In re Horwitz
| Citation | 100 BR 395 |
| Decision Date | 12 May 1989 |
| Docket Number | Bankruptcy No. 88 B 16891,89 A 110.,Adv. No. 89 A 118 |
| Parties | In re Steven L. HORWITZ, Debtor. MICROTECH INTERNATIONAL, INC., Plaintiff, v. Steven L. HORWITZ, Defendant. CONDUCT U.S.A., INC., a California Corporation, Plaintiff, v. Steven L. HORWITZ, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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John E. Munger, Tressler, Soderstrom, Maloney & Priess, Chicago, Paul E. Bryer, W. Dundee, Ill., for plaintiff.
John C. Polster, Hollis & Johnson, Chicago, Ill., for defendant.
The Debtor in this case, Steven L. Horwitz ("Debtor"), brings this Motion to Dismiss Two Actions to Determine Dischargeability of Debts scheduled by Debtor. The first action, brought by Microtech International, Inc. ("Microtech") is based upon four checks issued by Debtor to Microtech, totaling $20,804.45. These checks were subsequently dishonored. Debtor issued the checks in payment for goods supplied to a corporation, Hort Industries, Inc. ("Hort"), of which Debtor was president and principal shareholder. Microtech seeks to have Debtor held personally liable on the checks and to have the debt created thereby declared nondischargeable under Bankruptcy Code Section 523(a)(2)(A).
The second action is brought by Conduct U.S.A., Inc., ("Conduct"). It is based upon two checks issued by Debtor to Conduct in the total amount of $20,825. Those checks also were issued by Debtor on behalf of Hort in payment for supplies and were subsequently dishonored. Conduct seeks to have Debtor held personally liable and to have the debt created thereby nondischargeable under Bankruptcy Code Section 523(a)(2)(A).
Because of the similarity of the issues presented by Debtor's Motion to Dismiss the two complaints, they have been consolidated for purposes of briefing and ruling. In this Opinion, this Court will sometimes refer to both Microtech and Conduct collectively as the "Plaintiffs."
The Debtor makes five arguments in his Motion to Dismiss. Because this Court finds one of those arguments dispositive of the Microtech Complaint and partially dispositive of the Conduct Complaint, this Court will deal with that argument first. This Court will then deal with Debtor's remaining arguments.
The Plaintiffs bring their actions under Bankruptcy Code Section 523(a)(2)(A). That section provides as follows: "A discharge under Section 727 . . . does not discharge an individual debtor from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation or actual fraud, other than a statement respecting the debtor's or an insider's financial condition. . . ." The elements of a cause of action under that section have been stated as follows: In re Nahas, 92 B.R. 726, 730 (Bankr.E.D.Mich.1988) (footnote omitted).
One of the Debtor's arguments in his Motion to Dismiss is that his mere issuance of checks to Plaintiffs does not meet the requirement of a statement or representation that is false. Both Plaintiffs strenuously argue against that proposition, noting that there is a split of authority on this issue. This issue is a pure question of law which is ripe for ruling by this Court, even at the Motion to Dismiss stage.
This Court acknowledges that there is a split of authority on the issue of whether the issuance of a check constitutes an implied representation that there are sufficient funds on account to cover the check. The leading cases holding that there is such an implied representation, many of them cited by the Plaintiffs, are: In re Perkins, 52 B.R. 355 (Bankr.M.D.Fla.1985); In re Mullin, 51 B.R. 377 (Bankr.S.D.Ind. 1985); In re Kurdoghlian, 30 B.R. 500 (9th Cir.B.A.P.1983); and In re Tabers, 28 B.R. 679 (Bankr.W.D.Ky.1983). See also, In re Burgstaler, 58 B.R. 508, 512-23 (Bankr.D. Minn.1986) (). This Court also acknowledges that a case from the Bankruptcy Court for the Northern District of Illinois, In re Almarc Mfg., Inc., 62 B.R. 684, 689 (Bankr.N. D.Ill.1986), has taken the position, in dictum, that it is well-established in bankruptcy law that issuing a check constitutes an implied representation, citing the Mullin case (although the case was dealing in its entirety with a preference issue under Bankruptcy Code Section 547(c)(4)).
Nevertheless, this Court notes that the courts taking the opposite position, that the issuance of a check is not an implied representation that there are sufficient funds to cover the check, have the support of a Supreme Court case. Williams v. United States, 458 U.S. 279, 102 S.Ct. 3088, 73 L.Ed.2d 767 (1982). That case held that one could not be convicted under 18 U.S.C. Section 1014, dealing with making false statements to federal banking institutions, for a scheme of check-kiting. In so holding, the Court analyzed the nature of a check and stated that issuing a check "did not involve the making of a `false statement,' for a simple reason: technically speaking, a check is not a factual assertion at all, and therefore cannot be characterized as `true' or `false'". 458 U.S. at 284, 102 S.Ct. at 3091. Thus, the necessary element under Section 1014 of a false statement is missing. By a parity of reasoning, the necessary element under Section 523(a)(2)(A) of a false representation is similarly missing.
The Plaintiffs argue that Williams is not on point because it dealt with the construction of a criminal statute. As such, the Court was applying the "rule of lenity" under which criminal statutes are to be strictly construed. Plaintiffs, however, ignore the fact that a similar rule applies to the construction of the exceptions to dischargeability under Section 523. Exceptions to discharge under the bankruptcy laws must be plainly expressed and strictly construed in favor of the debtor. In re Cross, 666 F.2d 873, 879-80 (5th Cir.1982); Mullally v. Carter, 67 B.R. 535, 536 (N.D. Ill.1986). Exceptions to discharge are strictly construed to further the policy of affording the debtor a broad discharge and an effective fresh start. In re Levinson, 58 B.R. 831, 837 (Bankr.N.D.Ill.1986). Thus, the Williams analysis is just as relevant to the interpretation of Section 523 as it is to the interpretation of 18 U.S.C. Section 1014.
This Court also notes that the more recent decisions dealing with this question have tended to follow Williams. See e.g., In re Hunter, 83 B.R. 803 (N.D.Fla.1988); In re Tuggle, 86 B.R. 612 (Bankr.E.D.Mo. 1988); Matter of Ethridge, 80 B.R. 581 (Bankr.M.D.Ga.1987). Furthermore, the cases supporting the Plaintiffs' position fail to deal with or even cite Williams.
This Court, therefore, based upon the overwhelming weight of authority, holds that, as a matter of law, Debtor's issuance of checks to Plaintiffs, without more, does not constitute a false representation within the meaning of Bankruptcy Code Section 523(a)(2)(A). The Microtech Complaint alleges no representations made by Debtor other than those alleged to arise by the mere issuance of checks by Debtor. Therefore, as a matter of law, the Microtech Complaint fails to state a cause of action and Debtor's Motion to Dismiss it will be granted under Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6).
Unlike the Microtech Complaint, however, the Conduct Complaint, in paragraph 17 thereof, alleges that Debtor made oral representations in addition to the alleged implied representations made merely by issuing the checks. Those oral representations are not governed by this Court's holding that, as a matter of law, the mere issuance of a check is not an implied representation that there are sufficient funds to cover it. Therefore, a further analysis will be made of those oral representations and Debtor's additional arguments.
The Conduct Complaint is based upon two checks issued by Debtor on behalf of Hort for supplies furnished by Conduct. The first check, for $6,200, was issued on July 27, 1988. It was returned for insufficient funds. Subsequently, on August 25, 1988, Conduct made a further delivery to Hort. Contemporaneously with that delivery, Debtor made two representations: (1) that the $6,200 check already returned for insufficient funds would be honored; and (2) that the additional check, for $14,625, issued to pay for the August 25, 1988, delivery, was covered by sufficient funds in the account against which it was drawn. Conduct alleges that the $14,625 check was also returned for insufficient funds. Conduct further alleges that it relied on Debtor's oral representations to its detriment and that Debtor knew that those representations were false when made and made them with intent to defraud Conduct.
Debtor directs his further arguments to the legal sufficiency of these allegations by Conduct.
Debtor argues that there is a requirement under Bankruptcy Code Section 523(a)(2)(A) that the Debtor himself obtain property by means of the alleged false representation. Debtor argues that if an entity other than Debtor, such as Debtor's corporation, Hort, obtained the property, the requirements of Section 523 are not met. Debtor bases this argument on language in the Tug...
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