Cabarrus County v. Boyd (In re Boyd)Cabarrus County v. Boyd (In re Boyd)
MEMORANDUM OPINION
THIS MATTER came before the Court for trial on October 9, 2014, after due and proper notice, upon the Complaint to Determine Dischargeability of a Debt (the “Complaint”) filed by Cabarrus County and the Cabarrus County Department of Social Services, now the Department of Human Services (the “County”). Appearing before the Court was Richard M. Koch, counsel for the County; and Kristen Nardone, counsel for Richard and Jennifer Boyd (collectively, the “Debtors”). Following the trial, and upon consideration of the Complaint, the responses thereto, the arguments of counsel, the live testimony of Stephanie Payne (formerly Stephanie Williams) and the Debtors, and admitted exhibits, the Court determines that the debt owed by Jennifer Boyd to the County is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(B), while the debt owed by Richard Boyd to the County is dischargea-ble.
This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157, and 1334 and Local Rule 83.11 entered by the United States District Court for the Middle District of North Carolina. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2), which this Court has jurisdiction to hear and determine.
FACTS
I. PRE-PETITION BACKGROUND
A. The Debtors’ Background and Financial Matters
Jennifer Boyd (formerly Jennifer Hom-za) graduated high school in 1997 and received her associate degree at Rowan-Ca-barrus Community College. She was previously a waitress at a restaurant where she met her husband, Richard Boyd. Since then, she has been a stay-at-home mom for her four children. Richard Boyd graduated high school and spent fifteen years managing various restaurants until he lost his job in 2010.
Mrs. Boyd first applied for food stamps through the County in 2009 and later applied for Medicaid in 2011. Food and Nutrition Services (“FNS”) and Medicaid are federally-funded public assistance programs administered by North Carolina to provide money for food and health care to low-income families. Customers can apply for these benefits in person or by mailing in an application. To continue receiving benefits, customers must complete a recer-tification form every six months to determine their eligibility. Each of the forms contains a provision on the first page informing the customers that resources are available if they need help completing the forms. Mrs. Boyd completed and signed all of the documents herself without any outside help. Mr. Boyd never signed any of the forms that were submitted to the County.
Between 2010 and 2012, Mrs. Boyd submitted six FNS recertification forms. On all but the last recertification form, Mrs. Boyd affirmed that nobody in the home was employed. On the first five recertifi-cation forms, the sources of income she reported included Mr. Boyd’s unemployment income, which ended on January 2, 2011, Mr. Boyd’s child support, and contributions from family members. On the last recertification form that Mrs. Boyd completed in August 2012, she reported that Mr. Boyd was self-employed and infrequently received compensation from fixing computers at home. She stated in her own handwriting that the income she disclosed was the “total income since [Mr. Boyd] started fixing computers.”
Mrs. Boyd also applied for Medicaid assistance in 2011 and submitted three re-enrollment forms between 2011 and 2012. Similar to the FNS recertification forms, Mrs. Boyd did not disclose any source of income beyond familial contributions and child support until the third Medicaid re-enrollment form in April 2012. In that form, she noted that Mr. Boyd was working for Mark Carrick, owner of Fix IT Computers, and received $100 to $140 weekly.
B. Mr. Boyd’s Work Experience From 2010-2012
During the period of time Mr. Boyd was unemployed, he enrolled in Rowan-Cabar-rus Community College under a job training program to learn to work on computers. In 2010, Mr. Boyd began working on computers for his friends and family, and he received compensation for some of these jobs. He maintained a spreadsheet that documented his income and kept receipts for the business expenses that he
In early 2011, shortly after Mr. Boyd’s unemployment compensation stopped, Mr. Boyd began periodically completing jobs for Fix IT Computers. For many of these jobs, he would bring the computers home to work on them. The frequency of these jobs with Fix IT Computers began to gradually increase throughout the year. On the Debtors’ federal tax return transcript from 2011, he reported a net self-employment income of $19,199. At trial, Mr. Boyd testified that this information came from the 1099 forms that he received after completing jobs. Again, he completed the tax return using TurboTax.
In 2012, Mr. Boyd continued to work with Fix IT Computers and eventually was placed on the company’s payroll near the end of the year. On the Debtors’ federal tax return from 2012, he reported a net self-employment income of $23,970. Similarly, Mr. Boyd testified that the information used to reach this figure came from the 1099 forms he received. Again, he completed the tax return using TurboTax.
C. The County’s Investigation
On September 24, 2012, the Program Integrity section of the Cabarrus County Department of Human Services (“DHS”) received a referral for suspected fraud regarding Mrs. Boyd’s submitted forms. The referral stated that there were discrepancies between what Mrs. Boyd reported and what the Debtors disclosed to the Internal Revenue Service (“IRS”). On September 27, 2012, Program Integrity mailed a letter to Mrs. Boyd notifying her of the discrepancy and asking her to come into the office to speak with one of the investigators. Mr. Boyd met with Stephanie Payne, who was employed by Cabarrus County DHS as a Program Integrity Investigator at the time, on October 22, 2012. When asked why Mr. Boyd reported self-employment income in 2010, he responded that he fixed computers in 2010 but did not receive a 1099. He went on to say that he continued to receive income for computer repair jobs in 2011 through 2012. At the end of the meeting, Mr. Boyd stated that he understood that he and his wife must report any self-employment income they receive when completing the recertification forms. Ms. Payne transcribed this conversation, and Mr. Boyd reviewed the statement, indicated the facts as written were true, and signed it.
In March 2013, the Debtors received a letter notifying them of a hearing with the Cabarrus County DHS to determine whether they committed an Intentional Program Violation. On April 29, 2013, the day before the hearing, the Debtors met with Ms. Payne to discuss their case. After the discussion, Mrs. Boyd decided that she did not want to continue with the hearing and signed the Waiver of Disqualification Hearing (the “Waiver”). On the Waiver, she indicated that she was not admitting that she committed a program violation but would nevertheless accept the twelve month disqualification. This disqualification did not affect Mr. Boyd’s or their children’s eligibility to receive food stamps or Medicaid.
ADVERSARY PROCEEDING
The Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code on July 26, 2013. In their petition, the Debtors did not list any secured or priority debt. They listed $47,253 in unsecured
DISCUSSION
The fundamental purpose of bankruptcy has been described as providing the debtor a fresh start “unhampered by the pressure and discouragement of preexisting debt.” In re Belk,
As the party challenging the dis-chargeability of the debt, the County, has the burden of establishing each of the following elements under § 523(a)(2)(B) by a preponderance of the evidence. Grogan v. Garner,
Courts have decided the dischargeability of a debt for overpayment of public assistance benefits in various ways. Using § 523(a)(5), some courts have classified these overpayments as a domestic support obligation as defined by § 101(14)(A). See Wis. Dep’t of Workforce Dev. v. Ratliff, 390
Turning to the present case, Mrs. Boyd completed the FNS and Medicaid forms in order to receive funds for purchasing food and for health care. There is no dispute that the Debtors received financial assistance from the County as a result of the forms that Mrs. Boyd submitted. Additionally, the forms that Mrs. Boyd completed and mailed to the County to receive assistance constitute a written statement respecting the debtor’s financial condition. Each of the FNS and Medicaid forms contained questions about the Debtors’ income and any other sources of financial contributions. See In re Brown,
One of the key issues in this case is whether the information that Mrs. Boyd disclosed on the FNS and Medicaid forms was materially false. For purposes of § 523(a)(2)(B), a statement is materially false if it “paints a substantially untruthful picture of a debtor’s financial condition by misrepresenting information of the type which would normally affect the decision to grant credit.” Premier Bank v. Koester (In re Koester),
The evidence also established that the County relied on the forms that Mrs. Boyd submitted in order to continue receiving FNS and Medicaid assistance. The County’s policy is to take forms at face value and presume that all information contained is accurate and complete. Only when there is a discrepancy does the County investigate further to verify the validity of the forms. The County relied on the Debtors’ forms as being truthful until September 2012 when they found a discrepancy between the information that Mrs. Boyd had submitted and the Debtors’ IRS tax returns. See Brown,
In addition to showing actual reliance upon a false financial statement, a creditor seeking relief under § 523(a)(2)(B) also must show that such reliance was reasonable. The standard for what is “reasonable” is determined on a case-by-case basis judged in the light of the totality of the circumstances after an examination of facts and circumstances present in the case. In re Copeland,
The County also has the burden to prove that the Debtors knew that the statements regarding their financial condition were false and that such false statements were published with the intent to deceive. Direct evidence of intent to deceive is not required under § 523(a)(2)(B). Instead, because it is very difficult to obtain direct proof of a debt- or’s state of mind, a creditor may present evidence of the surrounding circumstances from which such intent may be inferred. In re Adams,
Although the County has carried its burden of proving that Mrs. Boyd was intentionally deceptive in the documents she sent them, they have failed to prove that Mr. Boyd’s conduct rose to the same standard. In cases involving jointlyfiled married debtors, “the marital relationship alone is not enough to impute one spouse’s fraud to the other for nondischargeability purposes.” In re Hill,
The Debtors’ asserted two affirmative defenses in their response: failure to state a claim pursuant to Rule 12(b)(6) and good faith. The Court finds neither of the defenses to be persuasive and consequently denies both of them.
CONCLUSION
Based on the foregoing, it is therefore ORDERED that the County’s Complaint to Determine Dischargeability of a Debt is granted as to Jennifer Boyd and denied as to Richard Boyd. This Court concludes that Jennifer Boyd may not discharge the debt owed to the County pursuant to § 523(a)(2)(B) in the amount of $35,466.13, but Richard Boyd may receive his discharge with respect to the Debt owed to the County. A judgment so providing
SO ORDERED.
Notes
. At the hearing, counsel for both parties stipulated to the total amount of overpayments.