Summary:
The Purdys filed a Chapter 13 bankruptcy and were subject to the local form Order and Notice, which imposed, among other requirements and restrictions, that they obtain prior approval from the bankruptcy court before incurring new debts in excess of $10,000. Two years later, on December 8, 2021, the Purdys moved to incur a mortgage to finance a home. While the Trustee did not object to that motion, the bankruptcy court sua sponte denied the motion (including a subsequent denial of a motion to reconsider) on January 5, 2022. In April of 2022, after being provided information regarding the Purdy's income, the Trustee discovered that they were making a monthly mortgage payment, having gone forward with the purchase and financing of a home- despite the earlier denial by the bankruptcy court. While continuing to pursue the mortgage financing, Ms. Purdy, shaving the truth far too close, informed the lender that the Trustee had not opposed the motion and provided a letter that appeared to be on the Trustee's letterhead and to include his signature stating that "[o]ut office fully supports Marcus and Amanda Purdy obtaining a mortgage." This letter was a forgery by Ms. Purdy.
The Trustee moved to dismiss the Purdy's case and following a hearing on September 27, 2022, the bankruptcy dismissed the case with prejudice. Mr. Purdy was barred from refiling for a period of 5 years and Mrs. Purdy for 10 years.
The Purdys appealed arguing that the bankruptcy court erred in admitting the forged letter into evidence as they had not contested that they had violated the local Order and Notice. The district court upheld the admission of the forged letter, as it was relevant to the Purdys' opposition to the motion to dismiss their case. The district court also declined to consider the "irrelevant and baseless" arguments raised by Purdy's that their self-described "housing decision" caused no damage to any party or that the local rules were "unconstitutionally nonuniform", abridged substantive rights and violated the separation of powers. The district court also upheld the dismissal with prejudice and further referred the matter to the U.S. Attorney for the Eastern District of North Carolina.
On appeal, the Fourth Circuit again (with Sugar/Sasser v. Burnett being just the most recent examples) held that the Purdys seek to be excused by “now object[ing] to the general proposition that the Local Rule governed [their] conduct following [p]lan confirmation.” Based on the "fraud and knowing violation of court orders and local rules met the high bar for bad faith" the dismissal with prejudice was upheld .
Previous decision:
Bankr. E.D.N.C.: In re Purdy- Dismissal with Prejudice for Forged Letter
Commentary:
Maybe it was unwise to appeal a dismissal of a bankruptcy case with prejudice, not only by relying on pleadings that admitted forgery but also where Ms. Purdy had pleaded guilty in federal court after being charged with making false mortgage statements. EDNC Case No. 24 CR-133..
These factors made it virtually certain that the Court of Appeals would not overturn the Local Rule, both in this case and likely going forward (since now at least 6 Circuit judges have looked at it in tainted cases). But it has also reset the Overton Window for dismissals with prejudice, if only in an unpublished opinion, that a 10 year bar to refiling can be appropriate.
Unlike in the Sugar/Sasser v. Burnett opinion, the Court of Appeals did not, however, recognize that Ms. Purdy may have also had a reliance on counsel defense.
With proper attribution, please share this post.
To read a copy of the transcript, please see:
Blog comments