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In re Oakley

United States District Court, E.D. Pennsylvania

March 31, 2015

In re: ANNETTE M. OAKLEY, Debtor; NUZIO CARTO, JR., Plaintiff-Appellee
ANNETTE M. OAKLEY, Defendant-Appellant

Bankruptcy No. 12-18456, Adversary No. 13-00053.




JAMES KNOLL GARDNER, United States District Judge.

Page 252





The Parties

The Loan

Terms of Promissory Note

The BMW Automobiles

Failure to Sell Weatham Street Property

Demand for Payment and State Suit

The Bankruptcy Action

Chapter 7 Schedules and Statements of Financial Affairs

Initial Schedules

Statement of Financial Affairs

Amended Schedule B

Amended Statement of Financial Affairs

Trustee Report

The Adversarial Action

The Bankruptcy Court Decision

The Bankruptcy Appeal



Contentions of Appellant

Contentions of Appellee


Timeliness of Briefs

Bankruptcy Court's Grant of Relief to Plaintiff-

Appellee and Denial of Discharge to Defendant-

Appellant Under 11 U.S.C. § 727(a)(4)(A)

Relief Not Specifically Requested

Weight of the Evidence

Bankruptcy Court's Denial of Relief to Plaintiff-

Appellee Under 11 U.S.C. § 523(a)


Page 253

This matter is before the court on the Notice of Appeal dated February 24, 2014 by debtor/defendant-appellant Annette M. Oakley. In this bankruptcy appeal, Ms. Oakley contests the Order and accompanying Memorandum of United States Bankruptcy Judge Bruce Fox dated and filed December 30, 2013,[1] by which Judge Fox sustained creditor/plaintiff-appellee Nunzio Carto, Jr.'s objection to discharge pursuant to 11 U.S.C. § 727(a)(4), and, accordingly, denied Ms. Oakley's petition for a discharge under Chapter 7 of the Bankruptcy Code.[2]


For the reasons expressed below, I affirm the December 30, 2013 Order of the bankruptcy court.

First, I deny plaintiff-appellee's request that I decline to entertain this timely-filed appeal because appellant's brief was not timely filed. I deny that request because plaintiff-appellee's brief was, itself, tardier than appellant's and did not demonstrate that appellee was prejudiced by appellant's delay.

Next, I affirm the bankruptcy court's Order sustaining plaintiff-appellee's objection and denying defendant a discharge pursuant to 11 U.S.C. § 727(a)(4). I affirm the Order because defendant-appellant received sufficient notice that plaintiff-appellee was seeking such relief, and because the bankruptcy court's decision to grant such relief was not against the weight of the evidence.

Finally, I do not address the merits of plaintiff-appellee's contention that the bankruptcy court erred in finding that he did not meet his burden of proof at trial on his claim that defendant-appellant's debt to him should be declared non-dischargeable pursuant to 11 U.S.C. § 523(a)(2). I

Page 254

do not address that claim because plaintiff-appellee failed to file a cross-appeal and, thus, that claim of error is not properly before me.


This Court has subject matter jurisdiction over this bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1).


The facts and procedural history are gleaned from the December 30, 2013 Memorandum of the bankruptcy court, the record of this matter, and, to the extent that they are in agreement, the briefs of the parties.

The Parties

Debtor/defendant-appellant Annette M. Oakley was a practicing attorney in the spring of 2011 when she obtained the subject loan (described below) which is at the heart of the underlying dispute between the parties. Ms. Oakley was admitted to practice in the state and federal courts of New Jersey and Pennsylvania. However, her license to practice in Pennsylvania had lapsed because of unpaid fees. At the time of trial in the adversary action in the bankruptcy court, Mr. Oakley was subsisting on partial disability payments.[3]

Creditor/plaintiff-appellee Nunzio Carto, Jr. was a funeral home director in the spring of 2011. In December 2011, when he was approximately 83 years old, Mr. Carto turned over the operation of his funeral business to his son-in-law and longtime employee, James Guercio. Mr. Carto also granted Mr. Guercio a power of attorney to oversee Mr. Carto's signing of checks.[4]

At the time of the loan, Ms. Oakley was a friend of Mr. Carto's former wife (they later divorced) and did some collections work as an attorney on behalf of Mr. Carto's funeral business. Ms. Oakley discussed her proposed loan request with Mr. Carto's wife (before the divorce) who did not oppose the request.[5]

The Loan

In March 2011, Ms. Oakley approached Mr. Carto and offered to sell him a partial interest in real estate located at 6984 Weatham Street, Philadelphia, Pennsylvania (" the Weatham Street property" ), which she owned as a tenant in common with her mother and aunt. Ms. Oakley proposed a price of $65,000.00 for her interest in the Weatham Street property.[6]

Mr. Carto declined the offer to purchase Ms. Oakley's share in the Weatham Street property. Ms. Oakley then sought, instead, to borrow the $65,000 from Mr. Carto to purchase a 2007 BMW M6 automobile.[7]

Mr. Carto had previously lent money to family members and friends, and occasionally requested that the borrower acknowledge the debt.[8]

Given Ms. Oakley's friendship with his wife, and because his wife did not oppose his lending the money to Ms. Oakley, Mr. Carto agreed to the loan -- the largest he had ever made. Mr. Carto asked Ms. Oakley to prepare a promissory note, requesting that she specify that the loan of $65,000 would mature in one year.[9]

Page 255

Mr. Carto gave Ms. Oakley a check in the amount of $30,000.00 on March 2, 2011, prior to his receipt of the Promissory Note.[10]

Ms. Oakley delivered the Promissory Note to Mr. Carto on March 3, 2011.[11] Mr. Carto did not read the Promissory Note immediately upon receipt of the document.[12] Mr. Carto gave Ms. Oakley a second check, this one in the amount of $35,000.00, the following day, March 4, 2011.[13]

Terms of Promissory Note

Ms. Oakley drafted the Promissory Note herself.[14] It states, among other things, that the principal amount of the loan was $80,000.[15]

The note further states that repayment " shall be made from the borrower's portion of ANY and ALL sale proceeds" of the Weatham Street Property, the sale of which Ms. Oakley promised to " pursue, in good faith, on the Lender's that such sale should take place within twelve (12) months of the date of this instrument." [16]

The note further states that any amount Ms. Oakley received from the sale of her share in the Weatham Street Property in excess of $80,000 would be paid to Mr. Carto " as costs for use of" the $65,000 he was lending her.[17] Conversely, should Ms. Oakley's share of the property sell for less than $80,000, Ms. Oakley promised to pay any deficiency within six months of the property being sold.[18]

The loan was further secured by Ms. Oakley's newly purchased 2007 BMW M6 automobile. Ms. Oakley agreed not to encumber the Weatham Street Property or sell the 2007 BMW M6 automobile " until payment to Lender is satisfied in full." [19]

At the time Ms. Oakley sought her loan from Mr. Carto" in March 2011, defendant and her mother investigated selling the Weatham Street property, but were unable to do so because Ms. Oakley's aunt (who was a tenant in common with Ms. Oakley's mother in the Weatham Street property) was not speaking to either Ms. Oakley or her mother and refused to sign a listing agreement.[20]

The BMW Automobiles

Using the proceeds of the loan from Mr. Carto, Ms. Oakley purchased a 2007 M6 BMW automobile for $52,000.00.[21]

Ms. Oakley did not explain how she spent the remaining $13,000.00 of the $65,000.00 which Mr. Carto loaned her.[22]

In July 2011, " just a few months after its purchase," Ms. Oakley sold the 2007

Page 256

BMW M6 automobile to the car-buying service for $38,000.00.[23]

The parties dispute whether or not Ms. Oakley told Mr. Carto that she had sold the car. However, it is undisputed that she did not seek his approval prior to the sale, pay over any of the proceeds, or quit-claim her interest in the Weatham Street property.[24]

Ms. Oakley used the proceeds from the sale of the 2007 BMW to buy a 2009 BMW from a different dealership for $32,000. She paid unspecified expenses with the $6,000.00 remaining from the $38,000.00 she received from[25]

Then, in December 2011, Ms. Oakley sold that second (2009) BMW -- also to -- for $16,000.00. Ms. Oakley did not explain why she sold the second BMW or what she did with the proceeds of that second sale.[26]

Failure to Sell Weatham Street Property

Ms. Oakley's aunt refused to consent to any listing or sale of the Weatham Street property, and " [a]t some point before the end of the summer in 2011," Ms. Oakley became aware that she would need to file a partition action in order to sell the Weatham Street property.[27]

Ms. Oakley did not initiate such an action because she did not realize what a partition action involved and did not have the funds to initiate the action.[28]

Ms. Oakley did not inform Mr. Carto that she was not going to bring a partition action concerning the Weatham Street property, nor that she did not believe that she had the funds to bring such an action.[29]

Demand for Payment and State Suit

In March 2012, Mr. Carto demanded repayment of the loan. Ms. Oakley did not repay the loan.[30] Mr. Carto then brought a breach-of-contract action against Ms. Oakley in state court.[31] The state-court action was stayed by the filing of Ms. Oakley's bankruptcy petition, which was initially filed under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § § 1301-1330, on September 7, 2012.[32]

The Bankruptcy Action

As just noted, Ms. Oakley, represented by counsel, filed a petition under Chapter 13 of the Bankruptcy Code on September 7, 2012.[33]

Ms. Oakley's case was initially dismissed by an Order dated October 12, 2012 when she failed to file all the required documents, despite an extension of time in which to do so.[34]

Page 257

On November 6, 2012, the bankruptcy court granted a motion by Ms. Oakley to vacate the October 12, 2012 dismissal and to convert her Chapter 13 bankruptcy petition to one under Chapter 7.[35]

On November 9, 2012, Ms. Oakley filed her required bankruptcy Schedules and Statement of Financial Affairs in support of her Chapter 7 petition. The bankruptcy court set February 10, 2013 as the last day for any party to object to discharge or dischargeability. [36]

Chapter 7 Schedules and Statements of Financial Affairs Initial Schedules

As noted above, Ms. Oakley filed her initial Schedules and her Statement of Financial Affairs on November 9, 2012.

On her initial Schedule A, Ms. Oakley Stated that her interest in the Weatham Street property was worth $80,000.00. However, she also noted with respect to that property: " One third interest in property. Roughly $25,000. Debtor willing to surrender. Valuation based upon B[oard of ]R[evision of ] T[axes]." [37]

At trial, Ms. Oakley testified that the $25,000.00 figure was a tax-assessment value and that the property was actually worth (that is, had a fair market value of) $300,000.00, with her interest in the property worth $80,000.00 or more.[38]

On her initial Schedule B, Ms. Oakley did not disclose any unpaid legal fees for work performed by her in prior civil-rights cases.[39] However, in her initial Schedule B, Ms. Oakley did disclose that she was a party to four lawsuits within the one year preceding her bankruptcy petition. Two of the four suits listed were legal malpractice actions against Ms. Oakley. One of the four suits listed was Mr. Carto's state-court action for breach of contract against Ms. Oakley concerning the $65,000.00 loan and promissory note.[40]

In her initial Schedule D, Ms. Oakley listed one of the two malpractice-action plaintiffs (Victoria Cimino) as holding a judgment lien against Ms. Oakley's property.[41]

Statement of Financial Affairs

On her initial Statement of Financial Affairs filed in the bankruptcy court, Ms. Oakley answered " None" to the question asking whether she had transferred any property out of the ordinary course of her business or financial affairs during the ...

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