Quality Car & Truck Leasing, Inc. v. Adkins (In re Adkins)
Docket: CASE NO. 2:14-bk-20211; ADVERSARY PROCEEDING NO. 2:14-ap-2082
Court: United States Bankruptcy Court, S.D. West Virginia; February 15, 2017; Us Bankruptcy; United States Bankruptcy Court
Quality Car and Truck Leasing, Inc. filed two motions for partial summary judgment under Sections 523 and 727 of the Bankruptcy Code regarding Bobby Keith Adkins, who filed for Chapter 7 bankruptcy on April 23, 2014. After no response from Adkins to the initial motions, a Roseboro Notice allowed him until October 28, 2016, to respond; however, he submitted his response on October 31, 2016, with Quality Car replying on November 7, 2016. The case is classified as a core proceeding, with the Court asserting jurisdiction under 28 U.S.C. 157 and 1334.
Adkins’ bankruptcy case saw a report of assets filed by the Chapter 7 Trustee on August 28, 2014, which was later withdrawn on December 20, 2016, prompting an objection from Quality Car and a scheduled hearing for February 2, 2017. Throughout the proceedings, Adkins has not received a discharge. Quality Car initially filed a complaint under Sections 523 and 727, to which Adkins responded with an answer. A motion for default judgment filed by Quality Car in May 2015 was denied after a September 2015 hearing, where Adkins was ordered to cooperate with the Trustee and provide relevant financial documents.
Adkins, now representing himself since December 30, 2015, owns a farm in Jackson County, West Virginia, and has engaged in business under various names. He previously financed farm equipment through Quality Car, defaulting on agreements both before and after 2009. A refinancing agreement required his son, Jacob Adkins, to become a co-maker. Quality Car filed UCC statements to perfect liens on 87 pieces of equipment, which were later concealed by the Adkins family following their default on the refinanced agreements. Quality Car made efforts to locate and repossess the equipment, uncovering multiple transactions during their search.
In October 2009, Mr. Adkins sold several pieces of equipment through Joe R. Pyle Auction Service, with Quality Car learning of the sale in December 2009. Mr. Adkins used $17,000 from the auction proceeds to purchase a vehicle titled in his name, which served as collateral for a $17,000 loan from Traders Bank. The vehicle was sold to bona fide purchasers in spring 2010, free from any lien by Quality Car, which later received $7,000 from the sale, while $10,000 was diverted.
In spring 2009, Mr. Adkins auctioned unidentified equipment at Quarrick Equipment Auction, receiving a check for $10,523.50, deposited into Jacob Adkins’ account. A potential additional auction transaction was indicated in a letter from Mr. Adkins’ attorney, revealing $16,600 in sales proceeds sent to Quality Car without its prior knowledge or permission.
Mr. Adkins also sold two pieces of equipment to Greg May for $13,000, and two additional pieces to an unidentified buyer for $2,150, both transactions occurring without Quality Car's consent. Following Mr. Adkins's default on refinancing agreements, Quality Car attempted to repossess its collateral and subsequently filed a lawsuit in Jackson County, West Virginia (Quality Car Truck Leasing, Inc. v. Keith Adkins and Jacob Adkins, Civil Action No. 09-C-130) seeking possession and damages.
The Circuit Court compelled discovery responses from the Adkins, who failed to comply, leading to findings of willful violation of court orders and daily fines. During proceedings, Mr. Adkins threatened to destroy or conceal collateral but eventually provided some of the missing items. The court ultimately ruled in favor of Quality Car, awarding $281,459.83 plus interest of at least $83,523.47.
A deficiency judgment was issued following Quality Car's motion for summary judgment due to the inability to locate thirty-two pieces of collateral valued at $90,743, which includes $10,000 allegedly diverted after the Pyle Auction. Mr. Adkins, the defendant, has provided inconsistent responses, claiming he either cannot recall the collateral or alleging it was stolen or already possessed by Quality Car. He objects to the judgment, citing poor health and claiming Quality Car was aware of his conditions when issuing the loan, which he describes as predatory. Mr. Adkins asserts he was making payments until Quality Car refused payments from his son during his chemotherapy. He admits to owing money but blames both parties for the situation and requests complete bankruptcy relief, attaching medical records to support his claim of inability to work. Notably, he does not refute specific allegations of asset conversion or concealment. In its reply, Quality Car argues that Mr. Adkins must have sold assets given his claim of having nothing left and emphasizes that he fails to counter factual statements in the motion. The company labels Mr. Adkins' claims about the loan as fantastical and highlights a lack of objective evidence of his cancer diagnosis, pointing out that medical records do not support his health claims, indicating he was in good condition as of August 2016.
Quality Car argues that Mr. Adkins can perform certain tasks on his farm, such as mowing and operating tractors, which he acknowledged in a 2004 examination. Jacob Adkins currently manages the farm. Quality Car is seeking summary judgment under section 523(a)(6) of the Bankruptcy Code, asserting that Mr. Adkins' debt of $90,743.90 is nondischargeable.
Summary judgment under Federal Rule of Civil Procedure 56 is permissible only when there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. The burden initially rests with the moving party, but once they present sufficient evidence, it shifts to the nonmoving party to demonstrate a genuine issue of material fact that precludes summary judgment. The court evaluates evidence favorably towards the nonmoving party.
Under section 523(a)(6) of the Bankruptcy Code, debts resulting from "willful and malicious injury" by the debtor are non-dischargeable. There is a presumption that debts are dischargeable unless proven otherwise by the creditor, who must meet a preponderance of the evidence standard. While section 523(a)(6) typically pertains to torts, conversion can also be relevant. Following the Supreme Court's ruling in Kawaauhau v. Geiger, courts assess whether the conversion was intentional, requiring actual intent to inflict harm, rather than mere recklessness or negligence.
A finding of nondischargeability under section 523(a)(6) necessitates proof of three elements: 1) the debtor caused an injury; 2) the debtor's actions were willful; and 3) those actions were malicious. Willful conduct implies deliberate or intentional misconduct, while malicious actions are wrongful and unjustified, regardless of personal animus. Courts evaluate willfulness using either the "objective substantial certainty test" or the "subjective motive test," focusing on the debtor's state of mind rather than a reasonable person's perspective. Malice can be defined as causing injury without justification, and in conversion cases, it requires evidence that the debtor knowingly violated the creditor's rights. Knowledge of those rights can be inferred from the debtor's business experience or actions, such as concealing a sale. Importantly, no specific ill will or intent against the creditor is necessary to establish malice.
The Court's analysis involves determining whether Mr. Adkins injured Quality Car by defaulting on loans secured by collateral, specifically farm equipment and personal property. Quality Car has not been reimbursed for over thirty missing pieces of collateral, some of which were sold without its knowledge, and funds were improperly diverted to Mr. Adkins or his son. Mr. Adkins sold collateral at auction and through random sales, demonstrating willful harm to Quality Car. He misused $17,000 from the sale of collateral to purchase another vehicle, which was then sold to a third party, indicating a clear understanding of the collateral's importance. Mr. Adkins has failed to safeguard the collateral, claiming some was stolen or lost, but his lack of reliable proof raises doubts about his credibility. His medical claims are inconsistent with available records, suggesting possible obfuscation. Overall, Mr. Adkins has not only failed to protect Quality Car's interests but likely engaged in concealment or conversion of its collateral. The Court concludes that Mr. Adkins acted willfully and maliciously, as he has a history of defaults and refinancings that indicate a knowing disregard for Quality Car's rights. His experience in sales and rentals further supports his understanding of his obligations under the financing agreements.
Mr. Adkins acknowledged his understanding of the loan agreement with Quality Car, including the obligations regarding collateral. He was aware that proceeds from selling the collateral should go to Quality Car and that insurance proceeds from any loss of collateral were also owed to Quality Car. Upon defaulting on the loan, he failed to provide all collateral, did not remit insurance proceeds, and sold equipment without permission from Quality Car. These sales were concealed, requiring Quality Car to conduct its own investigation. The actions of Mr. Adkins are deemed malicious under section 523(a)(6).
Quality Car claims damages of $90,743, which includes the value of missing collateral and funds diverted from an auction. Given the absence of appraisals or reported sale prices, the value of the collateral is assumed not to have significantly decreased since its purchase. The court determined that all elements of section 523(a)(6) are met, confirming Mr. Adkins acted willfully and maliciously towards Quality Car, with no evidence presented to contradict this finding. Consequently, the court granted Quality Car's Motion for Partial Summary Judgment, declaring Mr. Adkins' debt of $90,743 to be nondischargeable. Additionally, Quality Car's Motion regarding discharge under 727(a)(2) was denied without prejudice as moot, and further proceedings were set pending Quality Car's submission of a proposed judgment order by February 27, 2016. The court also noted ambiguity in Mr. Adkins' references to another individual, Mr. Mark Hatfield.
