Opinion
Case No. 16-31187 HCD Adv. Proc. No. 16-3037
08-28-2017
In the Matter of: JOSEPHINE ROSS Debtor STATE OF INDIANA ex rel. INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT Plaintiff v. JOSEPHINE ROSS Defendant
Appearances: Heather M. Crockett, Esq., IGCS 5th Floor, 302 West Washington Street, Indianapolis, Indiana 46204 attorney for plaintiff. Josephine Ross, 281 North 950 West 92, Pierceton, Indiana 46562, pro se defendant.
Chapter 7
Appearances:
Heather M. Crockett, Esq., IGCS 5th Floor, 302 West Washington Street, Indianapolis, Indiana 46204 attorney for plaintiff. Josephine Ross, 281 North 950 West 92, Pierceton, Indiana 46562, pro se defendant.
MEMORANDUM OF DECISION AND ORDER
At South Bend, Indiana, August 28, 2017.
Now before the court is the plaintiff State of Indiana ex rel. Indiana Department of Workforce Development's (IDWD) Motion for Default Judgment. This motion asks the court to enter a judgment in favor of the IDWD that declares the debt of the defendant, Josephine Ross (Ross), to it is nondischargeable by default. The amount of Ross's debt to the IDWD is $19,674.98. The IDWD also asks for $350.00 in adversarial costs. For the reasons discussed below the court grants in part and denies in part the IDWD motion.
Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157, and 1334, and Northern District of Indiana Local Rule 200-1. Pursuant to 28 U.S.C. § 1409(a) the court finds that venue is proper. The court has determined that this matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(I). As required by Federal Rule of Bankruptcy Procedure 7008 plaintiff IDWD has acknowledged the authority of this court to hear and determine this adversary proceeding.
Findings of fact
The court will summarize the facts, and will note additional specific facts as necessary in the following discussion. During all or parts of 2011, 2012, and 2013, Ross received wages from employment at Kelly Services, Inc. and DePuy, Inc. Ross filed a voluntary petition for relief under chapter 7 in May of 2016. Legal counsel assisted her in this filing. Her chapter 7 bankruptcy trustee filed a report of no distribution. The court then issued Ross a discharge in August 2016 and closed her bankruptcy in September 2016.
The court's notice of meeting of creditors set the last date for objections to discharge and dischargeability at August 22, 2016. The IDWD filed this complaint contesting the dischargeability of Ross's debt for overpayment of unemployment compensation benefits on August 22. The summons in this adversary proceeding required Ross to file an answer or otherwise respond by September 22, 2016. The IDWD has certified that it served both Ross and her bankruptcy attorney a copy of the summons and complaint, using both regular and first class mail. The record shows that Ross has not responded to the summons.
In March 2017 the IDWD moved for an entry of default by the clerk. An affidavit accompanied this motion attesting to proper service upon Ross and her bankruptcy counsel. The affidavit also declared that Ross is not an incompetent person or a person engaged in any branch of the military or naval service. The clerk entered Ross's default on March 17, 2017. On June 30, 2017, the IDWD filed the motion for default judgment now before the court.
Discussion
Default Judgment Standard
This motion for default judgment asks the court to enter a default judgment in favor of the IDWD declaring, pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(7), that Ross's debt to it is nondischargeable. Under § 523(a)(2)(A), for its debt to be nondischargeable, the IDWD must establish that Ross made a false representation or omission of fact. Second, that Ross (a) knew the representation or omission was false or she made it with reckless disregard for its truth and (b) she made it with the intent to deceive the IDWD. Third, the IDWD justifiably relied on Ross's false representation.
The record in this adversary proceeding shows that, contrary to the mandate of N.D. Ind. L.B.R. B-7007-1(a), the IDWD motion for default judgment was not accompanied by a separate supporting brief. The court notes that the IDWD is a frequent litigant before it and this is not the first instance where it has failed to file a brief. The court is concerned about this continuing disregard for this court's local rules. --------
In adversary proceedings, Federal Rule of Bankruptcy Procedure 7055 addresses the subject of default. This rule makes Federal Rule of Civil Procedure 55 applicable to these proceedings. Under Rule 55, to prevail on the motion before the court, the IDWD must make a prima facie showing that it is entitled as a matter of law to a judgment excepting Ross's debt to it from discharge under § 523(a)(2) and (a)(7). See Target National Bank v. Redmond (In re Redmond), 399 B.R. 628, 633 (Bankr. N.D. Ind. 2008).
Granting a default judgment falls within the court's discretion. See Domanus v. Lewicki, 742 F.3d 290, 301 (7th Cir. 2014). By failing to respond to the complaint or the IDWD motions, Ross has waived any opposition to excepting her indebtedness to the IDWD from discharge. In re GT Automation Group, Inc., 828 F.3d 602, 605 (7th Cir. 2016). However, the IDWD is not entitled to a judgment merely because Ross is in default. The IDWD still must present a prima facie case that it is entitled to relief. In re Taylor, 289 B.R. 379, 383 (Bankr. N.D. Ind. 2003). The court must deny a motion for a default judgment when the facts are insufficient to support the claim in the complaint. See Morrison v. Mergen (In re Mergen), 473 B.R. 743, 744 (Bankr. W.D. Wis. 2012). "[A] defendant's default does not in itself warrant the court in entering a default judgment. There must be a sufficient basis in the pleadings for the judgment entered." Nishimatsu Construction Co., Ltd. v. Houston National Bank, 515 F.2d 1200, 1206 (5th Cir. 1975).
Section 523(a)(2)(A)
The uncontested facts show Ross received benefit payments from the IDWD that she was not entitled to receive. As Ross has not challenged the reasonableness of the IDWD's reliance on her benefit applications, the court finds the IDWD was justified in relying on the truthfulness of her applications. The court finds the IDWD has successfully met its burden of proof concerning these two requirements under § 523(a)(2)(A). Whether or not Ross here had the requisite intent to deceive is an essential component of the dischargeability test under § 523(a)(2)(A). The court must look to the totality of the circumstances in assessing whether or not Ross had the requisite intent to deceive the IDWD. In re Wolf, 519 B.R. 228, 248 (Bankr. N.D. Ill. 2014). Having reviewed the IDWD motion and accompanying affidavit, the complaint and attached documents, the IDWD has persuaded the court that it can properly impute an intent to deceive to Ross. "An intent to deceive may be inferred from a false representation which the debtor knows or should know will induce another to advance money to the debtor. Fraudulent intent can be established by circumstantial evidence." In re Jacob, 1998 WL 150493, at *4 (Bankr. N.D. Ill. Mar. 23, 1998) (internal citations omitted).
Ross's actions in submitting unemployment voucher claims were irresponsible. During her interview with an IDWD investigator, Ross acknowledged her mistake when she continued to apply for benefits after she began employment with DePuy. Ross, in her sworn statement given as part of the IDWD's investigation of her claims, also stated that she gave a friend her username and password so that the friend could file weekly online benefit claims for her. Nothing in the record suggests any reason that Ross could not file her own online benefit claims. The record does not show how Ross's friend had any knowledge to support the friend's ability to provide true and accurate answers for Ross on benefit applications. Entrusting another to properly file unemployment benefit claims reflects Ross's reckless disregard for her obligation to correctly and honestly provide information as part of the claim submission process. The record shows that each benefit application requires a certification that the answers provided by the applicant are true and accurate. Although she had the opportunity to challenge the IDWD's assertions about her intent to deceive, Ross has not done so. The court finds that failing to respond or participate in this adversary proceeding, Ross has waived any objection to the IDWD assertions about her intent to deceive. Citizens for Appropriate Rural Roads v. Foxx, 815 F.3d 1068, 1078 (7th Cir. 2016) (citing Bonte v. U.S. Bank, N.A., 624 F.3d 461, 466 (7th Cir. 2008)). The court concludes that Ross pursued her course of conduct to either shield herself from making direct statements on her benefit applications, or because she had little regard for the need to accurately comply with the reporting requirements for unemployment benefits. The court finds it can properly infer deceitful conduct from Ross's actions.
Section 523(a)(7)
Section 523(a)(7) excepts from discharge debts only to "the extent the debt 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." "In order to qualify for a dischargeability exception under subsections 523(a)(7), normally the particular penalty must serve some 'punitive' or 'rehabilitative' governmental aim, rather than a purely compensatory purpose." In re Jones, 311 B.R. 647, 655 (Bankr. M.D. Ga. 2004). Only debts that are part of the state's traditional responsibility to protect its citizens qualify to an exception to discharge under § 523(a)(7). In re Wiebe, 485 B.R. 667, 670-71 (Bankr. D. Kan. 2013). It is clear to the court that the statutory penalties imposed by I.C. § 22-4-13-1.1(b) meet this definition. The progressive nature of the assessments for overpayments punishes individuals who attempt to take improper advantage of the Indiana unemployment compensation system. Recovery of the filing fee for this adversary proceeding is another matter. The IDWD simply makes a demand for reimbursement of the award of costs. The IDWD has not shown how a filing fee qualifies as a fine, penalty, or forfeiture under § 523(a)(7). The court does not believe the recovery of a filing fee falls within the kind of debts that § 523(a)(7) excepts from discharge.
Conclusion
Ross obtained unemployment compensation benefit payments because of her willing inattentiveness to the proper submission of benefit claims. Under the facts of this case, the court construes such inattentiveness as expressing an intent or desire to receive an untitled payment. The court concludes that debt of Josephine Ross, in the amount of $19,674.98, is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(7) and GRANTS the IDWD motion for default judgment. Section 523(a)(7) only excepts from discharge debts that serve some punitive or rehabilitative governmental interest. The IDWD adversarial costs of $350.00 are a litigation expense, and not a civil penalty. Therefore, the court DENIES the IDWD's request for recovery of adversary costs. The court will enter default judgment against Ross for $19,674.98.
SO ORDERED.
/s/ HARRY C. DEES, JR.
HARRY C. DEES, JR., JUDGE
UNITED STATES BANKRUPTCY COURT