JJ Best Banc & Co. v. Snyder et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
JOHN RANDALL SNYDER,
and DEBORAH STALNAKER SNYDER
Debtors.
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JJ BEST BANC & CO.,
Plaintiff.
v.
JOHN RANDALL SNYDER
and DEBORAH STALNAKER SNYDER,
Defendants.
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Case No. 13-bk-783
Chapter 7
Adversary No. 13-ap-53
MEMORANDUM OPINION
J.J. Best Banc & Co. (the “Plaintiff”), seeks summary judgment on its complaint seeking
to except $9,238.20 from John Randall Snyder and Deborah Stalnaker Snyder’s (the “Debtors”)
discharge under 11 U.S.C § 523(a)(2)(A). The Plaintiff contends that grounds exist to render the
debt nondischargable because the Debtors intended to defraud the Plaintiff.
The Debtors seek entry of summary judgment on the basis that the Plaintiff cannot prove
that: (1) the Debtors made a fraudulent misrepresentation; and (2) if they did make a representation,
that the Plaintiff did not rely on it when loaning money to the Debtors.
For the reasons stated herein, the court will deny both motions for summary judgment.
I. STANDARD OF REVIEW
Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule of
Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the movant
demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to
Dated: Friday, October 31, 2014 4:30:02 PM
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judgment as a matter of law.” Fed. R. Civ. P. 56(a). 	A party seeking summary judgment must
make a prima facie case by showing: first, the apparent absence of any genuine dispute of material
fact; and second, the movant’s entitlement to judgment as a matter of law on the basis of undisputed
facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The movant bears the burden
of proof to establish that there is no genuine dispute of material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 325 (1986). Demonstrating an absence of any genuine dispute as to any material fact
satisfies this burden. Id. at 323. Material facts are those necessary to establish the elements of the
cause of action. Anderson, 477 U.S. at 248. Thus, the existence of a factual dispute is material —
thereby precluding summary judgment — only if the disputed fact is determinative of the outcome
under applicable law. Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir. 1994). A movant is entitled to
judgment as a matter of law if “the record as a whole could not lead a rational trier of fact to find
for the non-movant.” Williams v. Griffin, 952 F.2d 820, 823 (4th Cir. 1991) (citation omitted); see
also Anderson, 477 U.S. at 248.
If the moving party shows that there is no genuine dispute of material fact, the nonmoving
party must set forth specific facts that demonstrate the existence of a genuine dispute of fact for
trial. Celotex Corp., 477 U.S. at 322-23. 	The court is required to view the facts and draw
reasonable inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at 798.
However, the court’s role is not “to weigh the evidence and determine the truth of the matter [but
to] determine whether there is a need for a trial.” Anderson, 477 U.S. at 249-50. Nor should the
court make credibility determinations. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). If
no genuine issue of material fact exists, the court has a duty to prevent claims and defenses not
supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24. Thus, for the
movant to prevail on its motion for summary judgment, it must demonstrate that the material facts
are not in dispute and there is an absence of evidence to create a triable issue regarding every
necessary element of its claims.
II. BACKGROUND
On July 25, 2011, the Debtors borrowed money from the Plaintiff to purchase a 1957 Buick
Roadmaster VIN # 7D402736 (the “Buick”). The Debtors signed a promissory note and security
agreement, which required them to title the Buick in their names and to list the Plaintiff as holding
a first-position lien on the Buick. Although the Debtors used the loan proceeds to purchase the
Buick, they did not list the Plaintiff as the first lienholder on the title. The Debtors subsequently
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sold the Buick for $9,000.00 on Ebay and used the sale proceeds to purchase another vehicle and
to pay medical bills. 	Notably, the Debtors did not pay the Plaintiff and later defaulted on the
promissory note. On June 27, 2013, the Debtors filed a Chapter 7 bankruptcy petition in this court,
which precipitated this adversary proceeding.
III. DISCUSSION
The Plaintiff argues that it is entitled to summary judgment on its complaint because there
are no genuine issues of material fact surrounding its claim that the Debtors intended to defraud
the Plaintiff. It contends that the Debtors’ answers to interrogatories demonstrate their intent to
defraud the Plaintiff of the loaned money. The Debtors contest the Plaintiff’s assertions in that
regard and argue that they are entitled to summary judgment because the Plaintiff cannot
demonstrate the Debtors’ fraudulent intent necessary to establish a false misrepresentation and
cannot establish that it reasonably relied on any such misrepresentation.
Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge any debt “for money
. . . to the extent obtained, by – (A) false pretenses, a false representation, or actual fraud . . . .”
Not all debts incurred as a result of fraud fall within this exception to discharge; rather, this
exception only includes those “debts in which the debtor used fraudulent means to obtain money .
. . .” Nunnery v. Rountree (In re Rountree), 478 F.3d 215, 219 (4th Cir. 2007). However, “[o]nce
it is established that specific money or property has been obtained by fraud . . . ‘any debt’ arising
therefrom is excepted from discharge,” Id. at 222 (citing Cohen v. De La Cruz, 523 U.S. 213, 218,
(1998)), “including . . . attorney’s fees, and other relief that may exceed the value obtained by the
debtor.” Cohen, 523 U.S. at 223. The intent of § 523(a)(2) is “to protect creditors who were tricked
by debtors into loaning them money or giving them property, services, or credit through fraudulent
means.” Rountree, 478 F.3d at 219-20.
For purposes of making a non-dischargeability determination, the terms “false pretenses,”
“false representation,” and “actual fraud” are to be interpreted according to the common
understanding of those terms at the time § 523(a)(2)(A) was enacted. E.g., Field v. Mans, 516 U.S.
59, 69 (1995) (“The operative terms in § 523(a)(2)(A) . . . carry the acquired meaning of terms of
art. They are common-law terms, and . . . they imply elements that the common law has defined
them to include.”). What Congress meant when it used the terms can be derived from the generally
shared common law, as set forth in Restatement (Second) of Torts (1976), which was published
shortly before Congress passed the 1978 Bankruptcy Code. Field, 516 U.S. at 70-73. See also
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Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 134 (4th Cir. 1999) (“[W]e will follow
the Supreme Court’s lead and look to the Restatement to determine the elements required to prove
that claim.”). To define “actual fraud” the Supreme Court looked to the definition of “fraudulent
misrepresentation” under the Restatement, which defines the tort as:
One who fraudulently makes a misrepresentation of fact, opinion, intention, or
law for the purpose of inducing another to act or to refrain from action in reliance
upon it, is subject to liability to the other in deceit for pecuniary loss caused to
him by his justifiable reliance upon the misrepresentation.
Restatement (Second) of Torts § 525 (1976).
Thus, under the Restatement, “a plaintiff must prove four elements: (1) a fraudulent
misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the
plaintiff; and (4) the plaintiff's justifiable reliance on the misrepresentation.” Biondo, 180 F.3d at
134. 	A creditor can satisfy the first element by showing that the debtor made a representation
“known to be false or recklessly made without knowing whether it was true or false.” Boyuka v.
White (In re White), 128 Fed. Appx. 994, 998 (4th Cir. 2005). Moreover, a debtor’s promise to
act may be considered a fraudulent misrepresentation “if he does not have that intention [to act] at
the time he makes the representation.” Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997)
(quoting Restatement (Second) of Torts § 530(1) (1976)). 	Generally, summary judgment is
inappropriate in cases where intent is an element of a claim, such as § 523(a)(2)(A). Coleman v.
Lott (In re Lott), 363 B.R. 835 838 (Bankr. N.D. Ohio 2006). Intent is a subjective state of mind
and cannot be easily assessed from a record on summary judgment.
The Plaintiff bears the burden to demonstrate by the preponderance of the evidence that
the Debtors’ debt is nondischargable under § 523(a)(2)(A). Grogan v. Garner, 498 U.S. 279, 291
(1991) (holding that the standard of proof for dischargability exceptions in § 523(a) is the
preponderance-of-the-evidence standard). 	Exceptions to discharge under § 523 are construed
narrowly in favor of providing debtors a fresh start. See Foley & Lardner v. Biondo (In re Biondo),
180 F.3d 126, 130 (4th Cir. 1999).
Regarding its motion for summary judgment, the Plaintiff asserts that it is entitled to relief
because the court can infer Debtors’ fraudulent intent based on the totality of the circumstances
surrounding the execution of the note and security agreement, specifically that the Debtors
breached the security agreement by not listing the Plaintiff as the first lienholder on the title, sold
the Buick on Ebay, and used the sale proceeds to purchase a second vehicle and pay medical bills
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instead of paying the debt owed to the Plaintiff. The Debtors deny making any representation to
the Plaintiff, fraudulent or otherwise. 	They assert that summary judgment for the Plaintiff is
inappropriate because there are genuine disputes as to material facts; namely, whether they made
a fraudulent representation, and whether the Plaintiff justifiably relied on any such representation.
Here, the court will deny the Plaintiff’s motion for summary judgment because it failed to
make a prima facie showing under § 523(a)(2)(A). Although the Plaintiff alleges that the totality
of the circumstances show that the Debtors had a fraudulent intent, it has not shown that it was
tricked by the Debtors into giving them money through a fraudulent misrepresentation. 	See
Palmacci, 121 F.3d at 787 (“If, at the time he made his promise, the debtor did not intend to
perform, then he has made a false representation . . . If he did so intend at the time he made his
promise, but subsequently decided that he could not or would not so perform, then his initial
representation was not false when made.”). Upon careful examination of the record on summary
judgment, there appear to be genuine issues of material fact concerning the Debtors’ intentions:
including, for instance, alleged communications with the Plaintiff after signing the promissory
note and security agreement. 	The Debtors, in their answers to interrogatories, state that they
received the Plaintiff’s consent to sell the Buick on Ebay; attempted to contact the Plaintiff
regarding making payments on the debt; and offered to substitute other collateral for the Buick in
order to secure the debt. The Plaintiff denies communicating with the Debtor in any respect. The
dispute over these facts indicates that the Plaintiff has not satisfied its burden in showing the
absence of a genuine dispute of material fact. See Anderson, 477 U.S. at 248. Moreover, although
the record on summary judgment shows that the Debtors failed to honor their obligations under
the security agreement, this is insufficient to show that the Debtor never intended to honor these
obligations in the first place, and that they fraudulently induced the Plaintiff to loan them the
money to purchase the Buick. The court finds it necessary to hear live testimony in this regard so
it can adjudge the Debtors’ credibility.
Regarding the Debtors’ motion for summary judgment, they assert that they are entitled to
relief based upon their allegation that the Plaintiff’s motion for summary judgment fails to plead
facts to support the first element of § 523(a)(2)(A), namely the Debtors’ intent at the initiation of
the loan. The Debtors further assert that they are entitled to relief because the Plaintiff allegedly
relied only on the Debtors’ credit history report in loaning funds to the Debtors. 	The Plaintiff
contests the Debtors’ assertions in that regard, and argues that it relied on the security agreement.
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Based upon the dispute between the parties, it is unclear what the Plaintiff relied upon in loaning
money to the Debtors. Thus, the Debtors have not met their burden to demonstrate an absence of
material fact concerning the Plaintiff’s reliance. See Anderson, 477 U.S. at 248. Therefore the
Debtors have not met their burden regarding summary judgment. 	Moreover, the court finds it
necessary to hear live testimony so it can adjudge the Plaintiff’s credibility.
IV. CONCLUSION
For the above-stated reasons, the court will deny, without prejudice, the Plaintiff’s motion
for summary judgment and the Debtors’ motion for summary judgment. A separate order will be
entered pursuant to Fed. R. Bankr.P. 9021.
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