Lazaron v. Lucas

1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	JASON T. LUCAS, 	7-07-11560 MA
Debtor.
______________________________________________________________________________
TERRY L. LAZARON,
Plaintiff,
v. 	Adversary No. 07-1133 M
JASON T. LUCAS,
Defendant.
MEMORANDUM OPINION
The Court took this matter under advisement following a trial on the merits to determine
the dischargeability of a debt under 11 U.S.C. §523(a)(2)(A). 	The debt at issue in this
proceeding is based upon Defendant’s non-payment of rent to Plaintiff which resulted in a pre-
petition judgment against Defendant in the amount of $1,517.00. 	Plaintiff asserts that
Defendant made written misrepresentations to Plaintiff in a rental application; that Defendant
made continuing oral promises to Plaintiff to pay rent; that Defendant took possession of the
apartment but never made any rental payments; and that Defendant never had any intention of
paying rent to Plaintiff.
The Court previously entered an order denying Plaintiff’s motion for summary judgment,
finding that while some of Defendant’s misrepresentations are undisputed, genuine issues of
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1Plaintiff also filed a Motion to Amend Complaint to Add Factual Allegations as to Fraud
(“Motion to Amend”) (Docket # 27) and a Motion to Determine Insufficiency of Responses to
Requests for Admissions and for Sanctions (“Motion for Sanctions”) (Docket # 26). The Court
granted the Motion to Amend and the Motion for Sanctions (Docket # 34 and Docket #35), and
denied Defendant’s request to reconsider those orders. 	See Docket # 46 and Docket # 47.
2See In re Chivers, 275 B.R. 606, 617 and 623 (Bankr.D. Utah 2002)(granting debtor’s
motion for summary judgment on non-dischargeability action under 11 U.S.C. § 523(a)(2)(B),
finding that letter did not constitute a statement respecting the debtor’s or an insider’s financial
condition, but positing that written statements that do not constitute a statement respecting the
debtor’s or an insiders financial condition are actionable under 11 U.S.C. § 523(a)(2)(A));
Frankford Bank v. Chryst (In re Chryst), 177 B.R. 486, 493 (Bankr.E.D.Pa. 1994) (“The
‘representation’ under § 523(a)(2)(A) can be a spoken or written representation, other than a
2
material fact remained with respect to Defendant’s intent to defraud. 1 Defendant did not appear
or testify at trial. 	Based on the undisputed misrepresentations in the rental application and the
uncontested testimony of Plaintiff at trial, the Court finds that there is sufficient circumstantial
evidence from which Defendant’s intent to defraud can be inferred. 	The Court, therefore,
concludes that the debt at issue is non-dischargeable under 11 U.S.C. § 523(a)(2)(A).
DISCUSSION
Debts obtained by false pretenses, a false representation, or actual fraud are non-
dischargeable in bankruptcy under 11 U.S.C. § 523(a)(2)(A). 	That section provides:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title
does not discharge an individual from any debt --
(2) for money, property, services, or an extension, renewal, or refinancing
of credit, to the extent obtained by --
(A) false pretenses, a false representation, or actual fraud, other
than a statement respecting the debtor’s or an insider’s financial
condition.
11 U.S.C. § 523(a)(2)(A).
Section 523(a)(2)(A) applies to both written and oral statements, provided the statement does not
concern the debtor’s or an insider’s financial condition.2 As previously determined by this
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statement regarding the debtor's financial condition which is governed by § 523(a)(2)(B), or an
act by debtor.”); Bobilya Chrysler, Plymouth, Dodge, Inc. v. Gross (In re Gross), 175 B.R. 277,
283 (Bankr.N.D.Ind. 1994)(noting that “false pretenses” under § 523(a)(2)(A) “involves an
implied representation, while the other [“false representation”] is expressed, either oral or
written.”); Union Bank of the Middle East, Ltd. v. Luthra (In re Luthra), 182 B.R. 88, 92
(E.D.N.Y. 1995)(stating generally that § 523(a)(2)(A) “addresses oral and other written
representations by the debtor”).
3See Order Denying Plaintiff’s Motion for Summary Judgment, p. 9 (determining that the
Residential Rental Application did not fall within the meaning of “statements respecting the
debtor’s financial condition” as narrowly defined by the Tenth Circuit in In re Joelson, 427 F.3d
700 (10 th Cir. 2005).
4The Order Granting Plaintiff’s Motion to Amend Complaint to Add Factual Allegations
as to Fraud authorized Plaintiff to add this allegation. 	See Docket # 35 and Docket # 27.
3
Court in its Order Denying Plaintiff’s Motion for Summary Judgment (Docket # 21), the
Residential Rental Application does not constitute a statement respecting the Defendant’s
financial condition even though some of the statements contained therein concern Defendant’s
employment status and income.3 Consequently, misrepresentations contained in the Residential
Rental Application can form the basis of a non-dischargeability action under 11 U.S.C. §
523(a)(2)(A).
Plaintiff asserts that the Residential Rental Application the Debtor completed and signed
on July 31, 2003 contained the following misrepresentations: 	1) that he was employed at United
Parcel Service (“UPS”) earning gross monthly income of $800.00; and 2) that he had never been
sued for non-payment of rent.4 See Exhibit 1. 	The Answer by Garnishee completed by UPS
reports that Defendant’s employment with UPS ended July 21, 2003. See Exhibit 4. Thus the
Answer by Garnishee establishes that Defendant was not employed by UPS as of the date
Defendant signed the Residential Rental Application. 	Similarly, a Judgment for Restitution
under the Uniform Owner-Resident Relations Act entered in favor of SNK Park Pointe, Inc.,
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5Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373 (10 th Cir. 1996)(stating the
required elements for non-dischargeability under 11 U.S.C. § 523(a)(2)(A)); Grogan v. Garner,
498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)(establishing preponderance of the
evidence standard of proof for dischargeability actions).
6Field v. Mans, 516 U.S. 59, 69-76, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995)(establishing
justifiable reliance standard for dischargeability actions under 11 U.S.C. § 523(a)(2)(A)).
7In re Audley, 268 B.R. 279, 282 n. 7 (Bankr.D.Kan. 2001)(citing Field v. Mans, 516
U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995)).
4
d/b/a Arioso at Northeast Heights Apartments (“SNK”) and against Defendant (and others) dated
December 5, 2002 establishes that, in fact, Defendant had been sued for non-payment of rent as
of the time he signed the Residential Rental Application. See Exhibit 5. 	The judgment in favor
of SNK was recorded in the Office of the County Clerk of Bernalillo County, New Mexico on
December 18, 2002 and became a matter of public record. See Exhibit 6. 	This evidence
establishes that the Residential Rental Application contained two significant misrepresentations.
Defendant did not testify at trial to refute or explain these misrepresentations. 	Thus, the
evidence shows that Defendant made certain misrepresentations to Plaintiff. 	But in order to
prevail under 11 U.S.C. § 523(a)(2)(A), Plaintiff must also establish, by a preponderance of the
evidence, the following additional required elements: 1) that the misrepresentation was made
with intent to deceive; 2) that the Plaintiff relied upon the misrepresentation; and 3) that the
misrepresentation caused Plaintiff to sustain a loss. 5 Unlike 11 U.S.C. § 523(a)(2)(B), a
creditor’s reliance under 11 U.S.C. § 523(a)(2)(A) must only be justifiable.6 Reliance by the
creditor is not justifiable if the creditor could have appreciated the falsity of the representation at
the time by the use of his or her senses.7
At trial, Defendant attempted to show that Plaintiff may not have taken as many
precautions as he could or should have before agreeing to rent the apartment to Defendant, such
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8See Young, 91 F.3d at 1375 (stating that fraudulent intent may be inferred based on the
“totality of circumstances”)(citations and internal quotations omitted)); In re Abraham, 247 B.R.
479, 483 (Bankr.D.Kan.2000)(stating that “[s]ince a promisor does not usually admit fraudulent
intent, the plaintiff must prove circumstances substantial enough to support an inference that
there was intent to defraud.”)(citation omitted); AT & T v. Herrig (In re Herrig), 217 B.R. 891,
896 (Bankr.N.D.Okla. 1998)(noting that courts apply the “totality of circumstances” approach to
determine intent because “rarely, if ever, will a debtor admit his or her intent to deceive while
under oath.”)(citation omitted)).
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as running a credit report, suggesting that it may not have been justifiable for Plaintiff to have
relied on the Residential Rental Application. 	Defendant signed the Residential Rental
Application and represented in the application that he was employed at UPS and that he had not
previously been sued for non-payment of rent. Plaintiff could not have appreciated the falsity of
these representations from the application itself. 	In deciding that Defendant could afford the
rent, Plaintiff testified that he relied on the Residential Rental Application which included a
statement of Defendant’s monthly income from UPS. 	Plaintiff had no reason to disbelieve
Defendant until after Defendant failed to make any payments to Plaintiff despite Defendant’s
ongoing assurances of payment. The Court, therefore, finds that Plaintiff relied upon the
misrepresentations contained in the Residential Loan Application, and that Plaintiff’s reliance on
Defendant’s misrepresentations was justifiable.
Because a Defendant rarely admits an intent to defraud, a Plaintiff can satisfy the scienter
element under 11 U.S.C. § 523(a)(2)(A) through circumstantial evidence from which the Court
may infer the requisite intent to defraud.8 In this case, on the surface, it appears that Defendant
made certain promises to pay rent, but broke that promise and failed to make any payments to
Plaintiff. 	Broken promises alone fail to render a debt non-dischargeable under 11 U.S.C. §
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9Abraham, 247 B.R. at 483 (“If a plaintiff charges that a promise or a statement
concerning a future event was fraudulent, the plaintiff must show more than merely
nonperformance of the promise.”)(citations omitted)).
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523(a)(2)(A).9 But there is additional circumstantial evidence to support a finding of non-
dischargeability under 11 U.S.C. § 523(a)(2)(A).
First, as discussed above, the Residential Rental Application contained a significant
misrepresentation central to whether Defendant would be able to make the promised rental
payments. 	The evidence shows that he was not, in fact, employed by UPS at the time he entered
into the lease. 	There is no evidence that he was employed elsewhere or had any other source of
income at that time. 	Second, Plaintiff testified that Defendant made ongoing assurances and
promises to him that Defendant would make the required deposit and pay the rent due. Plaintiff
further testified that he gave Defendant possession of the apartment on or about July 31, 2003,
without first receiving a rental deposit because Defendant had promised Plaintiff that he would
pay Plaintiff the next day. 	In fact, Defendant never made any payments to Plaintiff. 	And
because Defendant did not testify to explain why he did not make the payments, the Court was
not able to evaluate Defendant’s credibility. 	To the contrary, the Court is left with evidence that
Defendant lied on his Residential Rental Application and made oral promises to pay Plaintiff,
but failed to do so. Based on the misrepresentations in the Residential Rental Application,
Plaintiff’s testimony that Defendant made ongoing assurances to pay, and Defendant’s failure to
offer any other explanation for his failure to pay, it is not too difficult to infer that Defendant
entered into the lease and took possession of the apartment with no present intention to pay.
Making a promise with no present intent to fulfill it is sufficient to establish intent to defraud
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10See Abraham, 247 B.R. at 483 (to prevail on a claim under 11 U.S.C. § 523(a)(2)(A)
based on the contention that a defendant’s future promise to pay was fraudulent, “[t]he plaintiff
must prove the promisor intended to deceive at the time he or she made the promise.”)(citations
omitted)); Bank One Columbus, N.A. v. Schad (In re Kountry Korner Store), 221 B.R. 265, 272
(Bankr.N.D.Okla. 1998)(plaintiff must show that “debtor had no actual present intent to ever
repay the debt at the time the debt was incurred”).
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under 11 U.S.C. § 523(a)(2)(A).10 Finally, having failed to pay the amounts due Plaintiff under
the lease, Defendant’s misrepresentations caused Plaintiff to sustain a loss. 	Plaintiff has,
therefore, established all elements necessary to a determination of non-dischargeability under 11
U.S.C. § 523(a)(2)(A).
Based on the foregoing, the Court concludes that the debt at issue in this adversary
proceeding is non-dischargeable under 11 U.S.C. § 523(a)(2)(A). The Court will enter a
judgment consistent with this Memorandum.
____________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
Date entered on docket: July 9, 2008
COPY TO:
Terry L. Lazaron
Plaintiff
1721 Princeton Dr. SE
Albuquerque, NM 87106
Steve H Mazer
Attorney for Defendant
2501 Yale SE 2nd Floor
Albuquerque, NM 87106-2901
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