In re Wentland
| Decision Date | 13 July 2009 |
| Docket Number | Bankruptcy No. 07-35190.,Adversary No. 08-3091. |
| Citation | 410 B.R. 585 |
| Parties | In Re Tina M. WENTLAND, Debtor. Randall M. Baker, Plaintiff, v. Tina M. Wentland, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Donald Johnson, Elliot H. Feit, Toledo, OH, for Plaintiff.
Fredric M. Boyk, Toledo, OH, for Defendant.
This adversary proceeding is before the court for decision after trial on Plaintiff Randall M. Baker's complaint to determine dischargeability of debts allegedly owed to him by Defendant Tina M. Wentland, debtor in the underlying Chapter 7 case. Plaintiff alleges that the debts should be excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4), (a)(6) and (a)(13). Defendant does not dispute that a criminal restitution debt in the amount of $95,081.81 that is owed to Plaintiff for misapplication of health insurance premiums, a violation of 18 U.S.C. § 669(a), is nondischargeable under § 523(a)(13). However, because he contends that, as a result of such conduct, he is entitled to damages in excess of the restitution order, trial proceeded on Plaintiff's remaining claims. Given Plaintiff's position throughout the proceedings in this case that the purpose of his complaint was only to obtain a nondischargeability determination as to the debts allegedly owed him by Defendant, and for the reasons stated in the court's Memorandum of Decision and Order dated May 19, 2009 [Doc. # 35], only the liability of Defendant and the dischargeability of any debt owed by her to Plaintiff under § 523(a)(2)(A), (a)(4) and (a)(6) was addressed at trial and will be addressed by the court in this Memorandum of Decision. To the extent he prevails in this court, Plaintiff intends to liquidate his claims and seek a money judgment in state court where he has brought several state law claims that have been stayed by Defendant's Chapter 7 bankruptcy petition filing.
The district court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) as a civil proceeding arising in or related to a case under Title 11. This proceeding has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 84-1 of the United States District Court for the Northern District of Ohio. Proceedings to determine dischargeability are core proceedings that the court may hear and decide. 28 U.S.C. § 157(b)(1) and (b)(2)(I). This Memorandum of Decision constitutes the court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52, made applicable to this adversary proceeding by Fed. R. Bankr.P. 7052. Regardless of whether specifically referred to in this Memorandum of Decision, the court has examined the submitted materials, weighed the credibility of the witnesses, considered all of the evidence, and reviewed the entire record of the case. Based upon that review, and for the reasons discussed below, the court finds that Plaintiff is entitled to judgment in his favor against Defendant on his claim brought under § 523(a)(4) and, in part, on his claim under § 523(a)(6) and that Defendant is entitled to judgment in her favor on Plaintiff's claim brought under § 523(a)(2)(A) and, in part, on his claim under § 523(a)(6).
Except for a period of time from 1984 to 1986, Plaintiff was an hourly employee of an entity called Paben-Harlow ("the Company")1 from 1969 until 2008. Since its earliest days, the Company offered a group health insurance plan to its employees, the premium for which it paid all but a small co-payment of $7.00 for a single individual's coverage and $14 for family coverage, which amounts were withheld from the weekly wages of employees who chose such coverage. It is undisputed that the Company was contractually required to use the withheld funds to pay premiums for the health insurance plan. Health insurance coverage had been provided in this manner to Plaintiff for over twenty-five years during his employment at the Company.
In 1993, Defendant became President of the Company and, at all relevant times had control of the Company's finances and was the administrator of the Company's employee health insurance plan. Although the Company had been profitable, some time before September 2004, its largest customer went out of business, after which the Company began to struggle financially. Although several employees were laid off, Defendant testified that she wanted the remaining sixteen employees to stay employed. Although she struggled to meet payroll, the Company's employees always received their pay, albeit sometimes untimely and after their earlier paycheck had been returned due to insufficient funds. At some point, however, Defendant was unable to satisfy all of the Company's obligations. According to Defendant, at that point, she let her "emotions control over [her] business sense." Defendant testified that "the bank was going to shut the company down" and so, when faced with a choice of paying the group health insurance premium or the bank, she made payments to the bank, believing it more important to keep the employees working. In addition, the Company became delinquent on certain tax obligations, which apparently resulted in its bank account being garnished by the Internal Revenue Service in an amount greater than $100,000.2 Over approximately a two-year period, Defendant and her husband contributed $100,000 that was withdrawn from her husband's 401(k) plan to keep the business running. Due to its financial difficulties, Defendant testified that the Company had no ability to borrow money.
According to Plaintiff, as of September 1, 2004, the Company's group health insurance plan was cancelled due to non-payment of the premium. Defendant testified that she knew harm could come to the Company's employees if she did not pay the insurance premium. The record is silent as to when the premium was due and as to when Defendant was notified that the insurance had been cancelled. It is undisputed, however, that Defendant continued to withhold the employee portion of the health insurance premium from the employees' wages after cancellation and that she knowingly misapplied these funds by using them to pay other Company expenses.
After the health insurance had been cancelled, $7 per week continued to be withheld from Plaintiff's wages. Defendant did not notify Plaintiff that his insurance had been cancelled; rather, Plaintiff learned of the cancellation from another employee in mid-November 2004. The assets of the Company were sold on November 30, 2005, to cover the debt owed by the Company to the bank and to the Internal Revenue Service. By that time, $316 had been withheld as health insurance premium co-payment amounts from Plaintiff's wages without being applied to health insurance.
Sadly, in August 2004, Plaintiff was diagnosed with prostate cancer. He underwent radiation therapy during the three month period from September through November 2004. Because his health insurance had been cancelled, he incurred significant medical expenses during this time. After learning in November of the cancellation, Plaintiff submitted his medical bills totaling approximately $90,000 to Defendant for payment, at which time, Defendant told him she "would do what she could." Defendant then caused to be paid approximately $21,748 of the medical bills before the Company was sold. The record is silent as to whether Defendant was aware of Plaintiff's diagnosis at any time before he presented his medical bills for payment. In addition to unpaid medical bills, Plaintiff testified that, although he previously had good credit, due to the unpaid medical bills and bounced payroll checks that resulted in checks written by him being bounced, his credit was damaged.
Before the unfortunate events giving rise to Plaintiff's claims in this case, the parties had a cordial relationship. Defendant testified that she has known Plaintiff her whole life. According to Plaintiff, Defendant was a person he could and did call upon for help when needed. He testified that he did not believe Defendant acted with animosity or maliciously towards him when she failed to pay the health insurance premiums.
In October 2006, Defendant pled guilty in the United States District Court for the Northern District of Ohio, Western Division, to count one of an information charging her with misapplication of health insurance premiums in violation of 18 U.S.C. § 669(a). In the plea agreement, in addition to admitting the elements of the crime, including that she "unlawfully, knowingly, willfully and intentionally" misapplied funds that were withheld from employees' salaries and wages for the purpose of paying health insurance premiums, she agreed that the Mandatory Victim Restitution Act required the court to order restitution and that the restitution include not only the total employee health insurance premiums misapplied but also the out-of-pocket medical costs individual employees incurred on or before November 30, 2005, as a result of not having medical insurance coverage due to Defendant's conduct as described in the information. [Pl. Ex. 1, ¶¶ 3 and 14]. She was sentenced to probation for a term of five years and restitution in the total amount of $113,429.09, which amount includes $95,081.81 to be paid to Plaintiff. [Pl. Ex. 2].
Defendant filed for relief under Chapter 7 of the Bankruptcy Code on November 30, 2007, and Plaintiff timely commenced this adversary proceeding.
Plaintiff seeks a determination that a debt owed to him by Defendant is nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), (a)(6) and (a)(13). As stated above, Defendant does not dispute that the criminal restitution debt owed to Plaintiff is nondischargeable under § 523(a)(13). Defendant must prove the...
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