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In re Brandi Brand

United States District Court, D. Maryland

September 19, 2017




         Appellant Graybar Electric Company, Inc. ("Graybar") has appealed orders of the United States Bankruptcy Court for the District of Maryland denying its Motion for Summary Judgment and granting the Motion for Summary Judgment filed by Appellee Brandi Brand. The Appeal is fully briefed and ripe for disposition. No hearing is necessary to resolve the issues. See D. Md. Local R. 105.6. For the reasons set forth below, the orders of the bankruptcy court are REVERSED, and the case is REMANDED for further proceedings.


         On August 28, 2012, Electric Power Services, Inc. ("EPS"), an electrical contractor, submitted a commercial credit application to Graybar, a supplier of electrical material and equipment. Brand, in what she identified as her capacity as President of EPS, signed that agreement as a guarantor. The guaranty obligated Brand to:

absolutely, unconditionally and personally guarantee to Graybar ... the performance of all obligations of [EPS] arising under this credit agreement, including without limitations, the payment of all indebtedness as the same are due or come to be due or accelerated whether such indebtedness and obligations exist on the date of this instrument or are incurred after such date.

         Joint Appendix ("J.A.") 13 (Credit Application), ECF No. 4-1. As a result of that application, Graybar extended a line of credit to EPS to allow EPS to make purchases from Graybar. For larger purchases, Graybar also required EPS to enter into joint-check agreements through which a general contractor paying for supplies and equipment ordered by EPS from Graybar would make its checks payable to both EPS and Graybar, to facilitate Graybar's receipt of the funds.

         On March 4, 2014, Brand filed a petition for Chapter 7 bankruptcy with the United States Bankruptcy Court for the District of Maryland ("the bankruptcy court"). Graybar was not listed as a creditor on any of Brand's schedules, so it received no notice of those proceedings. Brand had no non-exempt property for distribution, so on April 25, 2014, the bankruptcy trustee recommended that her debts be discharged without payment as a "no asset" case. On June 11, 2014, the bankruptcy court issued an order discharging Brand's debts. On June 16, 2014, a final decree was issued, and Brand's bankruptcy case was closed.

         On December 30, 2014, Brand placed an email order with Graybar, on behalf of EPS, for supplies relating to EPS projects entitled Cultural Vistas and Global Ties. In the email, Brand's signature line identified her as EPS's Office Manager. Between January 2015 and April 2015, EPS ordered $123, 405.58 worth of supplies from Graybar for the Cultural Vistas project. As part of the Cultural Vistas project, EPS submitted the required joint-check agreement, purportedly entered into by EPS and a general contractor, signed on behalf of the general contractor under the name of "Scott A. Masse." The signature, however, was a forgery. To date, EPS has paid only $10, 000 of its outstanding balance to Graybar, in two payments of $5, 000 made on August 27, 2015 and September 24, 2015.

         On December 9, 2015, Graybar initiated an adversary proceeding with the bankruptcy court seeking a declaratory judgment stating that Brand's bankruptcy did not discharge the debts owed by Brand to Graybar, pursuant to the guaranty, for materials ordered by EPS after March 4, 2014, the date on which Brand filed for bankruptcy. The parties filed cross-motions for summary judgment. Graybar argued that because Brand could have revoked the guaranty at any time, any debt arising from orders placed with Graybar after the filing of Brand's bankruptcy petition on March 4, 2014 was a post-petition debt not discharged by the bankruptcy. Brand framed the case differently, asserting that because her bankruptcy was a "no asset" case, any obligation she had to Graybar was discharged. See In re Stecklow, 144 B.R. 314, 318 (Bankr. Md. 1992) (noting that in a "no asset" case, the claim of an unscheduled, unsecured creditor is discharged unless the debt falls into certain enumerated exceptions). Brand did not address whether the money owed to Graybar pursuant to the guaranty was the result of pre-petition or post-petition conduct.

         After a hearing on the cross motions, the bankruptcy court granted summary judgment to Brand based on its conclusion that the debt to Graybar arising from the orders placed after the bankruptcy discharge was a pre-petition debt. In so ruling, the bankruptcy court applied that the "conduct test, " adopted by the United States Court of Appeals for the Fourth Circuit, under which a debt is considered a pre-petition debt, and thus dischargeable, "so long as the debtor's conduct giving rise to the creditor's right to payment occurs prior to the petition." J.A. 119. Noting that Fourth Circuit case law on the conduct test generally involved tort claims rather than contract claims, the bankruptcy court instead relied on the factually similar case of In re Lipa, 433 B.R. 668 (Bankr. E.D. Mich. 2010), in which the court concluded that a debtor's personal guaranty signed pre-petition was a contingent right to payment that was discharged in his bankruptcy. Id. at 671. Based on In re Lipa, the bankruptcy court determined that the conduct giving rise to Graybar's right to payment was Brand's execution of the guaranty, which could be construed as a contingent right to payment, and that this conduct occurred before Brand filed for bankruptcy. As a result, the bankruptcy court concluded that although the debt to Graybar arose from orders placed after Brand filed for bankruptcy, the debt was nevertheless a pre-petition claim that had been discharged at the conclusion of the bankruptcy proceedings. The bankruptcy court noted, however, that such a result was "uncomfortable, " but appeared to be mandated by the Fourth Circuit's broad application of the conduct test. J.A. 121. The Court accordingly denied Graybar's motion for summary judgment and granted summary judgment to Brand. Graybar filed a Notice of Appeal.


         Graybar asserts that the bankruptcy court erred in deciding that Brand's new obligations to Graybar under the guaranty were pre-petition debts discharged by her bankruptcy because the conduct giving rise to the debts, the submission of purchase orders to Graybar and the failure to pay for the acquired items, occurred after both the filing of Brand's bankruptcy petition and the discharge of her bankruptcy. Brand counters that any debt she owed to Graybar was discharged through her bankruptcy because, as the bankruptcy court held, the operative conduct was Brand's pre-petition conduct of signing the guaranty. In the alternative, draybar argues that discharge of the debts incurred through post-petition purchase orders would be unconstitutional as a matter of due process, because Graybar received no notice of Brand's bankruptcy.


         The Court has jurisdiction over this appeal because the bankruptcy court's order granting summary judgment to Brand is a final order. 28 U.S.C. § 158(a)(1) (2012); see also Gold v. Guberman (In re Computer Learning Ctrs., Inc.),407 F.3d 656, 660 (4th Cir. 2005) (stating that "orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case") (quoting In re Saco Local Dev. Corp.,711 F.2d 441, 444 (1st Cir. 1983)). This appeal challenges the bankruptcy ...

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