2018 - Wetherington Hamilton, P.A.

Take a Moment to Consider Memorial Day

May 25, 2018/in Articles/by Ted Hamilton

A boy scout offers a salute at the foot of a grave after volunteers placed flags at the Los Angeles National Cemetery on Saturday, May 28, 2016 in preparation for Memorial Day. (AP Photo/Richard Vogel)

This coming weekend Americans celebrate Memorial Day. It is a holiday that for most of us marks the beginning of summer. If you live in the northern part of the U.S., Memorial Day marks the opening of pools, lakeside patios and other places that bring back those fond memories of childhood. In Florida, it marks the beginning of Hurricane season as well as the beginning of our summer season.

Memorial Day started after the American Civil war in the late 1860s. It was first called Decoration Day at Arlington National Cemetery by then General James Garfield. General Garfield held the first Decoration Day in 1868 “Decorating” with flowers the graves of American Soldiers who died in the Civil War. It wasn’t until 1968, however, that the United States Congress passed the Uniform Monday Holiday Act which established Memorial Days as the last Monday in May. This change was effective as of 1971.

Although many towns claim to have celebrated the first Memorial Day, the U.S. Government only officially recognizes the town of Waterloo, New York as the official birthplace of Memorial Day. Check out their website here.

Today, the United States has 135 national cemeteries located in 40 states and Puerto Rico. The Cemeteries are managed by the U.S. Department of Veterans Affairs National Cemetery Association. Florida has 9 National Cemeteries. Any member of the Armed Forces of the United States who dies while on active duty or any Veteran who was discharged under conditions other than dishonorable may be eligible for burial in a National Cemetery.

This Memorial Day, take a moment to pray for those defending our country who are still in harm’s way. Also, take a moment to remember those who fought or have served the United States Military. These are the individuals who laid their lives on the line to protect those freedoms enumerated in the Constitution of the United States of America.

The attorneys and staff of Wetherington Hamilton, P.A. celebrate this Memorial Day with our families and friends and we thank all those who serve or who have served this great Nation.

Wetherington Hamilton founding attorney, Theodore J. Hamilton, has over 20 years of experience in handling real estate transactions and litigation. Attorney Hamilton has particular experience in matters involving complex litigation and complicated real estate matters having represented title insurance companies and individuals throughout the state of Florida. He can be reached by phone at (813) 676-9082 or via email at TJH@whhlaw.com.

Bankruptcy Creditor Administrative Priority Claims Under Section 503(b)(9)

May 21, 2018/in Articles, Bankruptcy/by Ted Hamilton

So you are a vendor with unpaid invoices from a Client and receive the dreaded Notice of Commencement of Bankruptcy Case. You check your records and see that you have made a large product delivery (or series of deliveries) to the Client—now Debtor—within a short period of time prior to the filing of the bankruptcy case . Are you out of luck? Maybe not. Depending on what you delivered to the Debtor and when you made these deliveries, you may be able to assert what is called a 20-day administrative priority claim as to the portion of your claim that fits within the requirements of this section of the Bankruptcy Code. Why is this important? Well, you may be able to change a portion of your claim against the Debtor from a general unsecured claim (which are often paid pennies on the dollar in a bankruptcy case, if at all) to an administrative claim which has a higher level priority in the claim distribution process. In Chapter 11 cases, administrative priority claims are often paid in full upon confirmation of the Plan so there is a very obvious benefit for a vendor to hold a 20-day administrative priority claim.

Section 503(b)(9) of the Bankruptcy Code provides for an administrative expense status for “the value of any goods received by the Debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor the ordinary course of such Debtor’s business.” Parsing apart this provision, a vendor must establish four elements to establish such a claim—the value of goods that were sold to the Debtor in the ordinary course of the Debtor’s business and received by the Debtor within 20 days of the bankruptcy filing. The specific circumstances of a transaction or series of transactions can determine whether a claim fits within this section and will be allowed as an administrative priority.

First, the vendor’s claim will only be allowed for goods sold to the Debtor. The Bankruptcy Code does not define what “goods” are, so the Courts have come up with various decisions as to what are or are not ‘goods” under this section. In some cases the determination is clear—for example tangible supplies provided to the Debtor such as machinery, equipment or parts are goods as determined in several cases. Likewise, Courts have found chemicals provided as fertilizer to a farming enterprise and produce delivered to a restaurant supplier to be goods meeting the requirements of this section. What has proved difficult for the Courts to determine is when a vendor supplies goods and services at the same time. Let’s say the chemicals delivered to the farming operation above are also loaded by the vendor into fertilizer sprayers at the time of delivery for the farm’s use. Should the value of the fertilizer loading be part of the administrative priority claim? The decisions in this area vary between the Courts so a vendor facing an issue of this sort will likely need to contact an attorney for guidance.

The second element of an administrative priority claim requires that the goods actually be sold to the Debtor in the ordinary course of the Debtor’s business operations. There is a dearth of case law on this aspect of a 503(b)(9) claim and the Bankruptcy Code does not define what the term “sold” entails, though it appears clear that goods that are leased to the Debtor would not fit within this section. A vendor should contact counsel when it confronts a situation in this regard as certain vendor-debtor relationships can be murky. Likewise, the Bankruptcy Code does not define what is “ordinary course” for a Debtor’s business operations. What is “ordinary course” is often not an issue in an administrative priority claim determination. However, as above, a vendor confronted with an unclear situation should consult with a bankruptcy creditor’s attorney for guidance in establishing its claim.

The third element requires that the Debtor have actually received the goods in the 20 day period prior to the filing of the bankruptcy case. Vendors are cautioned to understand the difference between invoicing and actual delivery and receipt by the Debtor. Invoicing can occur before, at the same time, or after delivery and receipt so a vendor should have a clear understanding of its course of dealings with the Debtor in order to determine when the Debtor came into physical possession of the goods. Oftentimes the vendor-debtor relationship can be murky in this regard requiring a very fact-dependent analysis in order to ascertain whether a vendor’s claim fits into an administrative priority status.

Finally, the administrative priority claim would be for the value of the goods that meet all of the above requirements. The Courts will often look to the invoice and consider the value of the goods to be the invoice price of such goods though this is not always the case, especially in a situation where, as set forth above, there is a combination of goods and services provided as part of a vendor’s delivery to a Debtor or a question as to whether the goods described on the invoice or invoices were what was actually delivered to the Debtor.

Can a vendor assert a 20-day administrative priority claim in any bankruptcy case? The answer is yes—administrative priority claims under §503(b)(9) can be asserted in regards to claims under any Chapter of the Bankruptcy Code, though, effectively, they are of significant value to Vendors only in Chapter 11 cases. The reason is that the highest level of priority in cases in other Chapters of the Bankruptcy Code (such as Chapter 7 cases ) are the expenses of the costs of administration, such as the Trustee’s fee, the attorneys for the Trustee’s fees and costs and so forth. Administrative priority claims under §503(b)(9), though they retain a priority status in these cases filed in other Chapters, are a lower-level of priority and are not paid unless the costs of administration are first paid in full.

What is the process for a vendor to assert an administrative priority claim under §503(b)(9)? The short answer is that it is dependent on the process used in the Court where the case is pending, the process that may have been ordered by the Court in a particular case or the terms of a Chapter 11 Debtor’s Plan of Reorganization. The Bankruptcy Code itself does not specify the process. There is a significant variability between the Bankruptcy Courts as to how and when a vendor must make its claim, so it is easy for a vendor to get tripped up and inadvertently fail to timely make such a claim or make the claim in the “wrong” way. Therefore it is important for a vendor to contact its creditor counsel to devise the strategy for making the claim timely and in the correct way.

Brad Hissing is a Bankruptcy Attorney with over 26 years of experience in representing creditors, Trustees and other parties in bankruptcy cases. He has extensive experience in Creditors Rights and Insolvency matters in both consumer and Chapter 11 commercial cases. He can be reached at BradH@whhlaw.com or by phone at (813) 676-9075.

Diversity and Inclusion in the Practice of Law and Beyond

April 26, 2018/in Articles/by Ted Hamilton

I recently attended a continuing legal education (CLE) seminar sponsored by the Hillsborough County Bar Association Diversity committee on the topic of Inclusive Communication. The speakers, Devona F. Pierre, Ed.D., and Camille Blake, J.D. are employed at the University of South Florida’s Office of Diversity, Inclusion, and Equal Opportunity. What a timely topic!

We all have our own definition of what diversity is, and we all bring our own opinions and experiences to every situation. As a speech communication major in college, I learned to choose my language carefully. As a female attorney in the early 1990’s, I had to deal with various situations and learned to modify my behavior and my language in order to maneuver in what was, at that time, a male dominated profession. I did not and do not have a chip on my shoulder by any means, but everyone has his or her own biases for various situations.

I learned a term that is new to me at this CLE the other day: that is Microaggression. Merriam-Webster defines microaggression as “a comment or action that subtly and often unconsciously or unintentionally expresses a prejudiced attitude toward a member of a marginalized group.” I had not heard this term before, but when the term was discussed at the seminar the other day, an example of microaggression immediately came to mind. My daughter was the only woman in attendance at an organization meeting at her college and was spoken to in a degrading manner for work she had presented. We can probably all think of situations where we have observed microaggression. Implicit bias was also discussed at this CLE.

While I found this CLE to be most interesting, the message was important. As attorneys, we should be aware of our many differences and our own personal biases. As situations arise, rather than feeding the fire, we can determine ways to de-escalate what may be sensitive situations so that they become non-issues.

Joan W. Wadler has been a member of the Florida Bar since 1991. Her practice concentrates on Collections and Commercial Litigation, Real Estate Litigation and Associations Law. She can be reached at (813) 676-9082 or JoanW@whhlaw.com

Contract Conditions: How They Can Impact Your Case

March 29, 2018/in Articles, General/by Ted Hamilton

Conditions….life is full of conditions. I might tell my son that I’ll let him go to a party or a hockey game if he will clean up his room or take the trash out; these are conditions that he must fulfill in order to get what he wants. We have, in effect, created a verbal contract whereby each party must comply with certain contract conditions. My son may have to clean his room or take out the trash and in return, if he complies with his promise, I will have to allow him to attend a particular event. This is a simplified example, but the issue can be more complicated when parties are creating and enforcing contracts.

Contracts are full of conditions. A creditor may agree to loan money to a borrower with the condition that the borrower will make monthly payments for a specific amount which includes principal and interest; if payments are not timely made, late fees may be added. Sometimes contract conditions must occur prior to an event in order to create a contract, and sometimes conditions must occur in order for a creditor to sue for breach of contract if, for example, the borrower defaults on the loan by failing to pay as promised.

“A condition precedent is one which must happen or be performed before the estate to which it is annexed can vest or be enlarged; or it is one which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed.” Black’s Law Dictionary, Sixth Edition.

Some contracts conditions require notices of default be mailed to the borrower before a creditor is permitted to file suit. Debtors may raise failure to comply with conditions precedent as a defense, thereby attempting to prohibit a creditor from enforcing the terms of a contract. The attorneys at Wetherington Hamilton, P.A. can interpret contracts and ascertain whether conditions precedent have been complied with prior to filing suit in order to overcome the defense of failure to comply with conditions precedent. If you have a contract dispute, contact our office at (813) 676-9082 or JoanW@whhlaw.com.

Collections Attorney Tampa

Joan W. Wadler has been a member of the Florida Bar since 1991. Her practice concentrates on Collections and Commercial Litigation, Real Estate Litigation and Associations Law. She can be reached at (813) 676-9082 or JoanW@whhlaw.com

Creditors: Do You Have Unclaimed Funds from a Bankruptcy Filing?

March 22, 2018/in Articles, Bankruptcy/by Ted Hamilton

Do you have unclaimed bankruptcy funds waiting for you? What are unclaimed funds? Unclaimed funds are monies paid by the Bankruptcy Trustee appointed to administer a bankruptcy estate to the Bankruptcy Clerk, who then is the custodian of those funds until the person entitled to those funds files an application to pay the unclaimed funds to them.

In bankruptcy cases that have assets, the Trustee pays out money collected from liquidating the assets to creditors who have filed claims in a particular case. Sometimes, the money paid out by a Trustee, always issued as a check, is returned by the post office as undeliverable or the check is not cashed within 90 days. By law, in Chapter 7 and Chapter 13 cases, the Trustee is required to deposit those funds to the court as unclaimed. In most cases, the Claimant did not receive the check and it was returned to the Trustee as undeliverable typically because the claimant had moved and did not report the change of address to the court and the Trustee. The Clerk of the Bankruptcy Court will hold these funds for several years. The unclaimed funds are still subject to the claims of Creditors even after they are turned over to the Clerk. It should be noted that the claimants due unclaimed funds consist of both commercial and non-commercial creditors and that some of these unclaimed funds are in significant amounts. In fact, a recent estimate of the amount of unclaimed funds held by the Bankruptcy Courts or the U.S. Treasury is staggering—in excess of $200 million.

Usually, as set forth above, the unclaimed funds are the results of returned check from a Bankruptcy Trustee intended to be a distribution on a claim filed by a Creditor in a specific bankruptcy case. If you believe that you may be entitled to unclaimed funds in bankruptcy, then the first step would be to check the Unclaimed Funds Directory for the Bankruptcy Court where you filed your proof of claim. You can conduct this search yourself or your bankruptcy attorney can make this search for you. If you are unsure of the Court where you filed the claim then your bankruptcy attorney can assist you in developing a strategy for locating the claim. Your attorney will also be able to file the Motion or Application required by the Bankruptcy Court as well as prepare the appropriate paperwork in evidence of your claim to the unclaimed funds. In addition, the attorney will prepare and file the necessary IRS forms and governmental forms such as the Administrative Office of the US Courts TIN Certification Form necessary for the Bankruptcy Court to disburse the funds to a commercial creditor.

Since there are a significant amount of unclaimed funds sitting in the Bankruptcy Court registries and the U.S. Treasury, isn’t it worthwhile to check to see if you are entitled to any of these funds as claimant and, if you are, to make the effort to have the funds provided to you? The attorneys at Wetherington Hamilton are ready to assist commercial and non commercial creditors in seeking your unclaimed funds, call us today at (813) 676-9075.

Brad Hissing is a Bankruptcy Attorney with over 26 years of experience in representing creditors, Trustees and other parties in bankruptcy cases. He has extensive experience in Creditors Rights and Insolvency matters in both consumer and Chapter 11 commercial cases. He can be reached at BradH@whhlaw.com or by phone at (813) 676-9075.

Maximizing Bankruptcy Proof of Claim, Minimizing Objections

March 5, 2018/in Articles, Bankruptcy/by Ted Hamilton

Are you a creditor in a bankruptcy case? Did you receive a Notice from the Bankruptcy Court advising you that there are funds available to pay creditors in a case and alerting you to complete and file a Proof of Claim? If so, then the Notice would have also included a blank Proof of Claim form for you to complete and file with the Bankruptcy Court. The Proof of Claim form is specific and comprehensive and may require detailed attachments depending on the type of claim you have against the Debtor. There are also time constraints involved in the process as well. The Bankruptcy Court will set a deadline for the filing of such claims. The deadline is called the “bar date”. Claims filed after the bar date are not paid except in certain very limited situations and only if the bankruptcy court expressly permits them to be paid—more about this in a bit.

In consumer bankruptcy cases (Chapter 7 and Chapter 13 cases) you must file a claim timely (by the bar date) in order to be paid. The process is somewhat different in Chapter 11 cases. A creditor does not need to file a claim if three conditions are met. First, the Debtor must not have listed the debt on its bankruptcy schedules as “disputed, contingent or unliquidated”. Second, the creditor must agree with the amount that the debtor has listed as due and owing on these bankruptcy schedules. Third, the creditor must agree with the Debtor’s classification of the type of claim—such as secured, unsecured or priority—in the bankruptcy schedules. If any (or all) of these conditions are absent in a Chapter 11 case then the creditor must file a claim for the full amount which is owed by the Debtor and set forth the appropriate classification (secured, unsecured or priority) in the claim.

I’ve been a bankruptcy attorney for over 25 years and I’m aware of several situations where creditors have left “money on the table” by not filing a claims in bankruptcy cases despite receiving notice in Chapter 7 or Chapter 13 consumer bankruptcy cases that the Bankruptcy Trustee is holding funds which are available to pay creditors. In fact, in many of these consumer cases, the Trustee ends up with a surplus case and will often seek to make contact with creditors listed in the bankruptcy schedules to solicit them to get a claim filed. Likewise, in Chapter 11 cases, I’ve seen several situations where only a small number of creditors have filed claims when the Debtor has proposed to make a significant payment to creditors with claims in a certain class set forth in the Chapter 11 Plan.

The Proof of Claim form requires creditors to choose the classification of the claim (secured, unsecured or priority) as well as the amount that the Debtor owes the creditor as of the date of the filing of the bankruptcy case. For secured accounts, such as a mortgage or lien on personal property or a vehicle, this can require some detailed accounting to property set forth interest, late charges, attorney’s fees and other charges as well as accrued escrow items. If this accounting is incorrect, then the Trustee or Debtor can object to the claim. Again, more about that in a bit. The Proof of Claim will also need to include copies of supporting documents evidencing the claim such as the loan documents (promissory notes, contracts), the security documents (security agreements, mortgages) and other documents such as judgments, garnishments and so forth. Failure to include the loan documents will likely result in an objection to the claim by an interested party so it is very important that the Proof of Claim be filed with these documents attached.

Claims that are filed after the bar date will likely draw an objection by the Trustee or the Debtor. Obviously, the best way to avoid this is to make sure that the claim is filed on time. The fact that a claim was filed late may completely invalidate it and prevent it from being paid. However, a creditor with a late-filed claim is not completely out of luck. If a creditor files a claim late and there is an objection filed to it, then the creditor can argue that the failure to timely file the claim was excusable. The burden, however, is on the creditor to show excusable neglect and it this is often a difficult burden for the creditor to meet. There are also differences in the operation of the excusable neglect standard depending on whether the bankruptcy case is a Chapter 7 or 13 consumer case or a Chapter 11 case. A creditor facing this issue will need to discuss how best to address the situation with a bankruptcy attorney.

A creditor’s claim may draw an objection from the Debtor of Trustee for any number of reasons. For example, the objection to the claim might dispute the amount that the creditor alleges is owed or dispute the creditor’s classification of the claim as secured, unsecured or priority. The objection might dispute the validity of the claim if there are no supporting documents to evidence the claim or if the debt is believed to be uncollectable due to being barred by the applicable statute of limitations for the type of claim that the creditor holds against the debtor.

A creditor can minimize the chance of an objection being filed to its claim by taking steps to ensure that the claim lists the correct amount owed, lists the correct classification of the type of claim, contains legible copies of the documents evidencing the claim and is signed and timely filed with the Bankruptcy Court. If a creditor is facing an objection to its claim then it should contact a bankruptcy attorney to develop a strategy for tackling the issue as oftentimes it is possible for a creditor to fight the objection and get its claim allowed and paid in the case.

Brad Hissing is a Bankruptcy Attorney with over 26 years of experience in representing creditors, Trustees and other parties in bankruptcy cases. He has extensive experience in Creditors Rights and Insolvency matters in both consumer and Chapter 11 commercial cases. He can be reached at BradH@whhlaw.com or by phone at (813) 676-9075.

The Statute of Limitations in Collecting a Debt

January 30, 2018/in Articles, Debt Collection/by Ted Hamilton

All states have a limitations period which restricts the time period that you can file suit to collect a debt. Some statute of limitations periods are as short as one year and some up to 20 years. In Florida, generally, the limitations period to sue to collect an unpaid obligation is five years for a written contract and four years on an unwritten agreement (see Florida Statutes Chapter 95).

Many factors can affect the limitations period. A contract may clearly be in writing and other times it may be a matter of interpretation. A written promissory note or guaranty signed by the responsible party is clearly in writing. An oral agreement is usually governed by the four-year limitation, but if there are writings that confirm the agreement the five-year statute may apply. The statute of limitations period may also be tolled (extended) under certain circumstances (see Florida Statutes 95.051). A payment on a debt extends the limitation period. Suit may be brought within four years from the date of last payment on an unwritten agreement and five years on a written agreement. The statute may also be tolled if the responsible party has left the state, is hiding or files bankruptcy, which is later dismissed.

The statute of limitations for collecting on a judgment in Florida is 20 years from the date the judgment was entered. Note that this is different than a judgment lien, which results from recording in the public records a certified copy of a final judgment. This lien is good for 10 years from the date the certified copy is recorded. It may be extended by re-recording for another 10 years.

For a creditor suing or attempting to collect a consumer debt (a debt for personal, family or household purposes) it will be a violation of the Fair Debt Collection Practices Act (15 USC 1601) to attempt to collect, if the debt is past the Statute of Limitations.

Thomas K. Sciarrino, Jr., Esq. is a veteran collections attorney with 38 years of experience in handling Commercial Litigation, Collections, and Creditor’s Rights. He is the head of the collections department at Wetherington Hamilton, P.A. In addition to practicing law, he has also lectured on creditor’s right before various business and professional groups. He can be reached at (813) 676-9082 or by email at info@whhlaw.com.

Using Commercial Loan Delinquencies to Predict the Next Market Retraction

January 23, 2018/in Articles, Debt Collection/by Ted Hamilton

Today, the stock market is at an all time high. American’s are riding a wave of prosperity not seen in a long time. The obvious question on many minds, is when will the stock market begin to decline. Recently, a review of the actions of the FED in lowering interest rates in early 2008 has spurred a new interest in predicting market declines. As an attorney, my experience has shown that the number of commercial loan defaults can assist in predicting a slowdown of the economy.

In 2007, our firm began to see an uptick in its commercial loan collections cases. These cases came from Banks, Leasing Companies and others. It began gradually in the last quarter of 2007 as large institutional clients who had previously sent only a few files a year started to send upwards of a few files a month in 2007. This figure increased dramatically during the first half of 2008. After the collapse in October of 2008, we began to see an avalanche of delinquency cases in our office. In December of 2008 alone our office received large commercial claims on a scale not seen before.

Banks are required to report their loan delinquencies to the Federal Reserve. These figures are available for review here. These numbers are a very good predictor of how the economy is doing. They show not only the income of the banks we all rely upon, but they also show the health of industries that rely on loans from these banks. The good news at this point, is these delinquency numbers are still very low. A review of the 2007-2009 figures shows the dramatic increase and the default increase in the beginning of 2008. We are not seeing these high delinquencies at this point.

Take this advice for what it is worth. We are attorneys not at all investment advisors. However, these figures and our experience handling bad debt and collections for all types of businesses shows a few trends. The best advice, is keep your eye on some of these loan delinquency reports coming out of the FED. If they start to change, beware.

Wetherington Hamilton founding attorney, Theodore J. Hamilton, has over 20 years of experience in handling real estate transactions and litigation. Attorney Hamilton has particular experience in matters involving complex litigation and complicated real estate matters having represented title insurance companies and individuals throughout the state of Florida. He can be reached by phone at (813) 676-9082 or via email at TJH@whhlaw.com.

Monson Case Analysis: Debtors Who Misuse Collateral May Forfeit Obtaining Discharge of Debt in Bankruptcy

January 16, 2018/in Articles, Bankruptcy, Debt Collection/by Ted Hamilton

Borrowers sometimes sell, misuse or misappropriate secured collateral (i.e. equipment, inventory or vehicles) without notification to the lienholder. What remedy does the lienholder have if the Borrower subsequently files a bankruptcy case? What happens if the lienholder’s security interest is not properly perfected? The Eleventh Circuit of Appeals considered both issues in the case of In re Monson, 2016 WL 6833332 (11th Cir. Nov. 21, 2016). In this case, the Court determined that where a debtor had knowledge of a Creditor’s asserted lien on Property and subsequently sold or disposed of the Property without the lienholder’s consent, that act constitutes a willful and malicious injury under Bankruptcy Code § 523(a)(6) with the result that the debt is not discharged in the bankruptcy case. Importantly, this result stands even if the Creditor’s lien is not properly perfected. The analysis is whether the debtor has knowledge of the lienholder’s claim and nevertheless disposes of the collateral without notice to the lienholder. Decisions by the Eleventh Circuit Court of Appeals are binding on the Bankruptcy Courts in Florida, so this case gives Creditor’s a potent weapon in their arsenal in appropriate cases when collateral is sold or otherwise disposed of by the borrower prior to the filing of a bankruptcy case.

The Monson case is very fact-intensive and the Court’s decision seems to be based upon the nefarious activities of the Borrower so it is important to know the facts in order to understand the ruling. Creditor (“Segundo”) loaned an internet café owner (“Monson”) $130,000 for the purpose of equipment to be used in the business in Hillsborough County, Florida. The parties agreed that the loan was to be secured by the equipment but the loan was not property perfected as the UCC-1 lien document filed with the State of Florida was not signed by the Borrower. The equipment was seized by the Hillsborough County Sheriff’s Office and the business shut down as an illegal gambling operation. The Creditor demanded return of the equipment or liquidation of the equipment and repayment of the loan after the equipment was seized and while it was still in possession of law enforcement but received no response from the Borrower who ignored the Creditor’s calls, letters and emails.

The Borrower entered into an agreement with the Hillsborough County Sheriff’s Office so charges were never filed. The agreement allowed the Borrower to recover the equipment provided that he remove the equipment from Hillsborough County and not operate any gambling operations in the County. The equipment was thereafter returned to the Borrower who then moved the equipment to the Jacksonville area and opened up another internet café. The Borrower ignored the Creditor’s repayment demands so the Creditor thereafter filed a state court lawsuit against the Borrower and successfully obtained a judgment for the initial $130,000 loan amount. The Borrower then filed a Chapter 7 bankruptcy case seeking to discharge the debt.

The Borrower returned the remaining equipment to the Creditor while the bankruptcy case was pending and the Creditor thereafter obtained an appraisal which indicated that the remaining equipment had value of only $12,050 upon its return. The Creditor thereafter sought a determination in the Bankruptcy Court that the Debtor Monson’s indebtedness was non-dischargeable on a variety of grounds. The Bankruptcy Court found that the Debtor’s actions constituted a willful and malicious injury to the Creditor under 11 U.S.C. § 523(a) and entered a judgment of nondischargeability in the amount of $117,950 which was the difference between the original loan amount and the appraised value of the equipment returned to the Creditor. The Bankruptcy Court based its decision on its factual findings that the Borrower was aware of the Creditor’s asserted security interest and of the Creditor’s demand for return of the equipment or sale of the equipment and repayment of the debt. The Bankruptcy Court’s decision was also based upon its finding that the Creditor never consented to removal of the equipment to the Jacksonville area and its use in a new internet café.

The crucial issue on appeal was whether the Debtor’s actions were both willful and malicious. As to the willfulness requirement, the Eleventh Circuit concluded that absconding with the equipment and using it to open a new internet center was an intentional act the purpose of which was to cause injury or which was substantially certain to cause injury. In so doing, the Eleventh Circuit specifically noted that a knowing breach of a clear contractual obligation that is certain to cause injury is sufficient to prevent a discharge of the debt regardless of whether such conduct can be classified a tort under the law.

As to the maliciousness requirement, the Eleventh Circuit determined that the Debtor committed a malicious injury in the appropriation of the equipment because the injury was wrongful, without just cause and was excessive. The Eleventh Circuit found that it was proper for the Bankruptcy Court to imply malice as the weight of the evidence in the case was that the Debtor’s actions were wrongful and without just cause. Specifically, the Court found that the collapse of the initial business operation (the internet café in Hillsborough County) did not relieve the Debtor of the contractual obligations which he entered into nor “…gave him carte blanche to make off with equipment that he bought with someone else’s money.” The Court further determined that the Debtor’s behavior fell outside the scope of reckless or unfortunate but non-malicious acts that did not rise to the level of a willful or malicious injury (such as an automobile accident where it was not shown that the driver intended to cause the accident or the injury).

The Borrower argued that the Creditor’s failure to properly perfect the security interest in the equipment barred the Creditor from seeking a determination that the debt was not discharged in the bankruptcy case. The Eleventh Circuit gave short shrift to this argument and held that “…(w)hehter or not a lienholder’s security interest is properly perfected or recorded, where the debtor has knowledge of the lienholder’s claim and subsequently sells or disposes of the property at issue without notice to the lienholder, that act constitutes a willful and malicious injury under §523(a)(6). Specifically in the Monson case, the Eleventh Circuit determined that the Debtor knew that his actions were at least substantially certain to cause injury to the Creditor’s ability to seek repayment of its loan and thus the Debtor was not permitted to obtain a discharge of that debt.

Brad Hissing is a Bankruptcy Attorney with over 26 years of experience in representing creditors, Trustees and other parties in bankruptcy cases. He has extensive experience in Creditors Rights and Insolvency matters in both consumer and Chapter 11 commercial cases. He can be reached at BradH@whhlaw.com or by phone at (813) 676-9075.