James Robert Knowles

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
JAMES ROBERT KNOWLES and
JULIE LAURA KNOWLES,
DEBTORS
CASE NO.
05-06402-8-ATS
ORDER ALLOWING MOTION TO DISMISS
AND ESTABLISHING TIME IN WHICH TO CONVERT CASE
Pending before the court is the motion to dismiss or convert to
chapter 7, or alternatively for relief from stay, filed by DIRECTV,
Inc. A hearing was held in Raleigh, North Carolina on October 26,
2005. For the reasons that follow, the chapter 13 case of debtor James
Robert Knowles will be dismissed, and Mr. Knowles will be allowed time
in which to convert his case to a case under chapter 7 of the
Bankruptcy Code. This order does not affect the filing by Mrs.
Knowles.
James Robert Knowles and Julie Laura Knowles filed a petition for
relief under chapter 13 of the Bankruptcy Code on August 18, 2005.
DIRECTV filed the instant motion to dismiss, contending that Mr.
Knowles is not eligible to be a debtor under chapter 13 because
DIRECTV’s claim exceeds the debt limits established in 11 U.S.C.
§ 109(e), which provides
Only an individual with regular income that owes, on the
date of the filing of the petition, noncontingent,
liquidated, unsecured debts of less than $307,675 and
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noncontingent, liquidated secured debts of less than
$922,975, or an individual with regular income and such
individual’s spouse, except a stockbroker or a commodity
broker, that owe, on the date of the filing of the petition,
noncontingent, liquidated, unsecured debts that aggregate
less than $307,675 and noncontingent, liquidated, secured
debts of less than $922,975 may be a debtor under chapter 13
of this title.
Mr. Knowles opposes the motion, contending that DIRECTV’s debt is
neither noncontingent nor liquidated.
DIRECTV’s claim arises from litigation pending against Mr. Knowles
in the United States District Court for the Eastern District of North
Carolina in which DIRECTV alleges that Mr. Knowles used 87 electronic
devices designed and sold for the purpose of illegally obtaining access
to DIRECTV’s satellite programming without paying for the service. The
complaint also alleges that Mr. Knowles was involved in the transfer or
resale of those devices. On April 29, 2005, DIRECTV filed a motion for
summary judgment in the district court litigation, and Mr. Knowles
failed to respond to the motion. Several months later, Mr. Knowles
filed a motion for leave to respond out of time. The district court
has not ruled on the motion for summary judgment or the motion for
leave to respond out of time.
DIRECTV contends that it is not necessary for the district court
to enter its order allowing summary judgment for this court to find
that the debt is noncontingent. Mr. Knowles refused to answer most of
the discovery requests in the district court litigation, asserting his
Fifth Amendment right against self-incrimination. In civil cases, the
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court may make an inference from the refusal to answer that the
responses would have established liability. In addition, DIRECTV
contends that it has substantial affirmative evidence to support its
motion. Finally, Mr. Knowles’ failure to respond to the motion
significantly enhances the likelihood that judgment will be entered in
favor of DIRECTV. Mr. Knowles contends that the debt is contingent
until liability has been finally determined.
Generally speaking, whether a claim is contingent depends upon
"the nature or origin of liability. More precisely, it relates to the
time or circumstances under which the liability arises. In this
connection liability does not mean the same as judgment or remedy, but
only a condition of being obligated to answer for a claim." In re
Knight, 55 F.3d 231, 236 (7th Cir. 1995), quoted in In re Mazzeo, 131
F.3d 295, 303 (2nd Cir. 1997). Distilled to their essence, the gist of
the cases establish that a debt is noncontingent if all of the events
necessary to give rise to liability for it take place prior to the
filing of the petition. Conversely, the debt is contingent if it will
not become an obligation on the part of the debtor until some future
event takes place. Mazzeo, 131 F.3d at 303 (citing cases in support of
this general proposition).
In the instant case, the actions giving rise to liability have all
occurred. The incomplete status of the pending litigation means only
that the debt is "disputed," not that it is "contingent."
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The existence of a dispute, and the prerequisite that the
claimant establish its claim by a given quantum of proof,
mean only that the claim is disputed, not that it is
"contingent" in the sense of depending on the occurrence of
an extrinsic event.
Mazzeo, 131 F.3d at 304. Because there is no additional action that
Mr. Knowles would have to take to create liability, assuming that
DIRECTV can prove its allegations, the debt is noncontingent, but
disputed. "[T]he disputed status of a claim that is otherwise
noncontingent and liquidated is not a basis to exclude it from the §
109(e) jurisdictional calculation." In re Tabor, 232 B.R. 85, 89
(Bankr. N.D. Ohio 1999).
Mr. Knowles also contends that the claim is not "liquidated." "If
the value of the claim is easily ascertainable, it is generally viewed
as liquidated." Mazzeo, 131 F.3d at 304 (internal quotations and
citation omitted). A claim is liquidated if it is determinable by a
simple computation or if its amount is made certain by operation of
law. Mazzeo at 304.
DIRECTV acknowledges that the exact amount of its claim cannot be
determined at this time, but a minimum claim is easily ascertainable.
Among DIRECTV’s causes of action are statutory claims for violations of
47 U.S.C. § 605(e)(4), which proscribes the sale or distribution of
devices primarily used for the unauthorized decryption of direct-to-
home satellite services. The statute provides for damages of not less
than $10,000, and not greater than $100,000, plus costs and fees, for
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each violation. 47 U.S.C. § 605(e)(3). Case law has established that
the sale or distribution of each separate device constitutes a separate
violation for purposes of determining statutory damages. See DIRECTV,
Inc. v. Adkins, 320 F. Supp. 2d 474, 476 (W.D. Va. 2004). Accordingly,
the minimum amount of DIRECTV’s claim is $870,000, or $10,000 for each
of the 87 devices alleged.
The court is persuaded that the value of the claim is easily
determinable, at least to establish that the minimum value far exceeds
the debt limits for chapter 13 eligibility. Accordingly, Mr. Knowles
is not eligible to be a debtor under chapter 13 pursuant to § 109(e).
Based on the foregoing, the motion to dismiss is ALLOWED as to Mr.
Knowles. Mr. Knowles may convert his case to chapter 7 within 10 days
of the date of this order. If no notice of conversion is filed, the
case will be dismissed without further hearing. The motion to dismiss
is DENIED as to Mrs. Knowles, as no allegation was made that DIRECTV
has a claim against Mrs. Knowles or that she is otherwise ineligible to
be a debtor.
SO ORDERED.
DATED: October 31, 2005
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