Deitz v. Ford
760 F.3d 1038
| 9th Cir. | 2014Background
- Debtor Shawn Deitz, an unlicensed/suspended California contractor at relevant times, contracted to build a handicap-accessible home for Wayne and Patricia Ford and received $511,800 in payments but left the job ~35% incomplete.
- The Fords sued in an adversary proceeding seeking a determination that their claim was nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6); bankruptcy court held for the Fords and entered a $386,092.76 judgment excepted from discharge.
- Deitz filed Chapter 7 and appealed the nondischargeability and money judgment; he also faced related state criminal proceedings (acquitted of grand theft; convicted of contracting without a license).
- Deitz argued (inter alia) that Stern v. Marshall made the bankruptcy court constitutionally unable to enter a final judgment in this nondischargeability/liquidation adversary.
- The BAP and Ninth Circuit panel reviewed the bankruptcy court’s factual findings for clear error and legal questions de novo, upheld the findings of intentional misrepresentation, embezzlement-type conduct, and willful/malicious injury, and affirmed the judgment and nondischargeability.
Issues
| Issue | Plaintiff's Argument (Fords) | Defendant's Argument (Deitz) | Held |
|---|---|---|---|
| Constitutional authority to enter final judgment in §523 adversary | Bankruptcy court may hear and finally decide dischargeability and liquidate the claim as a core bankruptcy matter | Stern prohibits Article I bankruptcy courts from entering final judgments on private common‑law claims; thus the bankruptcy court lacked Article III power to finally decide/liquidate the claim | Court: Stern is narrow; Kennedy and Sasson remain binding in Ninth Circuit — bankruptcy court had authority to enter final money judgment and determine nondischargeability |
| §523(a)(2)(A) — fraud; required intent and reliance | Misrepresentations by Deitz (licensure, experience, ability to meet ADA/VA standards) were intentional and induced the Fords’ reliance leading to damage | Deitz denied fraudulent intent; contested justifiable reliance and causation | Court: Findings of intent, misrepresentation, and justifiable reliance not clearly erroneous — §523(a)(2)(A) nondischargeability affirmed |
| §523(a)(4) — fraud/embezzlement/trust-funds misuse | Funds were given for a particular purpose (construction) and were not used as required; conduct amounted to embezzlement | Deitz disputed intent and characterization of transfers | Held: Bankruptcy court correctly found embezzlement under §523(a)(4); claim nondischargeable (issue waived on appeal largely due to Deitz’s briefing failures) |
| §523(a)(6) — willful and malicious injury | Deitz knowingly induced payments while unlicensed and misrepresenting progress, intending to obtain funds — injuries were willful and foreseeable | Deitz denied willfulness/malice; argued lack of requisite intent | Held: Bankruptcy court’s finding of willful/malicious conduct upheld; §523(a)(6) nondischargeability affirmed (appellate review limited by briefing) |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (Article III limits on bankruptcy judges; narrow holding concerning estate counterclaims)
- Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015 (9th Cir. 1997) (bankruptcy court may liquidate state‑law fraud claim and enter money judgment when determining nondischargeability)
- Sasson v. Sokoloff (In re Sasson), 424 F.3d 864 (9th Cir. 2005) (bankruptcy court’s related‑to/supplemental jurisdiction supports adjudicating nondischargeability and related claims)
- Miller v. Gammie, 335 F.3d 889 (9th Cir. 2003) (en banc) (three‑judge panels should follow intervening Supreme Court authority when prior circuit precedent is clearly irreconcilable)
- Carpenters Pension Trust Fund for N. Cal. v. Moxley, 734 F.3d 864 (9th Cir. 2013) (dischargeability determinations are central to bankruptcy and constitute public‑rights disputes appropriate for bankruptcy courts)