Delta Community Credit Union fka Delta Employees C v. Farris-Ellison

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re
RITA GAIL FARRIS-ELLISON,
Debtor.
Case No. 2:11-bk-33861-RK
Chapter 7
Adv. No. 2:11-ap-02899-RK
DELTA COMMUNITY CREDIT UNION,
Plaintiff,
vs.
RITA GAIL FARRIS-ELLISON,
Defendant.
MEMORANDUM DECISION ON
ADVERSARY COMPLAINT TO
DETERMINE DISCHARGEABILITY OF
DEBT AND ORDER VACATING
FURTHER HEARING
This adversary proceeding was tried before the undersigned United States
Bankruptcy Judge on December 6, 2012 on the complaint of plaintiff Delta Community
Credit Union fka Delta Employees Credit Union (“Plaintiff”) to determine dischargeability
of debt against defendant Rita Gail Farris-Ellison (“Defendant”) pursuant to Section
523(a)(6) of the Bankruptcy Code, 11 U.S.C. Karen A. Ragland, Garwacki &
FILED & ENTERED
JAN 25 2013
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	gae
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Associates, appeared for Plaintiff. James A. Bryant II, Attorney at Law, appeared for
Defendant.
On June 1, 2011, Defendant filed a voluntary petition for relief under Chapter 7 of
the Bankruptcy Code, 11 U.S.C. The case was assigned case number 2:11-bk-33861-
EC.1 A discharge was entered for Defendant on May 10, 2012.
On October 17, 2011, Plaintiff commenced this adversary proceeding by filing its
complaint against Defendant, seeking a declaration that debts based on the loans it
made to Defendant be deemed non-dischargeable pursuant to 11 U.S.C. § 523(a)(6).
This adversary proceeding was assigned adversary number 2:11-ap-02899-EC.2
Complaint to Determine the Dischargeability of a Debt Pursuant to 11 U.S.C. Section
523(a)(6) (“Complaint”), filed on October 17, 2011. On November 15, 2011, Defendant
served and filed an answer denying the substantive allegations of the complaint.
Defendant’s Answer and Affirmative Defenses, filed on November 15, 2011.
On September 4, 2012, the court approved and filed the joint pretrial order, which
was entered on September 5, 2012.
On December 6, 2012, the court conducted a trial of this adversary proceeding. At
the close of the evidence at trial, the court ordered the parties to submit proposed
findings of fact and conclusions of law on or before December 20, 2012, and to submit
objections to the opposing parties’ proposed findings of fact and conclusions of law by
January 17, 2013. Plaintiff filed its proposed findings of fact and conclusions of law on
December 18, 2012. Defendant filed her proposed findings of fact and conclusions of law
on December 20, 2012. Plaintiff filed its objection to Defendant’s proposed findings of
fact and conclusions of law on January 15, 2013. Defendant filed her objection to
1 When the bankruptcy case was reassigned from Judge Ellen Carroll to Judge Robert Kwan on or about
February 17, 2012, it was renumbered Case No. 2:11-bk-33861-RK.
2 When the bankruptcy case was reassigned from Judge Ellen Carroll to Judge Robert Kwan, this
adversary proceeding was renumbered Adv. No. 2:11-ap-02899-RK.
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Plaintiff’s proposed findings of fact and conclusions of law on January 17, 2013. The
court set a further hearing after the deadline for filing objections to proposed findings of
fact and conclusions of law for February 19, 2013.
Having considered the testimony and other evidence admitted at trial and the oral
and written arguments of the parties, the court now takes the matter under submission
and issues this memorandum decision.
The court has jurisdiction over this adversary proceeding under 28 U.S.C.
§§ 157(a) and (b)(1) and (2)(I) and 1334. Venue is proper in this judicial district. This
adversary proceeding is a core matter.
The court makes the following findings of facts and conclusions of law based on
facts previously determined in the court’s joint pretrial order entered on September 5,
2012 as well as facts determined on the evidence admitted at trial. Joint Pre-Trial Order,
entered on September 5, 2012.
FINDINGS OF FACT
1. On or about May 12, 2005, Defendant signed a Loanliner Open-End
Disbursement Receipt Plus (“Agreement #1”), wherein she pledged to Plaintiff a security
interest in a 2004 BMW 645 CI vehicle, Vehicle Identification Number (“VIN”)
WBAEK73484B321234 (the “BMW”).
2. On or about February 2, 2007, Defendant signed a Loanliner Open-End
Disbursement Receipt Plus (“Agreement #2”) wherein she pledged to Plaintiff a security
interest in a 2007 Harley-Davidson motorcycle, VIN 1HD1HH2307K808961 (the
“Harley”).
3. Plaintiff perfected its security interests in the BMW and Harley with the
California Department of Motor Vehicles.
4. In 2009, Defendant defaulted on the loan payments required by Agreement #1
and Agreement #2.
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5. On or about September 2009, Plaintiff repossessed from Debtor a 2001 Ford
Expedition vehicle at Debtor’s former residence in Winchester, California.
6. As a result of Defendant’s loan defaults, Plaintiff retained a repossession
agency, Interstate Recovery, to recover the BMW and Harley from Defendant.
7. On September 29, 2009, Defendant agreed to cure the delinquencies under
Agreements #1 and #2 by making payment arrangements with Plaintiff to pay them by
October 9, 2009 (“Payment Arrangements”). Defendant was aware that Plaintiff would
resume its repossession efforts of the BMW and Harley if Defendant failed to comply with
the Payment Arrangements. As a result of the Payment Arrangements, Plaintiff called
Interstate Recovery to hold off on all attempts to repossess the BMW and Harley.
8. On October 2, 2009, Defendant called Plaintiff and requested an additional 3 to
4 months to cure the delinquencies on Agreements #1 and #2. Defendant refused to
agree and denied this request.
9. After October 2, 2009, Defendant made no further payments to Plaintiff and
there were no further conversations between Plaintiff and Defendant regarding
repayment, but Defendant continued to use the vehicles.
10. On October 6, 2009, Plaintiff instructed Interstate Recovery to resume its
efforts to repossess the BMW and Harley.
11. Between October 6, 2009 and October 20, 2009, Interstate Recovery made
numerous attempts to recover the BMW and Harley at all of the known addresses for the
Defendant, including Defendant’s residence and place of work.
12. Interstate Recovery was unable to locate the BMW and Harley because
Defendant concealed these vehicles either in her garage and/or at another location while
she continued to use the vehicles after October 2, 2009.
13. On October 20, 2009, Plaintiff ceased its repossession efforts of the BMW and
Harley.
14. As of March 2010, the fair market value of the BMW was $21,865.00, and the
fair market value of the Harley was $9,220.00.
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15. On November 18, 2010, the Superior Court of California for the County of
Riverside entered an “Order for Writ of Possession” ordering Defendant to transfer
possession of the BMW and Harley to Plaintiff.
16. On February 10, 2011, the Riverside County Superior Court entered judgment
in favor of Plaintiff and against Defendant in the total amount of $62,980.93 and awarding
Plaintiff possession of the BMW and Harley.
17. On June 1, 2011, Defendant filed a voluntary Chapter 7 bankruptcy petition.
18. On August 9, 2011, this Court entered an order granting Plaintiff relief from the
automatic stay to continue its efforts to repossess the BMW and Harley.
19. On October 17, 2011, Plaintiff filed a complaint objecting to the dischargeability
of its claims under 11 U.S.C. § 523(a)(6).
20. On December 6, 2012, this Court held a trial on Plaintiff’s nondischargeability
complaint.
21. To date, Plaintiff has not recovered the BMW or Harley from Defendant.
22. At the trial, Defendant testified that the BMW and Harley were stolen in 2009
or 2010. The court finds the testimony of Defendant lacks credibility because after
discovering the BMW was missing in late 2009 and the Harley was missing in early 2010
as she testified at trial, Defendant did not promptly file a police report for any of the
missing vehicles, and she did not file a claim with her insurance company regarding the
loss of the vehicles. Defendant testified that she believed that the missing vehicles were
repossessed by Plaintiff, but she did not contact Plaintiff to confirm that it repossessed
the vehicles. The court does not find Defendant’s testimony to be credible as well on this
point because previously, she had contacted Plaintiff about her missing 2001 Ford
Expedition vehicle, confirmed that that vehicle had been repossessed by Plaintiff and
complained about the repossession.
23. The court infers from the circumstances in this case and finds that Defendant
concealed the BMW and Harley from Plaintiff and its agents to delay and deter Plaintiff’s
collection efforts. Defendant knew she was in default on the loans made by Plaintiff to
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her for the BMW and the Harley, and she knew that Plaintiff would be attempting to
enforce its security interests in the vehicles and to repossess these vehicles because she
had defaulted on the loans and the Payment Arrangements because Plaintiff refused her
request for a further extension of Payment Arrangements. Plaintiff declined to voluntarily
turn over the vehicles after Plaintiff turned down her request for more time to cure the
loan delinquencies. Plaintiff was also aware that Plaintiff had previously repossessed
another one of her vehicles, the 2001 Ford Expedition, for a loan default. Plaintiff was in
control of the vehicles after she defaulted on the loan and Payment Arrangements and
later when the vehicles were “missing.” Defendant’s actions, or more accurately, non-
actions when the vehicles were missing (i.e., not making a police report when the
vehicles became missing, not filing an insurance loss claim when the vehicles were
missing), and not confirming with Plaintiff whether it had repossessed the vehicles
indicates that she knew what happened to them and that she knew that they were not
repossessed by Plaintiff. Defendant only attempted to file a police report in September
2011, several years after she discovered that these vehicles under her control were
missing, indicating a lack of concern over the vehicles, which the court infers shows that
she concealed the vehicles and caused their transfer to others. Defendant had no
plausible explanation for the loss of the vehicles under her control, and thus, the court did
not find Defendant’s trial testimony in general that she did not conceal the vehicles to be
credible.
CONCLUSIONS OF LAW
1. Section 523(a)(6) of the Bankruptcy Code, 11 U.S.C., excepts from discharge of
a debtor any debt for “willful and malicious injury by the debtor to another entity or to the
property of another entity.”
2. A debt from conversion of property under California law may be deemed
nondischargeable if the court finds the debtor committed the conversion with the
subjective intent to cause an injury or an objective substantial certainty of harm. Thiara v.
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Spycher Bros. (In re Thiara), 285 B.R. 420, 432-433 (9th Cir. BAP 2002). The court finds
that the circumstantial evidence here indicates Defendant’s subjective intent or
knowledge of substantial certainty of harm to Plaintiff with respect to its collateral.
Defendant knew that after she defaulted on the loans from Plaintiff, Plaintiff would be
attempting to recover its collateral by repossessing the vehicles. She refused to turn over
the vehicles to Plaintiff after it denied her request to further extend her time to cure the
loan delinquencies, and vehicles became missing under her control. The circumstances
of the loss of the vehicles indicate that Defendant had the subjective intent or knowledge
of substantial certainty of harm to Plaintiff as indicated in her overall indifference with the
loss of the vehicles as shown by her failures to file prompt police reports for their loss and
to file loss claims with an insurance company. In re Thiara, 285 B.R. at 432-433.
3. In California, “[t]he elements of a conversion cause of action are (1) plaintiffs'
ownership or right to possession of the property at the time of the conversion; (2)
defendants' conversion by a wrongful act or disposition of plaintiffs' property rights; and
(3) damages.” Hartford Financial Corp. v. Burns, 96 Cal.App.3d 591, 598 (1979) (citation
omitted). In this case, conversion of the vehicles shows malicious injuries because there
were wrongful acts of conversion of Plaintiff’s collateral which was done intentionally as
inferred by the court based on the circumstantial evidence discussed above and done
without just cause or excuse. In re Thiara, 285 B.R. at 433. There was simply no excuse
or just cause for the loss of Plaintiff’s collateral by Defendant. The circumstances here
lead this court to conclude that Defendant converted Plaintiff’s collateral because she
continued to use Plaintiff’s collateral, the vehicles, after defaulting on the loans secured
by the collateral and refusing to pay for the vehicles or return them to Plaintiff, knowing
that Plaintiff would be attempting to repossess the vehicles, and the vehicles were “lost”
while in her control and under suspicious circumstances. Hartford Financial Corp. v.
Burns, 96 Cal.App.3d at 598 (tort of conversion defined as “Conversion is any act of
dominion wrongfully exerted over another’s personal property in denial of or inconsistent
with his rights therein”).
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4. Under California Civil Code, § 3336, the damages caused by the wrongful
conversion of personal property is presumed to be “[t]he value of the property at the time
of conversion, with the interest from that time….”
5. In this case, Plaintiff had a right to immediate possession of its collateral, the
BMW, upon Defendant’s default under Agreement #1.
6. Defendant wrongfully retained possession of the BMW under her control by
intentionally concealing the BMW from Plaintiff.
7. As a result of Defendant’s concealment of the BMW, Plaintiff suffered damages
that were substantially certain to occur.
8. Therefore, Defendant’s intentional concealment of the BMW, Plaintiff’s
collateral under the security agreement, constitutes a conversion of its property under
California law, and the debt from the loss of that property is nondischargeable pursuant to
11 U.S.C. § 523(a)(6) as debts from willful and malicious injuries.
9. As a result of Defendant’s intentional conversion of the BMW, the debt owed to
Plaintiff by Defendant secured by the BMW is deemed nondischargeable under 11 U.S.C.
§ 523(a)(6) up to the value of the BMW at the time of Defendant’s conversion of the
BMW, which was $21,865.00, plus interest allowable under California Civil Code, § 3336.
10. Upon Defendant’s default under Agreement #2, Plaintiff had a right to
immediate possession of its collateral, the Harley.
11. Defendant wrongfully retained possession of the Harley under her control by
intentionally concealing the Harley from Plaintiff.
12. As a result of Defendant’s concealment of the Harley, Plaintiff suffered
damages that were substantially certain to occur.
13. Therefore, Defendant’s intentional concealment of the Harley, Plaintiff’s
collateral under the security agreement, constitutes a conversion of its property under
California law, and the debt from the loss of that property is nondischargeable pursuant to
11 U.S.C. § 523(a)(6).
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14. As a result of Defendant’s intentional conversion of the Harley, the debt owed
to Plaintiff by Defendant secured by the Harley is deemed nondischargeable under 11
U.S.C. § 523(a)(6) up to the value of the Harley at the time of Defendant’s conversion of
the Harley, which was $9,220.00, plus interest allowable under California Civil Code, §
3336, plus all of Plaintiff’s expenses allowable under Agreement #2.
15. This memorandum decision constitutes the court’s findings of fact and
conclusions of law.
16. The court having issued this memorandum decision adjudicating the matters
raised by the complaint hereby vacates the further hearing in this adversary proceeding
set for February 19, 2013 at 1:30 p.m. No appearances are required on February 19,
2013.
17. However, in order to determine the amount of the judgment, the court orders
that Plaintiff file declarations and other evidence to substantiate the amount of interest on
the value of the vehicles under California Civil Code, § 3336, and the expenses provided
under Agreement #2, including attorneys’ fees permitted under state law or the
Bankruptcy Code and further briefing showing entitlement to expenses and attorneys’
fees under Agreement #2. The court does not award expenses under Agreement #1
because no evidence of the security interest containing a provision for allowance of
expenses to Plaintiff was offered into evidence. Exhibit 1 received by the court into
evidence does not contain a copy of the security agreement with the expense provision.
Plaintiff is ordered to file such declarations and evidence on or before February 28, 2013.
Defendant may file objections to such declarations and evidence on or before March 15,
2013. Either party may request a hearing on the computation of the amount of the
judgment by filing a request for hearing and noticing the matter for hearing with 21 days
///
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notice of hearing in accordance with Local Bankruptcy Rule 9013-1. If no hearing is
requested, the matter will be taken under submission as of March 15, 2013, and the court
will rule on the computation of the judgment amount on the papers without further
hearing.
IT IS SO ORDERED.
###
Date: January 25, 2013
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NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify) MEMORANDUM DECISION ON
ADVERSARY COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT AND ORDER VACATING
FURTHER HEARING was entered on the date indicated as “Entered” on the first page of this judgment or
order and will be served in the manner indicated below:
I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEF”) – Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of January 24, 2013, the
following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary
proceeding to receive NEF transmission at the email address(es) indicated below:
James Bryant james.bryant@thecalawgroup.com
Sam S Leslie (TR) sleslie@trusteeleslie.com, sleslie@ecf.epiqsystems.com;trustee@trusteeleslie.com
Karen A Ragland Karen.Ragland@prodigy.net, garwackilaw2@prodigy.net
United States Trustee (LA) ustpregion16.la.ecf@usdoj.gov
Service information continued on attached page
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or
order was sent by U.S. Mail, first class, postage prepaid, to the following person(s) and/or entity(ies) at the
address(es) indicated below:
Rita Gail Farris-Ellison
1921 W 36th Street
Los Angeles, CA 90018
Service information continued on attached page
III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment or
order which bears an “Entered” stamp, the party lodging the judgment or order will serve a complete copy
bearing an “Entered” stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a proof of
service of the entered order on the following person(s) and/or entity(ies) at the address(es), facsimile
transmission number(s) and/or email address(es) indicated below:
Service information continued on attached page
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