IN THE DISTRICT COURT OF THE VIRGIN ISLANDS
BANKRUPTCY DIVISION - ST. CROIX
In re: ) Chapter 7
)
KIPPY GORDON ROBERSON, )
)
Debtor. ) Case No. 1:14-bk-10007-MFW
)
)
JOSEPH THOMAS and )
INGRID THOMAS-JACKSON, )
Individually and as Personal )
Representatives of the Estate )
of Gilbert Thomas, )
)
Plaintiffs, )
)
v. ) Adv. No. 1:14-ap-01002-MFW
)
KIPPY GORDON ROBERSON, )
)
Defendant. ) Rel. Docs. 1, 4, 92, 93
)
OPINION1
Before the Court is the Complaint filed by Joseph Thomas and
Ingrid Thomas Jackson (the “Plaintiffs”), to except their claim
from discharge under section 523(a)(2)(A) of the Bankruptcy Code
(the “Code”). The Plaintiffs alternatively seek denial of the
Debtor’s discharge under section 727(a)(4)(A) of the Code. After
a trial on the merits and for the reasons set forth below, the
Court concludes that the Plaintiffs’ claim should be excepted
from discharge, but that the Debtor’s general discharge should
not be denied.
1 This Opinion constitutes the findings of fact and
conclusions of law of the Court pursuant to Rule 7052 of the
I. BACKGROUND
The background to this adversary proceeding is set forth in
the Court's Opinion dated May 15, 2017, granting in part the
Debtor’s Motion for Summary Judgment on the Plaintiffs’
Complaint. (Adv. D.I. 24.) A summary of those findings of fact
are stated below.
On April 18, 2008, the Debtor was dining at the Smugglers’
Cove where the Plaintiffs’ son, Gilbert Thomas, was employed.
During the evening, an altercation between Thomas and his
employer ensued and spilled into the dining area. The Debtor
intervened on the owner’s behalf and restrained Thomas. Thomas
subsequently went into the kitchen and returned carrying a knife.
When he refused to drop the knife, the Debtor, who had a permit
to carry a concealed handgun, shot and killed him. (Adv. D.I. 95
at 8-9, 48-49, & 81-82.) Tragically, Thomas stumbled out of the
restaurant and died near the gate where his mother was waiting to
drive him home.
The Plaintiffs filed a civil suit against the Debtor for the
wrongful death of their son. (Id. at 49.) The Debtor contended
that he acted in self-defense. Three weeks before the scheduled
trial, the parties reached a mediated settlement (the
“Settlement”) in which the Debtor agreed to pay the Plaintiffs
$100,000 beginning with a $5,000 deposit by January 17, 2014, and
$625 per month under a wage garnishment agreement, beginning
2
March 2014. (Ex. P-2.) The District Court entered a Consent
Judgment and dismissed the case. (Ex. P-13.) The Debtor did
not, however, sign the Consent of Garnishment or make any of the
payments required by the Settlement. (Ex. P-6; Adv. D.I. 94 at
20; Adv. D.I. 95 at 84.) The Plaintiffs subsequently filed a
Motion to Enforce the Consent Judgment. (Ex. P-14.)
Shortly before the hearing on the Motion to Enforce, the
Debtor filed a petition under chapter 7 of the Code. On August
28, 2014, the Plaintiffs filed a complaint seeking to except
their $100,000 claim from the Debtor’s discharge under section
523(a)(2)(A) or, alternatively, to deny the Debtor’s discharge in
full under section 727(a)(4)(A). (Adv. D.I. 1.)
Because the Court concluded that material facts were in
dispute, a trial was held on January 21 and 22, 2021. At the
conclusion of the trial, the Court granted the parties’ request
for leave to file post-trial briefs. Briefing was completed on
March 9, 2021, and the matter is ripe for decision. (Adv. D.I.
92 & 93.)
II. JURISDICTION
The Court has jurisdiction over this adversary proceeding,
which involves a determination of the dischargeability of a debt
and the Debtor’s entitlement to a general discharge. 28 U.S.C.
§§ 1334 & 157(b)(1), (b)(2)(I), & (b)(2)(J). The claims “stem[]
3
from the bankruptcy itself” and may constitutionally be decided
by a final order of the bankruptcy court. Stern v. Marshall, 564
U.S. 462, 499 (2011).
TIL. DISCUSSION
A. Burden of Proof
The grant of a discharge in bankruptcy is liberally
construed in favor of the debtor, while denial of a discharge (or
exceptions to the discharge) are strictly construed against
creditors. See In re Cohn,
54 F.3d 1108, 1113 (3d Cir. 1995)
(considering objection to discharge under § 523(a)); Rosen v.
Bezner,
996 F.2d 1527, 1531 (3d Cir. 1993) (considering denial of
discharge under § 727(a)). Under both section □□□ □□□ (2) (A) and
section 727 (a) (4) (A), the objecting creditor bears the burden of
proving the elements of nondischargeability by a preponderance of
the evidence. See Grogan v. Garner,
498 U.S. 279, 286-89 (1991)
(stating burden of proof under § 523(a)); Premier Capital, LLC v.
Crawford (In re Crawford),
841 F.3d 7 (lst Cir. 2016) (stating
burden of proof under § 727(a)); Carroll v. Prosser (In re
Prosser), No. Adv. 08-3011-JKF,
2012 WL 6737781, at *24 (Bankr.
D.V.1I. Dec. 20, 2012) (stating burden of proof under § 727(a)).
B. Analysis
1. Section 727 (a) (4) (A)
a. Standard of Review
A debtor may be denied a discharge, inter alia, if “the
debtor knowingly and fraudulently, in or in connection with the
case . . . made a false oath or account.” 11 U.S.C. §
727(a)(4)(A). To be successful, the plaintiff must demonstrate
that: “(1) the debtor made a false statement under oath; (2) the
debtor knew the statement was false; (3) the debtor made the
statement with the intent to deceive; and (4) the statement was
material to the bankruptcy case.” Giansante & Cobb, LLC v. Singh
(In re Singh),
433 B.R. 139, 154 (Bankr. E.D. Pa. 2010). A
debtor’s undervaluation of assets listed on the bankruptcy
schedules may form the basis to deny his/her discharge under
section 727(a)(4)(A). See Robinson v. Worley,
849 F.3d 577, 587
(4th Cir. 2017).
b. Parties’ Arguments
The Plaintiffs contend that the Debtor “knowingly and
fraudulently” undervalued his residence in connection with his
bankruptcy filing as part of a scheme to avoid paying the debt
owed on the Settlement, which constitutes a false oath under
section 727(a)(4)(A). The Plaintiffs note that the Debtor had an
appraisal of his residence done six months before the bankruptcy
filing, which stated its value was $430,000 (the “2013
Appraisal”), but the Debtor stated the property was only worth
$390,000 in his bankruptcy schedules. (Adv. D.I. 95 at 73.) The
Plaintiffs argue that the Debtor’s figure is clearly an
5
undervaluation, as it is equal to the amount of the construction
loan he obtained in 2009 to build the residence. (Id. at 50:19-
23.) The Plaintiffs further contend that the Debtor’s fraudulent
intent is evident from his testimony that he “. . . placed the
value as high as [he] could and still be within the guidelines in
the schedules . . . .” (Id. at 74.)
The Debtor responds that he had a rational basis for
disregarding the 2013 Appraisal and valuing the property at
$390,000. (Id. at 73-74.) The Debtor testified that the
$430,000 appraisal overvalued his residence, because the
comparable properties it used were in nicer neighborhoods with
more amenities. (Id.) Instead, he relied on a realtor’s market
report that showed there had been a 30% drop in the market value
of homes on St. Croix between 2010 and 2014 because of the loss
of the island’s largest employer. (Id. at 108-09.)
c. Conclusions
The Court concludes that the Debtor did not knowingly and
fraudulently undervalue his residence on the bankruptcy
schedules. The Court finds the Debtor’s testimony about the
basis for his valuation in the schedules to be credible and
valid. The $390,000 figure that the Debtor used was within the
“median comparable sale price” range in the 2013 Appraisal report
for recent homes sold in the St. Croix market. (Ex. P-70.)
Further, the 2013 Appraisal itself stated that at that time, “it
6
[was] too soon to quantify[ ] [t]he longterm effects of the
closing . . .” of the HOVENSA Oil Refinery, in February 2012,
which had served as “a major St. Croix employer for the past
forty years.” (Id.) This fact was corroborated by the Debtor’s
witness, Juliet San Martin, a longtime realtor and resident of
St. Croix, who testified about the depressed effect on the real
estate market caused by the closing of the refinery. (Adv. D.I.
95 at 109.)
Even if the Debtor had under-valued his property in his
bankruptcy schedules, the Court concludes that it was not
material to the case. The property had a mortgage on the
property totaling $372,000. Further, the Debtor owned the
property with his wife as tenants by the entirety. (Ex. D-3.)
Upon liquidation in a bankruptcy case, a non-debtor spouse is
entitled to half of the net sale proceeds. 11 U.S.C. 363(j).
See, e.g., Garner v. Strauss (In re Garner), 952 F.2d 232, 235-36
(8th Cir. 1991); Sparkman v. Chase Manhattan Mortgage Corp. (In
re Rambo),
297 B.R. 418, 434-35 (Bankr. E.D. Pa. 2003)
(calculating estate’s recovery in the hypothetical liquidation of
a tenancy by the entirety). The Debtor elected the federal
exemptions and, therefore, was entitled to an exemption of
$22,950 in his share of the equity.
11 U.S.C. §§ 522(b)(2) &
(d)(1). Thus, after payment of the mortgage ($372,000), costs of
sale (approximately $28,000), and his wife’s share ($15,000), the
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net proceeds of sale of that property even if it was sold for
$430,000 would not have exceeded the Debtor’s claimed exemption
of $22,950. Therefore, the estate would not have realized any
value from that property. Cf., Waldschmidt v. Hamilton (In re
Hamilton), 32 B.R. 337, 341 (Bankr. M.D. Tenn. 1983) (holding
that trustee can liquidate estate’s undivided interest in tenancy
by entirety under § 363(h), if the debtor’s equity interest
exceeds the claimed exemption).
Consequently, the Court concludes that the Debtor did not
fraudulently under-report his home value on his bankruptcy
schedules. As a result, the Court concludes that denial of the
Debtor’s general discharge is not warranted under section
727(a)(4)(A).
2. Section 523(a)(2)(A)
a. Standard of Review
Section 523(a)(2)(A) excepts from a debtor’s general
discharge any debt obtained by “false pretenses, a false
representation, or actual fraud, other than a statement
respecting the debtor’s or an insider’s financial condition.” 11
U.S.C. § 523(a)(2)(A).
The Third Circuit stated that to establish
nondischargeability based on false pretenses or false
representations under section 523(a)(2)(A), a creditor must
demonstrate by a preponderance of the evidence that:
8
(1) the debtor obtained money, property or services
through a material misrepresentation; (2) the debtor,
at the time, knew the representation was false or made
with gross recklessness as to its truth; (3) the debtor
intended to deceive the creditor; (4) the creditor
reasonably relied on the debtor's false
representations; and (5) the creditor sustained a loss
and damages as a proximate result of the debtor’s
materially false representations.
In re Bocchino, 794 F.3d 376, 380 (3d Cir. 2015) (quoting In re
Cohen,
191 B.R. 599, 604 (D.N.J. 1996)). The Supreme Court,
however, has held that only justifiable reliance, and not the
heightened reasonable reliance standard, need be met. Field v.
Mans,
516 U.S. 59, 70-71 (1995).
b. Parties’ Arguments
The Plaintiffs argue that the Debtor obtained a settlement
of their wrongful death action through false pretenses, false
representations, and actual fraud making it nondischargeable
under section 523(a)(2)(A).2 “False pretenses involve implied
misrepresentations or conduct creating and fostering a false
impression. False representations, on the other hand, involve
express misrepresentations.” In re Hendry, 428 B.R. 68, 79–80
(Bankr. D. Del. 2010).
The Plaintiffs contend that a misrepresentation about one’s
intent to perform under an agreement constitutes a false
2 Because the Court finds that the Debtor misrepresented his
intention to repay and induced the Plaintiffs to enter into the
Settlement under false pretenses, the Court need not address the
Plaintiffs’ other assertions of actual fraud under section
523(a)(2)(A).
9
representation. See, e.g., Gasunas v. Yotis (In re Yotis), 521
B.R. 625, 635 (Bankr. N.D. Ill. 2014) (“[F]ailure to honor one's
promise is breach of contract, but making a promise that one
intends not to keep is fraud.”) (quoting U.S. ex rel. Main v.
Oakland City Univ.,
426 F.3d 914, 917 (7th Cir. 2005)); Mitchell
v. Barnette (In re Barnette),
281 B.R. 869 (Bankr. W.D. Pa. 2002)
(excepting debt arising from broken promise from discharge under
§ (2) (A) where debtor failed to take any steps to perform
under the contract). See also 4 Collier on Bankruptcy JI 523.08
(16th 2021). The Plaintiffs assert that the Debtor’s intent to
deceive can be inferred from the totality of the circumstances.
Cohn,
54 F.3d at 1118-19. See also Williamson v. Fireman's Fund
Ins. Co.,
828 F.2d 249, 252 (4th Cir. 1987) (“[A] determination
concerning fraudulent intent depends largely on an assessment of
the credibility and demeanor of the debtor ... .”).
The Plaintiffs testified that during negotiations, the
Debtor stated that he would not file bankruptcy if a certain
settlement amount was reached. (Adv. D.1I. 94 at 7-8, 12, & 15-
16.) They also argue that the fact that the Debtor failed to
make any payments under the Settlement, despite obtaining a loan
on his truck for that purpose, shows that he never intended to
perform the Settlement. (Id. at 19, 20, 24; Adv. D.I. 95 at 59 &
69.) Further, they note that the Debtor delayed signing the
Consent Judgment (until the District Court threatened to go
10
forward with the trial) and never signed the Consent of
Garnishment (despite agreeing to it in the Settlement). (Exs.
P-2, P-5, P-6, P-9, & P-13; Adv. D.I. 94 at 20; Adv. D.I. 95 at
84.) The Debtor did not attempt to renegotiate the payment terms
and did not even notify the Plaintiffs when he filed for
bankruptcy. (Adv. D.I. 94 at 25; Adv. D.I. 95 at 29-30.)
Finally, the Debtor filed his bankruptcy petition after the
Plaintiffs’ pressed their Motion to Enforce the Consent Judgment.
(Exs. P-14, P-16, & P-17.)
The Plaintiffs also argue that the Debtor fraudulently
induced the Settlement, in part, because he was aware that the
settlement of an intentional tort, as opposed to a judgment on
the merits, would have no preclusive effect on a subsequent
bankruptcy proceeding. The Plaintiffs note that the Debtor had
handled chapter 7 bankruptcies in private practice between 1997
and 2007 and that he admitted researching the ability to
discharge a settlement versus a judgment on a wrongful death
claim. (Adv. D.I. 94 at 25; Adv. D.I. 95 at 71 & 80.)
The Debtor responds that he did not intend to deceive nor
did he knowingly or with gross recklessness misrepresent anything
in connection with the Settlement. While the Debtor admitted he
researched whether the settlement of a wrongful death claim was
dischargeable, he denied having done so before agreeing to the
Settlement. (Adv. D.I. 95 at 80.) Further, he testified that
11
the Settlement was not based on any representation that he would
abstain from filing for bankruptcy. (Id. at 71.) In fact,
according to the Debtor, the topic of bankruptcy was never
discussed. (Id.)
The Debtor further argues that he did not misrepresent his
intention to pay the Settlement obligation. Rather, the Debtor
contends that the representations he made were about his ability
to pay or his “financial condition,” which are not grounds for
excepting a debt from discharge under section 523(a)(2)(A). See,
e.g., Greater Pittsburgh Police Fed. Credit Union v. Hilley (In
re Hilley), 124 F. App’x 81, 82-83 (3d Cir. 2005) (distinguishing
between representations about one’s ability to repay and one’s
intent to repay and holding that the former is irrelevant under
§ 523(a)(2)(A)).
The Debtor testified that his failure to pay resulted – not
from an intent to deceive the Plaintiffs - but from a series of
events that professionally and emotionally overwhelmed him after
the execution of the Settlement. (Adv. D.I. 95 at 57, 63, 67,
69, & 94.) In particular, the Debtor testified that “within a
week” of executing the Settlement, he was reassigned the
prosecution of a five-defendant murder trial set to begin just
five weeks later. (Adv. D.I. 94 at 22 & 24.) The Debtor
testified that, during that trial, an attempt was made on his
life, which prompted the appointment of a personal security
12
detail and the evacuation of his wife from the island for the
duration of the trial. (Adv. D.I. 95 at 63 & 94.) He testified
that these events caused him to have a nervous breakdown and to
take a leave of absence from his job between February and June
2014. The Debtor testified that he failed to make a single
payment on the Settlement, because he was struggling with his
mental health and the aftershock of the trial, which ultimately
caused him to file for bankruptcy. (Id. at 68-69.) He contends
that the Plaintiffs’ circumstantial evidence based solely on his
failure to pay the Settlement is insufficient to meet their
burden of proof. See, e.g., Nayyar v. Charles (In re Charles),
2019 WL 1757125, at *3 (Bankr. N.D.N.Y. April 15, 2019) (“A
debtor’s simple failure to perform according to the terms of an
[agreement], without more, constitutes a breach of contract but
does not satisfy the creditor’s weighty burden under §
523(a)(2)(A).”) (quoting Sparks v. King (In re King),
258 B.R.
786, 794 (Bankr. D. Mont. 2001)).
The Plaintiffs respond that despite the Debtor’s
protestations about being overwhelmed during and after
prosecution of the murder trial, the Debtor was still able to
maintain his daily chores and pay his other bills. (Ex. P-53;
Adv. D.I. 94 at 45-47; Adv. D.I. 95 at 69 & 93.) They further
question the Debtor’s alleged stress, noting that the Debtor’s
psychologist, Dr. Wayne Etheridge, testified that he only met
13
with the Debtor five times over four months, and that his
treatment focused only on improving the Debtor’s sleep habits and
communications with his wife. (Adv. D.I. 95 at 105.)
c. Conclusions
After weighing the evidence presented, including the
testimony of the Debtor, the Court concludes that the Debtor did
not intend to pay the Settlement, at the time he agreed to it.
See Cohn, 54 F.3d at 1118–19; Barnette, 281 B.R. at 875-76
(finding that failure to take any steps to perform under an
agreement warranted grant of exception to the discharge).
This conclusion is based on the following facts. Before the
Debtor was even assigned the murder trial, he failed to pay the
mediator’s bill or sign the Consent of Garnishment. (Adv. D.I.
94 at 22-24.) After the trial ended, he failed to make a single
payment under the Settlement, despite obtaining a $10,000 loan on
his vehicle to cover such payments and despite paying his other
bills. (Id. at 19, 24; Adv. D.I. 95 at 59 & 69.) Further, the
Debtor failed to respond to the Plaintiffs’ Motion to Enforce the
Settlement; never attempted to renegotiate the obligation; and
failed to notify the Plaintiffs that he had filed for bankruptcy
in June 2014, despite the upcoming hearing on the Motion to
Enforce. (Exs. P-14, P-16, & P-17; Adv. D.I. 94 at 25; Adv. D.I.
95 at 30.) While the filing of a bankruptcy does not per se
establish an intent to deceive, the Court finds that the timing
14
of the filing further supports its conclusion that the Debtor
never intended to pay the Settlement.
Additionally, the Court concludes that the Debtor induced
the Settlement, in part, because he knew that the settlement of
an intentional tort could be discharged. If the Plaintiffs had
obtained a jury verdict, the Debtor could have been collaterally
estopped from contesting any complaint under section 523(a)(6),
which excepts from discharge any debt for willful and malicious
injury. 11 U.S.C. § 523(a)(6). See Grogan,
498 U.S. at 284 n.11
(holding that collateral estoppel applies in bankruptcy
dischargeability proceedings under § 523(a)); In re Madsen,
195
F.3d 988, 990 (8th Cir. 1999) (holding state court judgment for
intentional tort had preclusive effect in dischargeability
proceeding under § 523(a)(6)).
In contrast, the settlement of such an action has no
preclusive effect. See Graham v. I.R.S. (In re Graham),
973 F.2d
1089, 1097 (3d Cir. 1992) (holding that consent judgment lacked
preclusive effect in nondischargeability proceeding, because the
judgment lacked detailed findings of fact that would satisfy the
necessary elements of § 523(a)(2)(A)); Town & Country Credit
Union v. Honcharenko (In re Honcharenko), No. 99-30607,
1999 WL
33520532, at *3 (Bankr. D.N.D. Nov. 24, 1999) (same, under §
523(a)(6)). Moreover, there was no guarantee that the Plaintiffs
would have filed a dischargeability complaint.
11 U.S.C. §
15
523(c)(1) (a debt of a kind specified in § 523(a)(6) is
automatically discharged unless a timely request for an exception
to dischargeability is made).
The Debtor admitted that he had handled chapter 7 bankruptcy
filings in private practice, filed his own bankruptcy petition in
this case, and was aware that intentional torts were
nondischargeable. (Adv. D.I. 94 at 25; Adv. D.I. 95 at 58 & 80.)
He further admitted that he knew that settlements of intentional
torts could be discharged, notwithstanding that he denied
acquiring that knowledge before the Settlement was reached.
(Adv. D.I. 95 at 71 & 80.) The Court finds the denial lacking in
credibility.
The Court also finds that the Debtor’s testimony of his
intent to pay the Settlement was not credible. For example, the
Debtor provided multiple excuses as to why he never signed the
garnishment order and never paid either the mediation bill or the
first $5,000 down payment. (Adv. D.I. 94 at 24; Adv. D.I. 95 at
83-84.) The Debtor even tried to blame his attorney, Vincent
Colianni, for not communicating with him about the garnishment
order or the need to make payments under the Settlement, which
Colianni disputed in his testimony. (Adv. D.I. 95 at 85.)
Based on the circumstantial evidence, including the lack of
any payment on the settlement, the failure to sign the Consent of
Garnishment, the proximity between the Settlement and the
16
bankruptcy petition, the absence of any attempt to renegotiate
the Settlement obligation before filing bankruptcy, and the
Debtor’s awareness of the dischargeability of a settlement
agreement in a wrongful death action, the Court finds that at the
time the Debtor entered into the Settlement with the Plaintiffs,
he did not intend to pay that obligation.
The Court further finds that the Debtor’s entry into the
Settlement constituted obtaining “money, property, services, or
an extension, renewal, or refinancing of credit” within the
meaning of section 523(a)(2)(A). See Archer v. Warner, 538 U.S.
314, 318-19 (2003) (holding that a debt for money promised in a
settlement agreement accompanied by the release of underlying
tort claims can amount to a debt for money obtained by fraud
under § 523(a)(2)(A)).
Finally, the Court finds that the Plaintiffs justifiably
relied on the Debtor’s misrepresentations. Field,
516 U.S. at
70-71. The Plaintiffs testified that they would not have entered
into the Settlement had they known that the Debtor would not make
any payments and would ultimately seek to discharge that debt in
a bankruptcy case, just six months later. (Adv. D.I. 94 at 9 &
15-16.)
Therefore, the Court concludes that the obligation owed to
the Plaintiffs is excepted from the Debtor’s discharge under
section 523(a)(2)(A).
17
IV. CONCLUSION
For the foregoing reasons, the Court will except the
Plaintiffs’ claim under the Settlement from the Debtor’s
discharge under section 523(a) (2) (A) but will not deny the
Debtor’s general discharge under section 727 (a) (4) (A).
An appropriate Order is attached.
Dated: September 10, 2021 BY THE COURT:
Mary F. Walrath
United States Bankruptcy Judge
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