Wachovia Bank, National Association v. Miremadi et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: 	*
KAMRAN MIREMADI 	*
and 	* 	Case No. 04-37259-RAG
(Chapter 7)
HOLY JULIE MIREMADI 	*
a/k/a HOLLY JULE HARTER,
*
Debtors
*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
*
WACHOVIA BANK, NATIONAL
ASSOCIATION f/k/a FIRST 	*
UNION NATIONAL BANK
*
Plaintiff
*
vs. 	Adversary Proceeding No. 05-1255
*
KAMRAN MIREMADI, et al.,
*
Defendants
*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR SUMMARY
JUDGMENT AS TO MOTION OF DEBTORS FOR AWARD OF ATTORNEY’S
FEES AND COSTS PURSUANT TO 11 U.S.C. § 523(d)
Signed: January 07, 2008
SO ORDERED
Entered: January 08, 2008 Case 05-01255 Doc 20 Filed 01/08/08 Page 1 of 13

1 Hereafter, all statutory citations are to the Bankruptcy Code, found at Title 11 of the
United States Code, unless otherwise noted.
2 The Notice merely implements the deadlines mandated by Fed. R. Bankr. P. 4004(a)
and 4007(c).
2
Before the Court for consideration is the Motion of Debtors for Award of Attorney’s Fees
and Costs Pursuant to 11 U.S.C. § 523(d) 1 (Motion for Attorney’s Fees, Dkt. No. 12) filed by
Kamran and Holly Jule Miremadi, Defendants in this Adversary Proceeding. The Respondent,
Wachovia Bank, N.A. f/k/a First Union National Bank, Plaintiff in this suit, filed an Opposition
to the Motion (Opposition, Dkt. No. 13). Debtors filed a Reply to the Opposition and
simultaneously moved for summary judgment (Dkt. No. 14). Wachovia filed a Reply to
Debtors’ motion for summary judgment and in the same paper cross-moved for summary
judgment in its favor (Dkt. No. 17). A hearing was held on the Motion for Attorney’s Fees and
the cross summary judgment motions thereon on October 25, 2006. There are no material facts
in dispute and entry of summary judgment is otherwise appropriate. Accordingly, for the
reasons explained below summary judgment for the attorney’s fees and costs sought by Debtors
will be entered.
Material Facts Not in Dispute
Debtors filed their Voluntary Petition for Relief under Chapter 7 on December 3, 2004.
On December 6, 2004, the Clerk issued the Notice of Chapter 7 Bankruptcy Case, Meeting of
Creditors and Deadlines (Notice). Per the Notice, the deadline for filing complaints to object to
Debtors’ discharge and/or to have a particular debt declared nondischargeable was fixed as
March 15, 2005 2. Neither Wachovia or its predecessor in interest, First Union National Bank,
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3 Notwithstanding its assertion that it was a creditor of the Miremadis, Wachovia never
filed a proof of claim. This case apparently does have assets available for distribution. See
Trustee’s Notice of Assets filed on October 4, 2005 (Dkt. No. 35 in the main case).
4 A footnote in the Motion for Attorney’s Fees points out that the Real Estate’s address is
incorrectly identified in the Deed of Trust and that the actual street name is Bragden Wood.
3
were listed as creditors by the Debtors in their Schedules 3
. Therefore, it cannot be presumed that
Wachovia received the original Notice through the mail in the ordinary course of events.
Nevertheless, Wachovia did learn of the Debtors’ bankruptcy filing fairly quickly and, in the
words of its counsel, “began their [sic] investigation on January 4, 2005". Opposition at 2.
The underlying relationship between the Debtors and Wachovia began in 2001. On June
25, 2001, Mr. Miremadi borrowed $149,000 from Wachovia (the Loan). The Loan was
memorialized by a written loan agreement and was secured by a Deed of Trust, executed by both
Debtors, against the real estate located at 11775 Bragden Rd., Clarksville, Maryland 21209 (the
Real Estate) 4. 	Motion for Attorney’s Fees at 2-3.
At the time the Loan was consummated, the Debtors owned the Real Estate. By Deed
dated October 25, 2001, the Miremadis conveyed the Real Estate to Miremadi LLLP, a Maryland
limited liability limited partnership. The Deed was duly recorded in the Land Records of Howard
County at Liber 5776, Folio 0001. The Real Estate was later foreclosed upon by another lender
and title was thereafter conveyed to a Mr. and Mrs. Abate by a deed dated November 14, 2003.
This deed was also duly recorded in the Land Records of Howard County. Motion for
Attorney’s Fees at 5.
As the foregoing factual recitation makes plain, by the time the Miremadis filed their
bankruptcy case in December 2004, they no longer owned the Real Estate. Hence, they did not
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5 Section 523(a)(2)(A) provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does
not discharge an individual debtor from any debt--
(2) for money, property, services, or an extension, renewal, or refinancing of
credit, to the extent obtained by--
(A) false pretenses, a false representation, or actual fraud, other than a statement
respecting the debtor's or an insider's financial condition;
4
list the Real Estate on their Schedule “A”, Real Property Owned by Debtor. Their decision in
that regard was entirely correct.
On March 14, 2005, Wachovia filed a Complaint to Determine Dischargeability of Debt
(Complaint, Dkt. No. 1) against the Debtors thereby initiating this Adversary Proceeding. The
Complaint sets forth a summary of the state of the record of the bankruptcy case to that point
including Debtors’ commencement of the case, their failure to list Wachovia as a creditor, and
the loan transaction described above. However, paragraph 6 of the Complaint alleges, “As is
evident from the Defendant’s [sic] statement of financial affairs filed herein, the representation
of the Defendants that they had an ownership interest in, and ability to encumber, the real estate
purportedly given to Plaintiff as collateral security, was false.” Claiming to have relied upon
that alleged “false” representation in making the loan, Wachovia sought to have the resulting
indebtedness declared non-dischargeable pursuant to Section 523(a)(2)(A) 5 on the grounds that it
was incurred by “false pretenses, a false representation, or actual fraud”. Complaint at 3.
Not surprisingly, Debtors promptly filed a Motion to Dismiss (Dkt. No. 4). Debtors
explained that they did own the Real Estate at the time of the settlement, that it was subsequently
conveyed to Miramedi, LLLP subject to Wachovia’s interest, and was thereafter foreclosed
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6 Section 523(d) provides:
(d) If a creditor requests a determination of dischargeability of a consumer debt under
subsection (a)(2) of this section, and such debt is discharged, the court shall grant
judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the
proceeding if the court finds that the position of the creditor was not substantially
justified, except that the court shall not award such costs and fees if special
circumstances 	would make the award unjust.
7 Wachovia asserts it did not have an opportunity to examine the Debtors at their Section
341 meeting of creditors. However, the meeting of creditors was commenced, but apparently not
5
upon. Wachovia chose not to grapple head-on with the Debtors’ assertions, opting instead to file
its Motion to Dismiss (Dkt. No. 10). In that paper, Wachovia distilled its position to a single
paragraph that read, “After review of the affidavit, and other filings by the Debtors/Defendants,
Plaintiff has questions regarding whether it would prevail in this matter.” An Order Granting
Wachovia’s Motion to Dismiss was entered on July 20, 2005 and the Adversary Proceeding was
closed on December 19, 2005. Debtors received their discharge on August 17, 2006.
On September 20, 2006, Debtors filed the Motion for Attorney’s Fees. Debtors contended
that because Wachovia’s request for determination of discharge was not “substantially justified”
they should be permitted to recover from Wachovia the attorney’s fees and costs they incurred in
defending the action under the plain language of Section 523(d) 6
. Debtors’ counsel, Jeremy S.
Friedberg, provided an affidavit and time records showing total attorney’s fees of $8,237
incurred in defense of the Complaint and for related services.
Wachovia filed its Opposition on October 2, 2006. Wachovia acknowledged that it had
actual knowledge of the bankruptcy filing by January 4, 2005. On that day, its representative
contacted the Trustee in this case, “inquiring about the real estate pledged to secure Wachovia’s
debt” 7. Opposition at 2. Wachovia also contacted Debtors’ counsel’s office to make the same
Case 05-01255 Doc 20 Filed 01/08/08 Page 5 of 13

concluded, on January 14, 2005, about eleven days after Wachovia learned of the bankruptcy
filing.
8 It is likely that a good faith showing of cause for an extension of the looming deadline
would have netted Wachovia a reasonable period of time to complete any investigation it was
pursuing.
6
inquiry. Wachovia was told by the individual it communicated with that they were not “aware”
of the Real Estate.
Wachovia goes on to describe the balance of its efforts to determine why the Real Estate
was not listed on the Debtors’ Schedule “A”. Wachovia acknowledges that the Trustee’s
representative investigated the Debtors’ real estate interests and concluded Debtors no longer
owned the Real Estate at the time they filed bankruptcy because it had been purchased by the
Abates. The Trustee’s representative also told Wachovia that the Debtors were the previous
owners before the Abates’ purchase. Opposition at 3. Stated differently, prior to filing the
Complaint, Wachovia admits being told by the Trustee’s office that Debtors owned the Real
Estate before it was purchased by the Abates and that because of the sale the Debtors did not
own it when they filed bankruptcy.
Wachovia further acknowledges ordering a title search of the Real Estate on February 10,
2005. However, Wachovia did not include a copy of that search nor did it reveal its findings in
the papers filed on its behalf with respect to this dispute. Wachovia sums up the narrative of
its investigation by asserting it was “still unable to obtain explanations” by February 23, 2005
and it therefore filed the Complaint on the next to last possible day to do so8
. Opposition at 3.
The essence of the Complaint is the allegation that Debtors committed fraud when they
represented they owned the Real Estate at the time of settlement. In view of the totality of the
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7
circumstances, the Court concludes that Wachovia’s course of conduct did run afoul of Section
523(d) and therefore an award of reasonable attorney’s fees and costs is entirely proper in this
case. The way Wachovia handled this matter is an example of “fire, ready, aim” conduct at its
worst.
Analysis
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, 157, and Local
Rule 402 of the United States District Court for the District of Maryland. This is a core
proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
Fed. R. Civ. P. 56(c), made applicable by Fed. R Bankr. P. 7056, sets forth the procedure
to be followed when a motion for summary judgment is made. Summary judgment is proper
where “the pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact and the
moving party is entitled to judgment as a matter of law.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A material fact is one that might
affect the outcome of the suit. Id. at 248, 106 S.Ct. 2505. A genuine issue of material fact exists
where “the evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Id. at 248-49, 106 S.Ct. 2505. In determining the facts for summary judgment purposes,
the court may rely on affidavits made with personal knowledge that set forth specific facts
otherwise admissible in evidence and sworn or certified copies of papers attached to such
affidavits. Fed. R. Civ. P. 56(e). Permissible inferences to be drawn from the underlying facts
are viewed in the light most favorable to the nonmoving party, but if “the record taken as a
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9 Debtors’ did not provide an affidavit made on their personal knowledge attesting to the
underlying prebankruptcy history of this matter. While Fed. R. Civ. P. 56(a) does not expressly
require such an affidavit, the presence of one would have aided the decisional process.
Nevertheless, Wachovia provided an employee affidavit in opposition to the Motion for
Attorney’s Fees that does not dispute and, to the contrary, confirms the crucial points. The
balance of the facts can be effectively gleaned from the papers on file and referred to in this
Opinion.
8
whole could not lead a rational trier of fact to find for the non-moving party,” summary
judgment may be granted. Miller v. FDIC, 906 F.2d 972, 974 (4th Cir.1990).
The moving party bears the burden of producing evidence to demonstrate the absence of
any genuine issue of material fact. Ross v. Communications Satellite Corp., 759 F.2d 355, 364
(4th Cir.1985). Once a motion for summary judgment is made and supported, the nonmoving
party “may not rest on the mere allegations or denials of [that] party's motion, but AAA must set
forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 248,
106 S.Ct. 2505. The non-movant “must do more than simply show that there is some
metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). It must show that there is
sufficient evidence from which a reasonable factfinder could find its favor. Id. The material
facts, principally contained in the documents filed in the Court's docket, are not in dispute, and
the applicable law may be determined. 9 For the reasons stated below, Debtors are entitled to
judgment as a matter of law.
Section 523(a) identifies those debts that are excepted from the general discharge of
Section 727(b). Generally, Section 523(a) reflects legislative policy choices regarding certain
types of obligations and whether they should pass through bankruptcy unaffected by the
discharge. Creditors proceeding in good faith for the purpose of legitimately excepting a
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9
qualifying debt from a debtor’s discharge may do so without trepidation. However, the
provisions of Section 523(a)(2) have been subject to creditor misuse particularly in the consumer
bankruptcy arena. Hence, Section 523(d) was enacted as a part of the Reform Act of 1978 to
provide a hedge against creditor abuse.
Section 523(d) fashions strong medicine for the creditor owed a consumer debt who
seeks to have it declared nondischargeable under Section 523(a)(2) without “substantial
justification”. The statute reads:
If a creditor requests a determination of dischargeability of a consumer
debt under subsection (a)(2) of this section, and such debt is
discharged, the court shall grant judgment in favor of the debtor for the
costs of, and a reasonable attorney’s fee for, the proceeding if the court
finds that the position of the creditor was not substantially justified,
except that the court shall not award such costs and fees if special
circumstances would make the award unjust.
Debtors assert that before the Complaint was filed Wachovia knew, or reasonably should have
known, that (a) the Real Estate was owned by the Debtors when the original loan was
consummated (and hence no fraudulent misrepresentation of a kind asserted in the Complaint
could have occurred) and (b) the Debtors no longer owned the Real Estate at the time they filed
bankruptcy. In its defense, Wachovia contends that (a) its investigation was conducted in “good
faith”, (b) it voluntary dismissed the Complaint and (c) the litigation was not brought to
wrongfully extract a settlement or to force the reaffirmation of a debt otherwise dischargeable.
In considering whether to grant an award under Section 523(d), the first question is
whether the creditor was unsuccessful in suing for the discharge of a consumer debt. In re
Williams, 224 B.R. 523, 529 (2nd Cir. BAP 1998); In re Walker, 299 B.R. 141, 144 (S.D. W.Va.
2003). It is undisputed that is precisely what happened here. The burden then shifts to the
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10
creditor to establish either that its position was substantially justified or that ‘special
circumstances’ excuse its conduct. Id. See also, In re Napier, 205 B.R. 900, 908 (Bankr. N.D.
Ill. 1997); In re Stahl, 222 B.R. 497, 504-505 (Bankr. W.D. N.C. 1998).
Williams, supra, provides a thorough explication of how to apply Section 523(d). In that
case, the creditor claimed the debt was nondischargeable under Section 523(a)(2)(A). The
underlying facts established, however, that the debtor did not incur the debt in a manner
prohibited by that Section. The creditor’s pre-filing investigation was limited to only a review of
its own internal account records and the debtor’s credit bureau report. It ignored the debtor’s
evidence explaining how and why the debt was incurred, all of which was provided before trial,
and presented no evidence of its own at trial. Moreover, the creditor did not attend the Section
341 meeting nor did it seek to otherwise examine the debtor under oath. Williams, 224 B.R. at
531.
The Bankruptcy Appellate Panel for the 2nd Circuit affirmed the decision of the trial court
awarding fees and costs under Section 523(d). The court adopted a three-part test to measure
substantial justification: (1) whether there is a reasonable basis in law for the theory the claim
propounds, (2) whether there is a reasonable basis in truth for the facts alleged, and (3) whether
there is a reasonable connection between the facts alleged and the legal theory advanced. Id.
Finally, the court opined that the determination of substantial justification should be made in
light of the totality of the circumstances. Id.
The court also held that in order for a creditor to avoid liability, its pursuit of the claim
must be “substantially justified” at all times. A creditor cannot continue to prosecute a
dischageability claim of a consumer debt under Section 523(a)(2) “after it knows or should have
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11
known it could not prevail”. Id. at 530. Once that line is crossed, there is no reasonable basis for
the claim and the action cannot be substantially justified. Id. 	This Court agrees with the
foregoing analysis.
Applying these standards to the undisputed facts of this case, the conclusion is
inescapable that Wachovia’s Complaint was not substantially justified and hence should never
have been filed. The Complaint’s core allegation is that because Debtors did not list the Real
Estate in their Schedule “A”, they defrauded Wachovia at the time of the settlement when they
represented they owned, and therefore could pledge, the Real Estate as security for the Loan.
However, the truth of the Debtors representation that they owned the Real Estate at the time of
the settlement is not, and never has been, in legitimate dispute.
Either in its own files, or those of its agents, Wachovia should have had available all
relevant settlement documentation including documentation that evidenced how the Real Estate
was titled. And if it did not have that documentation, it would have been readily accessible from
public records. Likewise, any documentation memorializing the subsequent transfers of the Real
Estate would have been readily obtainable from the same source. Even if Wachovia had none of
the settlement documents and could not secure them from public records, its pre-filing
investigation expressly confirmed that the Debtors were the previous owners of the Real Estate
but no longer owned it at the time they filed bankruptcy as the Abates had purchased it on April
2, 2004. See Opposition at 3. Whatever confusion Wachovia may have suffered from at the
beginning of the case, there should have been no doubt whatsoever before the Complaint was
filed that the Debtors owned the Real Estate when they settled on the Loan in 2001. Thus, the
essential fact question purportedly raised by the Complaint was definitively answered in the
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12
Debtors’ favor before the Complaint was filed and Wachovia has identified no reasonable basis
for alleging otherwise. Whether Wachovia conducted any part of its pre-filing investigation in
good faith, it knew, or should have known, before the Complaint was filed that the Debtors
owned the Real Estate when the settlement occurred and hence could not have been guilty of
actual fraud.
Wachovia also claims it should not be assessed attorney’s fees and costs because it did
not file the litigation with the hope of extracting a settlement or the reaffirmation of the
particular debt. Wachovia also dismissed the Complaint shortly after its filing. The legislative
history does support the conclusion that Section 523(d) was enacted in part to prevent the use of
less than meritorious dischargeability claims to achieve unwarranted settlements. See H.R. Rep.
No. 95-595 at 131 (1977), Reprinted in 1978 U.S.C.C.A.N. 5963, 6092. Nevertheless, the
express statutory language does not require an examination of the creditor’s motivations. Under
the statute as written, the inquiry is limited to the standards applied above. 	For the same reason,
Wachovia’s early dismissal does not cure the statutory breach. Wachovia did not move to
dismiss the Complaint until after the Debtors filed their Motion to Dismiss and were forced to
incur fees and expenses in order to do so. Moreover, Wachovia has not identified any special
circumstances that excuse its conduct. Because the Debtors were left with no choice but to
mount a defense, and had no liability whatsoever to Wachovia, they should recover their
attorney’s fees and costs incurred as a result. The Court finds that the sum sought by the Debtors
is completely reasonable and justified by the Affidavit of Jeremy S. Friedberg Concerning
Attorneys’ Fees and Costs (Exh. 8 to Motion for Attorney’s Fees) and the supporting
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13
documentation filed therewith. By separate order, the Court will award the Debtors attorney’s
fees in the amount of $8,237.00.
It is, therefore, by the United States Bankruptcy Court for the District of Maryland,
ORDERED, that summary judgment is granted in favor of Debtors-Defendants on
the Motion of Debtors for Award of Attorneys’ Fees and Costs Pursuant to 11 U.S.C. § 523(d).
cc: Jeremy S. Friedberg, Counsel for Debtors-Defendants
Leitess Leitess Friedberg + Fedder PC
One Corporate Center
10451 Mill Run Circle, Suite 1000
Owings Mills, MD 21117
Dwayne Louis Garrett, Counsel for Plaintiff
Law Offices of Dwayne L. Garrett, P.C.
15206 Dino Drive
Burtonsville, MD 20866
-END OF ORDER-
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