Al Lado Cambio De Cheques, Inc. v. Reyes (In re Reyes)

In re: Obed Saul Barragan Reyes, Debtor.

Al Lado Cambio De Cheques, Inc., Plaintiff, v. Obed Saul Barragan Reyes, Defendant.

Case No. 19-12290-JDL

Adv. No. 19-01094-JDL

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

July 15, 2020

The following is ORDERED:

Ch. 7

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

This is an adversary brought by a check cashing business, Plaintiff, Al Lado Cambio De Cheques, Inc. ("Cheques") against the owner of a construction company, Defendant/Debtor Obed Saul Barragan Reyes ("Reyes") to determine the dischargeability of a debt. Cheques asserts that Reyes' company's issuance of thirteen (13) employee paychecks cashed by Cheques and subsequently dishonored by Reyes' bank constitutes a debt non-dischargeable under 11 U.S.C. § 523(a).¹ The parties agree that there is no dispute as to any material fact; accordingly, the Defendant Reyes has moved for summary judgment. Plaintiff Cheques, while agreeing that no genuine issue exists with regard to material facts, does dispute the legal conclusions argued by Reyes based on those undisputed facts and, further, argues that those facts when viewed in the light most favorable to Plaintiff establish that Reyes is not entitled to judgment as a matter of law. Before the court for consideration are the Defendant's Motion for Summary Judgment ("Motion") [Doc. 16] and the Plaintiff's Response to Defendant's Motion for Summary Judgment ("Response") [Doc. 18]. The following findings of fact and conclusions of law are made pursuant to Federal Rules of Bankruptcy Procedure 7052.²

I. Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), and 157(a) and the Order of Reference of the United States District Court for the Western District of Oklahoma as Local Rule LCvR 81.4(a). This matter seeking a determination of an objection to the dischargeability of a particular debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I) over which this Court has authority to enter a final order. Furthermore, Cheques and Reyes have consented to the jurisdiction of this Court and itsability to enter a final order pursuant to Rules 7008 and 7012(b). Venue is proper pursuant to 28 U.S.C. § 1409(a).

II. Findings of Fact

The determination of whether a motion for summary judgment is to be granted is based upon whether there are any material issues of fact which are undisputed and entitles the moving party to judgment as a matter of law. In the present case, the parties have made this Court's determination of most, but not all, material facts easy by agreeing to them. In his Motion the "Defendant does not dispute the Background Facts contained in Plaintiff's Complaint" and agrees that "the testimony of both Defendant and Plaintiff's representative Jesus Flores during depositions supported such facts." [Doc. 16, pg.1]. Likewise, in its Response the "Plaintiff agrees with Defendant that no genuine issue exists with the material facts set forth in Defendant's statement of material facts." [Doc. 18, pg. 1].

The Court finds the following material facts to be undisputed:³

1. Reyes is the sole owner and manager of First Choice Restoration LLC, an Oklahoma limited liability company ("FCR"). Many of FCR's employees were Hispanic individuals, many of whom did not maintain a bank account.

2. One of the services that Cheques provides to the Hispanic community is cashing checks. At all times pertinent herein, many of FCR's employees regularly cashed their payroll checks through Cheques, and Reyes knew that Cheques regularly cashed hisemployees' payroll checks.

3. It was important to FCR and Reyes that in order for FCR to pay and keep employees that Cheques continue to cash FCR's employees' paychecks. Between May, 2016 and November, 2017, Cheques cashed 259 payroll checks for employees of FCR in the aggregate amount of $387,817.00.

4. Prior to November, 2017, a few FCR payroll checks cashed by Cheques were returned for insufficient funds. Cheques would discontinue cashing FCR payroll checks upon receiving notice of insufficient funds check until after FCR had covered all outstanding returned checks.

5. Prior to November, 2017, when several FCR payroll checks had been returned to Cheques due to insufficient funds, Flores called Reyes and requested that he take care of the returned checks. Reyes went to Cheques' office and paid for the returned checks. At the same time, Flores told Reyes that Cheques would no longer be able to cash FCR payroll checks. Reyes pleaded with Flores to continue cashing FCR's employees' payroll checks and told Flores that he would personally make sure that every check was covered. Cheques relied on Reyes's representations and promises and continued cashing the payroll checks. [Amended Complaint, Doc. 4, ¶ 44; Answer to Amended Complaint, Doc. 9, ¶ 44].

6. Reyes represented to Cheques that the payroll checks had been returned for insufficient funds only because of the timing difference in the release of funds deposited to cover the payroll checks. Reyes represented to Flores that if there ever was a problem with a payroll check that he, Reyes, would personally come to Flores' office and "take care of it," and that he would not let Cheques suffer any loss if it would continue to cash thepayroll checks. Flores testified by deposition that Reyes told him, "Please go ahead and cash my checks. I will not do you bad. I will take care of you. I will pay the checks no matter what."

7. During November, 2017, Cheques cashed 13 payroll checks issued by FCR to its employees.

8. A couple of the November, 2017 payroll checks were larger than normal. Prior to cashing the larger payroll checks, Flores called Reyes to make sure that there were sufficient funds with which to pay the checks. Reyes assured Flores that all was well, that the payroll checks were "good" and requested that Cheques cash the checks for "my guys." Reyes told Flores that he had always covered, and always would cover, the payroll checks cashed by Cheques.

9. Reyes knew that there were not sufficient funds to cover the November, 2017 payroll checks, but in November, 2017 represented to Cheques, through Flores, that all was well with the business and that the payroll checks would clear, not to worry. [Amended Complaint, Doc. 4, ¶ 34; Answer to Amended Complaint, Doc. 9, ¶ 34].

10. Reyes did not tell Flores that his business was in financial distress or that in December, 2017 FCR had ceased business operations.

11. Reyes knew that Cheques would cash the payroll checks because Reyes had reassured Flores on more than one occasion, including in November, 2017, that business was good, that the checks would clear, and that he, Reyes, would personally make sure all payroll checks cashed by Cheques were covered. [Amended Complaint, Doc. 4, ¶ 50; Answer to Amended Complaint, Doc. 9, ¶ 50].

12. Cheques relied on Reyes' representations, and Reyes knew that Cheques wasrelying on his representations to cash the November, 2017 payroll checks. [Amended Complaint, Doc. 4, ¶ 35; Answer to Amended Complaint, Doc. 9, ¶ 35].

13. In December, 2017, FCR's bank had returned all 13 payroll checks for insufficient funds. Flores contacted Reyes several times about the returned checks, and each time Reyes told him that he would take care of the checks. Neither FCR nor Reyes ever paid Cheques for the thirteen (13) dishonored checks.

14. In April, 2018, Cheques filed suit against FCR and Reyes in the District Court of Oklahoma County seeking damages "in the sum of $46,880 for the thirteen (13) returned checks plus 1% per day loss profits on such sum" plus attorneys fees and costs. On August 9, 2018, the District Court entered judgment in favor of Cheques and against FCR and Reyes for damages in the amount of $66,569, $2,500 in attorneys fees and $387.14 in costs, for total of $69,456.14.⁴

III. Summary Judgment Standards in General

It is appropriate to grant a motion for summary judgment when the pleadings and other materials in the record, together with supporting affidavits, if any, demonstrate that there is no genuine dispute with respect to any material fact and that the moving party is entitled to judgment as a matter of law. See Rule 56(c), made applicable to this adversaryproceeding by Rule 7056. "[A] party seeking summary judgment always bears the initial responsibility of informing the . . . court of the basis for its motion, and . . . [must] demonstrate the absence of a genuine issue of material fact". Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). Courts must review the evidentiary material submitted in support of the motion for summary judgment to ensure that the motion is supported by evidence. If the evidence submitted in support of the summary judgment motion does not meet the movant's burden, then summary judgment must be denied. Hearsay evidence cannot be considered on a motion for summary judgment. Wiley v. United States, 20 F.3d 222, 226 (6^th Cir. 1994). When considering a motion for summary judgment, the court views the record in the light most favorable to the party opposing summary judgment. See Deepwater Investments, Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10^th Cir. 1991) (the court "must view the record in a light most favorable to the parties opposing the motion for summary judgment"); Harris v. Beneficial Oklahoma, Inc. (In re Harris), 209 B.R. 990, 995 (10^th Cir. BAP 1997).

Denial of summary judgment requires existence of genuine material issues that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505 (1986). No genuine issue of fact exists if a rational fact finder, when viewing the record as a whole, could not find for the party opposing the summary judgment. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348 (1986) ("Where the record taken...