Ind. Dep't of Workforce Dev. v. Davis (In re Davis)

• Decision Date: 22 November 2013
• Docket Number: PROC. NO. 13-3013,CASE NO. 12-34188 HCD
• Parties: IN THE MATTER OF BRUCE EUGENE DAVIS and MARY REBECCA DAVIS, DEBTORS. INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT, PLAINTIFF, v. BRUCE EUGENE DAVIS, DEFENDANT.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

IN THE MATTER OF BRUCE EUGENE DAVIS and MARY REBECCA DAVIS, DEBTORS.INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT, PLAINTIFF, v. BRUCE EUGENE DAVIS, DEFENDANT.

CASE NO. 12-34188 HCD

PROC. NO. 13-3013

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

Dated: November 22, 2013

CHAPTER 13

Appearances:

Maricel Elaine Villacampa Skiles, Esq., counsel for plaintiff, Office of the Indiana Attorney General, 302 West Washington Street, IGCS Fifth Floor, Indianapolis, Indiana 46204; and

Bruce Eugene Davis, pro se, 416 Brookside Manor, Goshen, Indiana 46526.

MEMORANDUM OF DECISION

At South Bend, Indiana, on November 22, 2013.

Before the court is the Motion for Default Judgment filed by the plaintiff, State of Indiana on the relation of the Indiana Department of Workforce Development ("plaintiff" or "IDWD"), by counsel, against the defendant Bruce Eugene Davis, chapter 13 debtor ("defendant" or "Davis"). The plaintiff commenced this adversary proceeding by filing a Complaint To Determine Dischargeability of Debt pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(7). The defendant did not respond to the Complaint or to the Motion for Default Judgment. For the reasons stated below, the court grants the Motion for Default Judgment.¹

BACKGROUND

Bruce Eugene Davis and Mary Rebecca Davis filed a chapter 13 petition on December 19, 2012. IDWD timely filed a proof of claim, in the amount of $4,098.52, and timely filed an adversary proceeding against the debtor Bruce Eugene Davis. The Complaint alleged that the defendant received unemployment compensation benefits of $4,680.00, to which he was not entitled, and sought to have that debt declared nondischargeable as a debt for money obtained by false pretenses, false representation, or actual fraud. It also sought civil penalties of $1,170.00. After allowances for adjustments, set-offs, and repayment, the Complaint asked for entry of a judgment in the amount of $3,875.00 and requested that the debt be declared nondischargeable under §§ 523(a)(2)(A) and (a)(7). The debtor did not answer the Complaint.

DISCUSSION

The plaintiff asks the court to enter default judgment against the defendant because he neither appeared nor responded in this adversary proceeding. Rule 7055 of the Federal Rules of Bankruptcy Procedure governs defaults. That bankruptcy rule applies Rule 55 of the Federal Rules of Civil Procedure in adversary proceedings. Rule 55 clearly distinguishes between an "entry of default" and "judgment by default." See Lowe v. McGraw-Hill Cos., Inc., 361 F.3d 335, 339 (7th Cir. 2004). In default cases, however, the court begins its analysis by considering whether the defendant received appropriate notice of the charges against him in the plaintiff's Complaint.

The court determined that the Complaint initiating the adversary proceeding was timely filed. See Fed. R. Bankr. P. 4007(c). The plaintiff duly served the summons and Complaint upon the debtor-defendant and his bankruptcy attorney of record, pursuant to Federal Rules of Bankruptcy Procedure 7004(b)(9) and (g). See R. 5. Service was effected by first class United States mail and by certified mail, and the certified mail return receipts were attached to the Certificate of Service, thereby verifying proper proof of service and notice. The defendant failed to appear or to file a response within thirty days ofissuance of the summons and Complaint. See Fed. R. Bankr. P. 7012(a). Once the deadline had passed, the plaintiff sought entry of default.

The court finds that the plaintiff followed the criteria set forth in the rules governing defaults. It complied with Rule 55(a) by establishing the defendant's default in its Motion and Affidavit in Support. See R. 8; see also Target Nat'l Bank v. Redmond (In re Redmond), 399 B.R. 628, 632 (Bankr. N.D. Ind. 2008). The Clerk of the Court then entered the default against the defendant. See R. 9.

The plaintiff now requests that the court enter a judgment by default, in accordance with Rule 55(b). See R. 11. Attached to the Motion for Default Judgment are the Affidavit of Indebtedness and Affidavit for Default Judgment. The first was the declaration of the plaintiff's Collection Specialist that the defendant filed unemployment benefit claims, certifying that he was unemployed, and received benefits, but was ineligible to receive those benefits. It stated that the defendant owed the plaintiff $3,875.00. The second was the declaration of plaintiff's counsel, verifying that the defendant was not an infant, an incompetent person, or one on active military duty, as confirmed by the Department of Defense Manpower Data Center. Also attached to the Motion were documentary exhibits: 11 weekly voucher forms declaring that the defendant did not work and sought benefits for 11 weeks (Ex. A); the plaintiff's Investigation Case History (Ex. B); the plaintiff's Determination of Eligibility (Ex. C); and the plaintiff's Notice of Potential Overpayment for the 12 weeks the defendant received unemployment benefits while he was working (Ex. D).² Exhibit E is the defendant's acknowledgment of his indebtedness to the plaintiff and his agreement to pay the debt in monthly installments, beginning January 16, 2012, and continuing until full payment is made.

In the Motion for Default Judgment itself, the plaintiff presented its § 523(a)(2)(A) claim by setting forth its undisputed facts, gleaned from the attached documents:

(1) Davis received weekly unemployment benefits by stating that he was unemployed;(2) Davis certified that he was unemployed, available for work, and eligible to receive benefits;

(3) Davis answered the question "Worked this week?" as "NO" on his Weekly Claims vouchers;

(4) IDWD determined that Davis was employed by Forest River Inc. for numerous weeks; and

(5) IDWD paid Davis $4,680.00 in benefits for the compensable weeks he claimed to be unemployed.

See R. 11, ¶¶ 7-10. When an investigator questioned him at an interview, the defendant said that "he was going through some tough times financially and needed the money." Id., ¶ 12 (citing Ex. C). IDWD thereafter made a determination of ineligibility and sent Davis notice of the overpayment of benefits to him. See id. , Ex. D. Davis did not appeal the determination; in fact, he acknowledged his indebtedness to IDWD and agreed to repay IDWD in installments. See id., Ex. E.

The Motion for Default Judgment summarized its argument for nondischargeability of the debt Davis owed to IDWD:

In summary, the Defendant, BRUCE E. DAVIS, obtained unemployment benefits from the Department by certifying that he was unemployed and eligible to receive benefits. DAVIS knew that his representations were false because he was employed at the same time he was receiving unemployment benefits. DAVIS deceived the Department, and the Department relied on DAVIS's deceptions to its detriment, i.e., it erroneously paid unemployment benefits to BRUCE E. DAVIS - benefits in [sic] which the Defendant was not entitled.

R. 11, ¶ 16. It asked the court for a judgment of nondischargeability in its favor by default. The defendant did not file any response to the Motion.

A bankruptcy court's entry of a judgment by default is discretionary. See Sun v. Board of Trustees of Univ. of Ill., 473 F.3d 799, 810 (7th Cir.), cert. denied, 551 U.S. 1114, 127 S. Ct. 2941, 168 L.Ed.2d 262 (2007). It may be denied when the facts are insufficient to support the claim in the complaint. See In re Mergen, 473 B.R. 743, 744 (Bankr. W.D. Wis. 2012). Particularly in a bankruptcy setting, in which "a debtor has a presumptive right to a discharge, default motions should not be granted unless the movant demonstrates that its debt is nondischargeable as a matter of law." In re Dade, 2012 WL 1556510 at *4 (Bankr. C.D. Ill. May 1, 2012) (citations omitted); see also In re Liebl, 434 B.R. 529, 536 (Bankr. N.D. Ill. 2010); In re Hostetter, 320 B.R. 674, 678 (Bankr. N.D. Ind. 2005).

The court finds, first, that the plaintiff's request for a default judgment under Rule 55(b) included the required supporting affidavit that verified the defendant's status as not an infant, an incompetent person, or one holding military status. It presented the appropriate information that complied with the Soldiers' and Sailors' Civil Relief Act, 50 U.S.C. App., § 501 et seq. See In re Redmond, 399 B.R. at 632 (citing cases). Before entering a default judgment, however, the court also requires that a plaintiff establish a prima facie showing on the merits of its claim. See In re Taylor, 289 B.R. 379, 382 (Bankr. N.D. Ind. 2003) ("[B]efore a litigant is awarded the relief it seeks when the opposing party fails to respond, the court needs to satisfy itself that the facts before it demonstrate a prima facie entitlement to that relief."); cf. Ojeda v. Goldberg, 599 F.3d 712, 718 (7th Cir. 2010) (stating that "exceptions to discharge are to be construed strictly against a creditor and liberally in favor of the debtor") (quoting cases). The plaintiff's Complaint asked the court to declare nondischargeable the defendant's debt to IDWD under § 523(a)(2)(A) as a debt for money obtained by false pretenses, false representation, or actual fraud.

Under § 523(a)(2)(A), a plaintiff must establish that (1) this defendant obtained the plaintiff's money through representations that the defendant either knew to be false or made with such reckless disregard for the truth as to constitute willful misrepresentation; (2) the defendant acted with an intent to deceive the plaintiff; and (3) the plaintiff justifiably relied on the defendant's false representations to its detriment. See, e.g., In re Davis, 638 F.3d 549, 553 (7th Cir. 2011); Ojeda, 599 F.3d at 716-17; In re Maurice, 21 F.3d 767, 774 (7th Cir. 1994).

This court, having evaluated the plaintiff's default judgment motion, together with the attachments, finds that IDWD demonstrated that the defendant obtained the plaintiff's money by applying for and receiving unemployment benefits through...