Coluccio v. Sevastakis (In re Sevastakis), Case No. 17-10245 (MBK)

• Decision Date: 26 September 2018
• Docket Number: Case No. 17-10245 (MBK),Adv. Pro. No. 17-01243 (MBK)
• Citation: 591 B.R. 197
• Parties: IN RE: John SEVASTAKIS, Debtor. Frank Coluccio & Josephine Coluccio, Plaintiff, v. John Sevastakis, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

591 B.R. 197

IN RE: John SEVASTAKIS, Debtor.Frank Coluccio & Josephine Coluccio, Plaintiff,

v.John Sevastakis, Defendant.

Case No. 17-10245 (MBK)

Adv. Pro. No. 17-01243 (MBK)

United States Bankruptcy Court, D. New Jersey.

Signed September 26, 2018

John J. Lavin, Lavin and Associates, PC, Chester, NJ, for Plaintiff.

Katherine B. Galdieri, Andrew J. Kelly, The Kelly Firm, P.C., Spring Lake, NJ, for Defendant.

MEMORANDUM DECISION

Honorable Michael B. Kaplan, United States Bankruptcy Judge

Presently before the Court in this adversary proceeding are competing motions for summary judgment. The first is a motion for summary judgment (ECF No. 24) filed by Plaintiffs Frank and Josephine Coluccio ("Plaintiffs") seeking to deny discharge of a debt owed to them by Debtor John Sevastakis ("Debtor") under 11 U.S.C. § 523(a)(2)(A). Debtor opposed the motion and filed a cross-motion (ECF No. 27) seeking summary judgment in his favor on all counts of Plaintiffs' Complaint. The Court has read all submissions, considered the arguments made during the hearing on August 6, 2018, and has reviewed the state court materials and transcripts supplied by counsel. For the reasons set forth below, Plaintiffs' motion is GRANTED and Debtor's motion is DENIED. The debt is deemed nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).

I. Jurisdiction

The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I). Venue is proper in this Court pursuant to 28 U.S.C. § 1408 and § 1409. The following constitutes the Court's findings of fact and conclusions of law as required by FED. R. BANKR. P. 7052.¹

II. Background and Procedural History

The factual history of this case is well known to the parties and will not be repeated in detail here. The pertinent facts, which are undisputed and determinative of this case, are as follows: Plaintiffs entered into a written contract with Sevas Builders, Inc. for certain renovations and an addition to their single-family home. On September 28, 2006, Plaintiffs filed a Complaint in the Superior Court of New Jersey, Ocean County, seeking damages from Sevas Builders, Inc. and from Debtor (individually and as owner of Sevas Builders, Inc.) based upon breach of contract, negligence, breach of warranty, breach of the implied covenant of good faith and fair dealing, conversion, and violations of the New Jersey Consumer Fraud Act, N.J. STAT. ANN. § 56:8 ("NJCFA"). After a fourteen-day nonjury trial in Monmouth County Superior Court² the state court judge issued an Opinion and an Order for Judgment—dated June 7, 2013—and an Amended Order for Judgment—dated June 17, 2013—finding Debtor and Sevas Builders, Inc. jointly and severally liable to Plaintiffs in the amount of $761,527 for fraud and various misrepresentations. Debtor appealed and the New Jersey Appellate Division affirmed the superior court decision. The specifics of the state court's findings, as they relate to the motions presently before this Court, will be discussed in detail below.

On June 5, 2017, Debtor filed a voluntary petition for chapter 7 relief. Plaintiffs filed an adversary proceeding on April 3, 2017 seeking to declare the debt owed to them nondischargeable under 11 U.S.C. § 523(a)(2)(A).^{3 , 4} This Court is now faced with competing motions for summary judgment.

III. Legal Discussion

A. Summary Judgment Standard

Summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). As the Supreme Court has indicated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy, and inexpensive determination of every action.’ " Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing FED. R. CIV. P. 1 ). "In deciding a motion for summary judgment, the judge's function is to determine if there is a genuine issue for trial." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir. 1993).

The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact. Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir. 2001) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548 ). In determining whether a factual dispute warranting trial exists, the court must view the record evidence and the summary judgment submissions in the light most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Disputed material facts are those "that might affect the outcome of the suit under the governing law." Id. at 248, 106 S.Ct. 2505. A dispute is genuine when it is "triable," that is, when reasonable minds could disagree on the result. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted).

"Once the moving party establishes the absence of a genuine dispute of material fact, however, the burden shifts to the non-moving party to ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ " In re Moran-Hernandez , 544 B.R. 796, 800 (Bankr. D.N.J. 2016) (quoting Matsushita, 475 U.S. at 586, 106 S.Ct. 1348 ). A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that "would be admissible in evidence," establishing the existence of a genuine dispute of material fact for trial. FED. R. CIV. P. 56(e) (providing that in response to a summary judgment motion the "adverse party may not rest upon the mere allegations or denials of [its] pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine [dispute] for trial"). See also Fireman's Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982) ; Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir. 1972). If the nonmoving party's evidence is a mere scintilla or is not "significantly probative," the court may grant summary judgment. Liberty Lobby, Inc., supra, 477 U.S. at 249–250, 106 S.Ct. 2505. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’ " Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

B. Standard for Claim Under § 523(a)(2)(A)

Section 523 of the Bankruptcy Code provides that:

a discharge under section 727... of this title does not discharge an individual debtor from any debt—

...

(2) for money, property, services, ... or 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[.]

11 U.S.C. § 523(a)(2)(A). The terms "false pretenses," "false representation," and "actual fraud" are not explicitly defined in the Code; nevertheless, the Supreme Court has dictated that "[t]hey are common-law terms, and ... imply elements that the common law has defined them to include." Field v. Mans , 516 U.S. 59, 69, 116 S.Ct. 437, 443, 133 L.Ed.2d 351 (1995). Among these three grounds for nondischargeability, courts in this Circuit often distinguish between "false pretenses" and "false representation" based on whether the debtor's misrepresentation was implied—indicating "false pretense"—or express—indicating "false representation." See, e.g. , In re Williams , No. 15-23287, 2018 WL 3344174, at *14 (Bankr. D.N.J. July 5, 2018) (collecting cases); In re Chung-Hwan Kim , No. 12-30363, 2018 WL 671467, at *21 (Bankr. D.N.J. Jan. 31, 2018) ; In re Witmer , 541 B.R. 769, 778 (Bankr. M.D. Pa. 2015). The third cause of action under § 523(a)(2)(A), "actual fraud," is defined by the elements of common law fraud. See Field v. Mans , 516 U.S. at 68-72, 116 S.Ct. 437 ; In re Williams , 2018 WL 3344174, at *14.

Courts have noted that "[a]lthough the terms ‘false pretenses,’ ‘false representation,’ and ‘actual fraud’ refer to different concepts, they are closely related and each requires a plaintiff to demonstrate proof of false or deceptive conduct, fraudulent intent, and justifiable reliance." In re Altieri , No. 11-12819, 2012 WL 3595298, at *2 (Bankr. D.N.J. Aug. 20, 2012) (internal quotations and citations omitted); see also In re Chung-Hwan Kim , 2018 WL 671467, at *22. Accordingly, courts generally require that a movant prove some variation of the following elements in order to establish fraud of any type under § 523(a)(2)(A) :

(1) the debtor obtained money, property or services through a material misrepresentation;

(2) the debtor, at the time, knew the representation was false or made with gross recklessness as to its truth;

(3) the debtor intended to deceive the creditor;

(4) the creditor justifiably relied on the debtor's false representations; and

(5) the creditor sustained a loss and damages as a proximate result of the debtor's materially false representations.⁵

See In Re Gallagher , 2016 WL 4989942, at *2–3 (Bankr. D.N.J. Sept. 9, 2016).⁶ These elements must be established by a preponderance of the evidence. See Grogan v. Garner , 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991). "Generally, the provisions of section 523(a) are ‘strictly construed against creditors and liberally construed in favor of debtors,’ owing to the overriding bankruptcy purpose of granting debtors a fresh start." In Re Gallagher , 2016 WL 4989942, at *2 (quoting In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995) ).

In cases involving a debtor-contractor, such as the case presently before this Court, courts in this...