Summary:
The parties involved in the transaction at issue ha previously agreed to a settlement with a judgment for $200,000 and also a confession of judgment for $446,000. Mr. Pfeifer satisfied the terms of the $200,000 judgement, through proceeds from the sale of property, the but after paying slightly more than $10,000 further, cease payments and filed bankruptcy.
The bankruptcy court, in an earlier decision, held that, following Archer v. Warner, 538 U.S. 314, 323 (2003), despite the confession of judgment arguably being a novation it did not bar a showing that the settlement arose out of ‘false
pretenses, a false representation, or actual fraud,’ and consequently was nondischargeable. That notwithstanding, it was appropriate to determine the amount of the claim upon which the nondischargeability action depended, finding that the amount at issue must be reduced by the $200,000 paid under the settlement and also the $10,000 subsequently paid.
Turning then to the dischargeability actions, the evidence focused on six specific parcels of real property in Wilmington, North Carolina, all of which were part of the parties’ property-flipping venture, through which Mr. Pfeifer was to identify properties to purchase, with BRRRT providing half of the funding, then quickly renovate, and sell for a profit, which would be divided with 60% to Mr. Pfeifer and 40% to BRRRT. After the first successful purchase and sale, Mr. Pfeifer falsely led BRRRT to believe, by presenting falsified documentation, that subsequent properties had been purchased, obtaining investment of funds. Ultimately these properties Mr. Pfeifer was outbid in the purchase of these properties. Accordingly, this debt was found to be nondischargeable pursuant to 11 U.S.C. §523(a)(2)(A) and (a)(4).
Commentary:
That, prior to determining dischargeability, the bankruptcy court must first establish both the existence of a claim and the amount of that claim, would seem uncontroversial and was easily reached by the bankruptcy court here, relying on In re Campbell, 545 B.R. 875, 885-86 (Bankr. M.D.N.C. 2016). That does, however, present a possible end run around the reticence that bankruptcy courts often have regarding consumer rights litigation under state and non-bankruptcy law. As those causes of action can serve to set-off and reduce a the claim of a creditor/debt collector (often even after the expiration of the consumer rights Statute of Limitation) that determination is vital to determining the amount of the claim, particularly as the award of an FDCPA or similar claim could eliminate the creditor's claim completely.
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