Opinion
CASE NO. 00-13028-AJM-7, Adversary Proceeding No. 01-33
October 26, 2000
Konstantine G. Orfanos, Attorney for the Plaintiffs.
Steven Taylor, Attorney for the Defendant/Debtor.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Plaintiffs, Checkcare Systems ("Checkcare"), Domino's Pizza ("Domino's"), Marsh Supermarkets ("Marsh"), Cub Foods ("Cub"), and Jack's Pizza (collectively, the "Plaintiffs"), filed their Complaint to Determine Dischargeability of Debt (the "Complaint") on January 29, 2001 against the Defendant and Debtor, Shelida L. Nunn (the "Defendant"). Trial on that complaint was held on April 27, 2001 wherein Plaintiff Checkcare appeared by its representative, Tania Wehlege, and all Plaintiffs appeared by counsel, Konstantine Orfanos. The Defendant appeared in person and by counsel, Steven Taylor. The Court took the matter under advisement at the conclusion of the trial and gave the parties the option of filing post trial briefs within seven (7) days. The Court, having considered the testimony of the witnesses, the arguments of counsel, all evidence admitted and the post trial brief filed by the Defendant, now makes its findings of fact and conclusions of law in accordance with F. R Bankr. P. 7052.
Upon examination of the clerk's office, no post trial brief or findings were submitted by the Plaintiffs, nor has such been tendered to chambers.
Findings of Fact
1. From November, 1999 through May, 2000, the Defendant signed and tendered for payment the following checks made payable to the following payees on a checking account maintained at First Indiana Bank in the names of "Shelida Nunn/ Linda K. Manley" at 2026 W. Moray Court, Indianapolis, IN 46260:
Solely as a point of clarification, Lo Bills Grocery is listed as the payee of this check, but the state court complaint attached as an exhibit to the nondischargeability complaint filed in bankruptcy court indicates that this check was made out to Marsh.
Solely as a point of clarification, Lo Bills Grocery is listed as the payee of this check, but the state court complaint attached as an exhibit to the nondischargeability complaint filed in bankruptcy court indicates that this check was made out to Marsh.
3. With respect to the dishonored checks referred to it, Checkcare followed its typical procedure, and sent to the Defendant on behalf each particular payee at least one written notification/letter of the respective dishonored check. In some cases, Checkcare attempted to reach the Defendant by telephone and left messages, or sent more than one letter. On occasion, the Defendant responded to the written notification or answered her telephone messages, and indicated that she did not receive the letter or that she would mail a payment. However, on several occasions, the Defendant did not respond. Ultimately, all seven dishonored checks remained unpaid and were referred to Checkcare's attorney for collection.
4. Checkcare, on behalf of and as agent for Plaintiffs Marsh, Jack's Pizza and Cub, filed its complaint against the Defendant in the Marion County Small Claims Court, Pike Township Division. The Plaintiffs obtained a default judgment against the Defendant in the amount of $2525.61, together with $70.00 in costs, on September 26, 2000 (the "State Court Judgment").
Although the face amount of the seven checks sued upon totalled $532.27, the State Court Judgment included collection fees, statutory damages of two times the face amount of the checks, and attorneys fees, as is permitted under Indiana law.
5. The Defendant filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code one month later on October 26, 2000. The Plaintiffs commenced this adversary proceeding by filing their Complaint on January 29, 2001, alleging that the State Court Judgment is nondischargeable under Bankruptcy Code Section § 523(a)(2)(A).
Conclusions of Law
1. To prevail on a nondischargeability claim under § 523(a)(2)(A), a creditor must prove: (1) that the debtor obtained money, property or services through representations which the debtor either knew to be false or made with such reckless disregard for the truth as constitutes a willful misrepresentation; (2) the debtor possessed scienter, i.e. an intent to deceive; and (3) the creditor relied on the false representation and the reliance was reasonable. Gross v. Bobilya Chrysler Plymouth Dodge, Inc., 175 B.R. 277, 284 (Bankr.N.D.Ind. 1994). The plaintiff bears the burden of proving each element by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 289-90; 111 S.Ct. 654, 661; 112 L.Ed.2d 755 (1991).
2. The "false pretenses" or "false representations" must exist at the inception of the debt, and statements or actions which are neither false nor made with such reckless disregard for the truth so as to be willful misrepresentations at the time they are made do not become false representations by the occurrence of subsequent events. However, a debtor's conduct subsequent to the time the representation is made may be considered in ascertaining whether the debtor contained the requisite fraudulent intent at the time the representation was made. In re Fitzgerald, 109 B.R. 893, 897-98 (Bankr.N.D.Ind. 1989); Gross, 175 B.R. at 285.
3. In a case involving a criminal statute, the United States Supreme Court held that knowingly passing a bad check is not a "false statement" within the meaning of 18 U.S.C. § 1014 because "a check is not a factual assertion at all. . . .[it] serves only to direct the drawee banks to pay the face amounts to the bearer". Williams v. United States, 458 U.S. 279, 284, 102 S.Ct. 3088, 3091, 73 L.Ed.2d 767 (1982). Although there appears to be a split of authority on whether knowingly passing a bad check is a "false statement" or "false representation" for § 523(a)(2)(A) purposes, a Wisconsin bankruptcy court has held that "[t]he fact that a debtor knowingly issues an NSF check does not establish a misrepresentation". In re Pokrandt, 54 B.R. 691, 692 (Bankr. W.D. Wis. 1985). Similarly, the Seventh Circuit Court of Appeals has applied the reasoning of Williams to a § 523(a)(2)(A) nondischargeability bad check case and determined that a "creditor cannot rely solely on the existence of an NSF check . . . to establish a misrepresentation for § 523(a)(2)(A) purposes" In re Scarlata, 979 F.2d 521, 525 (7th Cir. 1992) (quoting In re Hunt, 30 B.R. 425, 438 (M.D.Tenn. 1983)). It follows that, if an NSF check in and of itself is not a misrepresentation, then it certainly cannot be inferred from the NSF check alone that the debtor intended to defraud the creditor, especially since the debtor may have intended to make good on the check at a later date. See, Pokrandt, 54 B.R. at 692.
4. Since an NSF check is not in and of itself a false representation or evidence of intent to defraud, the Plaintiffs must have additional direct or circumstantial proof of the Debtors' misrepresentation and intent to defraud in order to prevail on their nondischargeability complaint. At most, there was testimony that the Debtor told Tania Wehlege, office manager for Checkcare, that she would mail in a payment to cover check #1654, a $50.00 check to Marsh (as opposed to "I have sent payment" or "the check is in the mail"). However, even that does not rise to the level of a misrepresentation or an intent to defraud because a representation must be of current or past fasts, not of a promise to do an act in the future. In re Jacob, 1998 WL 150493 (Bankr.N.D.Ill. 1998). There is no other direct evidence of the Debtor's misrepresentation or intent to defraud. As for circumstantial evidence, it is true that the Debtor wrote checks on the First Indiana Bank account even after it was closed. However, there is little difference between debtors who testified that they knew there were insufficient funds to cover their check at the time they wrote the check (see, Pokrandt, 54 B.R. at 692), and the Debtor here who wrote a check on a closed account. In both cases, the debtors would know that their check would be dishonored. Just as the court found in Pokrandt that there was the possibility that the debtors would make the check good, there is also the possibility that the Debtor here would make the checks written on the closed account good. Accordingly, the Court concludes that the Plaintiffs have not carried their burden in proving nondischargeability under § 523(a)(2)(A) and therefore, the debt owed to the Plaintiffs is dischargeable.
5. The appropriate judgment entry will follow.