588 B.R. 281
Bankr. D. Conn.2018Background
- Nancy Newman, a Connecticut real-estate agent, and Heritage Equities (doing business as Commission Express) had a 2012 arrangement under which Newman signed a Master Security Agreement, six Account Receivable Sale & Assignment Agreements, and Notices of Assignment purporting to assign sales commissions to Heritage.
- Heritage claimed it advanced funds to Newman (often 80% of commissions) in exchange for assignment of commissions; Heritage filed a UCC-1 financing statement. Parties also engaged in numerous "roll over" transactions when closings failed.
- Dispute centers on six specific transactions (commissions tied to six properties) and whether Newman received advances and then fraudulently withheld or converted commissions, making alleged debts non-dischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).
- At trial Heritage failed to produce coherent accounting or documentary proof of amounts, dates, or modes of payments; its witness repeatedly testified only that Newman received unspecified "value." Newman admitted receiving some payments and claimed others were loans or were repaid.
- The court found evidentiary gaps about who paid what (including admitted roll-overs and an unreconciled $12,105 commission applied to arrearages) and accordingly concluded Heritage failed to prove nondischargeability; Newman's CUTPA counterclaim likewise failed for lack of proof of ascertainable loss.
Issues
| Issue | Heritage's Argument | Newman's Argument | Held |
|---|---|---|---|
| Whether debts from six commission transactions are nondischargeable under §523(a)(2)(A) (fraud/false representations) | Newman sold/assigned commissions and obtained advances by false pretenses, false representations and actual fraud | Transactions were loans or otherwise not fraudulent; Heritage failed to show it actually paid the amounts alleged; Newman lacked fraudulent intent | Denied — Heritage did not prove justifiable reliance, scienter, or that debts were incurred by fraud for any count |
| Whether debts are nondischargeable under §523(a)(4) (larceny) | Newman forged broker signatures and wrongfully converted commission proceeds | Either Newman had authorization to sign broker’s name or the Notices were immaterial; no evidence of felonious intent at time of taking | Denied — no proof Newman had felonious intent at the time of the alleged takings |
| Whether debts are nondischargeable under §523(a)(6) (willful and malicious injury) | Newman intentionally and maliciously withheld or misapplied funds | Any non-payment was at best breach of contract or mistaken accounting, not deliberate injury | Denied — Heritage failed to show deliberate, malicious injury rather than a mere contractual breach |
| Whether Newman's CUTPA counterclaim succeeds (unlicensed lending/usury; unfair practice) | — | Heritage acted as an unlicensed consumer lender and engaged in unfair/deceptive practices causing loss | Denied — Newman did not prove an ascertainable loss or the particularized unfair practice elements |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (creditor must prove nondischargeability by a preponderance of the evidence)
- Field v. Mans, 516 U.S. 59 (justifiable reliance standard in fraud claims)
- Kawaauhau v. Geiger, 523 U.S. 57 (§523(a)(6) requires deliberate, intentional injury)
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (interpretation of "actual fraud" and distinctions among §523(a) grounds)
- Evans v. Ottimo, 469 F.3d 278 (Second Circuit elements for actual fraud under §523(a)(2)(A))
- Cohen v. de la Cruz, 523 U.S. 213 (requirement that a debt exists to a creditor for §523 claims)
- In re Marcella, 463 B.R. 212 (Bankr. D. Conn. 2011) (narrow construction of exceptions to discharge)
- Bonnanzio v. Brown, 91 F.3d 296 (exceptions to discharge construed narrowly)