Rossi v. Morse-Pinkstone

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Case 6:05-ap-00016-ABB Doc 22 Filed 12/08/05 Page 1 of 7

FILED

UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF FLORIDA DEC 08 2005
ORLANDO DIVISION CLE
ORLANDO OG URTCY
In re: ~ O DIVISION
ANITA MORSE-PINKSTONE, Case No. 6:04-bk-13546-ABB
Chapter 7
Debtor.
/

JOANNE ROSSI. a/k/a JOANNE
YASONI,

Plaintiff,
VS. Adv. Pro. No. 6:05-ap-00016-ABB
ANITA MORSE-PINKSTONE,

Defendant.

/
MEMORANDUM OPINION

This adversary proceeding came before the Court on the Complaint to Determine
Dischargeability of Debt Pursuant to 11 U.S.C. §523(a)' filed by the Plaintiff Joanne Rossi. a/k/a
Joanne Yasoni (“Plaintiff”), against Anita Morse-Pinkstone, the Defendant and Debtor herein
(“Debtor”). This is an action to determine the dischargeability of a debt pursuant to 11 U.S.C.
§§523(a)(2)(A) and 523(a)(6). A trial was held on August 26, 2005. Appearing at trial were the
Plaintiff. the Debtor, and counsel for each party. After reviewing the pleadings and evidence,
and hearing live testimony and argument. being otherwise fully advised in the premises. the
Court finds the debt should be excepted from the Debtor’s discharge. Judgment will be entered
for the Plaintiff.

The following Findings of Fact and Conclusions of Law are made:

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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FINDINGS OF FACT

The Plaintiff loaned $10,000 to the Debtor on March 31, 2003.’ The Debtor and the
Plaintiff signed a promissory note on that same date, which provides that the loan was due within
six months with interest accruing at the rate of 8%.> The parties had business dealings together
and had taken steps to open a travel business. The Debtor made no loan payments to the
Plaintiff. The Plaintiff obtained a state court judgment against the Debtor in the amount of
$11,400.56" and then instituted collection proceedings. The Plaintiff garnished $3,373.91 from
the Debtor pre-petition. The Debtor filed a Chapter 7 bankruptcy case on December 17, 2004.

The parties exchanged email communications regarding the loan. In response to an email
from the Plaintiff the Debtor wrote: “there was no way that I intend to pay you back... You

~ In

were a perfect sucker for a scam artest like me. . . Best of luck trying to find me... .
another email the Debtor wrote: “i told you lawyer and you i would never pay you that i would
go bankrupt first. who gets to laugh now? me!”

The parties presented conflicting testimony regarding the purpose of the loan and how the
funds were to be used by the Debtor. The Plaintiff testified she had understood the Debtor was
trying to buy a house and the loan was to be used as a down payment. The Debtor did not
purchase a home. The Debtor testified that the loan was a business loan for their co-venture and
the funds were used for business start-up costs. She further testified that she had credit card

statements and other bank documents evidencing that the funds were used for business purposes.

The trial record remained open for fourteen days to allow the Debtor to produce evidence of the

' Doc. No. |.

? Plaintiff's Exh. No.2.
3 Plaintiff's Exh. No. 1.
* Plaintiff's Exh. No. 3.
> Plaintiff's Exh. No. 4.

Case 6:05-ap-00016-ABB Doc 22 Filed 12/08/05 Page 3 of 7

disbursements of the loan proceeds. The Debtor did not produce evidence supporting her
testimony on the use of the funds. Based on the Debtor’s failure to present any additional
evidence. her credibility is discounted.

The Plaintiff loaned $10.000 to the Debtor with the understanding, based upon the
Debtor’s representations, that the funds were to be used by the Debtor to purchase a home and
would be repaid pursuant to the terms of the note. The Plaintiff relied upon the Debtor’s
representations and her reliance was justified. These representations were false and were made
by the Debtor with the purpose and intent to deceive the Plaintiff. The email communications
establish that at the time the loan was made the Debtor did not intend to use the loan for the
stated purpose or to repay the funds. Signing the promissory note was part of the Debtor's
scheme to garner the Plaintiff's trust and defraud her. The Plaintiff sustained a loss as a direct
result of the Debtor’s misrepresentations.

The Debtor deliberately and intentionally injured the Plaintiff through her willful and
malicious acts. The Debtor, harboring an intent to deceive the Plaintiff at the time the loan was
made, deliberately and intentionally defrauded the Plaintiff. She intended to deprive the Plaintiff
of $10,000 and did in fact cause the Plaintiff to lose $10,000. The actions of the Debtor were
willful and malicious. The Plaintiff has satisfied the requirements to sustain a claim of
nondischargeability pursuant to both 11 U.S.C. §§523(a)(2)(A) and 523(a)(6).

CONCLUSIONS OF LAW

The Plaintiff challenges the dischargeability of the debt pursuant to §§523(a)(2)(A) and
523(a)(6). The party objecting to the dischargeability of a debt carries the burden of proof, and

the standard of proof is preponderance of the evidence. Grogan v. Garner, 498 U.S. 279. 291,

© Plaintiff's Exh. No. 5. 3

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111 S. Ct. 654, 112 L. Ed.2d 755 (1991); Fed. R. Bankr. P. 4005 (2005). Objections to discharge
are to be strictly construed against the creditor and liberally in favor of the debtor. In re Hunter,
780 F.2d 1577, 1579 (11th Cir. 1986); In re Berard, 152 B.R. 1016, 1017 (Bankr. S.D. Fla.
1993).

11 U.S.C. §523(a)(2)(A)

The Plaintiff contends the debt should be excepted from discharge pursuant to
§523(a)(2)(A) of the Bankruptcy Code, which provides that a discharge pursuant to §727 does
not discharge an individual from any debt:

for money, property. services, or an extension, renewal. or refinancing of credit.

to the extent 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). Courts have required a plaintiff to establish the traditional elements of

common law fraud for non-dischargeability pursuant to §523(a)(2)(A). SEC v. Bilzerian (In re

Bilzerian), 153 F.3d 1278, 1281 (1 1° Cir. 1998). A plaintiff must prove: (i) the debtor made a
false representation with the purpose and intent to deceive the creditor: (ii) the creditor relied on
the misrepresentation; (iii) the reliance was justified; and (iv) the creditor sustained a loss as a

result of the misrepresentation. Id.; In re Johannessen, 76 F.3d 347. 350 (11th Cir. 1996).

Pursuant to the Grogan decision, the objecting party must prove each of the four elements of
fraud by a preponderance of the evidence. In re Wiggins, 205 B.R. 131. 134 (Bankr. M.D. Fla.
2000).

Regarding the first element, the false representation giving rise to the claim must have
been knowingly and fraudulently made to except a debt from discharge. 4 COLLIER ON
BANKRUPTCY 523.08[1][d], at 523-44.9. The party objecting to discharge must then establish

4

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that it relied on the false representation. Id.; City Bank & Trust Co. v. Vann, (In re Vann), 67

F.3d 277, 280 (11th Cir. 1995): In re Perkins. 52 B.R. 355, 357 (Bankr. M.D. Fla. 1985). The
reliance must be justified. Field v. Mans. 516 U.S. 59, 73-5, 116 S. Ct. 437, 133 L. Ed. 2d 351
(1995) (establishing that §523(a)(2)(A) requires justifiable reliance rather than the former

standard of reasonable reliance). Whether such reliance was justified is determined by a

subjective test. In re Vann, 67 F.3d at 281. “Justifiable reliance is gauged by an individual
standard of the plaintiff's own capacity and the knowledge which he has, or which may fairly be
charged against him from the facts within his observation in the light of his individual case.” Id.
(quoting W. PAGE KEETON, PROSSER & KEETON ON TORTS §108. at 751 (5th ed. 1984) (emphasis
added)). The fourth element requires proof of causation. A plaintiff must establish a causal link
between the debtor’s misrepresentation and the resulting loss sustained by the plaintiff. Fugate
y. Stevens, No. 02-8501-8G7, Adv. No. 8:02-ap-589-PMG., 2003 Bankr. LEXIS 1950, at 18-9
(Bankr. M.D. Fla. September 12, 2003).

The Plaintiff has established each of the four fraud elements by a preponderance of the
evidence. The Plaintiff loaned $10,000 to the Debtor believing that the funds would be used to
purchase a house and would be repaid pursuant to the terms of the note, as represented to her by
the Debtor. The Plaintiff loaned the money to the Debtor relying on the Debtor's
representations. The Plaintiff's reliance on the Debtor’s representations was justified. Had the
Plaintiff known the Debtor’s true intentions, she would never have made the loan.

The Debtor's representations to the Plaintiff were false. The Debtor did not intend to use
the funds to purchase a house and did not intend to repay the money. The Debtor's own words,

“there was no way that I intend to pay you back .. . You were a perfect sucker for a scam artest

Case 6:05-ap-00016-ABB Doc 22 Filed 12/08/05 Page 6 of 7

[sic] like me,” evidence, particularly through the use of past tense verbs, her intent to defraud the
Plaintiff at the time the loan was made. The Debtor intended to deprive the Plaintiff of $10,000
and the Plaintiff suffered an injury, the loss of $10,000, as a direct result of the Debtor’s
misrepresentations.

11 U.S.C. §523(a)(6)

The Plaintiff asserts the debt is non-dischargeable pursuant to 11 U.S.C. §523(a)(6).
Section 523(a)(6) provides that a discharge pursuant to §727 does not discharge any debt “for
willful and malicious injury by the debtor to another entity or to the property of another entity.”
11 U.S.C. §523(a)(6). The exception of a debt from discharge pursuant to §523(a)(6) requires
that a plaintiff prove by a preponderance of the evidence that the debtor deliberately and
intentionally injured the creditor or creditor's property by a willful and malicious act. In re

Howard, 261 B.R. 513, 520 (Bankr. M.D. Fla. 2001).

The United States Supreme Court ruled in Kawaauhau v. Geiger that in order to establish
the requisite willful and malicious intent of §523(a)(6) a plaintiff must prove the injury was
intentional—that the debtor intended the consequences of his act. The Supreme Court explained
that because “willful” modifies “injury” in §523(a)(6), nondischargeability requires conduct that
inflicts an injury intentionally and deliberately, “not merely . . . a deliberate or intentional act

that leads to injury.” Kawaauhau v. Geiger. 523 U.S. 57. 61-2, 118A S. Ct. 974, 140 L. Ed. 2d

90 (1998). “Malicious” has been defined by the Eleventh Circuit as “wrongful and without just
cause or excessive even in the absence of personal hatred, spite or ill-will.” In re Ikner, 883 F.2d

986, 991 (11th Cir. 1989). Malice may be implied or constructive. In_ re Walker. 48 F.3d 1161,

Case 6:05-ap-00016-ABB Doc 22 Filed 12/08/05 Page 7 of 7

1164 (11th Cir. 1995). Conduct that is reckless or willfully ignorant does not constitute
malicious and willful pursuant to the Geiger standard.’

The Plaintiff contends that the Debtor's taking of the $10,000 and failure to repay the
funds constitute willful and malicious injury to the Plaintiff. The Plaintiff has established that
the Debtor’s actions meet the willful and malicious standard of §523(a)(6). as defined by the
Supreme Court in Geiger. The Debtor fraudulently obtained the funds from the Plaintiff through
deceit. | Her actions were not reckless or willfully ignorant. They were deliberate and
intentional. The Debtor had an actual conscious intent to harm the Plaintiff when the loan was
made. She intended to injure the Plaintiff by taking $10,000 from her through deceit. Such
intent is evidenced by the Debtor's email statements: “there was no way that I intend [sic] to pay
you back” and “You were a perfect sucker for a scam artest [sic] like me.® The Plaintiff
suffered the intended injury—she lost $10,000. The Debtor’s actions were willful and malicious
within the meaning of 11 U.S.C. §523(a)(6).

The Plaintiff has established the non-dischargeability elements of 11 U.S.C.
§§523(a)(2)(A) and 523(a)(6). Judgment will be entered in favor of the Plaintiff.

The Court will enter a separate judgment consistent with these findings of fact and
conclusions of law.

a
Dated this day of December. 2005.

ARTHURYB. BRISKMAN
United States Bankruptcy Court

7 “Willful” conduct requires “a showing of an intentional or deliberate act, which is not done merely in reckless disregard of the
rights of another.” In re Ikner, 883 F.2d at 991; see also In re Walker, 48 F.3d at 1165 (explaining that the “reckless disregard”
standard was rejected by Congress and the 11" Circuit).

* Plaintiff's Exh. No. 4.