Opinion
20-11191 PROC. 20-1061
06-29-2021
IN RE: DENNIS L. SATTERFIELD BECKY S. SATTERFIELD Debtors v. DENNIS J. SATTERFIELD BECKY S. SATTERFIELD Defendants JONATHAN BENDER Plaintiff
NOT FOR PUBLICATION
DECISION
ROBERT E. GRANT CHIEF JUDGE.
On June 29, 2021
By this adversary proceeding, the plaintiff has asked the court to declare that the debtors' obligation to him constitutes a nondischargeable debt pursuant to § 523(a)(2) of the United States Bankruptcy Code. That debt is represented by a judgment from the Wells Circuit Court and is based upon the debtors' failure to accurately disclose the condition of residential real estate the plaintiff purchased from him. See, I.C. 32-21-5. The matter is before the court following trial.
Section 523(a)(2) excepts from the scope of a debtor's discharge debts "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 . . . ." 11 U.S.C. § 523(a)(2)(A). Exceptions to discharge are narrowly construed in favor of the debtor, Ojeda v. Goldberg, 599 F.3d 712, 718 (7th Cir. 2010); Matter of Scarlata, 979 F.2d 521, 524 (7th Cir. 1992); In re Kimzey, 761 F.2d 421, 424 (7th Cir. 1985), and the creditor bears the burden of proving that its debt falls within a particular exception by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991).
Section 523(a)(2)(A) generally requires the plaintiff to establish that the debtor/defendant made a false representation of fact; that was either known to be false or was made with such reckless disregard for the truth as to constitute willful misrepresentation; with an intent to deceive; the plaintiff justifiably relied on the false representation; and the plaintiff was damaged as a result. See, Ojeda, 599 F.3d at 716-17. See also, Field v. Mans, 516 U.S. 59, 116 S.Ct. 437 (1995) (justifiable reliance); In re Mayer, 51 F.3d 670, 673 (7th Cir. 1995) (representation, known to be false or made with reckless disregard for the truth, made with the intent to deceive). Each of these elements must be established or the debt will be a dischargeable one. In re Jairath, 259 B.R. 308, 314 (Bankr. N.D.Ill. 2001).
The state court's decision and judgment are sufficient to establish three of the five required elements. The award of damages based on the debtors' actions obviously satisfies the requirement that plaintiff was harmed by them. That decision, through the operation of collateral estoppel, also satisfies the plaintiff's obligation to prove that debtors made a representation which was known to be false. See, Decision and Order Denying Cross Motions for Summary Judgment, dated Apr. 13, 2021 (ECF No. 27). It is the other two elements - intent to deceive and justifiable reliance - that were the subject of trial. Of these, the court need only address the issue of reliance.
The standard for reliance under § 523(a)(2)(A) is justifiable reliance. Field, 516 U.S. at 74-75. "Justifiable reliance is an intermediate level of reliance. It is less than reasonable reliance, but more than reliance in fact." In re Scarpello, 272 B.R. 691, 700 (Bankr. N.D.Ill. 2002).
Justification is a matter of the qualities, and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than the application of a community standard of conduct to all cases. . . . [A] person is required to use his senses and cannot recover if he blindly relies upon a misrepresentation the falsity of which would be apparent to him if he utilized his opportunity to make a cursory examination or investigation. Thus if one induces another to buy a horse by representing it to be sound, the purchaser cannot recover even though the horse has but one eye, if the horse is shown to the purchaser before he buys it and the slightest inspection would have disclosed the defect. Field, 516 U.S. at 71 (quotation marks and internal citations omitted).
If the representation's falsity is readily apparent, or something is discovered that should serve as a warning one is being deceived, an investigation is required. Field, 516 U.S. at 71.
Here, prior to purchasing the house, the plaintiff had it inspected. The inspector's report stated that at least three of the six 2x10s which constituted the center support beam for the house were totally rotted out and others were "pethy," and "recommended to have a pest inspection and a general contractor to assess more invasively." Defendants' Exhibit E, pp. 9-10. Plaintiff chose not follow that advice and purchased the house. Nonetheless, the report should have served as a warning to the plaintiff about potential deception and that an investigation was required. Indeed, that is precisely what the report recommended.
Whether or not reliance is justifiable depends upon the facts and circumstances of each case. Field, 516 U.S. at 70-71; Ojeda, 599 F.3d at 717. Much like being shown a one-eyed horse after being told it is sound, the court cannot find that any reliance upon the defendants' falsehoods was justifiable given the information contained in the inspection report. See, In re Steinberg, 270 B.R. 831, 837 (Bankr. E.D. Mich. 2001); Jairath, 259 B.R. at 315-16.
Given that the court's determination regarding justifiable reliance, it need not determine whether the debtors intended to deceive the plaintiff.
Defendants' obligation to the plaintiff is a dischargeable debt. Judgment will be entered accordingly.