Opinion
Case No. 10-11152 Adversary No. 12-1136
08-22-2014
In Re Samuel Kimble, Jr. Patricia L. Kimble Debtors Montgomery Care Center Plaintiff v. Samuel Kimble, Jr. Patricia L. Kimble Defendants
Copies to: John W. Rose, Esq. Michael S. Bailey, Esq.
Chapter 7
MEMORANDUM DECISION GRANTING MOTION FOR SUMMARY JUDGMENT
I. Introduction
Before the Court is Samuel Kimble Jr. and Patricia L. Kimble's (collectively, the "Defendants") Motion for Summary Judgment (Doc. 20) (the "MSJ"), and Montgomery Care Center's (the "Plaintiff") Response (Doc. 21), which is supported by affidavits of Terri Davis (Doc. 22), Nicole Schmidt (Doc. 23), and Kathy Tedesco (Doc. 24).
II. Jurisdiction
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. § 157.
III. Positions of the Parties
A. Defendants
The Complaint (Doc. 1) alleges that this debt was non-emergency debt that the Defendants incurred without permission of the Chapter 13 Trustee in violation of the confirmation order in this case and, by extension, Local Bankruptcy Rule 4001-3(b) (requiring written approval of the trustee or order of the court before a debtor may incur non-emergency consumer debt in excess of $1,000). In effect, the Plaintiff is arguing that the debt should be deemed nondischargeable based on the Defendants' failure to comply with the confirmation order. In the alternative, the Plaintiff seeks a finding of nondischargeability under § 523(a)(2).
In their MSJ, the Defendants argue that § 727 provides for a discharge of "all debts that arose before the date of the order for relief under this chapter." Further, § 348(b) provides that "the order for relief under this chapter" means the date of conversion of the case to such chapter and § 348(d) provides that "[a] claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section . . . 1307 . . . shall be treated for all purposes as if such claim had arisen immediately before the date of filing of the petition." Read together, the Defendants argue that this claim is subject to the discharge issued in the main case (Doc. 79) pursuant to the plain reading of these Code sections.
As to the Plaintiff's § 523(a)(2) count, the Defendants first argue that their failure to independently offer information regarding their financial situation (i.e. the fact that they had filed for bankruptcy and/or a monthly budget of their expenses showing their ability to repay this debt) does not rise to the level of material misrepresentation required to establish nondischargeability under controlling case law. Secondly, the Defendants argue that the Plaintiff has identified no facts that would support a finding that the Defendants intended to defraud the Plaintiff, another requirement for a finding of nondischargeability under § 523(a)(2).
Finally, the Defendants request costs and attorney's fees pursuant to § 523(d).
B. Plaintiff
The Plaintiff argues that the MSJ must be denied because there are sufficient material facts, when viewed in the light most favorable to the Plaintiff, which remain for this Court to decide. First, the Plaintiff argues that Mr. Kimble's admission into their facility was not an "emergency" and, thus, that Mr. Kimble was required to seek permission of the chapter 13 trustee to incur any debts outside of their plan. Second, the Plaintiff argues that the Defendants' silence during the admission process regarding their pending chapter 13 bankruptcy case, as well as their inability to pay, constitutes a material misrepresentation. Further, the Plaintiff argues that the Defendants' failure to promptly file an amended budget or otherwise provide for the debt owed to the Plaintiff through their chapter 13 plan, in addition to the fact that they did not consult with their bankruptcy attorney until almost four months into Mr. Kimble's stay at the Plaintiff's facility, demonstrates a pattern of an intent to deceive. Finally, the Plaintiff argues that it justifiably relied on the Defendants' material misrepresentation, and that such reliance caused a financial loss.
IV. Findings of Fact
The Defendants filed their petition under chapter 13 of the Bankruptcy Code on February 26, 2010. Their chapter 13 plan was confirmed on May 11, 2010. Subsequent to the filing of their petition and confirmation of the plan, in late 2011, Defendant Samuel Kimble, Jr. ("Mr. Kimble") was admitted to University Hospital after suffering acute respiratory failure, where he remained until early 2012. Mr. Kimble also suffers from Parkinson's disease. Upon release from University Hospital, on or about January 2, 2012, Mr. Kimble was admitted to the Plaintiff's assisted care facility at the recommendation of his social worker "as a step down measure." At that time, it was expected that Mr. Kimble would need to remain in assisted care for less than thirty (30) days. The Defendants later discovered that Mr. Kimble would need to stay longer than initially contemplated.
At the time of Mr. Kimble's admission to the Plaintiff's facility, the Defendants were insured by Humana and "were under the impression that this coverage would be sufficient to pay for Mr. Kimble's care." On January 19, 2012, the Plaintiff informed the Defendants of Humana's decision to terminate Medicare insurance coverage. This decision was successfully appealed enabling continuing coverage. The following month, on February 13, 2012, the insurer again decided to terminate Medicare insurance coverage effective February 15, 2012, which decision was again appealed but was apparently not successful.
Around this same time, the Defendants applied for Medicaid benefits to supplement their insurance. Mrs. Kimble informed the Plaintiff of the Defendants' chapter 13 bankruptcy case on or about March 1, 2012. Mr. Kimble later requalified for Medicare coverage from March 17, 2012 through April 21, 2012. On or about April 12, 2012, the Defendants were approved for Medicaid, but were left with a monthly balance of $2,396. Humana provided no benefits after April 21, 2012. In sum, Mr. Kimble was not covered by Humana for the periods from February 15, 2012 through March 16, 2012, and from April 22, 2012 through his discharge from the facility. During Mr. Kimble's stay, the Defendants made two payments to the Plaintiff: $500 on May 8, 2012 and another $500 on June 5, 2012. Mr. Kimble was ultimately discharged from the Plaintiff's facility on July 12, 2012 due to nonpayment.
Five days after Mr. Kimble was discharged from the Plaintiff's facility, the Defendants converted their case to a case under chapter 7 of the Bankruptcy Code because they could no longer afford to maintain their plan payments, in part because of Mr. Kimble's health issues. Shortly thereafter, the Plaintiff filed this adversary proceeding seeking a determination of nondischargeability of the remaining balance of $11,356.12.
V. Discussion
A. Summary Judgment Standard
Motions for summary judgment are governed by Fed. R. Civ. P. 56 which is incorporated into bankruptcy practice by Fed. R. Bankr. P. 7056. That rule provides in part that a motion for summary judgment is to be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The moving party bears the initial burden of showing that there is no issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986). The nonmoving party, however, bears the ultimate burden of showing that a genuine issue of material fact exists. In doing so, the nonmoving party cannot rest on its pleadings, but must, in response, offer some evidence which demonstrates a genuine issue of material fact for trial. Id.
B. Applicability of 11 U.S.C. § 348(b)
Section 348(a) of the Bankruptcy Code provides that "[c]onversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted." By way of § 348(b), this section is made applicable to § 727(b), which provides that "[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter . . . ."
Pursuant to § 1307(a), the Defendants converted their case to chapter 7 on July 17, 2012. (Doc. 49). By operation of § 348(b), the order for relief for the purposes of a discharge issued under § 727 becomes the date of conversion. A claim arising prior to this date "shall be treated for all purposes as if such claim had arisen immediately before the date of filing of the petition." 11 U.S.C. § 348(d). The debt at issue arose in its entirety prior to the Defendants' conversion to chapter 7. Accordingly, the debt is subject to the discharge under § 727 in this case, unless it is not dischargeable under § 523. Furthermore, for these same reasons, the Court finds that the Plaintiff's argument that the Defendants violated the confirmation order and/or LBR 4001-3(b) to be moot.
C. Nondischargeability Under 11 U.S.C. § 523(a)
The Plaintiff does not specify in the Complaint under which subsection of § 523 they assert that this debt is nondischargeable. However, the Plaintiff does specify, in its Preliminary Pretrial Statement (Doc. 11, ¶ II.A) and in its Response, that the Complaint is brought pursuant to § 523(a)(2)(A). This analysis will proceed under that assumption and legal standard.
Section 523(a)(2)(A) provides an exception to discharge for a debt "for money . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud . . . ." Framed in the disjunctive, a plaintiff must only show one of the three "distinct categories of debtor misconduct." Schafer v. Rapp (In re Rapp), 375 B.R. 421, 433 (Bankr. S.D. Ohio 2007). A false representation has been defined as "an expressed misrepresentation." Wings & Rings, Inc. v. Hoover (In re Hoover), 232 B.R. 695, 700 (Bankr. S.D. Ohio 1999) (citing Hile v. Lewis (In re Lewis), 164 B.R. 588, 591 (Bankr. N.D. Ohio 1994)). Actual fraud is a broader concept that has been defined as "any deceit, artifice, trick or design involving a direct and active operation of mind, used to circumvent and cheat another . . . ." In re Rapp, 35 B.R. at 433. The conduct of the Defendants in this case does not rise to the level of a false representation or actual fraud. In contrast, a false pretense involves "an implied representation or conduct that is intended to create and foster a false impression. A false pretense has been defined to include a 'mute charade,' where the debtor's conduct is designed to convey an impression without oral representation." Id. (quoting James v. McCoy (In re McCoy), 114 B.R. 489, 498 (Bankr. S.D. Ohio 1990)).
In order to except a debt from discharge under § 523(a)(2)(A), a creditor must prove the following elements:AT&T Universal Card Services, Inc. v. Rembert (In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998) (internal citations omitted).
(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss. In order to except a debt from discharge, a creditor must prove each of these elements by a preponderance of the evidence. Further, exceptions to discharge are to be strictly construed against the creditor.
As the moving party, the Defendants bear the burden of proving that there is no issue of material fact remaining for the Court to decide, while the Plaintiff bears the ultimate burden of showing that a genuine issue of material fact remains.
1. Material Misrepresentation
The alleged material misrepresentation(s) in this case were the Defendants' failure to inform the Plaintiff of (1) their pending chapter 13 bankruptcy case, and (2) their inability to pay based on their committing all of their disposable income to funding their chapter 13 plan. In support of the assertion that they made no material misrepresentation, the Defendants rely on the Plaintiff's responses to Interrogatories 7 and 8, whereby the Plaintiff admits that it did not ask the Defendants during the admissions process whether they had ever filed for bankruptcy or whether they were asked to provide a monthly budget of expenses. The Defendants argue that the fact that they did not independently offer information about their financial situation does not rise to the level of material misrepresentation that would indicate fraud.
To the contrary, the Plaintiff argues that this failure—the Defendants' silence—is itself a material misrepresentation. "[A] debtors' silence regarding a material fact can constitute a false representation under § 523(a)(2)(A)." See Lester v. Meadows, 213 B.R. 699, 702 (Bankr. S.D. Ohio 1997) (citing 4 Collier on Bankruptcy § 523.08[1][d] (15th ed. rev.) (emphasis added); Liberty Savings Bank, FSB v. McClintic (In re McClintic), 383 B.R. 689 (Bankr. S.D. Ohio 2008) (collecting cases). The McClintic court goes on to state "courts may examine whether there is any reasonable explanation for the failure to disclose material information." In re McClintic, 383 B.R. at 693.
While silence can be a material misrepresentation, the Court finds that that is not the case here. At the time Mr. Kimble entered the Plaintiff's facility, the Defendants were under the impression that their Humana insurance would cover his stay there. When Humana terminated Mr. Kimble's Medicare coverage, the Defendants applied for supplemental Medicaid coverage with the assistance of the Plaintiff's employees. When it became apparent that a combination of the two would not fully cover Mr. Kimble's stay and that the Defendants would be liable for a portion of Mr. Kimble's stay, the Defendants not only informed the Plaintiff of their case and their inability to make such payments, they in fact made payments notwithstanding their inability to do so.
2. Intent to Deceive
Section 523(a)(2)(A) expressly prohibits the use of a "statement respecting the debtor's or an insider's financial condition" as a basis for fraud. The proper inquiry, then, is to determine whether the debtor subjectively intended not to repay the debt. See In re Rembert, 141 F.3d at 281 ("[T]he express focus must be solely on whether the debtor maliciously and in bad faith incurred . . . debt with the intention of petitioning for bankruptcy and avoiding the debt. . . . [T]he hopeless state of a debtor's financial condition should never become a substitute for an actual finding of bad faith.") (quoting Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1285-86 (9th Cir. 1996)) (emphasis added). Here, the Defendants were already in a chapter 13 bankruptcy case. By their own admission, they did not meet with their counsel until four (4) months after Mr. Kimble's admission to the Plaintiff's facility. At the time of Mr. Kimble's admission, the Defendants were under the impression that their insurance would pay for his stay.
It is the Defendants position that it was always their intent to repay this debt, up until the point that they made the decision to convert their case to chapter 7, a decision which did not occur until over six months after Mr. Kimble was admitted to the Plaintiff's facility. In fact, the Plaintiff received $43,338.62 during Mr. Kimble's stay through a combination of insurance coverage, government assistance, and the Defendants' own personal income toward the balance owed to the Plaintiff. Of this total, $33,525.33 was paid by Humana, $8,813.29 by Medicaid, and $1,000 by the Defendants. The Defendants' effort to make payments prior to their conversion to chapter 7 evidences a good faith intent to repay the debt owed to the Plaintiff. The Defendants' actions from the time Mr. Kimble was admitted up until the time Mrs. Kimble informed the Plaintiff of their bankruptcy case and inability to pay simply do not rise to the level of malicious and bad faith. See In re Rembert, 141 F.3d at 281. Viewing the facts in the light most favorable to it, the Plaintiff has provided no argument or evidence, nor can the Court conceive of any evidence, that would support a finding of malice and/or bad faith.
3. Justifiable Reliance
Justifiable reliance "is a matter of the qualities and characteristics of the particular [creditor], and the circumstances of the particular case, rather than of the application of a community standard of conduct . . . ." Field v. Mans, 516 U.S. 59, 71 (1995). Justifiable reliance means that a creditor is "required to use his senses, and cannot recover if he blindly relies 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." Id. (citation omitted). Humana did not provide coverage for the periods ranging from February 15, 2012 through March 16, 2012, and from April 22, 2012 through his discharge from the facility on July 12, 2012. It was during these periods that Mr. Kimble incurred the bulk of the alleged debt owed to the Plaintiff, net of supplemental benefits provided by Medicaid. Mrs. Kimble informed the Plaintiff of the Defendants' pending chapter 13 bankruptcy case and their inability to pay on or about March 1, 2012. The Plaintiff alleges that the Defendants' failure to inform them of the pending bankruptcy case and inability to pay is the material misrepresentation upon which they relied. Notwithstanding the finding that no such misrepresentation occurred and that the Defendants did not intend to deceive the Plaintiff, the Court is not convinced that the Plaintiff justifiably relied, for nearly four months, on an alleged misrepresentation which was disclosed to them as early as March 1, 2012.
D. Attorney's Fees Under 11 U.S.C. § 523(d)
Section 523(d) provides, in pertinent part:
If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable
attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified . . . .
The Defendants have offered no argument or evidence that Plaintiff's position was not substantially justified. Accordingly, the Court finds that an award of attorney's fees is not appropriate. The parties shall bear their own costs and attorney's fees.
VI. Conclusion
Summary judgment is appropriate in favor of the Defendants. Section 348 applies in this case. The debt at issue in this adversary proceeding is a pre-petition debt subject to the discharge under § 727, unless it is dischargeable under one of the exceptions outlined in § 523. Failing to comply with the confirmation order and/or LBR 4001-3(b) is not an exception enumerated in § 523. Accordingly, the Court finds that the Plaintiff's argument that the debt should be deemed nondischargeable due to the Defendants' violation of the confirmation order and/or LBR 4001-3(b) is made moot by the Defendants' conversion to chapter 7.
On the issue of nondischargeability pursuant to § 523(a)(2), no material issues of fact remain. The Court finds that no material misrepresentation occurred and that the Defendants did not intend to deceive the Plaintiff. In so finding, it is not necessary for the Court to address the remaining factors necessary to support a finding of nondischargeability under § 523(a)(2)(A). Accordingly, the Court grants summary judgment in favor of the Defendants.
The Defendant's MSJ is GRANTED.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: August 22, 2014
/s/ _________
Burton Perlman
United States Bankruptcy Judge
Copies to: John W. Rose, Esq. Michael S. Bailey, Esq.