Opinion
CASE NO. 99-04679-AJM-7, ADV. PRO. NO. 99-290
April 16, 1999
This matter came before the Court for hearing on April 18, 2000 upon the Motion for Summary Judgment filed by the Plaintiff, ORGANIZATIONAL DEVELOPMENT, INC. and FLORIDA POLICE BENEVOLENT ASSOCIATION. At that time, the Court heard oral argument from the attorneys for debtors JEFFREY WILHEMS and MARSEE WILHEMS (collectively, the "Defendants"), and counsel for ORGANIZATIONAL DEVELOPMENT, INC. ("ODI") and FLORIDA POLICE BENEVOLENT ASSOCIATION ("PBA") (collectively, the "Plaintiffs"). The Court took the matter under advisement and instructed counsel for the parties to submit their respective proposed findings of fact and conclusions of law within 15 days. The last materials submitted for consideration by the Court were submitted on June 19, 2000. After hearing oral argument, reviewing Plaintiffs' Motion for Summary Judgment, including all supporting documents filed therewith, Defendants' Objection to Motion for Summary Judgment and Request for Partial Summary Judgment (for Marsee Wilhems) and all supporting documents filed therewith, the Supplemental Memorandum filed by Plaintiffs in support of the Motion for Summary Judgment, and being otherwise advised in the premises, the Court makes the following findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
FINDINGS OF FACT
1. On January 31, 1997, Debtor Jeffrey Wilhems pled guilty and entered into a Plea Agreement with the United States of America pursuant to the Information of receiving, possessing, concealing and disposing of certain goods that were valued at $5,000.00 or more relating to a computer tape containing the donor database of the Plaintiffs (the "Donor Base").
2. In the Plea Agreement, United States and Defendant Jeffrey Wilhems stipulated that the "fraud loss amount attributable to the defendant pursuant to U.S.S.G. § 1B1.3 (relevant conduct) is between $70,000.00 to $120,000.00." (Plea Agreement, page 2) (Emphasis supplied).
3. The United States District Court for the Southern District of Florida entered an Amended Final Judgment against Defendant Jeffrey Wilhems charging him for his receipt of stolen property of $500.00 or more and having crossed state lines. The Amended Judgment contained a Restitution Order requiring that Defendant Jeffrey Wilhems make restitution to ODI in the amount of $75,400.00 (the "Criminal Restitution Award") a fine in the amount of $5,000.00; a penalty in the amount $50.00; for a total amount due and owing ODI of $80,450.00 (See Amended Complaint Exhibit "C").
4. The Plaintiffs filed a civil action for Injunctive Relief and Monetary Damages against Jeffrey Wilhems, Marsee Wilhems and another individual and entities not now before this Court, in the Circuit Court of the Fifteenth Judicial Circuit In And For Palm Beach County, Florida (hereinafter, the "Florida State Court Action"). The Amended Verified Complaint filed August 21, 1996 alleged fourteen (14) Counts against Defendants, including, but not limited to, violations of the Uniform Trade Secrets Act, Tortious Interference, Violation of Florida's Computer Crimes Act, Breach of Fiduciary Duty and Conversion against Defendants.
5. Thereafter, on October 30, 1996, the parties to the Florida State Court Action entered into a Settlement Agreement (attached to the Amended Complaint as Exhibit "A"), wherein both Defendants agreed to pay to the Plaintiffs the total sum of $75,000, (the "Settlement Amount") with the lump sum of $15,000 due upon execution of the Settlement Agreement and the $60,000 balance due in 25 monthly installments of $2400 each. A payment schedule consistent with this arrangement was attached to the Settlement Agreement. The Settlement Agreement was geared to encourage the Defendants to stay on track with their payment duties, because, it further provided that, in the event the Defendants defaulted on their payments due under the Settlement Agreement, the Plaintiffs, upon the filing of a Motion to Enforce Settlement Agreement" and an attorney's affidavit of default, would be entitled to the immediate entry of a final judgment in the amount of $125,000 (the "Default Amount").
6. Other pertinent provisions in the Settlement Agreement provided:
A. "All matters in controversy are intended to be, and shall be, settled and compromised in full by the execution of the Agreement" and all matters would be resolved unless expressly preserved in such Settlement Agreement;
B. The parties negotiated a term in the Settlement Agreement titled Representations Regarding Settlement and Default Amount". The parties specifically found that the $125,000.00 Default Amount and the $75,000.00 Settlement Amount did not represent the actual amounts of Plaintiffs' damages in this case or the value of the Donor Base, the trade secrets or other property of Plaintiffs, but merely represented a civil settlement amount vis-a-vis, among other things, the contingencies and costs in pursuing a litigation and collecting on any potential award of damages. (Settlement Agreement Paragraph 5).
C. In the event any of the Defendants filed bankruptcy, the parties agreed to the following provisions:
In the event that one or more of the Defendants files bankruptcy, then, as to any amounts then due and owing Plaintiffs under this agreement from such Defendant(s) shall not be discharged. Rather the debt due from such Defendant shall be recognized as nondischargeable under § 523 of the Federal Bankruptcy Code. (Title 11 U.S.C. § 523). Moreover, each of the Defendants agrees that the debt incurred and due Plaintiffs under this agreement stem from the allegations of fraudulent conduct contained in the pending lawsuit. As such, in the event any Defendant files for protection under the federal bankruptcy laws, the Defendants waive any and all arguments that the debt represented by the Settlement or Default Amount (and any balance due thereunder) is extinguished. In addition, the Plaintiffs, at their option, shall have the express right to seek redress against such Defendant(s) for the actual and Pending Lawsuit by way of an adversarial proceeding or other appropriate vehicle in any Court of competent jurisdiction. In such case, Defendants waive any and all requirements that the Plaintiffs be required to seek a relief from automatic stay and waive any other bankruptcy rule or requirement that would otherwise apply at a pre-condition initiating an adversarial proceeding against Defendants. (Settlement Agreement Paragraph 6) (Emphasis supplied).
D. The Defendants further agreed that their obligations under the Settlement Agreement would not be "suspended, excused or otherwise discharged in the event that they are incarcerated, file for bankruptcy or otherwise rendered unavailable for any period of time." (Settlement Agreement Paragraph 7).
E. The parties provided in the Settlement Agreement that by entering into the Agreement that it would not be an admission of liability of any kind on the part of any of the parties (Settlement Agreement Paragraph 16).
F. The parties, however, acknowledge and represent to each other that they were not under any economic or other duress and had entered into the Settlement Agreement voluntarily, and consented that they had made any waivers of any rights, claims and demands under such agreement voluntarily and with full knowledge of the ramifications of such waiver (Settlement Agreement Paragraph 19).
G. Both parties were represented by independent counsel and the parties provided that neither party shall be deemed to have been the sole drafter of this Agreement for purpose of any Court's future contract construction (Settlement Agreement Paragraph 19).
7. The Florida State Court judge entered an Order Ratifying the Civil Settlement Agreement and Dismissing the Civil Complaint on September 4, 1997. On account of the Defendants' failure to make payment as required under the Settlement Agreement, Plaintiffs filed a Motion to Enforce Settlement Agreement and for Entry of Final Judgment, and a final judgment in the amount of $85,100.00 was entered by the State Court judge on September 24, 1997.
8. The Defendants filed for Chapter 7 Bankruptcy protection with this Court on April 16, 1999, scheduling both the Criminal Restitution Award and the Settlement Amount as unsecured debts.
9. The Plaintiffs commenced this adversary proceeding on July 16, 1999 by filing their Complaint to Determine Dischargeability. On or about December 15, 1999, the Plaintiffs filed their Amended Complaint to Determine Dischargeability of Debt, alleging that the Criminal Restitution Award is nondischargeable under Section 523(a)(13) and that the Settlement Amount is nondischargeable under Sections 523(a)(2) and (4).
10. Plaintiffs filed their Motion for Summary Judgment on February 18, 2000. In support of the Motion for Summary Judgment, Plaintiffs filed the Affidavit of Robert Preston, the President of ODI; the Affidavit of Attorney Andrew B. Peretz, counsel for Plaintiffs. The basis for Summary Judgment, in part, was that Defendants, by their own admission, carefully characterized their conduct which gave rise to such proceedings as involving and arising from "fraudulent conduct" (Settlement Agreement, Page 5) and that therefore, according to Plaintiffs, the debt was nondischargeable under Section 523(a)(2) and (4) based upon the principle of collateral estoppel.
11. The Plaintiffs also seek summary judgment that the Criminal Restitution Award is nondischargeable under Section 523(a)(13).
12. Defendants contend they admitted no liability in the Settlement Agreement even though the documents say so and that their conduct cannot be characterized as being fraudulent. The Defendants further contend that summary judgment should be entered in favor of Defendant Marsee Wilhems with respect to the Criminal Restitution Award under Section 523(a)(13) since she was not part of the criminal matter in Florida.
13. On February 18, 2000, in conjunction with the filing of their Summary Judgment Motion, the Plaintiffs also filed their Motion to Enforce Settlement Agreement to Establish Final Judgment (the "Enforcement Motion") and an affidavit of default. The Enforcement Motion asks this Court to enter "final judgment" against the Defendants for the Default Amount. The Defendants have objected to the Enforcement Motion.
CONCLUSIONS OF LAW
1. Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also, Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The Court construes the evidence and draws all reasonable inferences based on the evidence in the light most favorable to the nonmoving party. Once a properly supported summary judgment motion is made, the nonmovant must "go beyond the pleadings" and designate specific facts to support or defend each element of the claim, demonstrating a genuine issue for trial. American Modern Home Ins. Co. v. Tranex Credit Corp., 2000 WL 724005 (S.D.Ind.). Rule 56 of the Federal Rules of Civil Procedure applies in bankruptcy adversary proceedings, see, Fed.R.Bankr.P. 7056, and therefore the standards that govern summary judgment motions under Fed.R.Civ.P. 56(c) are equally applicable here.
2. The Plaintiff's Complaint, Amended Complaint and Motion for Summary Judgment all allege that the debts owed under the Restitution Order and the Settlement Agreement are nondischargeable under Sections 523(a)(2),(4), and (13).
The proposed findings of fact and conclusions of law, however, contained substantial argument that the Criminal Restitution Award is nondischargeable under Section 523(a)(7). Since Section 523(a)(7) was not alleged as a basis for nondischargeability in the Complaint, the Amended Complaint or the Motion for Summary Judgment, the Court will focus only on Section 523(a)(13) with respect to the nondischargeability of the Criminal Restitution Award.
Debt Not Dischargeable Under § 523(a)(13) (Order for Restitution under Title 18)
3. The notion that restitution orders arising from criminal proceedings are nondischargeable in bankruptcy is not novel. In the case of Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), the United States Supreme Court determined that restitution imposed by a state court as part of a criminal sentence was nondischargeable under Section 523(a)(7). That section excepts from discharge a debt to the extent it is "for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss. . .". (italics added). Although Section 523(a)(7) does not specifically mention the word "restitution", and even though "restitution" on its face is not a "fine, penalty or forfeiture", the Supreme Court in Kelly distinguished between obligations stemming from pecuniary loss and obligations serving penal or broader societal interests. The Supreme Court determined that the restitution order there was imposed "for the benefit of the State" and was not assessed for compensation of the victim, but rather, was part of the State's larger interests in rehabilitation and punishment. Kelly, 479 U.S. at 53. See also, United States v. Zamora, 238 B.R. 842, 844 (D.Ariz. 1999).
Kelly did not specifically hold that state court restitution was a "debt", but the act of even subjecting it to Section 523 (i.e. the "nondischargeability of debt" provisions) implied that it was a debt. Four years later, the Supreme Court in Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990) in fact held that a state restitution obligation was a "debt", but because such a debt was not specifically excepted from discharge in chapter 13's via Section 1328, it was dischargeable in a chapter 13. Davenport, in dictum, implies that Section 523(a)(7) applies even to civil restitution orders. To remedy the perceived dissatisfaction with the Davenport decision, Congress again amended the Bankruptcy Code in 1990 by adding Section 1328(a)(3) which specifically excepted from the "superdischarge" provisions of chapter 13 "restitution, for a criminal fine, included in a sentence on the debtor's conviction of a crime". (Italics added).
Because Section 523(a)(7) contains the qualifying language "and is not compensation for actual pecuniary loss. . .", it follows that many of the Section 523(a)(7) restitution cases turn on whether the restitution award was intended to compensate the victim (in which case, it would be compensatory, and therefore dischargeable under Section 523(a)(7)) or whether it was imposed to further a rehabilitative or punitive purpose (in which case, it would be penal, and, to the extent owed to a governmental unit, nondischargeable under Section 523(a)(7)).
4. Section 523(a)(13) was added by the Bankruptcy Reform Act of 1994 and provides that a discharge in a chapter 7, 11 or 12 case does not discharge a debt "for any payment of an order of restitution issued under title 18, United States Code". Although this amendment became effective on September 13, 1994, amazingly, there is very little case law that has developed with respect to this section. The case law that does exist either deals with whether this section should be applied retroactively, or how Section 523(a)(13)'s enactment affects, it at all, the operation of Section 523(a)(7).
See, In re Rashid, 210 F.3d 210, 204 (3rd Cir. 2000); In re Gelb, 187 B.R. 87, 90, n. 6 (Bankr.E.D.N Y 1995); and In re Kochekian, 175 B.R. 883, 885 n. 1 (Bankr.M.D.N.C. 1995) (all holding that 523(a)(13) should not be applied retroactively).
See, Matter of Towers, 162 F.2d 952 (7th Cir. 1998).
5. Given the dearth of case law, the starting point should be the language of the statute itself. Perhaps there is little case law due to Section 523(a)(13)'s clear, concise and straightforward language which specifically excepts from discharge "restitution" that arises "under Title 18" (federal criminal statutes). And, with no qualifying language to burden it like Section 523(a)(7), it appears that the "compensatory purpose/penal purpose" analysis doesn't even come into play as it does in Section 523(a)(7) cases. One Circuit Court of Appeals, at least in dictum, has agreed that the language of Section 523(a)(13) is so clear, that little leeway in interpretation is necessary. ("Section 523(a)(13) makes double sure that restitution awarded as part of a federal criminal judgment cannot be discharged in bankruptcy. . . .Congress had good reason to put restitution in federal criminal cases beyond the scope of debate by adding § 523(a)(13)") (italics added) Matter of Towers, 162 F.3d 952, 954 (7th Cir. 1998).
6. Furthermore, a literal reading of Section 523(a)(13) is consistent with the overall policy that criminal restitution awards are nondischargeable, whether it be a state or federal court restitution order, and regardless of whether it is in a chapter 7, 11, 12 or 13 case. This Court believes that, if Congress felt strongly enough to specifically amend Section 1328 — the most liberal discharge provisions of the Bankruptcy Code — to except from discharge criminal restitution debts, then surely Section 523(a)(13) (added after the amendment to Section 1328) merely reiterates and further hones that policy when it comes to federal restitution orders in chapter 7, 11 and 12 cases.
The United States Supreme Court's ruling in Kelly applies equally to federal restitution orders. United States v. Caddell, 830 F.2d 36, 39 (F. Cir. 1997); In Re Wright, 87 B.R. 1011; 1015 n. 3 (Bankr.S.D. 1988) (restitution order by Federal District Court not discharged in Chapter 7 proceeding); United States v. Vetter, 895 F.2d 456 (8th Cir. 1990) ("we agree that the Supreme Court's rationale on Kelly applies equally to restitution orders entered as part of a criminal sentence by federal and state courts").
7. There is no dispute that the Criminal Restitution Order before the Court is in fact "an order of restitution" and was issued "under title 18". Giving Section 523(a)(13) the plain meaning to which it is entitled, the Court concludes that the Criminal Restitution Award is nondischargeable under Section 523(a)(13). Defendant Jeffrey Wilhems has made certain payments towards the balance due and owing, but there remains a balance due of $32,800.00, plus statutory costs and interest pursuant to U.S.C. § 18 § 3612(f). The balance of the Criminal Restitution Award, plus any accrued interest, as a matter of law, is not dischargeable in the total sum of $32,800.00 plus statutory interest (pursuant to 18 U.S.C. § 3612 (f)).
A copy of the Statute and the 52-week T-Bill Rate of Table Changes showing the interest rate to be used is 5.271% is attached.
8. However, Defendants' Motion for Summary Judgment should be granted with respect to Marsee Wilhems, as to § 523(a)(13) only, as she is not the subject of the Criminal Restitution Award. Dischargeability of Settlement Amount under Sections 523(a)(2) and (4)
9. The two prongs of Section 523(A)(2) which are applicable here except from discharge a debt for money, property, services, or an extension, renewal or refinancing of credit, (a) to the extent it was obtained by false pretenses, a false representation, or actual fraud (523(a)(2)(A)); or (b) by use of a statement in writing with respect to the debtor's financial condition that is materially false and upon which the creditor reasonably relied (523(a)(2)(B)).
10. To obtain a determination of nondischargeability under Section 523(a)(2)(A), a creditor must prove that (1) the debt arose through conduct of the debtor amounting to fraud, false pretenses, or representations known by the debtor to be false (or made with such reckless disregard for the truth as to make the representations constitute willful misrepresentation); (2) the debtor had actual intent to deceive the plaintiff; and (3) the plaintiff justifiably relied on the pretense or the misrepresentations to its detriment. Mayer v. Spanel Intern. Ltd., 51 F.3d 670, 674 (7th Cir. 1995); reh'g denied, cert. denied, 516 U.S. 1008,116 S.Ct. 563, 133 L.Ed.2d 488 (1995); Kadlecek v. Ferguson (In re Ferguson), 222 B.R. 576, 584 (Bankr.N.D.Ill. 1998).
11. To prove nondischargeability under Section 523(a)(2)(B), the creditor must prove that the debtor made, with intent to deceive, a materially false written statement regarding his or her financial statement and that the creditor relied on that statement. Matter of Sheridan, 57 F.3d 627, 633 (7th Cir. 1995).
12. In Section 523(a)(2) dischargeability actions, the Plaintiff bears the burden of proving nondischargeability by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 112 L.Ed.2d 755, 111 S.Ct. 654 (1991).
13. The Settlement Agreement, entered into by both Defendants with the advice of counsel, contains the recitation that the "Defendants agree that the debt incurred and due the Plaintiffs under this Agreement stemmed from the allegations of fraudulent conduct. . . .". From the Court's reading of the Plaintiffs' Summary Judgment Motion, the Plaintiffs pin their hopes on this language to prove that the recitation is an admission by the Defendants that they engaged in fraudulent conduct. But, it is not immediately apparent to the Court that such passage is such an admission by the Defendants. The literal reading of that passage is that the Settlement Amount stems from allegations of fraudulent conduct; it does not say that such "allegations" are admitted to be true or even that the Defendants admit it was their fraudulent conduct (as opposed to someone else's) that caused the debt to be incurred in the first place.
14. Even if there were no genuine issue of material fact that this particular section of the Settlement Agreement were to be construed as an admission, other paragraphs within the Settlement Agreement create an inherent ambiguity which precludes the entry of summary judgment. Paragraph 5(A) of the Settlement Agreement provides that the Defendants "neither admit nor deny any liability in entering into this Agreement". Even more telling is Paragraph 16 entitled "No Admission", since it states that the Settlement Agreement was executed "to compromise disputed claims and charges by the parties, and such execution shall not be construed or represented to be an admission of liability of any kind on the part of any of the parties". (Italics added). The literal reading of Paragraph 6 of the Settlement Agreement and the ambiguity created within the agreement by Paragraphs 5(A) and 16 create a genuine issue of material fact as to whether the Defendants did or did not engage in fraudulent conduct.
15. With the Court having concluded that there is a genuine issue of fact as to whether the Defendants did or did not engage in fraudulent conduct, the Plaintiffs must present evidence establishing the Defendants' fraudulent intent with respect to their Section 523(A)(2) claims if they are to succeed at trial. The Plaintiffs need to establish the basic elements under Section 523(a)(2), namely, what representations, if any, were made by the Defendants which they knew to be false at the time they were made. There is evidence that directly contradicts Plaintiffs' Section 523(a)(2) claim. The affidavit of Defendant Jeffrey WIlhems states that an employee, Christopher Conner, brought the donor list to Jeffrey's corporation and installed it on the corporation's call list, unbeknownst to Jeffrey, and that Jeffrey had no knowledge as to how the donor list was obtained by Conner. (Jeffrey Wilhems Affidavit, ¶ 4-7). Defendant Marsee Wilhem's affidavit states that she never received the donor list. (Marsee Wilhems Affidavit, ¶ 7). These affidavits present genuine issues of material fact with respect to the basic elements needed to be proven under Section 523(a)(2) and therefore, the Plaintiffs' Summary Judgment Motion with respect to this section will be denied.
16. In further support of their contention that summary judgment is proper with respect to the nondischargeability of the Settlement Amount under Section 53(A)(2), the Plaintiffs point the following language contained in the Settlement Agreement:
"[r]ather, the debt due from such Defendant (sic) shall be recognized as nondischargeable under § 523 of the Federal Bankruptcy Code. . . .[i]n the event any Defendant files for protection under the Federal Bankruptcy Laws, the Defendants waive any and all arguments to debt represented by the Settlement or Default Amount (and any balance due thereunder) is extinguished.
The Plaintiffs again argue that the Defendants, unarguably and with the assistance of counsel, waived their right to dispute the nondischargeability of the Settlement Amount.
17. The Court concludes that there are genuine issues of material fact with respect to this aspect of the Plaintiffs' Section 523(a)(2) claim. First of all, there is a question as to whether the alleged "waiver" regarding nondischargeability was knowingly given by the Defendants. There was no evidence presented concerning this issue since nothing was presented with respect to the parties' intent in negotiating this portion of the Settlement Agreement.
18. Even if the waiver were knowingly given, the Court seriously questions the enforceability of such a provision. Both Defendants submitted affidavits stating, in part, that they were under duress to sign the Settlement Agreement in that Jeffrey "was being threatened with additional jail time" if they did not execute the agreement. (Jeffrey Wilhems Affidavit, ¶ 13; Marsee Wilhems Affidavit, ¶ 5). A waiver of rights is enforceable only if it is given knowingly and willingly. Hence, summary judgment with respect to the Plaintiffs' Section 523(a)(2) claims will be denied.
Section 524(a) provides that a discharge under Title 11 voids any judgment, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt, whether or not discharge of such debt is waived. The legislative history contained in the House and Senate reports with respect to this section provides "[t]he language `whether or not discharge of such debt is waived' is intended to prevent waiver of a discharge of a particular debt from defeating the purposes of this section. It is directed at waiver of discharge of a particular debt, not waiver of discharge in toto as permitted under Section 727(a)(9)."
19. Section 524(a)(4) renders nondischargeable debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny. Thus, there are alternate routes of recovery under this section: a debt is nondischargeable under this section if the plaintiff can prove: (a) that a fiduciary relationship existed between the debtor and the plaintiff and that the debt arose out of fraud or defalcation while acting in that fiduciary capacity or (b) the debt was for embezzlement or larceny. Whether a fiduciary relationship existed is a question of federal law. "Fiduciary capacity" for purposes of this section refers only to express trusts or requires "a relation of inequality that justifies imposition on the fiduciary of a special duty before any wrong is committed". In re Marchiando, 13 F.3d 1111, 1116 (7th Cir. 1994). Constructive trusts and resulting and implied trusts are not enough to prove a fiduciary relationship. Marchiando, 13 F.3d at 1115. "Embezzlement" is fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come; proof of a fiduciary relationship is not necessary. In re Tomlinson, 220 B.R. 134, 136 (Bankr. M. D. Fla. 1998). "Larceny" is where the debtor has willfully and with fraudulent intent taken property from its owner. In re Rose, 934 F.2d 901, 903 (7th Cir. 1991). Regardless of whether a plaintiff proceeds on the "fiduciary capacity", "embezzlement" or "larceny" prong of § 523(a)(4), the plaintiff nonetheless must prove actual fraud, and therefore, intentional wrongdoing. In re Marino, 139 B.R. 380, 385 (Bankr.D.Md. 1992).
20. As in Section 523(a)(2) cases, actual fraud (which involves, at the very least, the making of a knowing misrepresentation, upon which the creditor relied) and intentional wrongdoing are touchstones of a Section 523(a)(4) claim. Conflicting evidence exists with respect to actual wrongdoing or fraudulent intent on behalf of the Defendants by virtue of their affidavits filed with this Court. Genuine issues of material fact exists with respect to the essentials of Sections 523(a)(2) and 523(a)(4), and summary judgment therefore will be denied.
21. The Plaintiffs' Enforcement Motion will be denied at this time. Since the Plaintiffs' Section 523(a)(2) and (4) claims will be tried, the Plaintiffs, as part of their case in chief, will be required to prove the amount of debt they believe to be nondischargeable, and at that juncture, can argue that the Default Amount, instead of the Settlement Amount, is the appropriate measure.
22. The appropriate summary judgment entry will follow.