Bledsoe v. Collins

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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF OHIO

In Re: )
) JUDGE RICHARD L. SPEER
Eddie Dean Collins )
) Case No. 11-3175
Debtor(s) )
) (Related Case: 11-32758)
Ronald Bledsoe )
)
Plaintiff(s) )
)
Vv. )
)
Eddie Dean Collins )
)
Defendant(s) )
DECISION AND ORDER

This cause comes before the Court after a Trial on the Plaintiff's Complaint to Determine
Dischargeability. The Plaintiff's Complaint is brought pursuant to the statutory exception to
dischargeability set forth in 11 U.S.C. § 523(a)(2)(A) which generally excepts from discharge any
debt incurred by a debtor’s fraud. At the Trial, the Parties were each given the opportunity to present
evidence and make any arguments that they wished the Court to consider in reaching its decision.
At the conclusion of the Trial, this Court deferred ruling on the matter so as to afford the opportunity
to thoroughly review the evidence presented, the arguments of the Parties, as well as the entire record

in this case. The Court has now had this opportunity and, for the reasons set forth herein, finds that

the Plaintiff's Complaint should be Dismissed.

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Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

FACTS

The Defendant in this case is Eddie Dean Collins (hereinafter the “Defendant”). Presently,
the Defendant lives with his companion, a Ms. Shirley Meyers. For the past number of years, the

Defendant has been unemployed.

On September 17, 2010, the Defendant was awarded a disability benefit from Social Security.
(PI. Ex. 2), The documentation issued for this award set forth this relevant information: (1) The
Defendant became disabled on May 1, 2007; (2) for past due benefits, the Defendant was awarded
a lump-sum payment of $31,342.50; and (3) from this lump-sum award, the Defendant’s legal

representative would be allowed a payment of $5,485.50 for his or her work. Jd.

Asa Social Security Disability benefit, the Defendant presently receives $998.00 per month,
with these funds constituting his sole source of income. This income is insufficient to completely
cover what the Defendant asserts are his necessary expenses which total $1,068.00 per month. To
compensate for the shortfall in his monthly budget, the Defendant relies on his companion, Ms.

Meyers.

The Plaintiff in this proceeding is Mr. Ronald Bledsoe (hereinafter the “Plaintiff’). The
dispute between the Parties arises from a relationship maintained between the Defendant and the

Plaintiffs father, Donald Bledsoe, who is now deceased.

For anumber of years, the Defendant and Donald Bledsoe (hereinafter the “Decedent’”) were

Decedent provided the Defendant, as well as Ms. Meyers, with financial help. This help was
provided at a time when the Decedent was seriously ill. During this same period of time, the
Defendant also helped the Decedent with certain tasks around his home, such as mowing the

Decedent’s lawn.

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both neighbors and friends: When the Defendant became disabled and no longer able to work, the ~~)

Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

Prior to Decedent’s passing, the Plaintiff learned that his father was providing financial help
to the Defendant and Ms. Meyers. The Plaintiff, concerned that Decedent’s actions would deplete
his inheritance, arranged to have the Defendant and Ms. Meyers acknowledge an obligation to repay
the Decedent. On April 15, 2010, the Defendant and Ms. Meyers signed a promissory note, made
jointly payable to the Plaintiff and the Decedent for the sum of $15,000.00. The note was made

payable on demand.

In executing the note, oral representations were made by the Defendant that his anticipated
award from Social Security could be used to repay the note. However, no actual recitals were made
in the note as to the source of funds the Defendant would use to repay the note. Ultimately, the
Defendant, upon receiving his award from Social Security, did not use said funds to pay the note,

but rather used the funds to pay other obligations.

On August 18, 2010, the Decedent passed away. Following his death, the Plaintiff moved into
his father’s home. Not long thereafter, the Plaintiff demanded payment on the note executed by the
Defendant and Ms. Meyers. Any effort to collect on the note, however, was stayed when, on May
12, 2011, the Defendant commenced a case in this Court under Chapter 7 of the United States
Bankruptcy Code. The Plaintiff then brought the action now before the Court, seeking a

determination that any claim he holds against the Defendant is a nondischargeable debt.

DISCUSSION

In this adversary proceeding, the Plaintiff seeks to have his claim against the Defendant held

to be nondischargeable debts. A proceeding brought to determine the dischargeability ofa particular
debt is deemed to be core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I). Accordingly, this Court
has the jurisdictional authority to enter final orders and judgments in this matter. 28 U.S.C.

§ 157(b)(1); § 1334.

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Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

The Plaintiff's Complaint to Determine Dischargeability is brought pursuant to 11 U.S.C.
§ 523(a)(2)(A).' This provision provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this
title does not discharge an individual debtor 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[.]

In order to prevail on a claim under § 523(a)(2)(A), the Sixth Circuit Court of Appeals has
held that a party must satisfy each of these elements: (1) the debtor obtained money through a
material misrepresentation that, at the time, the debtor knew was false or made with gross
recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably
relied on the false representation; and (4) its reliance was the proximate cause of loss. Rembert v. AT
& T Universal Card Servs., Inc. (Inre Rembert), 141 F.3d 277, 280-81 (6" Cir.1998), citing Longo
v. McLaren (Inre McLaren), 3 F.3d 958, 961 (6" Cir.1993). For these elements, the Plaintiffs must
establish the existence of each by at least a preponderance of the evidence. Grogan v. Garner, 498
USS. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (preponderance-of-the-evidence standard of proof
applies to all of 523(a)’s exceptions).

As the basis for his cause of action against the Defendant, the Plaintiff made these

allegations:

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The Plaintiff also cited to § 523(a)(4) and § 523(a)(6) as statutory grounds for a finding of
nondischargeability. Respectively, these provisions operate to except from discharge any debt
arising from fraud, embezzlement, larceny or defalcation while acting in a fiduciary capacity,
and a debt shown to have arisen from a willful and malicious injury. However, neither the
averments made in the Plaintiff's Complaint, nor the evidence produced at the Trial raised the
applicability of these provisions.

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Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

f

Donald G. Bledsoe loaned the Defendant and Shirley Myers, $15,000.00
based upon Defendant’s representation to the Plaintiff that the Defendant was
to receive a large settlement/payment from Social Security Disability and
watranted and represented to the Plaintiff that the funds from Social Security
Disability would be used to pay off the loan to the Plaintiff when received
and on this representation these funds were loaned to the Defendant; and

That the Defendant received a settlement/payment from Social Security
Disability and that upon receiving said settlement/payment from Social
Security Disability, the Defendant wholly failed, refused and neglected to pay
the Plaintiff any of the amount owed for the loan; and

The Defendant used the monies received from Social Security Disability

contrary to the promises and representations made to the Plaintiff].]
(Doc. No. 1, § 11). Based upon these averments, the gravamen of the Plaintiffs action under
§ 523(a)(2)(A) may be said to arise from these two premises: (2) The Decedent was induced to make
a loan to the Defendant and Ms. Meyers; and (2) as an inducement for the loan, the Defendant and/or
Ms. Meyers fraudulently represented that they would repay the loan from funds the Defendant

expected to receive as an award from Social Security.

The evidence produced in this case, however, does not support either of these assertions. For
this purpose, the initial difficulty for the Court is this: The transfer of money by the Decedent to the
Defendant and Ms. Meyers was done on an informal basis, with the terms and conditions of the
transfers not being contemporaneously memorialized in writing. As such, since the Decedent’s
passing, the only persons with first hand knowledge of the arrangement intended by the Decedent

are the Defendant and Ms. Meyers.

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Consequently, there is nothing to directly contradict the Defendant’s position. This position
holds that, while the Decedent may have been aware that the Defendant could receive a lump-sum
award from Social Security, no contemporaneous representations were made to the Decedent that

such funds would be used to repay him. In this regard, the Defendant represented that the Decedent,

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Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

on his own initiative, offered money to him in his time of need, without the expectation of

repayment.

Moreover, while the Defendant’s account of events is obviously self-serving, the
circumstances presented in this matter do lend support to his position. A few points stand out. First,
the Plaintiff does not dispute that the Decedent and the Defendant were friends and maintained a
close relationship. Similarly, the Plaintiff acknowledged that the Defendant lent support to the
Decedent in some measure such as by mowing the Decedent’s lawn. Given these circumstances, it
seems entirely plausible that the Decedent would, with no expectation that he would receive any

consideration in return, lend financial support to the Defendant.

Finally, the lack of any writing executed contemporaneously with the Decedent’s transfer of
money to the Defendant, while not precluding the existence of a contractual obligation, is
nevertheless telling. Ordinarily, a person lending a large sum of money will evidence the transaction
in writing. Consequently, it stands to reason that if there was an expectation of repayment on the part
of the Decedent for the funds tendered to the Defendant, the Decedent would have sought to have
had the terms of the transaction placed in writing. See Donovan v. Freeway Const. Co., 551 F.Supp.
869, 880 fn. 27 (D.C-R_I. 1982) (While not fatal to the plaintiffs position, the absence of a writing
increases the plaintiff's inability to meet its burden of proof on the existence and terms of the

contract.”).

For these reasons, the Defendant’s position, that the Decedent’s transfer of funds to him and

Ms. Meyers was entirely gratuitous, carries with it a large degree of credibility. The promissory note

executed by the Defendant and Ms. Meyers does nothing to change the gratuitous nature of the)”

transaction. The note was executed long after the Decedent gave the Defendant money. As well, the
note was executed at the urging of the Plaintiff, not the Decedent. It must also be said that there is
nothing in the note which recites that the Defendant’s lump-sum award from Social Security would
be used to repay the note. Even placing these concerns, a more fundamental problem with the

promissory note exists.

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Ronald Bledsoe vy. Eddie Dean Collins
Case No. 11-3175

The third element necessary to sustain an action under § 523(a)(2)(A) requires a showing of
reliance. As previously stated, however, the promissory note executed by the Defendant and Ms.
Meyers occurred some length of time after they received money from the Decedent. Thus, no matter
the representations made by the Defendant or Ms. Meyers concerning the repayment of the note
using the Defendant’s Social Security award, neither the Decedent nor the Plaintiff could have
justifiably relied on such representations. This absence of any close temporal connection between
the Decedent’s extension of money to the Defendant and Ms. Meyers, and the execution of the
promissory note, also presents another deficiency: The promissory note does not create an

enforceable contractual obligation against the Defendant or Ms. Meyers.

An essential element to any enforceable contract is consideration — this being a bargained for
legal benefit and/or detriment. Williams v. Ormsby, 131 Ohio St.3d 427, 429 966 N.E.2d 255, 258
(2012). In this matter, even assuming the Defendant made a promise to repay the Decedent, this
consideration would have been extended contemporaneously with the Decedent’s transfer of money
to the Defendant — as opposed to long thereafter, when the promissory note was executed by the
Defendant and Ms. Meyers. However, such “past consideration cannot be a bargained-for benefit or
detriment, since it has already occurred or accured.” Carlisle v. T & R Excavating, Inc., 123 Ohio

App.3d 277, 283, 704 N.E.2d 39 (1997).

In any event, an action brought under § 523(a)(2)(A) sounds in tort, not contract. Stifter v.
Orsine (Inre Orsine), 254 B.R. 184, 188 (Bankr. N.D.Ohio 2000). And for those reasons explained,
the Court simply does not have sufficient evidence before it to make a finding that the elements of

§ 523(a)(2)(A) have been met by a preponderance of the evidence. Instead, as between the Defendant

and the Decedent; the overall picture presented to the Court is simply one of gratuitous exchanges, “)

whereby two friends provided assistance to the other in their respective times of need.

To be sure, the help extended by the Decedent was much greater in monetary value, and most
likely diminished any inheritance received by the Plaintiff. However, such considerations do not add

weight to the existence of any fraud on the part of the Defendant. A gratuitous exchange, by

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Ronald Bledsoe v. Eddie Dean Collins
Case No. 11-3175

definition, means that the transferor, for no value received, gives value to the transferee. It is also
a fundamental principle that persons of sound mind may, during their life, dispose of their assets as

they see fit.

In reaching the conclusions found herein, the Court has considered all of the evidence,
exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in

this Decision.

Accordingly, it is

ORDERED that the Complaint of the Plaintiff, Ronald L. Bledsoe, to Determine
Dischargeability, be, and is hereby, DISMISSED.

Dated: August 2, 2012

Richar&L. Speer
United States
Bankruptcy Judge

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CERTIFICATE OF SERVICE

Copies were mailed this 2" day of August, 2012 to:

Ronald L Bledsoe
321 Tiffin Ave.
Huron, OH 44839

William H Smith, Jr
308 W Adams St
Sandusky, OH 44870

Eddie Dean Collins
323 Tiffin Street
Huron, OH 44839

C. Ross Smith, III
1604 E Perkins Ave, #106
Sandusky, OH 44870

/s/Diana Hernandez
Deputy Clerk, U.S. Bankruptcy Court

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