In re Napier, Bankruptcy No. 96 B 00559

• Citation: 205 BR 900
• Decision Date: 03 March 1997
• Docket Number: Bankruptcy No. 96 B 00559,Adversary No. 96 A 00362.
• Parties: In re Tammy L. NAPIER, Debtor. Chuck PHILLIPS, Plaintiff, v. Tammy L. NAPIER, Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

205 B.R. 900 (1997)

In re Tammy L. NAPIER, Debtor.

Chuck PHILLIPS, Plaintiff, v. Tammy L. NAPIER, Defendant.

Bankruptcy No. 96 B 00559, Adversary No. 96 A 00362.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

March 3, 1997.

COPYRIGHT MATERIAL OMITTED

Chuck Phillips, Lockport, IL, and Orland Park, IL, pro se.

David R. Gervais, Crystal Lake, IL, for Defendant.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the complaint of the Plaintiff, Chuck Phillips (the "Creditor"), for a determination that the judgment debt owed him by the Defendant, Tammy L. Napier (the "Debtor"), is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). Additionally, the Debtor has requested an award of attorney's fees and costs under 11 U.S.C. § 523(d). For the reasons set forth herein, the Court hereby grants judgment in favor of the Debtor and finds the debt dischargeable. The Debtor's motion for directed findings pursuant to Federal Rule of Bankruptcy Procedure 7052 is granted in part. The Court denies the Debtor's request for fees and costs. Each party should bear its own fees and costs.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. FACTS AND BACKGROUND

The subject debt arose out of a pre-petition leasehold of an apartment for which the Creditor was the landlord and the Debtor was the tenant. The focus of the Creditor's claim that the debt is non-dischargeable is on a rental application submitted by the Debtor to the Creditor on August 18, 1994. See Plaintiff's Exhibit No. 1. According to the Creditor, the application is a standard form he has used for years for his apartment building in Oak Forest, Illinois. The information supplied therein by prospective tenants is reviewed and verified in part and a credit report is obtained for each applicant.

The first section of the application contains spaces to supply background information on the applicant's identification, current and previous addresses and employment, income from "weekly gross earnings" and "additional income." See Plaintiff's Exhibit No. 1. The second section contains places for similar information about the applicant's spouse. Id. The third section provides blanks for credit references and financial institutions wherein applicants maintain checking and savings accounts. Id. The fourth section has questions regarding the number of occupants, pets, and other miscellaneous information from the applicant. Id. The application form concludes with a certification of the truth and accuracy of the information supplied and an agreement to forfeit the deposit if any of the information is false. Id.

It is undisputed that the Debtor completed the subject application in her own handwriting and signed same. She disclosed that she had previously filed a bankruptcy case to the Creditor's agent, who made a marginal note thereof, before submitting the completed application to the Creditor for his review, investigation, and subsequent decision to lease the apartment to the Debtor for an initial term of one year. See Plaintiff's Exhibit No. 3 and Defendant's Exhibit No. 1.

The critical information upon which the Creditor relied in deciding to rent to the Debtor was the contents of a credit report, which he subsequently obtained, and the first portion of the application detailing the Debtor's "weekly gross earnings" and "additional income." Those portions of the application were filled in with the respective amounts of "$495.00" and "$300.00 mo" with the latter explained as "child support." See Plaintiff's Exhibit No. 1. These entries are at the heart of this matter and by which the Creditor contends the Debtor obtained the lease and related heating credit from him through a false financial statement violative of § 523(a)(2)(B).

The Debtor maintains those representations regarding her income were not materially false, nor did she have the requisite intent to defraud the Creditor because the application did not request her weekly salary from her employment. Rather, she testified that at that time, she was also receiving an additional $125.00 per week from her father to defray her living expenses. The Debtor's annual income for 1994 from her employment, as disclosed on her federal and state income tax returns (Plaintiff's Exhibit Nos. 8 and 9 and Defendant's Exhibit No. 3) and supporting W-2 forms (Plaintiff's Exhibit No. 10), showed a substantially lower gross earned income than that disclosed on the application. Her employer's payroll records showed varying gross incomes for the biweekly pay periods both before and after the application. See Plaintiff's Exhibit Nos. 12 and 13. Her payroll stub for the pay period ending on August 6, 1994, prior to the submission of the application, showed an average gross weekly wage of $393.97. See Plaintiff's Exhibit No. 11 and Defendant's Exhibit No. 4. According to the Debtor, she calculated the total $495.00 "weekly gross earnings" to be the $300.00 from her employment, plus $125.00 from her father, and $75.00 from her ex-husband for child support. See Plaintiff's Exhibit 15, p. 3 (Answers to Interrogatories 14 and 15). The controller of the Debtor's employer testified that her average weekly gross earnings from her employment at the time of application were at the highest level of the calendar quarter, with the Debtor's average weekly wages much lower for the first and second calendar quarters of 1994 in the $200-300 weekly range.

The Debtor's father corroborated her testimony that he had subsidized her living expenses since she and her former husband separated in 1991. At a minimum, in 1994 he gave her $250.00 every two weeks. According to the Debtor, she so orally advised the Creditor's agent. After the Debtor was shown the apartment and obtained the application form from the agent, she discussed it with her father and then filled it out. According to her, there was no place on the application for the separate disclosure of the financial support from her father, notwithstanding her separate itemization of the child support.

It is the Debtor's failure to specifically disclose the subsidy from her father that the Creditor alleges led him to erroneously compute that the Debtor had sufficient earned income to be able to afford the apartment. See Plaintiff's Exhibit No. 2. The credit report disclosed some of the Debtor's past adverse credit information and corroborated her voluntary disclosure of a previous bankruptcy. The Creditor verified the Debtor's employment status, but was unable to verify the Debtor's current and past employment income. Notwithstanding, he decided to lease the apartment to her. At some point thereafter, the lease payments and related heat charges went into arrears. The Creditor instituted a state court action to recover possession of the premises and damages from the Debtor and received both on December 14, 1995 under the terms of an order for possession and an award of $1,944.00 plus costs. See Plaintiff's Exhibit No. 7.

III. APPLICABLE STANDARDS

The party seeking to establish an exception to the discharge of a debt bears the burden of proof. Selfreliance Fed. Credit Union v. Harasymiw (In re Harasymiw), 895 F.2d 1170, 1172 (7th Cir.1990); Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 961 (Bankr.N.D.Ill.1995). The United States Supreme Court has held that the burden of proof required to establish an exception to discharge is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991); see also In re McFarland, 84 F.3d 943, 946 (7th Cir.), cert. denied, ___ U.S. ___, 117 S.Ct. 302, 136 L.Ed.2d 220 (1996); In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994). To further the policy of providing a debtor a fresh start in bankruptcy, "exceptions to discharge are to be construed strictly against a creditor and liberally in favor of a debtor." Goldberg Secs., Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir.1992) (quoting In re Zarzynski, 771 F.2d 304, 306 (7th Cir.1985)). Accord Meyer v. Rigdon, 36 F.3d 1375, 1385 (7th Cir.1994).

Section 523 of the Bankruptcy Code enumerates specific exceptions to the discharge-ability of debts. The Creditor contends that his debt arises from fraudulent conduct of the Debtor and as such is non-dischargeable under § 523(a)(2)(B), which provides in relevant part:

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

(2) for money, property, services, or an extension, renewal, or refinancing or credit, to the extent obtained by —

(B) use of a statement in writing —

(i) that is materially false (ii) respecting the debtor\'s . . . financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive.

11 U.S.C. § 523(a)(2)(B). To prevail on a complaint under § 523(a)(2)(B), the Creditor must prove five elements: (1) the Debtor made a statement in writing; (2) the statement was materially false; (3) the statement concerned the Debtor's financial condition; (4) in making the misrepresentation, the Debtor had an intent to deceive the Creditor; and (5) the Creditor actually and reasonably relied upon the misrepresentation. See In re Sheridan, 57 F.3d 627, 633 (7th Cir.1995); Harasymiw, 895 F.2d at 1172; In re Bogstad, 779 F.2d 370, 372 (7th Cir.1985).

IV. DISCUSSION

A. Whether the debt is dischargeable under § 523(a)(2)(B)

Two of the five elements needed to prove the Creditor's claim under § 523(a)(2)(B) are undisputed and were shown by the documentary evidence admitted at trial: that the Debtor made a statement in writing...