Brian v. David (In re Davenport)
Decision Date | 02 May 2013 |
Docket Number | Bankruptcy No. 12–20766–13.,Adversary No. 12–02024–drd. |
Citation | 491 B.R. 911 |
Parties | In re David DAVENPORT and Amber Davenport, Debtors. Brian and Rebecca Smith, Plaintiffs v. David and Amber Davenport, Defendants. |
Court | U.S. Bankruptcy Court — Western District of Missouri |
OPINION TEXT STARTS HERE
Garrett S. Taylor, Van Matre, Harrison, Hollis & Taylor PC, Columbia, MO, for Plaintiffs.
J. Brian Baehr, The Baehr Law Firm, P.C., Columbia, MO, for Defendants.
The matter before this Court is the Complaint Objecting to Dischargeability of Debt Pursuant to 11 U.S.C. § 523 (the “Complaint”) filed by Brian Smith and Rebecca Smith (collectively, the “Plaintiffs”) against David Lee Davenport and Amber Rae Davenport (collectively, the “Debtors”). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). For the reasons set forth below, the Court rules in favor of the Debtors with respect to each of the Plaintiffs' claims.
On or about June 16, 2010, the Debtors entered into a Contract for Sale of Residential Real Estate with the Plaintiffs for the purchase of a home in Columbia, Missouri (the “Property”). As part of the transaction, the Debtors provided a Seller's Disclosure Statement (the “Disclosure”) to the Plaintiffs. On the Disclosure, the Debtors represented that they were not aware of any past or present water leakage on the Property (including the basement or crawl space). In addition, they stated that they were not aware of any mold, or any condition indicative of mold, present on the Property. The parties closed on the sale of the Property on or about July 30, 2010.
A mere three days after closing, on a rainy day, the Plaintiffs noticed that water was pooling on the basement floor. A couple of weeks later, during another day of rain, the Plaintiffs noticed water leaking through a bathroom wall. When they removed the plywood wall, the Plaintiffs discovered extensive wood rot from the water damage, mold, and even live slugs. The Plaintiffs' realtor advised them to notify the Debtors, and the Plaintiffs did. The Debtors were not agreeable to repurchasing the Property or making repairs.
The Debtors filed their Chapter 13 petition for relief on May 14, 2012. On August 13, 2012, the Plaintiffs initiated this adversary proceeding to determine the dischargeability of a debt pursuant to § 523(a)(2)(A) or alternatively, § 523(a)(2)(B), and § 523(a)(6).1 The damages claimed consist primarily of estimated repair expenses they assert they will make ( e.g., electrician, mold remediator, landscaper).2 The amount claimed also includes rental payments for a house the Plaintiffs leased for four months because of health concerns over the mold. Attorney's fees incurred by the Plaintiffs in connection with asserting these claims against the Debtors are included as well.
The Plaintiffs contend that the Debtors falsely and deceitfully represented the condition of the Property to them, knowing that the representations would induce them to purchase the Property. The Plaintiffs also contend that the Debtors willfully and maliciously caused the Plaintiffs to rely on the Disclosure and close on the Property, to their financial detriment. The Debtors have denied these allegations. Additionally, the Debtors assert that David Davenport never obtained any money, property or services from the Plaintiffs because he had no interest in the Property and did not receive or use the proceeds, and therefore, judgment should be entered in his favor on the § 523(a)(2)(A) claim. The Debtors also assert that the proper measure of damages is the differential between the purchase price and the actual market value of the Property, not the cost of repairs as proposed by the Plaintiffs. Finally, the Debtors assert that the Plaintiffshave not produced evidence relating solely to the § 523(a)(6) claim, nor have they introduced facts from which it can be inferred that the Debtors acted with willfulness and malice.
Section 523(a)(2)(A) provides:
A discharge under 727 ... of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition....
To succeed in an action under § 523(a)(2)(A), the creditor must prove the following elements by a preponderance of the evidence: 1) that the debtor made a false representation, 2) that at the time made, the debtor knew it to be false, 3) that the representation was made with the intention and purpose of deceiving the creditor, 4) that the creditor justifiably relied on the representation, and 5) that the creditor sustained injury as a proximate result of the representation having been made. In re Maurer, 256 B.R. 495, 500 (8th Cir. BAP 2000).
As a preliminary matter, the Court must decide whether David Davenport “obtained” money due to the false representation. The Plaintiffs assert that he benefitted from the false representations in that afterward he resided in a new home with his wife, and that this fact alone is sufficient to satisfy the “obtained by” requirement of the statute.3 They cite two cases to support their position: In re Reuter, 427 B.R. 727 (Bankr.W.D.Mo.2010), and Lawyers Title Ins. Corp. v. Dallam, 850 F.2d 446 (8th Cir.1988). Both are correctly cited for the view espoused by some courts that the debtor need not actually procure money or property for himself. Rather, all that is required is that the debtor derive some benefit from the money obtained by fraud. However, the facts on which these decisions are based differ significantly from the facts in this case.
In Reuter, the debtor and his partner were not spouses. Their relationship was an arms-length one, formed with the intent to combine money and experience to generate a profit. The debtor solicited investment funds in his capacity as a partner—the partnership benefitted and as a result, the debtor benefitted. In Dallam, the debtor operated her own construction business, serving as president and sole stockholder. Before the closing on one of her properties, she delivered to the title insurer an affidavit stating that all construction expenses were paid in full. Relying on the affidavit, the title company issued the insurance for the benefit of the debtor's business. The affidavit turned out to be false, so the title company objected to the debtor's discharge. In a footnote, the Dallam court noted that the fact that the debtor's closely-held corporation, rather than the debtor herself, obtained the benefit of the debtor's fraud did not alter her liability under § 523(a)(2).
Here, the Debtors were not business partners, nor were they engaged in any kind of profit-making venture. They were simply a married couple attempting to sell a home owned solely by the wife. The General Warranty Deed indicates that Mrs. Davenport purchased the Property in her name only ( i.e., Amber Nichols), before she was married to David Davenport. Even after she married him, she never executed a deed conveying an ownership interest in the Property to her husband. Mrs. Davenport testified that she was the only person obligated on the loan that financed the Property. Mr. Davenport was never added to the mortgage. When Mrs. Davenport received the proceeds from the sale of the Property, she deposited them in her individual bank account. There is no evidence as to what was done with the money thereafter. Thus, in this Court's view, Mrs. Davenport is the only party who “obtained money,” as that statutory phrase has been interpreted, from the misrepresentation that led to the sale of her home.
The first element that the Plaintiffs must prove, therefore, is that Amber Davenport (hereinafter, the “Debtor”) made false representations. The second element is that the Debtor knew the representations were false when made. Given that the nature of the representations in this case concern the Debtor's knowledge, these two elements are essentially the same and will be considered together. The Court finds that the Plaintiffs have met their burden as to both.
The Debtor made both oral and written representations regarding the condition of the Property that were simply untrue. Mrs. Smith testified that when she conversed with the Debtor about water leaks on the Property, the Debtor only disclosed a leak underneath the sink and a burst pipe above the ceiling. The Debtor circled “No” in response to the question on the Disclosure, “Are you aware of any past or present water leakage in the house, including the basement or crawl space or other structures?” Based on the record, particularly the expert testimony and photographs, there was indeed ongoing water leakage on the Property.
In assessing a debtor's knowledge of the falsity of the representation, the court must consider the knowledge and experience of the debtor. In re Moen, 238 B.R. 785, 791 (8th Cir. BAP 1999) (citations omitted). Mrs. Davenport testified that, with respect to the statements in the Disclosure that she was not aware of any leakage or water damage, she would “stand by those statements today.” There is sufficient evidence to show that those statements are false. In the first place, it is apparent that there were water issues while the Debtor resided in the Property in light of the fact that the basement “floor was completely saturated with water” almost immediately after the Plaintiffs moved in. It was only a short time later that water was leaking through the downstairs bathroom wall. In addition, based on the extent of the damage shown in the photographs made a part of the record, it is reasonable to conclude that the leakage was...
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