In re Taylor, Bankruptcy No. 1-95-01860. Adv. No. 1-95-00350A.
| Decision Date | 16 May 1996 |
| Docket Number | Bankruptcy No. 1-95-01860. Adv. No. 1-95-00350A. |
| Parties | In re Ralph J. TAYLOR and Deborah L. Taylor, Debtors. GRIFFITH, STRICKLER, LERMAN, SOLYMOS & CALKINS, Plaintiff, v. Ralph J. TAYLOR, Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Middle District of Pennsylvania |
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Lawrence V. Young, York, PA, for plaintiffs.
Steven M. Carr, York, PA, for defendant.
Before me is the motion of debtor/defendant Ralph J. Taylor ("Taylor"), seeking dismissal of an adversary complaint filed by creditor/plaintiff Griffith, Strickler, Lerman, Solymos & Calkins ("Griffith"). For the reasons stated below, the relief requested in the motion will be denied.
Procedural and factual background
Debtor/defendant Ralph J. Taylor ("Taylor") filed a petition for relief under Chapter 7 of the Bankruptcy Code on September 15, 1995. On December 21, 1995, Griffith filed the instant adversary proceeding, seeking a determination of nondischargeability under Section 523(a)(2), (4) and (6) of the Bankruptcy Code.
In its Complaint, Griffith alleges that it is a law firm and the holder of a claim against Taylor in the amount of $9,229.05, by virtue of certain mechanics' lien claims, which arose in connection with Taylor's former ownership of the certain liened properties. Griffith alleges that, during settlements on separate sales of the properties, at which times Griffith acted as title agent, Taylor executed a written affidavit containing provisions stating that there were no mechanics' liens filed against the properties and that he was unaware of any outstanding mechanics' liens which might be filed against the properties. Griffith alleges that it completed the settlements acting upon Taylor's representation. Griffith further alleges that, subsequent to the settlements, various subcontractors asserted mechanics' lien claims for labor and/or materials provided in the construction of improvements on the properties. Griffith alleges that it remitted monies to satisfy all or part of the mechanics' lien claims and took assignments of all or part of such claims.
On January 18, 1996, Taylor filed a motion to dismiss. The parties subsequently filed briefs, and the matter is ready for decision.
In deciding a motion to dismiss brought pursuant to Fed.R.Bankr.P. 7012, incorporating Fed.R.Civ.P. 12(b)(6), I must treat the facts alleged in the complaint as true; construe the complaint in the light most favorable to the non-moving party, drawing all reasonable inferences that can be drawn therefrom in favor of the non-moving party; and ask whether, under any reasonable reading of the complaint, the non-moving party may be entitled to relief. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1410 (3d Cir.), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir.1991). A motion brought pursuant to Fed.R.Civ.P. 12(b)(6) will be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Pennsylvania House, Inc. v. Barrett, 760 F.Supp. 439, 449-50 (M.D.Pa.1991) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)).
Section 523(a)(2)(A) states in pertinent part:
In order to state a claim under Section 523(a)(2)(A), a creditor must allege: (1) the debtor made a materially false representation; (2) that at the time made, the debtor knew it to be false; (3) that the debtor made the representation with the intention and purpose of deceiving the creditor; (4) that the creditor justifiably relied on the false representation; and (5) that the creditor sustained a loss as a result of its reliance. In re Kaplan, 162 B.R. 684, 701-02 (Bankr. E.D.Pa.1993) (as modified by Field v. Mans, ___ U.S. ___, ___, 116 S.Ct. 437, 438, 133 L.Ed.2d 351 (1995)), aff'd, 189 B.R. 882 (E.D.Pa.1995); In re Sutliff, 112 B.R. 680, 682 (Bankr.M.D.Pa.1990). Like the other exceptions to discharge enumerated in Section 523 of the Bankruptcy Code, Section 523(a)(2)(A) is to be construed narrowly in favor of dischargeability, In re Segal, 57 F.3d 342, 346 (3d Cir.1995), and the creditor bears the burden of proof by a preponderance of the evidence. In re Graham, 973 F.2d 1089, 1101-02 (3d Cir.1992) (citing Grogan v. Garner, 498 U.S. 279, 289-91, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991)).
Taylor contends first that he did not receive any money or property from Griffith; therefore, any debt owing to Griffith cannot be said to have been "obtained by" fraud on his part. While Taylor has cited case authority to support his contention, see In re Grubbs, 9 B.R. 499, 501 (M.D.Ga.1981), courts more recently have held generally that:
§ 523(a)(2)(A) does not require that a debt excepted from discharge be one for property acquired by the debtor or credit extended to the debtor. Courts generally conclude that when a debtor, through fraud, obtains some benefit, albeit an "attenuated" one, from property or credit provided to a third party, he or she may not evade nondischargeability by claiming that he or she did not directly receive the benefit of the transaction. See, e.g., Ashley v. Church (In re Ashley), 903 F.2d 599, 604 (9th Cir.1990). Others have held that § 523(a)(2)(A) may operate on a fraudulent debtor\'s liability even when he or she received no benefit. See Central Finance Co. v. Carroll (In re Carroll), 16 B.R. 494 (D.Minn.1982).
In re Baietti, 189 B.R. 549, 556 (Bankr.D.Me. 1995) (emphasis in original); see generally In re Bozzano, 173 B.R. 990, 992 (Bankr. M.D.N.C.1994) ().
Here, Griffith alleges circumstances by which Taylor secured satisfaction of his liability to his subcontractors/materialmen, i.e. a benefit, by virtue of Griffith's payment. Additionally, the tenor of Griffith's complaint is that, based upon false representations, Taylor was able to secure a sale of real property and the associated proceeds of the sale, subjecting the purchasers to liabilities in the form of mechanics' lien claims (against which the purchasers insured themselves). On behalf of the purchasers, Griffith satisfied those liabilities, and, to the extent Griffith is proceeding in a capacity as subrogor on the purchaser's claims against Taylor, Griffith is proceeding in the shoes of a party from whom Taylor obtained money by means of the alleged fraud. Accordingly, it cannot be said, as a matter of law, that there is no set of circumstances under which Griffith may prevail pursuant to Section 523(a)(2)(A).1
My determination that dismissal of the Section 523(a)(2)(A) claim is not appropriate is supported by the Eighth Circuit's decision in In re Dallam, 850 F.2d 446 (8th Cir.1988). There, the debtor, in the business of constructing residences, before closing on one of her properties, delivered to the title insurer an affidavit stating that all persons furnishing services, labor or materials used in the construction "have been paid in full, that there are no mechanics' or materialmen's liens against said property and no claim outstanding which would entitle the holder thereof to claim a lien against the property." Dallam, 850 F.2d at 446. Partly in reliance on the affidavit, the title insurer issued insurance related to the property. Subsequently, fifteen contractors submitted claims to the purchasers of the residence. The title insurer brought an adversary proceeding seeking both to recover from the debtor the money it paid to settle those claims and a determination that the debts were nondischargeable pursuant to Section 523(a)(2)(A). In reversing the district court's affirmance of the bankruptcy court's decision to dismiss the Section 523(a)(2)(A) claim, the Eighth Circuit stated as follows:
We conclude that the title insurer produced evidence establishing fraud and a nondischargeable debt under 11 U.S.C. § 523(a)(2): the debtor obtained payment of her business\' debts by knowingly making a false statement in order to induce the title insurer\'s reliance on the statement, and the title insurer\'s reliance on the statement caused it to lose money. The lower courts erred in holding the complaint should be dismissed.
Dallam, 850 F.2d at 449; see also In re Pontier, 165 B.R. 797, 801 (Bankr.D.Md. 1994) ().
Taylor also contends that Griffith's Complaint fails to allege that he knew his alleged misrepresentations were false. While such may be true from a technical reading of Count I of the Complaint, certainly the averments contained in Count III of the Complaint suffice to clarify Griffith's intentions with regard to pleading knowledge of falsity. See Complaint ¶ 22 (). Moreover, Taylor's affidavit as attached to the Complaint is not a guarantee that no mechanics' liens actually were or could be filed, but merely his attestation that, to the best of his knowledge and belief, none were or could be filed. The...
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