Indiana v. Maxey (In re Maxey)

• Decision Date: 20 March 2014
• Docket Number: PROC. NO. 13-3024,CASE NO. 13-30487 HCD
• Parties: IN THE MATTER OF JENNIFER JEAN MAXEY, DEBTOR. STATE OF INDIANA on the relation of the INDIANA DEPARTMENT OF WORKFORCE DEVELOPMENT, PLAINTIFF, v. JENNIFER JEAN MAXEY, DEFENDANT.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

IN THE MATTER OF JENNIFER JEAN MAXEY, DEBTOR.

STATE OF INDIANA on the relation of the INDIANA DEPARTMENT

OF WORKFORCE DEVELOPMENT, PLAINTIFF, v. JENNIFER JEAN MAXEY, DEFENDANT.

CASE NO. 13-30487 HCD

PROC. NO. 13-3024

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

Dated: March 20, 2014

CHAPTER 7

Appearances:

Maricel Elaine Villacampa Skiles, Esq., counsel for the plaintiff, Office of the Attorney General, 302 West Washington Street, IGCS 5th Floor, Indianapolis, Indiana 46204 and

Jennifer Jean Maxey, pro se, 504 North Starke Street, Lot #43, Hamlet, Indiana 46532.

MEMORANDUM OF DECISION

At South Bend, Indiana, on November 19, 2013.

Before the court is the Motion for Default Judgment filed in this adversary proceeding by the plaintiff, State of Indiana on the relation of the Indiana Department of Workforce Development ("plaintiff" or "IDWD"), against the chapter 7 debtor Jennifer Jean Maxey ("defendant" or "Maxey"). 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). The Complaint alleged that the defendant received unemployment compensation benefits, in the amount of $4,845.00, to which she was not entitled, and sought to have that debt declared nondischargeable as a debt for money obtained by false pretenses, false representation, oractual fraud. 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

Jennifer Jean Maxey, by counsel, filed a voluntary chapter 7 petition on March 7, 2013. After the § 341 meeting of creditors was held, the chapter 7 Trustee filed his Report of No Distribution, certifying that there was no estate property available for distribution and that the debtor's estate had been fully administered. On June 10, 2013, the Order granting the debtor her discharge under 11 U.S.C. § 727 was issued, but the Order explained that "debts that the bankruptcy court specifically has decided or will decide in this bankruptcy case are not discharged." R. 12, Order, p. 2, Case No. 13-30487. The IDWD had filed its adversary proceeding against the defendant-debtor on May 1, 2013, and thus the debt under consideration therein was not discharged. The main bankruptcy case was closed on June 12, 2013, but the adversary case remained pending.

DISCUSSION

The plaintiff asks the court to enter default judgment against the defendant because she 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). An entry of default is made by the clerk when two acts occur: (1) the defendant fails to plead or defend, and (2) that failure is shown "by affidavit or otherwise." See Fed. R. Civ. P. 55(a).

In default cases, the court begins its analysis by determining 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 her 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 U.S. 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 of issuance 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 and by requesting the Clerk's Entry of Default. See R. 6, Motion, Affidavit in Support; see also Target Nat'l Bank v. Redmond (In re Redmond), 399 B.R. 628, 632 (Bankr. N.D. Ind. 2008). By affidavit the plaintiff showed timely, proper service of process; receipt of the summons and Complaint by the defendant and her bankruptcy attorney; the defendant's failure to respond; and the verified non-military status of the defendant. When the plaintiff fulfilled the criteria of Rule 55(a), the Clerk of the Court entered default against the defendant. See R. 7.

The plaintiff now requests that the court enter a judgment by default, in accordance with Rule 55(b). See R. 9. Attached to the Motion for Default Judgment are two Affidavits. The first is an Affidavit of plaintiff's counsel, verifying that the defendant is not an infant, an incompetent person, or one on active military duty, as confirmed by the Department of Defense Manpower Data Center. The second is an Affidavit of the plaintiff's Collection Specialist, declaring that the defendant filed unemployment benefit claims and received benefits but was ineligible to receive those benefits, and that it owed the plaintiff $4,845.00. Also attached to the Motion were documentary exhibits: weekly vouchers declaring that the defendant did not work and sought benefits for 15 weeks (Ex. A); the plaintiff's Investigation Work History (Ex. B); the plaintiff's Unemployment Insurance Benefit Payment Audit (Ex. C); the plaintiff'sDetermination of Eligibility (Ex. D); the defendant's Sworn Statement (Ex. E); and the plaintiff's Notice of Potential Overpayment for the 15 weeks the defendant received unemployment benefits while she was working (Ex. F).

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

(1) Maxey received unemployment benefits by stating that she was unemployed each of 15 weeks;

(2) Maxey answered "no" to the question "Worked this week?" on each voucher submitted;

(3) for 15 weeks, Maxey was employed by Winamac Company Inc. and received wages;

(4) the plaintiff paid Maxey $4,845.00 in benefits during those 15 weeks; and

(5) in a sworn statement, Maxey stated that she gave her husband her pay stubs to enter her wages and that he filled out her vouchers at the neighbor's home.

See R. 9, ¶¶ 7-12. An investigator for the IDWD interviewed the defendant, after learning of her employment during the period she was receiving unemployment benefits. Maxey appeared at that interview and told him that her husband had filled out the vouchers at a neighbor's home. She also stated that she had given her husband her pay stubs to enter her wages. The IDWD thereafter notified Maxey of its determination that she "knowingly failed to disclose, or falsified, [information] regarding earnings or other material facts" and that she received benefits to which she was not entitled and which she was liable to repay to the IDWD. R. 1, Ex. D. Maxey did not appeal the decision. Now in this bankruptcy adversary proceeding, the plaintiff summarized its argument for nondischargeability in the Motion for Default Judgment:

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

R. 9, ¶ 14. 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 the 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...