(a)(6). SeeHER, Inc. v. Barlow (In re Barlow), 478 B.R. 320, 333(Bankr.S.D.Ohio 2012) (“[D]espite the Plaintiffs' decisionnot to prove the extent of their actual damages, the statutorydamages and attorneys' fees that the District Court awardedthem constitute a debt for willful and malicious injury.”);Star's Edge, Inc. v. Braun (In re Braun), 327 B.R. 447,450 (Bankr.N.D.Cal.2005) (“Statutory damages for copyrightinfringement are also indicative of injury and, therefore,are nondischargeable in bankruptcy.”); see also Co hen v.de la Cruz, 523 U.S. 213, 217–23 (1998) (holding certaindamages including treble damages to be nondischargeableunder section 523(a)(2)(A) when the damages resulted fromfraud, false pretenses, or the like).

This Court has issued several decisions analyzing the “willfuland malicious” standard in section 523(a)(6). See StewartTilghman Fox & Bianchi, P.A. v. Kane (In re Kane),470 B.R. 902 (Bankr.S.D.Fla.2012), aff'd, 485 B.R. 460(S.D.Fla.2013); Drewes v. Levin (In re Levin), 434 B.R.910 (Bankr.S.D.Fla.2010). The Court incorporates here thedetailed discussion of the statutory phrase “willful andmalicious” from the Kane decision. 470 B.R. at 939–43. Inshort, an act is willful within the meaning of section 523(a)(6) if it is undertaken with the intent to cause injury, or if it isan intentional act and injury is certain or substantially certainto result. With financial harms, such as those at issue in thiscase, it must be shown that the defendant actually knew, atthe time of the intentional act, that injury was substantiallycertain to result. An act is “malicious” within the meaning ofsection 523(a)(6) if it is wrongful and without just cause, orexcessive even where there is no ill will.

Where a defendant intentionally infringes a trademark, asopposed to doing so merely recklessly, that act necessarilysatisfies the willful standard under section 523(a)(6) and

generally satisfies the malicious standard as well. 4 The sameis true for cybersquatting, except that cybersquatting alwaysqualifies as malicious injury, as cybersquatting requires badfaith intent which “shall not be found in any case in which thecourt determines that the person believed and had reasonablegrounds to believe that the use of the domain name was a fairuse or otherwise lawful.” 15 U.S.C. § 1125(d)(1)(B)(ii).

Intentional infringement of intellectual property rights andcybersquatting are inherently harmful activities—the intentto harm property of another is a necessary component of the

claims themselves. 5 The Ninth Circuit Bankruptcy AppellatePanel has determined intentional trademark infringement tobe “tantamount to intentional injury under bankruptcy law,”In re Smith, 2009 WL 7809005, at *9, stating that:

Simply put, the intent to infringeand the intent to deprive the mark'sowner of the value and benefitof his property are opposite sidesof the same coin. In other words,when someone intentionally infringeson the copyright or trademark ofanother, they subjectively desire toharm property belonging to the mark'sowner—that is, they seek to deprivethe mark's owner of the benefit andvalue of his or her property.

*7 Id.at *10. Intentional infringement does not haveuncertain or variable outcomes—it always results in harm.In re Braun, 327 B.R. at 450. The same is true withcybersquatting. See Skydive Ariz., Inc. v. Butler (In re Butler),Ch. 7 Case No. 11–40930– MGD, Adv. No. 11–4037–MGD, 2013 WL 5591922, at *4–5 (Bankr.N.D.Ga. Sept. 9,2013); In re Barlow, 478 B.R. at 334–35; Pan da HerbalInt'l, Inc. v. Luby (In re Luby), 438 B.R. 817, 838–40(Bankr.E.D.Pa.2010). Thus, where a debtor has been heldliable for intentional infringement of intellectual propertywithout just cause, or cybersquatting, the resulting debt arisesfrom a willful and malicious injury within the meaning ofsection 523(a)(6).

All components of the federal collateral estoppel standardare satisfied in this case. In the Omnibus Order, the Fees

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6

and Costs Order, and the Sanctions Order, the District Courtaddressed at length the intent of the Defendant in infringingthe Plaintiffs' property rights and the wrongfulness of theDefendant's actions. While a claim for willful infringement oftrademark may be based on a reckless act, the District Courtmade detailed findings that the Defendant acted with theintent to infringe the Plaintiff's property, that the Defendantknew his acts would cause harm, and that there was nojustification for the Defendant's wrongful acts. These arethe same issues that the Plaintiffs must prove in this actionto satisfy section 523(a)(6). The Defendant's intent and thewrongfulness of his actions were actually litigated, repeatedlyso. Each of the findings made by the District Court inthe Omnibus Order, the Fees and Costs Order, and theSanctions Order, addressing the Defendant's intent and thewrongfulness of his actions, indeed his bad faith, were criticaland necessary to the District Court's rulings. Lastly, theDefendant had ample opportunity to litigate these issuesbefore the District Court and to some extent the EleventhCircuit Court of Appeals. The question, then, is how muchof the Plaintiffs' present case is proven by giving collateralestoppel effect to the Omnibus Order, the Fees and CostsOrder, and the Sanctions Order.

In the Omnibus Order, the District Court conclusivelydetermined that the Defendant intentionally infringed uponthe Plaintiffs' trademark, that he acted wrongfully, and thathe acted without just cause or excuse. The statutory damagesawarded as a result of the Plaintiffs' intentional infringementof trademark and cybersquatting, the sum of $850,000.00,constitutes a debt resulting from willful and malicious injuryto be excepted from discharge under section 523(a)(6).

*8 The Defendant claims that he believed his agreementwith the Plaintiffs was void and that his use of theTrademark was thus lawful. The District Court evaluatedsimilar allegations and rejected them.

The Defendant also claims that he acted with just cause orexcuse because his actions were based on advice of counsel.In general, reliance on advice of counsel is not a defense to anaction under section 523(a)(6). Spring Works, Inc. v. Sarff (Inre Sarff), 242 B.R. 620, 629 (B.A.P. 6th Cir.2000) (citationsomitted). This is particularly true in a case such as this wherethe District Court made specific findings of intent to harm thePlaintiffs' property and bad faith. See Peabey Assocs., ACP v.Haisfield (In re Haisfield Enters. of Fla.), 154 B.R. 803, 809(Bankr.S.D.Fla.1993) ( “Where there are specific findings of

willful, bad faith conduct by the party, reliance on the adviceof counsel as a defense to a § 523(a)(6) claim must fail.”).

“Attorney's fees and costs constitute a debt under 11 U.S.C. §523 when they ‘result from’ the debtor's conduct underlyingthe debt.” Harry Bradford Barrett Residuary Trust v. Barrett(In re Barrett), 410 B.R. 113, 123 (Bankr.S.D.Fla.2009)(citing Co hen, 523 U.S. 213). “Therefore, when a debtis nondischargeable pursuant to 11 U.S.C. § 523(a), theattorney's fees and costs associated with that debt arelikewise nondischargeable.” Id. at 124 (citing K & K Ins.Grp., Inc. v. Houston (In re Houston), 305 B.R. 111, 116(Bankr.M.D.Fla.2001)).

In the Omnibus Order, the District Court determined that thePlaintiffs are entitled to fees and costs in connection withthe Defendant's intentional infringement of trademark andcybersquatting. The fees and costs incurred by the Plaintiffsin connection with those claims are to be excepted fromthe Defendant's discharge under section 523(a)(6). However,when the District Court actually assessed fees and costs inthe Fees and Costs Order, it did so not only in connectionwith claims that are to be excepted from discharge, thosearising from intentional infringement and cybersquatting, butalso in connection with the Plaintiffs' breach of contractclaim. The District Court's award of fees and costs is asingle, aggregate award, for all fees and costs incurred inconnection with the Plaintiffs' successful claims. The DistrictCourt did not allocate its award of fees and costs so thatone can determine what portion of the award is attributableto the claims excepted from the Defendant's discharge, nordoes this Court have sufficient evidence at the summaryjudgment stage to do so. So, while the Plaintiffs are entitledto summary judgment that the fees and costs awarded by theDistrict Court in connection with intentional infringement andcybersquatting will be excepted from discharge, the Plaintiffsare not entitled to summary judgment as to the amount of suchfees and costs that are to be excepted from discharge.

The $27,700.00 debt represented by the Sanctions Orderis also not dischargeable in the Defendant's bankruptcycase. The District Court imposed these sanctions based onthe Defendant's continued intentional and wrongful conductwithout just cause or excuse. Several courts have either heldor intimated that a debt arising from a defendant's violationof an injunction constitutes a non-discharge able debt under

section 523(a)(6). 6 While circumstances may exist in whicha defendant is found to have violated an injunction in amanner that is not willful or malicious, this is not such

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7

a case. Here, the District Court found that the Defendantknowingly and intentionally violated the injunction enteredby the District Court and that the Defendant did so withoutjust cause.

V. CONCLUSION*9 The findings of the District Court in the Omnibus Order,

the Fees and Costs Order, and the Sanctions Order, that theDefendant intentionally infringed the Plaintiffs' trademarkand undertook cybersquatting, with full knowledge that suchacts would harm the Plaintiffs' property, and without justcause or excuse, are entitled to collateral estoppel effect inthis case. The Plaintiffs are entitled to summary judgment thatthe following claims are excepted from discharge in this casepursuant to section 523(a)(6): (a) statutory damages awardedby the District Court as a result of the Defendant's intentionalinfringement of the Plaintiffs' trademark and cybersquatting,in the amount of $850,000.00, plus post-judgment interestthereon; (b) sanctions in the amount of $27,700.00 as awardedby the District Court, plus post-judgment interest thereon; and

(c) fees and costs awarded by the District Court in connectionwith claims of intentional infringement and cybersquatting,in an amount to be determined, plus post-judgment interestthereon. The only remaining issue to be determined in thiscase is the amount of fees and costs previously awardedby the District Court that are attributable to pursuit by thePlaintiffs of claims for intentional infringement of trademarkand cybersquatting rather than breach of contract.

Accordingly, it is ORDERED that:

1. The Motion [ECF No. 19] is GRANTED IN PART to theextent provided above.

2. The Cross–Motion [ECF No. 34] is DENIED.

3. The Court will issue final judgment following adetermination of the amount of attorneys' fees and costsawarded by the District Court that should be excepted fromdischarge pursuant to 11 U.S.C. § 523(a)(6).

Footnotes

1 Unless otherwise noted, the words “section” or “sections” refer to provisions of the United States Bankruptcy Code, 11 U.S.C. §§

101 et seq.

2 The Eleventh Circuit Court of Appeals affirmed the District Court's grant of summary judgment in favor of the Plaintiffs. Nguyen

v. Biondo, 508 F. App'x 932 (11th Cir.2013).

3 Tipsy Spa and Salon, Inc., the Defendant's business, was also a named defendant in the District Court action. The District Court's

judgment is directed to both the Defendant and his business, and so the Defendant is personally liable for the entire judgment.

4 FN.Intentional infringement of intellectual property is always wrongful, satisfying the first part of the malicious standard under section

523(a)(6). With regard to the second requirement of the malicious standard, that the defendant's actions be without just cause, the

Court is hard-pressed to imagine a situation in which one has just cause or excuse to engage in intentional infringement of intellectual

property. Even so, the Court recognizes that there may be some situation in which an intentional infringer acted with just cause. In

light of the District Court's detailed findings, such is not the case here.

5 See Symantec Corp. v. Cristina (In re Cristina), Ch. 7 Case No. 07–18299–PGH, Adv. No. 08–01004–PGH, 2011 WL 766966, at

*4 (Bankr.S.D.Fla. Feb. 24, 2011) (holding that one who intentionally infringes knows that injury is sure, or substantially certain, to

result); Smith v. Entrepreneur Media, Inc. (In re Smith), No. EC–009–1117–MkMoJu, 2009 WL 7809005, at *10 (B.A.P. 9th Cir.

Dec. 17, 2009) (“[I]ntentional trademark infringement is a ‘categorically harmful activity.’ ”); Choice Hotels Int'l, Inc. v. Wright (In re

Wright), 355 B.R. 192, 212 (Bankr.C.D.Cal.2006) (“Because a finding of ‘bad faith intent’ is an essential element of an ACPA cause

of action ... cybersquatting in violation of the ACPA constitute[s] a categorically harmful activity which necessarily cause[s] injury ...

within the scope of § 523(a)(6).”); In re Braun, 327 B.R. at 451 (“[C]opyright infringement is a categorically harmful activity.”).

6 See Liddell v. Peckham (In re Peckham), 442 B.R. 62, 78–83 (Bankr.D.Mass.2010); Buffalo Gyn Womenservices, Inc. v. Behn (In re

Behn), 242 B.R. 229, 238 (Bankr.W.D.N.Y.1999) (“[W]hen a court of the United States issues an injunction or other protective order

telling a specific individual what actions will cross the line into injury to others, then damages resulting from an intentional violation

of that order ... are ipso facto the result of a ‘willful and malicious injury.’ ”); Louis Vuitton Malletier v. Ortiz (In re Ortiz), Ch. 7

Case No. 08–03055–GAC, Adv. No. 08–00123–GAC, 2009 WL 2912497, at *4 (Bankr.D.P.R. June 4, 2009); Vuitton Et Fils, S.A. v.

Klayminc (In re Klayminc), 37 B.R. 728, 730 (Bankr.S.D.Fla.1984). Conversely, courts' views differ over the nondischargeability of

contempt order violations under section 523(a)(6). See Suarez v. Barrett (In re Suarez), 737–38 (B.A.P. 9th Cir.2009); In re Peckham,

442 B.R. at 78–83.

In re Biondo, Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Fundamental Long Term Care, Inc., Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2882522Only the Westlaw citation is currently available.

United States District Court, M.D. Florida,Tampa Division.

In re FUNDAMENTAL LONGTERM CARE, INC., Debtor.

Beth Ann Scharrer, etc., et al., Plaintiffs,v.

Quintairos, Prieto, Wood &Boyer, P.A., et al., Defendants.

Nos. 8:11–Bk–22258–MGW, 8:14–CV–1377–T–17. | Adv. No. 8:13–ap–01176–MGW. | Signed June 25, 2014.

Attorneys and Law Firms

Seth P. Traub, Steven M. Berman, Shumaker, Loop &Kendrick, LLP, Tampa, FL, for Plaintiffs.

Gregory M. McCoskey, Akerman Senterfitt, LLP, Ruel W.Smith, Hinshaw & Culbertson, LLP, Tampa, FL, Patrick M.Quinn, Brunner Quinn, Columbus, OH, for Defendants.

Opinion

ORDER

ELIZABETH A. KOVACHEVICH, District Judge.

*1 This cause is before the Court on:

Dkt. 1 Motion to Withdraw Reference

Dkt. 5 Response in Opposition

Defendant Fundamental Administrative Services, LLC(“FAS”) moves for an immediate order withdrawing thereference of the “Malpractice Action” for all purposes.

On December 31, 2013, Beth Ann Scharrer, Chapter 7Trustee, for herself and Trans Health Management, Inc.(“THMI”), filed an adversary complaint asserting state lawclaims for alleged legal malpractice and alleged breaches offiduciary duty against various defendants, including FAS.

Defendant FAS argues that: 1) the Malpractice Action is anon-core proceeding; 2) Plaintiff has demanded a jury trial,

and FAS does not consent to a jury trial in BankruptcyCourt; 3) withdrawal of the reference will promote judicialefficiency and prevent delay; and 4) withdrawal of thereference will not encourage forum-shopping.

Plaintiffs respond that Defendant FAS' Motion to WithdrawReference is premature and should be granted only for thepurposes of jury trial and jury selection, with all pretrialmatters to be handled by Bankruptcy Court. Plaintiffs contendthat the Bankruptcy Court can efficiently manage all pretrialmatters, and is the most logical forum.

The Court notes that the issue the Court must determineincludes only permissive withdrawal, and not mandatorywithdrawal.

I. Permissive WithdrawalPermissive withdrawal is within the discretion of theDistrict Court. See In re TPI Int'l Airways, 222 B.R. 663,668 (S.D.Ga.1998). The burden of establishing cause forpermissive withdrawal is on the movant, Defendant FAS.

In determining whether a movant has established sufficientcause, the Court should consider the advancement ofuniformity in bankruptcy administration, decreasing forumshopping and confusion, promoting the economical useof the parties' resources, and facilitating the bankruptcyprocess. Control Center, L.L.C. v. Lauer, 288 B.R. 269,274 (M.D.Fla.2002). Other factors to be considered include:1) whether the claim is core or non-core; 2) efficient useof judicial resources; 3) a jury demand; and 4) preventionof delay. Id. A demand for a jury trial in a non-corematter in itself may provide sufficient cause to withdraw thereference. In re Dreis & Krump Mfg. Co., 1995 WL 41416,*3 (N.D.Ill.1/31/1995).

A. Non–Core ProceedingOrdinarily, the Court would first examine whether theadversary proceeding is a core or non-core proceeding. In reAusburn, 2010 WL 5128332 (M.D.Fla.12/10/2010) (a districtcourt ‘should first evaluate whether the claim is core ornon-core,’ because ‘questions of efficiency and uniformity’depend largely on the character of the proceeding).

FAS argues that the Malpractice Action is a non-coreproceeding, one “otherwise related” to the bankruptcyproceeding under 28 U.S.C. Sec. 157(c)(1). Plaintiffs concede

In re Fundamental Long Term Care, Inc., Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

that the Bankruptcy Court has only “related-to” jurisdictionover the Malpractice Action.

*2 Whether a matter is core or non-core is a determinationthat should first be made by the Bankruptcy Court. In reStone, 2010 WL 5069698 at *1 (M.D.Fla.12/7/2010); 28U.S.C. Sec. 157(b)(3). The Court is not aware that theBankruptcy Court has made this determination; therefore theCourt will not consider this factor in analyzing the proprietyof withdrawal. See In re TPI Int'l Airways, 222 B.R. 663, 668n. 3 (S.D.Ga.1998).

B. Jury TrialPlaintiffs requested a jury trial in the adversary proceeding.Since FAS does not consent to a jury trial in BankruptcyCourt, if the Malpractice Action proceeds to trial, the trial willbe before the District Court. However, the jury demand in theMalpractice Action does not require an immediate withdrawalof the reference. See Sigma Micro Corp. v. Healthcentral.com(In re Healthcentral.com ), 504 F.3d 775, 787–88 (9 thCir.2007). The Bankruptcy Court may retain jurisdiction todetermine all pretrial matters, from discovery to dispositivemotions. Hvide Marine Towing, Inc. v. Kimbrell, 241 B.R.841, 845 (M.D.Fla.2000). Allowing the Bankruptcy Courtto retain jurisdiction over pretrial matters does not abridgea party's Seventh Amendment right to a jury trial. Stein v.Miller, 158 B.R. 876, 879–80 (S.D.Fla.1993).

C. Judicial Economy and Preservation of ResourcesAs to the underlying bankruptcy case, the Court notes that thebankruptcy proceeding commenced in December, 2011 andthere have been nine reported decisions by the BankruptcyCourt. The involved history of this case shows that theBankruptcy Court is already familiar with the facts; allowingthe Bankruptcy Court to resolve all pretrial matters will

promote uniformity in the bankruptcy administration, andwill make efficient use of the Bankruptcy Court's expertise.See Healthcentral.com, 504 F.3d at 787–88. Allowing allpretrial matters to be resolved in the same forum as thedebtor's estate should also preserve the parties' resources.

D. Forum ShoppingDefendant FAS argues that there is no concern over forumshopping as FAS has requested withdrawal of the referencefrom a court that does not have authority to enter a finaljudgment, to a court that does have such authority.

After consideration, the Court concludes that FAS hasestablished cause for withdrawing the reference so thatthis Court can conduct a jury trial in this case; however,withdrawal of the reference at this time is not necessary.Judicial resources, and the parties' resources, will beconserved by having the Bankruptcy Court address all pretrialmatters in this case, from discovery through dispositivemotions. Accordingly, it is

ORDERED that FAS's Motion to Withdraw the Reference(Dkt.1) is granted in part to the extent that the adversaryproceeding reference is withdrawn only as to jury trial andjury selection; all pretrial matters shall be handled by theBankruptcy Court. The Clerk of Court shall administrativelyclose this case for an indefinite period of time. DefendantFAS shall file a motion to reopen this case after theBankruptcy Court has addressed all pretrial matters and theparties are ready for trial. If the adversary proceeding isresolved without the need for a trial, Defendant FAS shallfile a Notice to the Court informing the Court of the finalresolution.

*3 DONE and ORDERED.

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Advanced Telecommunication Network, Inc., Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2528844Only the Westlaw citation is currently available.

United States District Court, M.D. Florida,Orlando Division.

In re ADVANCED TELECOMMUNICATIONNETWORK, INC., Debtor.

Advanced TelecommunicationNetwork, Inc., Plaintiff,

v.Flaster/Greenberg, P.C., et al., Defendants.

No. 6:13–cv–700–Orl–28. | Bankr.Ct. CaseNo. 6:03–bk–299–KSJ. | Adv. Proc. Nos.6:05–ap–00006–KSJ, 6:11–ap–00008–KSJ,

6:05–ap–00006–KSJ. | Signed June 4, 2014.

Attorneys and Law Firms

Lori Virginia Vaughan, Trenam Kemker, Tampa, FL, forDebtor/Plaintiff.

Roberta A. Colton, Trenam Kemker, Tampa, FL, for Debtor.

Jason H. Baruch, Trenam Kemker, Tampa, FL, for Plaintiff.

Dennis Parker Waggoner, Hill Ward Henderson, PA, Tampa,FL, for Defendants.

Opinion

ORDER

JOHN ARTOON II, District Judge.

*1 This cause is before the Court on the Renewed Motion

to Withdraw the Reference (Doc. 17; B.R. 101 1 ) filedby Advanced Telecommunication Network, Inc. (“ATN”),the Plaintiff in consolidated adversary proceedings in the

bankruptcy court. 2 Defendants have responded to themotion. (Doc. 23–3; B.R. 103). As set forth below, the Courtdeclines to withdraw the reference from the bankruptcy courtat this time.

I. Background

In the consolidated adversary proceedings, ATN has fileda nine-count Amended Consolidated Complaint against

Defendants, FIaster/Greenberg, P.C., and Peter R. Spirgel.(Doc. 18–1; BR. 88). ATN has demanded a jury trial on allissues, and Defendants have consented to a jury trial on allof ATN's legal claims. The parties dispute, however, whichof ATN's claims are legal claims; in other words, there is adisagreement as to the extent of ATN's jury trial rights.

ATN seeks withdrawal of the reference to the bankruptcycourt for final adjudication of the adversary proceedings.ATN notes in its motion that it “does not object to theBankruptcy Court's handling of pre-trial matters[ ] butis concerned that the Bankruptcy Court cannot finallyadjudicate this case or conduct a jury trial.” (Doc. 17 at 2).ATN suggests that “[t]he Bankruptcy Court can prepare thecase for trial in the normal course and this Court can handlefinal disposition of the case, whether by dispositive motionsor jury trial.” (Id. at 15).

Defendants join in ATN's request to withdraw the referencebased on Defendants' consent to ATN's request for a jury trialon the legal claims in the Amended Consolidated Complaint.(See Doc. 23–3 at 1). However, Defendants assert thatwithdrawal of the reference should be made now rather thanafter the bankruptcy court handles pretrial matters. (Id. at 2).Thus, the disputed issue regarding the Renewed Motion toWithdraw the Reference is the timing of withdrawal of thereference.

II. Discussion

Original jurisdiction over bankruptcy cases and proceedingslies in district courts, see 28 U.S.C. § 1334(a), and bankruptcycourts obtain jurisdiction by referral at the discretion ofdistrict courts, see id. § 157(a). Pursuant to 28 U.S.C. §157(d), “[t]he district court may withdraw, in whole or in part,any case or proceeding referred under this section, on its own

motion or on timely motion of any party, for cause shown.” 3

“Although cause is not defined in the statute, [the EleventhCircuit] has found that it is not an empty requirement.”Dionne v. Simmons (In re Simmons), 200 F.3d 738, 741 (11thCir.2000).

“ ‘[I]n determining whether cause exist[s] [to withdrawthe reference,] a district court should consider such goalsas advancing uniformity in bankruptcy administration,decreasing forum shopping and confusion, promoting theeconomical use of the parties' resources, and facilitatingthe bankruptcy process.’ “ In re Simmons, 200 F.3d at 742

In re Advanced Telecommunication Network, Inc., Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

(quoting In re Parklane/Atlanta Joint Venture, 927 F.2d 532,536 n. 5 (11th Cir.1991)). The moving party bears the burdenof demonstrating cause for withdrawal of the reference. See,e.g., Wi–Sky Inflight. Inc. v. Leabman (In re Wi–Sky Inflight,Inc.), 483 B.R. 788, 792 (N.D.Ga.2012).

*2 ATN bases its motion to withdraw the reference on twoconcerns-that the bankruptcy court cannot conduct a jury trialand that the bankruptcy court cannot finally adjudicate thecase. A right to a jury trial can constitute cause for withdrawalof the reference where the parties do not expressly consent tohaving the bankruptcy court conduct the jury trial. See, e.g.,Stettin v. Centurion Structured Growth LLC, No. 11–60400–CIV, 2011 WL 7413861, at *2(S.D.Fla. Dec.19, 2011). Ajury trial, if any, must be conducted in a district court absentthe parties' consent and special designation of the bankruptcycourt. See 28 U.S.C. § 157(e). In such cases, however, pretrialmatters may still appropriately be handled in the bankruptcycourt. See, e.g., Gen. Elec. Capital Corp. v. Teo, No. CIV. 01–CV–1686(WGB), 2001 WL 1715777, at *5 (D.N.J. Dec.14,2001) (“[E]ven when a district court must ultimately presideover a trial by jury, there is no reason why the BankruptcyCourt may not ‘preside over [an] adversary proceeding andadjudicate discovery disputes and motions only until suchtime as the case is ready for trial.’ “ (quoting In re Lands EndLeading, Inc., 193 B.R. 426, 436 (Bankr.D.N.J.1996))).

The Court concludes that ATN's assertion of jury trialrights does not warrant withdrawal of the reference at thistime. Pretrial proceedings may properly be handled by thebankruptcy court, and ATN does not object to the bankruptcycourt conducting pretrial matters. (See Doc. 17 at 2, 4). Thebankruptcy court is familiar with this case, the parties, andthe issues involved, and it can efficiently handle the case untilsuch time as withdrawal of the reference might be necessary.Indeed, this case might not ever make it to a trial posture, andDefendants themselves suggest that the trial, if any, could be“years from now,” (Doc. 23–3 at 6).

Defendants acknowledge that this Court can appropriatelydelay withdrawing the reference until the bankruptcy courtcertifies that the case is ready for trial, but they neverthelessmaintain that the reference should be withdrawn now. (SeeDoc. 23–3 at 2). The Court is not persuaded. Defendants'primary interest in having the reference withdrawn at thispoint is in having venue transferred; in their response toATN's amended motion to withdraw, Defendants included amotion seeking to have this case moved to New Jersey. (SeeDoc. 1–2; B.R. 92). However, Defendants' desire to have the

case transferred to New Jersey does not support immediatewithdrawal of the reference. Defendants explain that “thesole impetus for [their] motion to transfer venue was [ATN's]motion to withdraw the reference and demand for a jurytrial.” (Doc. 31 at 1). If the reference is ultimately withdrawndue to the necessity of a jury trial, transfer of the case for trialcan be addressed at that time.

As Defendants also recognize, the issue of the extent of ATN'sjury trial right is intertwined with the issue of withdrawalof the reference. (See Doc. 23–3 at 6). At the same timeit filed its original and amended motions for withdrawal ofthe reference (B.R. 67 & 90), ATN also filed original andamended motions for jury trial (B.R. 66 & 89). According

to the bankruptcy court docket sheet, 4 the bankruptcy courtheld a hearing regarding the motion for jury trial before themotion for withdrawal of reference was transferred to thisCourt. (See B.R. 84 (minute entry for hearing on motion)).That motion is appropriately ruled on by the bankruptcy court

in the first instance, 5 and that ruling may bear on the issue ofthe scope of any future withdrawal of the reference.

*3 The second basis for ATN's motion is its concern thatthe bankruptcy court lacks authority to finally adjudicate thiscase. In this regard, ATN cites the Supreme Court's decisionin Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180L.Ed.2d 475 (2011), in which the Court limited the ability ofbankruptcy courts to render final judgments in some matters.However, as other district courts have noted, even after Stern“[t]he [b]ankruptcy court can, and should, initially determinewhether it has the constitutional authority to render a finaljudgment on a particular issue.” Atradius Trade Credit Ins .,Inc. v. Mukamal (In re Palm Beach Fin. Partners, L.P.), No.12–80614–CIV, 2013 WL 2158430, at *3 (S.D.Fla. May 17,2013) (agreeing with In re Extended Stay, Inc., 466 B.R.188 (S.D.N.Y.2011)). “Withdrawing the reference simplydue to the uncertainty caused by Stern is a drastic remedythat would hamper judicial efficiency ....“ In re ExtendedStay, 466 B.R. at 203. Even where a bankruptcy court lacksconstitutional authority to enter final judgment on a claim,“it may submit proposed findings of fact and conclusions oflaw to this Court.” Id.; see also Standing Order, Case No.6:12–mc–26–Orl–22 (M.D.Fla. Feb. 22, 2012) (providing forsubmission of proposed findings of fact and conclusions oflaw by bankruptcy court to district court and for treatment bydistrict court of bankruptcy court orders as proposed findingsof fact and conclusions of law if district court determines thatbankruptcy court exceeded its constitutional authority).

In re Advanced Telecommunication Network, Inc., Slip Copy (2014)

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

The possibility that the bankruptcy court may not be able toenter final judgment on one or more of ATN's claims doesnot compel immediate withdrawal of the reference. Indeed,the bankruptcy court may conduct all pretrial proceedings,including addressing dispositive motions either by ruling onthem or by submitting proposed findings and conclusions tothis Court.

In sum, while this case may ultimately require a jury trialor otherwise warrant withdrawal of the reference to thebankruptcy court, withdrawal is not granted at this time.

III. Conclusion

In accordance with the foregoing, it is ORDERED andADJUDGED that ATN's Renewed Motion to Withdrawthe Reference (Doc. 17) is DENIED without prejudice.ATN or Defendants may assert a request for withdrawalof the reference at the conclusion of all pre-trial matters,including dispositive motions. No such request shall be made,however, until after the bankruptcy court has addressedATN's Amended Motion for Jury Trial. The Clerk of theCourt is directed to close this case.

DONE and ORDERED.

Footnotes

1 Citations to the Bankruptcy Record are indicated by “B.R.,” whereas citations to the record in this Court are indicated by “Doc .” For

the sake of clarity, parallel citations to both records have been included, where applicable.

2 This Court previously denied without prejudice ATN's Amended Motion to Withdraw the Reference (Doc. 1–1; B.R. 90) and granted

leave to file a renewed motion. (Order, Doc. 10). That renewed motion is now before the Court.

3 In its motion, ATN relies on the quoted portion of § 157(d), which pertains to “permissive” withdrawal of the reference. ATN does

not argue for “mandatory” withdrawal of the reference, which is provided for in another portion of § 157(d).

4 This Court does not have the benefit of the complete record in the bankruptcy court. Only certain record items have been transmitted,

and the bankruptcy court's docket sheet (Doc. 23–4) has been provided.

5 See, e.g., Official Comm. of Unsecured Creditors v. TSG Equity Fund, L.P. (In re Envisionet Computer Servs., Inc.), 276 B.R. 1, 6

(D.Me.2002) (“The bankruptcy court is an appropriate tribunal for determining whether there is a right to a trial by jury of issues

for which a jury trial is demanded.”). As noted by Defendants, “if this Court does not withdraw the reference, it would not have

jurisdiction to decide the motion for jury trial at this time.” (Doc. 23–3 at 5). Absent withdrawal, that motion remains pending for

the bankruptcy court. Additionally, absent withdrawal this Court cannot and does not rule on Defendants' Motion to Transfer Venue

(Doc. 1–2; B.R. 92).

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2750349Only the Westlaw citation is currently available.

United States Court of Appeals,Eleventh Circuit.

In re Tahisia L. SCANTLING, Debtor.Wells Fargo Bank, N.A., Plaintiff–Appellant,

v.Tahisia L. Scantling, Defendant–Appellee.

No. 13–10558. | June 18, 2014.

SynopsisBackground: “Chapter 20” debtor, who had recentlyreceived discharge in Chapter 7 prior to filing for Chapter13 relief, sought to value residential mortgage property forpurposes of determining secured status of junior mortgageclaims and whether junior mortgage liens were subject to“strip off” in Chapter 13 plan. Junior mortgagee objected,on ground that debtor's ineligibility for Chapter 13 dischargeprevented debtor from stripping off its liens. The UnitedStates Bankruptcy Court For the Middle District of Florida,No. 8:11–bk–00369–MGW, Michael G. Williamson, J., 465B.R. 671, entered judgment in favor of debtor, and appeal wastaken.

[Holding:] The Court of Appeals, Harvey E. Schlesinger,District Judge, sitting by designation, held that debtor'sineligibility for discharge, as result of debtor's recentdischarge in Chapter 7, did not prevent debtor from usingplan to “strip off” junior residential mortgage liens that werewholly unsupported by any equity in mortgaged property overand above amount of senior mortgage debt; abrogating In reGerardin, 447 B.R. 342, and In re Quiros–Amy, 456 B.R. 140.

Affirmed.

Attorneys and Law Firms

Larry M. Foyle, Kass Shuler, PA, Tampa, FL, MarieTomassi, Trenam Kemker, Saint Petersburg, FL, for Plaintiff-Appellant.

Paul Steven Singerman, Paul A. Avron, Ilyse Homer, BergerSingerman, LLP, Miami, FL, Ashley Dillman Bruce, BergerSingerman, LLP, Fort Lauderdale, FL, David L. Schrader,

David L. Schrader, Esquire, Saint Petersburg, FL, ArthurJ. Spector, Berger Singerman, LLP, Boca Raton, FL, forDefendant-Appellee.

Appeal from the United States Bankruptcy Court For theMiddle District of Florida, Tampa Division. D.C. Docket No.8:11–bk–00369–MGW.

Before TJOFLAT, Circuit Judge, and MOORE * and

SCHLESINGER, ** District Judges.

Opinion

SCHLESINGER, District Judge:

*1 We have been asked to determine if a debtor can “stripoff” a wholly unsecured junior mortgage in a Chapter 20case. We conclude the Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005 (“BAPCPA”) 1 does notprohibit this result; therefore, we affirm.

I. FACTSOn November 27, 2009, Scantling filed a voluntary petitionfor relief under Chapter 7 of the Bankruptcy Code. Less than ayear later, on March 30, 2010, Scantling received her Chapter7 discharge.

On January 1, 2011, Scantling filed a voluntary petition forrelief under Chapter 13 of the Bankruptcy Code. On May24, 2011, Scantling sought to determine the secured statusof the second and third mortgages held by Wells FargoBank, N.A. (“the Bank”) on Scantling's principal residence(“Residence”), to determine that the Bank's second and thirdliens were wholly unsecured and to void those liens. TheResidence was subject to three liens held by the Bank. TheBank filed claims regarding each of its liens: Claim No. 3regarding its first lien was for $121,808.85; Claim No. 5regarding its second lien was for $79,369.79; and Claim No.6 regarding its third lien was for $24,416.24. According toScantling, the Bank valued the Residence at $118,500, andfor purposes of its opinion, the Bankruptcy Court acceptedthat valuation.

Given the undisputed fact that the value of the Scantling'sResidence rendered the Bank's junior liens wholly unsecured,Scantling sought a declaration that the junior liens were void.The Bank opposed this request.

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

On February 24, 2012, the Bankruptcy Court entered itsopinion determining that Scantling could strip off the Bank'ssecond and third liens on the Residence because they werewholly unsecured. In a thorough and well-reasoned opinion,the Bankruptcy Court concluded:

It is well established that a chapter 20case is permitted under the BankruptcyCode. Equally clear is that a debtorin a chapter 13 case may strip offa wholly unsecured mortgage on thedebtor's principal residence. This stripoff is accomplished, first, througha determination under § 506(a) thatthe creditor does not hold a securedclaim and, second, by modifying thecreditor's “rights” under § 1322(b)(2),by avoiding the lien that the creditorwould otherwise be entitled to undernonbankruptcy law. As such § 1325(a)(5) does not come into play, and thedebtor's ineligibility for a discharge isirrelevant to a strip off in a chapter 20case.

On September 28, 2012, the Bankruptcy Court enteredits order, based upon the previous opinion, concludingthe Bank's second and third mortgage liens would beextinguished automatically without further order uponScantling's completion of payments contemplated by herconfirmed Chapter 13 plan.

II. STANDARDS OF REVIEW[1] The relevant facts are undisputed; consequently, we

review de novo the Bankruptcy Court's conclusions of law.DaimlerChrysler Fin. Servs. Americas LLC v. Barrett (In re

Barrett), 543 F.3d 1239, 1241 (11th Cir.2008).

III. DISCUSSION*2 [2] This case presents a single issue—whether a debtor

can “strip off” a wholly unsecured junior mortgage in a

Chapter 20 case. 2 To resolve this question, we must analyzethe interplay between two provisions of the Bankruptcy Code11 U.S.C. §§ 506 and 1322(b), following the enactment of theBAPCPA.

A. Statutory History

Prior to the BAPCPA, a debtor in a Chapter 13 case, filedsoon after a Chapter 7 case, was eligible for a discharge, or“strip off,” of a valueless lien. Lien avoidances pre-BAPCPAin Chapter 20 cases were, therefore, treated the same as inordinary Chapter 13 cases. In other words, pre-BAPCPA, abankruptcy court was able to strip off a valueless lien in atypical Chapter 13 proceeding. See Tanner v. FirstPlus Fin.(In re Tanner), 217 F.3d 1357 (11th Cir.2000).

The strip off procedure was a two-step process guided by11 U.S.C. § § 506 and 1322(b) of the Bankruptcy Code.

First, § 506(a) provided a valuation procedure for the claim. 3

Depending on the value of the collateral, a claim was eithersecured or unsecured. If a claim were valueless and classifiedas unsecured under § 506(a), then the second step, under §1322(b)(2), provided the mechanism whereby a Chapter 13bankruptcy plan could,

modify the rights of holders of securedclaims, other than a claim secured onlyby a security interest in real propertythat is the debtor's principal residence,or of holders of unsecured claims, orleave unaffected the rights of holdersof any class of claims[.] 11 U.S.C.§ 1322(b)(2). Following this two-stepapproach, a bankruptcy court was ableto strip off a completely valuelesslien against a primary residence in aChapter 13 proceeding.

This approach was, however, not without limitations. TheSupreme Court held that § 506(d) did not allow a lien to bemodified based solely upon a § 506(a) valuation. Dewsnup v.Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 778, 116 L.Ed.2d903 (1992). Instead, the Dewsnup Court held that becausethe creditor possessed an allowed secured claim under §502, § 506(d) was not implicated and the lien could not beavoided. Id. The Court rejected an interpretation of § 506(d)that departed from the long-established “pre-Code rule thatliens pass through bankruptcy unaffected.” Id.

Later, in Nobelman v. American Savings Bank, 508 U.S. 324,113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), the Supreme Courtaddressed the interaction between § 1322(b)(2) and § 506(a)with respect to an undersecured first lienholder. The debtorin Nobelman attempted to “strip down” a homestead lender'ssecured claim to the home's reduced value. Nobelman, 508U.S. at 326, 113 S.Ct. at 2108–09. The Nobelman Court

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

rejected the debtor's assertions and concluded that “ § 1322(b)(2) prohibits a Chapter 13 debtor from relying on § 506(a)to reduce an undersecured homestead mortgage to the fairmarket value of the mortgaged residence.” 508 U.S. at 325–26, 113 S.Ct. at 2108.

*3 This Circuit discussed the impact of Nobelman on therights of a wholly unsecured junior mortgagee in Tanner v.Firstplus Financial, Inc. (In re Tanner), 217 F.3d 1357 (11thCir.2000). This court determined that a wholly unsecuredlien on a debtor's principal residence is not protected frommodification under § 1322(b)(2). Id. at 1359–60. Rather, thiscourt determined, “[t]he better reading of sections 506(a)and 1322(b)(2), therefore, protects only mortgages that aresecured by some existing equity in the debtor's principalresidence.” Id. at 1360.

Tanner distinguished Nobelman which explicitly prohibitedlien strip downs where the affected lien encumbered theprincipal residence but was silent concerning strip offs. Id. at1361. Therefore, Tanner explained:

the only reading of both sections506(a) and 1322(b)(2) that rendersneither a nullity is one thatfirst requires bankruptcy courts todetermine the value of the homesteadlender's secured claim under section506(a) and then to protect frommodification any claim that is securedby any amount of collateral in theresidence.

Id. at 1360.

It appears that Tanner and our sister circuits correctlyunderstand Nobelman to stand for the proposition that fora claim to be “secured” and trigger the antimodificationprovisions of § 1322(b)(2), the collateral must have at leastsome value, as stated by the unambiguous language in §506(a). See Tanner, 217 F.3d at 1357; Bartree v. Tara ColonyHomeowners Assoc. (In Re Bartree ), 212 F.3d 277, 280 (5thCir.2000); McDonald v. Master Fin., Inc. (In Re McDonald),205 F.3d 606, 615 (3d Cir.2000).

It was in this atmosphere that Congress enacted the BAPCPA,in 2005, “ ‘to correct perceived abuses of the bankruptcysystem.’ ” Branigan v. Davis, 716 F.3d 331, 333 (4thCir.2013) (quoting Milavetz, Gallop & Milavetz, P.A. v.United States, 559 U.S. 229, 232, 130 S.Ct. 1324, 1329, 176

L.Ed.2d 79 (2010)). “An overarching goal was to ‘help ensurethat debtors who can pay creditors do pay them.’ ” Id. (quotingRansom v. FIA Card Servs., –––U.S. ––––, 131 S.Ct. 716,721, 178 L.Ed.2d 603 (2011)). The BAPCPA altered Chapter13 by including,

new requirements to make paymentsto holders of domestic supportobligations, requirements to fileprepetition tax returns, changes inmaximum plan length, protection forpension contributions and pensionloan repayments, requirements forscheduling of the confirmationhearing, requirements for greaterpayments on many secured debts,new methods of calculating disposableincome under section 1325(b), newrequirements for preconfirmationpayments, new requirements to obtaina discharge, including postpetitioncredit education in addition tothe prepetition credit counselingbriefing required for all debtors, newexceptions to the chapter 13 discharge,new limits on obtaining a chapter13 discharge after a prior bankruptcydischarge and new provisionspermitting plan modification to obtainhealth insurance.

*4 Id. at 333 (citing Collier on Bankruptcy ¶ 1300.36[10] ).

The specific language of the BAPCPA at issue here is §1328(f), which provides:

Notwithstanding subsections (a) and (b), the court shallnot grant a discharge of all debts provided for in the planor disallowed under § 502, if the debtor has received adischarge—

(1) in a case filed under chapter 7, 11, or 12 of this titleduring the 4–year period preceding the date of the orderfor relief under this chapter, or

(2)in a case filed under chapter 13 of this title during the2–year period preceding the date of such order.

11 U.S.C. § 1328(f).

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4

The Bank argues that lien-stripping is contingent on a debtor'sability to receive a Chapter 13 discharge. The only statute thatallows confirmation of a plan and liens to be stripped is §

1325(a)(5), 4 which provides that a holder of a secured lienretains the lien until either the underlying debt is paid or thereis a discharge. Scantling is ineligible for discharge; therefore,the Bank maintains its liens must survive.

The Bank, further, contends that Dewsnup is applicableto Chapter 20 cases such that an “allowed secured claim”remains an allowed secured claim in the absence of a § 502(b)objection for purposes of § 1325(a)(5)(B), which sets forth therequirements for confirming and implementing the contentsof a Chapter 13 plan irrespective of § 506(d). On the otherhand, Scantling insists the Bankruptcy Court was correct, andthat this Court's prior precedent in Tanner mitigates stronglyin favor of, if not compels, affirmance of the BankruptcyCourt's decision.

A split of authority exists on whether a debtor may strip offof a worthless lien in a Chapter 20 case—along the lines ofparties' arguments. Compare Branigan v. Davis (In re Davis),716 F.3d 331 (4th Cir.2013) (concluding a Chapter 20 debtormay strip off liens); and Fisette v. Zeller (In re Fisette), 455B.R. 177 (B.A .P. 8th Cir.2011) (same); and In re Dang, 467B.R. 227 (Bankr.M.D.Fla.2012) (same); and In re Okosisi,451 B.R. 90 (Bankr.D.Nev.2011) (same); and In re Tran,431 B.R. 230, 237 (Bankr.N.D.Cal.2010) (same); with In reGerardin, 447 B.R. 342 (Bankr.S.D.Fla.2011) (holding thatChapter 20 debtors could not permanently strip off whollyunsecured junior liens); and In re Quiros–Amy, 456 B.R. 140(Bankr.S.D.Fla.2011) (same); and In re Victorio, 454 B.R.759 (Bankr.S.D.Cal.2011) (same); and In re Fenn, 428 B.R.494 (Bankr.N.D.Ill.2010) (same); and In re Jarvis, 390 B.R.600 (Bankr.C.D.Ill.2008) (same).

The majority view recognizes a strip off of the unsecuredmortgage is allowed under the theory that a “Chapter 13debtor need not be eligible for a discharge in order to takeadvantage of the protections afforded by Chapter 13.” In reDavis, 716 F.3d at 338. If a strip off of a worthless lien isavailable under the bankruptcy code without a discharge adebtor may take advantage of such relief. Id.

*5 The bankruptcy code provides that when a debtor's juniorliens are worthless and unsecured under § 506(a), § 506operates in tandem with § 1322(b) to strip liens in Chapter 13cases. Id. The BAPCPA “did not amend” §§ 506 or 1322(b),“so the analysis permitting lien-stripping in Chapter 20 cases

is no different than that in any other Chapter 13 case.” Id.Congress, it is argued, intentionally left “the normal Chapter13 lien-stripping regime where a debtor could otherwisesatisfy the requirements for filing a Chapter 20 case.” Id.

In contrast, those courts ascribing to the minority viewcontend the term “allowed secured claim” in § 1325(a)(5)is not contingent on a § 506(a) valuation. Instead, § 506(a)provides a judicial valuation method of an allowed securedclaim, but that valuation does not modify the creditor'ssecured status. An “allowed secured claim,” therefore,“merely describes (1) a claim, which is a ‘right to payment’or a ‘right to an equitable remedy’ as defined in 11 U.S.C.§ 101(5); (2) that is ‘allowed,’ meaning ‘not objected to byan interested party’ under 11 U.S.C. § 502(a); and (3) thatis ‘secured.’ ” In re Davis, 716 F.3d at 340 (Keenan, J.,dissenting).

A junior lien is not worthless if it remains “allowed” and“secured” by the debtor's real property, and the lien remains inthis status even after a debtor receives a Chapter 7 discharge.Id. The in rem portion of the claims survive a debtor's Chapter7 discharge. Id.

A Chapter 13 plan must comply with § 1325(a)(5), and ajunior mortgagee creditor has an “allowed secured claim”against the debtor's bankruptcy estate. Section 1325(a)(5)(B)(I) provides that a debtor's Chapter 13 plan “must providethat the junior mortgagee creditors retain their liens on theproperties until the earlier of (1) full payment by the debtorsin the context of non-bankruptcy law, or (2) discharge.” Id.Sections 1325(a)(5)(B)(i) and 1328(f) work in tandem toprohibit a Chapter 20 debtor “from stripping off valuelessjunior mortgages.” Id.

[3] Guided by Tanner, we find the reasoning of the majority

view persuasive and adopt that view. 5 We agree with theother circuits who have considered this issue that a debtor, ina Chapter 13 setting, may strip off an unsecured mortgage onthe debtor's principal residence. This strip off is accomplishedthrough the § 506(a) valuation procedure that determinesthat the creditor does not hold a secured claim. Once thisdetermination has been made, pursuant to § 1322(b)(2), thecreditor's “rights” are modified by avoiding the lien to whichthe creditor would otherwise be entitled under nonbankruptcylaw. Under such analysis, § 1325(a)(5) is not involved, andthe debtor's ineligibility for a discharge is irrelevant to a stripoff in a Chapter 20 case. The BAPCPA did not amend §§ 506

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5

or 1322(b), so the analysis permitting strip offs in Chapter 20cases is no different than that in any other Chapter 13 case.

IV. CONCLUSION*6 Based on the foregoing and our review of the record and

the parties' briefs, we affirm the Bankruptcy Court's decision.

AFFIRMED.

Parallel Citations

24 Fla. L. Weekly Fed. C 1475

Footnotes

* Honorable Michael K. Moore, United States District Judge for the Southern District of Florida, sitting by designation.

** Honorable Harvey E. Schlesinger, United States District Judge for the Middle District of Florida, sitting by designation.

1 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was part of comprehensive Amendment to the Bankruptcy

Reform Act of 1978 as Amended. Amendments by Pub.L. 109–8 effective, except as otherwise provided 180 days after April 20, 2005.

2 The term “Chapter 20” is absent from the Bankruptcy Code. It is a colloquialism used by bankruptcy practitioners.

3 Section 506(a)(1) provides,

An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under

section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such

property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the

value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall

be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction

with any hearing on such disposition or use or on a plan affecting such creditor's interest.

11 U.S.C. § 506(a)(1) (emphasis added).

4 Section 1325 specifically provides,

(a) Except as provided in subsection (b), the court shall confirm a plan if—

(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title;

(2)any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid;

(3) the plan has been proposed in good faith and not by any means forbidden by law;

(4)the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured

claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7

of this title on such date;

(5) with respect to each allowed secured claim provided for by the plan—

(A) the holder of such claim has accepted the plan;

(B)(i) the plan provides that—

(I) the holder of such claim retain the lien securing such claim until the earlier of—

(aa) the payment of the underlying debt determined under nonbankruptcy law; or

(bb) discharge under section 1328; and

(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by

such holder to the extent recognized by applicable nonbankruptcy law;

(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not

less than the allowed amount of such claim; and

(iii) if—

(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal

monthly amounts; and

(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount

sufficient to provide to the holder of such claim adequate protection during the period of the plan; or

(C) the debtor surrenders the property securing such claim to such holder;....

11 U.S.C. § 1325 (emphasis added).

5 We are also mindful of the recent unpublished opinion in Wilmington Trust, National Ass'n v. Malone (In re Malone), No. 13–13688,

2014 WL 1778982 (11th Cir. May 6, 2014), which was decided after oral argument in the instant case, in which a panel of this court

recently found it was bound by prior published decisions and affirmed a decision by the bankruptcy court, in a Chapter 7 proceeding,

that allowed a debtor to strip off a worthless second priority lien.

In re Scantling, --- F.3d ---- (2014)

24 Fla. L. Weekly Fed. C 1475

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 1

2014 WL 2884603Only the Westlaw citation is currently available.

United States Court of Appeals,Eleventh Circuit.

In re Harley N. KANE, Debtor.Harley N. Kane, Charles J.

Kane, Plaintiffs–Appellants,v.

Stewart Tilghman Fox & Bianchi Pa,Todd S. Stewart, P.A., William C.

Hearon, P.A., Defendants–Appellees.

No. 13–10560. | June 26, 2014.

SynopsisBackground: Adversary proceeding was brought to exceptdebt from discharge in debtor-attorneys' Chapter 7 cases,as well as to deny one attorney a discharge on “fraudulenttransfer” theory. The United States Bankruptcy Court forthe Southern District of Florida, Erik P. Kimball, J., 470B.R. 902, entered judgment in favor of plaintiffs on “willfuland malicious injury” and “fraudulent transfer” claims, anddebtor-attorneys appealed. The District Court, K. MichaelMoore, J., 485 B.R. 460, affirmed. Debtors appealed.

Holdings: The Court of Appeals, Marcus, Circuit Judge, heldthat:

[1] bankruptcy court did not clearly err in finding that debtor-attorneys had, without any just cause or excuse, engaged inconduct that they knew was substantially certain to injureanother law firm, and

[2] court did not clearly err in finding that attorney,in effecting transfer of assets of his law partnership inconnection with abortive Chapter 11 case filed by partnershipless than one year prior to attorney‘s own individual Chapter7 case, had effected transfer of assets of insider with intent tohinder, delay, or defraud its creditors.

Affirmed.

Attorneys and Law Firms

Stephen B. Rakusin, Joseph Scott Van De Bogart, TheRakusin Law Firm, PA, Fort Lauderdale, FL, for Plaintiffs–Appellants.

Charles Throckmorton, Kozyak Tropin & Throckmorton, PA,Coral Gables, FL, for Defendants–Appellees.

Appeal from the United States District Court for the SouthernDistrict of Florida, D.C. Docket No. 9:12–cv–80750–KMM,Bkcy No. 09–01839–EPK.

Before MARCUS, Circuit Judge, and PROCTOR * and

EVANS, ** District Judges.

Opinion

MARCUS, Circuit Judge:

*1 This bankruptcy appeal concerns whether two debtors(Charles Kane and Harley Kane) may discharge in Chapter7 bankruptcy a $2 million judgment entered by a Floridastate court in favor of the creditors (Stewart Tilghman Fox &Bianchi, P.A., William C. Hearon, P.A., and Todd S. Stewart,P.A.). The case requires us to answer two questions. First,Charles Kane and Harley Kane appeal the district court's orderaffirming the bankruptcy court's judgment excepting the statecourt judgment from discharge under 11 U.S.C. § 523(a)(6).According to the appellants, the bankruptcy court mistakenlycharacterized the state court judgment as a nondischargeabledebt “for a willful and malicious injury by the debtor.”Separately, Harley Kane appeals the denial of his dischargeby joint application of 11 U.S.C. § 727(a)(7) and 11 U.S.C.§ 727(a)(2), arguing that the bankruptcy court erroneouslyfound that he transferred or concealed the property of an“insider” entity with the intent to hinder, delay, or defraud theappellees. Finding no error, we affirm.

I.

[1] [2] In a bankruptcy appeal, we review a bankruptcycourt's fact-finding for clear error only. See In re Piazza,719 F.3d 1253, 1260 (11th Cir.2013). “When the districtcourt has affirmed the bankruptcy court's findings ... wewill apply the clearly erroneous doctrine with particularrigor.” In re Jennings, 533 F.3d 1333, 1338 (11th Cir.2008)(quoting In re Wines, 997 F.2d 852, 856 (11th Cir.1993)).Additionally, when we examine the facts adduced at trial,

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 2

generally we will not disturb a bankruptcy court's credibilitydeterminations. See In re Englander, 95 F.3d 1028, 1030(11th Cir.1996) (requiring a reviewing court to “give dueregard” to a bankruptcy court's credibility judgments); seealso United States v. Peters, 403 F.3d 1263, 1270 (11thCir.2005) (recognizing that “[a]ssessing witness credibilityis uniquely the function of the trier of fact”). Here, to theextent the appellants dispute the relevant facts, they relyexclusively on evidence drawn from their own testimony,which the bankruptcy judge expressly disbelieved. Notably,at this stage, the appellants have provided us with nobasis for disturbing the bankruptcy court's assessment oftheir credibility. Thus, in summarizing the essential factsdeveloped over the course of a six-day hearing in thebankruptcy court, we accept as we must the bankruptcycourt's factual findings in light of its credibility judgments.

A.

The essential facts and procedural history are straightforward.The appellants, Charles Kane and his son, Harley Kane, areattorneys licensed to practice in Florida. They were the onlypartners in a law firm formed as a general partnership andknown as Kane & Kane (the “Kane Firm”). Before 2002,the Kanes and the Kane Firm, in collaboration with attorneysLaura Watson, Darren Lentner, Amir Fleischer, and GaryMarks, and their respective law firms (all of the foregoing,together with the Kanes, the “PIP Lawyers”), filed thousandsof claims (collectively, the “PIP Litigation”) in Florida onbehalf of an estimated 441 healthcare provider clients (the“PIP clients”) against the Progressive Insurance Companies(“Progressive”) under the personal injury protection (“PIP”)provisions of many policies issued by Progressive. All of thePIP Lawyers, including the Kanes, were jointly retained byall of the plaintiffs in the PIP Litigation on a contingent-feebasis.

*2 In order to increase their leverage against Progressivein the PIP Litigation, the PIP Lawyers decided to pursuederivative claims grounded in Progressive's alleged bad faithrefusal to settle the PIP claims (the “Bad Faith Litigation”).Lacking relevant experience and resources, the PIP Lawyerscould not press these bad faith claims on their own. ThePIP Lawyers therefore sought help from Stewart TilghmanFox & Bianchi, P.A., William C. Hearon, P.A., and Todd S.Stewart, P.A. (collectively, the “appellees” or the “StewartFirms”), whose members, including lead attorney Larry

Stewart, would pursue the Bad Faith Litigation on a parallelfront along with the PIP Litigation.

The PIP Lawyers jointly drafted a contingent fee agreementwith the Stewart Firms. Initially, and in writing, theparties specifically limited the scope of the Stewart Firms'involvement to the Bad Faith Litigation alone. The partiesagreed that the Stewart Firms would receive sixty percent ofall attorneys' fees collected from the Bad Faith Litigation.Over time, the Stewart Firms and the PIP Lawyers enteredinto engagement agreements with approximately thirty-sixplaintiffs in the Bad Faith Litigation. As Larry Stewarttestified in bankruptcy court, however, the plan had alwaysbeen to “add plaintiffs in ... the future.” Thus, the bankruptcycourt found that the Stewart Firms “effectively representedthe interests of all of the clients in the PIP Litigation.”In fact, as the bankruptcy judge observed, the evidence“overwhelmingly” established that the Kanes and the StewartFirms treated the PIP Litigation and the Bad Faith Litigationas being “inextricably intertwined.”

From 2002 to 2004, the Stewart Firms vigorously litigatedthe bad faith claims and obtained several favorable rulings.According to the bankruptcy court, the favorable rulings inthe Bad Faith Litigation motivated Progressive to considersettling all of the bad faith claims held by all of the plaintiffsin the PIP Litigation. On January 21, 2004, Larry Stewartmade an offer to Progressive to settle the universe of potentialbad faith claims for $20 million. Later, Progressive counteredat $2 million. Ultimately, Progressive and the Stewart Firmsscheduled a formal mediation for April 2004.

Progressive hoped for a sweeping mediation. Before thescheduled date, Progressive requested that the parties discussat mediation not only the existing and potential bad faithclaims, but also the PIP claims presented in the PIP Litigation.Though the Stewart Firms had until that time prosecuted onlythe bad faith claims, Larry Stewart agreed to address the PIPclaims too, subject to obtaining: (1) authority from the PIPLawyers, and (2) an agreement from Progressive to discussthe bad faith claims first. Stewart insisted on this sequencein part to avoid a conflict of interest between the clients andtheir counsel. The PIP Litigation and the Bad Faith Litigationinvolved substantially different contingent fee structures: theclients would receive only about ten percent of any recoveryin the PIP Litigation, while they were entitled to sixty percentof any recovery on the bad faith claims.

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 3

*3 On April 13, 2004, shortly before the mediation withProgressive, Larry Stewart met with the Kanes to strategize.At that meeting, the Kanes authorized Stewart to discuss withProgressive all of the claims held by all of the clients in thePIP Litigation, including both the PIP claims and any existingor potential bad faith claims. In consideration of the StewartFirms' newly expanded authority, the PIP Lawyers, includingthe Kanes, agreed in writing to modify the Stewart Firms'compensation structure. Under the original fee agreement, theStewart Firms were entitled to twenty-four percent of anyrecovery on the bad faith claims (sixty percent of the fortypercent allocated to attorneys' fees), while the PIP Lawyerswould receive sixteen percent of any bad faith recovery. AfterApril 13, 2004, the Stewart Firms were entitled to thirtypercent of any recovery on the bad faith claims (seventy-fivepercent of the attorneys' fees), while the PIP Lawyers wereset to receive only ten percent of that recovery. By contrast,at all relevant times, the PIP Lawyers were entitled to ninetypercent of any proceeds derived from the PIP Litigation,the PIP clients were set to receive ten percent of any PIPrecovery, and the Stewart Firms would earn nothing from thePIP claims.

At the April 19, 2004 mediation, which Larry Stewart handledfor the PIP clients, Progressive offered to settle the universeof existing and potential bad faith claims for $3.5 million.Stewart countered at $18.5 million. The parties did notreach an agreement at this mediation, and the Stewart Firmstransmitted the news to the PIP Lawyers. In an e-mail, LarryStewart communicated to the PIP Lawyers that the mediationhad been “bizarre,” that “Progressive was not dealing ingood faith,” and that “we told them that this was a uniqueopportunity.” Nevertheless, Stewart noted in that e-mail that“Progressive asked the mediator to remain involved.” Someof the PIP Lawyers (although not the Kanes) immediatelyresponded to Stewart's email, commending him for a job welldone and asking him “to please keep [his] foot on the throatof Progressive.” The Stewart Firms immediately scheduledmore hearings in the Bad Faith Litigation.

Approximately four weeks after the mediation withProgressive, on the weekend of May 14 to May 16, 2004,the Kanes and the other PIP Lawyers secretly settled alllitigation against Progressive—the claims raised in the PIPLitigation, the claims raised in the Bad Faith Litigation,and any potential bad faith claims held by clients inthe PIP Litigation—for approximately $14.5 million (the“Secret Settlement”). According to the Kanes, Progressivehad specifically requested that Larry Stewart not be present

during the settlement discussions. The Secret Settlement wasmemorialized in a document called the Memorandum ofUnderstanding (the “MOU”). The MOU allocated no portionof the aggregate settlement amount to the bad faith claims,though it earmarked more than $10.9 million for attorneys'fees and costs related to the PIP claims. Because the StewartFirms' compensation was tied exclusively to the bad faithclaims, the MOU apportioned no funds whatsoever to theStewart Firms. At more than $4.1 million, by contrast, theKanes' share of the Secret Settlement was the largest one-timegross fee they had ever received.

*4 Larry Stewart first learned of the existence of the SecretSettlement—but not its terms—two days after the settlementmeeting. The PIP Lawyers, including the Kanes, refused toprovide the settlement documents, or even reveal the termsof the Secret Settlement, claiming that they were prohibitedfrom doing so under the terms of the settlement itself. TheStewart Firms moved the state court to compel the PIPLawyers to tender the settlement documents. The state courtthen held a temporary injunction hearing and ordered the PIPLawyers to produce the documents. Only then, six weeksafter the settlement meeting, were the Stewart Firms able toconfirm that the Secret Settlement had left them holding anempty bag.

On June 16, 2004, the PIP Lawyers entered into anAmended Memorandum of Understanding (the “AMOU”),again without the knowledge or consent of the Stewart Firms.The AMOU arbitrarily allocated $1.75 million out of anaggregate settlement amount of $14 .455 million to settle theclaims presented in the Bad Faith Litigation. Thus, under theAMOU, the Stewart Firms would receive $525,000 (thirtypercent of $1.75 million). That sum was just a fractionof the amount offered only weeks before by Progressiveduring the April mediation. Tellingly, both the MOU and theAMOU included specific provisions pursuant to which thePIP Lawyers agreed to indemnify Progressive against anyclaims of the Stewart Firms for attorneys' fees.

In a letter drafted primarily by Charles Kane, the PIP Lawyersnotified the clients in the Bad Faith Litigation that the StewartFirms and the PIP Lawyers disagreed over the terms of thesettlement of their bad faith claims. According to CharlesKane's later testimony in the bankruptcy court, the fee disputebetween the Stewart Firms and the PIP Lawyers was notabout the Stewart Firms' entitlement to fees, but rather aboutthe amount of fees that the Stewart Firms would receive.In any case, the PIP Lawyers terminated the Stewart Firms'

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 4

engagement, appeared in the Bad Faith Litigation as counselfor the plaintiffs, and voluntarily dismissed the bad faithclaims. As the bankruptcy court characterized these actions,“the [Kanes] and the other PIP Lawyers pulled the rug outfrom under the [Stewart Firms].”

B.

Following discovery of the Secret Settlement, the StewartFirms filed suit against the PIP Lawyers in the Circuit Courtfor the Fifteenth Judicial Circuit of Florida (the “state courtaction”). On April 24, 2008, after a lengthy bench trial, thestate court entered judgment in favor of the Stewart Firms andagainst the Kanes and the Kane Firm, jointly and severally,in the amount of $2 million, plus prejudgment interest, ontheories of quantum meruit and unjust enrichment. The statecourt judgment was upheld on appeal, in its entirety, by anorder entered February 29, 2012. Kane v. Stewart TilghmanFox & Bianchi, P.A., 85 So.3d 1112 (Fla. 4th DCA 2012).

The Kanes and the Kane Firm had filed voluntary Chapter 11petitions with the bankruptcy court on November 17, 2008(the “Chapter 11 proceeding”). The Stewart Firms movedto dismiss the Chapter 11 cases. On March 20, 2009, afteran evidentiary hearing, the bankruptcy court dismissed allthree Chapter 11 cases, both orally and memorialized in awritten order, as having been filed in bad faith. In addition,the court ordered that prior to the effective date of dismissal(March 30, 2009), the Kane Firm was authorized to payonly for goods and services delivered or rendered to thefirm in the ordinary course of business. Also on March 20,2009, the bankruptcy court entered another order specificallyrestricting distributions from the Kane Firm to the Kanesuntil the dismissal order took effect. All of these orders wereserved electronically on counsel for the Kanes on March 20,2009. Two business days later, Harley Kane violated thebankruptcy court's orders by causing the Kane Firm to payapproximately $30,000 in satisfaction of his personal realestate tax obligations.

*5 Subsequently, on March 30, 2009, each of the Kanes andthe Kane Firm filed voluntary Chapter 7 petitions with thebankruptcy court (the “Chapter 7 proceeding”). On July 31,2009, the Stewart Firms filed adversary complaints againstboth Kanes, asserting claims for, inter alia: (1) exceptionfrom discharge of the state court judgment under 11 U.S.C.§ 523(a)(6), which renders nondischargeable any debt “forwillful and malicious injury by the debtor to another entity or

to the property of another entity”; and (2) denial of dischargeunder § 727(a)(7) and § 727(a)(2), which when taken togetherbar a debtor's discharge where the debtor has transferred theproperty of an “insider” entity with the intent to hinder, delay,

or defraud a creditor. 1

On November 7, 9, and 10, 2011, and January 20, 23, and 24,2012, the bankruptcy court conducted an extensive hearing

to ventilate the appellees' adversary claims. 2 Ultimately,the bankruptcy court entered judgment: (1) in favor of theStewart Firms and against both Kanes for exception fromdischarge under § 523(a)(6); and (2) in favor of the StewartFirms and against Harley (but not Charles) Kane for denialof discharge under § 727(a)(7), by application of § 727(a)(2) in a bankruptcy case concerning an insider. Additionally,although the Stewart Firms did not assert a denial of dischargeclaim under § 727(a)(6), see 11 U.S.C. § 727(a)(6) (barringdischarge where a debtor refuses to obey a lawful order ofthe court), the bankruptcy court held that the issue had beentried by consent of all parties and ruled in favor of the StewartFirms and against Harley (but not Charles) Kane on this claimtoo. The Kanes appealed these rulings to the district court.

After consolidating the Kanes' appeals, the district courtaffirmed the bankruptcy court's application of § 523(a)(6) andits joint application of § 727(a)(7) and § 727(a)(2). Moreover,because the district court affirmed the bankruptcy court'sdetermination that Harley Kane's discharge was barred by §727(a)(7) and § 727(a)(2) applied together, the district courtdeclined to review the bankruptcy court's alternative rulingthat Harley Kane's discharge could also be barred pursuant to§ 727(a)(6).

The Kanes timely appealed to this Court.

II.

[3] “A Chapter 7 debtor is generally entitled to a dischargeof all debts that arose prior to the filing of the bankruptcypetition.” In re Mitchell, 633 F.3d 1319, 1326 (11th Cir.2011)(citing 11 U.S.C. § 727(b)). But “this ‘fresh start’ policy isonly available to the ‘honest but unfortunate debtor.’ “ Id.(quoting In re Fretz, 244 F.3d 1323, 1326 (11th Cir.2001)).“To ensure that only the honest but unfortunate debtorsreceive the benefit of discharge, Congress enacted severalexceptions to § 727(b)'s general rule of discharge.” Id.

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5

On appeal, the Kanes again challenge the bankruptcy court'sapplication of several discharge exceptions. First, the Kanesjointly claim that the bankruptcy court wrongfully exceptedthe state court judgment from discharge under 11 U.S.C.§ 523(a)(6), because, they assert, the state court judgmentdid not arise from a “willful and malicious injury.” In thesecond place, Harley Kane argues that the bankruptcy courtwrongfully denied his discharge by joint application of §727(a)(7) and § 727(a)(2), since he claims not to havetransferred the assets of the Kane Firm with the intent tohinder, delay, or defraud the Stewart Firms. We are notpersuaded by either argument.

A.

*6 [4] [5] [6] [7] According to the terms of 11 U.S.C.§ 523(a)(6), a bankruptcy court may prevent a debtor fromdischarging any debt “for willful and malicious injury bythe debtor to another entity or to the property of anotherentity.” 11 U.S.C. § 523(a)(6). In reviewing a bankruptcycourt's judgment, we independently examine the bankruptcycourt's factual findings for clear error and review de novothe legal conclusions of both the bankruptcy and districtcourts. In re JLJ Inc., 988 F.2d 1112, 1116 (11th Cir.1993). Abankruptcy court's determination that an injury was “willfuland malicious” is a factual finding that we review only forclear error. See Chrysler Credit Corp. v. Rebhan, 842 F.2d1257, 1264 (11th Cir.1988), abrogated on other grounds byGrogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d755 (1991). Moreover, in a bankruptcy court, a creditor mustprove the applicability of § 523(a)(6) by a preponderanceof the evidence. Grogan, 498 U.S. at 291. Thus, on appeal,we review de novo any legal interpretation of the terms“willful” and “malicious,” but we review only for clear errorthe bankruptcy court's finding that a creditor showed a willfuland malicious injury by a preponderance of the evidence.

[8] “A debtor is responsible for a ‘willful’ injury when heor she commits an intentional act the purpose of which is tocause injury or which is substantially certain to cause injury.”In re Jennings, 670 F.3d 1329, 1334 (11th Cir.2012) (quotingIn re Walker, 48 F.3d 1161, 1165 (11th Cir.1995)) (alterationomitted); see Kawaauhau v. Geiger, 523 U.S. 57, 61–62, 118S.Ct. 974, 140 L.Ed.2d 90 (1998) (holding that § 523(a)(6)requires the actor to intend the injury, not just the act that leadsto the injury). Our sister circuits have disagreed about whetherthe term “substantial certainty” is a subjective standard,requiring a creditor to prove that a debtor actually knew that

the act was substantially certain to injure the creditor, or anobjective standard, requiring a creditor to show only that adebtor's act was in fact substantially certain to cause injury.Compare In re Ormsby, 591 F.3d 1199, 1206 (9th Cir.2010)(requiring creditor to show that “debtor believes that injuryis substantially certain to result from his own conduct”), withIn re Shcolnik, 670 F.3d 624, 630 (5th Cir.2012) (findingwillfulness where creditor showed an “objective substantialcertainty of harm”). This Court has never had occasion toparse that distinction, and we need not do so today. Evenapplying the more stringent, subjective standard, the evidencepresented amply supports the bankruptcy court's finding thatthe Kanes intentionally committed acts that they knew weresubstantially certain to injure the Stewart Firms.

[9] The direct evidence adduced in the Chapter 7hearing established at least this much: (1) the Kanes actedintentionally in negotiating, structuring, and documentingthe Secret Settlement that originally awarded the StewartFirms no fees and ultimately allocated just over $500,000to them; (2) the Kanes intentionally excluded the StewartFirms from the settlement negotiations with Progressive thatwere conducted on a weekend and in secret; (3) the Kanesacted intentionally in forcing the Stewart Firms out of the BadFaith Litigation; and (4) the Kanes intentionally implementedthe Secret Settlement after forcefully recommending itsacceptance to their clients.

*7 The evidence amply supports the bankruptcy court'sfinding that the Kanes knew their conduct was substantiallycertain to injure the Stewart Firms. For starters, they donot dispute that, at all relevant times, the Stewart Firmswere entitled to some compensation. Moreover, the Kanesunderstood that the Stewart Firms' compensation dependedentirely on the settlement amount that was allocated to thebad faith claims, and therefore they knew that the StewartFirms were substantially certain to suffer material injury ifno funds were set aside to redress those claims. Finally, theSecret Settlement contained a provision according to whichthe PIP Lawyers agreed to indemnify Progressive for anyclaims of attorney's fees asserted by the Stewart Firms. In fact,Charles Kane admitted at trial that he knew, on the very day heagreed to the Secret Settlement, that the Stewart Firms wouldassert a claim. The preponderance of this evidence amplysupports the determination that the Kanes knew their conductwas substantially certain to injure the Stewart Firms. Thus,the bankruptcy court did not clearly err in finding that the statecourt judgment arose from a “willful” injury committed bythe Kanes against the Stewart Firms.

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 6

On appeal, the Kanes argue, nevertheless, that their actionswere not “willful” because “the undisputed evidence reflectsthat the [Kanes] did not control the allocation of fees betweenthe Bad Faith litigation and the PIP lawsuits. Settlement couldonly be accomplished with the approval of the clients. Theyapproved the allocation over the objection of the StewartLaw Firms.” Appellant's Br. at 29. This argument is entirelyderived from the testimony of Charles Kane, which thebankruptcy court discredited. Moreover, as the bankruptcycourt and the district court correctly observed, the Kanescannot fairly hide behind the fact that the PIP clients—including the plaintiffs in the Bad Faith Litigation—ratifiedthe Secret Settlement. As the bankruptcy court explained,

The [Kanes'] argument that they didnot have control over allocation ofthe settlement amount is contrary tothe greater weight of the evidence inthis case. The PIP Lawyers, includingthe [Kanes], negotiated and paperedthe Secret Settlement. They were notcompelled to sign the MOU or theAMOU. Not only were the [Kanes]architects of the Secret Settlement,but they forcefully recommended itto their clients while systematicallyeliminating the [Stewart Firms] fromthe process by, inter alia, notincluding the [Stewart Firms] in anyof the negotiations and removing the[Stewart Firms] from the Bad FaithLitigation.

In re Kane, 470 B.R. 902, 942–43 (Bankr.S.D.Fla.2012).

[10] [11] The bankruptcy court also properly determinedthat the injury was malicious. “ ‘Malicious' means wrongfuland without just cause or excessive even in the absenceof personal hatred, spite or ill-will. To establish malice, ashowing of specific intent to harm another is not necessary.”In re Jennings, 670 F.3d at 1334 (internal quotation marks andcitation omitted). Put differently, for the purposes of § 523(a)(6), “[m]alice can be implied.” In re Thomas, 288 F. App'x547, 549 (11th Cir.2008). The bankruptcy court correctlyapplied this standard to find, based on a preponderance of theevidence, that each of the Kanes “acted not merely to pad hisown pocket but with ill will toward the [Stewart Firms].”

*8 In the first place, the bankruptcy court was free toimply malice because the preponderance of the evidenceestablishes that the Kanes committed acts that were “wrongfuland without just cause.” The release of the bad faith claims,which the Stewart Firms had pressed, was one of the principalconsiderations for the Secret Settlement. Nevertheless, whenProgressive asked the PIP Lawyers to exclude Larry Stewartfrom the settlement talks, the Kanes silently complied withthis odd request and participated in the meeting anyway. BothKanes assisted in crafting the one-sided Secret Settlement,though at least Charles Kane knew that the Stewart Firmswere hoping to settle the Bad Faith Litigation for around $12million. The Kanes also knew that Progressive had previouslyoffered the Stewart Firms $3.5 million to settle only the BadFaith Litigation, and that Larry Stewart had rejected thatoffer. Still, the Kanes and the other PIP Lawyers initiallystructured the settlement to allocate zero dollars to the BadFaith Litigation (and ultimately allocated only $1.75 millionto the Bad Faith Litigation). The bankruptcy court did noterr in finding no just cause for this arbitrary allocation thatenriched the Kanes and undeniably and materially injured theStewart Firms.

Moreover, Charles Kane all but admitted that the challengedconduct was wrongful and unjustified. Thus, for example,he testified during the Chapter 7 hearing that he hadnever been comfortable with the indemnity provision in theMOU. The Kanes half-heartedly argue that circumstancesjustified their decision to marginalize the Stewart Firms,since Progressive allegedly refused to negotiate with LarryStewart. But even Charles Kane acknowledged that thisexplanation was unpersuasive. From his testimony we learnthat, even in the moment, the secrecy of the settlement didnot “feel right.” In fact, according to his testimony, CharlesKane actually considered calling Larry Stewart at one pointduring the settlement negotiations. In light of all of theevidence, we cannot say the bankruptcy court clearly erredin observing that the Kanes' “after-the-fact attempt to explainaway these alarming aspects of the Secret Settlement waspatently selfserving.”

Finally, the trial court was free to imply malice because thepreponderance of the evidence establishes that the Kanescommitted wrongful acts that were “excessive.” The StewartFirms aimed to settle the Bad Faith Litigation for about $12million, and, indeed, even the $3.5 million settlement offerthat Larry Stewart rejected in April would have generated$1,050,000 for the Stewart Firms. Nevertheless, the Kanesand the other PIP Lawyers initially structured the settlement

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 7

to allocate zero dollars to the Bad Faith Litigation. Thisattempt utterly to obliterate any compensation to the StewartFirms—which had worked substantially on the bad faithclaims—was both excessive and egregious. Moreover, thePIP Lawyers, including the Kanes, sought to conceal thevery terms of the deal, initially refusing to provide thesettlement documents or disclose the terms of the MOU.Indeed, the Stewart Firms were forced to obtain a court ordercompelling the PIP Lawyers to tender the Secret Settlementdocuments. The Kanes' efforts to cover their tracks wereexcessive too. The cumulative effect of this evidence was,as the bankruptcy court and the district court observed,“overwhelming.” In the face of this evidential foundation, thebankruptcy court's determination that the Kanes inflicted a“willful and malicious injury” on the Stewart Firms was notclearly erroneous.

*9 [12] The Kanes argue, however, that there can be noshowing of a “willful and malicious injury” under § 523(a)(6) without an independent and additional showing of an“intentional, tortious act .” We reject this claim for tworeasons: first, the statute contains no language specificallycalling for an independent showing of tortious conduct, see 11U.S.C. § 523(a)(6) (excepting from discharge any debt “forwillful and malicious injury by the debtor to another entityor to the property of another entity”); moreover, neither theSupreme Court nor this Court has ever introduced any suchrequirement.

According to the Kanes, the Supreme Court's decision inKawaauhau, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90,recognized an independent tort requirement implicit in §523(a)(6). That claim is unpersuasive for additional reasons.The Kanes have misread Kawaauhau. It is true that theSupreme Court characterized the Eighth Circuit decisionunder review in Kawaauhau as having “confined” the §523(a)(6) exception to debts “based on what the law hasfor generations called an intentional tort.” Kawaauhau, 523U.S. at 60. In context, however, that observation, whichthe Supreme Court quoted directly from the Eighth Circuit'sopinion, invokes the concept of an “intentional tort” fora limited purpose. The analogy to intentional torts merelyemphasizes that § 523(a)(6) requires a creditor to show that adebtor “intended” the consequences of his actions:

We therefore think that the correctrule is that a judgment debt cannot beexempt from discharge in bankruptcyunless it is based on what the law hasfor generations called an intentional

tort, a legal category that is based onthe consequences of an act rather thanthe act itself. Unless the actor desiresto cause consequences of his act,or ... believes that the consequencesare substantially certain to result fromit, he or she has not committed anintentional tort.

Geiger v. Kawaauhau, 113 F.3d 848, 852 (8th Cir.1997)(internal quotation marks and citation omitted). Nothing inKawaauhau requires us actually to determine whether adebtor technically committed a tort under applicable statelaw.

Moreover, our binding precedent announced afterKawaauhau has made no mention of any independent tortrequirement bundled into § 523(a)(6). In In re Jennings, apanel of this Court invoked the same standard for malice thatwe had applied at least twice before in the § 523(a)(6) context.See In re Jennings, 670 F.3d at 1334; In re Walker, 48 F.3d1161; In re Thomas, 288 F. App'x 547; see also In re Williams,337 F.3d 504, 510 (5th Cir.2003) (“[A] knowing breach of aclear contractual obligation that is certain to cause injury mayprevent discharge under Section 523(a)(6), regardless of theexistence of separate tortious conduct.”). The Kanes marshalno arguments compelling us to change our settled approach.

In short, the bankruptcy court did not clearly err in concludingthat the state court judgment arose from a “willful andmalicious injury” by the Kanes, and therefore the bankruptcycourt correctly allowed the Stewart Firms, under 11 U.S.C.§ 523(a)(6), to prevent the Kanes from discharging the statecourt judgment.

B.

*10 Harley Kane also appeals the bankruptcy court's denialof his discharge under: (1) the joint application of § 727(a)

(7) and § 727(a)(2); and (2) § 727(a)(6). 3 The bankruptcycourt's § 727(a) rulings were premised on its finding thatHarley Kane, on March 24, 2009, diverted certain funds fromKane Firm accounts to pay his own personal real estate taxes.Plainly, these transfers were in violation of the orders enteredby the bankruptcy court on March 20, 2009, which dismissedthe Kane Firm's Chapter 11 case effective March 30, 2009,and restricted all distributions from the Firm to the Kanesbefore that date. Because we affirm the bankruptcy court's

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 8

determination that Harley Kane's discharge is barred pursuantto § 727(a)(7) and § 727(a)(2), we need not address thebankruptcy court's alternative holding that Kane's dischargewould also be barred under § 727(a)(6). See In re Protos, 322F. App'x 930, 932–33 (11th Cir.2009) (“A finding againstthe Appellant under any single subsection of section 727 issufficient to deny him a discharge.” (citing 11 U.S.C. § 727(using the disjunctive “or”))).

Section 727(a)(7) authorizes a denial of discharge in thedebtor's personal bankruptcy case if the debtor committedany act specified in paragraph (a)(2) through (a)(6) of § 727in connection with another bankruptcy case “concerning aninsider.” 11 U.S.C. § 727(a)(7). More precisely, § 727(a)(7)provides in relevant part:

The court shall grant the debtora discharge, unless ... the debtorhas committed any act specified inparagraph (2) ... of this subsection, onor within one year before the date ofthe filing of the petition, or during thecase, in connection with another case,under this title or under the BankruptcyAct, concerning an insider.

11 U.S.C. § 727(a)(7). The act forbidden by § 727(a)(2) isthe making of transfers of property with the intent to hinder,delay, or defraud creditors. Specifically, § 727(a)(2) states:

The court shall grant the debtor adischarge, unless ... the debtor, withintent to hinder, delay, or defraud acreditor or an officer of the estatecharged with custody of propertyunder this title, has transferred,removed, destroyed, mutilated, or haspermitted to be transferred, removed,destroyed, mutilated, or concealed ...property of the debtor, within one yearbefore the date of the filing of thepetition; or ... property of the estate,after the date of the filing of thepetition.

Id. § 727(a)(2).

[13] Although we have never had occasion to construe 11U.S.C. § 727(a)(7), we think the statute is clear. To prevailon a claim invoking § 727(a)(7) and § 727(a)(2) together, a

creditor must establish that (1) an insider relationship exists,and that (2) within one year of the filing of the debtor'spersonal bankruptcy case, (3) there was a transfer, removal,destruction, mutilation, or concealment, (4) of the propertyof the insider or of the estate of the insider, (5) by thedebtor, (6) with the intent to hinder, delay, or defraud theinsider's creditors. Other circuits have applied § 727(a)(7) inthis straightforward way. See, e.g., In re Watman, 458 F.3d26, 31–35 (1st Cir.2006); In re Krehl, 86 F.3d 737, 741–44(7th Cir.1996).

*11 [14] Here, the bankruptcy court properly determinedthat Harley Kane's misconduct in the Kane Firm's Chapter11 case barred his own discharge in Chapter 7 pursuantto § 727(a)(7) and § 727(a)(2) taken together. There is nodispute that the Kane Firm is an “insider” with respect toHarley Kane. The term “insider” under the Bankruptcy Codeis defined at 11 U.S.C. § 101(31). Where, as here, the debtor isan individual, the term “insider” encompasses a “partnershipin which the debtor is a general partner.” Id. § 101(31)(A)(ii). Harley Kane was one of two general partners in the KaneFirm; the Kane Firm is his insider. Moreover, Harley Kanecaused the Kane Firm to pay his personal real estate taxesamounting to some $30,000 on March 24, 2009, only sixdays before he filed his personal bankruptcy petition. He doesnot dispute that a transfer occurred, nor does he challenge atthis stage the bankruptcy court's finding that he transferredproperty of the Kane Firm.

[15] [16] Finally, the bankruptcy court found that HarleyKane caused the Firm to pay his personal real estate taxobligations with the intent to hinder, delay, or defraud theStewart Firms. “We review for clear error the bankruptcycourt's factual determination that a debtor intended to hinder,delay, or defraud a creditor.” In re Jennings, 533 F.3d at 1338.“Deference to the bankruptcy court's findings is particularlyappropriate” in this context “because the intent determinationwill often depend on that court's assessment of the debtor'scredibility.” Id. (internal quotation marks omitted). On thisrecord, we find no clear error in the bankruptcy court'sassessment of Harley Kane's intent. To block a debtor'sdischarge pursuant to § 727(a)(2), a creditor is not requiredto adduce direct evidence of a debtor's bad intent. Id. at 1339.“Since it is unlikely that a debtor will admit that he intendedto hinder, delay, or defraud his creditors, the debtor's intentmay be established by circumstantial evidence or inferredfrom the debtor's course of conduct.” Id. Here, the bankruptcycourt's determination of Harley Kane's bad intent was amply

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 9

supported by circumstantial evidence and inferences drawnfrom that evidence.

On May 20, 2009, the record in the Chapter 11proceeding revealed a telling colloquy between counseland the bankruptcy court. Harley Kane's attorney askedthe bankruptcy court to delay the effectiveness of theorder dismissing the Chapter 11 petitions of Harley Kane,Charles Kane, and the Kane Firm, claiming that the Kanesneeded time to unwind their practice. Counsel for the Kanesexplained that, once the dismissal order took effect, theKanes “would anticipate the garnishment” of the Kane Firm'saccounts by the Stewart Firms, leaving the Kanes with “nofunds to pay anything .” In response, counsel for the StewartFirms expressed concern about the “bad faith dissipation ofassets” that might occur in the interim. The bankruptcy courtdelayed the effectiveness of the order until March 30, but itauthorized the Kane Firm to pay only those expenses incurredin the ordinary course of business. Furthermore, the courtspecifically prohibited distributions to the Kanes without aseparate court order.

*12 Two business days later, Harley Kane caused the KaneFirm to pay his personal real estate taxes. Notably, he neverbrought the tax payments to the attention of the bankruptcycourt. Rather, the court only learned of the contested transferswhen the Chapter 7 trustee for the Kane Firm filed an

adversary proceeding to recover them. Moreover, when thetax collector agreed to settle the adversary proceeding bypaying to the Chapter 7 trustee for the Kane Firm the entireamount received by the tax collector, the Kanes and the KaneFirm objected to the settlement. Against all of this evidenceof bad intent, Harley Kane offers only his own testimony toargue that: (1) he did not know the transfer was prohibited,and (2) he contacted the bank to reverse the payments once

he realized his mistake. 4 But, the bankruptcy court foundHarley Kane not to be credible. There was no clear errorin the bankruptcy court's finding that Harley Kane “knewof” the bankruptcy court's May 20 ruling and “caused theFirm to pay his personal real estate tax obligations withthe intent to hinder and delay the [Stewart Firms].” Theevidence supports the inference drawn by the trial judgethat Harley Kane—anticipating the garnishment of the KaneFirm's accounts—appropriated the Firm's funds while he stillcould. Thus, the bankruptcy court properly denied HarleyKane's discharge pursuant to § 727(a)(7) and § 727(a)(2)

when read in concert. 5

AFFIRMED.

Parallel Citations

59 Bankr.Ct.Dec. 193

Footnotes

* Honorable R. David Proctor, United States District Judge for the Northern District of Alabama, sitting by designation.

** Honorable Orinda Evans, United States District Judge for the Northern District of Georgia, sitting by designation.

1 The Stewart Firms also brought separate adversary claims against the Kanes under 11 U.S.C. § 727(a)(2) (applied directly, not in

conjunction with § 727(a)(7)), § 727(a)(5), and § 523(a)(4). The bankruptcy court adjudicated these claims in favor of the Kanes,

and the Stewart Firms did not appeal.

2 With the consent of the parties, the bankruptcy court held a single hearing because the adversary proceedings were identical and

based on the same underlying facts.

3 While § 523(a)(6) renders nondischargeable any debt specifically arising from a willful and malicious injury by the debtor, misconduct

triggering § 727(a)(2)-(7) more broadly prevents a debtor from discharging otherwise dischargeable debts.

4 Harley Kane also claims that the tax payments were “preferential transfers,” which allegedly cannot form the basis of a claim under

§ 727(a)(7). See 11 U.S.C. § 547 (defining preferences). Like the district court, we decline to address this argument because Harley

Kane did not raise it in his initial brief below. See Davis v. Coca–Cola Bottling Co. Consol., 516 F.3d 955, 972 (11th Cir.2008) (“It

is well settled in this circuit that an argument not included in the appellant's opening brief is deemed abandoned.”).

5 On appeal, the Kanes also claim that the bankruptcy court improperly gave collateral estoppel effect in the Chapter 7 adversary

proceeding to certain facts established in: (1) a related state court action, and (2) a related Chapter 11 proceeding. As the bankruptcy

court repeatedly observed, however, the facts given preclusive effect served only to bolster the evidence directly adduced over the

course of a consolidated six-day hearing in the Kanes' Chapter 7 cases. The bankruptcy court was careful to explain that the evidence

established at the Chapter 7 hearing was independently sufficient to ground its legal conclusions. We agree, and thus we decline to

address the Kanes' collateral estoppel argument.

In re Kane, --- F.3d ---- (2014)

59 Bankr.Ct.Dec. 193

© 2014 Thomson Reuters. No claim to original U.S. Government Works. 10

End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.