In re Rahrig

• Decision Date: 22 August 2007
• Docket Number: No. 06-3637.,06-3637.
• Citation: 373 B.R. 829
• Parties: In re Roger RAHRIG, Jr., Debtor. Vera Siebanoller, Plaintiff, v. Roger Rahrig, Jr., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

373 B.R. 829

In re Roger RAHRIG, Jr., Debtor Vera Siebanoller, Plaintiff, v. Roger Rahrig, Jr., Defendant.

No. 06-3637.

United States Bankruptcy Court, N.D. Ohio.

August 22, 2007.

COPYRIGHT MATERIAL OMITTED

William H. White, Lima, OH, for Plaintiff.

Robert J. Honigford, Lima, OH, for Defendant.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court after a Trial on the Plaintiff's Complaint to Determine Dischargeability. At the conclusion of the Trial, the Court deferred ruling on the matter so as to afford the opportunity to thoroughly review the evidence in this case, together with the respective arguments made by the Parties. The Court has now had this opportunity, and finds, for the reasons set forth herein, that the Plaintiff has failed to sustain her evidentiary burden, and thus her Complaint will be Dismissed. With respect to this ruling, the succeeding discussion shall constitute this Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

BACKGROUND

On August 18, 2003, the Defendant/Debtor, Roger L. Rahrig, Jr. (hereinafter the "Defendant"), entered into a contractual relationship with the Plaintiff/Creditor, Vera M. Siebanoller (hereinafter the "Plaintiff'). The purpose of the contract involved several remodeling projects at the Plaintiffs residence. For this, the Defendant prepared separate proposals for each project, including one for the construction of an addition on the back of the Plaintiffs residence as well as another for its re-roofing. In each proposal, the Defendant provided an itemized list of the jobs to be performed. (Pl.Ex. A & Def. Ex. B). Thereafter, the Plaintiff accepted the Defendant's proposals, then writing a check to the Defendant for $11,350.00, the total amount specified by the proposals. (Pl.Ex. B). The Defendant then commenced work a "couple" of days later.

On September 14, 2003, a disagreement took place between the Parties precipitating the complete termination of any direct contact between them. While many of the facts surrounding the disagreement are disputed, — for example, whether the Defendant physically assaulted the Plaintiff — this much can be deduced. First, after the disagreement, the police were contacted by the Plaintiff who, in turn, contacted the Defendant regarding the Plaintiffs concerns. Second, one day after the disagreement, the Plaintiff hired another contractor to complete those projects which remained unfinished. Third, prior to the disagreement, the Defendant had taken steps to complete those projects for which he had been hired. This work included having building materials delivered to the Plaintiffs residence, constructing walls for the addition to the Plaintiffs residence, and removing from the roof of the Plaintiffs residence the old shingles as well as most of, the tar paper.¹

Based upon these events, the Plaintiff commenced an action in state court, seeking $60,000.00 in damages for the injuries allegedly caused by the Defendant to her property and to her person. On October 4, 2006, the Defendant filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. By way of the instant action, the Plaintiff seeks a determination that any debt arising from those injuries she alleges in her state-court complaint should be determined nondischargeable in the Defendant's bankruptcy case.

DISCUSSION

Before this Court is the Plaintiffs Complaint to Determine Dischargeability of Debt pursuant to 11 U.S.C. § 523(a). Proceedings brought to determine the dischargeability of particular debts are deemed core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I). Accordingly, this Court has the jurisdictional authority to enter final orders and judgments in this matter. Id.; 28 U.S.C. § 1334.

In seeking to have her claim against the Defendant held to be a nondischargeable debt, the Plaintiffs complaint states, in the main, that: "the Defendant's discharge should be denied pursuant to the [sic] 11 U.S.C. § 523(a)(6) and judgment should be granted accordingly as the obligation owed by the Defendant was the result of fraudulent and intentional acts by the Defendant." (Doc. No. 1). Based upon this language, the Plaintiffs Complaint appears to assert a cause of action not only under the provision specified, § 523(a)(6) — which excepts from discharge debts resulting from a willful and malicious injury — but also under these other two provisions: § 523(a)(2)(A), excepting from discharge those debts incurred through fraud; and § 727(b), denying a debtor's entire discharge in certain situations when the debtor has been fraudulent toward the bankruptcy process. Yet, regarding these three causes of action, the evidence at Trial only raised the issue of dischargeability. Accordingly, the Court's analysis will only address the Plaintiffs causes of action under §§ 523(a)(2)(A) and (6). See 11 U.S.C. § 105(a); In re Barton, 321 B.R. 869, 875 (Bankr.N.D.Ohio 2004) (bankruptcy court, under its equitable powers, may revise a pleading to conform to the evidence presented); FED.R.BANKR.P. 7015(b).

Sections 523(a)(2)(A) and (a)(6) provide, 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 of 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;

(6) for willful and malicious injury by the debtor to another entity or to the property of another entity[.]

So as to also further the fresh-start policy of the Bankruptcy Code, these exceptions to dischargeability are narrowly construed in favor of the debtor. Monsanto Co. v. Trantham (In re Trantham), 304 B.R. 298, 306 (6th Cir. BAP 2004), citing Meyers v. I.R.S. (In re Meyers), 196 F.3d 622, 624 (6th Cir.1999). In conformance therewith, the Plaintiff bears the ultimate burden of persuasion to establish, by at least a preponderance of the evidence, the applicability of either § 523(a)(2)(A) or § 523(a)(6). Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

Both § 523(a)(2)(A) and § 523(a)(6) look to whether a debtor intentionally committed a wrongful act. As such, these two provisions help to implement the long-standing principle of bankruptcy jurisprudence that only those debts honestly incurred should be afforded the benefits of a bankruptcy discharge. Cohen v. de la Cruz, 523 U.S. 213, 217, 118 S.Ct. 1212, 1216, 140 L.Ed.2d 341 (1998). In this way, this Court previously observed that "while each of these statutory exceptions to dischargeability is applicable in a slightly different context, their lowest common denominator is the same: scienter-that is, a specific intent to actually do the harm, whether it is an intent to defraud/deceive under § 523(a)(2), ... or the intentional injury to another's property under § 523(a)(6)." Automated Handling v. Knapik (In re Knapik), 322 B.R. 311, 316 (Banrk.N.D.Ohio 2004).

Concerning the debtor's state of mind, for a debt to be held nondischargeable under § 523(a)(2)(A), a defendant must, with knowledge of a statement's falsity, have acted with the intent to deceive a creditor. Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir.1998). For this, the Sixth Circuit Court of Appeals held in the case of In re Rembert that, "the proper inquiry to determine a debtor's fraudulent intent is whether the debtor subjectively intended to repay the debt." Id. Section 523(a)(6) is substantially similar, requiring that a debtor's subjective intent be ascertained. In Kawaauhau v. Geiger, the Supreme Court explained that for a debt to be held nondischargeable as the result of a "willful and malicious" act pursuant to § 523(a)(6), the "willful" injury "takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." 523 U.S. 57, 61, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998).

However, it will be rare that a debtor would ever actually admit to acting with a wrongful motive, thereby making the scienter requirement of § 523(a)(2)(A) and § 523(a)(6) difficult to establish by way of direct evidence. De La Cruz v. Cohen (In re Cohen), 191 B.R. 599, 604 (D.N.J.1996), aff'd. 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). The use of circumstantial evidence is thus permitted and often employed when determining whether a debtor subjectively intended to cause harm for purposes of § 523(a)(2)(A) and § 523(a)(6). Although each situation is unique, helpful in this regard are some of the traditional indicia associated with persons who intentionally commit a wrongful act. In re Knapik, 322 B.R. at 316.

An often employed indicia, especially with respect to fraudulent actions under § 523(a)(2)(A), centers on a debtor's subsequent conduct. Williamson v. Busconi, 87 F.3d 602, 603 (1st Cir.1996). Of particular evidentiary weight in this regard, especially in situations such as this involving a debtor/contractor, is whether the debtor undertook any of the steps necessary to perform as promised. Mack v. Mills (In re Mills), 345 B.R. 598, 605 (Bankr. N.D.Ohio 2006). In this, way, a type of an inverse relationship can be found. On the one side, a debtor acting with an intent to defraud will usually not undertake any significant measures toward the performance of their obligation. Accord Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1285 (9th Cir.1996). Conversely, the opposite is also logically true — when a debtor undertakes significant steps to perform as promised, inferences of fraud are muted. Thus, as a general rule, this Court has observed that the greater the extent of a debtor's performance, the less likely it will be that they possessed an intent to defraud. Id.

Under this type of inquiry, the facts bend strongly away...