UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON DIVISION
IN RE:
MIKE RIDDLE
PENNY RIDDLE
DEBTORS CASE
NO. 01-50051
CHAPTER
7
LINDA
SLUGANTZ PLAINTIFF
VS. ADV.
NO. 01-5118
MIKE RIDDLE AND
MIKE
RIDDLE D/B/A RIDDLE REMODELING DEFENDANT
MEMORANDUM OPINION
This matter is before the Court having been submitted
on the record by Order of the Court dated July, 27, 2001 following a hearing by
the Court on the Defendant=s Motion for
Summary Judgment heard by the Court on July 25, 2001. This Court has jurisdiction pursuant to 28 U.S.C. ' 1334(b). This
matter is a core proceeding pursuant to 28 U.S.C. ' 157(b)(2)(I).
The defendant=s
(debtor=s) petition in bankruptcy was filed on January 8,
2001. In the debtors= Statement of Financial Affairs, they list a pending
civil suit, brought by the plaintiff herein against the debtor, Mike Riddle, on
August 17, 2000 in the Woodford Circuit Court regarding the same subject matter
as in this present adversary proceeding.
The plaintiff filed her unsecured Proof of Claim in the defendant=s bankruptcy proceeding on February 27, 2001, in the
amount of $25,712.00
The plaintiff initiated this action by the filing of a
complaint on February 27, 2001, alleging that the debt owed to the plaintiff by
the defendant is nondischargeable pursuant to 11 U.S.C. '' 523(a)(2), (a)(4), and (a)(6). Plaintiff=s
complaint does not allege precisely which subsection of ' 523(a)(2) plaintiff relies on in asserting her
claim. In defendant=s Memorandum in Support of Motion for Summary
Judgment, defendant assumes that plaintiff is seeking to prove the exception to
discharge set forth in ' 523(a)(2)(A), that a debtor may not discharge a debt
for money, property, services, or an extension, renewal, or refinancing of
credit, to the extent such debt was obtained by false pretenses, a false
representation, or actual fraud.
As stated, defendant filed his Motion for Summary
Judgment and Memorandum in Support on June 15, 2001. Attached thereto is the affidavit of the defendant. Subsequently, plaintiff=s Motion for Summary Judgment was filed on July 6,
2001 but was not noticed for hearing although the court has considered that
filing in this memorandum. Attached to
the plaintiff=s Motion is the plaintiff=s affidavit.
On August 16, 2001, the parties filed Joint
Stipulations of Fact which set out the following:
The
defendant, d/b/a Riddle=s Remodeling, submitted a proposal to the plaintiff to
furnish the materials and perform the labor necessary for completion of a
Florida room on plaintiff=s residence.
The construction consisted of widening and enclosing an existing
structure.
The
plaintiff accepted the proposal by her signature dated March 27, 2000.
On
March 27, 2000 the plaintiff wrote her check # 0268 in the amount of $9000.00
to Mike Riddle. The funds were used for
labor and materials to begin the project.
Shortly
after the proposal was accepted the defendant had problems getting help and
work on the project was slow.
The
defendant wrote a second check, #0303 for $9000.00 to Mike Riddle on April 27,
2000. (NOTE: the Court recognizes
that it was in fact the plaintiff who wrote this check and not the defendant as
stated in the Joint Stipulations.)
The
defendant did not complete the project, but at the time work was stopped, the
roof had been completed, the framework had been completed, the windows had been
installed and the siding had been nailed to the studs.
In his Motion for Summary Judgment, the defendant
argues that he is entitled to judgment as a matter of law because under any of
the plaintiff=s theories there exists no genuine issue of material
fact.
11 U.S.C. 523(a)(2)(A)
First, plaintiff alleges that defendant=s debt to the plaintiff is excepted from discharge
under ' 523(a)(2)(A).
This section excepts from discharge (2) a debt for money, property,
services or an extension, renewal, or refinancing of credit, to the extent
obtained by (A) false pretenses, a false representation, or actual fraud.
In order to except a debt from discharge under ' 523(a)(2)(A), it is well established the creditor
must prove (1) that the debtor obtained money through a material
misrepresentation that, at the time, debtor knew was false or made with gross
recklessness as to its truth; (2) the debtor intended to deceive the creditor;
(3) the creditor justifiably relied on the false representation; and (4) its
reliance was the proximate cause of loss.
Rembert v. At&T Universal Card Services, Inc., 141 F.3d 277,
280 (6th Cir. 1998) citing Longo v. McClaren, 3 F.3d 958, 961
(6th Cir. 1993).
Additionally, Atassi v. McClaren, 990 F.2d 850, 852 (6th
Cir. 1993) quoting Coman v. Phillip, 804 F.2d 930, 932 (6th
Cir. 1986). In order to except a debt
from discharge, a creditor must prove each of these elements by a preponderance
of the evidence. Grogan v. Garner,
498 U.S. 279, 291 (1991). Moreover,
exceptions to discharge are to be strictly construed against the creditor. Rembert, at 280, citing Mfr.=s Hanover Trust v. Ward, 857 F.2d 1082, 1083 (6th Cir. 1998).
Whether a debtor possessed an intent to defraud a
creditor within the scope of ' 523(a)(2)(A)
is measured by a subjective standard. Field
v. Mans, 516 U.S. 59, 70-72 (1991).
Here, plaintiff has offered no evidence to support a
claim that the debtor obtained either
of the $9,000.00 payments through a material misrepresentation which the debtor
knew to be false at the time the money was obtained or was made with gross
recklessness as to its truth.
The Joint Stipulations of the parties indicate that
the defendant submitted a written proposal to the plaintiff and that this was
accepted by the plaintiff on March 27, 2000.
At that time plaintiff made the first $9,000.00 payment to the defendant
and Athe funds were used for labor and materials to begin
the project.@ Joint
Stipulation No. 5. Nothing in plaintiff=s affidavit suggests any misrepresentations, material
or otherwise, were made by the defendant to the plaintiff at the time the first
payment was tendered and which were made by the debtor with the intent to
deceive the plaintiff into making this payment. To the contrary, the proposal accepted by the plaintiff
indicates that materials and part of the labor costs were to be paid for at the
start of the project. The Joint
Stipulations indicate that this was in fact done. In other words, the plaintiff made the first payment to the
debtor to satisfy the requirements of their contract and not because of any
misrepresentation made by the debtor.
Likewise, nothing is offered by the plaintiff to
indicate that at the time the second payment was made to the defendant on April
27, 2000, there was any material misrepresentation which the debtor knew to be
false or which was made with gross recklessness and an intent to deceive the
plaintiff into making this second payment.
Plaintiff=s affidavit indicates that the defendant asked for this second payment
of $9,000.00 in order to continue the work, but that defendant admitted the
payment was not yet due under the terms of the contract. Plaintiff asserts she made this second
payment because she was afraid the work would not otherwise proceed. Plaintiff=s
Affidavit, && 11-12.
Plaintiff=s fear that the work might not proceed absent this
second payment cannot be seen as a material misrepresentation made by the
debtor with the intent to deceive the plaintiff into tendering the payment, nor
has plaintiff made such a claim. Additionally,
the fact that defendant Aoften stated@ he
wished to purchase a house boat and later did so (Plaintiff=s Affidavit && 10, 14.) does not satisfy the requirement that plaintiff must prove
defendant made a material misrepresentation to the plaintiff at the time the
money was obtained with the intent to deceive the plaintiff into turning over
the money. Plaintiff has not shown that these statements were made with the
intent to deceive the plaintiff in to making the payments to the defendant. Moreover, plaintiff=s affidavit indicates the statements were made by the
defendant after payment had been made to the defendant. Thus, even if the statements had been made
with the intent to deceive the plaintiff into making payment, they were not
made at the time payment was made.
In short, the plaintiff offers no evidence to satisfy
the standard articulated in Rembert and McClaren necessary for
plaintiff to prevail on a claim seeking to except the debt from discharge under
' 523(a)(2)(A).
That is, there is no evidence of any material misrepresentation made by
the defendant in order to deceive plaintiff into making either of the $9,000.00
payments at the time the payments were made.
Further, absent such a showing of these first two elements by the plaintiff,
the Court need not address whether there was any reliance by the plaintiff or
whether such reliance was the proximate cause of plaintiff=s loss.
11 U.S.C. 523(a)(4)
Next, the plaintiff alleges that defendant=s debt to the plaintiff is excepted from discharge
under ' 523(a)(4).
This section excepts from discharge any debt incurred for fraud or
defalcation while acting in a fiduciary capacity or by embezzlement or larceny.
In order to except a debt from discharge under ' 523(a)(4), the Sixth Circuit has adopted the narrow
interpretation of a fiduciary for purposes of the Bankruptcy Code and has held
that the nature of the fiduciary relationship required under the defalcation
provision of ' 523(a)(4) requires that plaintiff must first
demonstrate whether the defendant meets the definition of a fiduciary. The leading case in the Sixth Circuit on
this issue is In re Johnson, 691 F.2d 249 (6th Cir.
1982). There, the Courts states:
The
question of who is a fiduciary for purposes of section 17(a)(4) is one of
federal law, although state law is important in determining when a trust
relationship exists ... The term >fiduciary= applies only to express or technical trusts and does
not extend to implied trusts, which are imposed on transactions by operation of
law as a matter of equity. ...
Moreover, the requisite trust relationship must exist prior to the act
creating the debt, and without reference to it. (Cites omitted).
At
pages 251-251. Thus, in order for the
plaintiff to prevail on a claim under '
523(a)(4), plaintiff must demonstrate to this Court the existence of a
technical trust created by either federal or state law between the plaintiff
and defendant herein. Plaintiff has
neither alleged the existence of such a trust in her complaint, nor has
plaintiff offered any evidence in her Motion for Summary Judgment and
accompanying affidavit that would support such a finding. Thus, plaintiff has failed to demonstrate
the existence of any fiduciary relationship between the defendant and the
plaintiff that would allow plaintiff to prevail on her claim under ' 523(a)(4).
Moreover, '
523(a)(4)requires plaintiff to prove the existence of an express or technical
trust between the parties. In re
Garver, 116 F.3d 176, 179 (6th Cir. 1997). An express trust requires that there be a
clearly defined res, an unambiguous trust relationship, and specific,
affirmative duties undertaken by the trustee.
Johnson, at 252-253.
Plaintiff has offered no evidence of a fiduciary relationship between
the parties, no evidence of a clearly defined trust res, no evidence of an
unambiguous trust relationship, nor evidence of any affirmative duties
undertaken by the defendant as trustee.
Even if plaintiff had offered evidence of the existence of an implied
trust between the parties, Johnson makes it clear that this is not
sufficient to make a finding that the defendant was a fiduciary for the
purposes of ' 523(a)(4).
Thus, plaintiff cannot rely on ' 523(a)(4) to except the debt from discharge.
11 U.S.C. 523(a)(6)
Third, plaintiff alleges that defendant=s debt to the plaintiff is excepted from discharge
under ' 523(a)(6).
This section excepts from discharge a debt for willful and malicious
injury by the debtor to another entity or to the property of another
entity. To prevail on a claim of
nondischargeability under ' 523(a)(6), the
plaintiff must show a deliberate or intentional injury, not merely a
deliberate or intentional act that leads to injury. Kawaauhau v. Geiger, 523 U.S. 57, 61
(1998). A[U]nless >the actor desires to cause consequences of his act, or
... believes that the consequences are substantially certain to result from it,
>Restatement (Second) of Torts ' 8A, at 15 (1964), he has not committed a >willful and malicious injury= as defined under '
523(a)(6).@ In re
Markowitz, 190 F.3d 455, 464 (6th Cir. 1999).
Here, the defendant=s
affidavit as well as the Joint Stipulations of the parties indicate that
shortly after the plaintiff accepted defendant=s proposal the defendant had difficulty obtaining workers and that
there were personal family problems in the defendant=s life which caused a slow down in the work. In her affidavit, plaintiff states that the
defendant assured her that the job would be no problem and that she would be
pleased with the results. The
difficulty of the defendant of obtaining workers and his personal family
problems, both of which were made known to the plaintiff, and any such
assurances made by the defendant as to the plaintiff=s satisfaction with the results does not lead to a
conclusion that the defendant made the assurances with the specific intent of
causing a willful and malicious injury to the plaintiff=s property. To
find to the contrary would mean that every assurance of satisfaction made by
every contractor or sales person in any given transaction would suddenly rise
to the level of the intent necessary to cause a willful and malicious injury
within the meaning of ' 523 (a)(6).
The court cannot conclude that such an interpretation was intended under
the standard set out in Geiger or Markowitz. Additionally, plaintiff states in her affidavit
that it is her belief that the debtor entered this project with the intent of
getting money to purchase his houseboat.
Plaintiff=s affidavit &
20. The court cannot find that a mere
belief as to what may or may not have been the debtor=s intent will satisfy the articulated standard. Neither the fact that the plaintiff is
unhappy with the results of the defendant=s
efforts to complete the work nor the fact that third parties are of the opinion
the work was poorly done (Plaintiff=s
affidavit && 25-29.) can be found to fall within the ambit of ' 523 (a)(6).
There must be a specific showing that the debtor intended to cause the
consequences of his act, or believed the consequences were substantially
certain to result from it. Markowitz
at 464. Given the facts as presented
the Court cannot conclude that the debt is nondischargeable under ' 523 (a)(6).
In consideration of all of the foregoing it is the
opinion of this Court that the Motion of the Defendant for Summary Judgment
should be sustained and that the defendant is entitled to judgment as a matter
of law. An order in conformity with
this opinion will be entered separately.
Dated:________________
By
the Court:
________________________
Copies to:
Counsel for Plaintiff
Counsel for Defendant