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Eleventh Circuit Rules Debt Created by Judgment for Fraudulent Property Transfer Is Not Dischargeable - Maxfield v. Jennings

February 27, 2012

Vincent Howard and our Moreno Valley consumer bankruptcy lawyers were interested to see a recent ruling applying well-understood bankruptcy law to a legal judgment for fraudulent transfer of property. It's long been true that bankruptcy does not discharge debts created by litigation for certain things, including a lawsuit over "willful and malicious injury" to someone else or someone else's property. In Maxfield v. Jennings, the Eleventh U.S. Circuit Court of Appeals applied this rule to a judgment against Janice Jennings for transferring property to exempt it from an underlying product liability suit. The Eleventh Circuit found that this was enough to constitute willful and malicious injury and upheld the non-dischargeability finding.

Brandon James Maxfield was seven when he was shot accidentally and rendered a quadriplegic. He sued Bruce Jennings, Janice's ex-husband, and his two firearms companies for negligence, and later named Janice and a real estate company that the two ex-spouses still held in common, as well as Bruce's third ex-wife, Anna Leah Jennings. Shortly after the amended complaint, Bruce asked Janice to transfer the real estate to Anna. When Maxfield found out, he filed a separate lawsuit against Janice and the real estate entities for conspiracy and fraudulent transfer. A jury eventually awarded Maxfield $24.7 million in his negligence case, prompting Janice and others to file for bankruptcy and the court to join their bankruptcy cases with the fraudulent transfer action. There, the court found Janice jointly and severally liable for the main judgment as well as the fraudulent transfer ($3.9 million in total liability).

Maxfield later filed an adversary proceeding in bankruptcy court, seeking a determination that Janice's debt to him from the fraudulent transfer judgment is not dischargeable. The bankruptcy court dismissed, finding that a conspiracy claim does not qualify as "willful and malicious injury," but the district court reversed. On remand, the bankruptcy court granted summary judgment to Janice, finding that the debt -- which it thought was from the negligence suit -- was not from willful and malicious injury, and that the fraudulent transfer was not guaranteed to harm Maxfield in any case. The district court again reversed, finding that Janice lied about transferring the real estate to satisfy a divorce obligation owed to Anna; knew the real estate was likely to be encumbered by the transfer; and that Bruce was trying to transfer it to keep it away from creditors. This satisfied the requirement that Janice's conduct be "willful and malicious injury," the district court said. The bankruptcy court entered judgment for Maxfield and this appeal followed.

Without oral argument, the Eleventh Circuit affirmed. Janice argued that there was no injury to Maxfield or his property from her actions because the actions took place before the judgment in his personal injury case. The Eleventh rejected this argument, finding that Janice's actions did take place after she and the real estate company were found liable in the fraudulent transfer case. The lower courts found that this was done knowingly. The Eleventh also agreed that it was done willfully and maliciously, not just recklessly. Janice knew there was a personal injury claim against the property because she was a defendant too, the court said; she even admitted this on the record before testifying otherwise. She knew this would prevent Maxfield from collecting on any judgment and also knew Anna had no claim on the property. Thus, the Eleventh upheld the lower courts.

Vincent Howard and our Placentia personal bankruptcy attorneys are particularly interested in the procedural history of this case, because it's clear that the bankruptcy judge must have strongly disagreed with the district judge. Even after a reversal, the bankruptcy judge persisted in finding for Janice, requiring the district judge to order the outcome he or she wanted the second time around. To the Los Angeles County individual bankruptcy lawyers at Howard Law, P.C. this suggests some sympathy from the lower court. Though we can't ascertain why from the record, we do note that Janice was only very indirectly involved in the underlying injury to Maxfield -- she was once married to an owner of the companies that made the gun. Without the fraudulent transfer, she may have had more luck arguing that this was a very tenuous connection.

If you've been hit with huge debt and you'd like to discuss your options with experienced bankruptcy attorney Vincent Howard, don't wait to call Howard Law for help. For a consultation, send us a message online or call toll-free at 1-800-872-5925.

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