Opinion
Case No. 02-62181, Adversary No. 02-6073
June 30, 2003
MEMORANDUM OPINION
Truck Parts Supply Company (Truck Parts) objects to the discharge of its debt in the amount of $3,803.37. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons below, I will find that the debt is dischargeable.
FACTUAL BACKGROUND
Debtor Ronald Jewel owned and operated Jewel Transport Services, Inc. (Jewel Transport). He personally owned a 1996 International Truck. On August 6, 2001, Mr. Jewel brought the 1996 truck into Truck Parts for repairs. The cost of the repairs totaled $3,803.37, but Mr. Jewel did not have funds available to pay for the repairs when Truck Parts completed them. On November 19, 2001, Mr. Jewel presented a personal check to Truck Parts in the amount of $3,803.37, drawn on the Greenwood Trust Company, Greenwood, Delaware. Discover Financial Services, Inc. had sent this cash advance check to Mr. Jewel. Ronald Kilmer, the president of Truck Parts, testified that he released the 1996 truck to Mr. Jewel upon presentation of this check. The check was eventually returned for insufficient funds. Mr. Kilmer stated that, when he received notice of the returned check on December 11, 2001, he went to Jewel Transport Services, Inc. Mr. Jewel then presented him with a check written on the Jewel Transport account at Great Southern Bank. While Jewel Transport's bank statements from Great Southern Bank show a balance on December 10, 2001, of $5,595.36, by January 2, 2002, when the check from Truck Parts was presented, the balance in Jewel Transport's account was $828.66. That check, likewise, was returned for insufficient funds. On September 23, 2002, Mr. Jewel filed a Chapter 7 bankruptcy petition. Truck Parts objected to the discharge of its debt, and on June 19, 2003, this Court held a hearing.
Truck Parts also decided to press criminal charges against Mr. Jewel, and the criminal case is pending in the Circuit Court of Greene County, Missouri. Jewel, therefore, declined to testify at the hearing. Instead, the bookkeeper for Jewel Transport testified on his behalf. The bookkeeper stated that Mr. Jewel used the Discover Card only for business expenses, even though it was issued to him personally. He testified that the other credit cards issued to Jewel Transport had a $10,000 credit limit, therefore, he assumed the Discover Card also had a $10,000 limit. Had that been true, the bookkeeper stated, Discover Financial Services, Inc. would have honored the cash advance check issued by Mr. Jewel on November 19, 2001, because the check would not have exceeded the credit limit. The bookkeeper also testified that when Mr. Jewel presented the check to Truck Parts on December 11, 2001, both he and Mr. Jewel believed there were funds to cover the check. Jewel Transport did make deposits sufficient to cover the check, but some of the checks in the deposits were, likewise, returned for insufficient funds.
DISCUSSION
Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge a debt obtained by fraud or misrepresentation:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b)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.
In Field v. Mann, the United States Supreme Court held that section 523(a)(2)(A) encompasses common law misrepresentation or actual fraud. To prove actual or common law fraud, a creditor must prove the following:
516 U.S. 59, 116 S.Ct. 437, 444, 133 L.Ed.2d 351 (1995).
Id. at 516 U.S. 70-72, 116 S.Ct. 443-44.
(1) the debtor made a false representation;
(2) at the time the representation was made the debtor knew it was false;
(3) the debtor subjectively intended to deceive the creditor at the time he made the representation;
(4) the creditor justifiably relied upon the representation;
and
UCS Universal Card Serv. Corp v. Feld (In re Feld), 203 B.R. 360, 365 (Bankr. E.D. Pa. 1996).
A debtor rarely admits that he or she intended to deceive, so Courts must look to circumstantial factors, such as a debtor's conduct at the time, in order to make such a finding. In this case, Mr. Jewel did not testify, and he refused to answer questions posed by counsel for Truck Parts at his section 2004 examination. I, thus, look to the circumstantial factors surrounding the incident at question and the case law in this Circuit. Mr. Jewel presented a check from Jewel Transport to Truck Parts on December 11, 2001, drawn on Great Southern Bank. Jewel Transport's bank statement indicates that on December 10, 2001, Jewel Transport made a deposit in the amount of $5,525.76, resulting in a balance of $5,595.36. A number of checks cleared on December 10, 11, 12, and 14, but on December 17, 2001, Jewel Transport made another deposit in the amount of $3,604.18, resulting in a balance of $3,818.92. On January 2, 2002, however, when Truck Parts presented its check for payment, the balance in Jewel Transport's account was $828.66. I cannot find from these undisputed facts that, when Mr. Jewel presented the check to Truck Parts, he made a representation to Truck Parts that he knew at the time was false. In In re Tuggle, the court held that the delivery of an ultimately dishonored check, without more, does not constitute actionable representation of debtor's financial condition sufficient to justify denying the discharge of the debt. Relying on Williams v. United States, the court in Tuggle stated that the check itself does not constitute a representation as to the balance in the checking account. The Tuggle court quoted Justice Blackmun in William v. United States as follows:
ATT Universal Card Serv. v. Ellingsworth (In re Ellingsworth), 212 B.R. 326, 333 (Bankr. W.D. Mo. 1997).
Def. Ex. #1.
Id.
86 B.R. 612 (Bankr. E.D. Mo. 1988).
Id. at 615.
458 U.S. 279, 102 S.Ct. 3088, 73 L.Ed.2d 767 (1982).
technically speaking, a check is not a factual assertion at all, and therefore cannot be characterized as "true" or "false." Petitioner's bank checks served only to direct the drawee banks to pay the face amounts to the bearer, while committing petitioner to make good the obligations if the banks dishonored the drafts. Each check did not, in terms, make any representation as to the state of petitioners bank balance.
Thus, since the issuance of a check, by itself, does not constitute a representation, Truck Parts has not proven the first element of fraud. In any event, Truck Parts has failed to show that, at the time Mr. Jewel issued either of the checks, he knew that funds were unavailable to cover such checks. As to the first check, the bookkeeper testified, without contradiction, that he, and Mr. Jewel, believed the credit limit on the account was sufficient to cover the check. And, as to the second check, the evidence is uncontradicted that there had been funds on deposit sufficient to cover the check the day prior to its tender to Truck Parts.
Compare with Meramec Valley Bank v. Newell (In re Newell), 164 B.R. 992, 995 (Bankr. E.D. Mo. 1994) (where the court held a debt nondischargeable because the debtor issued an insufficient funds check when he knew the funds did not exist to cover the check).
Truck Parts urges this court to infer fraud from Mr. Jewel's invocation of the Fifth Amendment. The United States Supreme Court, however, holds that in a dischargeability action the plaintiff must prove actual fraud by a preponderance of the evidence. Moreover, other courts hold that the invocation of a debtor's Fifth Amendment privilege against self-incrimination cannot be used to establish proof of facts where no other evidence concerning those facts is introduced. In United States v. Stelweck (In re Stelweck), the court held that "[a]bsent substantial and compelling independent evidence of the required elements of fraud under § 523(a)(2)(A), it would be inappropriate to allow a plaintiff to establish such fraud simply by the fact that a defendant invoked the Fifth Amendment." I, therefore, find that Truck Parts failed to prove that Mr. Jewel knew at the time he presented the check that there were no funds to cover it. Thus, even if the check itself did constitute a representation, such representation was not made with the knowledge of its falsity, or with the subjective intent to deceive.
Grogan v. Garner, 498 U.S. 279, 285, 111 S.Ct. 654, 658, 112 L.Ed.2d 755 (1991).
Parker v. Grant (In re Grant), 237 B.R. 97, 111 (Bankr. E.D. Va. 1999).
86 B.R. 833 (Bankr. E.D. Pa. 1988), affirmed, 108 B.R. 488 (1989).
Id. at 850.
An Order in accordance with this Memorandum Opinion will be entered this date.