d/b/a C & C Auto Sales CASE NO. 90-00307








VS. ADV. NO. 92-1007








This matter is before the Court on the plaintiff's Motion for Summary Judgment. The plaintiff contends that it is entitled to judgment as a matter of law that a debt owed to it by the defendant is nondischargeable pursuant to 11 U.S.C. ''523(a)(2)(A) and (a)(6). This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I).

This action was commenced by the filing of the plaintiff's Complaint on March 9, 1992. Therein the plaintiff alleged the nondischargeability of the defendant's debt to it as stated above. The defendant filed his Answer on March 30, 1992. The plaintiff filed its Motion for Summary Judgment on October 30, 1992. By order of this Court entered on November 4, 1992, the defendant was given until November 10, 1992 to respond to the Motion, and he has filed a response.

The record in this case shows that on October 20, 1989, the defendant and another individual, Gerald Wolford ("Wolford"), opened a money market deposit account with Milton Tri-County Bank ("Milton Bank"). Wolford also established a line of credit in the amount of $155,000.00 on November 30, 1989. On January 9, 1990, the defendant presented three checks to the Milton Bank. All were drawn on accounts of W.E.C. Coal Sales, Inc., an entity of the debtor, one at Kentucky Farmers Bank in the amount of $380,000.00, and two at The Bank Josephine totalling $600,000.00. The payee of all three checks was Wolford.

When the Milton Bank attempted a wire transfer of the funds represented by the checks to Kentucky Farmers Bank and The Bank Josephine, there were insufficient funds in the accounts on which the checks were drawn. Milton Bank requested that the defendant execute a promissory note in the amount of $980,000.00. The defendant executed two promissory notes in favor of Milton Bank in the amounts of $298,860.53 and $228,860.53. Wolford executed two promissory notes in favor of Milton Bank in the amounts of $290,000.00 and $180,000.00.

The defendant was to make the payments on the notes and did make a total of $255,834.00 in payments. In addition, $194,059.67 from a checking account in the names of the defendant and Wolford at Milton Bank was applied to the debt. After application of these payments, $579,200.64 is due and owing Milton Bank, including relevant interest. The plaintiff was assigned Milton Bank's right to this claim against the defendant on October 8, 1991. The defendant was indicted and charged with defrauding Milton Bank of $980,000.00 in West Virginia. The indictment was transferred to the U.S. District Court for the Eastern District of Kentucky in Ashland. The defendant pled guilty to the charge.

Pursuant to 11 U.S.C. '523(a)(2)(A), a debt for money, property, services or credit is not dischargeable to the extent it was obtained by false pretenses, false representation, or actual fraud. The standard of proof in an action pursuant to '523(a) is a preponderance of the evidence. See Grogan v. Garner, 111 S.Ct. 654 (1991).

A creditor who seeks to except a debt from discharge pursuant to '523(a)(2)(A) "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 that it reasonably relied on the false representation and that its reliance was the proximate cause of its loss." In re Phillips, 804 F.2d 930, 932 (6th Cir. 1986).

In the case at bar, the defendant has pled guilty to knowingly making false representations to Milton Bank to induce it to transfer $980,000.00 to accounts of W.E.C. Coal Sales, Inc. As the plaintiff points out, such plea establishes the fact that the defendant knowingly made false representations with the intent to deceive the creditor. The questions that remain, therefore, are Milton Bank's reliance on these false representations, whether that reliance was reasonable, and whether it was the proximate cause of the loss.

The plaintiff has offered the Affidavit of Terri Peters, a senior vice-president of Milton Bank during the relevant period. She states that Milton Bank had, prior to the events related herein, established a relationship with the defendant through accounts and lines of credit; that Milton Bank had previously successfully completed many wire transfers for the defendant; and that on account of this past success, the defendant's representations, and the fact that the defendant had accounts in place at Milton Bank, it agreed to make the wire transfers at issue here. Ms. Peters further states that of the $980,000.00 loss sustained by Milton Bank, $579,206.64 is still due and owing. The defendant's response is an unsubstantiated allegation that the prior successful wire transfers are indicative of Milton Bank's "participation in the fraud."

In consideration of all of the foregoing, it is therefore the opinion of this Court that the plaintiff has carried forward its burden of establishing all the elements required to find that the subject debt is nondischargeable pursuant to 11 U.S.C. '523(a)(2)(A), and that it is entitled to judgment as a matter of law. This Court will therefore sustain the plaintiff's Motion for Summary Judgment by separate order.


By the Court -







Copies to:

William Eric Charles

Christopher A. Conley, Esq.