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Sixth Circuit BAP Reverses Dismissal With Prejudice of Dischargeability Fraud Complaint - In re Burer

March 21, 2012

Vincent Howard and our Moreno Valley personal bankruptcy lawyers were interested to see a recent bankruptcy appeal in which foreclosure was an issue, but not the foreclosure of the debtor. Rather, in In re Burer, the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals heard the case of a creditor, Silvia Valdes Reyes, who alleged the debtor, Brenda Burer, defaulted on an agreement to sell her a mobile home. This robbed the recently foreclosed Reyes of a $15,000 down payment, she alleged, and Burer should not be permitted to discharge this debt in bankruptcy. Reyes's attorney later moved to dismiss her motion without prejudice for practical reasons, but the bankruptcy court instead dismissed with prejudice, providing no explanation. The BAP reversed.

Reyes was foreclosed in 2008 and was living with her children in a motel when she started negotiations to buy a mobile home from Burer for $22,000. She paid Burer $15,000 in cash and agreed to pay the remaining $7,000 at closing. However, the closing never took place, and Burer stopped responding to Reyes's phone calls. When the two women finally spoke, Reyes asked to close the deal or have her money refunded, and Burer said Reyes would have to sign a document saying she was no longer interested in order to get a refund. She signed, but no refund arrived. Reyes later learned that Burer did not own the mobile home at the time of the sale. In late 2009, Reyes sued, prompting Burer to file for Chapter 7 bankruptcy just before trial.

Reyes then filed an adversary proceeding, seeking to have the $15,000 debt declared not dischargeable. The adversary proceeding headed for trial over Burer's objections, but during its pendency, Burer's attorney withdrew, saying he could not ethically continue to represent Burer. Burer successfully filed for two extensions of time before trial on the adversary proceeding. However, when Reyes's attorney asked for a two-week continuance -- citing in part unsuccessful attempts to reach Burer -- the continuance was not granted. The attorney appeared at the trial and asked to voluntarily dismiss the adversary case without prejudice, saying Reyes had an emergency and couldn't be reached. Instead, the bankruptcy court dismissed the case with prejudice, with no further explanation. Reyes and her attorney later appealed to the Sixth Circuit's BAP.

That panel reversed, finding the bankruptcy court abused its discretion by failing to explain its order. Recent Sixth Circuit precedent explains the process for dismissing a complaint with prejudice after a request for dismissal without prejudice. The court must give notice; the plaintiff must be given an opportunity to be heard in opposition; and the plaintiff must have the opportunity to withdraw and continue the litigation. This is important because a dismissal with prejudice is considered a rejection on the merits, and will be considered final and settled. The bankruptcy court failed to do any of this, the BAP noted. Failing to explain why it chose to dismiss with prejudice was an abuse of discretion, the panel said. It reversed with orders to the court to provide notice and give Reyes the opportunities noted above.

Vincent Howard and our Santa Ana individual bankruptcy attorneys are interested to know what reasons the bankruptcy court might have had for its original decision. Courts are run by judges who are human, and sometimes they get impatient with endless delays to cases created by apparent poor planning by the litigants. However, in this case, it's hard to believe that Reyes was penalized for the two previous delays that were granted to Burer. It's also possible that personal dislikes or prejudices played a role; the judge may have disliked the attorney or Reyes as people, or had a more sinister problem with them. In our practice, Vincent Howard and our Gardena consumer bankruptcy lawyers try to stay aware of these factors, so we can avoid having to fight a negative and potentially case-ending outcome into the appeals courts.

Howard Law, P.C., represents clients who are considering bankruptcy protection as a way to fight overwhelming debts. If you're ready to discuss your legal options, contact us through our website or call us today at 1-800-872-5925.

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