535 B.R. 468
Bankr. D. Mass.2015Background
- Sega Auto Sales made a $15,000 loan to debtor Luis Flores (via a check dated July 22, 2011) evidenced by a memo “boro for 4 mths”; debtor provided an ICC company check as a purported "warranty."
- ICC checks given to Sega (including a $1,500 August check and later three Citibank checks totaling $24,000) were returned for insufficient funds; plaintiff never recovered repayment.
- Parties tried remaining counts under 11 U.S.C. §§ 523(a)(2)(A) and (a)(6); after plaintiff rested, court granted debtor’s Rule 52(c) motion and entered judgment for debtor for lack of proof of required elements.
- Plaintiff moved to alter/amend judgment under Fed. R. Civ. P. 59(e), arguing the court applied the wrong standard for justifiable reliance and other elements; debtor opposed and sought fees.
- The court reconsidered the record, found (1) debtor likely acted with reckless disregard as to the truth of the 4‑month repayment promise (so intent/knowledge for §523(a)(2)(A) could be inferred), but (2) plaintiff did not actually rely on the debtor’s promise (relying instead on a cursory impression of the business), and (3) plaintiff failed to prove willful and malicious injury under §523(a)(6). The Rule 59(e) motion and fee request were denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debt is nondischargeable under §523(a)(2)(A) for false representation (promise to repay) | Sega: Debtor had no basis to repay and intended to deceive; justifiable reliance not demanding investigation per Field | Flores: Only made a promise; failure to pay is not proof of falsity; plaintiff relied on assumptions not debtor’s statements | Court: Debtor’s intent/recklessness can be inferred, but plaintiff did not actually rely on debtor’s promise — reliance instead on plaintiff’s own cursory observations; §523(a)(2)(A) claim fails |
| Standard for justifiable reliance under §523(a)(2)(A) | Sega: Field protects reliance absent obvious red flags; no duty to investigate here | Flores: Plaintiff didn’t rely on any debtor representation, but on assumptions from appearance | Court: Applied Field but found no actual reliance (not merely unjustifiable reliance); plaintiff’s conduct showed no reliance on debtor’s promise |
| Whether debt is nondischargeable under §523(a)(6) (willful and malicious injury) | Sega: Debtor knowingly solicited loans he couldn’t repay; series of bad checks show intent to harm | Flores: Poor business practice, not malice; no subjective intent to injure | Court: §523(a)(6) requires deliberate intent to cause injury (or substantial certainty); plaintiff failed to prove subjective intent or lack of excuse — claim fails |
| Whether Rule 59(e) reconsideration/retrial is warranted | Sega: Bench ruling used wrong reliance standard; seeks vacatur/new trial or resumption | Flores: Motion is untimely rehash; no new evidence; oppose fees request | Court: Denied Rule 59(e) — no manifest error or prejudice; vacatur/new trial denied; fee request denied (motion not frivolous but lacked merit) |
Key Cases Cited
- Field v. Mans, 516 U.S. 59 (1995) (justifiable reliance under §523(a)(2)(A) is a lower standard than reasonableness; no duty to investigate absent obvious red flags)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§523(a)(6) "willful" modifies "injury"; requires deliberate or intentional injury)
- Palmacci v. Umpierrez, 121 F.3d 781 (1st Cir. 1997) (fraudulent intent may be inferred from totality of circumstances; factors for inferring scienter)
- Grogan v. Garner, 498 U.S. 279 (1991) (burden: preponderance of evidence to prove nondischargeability)
- Printy v. Dean Witter Reynolds, Inc., 110 F.3d 853 (1st Cir. 1997) (malice under §523(a)(6) includes showing injury was caused without just cause or excuse)
- Levasseur v. Old Republic Nat’l Title Ins. Co., 737 F.3d 814 (1st Cir. 2013) (context for evaluating creditor reliance in lending contexts)