Garnett v. Harvey, 1-19-00002

Background

Debtor Michael Harvey owned and controlled Able Energy Corp., which solicited and accepted advance payments for solar installations but frequently failed to perform or refund customers.
The Minnesota Department of Labor and Industry sued Able and Harvey, obtaining a Restitution Judgment for $1,560,311.12; this Court took judicial notice of those proceedings and prior findings from a related U.S. Trustee adversary that Harvey controlled Able and its accounts.
Plaintiff David Garnett (Wisconsin) contracted with Able for a residential solar installation and paid $7,200 in down payments between Nov–Dec 2016; Able did not perform and Garnett received no refund.
Garnett filed an adversary seeking nondischargeability of the $7,200 under 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), and (a)(6); Harvey contested summary judgment, arguing the contract was with Able, not him personally.
The court concluded Harvey effectively controlled Able, treated certain complaint allegations as admitted because Harvey’s answer was deficient and time to amend had passed, and granted Garnett summary judgment.
Judgment: Garnett’s $7,200 debt is nondischargeable under §§ 523(a)(2)(A) and 523(a)(6); summary judgment on § 523(a)(2)(B) was denied.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Garnett’s $7,200 is nondischargeable under § 523(a)(2)(A) (false pretenses/representations and actual fraud)	Harvey (through Able) promised installation, took $7,200 with knowledge he couldn’t perform; made false representations and intended to defraud Garnett	Harvey argues contract was between Garnett and Able; he was not a party and not personally liable	Granted: Court found justifiable reliance, inferred intent from prior findings and Harvey’s conduct; debt nondischargeable under § 523(a)(2)(A) for $7,200
Whether the $7,200 is nondischargeable under § 523(a)(6) (willful and malicious injury)	Harvey acted willfully by soliciting payment and maliciously because he knew performance was unlikely, causing monetary injury	Harvey denies personal liability, contending Able — not he — is responsible	Granted: Court inferred Harvey knew injury was highly likely and accepted payment; debt nondischargeable under § 523(a)(6) for $7,200
Whether the contract/communications satisfy § 523(a)(2)(B) (written statement respecting financial condition)	Garnett: written contract was materially false and intended to deceive, so it qualifies under § 523(a)(2)(B)	Harvey: contract did not constitute a statement about his financial condition	Denied: Contract did not constitute a written statement respecting debtor’s financial condition under Appling; summary judgment denied on § 523(a)(2)(B)
Effect of Harvey’s deficient answer and prior judicial findings on summary judgment	Garnett relied on admissions and judicial notice to establish elements of fraud and intent	Harvey contended lack of personal signature/party status on contract defeats personal liability	Held: Court deemed certain allegations admitted due to inadequate denials and refusal to allow amendment; prior state-court and UST Adversary findings supported inferences of intent and control

Key Cases Cited

Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard and role of court)
Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s initial burden on summary judgment)
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (nonmovant must show genuine issue of material fact)
Grogan v. Garner, 498 U.S. 279 (creditor bears preponderance standard in nondischargeability actions)
Field v. Mans, 516 U.S. 59 (justifiable reliance standard in fraud claims)
Kawaauhau v. Geiger, 523 U.S. 57 (willful injury requires deliberate or intentional injury)
Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (written statement must relate to debtor’s overall financial condition)
Jendusa-Nicolai v. Larsen, 677 F.3d 320 (7th Cir.: definition of willful and malicious injury)
Ins. Co. of N. Am. v. Cohn (In re Cohn), 54 F.3d 1108 (elements for § 523(a)(2)(B) claim)