UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
DEBTORS CASE NO. 01-50051
LINDA SLUGANTZ PLAINTIFF
VS. ADV. NO. 01-5118
MIKE RIDDLE AND
MIKE RIDDLE D/B/A RIDDLE REMODELING DEFENDANT
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.
By the Court:
Counsel for Plaintiff
Counsel for Defendant