595 B.R. 699
Bankr. W.D. Pa.2019Background
- Debtor Erica Milton owned the Millvale home (Clara Street Property) outright; Gerald Lepre moved in 2009 and they lived together and were engaged at one point.
- Relationship deteriorated; Debtor filed a Protection from Abuse (PFA) petition in March 2015 and a negotiated PFA Order required coordination for Lepre to retrieve his belongings; Debtor moved disputed items to a shed on the property.
- Lepre sued in state court (replevin/amended complaint); a default judgment for $71,700 was entered prepetition; Debtor filed Chapter 7 on March 3, 2016 and suggested bankruptcy in the state action.
- Lepre commenced this adversary proceeding seeking denial of discharge under 11 U.S.C. § 727(a)(4)(A) and, alternatively, nondischargeability of the state-court debt under § 523(a)(2)(A), (a)(4), and (a)(6).
- Trial testimony: Court found Debtor credible on key points (she moved items to the shed awaiting coordinated retrieval and disclosed relevant litigation); Lepre’s evidence of sale, concealment, fraud, or intentional damage to his property was not credible.
- Court concluded Lepre failed to prove false oaths, fraudulent intent, fiduciary defalcation/embezzlement, or willful and malicious injury; discharge and dischargeability challenge were denied.
Issues
| Issue | Plaintiff's Argument (Lepre) | Defendant's Argument (Milton) | Held |
|---|---|---|---|
| 1) Denial of debtor's discharge under § 727(a)(4)(A) (false oath) | Debtor falsely omitted or mischaracterized Lepre's property and misstated home value in Schedules/SOFA | Statements were accurate as Debtor believed items were hers or were being held for Lepre; she disclosed the replevin action and items at Meeting of Creditors | Denied — Lepre failed to prove falsity, knowledge and intent to deceive, and materiality |
| 2) Nondischargeability under § 523(a)(2)(A) (fraud/false representation/actual fraud) | Debtor obtained Lepre's property by fraud or false representations | No particular false statement or scheme proved; property remained at the house pursuant to PFA Order and Debtor had no intent to deprive Lepre | Denied — no evidence of actionable false pretense, false representation, or actual fraud |
| 3) Nondischargeability under § 523(a)(4) (fiduciary fraud/defalcation, embezzlement, larceny) | PFA created a fiduciary-like duty; Debtor committed defalcation/embezzlement by retaining or damaging property | Even if fiduciary status assumed, no fraud, intentional misconduct, or reckless breach shown; items stored in Lepre’s own shed; no use of property for Debtor’s benefit | Denied — no fraud/defalcation, embezzlement, or larceny established |
| 4) Nondischargeability under § 523(a)(6) (willful and malicious injury) | Debtor intentionally harmed or destroyed Lepre’s property by leaving it to deteriorate or disposing of items | Any damage resulted from time and shed condition, not intentional conduct; Debtor intended to preserve items for turnover | Denied — no willful and malicious injury proven |
Key Cases Cited
- Melaragno v. Lybrook, 544 B.R. 537 (Bankr. W.D. Pa.) (denial of discharge under § 727(a)(4)(A) requires false oath knowing and fraudulent with materiality)
- Giansante & Cobb, LLC v. Singh (In re Singh), 433 B.R. 139 (Bankr. E.D. Pa.) (materiality and effect of misstatements on administration of estate)
- Sibbet v. Presutti (In re Presutti), 540 B.R. 154 (Bankr. W.D. Pa.) (statutory nondischargeability exceptions construed in debtor’s favor)
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (actual fraud under § 523(a)(2)(A) can include schemes without express misrepresentations)
- Aiello v. Aiello (In re Aiello), [citation="660 F. App'x 179"] (3d Cir.) (defalcation includes reckless disregard of fiduciary duties)
- American Asset Finance, LLC v. Feldman (In re Feldman), 500 B.R. 431 (Bankr. E.D. Pa.) (preclusion principles and dischargeability issues)