LLC v. Ernest Ferrucci (2009)

MEMORANDUM OF DECISION

PROCEDURAL BACKGROUND

The Plaintiff, CUDA & Associates, (hereinafter “CUDA”) commenced this action by service of process against the Defendant, Ernest Ferruci (hereinafter “Ferruci”) on March 3, 2008.   The plaintiff CUDA is in the business of purchasing debt, including credit card accounts.   The plaintiff also pursues the collection of credit card accounts.

The claim included an affidavit of debt alleging that the defendant failed to pay the balance due on his account of $14,904.43 and that his last payment on this debt was made on July 31, 2005.   The plaintiff is also seeking statutory interest at 10% per annum from February 1, 2006 to August 31, 2009 in the amount of $5,336.28 and an attorneys fee $3,025.00 pursuant to Connecticut General Statutes § 42-150aa.   The claim contained a notice under the Fair Debt Collection Practices Act, 11 U.S.C. § 1692 et seq, that unless the defendant within thirty days after receipt of the notice disputed the validity of the debt, the debt will be considered to be valid by the plaintiff.   On April 14, 2008, the plaintiff filed a motion for default for the defendant's failure to plead.   On April 28, 2008, the court granted the motion for default.   On May 2, 2008, the defendant filed an answer denying each and every allegation of the plaintiff's complaint.   A hearing was scheduled for December 2008.

On December 26, 2008 the defendant filed a motion for permission to file a motion for summary judgment against the plaintiff claiming that the motion for summary judgment will claim that the debt has been discharged in bankruptcy and the granting of the motion for summary judgment will dispense with the necessity for a trial.   The court denied the motion.

On January 23, 2009, the defendant filed a request for leave to amend his answer.   The amended answer stated “Defendant has no knowledge as to the allegations of the plaintiff's complaint ans [sic] leaves the plaintiff to its proof.”   The defendant also asserted a special defense stating that the “debt which is the basis of the plaintiff's complaint has been discharged in bankruptcy.”   On January 26, 2009 the plaintiff filed a denial to the defendant's special defense.   A hearing was held on June 16, 2009 where the plaintiff offered evidence of the debt and the defendant's failure to pay said debt.   The defendant offered evidence of the bankruptcy petition and the notice of discharge.   There was no evidence that the plaintiff was included on the defendant's list of creditors nor was there any evidence indicating that the plaintiff had notice of the defendant's bankruptcy proceedings.

The parties then filed post-trial briefs in support of their positions on August 31, 2009.

FACTUAL FINDINGS

The court makes the following findings by a preponderance of the evidence:  The plaintiff, CUDA is in the business of purchasing debt including credit card accounts and pursuing collection of the accounts.   The defendant applied for and obtained a credit card with First USA Bank. Thereafter, the credit card account was transferred to Chase Bank USA and then on September 24, 2007, Unifund Portfolio A, LLC purchased the account from Chase Bank USA. Unifund Portfolio A, LLC then assigned the defendant's account to Unifund CCR Partners.   On February 1, 2008, the account was assigned, transferred and sold to the plaintiff CUDA. The defendant used the credit card and incurred charges for goods and services.   The defendant used the credit card under an express or implied promise to repay advances made on behalf of the defendant by the credit card company for purchases or cash advances together with interest or finance charges.   The defendant defaulted by failing to pay for such advances.   The amount due from the defendant through January 31, 2006 is $14,904.43.   The defendant failed to offer any credible evidence to contradict that he incurred the debt, failed to pay it, that the plaintiff is the owner of the debt and is entitled to collect on it, and that the amount of the debt is as stated, supra.

On May 5, 2008, the defendant filed a petition for Chapter 7 bankruptcy.   The bankruptcy was a “no asset” case in which there were no assets for distribution to creditors.   All creditors who received notice of the bankruptcy were directed not to submit claims because there were no assets for distribution.   On August 12, 2008, the defendant received a discharge in bankruptcy.   There was no evidence submitted at trial that the plaintiff was included on the defendant's list of creditors nor was there any evidence indicating that the plaintiff had notice of the defendant's proceedings.   The plaintiff's witness, Garamella, testified that the plaintiff first learned of the bankruptcy through the defendant's attorney after the present action was commenced.

LEGAL DISCUSSION

The defendant's special defense states that the “debt which is the basis of the plaintiff's complaint has been discharged in bankruptcy.”   The plaintiff contends that the defendant cannot claim that the debt was discharged in bankruptcy because there is no evidence that the plaintiff was listed in the bankruptcy as a creditor or that it had any notice of the bankruptcy proceeding until after its conclusion.

The plaintiff argues that the defendant violated the general rule concerning the listing of creditors in a bankruptcy proceeding.   This can be found in 11 USC § 523(a)(3)(A) which provides that a discharge does not discharge a debtor from any debt “neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit ․ timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing.”   The rationale behind this rule, the plaintiff argues, is to allow the creditor an opportunity to be heard and to protect the creditor's interest.¹

The plaintiff cites Colonial Surety Company v. Weizman, 564 F.3d 526 (1st Cir.2009), for support.   There, in a 1998 indemnity agreement, Weizman had promised reimbursement to Colonial for any losses, costs and expenses incurred by plaintiff on bonding for construction contracts entered into by the defendant.   Colonial filed suit in federal district court against Weizman for failure to uphold this promise of repayment.   Weizman claimed that any liability of his to repay Colonial was discharged because he had filed for Chapter 7 bankruptcy and subsequently received a discharge in April 2006.   The district court disagreed and instead found in favor of Colonial.   On appeal, the court affirmed the district court's ruling, finding in favor of the general rule that “if the debtor fails to list a supposed creditor's claim-meaning that the creditor will not be notified of the opportunity to participate in the proceeding (and the creditor does not otherwise happen to know of the bankruptcy), the debt is not discharged.”  Id. at 530.

The defendant in this case argues the case law is clear that a discharge in a “no asset” case discharges an unlisted debt even if the creditor did not receive notice or had no knowledge of the bankruptcy, so long as the debt is not non-dischargeable under 11 U.S.C. § 523(a)(2), (4) or (6).   The defendant does cite relevant case law (although the cited cases are neither from Connecticut nor the second circuit) that explains the rationale behind the “no-asset” exception.   In the defendant's memorandum of law, he notes that “in a Chapter 7 ‘no asset’ case, creditors are normally notified not to file claims which means that in such cases there is no bar date for filing proofs of claim ․ [the omitted creditor] is therefore in the same position as the notified creditors since they did not file proofs of claim either, pursuant to the instructions of the bankruptcy court.”   The Superior Court of Connecticut has issued rulings on whether a failure to list a debt in a “no asset” Chapter 7 bankruptcy discharge actually discharges that debt.   The case law seems to adopt the defendant's position and rationale.   In Smyers v. City of Bridgeport, Superior Court, judicial district of Fairfield, Docket No. CV 044002029 (January 6, 2006, Maiocco, J.T.R.) [40 Conn. L. Rptr. 546], the court held that there need not be actual scheduling of a creditor in a no-asset bankruptcy matter to render an otherwise dischargeable debt discharged.   There, plaintiff was discharged of her debts and her case was classified as a “No-Asset” estate on November 27, 2001.   The plaintiff did not list the City of Bridgeport as a debtor on her bankruptcy petition despite her having accumulated debt from the city's personal property tax assessments on her automobile for year 1999 and year 2000.   In March 2002, the plaintiff was forced to pay the taxes to the city despite telling the tax collector's office of her discharge.   She then sued the City for reimbursement.   The City's defense contained four special defenses, three of which are relevant to the case before the court:  (1) the city was not listed as a creditor on the plaintiff's bankruptcy petition;  (2) the City had no notice of the bankruptcy filing;  (3) the plaintiff never moved to reopen her case to name the City as a creditor.   The Court concluded that the defenses of lack of notice and failure to schedule were “unavailing” because, “reopening the plaintiff's matter in Bankruptcy Court [to include the City on the petition] would put the City in no better or worse position.”   Smyers v. City of Bridgeport, supra, Docket No. CV 04 4002029.

The court cited In re Refino, 288 B.R. 320 (2003) for support.   There, the court denied the debtor's motion to reopen a no-asset Chapter 7 case for the purposes of adding on three creditors that were omitted from the debtor's original petition.   The court acknowledged that “[a]lthough there is not complete agreement among the courts on the issue, the more recent and better reasoned cases hold that, in No-Asset Cases, actual scheduling of a creditor is not necessary to render an otherwise dischargeable debt discharged.   See, e.g., Beezley v. California Land Title Co. (In re Beezley ), 994 F.2d 1433 (9th Cir.1993) (per curiam);  In re Rollinson, 273 B.R. 352 (Bankr.D.Conn.2002) (Dabrowski, J.).   The foregoing has been held to apply even if the failure to schedule was not inadvertent.   See, e.g., Watson v. Parker (In re Parker), 313 F.3d 1267, 1268 (10th Cir.2002);  In re Woolard, 190 B.R. 70 (Bankr.E.D.Va.1995).   Thus, the Objecting Creditors are no worse off if the Schedules are amended as proposed than if they are not.   That is because, as established by the foregoing line of cases, Section 523(a)(3)(A) does not apply in a No-Asset Case.” Id. at 322-23.

CONCLUSION

Accordingly, because Connecticut case law is clear, that in a no-asset Chapter 7 bankruptcy case, even unlisted debts are dischargeable, the court finds in favor of the defendant on his special defense.

Wilson, J.

December 16, 2009

FOOTNOTES

FN1. It should also be noted that debts can fall into a non-dischargeable category under 11 U.S.C. § 523(a)(2), (4) or (6).   Debts will not be discharged if they are for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by falsity and fraud (11 U.S.C. § 523(a)(2)), those for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny (11 U.S.C. § 523(a)(4)) or those for willful and malicious injury by the debtor to another entity or to the property of another entity (11 U.S.C. § 523(a)(6)).   See 9D Am.Jur.2d Bankruptcy § 3619..  FN1. It should also be noted that debts can fall into a non-dischargeable category under 11 U.S.C. § 523(a)(2), (4) or (6).   Debts will not be discharged if they are for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by falsity and fraud (11 U.S.C. § 523(a)(2)), those for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny (11 U.S.C. § 523(a)(4)) or those for willful and malicious injury by the debtor to another entity or to the property of another entity (11 U.S.C. § 523(a)(6)).   See 9D Am.Jur.2d Bankruptcy § 3619.

Wilson, Robin L., J.