557 B.R. 476
Bankr. M.D. La.2016Background
- BBI Architectural Services sued two companies owned by Todd T. Janney, Sr. (PCPT and PCPTLP) for unpaid architectural services and settled for $22,500 via a settlement agreement and promissory note signed in October 2013. Janney signed on behalf of the companies and himself (as president).
- Unknown to BBI at the time, both companies had ceased operations (PCPTLP by 2010; PCPT by mid-2012 according to schedules/testimony).
- A November 2013 consent judgment initially cast Janney jointly liable with the companies; BBI later agreed to amend the judgment and remove Janney as a judgment debtor.
- Only two small payments were made (November and December 2013) by PCPT; no further payments were made after the consent judgment was amended.
- Janney and his wife filed Chapter 7 in October 2014; BBI brought an adversary to except the debt from discharge under 11 U.S.C. § 523(a)(2)(A) and (B). The court found material facts and credibility issues supporting BBI’s claims under § 523(a)(2)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Janney’s conduct constituted a false representation/false pretense under § 523(a)(2)(A) | Janney knew the companies were defunct but negotiated settlement and executed documents that led BBI to believe they were operating, thus making the debt nondischargeable | Janney claimed he had disclosed the companies’ status during state-court proceedings and denied knowledge of personal liability | Held: False representation established — Janney knew the companies were not operating, failed to disclose that fact, and BBI justifiably relied on the misrepresentation; debt nondischargeable under § 523(a)(2)(A) |
| Whether Janney committed actual fraud under § 523(a)(2)(A) | By obligating defunct entities to a settlement and inducing amendment removing his personal exposure, Janney intended to deceive and thus committed actual fraud | Janney denied fraudulent intent and claimed disclosure; presented testimony denying personal liability awareness | Held: Actual fraud established — evidence showed intentional deceit to induce reliance and amendment of judgment; debt nondischargeable under § 523(a)(2)(A) |
| Whether the settlement agreement qualifies as a "statement in writing respecting the debtor’s financial condition" under § 523(a)(2)(B) | The settlement/promise to pay conveyed the companies’ ability to pay and thus was a materially false written statement about financial condition | The settlement is transactional and does not disclose comprehensive financial condition like balance sheets or income statements | Held: § 523(a)(2)(B) claim fails — the settlement is not a written financial statement about the debtor’s overall financial condition |
| Reliance and materiality for § 523(a)(2)(A) claims | BBI relied on the apparent corporate viability when settling and when agreeing to remove Janney from the consent judgment | Janney argued disclosure and lack of intent; no corroborating witnesses offered | Held: BBI’s reliance was justifiable and material; evidence supported nondischargeability on reliance grounds |
Key Cases Cited
- RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995) (defines elements for false representation/false pretense claims under § 523(a)(2)(A))
- Allison v. Roberts (In re Allison), 960 F.2d 481 (5th Cir. 1992) (authority on elements of nondischargeability for false representations)
- Bercier v. (In re Bercier), 934 F.2d 689 (5th Cir. 1991) (discusses false representations and reliance in § 523(a)(2)(A) context)
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016) (Supreme Court: anything that counts as fraud done with wrongful intent can qualify as actual fraud under § 523(a)(2)(A))
- Field v. Mans, 516 U.S. 59 (1995) (standards for reasonable reliance in nondischargeability claims)