Case No. 04-35020-DOT.United States Bankruptcy Court, E.D. Virginia, Richmond Division.
February 11, 2005
James E. Kane, Esquire, Chaplin, Papa Gonet, Richmond, Virginia, Counsel for Debtor.
Paul McCourt Curley, Esquire, Canfield, Baer, Heller
Johnston, LLP, Richmond, Virginia, Counsel for Creditor.
Robert E. Hyman, Esquire, Richmond, Virginia, Chapter 13 Trustee.
MEMORANDUM OPINION AND ORDER
DOUGLAS TICE, Chief Judge, Bankruptcy
Hearing was held January 18, 2005, on the objection of Irvin J. Chasen to confirmation of debtor’s chapter 13 plan. The objecting party, a creditor, asserts that the plan is not proposed in good faith. For reasons stated below, the objection will be sustained and confirmation of the plan denied.
Facts.
Debtor Robert H. Luk filed a chapter 7 case on December 20, 2002. (Case No. 02-91023) By memorandum opinion and order entered on the court’s docket March 12, 2004, debtor’s chapter 7 discharge was denied pursuant to 11 U.S.C. § 727(a)(4)(A) on the ground that debtor made a false oath in his bankruptcy schedules. (Adv.Proc. 02-91023) The court’s opinion and order in the prior case is incorporated in this opinion.
The court denied debtor’s discharge because he failed to include in his petition schedule of assets, 1) a cyclorama wall worth approximately $6,900.00 in 1993, 2) three works of art by Mark Kostavi worth approximately $2,000.00 in 1989, 3) a work of art by Peter Max, 4) an Olhausen pool table worth approximately $2,500.00 in the early 1990’s, and 5) a Mega Block desk. At trial in that case, the plaintiff, who is also the objecting creditor in the present case, presented evidence that these assets were in debtor’s photography studio. Debtor, who was not represented by counsel at trial, testified that he did not own these assets but produced
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no witnesses or documents to support his claim.[1] The court denied debtor’s discharge after concluding that debtor owned the listed items and that he intended to defraud creditors by signing bankruptcy schedules he knew did not include a complete listing of his property.
Debtor filed the present chapter 13 case on May 20, 2004. His schedule of assets in this case also fails to list the assets described in the preceding paragraph.
Additional facts are stated below.
Discussion and Conclusions of Law.
Debtor’s position in the present case remains as it was previously, that he does not own the assets in question.
Counsel for creditor Chasen stated in his objection to confirmation and argued at hearing that the doctrine of collateral estoppel applies to preclude debtor from raising his ownership of the assets as an issue in the present case and that any evidence of debtor’s ownership should be excluded from the record. This argument is based on the court’s previous holding that debtor owned the assets. From this, the creditor argues that debtor’s plan is not filed in good faith.
At hearing creditor’s counsel objected to debtor’s introduction of testimony and documentary evidence at variance with the court’s prior ruling. The court allowed debtor to put on his evidence without ruling on the creditor’s objection. Now, the court must decide whether debtor’s evidence as it relates to his ownership may be considered and if so whether the evidence is sufficient to carry debtor’s burden of proving his good faith in filing the chapter 13 case and plan.
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Collateral Estoppel
Collateral estoppel precludes “the relitigation of issues of fact or law that are identical to issues which have been actually determined and necessarily decided in prior litigation in which the party against whom [issue preclusion] is asserted had a full and fair opportunity to litigate.” Ramsay v. INS, 14 F.3d 206, 210 (4th Cir. 1994) (quoting Virginia Hosp. Ass’n. v. Baliles,830 F.2d 1308, 1311 (4th Cir. 1987); see, e.g., Nestorio v.Associates Commercial Corp. (In re Nestorio), 250 B.R. 50
(D. Md. 2000).
The five-part test used by the Fourth Circuit to establish collateral estoppel requires that:
1) the issue precluded must be identical to one previously litigated;
2) the issue must have been actually determined in the prior proceeding;
3) determination of the issue must have been a critical and necessary part of the decision in the prior proceeding;
4) the prior judgment must be final and valid; and
5) the party against whom estoppel is asserted must have had a full and fair opportunity to litigate the issue in the previous forum.
Ramsay, 14 F.3d at 210.
It is readily apparent that all elements of the doctrine of collateral estoppel are met on the issue of whether debtor owns the items in question because the court held in a trial on the merits in debtor’s chapter 7 case that debtor owned the assets. The court must therefore sustain the creditor’s objection to introduction of evidence to the extent that it contradicts the previous holding.
Issue of Good Faith.
At the same time, the court is not required to ignore elements of debtor’s evidence that demonstrate collateral estoppel may produce an inequity in this case. Notwithstanding the
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debtor’s position that he does not own the assets, the court does not believe debtor filed this case in bad faith. Debtor should thus have an opportunity to amend his schedule of assets so that the schedule includes the contested cyclorama wall, artwork and furniture in conformity with the court’s decision in the chapter 7 case and to file an amended chapter 13 plan.[2] It remains to be seen, of course, whether debtor will be able to propose a confirmable plan. However, under the circumstances it appears that a 60 month plan would be appropriate.
IT IS ORDERED that the creditor’s objection to confirmation of debtor’s chapter 13 plan filed May 20, 2004, is SUSTAINED,
and confirmation of debtor’s plan filed May 20, 2004, isDENIED;
IT IS FURTHER ORDERED that the Clerk of the Court is directed to dismiss the chapter 13 case unless within twenty (20) days from this order the debtor takes one of the actions enumerated in Local Bankruptcy Rule 3015-2(C)(2).