WULSTER v. PFEIFFER
Filing
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MEMORANDUM OPINION filed. Signed by Judge Mary L. Cooper on 2/22/2012. (eaj)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
In re:
GREGG F. WULSTER,
Debtor.
GREGG F. WULSTER,
Appellant,
v.
KAREN PFEIFFER,
Appellee.
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Bankruptcy No. 09-13388 (MBK)
Adv. Proc. No. 09-2015 (MBK)
CIVIL ACTION NO. 11-3407 (MLC)
MEMORANDUM OPINION
Appellant, Gregg F. Wulster (“Appellant”), appeals from part
of an order of the United States Bankruptcy Court for the
District of New Jersey (“Bankruptcy Court”) entered on March 18,
2011 (“3-18-11 Order”), in an adversary proceeding between
Appellant and Karen Pfeiffer (“Appellee”).
(Dkt. entry no. 1,
Not. of Appeal; dkt. entry no. 7, Appellant Br.)
The 3-18-11
Order, inter alia, ordered that Appellee was “entitled to entry
of a nondischargeable default judgment in the amount of
$15,800.00 with respect to debts due and owing . . . arising from
the unauthorized cash advances and forgeries.”
See Adv. Proc.
No. 09-2015, dkt. entry no. 53, 3-18-11 Order.
Appellee, the
complainant in the adversary proceeding, has opposed the appeal.
(Dkt. entry no. 8, Appellee Br.)
For the reasons stated herein,
this Court will affirm the part of the 3-18-11 Order that held
certain debts owed to Appellee to be nondischargeable.
BACKGROUND
Appellant and Appellee commenced a romantic relationship in
or around 1997, and had two children together.
Bankr. No. 09-
13388, dkt. entry no. 52, 3-17-11 Opinion (“Bankr. Op.”) at 3.
The relationship apparently deteriorated sometime around 2007.
Id. at 3-4.
Appellant filed a voluntary petition for relief under
Chapter 7 of the United States Bankruptcy Code (the “Code”) on
February 12, 2009.
See Bankr. No. 09-13388, dkt. entry no. 1.
The Bankruptcy Court appointed a Trustee on February 17, 2009.
See Bankr. No. 09-13388, dkt. entry no. 3.
Appellee brought an adversary proceeding against Appellant
on July 8, 2009 (the “adversary proceeding”).
2015, dkt. entry no. 1, Compl.
relief under 11 U.S.C. § 523.
Adv. Proc. No. 09-
The Complaint therein sought
Id.
Specifically, Appellee
alleged that certain debts were nondischargeable in Appellant’s
bankruptcy because Appellant (1) converted funds by forging
Appellee’s signature and taking cash advances against credit card
lines of credit, and (2) interfered with the sale of real
property held by Appellant and Appellee as tenants in common and
failed to fully buy the Appellee out of her share of the
property.
Id.
Default was entered against Appellant in the
adversary proceeding.
Adv. Proc. No. 09-2015, dkt. entry no. 7,
2
Entry of Default.
The allegations relating to the real property
are not at issue in this appeal, insofar as the Bankruptcy Court
found the debts arising from the sale of that property were
dischargeable.
3-18-11 Order at 2.
Relevant to this appeal,
Appellee alleged that between 2002 and 2004, Appellant “took cash
advances from various credit card accounts opened in [her] name
by forging [her] signature on credit card convenience checks” and
hiding the forgery by intercepting the credit card statements at
their shared residence.
Bankr. Op. at 4-5.
She also alleged
that Appellant converted proceeds from a settlement by forging
her signature on a $6,000 trust account check paid to Appellee in
satisfaction on a lemon law settlement on a Ford F350 truck
titled solely in Appellee’s name.
Bankr. Op. at 5.
Appellee moved to strike Appellant’s answer and affirmative
defenses for failure to provide discovery, and the Bankruptcy
Court entered an order granting that relief.
2015, dkt. entry no. 34, 11-16-10 Order.
Adv. Proc. No. 09-
The Bankruptcy Court
denied Appellant’s motion for reconsideration of the 11-16-10
Order on January 11, 2011.
no. 47, 1-11-11 Order.
Adv. Proc. No. 09-2015, dkt. entry
Before entering a default judgment
against Appellant in the adversary proceeding, the Bankruptcy
Court scheduled a proof hearing with respect to the alleged debts
described in the Complaint.
no. 35, Not. of Hr’g.
Adv. Proc. No. 09-2015, dkt. entry
The proof hearing was held on February 18,
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2011.
Adv. Proc. No. 09-2015, dkt. entry no. 49.
The Bankruptcy
Court reserved decision and permitted the parties to file posthearing submissions relating to the exact amounts due and owing
to Appellee, but ultimately relied upon the “Summary of Debts”
chart presented at the proof hearing.
Bankr. Op. at 10 nn.4-5;
id. at 12, Summary of Debts; Adv. Proc. No. 09-2015, dkt. entry
no. 50, Pl. Exhibits; dkt. entry no. 51, Def. Post-Trial
Submission.
The Bankruptcy Court considered Appellee’s complaint seeking
a declaration of nondischargeability of the monies owed her for
the alleged forgery of checks under the 11 U.S.C. § 523(a)(6)
exception for a “willful and malicious injury,” namely,
conversion, rather than the exception for fraud under 11 U.S.C. §
523(a)(2).
Bankr. Op. at 8 n.3.
Finding that in order to
prevail on that count, Appellee had to first establish that a
conversion occurred under New Jersey law, and second, that the
conversion was unlawful and malicious, the Bankruptcy Court found
that Appellant’s conduct did amount to conversion, and that the
conversion was willful and malicious within the meaning of 11
U.S.C. § 523(a)(6).
Bankr. Op. at 9-10.
Accordingly, the
Bankruptcy Court determined the amount of damages, finding that
Appellant had made unauthorized cash advances in the amount of
$44,037.30, but had already reimbursed the Appellee in the amount
of $21,297.15, and certain other balances had been satisfied,
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such that the amount remained owing to Appellee was $9,800.
at 10-11.
Id.
With respect to the lemon law settlement, the
Bankruptcy Court found that Appellant owed Appellee the proceeds
of the forged check, or $6,000.
Thus, the Bankruptcy Court
entered a nondischargeable default judgment in the amount of
$15,800 against the Appellant with respect to these debts.
Id. at 11; 3-18-11 Order at 2.
Appellant appeals from the Bankruptcy Court’s findings
regarding the amount of nondischargeable debt owed to Appellee,
complaining that “at the proof hearing . . . [Appellee] did not
have” a “bottom line amount due to” her, and states that he does
not “think it is fair that at a trial if a plaintiff is
unprepared after two years with the most important detail of all,
what is owed, and that the court give an extra ten days to come
up with a number after [Appellant] presented all [his] evidence.”
(Appellant Br. at ¶ 3.)
He contends that he actually overpaid
Appellee in reimbursing her for the misappropriated funds.
at ¶ 9.)
(Id.
He apologizes for not fully supporting this argument in
his post-proof hearing submission, and revisits the Bankruptcy
Court’s ruling striking his answer and affirmative defenses for
failure to provide discovery by arguing that misconduct by
Appellee and her attorney resulted in his failure to timely
respond to the motion to strike.
(Id. at ¶ 6.)
As to the lemon
law settlement, he states that he “now . . . has a document from
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[Appellee] stating she only wanted half the amount” and
requesting that the fact that he was without a vehicle be taken
into consideration.
(Id. at ¶ 10.)
Appellant contends that
Appellee’s own Summary of Debts chart shows that Appellant “paid
her $55,700.89” and that the Bankruptcy Court found that he owed
Appellee $44,037.30, and requests that the part of the 3-18-11
Order entering default judgment of nondischargeable debt of
$15,800 be “vacated/overturned.”
(Id. at ¶ 11.)
DISCUSSION
I.
Jurisdiction and Standard of Review
A district court has appellate jurisdiction over a
bankruptcy court’s final judgments, orders, and decrees.
U.S.C. § 158(a).
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Orders entering a default judgment may be
considered final orders.
See, e.g., In re Victor Int’l, Inc., 97
Fed.Appx. 365, 366 (3d Cir. 2004).
A district court reviews a
bankruptcy court’s “legal determinations de novo, its factual
findings for clear error, and its exercise of discretion for
abuse thereof.”
In re Am. Classic Voyages Co., 405 F.3d 127, 130
(3d Cir. 2005) (quotation and citation omitted); see
Fed.R.Bankr.P. 8013 (“On an appeal the district court . . . may
affirm, modify, or reverse a bankruptcy judge’s judgment, order,
or decree or remand with instructions for further proceedings.
Findings of fact, whether based on oral or documentary evidence,
shall not be set aside unless clearly erroneous. . . .”).
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II.
Nondischargeability of Debts Under Section 523
Section 523 of the Code provides exceptions to discharge of
debts in bankruptcy.
It provides that a discharge under, inter
alia, Chapter 7 of the Code “does not discharge an individual
from any debt . . . for willful and malicious injury by the
debtor to another entity or the property of another entity.”
U.S.C. § 523(a)(6).
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The party objecting to the dischargeability
of a debt bears the burden of proving by a preponderance of the
evidence that the particular debt falls within one of the
exceptions to discharge enumerated in Section 523(a).
Grogan v.
Garner, 498 U.S. 279, 291 (1991); In re Singer, No. 10-45, 2010
WL 3732944, at *4 (D.N.J. Sept. 17, 2010).
An injury is “willful and malicious” within the meaning of
Section 523 “when the actor purposefully inflicts injury or acts
in such a manner that he is substantially certain that injury
will result.”
In re Hawkins, 231 B.R. 222, 228 (D.N.J. 1999)
(citation omitted).
Mere reckless or negligent conduct does not
fall within the scope of Section 523(a)(6).
Kiwaauhau v. Geiger,
523 U.S. 57, 63-64 (1998).
The Bankruptcy Court found that the injury asserted by
Appellee was the conversion of funds from her lines of credit and
the lemon law settlement check, observing that “New Jersey law
defines conversion as ‘the intentional exercise of dominion or
control over personal property that seriously interferes with the
right of another to control it.’”
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Bankr. Op. at 8 (citing
Pollen v. Comer, No. 05-1656, 2007 WL 1876489, at *11 (D.N.J.
2007)).
The Bankruptcy Court observed that conversion “is not a
per se willful and malicious injury to the property of another,”
but the requisite mental state, knowledge that actual harm to the
creditor was substantially certain, may be established by
circumstantial evidence.
Bankr. Op. at 6, 9.
Appellant does not challenge the Bankruptcy Court’s finding
that Appellant converted funds from Appellee’s line of credits
and the lemon law settlement.
He makes an argument for the first
time on appeal that this conversion was not willful and malicious
because Appellee “told [him] to sign the checks on her behalf”
and because the conversion was done “to benefit [their] family
and expedite [their] family’s moving into the house [they] were
building together.”
(Appellant Br. at ¶¶ 6-7.)
However, these
new arguments may not be considered for the first time on appeal.
See, e.g., In re Howard Komendant, C.P.A., P.C., No. 10-2140,
2010 WL 2925167, at *2 (D.N.J. July 19, 2010).
The Bankruptcy Court found that Appellant had “offered no
just cause of excuse for his conduct” in converting the
Appellee’s funds, either before or after the proof hearing, and
therefore the circumstantial evidence established that Appellant
“knew that drawing over $40,000 on several of [Appellee’s] credit
cards, without express or implied consent, and forging her
signature in the process,” as well as his “calculated theft of
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the lemon law settlement proceeds,” were “substantially certain
to harm the [Appellant] . . . particularly . . . in light of
[Appellant’s] awareness and contribution to the parties’ mounting
debt,” so as to satisfy the Section 523(a)(6) standard by a
preponderance of the evidence.
Bankr. Op. at 10 (citing In re
Littleton, 942 F.2d 551, 554 (9th Cir. 1991)).
The Court finds
no error in the Bankruptcy Court’s determination.
Appellant argues, circularly, that because he overpaid
Appellee with respect to the debts owed her, “there was no
malicious intent or harm to [Appellee].”
(Appellant Br. at ¶ 7.)
This argument goes to the Bankruptcy Court’s determination of
damages, not willful and malicious intent.
The Bankruptcy
Court’s damages determination was a factual issue with which this
Court finds no clear error.
Appellant’s post-proof hearing
submission to the Bankruptcy Court contains no calculations or
specific allegations regarding credit card account balances or
the lemon law settlement proceeds that would lead the Court to
believe the Bankruptcy Court erred in accepting the Appellee’s
Summary of Debts chart as an accurate representation that $9,800
remained unpaid by Appellant of the willfully and maliciously
converted line of credit funds and $6,000 with respect to the
lemon law settlement.
51.
See Adv. Proc. No. 09-2015, dkt. entry no.
Similarly, Appellant’s argument regarding alleged
overpayments to Appellee entirely lacks support.
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(See Appellant
Br. at ¶¶ 9-10 (referencing “a handwritten agreement between
[Appellant and Appellee] of what [Appellant has paid Appellee]”
that Appellee “agreed to and used in her” Summary of Debts chart
and “a document from [Appellee] stating she only wanted half the
amount” of the lemon law settlement proceeds, but enclosing
neither).)
In contrast, Appellee supported the Summary of Debts
chart with annotated credit card statements showing the
disposition of the debts.
Adv. Proc. No. 09-2015, dkt. entry no.
50-2, Summary of Debts chart and supporting exhibits.
Having reviewed the parties’ submissions and the record
below, the Court finds no error in either the Bankruptcy Court’s
findings of fact or conclusions of law, which resulted in the
entry of a nondischargeable $15,800 default judgment against
Appellant.
The Court will therefore affirm the part of the 3-18-
11 Order of the Bankruptcy Court in issue.
CONCLUSION
For the foregoing reasons, the Court will affirm the part of
the 3-18-11 Order of the Bankruptcy Court entering a
nondischargeable default judgment of $15,800 against Appellant
and in favor of Appellee.
The Court will issue an appropriate
order.
s/ Mary L. Cooper
MARY L. COOPER
United States District Judge
Dated:
February 22, 2012
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