Stevens et al v. Antonious et al

In their complaint, the plaintiffs also sought relief under 11 U.S.C. § 523(a)(4). In the1
joint pretrial statement, however, they elected to proceed at trial only under sections 523(a)(2)
and (a)(6).
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 7
DENNIS ANTONIOUS and :
PEGGY ANTONIOUS
Debtors : Bankruptcy No. 05-18809
____________________________________
BRYON STEVENS and
MAYOLIA STEVENS, :
Plaintiffs :
v. :
DENNIS ANTONIOUS and :
PEGGY ANTONIOUS
Defendants : Adversary No. 05-575
____________________________________
.................................................
OPINION
.................................................
In the above-captioned adversary proceeding, the plaintiffs Bryon Stevens
and Mayolia Stevens assert that the defendants—joint chapter 7 debtors Dennis
Antonious and Peggy Antonious—owe them a non-dischargeable debt pursuant to 11
U.S.C. §523(a)(2) and (a)(6). The defendants maintain that any debt owed is1
dischargeable.
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As will be discussed, the plaintiffs contend that debtors obtained substantial
funds from the plaintiffs through fraud, misrepresentations, false pretenses, and willful
and malicious conduct in connection with a home repair project. The debtors counter that
Mrs. Antonious had no dealings with the plaintiffs and no connection with this project,
while Mr. Antonious acted solely as a referral agent who bore no responsibility for the
actions or representations of the actual home construction contractor.
Before considering the evidence presented, I note that this case has been
classified by the chapter 7 trustee as a no-asset case, meaning that the trustee could find
no non-exempt property for distribution to creditors. The trustee’s report to this effect
was filed on January 31, 2006. In general, in a no-asset chapter 7 case the amount of any
creditor’s claim need not be fixed, because the amount is not material to the
administration of the bankruptcy case. Indeed, creditors have been instructed that they
should not file proofs of claim as the bankruptcy trustee does not intend to make
distributions to creditors. Fed. R. Bankr. P. 2002(e), 3002(c)(5).
A bankruptcy court does have the power, even in a no-asset case, to fix a
claim in connection with non-dischargeability litigation, and in appropriate circumstances
may elect to do so. See, e.g., In re McLaren, 3 F.3d 958, 965-66 (6th Cir. 1993); Matter
of Hallahan, 936 F.2d 1496, 1507-08 (7th Cir. 1991). I need not decide whether such
circumstances exist in this instance. The parties have expressly agreed at trial that I
should not determine the amount of the debt, if any, owed by the defendants. Rather, to
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As no party in interest objected to the entry of a chapter 7 discharge, such a discharge2
was entered on March 14, 2006.
Reference to the Notes of Testimony (“N.T.”) shall include the precise time of day that3
the testimony was given on October 20th, as noted on the audio disc. No party ordered a
transcript of the trial.
3
the extent the obligation is nondischargeable, the defendants’ liability will be fixed by
state court, in litigation now pending in that forum (albeit stayed by the debtors’
bankruptcy filing). Conversely, if any debt owed by the debtors would be dischargeable,
the plaintiffs would be enjoined by 11 U.S.C. § 524(a) from proceeding with their state
court litigation.2
Given that understanding, I shall simply focus on the issue of
nondischargeability.
I.
After a one day trial that took place on October 20, 2006, and upon
consideration of all the testimony and exhibits offered in evidence, as well as upon the
parties’ joint statement of uncontested facts, I make the following factual findings:3
1. The chapter 7 debtors in these proceedings are Mr. Dennis Antonious,
a/k/a Denny Antonious, and Mrs. Peggy Antonious, husband and wife, residing at 124
Hedgerow Lane, West Chester, PA 19380. Statement of Uncontested Facts, #1.
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The pleadings refer to Mr. Stevens’ first name as “Byron.” At trial, however, Mr.4
Stevens testified, and his counsel indicated, that his first name actually is “Bryon” and that all
references to “Byron” were typographical errors. N.T. 9:38-39.
4
2. Plaintiffs are Mr. Bryon Stevens and Mrs. Mayolia Stevens, husband4
and wife, residing at 419 Harry Road, Coatesville, PA 19320. Statement of Uncontested
Facts, #3.
3. In November 2003, the plaintiffs decided to finance an addition to their
residence. They saw an advertisement placed by Mr. Antonious and telephoned the
number listed in the advertisement. Statement of Uncontested Facts, #4; N.T. at 9:40,
9:43.
4. The advertisement seen by the plaintiffs and placed by Mr. Antonious
advertises his business as “Your Small Job Specialist(s).” N.T. at 9:40. Mr. Antonious
also advertises his business as “A Small and Large Job Specialist” and “A Small Job
Specialist.” Statement of Uncontested Facts, #8. The telephone number listed on the
advertisement is Mr. Antonious’ business telephone number. Id.
5. Mr. Antonious’ business is located in the basement of his residence, and
this residence is solely owned by Mrs. Antonious. Statement of Uncontested Facts, ##6,
10; N.T. at 10:41. The business telephone number, 610-695-9840, is different from the
telephone number used by Mrs. Antonious and their children. Statement of Uncontested
Facts, #8; N.T. at 10:21.
6. The parties agreed as follows: “Dennis Antonious holds himself and his
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business out to the public as a general contractor engaged in the business of home repairs
and construction of additions and related jobs, and he conducts this business from his
wife’s . . . home.” Statement of Uncontested Facts, #10.
7. After initially communicating with Mr. Antonious, Mr. and Mrs. Stevens
received a written brochure from him promoting an entity called “Your Small Job
Specialists” and listing more than 40 different types of work performed. Ex. P-2.
Included within this brochure are the following statements:
a. “With over 47 men to do all the basic
disciplines–Carpentry, Plumbing, Electrical, HVAC, Drywall,
Painting, Masonry, Handyman, etc.”
b. “We also do all phases of Tree Work and small to large
scale Landscape projects.”
c. “37 Years in Business~Licensed & Insured”
d. “All checks are to be made out to Denny Antonious. There
are no exceptions unless you hear differently from Denny
Antonious. Once our tradesmen have reviewed the work to
be done at your home with you he [sic] then will write up a
proposal for your approval. . . . All proposals and monies
may be given to the tradesmen and will be delivered to the
office. Should you have any questions in regard to the above
kindly contact me at 610-695-9840.”
8. Throughout the brochure is the name of the entity “Your Small Job
Specialist,” and the telephone number 610-695-9840. The address of this entity listed in
the brochure is “1316 West Chester Pike, Suite 113, West Chester, Pennsylvania.” Ex. P-
2. As this address is neither the Antonious residence nor the business address of Mr. John
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Griffith (to be discussed below), it is probable that Mr. Antonious simply picked up mail
addressed to Your Small Job Specialist at the West Chester Pike address.
9. It is also likely that Mr. Antonious used an address with a suite number
for “Your Small Job Specialists,” rather than his home address, to give the impression
that the entity was a substantial company.
10. Mr. Antonious acknowledged that “Your Small Job Specialists” (and
the variants mentioned above) is a fictitious name he uses in conducting his business.
N.T. at 10:45. It is not a corporation, nor a partnership, and it has no employees. N.T. at
10:40-41.
11. Moreover, “Your Small Job Specialists” does not actually perform any
of the work listed in its brochure. N.T. at 10:44-45. Mr. Antonious is not licensed as an
engineer or architect. N.T. at 10:43. He has not done any construction work for seven or
eight years. N.T. at 10:44. He basically functions as a referral agent. N.T. 11:00; 11:02.
Upon Your Small Job Specialists receiving an inquiry or request for service from a
homeowner, Mr. Antonious communicates with one or more contractors known to him
that he believes is appropriate for the proposed job, and has that contractor visit the
homeowner and tender a contractual proposal. If the homeowner and the contractor sent
by Mr. Antonious enter into an agreement for work on the proposed project, Mr.
Antonious is paid by the contractor a portion of the contract price as a finder’s fee. N.T.
11:00, 11:02.
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12. Mr. Antonious testified that he informed the Stevenses prior to the
signing of any contracts that he acted solely as a referral agent. N.T. at 11:54, 12:02.
Mrs. Stevens denied this and testified that she believed that Mr. Antonious and his
company would be performing all work done, not some third party. N.T. at 12:14. Mr.
Stevens testified that had he known about the true nature of Dennis Antonious’ business,
he would not have hired “Your Small Job Specialists” to construct the addition to his
home. N.T. 9:53. The Stevenses’ testimony is more credible. As will be discussed, all
payment checks tendered on the project were made payable to Mr. Antonious. The
contract signed by Mr. Stevens referred to the entity “Your Small Job Specialists.” And
when problems developed with the contracting work, the Stevenses communicated with
Mr. Antonious. Furthermore, the defendants stipulated that Mr. Antonious holds himself
out to the public as a general contractor, not as a referral agent.
13. After speaking with the Stevenses, Mr. Antonious referred Mr. John
Griffith to meet with Mr. and Mrs. Stevens to propose a contract for the home
improvement work they sought. N.T. at 11:05. Mr. Griffith met with Mr. and Mrs.
Stevens at their home. N.T. at 11:05. Neither Mr. nor Mrs. Antonious ever met with Mr.
or Mrs. Stevens. N.T. at 10:18, 11:03.
14. After meeting with Mr. Griffith, Mr. Stevens ultimately entered into
one or more contracts dated November 14, 2003, November 21, 2003, and July 12, 2004.
Ex. P-3. Each of these contracts refers to “Your Small Job Specialists,” using the West
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Chester Pike address, but with a different telephone number than mentioned in the
brochure. Each of the contracts states: “Make all checks payable to Denny Antonious.”
Ex. P-3. The documents offered into evidence contain signatures on the July 12 contract
of Mr. Stevens and of John Griffith, signing as “Your Small Job Specialist.” Ex. P-3.
The two other contracts contain the signature of “John Griffith Your Small Job
Specialist”. Ex. P-3.
15. Mr. Antonious testified that he had not seen the contracts before the
commencement of the Stevenses’ state court action against him, N.T. 11:30-31, and that
these contracts involved only John Griffith and Mr. Griffith’s company—a company that
Mr. Antonious claimed Mr. Griffith sometimes referred to as “Your Small Job
Specialists,” and not Mr. Antonious’ fictitious “Your Small Job Specialists” entity. N.T.
11:57. This testimony is not credible. The contracts referred to the same name as the
entity in the brochure sent to the Stevenses by Mr. Antonious, as well as the same mailing
address; the contracts specified that all payments should be made out to Denny
Antonious; and John Griffith signed the contract as “Your Small Job Specialist.” Ex. P-3.
16. I find it unlikely that a wholly unaffiliated entity of the same name
would use Dennis Antonious’ mailing address and specify that he must receive all
payments. Moreover, when Mr. Griffith applied to the local township for a building
permit, he submitted design drawings identifying his company as “ITP Renovations,
Inc.,” located at 407 Sheffield Drive, and not “Your Small Job Specialists.” Ex. D-1.
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17. Mrs. Stevens credibly testified that at no time during the construction
of the addition onto her home had either Mr. Antonious or Mr. Griffith mentioned a
separate company, such as ITP Renovations. N.T. 12:14. Mrs. Stevens further testified
that she had not see the building permit or plans before the death of John Griffith; indeed
Mrs. Stevens credibly testified that the day of trial was the first time she had seen the
permit and plans. N.T. 12:14.
18. I further find that the brochure sent by Mr. Antonious was intended to
give the false impression that “Your Small Job Specialists” was a large company with
numerous employees and equipment, capable of completing all home construction
projects, large and small. The contracts proposed to Mr. Stevens were designed to further
the false impression that this entity was performing the construction work.
19. Based in whole or in part on this false impression, and believing the
statements about Your Small Job Specialists made in the advertising brochure, Mr.
Stevens entered into one or more home construction contracts. N. T. at 9:42-43, 9:48.
The final contract price was $83,500. Ex. P-3.
20. Construction on plaintiffs’ new addition began in May of 2004.
Uncontested Statement of Facts, #11. Portions of plaintiffs’ home were removed and a
foundation for the addition was poured. Statement of Uncontested Facts, #12. The
foundation for the addition was not constructed to the correct size. Thereafter, “removal
of the improper foundation was begun, but not finished.” Statement of Uncontested
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Facts, #13. In addition, walls for the addition were framed incorrectly. N.T. at 9:48-49.
The Stevenses’ residence also suffered water damage due to the faulty construction. N.T.
at 9:49.
21. Plaintiffs paid a total of $53,800 toward the contract price for
construction of the new addition to their home. Ex. P-4. This payment was made in two
installments, by personal checks made payable to Denny Antonious. Id. The first check,
No. 666, was dated November 16, 2003 and was for $8,800. Id. The second check, No.
673, was dated November 23, 2003 and was for $45,000. Id.
22. Neither Mr. Antonious nor his fictitious entity have a bank account.
Statement of Uncontested Facts, #7. The Internal Revenue Service contends that Mr.
Antonious owes back taxes and has made efforts to collect its debt. N.T. at 10:47.
Fearing that the IRS would garnish his bank account, Mr. Antonious uses Mrs.
Antonious’ personal bank account for all of his business transactions and has done so for
a number of years. Statement of Uncontested Facts, #7. In order to use this account, Mr.
Antonious, with his wife’s consent, has access to a stamp reflecting a copy of Mrs.
Antonious’ signature. N.T. at 10:12-13. He uses this stamp to endorse checks made
payable to him in connection with Your Small Job Specialists. N.T. 10:12-13.
23. Check No. 673 for $45,000 was endorsed by Mr. Antonious, signing
his name and stamping his wife’s name, and was deposited into Mrs. Antonious’ personal
bank account. Ex. P-4; N.T. 11:35. Check No. 666 for $8,800, although made payable
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to “Denny Antonious,” was cashed by John Griffith at “Mailing Services Plus,” a check
cashing facility no longer in business. Ex. P-4; N.T. 11:35. Unless Mr. Antonious saw
copies of the signed contracts, Ex. P-3, he may have had no knowledge of the initial
$8,800 payment until the state court action against him had commenced. N.T. 10:48,
11:35.
24. Mr. Antonious transferred $44,500 of the $45,000 paid by Mr. Stevens
to Mr. Griffith. N.T. at 10:49. He anticipated receiving additional funds from Mr.
Griffith as a referral fee at the conclusion of the construction project. N.T. at 11:32-33.
25. Mr. Griffith began construction work at the Stevenses’ residence,
which work went poorly, as described above. Mr. Griffith then died and the work ceased
in August 2004. N.T. at 9:56-57. The construction project was never completed; nor
were the problems with the work completely corrected. N.T. at 9:49.
26. Mr. Stevens called Mr. Antonious and complained about the quality of
the work, its delays and its incompleteness, ultimately demanding repayment of all funds
paid. N.T. at 9:49. Mr. Antonious refused repayment, blaming Mr. Griffith and his
death, and disclaiming responsibility for the construction project. N.T. at 9:49, 11:37.
Furthermore, Mr. Antonious informed Mr. Stevens that he would need to make further
payments to have the job corrected and completed. N.T. at 11:38-39.
27. In February 2005, Mr. and Mrs. Stevens filed a complaint in state court
against Mr. and Mrs. Antonious, and against Your Small Job Specialists, demanding
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A typographical error most likely exists in the joint pre-trial statement regarding the5
labeling of fact number 21 as 16. For purposes of this opinion, I will assume that number 21 was
intended and that number 16, because it had already been used, was an unintentional error.
12
repayment of the amount paid plus other damages. Ex. P-5. That lawsuit was stayed by
the defendants’ bankruptcy filing.
28. Mrs. Antonious has solely owned the family residence for
approximately 18 years. Statement of Uncontested Facts, #6. All furnishings in the
house are also the sole property of Mrs. Antonious. Id.
29. The parties agree that Mrs. Antonious never met with Bryon or Mayolia
Stevens, nor has she ever communicated with them verbally or in writing. Statement of
Uncontested Facts, ##14, 15, 18, 19.
30. The plaintiffs have stipulated that “Peggy Antonious has never made
any representations or misrepresentations to Byron [sic] Stevens in any form whatsoever.”
Statement of Uncontested Facts, #21. They offer the same stipulation regarding Mrs.5
Antonious making no representations or misrepresentations to Mrs. Stevens. Statement
of Uncontested Facts, #17.
31. Mrs. Antonious resides in the upstairs portion of the family home,
while Mr. Antonious lives and works in the basement. N.T. 10:19. This arrangement
has existed for a period of at least 15 years. N.T. 10:19. Mrs. Antonious communicates
with her husband about matters concerning their three children, and does not visit his
basement office nor discuss his business affairs. N.T. 10:17, 10:19, 11:43.
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32. Mr. Antonious controls the family finances and Mrs. Antonious has no
knowledge of deposits and withdrawals from her bank account. N.T. 10:21, 10:57.
33. On one occasion, Mrs. Antonious wrote a business letter for her
husband, probably dictated by him. Ex. P-1; N.T. 10:24. She wrote this letter because
her husband’s computer was not working and his penmanship is poor. N.T. at 10:24-25.
34. This letter, Ex. P-1, is dated November 11, 2003, has the letterhead of
“Your Small Job Specialists” and is addressed to Mr. Scott Allison in Chester Springs.
Although it does not involve the Stevenses’ home construction project, it is
contemporaneous with that project, as the first check issued by Mr. Stevens to Mr.
Antonious was dated November 16, 2003. Ex. P-4. The letter implicitly responds to
complaints made regarding the construction of a fireplace in Mr. Allison’s home. Ex. P-
1. The letter also states in part:
I think it would be best for you to deal directly with Karl
Fisher to finish your fireplace project. Karl will send you his
own contract for you to sign. The price will remain the same
as the original one signed with me. The monies due on this
contract will be paid directly to Karl Fisher.
35. This letter supports the finding that the contract signed by Mr. Stevens
and Mr. Griffith on behalf of Your Small Job Specialists was not Mr. Griffith’s contract;
instead it was Mr. Antonious’ contract.
36. Mr. Antonious disclosed eight lawsuits filed or pending against him by
dissatisfied customers within one year of his bankruptcy filing. Statement of Financial
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Affairs, #4. Four lawsuits resulted in judgments entered against him (including one held
by Mr. Allison), three were pending (including the lawsuit filed by the Stevenses), and
one lawsuit was withdrawn. Id.
II.
I make the following legal conclusions:
1. The plaintiffs met their evidentiary burden to prove that any debt owed
by Mr. Dennis Antonious to Mr. Bryon and/or Mrs. Mayolia Stevens is nondischargeable
pursuant to 11 U.S.C. § 523(a)(2)(A), because he obtained money by making false
representations and using false pretenses.
2. The plaintiffs did not meet their evidentiary burden to prove that any
debt owed to them by Mrs. Peggy Antonious should be nondischargeable under section
523(a)(2)(A).
3 The plaintiffs did not meet their evidentiary burden to demonstrate that
either defendant acted willfully and maliciously, such that plaintiffs’ debt would be non-
dischargeable under 11 U.S.C. § 523(a)(6).
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III.
When a creditor seeks a determination that he holds a
nondischargeable debt under 11 U.S.C. § 523(a), he bears the burden of demonstrating
nondischargeability by a preponderance of the evidence. See, e.g., Grogan v. Garner, 498
U.S. 279, 291 (1991); In re Graham, 973 F.2d 1089, 1101 (3d Cir. 1992). Generally, the
provisions of section 523(a) are, as a matter of policy, “strictly construed against creditors
and liberally construed in favor of debtors” because of the overriding bankruptcy purpose
of granting debtors a fresh start. In re Lee, 2000 WL 815928, at *2 (Bankr. E.D. Pa.
2000) (quoting In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995)); see also In re Perkins,
2000 WL 1010580, at *3 (Bankr. E.D. Pa. 2000); In re Chryst, 177 B.R. 486, 493 (Bankr.
E.D. Pa. 1994).
The plaintiffs argue primarily that their claim against both debtors is
nondischargeable under section 523(a)(2)(A) because they were induced by false
pretenses and misrepresentations to hire Your Small Job Specialists. Not only did that
entity not provide competent workers, but it was unable to address the problems and
complete the home construction project because, unbeknownst to the Stevenses, the entity
consisted solely of Mr. Antonious, who does not perform such construction work.
Section 523(a) states that
[a] discharge under section 727 . . . does not discharge an
individual debtor from any debt—
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(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;
See generally Field v. Mans, 516 U.S. 59 (1995); In re Brady, 243 B.R. 253, 258 (E.D.
Pa. 2000); In re Lee, 2000 WL 815928, at *2.
To successfully challenge the dischargeability of debt under section
523(a)(2)(A), the creditor must establish that: (1) the debtor made the representations
knowing they were false; (2) the debtor made the representations with the intent and
purpose of deceiving the plaintiff; (3) the creditor justifiably relied on the debtor’s false
representations; and (4) the creditor suffered a loss or damage as a proximate
consequence of the representation having been made. See, e.g., Field v. Mans, 516 U.S.
59, 61 (1995); In re Ophaug, 827 F.2d 340, 342 n.1 (8th Cir. 1987); In re Maurer, 112
B.R. 710, 712-13 (Bankr. E.D. Pa. 1990). In general, this test applies for all three
grounds listed in section 523(a)(2)(A) even though the elements for each vary slightly.
Thus, a showing of justifiable reliance and causation of loss must be made in order to
recover under any component of section 523(a)(2)(A). See In re Ali, 321 B.R. 685, 690
(Bankr. W.D. Pa. 2005).
To prove fraud or misrepresentation by a contractor, the creditor may
establish that the debtor entered into the contract with the intent of never complying with
the terms. Compare Maurer, 112 B.R. at 713 (finding no fraud because the creditor failed
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to prove that the debtor never intended to complete the work), and In re Edmund, 5 B.R.
172, 175 (Bankr. W.D. Okla. 1980) (finding no evidence that the debtor accepted the
payments with an intention to breach the contract), with In re Fenninger, 49 B.R. 307, 308
(Bankr. E.D Pa. 1985) (finding evidence of fraud because the debtor never intended to do
work under the contract). A mere breach of the construction contract alone does not
establish fraud or misrepresentation for purposes of section 523(a)(2)(A). Maurer, 112
B.R. at 713.
In addition to demonstrating an intent not to comply, a creditor may also
establish the failure of a contractor to disclose or misrepresent a material fact as
constituting fraud or misrepresentation under section 523(a)(2)(A). See In re Docteroff,
133 F.3d 210, 216-217 (3d Cir. 1997). Bankruptcy courts have “overwhelmingly held
that a debtor’s silence regarding a material fact can constitute a false representation . . . .”
In re Van Horne, 823 F.2d 1285, 1288 (8th Cir. 1987), abrogated on other grounds by
Grogan v. Garner, 498 U.S. 279 (1991).
Furthermore, a “false pretense” is an “implied misrepresentation or conduct
which creates and fosters a false impression, as distinguished from a ‘false representation’
which is an express misrepresentation.” In re Haining, 119 B.R. 460, 463-464 (Bankr. D.
Del. 1990); see, e.g., In re Hambley, 329 B.R. 382, 396 (Bankr. E.D.N.Y. 2005); In re
Philopulos, 313 B.R. 271, 281 (Bankr. N.D. Ill. 2004). It has also been defined as any
series of events, when considered collectively, that create a contrived and misleading
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understanding of a transaction, in which a creditor is wrongly induced to extend money or
property to the debtor. See, e.g., In re Barr, 194 B.R. 1009, 1019 (Bankr. N.D. Ill. 1996).
A false pretense must be fostered “willfully, knowingly, and by design; it is not the result
of inadvertence.” Id.
Courts have determined debts nondischargeable under section 523(a)(2)(A)
involving construction contracts, when the debtor intentionally misrepresents a material
fact or qualification. See, e.g., In re Clark, 330 B.R. 702, 707 (Bankr. C.D. Ill. 2005)
(finding that the debtor’s false representation that he was a licensed and insured
contractor was sufficient to bring debt under the scope of section 523(a)(2)(A)); In re
Bozzano, 173 B.R. 990, 994 (Bankr. M.D.N.C. 1994), abrogated on other grounds by
Cohen v. de la Cruz, 523 U.S. 213 (1998), see also In re Fuselier, 211 B.R. 540, 545
(Bankr. W.D. La. 1997) (finding the debt nondischargeable under section 523(a)(2)(A)
because the debtor falsely represented to the creditors that he had a contractor’s license
and did so with the intent to deceive them); In re McDaniel, 181 B.R. 883, 887 (Bankr.
S.D. Tx. 1994) (holding the debt not discharged because the debtor falsely represented
that he was an architect).
Directly relevant to this proceeding is In re Tapper, 123 B.R. 594 (Bankr.
N.D. Ill. 1991). In Tapper, the bankruptcy court concluded that the claims against the
debtor based upon home contracting work were nondischargeable, because the debtor
misrepresented, inter alia, that he was in the business as an expert contractor for 20 years
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and that he employed his own tradesmen, when in fact he was a mere salesman who hired
subcontractors. Id. at 603. In this adversary proceeding, the Stevenses have
demonstrated by a preponderance of the evidence that Mr. Antonious also made
knowingly false misrepresentations or created false pretenses which were justifiably
relied on to the detriment of the plaintiffs.
The evidence shows that Mr. Antonious provided the Stevenses with a
brochure that intentionally misstated or left the false impression that Your Small Job
Specialists was in the home construction business, had been so for 37 years, had 47
employees, was operated by Dennis Antonious, and was licensed and insured. Ex. P-2.
Mr. Antonious also stipulated that he held himself out to the public as a general
contractor, Stipulation of Uncontested Fact, #10, thus undermining his testimony that he
informed the Stevenses of his true role and the limited nature of Your Small Job
Specialists. None of these express or implied representations are true. And the contract
signed by Mr. Stevens was designed to further the false impression that this substantial,
well-established concern would perform the home improvement project and stand behind
its work.
The Stevenses (and perhaps other homeowners, given the number of
lawsuits against him) relied upon this misinformation. As the Tapper court observed:
“[A]n intent to deceive may logically be inferred from a false
representation which the debtor knows or should know will
induce another [to act accordingly].” In re Kimzey, 761 F.2d
421, 425 (7th Cir.1985). Debtor here knew or should have
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known that his misrepresentations would induce the
Consumers to hire him, since in deciding whether to hire a
contractor, a homeowner would naturally look to the
contractor’s qualifications; guarantees of work performed;
assurances that the work would be completed in a satisfactory
and timely manner; and whether the contractor and his crew
were experienced for a reasonable length of time in the
business together. Furthermore, Debtor’s use of a fictitious
name in order to escape the consequences of his
misrepresentations shows that Debtor intended to deceive his
customers.
In re Tapper, 123 B.R. at 604.
Moreover, the Stevenses’ reliance upon Mr. Antonious’s express or implied
misrepresentations was justified. Id., at 604.
Testimony revealed that the Stevenses solicited information from various
contractors before contracting with “Your Small Job Specialists.” N.T. at 9:40, 11:04.
Both Stevenses testified credibly that they relied on the advertisements provided to them
by Dennis Antonious. They stated that had they known Dennis Antonious was solely a
broker of construction services, a middleman, they would not have engaged his services,
nor those of John Griffith, whom they believed to be working for Dennis Antonious.
N.T. at 9:53, 10:05.
Finally, to obtain relief under section 523(a)(2)(A), the creditor must
demonstrate that he suffered a loss or damage as a proximate consequence of the
representation having been made. The Stevenses paid $53,800 to Mr. Antonious in
partial payments for the construction of the addition to their home. The addition was not
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properly constructed, never completed, and their payment was not returned to them.
There is sufficient evidence to support a finding that the plaintiffs’ loss, however it is
quantified, was proximately caused by their reliance upon express and implied
misrepresentations made by the debtor, Mr. Dennis Antonious.
The debtors argue that any loss suffered by the plaintiffs is a result of the
sudden death of John Griffith and not by any misrepresentations made by Mr. Antonious.
This argument is unpersuasive. Indeed, had the representations regarding Your Small Job
Specialists been true, the death of one individual would not have led to the cessation of
the work. Other employees would have been available and competent to continue the
project.
Unbeknownst to the Stevenses, Mr. Antonious had left their home
construction project completely dependent upon the health and competency of Mr.
Griffith. The plaintiffs never agreed to that. They knew nothing about Mr. Griffith’s
business, ITP Renovations, Inc. Moreover, the Stevenses were unaware that virtually all
of the funds they paid to Mr. Antonious were transferred to Mr. Griffith and so were
unavailable for use on their project when he died.
For these reasons, the plaintiffs have proven by a preponderance of the
evidence that Mr. Dennis Antonious individually and as the operator of “Your Small Job
Specialists” knowingly misrepresented himself and the nature of his business to the
plaintiffs, and any debt arising from his misrepresentations is not discharged under
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section 523(a)(2)(A) of the Bankruptcy Code.
IV.
As a general rule, fraudulent practices of one spouse are not automatically
imputed to the other spouse for purposes of nondischargeability under 11 U.S.C. §
523(a)(2)(A). In re Carp, 340 F.3d 15, 26 (1st Cir. 2003); see In re Tsurukawa, 258 B.R.
192, 198 (B.A.P. 9th Cir. 2000) (holding that “a marital union alone, without a finding of
a partnership or other agency relationship between spouses, cannot serve as a basis for
imputing fraud from one spouse to the other”). Rather, decisions that have attributed the
wrongdoing of a party to a debtor-spouse have done so based upon agency theory.
Tsurukawa, 258 B.R. at 198; see, e.g., In re Lansford, 822 F.2d 902, 904-05 (9th Cir.
1987). The existence of a marital relationship alone does not establish an agency
relationship. See Carp, 340 F.3d at 26 (finding that a marriage of 30 years and past joint
real estate ventures did not establish an agency relationship between a husband and wife).
Fraud also can be imputed to an innocent debtor-spouse if there is a
partnership relationship. See In re Copeland, 291 B.R. 740 (Bankr. E.D. Tenn. 2003). “A
partnership [must be] implied . . . while completely ignoring the parties’ social
relationship.” Id. at 769. When determining whether a partnership exists, courts consider
the totality of the circumstances and generally find partnerships “where it appears that the
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individuals involved have entered into a business relationship for profit, combining their
property, labor, skill, experience, or money.” Id. at 770 (quoting Pettes v. Yukon, 912
S.W.2d 709, 715 (Tenn. Ct. App. 1995).
Where a partnership or agency relationship is established, some courts have
held the principal or partner liable for the fraud of the agent or partner under section
523(a)(2), even without knowledge of the wrongdoing, so long as the wrongdoing was
within the scope of the agency or partnership. See, e.g., Matter of Luce, 960 F.2d 1277,
1282-83 (5th Cir. 1992); In re Baines, 337 B.R. 392, 407 (Bankr. D.N.M. 2006):
[F]raud pursuant to 11 U.S.C. § 523(a)(2)(A) can be imputed
between spouses based on agency principles when there is
evidence that the “innocent” spouse was involved in a
business relationship with the “wrongdoing” spouse that gave
rise to the debt. See In re Tsurukawa, 287 B.R. 515, 527 (9th
Cir. BAP 2002) (“In order to impute fraud to a spouse, there
must be a ‘partnership or other agency relationship.’”)
(quoting In re Tsurukawa, 258 B.R. 192, 198 (9th Cir. BAP
2001)); In re Banke, 275 B.R. 317, 329 (Bankr. N.D. Iowa
2002) (“If a husband and wife are partners in a business,
separate from the marital relationship, both may be held
responsible for the fraudulent acts of one of them.”) (citing
Spence v. Tatum, 960 F.2d 65, 66 (8th Cir.1992) and
Sunkyong Int’l, Inc. v. Anderson Land & Livestock Co., 828
F.2d 1245, 1249 (8th Cir. 1987)); First USA, Inc. v. Savage
(In re Savage), 176 B.R. 614, 615-616 (Bankr. M.D. Fla.
1994) (noting that courts have imputed fraud from one spouse
to another based on agency principles where the spouses were
involved in some sort of business or partnership relationship
in addition to their marital relationship) (citing In re Luce,
960 F.2d 1277 (5th Cir.1992) (per curiam), In re Paolino, 75
B.R. 641 (Bankr. E.D. Pa.1987), and In re Walker, 726 F.2d
452 (8th Cir.1984)). “Where there are no facts showing
individual culpability on the part of an ‘innocent’ spouse,
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fraud can still be imputed under partnership or agency
principles if that spouse is also a business partner of the
fraudulent spouse.” Tsurukawa, 287 B.R. at 527
(paraphrasing In re Luce, 960 F.2d at 1284 n. 10).
I shall also assume that a spouse can be liable for the fraud or
misrepresentations of the other spouse, for purposes of section 523(a)(2)(A), if the spouse
knowingly aided and abetted in that fraud or misrepresentation. See generally In re
Markarian, 228 B.R. 34, 40-41 (B.A.P. 1st Cir. 1998).
The evidence presented at trial does not demonstrate that it was more likely
than not that Mrs. Antonious was a partner or principal in Mr. Antonious’ home
construction business. Nor was there a preponderance of the evidence that Mrs.
Antonious knowingly aided and abetted her husband’s false representations and false
pretenses.
The evidence reflected a partially estranged marital relationship between
Mr. and Mrs. Antonious. They live in different parts of the same house and interact on
family matters, but not on business issues. Mrs. Antonious appears ignorant about
deposits and withdrawals from her bank account, allowing Mr. Antonious to control their
finances and pay their bills. She also permits Mr. Antonious to use a signature stamp to
endorse checks and deposit the proceeds into her account without her knowledge. The
parties agree that Mrs. Antonious has never spoken to or communicated with the
Stevenses in any manner, and that she has not made any misrepresentations to them.
There was no evidence that she is familiar with her husband’s advertisements for Your
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Small Job Specialists. And telephone calls for that business are not received in her
portion of the house. Further, plaintiffs have failed to offer evidence that Mrs. Antonious
has any knowledge of her husband’s business practices or any misrepresentations he
made.
The fact that Mrs. Antonious permits her husband to use her bank account
does not render her his principal or business partner. Nor would it, by itself, put her on
notice of any fraudulent conduct on his part as concerns the Stevenses. The arrangement,
so far as was known to her, was made to prevent execution by the IRS. Furthermore, her
acting as scrivener on one letter sent by her husband is also insufficient to place her on
notice of his misrepresentations.
Given the evidentiary burden placed upon the plaintiffs, the evidence was
insufficient to impute Mr. Antonious’ fraudulent misrepresentations to his wife, Mrs.
Peggy Antonious.
V.
Plaintiffs’ final contention is that defendants’ actions, as described, fall
within the scope of 11 U.S.C. § 523(a)(6). Section 523(a)(6) of the Bankruptcy Code
provides:
A discharge under section 727, 1141, 1228(a), 1228(b), or
1328(b) of this title does not discharge an individual debtor
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from any debt—
(6) for willful and malicious injury by the debtor by another
entity or to the property of another entity.
A plaintiff must establish such nondischargeability by a preponderance of the evidence.
See, e.g., In re Keaty, 397 F.3d 264, 270 (5th Cir. 2005); In re Scarborough, 171 F.3d
638, 641 (8th Cir. 1999); see generally Grogan v. Garner, 498 U.S. 279, 291 (1991).
Prior to the enactment of the 1978 Bankruptcy Code, bankruptcy courts
found that a nondischargeable injury arose whenever the debtor’s conduct was at least
reckless and was done without just cause. Tinker v. Colwell, 193 U.S. 473, 487 (1904);
see In re Conte, 33 F.3d 303, 306 (3d Cir. 1994) (discussing pre-1978 case law). Courts
have concluded, however, from the legislative history accompanying the 1978 legislation,
that Congress intended that section 523(a)(6) have a higher standard than just
recklessness. In re Conte, 33 F.3d at 306; H.R. Rep. No. 595, 95th Cong., 2d Sess. 365
(1978) (“‘[W]illful’ means deliberate or intentional. To the extent that Tinker v. Colwell,
. . . held that a looser standard is intended, and to the extent that other cases have relied on
Tinker to apply a ‘reckless disregard’ standard, they are overruled.”).
Thus, the United States Supreme Court, in Kawaauhau v. Geiger, 523 U.S.
57 (1998), narrowly defined the phrase “willful and malicious” utilized in section
523(a)(6). The Court construed section 523(a)(6) as limited in scope to intentional torts:
The word “willful” in (a)(6) modifies the word “injury,”
indicating that nondischargeability takes a deliberate or
intentional injury, not merely a deliberate or intentional act
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that leads to injury. Had Congress meant to exempt debts
resulting from unintentionally inflicted injuries, it might have
described instead “willful acts that cause injury.” Or,
Congress might have selected an additional word or words,
i.e., “reckless” or “negligent,” to modify “injury.” Moreover,
as the Eighth Circuit observed, the (a)(6) formulation triggers
in the lawyer’s mind the category “intentional torts,” as
distinguished from negligent or reckless torts. Intentional
torts generally require that the actor intend “the consequences
of an act,” not simply “the act itself.” Restatement (Second)
of Torts § 8A, comment a, p. 15 (1964) (emphasis added).
Id. at 61-62; see also In re Markowitz, 190 F.3d 455, 464 (6th Cir. 1999).
Similarly, the Third Circuit Court of Appeals has observed:
[W]hen Congress required more than recklessness for
nondischargeability, it required that the debtor have engaged
in conduct more culpable than taking a deliberate action that
had a high probability of producing harm. . . . Rather, for the
injury to have been “willed” by the debtor, it must at least
have been substantially certain to result from the debtor’s act.
In re Conte, 33 F.3d at 307;
Accordingly, “[a]n injury is willful and malicious under the Code only if the
actor purposefully inflicted the injury or acted with substantial certainty that injury would
result.” In re Conte, 33 F.3d at 305. “We hold that actions are willful and malicious
within the meaning of § 523(a)(6) if they either have a purpose of producing injury or
have a substantial certainty of producing injury.” Id. at 307; see, e.g., In re Giarratano,
2004 WL 2827138, at *3 (D. Del. 2004).
Applying this standard, I easily conclude that the plaintiffs failed to prove
that the actions of Mrs. Antonious were willful and malicious. While she permitted her
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husband to use her bank account in operating his business, and while she handwrote a
letter sent to a customer that he dictated, such actions were not shown to have the purpose
of producing injury to the Stevenses, nor the substantial certainty of producing injury to
them.
I reach the same conclusion regarding the conduct of Mr. Antonious.
The evidentiary record does not demonstrate that it was more likely than not
that the misrepresentations made by Dennis Antonious, through his advertisements, were
made with the specific intent to injure the Stevenses. Additionally, the evidence is
insufficient to find that the representations were made with substantial certainty of
injuring the Stevenses. The evidence shows that Dennis Antonious created a false
impression and made misrepresentations to the plaintiffs in order to secure their business;
misrepresentations that ultimately may have caused the plaintiffs monetary damages.
There is no evidence, however, that Mr. Antonious believed that Mr.
Griffith was incompetent and unable to adequately complete the Stevens’ home addition.
While the evidence in this proceeding reflects that Mr. Griffith performed negligently,
there is no evidence that his negligence was substantially certain to occur. See In re
Devore, 282 B.R. 643, 645-46 (Bankr. S.D. Ohio 2002); see also In re Melcher, 319 B.R.
761, 776-77 (Bankr. D.D.C. 2004). Negligent performance of a home repair contract falls
outside the scope of section 523(a)(6). See In re Birt, 173 B.R. 346, 354 (Bankr. N.D.
Ohio 1994); In re Kaufmann, 57 B.R. 644, 647 (Bankr. E.D. Wisc. 1986). Perhaps had
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Mr. Griffith not died, construction of the plaintiffs’ addition would have been completed
successfully regardless of the misrepresentations made by Mr. Antonious in order to
secure plaintiffs’ business. Compare In re Clark, 330 B.R. 702, 707-08 (Bankr. C.D. Ill.
2005) (where unlicensed debtor/contractor took payment from homeowner promising to
use the funds to purchase materials, and had no intention to do so, the conduct was willful
and malicious). Under such circumstances, Mr. Antonious’ actions do not rise to the
level of willful and malicious injury under section 523(a)(6).
VI.
In summary, after considering the testimony and all of the evidence,
I conclude that the plaintiffs have demonstrated by a preponderance of the evidence that
debtor Dennis Antonious made knowing and intentional misrepresentations about his
qualifications, created a false impression, and failed to disclose material facts relating to
the nature of his business and its relationship with John Griffith, in order to procure the
Stevenses’ home repair business. Any debt arising from this conduct is excepted from the
scope of the chapter 7 discharge, pursuant to 11 U.S.C. § 523(a)(2)(A). I find, however,
that plaintiffs have not proven by a preponderance of the evidence that Peggy Antonious
knew of and took part in her husband’s fraudulent business conduct, or acted as his
principal or partner. Any debt arising under these circumstances, as it pertains to Peggy
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Antonious, is discharged. Further, I find that the plaintiffs have not proven by a
preponderance of the evidence that either debtor acted wilfully and maliciously to cause
the plaintiffs injury under 11 U.S.C. § 523(a)(6).
An appropriate order shall be entered.
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 7
DENNIS ANTONIOUS and :
PEGGY ANTONIOUS
Debtors : Bankruptcy No. 05-18809
____________________________________
BRYON STEVENS and
MAYOLIA STEVENS, :
Plaintiffs :
v. :
DENNIS ANTONIOUS and :
PEGGY ANTONIOUS
Defendants : Adversary No. 05-575
____________________________________
.................................................
ORDER
.................................................
AND NOW this 27th day of November 2006, for the reasons stated
in the accompanying opinion, it is hereby ordered that judgment is entered in favor of the
plaintiffs against defendant Dennis Antonious on their claim under 11 U.S.C. §
523(a)(2)(A), but judgment is entered against the plaintiffs and in favor of Mr. Antonious
on their claim under 11 U.S.C. § 523(a)(6).
Any debt held by the plaintiffs against Mr. Antonious is nondischargeable.
It is further ordered that judgment is entered in favor of defendant Peggy
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Antonious and against plaintiffs on their nondischargeability claims under 11 U.S.C. §
523(a)(2)(A) and (a)(6).
____________________
BRUCE FOX
United States Bankruptcy Judge
copies to:
Mr. Bryon K. Stevens
Mrs. Mayolia L. Stevens
419 Harry Road
Coatesville, PA 19320
Jonathan P Boughrum, Esq.
Crawford, Wilson & Ryan, LLC
220 West Gay Street
West Chester, PA 19380
Mr. Dennis Dryden Antonious
Mrs. Peggy A. Antonious
124 Hedgerow Lane
West Chester, PA 19380
Mark Blank Jr., Esq.
50 Darby Road
Paoli, PA 19301
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