Friday, February 16, 2018
Bankruptcy Plan Approval Doesn’t Have Broad Effect
Opinion Affirms Determination Debt Can Later Be Found to Be Non-Dischargeable
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday affirmed a decision that a judge’s confirmation of a bankruptcy plan did not preclude that judge from later holding that a debt was nondischargeable because it stemmed from fraud.
In a brief memorandum opinion, a three-judge panel hailed the Bankruptcy Appellate Panel’s “well-reasoned and thorough memorandum decision” of March 8, 2016.
There, the panel upheld the determination by Bankruptcy Judge Maureen A. Tighe of the Central District of California that contractor Andrew J. Reder’s $110,000 debt to one-time friend Paul Fisher is nondischargeable under 11 U.S.C. §523(a)(2)(A).
That section precludes dischargeablity of a debt where money was gained through “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.”
Money for Investment
Reder gained the money from Fisher in 2010 at a time when Reder was in Thailand. He said he needed the money to buy a rubber tree farm but could not access his account from there and would repay the money upon his return to the United States.
Fisher wired the money. Reder returned to the U.S. and did not make a repayment, prompting Fisher’s Los Angeles Superior Court action, filed in the San Fernando Valley Courthouse in April 2012.
Fisher later learned that Reder allegedly told friends in Thailand that he had hoodwinked a “Jew Boy” into sending him money, spending only $12,000 of it on the purchase of the rubber tree farm, facilitating that purchase through a “sham” marriage to a Thai woman. He used the bulk of the money Fisher sent, it appeared, on such purposes as renovating his house in Thailand and elective plastic surgery.
Superior Court Judgment
A superior court judgment was entered in Fisher’s favor for $135,670.44—which Reder sought to avoid paying through declaring bankruptcy on Dec. 11, 2013.
On Oct. 31, 2014, Fisher filed an adversary proceeding in the bankruptcy court. While that was pending, Tighe confirmed Reder’s bankruptcy plan—which did not include any payment to Fisher.
When Fisher’s claim of non-dischargeablity came before Tighe on Aug. 17, 2015, Reder’s lawyer pressed the contention that the matter was moot because the bankruptcy plan had been confirmed and the bankruptcy case had been closed.
Tighe held that the $110,000 debt was nondischargeable under §523(a)(2)(A) and entered judgment for Fisher in that amount.
At issue was an interpretation of §1141. The Bankruptcy Appeals Panel pointed out:
“Section 1141(a) provides that ‘provisions of a confirmed plan bind the debtor,...and any creditor..., whether or not such creditor...has accepted the plan.’ ”….Subsection (a) must be read in conjunction with subsection (d)(2), which states that ‘[a] discharge under this chapter does not discharge a debtor who is an individual from any debt excepted from discharge under section 523 of this title.’ ”
Reder argued that the gist of the statute is that all debts are discharged except those that have already been proclaimed nondischargeable. The panel responded:
“If Congress intended the meaning that Mr. Reder advocates, §1141(d)(2) would say that plan confirmation does not discharge an individual debtor from ‘any debts that the court has determined, on or before the entry of the confirmation order, are not discharged under §523….’ But Congress did not include these additional words, or anything like them, in § 1141(d)(2).”
It added that in the case of an individual, confirmation of a plan does not spell an end to indebtedness; that comes, it said, when an order of discharge is made following payment of all debts.
Interpretation of Order
The panel went on to say:
“[W]e see no reason to disturb the bankruptcy court’s interpretation of its own confirmation order.
“It is well accepted that, when a court enters an order and later interprets that order, its interpretation is entitled to deference.”
The panel said that policy grounds compel a rejection of Reder’s position, explaining:
“Courts should also be encouraged to take an appropriate amount of time to decide the often complicated matters presented in dischargeablity proceedings. If courts were precluded from confirming plans until they decided all adversary proceedings, creditors would be forced to wait much longer to receive distributions.”
The case before the Ninth Circuit was In re Reder, No. 16-60028.
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