DUNKIN DONUTS JUDGMENT NOT CONCLUSIVE ON INTENT TO DECEIVE FOR BK DISCHARGE

The situation for discussion is a debtor with a state court judgment against him for a transfer of stock that the judgment says was made to place the stock beyond the reach of creditors. After the state court judgment occurs, debtor thereafter files for chapter 7 relief. Creditor then files an adversarial complaint to object to the discharge of the State court judgment. This certainly sounds like a slam dunk case for creditor who will present the state court judgment as conclusive evidence of fraud excepting the claim from discharge. For instance, if there is a state court judgment for rent for failure to surrender the premises to landlord, and debtor files for bankruptcy relief, landlord might object to the discharge of the judgment on the ground that the judgment clearly shows that debtor intended to cause him harm by failing to surrender the leased premises immediately. Was there intent to cause damage excepting the claim from discharge? In the back rent case, the bankruptcy court ruled in favor of my client discharging $76,000 of commercial back rent saying that the state court judgment did not find that the failure to surrender leased premises was not intentional.

 But what about the stock transfer judgment? In Re Kuncman, debtor’s husband bought a boat from the plaintiff. In 1998, debtor’s husband became the sole shareholder of a corporation that owned two Dunkin Donuts franchises. In 1999, he transferred the shares to the debtor, who worked as a school teacher. He also transferred ownership of the family home to the debtor. The debtor’s husband continued to manage the corporation and was paid by it. In 2004, the plaintiff sued debtor’s husband for nonpayment of a note used to finance the boat’s purchase. Debtor offered to pay plaintiff with a lifetime supply of Dunkin Donuts. Debtor refused the payment offer claiming that he only ate Starbucks donuts. Plaintiff obtained a judgment against debtor’s husband for $96,042. Then, in October 2007, plaintiff sued the debtor alleging that the stock was transferred to debtor in order to place it beyond the reach of the husband’s creditors. The state court entered summary judgment against the debtor in the amount of $96,042. After the debtor filed for Chapter 7 relief, plaintiff filed an adversarial complaint asserting that its claim was excepted from discharge pursuant to Section 523(a)(2). That provision of the bankruptcy code says that a claim for “money… obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition” is EXCEPTED from discharge.

Plaintiff was so confident of its complaint objecting to discharge that it immediately filed a motion for summary judgment. To obtain a summary judgment, a party needs to prove that there is no genuine dispute as to any material fact and that it is entitled to judgment as a matter of law. Surprise! The bankruptcy court denied the motion for summary judgment, finding that ‘res judicata’ (a previous judgment on the same issue) did not apply, and holding that the state court judgment failed to make a clear finding regarding the debtor’s intent. At trial, the plaintiff called no witnesses. “This court previously concluded that the State Court Decision was insufficient to establish intent. The additional exhibits, consisting of the complaint, the motion for summary judgment and related exhibits, including the debtor’s deposition testimony, do not suffice to prove the debtor acted to deceive or defraud the plaintiff. The debtor testified that she was required by Dunkin Donuts to hold the shares of the franchises from Mr. Kuncman, that she believed she received the transfer of the martial property as a gift from Mr. Kuncman, and that she was aware that money from the franchises was being used to pay the mortgage on the marital home. Plaintiff did not present any evidence to controvert this testimony nor did plaintiff challenge the debtor’s credibility. Plaintiff failed to prove debtor acted with intent to defraud. $96,042 CLAIM IS DISCHARGED.

 Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.