Meramec Valley Bank v. Newell (In Re Newell)Meramec Valley Bank v. Newell (In Re Newell)
MEMORANDUM
Thе trial of this adversary proceeding was conducted on February 9, 1994. The parties agreed that the matter would be submitted to the Court on the testimony and evidence at trial, including certain stipulated facts, and the arguments of counsel. At the conclusion оf the trial, the Court granted the parties additional time to submit memoranda of law with respect to the dischargeability issues presented in this matter.
This is a core proceeding pursuant to Section 157(b)(2)(I) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. §§ 151, 157 and 1334, and Rule 29 of the Local Rules of the United States District Court for the Eastern District of Missouri. These determinations and this order are the final findings, conclusions and orders of the Bankruptcy Court.
Meramec Valley Bank (“Plaintiff’) filed а Complaint on July 13, 1994 against Mary Ann Newell (“Debtor”). The Complaint requests the following: a determination that a certain debt owed to the Plaintiff is not dis-chargeable pursuant to 11 U.S.C. § 523(a)(2)(A); an award to Plaintiff of a money judgment; and any other and further relief as may be just and рroper. The Debt- or filed an answer to the Plaintiffs complaint on August 6, 1993.
Debtor filed a voluntary Petition for Relief under Chapter 7 of Title 11 of the United States Code on April 19, 1993. An Order of Discharge was entered on September 10, 1993.
From about July, 1991 to September, 1991, the Debtоr maintained an account at the Plaintiffs Bank under the name of “Rainbow Pre-School, Inc., d/b/a Kensington Academy.” Plaintiff has argued in this matter that Debtor engaged in a series of deposits and withdrawals of funds involving different banks that eventually resulted in a net negative balance of $11,300.00 in Debtor’s account at Plaintiffs institution. Plaintiff has requested the Court to declare this debt non-dischargeable pursuant to § 523(a)(2)(A) of the Bankruptcy Code because Debtor obtained money from Plaintiff by actual fraud, false pretenses and falsе representations. Plaintiff alleges that at the time Debtor deposited checks in the account at Plaintiffs bank, and when she wrote checks against this account, Debtor knew there were not sufficient funds in the accounts to pay the checks. The Plаintiff has alleged further that thereafter, Debtor attempted to cover the checks by depositing another check in Plaintiffs institution drawn against an account in which there were insufficient funds. Plaintiff has argued that Debtor engaged in “check kiting” by conducting this series оf transactions.
Debtor maintained bank accounts at various institutions in the corporate names of Rainbow Pre-School, Inc. (“Rainbow”), Rainbow Pre-School, Inc. d/b/a Kensington Academy (“Kensington”), and in her name individually. Debtor was the sole shareholder of Rаinbow. The authorized signatories on the Kensington account were Debtor and her non-debtor husband. The record has established that Debtor deposited a check at Plaintiffs institution on December 11, 1991 for $6,000.00, drawn on the Debtor’s individual account at First Bank
1
with the payee designated as Kensington.
See
Plaintiffs
The standard of proof with respect to exceptions to discharge is the preponderance of the evidence.
Grogan v. Garner,
(1) that the debtor made false representations;
(2) that at the time made, the debtor knew the reрresentations to be false;
(3) that the representations were made with the intention and purpose of deceiving the creditor;
(4) that the creditor reasonably relied on the representations; and
(5) that the creditor sustained the alleged injury as a proximate result of the representations having been made.
In re Van Horne,
The first element requires that Plaintiff establish that Debtor made false representations. Ordinarily, the “delivery of an ultimately-dishonored check,
without more,
does not constitute an actionable reрresentation under § 523(a)(2)(A).”
In re Tuggle,
The record here has shown that on December 11, 1991, when the Debtor wrote and deposited check number 386, in the amount
1. Check No. 1048, dated December 11, 1991, in the amount of $4,222.00, payable to Rainbow, endorsed for deposit into the account at the Bank of Chesterfield;
2. Check No. 1049, dated December 11, 1991, in the amount of $5,300.00, payable to Mary Newell, endorsed by Mary Newell;
3. Check No. 1050, dated December 12, 1991, in the amount of $100.00, payable to Kermit and Sharon Henlee (last name blurred on exhibits), endorsed by the payees, but bearing the stamp, “INSUFFICIENT.”
On December 12, 1991, when the Debtor wrote and deposited into the account at Plaintiffs Bank, check number 1409, in the amount of $9,200.00, the Bank of Chesterfield account upon which the check was drawn had a balance of $5,052.62. See Plaintiffs Exhibits “B” and “C.”
Debtor deposited two checks in Plaintiffs institution on consecutive days, drawn on two different banks. Both were returned for insufficient funds. The proximity in time of these two deposits, in the circumstances that have been presented here, compels the conclusion that the Debtor falsely represented that she possessed sufficient funds to cover the checks.
The second element requires that the Debtor knew the representations were false when they were made. This element is satisfied from a consideration of the record as a whole, as well as from the proximity in time of the depositing of the checks and the grossly inadequate balances in Debtor’s accounts to cover the checks.
The third element requires proof that the false representations were made with the intent to deceive the creditor.
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Debtor has argued that she either lacked the intent to deceive required by § 523(a)(2)(A) or was incapable of forming such intent. Direct evidence of intent seldom exists and thus courts may look to surrounding circumstances to ascertain intent.
Van Horne,
The fourth element requires a showing that the creditor rеasonably relied on the representations. Debtor has argued in defense that Plaintiff did not employ standard or prudent banking practices in providing funds to Debtor before Debtor’s checks drawn on First Bank and Bank of Chesterfield were honored by those banks. The Plaintiffs witness testified that certain banking regulations require that funds must be made available immediately upon deposit by a customer. This testimony was not refuted by the Debtor. If a history of dishonored checks drawn on a certain account is known to have existed, а bank retains discretion to hold the withdrawal of funds. Although Plaintiff apparently was aware that at least one insufficient funds check had been drawn against the Debtor’s account, this record has
The last element required for nondis-chargeability is that the creditor sustained the alleged injury as a proximate result of the representations having been made. Debtor’s misrepresentations caused Plaintiff to suffer a loss in the form of a net negative balance in the account at Plaintiffs bank as of the commencement of this case. Clearly, Plaintiff has suffered a loss of at least $11,-300.00 as a result of Debtor’s misrepresentation.
Therefore, Plaintiff has satisfied all of the elements to establish a false representation that is not dischargeable in this case. By a separate order, judgment is entеred in favor of the Plaintiff and against the Defendant.
ORDER
At Saint Louis, in this District, this 14th day of March, 1994.
On consideration of the record as a whole, and consistent with the determinations set out in the Memorandum in this matter,
IT IS ORDERED that this matter is concluded; and that this is a final order on this matter; and that judgment on the Complaint of Meramec Valley Bank (“Plaintiff’) is granted in favor of Plaintiff and against Mary Ann Newell (“Debtor”); and that said Debtor is to pay said Plaintiff the amount of $11,300.00 as and for judgment in this matter; and
That the debt owed by Debtor to Plaintiff as set out in this proceeding and judgment order is NOT DISCHARGEABLE in this bankruptcy case as being a debt obtained by false pretenses and false representations pursuant to 11 U.S.C. § 523(a)(2)(A).
Notes
. Debtor maintained a checking account at First Bank in St. Louis, Missouri ("First Bank”) in the name of “Maty A. Newell” from at least September 1991 through December 1991. See Plaintiff's Exhibit A.
. Debtor maintained a checking account at Bank of Chesterfield in the name of "Rainbow PreSchool, Inc., Mary A. Newell” from at least September 1991 through December 1991. See Plaintiff's Exhibit B.
. The Court recognizes that the United States Supreme Court decision in
Williams v. United States,
. Plaintiff's partial reliance on Missouri Revised Statute § 570.220 (Supp.1993) (criminal "check kiting” statute) is not necessary to prove the intent to deceive element required by § 523(a)(2)(A); thus, the Court will not address the relevance of § 570.220 to this proceeding.