Virginia Lawyers Weekly VA Lawyers Weekly
Where a debtor promised to renovate and make repairs to the plaintiff’s real property and then failed to do so, a judgment entered against the debtor was dischargeable because he fully intended to perform at the time he made the promise, and thus there was no proof of fraud or misrepresentation.
Background
On Sept. 19, 2019, the court conducted a trial on the complaint of Melissa K. Bass for a determination whether the debt owed to her by the debtor, Joshua B. Romano, is not dischargeable under section 523(a)(2)(A) of the Bankruptcy Code. The complaint alleges that the debtor induced plaintiff to close on the purchase of the property by false pretenses, false representations or actual fraud. Due to plaintiff’s reliance on the debtor’s false pretenses, false representations or actual fraud, plaintiff claims that she sustained damages of not less than $239,539.86.
At the conclusion of the trial, the court took the matter under advisement. This memorandum opinion sets forth the court’s findings of fact and conclusions of law.
Collateral estoppel
At trial, plaintiff first argued that the doctrine of collateral estoppel precluded the debtor from relitigating the dischargeability of the default judgment.
In order for the debtor to be collaterally estopped from relitigating nondischargeability of the debt, the state court must have specifically found that the debtor obtained money, property, or services through false pretenses, a false representation or actual fraud. The default judgment did not include specific findings; instead, it granted judgment against the defendants as to liability as requested in plaintiff’s state court complaint.
Counts One, Three and Four of the state court complaint did not involve fraud. Because the default judgment failed to elucidate which of the five grounds upon which it rested and because certain of the counts could not, under any circumstances, support a finding of nondischargeability under section 523(a)(2)(A) of the Bankruptcy Code, collateral estoppel cannot apply.
Even if the issues were identical, collateral estoppel does not apply because the issues were not actually litigated. There is no evidence that plaintiff presented any evidence in the state court or that the debtor substantively participated in the state court proceedings outside of filing a motion for leave to file a late answer.
Court’s findings
To establish that a claim is nondischargeable under section 523(a)(2)(A), “a plaintiff must prove four elements: (1) a fraudulent misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the plaintiff; and (4) . . . justifiable reliance on the misrepresentation.”
The court finds that plaintiff’s reliance upon the debtor’s promises to complete the additional renovations and repairs in accordance with the purchase agreement was reasonable. However, plaintiff failed to prove that the debtor’s promise to complete the work following closing was a fraudulent misrepresentation. To prove fraud or misrepresentation, plaintiff must show “the debtor entered into the contract with the intent of never complying with the terms.”
Plaintiff failed to establish that, at the time the debtor promised to complete the renovations to the property and make the necessary repairs, the debtor intended not to perform such promise. Instead, the evidence adduced at trial established that the debtor did fully intend to perform and attempted to partially perform following closing.
Therefore, the court holds that plaintiff’s claim against the defendant is dischargeable.
Bass v. Romano, No. 19-3017, Oct. 15, 2019, EDVA Bankr. at Richmond (Huennekens). VLW No. 019-4-030, 10 pp.
