By: Scott B. Riddle, Esq.
Thurmond v. Turner, Adv. Nos. 02-6435, 05-9141, 2006 Bankr. LEXIS 2745 (Bankr. N.D. Ga. September 19, 2006) (Bonapfel). The Chapter 7 Trustee filed fraudulent conveyance actions against the Debtor and his spouse, based upon a pre-petition transfer of Debtor’s half-interest in the residence, and against Debtor’s brothers based upon pre-petition transfers of Debtor’s undivided interest in other real property. After a trial, the court found that the transfer to the brothers was avoidable pursuant to O.C.G.A. § 18-2-22 (pre-enactment of the Georgia Uniform Fraudulent Transfer Act).
It was not clear, however, whether the transfer to the spouse rendered the debtor insolvent, as required by the law. The trustee relied solely on the fact that two month after the transfer, debtor was sued in state court over a contract dispute and the plaintiffs in that action obtained a default judgment for $61,500 in August 1999. "The controlling legal question is whether the default judgment in a lawsuit filed after the transfer proves the Debtor’s liability to the [state court plaintiffs] at the time of the transfer for purposes of the Trustee’s claim against [Debtor’s spouse]. (emphasis in original). The Trustee argued that the state court judgment was conclusive in showing the debtor’s insolvency at the time of the transfer, thus precluding the spouse from litigating the issue. Judge Bonapfel concluded that because the state court default judgment was against the debtor only and not the spouse, the spouse did not have the opportunity to litigate the issue, and the judgment was not otherwise binding upon her, the Trustee could not use it as conclusive proof of the debtor’s insolvency at the time of the transfer. Therefore, the Trustee did not meet his burden. However, the Court did re-open discovery to permit additional evidence as to the debtor’s insolvency at the time of the transfer.
Hutchins v. Temples, Adv. No. 05-9134, 2006 Bankr. LEXIS 3174 (Bankr. N.D. Ga. September 29, 2006) (Bonapfel). Consent judgment entered in Florida State Court not given preclusive effect in dischargeability proceeding, as judgment did not include any factual findings concerning the fraud claim. Further, provision that may have committed the debtor to the nondischargeability of the debt in a future bankruptcy was unenforceable.
JPI Partners, LLC v. Dixon, Adv. No. 06-6124, 2006 Bankr. LEXIS 3197 (Bankr. N.D. Ga. September 25, 2006) (Brizendine). Debtor was collaterally estopped from relitigating federal court judgment for fraud, based upon Georgia state law fraud claims. The fact that the debtor appeared pro se in that action did not lead to conclusion that the debtor did not have the opportunity to defend herself. Had that been the case, it would have been an issue to address in the prior action. Summary judgment was entered for the plaintiffs pursuant to §§523(a)(2)(A), (a)(4).