Recent case development: State Court Judgment (re Specific Performance) Excepted From Chapter 7 Discharge

Case: Ginger Sirikanjanachai v. Town of Hingham (In re Ginger Sirikanjanachai), no. 17-12526-FJB (Bankr. D. Mass.) 

Opinion By: Judge Frank J. Bailey
November 7, 2018

The town of Hingham (the “Town”) filed an adversary proceeding seeking to except its state court judgement against debtor, Ginger Sirikanjanachai (the “Debtor”) from her chapter 7 discharge. Count I sought a declaration that this judgment for specific performance against Debtor is not a “claim” within the meaning of the Bankruptcy Code. Count II sought a determination that this judgment and recovery of attorney’s fees should be excepted from discharge based on several misrepresentations under 11 U.S.C. § 523(a)(2)(A) or (B) which governs nondischargeability pertaining to false pretenses and fraud.

The Debtor had participated in a lottery to purchase an available unit with the Hingham Housing Authority. It was required for two residents to occupy the unit and in the Debtor’s application she represented that it would be occupied by herself and Laciga Rachaisi, which was a previous name of the Debtor and also the name of the Debtor’s corporation, Laciga Rachaisi Inc. She represented that her landlord was a realty trust but did not disclose her position of Trustee in that realty trust. She also represented that she had not owed a home in the past or present time by leaving the answer blank when in fact she had. Upon purchasing the unit, the Debtor violated Deed Rider provisions by conveying the unit to herself as Trustee of a realty trust and granting two mortgages on the unit to herself; one to herself in her previous name, Laciga Rachaisi, and the second to herself as Trustee of another realty trust. Lastly, she granted a third mortgage to her second husband’s investment trust. All of this was done against Deed Rider provisions and without notice to the Town.

The Town obtained a state court judgment in its favor which declared void the Debtor conveying the unit to herself along with the three mortgages that she had granted on the unit. The Debtor was also ordered to convey fee title to the Town, and the Town was authorized to payoff from the proceeds of mortgage. Lastly, the Town was authorized to recover attorney’s fees and costs from the Debtor.

On Count I, the Bankruptcy Court ruled that the Town’s judgment ordering the Debtor to transfer the unit back to the Town is excepted from discharge under 11 U.S.C. § 727(a). Upon reaching this ruling, the Court ruled that this order of specific performance does not require the Debtor to pay the Town, but rather to transfer the unit back. Because of this, the Debtor’s obligation is not a claim giving rise to a right to payment within the meaning of 11 U.S.C. § 101(5)(A) and is in turn not a debt within the meaning of 11 U.S.C. § 727(b).

The Court also ruled that the Debtor’s obligation is not a claim within the meaning of § 101(5)(B) because although the Town has the right to the equitable remedy of having the unit transferred to them, this remedy also does not give right to a rise to payment. The Court ruled that damages would not suffice because there are limited units available in Hingham Housing Authority’s program, the return of Debtor’s unit to the Town is valuable.

On Count II, the Bankruptcy Court ruled that four out of the seven misrepresentations were plead with particularity. The two misrepresentations that were not stated with particularity were regarding the Debtor omitting monthly income and income from the sale of previous real property. The Court ruled that the Town did not specify how and where the Debtor made these misrepresentations and, therefore, did not plead with particularity. The Court deemed these two misrepresentations waived as grounds for nondischargeability under § 523(a)(2).

Regarding the misrepresentation of the Debtor’s lack of answer in her application that she did not have real estate holdings, the Court ruled that the lack of answer was not a basis for discharge under § 523(a)(2)(b) which governs false statements in writing. The Court determined that by leaving this answer blank, it was not a negative answer confirming that she had not owed real estate, but simply a non-answer. The Town had not proved that it relied on this non-answer as a negative and that any reliance it may have placed on it was reasonable which are requirements for nondischargeability under § 523(a)(2)(b).

The Court ruled that the Debtor’s statements regarding the non-existent second resident, not owning a home in the past, that her current landlord was her realty trust, and that she did not presently own a home sounded in fraud under all four requirements of § 523(a)(2)(A). The Debtor had made these representations with the intent to deceive and induce the Town to rely on them in which the Town reasonably did. By relying on these representations, the Town incurred expenses to have the unit transferred back to them which gave rise to a debt for property, including attorney’s fees.

The fourth requirement of § 523(a)(2)(A) requires false representations to not be made in regard to the debtor’s or an insider’s financial condition. In accordance with a previous ruling, the Court applied a narrow interpretation of what constitutes financial condition statements. A narrow interpretation would require income statements, balance sheets, etc. The Court ruled that the Debtor’s statements were not broad enough in scope to constitute a statement respecting her financial condition. Having met all of the requirements of 523(a)(2)(A), the Court excepted the Town’s judgment of specific performance and attorney’s fees from discharge.

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Summary Prepared By:
Erica James
New Lawyers Section Liaison to Bankruptcy Law Section