Sylvester v. Wube (In re Wube)

• Decision Date: 15 May 2013
• Docket Number: Adversary Proceeding No. 12-10046,Case No. 12-00577
• Parties: In re TESFA TSION WUBE and ARLENE MICHELLE WUBE, Debtors. AMILCAR CABRAL SYLVESTER, Plaintiff, v. TESFA TSION WUBE and ARLENE MICHELLE WUBE, Defendants.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

In re TESFA TSION WUBE and ARLENE MICHELLE WUBE, Debtors.

AMILCAR CABRAL SYLVESTER, Plaintiff, v. TESFA TSION WUBE and ARLENE MICHELLE WUBE, Defendants.

Case No. 12-00577

Adversary Proceeding No. 12-10046

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

Signed: May 15, 2013

The document below is hereby signed.

______________________

S. Martin Teel, Jr.

United States Bankruptcy Judge

(Chapter 7)

Not for publication in

West's Bankruptcy Reporter.

MEMORANDUM DECISION RE MOTION TO DISMISS AND/OR, IN THE

ALTERNATIVE, MOTION FOR SUMMARY JUDGMENT RE AMENDED COMPLAINT

The court issued a Memorandum Decision (Dkt. No. 16) and Order (Dkt. No. 17) dismissing the complaint for failure to state a claim and giving the plaintiff 21 days' leave to file an amended complaint. The plaintiff filed an amended complaint (Dkt. No. 20). Presently before the court is the Motion toDismiss Amended Complaint Objecting to Dischargeability of Debt and/or in the Alternative, Motion for Summary Judgment (Dkt. No. 21) filed by Tesfa and Arlene Wube.

I

For purposes of the Motion to Dismiss, the following facts are assumed to be true. Tesfa Tsion Wube ("Wube") was a party promoter at several nightclubs in Washington, D.C., including the Love Nightclub and The Park at Fourteenth. In December 2008, the plaintiff, Amilcar Cabral Sylvester ("Sylvester"), loaned $200,000 to Wube to help fund events and parties during the presidential inauguration week. Amd. Compl. ¶ 13. Wube told Sylvester that he had an ownership interest in the two clubs. Amd. Compl. ¶ 10. He also told Sylvester that he had control over the revenues of those clubs and that he "had the authority to hold events at both venues." Amd. Compl. ¶ 14. Wube told Sylvester that he would use the loan to fund at least 11 events at the two nightclubs. Amd. Compl. ¶ 15. According to the terms of the loan agreement, Wube would repay the loan no later than February 4, 2009. Amd. Compl. ¶ 13.

Wube failed to repay the loan. Amd. Compl. ¶ 16. Sylvester was awarded a default judgment in the amount of $235,247.00 against Wube in the Superior Court of the District of Columbia. Amd. Compl. ¶ 19. Wube and his wife, Arlene Michelle Wube, subsequently filed for bankruptcy. At thesection 341 meeting of creditors, Sylvester learned that Wube was not an owner or operator of either nightclub. Amd. Compl. ¶ 25. Sylvester alleges that at the meeting of creditors Wube and his wife stated that they led the public to believe that Wube was an owner of the clubs for marketing purposes. Amd. Compl. ¶ 26. In this adversary proceeding, Sylvester seeks a declaration that the debt for the loan is nondischargeable.

A

A complaint survives a motion to dismiss if it contains enough factual allegations, accepted as true, "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). The plausibility standard does not require probability, "but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.

In addressing a motion to dismiss, the court accepts the complaint's factual allegations as true. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). However, the court is not bound to accept an inference drawn by the plaintiff if theinference is not supported by the facts in the complaint. Trudeau v. FTC, 456 F.3d 178, 193 (D.C. Cir. 2006). In addition to the facts alleged in the complaint, the court may consider "any documents either attached to or incorporated in the complaint and matters of which [the court] may take judicial notice." Equal Emp't Opportunity Comm'n v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997).

B

In Count I, the plaintiff seeks to have the debt for the loan declared nondischargeable under 11 U.S.C. § 523(a)(2)(A). The complaint alleges:

The Debtors have knowingly and fraudulently misrepresented to the Plaintiff that they were owners and operators of certain business entities [Love Nightclub and The Park at Fourteenth] in order to obtain money from the Plaintiff creditor. The Defendant Mr. Wube told plaintiff that he controlled the operations of the aforementioned entities and guaranteed the venues for eleven (11) events. Defendant Wube delivered only five (5) events at only one of the clubs. The failure to deliver both venues is a direct result of defendant Wube's misrepresentation that he controlled the operations of both clubs. Defendant Wube at the time the agreement was negotiated knew he had no authority to bind either club to hold the events contracted for by plaintiff. Plaintiff reasonably relied upon Defendant's misrepresentation.

Compl. ¶ 30. Sylvester maintains that Wube told him "that he ran the operations of the two entities and had the authority to hold events at both clubs." Compl. ¶ 31. Significantly, Sylvester also alleges that Wube "entice[d] Plaintiff to enterinto an agreement that Defendant Wube knew he could not fulfill." Compl. ¶ 31.

Section 523(a)(2)(A) excepts from discharge any debt for money, property, or services obtained by "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A). A debt obtained by a misrepresentation respecting the debtor's or an insider's financial condition must be in writing to be nondischargeable. 11 U.S.C. § 523(a)(2)(B). Accordingly, the first issue is whether the complaint sets forth a statement that is actionable under § 523(a)(2)(A).

This court previously dismissed Sylvester's claim pursuant to § 523(a)(2)(A) because the alleged representation that Wube owned the nightclubs was an oral statement respecting Wube's financial condition. Wube argues that the amended complaint contains the same defect. Mtn. to Dismiss at ¶¶ 40—51.

As this court explained in its Memorandum Decision re Motion to Dismiss, courts disagree about the meaning of "a statement respecting the debtor's . . . financial condition," with some courts adopting a strict interpretation of the term and some courts adopting a broader interpretation. See Memorandum Decision, at 7—9. Compare Bandi v. Becnel (In re Bandi), 683 F.3d 671, 676 (5th Cir. 2012) ("It means the generaloverall financial condition of an entity or individual, that is, the overall value of property and income as compared to debt and liabilities."), Cadwell v. Joelson (In re Joelson), 427 F.3d 700, 712 (10th Cir. 2005) ("Therefore, the better approach is the strict interpretation of § 523(a)(2)(B) that requires a false written statement to describe the debtor's net worth, overall financial health, or ability to generate income."), and Barnes v. Belice (In re Belice), 461 B.R. 564 (B.A.P. 9th Cir. 2011) (also adopting a narrow interpretation), with Engler v. Van Steinburg (In re Van Steinburg), 744 F.2d 1060, 1061 (4th Cir. 1984) ("A debtor's assertion that he owns certain property free and clear of other liens is a statement respecting his financial condition."), and Beneficial Nat'l Bank v. Priestley (In re Priestley), 201 B.R. 875, 882 (Bankr. D. Del. 1996) (broad interpretation).

However, the amended complaint alleges more than a statement respecting Wube's financial condition, because it alleges that Wube misrepresented his intent to perform under the contract. Sylvester claims Wube represented that he was an owner and operator of the nightclubs and could host 11 events at both venues even though Wube knew at the time that he did not have the authority to secure events at both venues, and knew that he was entering into an agreement that he knew he could not fulfill. "'[A] promise made with a positive intent not toperform or without a present intent to perform satisfies § 523(a)(2)(A).'" McCrary v. Barrack (In re Barrack), 217 B.R. 598, 606 (B.A.P. 9th Cir. 1998) (citing Rubin v. West (In re Rubin), 875 F.2d 755, 759 (9th Cir.1989)); see also Ludwig & Robinson, PLLC v. Yelverton (In re Yelverton), 2009 WL 3823187, at *4 (Bankr. D.D.C. Nov. 16, 2009); Kuper v. Spar (In re Spar), 176 B.R. 321 (Bankr. S.D.N.Y. 1994) ("When, at the time a representation is made, the debtor has no intention of performing as promised, a debtor's misrepresentation of his intentions will constitute a false representation under Code § 523(a)(2)(A)."); First Baptist Church v. Maurer (In re Maurer), 112 B.R. 710, 713 (Bankr. E.D. Pa. 1990) ("[T]o be actionable as fraud, the plaintiff must establish that the debtor entered into the contract with the intent of never complying with its terms.").¹ The facts sufficiently allege that Wube represented that he partly owned and controlled the nightclubs and therefore that he could host events at the clubs, when in fact he had no intention of performing under thecontract.² Construing the factual allegations liberally in the plaintiff's favor, see Kowai v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994), this court finds that the complaint adequately pleads the first element of a claim under § 523(a)(2)(A), that the debtor made a representation.

The other elements of such a claim are: that at the time the representations were made the debtor knew them to be false; that the debtor made the representations with the intent and purpose of deceiving the creditor; that the creditor justifiably relied on the representations; and that the creditor sustained damages as a proximate result of the representations. 4 COLLIER ON BANKRUPTCY ¶ 523.08[1][e] (16th ed.). Sylvester alleges that Wube knew at the time the loan agreement was negotiated that he had "no authority to bind either club to hold the events contracted for by plaintiff" and that he knew he could not fulfill the...