UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
FRANKLIN R. BENNETT
RUBY D. BENNETT
DEBTORS CASE NO. 92-30548
ASSOCIATES FINANCIAL SERVICES PLAINTIFF
VS. ADV. NO. 93-3004
FRANKLIN R. BENNETT
and RUBY D. BENNETT DEFENDANTS
This matter is before the Court on the plaintiff's Motion to Dismiss. The defendants filed in response a Motion for Award of Costs and Attorneys' Fees and Conditions of Dismissal. In addition the plaintiff filed a Notice of Dismissal of Action. The defendants have filed a Motion to Strike Associates' "Notice of Dismissal of Action". This matter was submitted by order of this Court entered on August 17, 1993. The Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I).
This matter was initiated by the filing of the plaintiff's Complaint to Determine Dischargeability of Debt on March 16, 1993. The plaintiff brought the action pursuant to 11 U.S.C.'523(a)(2)(B), alleging that a financial statement which the defendants had provided in regard to the purchase of an above-ground swimming pool was materially false. The plaintiff purportedly is the second assignee of the installment contract for the purchase of the swimming pool. The plaintiff filed an Amended Complaint and a Second Amended Complaint on March 22, 1993, and July 21, 1993, respectively.
The defendants pro se filed a document on March 31, 1993, which was treated by the Court as an Answer. At a telephonic pre-trial conference conducted on May 10, 1993, the Court set the matter for trial on August 13, 1993. After the pre-trial conference the defendants apparently obtained the assistance of counsel, and preparation for trial went forward. Documents required by the trial order, including a Joint Stipulation, were filed.
On August 12, 1993, the plaintiff filed a Motion to Dismiss and noticed it for hearing on August 13, 1993, the day set for trial. On that date the Court conducted a hearing on the Motion to Dismiss. The defendants asked the Court to set out conditions for the dismissal. On the same date the plaintiff filed a "Notice of Dismissal of Action". The plaintiff alleged therein that it was dismissing the action pursuant to FRCP 41(a)(1) and further stated that it had not been served with an Answer or Motion for Summary Judgment in response to the filing of its Complaint.
The record in this case shows that the defendants filed a Chapter 7 petition in this Court on December 30, 1992. More than four years earlier, in August 1988, the defendants had agreed to purchase an above-ground swimming pool from Kayak Pools. Credit was extended to the defendants on the basis of information provided on a "Credit Approval Information" form. The plaintiff alleged that the defendants falsely and with intent to deceive claimed an ownership interest in the house in which they live. The plaintiff further alleged that it relied on this information in extending credit to the defendants.
The defendants responded that they informed the Kayak Pools salesman that the house was owned by defendant Ruby Bennett's mother, and that they lived there with her permission. The credit form has a "Mortgage Verification Authorization" section which was not filled out, but had written across it, "House paid for". Elsewhere on the form the phrase "No mortgage signed" appears, and in a space which asks for the estimated market value of the house, the figure "50,000" appears. The form does not contain any information concerning the defendants' total indebtedness or net worth.
The plaintiff persisted in its argument that the defendants had provided false and deceptive information upon which it relied, until August 12, 1993, the day before the scheduled trial in this matter, when it filed a Motion to Dismiss. The affidavit by plaintiff's counsel which accompanies the Motion states in part:
3. Defendants Interrogatories dated the 16th of June, 1993 and Amended Interrogatories dated the 6th day of August, 1993 indicated that the Defendant may have inherited a life estate in the property.
4. Defendants Supplemental Interrogatories dated the 6th day of August, 1993 indicate that the Defendant has no interest in the property.
5. Defendants position has been substantiated by the Franklin County Clerk and is substantially different than the position previously stated.
It appears to the Court that the plaintiff inferred from the sparse information on the "Credit Information Form" and from other statements made by the defendants that they had some sort of ownership interest in the property in question. There is no definitive statement of ownership of the property or of any right to encumber it on the Form, and the defendants have consistently denied that they have or claim such an interest. The Court does not have information before it to allow it to determine whether the defendants sought to mislead the lender or whether the agent of the lender who apparently filled out the application for the defendants sought to "enhance" the application by deliberately misstating the nature of defendants' interest in the property.
Federal Rule of Bankruptcy Procedure 7041 provides:
Rule 41 F.R. Civ.P. applies in adversary proceedings, except that a complaint objecting to the debtor's discharge shall not be dismissed at the plaintiff's instance without notice to the trustee, the United States trustee, and such other persons as the court may direct, and only on order of the court containing terms and conditions which the court deems proper.
In addition, 11 U.S.C.'523(d) provides that the debtor have judgment for the costs of and reasonable attorney fees for a proceeding brought by a creditor under '523(a)(2), if the debt is discharged and the court finds that the creditor's position was not substantially justified. As set out in House Report No. 95-595, 95th Cong., 1st Sess. 365 (1977), '523(d)
provides protection to a consumer debtor that dealt honestly with a creditor who sought to have a debt excepted from discharge on the ground of falsity in the incurring of the debt. ...
The purpose of the provision is to discourage creditors from initiating proceedings to obtaining (sic) a false financial statement exception to discharge in the hope of obtaining a settlement from an honest debtor anxious to save attorney's fees. Such practices impair the debtor's fresh start and are contrary to the spirit of the bankruptcy laws.
It is the opinion of this Court that the creditor's position in bringing the within action was, although weak once the factual situation was fully developed, nevertheless a claim which plaintiff had a valid right to pursue. It does appear that the plaintiff allowed the case to proceed to the date of trial before attempting dismissal of the action. This not only wasted judicial time but also undoubtedly cost the defendants additional sums of money in attorney fees. On balance, however, it does appear that the plaintiff should be allowed to dismiss the complaint and that no further conditions should be placed on such dismissal. A separate order will be entered.
By the Court -
Gail M. Bunch, Esq.
Douglas Strayer, Esq.