Delaiarro v. Melhem (In re Melhem)

In re: YACOUB B. MELHEM and DENISE Y. MELHEM Debtors

PAUL DELAIARRO and JOHNNY'S OIL COMPANY, INC. Plaintiffs v. YACOUB B. MELHEMand DENISE Y. MELHEM Defendants

Case No. 16-14792-MSH

Adversary Proceeding No. 17-01024-MSH

UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS EASTERN DIVISION

May 22, 2020

Chapter 7

MEMORANDUM OF DECISION

The plaintiff, Paul DeLaiarro, on his own behalf and on behalf of a dissolved corporation Johnny's Oil Company, Inc., initiated this adversary proceeding with a complaint, as amended, against the defendants, Yacoub and Denise Melhem, the debtors in the main chapter 7 case. In it he seeks a judgment that certain indebtedness of the Melhems to Mr. DeLaiarro be excepted from the Melhems' bankruptcy discharge by virtue of Bankruptcy Code § 523(a)(2)(A) and § 523(a)(6).¹ After a bench trial, I now set forth my findings of fact and rulings of law with respect to this proceeding.

I

The Melhems, who are husband and wife, emigrated from Lebanon to the United States in 1991. Mr. Melhem has the equivalent of a fifth-grade education and claims no ability to write or speak English. Ms. Melhem attended high school in Lebanon. She has some English comprehension skills but claims limited speaking ability. Both the Melhems testified at the trial through an interpreter.

In 2010, Mr. Melhem owned and operated a gas station in the Roslindale neighborhood of Boston. At various times he operated the gas station through one or more corporate entities, which were all dissolved by the Massachusetts Secretary of State in 2014. Mr. Melhem was a hands-on owner. He was typically present at the gas station during its hours of operation and personally performed many tasks including pumping gas. Ms. Melhem did not own any of the assets of the gas station nor did she work there full time. When she was present, she sometimes worked the cash register or wrote checks at Mr. Melhem's direction but never signed them. Mr. Melhem had complete control over the gas station's bank accounts, including its checking account at Citizens Bank which was in the name of one of his companies, SP Petrol, Inc. He alone signed the checks he asked Ms. Melhem to prepare. Ms. Melhem had no access to the funds in the Citizens Bank checking account. She never met Mr. DeLaiarro.

Mr. Melhem's financial control and cash management systems were virtually non-existent. He kept records of transactions with his vendors by writing notes on the back of copies of the checks he gave to the vendors. He used two different checkbooks for the same accountresulting in checks issued out of sequence. In April and May of 2010, the period during which he was dealing with Mr. DeLaiarro, the Citizens Bank checking account was frequently overdrawn.

Mr. DeLaiarro ran a home heating oil and gasoline sales and delivery business. He sold gasoline to a handful of gas stations in and around Boston. Prior to the start of his relationship with Mr. Melhem, the terms and procedures by which Mr. DeLaiarro sold gasoline to his customers were unvarying. A station owner would place an order over the phone or by fax, Mr. DeLaiarro would fax back an approximate price quote, and the station owner would confirm the order by return fax or phone call. Mr. DeLaiarro or his driver, Peter, would then drive to a fuel terminal in Revere or Braintree, fill his tanker (at which time he would know the exact cost of the gasoline) and deliver the gasoline along with a final bill to the gas station. The gas station owner or an employee would hand the delivery person a check in payment for the fuel at the time of delivery.

In April of 2010, Mr. DeLaiarro began selling gasoline to Mr. Melhem. In taking Mr. Melhem on as a customer, Mr. DeLaiarro performed no credit or reference check on Mr. Melhem. Had he done so he might have learned that Mr. Melhem had filed personal bankruptcy in 1998. Mr. DeLaiarro did not require Mr. Melhem to fill out an application or agree in writing to any terms of their business relationship. Mr. DeLaiarro had no relationship whatsoever with Ms. Melhem.

Mr. DeLaiarro's dealings with Mr. Melhem differed from his standard practice of requiring his customers to pay for gasoline at the time of delivery. He delivered gasoline to Mr. Melhem without receiving payment for the delivery. Mr. DeLaiarro testified that his agreement with Mr. Melhem was that Mr. Melhem would pay for a gasoline delivery by the day after the delivery. Mr. DeLaiarro could not produce any document corroborating the existence of thisarrangement never mind that Mr. Melhem had agreed to it. For his part, Mr. Melhem testified that he always gave Mr. DeLaiarro or his driver a check at the time of a delivery. The preponderance of the evidence does not support either party's testimony.

Mr. DeLaiarro made five or six deliveries to Mr. Melhem in April 2010 and Mr. Melhem paid for all of them by checks drawn on the Citizens Bank account. No evidence was presented as to the time between a delivery and payment. One of those checks, number 1136 dated April 26, 2010, in the amount of $8370, was returned for insufficient funds. Mr. Melhem ultimately made good on this check. The experience did not cause Mr. DeLaiarro to alter the way he did business with Mr. Melhem.

Mr. DeLaiarro made three gasoline deliveries to Mr. Melhem in May 2010: on May 1st; May 3rd; and May 5th. The bill for the May 1st delivery was $8412.60. Mr. Melhem paid for this delivery by check dated May 4, 2010. The May 3rd delivery was accompanied by a bill for $9965.70. At the time of the May 3rd delivery, Mr. Melhem had not yet paid Mr. DeLaiaro for the previous delivery. Mr. Melhem paid for the May 3rd delivery with a check dated May 6, 2010. The check, however, was unsigned. Mr. Melhem testified this was unintentional. Mr. DeLaiarro testified he didn't notice the problem until he presented the check for deposit at his bank and the bank refused to accept it. Mr. DeLaiarro's third and final delivery to Mr. Melhem took place on May 5th and was accompanied by a bill for $9348.15. Mr. Melhem issued a check dated May 7, 2010, in the amount of $19,313.70 to pay for the May 5th delivery as well as the balance due for the May 3rd delivery still outstanding as a result of the rejected unsigned check.

Despite Mr. DeLaiarro's testimony that his general practice was to require payment at the time of delivery or, in the case of Mr. Melhem, by no later than the day after delivery, none of Mr. Melhem's May checks were given to Mr. DeLaiarro within this time frame. While theevidence is murky, it appears likely that on one or more occasion Mr. Melhem did give Mr. DeLaiarro a check at the time of delivery, but for a prior delivery, not for the current one. According to Mr. DeLaiarro's testimony, this was not an arrangement he would tolerate from any of his customers.

In the end, Mr. DeLaiarro received no payment for any of the May deliveries. The May 6th check was rejected because it was unsigned and the checks dated May 4th and May 7th were returned for insufficient funds. As a result, Mr. DeLaiarro, through his company, sued the Melhems in state superior court and in 2012 obtained default judgments against them, jointly and severally, in the amount of $27,726.45, plus interest and attorneys' fees. On December 21, 2016, the Melhems filed their joint chapter 7 petition commencing the main case hoping to discharge, among others, their debt to Mr. DeLaiarro.

II

In his complaint Mr. DeLaiarro seeks to exclude the Melhems' debt to him from discharge based on Bankruptcy Code § 523(a)(2)(A), which applies to a debt arising from a false representation, false pretenses or actual fraud (count I), and § 523(a)(6), which deals with a debt caused by willful and malicious injury (count II).²

In a prior order denying the parties' cross-motions for summary judgment, I ruled that Mr. DeLaiarro's state court default judgment, which was devoid of any findings of fact, failed to satisfy the standards for non-dischargeability under the Bankruptcy Code and had no preclusive effect as to Mr. DeLaiarro's claims here. Mr. DeLaiarro was thus put to his proof at trial.

III

A

At the outset I find that Mr. DeLaiarro did not carry his burden to prove by a preponderance of the evidence that Ms. Melhem acted in any manner that would support a determination that her indebtedness to Mr. DeLaiarro should be excluded from her discharge under either Code § 523(a)(2)(A) or (a)(6). The evidence at trial established that Ms. Melhem's involvement in the operation of the gas station was limited to part-time work at the cash register and writing (but not signing) checks at the direction of Mr. Melhem. She never met Mr. DeLaiarro. She had no control over the Citizens Bank checking account or access to the funds in the account. The evidence comes nowhere near establishing that Ms. Melhem misrepresented or acted under false pretenses or fraudulently with respect to Mr. DeLaiarro or intended to injure him.

B

With respect to Mr. Melhem, based on the evidence adduced at trial I find that Mr. DeLaiarro has established by a preponderance of the evidence that he was injured to the tune of $27,726.30 by Mr. Melhem as a result of Mr. Melhem's signing and delivering to him the May 4, 2010 and May 7, 2010, insufficient funds checks. Mr. DeLaiarro did not, however, carry his burden to prove that Mr. Melhem intended to cause him injury by issuing those checks, or more importantly, that Mr. Melhem's conduct was malicious, that is without just cause or excuse.Intent to injure and maliciousness are prerequisites to establishing a claim for non-dischargeability under Code § 523(a)(6).

[F]or a debt to be excepted from discharge pursuant to 11 U.S.C. § 523(a)(6), the creditor must show that: (1) the creditor suffered an injury; (2) the injury was the result [of] the debtor's actions; (3) the debtor intended to cause the injury or that there was a substantial certainty that the injury would occur; and (4) the debtor had no just

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