Charles Novack, U.S. Bankruptcy Judge.
On July 12 and 13, 2016, this court conducted a trial in the above adversary proceeding. All parties were represented by
Ramirez is a licensed California contractor whose primary source of income in 2013 was from renovation work performed for REO Homes ("REO"). Ramirez routinely hired day laborers or periodic workers to perform the REO renovation work. Luis Juarez was one of those periodic workers. The basic terms and scope of Juarez's employment were established by the November 22nd Order.
Juarez testified that he was paid once a week, typically on Friday, and that he was timely and fully paid for only the first few weeks of work. By May 2013, Ramirez was not making full payments to Juarez. Juarez testified that he complained to Ramirez each time he was not paid in full. Ramirez typically responded by informing Juarez that REO was not timely paying him, and that he would pay Juarez when REO paid him.
Juarez worked on several REO renovation projects for Ramirez. He was not Ramirez's sole employee; several other persons worked for Ramirez on his REO projects. The checks introduced into evidence indicate that Ramirez had numerous REO projects during Juarez's employment. While it is unclear exactly which projects Juarez worked on, by mid June 2013 Juarez was working on a REO renovation project known as the 14th Street project (the "14th Street project"). Juarez only received intermittent payments
Ramirez did not fully pay Juarez for his work on the 14th Street project. Juarez worked at the 14th Street project through August 25, 2013, and only received two paychecks for this work: a June 17, 2013 check for $700, and a June 29, 2013 check for $700.
Ramirez testified that REO was displeased with the lack of progress on the 14th Street project, and that REO repeatedly informed him that he would be terminated from the 14th Street project if the pace of work did not accelerate. While Ramirez did not state when REO first warned him, the pause in check payments strongly suggests that he knew that the 14th Street project was in jeopardy by June 2013. Despite this, Ramirez continued to inform Juarez that he could not pay him due to REO's failure to timely pay him, and that he would cure the wage arrears when he was paid.
REO terminated Ramirez from the 14th Street project on August 25, 2013, and there is no evidence that REO hired him as a general contractor on any future renovation projects. Juarez filed his wage complaint before the Labor Commissioner a few weeks earlier, on August 5th. Ramirez fired Juarez when he learned of the wage complaint in early September.
Bankruptcy Code § 523(a)(2)(A) provides that "A discharge ... 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[.]" A creditor must establish five elements by a preponderance of the
The Labor Commissioner has met his burden of proof with regard to some of the missed wage payments. Juarez worked on several REO renovation projects for Ramirez. The Labor Commissioner has not demonstrated by a preponderance of the evidence that Ramirez's early representations to Juarez that REO was not timely paying him and that he would catch up on his wages were made with the intent to deceive. Simply, the Labor Commissioner did not establish that Ramirez's intentional misrepresentations began the first time he defaulted on Juarez's paycheck. Nor could Juarez pinpoint or state with sufficient specificity which weeks Ramirez failed to fully pay him. Ramirez had numerous REO contracts during most of Juarez's employment, and it appears that Ramirez may have used proceeds from projects that Juarez did not work on to pay for Juarez's wages. Ramirez's REO contracts petered out, however, in June and July, which reduced the money that Ramirez could use to pay Juarez's accrued (and ongoing wages). Ramirez's Bank of America records demonstrate that while Ramirez deposited $20,652.70 into his business account in March 2013, his monthly deposits dropped to $7,720.77 in June 2013, $1,000 in July 2013, $32.03 in August 2013, and zero in September 2013
Under these facts, the Labor Commissioner has established that Ramirez's representations turned fraudulent when REO first threatened to terminate the 14th Street project contract, which this court concludes was approximately June 1, 2013. With his cash flow dwindling, Ramirez's
By June 1, 2013, Ramirez had agreed to pay Juarez $120 per day. While Juarez's employment by Ramirez may have lasted from March 15, 2013 through September 13, 2013, it was not a binding commitment for a set length of time. Rather, if Ramirez had work for Juarez on a particular day, Ramirez would pay him $120 for that day's work. Juarez had the daily right to seek other work for any reason, and he believed that he could have found other work. While (as stated above) a defendant's intent to defraud under § 523(a)(2)(A) is typically measured at the inception of the debt, Juarez renewed his "employment contract" with Ramirez each day he worked. Thus, Ramirez's ongoing omissions satisfy § 523(a)(2)(A) element of intent. Had Ramirez been forthright regarding his status with REO, Juarez would have stopped working on the 14th Street project and sought work elsewhere. While Ramirez testified that he told Juarez to stop working at some point in time during the 14th Street project, the court does not find his testimony to be credible. Given a) Ramirez's concern that Juarez might file a wage complaint against him, b) his knowledge that Juarez had filed a wage complaint against a prior employer, and c) his inability to get paid for the 14th Street project, why would Ramirez first inform Juarez that he could not pay his wages but then allow Juarez to continue to labor at the 14th Street project? The court can only conclude that Ramirez never informed Juarez of his difficulties with REO on the 14th Street project, and never asked him to stop working.
The November 22nd Order establishes the Labor Commissioner's damages. This court may award damages under § 523(a)(2)(A) that arise or flow from the fraudulent conduct. See Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219 (9th Cir.2000). The November 22nd Order found that from June 1, 2013 through August 20, 2013, Juarez earned $8,640.00 but only received $2,700, leaving a balance due of $5,880.00. The Labor Commissioner also determined that Juarez was not compensated for 132 overtime hours from June 1, 2013 to August 20, 2013, at a rate of $22.50 per hour, for a total of $2,970.00. This court therefore awards the Labor Commissioner $8,850.00 in unpaid wages.
The November 22nd Order also awarded Juarez liquidated damages under California Labor Code § 1194.2(a) due to Ramirez's failure to pay at least the minimum wage (then $8.00/hour) for Juarez's uncompensated time. This Labor Code section provides liquidated damages based on "actual harm." These damages also arise from Ramirez's fraud. See Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998); Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219 (9th Cir.2010). During the period in question, Juarez worked 8 hours a day for 72 days, amounting to 576 hours. He was paid for 337.5 of these hours, leaving 238.5 unpaid hours of work. Plaintiff is therefore entitled to $1,908.00 in liquidated damages.
The November 22nd Order also awarded Juarez $3,937.50 as a penalty under Labor Code §§ 202 and 203. Under these code sections, Ramirez was required to fully pay Juarez's wages within three days of his termination. The November 22nd Order found that Ramirez "willfully" failed to pay these wages within that time period. Under Labor Code § 203, this willful
The Labor Commissioner asserts that the funds Ramirez received from REO were owed to Juarez and his fellow employees, and that Ramirez's failure to pay wages constituted non-dischargeable embezzlement under § 523(a)(4). Embezzlement requires evidence that 1) property was rightfully in the possession of a nonowner and 2) the nonowner appropriated the property to a use other than which it was entrusted, under circumstances indicating fraud. In re Wada, 210 B.R. 572, 576 (9th Cir. B.A.P. 1992). The Labor Commissioner must demonstrate these elements by a preponderance of the evidence.
The Labor Commissioner has not satisfied his burden of proof on this claim for relief. He has not provided this court with any legal analysis demonstrating that the REO payments were Juarez's property under California law.
The Labor Commissioner finally argues that under In re Jercich, 238 F.3d 1202 (9th Cir.2001), Ramirez's failure to pay Juarez's wages constituted "willful and malicious" conduct under § 523(a)(6). This court disagrees. While the facts in Jercich warranted the entry of a nondischargeable judgment, the general legal principles enunciated by the Ninth Circuit must be applied in context. When carefully scrutinized, the facts before this court fall short.
Jercich presented a series of appalling facts involving an employer's egregious failure to pay commissions due an employee.
Jercich thereafter filed a Chapter 7 bankruptcy, and Petralia filed an adversary proceeding under Bankruptcy Code § 523(a)(6) for a determination that his Superior Court judgment was nondischargeable. The Bankruptcy Court determined that the Superior Court judgment was based on a breach of contract and not tortious conduct and held that the judgment was dischargeable. While the Bankruptcy Appellate Panel affirmed, the Ninth Circuit reversed.
Section 523(a)(6) excepts from discharge debts resulting from "willful and malicious injury by the debtor to another entity or the property of another entity." Conduct that is non-dischargeable under § 523(a)(6) typically amounts to an intentional tort under state law. See Kawaauhau v. Geiger, 523 U.S. 57, 60, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). Not surprisingly then, the Jercich court first noted that Jercich's intentional breach of contract by itself did not constitute willful and malicious conduct under § 523(a)(6). Instead, the Ninth Circuit held that a breach of contract must be accompanied by tortious conduct which results in a willful and malicious injury. Jercich at 1205. The Ninth Circuit then looked to California state law to determine whether Jercich's conduct was tortious. It concluded that given the egregious facts before it and California's strong public policy favoring the full and prompt payment of wages, Jercich's willful, oppressive, and (in fact) criminal failure to pay Petralia's wages was tortious. Id. at 1206-08. Having found the requisite tortious conduct, the Jercich court then determined that Jercich's conduct was willful and malicious under the Ninth Circuit's well established two part test. Id. at 1208.
While this court does not condone Ramirez's treatment of his itinerant laborers, his behavior did not sink to Jercich's depths. Ramirez's construction work barely sustained him and his family, and Ramirez testified without contradiction that he needed his girlfriend's financial assistance to support his family. His purchases of clothes and shoes for his family, a drum set for his son, and trips to Southern California fell far short of Jercich's luxurious lifestyle. Moreover, while Ramirez felt that he was "betrayed" when Juarez filed his wages complaint in August 2013, there is insufficient evidence that this sense of betrayal fueled Ramirez's ongoing failure to pay him. Simply, Ramirez — unlike Jercich — lacked the funds to pay the wages owed. These circumstances do not merit a finding of tortious conduct.
The Jercich court's tort analysis, however, should not distract this court from a more direct application of § 523(a)(6). The Labor Commissioner need not rely on Jercich's public policy considerations to find the necessary tortious conduct, since this court has determined that Ramirez defrauded Juarez under
Willful conduct requires evidence that Ramirez must have acted with a subjective motive to inflict injury, or with a belief that injury was substantially certain to result from his conduct. Carrillo v. Su (In re Su), 290 F.3d 1140, 1143 (9th Cir.2002). An injury is malicious under § 523(a)(6) if the debtor a) commits a wrongful act, b) done intentionally, c) which necessarily causes injury and d) the act is done without just cause or excuse. In re Su, 290 F.3d at 1147. Exceptions to discharge must be narrowly construed in favor of dischargeability. Vol. 4 Collier On Bankruptcy, ¶ 523.05 (Alan N. Resnick & Henry J. Sommer eds., 16th ed).
The Labor Commissioner has not established by a preponderance of the evidence that Ramirez's conduct was willful.
The Labor Commissioner shall prepare and submit an appropriate judgment.
Ramirez objected to this testimony on the ground that it was a) not relevant under Federal Rule of Evidence 401, b) more prejudicial than probative under Federal Rule of Evidence 403, and c) improper character evidence under Federal Rules of Evidence 404, 405 and 608.
The court overrules Ramirez's objections. Federal Rule of Evidence 404(b)(1) generally states that "evidence of a crime, wrong, or other act is not admissible to prove a person's character in order to show that on a particular occasion the person acted in accordance with the character." Under Federal Rule of Evidence 404(b)(2), however, evidence of a wrong may be admissible "for another purpose, such as proving ... intent ...." See also Taylor v. DeFalco (In re DeFalco), 353 B.R. 449 (Bankr. W.D.Pa.2006). Ramirez employed Campos and Martinez at the same time that he employed Juarez. His statements to them regarding their wages are therefore admissible to prove Ramirez's intent to defraud. The court notes that there was sufficient evidence to establish Ramirez's intent to defraud without their testimony.
