613 B.R. 374
Bankr. M.D. Fla.2020Background
- In 2012 Ronald Daniel formed United Health Centers, Inc. to operate a nonprofit health clinic. Leon Avren loaned $100,000 to United in January 2013, documented by a promissory note signed by Daniel on behalf of United.
- The promissory note listed a $100,000 CD as security but omitted the bank name and redacted the account number. The note matured January 8, 2014 and was not repaid.
- Avren sued in state court; after a default the court entered final judgment against Daniel and United for $126,112.25 in June 2014.
- Daniel filed Chapter 7 on January 29, 2018 and listed Avren as a disputed unsecured creditor (~$119,000). Avren timely filed an adversary complaint asserting nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6) and denial of discharge under § 727(a)(4).
- At trial Avren claimed Daniel misrepresented (1) the existence of the $100,000 CD and (2) intent to operate the clinic; Daniel denied knowledge of the CD. The court found Avren failed to prove justifiable reliance, fiduciary duty, willful/malicious injury, or fraudulent/material false oaths in the schedules.
- The court entered judgment for Daniel: Avren’s claims under §§ 523(a)(2)(A), (a)(4), (a)(6) and § 727(a)(4) were all denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Count I: §523(a)(2)(A) — fraud/false representation | Avren: Daniel falsely represented a $100,000 CD and clinic plan; Avren relied and suffered loss | Daniel: Denies knowledge of CD; no intent to deceive; Avren failed to investigate | Court: Judgment for Daniel — Avren failed to show justifiable reliance on any misrepresentation |
| Count II: §523(a)(4) — fiduciary fraud/defalcation | Avren: Daniel, as United’s officer, misappropriated funds and owed fiduciary duty to Avren/United | Daniel: No fiduciary relationship to Avren; no express/technical trust | Court: Judgment for Daniel — no fiduciary duty to Avren or trust elevating claim under §523(a)(4) |
| Count III: §523(a)(6) — willful and malicious injury | Avren: Debt resulted from wrongful acts intended to injure Avren | Daniel: Loan was for clinic; no intent to injure; no evidence of misuse | Court: Judgment for Daniel — Avren did not prove intentional, malicious injury |
| Count IV: §727(a)(4) — false oath in schedules | Avren: Multiple false/omitted statements (creditor address, pending action, spouse income, cash, creditor list, payments) were fraudulent and material | Daniel: Schedules were prepared with credit report/assistance; omissions not fraudulent or material; Avren had actual notice and was not prejudiced | Court: Judgment for Daniel — alleged falsehoods were not knowingly fraudulent or material; no denial of discharge |
Key Cases Cited
- Grogan v. Garner, [citation="498 U.S. 279"] (U.S. 1991) (plaintiff must prove nondischargeability by a preponderance of the evidence)
- Field v. Mans, [citation="516 U.S. 59"] (U.S. 1995) (justifiable reliance is not established where falsity would be apparent from cursory examination)
- In re Vann, [citation="67 F.3d 277"] (11th Cir. 1995) (justifiable reliance measured by plaintiff’s capacity and knowledge)
- In re Jennings, [citation="670 F.3d 1329"] (11th Cir. 2012) (defines "willful" and "malicious" for §523(a)(6))
- Swicegood v. Ginn, [citation="924 F.2d 230"] (11th Cir. 1991) (false oath must be fraudulent and material to warrant denial of discharge)
- In re Chalik, [citation="748 F.2d 616"] (11th Cir. 1984) (materiality standard for omissions on schedules)