In re Walker
| Decision Date | 21 November 1980 |
| Docket Number | Bankruptcy No. BK-79-228. |
| Citation | 7 BR 216 |
| Parties | In re Charles E. WALKER, Jr., Bankrupt. PUBLIC FINANCE CORPORATION OF RHODE ISLAND, Plaintiff, v. Charles E. WALKER, Jr., Defendant. |
| Court | U.S. Bankruptcy Court — District of Rhode Island |
George M. Prescott, Lincoln, R.I., for debtor.
Thomas Connors, Providence, R.I., trustee.
Peter D'Amico, Providence, R.I., for plaintiff.
DECISION ON PLAINTIFF'S COMPLAINT TO HAVE ITS DEBT DECLARED NONDISCHARGEABLE AND ON DEFENDANT'S COUNTERCLAIM FOR WRONGFUL GARNISHMENT OF WAGES
Heard on February 8, 11, and 12, 1980 on the complaint of Public Finance Corporation to have its debt declared nondischargeable under § 17(a)(2) of the Bankruptcy Act, and on the counterclaim of the bankrupt for attorney fees, and compensatory and punitive damages for the wrongful garnishment and withholding of his wages.
The following discussion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 752.
On July 20, 1979, Charles E. Walker, Jr. filed a voluntary bankruptcy petition listing the plaintiff, Public Finance Corporation, as an unsecured creditor. All of the creditors listed in Schedule A-3 indicate 1978 indebtedness totaling $27,853. On October 31, 1979, Public Finance filed a complaint seeking to have its debt declared nondischargeable under § 17(a)(2) of the Bankruptcy Act, alleging that when Walker received a loan on December 1, 1978, in the amount of $2517.40, he stated his indebtedness to be $8,000, when in fact his outstanding debt at that time exceeded $25,000 as evidenced by his Schedule A-3. Public also alleges that the bankrupt misrepresented the ownership and value of certain personal property, and argues that its debt should be declared nondischargeable because it relied on these misrepresentations in making the loan in question.
The bankrupt denied all of the essential allegations of the complaint, and filed a counterclaim alleging that Public wrongfully garnished his wages after the filing of the petition, and thereafter, in bad faith, refused repeated demands for the release of said wages.
We will consider the complaint of Public Finance and the bankrupt's counterclaim separately.
The standard to be applied in determining whether a debt is nondischargeable is well known, and has been set forth by this and other courts in many cases since the enactment of the dischargeability amendments on December 18, 1970.1 P.L. 91-467.
To prevail, a creditor bringing such an action must prove by clear and convincing evidence each of the following elements: (1) That the bankrupt made a materially false statement in writing concerning his or her financial condition, (2) That the misrepresentation was made with the intent to deceive; and (3) That the plaintiff reasonably relied upon and was misled by the misrepresentation. See, Domestic Safe Deposit Co. v. Lawrence, BK-76-18 (D.R.I. 1978); In re Barlick, 1 B.C.D. 412 (D.R.I. 1974); see also, Brant v. Zangrilli, 1 B.R. 717, (Bkrtcy.D.R.I.1979); Susi v. O'Donnell, BK-77-476 (D.R.I.1978).
Plaintiff's contention that the bankrupt made a materially false representation in his loan application rests mainly on the difference between the total debt listed on the loan application and on the bankrupt's Schedule A-3 filed with his bankruptcy petition. The debts listed on Schedule A-3 and which do not appear on the loan application are: Bloomingdale's ($444.10); Bristol County Water Co. ($52.06); Caimano Designed Interiors, Inc. ($6,176.02); Capriccio's Restaurant ($693.00); International Packaging ($2,106.30); Jordan Marsh ($451.00); Monticello's Inc. ($509.96); Providence Gas Co. ($403.47); Rhode Island Hospital Trust ($104.04); Dr. Alton Paul ($80.00); and Taylor Travel ($1,102.00).
An important factual issue is whether the omitted debts were in existence on December 1, 1978, when the bankrupt gave Public the loan application in question.
The bankrupt's attorney, George M. Prescott, Esq., testified that many of the obligations listed as 1978 debts on the bankrupt's Schedule A-3 were so scheduled due to his mistake and/or inadvertence, and that in fact many of these debts were incurred during 1979, after the loan in question. The bankrupt's uncontradicted testimony is that most of the revolving charge accounts, Bloomingdale's, Capriccio's Jordan Marsh and Monticello's Inc. were current on December 1, 1978, and that although he may have owed something on these accounts, they were not past due. Most of the obligations, he explained, were incurred or billed during 1979. For example, the bill from the Bristol County Water Co. was received in 1979 based on 1978 water usage, the gas bill was for service during 1979, and the doctor's bill was incurred in March, 1979.
The more significant undisclosed debts, and those with which we are really concerned, involve Caimano Designed Interiors, International Packaging, and Taylor Travel. The bankrupt testified that the debt to Caimano was based on a judgment obtained on June 29, 1979. (Bankrupt's Exhibit B). According to the bankrupt he did not list this debt on the loan application because his then roommate had dealt with Caimano without his knowledge and while he was out of the country, that he had not directly participated in any dealings with Caimano, and does not concede liability as to that debt. In any event, it is uncontradicted that no judgment was entered against the bankrupt on this disputed claim until after he obtained the loan in question.
The other two substantial debts listed on Schedule A-3, International Packaging and Taylor Travel, were described by the bankrupt as business expenses incurred while he worked for his former employer, International Packaging Co.
The bankrupt testified that at the time of the loan application, the debt to International Packaging was disputed, since he believed that it was offset by money due him for overrides on commissions from sales. The Taylor Travel debt was incurred by the bankrupt for business travel, which would generally be paid by the company, and which he did not consider a personal debt.
Although the bankrupt failed to list certain revolving charge accounts, the amounts due on these charges were insignificant and do not constitute material misrepresentations. As for the Caimano, International Packaging Co. and Taylor Travel debts, we find that they were incurred during 1979, that they were disputed, and that two of these debts were business expenses which the bankrupt did not consider personal obligations.
Based upon the entire record, we conclude that the plaintiff has proved neither by clear and convincing evidence, nor by a preponderance thereof, that the bankrupt made materially false representations in order to secure a loan from Public Finance, or that if any misrepresentations were made, that they were made with intent to deceive. The testimony of Charles Walker, the bankrupt, and that of his attorney, which we find credible, satisfactorily explains the difference between the debts listed on the bankrupt's loan application, and on the bankrupt's Schedule A-3.
The second basis of Public's complaint is that the bankrupt misrepresented the value of certain household furniture. The plaintiff introduced a copy of a personal property evaluation form filled out by Walker which listed furniture with an estimated value of $8,000. (Plaintiff's Exhibit No. 6). Public now contends that the bankrupt did not own the furniture, and that most of it was the property of his roommate at the time, Diana McCarty.
Walker testified that Ms. McCarty, who did own some of the furniture, accompanied him to the office of Public Finance on December 1, 1978 to pick up the loan proceeds, and helped him to describe the furniture to Dana Haberlein, the branch manager. The testimony of Mr. Haberlein supports the bankrupt's description of the circumstances surrounding the preparation of the personal property form. While he could not remember if Diana McCarty helped the bankrupt fill out the evaluation form, he believed that she supplied information regarding the furniture in the apartment. Haberlein did not recall whether Walker said he was the owner of the furniture, and did not remember asking him that question. More importantly, though, Haberlein testified that the value of the furniture was not relevant to a determination whether to approve the loan, because security in the form of household goods is seldom used to satisfy loans in default.2
On the issue of reliance, Haberlein testified that a credit check was done prior to the granting of the loan, and that even though an undisclosed creditor (Pawtucket Trust Company) was discovered, it was common in his experience for loan applicants not to list all of their creditors, and still have loans approved.
At the time of the application, Walker clearly was not a marginal candidate for a loan, but had income verified by Public of at least $2500 per month. Public's own internal work sheet used to evaluate Walker's financial condition indicated that he would be eligible for a high credit limit of $5,500, (substantially in excess of the amount actually loaned), that he had good paying habits, good income, and was an excellent risk. (Plaintiff's Exhibit No. 5). We conclude that Walker's verified earning capacity and payment history were the main factors on which Public relied in granting this loan.
For the reasons stated above, we conclude that the plaintiff has failed to meet the burden of proof necessary to have bankrupt's debt to Public Finance declared nondischargeable under § 17(a)(2) of the Bankruptcy Act, and that the complaint should be denied.
The bankrupt asserts a counterclaim against Public Finance for compensatory and punitive damages, and attorney fees for the wrongful garnishment and withholding of his wages. After the filing of the petition, but...
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