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In re Teal

United States District Court, Eastern District of Tennessee, Winchester

March 17, 2015

IN RE ANTHONY DAVID TEAL and ONETA KAY TEAL, Debtors.

MEMORANDUM

CURTIS L. COLLIER UNITED STATES DISTRICT JUDGE

Before the Court is Debtors Anthony David Teal and Oneta Kay Teal’s (“Debtors”) appeal from an order of the United States Bankruptcy Court for the Eastern District of Tennessee denying Debtors’ motion for contempt and sanctions. Debtors filed an appellant brief (Court File No. 4) and Coffee County Bank (the “Bank”) filed an appellee brief (Court File No. 9). The parties waived oral argument. After giving careful consideration to the parties’ arguments, the relevant case law, and the evidentiary record, the Court AFFIRMS the order of the bankruptcy court.

I. BACKGROUND

In their motion for contempt before the bankruptcy court, Debtors accused the Bank of violating 11 U.S.C. § 524(a)(2), which bars creditors from trying to collect on debts discharged in bankruptcy. The issue before the bankruptcy court was whether certain acts of the Bank related to loan modifications executed after the Debtors had been discharged from bankruptcy were prohibited acts to collect a discharged debt in violation of the discharge injunction of 524(a)(2), or whether those acts were acts in the ordinary course of business by a holder of a claim secured by the Debtors’ principal residence to collect periodic payments in lieu of foreclosing. If the latter, such acts would be allowed by 11 U.S.C. § 524(j).

Debtors filed their voluntary Chapter 7 bankruptcy petition in October 2009. The Bank filed five claims, four secured by Debtors’ residence at 212 Gotta Milk Lane (the Residence) and one secured by Debtors’ property at 630 Teal Road, where their late parents lived. Debtors received a discharge on February 1, 2010, of which the Bank was aware.

Debtors’ attorney, Larry Edmondson (“Edmonson”), testified before the bankruptcy court that after the Chapter 7 discharge, Debtors moved to convert the bankruptcy to Chapter 12 in an attempt to bring the Bank to the negotiating table to restructure the mortgages. A meeting was then held on February 23, 2010, during which Edmondson and Bank President Kenneth Kirby (“Kirby”) worked out new payment terms on the loans secured by the Residence. Debtors operated a dairy farm, and the plan involved directly assigning proceeds from the farm to the Bank. Edmonson memorialized the terms in a memorandum dated the following day, which noted the new interest rates, maturity dates, and when milk check payments would begin.

The documents formalizing the agreement were executed on March 11, 2010. One of the documents was an assignment between Maryland and Virginia Milk Producers Cooperative Association and Mr. Teal, providing for $7, 610 in milk revenue to be sent to the Bank each month. The assignment gave the Teals the unilateral power to stop payment, stating that “[c]onsent of the assignee is not required to terminate this Assignment.” In exchange, the parties agreed to modifications of the four loans secured by the Residence.

At the bankruptcy hearing, Debtors’ sole witness, Mr. Teal, disagreed with some of the Bank’s version of the facts. He testified that rather than the closing occurring on March 11, 2010, with Edmondson present, it occurred on March 15 without Edmondson. However, Kirby and Edmondson testified-and the bankruptcy court found-that all documents were Dated: March 11 with Edmondson present.

The Bank started receiving the assigned milk checks in early April 2010 meant to pay down the four loans secured by the Residence. The checks, however, were short beginning in June 2010 and continuing until February 2012, when Mr. Teal terminated the assignment. The shortfall at that time was $41, 707.80. The Bank then began foreclosure.

Debtors filed a contempt motion alleging the Bank’s actions relating to the loans violated the discharge injunction of 11 U.S.C. § 524(a)(2). They claimed as damages all of the milk payments during the two years from 2010 to 2012 on the grounds that they were involuntary payments. After a hearing on the matter, the bankruptcy court ruled in the Bank’s favor.

II. STANDARD OF REVIEW

The district court has appellate jurisdiction to hear appeals from final judgments and orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The bankruptcy court’s factual findings are reviewed for clear error and its conclusions of law are reviewed de novo. In re Behlke, 358 F.3d 429, 433 (6th Cir. 2004).

III. DISCUSSION

A. Waiver of Appeal Issues


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