Opinion
CASE NO. 14-31517 HCD PROC. NO. 14-3060
06-08-2015
IN THE MATTER OF STEPHANIE MARIE SWIFT DEBTOR STATE OF INDIANA ON THE RELATION OF THE INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT PLAINTIFF v. STEPHANIE SWIFT DEFENDANT
Appearances: Maricel Elaine Villacampa Skiles, Esq., Office of the Indiana Attorney General, 302 West Washington Street, IGCS 5th Floor, Indianapolis, Indiana 46204 Stephanie Swift, 1501 Stanmore Court, South Bend, Indiana 46614, pro se
CHAPTER 7 Appearances:
Maricel Elaine Villacampa Skiles, Esq., Office of the Indiana Attorney General, 302 West Washington Street, IGCS 5th Floor, Indianapolis, Indiana 46204 Stephanie Swift, 1501 Stanmore Court, South Bend, Indiana 46614, pro se MEMORANDUM OF DECISION
The court has jurisdiction to decide the matter before it pursuant to 28 U.S.C. §§1334 and 157, and the Northern District of Indiana Local Rule 200.1. Venue is proper pursuant to 28 U.S.C. §1409(a). The court has determined that this matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(I).
At South Bend, Indiana, on June 8, 2015.
Before the court is the Motion for Default Judgment (Motion) filed by plaintiff State of Indiana on the relation of the Indiana Department of Workforce Development (IDWD) against the defendant Stephanie Swift (Swift) pursuant to 11 U.S.C. §523(a)(2)(A) and §523(a)(7). For the reasons stated below, the court grants the Motion.
Background
Swift filed for relief under chapter 7 on June 4, 2014. The Notice of Chapter 7 Bankruptcy Case set the deadline for filing objections to discharge or challenges to the dischargeability of certain debts at September 8, 2014. Her chapter 7 trustee filed a report of no distribution on July 9, 2014. Swift received a discharge on September 15, 2014. The court closed Swift's chapter 7 case on September 18, 2014.
This is a no-asset chapter 7 case. The court notes the IDWD filed a proof of claim even though the Notice of Chapter 7 Case Filing states "Please Do Not File a Proof of Claim Unless You Receive a Notice To Do So." The IDWD was the only creditor to file a claim in this case.
The IDWD filed this adversary proceeding on September 8, 2014. On November 19, 2014, the IDWD filed an Amended Complaint. The IDWD served Swift and her bankruptcy attorney the Amended Complaint by means of regular and certified mail on November 20, 2014. The Amended Complaint alleges the IDWD paid Swift regular unemployment benefits during periods when she was ineligible to receive such benefits. The IDWD asks for a determination, pursuant to 11 U.S.C. §523(a)(2)(A), that the Swift's indebtedness resulting from these improper payments is not dischargeable as a debt for money obtained by false pretenses, false representations, or actual fraud. Besides a finding of nondischargeability under §523(a)(2)(A), the Amended Complaint requests the court to rule under §523(a)(7) that the statutory civil penalties assessed by the IDWD are a fine, penalty, or forfeiture for the benefit of a governmental unit and not compensation for actual pecuniary loss.
Swift has not filed any responsive pleading in this adversary proceeding. In response to the IDWD's Motion for Entry of Default, the clerk entered Swift's default on February 20, 2015. On May 1, 2015, the IDWD filed the Motion for Default Judgment now before the court. Two affidavits accompany the Motion. The first, the affidavit for default judgment of Maricel Skiles, verifies Swift is not in military service, nor was she engaged in any branch of the armed forces of the United States when the IDWD filed this adversary proceeding. The second, Carla Burkett's affidavit, details the indebtedness of Swift stating "the outstanding balance minus any payments or offsets is $14,169.25 and said amount is overdue and payable."
Discussion
Federal Rule of Bankruptcy Procedure 7055 addresses defaults. This Rule states that Federal Rule of Civil Procedure 55 applies in adversary proceedings. Entry of a default judgment "is appropriate where defendants fail to timely answer and offer no justifiable excuse for their conduct." In re Klarchek, 509 B.R. 175, 186 (Bankr. N.D. Ill. 2014) (citations omitted). Granting a default judgment falls within the court's discretion. See Domanus v. Lewicki, 742 F.3d 290, 301 (7th Cir. 2014).
Under Rule 55, the procedure a plaintiff must follow to obtain a default judgment involves two steps. First, obtain the clerk's entry of the default by showing the opposing party has failed to answer or otherwise respond to the complaint. Second, ask the court to enter a default judgment. Regions Bank v. R&D Development Corp., 2011 WL 4387139, *2 (S.D. Ill. Sept. 20, 2011). With the entry of default by the clerk, the IDWD has met the first component. The IDWD properly served Swift, and she has failed to respond. The court finds Swift is in default.
"Once the default is established, and thus liability, the plaintiff still must establish his entitlement to the relief he seeks." In re Catt, 368 F.3d 789, 793 (7th Cir. 2004). "[T]his circuit follows the rule that 'the well-pleaded allegations of the complaint relating to liability are taken as true,' and those 'relating to the amount of damages suffered ordinarily are not.' Damages must be proved unless they are liquidated or capable of calculation." Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir. 1990) (internal citations omitted).
To properly plead the nondischargeable nature of Swift's debt to the IDWD under §523(a)(2)(A), the IDWD must establish three elements. First, Swift obtained the money from the IDWD through representations that she either knew to be false, or made them with such reckless disregard for the truth as to constitute willful misrepresentation. Second, Swift acted with an intent to deceive the IDWD. Third, the IDWD justifiably relied on Swift's false representations to its detriment. See, e.g., In re Davis, 638 F.3d 549, 553 (7th Cir. 2011); Ojeda v. Goldberg, 599 F.3d 712, at 716-17 (7th Cir. 2010); In re Maurice, 21 F.3d 767, 774 (7th Cir. 1994).
Upon a review of the record in this adversary proceeding, the court finds the IDWD has met the statutory requirements §523(a)(2)(A). Over a period between August 2009 and January 2011, Swift submitted 39 unemployment claim vouchers to the IDWD. The earnings Swift reported on these vouchers were less than the wages she received. Due to her claimed low wages, the IDWD paid regular unemployment compensation benefits to Swift.
The record in this adversary proceeding includes employer wage verifications submitted to the IDWD by Swift's two employers, Shug Sons, LLC and Pertics Blueberry Plantation, Inc. These reports show wages paid to Swift covering the same periods covered by her unemployment claim vouchers. The wage verifications show that Swift under reported her earnings during these periods. The only reason an individual submits claim vouchers is to receive unemployment benefits. "Where a debtor knowingly or recklessly makes false representations which the debtor knows or should know will induce another to act, an intent to deceive may be inferred." In re Westfall, 379 B.R. 798, 804 (Bankr. C.D. Ill. 2007) (citations omitted). The court finds that Swift knowingly reported incorrect earnings to the IDWD to obtain unemployment compensation benefit payments. Relying on the claim vouchers that under reported her earnings, the IDWD made benefit payments to Swift that she was not entitled to receive.
Indiana employers are required to file periodic wage and contribution reports with the state. See Ind. Code §22-4-19-6, Ind. Code §4-1-6, and 646 Ind. Admin. Code §5-2-1.
The state of Indiana requires employers in this state to keep records containing information necessary for the state's unemployment compensation system. See Ind. Code §22-4-19-6 et seq. The Indiana unemployment compensation system relies on accurate reporting by employers, and truthful benefit claims by benefit applicants such as Swift. The earnings reports by Swift's employers reflect wages paid to her over the same periods that she had filed unemployment claim vouchers. The lack of any suggestion by Swift that the IDWD improperly relied on her claim vouchers leads the court to conclude that the IDWD was justified in relying on Swift's claim vouchers for unemployment compensation benefits.
Indiana law also provides for penalties where an individual makes claims for unemployment compensation benefits that the individual is ineligible to receive. See Ind. Code §22-4-13-1.1(b). The first instance of overpayment of an unemployment benefit, where an individual fails to disclose material facts that would make the individual ineligible for benefits, results in a civil penalty of 25% of the overpayment amount. The second instance leads to a 50% civil penalty. The statute imposes a 100% civil penalty for the third and all subsequent overpayments. The IDWD asserts that Swift is subject to the statutory civil penalties because of her filing of fraudulent unemployment claim vouchers. Lacking any presentation by Swift to the contrary, the court finds that Swift is liable to the IDWD for statutory civil penalties. The court finds that the allegations in the IDWD's Amended Complaint present a prima facia case that supports the entry default judgment against Swift.
Only a question as to the amount of damages remains. "[I]n general, a default judgment is limited to the amount demanded in the complaint." Regions Bank v. R & D Development Corp., 2011 WL 2149086, *3 (S.D. Ill. May 31, 2011), citing Neff v. Western Cooperative Hatcheries, 241 F.2d 357, 363 (10th Cir. 1957). On this subject the status of the record in this adversary proceeding is not straightforward.
In count I of the Amended Complaint the IDWD asks for a judgment of $7,918.75 (ECF No. 9, at p. 6). In the count II, the demand is for $6,250.50 (ECF No. 9, at p. 10). The Amended Complaint does not include a simple statement of the total amount the IDWD seeks to have excepted from discharge. In the Motion now before the court, ¶19 states the amount owed by Swift is $14,169.25 (ECF No. 19, at p. 7). Carla Burkett's Affidavit of Indebtedness at ¶8 also states the amount owed by Swift as $14,169.25 (ECF No. 19-2, at p. 2).
Before entering a default judgment for a sum certain, the court must review the pleadings here for compliance with three rules of procedure. Federal Rule of Bankruptcy Procedure 7004(a)(1) makes Federal Rule of Civil Procedure 4 applicable in adversary proceedings. As relevant here, Civil Rule 4(a)(1)(E) states
A summons must: ... (E) notify the defendant that a failure to appear and defend will result in a default judgment against the defendant for the relief demanded in the complaint. (Emphasis supplied.)Fed. R. Civ. P. 4(a)(1)(E).
Bankruptcy Rule 7008 makes Federal Rule of Civil Procedure 8 applicable in adversary proceedings. Rule 8(a)(3) specifies that "a claim for relief must contain ... a demand for the relief sought."
Bankruptcy Rule 7054 makes Federal Rule of Civil Procedure 54 applicable in adversary proceedings. Rule 54(c) states
A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings. Every other final judgment should grant the relief to which each party in entitled, even if the party has not demanded that relief in the pleadings.Fed. R. Civ. P. 54(c).
With respect to default judgments, Rule 54(c) "establishes a ceiling rather than a floor on damages." Smith v. Cummings, 445 F.3d 1254, 1259 (10th Cir. 2006); see also National Discount Corp. v. O'Mell, 194 F.2d 452, 456 (6th Cir. 1952) ("The rule was well settled even before the adoption of the Rules of Civil Procedure that in rendering a default judgment the Court can only give to the plaintiff such relief as was proper upon the face of the bill."); Hounddog Productions, LLC v. Empire Film Group, Inc., 826 F.Supp. 2d 619, 628 (S.D. N.Y. 2011) (the court may properly consider exhibits and affidavits where the damages requested do not exceed the amount demanded in the complaint).
Because the issue before the court is a request for a default judgment, the limitations in Rules 4(a)(1)(E), 8(a)(3), and 54 prohibit the court from granting a judgment higher that the amount requested in the Amended Complaint. The court finds the IDWD's failure to make a single straightforward statement of the amount it seeks troublesome. The lack of a single statement by the IDWD of the amount demanded fails to give clear notice of its total claim to Swift. This is the primary reason for the pleading requirements. 10 Collier on Bankruptcy ¶7054.04 (A.N. Resnick and H.J. Sommer eds., 16th Ed. 2015). The lack of a statement of the total the IDWD ultimately demands forces both the court and Swift to manually calculate the amount. While information in this record is sufficient to permit such computation without a hearing, the IDWD takes a chance that the court's calculation of the amount may not match its own. The IDWD should not expect the court, and defendant, to guess whether the amounts stated in each count of its multi count complaint are cumulative or that one is merely a component of the other. In the future the IDWD would be well advised to include a single, unambiguous statement of the total amount it seeks to have declared nondischargeable in any future adversary proceeding.
Conclusion
For the reasons stated in this Memorandum of Decision, the court grants the relief sought in the IDWD's Amended Complaint to Determine Dischargeability of Debt. The court excepts the debt of defendant Stephanie Marie Swift to the plaintiff State of Indiana on the Relation of the Indiana Department of Workforce Development from discharge under 11 U.S.C. §523(a)(2)(A) and §523(a)(7). Swift's obligation to the IDWD, consisting of improperly claimed regular unemployment compensation benefits and statutory civil penalties totaling $14,169.25, and the adversary proceeding filing fee of $350.00 incurred in filing this action, which together total $14,519.25, is nondischargeable pursuant to 11 U.S.C. §523(a)(2)(A) and §523(a)(7).
SO ORDERED.
/s/ HARRY C. DEES, JR.
HARRY C. DEES, JR., JUDGE
UNITED STATES BANKRUPTCY COURT