Woodstock Housing Corp. v. Johnson (In Re Johnson)Woodstock Housing Corp. v. Johnson (In Re Johnson)
OPINION
A. INTRODUCTION
Thе instant adversary proceeding (“the Proceeding”) requires application of
We find that none of the several statutory bases invoked by WOODSTOCK HOUSING CORPORATION (“the Plaintiff’) support the conclusion that the Debt- or’s particular liability for additional rent, as contrasted with the potential liability of her mother had she been a debtor, is nondischargeable. Basically, the claims all fail due to lack of proof of an intent to deceive on the part of the Debtor and due to the failure of the Plaintiff to prove that it suffered any actual loss or damage due to the misrepresentations made. Also, the Plaintiff failed to prove the issuance of a statement of the Debtor representing her financial condition, as is required under
B. PROCEDURAL AND FACTUAL HISTORY
The Debtor filed the underlying individual voluntary Chapter 7 bankruptcy case on July 12, 1999. On October 14, 1999, just prior to the October 15, 1999, deadline for filing objections to the Debtor’s discharge or the dischargeability of any of her debts, the Plaintiff filed the Proceeding, seeking a determination that the Debtors alleged obligations to it were non-dischargeable pursuant to
The trial of the Proceeding was held on December 2, 1999. At its conclusion, the Plaintiff agreed to file its post-trial submission by December 10, 1999, and the Debtor had by December 17, 1999, to respond. Both were timely filed and served.
Joan Johnson, the Debtor’s mother (“the Mother”), entered into an occupancy agreement (“the Lease”) with the Plaintiff on July 3, 1986. The Mother was identified in the Lease as the household head or “Member,” and the Debtor, then 21 years old and recently having become the mother of the youngest of her three children, was designated as a “family member.”The Lease was executed by the Mother only and not the Debtor. There was no evidence that the Debtor ever signed this or any subsequent lease with the Plaintiff.
The Lease set forth a monthly housing charge which the “Member agrees to pay.” It further recited that the monthly housing charge “shall be subject to change by reason of changes in the Member’s family income.”
The Debtor testified that the Mother handled all of the matters involving the Lease, including all of the reporting requirements. She further explained that, when it was necessary that certain forms, particularly those related to her income, be executed by her, the Mother brought the forms to the Debtor and directed her where to sign. The Debtor claimed that she did not at any time understand the income-certification process, nor was she aware of what the Mother reported to the Plaintiff. All of the annual recertification forms (“50059 Forms”) between 1990 and 1994 required by the United States Department of Housing Developmеnt (“HUD”), which subsidized the tenants’ rents under Section 8 of the United States Housing Act,
In March, 1995, Interstate Realty Management Co. became the Plaintiffs management agent and assigned William Canteen to the project as its site manager. Shortly thereafter, Canteen was directed to review all tenants’ files. Pursuant thereto, the Debtor was asked to sign a recertification form. That form, dated March 22, 1995, indicated that her annual income was $30,264. This figure greаtly exceeded the income previously reported for the Debtor, and led to the discovery of the household’s prior income-report misstatements.
The record also contains a June 23, 1995, 50059 Form, signed only by the Mother but to which the Plaintiff attached an undated certification form signed by the Debtor as well as the Mother. That Form disclosed the Debtor’s annual income of $12,480. The Debtor stated that she “can’t tell” from looking at it whether that form disclosed her income and whether she in fact certified the accuracy of its contents.
The Debtor was elected to the Plaintiffs Board of Directors and served as its Treasurer at some time in 1994 and 1995. However, she testified that those positions gave her no insight into the tenant recerti-fication process and that, as Treasurer, her
The Plaintiff subsequently obtained complete records of the income of the Debtor and the Mother from the Pennsylvania Department of Labor and Industry and computed the difference in the household’s proper share of the rent compared to what it actually paid for the period from September, 1990, through December 31, 1995. The Plaintiff determined that the household received excessive house assistance payments (“HAPs”) in the total amount of Thirty-Seven Thousand Five Hundred Fifty-One Dollars ($37,551.00) over that period.
The Plaintiff instituted an action against the Debtor and the Mother in state court in May, 1996, to recover possession of the unit occupied by the household and to obtain а judgment for the excess HAPs. In January, 1998, the Johnson household vacated the unit.
Canteen testified that HUD was entitled to be reimbursed by the household for the excess HAPs paid on its behalf. However, Canteen stated that he did not believe that the Plaintiff was liable to pay the excess HAPs to HUD if the Plaintiff was not able to obtain them from the Debtor or the Mother, and there was no indication that any excess HAPs had been recovered by the Plaintiff. The Plaintiff, in its brief, argued that, pursuant to certain HUD transmittals, it was required to reimburse HUD for any HAPs ovеrpaid due to a tenant’s submission of incorrect and/or false information, if repayment from the tenant is received. However, it argues that other transmittals state that the owner is “ultimateiy” responsible to HUD for its overpayment of HAPs.
C. DISCUSSION
The statutory provisions which the Plaintiff invoked read as follows:
§ 523 . Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
[[Image here]]
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
■ (ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
[[Image here]]
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; ...
1. The § 528(a)(6) Claim, Is Deemed Abandoned.
The Plaintiff filed a comprehensive brief which addressed, at length, its claims asserted under
[W]hen a party does not mention nor make any argument during trial or in its post-trial submissions regarding claims asserted in a complaint filed by that party, that party will be deemed to have abandoned or waived those claims which it has not discussed. In re Kaplan,1995 WL 500599 , at *13 n. 8 (Bankr.E.D.Pa. Aug. 22, 1995); In re Cara Corp.,148 B.R. 760 , 770 (Bankr.E.D.Pa.1992); In re Henderson,134 B.R. 147 , 155 (Bankr.E.D.Pa.1991); In re Lloyd Securities, Inc.,1992 WL 165962 , at *6 (Bankr.E.D.Pa. July 10, 1992); and In re Slawek,1990 WL 41877 , at *7 (Bankr.E.D.Pa.April 6, 1990). See also Manton Cork Corp. v. Reiley-Moustakas Development, 1987 WL 5286 at *12 (E.D.Pa. Jan. 8, 1987) (claim not argued in opening statement, closing statement, nor lengthy post-trial brief is deemed abandoned).
In
re
Laramie Associates, Ltd.,
In any event, we find no evidence to support the conclusion that the Debtor intentionally acted to injure the Plaintiff, as it is now established is necessary to support a claim under
2. The Plaintiff Failed to Prove Most of the Five Elements of a § 528(a)(2)(A) Claim.
Citing
Field v. Mans,
The Plaintiff runs into difficulties with proving even the first element. There is simply no evidence that the Debt- or, as opposed to the Mother, ever misrepresented her own income, let alone the income of the entire Johnson household.
We note that, citing
Field,
the Plaintiff devotes almost the entire discussion of its
We agree with the Plaintiff insofar as it observes that the first three elements require us to assess the Debtor’s credibility. However, we found the Debtor to be a credible witness. She delivered all of her denials regarding her knowledge of what the Mother had reported to the Plaintiff in a straightforward manner. At no point was she caught in any inconsistent statements at trial or with any pre-trial discovery. While the Debtor did not display any mental deficiencies, neither did she impress us as a particularly perceptive or inquisitive individual and hence as one who could have been expected to have become aware of the Mother’s actions. In sum, we believe it plausible that the Debtor was an innocent and unknowing beneficiary of the Mother’s wrongful actions at all pertinent times. There is no reason to have expect
A paper trail of certifications allegedly made by the Debtor was not made out by the Plaintiff. Most of the documents bearing her signature were forms verifying her employment (which were all literally true, although they werе incomplete because she had other employment) and authorizing the Plaintiff to contact her named employers. The only exceptions to these characterizations of the documents signed by her which we could locate in the record were the following: (1) her undated verification of “Asset Information,” none of which was alleged to be false; and (2) her undated certification of a 50095 Form, certified as correct and dated by the Mother only, on June 23,1995.
As the Debtor points out, it is not clear when she dated this latter form; she credibly denied that she saw her annual income figure of $12,480 printed inconspicuously on the dated page when she signed it. Furthermore, the Debtor was not likely to have been attempting any deception through this- Form because she verified her annual income at $30,264 on March 22, 1995. It should be noted that none of the forms are particularly clear in describing their contents or significance.
The Plaintiff argued that the Debtor verified her weekly income at $160, as recited on undated Occupancy List apparently filled out in 1994. However, this form was not filled out by the Debtor and the undated signed sheet which the Plaintiff submitted as written verification of the contents of the Occupancy List was in fact a release of information form, not a certification or verification of the accuracy of the contents of the Occupancy List.
We therefore cannot find proof in this record that the Debtor made any misrepresentations to the Plaintiff. It therefore follows that the Plaintiff has not proven that any misrepresentations of the Debtor were proven to have been knowingly false or made with the intention and purpose of deceiving the Plaintiff.
See In re Ciambrello,
The Plaintiff is also unable to prove the fifth
For the foregoing reasons, we therefore must reject the Plaintiffs claims against the Defendant based upon
3.
The Plaintiff Failed to Prove that the Debtor Issued Any Written Statement of Her Financial Condition to It Such
As
Would Give Rise to a Claim Under
Code section
The threshold requirement of
That leaves only the Debtor’s alleged verification of the 1994 Occupancy List, the accurate Asset Information certification, and the alleged verification • of the June 23, 1995, 50095 Form as potential
In any event, it appears a stretch to characterize any of these forms as statements of the Debtor’s financial condition for purposes of
[t]he term “financial statement” is not defined in11 U.S.C. § 101 . In ordinary usage it would certainly include the typical balance sheet (assets and liabilities) and profit and loss statement in a business context. It may well apply to an indication of “net worth.”
See
also In re Sansoucy,
It is logical to require that a degree of completeness and formality accompany a document the inaccuracy of which can itself trigger nondischargeability. Except for perhaps the June 23, 1995, 50095 Form, which the Debtor did not sign and testified that she did not review, the documents at issue lack sufficient comprehensiveness to constitute financial statements. They do not purport to be balance sheets or include valuations of all of the Debtor’s assets and liabilities. They are more like checks,
see, e.g., In re Lahiri,
As to the June 23, 1995, 50095 Form and alleged accompanying certification, there exists, as the Debtor suggests, an issue regarding the reasоnability of the Plaintiffs reliance thereupon, assuming that proof of any reliance at all could be deduced in the absence of Canteen’s testimony addressing this point. The Debtor had dated, on the face of same, a March 22, 1995, 50095 Form accurately stating her income as $30,264. As the court holds in
In re Cohn,
[a] determination of reasonable reliance requires consideration of three factors: (1) the creditor’s standard practices in evaluating credit-worthiness (absent other factors, there is reasonable reliance where the creditor follows its normal business practice); (2) the standards or customs of the creditor’sindustry in evaluating credit-worthiness (what is considered a commercially reasonable investigation of the information supplied by’ debtor); and (3) the surrounding circumstances existing at the time of the debtor’s application for credit (whether there existed a “red flag” that would have alerted an ordinarily prudent lender to the possibility that the information is inaccurate, whether there existed previous businеss dealings that gave rise to a relationship of trust, or whether even minimal investigation would have revealed the inaccuracy of the debtor’s representations). See Coston v. Bank of Malvern (In re Coston), 991 F.2d 257 , 261 (5th Cir.1993) (en banc); [In re] Mitchell, 70 B.R. [524,] at 527-28 [(Bankr.N.D.Ill.1987)]; [In re] Martz, 88 B.R. [663,] at 673-74 [(Bankr.E.D.Pa.1988)].
The Plaintiff presented no evidence regarding its standards or those in the industry where a party situated similarly to Canteen had received a 50095 Form inconsistent with one filed three months before. However, when the later statement recited a dramatic reduction in income as compared to the previous statement and the certificatiоn in the later document is made by a member of a household the accuracy of whose income reports is under investigation, it would certainly appear that a “red flag” would have gone up in the mind of Canteen which would have precluded his reliance on the later statement.
Assuming that any of the documents at issue were established to be
Finally, we note a split in the caselaw as to whether a
Despite the weight of appellate authority on the “no damage needed” side, we believe that the cases requiring proof of damages are correct. As
Field
teaches,
As we indicated at page 290
supra,
we find the Plaintiffs proof of its having suffered any actual damages as a
4. The Plaintiff Failed to Prove that the Debtor Incurred Any Obligation to It Through the Abuse of a Fiduciary Relationship.
Finally, the Plaintiff contends that the Debtor should be denied a discharge of any indebtednesses which she has to the Plaintiff because she committed fraud or defalcation while acting in a fiduciary capacity as a member of the Plaintiffs Board of Directors and Treasurer of that Board.
In order to prove in a claim under the “fiduciary capacity” prong of
A further issue, to which the parties devote most of their attention, is whether a corporate director or officer, while undoubtedly a “fiduciary” of that corporation in a broad sense,
see, e.g.,
[i]t is well-established in the caselaw interpreting the§ 523(a)(4) defalcation prong, as stated by this court in In re Kaplan,162 B.R. 684 , 704 (Bankr.E.D.Pa.1993), aff' d, sub nom. Kaplan v. First Options of Chicago, Inc.,189 B.R. 882 (E.D.Pa.), reconsideration denied sub nom. First Options of Chicago, Inc. v. Kaplan,198 B.R. 91 (E.D.Pa.1996), that the term “fiduciary capacity” is very narrowly defined. Thus, we stated, at id., that,
“To give rise to§ 523(a)(4) liability, it is not sufficient for the plaintiff to prove only that there was a fiduciary relationship between the parties, but also to prove that there is an express trust held by the fiduciary (debtor) on behalf of the beneficiary (creditor), which did not arise out of the action that created the fiduciary relationship. See In re Spector,133 B.R. 733 , 739-40 (Bankr.E.D.Pa.1991) (holding that the ‘fraud or defalcation’ prong of§ 523(a)(4) requires the showing of an express trust); In re Shervin,112 B.R. 724 , 730-31 (Bankr.E.D.Pa.1990); and In re Snyder,101 B.R. 822 , 835 (Bankr.D.Mass.1989), aff'd in part & rev’d in part on other grounds sub nom. Snyder v. Bornstein,923 F.2d 840 (1st Cir.1990).”
In order to establish the requisite “express trust,” we stated in Kaplan that the§ 523(a)(4) plaintiff is required to prove the presence of
“[t]he prerequisites for the creation of an express trust relationship under Pennsylvania law [which] are, as we thusly held in In re Kulzer Roofing, Inc.,139 B.R. 132 , 139-40 (Bankr.E.D.Pa.), aff'd,150 B.R. 134 (E.D.Pa.1992), quite d demanding:
‘The elements of an express trust, as developed by Pennsylvania caselaw, are (1) an express intent to create a trust; (2) an ascertainable res; (3) a sufficiently certain beneficiary; and (4) a trustee who “owns” and administers the res for the benefit of another (the beneficiary). See In re Penn Central Transportation Co., 486 F.2d 519 , 524 (3d Cir.1973), cert. denied sub nom. Baker v. Indiana H.B. R.R.,415 U.S. 990 ,94 S.Ct. 1588 ,39 L.Ed.2d 886 (1974) (“Penn Central I”); Shenwin [v. Oil City Nat’l Bank,] 229 F.2d [835], 838, 839 [(3rd Cir.1956)]; In re I.D. Craig Service Corp.,125 B.R. 453 , 456 (Bankr.W.D.Pa.1991); In re CS Associates,121 B.R. 942 , 959 (Bankr.E.D.Pa.1990); In re Sherwin,112 B.R. 724 , 734 (Bankr.E.D.Pa.1990); and Presbytery of Beaver-Butler United Presbyterian Church v. Middlesex Presbyterian Church,507 Pa. 255 , 268-69,489 A.2d 1317 , 1324, cert. denied,474 U.S. 887 ,106 S.Ct. 198 ,88 L.Ed.2d 167 (1985) .... the absence of any of the express trust elements to be present is fatal to the contention that a trust exists, ... ’
See also, e.g., Thompson’s Will,416 Pa. 249 , 254-55,206 A.2d 21 , 25 (1965).”
Id. at 705. See also, e.g., In re Librandi183 B.R. 379 , 382-86 (M.D.Pa.1995); and In re Napoli,82 B.R. 378 , 381-82 (Bankr.E.D.Pa.1988).
The vast majority of cases, most of which do not appear to apply the stringent test set forth in
Desiderio,
hold that corporate directors and officers are
Despite this weight of authority in favor of our finding a
However, assuming
arguendo
that we found the Debtor to be in any sense a
Congress designed the [§ 523(a)(4) fiduciary duty] discharge exception to reach “debts incurred through abuses of fiduciary positions and through active misconduct whereby a debtor has deprived others of their property by criminal acts; both classes of conduct involve debts arising from the debtor’s acquisition or use of property that is not the debtor’s.”
According to the Debtor’s credible and unrebutted testimony, her fiduciary duties for the Plaintiff were confined to providing checks to the corporate President to sign. There is no indication that the Board, or the Debtor as a boаrd member, ever became involved in the HAP income-certification process. Therefore, the Debtor’s actions in her capacity as a income-earning member of the household of a tenant of the Plaintiff did not arise in the course of or in relation to her fiduciary responsibilities. There is no evidence that the Debtor abused her director or officer positions in the reporting of her household’s income. Therefore, the instant facts do not support a claim under the
Finally, we note thаt , the common law fraud requirement of damages proximately caused by the Debtor’s actions would apparently carry over to the Plaintiffs
D. CONCLUSION
Since none of the Plaintiffs claim can be sustained, we will proceed to enter or order declaring the Debtor’s obligations to the Plaintiff dischargeable.