Opinion
8:21-bk-02400-RCT Adv. 8:21-ap-00283-RCT
08-26-2022
In re: Alexander M. Morales, Debtor. v. Alexander M. Morales, Defendant. Scott Hollman, Plaintiff,
Chapter 7
ORDER FINDING PLAINTIFF'S CLAIMS AGAINST DEBTOR ARE DISCHARGEABLE
ROBERTA A. COLTON, UNITED STATES BANKRUPTCY JUDGE
A trial in this proceeding was held on August 10, 2022 on Plaintiffs Amended Complaint Objecting to Entry of Discharge. Plaintiff seeks a determination that his breach of contract, breach of warranty, and fraud claims against Debtor are non-dischargeable debts pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6). As explained below, the Court finds that any debts arising from these claims are dischargeable.
Doc. 7.
Only two witnesses testified during the trial-Plaintiff Scott Hollman and Defendant-Debtor Alexander Morales. The exhibits entered into evidence (Docs. 37, 38) at trial are docketed at Docs. 30 and 35. The parties' written closing arguments are filed at Docs. 40 and 41.
In December of 2018, Plaintiff Scott Hollman was looking for a contractor to perform work on his mobile home. He looked on Craigslist, Angie's List, and FaceBook. Plaintiff found someone on one of those sites, and that person referred Plaintiff to Defendant-Debtor Alexander Morales.
In January of 2019, Plaintiff and Debtor met and discussed Debtor repairing and renovating Plaintiffs mobile home. Debtor provided Plaintiff with his business card on behalf of AMG Property Maintenance, LLC, and next to the business name it stated, "Everything Home & Garden." The business card listed the following specific services that the company provided: home repairs, ground maintenance, sod and mulch installation, power washing, irrigation, tree work, fencing, "and more." At the bottom of the business card, it stated "Licensed and Insured."
Pla. Ex. 2: Doc. 35-2.
Pla. Ex. 2: Doc. 35-2.
Pla. Ex. 2: Doc. 35-2.
When Debtor gave Plaintiff his business card, AMG Property Maintenance, LLC was not insured; a different company of Debtor's-AMG Landscaping, Inc.-had commercial liability insurance for landscaping work. On May 30, 2019, after the events at issue in this case, AMG Property Maintenance, LLC became the named insured under that commercial liability insurance policy. There is no evidence before the Court that during the relevant time, Debtor told Plaintiff (or that Plaintiff otherwise knew) that AMG Property Maintenance, LLC was not insured. Instead, Debtor testified that he believed that AMG Property Maintenance, LLC was insured.
Def. Ex. 1: Doc. 30-1, p. 17 of 17.
Def. Ex. 1: Doc. 30-1, p. 15-16 of 17.
When meeting with Debtor, Plaintiff asked Debtor if he was licensed, and Debtor responded that he was a licensed handyman. Debtor does not hold a construction license; instead, he has a business license from Pasco County that allows AMG Property Maintenance, LLC to operate as a property maintenance company. The distinction between being a licensed handyman and holding a construction license was not discussed, and Plaintiff believed that Debtor held a construction license.
Doc. 36, ¶ 4; Def. Ex. 1:Doc. 30-1, p. 2 of 17.
Thereafter, Plaintiff and Debtor entered into a written contract for the repair and renovation of the front half of Plaintiff's mobile home, and the scope of work included repairing the subfloor, installing new floors, repairing a wall, preparing the walls for reinstallation of sheetrock, finishing the sheetrock, plumbing (moving a toilet to another wall, removing a bathtub, and installing a shower), and electrical work. However, Debtor's property maintenance business license specifically states that AMG Property Maintenance, LLC may not perform work that requires a contractor's license, such as drywall, stucco, plaster, concrete, carpentry, plumbing, and electrical wiring. Later, the parties agreed to additional work to be done in the back half of Plaintiff's mobile home.
Doc. 36, ¶ 1, 2; Pla. Ex. 1: Doc. 35-1. The written proposal describing the work is on AMG Property Maintenance Letterhead, is signed by Debtor on behalf of AMG Landscaping and Design, and directs that payment be made to AMG Landscaping, Inc.
Def. Ex. 1: Doc. 30-1, p. 2 of 17.
Debtor believed that he could do the work requested by Plaintiff. Debtor testified that he has over twenty-five years of experience doing work similar to what Plaintiff was seeking. Specifically, he has done framing, roofing, plumbing, and electrical work. Additionally, Debtor testified that he has experience doing handyman work on mobile homes.
Initially, the work was going well, and Debtor appeared to know how to perform the work. However, later, a water pipe busted in the kitchen wall, the electricity kept "popping" when using the washer and dryer, there was a leak in the master bathroom, soft spots remained in the floor, and all of the drywall in the bathroom was not completed.
In response to the pipe busting in the kitchen wall, Debtor proposed conducting a séance. Debtor told Plaintiff that, as a Babalawo, he could perform a séance to eliminate the evil spirits from the house, which he stated were causing the construction problems.
According to Debtor's religious beliefs, he is a Babalawo, which is a Shaman of African descent. (Def. Ex. 5: Doc. 30-12).
Plaintiff initially agreed to the séance and paid Debtor an additional amount to perform it. However, when Debtor arrived at Plaintiff's mobile home with a rooster and a pigeon in cages and informed Plaintiff that animal sacrifice was part of the séance, Plaintiff asked Debtor not to perform the séance, as he was opposed to animal sacrifice.
Ultimately, Plaintiff paid Debtor over $25,000 for his work before Plaintiff fired Debtor in March or April of 2019. Thereafter, Plaintiff filed suit against Debtor in state court, and Debtor filed for bankruptcy prior to the state court adjudicating Plaintiff's claims against him. Plaintiff initiated this adversary proceeding to obtain a determination that his breach of contract, breach of warranty, and fraud claims against Debtor are non-dischargeable debts pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6).
Doc. 36, ¶ 5.
Doc. 7.
II. Analysis
Whether a debt is non-dischargeable is governed by the Bankruptcy Code and is a core proceeding. Plaintiff bears the burden of establishing non-dischargeability by a preponderance of the evidence. "[B]ut 'intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start.'"
See Gonzalez v. Anthony (In re Anthony), 538 B.R. 145, 151 (M.D. Fla. 2015).
See Kane v. Stewart Tilgham Fox & Bianchi P.A. (In re Kane), 755 F.3d 1285, 1293 (11th Cir. 2014) (citation omitted).
Harris v. Jayo (In re Harris), 3 F.4th 1339, 1345 (11th Cir. 2021) (quoting In re Hudson, 107 F.3d 355, 356 (5th Cir. 1997)).
Plaintiff seeks a determination that his breach of contract, breach of warranty, and fraud claims against Debtor are non-dischargeable debts pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6). In order to find non-dischargeability on these grounds, Plaintiff must show that Debtor owes him a debt: (1) for money obtained by false pretenses, a false representation, or actual fraud (other than a statement respecting the debtor's financial condition) (§ 523(a)(2)(A)); or (2) arising from a willful and malicious injury by the debtor (§ 523(a)(6)).
In Plaintiff's written closing, it appears that he is no longer arguing that the claims set forth in his adversary complaint give rise to a debt resulting from a willful and malicious injury. (Doc. 41). Instead, Plaintiff pivots and asserts a new claim for "conversion" of the rooster and pigeon apparently sacrificed off-site. Of course, Plaintiff directed Debtor to remove the animals from his property, so conversion is a stretch under normal circumstances. But here, conversion of the animals was neither pled nor argued, except in Plaintiff's written closing argument-to which Debtor had no opportunity to respond. Exceptions to non-dischargeability must be timely raised. See Bankr. R. 4007(c)(within 60 days after the first date set for the meeting of creditors under § 341(a)). Plaintiff's claim for the sacrificed birds is way too late.
However, Plaintiff's breach of contract and breach of warranty claims-that Debtor failed to perform the work required by their contract and that Debtor used improper materials and materials that did not comply with the applicable building codes-cannot give rise to non- dischargeable debts under § 523(a)(2)(A) for fraud or § 523(a)(6) for willful and malicious injury. Instead, this Court's review is limited to Plaintiff's fraud claims.
See In re Grim, 104 B.R. 486, 488 (Bankr. S.D. Fla. 1989) (stating that § 523(a)(6) generally relates to torts and not contracts); In re Purse, 537 B.R. 28, 39 (Bankr. S.D. Ga. 2015) (stating that "[a] debt arising from a knowing breach of contract is not the type of debt excepted from discharge under 11 U.S.C. § 523(a)(6) (citing Kawaauhau, 523 U.S. 57, 62 (1998) (rejecting an interpretation of § 523(a)(6) which would render a knowing breach of contract nondischargeable)); In re Gelinas, 2008 WL 5640701, at *6 (Bankr. S.D. Fla. Nov. 12, 2008); In Matter of Burgos, 2015 WL 9435398, at *2 (Bankr. N.D.Ga., Nov. 9, 2015)
Plaintiff asserts fraud claims based on the following statements: (1) Debtor's statements that he possessed the necessary skills and abilities to do the contracted work; (2) Debtor's statements that he was licensed and insured; and (3) Debtor's statement that Plaintiff's mobile home was possessed.
The elements to prove fraud and those to prove non-dischargeability under § 523(a)(2)(A) are the same. Thus, Plaintiff must prove that: (1) Debtor made a false representation with the intent to deceive him, (2) Plaintiff relied on Debtor's misrepresentation, (3) Plaintiff's reliance was justified, and (4) Plaintiff sustained a loss as a result of Debtor's misrepresentation.
See In re Bilzerian, 153 F.3d 1278, 1281 (11th Cir. 1998) (stating that "[c]ourts have generally interpreted § 523(a)(2)(A) to require the traditional elements of common law fraud").
See id. (citations omitted).
In this case, the pivotal issue is whether Debtor intended to deceive Plaintiff when he made the statements at issue. When making this determination, the Court is mindful of the following:
A determination of whether a debtor had the subjective intent to deceive is an issue of fact and depends largely on the Court's assessment of the credibility and demeanor of the debtor. Because a debtor rarely admits fraudulent intent however, courts look at the totality of circumstances to make that determination.
In determining intent to deceive, one of the circumstances to be considered is "the recklessness of a debtor's behavior." In that regard, the Eleventh Circuit has held that "reckless disregard for the truth or falsity of a statement combined with the sheer magnitude of the resultant misrepresentation may be combined to infer an intent to deceive."
A statement is made in "reckless disregard of the truth if the speaker makes the statement without caring about whether the representation is true or false." This must be distinguished from a speaker who negligently makes a false representation but honestly believes the representation to be true-which is not sufficient to prove intent to deceive. And "if there is room for an inference of honest intent, the question of nondischargeability must be resolved in favor of the debtor."
In re Carter, 593 B.R. 354, 361-62 (Bankr. M.D. Fla. 2018) (internal citations omitted).
As explained below, the Court finds that Plaintiff's fraud claims fail, because Plaintiff has not proven Debtor's intent to deceive him.
A. Skills
Based on his written closing argument, it appears that Plaintiff is not pursuing his fraud claim based on Debtor's alleged statements that he possessed the necessary skills and abilities to do the contracted work. Furthermore, after assessing Debtor's credibility and demeanor when he testified, the Court finds that Debtor honestly believed that he possessed the necessary skills and abilities to do the contracted work. While his belief may have been wrong, the Court finds Debtor's testimony credible that based on his twenty-five years of experience, he believed that he could perform the work. And, as previously stated, "'if there is room for an inference of honest intent, the question of nondischargeability must be resolved in favor of the debtor.'"Accordingly, Debtor's statement regarding his skills does not give rise to a non-dischargeable debt.
Id. (quoting Gaft v. Sheidler (In re Sheidler), No. 15-8011, 2016 WL 1179268, *5 (6th Cir. BAP Mar. 28, 2016)).
B. Licensed
Next, Plaintiff asserts a fraud claim based on Debtor's statements that he was licensed. Debtor's statement of being licensed on his business card was technically correct-AMG Property Maintenance, LLC had a business license to perform the services listed on the business card. And, when Plaintiff asked Debtor if he was licensed, Debtor responded that he was a licensed handyman. All that Debtor had was a basic business license. Obviously, there was a disconnect between Debtor's statements and Plaintiff's understanding that Debtor was a licensed contractor, but Plaintiff did not prove that Debtor was aware of Plaintiff's misunderstanding, much less that Debtor made these statements with the intent to deceive Plaintiff.
Instead, the evidence presented at trial showed that, although Debtor knew that he was not a licensed construction contractor, he believed that working on a mobile home was like working on an automobile, which does not require a contractor's license. While this belief is mistaken, the Court finds that Debtor-at the time-believed that he could work on a mobile home, if not a structured residence. Thus, there is room for an inference of honest intent by Debtor, and as such, his statements regarding licensing do not give rise to a non-dischargeable debt.
See Fla. Stat. § 320.8232; Fla. Stat. § 320.8245; Fla. Admin. Code Rule 15C-2.0081; Department of Highway Safety and Motor Vehicles advisory bulletin, DHSMV MHS-24.
C. Insured
Next, Plaintiff asserts a fraud claim based on Debtor's statement on his business card that AMG Property Maintenance, LLC was insured. From the time that Debtor gave Plaintiff his business card in January of 2019 until Plaintiff fired him in March or April of 2019, AMG Property Maintenance, LLC was not insured. Instead, a different company of Debtor's-AMG Landscaping, Inc.-had commercial liability insurance for landscaping work. It was not until May 30, 2019 that AMG Property Maintenance, LLC became the named insured under the landscaping insurance policy.
Again, based on the Court's evaluation of Debtor's credibility and demeanor, the Court finds Debtor's testimony-that he had believed at the time that AMG Property Maintenance, LLC was insured-to be credible. The names are obviously similar, and it was unclear why Debtor had different companies, since both seemed to be doing the same kind of work. Debtor's confusion about his companies is evidenced by the initial proposal/contract between the parties: (i) the contract is signed by "AMG Landscaping and Design"; (ii) checks were to be made payable to "AMG Landscaping, Inc."; and (3) the letterhead references "AMG Property Maintenance." Also, it was apparent that English was not Debtor's first language. Without sufficient proof of intent to deceive, Plaintiff's fraud claim fails.
In any event, no evidence was presented that insurance (such as commercial liability insurance) would have covered Plaintiff's basic breach of contract, breach of warranty, or fraud claims. Without evidence of an insurable claim, AMG Property Maintenance, LLC's failure to have insurance did not cause damage to Plaintiff, and without damages, there is no debt to be excepted from discharge.
D. Home Being Possessed
Next, Plaintiff asserts a fraud claim based on Debtor's statement that Plaintiff's mobile home was possessed. According to Debtor's religious beliefs, he is a Babalawo, and based on this, he stated that he was able to determine that Plaintiff's mobile home was possessed. The First Amendment protects a person's statements when those statements are based on their sincerely held religious beliefs. The Court finds that Debtor's testimony-that he sincerely believed, based on his religion, that Plaintiff's mobile home was possessed-was credible. Accordingly, the Court concludes that he did not make the statement with the intent to deceive Plaintiff, and thus, the statement cannot give rise to a non-dischargeable debt.
See Van Schaick v. Church of Scientology of California, Inc., 535 F.Supp. 1125, 1141 (D. Mass. 1982) ("The First Amendment protects utterances which relate to religion but does not confer the same license for representations based on other sources of belief or verification. Statements citing science as their source may provide the basis for a fraud action even though the same contention would not support such an action if it relied on religious belief for its authority."); Anderson v. Worldwide Church of God, 661 F.Supp. 1400, 1401 (D. Minn.1987) (finding the church's statement that the world was coming to an end could not be the basis for a fraud claim, because the First Amendment protects religious beliefs and the plaintiffs could not show that the church's religious belief was not sincere).
III. Conclusion
Plaintiff obviously is unhappy with some of the work performed by Debtor's company and some of that work was not as expected or as contracted. But whether Debtor's company breached its contract or failed to honor any expected warranty is not the issue. Here, Debtor is an individual, and the focus of this adversary proceeding was fraud, within the meaning of § 523(a)(2)(A). As explained above, the Court finds that Plaintiff has not proven that Debtor owes him a debt that should not be discharged in bankruptcy. Accordingly, the Court will enter a judgment in favor of Debtor consistent with this order.
It is so ORDERED.
Service of this Order other than by CM/ECF is not required. Local Rule 9013-3(b).
ORDERED.