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Smith v. Mid-South Maintenance, Inc.

United States District Court, N.D. Mississippi

March 25, 2019

STEPHEN PAUL SMITH And JESSICA NICHOLE SMITH APPELLANTS
v.
MID-SOUTH MAINTENANCE, INC., et al APPELLEES

          ORDER

          MICHAEL P. MILLS, UNITED STATES DISTRICT JUDGE

         This is an appeal from a March 22, 2018 final judgment entered by U.S. Bankruptcy Judge Jason Woodard against appellants Stephen Paul Smith and Jessica Nichole Smith in the amount of $98, 942.00. Judge Woodard reached his ruling after conducting a three-day trial on November 29, 30, and December 1, 2017. In a thirty-five page order explaining his ruling, Judge Woodard found appellants' debts to be nondischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6), based on a conclusion that they had knowingly received funds which were embezzled by Kimberly Cray Burk from appellee Mid-South Maintenance, Inc. It is undisputed that Kimberly, who is Jessica's mother and Stephen's mother-in-law, has a lengthy history of embezzlement, and she is presently serving her third incarceration for this offense. In their appeal, Stephen and Jessica take issue with a number of procedural and substantive rulings by Judge Woodard, but, for the reasons discussed below, this court concludes that these objections are not well taken and that Judge Woodard's ruling is due to be affirmed.

         STANDARD OF REVIEW

         On appeal, a bankruptcy court's findings of fact are reviewed for clear error, and issues of law are reviewed de novo. UTSA Apts. L.L.C. v. UTSA Apts. 8, L.L.C., 886 F.3d 473, 485 (5th Cir. 2018). A bankruptcy court's factual finding is "clearly erroneous only if on the entire evidence, the court is left with the definite and firm conviction that a mistake has been committed." In re Dennis, 330 F.3d 696, 701 (5th Cir. 2003) (quoting Hibernia Nat'l Bank v. Perez, 954 F.2d 1026, 1027 (5th Cir. 1992)). In reviewing factual findings, this court "must give due regard . . . to the opportunity of the [bankruptcy] court to judge the credibility of the witnesses." Hibernia, 954 F.2d at 1027 (quoting Fed.R.Civ.P. 52(a)) (alteration in original).

         I. DID THE BANKRUPTCY COURT ERR AS A MATTER OF LAW BY DENYING APPELLEES' MOTION TO DISMISS UNTIMELY FILED COMPLAINT?

         This court considers first what it regards as the primary issue in this appeal, namely whether Judge Woodard erred in finding that a June 1, 2017 Agreed Order which extended the time for appellees to file an objection to “discharge” should also be read as extending the time for them to file an objection to “dischargeability” of the debts at issue in this case. In objecting to Judge Woodard's ruling, appellants emphasize that the terms “discharge” and “dischargeability” are distinct ones in the Bankruptcy Code. As noted by the Ninth Circuit:

Discharge and dischargeability “refer to distinct concepts and cannot be used interchangeably” because they “are based on separate policies and are governed by distinct procedural rules.” In re Billings, 146 B.R. 431, 435 (Bankr. N.D.Ill. 1992). Denial of discharge under 11 U.S.C. § 727 is a remedy that “punishes debtors for misconduct in the bankruptcy process.” Latman v. Burdette, 366 F.3d 774, 782 (9th Cir. 2004) (emphasis added) (citing 11 U.S.C. § 727(a)). . . . In contrast, the rationale for § 523(c)-which allows a creditor to have a specific debt declared nondischargeable-“is that the debtor acted in an improper manner at the time [that] he or she incurred the specific debt.” Billings, 146 B.R. at 434.

Willms v. Sanderson, 723 F.3d 1094, 1101 (9th Cir. 2013).

         The meaning of these two terms is of considerable importance in this case, since it seems clear that, if the deadline for filing objections to dischargeability under 523(c) was not extended, then appellees failed to object in a timely manner to the dischargeability of appellants' debts. Judge Woodard ultimately found that Stephen and Jessica's debts were non-dischargeable, and any conclusion that appellee's objections to dischargeability were untimely might well serve to cast doubt upon the legal basis for that ruling.

         In considering these issues, this court first notes that this appellate issue involves a mixed question of fact and law since, in making his ruling, Judge Woodard relied both upon his factual findings and, implicitly, upon a legal interpretation of his authority to take action based upon those findings. Judge Woodard's December 14, 2016 order reads in relevant part:

On June 7, 2016, the Court held a telephonic status conference in these cases. Jeff Collier appeared on behalf of the chapter 13 trustee, Hugh Armistead appeared on behalf of the plaintiffs, and Robert Cornelius appeared on behalf of each of the defendants. At the telephonic hearing, the parties understood that the plaintiffs were going to be filing a [sic] adversary proceedings regarding their objections to discharge or dischargeability against all of the debtors. The plaintiffs claims against the defendants in these three adversary proceedings are based on the defendants' alleged involvement in the same fraudulent scheme, and thus all negotiations regarding and the timeline for filing complaints were consolidated into a single discussion at the telephonic hearing. Based on the agreement of the parties, on July 7, 2016, the Court entered a consent order extending deadlines in the case (Jones Bankr. Dkt. #34). The consent order provided that the plaintiffs had 45 days from the entry of that order within which to “commence its adversary proceeding.” In the Burk and Smith cases, the parties also agreed to extend the time to “object to the discharge of the Debtor” until August 22, 2016 (Burk Bankr. Dkt. #26; Smith Bankr. Dkt. #27). It is clear to the Court that the parties to these agreed orders intended that the orders extend the deadline for complaints objecting either to the debtor's general discharge under 11 U.S.C. § 727 or to the dischargeability of the individual debts owed to the plaintiffs under 11 U.S.C. § 523. In addition, the Court also intended these orders to extend the deadline to file complaints objecting to the debtors' discharge -- either the general discharge under §727 and/or the dischargeability of certain debts under §523. The plaintiffs filed the Complaints in the adversary proceedings on August 22, 2016, making the complaints timely filed. (citations omitted) Accordingly, the Motion to Dismiss Complaint are due to be denied as to the statute of limitations issue. (emph. added)

[Slip op. at 3].

         Judge Woodard thus based his ruling largely upon his findings of the parties' intent, as expressed in the June 7 telephonic hearing, and it seems clear that these factual findings are subject to a “clearly erroneous” standard of review. In arguing that Judge Woodard erred in this regard, appellants write in their reply brief that:

On page seven of their brief, appellees rely on an interlocutory order entered by the bankruptcy court on December 14, 2016, referring to a telephonic hearing conducted on June 7, 2016. The bankruptcy court states in the interlocutory order that the parties and the court intended for the deadlines to be extended for complaints objecting either to the debtors' general discharge under 11 U.S.C. § 727 or to the dischargeability of the individual debts owed to plaintiffs under 11 U.S.C. § 523. However, the case docket sheet is devoid of any mention of the telephonic hearing, no record appears to have been made and no order was subsequently entered altering the terms of the agreed order entered on June 1, 2016. Furthermore, the telephonic hearing on June 7, 2016, was six days after the agreed order was entered on June 1, 2016, and the bankruptcy court could not have possibly known the intentions of the parties when the first agreed order was entered.

[Reply brief at 5-6].

         In the court's view, this argument falls well short of casting doubt upon Judge Woodard's finding that the parties intended to extend the deadlines to object to both “dischargeability” and “discharge.” In so stating, the court initially observes that appellants' argument has a somewhat disingenuous quality to it, since it appears to cast doubt upon matters which, they later concede, actually occurred. Indeed, in one sentence of their argument, appellants appear to question whether the June 7, 2016 telephonic hearing with Judge Woodard actually took place, noting that the docket contains no reference to it. In their next sentence, however, appellants flatly assert that “the telephonic hearing on June 7, 2016, was six days after the agreed order was entered on June 1, 2016.” [Id.] Certainly, appellants are in a position to know whether the phone conference with Judge Woodard actually took place, and since they seem to acknowledge that it did, this court does not believe that the docket's silence regarding this event is of any particular significance.

         In a similar vein, this court notes that appellants have submitted no evidence contesting Judge Woodard's finding that the parties led him to believe that they intended to extend the deadlines for filing objections to both dischargeability and discharge. The closest appellants come to doing so is when they write that “the bankruptcy court could not have possibly known [at the June 7 hearing] the intentions of the parties when the first agreed order was entered” six days previously. This court disagrees. In the court's view, if the statements of counsel at the June 7 hearing led Judge Woodard to believe that their intent was to extend the deadlines to object to both dischargeability and discharge, then it is entirely logical to assume that they had the same intent six days previously. Certainly, appellants provide this court with no proof (or even arguments) suggesting that any events had taken place in the intervening six days which might have altered their intent vis a vis the extension of relevant deadlines.

         In light of the foregoing, this court has little difficulty in concluding that Judge Woodard's factual finding that the parties' intent was to extend the deadlines for objecting to both dischargeability and discharge was not clearly erroneous. Having so found, this court next considers whether Judge Woodard erred in, at least implicitly, finding that he had the legal authority to enforce what he found to be the parties' intent in executing the Agreed Order, rather than relying on a strict reading of its actual terms. This issue of law is to be resolved on a de novo basis, but this court has no reason to question Judge Woodard's ruling even under this standard. This court is, by inclination, opposed to “gotcha” litigation in its various forms, and, ...


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