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Nix v. Pnc Bank, N.A.

United States District Court, N.D. Alabama, Northern Division

February 5, 2019

PNC BANK, N.A., Appellee.



         James Carlton Nix, III appeals from the bankruptcy court's July 6, 2018 order finding that the debt he owed to PNC Bank, N.A. is non-dischargeable under 11 U.S.C. § 523(a)(6). Doc. 1. Nix contends that the bankruptcy court erred by finding that he caused a willful and malicious injury to PNC, and he argues that he is entitled to a new trial because there is no transcript of the proceedings before the bankruptcy court. The appeal is fully briefed, docs. 5, 6, 7, as is PNC's motion to strike Nix's reply brief for raising arguments that Nix did not present in his initial brief, docs. 8 and 9. For the reasons explained below, the court finds that the bankruptcy court's order is due to be affirmed, and PNC's motion to strike is moot.


         The district court sits as an appellate court in reviewing final decisions of a bankruptcy court. 28 U.S.C. § 158(a)(1). Accordingly, the district court reviews the bankruptcy court's findings of fact under the clearly erroneous standard, while the bankruptcy court's legal conclusions are subject to de novo review. See, e.g. Educ. Credit Mgm't Corp. v. Mosley, 494 F.3d 1320, 1324 (11th Cir. 2007). See also Fed. R. Bankr. P. 7052 (incorporating Fed.R.Civ.P. 52); Fed.R.Bankr.P. 8013. “The factual findings of the bankruptcy court are not clearly erroneous unless, in the light of all the evidence, ‘[the district court is] left with the definite and firm conviction that a mistake has been made.'” In re TOUSA, Inc., 680 F.3d 1298, 1310 (11th Cir. 2012) (citations omitted). In addition, because “[a]ssessing witness credibility is uniquely the function of the trier of fact, ” United States v. Peters, 403 F.3d 1263, 1270 (11th Cir. 2005), “generally [the court] will not disturb a bankruptcy court's credibility determinations, ” In re Kane, 755 F.3d 1285, 1288 (11th Cir. 2014) (citing In re Englander, 95 F.3d 1028, 1039 (11th Cir. 1996)).


         On September 14, 2006, Nix borrowed $75, 000 from First American Bank, PNC's predecessor-in-interest, to purchase five membership units in Crestwood Healthcare, LP (“Crestwood”). Docs. 3-12 at 2; 3-11 at 8. The loan required quarterly interest payments and matured on October 14, 2016. Docs. 3-12 at 2; 3-11 at 8. To secure the loan, Nix signed a Pledge and Security Agreement, which pledged his interest in the membership units and any proceeds therefrom to PNC as collateral for the loan. Docs. 3-12 at 2; 3-13 at 1, 17-18. Nix also purchased five additional membership units with a loan from Wells Fargo. Doc. 3-12 at 2.

         Nix tried unsuccessfully to sell the membership units back to Crestwood in 2007. Doc. 3-12 at 4. Then, in December 2009, Nix sold four membership units to Crestwood Hospital, LLC (the “Hospital”).[1] Id. at 3. Nix sold two more membership units to Crestwood in November 2011, and sold an additional two units to them in November 2012. Id. Finally, Nix sold his last two membership units to the Hospital in September 2015. Id. Nix received a total of $185, 744 in proceeds from the sale of his ten membership units, which he used to pay other debts. Id. at 3-4. Nix never informed PNC about the sale of the membership units. Id. at 4.

         Nix also did not inform Crestwood and the Hospital that he had pledged five units to PNC. Doc. 3-12 at 4. Rather, in connection with his 2011 and 2012 sales to Crestwood, Nix signed documents representing that his membership units were “free and clear of all liens, security interests and encumbrances whatsoever . . . .” Doc. 3-11 at 12-13. And, in connection with his sales of membership units to the Hospital in 2009 and 2015, Nix signed “Letters of Transmittal” in which he represented that he had “not conveyed, assigned, transferred or pledged any direct or indirect interest [in the units] to any other person or entity.” Docs. 3-11 at 11; 3- 12 at 4, 14. A representative from the Hospital testified that the Hospital would have informed PNC about the sale of the units if Nix had disclosed PNC's security interest. Doc. 3-12 at 7.

         In June 2014, a PNC representative called Nix to inquire about the location of the stock certificates for the five membership units he purchased with the PNC loan. Docs. 3-11 at 15; 3-12 at 7. Nix did not inform the representative that he had sold most of his units and only still owned two units. Id. Instead, Nix told the representative that he was not sure about the certificates' whereabouts and would “check with his wife who handles his finances and either go to [the] branch with statements, etc. or get back to [the representative] with what he has.” Doc. 3-11 at 15. Nix never called PNC back to provide the requested information. See id.

         Nix made quarterly interests payments to PNC under the terms of the loan until July 25, 2016. Doc. 3-12 at 3. In total, Nix paid PNC $51, 493 in interest and $10, 397.21 in principal on the loan, leaving a principal balance of $64, 602.79. Id. After the loan matured in October 2016, PNC sent Nix a letter, informing him of an “Event of Default” based on non-payment and securitization. Id.

         Nix subsequently filed for relief under Chapter 7 of the Bankruptcy Code, and listed PNC as an unsecured creditor. Doc. 3-12 at 3. PNC in turn filed an adversary proceeding, seeking a declaration that the debt Nix owed to it is non-dischargeable under 11 U.S.C. § 523(a). Doc. 3-2. Due to a technical error, a transcript for the May 15, 2008 trial of the adversary proceeding is unavailable. Docs. 3-4; 3-10 at 3; 5 at 7 n.1. The bankruptcy court subsequently entered a judgment in favor of PNC, finding that the debt is non-dischargeable under 11 U.S.C. § 523(a)(6), and that Nix's “actions constitute a willful and malicious injury for purposes of § 523(a)(6).” Doc. 3-12 at 16. Nix challenges this finding. Docs. 1, 5.

         II. ANALYSIS

         “A Chapter 7 debtor is generally entitled to a discharge of all debts that arose prior to the filing of the bankruptcy petition.'” In re Kane, 755 F.3d 1285, 1292 (11th Cir. 2014) (quoting In re Mitchell, 633 F.3d 1319, 1326 (11th Cir. 2011)). But, the Bankruptcy Act “limits the opportunity for a completely unencumbered new beginning to the ‘honest but unfortunate debtor.'” Grogan v. Garner, 498 U.S. 279, 286-87 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)). Thus, some debts cannot be discharged, including, as relevant here, a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity . . . .” 11 U.S.C. § 523(a)(6). A creditor bears the burden of proving a debt is non-dischargeable by a preponderance of the evidence, Grogan v. Garner, 498 U.S. 279, 291(1991), and courts narrowly construe the exceptions to discharge, In re Miller, 39 F.3d 301, 304 (11th Cir. 1994).

         For purposes of § 523(a)(6)'s exception to discharge, a willful injury occurs when a debtor “‘commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury.'” In re Kane, 755 F.3d at 1293 (quoting In re Jennings, 670 F.3d 1329, 1334 (11th Cir. 2012)). In other words, a willful injury means “a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (emphasis in original). “‘Malicious' means without just cause or excessive even in the absence of personal hatred, spite or ill will.” In re Jennings, 670 F.3d at 1334. “A bankruptcy ...

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