491 B.R. 911
Bankr. W.D. Mo.2013Background
- contract for sale of residential real estate in 2010 between the spouses and plaintiffs in Columbia, MO; disclosure stated no water leakage or mold; substantial water damage, mold, and live slugs discovered after closing; Debtors filed Chapter 13 in May 2012; plaintiffs commenced adversary proceeding August 2012 seeking nondischargeability under 523(a)(2)(A)/(B) and 523(a)(6); damages sought include repair costs, rental payments, and plaintiffs' attorney's fees; court considers Missouri law measure of damages and whether the debt is nondischargeable under §523(a)(2)(A) or §523(a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Amber Davenport obtained money via fraud (523(a)(2)(A) | Smiths contend Amber obtained money by false disclosures | Davenport argues only Amber, not David, obtained funds; misrepresentation concerns Amber’s statements | Amber alone obtained money; but damages not proven under proper measure |
| Whether the Debtor made a false representation and knew it was false | Plaintiffs show misrepresentation of water leakage and mold | Debtor claims statements were truthful or not knowingly false | Court finds falsity and knowledge of falsity shown |
| Whether the Debtor intended to deceive | Intent to induce reliance via disclosure | No malevolence required; misrepresentation without intent to deceive | Court infers intent to deceive based on reliance and knowledge of disclosure's purpose |
| Whether Plaintiffs justifiably relied on the disclosures | Reliance justified given seller in superior position and no red flags | Buyers conducted inspections; reliance may be questioned | Justifiable reliance found; plaintiffs relied on disclosure and representations |
| Whether damages are properly measured under Missouri fraud law | Damages are repair costs and related expenses | Damages should be the difference between purchase price and market value | Damages not proven under benefit-of-the-bargain measure; court rules for Debtors on §523(a)(2)(A) claim |
| Whether §523(a)(6) applies and requires willful/malicious injury | Alleges willful/malicious injury from deceit | Fraud claim already addressed; no willful/malicious injury shown | §523(a)(6) does not apply; plaintiffs failed to prove willful/malicious injury |
Key Cases Cited
- In re Maurer, 256 B.R. 495 (8th Cir. BAP 2000) (elements of §523(a)(2)(A) undisputed factors)
- In re Moen, 238 B.R. 785 (8th Cir. BAP 1999) (knowledge of falsity and falsity considered)
- In re Newell, 164 B.R. 992 (Bankr.E.D.Mo.1994) (intent to deceive inferred from circumstances)
- In re Swan, 156 B.R. 618 (Bankr.D.Minn.1993) (intent to deceive required, reliance analyzed)
- In re Reuter, 686 F.3d 511 (8th Cir. 2012) (two-step 523(a) analysis; state-law liability first)
- Colgan v. Washington Realty Co., 879 S.W.2d 686 (Mo.Ct.App.1994) (reliance on seller representations despite independent inquiry)
- In re Russell, 203 B.R. 303 (Bankr.S.D.Cal.1996) (benefit-of-the-bargain measure; value evidence required)
- Larabee v. Eichler, 271 S.W.3d 542 (Mo.2008) (benefit of the bargain measure; contract price as strong evidence of value)
- Heberer v. Shell Oil Co., 744 S.W.2d 441 (Mo.1988) (valuation measure for fraud: benefit of the bargain)
- Kawaauhau v. Geiger, 528 U.S. 57 (1999) (intent required for willful/malicious injury under §523(a)(6))
- In re Steger, 472 B.R. 533 (8th Cir. BAP 2012) (intent evidence considered in §523(a)(6))