In re Paul, Bankruptcy No. 00 B 28139
| Citation | 266 BR 686 |
| Decision Date | 14 September 2001 |
| Docket Number | Bankruptcy No. 00 B 28139,Adversary No. 00 A 01001. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re Ronald PAUL, Debtor. Park National Bank & Trust of Chicago, Plaintiff, v. Ronald Paul, Defendant. |
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Bradley H. Foreman, Chicago, IL, for Plaintiff.
Horace Fox, Chicago, IL, for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Park National Bank ("Park") seeks to prevent Ronald Paul ("Debtor") from discharging a debt ($15,239.82) for overdrawn checks on Debtor's corporate checking account. Park argues that the debt is nondischargeable under the fraud and willful damage to property exceptions of 11 U.S.C. § 523(a)(2)(A) and (a)(6), respectively. As a result of Debtor's default and entry of Default Order, Park moved for judgment on its Adversary Complaint. The Court now makes and enters its Findings of Fact and Conclusions of Law based on the defaulted allegations in Park's Complaint and the affidavit filed and admitted as part of the prove-up. Consistent with facts and conclusions of law enumerated below, Park's Motion is denied, and the Adversary proceeding will be set for trial to determine whether the debt is dischargeable.
1. Park National is a bank organized under the laws of the United States of America, with its principal office in Chicago, Illinois.
2. Technographics is an Illinois corporation formed in 1991 with its registered office in Chicago, Illinois and its principal place of business in Broadview, Illinois.
3. Debtor was the president, sole shareholder, and director of Technographics.
4. On or about June 1, 1992, Debtor and his son Bryan Paul, as agents of Technographics, opened a corporate bank account No. 173851 at Park National Bank (the "account").
5. Debtor and his son, acting as officers of Technographics, issued a resolution whereby they were the only persons with access to the account.
6. Between 1992 and June of 2000 both Debtor and Bryan Paul wrote checks on the account. Many of these checks were written when Debtor and his son knew that the account lacked sufficient funds to cover the checks. Thus, the account was often overdrawn. However, upon being notified of an overdraft either Debtor or his son would deposit funds to cover the overdraft. For example, on April 27, 2000, the account was overdrawn by $5,202.93. Debtor then made a deposit of $15,876.10 on April 28 which brought the account into positive balance.
7. Based on this practice, Park would often pay checks on the account even though there were insufficient funds to cover those checks. The Complaint pleads 22 checks of this nature listed in ¶ 9:
8. On at least two occasions there were unusual transactions on the account. For example, on or about May 15, 2000, the account had a balance of $585.20. On May 16, 2000, Debtor deposited $7,364.50 to the account in the form of the following checks:
Drawer Amount
A & H Lithoprint $7,338.50
EnvelopeExperts, Inc. $ 26.00
On the same day as this deposit, Bryan Paul executed check number 14110, in the amount of $7,338.50 back to A & H Lithoprint. Similar activity occurred on June 5, 2000, when Debtor deposited checks totaling $4,433.00 to the account:
Drawer Amount
All Printing & Graphics $3,086.00
EnvelopeExperts, Inc. $ 29.00
K & R, Inc. $1,318.00
On the date those deposits were made, the account balance was negative $5,406.65. Yet on the same day as the deposit, Bryan Paul executed a check for $3,645.74 back to All Printing & Graphics.
9. Technographics has since gone out of business, but the date of that was not established. The last deposit made to the account was the aforementioned deposit on June 5, 2000.
10. Park has not been reimbursed for many overdrawn checks that it honored and has sustained losses totaling $15,239.82 for payments made on these checks and for service fees.
11. On September 26, 2000, Debtor filed a Voluntary Chapter 7 Bankruptcy Petition in which Park was scheduled as an unsecured creditor with a claim of $15,239.00. Park responded by filing the instant Adversary Complaint.
1. This matter is before the Court pursuant to 28 U.S.C. § 157 and Local District Court Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(1). Venue lies in this district under 28 U.S.C. § 1409(a).
2. Fed.R.Civ.P. 55(b), made applicable to bankruptcy proceedings by Fed. R.Bankr.P. 7055(b), provides in relevant part:
Judgment by default may be entered as follows:
3. Judgment does not automatically follow after the entry of default. Valley Oak Credit Union v. Villegas, 132 B.R. 742, 746 (9th Cir. BAP 1991). Although, well-plead facts in the complaint are generally taken as true, the defendant does not by default admit conclusions of law. Therefore, it is left to the court to decide if the plaintiff is entitled to judgment as a matter of law. Id.
Section 523(a)(2)(A)
4. Under the Bankruptcy Code, a party seeking to except a discharge for fraud must establish each element of Section 523(a)(2)(A) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re Martin, 698 F.2d 883, 887 (7th Cir. 1983). The statute is narrowly construed so as not to undermine the Code's purpose of giving the honest but unfortunate debtor a fresh start. Grogan, Id. at 286-87; In re Scarlata, 979 F.2d 521, 524 (7th Cir.1992).
Section 523(a)(2)(A) provides in relevant part:
11 U.S.C. § 523(a)(2)(A).
5. Section 523(a)(2)(A) excepts debts from discharge that are based on either intentional misrepresentation or fraud. McClellan v. Cantrell, 217 F.3d 890, 893-94 (7th Cir.2000) ().
6. Under Illinois law, corporate officers are personally liable for their own fraudulent conduct. See In re Farbman, 244 B.R. 135, 141 (Bankr.N.D.Ill.2000, Schmetterer, J) and cases cited.
7. To except a debt from discharge the creditor must show either that: (1) the debtor made an intentional misrepresentation which the creditor justifiably relied upon, or (2) the debtor perpetrated a "positive" fraud against the creditor. McClellan, 217 F.3d at 894 (); Matter of Mercer, 246 F.3d 391, 407 (5th Cir.2001) ().
8. Misrepresentation of the type that...
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