Elliott v. Piazza

1

PATRICIA ELLIOTT, Appellant, v. VINCENT A. PIAZZA III, Appellee

No. 3-22-cv-1808

United States District Court, M.D. Pennsylvania

November 2, 2023

MEMORANDUM

Malachy E. Mannion United States District Judge

Appellant Patricia Elliott, Chapter 7 Bankruptcy Creditor, appeals a final order of the Bankruptcy Court in an adversary proceeding seeking a declaration of non-dischargeability. The matter has been fully briefed and is ripe for disposition. Appellant asks the court to determine whether the Bankruptcy Court erred as a matter of law by finding that the Debtor Vincent A. Piazza III, was entitled to judgment on Appellant's claim for exception to discharge pursuant to 11 U.S.C. §523(a)(2)(B) and by excluding as hearsay Appellant's Exhibit Tab 90 (the Affidavit of Bradley Strahl.) Since the court does not detect any error in the record below, the order of the Bankruptcy Court will be AFFIRMED, and Appellant's Appeal will be DENIED.

I. Background

This dispute arises out of Appellee's use of Appellant's credit cards pursuant to an oral agreement entered into in June 2011. On or prior to July 2013 Appellee incurred debts on Appellant's credit cards in excess of her credit limit. In July 2013 Appellee agreed to cease his usage of Appellant's credit cards but continued to incur debts after July 2013. Appellant demanded payment of these debts, but Appellee failed to pay her in breach of their agreement. On April 10, 2014, Appellant filed an action for breach of contract against Appellee in the District Court of the State of Alaska, First Judicial District at Ketchikan. Summary judgement was awarded in Appellant's favor on February 26, 2015, and three separate monetary judgments totaling $82,766.06 were issued. Appellee did not pay these judgments and filed for bankruptcy under Chapter 7 of the Bankruptcy Code on May 31, 2018.

On September 4, 2018, Appellant filed an adversary complaint seeking a declaration of non-dischargeability regarding the $82,766.06 in state court judgments owed to her by Appellee pursuant to 11 U.S.C. §523(a)(2)(A) and 11 U.S.C. §523(a)(2)(B). Trial was held on March 16, 2022. During trial the Bankruptcy Court excluded Appellant's Exhibit Tab 90 (the Affidavit of Bradley Strahl), which allegedly showed Appellee's intent to deceive Appellant, as hearsay. (Doc. 4) On November 4, 2022, the Bankruptcy Court entered an order supported by a twelve-page opinion granting judgment for Appellee, finding that the state court judgments owed to Appellant were subject to discharge. (Doc. 1-2) In pertinent part, the Bankruptcy Court rejected Appellant's claim under §523(a)(2)(B), which inter alia excepts debts incurred by fraud from discharge, on the basis that Appellee did not have an “intent to deceive” Appellant. Specifically, the Bankruptcy Court found “the record is devoid of any evidence indicating that Piazza intended to deceive Elliott in writing or otherwise in order to retain access to the Cards despite his non-payment.” Id. Appellant timely appealed arguing that the Bankruptcy Court erred as matter of law in rejecting its claim under §523(a)(2)(B) and excluding the Affidavit of Bradley Strahl as hearsay.

II. Legal Standard

This court has appellate jurisdiction over the this appeal of the Bankruptcy Court's order pursuant to 28 U.S.C. §158(a)(1) (The district court has “jurisdiction to hear appeals from final judgments, orders, and decrees” of a bankruptcy court). See In re Michael, 699 F.3d 305, 308 n.2 (3d Cir. 2012) (“[A] district court sits as an appellate court to review a bankruptcy court.”). When a district court sits as an appellate court over a final order of a bankruptcy court, it reviews the bankruptcy court's legal determinations de novo, its findings of fact for clear error, and its exercise of discretion for abuse of discretion. In re Trans World Airlines, Inc., 145 F.3d 124, 131 (3d Cir. 1998).

When reviewing for clear error, “it does not matter that this Court ‘would have reached a different conclusion' if presented with the matter in the first instance.” Campbell v. Conway, 611 B.R. 38, 43 (M.D. Pa. 2020) quoting Prusky v. ReliaStar Life Ins., 532 F.3d 252, 258 (3d Cir. 2008) The Court must accept the Bankruptcy Court's factual findings unless it is “left with the definite and firm conviction that a mistake has been committed.” Id.

This court reviews the Bankruptcy Court's evidentiary rulings for abuse of discretion but exercises plenary review to the extent the rulings are based on a legally permissible interpretation of the Federal Rules of Evidence. See Id. citing United States v. Fattah, 914 F.3d 112, 177 (3d Cir. 2019); see also United States v. Reilly, 33 F.3d 1396, 1410 (3d Cir. 1994) (discussing appellate standard of review in the context of a hearsay ruling).

Furthermore “[t]he burden of proving that a debt is nondischargeable is upon the creditor, who must establish entitlement to an exception by a "preponderance of the evidence." In Re Cohn, 54 F.3d 1108, 1114 (3rd Cir. 1995), citing Grogan v. Garner, 498 U.S. 279, 282-89 (1991). “The overriding purpose of the Bankruptcy Code is to relieve debtors from the weight of oppressive indebtedness and provide them with a fresh start. Exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors.” Id. at 1113 (3d Cir. 1995)

III. Discussion

A. Appellant's Claim of Exception to Discharge under §523(a)(2)(B)

The Bankruptcy Court did not erroneously determine non-dischargeability under §523(a)(2)(B). Appellant claims that the Bankruptcy Court conflated the question of whether the Appellee had the intent to deceive Appellant about these specific misrepresentations on which Appellant's §523(a)(2)(B) claim is based, and the general question of whether the Appellee ever had any subjective intent to repay the debts. (Doc. 5 pg. 18) This court disagrees because the former is determined by the latter.

It is well established that “a broken promise to repay a debt, without more, will not sustain a cause of action under §523(a)(2)(A).” In re Singh 433 B.R. 139, 161 citing In re Harrison, 301 B.R. 849, 854 (Bankr.N.D.Ohio, 2003). Were it otherwise, every breach of contract would give rise to a non-dischargeability claim under §523(a)(2)(A). “Instead, central to the concept of fraud is the existence of scienter which, for the purposes of §523(a)(2)(A), requires that it be shown that at the time the debt was incurred, there existed no intent on the part of the debtor to repay the obligation.” Id. Determining whether a debtor had the requisite fraudulent intent involves a subjective inquiry. Field v. Mans, 516 U.S. 59, 70-72 (1995). In the Third Circuit, intent and knowledge may be inferred based on the “totality of the circumstances.” See In re Cohn, 54 F.3d at 1118-19. Thus, the relevant analysis in determining non-dischargeability under §523(a)(2)(B) is whether Appellee had the subjective intent when the debt was incurred to repay the obligation.

The Bankruptcy Court made multiple factual findings that indicate Appellee had the subjective intent to repay the debts at issue when they were first incurred and in turn did not intend to deceive Appellant. For example, the Bankruptcy Court found that Appellee charged approximately $902,000 to Appellant's cards but repaid $836,000. (Doc. 1 pg. 9) While no payments were made in some months, in other months payments were made in excess of the balance due that month. Id. The Bankruptcy Court also noted that Appellee told Appellant to cancel the cards in July 2013 and “credibly testified, without opposition, that those charges were most likely ‘several reoccurring monthly payments' whose accounts were set up to automatically charge the cards.” Id. Likewise, the Bankruptcy Court found that the totality of circumstances of the case indicated the Appellee did not intend to deceive Appellant because Appellee credibly testified that he always intended to repay the balance on Appellant's cards but only could not do so because of unforeseen circumstances with his business. (Id. pg. 10)

This court must respect the credibility findings of the Bankruptcy Court. See Fed.R.Bankr.P. 8013 (“Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.”) Accordingly, this court agrees with the Bankruptcy Court that Appellee's testimony does not indicate that Appellee had the requisite intent to deceive Appellant.

Appellant cites four cases^[1]to support the proposition that submissions of materially false documents not the intent to repay is the determinative analysis under §523(a)(2)(B). Besides the fact that none of these cases are binding on this court, they all involve misrepresentations on financial statements (i.e., loan applications). Lying on a loan application is itself fraud and thus precluded the given courts from having to address the debtors' general intent to repay the given debt. Appellant does not assert that Appellee lied on any loan application or similar document, she only asserts that he intentionally misrepresented his assets in emails to her. Appellant claims that this misrepresentation gives rise to an intent to deceive her, but the Bankruptcy Court disagreed finding Appellant based her assertion on “unforeseen factual developments in this case which post-date the emails at issue.” (Doc. 1 pg. 10 n. 12) Appellant failed to contradict Appellee's testimony that the facts in the emails were true as of the date he sent them to her and thus did not impeach Appellee's credibility in the eyes of the Bankruptcy Court. Id.^[2]

Appellant claims the Bankruptcy Court also erred as...