UNITED
STATES BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
COVINGTON
DIVISION
IN RE:
JAMES ERIC
CAUDILL
DEBTOR CASE
NO. 04-52891
FRANK
CONNOR
CHRISTINE CONNOR PLAINTIFFS
VS. ADV.
NO. 04-5602
JAMES ERIC CAUDILL DEFENDANT
MEMORANDUM OPINION
This matter has been submitted for
decision on the Defendant’s Motion for Summary Judgment and the Plaintiffs’
Response to Motion for Summary Judgment.
The Plaintiffs seek to have a debt allegedly owed to them by the
Defendant declared non-dischargeable pursuant to Bankruptcy Code section
523(a)(2)(A). The Defendant maintains
that any debt owed to the Plaintiffs is only the result of negligence, and that
there is no justification for a finding of non-dischargeability. This court has jurisdiction of this matter
pursuant to 28 U.S.C. § 1334(b); is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(I).
1. Factual and procedural background
The Defendant sold the Plaintiffs
real estate in Brown County, Ohio on November 24, 2003. On the same date he contracted with them to
install a septic tank, driveway and foundation on the property for
$12,000.00. The Plaintiffs were to pay
for any permits required for this work.
Notations on the contract show that on the date it was signed, half the
contract price, or $6,000.00, was paid, as well as $400.00 for a permit. Apparently a permit was necessary to install
the septic system, and on November 25, 2003, the Defendant applied for a permit
at the Brown County Health Department.
He stated on the permit application that he was the owner of the
property, even though he had transferred the property to the Plaintiffs the day
before. Apparently, non-owner
applicants are required to put up a $10,000.00 bond. (The court would point out that no party to this proceeding has
provided the court with a copy of whatever statute, regulation or ordinance may
require a permit and/or the posting of a bond.) The application was approved, and permit was issued on December
23, 2003. The final inspection on July
28, 2004 failed, however, as the Defendant had covered the installation prior
to inspection. The Plaintiffs hired
another contractor to install the septic system.
The Defendant filed his Chapter 7
case on September 1, 2004; the Plaintiffs filed the within Complaint to
Determine Dischargeability on December 17, 2004. The Order of Discharge was entered in the Defendant’s case on
December 30, 2004. On February 16, 2005
the Defendant filed case number 05-50430, a Chapter 13 case. He lists a debt to the Plaintiffs in the
amount of $10,000.00 on his Schedule F - Creditors Holding Unsecured
Nonpriority Claims. This is the
only unsecured debt of any consequence included in the Chapter 13 case. On February 28, 2005 the parties tendered an
Agreed Order Staying Proceedings Pending Completion of Chapter 13 Plan. The court rejected this order, however, due
to the length of time this proceeding would remain pending. The Defendant then filed his Motion for
Summary Judgment on March 9, 2005, and the Plaintiffs filed their Response on
March 18, 2005. The matter was heard on
March 23, 2005, and taken under consideration.
2. Legal discussion
The Plaintiffs’ Complaint seeks to
have the $10,000.00 debt they claim the Defendant owes them declared
non-dischargeable pursuant to Bankruptcy Code section 523(a)(2)(A). That section provides that an individual
debtor's debt incurred
for money, property, services, or an extension, renewal, or
refinancing of credit , to the extent
obtained by--
false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor's or an insider's financial
condition
will not be discharged in bankruptcy. As stated in Atassi v. McLaren (In re
McLaren), 3 F.3d 958 (6th Cir. 1993):
It is well
established that in order to except a debt from discharge under section
523(A)(2)
'the creditor must prove that the debtor obtained money
through a material misrepresentation that at the time the debtor knew was false
or made with gross recklessness as to its truth. The creditor must also prove the debtor's intent to deceive. Moreover, the creditor must prove that it
reasonably relied on the false representation and that its reliance was the
proximate cause of the loss.'
Atassi v. McLaren (In re McLaren), 990 F.2d 850, 852 (6th Cir. 1993)
(quoting Coman v. Phillips (In re Phillips), 804 F.2d 930, 932 (6th Cir.
1986). Additionally, the proper burden
upon [the creditor]'"...was to show proof of ... fraud by a preponderance
of the evidence only."' Id.
at 853 (citing Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112
L.Ed.2d 755 (1991) ...).
Id. at 961. As concerns the
reliance requirement, the standard for excepting a debt from discharge as a
fraudulent misrepresentation within the meaning of section 523(a)(2)(A) is
justifiable reliance on the representation.
Field v. Mans, 516 U.S. 59, 116 S.Ct. 437 (1995).
The Plaintiffs allege that the
Defendant made a fraudulent representation in completing an application for a
permit to install a septic system on their property and listing himself as the
owner to avoid having to post a $10,000.00 bond. The Plaintiffs maintain that even though this misrepresentation
was not made to them, they are the parties intended to be protected by the
posting of a bond. The court is unable
to agree or disagree with the Plaintiffs on this point as there is nothing in
the record to demonstrate the intent and purpose of the $10,000.00 bond
requirement.
The Defendant has filed an affidavit
with his Motion for Summary Judgment that states that he advised Plaintiff Frank
Connor of the bond posting requirement and that he further advised the
Plaintiff that the bond “would be part of the expenses of the permit, which he
[the Plaintiff] would be responsible for.”
The Defendant’s affidavit further states that the Plaintiff agreed that
the Defendant should seek the permit as the owner, saving the expense of the
bond. The Plaintiffs do not deny that
this conversation took place.
The crux of the issue, however, is
whether the facts as presented place the Defendant within the purview of
section 523(a)(2)(A). The court is not
certain that they do. First of all,
there is no evidence in the record that the Plaintiffs paid the Defendant any
sums other than the $6,400.00 they paid on the contract date, the day before he
represented that he was the owner of the property to avoid posting the
bond. They do not allege that any
fraudulent representation was made to them to induce them to part with these
sums. On the other hand, if they were
to admit that they knew the Defendant planned to apply for the permit as the
owner of the property, and that they paid him while agreeing to this action,
they would be party to the fraudulent misrepresentation to Brown County. Neither scenario appears to allow the
Plaintiffs to prevail on the question of the non-dischargeability pursuant to
Bankruptcy Code section 523(a)(2)(a) of any debt the Defendant owes them.
The court therefore finds that the
Defendant has carried his burden of establishing that there is no genuine issue
as to any material fact and that he is entitled to judgment as a matter of
law. An order in conformity with this
opinion will be entered separately.
Copies to:
Stephen L.
Schiller, Esq.
Rebecca L.
Knight, Esq.