J. Metz III
Anthony J. Metz III
United States Bankruptcy Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW
MutualBank, the Plaintiff ("Mutual") , filed its complaint against the debtor and defendant, Jeffery Doughty (the "Debtor"), to determine dischargeability of debt under Sections 523(a)(4) and (a)(6) of the Bankruptcy Code on March 22, 2011. Trial was held on August 31, 2011 wherein Mutual appeared by its counsel, J. Philip Updike. The Debtor did not appear in person or by counsel. At the conclusion of the trial, the Court found that the debt owed to Mutual by the Debtor was nondischargeable under both §523(a)(2)(B) and (a)(6). The Court now makes its written findings and conclusions, in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Findings of Fact
1. On or about September 12, 2008, Mutual loaned $32,000 to the Debtor (the "First Loan"). Payment of the loan was First Loan was secured by all of the Debtor's inventory, chattel paper, accounts, equipment, instruments, deposit accounts, documents, general intangibles, and a 2002 Bobcat Excavator Model #442 Serial #522311051 (the "Collateral"), as well as any after-acquired property related to the Collateral. Mutual perfected its security interest in the Collateral by filing its UCC financing statement with the Indiana Secretary of State on September 19, 2008.
2. On or about December 19, 2008, Mutual loaned $241,000 to the Debtor (the "Second Loan"). Payment of the Second Loan was secured not only by the Collateral pledged in relation to the First Loan, but also by a 2002 Bobcat Excavator Model #337. The security agreement related to the Second Loan contained a future advances clause, in that, the collateral securing the Second Loan also secured any future advances to be made by Mutual to the Debtor. Mutual perfected its interest in all collateral by filing is UCC financing statement with the Indiana Secretary of State on September 17, 2008. Payment of thestatement). This excavator had been among the collateral pledged to secure the First, Second and Third Loans. The Debtor valued this particular item at $23,000 in the January 12, 2009 financial statement. Also on the January 12, 2009 financial statement, the Debtor listed the following items which he valued at $251,500:
a PC 220 Komatsu excavator, a John Deere 550GLT dozer, a 1980 International tandem dump truck, a 1999 Ford 6640 tractor mower and miscellaneous tools and equipment, a 1989 International 20' flatbed truck, a 2005 Gold Star 25' tandem gooseneck trailer; a 2002 442 Bobcat excavator; a 2003 T200 Turbo Bobcat skidloader; 2006 Bobcat attachments; a 2000 Isuzu truck; a 1995 Chevrolet 3500 HD flatbed and a wood chipper.
5. The Debtor testified, under oath, in his deposition and has admitted that he sold the 1994 Komatsu PC 75UU-2 excavator for scrap to Joe Doughty, his brother, for $2,000.00, in 2007- at least a year before he furnished the September 5, 2008 financial statement.
6. Pursuant to the terms of the Security Agreements in connection with the First, Second and Third Loans, the Debtor promised and agreed to keep the collateral, including all equipment, in his possession, and to keep it in good condition and repair and not to sell or transfer it without Mutual's prior written consent.
7. On December 16, 2009, the Debtor contacted Mutual and requested that Mutual release its lien upon the certificate of title to the 1989 International 20' flatbed truck in order to the Debtor to sell the truck. Mutual consented to the sale of the truck and released its lien. Mutual has not consented to the sale of any othercoverings, fixtures, furnace and air conditioner, toilets and plumbing fixtures, cabinets and doors and nothing was left within the shell structure just as the Debtor has reported on September 21, 2010.
13. On September 22, 2010, two of the Vehicles - namely, the 2005 Gold Star gooseneck trailer and the 1995 Chevrolet C3500-HD 4X4 truck- were the only items of equipment that remained on the North Eaton Property. The 1995 Chevrolet truck had been stripped of its engine. The Debtor testified, under oath, in his deposition and, by virtue of his failure to respond to Mutual's request for admissions, has been deemed to admit that he removed the engine from the truck and sold the engine and retained the sale proceeds for his own benefit.
14. The Debtor testified, under oath in his deposition on January 20, 2011, that he sold the following collateral that secured the Loans and retained the sale proceeds:
+-----------------------------------------------------------------------+ ¦Item of Equipment Allegedly Sold ¦Defendant's Estimated Sale Price ¦ +------------------------------------+----------------------------------¦ ¦1985 PC 220 Komatsu excavator ¦$18,000.00 ¦ +------------------------------------+----------------------------------¦ ¦1994 PC75 UU Komatsu excavator ¦$2,000.00 ¦ +------------------------------------+----------------------------------¦ ¦John Deere 550GLT dozer ¦$13,000.00 ¦ +------------------------------------+----------------------------------¦ ¦1980 International tandem dump truck¦$2,500.00 ¦ +------------------------------------+----------------------------------¦ ¦1999 Ford 6640 tractor ¦$5,000.00 ¦ +-----------------------------------------------------------------------+
+------------------------------------------------------+ ¦miscellaneous tools and equipment¦does not recall ¦ +---------------------------------+--------------------¦ ¦2002 442 Bobcat excavator ¦$8,000.00 ¦ +---------------------------------+--------------------¦ ¦2003 T200 Turbo Bobcat skidloader¦$2,000.00 ¦ +---------------------------------+--------------------¦ ¦2006 Bobcat attachments ¦$3,500.00 ¦ +---------------------------------+--------------------¦ ¦wood chipper ¦$1,000.00 ¦ +---------------------------------+--------------------¦ ¦1995 Chevy C3500 HD engine ¦$15.00-20.00 (scrap)¦ +---------------------------------+--------------------¦ ¦Total Alleged Sale Proceeds ¦$55,020.00 ¦ +------------------------------------------------------+
15. Mutual had no knowledge of the Debtor's purported sale of these items until the Debtor called Mutual on September 21, 2010.
16. On January 20, 2011, the Debtor testified, under oath, in his deposition that in 2009 the 2002 442 Bobcat excavator was inoperable and that he sold it for scrap on eBay in late 2009 or early 2010 to an unknown buyer for $8,000.00 and retained the sale proceeds.
17. On Thursday, April 14, 2011, contrary to the Debtor's sworn testimony, the 2002 442 Bobcat excavator was located in Delaware County, Indiana, in operableunder 11 U.S.C. §362 from proceeding in personam to collect the debt owing by Doughty to MutualBank pending determination of this Adversary Proceeding.
Conclusions of Law
1. Mutual alleges that the debts owed to it by the Debtor are nondischargeable under Sections 523(a)(4) and (a)(6). Because the Court finds that the debt is nondischargeable under §523(a)(6), it will not address Mutual's §523(a)(4) claim.
2. Exceptions to discharge under §523 are "to be construed strictly against the creditor and liberally in favor of a debtor." In re Scarlata, 979 F.2d 521,524 (7th Cir. 1992; In re Tsikouris, 340 B.R. 604, 607-08 (Bankr. N. D. Ind. 2006). A creditor that brings a §523 action seeking a determination of nondischargeability bears the burden of proving all the elements of the statute by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 289-90; 111 S.Ct. 654, 661; 112 L.Ed.2d 755 (1991).
Section 523(a)(6)
3. Section §523(a)(6) excepts from discharge a debt for willful and malicious injury by the debtor to another entity or to the property of another entity. To obtain a determination of nondischargeability under Section 523(a)(6), a creditor must prove: (a) that the Debtor intended to and caused an injury; (b) that the Debtor's actions were willful; and (c) that the Debtor's actions were malicious. In re Carlson, 224 B.R. 659, 662 (Bankr. N.D. Ill. 1998); Scarpello, 272 B.R. at 704.
4. With respect to the "willful" requirement under this section, mere proof that the act that caused injury was "willful", with nothing more, is insufficient to proveC3500-HD 4X4 truck, and stripped, or failed to secure and protect from stripping, the fixtures from the improvements upon the North Eaton Property, rendering that collateral near-worthless or severely damaged. These actions undertaken by the Debtor were "willful" in that he intended to improperly use Mutual's collateral and its proceeds for purposes other than the payment of the debt owed to Mutual. These actions were "malicious" in that they were taken with conscious disregard of the Debtor's duties with respect to the property interests of Mutual, without just cause or excuse. This culminates in the commission of a willful and malicious injury to property interest of Mutual. The Court concludes, therefore, that the debt owed to Mutual by the Debtor in the aggregate amount of $272,970.69 is nondischargeable under §523(a)(6).
In Kawaauhau, the Supreme Court noted that the more "encompassing interpretation" of "willful" which the petitioner urged but which the Court rejected included "a wide range of situations in which an act is intentional, but injury is unintended, i.e. neither desired nor in fact anticipated by the debtor" such as a "knowing breach of contract" . 118 S.Ct. at 977. See also, In re Kraye (Kraye v. Lexington Health Care Center of Chicago Ridge, Inc.), 1998 WL 775654 (Bankr. N. D. Ill., November 6, 1998) and cases cited therein. See also, In re Miller (Miller v. J.D. Abrams Incorporated) 156 F.3d 598 (5th Cir. 1998) where, after a lengthy analysis of the Kawaauhua opinion, the Fifth Circuit Court of Appeals held that "an injury is willful and malicious under Section 523(a)(6) "where there is either an objective substantial certainty of harm or a subjective motive to cause harm". 156 F.3d at 606.
Section 523(a)(2)(B)
8. A debt is nondischargeable under §523(A)(2)(B) if it is for an extension of credit that is obtained by a materially false written statement regarding the debtor's financial condition made with the intent to deceive, upon which the creditor relied. In re Cohen, 507 F.3d 610, 613 (7th Cir. 2007); In re Sheridan, 57 F. 3d 627, 633 (7th Cir. 1995); In re Harasymiw, 895 F.2d 1170, 1172 (7th Cir. 1990).
9. Mutual did not allege nondischargeability under §523(a)(2)(B) in its complaint. However, the Debtor was served request for admissions in which the Debtor failed to respond and thus, the admissions were deemed admitted. Among the admissions deemed admitted was that the Debtor made and signed the September 5, 2008 and January 12, 2009 financial statements. The September 5, 2008 anddebt owed to Mutual is nondischargeable under the alternate theory of §523(a)(2)(B).
12. The appropriate judgment entry follows.
# # #
Distribution:
J. Philip Updike, Attorney for the Plaintiff, MutualBank
Jeffery Allen Doughty, Debtor / Defendant
Robert S. Koor, Chapter 7 Trustee