In re Cochran, Bankruptcy No. 87-169-BKC-6P7

• Decision Date: 07 September 1988
• Docket Number: Bankruptcy No. 87-169-BKC-6P7,Adv. No. 87-105.
• Parties: In re Donald Burgess COCHRAN, Debtor. SWIM AID OF PALM BEACH COUNTY, INC., a Florida corporation and Thomas Hannon, Jr., a/k/a James T. Hannon, a/k/a James Hannon, Plaintiffs, v. Donald Burgess COCHRAN, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida

90 B.R. 523 (1988)

In re Donald Burgess COCHRAN, Debtor.

SWIM AID OF PALM BEACH COUNTY, INC., a Florida corporation and Thomas Hannon, Jr., a/k/a James T. Hannon, a/k/a James Hannon, Plaintiffs, v. Donald Burgess COCHRAN, Defendant.

Bankruptcy No. 87-169-BKC-6P7, Adv. No. 87-105.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

September 7, 1988.

Charles F. Edwards, Orlando, Fla., for plaintiffs.

Andrew Baron, Orlando, Fla., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GEORGE L. PROCTOR, Bankruptcy Judge.

This adversary proceeding is before the Court upon the complaint filed by Swim Aid of Palm Beach County, Inc., and Thomas Hannon, Jr., seeking an exception to discharge under 11 U.S.C. § 523(a)(2)(A) for monies allegedly obtained upon false pretenses, false representations, and actual fraud. A trial of this matter was held July 21, 1988, and upon the evidence presented, the Court enters the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

Pre-petition, the defendant held the exclusive right to distribute Swim Aid water purification systems in the State of Florida, for a one-year period which was automatically renewable for subsequent one-year periods provided there was a sale of a minimum of 400 units per year.

To facilitate the sale of the Swim Aid products in Florida, defendant decided to partition his sales territory by entering into various sub-distribution arrangements. On April 7, 1985, defendant entered into such an agreement with the plaintiffs granting them the exclusive right to distribute Swim Aid water purification systems in Palm Beach County, Florida, for $10,000.00. This distributorship was subject to continuation on an annual basis provided plaintiffs purchased a minimum of ten water purification units per year from defendant.

Plaintiffs later purchased the distributorship for Orange County, Florida, for $10,000 on June 10, 1985, on the same terms and conditions. Additionally, plaintiffs paid the defendant $4,950.00 for ten Swim Aid water purification systems.

Several of these Swim Aid water purification systems proved to be defective. The plaintiffs asked defendant for replacement, but he refused. Plaintiffs then contacted the manufacturer of the product in Scottsdale, Arizona, to complain about the lack of dealer support. There, for the first time, plaintiffs learned that the manufacturer did not agree that defendant had the authority to sub-franchise distribution rights.

On January 23, 1987, the defendant filed a petition for relief under Chapter 7 of the Bankruptcy Code. On April 27, 1987, the plaintiffs initiated this adversary proceeding seeking to except from discharge under § 523(a)(2)(A) the amounts they invested in the sub-franchise agreements. Their primary contention is that defendant was not authorized to sell the sub-franchise agreements and in so doing, he obtained money upon false pretenses, false representations, and/or actual fraud.

A trial of this case was held July 21, 1988. The Court, at trial, found that the $4,950.00 paid for the ten water purification systems delivered to plaintiffs could not be excepted from discharge as it simply represents damages flowing from a breach of contract. The remaining issue of whether the $20,000.00 plaintiffs invested in the sub-franchise agreements should be excepted from discharge was taken under advisement, and the Court now rules against such exception.

CONCLUSIONS OF LAW

Section 523 (a)(2)(A) of the Bankruptcy Code provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) 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 then a statement respecting the debtor\'s or an insider\'s financial condition.

Plaintiffs contend that defendant violates this section when he sold to them the exclusive right to sell the Swim Aid product in Orange and Palm Beach counties. In support of their position, plaintiffs introduced a letter dated February 24, 1986, from Dan Rutland, Vice-President of Swim Aid Products, Inc., informing the plaintiffs that the manufacturer no longer had a franchise agreement with the defendant. The letter also contained several damaging statements concerning the defendant's character. These allegations are repeated in the deposition of Mr. Rutland which was introduced at trial.

The defendant's testimony supports a different version. He testified that during his negotiations with Swim Aid Products, Inc., he dealt exclusively with Don Rey, the former president of the company. Defendant further testified that Dan Rutland was...