634 B.R. 755
Bankr. E.D. Tenn.2021Background
- Plaintiffs (Fullers) contracted with defendant Charles Givens (American Home Builders) in April 2014 to build a house for a turn‑key price ~ $189,800; Plaintiffs paid $179,310.
- Defendant’s website represented he was "licensed and insured" and he orally told Plaintiffs he had insurance; Plaintiffs say they relied on those assurances in hiring him.
- The finished house had numerous defects; a Special Master and the Sevier County Chancellor awarded Plaintiffs a state‑court judgment of $305,756.24 (repairs, fees) in April 2018.
- Defendant filed Chapter 7 bankruptcy March 5, 2020 and received a discharge August 11, 2020; Plaintiffs filed this adversary proceeding seeking nondischargeability under 11 U.S.C. § 523(a)(2)(A).
- Trial focused on whether pre‑contract misrepresentations (insurance/licensing) constituted actionable fraud: Court found website/general representations and an oral statement that defendant was "insured" but concluded Plaintiffs misunderstood the type/scope of insurance and did not prove fraudulent intent or justifiable reliance.
- Court held Plaintiffs failed to prove the elements of § 523(a)(2)(A); the state judgment was discharged.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the state‑court judgment is nondischargeable under § 523(a)(2)(A) | Misrepresentations (website + oral) that Givens was "licensed and insured" induced Plaintiffs to pay for construction; this was a false representation/false pretense | Statements about insurance were true as to required general liability; no representation about workmanship insurance; defects show breach, not fraud | Denied — Plaintiffs did not prove actionable false representation/false pretense under § 523(a)(2)(A) |
| Whether defendant expressly misrepresented possession of workmanship insurance (material misrepresentation) | Plaintiffs contend defendant affirmatively said he was insured for workmanship and that was material to hiring him | Defendant says he only maintained general liability as required by Tennessee and did not know of "workmanship" insurance | Court: No clear misrepresentation of workmanship insurance; at most ambiguity/misunderstanding by Plaintiffs |
| Whether defendant had fraudulent intent when making insurance statements | Plaintiffs infer intent from the fact of shoddy work and defendant’s statements | Defendant lacked intent to deceive; evidence shows subcontractor poor workmanship and no badge of intent to defraud | Court: Plaintiffs failed to prove subjective fraudulent intent; evidence supports negligence/poor workmanship, not intent to defraud |
| Whether Plaintiffs justifiably relied and that reliance proximately caused their loss | Plaintiffs relied on assurance of insurance (website + oral) and would not have contracted otherwise | Defendant notes absence of insurance term in written contract and Plaintiffs’ ongoing supervision during construction; reliance was unreasonable or not shown | Court: Reliance not proven to be justifiable or causative given Contract/emails, site visits, and failure to memorialize insurance term |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (plaintiff bears the burden to prove nondischargeability by a preponderance)
- Rembert v. AT&T Universal Card Servs., Inc., 141 F.3d 277 (6th Cir. 1998) (interpretation of § 523 burden and standards in Sixth Circuit)
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) ("actual fraud" under § 523(a)(2)(A) can encompass schemes without a false representation)
- Haney v. Copeland (In re Copeland), 291 B.R. 740 (Bankr. E.D. Tenn. 2003) (materiality and false representation standards under § 523(a)(2)(A))
- United States v. Keefer, 799 F.2d 1115 (6th Cir. 1986) (materiality test: whether statement was capable of influencing the creditor’s decision)
- Bohannon v. Horton (In re Horton), 372 B.R. 349 (Bankr. W.D. Ky. 2007) (contractor’s poor performance alone does not establish fraud for § 523(a)(2)(A))