Navarrete v. Phan

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

IN RE: )
)
LOC BUU PHAN, ) Case No. 25-01873-JMC-13
)
Debtor. )
__________________________________________)
)
YOVANI NAVARRETE, )
)
Plaintiff, )
)
v. ) Adversary Proceeding No. 25-50072
)
LOC BUU PHAN, )
)
Defendant. )

ENTRY DENYING MOTION FOR SUMMARY JUDGMENT
THIS ADVERSARY PROCEEDING comes before the Court on Defendant’s Motion for
Summary Judgment filed by Loc Buu Phan (“Debtor”) on December 19, 2025 (Docket No. 36)
(the “Motion”). The Court, having reviewed the Motion, Plaintiff’s Opposition to Defendant’s
Motion for Summary Judgment filed by Yovani Navarrete (“Creditor”) on January 15, 2026
(Docket No. 44), and the Amended Complaint to Determine Dischargeability of Debt filed by
Creditor on November 12, 2025 (Docket No. 14) (the “Complaint”), and being duly advised,
SO ORDERED: April 9, 2026.
______________________________
James M. Carr
United States Bankruptcy Judge
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now DENIES the Motion.
Summary Judgment Standard
Debtor moves the Court to enter summary judgment in his favor and against Creditor
pursuant to Fed. R. Civ. P. 56, made applicable to this adversary proceeding by Fed. R. Bankr. P.
7056. To obtain summary judgment, Debtor must show that there is no genuine dispute as to any
material fact and that Debtor is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
The burden rests on Debtor, as the moving party, to demonstrate that there is an absence of
evidence to support the case of Creditor, the nonmoving party. Celotex Corp. v. Catrett, 477
U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). After Debtor demonstrates the
absence of a genuine issue for trial, the responsibility shifts to Creditor to “go beyond the
pleadings” to cite evidence of a genuine issue of material fact that would preclude summary
judgment. Id. at 324, 106 S.Ct. at 2553. If Creditor does not come forward with evidence that
would reasonably permit the Court to find in Creditor’s favor on a material issue of fact (and if
the law is with Debtor), then the Court must enter summary judgment against Creditor.
Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d
538 (1986); Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53; and Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986)).
Positions of the Parties
On June 17, 2025, Creditor filed Proof of Claim No. 15-1 in the underlying bankruptcy
case, asserting a general unsecured claim for $7,431.38 (the “Debt”) based on Debtor’s alleged
failure to pay wages earned by Creditor. Creditor asks the Court to except the Debt from
discharge pursuant to 11 U.S.C. § 523(a)(2)(A).
Debtor moves for summary judgment, asserting that there is no basis for the Court to
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conclude that Debtor made a false representation to Creditor or that Debtor acted with actual
fraud in failing to pay wages. Moreover, Debtor asserts that any representation he made with
regard to future facts concerning payment may not be considered as a false representation.
Reasoning
Pursuant to 11 U.S.C. § 523(a)(2)(A), Creditor asks the Court to except the Debt from
discharge because the Debt was obtained by false pretenses, false representation, or actual fraud.
Exceptions to discharge under § 523 “are to be construed strictly against a creditor and
liberally in favor of the debtor.” In re Zarzynski, 771 F.2d 304, 306 (7th Cir. 1985). “The
burden is on the objecting creditor to prove exceptions to discharge.” Goldberg Secs., Inc. v.
Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir. 1992) (citation omitted). The burden of
proof required is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111
S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
Section 523 provides, in relevant part:
(a) A discharge under section 727 ... of this title does not discharge an individual
debtor from any debt –
...
(2) for money, property, services, or an extension, renewal, or refinancing of
credit, to the extent obtained by –
(A) false pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor’s or an insider’s financial condition ... .

The Seventh Circuit Court of Appeals distinguishes material differences among the three
possible grounds for nondischargeability under § 523(a)(2)(A) and has formulated two different
tests, one for both “false pretenses” and “false representation” and another for “actual fraud.”
See Rae v. Scarpello (In re Scarpello), 272 B.R. 691, 699-700 (Bankr. N.D. Ill. 2002) (citing
McClellan v. Cantrell, 217 F.3d 890, 894 (7th Cir. 2000)).
To prevail on a nondischargeability claim under the “false pretenses” or “false
representation” theory, a creditor must prove all of the following elements: “(1) the debtor made
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a false representation or omission, (2) that the debtor (a) knew was false or made with reckless
disregard for the truth and (b) was made with the intent to deceive, (3) upon which the creditor
justifiably relied.” Ojeda v. Goldberg, 599 F.3d 712, 716-17 (7th Cir. 2010) (citations omitted).
“What constitutes ‘false pretenses’ in the context of § 523(a)(2)(A) has been defined as
‘implied misrepresentations or conduct intended to create and foster a false impression.’ ”
Mem’l Hosp. v. Sarama (In re Sarama), 192 B.R. 922, 927 (Bankr. N.D. Ill. 1996) (quoting
Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 959 (Bankr. N.D. Ill. 1995) (quotations
omitted)). “False pretenses do not necessarily require overt misrepresentations. Instead,
omissions or a failure to disclose on the part of the debtor can constitute misrepresentations
where the circumstances are such that omissions or failure to disclose create a false impression
which is known by the debtor.” Id. at 928 (citation omitted).
A “false representation” can be shown by the debtor’s written statement, spoken
statement or conduct. Deady v. Hanson (In re Hanson), 432 B.R. 758, 772 (Bankr. N.D. Ill.
2010) (citing Bletnitsky v. Jairath (In re Jairath), 259 B.R. 308, 314 (Bankr. N.D. Ill. 2001)). “A
debtor’s failure to disclose pertinent information may be a false representation where the
circumstances imply a specific set of facts and disclosure is necessary to correct what would
otherwise be a false impression.” Id. (citing Trizna & Lepri v. Malcolm (In re Malcolm), 145
B.R. 259, 263 (Bankr. N.D. Ill. 1992)). “An intentional falsehood relied on under § 523(a)(2)(A)
must concern a material fact.” Scarpello, 272 B.R. at 700 (citing Jairath, 259 B.R. at 314).
Justifiable reliance is an intermediate level of reliance which is less stringent than
“reasonable reliance” but more stringent than “reliance in fact.” See Field v. Mans, 516 U.S. 59,
72-73, 116 S.Ct. 437, 445, 133 L.Ed.2d 351 (1995). Justifiable reliance requires only that the
creditor did not “blindly [rely] upon a misrepresentation the falsity of which would be patent to
him if he had utilized his opportunity to make a cursory examination or investigation” and
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imposes no duty on the creditor to investigate unless the falsity of the representation is readily
apparent. Id. at 71, 116 S.Ct. at 444 (quotations omitted). Justifiable reliance is not measured
from the objective person standard, but rather from the experiences and characteristics of the
particular creditor. Id. (quotation omitted).
“Scienter, or intent to deceive, is ... a required element under § 523(a)(2)(A) whether the
claim is for a false representation, false pretenses, or actual fraud.” Gasunas v. Yotis (In re
Yotis), 548 B.R. 485, 495 (Bankr. N.D. Ill. 2016) (citation omitted).
A debtor’s intent to deceive for purposes of the false pretenses and false representation
prongs on § 523(a)(2)(A) “is measured by a debtor’s subjective intention at the time the
representation was made.” Scarpello, 272 B.R. at 700 (citing Mercantile Bank v. Canovas, 237
B.R. 423, 428 (Bankr. N.D. Ill. 1998)). “Because direct proof of fraudulent intent is often
unavailable, fraudulent intent may be inferred from the surrounding circumstances.” Hanson,
432 B.R. at 773 (internal citations omitted).
“[A]ctual fraud is broader than misrepresentation,” McClellan, 217 F.3d at 893, in that
neither a debtor’s misrepresentation nor a creditor’s reliance is necessary to prove
nondischargeability for “actual fraud.” Scarpello, 272 B.R. at 700 (citing McClellan, 217 F.3d at
894). “Actual fraud” is defined as “any deceit, artifice, trick, or design involving direct and
active operation of the mind, used to circumvent and cheat another” which includes “all surprise,
trick, cunning, dissembling, and any unfair way by which another is cheated.” McClellan, 217
F.3d at 893 (quotations omitted). See also Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 356, 359-60,
136 S.Ct. 1581, 1586, 194 L.Ed.2d 655 (2016) (“The term ‘actual fraud’ in § 523(a)(2)(A)
encompasses forms of fraud ... that can be effected without a false representation. ... The word
‘actual’ has a simple meaning in the context of common-law fraud: It denotes any fraud that
‘involv[es] moral turpitude or intentional wrong.’ ... [A]nything that counts as ‘fraud’ and is
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done with wrongful intent is ‘actual fraud.’ ”) (internal citation omitted). In such cases, a
creditor must prove “(1) a fraud occurred; (2) the debtor intended to defraud the creditor; and (3)
the fraud created the debt that is the subject of the discharge dispute.” Hanson, 432 B.R. at 772
(citing McClellan, 217 F.3d at 894).
“[T]he focus of an ‘actual fraud’ claim is on the defendant's state of mind at the time of
his purportedly fraudulent conduct.” Merritt v. Wiszniewski (In re Wiszniewski), 2010 WL
3488960 at *5 (Bankr. N.D. Ill. 2010) (citation omitted).
“The term ‘actual fraud’ in § 523(a)(2)(A) encompasses forms of fraud, like fraudulent
conveyance schemes, that can be effected without a false representation.” Husky Int’l Elecs.,
Inc. v. Ritz, 578 U.S. 355, 359, 136 S.Ct. 1581, 1586 (2016).
An exception to discharge under § 523(a)(2)(A) “encompasses any liability arising from
money, property, etc., that is fraudulently obtained, including treble damages, attorney's fees, and
other relief that may exceed the value obtained by the debtor.” Cohen v. De La Cruz, 523 U.S.
213, 223, 118 S. Ct. 1212, 1219, 140 L.Ed.2d 341 (1998).
The main factual basis underlying Creditor’s claim is that Debtor gave Creditor “repeated
promises of payment and without forewarning of financial difficulty”. (Complaint, ¶ 2.) We are
still in the discovery phase of this adversary proceeding. The evidence needed to prove
Creditor’s case may not yet be fully in Creditor’s possession or control.
Creditor’s Complaint may ultimately raise the issue of whether an alleged
misrepresentation that Debtor would pay Creditor is about future facts and conduct and therefore
cannot qualify as a false representation under § 523(a)(2)(A). “[A] promise to act in the future is
not by itself a false representation under § 523(a)(2)(A).” Jairath, 259 B.R. at 316 (citation
omitted). However, the evidence that Creditor may present at trial may not focus on
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misrepresentation at all, but may instead be based on asserted false pretenses or “deceit, artifice,
trick or design” by Debtor.
Summary judgment is not appropriate at this time. Genuine issues of material fact,
including without limitation Debtor’s actions and intent, exist.
Conclusion
For the reasons set for the above, the Motion is DENIED.
The Court will hold a telephonic status conference on May 7, 2026 at 10:00 a.m. EDT.
To participate, parties should call (571) 353-2301, Meeting ID 734120790.
IT IS SO ORDERED.
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