Unlisted Creditor Could File Complaint under §523(a)(3)(B) at Any Time, but Not a Complaint Under §727

Unlisted Creditor Could File Complaint under §523(a)(3)(B) at Any Time, but Not a Complaint Under §727

This matter came before the Court on July 17, 2017 for hearing on the Motion for Leave to File Complaint Objecting to Dischargeability of Debt and Discharge of Debtors filed by Honda Manufacturing of Indiana, LLC (“Honda”).

Custom Conveyor, Inc. (“CCI”) is a corporation owned equally by the Debtors. Honda hired CCI as an ongoing general contractor for its construction projects which were covered under one Master Agreement. Under the Master Agreement, CCI was allowed to employ subcontractors upon written consent by Honda and had a duty to pay subcontractors on a timely basis and keep the subject properties free and clear of liens. Honda paid CCI progress payments as work on a particular project advanced. In 2013, Honda hired CCI as contractor on three projects, all of which were covered by the Master Agreement and paid CCI a total of 7 progress payments totaling more than 1.2 million dollars.

By Spring, 2014, subcontractors and suppliers had filed mechanic’s liens on the construction projects. In May, 2014, one of those subcontractors filed in  County superior court a lawsuit to foreclose its lien, naming both CCI and Honda as defendants (the “State Court Case”). Honda filed a cross claim against CCI in the State Court case for breach of contract, fraud and slander of title. Honda made no claim against the Stapps in the State Court Case. CCI’s creditors filed an involuntary chapter 7 case against it and an order for relief was entered in October, 2014, staying prosecution of Honda’s cross-claim in the State Court Case. Honda was scheduled as an unsecured creditor in an “unknown” amount. Honda’s attorney entered an appearance in that case and filed a proof of claim for more than 4 million dollars. The CCI bankruptcy was eventually declared a no-asset case and the case was closed on March 21, 2017.

The Debtors filed this case, their individual chapter 7 case, in October, 2016, about six months before the CCI case was closed. Because their case was related to the CCI chapter 7 case, the CCI chapter 7 trustee was also appointed trustee in this case. The deadline to file complaints objecting to discharge and complaints to determine the dischargeability of debts was February 14, 2017 (the “Complaint Deadline”).

Honda was not listed as a creditor in the  bankruptcy schedules, but Honda asserts that the the Debtors are personally liable for the debt owed to Honda under an alter ego theory. Honda’s attorney in the CCI bankruptcy case regularly contacted the CCI chapter 7 trustee for information as to when the CCI case would conclude so that Honda could resume legal action in State Court, presumably against the Detbors. Honda’s attorney contacted the CCI chapter 7 trustee a week after the Complaint Deadline to get an update on the CCI case and learned from the CCI chapter 7 trustee for the first time that the Debtors had filed their individual chapter 7 case and that the Complaint Deadline had expired. Honda asks for leave to file a complaint alleging claims under both §523 and §727.


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