Before the Court is an adversary proceeding in which JA, LLC d/b/a Leku Ona ("Plaintiff") objects to the discharge of a debt owed to it by Eduardo Sarria ("Defendant") under § 523(a)(2)(A).1 2 Dkt. No. 1. Plaintiff alleges Defendant incurred a debt to Plaintiff by false pretenses, false representations, or actual fraud when he billed Plaintiff for food and wine he did not deliver.
On May 15 and 16, 2019, the Court conducted a trial during which the parties presented evidence, examined witnesses, and made oral arguments. Dkt. Nos. 170, 173. At the conclusion of the trial, the Court took the matter under advisement. The Court has considered the evidence and arguments, and this Memorandum of Decision sets forth the Court's findings, conclusions, and reasons for its disposition of the adversary proceeding. Rule 7052.
A. The Business Relationship and Delivery Procedures Plaintiff is a Basque restaurant and hotel in downtown Boise, owned and operated by Joe Artiach ("Artiach"). The restaurant's day-to-day operations were not managed by Artiach. During 2014 and 2015, Defendant owned and operated a food and beverage import and distribution company known as Basque County Imports, Inc. ("BCI").3 Atsome point prior to 2011, Defendant approached Artiach hoping to establish a business relationship under which Defendant would supply food and wine to Plaintiff. Due to a history of acrimony between Artiach and Defendant's father, Justo Sarria, Artiach was initially reluctant to work with Defendant. Nonetheless, Defendant persisted and in 2011, Artiach agreed to allow Defendant to work with Artiach's son, Andoni ("Andoni"), to supply Plaintiff with food and wine from BCI.
Defendant delivered food and wine from BCI to Plaintiff from 2011 until May 2015. He would visit the restaurant to determine what wine and food was needed and then return with the goods a few days later. When Defendant delivered goods to Plaintiff, he would leave a hand-written invoice detailing what was delivered and the amount due based on the delivery. Sometimes, Defendant would leave the invoice with Andoni or another of Plaintiff's employees. At other times, if no one was available to check in the delivery, Defendant would leave the invoice in a box outside of Andoni's office. Within a few days after receiving the invoice, Plaintiff would pay BCI by check.
At trial, witness testimony about the extent of Plaintiff's employees' inspection of the food and wine delivered by BCI revealed an informal, inconsistent process. Marisa Lopez ("Lopez"), Plaintiff's restaurant manager during early 2015, testified BCI would leave food products in an open area outside of Andoni's office, and wine would be left outside of a wine cellar down the hall. Sometimes one of Plaintiff's employees would be present to review and accept the delivery. At other times, the delivery was not reviewed. Sometimes the Plaintiff's employees would check the products in and then sign an accompanying invoice, signifying the products were received and that the invoice should be paid. See, e.g., Ex. 101 at 39. At other times, invoices were paid despite the absence of a signature. See, e.g., Ex. 101 at 29.
If a BCI delivery was checked in, it was reviewed either by members of Plaintiff's kitchen staff, by Plaintiff's accountant, or by Andoni or Lopez. Artiach testified that, at other times, BCI deliveries were not inspected at all because he trusted Defendant to deliver the products listed on the invoices. Andoni testified that check-in standards were relaxed for Defendant because of his personal relationship with Andoni. Andoni also said he reminded Defendant about product delivery procedures "monthly" from 2012 to 2015, asking Defendant to deliver products at times when they could be checked in by one of Plaintiff's employees. Andoni claims Defendant complied sporadically and only to the extent necessary to temporarily appease Andoni. Defendant denies he was given such reminders and insists he always delivered what was invoiced and then called Andoni to let him know a delivery had been made.
In sum, Plaintiff's informal, inconsistent method of reviewing BCI's deliveries resulted in poor control over its inventory. This problem was exacerbated as to BCI deliveries to the extent Defendant was given leeway to deliver how and when he pleased based on his personal relationship with Andoni.
B. May 2015 Confrontation With this backdrop, sometime in 2014, Lopez was promoted to manage the restaurant and, in the words of Artiach, to "drain the swamp" in the wake of various operational struggles. Lopez reportedly fired many employees, brought on new staff, revamped the menu, and took a hard look at Plaintiff's business processes, including a review of vendors and inventory.
At some point in early 2015, Lopez began to suspect Defendant was not delivering all of the tuna, olives, pimientos, and wine he claimed he delivered on BCI's invoices. She also suspected he was claiming to have delivered products that were actually being delivered by a third-party vendor, Food Services of America ("FSA"). Based on her suspicions, Lopez hoped to use security cameras to catch Defendant "red-handed" in the act of underdelivering BCI products to Plaintiff.
This led to a confrontation involving Lopez, Artiach, and Defendant in May 2015 ("May 2015 Confrontation"). Defendant believed he had been summoned to the restaurant for a wine tasting, but upon his arrival, Lopez and Artiach confronted him and accused him of stealing from Plaintiff by billing them for products that were not actually delivered. Specifically, Lopez and Artiach claim Defendant said he had deliveredproducts the day before. Lopez and Artiach testified that Defendant did not appear on the cameras when he stated the products were delivered, and they could not locate the products on the invoice related to the alleged delivery.
Lopez and Artiach testified that they confronted Defendant and reviewed a segment of security camera footage with him. After viewing the video, Lopez and Artiach allege Defendant admitted his wrongdoing, started crying, asked them not to tell his family or call the police, and agreed to repay Plaintiff for the products he had not delivered. In direct contradiction to this testimony, Defendant testified he did not admit his wrongdoing, cry, or plead for mercy. Instead, Defendant claimed he was taken aback by the accusations and left without making any promise to repay because he had done nothing wrong. After the May 2015 Confrontation, Lopez contacted the Boise Police Department, who questioned Defendant regarding Plaintiff's allegations of theft. The matter was referred to the Ada County Prosecutor's Office, but no charges were brought against Defendant. Defendant did not make any payments to Plaintiff after the May 2015 Confrontation, and Defendant and his sister dissolved BCI on August 5, 2015.
Plaintiff points to five specific occasions on which Defendant underdelivered products to Plaintiff in the months leading up to the May 2015 Confrontation:
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Plaintiff alleges Defendant made a fraudulent misrepresentation on each of these occasions when he intentionally charged Plaintiff for products he did not deliver as stated on the invoices. Dkt. No. 163 at 6. On March 30, 2018, Plaintiff filed a Complaint in Ada County District Court, seeking damages based on Defendant's fraud. On May 2, 2018, Eduardo and Heather Sarria filed for bankruptcy.4 On June 11, 2018, Plaintiff filed this adversary complaint, asking the Court to determine both the amount of damages and the nondischargeability of any fraudulently obtained amount. Plaintiff seeks $10,000 in total damages which includes $3,260, based on the five invoices from 2015 referenced above, plus an additional $6,740 in estimated damages for 2014.
C. Key Witness Testimony: Amy Wray and Dmitri Arutiunov As a part of their case-in-chief, Plaintiff's counsel called two key witnesses to testify regarding their experiences with Defendant and BCI. The first witness was Amy Wray ("Wray"), the managing partner of another Boise restaurant, the Cottonwood Grille. Wray testified that in late 2014, on twelve occasions over the course of six months, Defendant charged Cottonwood Grille for pimientos that were not ever delivered by BCI. Wray confronted Defendant about the missing products, and Defendant responded emotionally, acknowledged his failure to properly deliver all of the products, and promised to repay over $6,000 to Cottonwood Grille based on the value of the undelivered goods. Wray indicated Defendant made one payment of $400 but did not make any subsequent payments. Notably, Wray also testified that Cottonwood Grille had formal procedures that applied to vendor delivery check-in, but BCI was not held to the same standards other vendors were held to because of the personal relationship between Defendant, Wray, and the Cottonwood Grille's chef. As a result, Wray said she was not careful with the invoices, and was defrauded by Defendant, suffering damages of over $6,000. She concluded her testimony by asserting she had no doubt that Defendant had intentionally failed to deliver the pimientos.
The second key witness for Plaintiff was Dmitri...
