Deaton v. Goodale (In re Goodale), C/A No. 18-06517-HB

604 B.R. 252

IN RE, Whitney Michelle GOODALE, Debtor(s).

Robert Deaton, Plaintiff(s),

v.Whitney Michelle Goodale, Defendant(s).

C/A No. 18-06517-HB

Adv. Pro. No. 19-80016-HB

United States Bankruptcy Court, D. South Carolina.

Signed August 8, 2019

F. Lee O'Steen, O'Steen Law Firm, LLC, Rock Hill, SC, for Debtor(s).

Robert Deaton, Catawba, SC, pro se.

Whitney Michelle Goodale, Rock Hill, SC, pro se.

ORDER

Helen E. Burris, U.S. Bankruptcy Judge

THIS MATTER came before the Court for trial on August 6, 2019, on the Complaint filed by Robert Deaton, alleging the debt owed to him by Debtor Whitney Michelle Goodale should be excepted from her discharge.¹ Goodale and Deaton both testified and submitted documentary evidence. After careful consideration, the Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52,² and finds that the debt owed to Deaton is dischargeable.

FINDINGS OF FACT

Goodale previously operated a gift shop consignment business The Breezy Willow, LLC. On February 9, 2018, the parties entered a written agreement in which Deaton agreed to purchase a 20% ownership interest in business in exchange for $15,000.00. The agreement provided that amended organizational documents to reflect Deaton's ownership would be completed by an attorney and signed by the parties. After the agreement was signed, Deaton delivered $15,000.00 to Goodale, which he asserts was to be held in escrow until the organizational documents could be completed. However, this was not reflected in the parties' agreement.

No documents amending the corporate structure were prepared and in May 2018, Deaton decided he no longer wanted an ownership interest in the business and requested a refund of the $15,000.00. Goodale agreed to this request but did not have the funds available at that time. On May 10, 2018, Goodale signed a handwritten note that stated:

I, Whitney Goodale, majority owner of the Breezy Willow, LLC located at 1636 Ebenezer Road, plan a repayment of $15,000.00 to Robert Deaton by July 31, 2018.

This is an official release of ownership of Robert Deaton's share of The Breezy Willow.

On the same day, Deaton drafted promissory note that both parties signed. The note provides that Goodale agreed to make monthly payments on the $15,000.00 owed, and the entire balance would be paid by August 2, 2018. Only two payments of $500.00 each were made before The Breezy Willow, LLC ceased operations in September 2018.

On December 28, 2018, Goodale filed a voluntary petition for Chapter 7 bankruptcy relief. Goodale's schedules admit she owes Deaton $14,000.00 and describe the debt as "Business Debt."

DISCUSSION AND CONCLUSIONS OF LAW

Deaton's Complaint does not cite any legal authority to support his request that the debt is nondischargeable. However, given the allegations against Goodale and a review of 11 U.S.C. § 523, the Court finds it appropriate to analyze Deaton's request under § 523(a)(2)(A).

"One of the central purposes of the Bankruptcy Code is to provide the debtor with a ‘fresh start.’ " In re Thoennes , 536 B.R. 680, 694 (Bankr. D.S.C. 2015) (citing Grogan v. Garner , 498 U.S. 279, 286, 111 S. Ct. 654, 659, 112 L.Ed.2d 755 (1991) ). "In light of this, the Supreme Court has adopted a rule of construction that requires exceptions to discharge be interpreted narrowly." Id. (citing Kawaauhau v. Geiger , 523 U.S. 57, 62, 118 S. Ct. 974, 140 L.Ed.2d 90 (1998) ). "As the party asserting a debt owed to it is nondischargeable, Plaintiff bears the burden of proof, which is by a preponderance of the evidence." In re Warren , 507 B.R. 862, 873 (Bankr. D.S.C. 2013) (citing Grogan , 498 U.S. at 291, 111 S. Ct. 654 ).

Under § 523(a)(2)(A), 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, other than a statement respecting the debtor's or an insider's financial condition' are not dischargeable." "The failure to perform a mere promise is not sufficient to make a debt nondischargeable, even if there is no excuse for the subsequent breach." 4 Collier on Bankruptcy ¶ 523.08 (16th ed. 2019).

The Supreme Court has distinguished between ‘false pretenses and representations’ and ‘actual fraud’ as provided in § 523(a)(2)(A) and recognized two distinct paths for nondischargeability under this provision. Husky Int'l. Elecs., Inc. v. Ritz , ––– U.S. ––––, 136 S. Ct. 1581, 1586, 194 L. Ed. 2d 655 (2016). For a debt to be nondischargeable based on a false pretense or a false representation, the creditor must prove:

(1) that the debtor made a representation; (2) that at the time the representation was made, the debtor knew it was false; (3) that the debtor made the false representation with the intention of defrauding the creditor; (4) that the creditor justifiably relied upon the representation; and (5) that the creditor was damaged as the proximate result of the false representation.

In re Brush , 460 B.R. 448, 455-56 (Bankr. D.S.C. 2011). "A false pretense involves an implied misrepresentation or conduct that is intended to create and foster a false impression, while a false...