638 B.R. 275
Bankr. D. Conn.2022Background
- Debtor Neil Ranciato (also doing business as Indemnity First/USA Water & Fire) handled an insurance claim for plaintiff Madeline Reyes after a 2017 pipe burst damaged her West Haven residence.
- Reyes endorsed and delivered insurance checks totaling $41,627.74 to Ranciato, who promised to adjust the claim and perform or coordinate repairs despite not holding a home improvement contractor license and (as a public adjuster) being restricted from contracting work.
- Repairs were not completed; Ranciato cashed checks at a pawn/check-cashing business and failed to account for or use the funds for the promised repairs.
- Reyes sued in state court; before judgment, Ranciato filed Chapter 7 and did not list Reyes as a creditor. Reyes commenced this adversary proceeding under 11 U.S.C. § 523 alleging nondischargeability under §§ 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6).
- Ranciato defaulted (discovery violations); the court treated well-pleaded allegations and admissions as true for liability but required proof for nondischargeability.
- The court’s detailed analysis finds nondischargeability under § 523(a)(2)(A) and for embezzlement under § 523(a)(4); the opinion contains an inconsistent drafting in the final order referencing § 523(a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nondischargeability under § 523(a)(2)(A) (false pretenses/false representation) | Ranciato misrepresented he would protect/repair the home and induce Reyes to endorse and deliver insurance checks | Defaulted; no substantive rebuttal — implied defenses: at most breach/poor performance, not fraud | Granted — Court found false pretenses/representations and reliance; nondischargeable |
| Nondischargeability under § 523(a)(2)(B) (false written financial statement) | Reyes asserted fraud-based claims but offered no false written financial statement | No written statement; no evidence | Denied — claim fails for lack of required written false statement |
| Nondischargeability under § 523(a)(4) (embezzlement / fiduciary / larceny) | Funds were entrusted to Ranciato for repairs and he misappropriated them (cashed checks, failed to repair or account) | Ranciato had lawful possession (checks endorsed); no fiduciary status; conduct at most contractual breach | Granted in part — embezzlement found (nondischargeable as to $41,627.74); fiduciary/defalcation and larceny theories denied |
| Nondischargeability under § 523(a)(6) (willful and malicious injury) | Alleged willful and malicious conversion causing property loss | Acts were at most a knowing breach, negligent or for personal gain — not deliberate intent to injure | Denied — insufficient evidence of deliberate intent to injure or malice |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (preponderance standard for nondischargeability)
- Ball v. A.O. Smith Corp., 451 F.3d 66 (requirements for willful and malicious injury under § 523(a)(6))
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (actual fraud under § 523(a)(2)(A) includes common-law fraud)
- Kawaauhau v. Geiger, 523 U.S. 57 (intentional injury requirement for § 523(a)(6))
- Metro Found. Contractors Inc. v. 699 F.3d 230 (default admissions and damages principles)
- Evans v. Ottimo, 469 F.3d 278 (elements for actual fraud under § 523(a)(2)(A))