Opinion
Case No. 13-12216 Adversary Case No. 13-1085
09-26-2014
In Re LYNN E. BOURQUEIN SHERRY G. BOURQUEIN Debtors THOMAS GAHAN CHUCK EBERLE Plaintiffs v. LYNN E. BOURQUEIN SHERRY G. BOURQUEIN Defendants
Chapter 7
DECISION
I. Introduction
In this chapter 7 bankruptcy case, on May 7, 2013, the Plaintiffs, Thomas Gahan ("Gahan") and Chuck Eberle ("Eberle"), commenced an adversary proceeding against the Debtors to determine the dischargeability of a certain debt under 11 U.S.C. § 523(a)(2) and (a)(6). The case came on for trial, and at the close of trial the Court took the matter under advisement.
II. Jurisdiction
This court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. § 157.
III. Background.
In this adversary proceeding Plaintiffs are seeking to have held nondischargeable a $25,000.00 debt which arose on a promissory note that Defendants gave Plaintiffs in that amount. Debtor Lynn Bourquein (hereafter referred to as "Lynn") owned and operated a business entitled American Stairway & Woodworking Co. ("American Stairway"). Custom Railing, Inc. ("Custom Railing"), was a competitor of American Stairway. Lynn reached an oral agreement to acquire Custom Railing and to merge it with American Stairway. Lynn sought investors in the business. On April 9, 2012, Lynn, Plaintiffs, and Plaintiffs' banker at Northside Bank, met at Montgomery Inn to discuss acquisitions by Plaintiffs of an interest in Lynn's business. In June 2012, Lynn approached Plaintiffs for a loan in order to pay a contractor. Plaintiffs agreed to do this, and lent Defendant $25,000 to make payment to that contractor in exchange for which they received a promissary note.
IV. Pertinent Law.
For actions brought under § 523, the Plaintiff bears the burden of proving by a preponderance of the evidence that the debt owed to it is nondischargeable. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 12 L.Ed.2d 755 (1991). Further, exceptions to discharge are to be strictly construed against the creditor. See Manufacturer's Hanover Trust v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir.1988).
The law is well settled in the Sixth Circuit that the required elements to establish non-dischargeability under § 523(a)(2)(A) are that: (1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation and (4) the creditor's reliance was the proximate cause of loss. See Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-21 (6th Cir. 1998); Owen v. Angst (In re Angst), 428 B.R. 776, 786 (Bankr. N.D. Ohio 2010).
In order for a debt to be deemed nondischargeable under § 523(a)(2)(B) the debtor must have sought "money, property, services, or an extension, renewal, or refinancing of credit" through use of a writing (1) that is materially false; (2) regarding the debtor's financial condition; (3) which the plaintiff reasonably relied upon; and (4) that the debtor either caused to be made or published with an intent to deceive. In re Oster, 474 F. App'x 422, 425 (6th Cir. 2012).
Section 523(a)(6) of the Bankruptcy Code provides that "[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 . . . for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). In Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998), the U.S. Supreme Court interpreted § 523(a)(6) of the Bankruptcy Code and held that for an injury to be nondischargeable under § 523(a)(6), the actor must intend the consequences of an act, not simply the act itself. That holding has been applied in the Sixth Circuit "and so the bankruptcy courts in this circuit, in order to find a 'willful' injury under § 523(a)(6), must determine either that (i) the actor desired to cause the consequences of the act or (ii) the actor believed that the given consequences of his act were substantially certain to result from the act." In re Trantham, 304 B.R. 298, 307 (B.A.P. 6th Cir. 2004) (citing in In re Markowitz, 190 F.3d 455, 464 (6th Cir. 1999)).
V. Discussion.
On June 7, 2012, Defendants signed a Promissary Note, whereby Plaintiffs loaned the Defendants $25,000.00. Each Plaintiff wrote a check for $12,500.00 payable to Defendants personally. Defendants transferred the $25,000.00 they had received, to American Stairway. The entire sum $25,000.00, was immediately paid by American Stairway to Brennan Electric, a contractor on Lynn's new premises, which was pursuing him in regard to work it had done at those premises. Lynn asked Plaintiffs for the $25,000.00 loan in order to make payment to that contractor. It was for this reason that the request was made for the loan. Plaintiffs knew that the purpose of the loan was to pay Brennan Electric. There was clearly no intent to deceive in regard to why the loan was sought and the intention of using the proceeds. In making the loan, Plaintiffs were aware of the purpose of the loan.
There having been no misrepresentation or intent to deceive with regard to the seeking of the $25,000.00 loan, Plaintiffs have failed to meet the requirements of § 523(a)(2)(A) or (B). Claims under those sections will therefore be dismissed.
Plaintiffs arguments for a contrary outcome are unsound. In this case, Plaintiffs assert that representations made by Lynn at a spring meeting were false representations regarding the financial condition of both American Stairway and the Defendants' personal finances. It was at a meeting on April 9, 2012, that Plaintiffs say that the false representations were made. At that time, Lynn was seeking investors in his company and the purpose of the April 9, 2012, meeting was to seek the investment by Plaintiffs in his company.
To be relevant, the statements which are claimed to be the basis for, a claim must be contemporaneous with the initiation of the transaction for which they were made, and that is not the case here. See In re Glen, 639 F.3d 530, 533 (8th Cir. 2011); In re Daniell, EC- 2013 WL 5933657, at *6 (B.A.P. 9th Cir. Nov. 6, 2013); In re Budnick, 469 B.R. 158, 174 (Bankr. D. Conn. 2012); Corso v. Walker, 449 B.R. 838, 848 (W.D. Pa. 2011). Here the statements which are claimed to be the basis for Plaintiffs' claim occurred in April 2012. The transaction, the loan here in question, occurred in June 2012..
As to the claim under § 523(a)(6), the Plaintiffs have not shown by a preponderance of the evidence that Defendants committed an "intentional injury, not merely a deliberate or intentional act that leads to injury." See Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). In fact the Plaintiffs offered absolutely no evidence as to any willful injury or malicious conduct by Defendants. Accordingly, for the reasons stated above, the Plaintiffs' request for relief under § 523(a)(6) will be denied.
VI. Conclusion.
In this case, Plaintiffs have failed to show by a preponderance of the evidence that Defendants made false representations with an intent to deceive, or that Defendants committed an intentional injury. Since Plaintiffs have failed to meet their burden of proof, the Complaint will be dismissed. Copies to: John H Forg
jhforg@cinci.rr.com
Elliott Polaniecki
e28p@aol.com
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: September 26, 2014
/s/_________
Burton Perlman
United States Bankruptcy Judge