Ind. Dep't of Workforce Dev. v. Davis (In re Davis)

Full title: IN THE MATTER OF BRUCE EUGENE DAVIS and MARY REBECCA DAVIS, DEBTORS…

Court: UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

Date published: Nov 22, 2013

CASE NO. 12-34188 HCD (Bankr. N.D. Ind. Nov. 22, 2013)

Opinion

CASE NO. 12-34188 HCD PROC. NO. 13-3013

11-22-2013

IN THE MATTER OF BRUCE EUGENE DAVIS and MARY REBECCA DAVIS, DEBTORS. INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT, PLAINTIFF, v. BRUCE EUGENE DAVIS, DEFENDANT.

Maricel Elaine Villacampa Skiles, Esq., counsel for plaintiff, Office of the Indiana Attorney General, 302 West Washington Street, IGCS Fifth Floor, Indianapolis, Indiana 46204; and Bruce Eugene Davis, pro se, 416 Brookside Manor, Goshen, Indiana 46526.

HARRY C. DEES

CHAPTER 13

Appearances:

Maricel Elaine Villacampa Skiles, Esq., counsel for plaintiff, Office of the Indiana Attorney General, 302 West Washington Street, IGCS Fifth Floor, Indianapolis, Indiana 46204; and Bruce Eugene Davis, pro se, 416 Brookside Manor, Goshen, Indiana 46526.

MEMORANDUM OF DECISION

At South Bend, Indiana, on November 22, 2013.

Before the court is the Motion for Default Judgment filed by the plaintiff, State of Indiana on the relation of the Indiana Department of Workforce Development ("plaintiff" or "IDWD"), by counsel, against the defendant Bruce Eugene Davis, chapter 13 debtor ("defendant" or "Davis"). The plaintiff commenced this adversary proceeding by filing a Complaint To Determine Dischargeability of Debt pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(7). The defendant did not respond to the Complaint or to the Motion for Default Judgment. For the reasons stated below, the court grants the Motion for Default Judgment.¹

1 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. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

BACKGROUND

Bruce Eugene Davis and Mary Rebecca Davis filed a chapter 13 petition on December 19, 2012. IDWD timely filed a proof of claim, in the amount of $4,098.52, and timely filed an adversary proceeding against the debtor Bruce Eugene Davis. The Complaint alleged that the defendant received unemployment compensation benefits of $4,680.00, to which he was not entitled, and sought to have that debt declared nondischargeable as a debt for money obtained by false pretenses, false representation, or actual fraud. It also sought civil penalties of $1,170.00. After allowances for adjustments, set-offs, and repayment, the Complaint asked for entry of a judgment in the amount of $3,875.00 and requested that the debt be declared nondischargeable under §§ 523(a)(2)(A) and (a)(7). The debtor did not answer the Complaint.

DISCUSSION

The plaintiff asks the court to enter default judgment against the defendant because he neither appeared nor responded in this adversary proceeding. Rule 7055 of the Federal Rules of Bankruptcy Procedure governs defaults. That bankruptcy rule applies Rule 55 of the Federal Rules of Civil Procedure in adversary proceedings. Rule 55 clearly distinguishes between an "entry of default" and "judgment by default." See Lowe v. McGraw-Hill Cos., Inc., 361 F.3d 335, 339 (7th Cir. 2004). In default cases, however, the court begins its analysis by considering whether the defendant received appropriate notice of the charges against him in the plaintiff's Complaint.

The court determined that the Complaint initiating the adversary proceeding was timely filed. See Fed. R. Bankr. P. 4007(c). The plaintiff duly served the summons and Complaint upon the debtor-defendant and his bankruptcy attorney of record, pursuant to Federal Rules of Bankruptcy Procedure 7004(b)(9) and (g). See R. 5. Service was effected by first class United States mail and by certified mail, and the certified mail return receipts were attached to the Certificate of Service, thereby verifying proper proof of service and notice. The defendant failed to appear or to file a response within thirty days of issuance of the summons and Complaint. See Fed. R. Bankr. P. 7012(a). Once the deadline had passed, the plaintiff sought entry of default.

The court finds that the plaintiff followed the criteria set forth in the rules governing defaults. It complied with Rule 55(a) by establishing the defendant's default in its Motion and Affidavit in Support. See R. 8; see also Target Nat'l Bank v. Redmond (In re Redmond), 399 B.R. 628, 632 (Bankr. N.D. Ind. 2008). The Clerk of the Court then entered the default against the defendant. See R. 9.

The plaintiff now requests that the court enter a judgment by default, in accordance with Rule 55(b). See R. 11. Attached to the Motion for Default Judgment are the Affidavit of Indebtedness and Affidavit for Default Judgment. The first was the declaration of the plaintiff's Collection Specialist that the defendant filed unemployment benefit claims, certifying that he was unemployed, and received benefits, but was ineligible to receive those benefits. It stated that the defendant owed the plaintiff $3,875.00. The second was the declaration of plaintiff's counsel, verifying that the defendant was not an infant, an incompetent person, or one on active military duty, as confirmed by the Department of Defense Manpower Data Center. Also attached to the Motion were documentary exhibits: 11 weekly voucher forms declaring that the defendant did not work and sought benefits for 11 weeks (Ex. A); the plaintiff's Investigation Case History (Ex. B); the plaintiff's Determination of Eligibility (Ex. C); and the plaintiff's Notice of Potential Overpayment for the 12 weeks the defendant received unemployment benefits while he was working (Ex. D).² Exhibit E is the defendant's acknowledgment of his indebtedness to the plaintiff and his agreement to pay the debt in monthly installments, beginning January 16, 2012, and continuing until full payment is made.

2 The Investigation Case History lists 13 weeks in which benefit payments were made. See R. 1, Ex. B. The weekly vouchers confirm 11 of those weekly requests for benefits by the defendant. See id., Ex. A. The vouchers for 01/01/2011 and 02/19/2011 were not included in Exhibit A. The court noted, however, that Indiana did not charge any overpayment of benefits for the week of 01/01/2011. See id. Ex. D.

In the Motion for Default Judgment itself, the plaintiff presented its § 523(a)(2)(A) claim by setting forth its undisputed facts, gleaned from the attached documents:

(1) Davis received weekly unemployment benefits by stating that he was unemployed;
(2) Davis certified that he was unemployed, available for work, and eligible to receive benefits;
(3) Davis answered the question "Worked this week?" as "NO" on his Weekly Claims vouchers;
(4) IDWD determined that Davis was employed by Forest River Inc. for numerous weeks; and
(5) IDWD paid Davis $4,680.00 in benefits for the compensable weeks he claimed to be unemployed.

See R. 11, ¶¶ 7-10. When an investigator questioned him at an interview, the defendant said that "he was going through some tough times financially and needed the money." Id., ¶ 12 (citing Ex. C). IDWD thereafter made a determination of ineligibility and sent Davis notice of the overpayment of benefits to him. See id. , Ex. D. Davis did not appeal the determination; in fact, he acknowledged his indebtedness to IDWD and agreed to repay IDWD in installments. See id., Ex. E.

The Motion for Default Judgment summarized its argument for nondischargeability of the debt Davis owed to IDWD:

In summary, the Defendant, BRUCE E. DAVIS, obtained unemployment benefits from the Department by certifying that he was unemployed and eligible to receive benefits. DAVIS knew that his representations were false because he was employed at the same time he was receiving unemployment benefits. DAVIS deceived the Department, and the Department relied on DAVIS's deceptions to its detriment, i.e., it erroneously paid unemployment benefits to BRUCE E. DAVIS - benefits in [sic] which the Defendant was not entitled.

R. 11, ¶ 16. It asked the court for a judgment of nondischargeability in its favor by default. The defendant did not file any response to the Motion.

A bankruptcy court's entry of a judgment by default is discretionary. See Sun v. Board of Trustees of Univ. of Ill., 473 F.3d 799, 810 (7th Cir.), cert. denied, 551 U.S. 1114, 127 S. Ct. 2941, 168 L.Ed.2d 262 (2007). It may be denied when the facts are insufficient to support the claim in the complaint. See In re Mergen, 473 B.R. 743, 744 (Bankr. W.D. Wis. 2012). Particularly in a bankruptcy setting, in which "a debtor has a presumptive right to a discharge, default motions should not be granted unless the movant demonstrates that its debt is nondischargeable as a matter of law." In re Dade, 2012 WL 1556510 at *4 (Bankr. C.D. Ill. May 1, 2012) (citations omitted); see also In re Liebl, 434 B.R. 529, 536 (Bankr. N.D. Ill. 2010); In re Hostetter, 320 B.R. 674, 678 (Bankr. N.D. Ind. 2005).

The court finds, first, that the plaintiff's request for a default judgment under Rule 55(b) included the required supporting affidavit that verified the defendant's status as not an infant, an incompetent person, or one holding military status. It presented the appropriate information that complied with the Soldiers' and Sailors' Civil Relief Act, 50 U.S.C. App., § 501 et seq. See In re Redmond, 399 B.R. at 632 (citing cases). Before entering a default judgment, however, the court also requires that a plaintiff establish a prima facie showing on the merits of its claim. See In re Taylor, 289 B.R. 379, 382 (Bankr. N.D. Ind. 2003) ("[B]efore a litigant is awarded the relief it seeks when the opposing party fails to respond, the court needs to satisfy itself that the facts before it demonstrate a prima facie entitlement to that relief."); cf. Ojeda v. Goldberg, 599 F.3d 712, 718 (7th Cir. 2010) (stating that "exceptions to discharge are to be construed strictly against a creditor and liberally in favor of the debtor") (quoting cases). The plaintiff's Complaint asked the court to declare nondischargeable the defendant's debt to IDWD under § 523(a)(2)(A) as a debt for money obtained by false pretenses, false representation, or actual fraud.

Under § 523(a)(2)(A), a plaintiff must establish that (1) this defendant obtained the plaintiff's money through representations that the defendant either knew to be false or made with such reckless disregard for the truth as to constitute willful misrepresentation; (2) the defendant acted with an intent to deceive the plaintiff; and (3) the plaintiff justifiably relied on the defendant's false representations to its detriment. See, e.g., In re Davis, 638 F.3d 549, 553 (7th Cir. 2011); Ojeda, 599 F.3d at 716-17; In re Maurice, 21 F.3d 767, 774 (7th Cir. 1994).

This court, having evaluated the plaintiff's default judgment motion, together with the attachments, finds that IDWD demonstrated that the defendant obtained the plaintiff's money by applying for and receiving unemployment benefits through representations on the vouchers that he was not working. However, during the compensable weeks of January 8, 2011 through February 26, 2011, and July 9, 2011 through July 30, 2011, Davis in fact was employed and paid by Forest River Inc. See R. 11, ¶ 9. The plaintiff asserted that the defendant "failed to disclose material facts which would have made [him] ineligible to receive benefits." Id., ¶ 13 (citing Ind. Code § 22-4-13-1.1(b)). The court determines that the defendant falsely stated, on numerous weekly vouchers, the material fact that he was unemployed, thereby receiving benefits to which he was not entitled. See, e.g., Telligman v. Review Bd. of IDWD, ___N.E.2d ___, 2013 WL 5799438 at *7 (Ind. App. Oct. 29, 2013) (affirming Board decision that defendant falsified facts to obtain unemployment benefits while employed).

The court also finds that the plaintiff paid the defendant unemployment benefits in reliance on the defendant's false representations that he was unemployed. See, e.g., In re Yuppa, 2013 WL 4854479 at *4 (Bankr. S.D. Ohio, June 12, 2013) (finding that state agency justifiably relied on defendant's misrepresentations on benefits applications and certifications); In re O'Brien, 110 B.R. 27, 32-33 (Bankr. D. Colo. 1990) (finding that state agency, by ensuring that there was a basis for relying on debtor's representation, reasonably relied). The court thus determines that IDWD met its burden of showing the first and third factors of the prima facie test of § 523(a)(2)(A), false representation and justifiable reliance.

However, the plaintiff's showing concerning the second essential element, the defendant's intent to deceive the plaintiff, was problematic. The plaintiff made no allegation of the defendant's intent to deceive in its Complaint, and in its Motion for Default Judgment it merely stated conclusorily that "Davis deceived the Department." R. 11, ¶ 16. The investigator of Davis's claim conducted the interview to determine whether he "failed to disclose or misrepresented material facts," but he made no inquiry into Davis's intent. See id., Ex. C. In fact, the Indiana unemployment compensation statute upon which the plaintiff relies, Indiana Code § 22-4-13-1(c), contains no requirement that an intent to deceive be found. It states:

(c) Any individual who knowingly:

(1) makes, or causes to be made by another, a false statement or representation of a material fact knowing it to be false; or
(2) fails, or causes another to fail, to disclose a material fact; and

as a result thereof has received any amount as benefits to which the individual is not entitled under this article, shall be liable to repay such amount, with interest at the rate of one-half percent (0.5%) per month, to the department . . . .

Ind. Code § 22-4-13-1(c). The statute requires a finding of a knowingly false representation or omission of a material fact, but it lacks any language requiring examination of the claimant's intent to deceive.³ The plaintiff did not direct the court to any provision or case imposing a showing of fraudulent intent under the state unemployment benefits statutes, and the court has found none. The court concludes that the element of intent to deceive is not essential to a recovery under Indiana Code § 22-4-13-1(c) but is required under § 523(a)(2)(A) of the Bankruptcy Code. It further determines that, in this case, fraudulent intent was not determined by the plaintiff's investigator or argued sufficiently by the plaintiff.⁴

3 After a brief review of the Indiana unemployment compensation provisions, the court is of the opinion that the statutes generally do not condition ineligibility of benefits on the actual intent of a claimant. For example, in the denial-of-benefits cases based upon a claimant's "discharge for just cause," codified at Indiana Code § 22-4-15-1(d), "there is no specified statutory intent for discharges for breach of duty." Recker v. Review Bd. of IDWD, 958 N.E.2d 1136, 1142 (Ind. 2011). "Fault or just cause for discharge, in the unemployment context, means 'failure or volition, and does not mean something blameworthy, culpable, or worthy of censure.'" Davis v. Review Bd. of IDWD, 900 N.E.2d 488, 493 (Ind. App. 2009) (quoting Wakshlag v. Review Bd. of Ind. Employment Security Div., 413 N.E.2d 1078, 1082 (Ind. App. 1980)). Wakshlag noted that the law does not require "findings of fact as to subjective intent if discharge is reasonably justified on the employee's objective behavior." Id. (citation omitted).

4 Compare In re Chen, 227 B.R. 614 (D.N.J. 1998) (affirming bankruptcy court's decision that state statute required knowing misrepresentation, not intent to deceive, and that defendant did not have the intent to deceive required for § 523(a)(2)(A)).
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Nevertheless, the plaintiff presented a document which demonstrated the defendant's intent to deceive. The defendant had appeared at an interview with the claims investigator and had stated that he was "going through some tough times financially and needed the money." R. 11, ¶ 12; Ex. C. About a month later, Davis executed an Installment Payment Agreement, stating:

I, [Bruce E. Davis], acknowledge indebtedness to the [IDWD] in the amount of $5,800.00, said amount consisting of unemployment insurance benefits determined improperly paid to me.

R. 11, Ex. E. The defendant thus admitted the debt, admitted that he needed the money during some tough times, and admitted making numerous knowingly false statements on the weekly vouchers that he was unemployed - during the weeks that he was working for Forest River Inc. See In re Yuppa, 2013 WL 4854479 at *4 ("Repeated misrepresentations of employment status when applying for unemployment benefits are sufficient to prove fraudulent intent.") (citing cases). In the view of this court, those admissions provide conclusive circumstantial evidence that Davis intended to deceive IDWD in order to obtain unemployment benefits from IDWD. They also provide evidentiary justification for the civil penalties to which the defendant was subjected for each instance of his knowingly false statements.

Based upon the defendant's own statement to the investigator, the Installment Payment Agreement, and the unrebutted facts in the plaintiff's Motion for Default Judgment and appended documents, the court determines that the plaintiff has succeeded in demonstrating the second essential component to a determination of nondischargeability under § 523(a)(2)(A), the defendant's intent to deceive the plaintiff. Consequently, the court concludes that the plaintiff has established a prima facie showing of each of the required elements of nondischargeability of a debt under § 523(a)(2)(A). It also has established a sufficient showing for nondischargeability "to the extent such debt is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit" under § 523(a)(7).

Accordingly, the court finds that the plaintiff has complied with the procedural requirements of Federal Rule of Bankruptcy Procedure 7055 and Federal Rule of Civil Procedure 55(a) and (b). Concluding that a judgment by default is proper, the court grants the plaintiff's Motion for Default Judgment against the defendant. It also grants the relief sought in the Complaint pursuant to § 523(a)(2)(A) and § 523(a)(7). Judgment of nondischargeability is entered against the defendant in the amount of $3,875.00 and costs in this adversary proceeding.

CONCLUSION

For the reasons presented in this Memorandum of Decision, the Motion for Default Judgment filed by the plaintiff, the State of Indiana on the relation of the Indiana Department of Workforce Development, against the defendant Bruce Eugene Davis, is granted. The relief requested in the plaintiff's Complaint pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(7) is granted. The obligation owed by the defendant to the plaintiff, in the amount of $3,875.00 plus costs, is excepted from the defendant-debtor's discharge.

SO ORDERED.

__________

HARRY C. DEES, JR., JUDGE

UNITED STATES BANKRUPTCY COURT