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French v. Security Seed and Chemical, Inc.

United States District Court, W.D. Kentucky, Owensboro Division

April 25, 2017

ROGER DARYL FRENCH APPELLANT/CROSS-APPELLEE
v.
SECURITY SEED AND CHEMICAL, INC. APPELLEE/CROSS-APPELLANT
v.
DENA G. FRENCH CROSS-APPELLEE

          MEMORANDUM OPINION AND ORDER

          JOSEPH H. MCKINLEY, JR., CHIEF JUDGE.

         This matter is before the Court upon an appeal from the Bankruptcy Court of the Western District of Kentucky by Defendant Roger French (DN 7), as well as a cross-appeal by Plaintiff Security Seed and Chemical, Inc. (hereinafter "Security Seed"). (DN 9). Fully briefed, these matters are ripe for decision.

         I. Background

         The relevant facts of this case have been set forth in the opinion of the Bankruptcy Court, In re French, 563 B.R. 212 (Bankr. W.D. Ky. 2016), and there is no need to fully repeat them here. Briefly, Roger and Dena French filed for Chapter 7 bankruptcy protection on September 9, 2015. Security Seed commenced an adversary proceeding, seeking to except from discharge amounts owed to it by the Frenches, as well as seeking a ruling on the validity of its liens on several pieces of personal property belonging to the Frenches. The debts at issue arose from the Frenches' purchase of various farming supplies from Security Seed on credit, intially through a line of credit extended by AgQuest, a third party finance company, and then later through an open account with Security Seed. After the Frenches defaulted on these debts, AgQuest assigned the debt owed to it by the Frenches to Security Seed, and Security Seed obtained a default judgment against the Frenches for failing to repay these debts. Security Seed and Chemical, Inc. v. Roger Daryl French, No. 4:14-cv-00093 (W.D. Ky. Oct. 30, 2014). Security Seed then had a sheriff attempt to levy upon certain pieces of personal property belonging to the Frenches; however, he did not physically remove the property from the Frenches' residence.

         The Bankruptcy Court determined that $49, 576.62 that was advanced to the Frenches pursuant to the AgQuest line of credit was exempt from discharge under 11 U.S.C. § 523(a)(2)(B) as to Roger French, but $66, 633.75 that was advanced pursuant to the open account with Security Seed was not exempt from discharge as to both Roger and Dena.[1] However, the court also determined that the lien upon the personal property of the Frenches never became effective, as the sheriff never levied upon the property. Roger French now appeals the Bankruptcy Court's finding that the AgQuest line of credit was exempt from discharge, and Security Seed has filed a cross-appeal of the Bankruptcy Court's finding that the personal property was never levied upon.

         II. Standard of Review

         A federal district court has jurisdiction to hear appeals from "final judgments, orders, and decrees" of the bankruptcy court. 28 U.S.C. § 158(a). On appeal, a district court reviews the bankruptcy court's finding of fact under a clearly erroneous standard, but reviews de novo the bankruptcy court's conclusions of law. In re Isaacman, 26 F.3d 629, 631 (6th Cir. 1994). A finding of fact is clearly erroneous when "although there is evidence to support that finding, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Kalamazoo River Study Group v. Rockwell Int'l Corp., 274 F.3d 1043, 1047 (6th Cir. 2001) (quotations omitted).

         III. Discussion

         A. Exemptions From Discharge

         The Court begins with Roger French's appeal from the Bankruptcy Court's determination that the advances made pursuant to the AgQuest line of credit were exempt from discharge under 11 U.S.C. § 523(a)(2)(B). That statute states:

A discharge under Section 727 . . .of this title does not discharge an individual debtor from any debt-
(2) for mon property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by- (B) use of a statement in writing- (i) that is materially false;
(ii) respecting tey, he debtor's or an insider's financial condition; (iii) on which the creditor knew the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with the intent to deceive...

         The Bankruptcy Court found that all four elements of the statute had been met so as to exempt the debt from discharge. French asserts that the Bankruptcy Court's conclusions as to the ...


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