Duarte v. Warner
12-04096
Bankr. E.D. Tex.Jul 3, 2014Background
- Duarte sues Warner in this adversary proceeding seeking nondischargeability of a debt under 11 U.S.C. §523(a)(2)(A) or §523(a)(6).
- Warner promoted the Miss Latina World pageant and promised prizes, scholarships, publicity, and other benefits.
- Duarte paid a $950 entry/ad fee, sold ads for the brochure, and won Miss Latina World 2008.
- Warner failed to deliver most promised benefits, including the $25,000 scholarship, and delayed communications about the winner’s benefits.
- A state court mediated settlement awarded Duarte $25,000 with post-judgment interest; Duarte holds the State Court Judgment and asserts the debt is nondischargeable in bankruptcy.
- The bankruptcy court ultimately concludes the Duarte debt is nondischargeable under 11 U.S.C. §523(a)(2)(A) as actual fraud, and awards costs to Duarte while denying other relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the debt is nondischargeable under §523(a)(2)(A) for actual fraud | Duarte: Warner knowingly made false promises to induce participation and payment | Warner: promises about future benefits cannot be false representations | Yes; debt held nondischargeable as actual fraud. |
| Whether Duarte justifiably relied on Warner's representations | Duarte reasonably relied on promises to obtain benefits | Reliance not reasonable? | Justifiable reliance found. |
| Whether the §523(a)(2)(A) claim can rest on false pretenses/false representations given future-oriented promises | False representations included misstatements intended to induce entry and payment | Promises about future events do not constitute false representations | court treated as actual fraud; not limited to false pretenses/representations, leading to nondischargeability. |
| Amount and enforcement of the nondischargeable debt and related costs | State Court Judgment amount controls; post-judgment interest applies | N/A or limited | Debt amount $25,000; costs awarded; judgment entered. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (burden of proof applies; fresh-start policy in dischargeability)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (reliance standard for §523(a)(2)(A) justifiable reliance)
- Pentecost, 44 F.3d 1284 (5th Cir. 1995) (elements of actual fraud under §523(a)(2)(A) clarified)
- In re Bercier, 934 F.2d 689 (5th Cir. 1991) (distinction between false representations/pretense and real fraud)
- In re Sims, 479 B.R. 415 (Bankr. S.D. Tex. 2012) (justifiable reliance considerations in §523(a)(2)(A))