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Foley, Inc. v. Fevco

August 25, 2005


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, No. L-11302-98.

The opinion of the court was delivered by: Wecker, J.A.D.



Argued June 1, 2005

Before Judges Stern, Wecker and Graves.

Plaintiff, Foley, Inc., appeals from a final order entered in the Law Division in favor of defendants Elisa Rodriguez and Milita Rodriguez. The order vacated a judgment entered in plaintiff's favor because the debt underlying that judgment previously had been discharged as to each individual defendant in bankruptcy.*fn1 On appeal, plaintiff argues that both its security interest in the corporate debtor's property and defendants' individual liability as guarantors of the corporate debt were erroneously determined to have been discharged in bankruptcy, because plaintiff had no notice of the bankruptcy proceedings and its claim was omitted from each defendant's Schedule D list of creditors. Defendant Elisa Rodriguez responds that the omission was inadvertent, and irrespective of the omission, the discharge applied both to listed and unlisted creditors. We disagree and reverse.


The rather involved procedural history provides background to this appeal. Plaintiff and Fevco, Inc. were involved in various business transactions, beginning in 1990 and continuing through 1997. On June 29, 1990, Elisa and Milita Rodriquez, on behalf of Fevco, applied for and received an extension of credit from plaintiff. On the same day, they executed a personal guaranty for Fevco's debt to plaintiff. Between 1990 and 1995, plaintiff sold and leased equipment and provided service to Fevco. On November 27, 1995, in order to maintain its credit with plaintiff, Fevco granted plaintiff a security interest in a Caterpillar Model 963 track loader. The security agreement also provided that Fevco would pay off its debt, $70,853.67, in monthly installments of $1,103.23. Fevco defaulted on the installment payments. Fevco (and defendants) also failed to turn over the Model 963.*fn2

On October 23, 1997, plaintiff filed a complaint against Fevco and defendants demanding the $70,853.67 balance due, $14,170.73 in counsel fees, and a judgment of possession for the Model 963 track loader. Due to "administrative difficulties," which the record does not explain, that complaint was dismissed; plaintiff filed a second, identical complaint on November 13, 1998.

Unbeknownst to plaintiff, on November 24, 1998, Elisa Rodriguez filed a chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey. Elisa's petition omitted plaintiff as a creditor on her Schedule D list of creditors. The chapter 7 trustee filed a notice of proposed abandonment, describing Elisa's property to be of "inconsequential value." No objections were made, and on March 15, 1999, the bankruptcy court deemed the matter a "no asset" case and discharged Elisa's debts under 11 U.S.C.A. § 523. Milita Rodriguez apparently had filed a similar chapter 7 bankruptcy petition on September 29, 1998, and also omitted the debt owed to plaintiff. Milita's debts were similarly discharged by order dated March 8, 1999.*fn3

On April 15, 1999, plaintiff, unaware of defendants' bankruptcy petitions or the previously entered discharges, sent defendants a notice of proof hearing with respect to the Law Division complaint. Defendants did not respond. The Law Division held that proof hearing on May 4, 1999, and on May 13, plaintiff obtained an order of judgment against Fevco and the individual defendants, awarding $85,024.40 in damages and counsel fees as well as a judgment of possession for the Model 963.

Plaintiff served Elisa with an information subpoena on May 26, 1999. Defendants' attorney responded by letter on September 28, 1999, informing plaintiff that the debt had been discharged as to each of the individuals, and that plaintiff had been "inadvertently omitted" as a creditor on defendants' bankruptcy filings. The attorney claimed that the bankruptcies were "no asset" cases in which the debts held by unlisted creditors remained discharged, citing Judd v. Wolfe, 78 F.3d 110 (3d Cir. 1996).

No significant action respecting the debt or the discharges was taken by any party for more than three years.*fn4 On May 19, 2003, Elisa moved under N.J.S.A. 2A:16-49.1 to vacate the May 13, 1999 Law Division default judgment. The court granted her motion on June 6, 2003, and plaintiff filed this appeal. On September 11, 2003, we ordered a temporary remand, stating, "Both sides may supplement the record below, defendant within 20 days of today, and plaintiff within 30 days of today. Oral argument shall be afforded to the parties, and the trial court shall make findings of fact and conclusions of law within 60 days of today." During the pendency of the remand, Milita also moved to vacate the judgment.

Pursuant to the remand order, the Law Division judge heard argument on January 9, 2004. He then allowed the parties thirty days to consider whether they should proceed in the bankruptcy court. On February 5, 2004, the court conducted further argument by telephone. The parties agreed that there was concurrent jurisdiction to address the dischargeablity issue in the bankruptcy court and the Superior Court. Nonetheless, the judge vacated the state court judgment without holding a plenary hearing on plaintiff's non-dischargeability claim. The judge's February 24, 2004 letter opinion concluded as follows:

After reviewing the submissions by both parties, the bankruptcy code and the relevant case law, Elisa and Milita Rodriguez's motions [sic] to discharge and vacate the 5/13/99 judgment are granted. While Foley argues that the judgment is non-dischargeable under § 523 the court disagrees. Clearly the debt did not fall within any of the exceptions provided by § 523(a)(2), (4) or (6) of the Bankruptcy Code. Ordinarily debts not listed in the bankruptcy petition and which the creditor has no notice are not dischargeable. An exception exists, however, for debts not listed in no-asset cases, which these were. ...

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