Ann M. Nevins, United States Bankruptcy Judge.
Plaintiff, Heritage Equities, LLC, doing business as Commission Express of Central
Though the parties dispute the precise nature and extent of the transactions, it is undisputed that Heritage and Newman engaged in a financial relationship whereby Newman, a real estate agent, purportedly transferred her interest in expected sales commissions to Heritage, and in consideration for these transfers, Heritage purportedly provided Newman with cash advances on such commissions. Heritage filed this adversary proceeding in Newman's underlying Chapter 7 case, In re Nancy L. Newman, Docket No. 15-30382 (the "Main Case"), asserting its claim, arising from six specific real estate transactions, was non-dischargeable because Newman committed various frauds in the course of those transactions. Newman denied the allegations of fraud, advanced various defenses, and filed a counterclaim alleging violations of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110b, et seq. ("CUTPA").
Having considered the pleadings, testimony, evidence admitted during trial, the court's own docket and arguments of the parties, the court finds Heritage did not meet its burden of proof to establish its claims are not dischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4), or 523(a)(6), and therefore any debt owed by Newman is dischargeable. As to Newman's counterclaim against Heritage, the court finds Newman failed to meet her burden of proof to establish a violation of CUTPA.
This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b), and the United States District Court for the District of Connecticut's General Order of Reference dated September 21, 1984. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B) ("allowance of disallowance of claims"); 157(b)(2)(I) ("determinations as to the dischargeability of particular debts") and 157(b)(2)(O) ("other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship"). This adversary proceeding arises under the Main Case pending in this District; therefore, venue in this District is proper pursuant to 28 U.S.C. § 1409. Heritage has standing to seek the relief sought because it is a creditor pursuant to § 101(10). The parties each consented to this court entering a final order, on both the non-dischargeability claim and the CUTPA claim, subject to traditional rights to appeal. AP-ECP No. 94, 00:16:00 - 00:18:00;
Newman filed a voluntary Chapter 7 bankruptcy petition on March 16, 2015 (the "Petition Date"), listing a disputed claim
Common to all counts, the complaint alleged:
The complaint generally alleged it was brought pursuant to §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6) but each count referenced a single property transaction and alleged a violation of the Connecticut larceny statute, Conn. Gen. Stat. § 52-564. Compare, ECF No. 1, ¶ 7 with ¶¶ 23 (page 4), 20 (page 4), 27 (page 6), 20 (page 6), 20 (page 7), and 20 (page 8). The counts in the complaint relate to six different property transactions, as follows:
Count Property
1 11 Lake Drive, Moodus, Connecticut
2 1053 Middle Turnpike, Manchester, Connecticut
3 213 Alling Street, Berlin, Connecticut
4 37 Sunridge Lane, Cromwell, Connecticut
5 12 Clubhouse Drive, Cromwell, Connecticut
6 19 Lake Drive, East Haddam, Connecticut
Newman answered the complaint by generally denying the allegations, and asserting affirmative defenses including: payment; that Heritage failed to mitigate its damages; that Heritage's claims were barred by unclean hands; that the contracts were void pursuant to Connecticut and federal law; and, that the interest rate in the contracts was usurious.
The matter was tried before the court on December 5, 2016, and December 6, 2016. AP-ECF Nos. 94, 95, 101, 102, 103, 104. Thereafter, the parties filed proposed findings of fact and conclusions of law, filed post-trial briefs and engaged in post-trial oral argument. AP-ECF Nos. 109, 110, 111, 112, 113, 114, 117.
In accordance with Fed.R.Civ.P. 52 and Fed.R.Bankr.P. 7052, after consideration of the trial testimony and argument, the documents admitted into evidence, and examination of the official record of the Main Case and the instant adversary proceeding, the court finds the following facts.
Count Property Pl. Exhibit
1 11 Lake Drive, Moodus, Connecticut 113
2 1053 Middle Turnpike East, Manchester, 114
Connecticut
3 213 Alling Street, Berlin, Connecticut 112
4 37 Sunridge Lane, Cromwell, Connecticut 115
5 12 Clubhouse Drive, Cromwell, Connecticut 116
6 19 Lake Drive, East Haddam, Connecticut 117
Exceptions to discharge "are strictly and narrowly interpreted so as to promote the Bankruptcy Code's purpose of providing a fresh start to debtors." Orr v. Marcella (In re Marcella), 463 B.R. 212, 219 (Bankr. D. Conn. 2011); In re Bonnanzio, 91 F.3d 296, 300 (2d Cir. 1996). "Furthermore, `[t]he burden of proof in a nondischargeability proceeding is on the creditor seeking an exception to discharge to prove, by a preponderance of the evidence, that its claim satisfies the requirements of one of the discharge exceptions enumerated in Bankruptcy Code § 523(a).'" Vaughn v. Williams (In re Williams), 579 B.R. 314, 323 (S.D.N.Y. 2016) (quoting Syncom Indus., Inc. v. Wood (In re Wood), 488 B.R. 265, 273 (Bankr. D. Conn. 2013)); see also, Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Giminiani v. Cesar, 536 F.App'x. 85, 87-88 (2d Cir. 2013) ("To warrant an exception from discharge, a creditor must prove each statutorily enumerated element of fraud by a preponderance of the evidence.")(summary order).
To succeed on her CUTPA violation counterclaim, Newman must prove by a preponderance of the evidence that Heritage engaged in an unfair trade practice. Artie's Auto Body, Inc. v. Hartford Fire Ins. Co., 287 Conn. 208, 219, 947 A.2d 320 (2008).
Heritage's six-count complaint asserts Newman defaulted under the various Sale and Assignment Agreements, and "attempted to steal the proceeds of the commissions" assigned to Heritage, committing larceny under Conn. Gen. Stat. § 52-564. AP-ECF No. 1, ¶ 15. Heritage asserts the obligation resulting from Newman's larceny should be determined to be non-dischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6).
A necessary prerequisite to any action pursuant to § 523(a) is that a debtor
Claims for relief pursuant to §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6), are similar, but distinct. Husky Int'l Electronics, Inc. v. Ritz, 578 U.S. ___, 136 S.Ct. 1581, 1588, 194 L.Ed.2d 655 (2016). While § 523(a)(2)(A) excepts from discharge debts "obtained by" "false pretenses, a false representation or actual fraud," § 523(a)(6), "covers debts `for willful and malicious injury,' whether or not that injury is the result of fraud, whereas § 523(a)(2)(A) covers only fraudulent acts." Husky Int'l, 136 S.Ct. at 1588 (internal citations omitted). In pertinent part, § 523(a)(4) excepts from discharge those debts arising from "larceny," which contain fraudulent conduct as an element thereof. In re Rivera, 217 B.R. 379, 384 (Bankr. D. Conn. 1998). Thus, while one set of facts could trigger all three sections, a violation of one section does not, absent more, trigger application of any other, and §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6) must be independently applied to the facts of each case.
Section 523(a)(2)(A) excepts from discharge those debts arising from "false pretenses, a false representation, or actual fraud." Though the elements of each overlap, they are distinct. Wang v. Guo (In re Guo), 548 B.R. 396, 401 (Bankr. E.D.N.Y. 2016).
To establish a debt was incurred by "false pretenses" requires a plaintiff establish "`(1) an implied misrepresentation or conduct by the defendant[]; (2) promoted knowingly and willingly by the defendant[]; (3) creating a contrived and misleading understanding of the transaction on the part of the plaintiff[]; (4) which wrongfully induced the plaintiff[] to advance money, property, or credit to the defendant.'" Wang, 548 B.R. at 401 (quoting Voyatzoglou v. Hambley (In re Hambley), 329 B.R. 382, 396 (Bankr. E.D.N.Y 2005)).
To establish a debt was incurred by a "false representation" requires that a plaintiff establish "`(1) the defendant made a false or misleading statement; (2) with intent to deceive; (3) in order for the plaintiff to turn over money or property to the defendant.'" Wang, 548 B.R. at 401 (quoting Frishberg v. Janac (In re Janac), 407 B.R. 540, 552 (Bankr. S.D.N.Y 2009)).
Section 523(a)(2)(A)'s use of the term "actual fraud," refers generally to common law fraud. Husky Int'l, 136 S.Ct. at 1586.
As to each element of § 523(a)(2)(A), which requires that a plaintiff have relied on a misrepresentation of a defendant, the plaintiff need only prove by a preponderance of the evidence, that his or her reliance was "justifiable." Field v. Mans, 516 U.S. 59, 73-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). Justifiable reliance is neither strictly objective, nor subjective.
Strata Canada Corp. v. Delia (In re Delia), 2013 WL 5450456, *10, 2013 U.S. Dist. LEXIS 141119, *32 (S.D.N.Y. September 30, 2013) (quoting Field, 516 U.S. at 70-71, 116 S.Ct. 437).
Section 523(a)(4) excepts from discharge those debts arising from "larceny."
Section 523(a)(6) excepts from discharge those debts arising from "willful and malicious injury by the debtor." "The word `willful' in [§ 523](a)(6) modifies the word `injury,' indicating that nondischargeability takes a deliberate or intentional injury not a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61-62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). The Supreme Court has rejected an expansive interpretation of § 523(a)(6), analogizing, that while "intentionally rotating the wheel of an automobile to make a left-hand turn without first checking oncoming traffic" is itself an intentional act, the resulting injury of an innocent bystander is not intentional, and therefore, not "willful" to render the debt non-dischargeable under § 523(a)(6). Kawaauhau, 523 U.S. at 61-62, 118 S.Ct. 974. Kawaauhau further rejected the notion that a debt arising from a mere "knowing breach of contract," absent more, would qualify as "willful" under the statute. Kawaauhau, 523 U.S. at 61-62, 118 S.Ct. 974.
Additionally, Heritage must also prove its debt resulted from Newman's "malicious" actions, and that she acted "wrongful[ly] and without just cause or excuse." Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006) (quoting In re Stelluti, 94 F.3d 84, 87 (2d Cir. 1996)). "A debtor's knowledge that he or she is violating the creditor's legal rights is insufficient to establish malice absent additional aggravating circumstances." Marcella, 463 B.R. at 222 (quoting Econ. Dev. Growth Enters. Corp. v. McDermott (In re McDermott), 434 B.R. 271, 283 (Bankr. N.D.N.Y. 2010)).
Newman seeks through her counterclaim against Heritage, a determination that Heritage violated CUTPA. AP-ECF No. 28, ¶¶ 1-6 (Page 9). CUTPA provides, "[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Conn. Gen. Stat. § 42-110b.
When determining if an act or practice is "unfair" for purposes of CUTPA, courts look to the following factors:
A plaintiff need not establish all three criteria in order to support a finding of unfairness. Carrano, 530 B.R. at 555.
Where a party raises a claim, but fails to pursue it, the court may deem the claim abandoned. See, Giglio v. Derman, 560 F.Supp.2d 163, 174 (D. Conn. 2008).
During the trial, the precise nature of the transactions between Heritage
Heritage asserts it was engaged in factoring transactions with Newman, and that Newman "sold" her commissions to Heritage. AP-ECF No. 114. According to Heritage, Newman's debt should not be discharged because Newman forged the signature of her broker on the Notices of Assignment; falsely represented that monies paid by Heritage to Newman pursuant to the various Sale and Assignment Agreements were to be used for business purposes; used money she received from Heritage for personal expenses; failed to turn over commissions to Heritage; and, caused Heritage to suffer injury as a result. In short, Heritage seeks a determination that more than $178,000 is non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6).
Newman did not dispute she signed the Master Security Agreement, the six Sale and Assignment Agreements, the six Notices of Assignment (both for herself and Joseph Fazekas) or the Business Purpose Checklist. However, she testified she understood the transactions to be loans. Testimony of Newman, AP-ECF No. 102, 00:24:00-00:24:20. Newman's answer to the complaint asserted she repaid such advances, and she testified — without introducing any documentation into evidence to support the assertion — that she repaid $51,000.00 to Heritage. AP-ECF No. 28; No. 102, 01:20:50-01:21:00. She disputed that her act of signing the broker's name on the Notices of Assignment was forgery, asserting she had authorization to sign Joseph Fazekas's name on behalf of RE/Max Marketplace and argues that any advances she received from RE/Max Marketplace were general in nature rather than tied to specific transactions. Her counterclaim asserted Heritage engaged in unfair and deceptive business practices in violation of CUTPA, as Heritage was not licensed to make "small consumer loans" in Connecticut and charged usurious interest. AP-ECF No. 28.
With regard to the Sale and Assignment Agreements, Moore was candid that in most cases he could not confirm whether Heritage actually paid Newman the amount set forth in the Sale and Assignment Agreement, or whether the consideration was money or other unspecified "value." The parties agreed, in general terms, that some of the transactions were "roll over" transactions. Given that the central dispute here starts with the question of how much Newman owes Heritage, it was striking that neither party provided documentary evidence such as bank statements, copies of checks or other financial information to explain who paid what to whom, or when. Both Moore and Newman conceded the Sale and Assignment Agreements did not accurately reflect the parties' course of dealing with one another. Testimony of Newman, AP-ECF No. 102, 00:37:30-00:37:55; Testimony of Moore, AP-ECF No. 101, 00:43:00-00:44:00. Moore acknowledged that the record before the court contains only a snapshot of many rolled over transactions. The court concludes the Sale and Assignment Agreements are generally unreliable because a review of those Agreements fails to accurately reflect the following: the amount of money Heritage paid Newman; whether a given transaction was a roll over transaction; and, whether, if a roll over, the figure states in each Agreement was the result of set-offs from other transactions, interest
For her part, Newman understood and expected that if a real estate closing failed and Heritage was not paid, she would still owe Heritage the money she had received. Aside from the question of whether the transactions were loans or part of a factoring arrangement, Newman's overall understanding of the transactions is relevant to her state of mind, and thus relevant to the substantive allegations of fraud common to each count of the complaint. Evans, 469 F.3d at 283. Newman's own testimony was that she was only entitled to a commission if the sale closed, and if a sale did not close, she still owed Heritage any money that had been advanced for the transaction. She repeatedly testified that she had understood the transactions were loans, notwithstanding the language of the various Heritage documents that Heritage asserted created a factoring relationship. Newman's testimony on this point is consistent with the Master Security Agreement that provided for different remedies in the event of a delayed or incomplete closing. Pl. Ex. 102.
The court need not determine whether the transactions were factoring agreements, or simply loans, to make the determination of whether the outstanding debt owed by Newman to Heritage-if any-is non-dischargeable. However, the court notes that Heritage's characterization of these transactions does not comport with the generally accepted definition of factoring, and the parties themselves behaved as if the transactions were loans rather than true sales of the commissions. Factoring is defined as "[t]he buying of accounts receivable at a discount. The price is discounted because the factor (who buys them) assumes the risk of delay in collection and loss on the accounts receivable." FACTORING, Black's Law Dictionary (9th ed. 2009). Three parties exist in a factoring transaction, the factor, who buys the account receivable from, a client, and an account debtor, whose account has been sold. A leading treatise defines a "factor" as "a person who purchases trade accounts at a discount from its clients in a `true sale,' taking title to the accounts as a matter of law." David B. Tatge, et al., American Factoring Law, 895 (1st ed. 2009). Here, the third party relating to each transaction would have been Newman's client-the residential home seller or purchaser.
However, "[w]here the factor assumes no credit risk and purchases accounts with full recourse, most cases characterize the transaction as a secured borrowing rather than a true sale of accounts." American Factoring Law, 268; see also, Dessert Beauty Inc. v. Platinum Funding Corp., 519 F.Supp.2d 410, 413 (S.D.N.Y. 2007) ("In return for the right to collect on the invoice and retain the difference between the invoice amount and the discounted purchase price, the factor assumes the "credit risk on the accounts, defined as the financial inability of the account debtor to pay."); Fenway Fin. LLC v. Greater Columbus Realty, LLC, 995 N.E.2d 1225, 1232-34 (Ohio Ct. App. 2013) (quoting Lange v. Inova Capital Funding LLC (In re Qualia Clinical Servs.), 441 B.R. 325, 330 (8th Cir. B.A.P. 2011) ("In instances "[w]here the `seller' retains `virtually all of the risk of noncollection,' the transaction cannot properly be considered a true sale.")). Here, Newman retained all the risk and Heritage retained full recourse to collect any unpaid amounts from Newman. If a given transaction did not close and therefore no commission would be earned, or if Newman simply did not pay an earned commission to Heritage, both Newman
Newman signed her name to six documents entitled "Notice of Assignment," which purported to: a) inform RE/Max Marketplace, Newman's licensed real estate broker that supervised her work as a real estate agent, that Heritage was entitled to be paid sales commissions that she earned upon the closing of specific real estate transactions; and, b) direct RE/Max Marketplace to pay such commissions directly to Heritage. Newman also signed the name of Joseph Fazekas of RE/Max Marketplace on the Notices of Assignment. While Newman testified that she had authorization to sign Joseph Fazekas' name, Mr. Fazekas testified that she did not. Heritage asserted that Newman forged Mr. Fazekas' signature. However, even if Newman did forge Mr. Fazekas' signature, the forgery was not material to the financial transactions described in the complaint because, according to Moore, the Notices of Assignment were required to be completed for each transaction after the commissions were sold to Heritage. Testimony of Moore, AP-ECF No. 94, 01:32:20 — 01:32:50; 01:36:00 — 01:38:20. There was no evidence that the Notices of Assignment, forged or not, had any bearing on whether Heritage agreed to purchase a commission from Newman or paid money to Newman. Heritage could not have relied on the forged Notices of Assignment before funding because as the parties described the transactions, the forgery post-dated each sale of a commission.
As to the specific point of whether or not Newman actually signed Fazekas' name to the Notices of Assignment without Fazekas' authorization, the court concludes that Heritage failed to establish this fact by a preponderance of the evidence. Newman, Patrick Severese (Newman's adult son who worked at RE/Max Marketplace for a time),
To prevail on its claims under § 523(a)(2)(A), Heritage must establish by a preponderance of the evidence that it did not, "blindly [rely] upon a misrepresentation the falsity of which would be patent to [it] if [it] had utilized [its] opportunity to make a cursory examination or investigation." Field, 516 U.S. at 70-71, 116 S.Ct. 437. Here Heritage has not met its burden. The extensive testimony of both Moore and Newman regarding the roll over nature of at least some of the six transactions identified in the six counts of the complaint undercuts Heritage's effort to establish that it justifiably relied on Newman's representations in the various Heritage documents about the fail-safe nature of a particular real estate transaction. The purpose of each roll over transaction was to cover for one or more failed real estate closings where the commissions had not, in fact, been earned by Newman or were earned
The evidence is uncontroverted that Heritage knew that Newman's transactions frequently did not close. When a closing did not occur, Heritage frequently rolled over the liability from the failed transaction into another transaction, hoping to be repaid. As previously stated, the parties acknowledged that the Sale and Assignment Agreements did not accurately reflect the parties' course of dealing. Thus, to the extent Heritage relied on Newman's signature on a given document, the admitted inaccuracies and lack of transparency (on both sides) in the Sales and Assignment Agreements undermine the justifiableness of Heritage's reliance on that documentation.
Heritage's theory of the case rested almost exclusively on the documents submitted into evidence. In short, Newman signed six Sale and Assignment Agreements in which Heritage agreed to pay Newman money in exchange for Newman selling her right to receive a commission for the sale of six specific homes. Taken strictly at face value, they purport to paint a clear picture of the terms to which Newman and Heritage agreed.
Newman's defense was that Heritage failed to perform its end of the bargain, because, in all but two cases described in more detail below, Heritage did not actually pay Newman any money. Although Newman's testimony at trial was possibly self-serving and not entirely forthcoming, it was also unrebutted on the point that Heritage did not advance Newman the funds as described on the six Sale and Assignment Agreements.
Heritage, for its part, did not offer any evidence that it in fact paid Newman money according to the terms of the six Sale and Assignment Agreements. Rather, when asked — repeatedly — whether Heritage paid Newman money, Moore could not give a clear or coherent answer, and stated only that Newman received some form of "value" as consideration. Although Moore alluded to the existence of accounting records, Heritage did not submit any proof that it complied with this essential term of the various Agreements.
Instead, Moore testified extensively that Heritage and Newman frequently entered into roll over transactions to "cover" for other, failed transactions. But, Heritage failed to submit evidence as to which transactions were roll over transactions or how much principal, interest, or fee was rolled over in each instance. This testimony undermined the credibility of the six Sale and Assignment Agreements, because it suggested to the court that the terms of the written Agreements were not representative of the parties' actual agreements or arrangement or course of conduct.
Heritage cannot have it both ways — it cannot simply point to a Sale and Assignment Agreement as evidence of Newman's liability for a transaction and simultaneously acknowledge or admit that the Sale and Assignment Agreements do not reflect the actual terms of the transactions. The admitted absence of any records, testimony, or credible evidence substantiating the amount of funds advanced, payments received, date of default, interest and fees charged for "cover" or "roll over" transactions, undermines Heritage's theory of the case.
Newman admitted that she was paid $5,008.00 from Heritage for the 11 Lake Drive transaction, but disputed that the amount paid to her was the $5,400.00 recited
However, assuming Newman still owed Heritage the $5,008.00 she admits she received, Heritage failed to establish by a preponderance of the evidence that this debt was incurred by "false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A). A common element to each of the three exceptions to discharge is that a creditor must prove the debtor acted with some degree of "scienter." Evans, 469 F.3d at 283 (requiring evidence of "scienter" to establish "actual fraud"); Wang, 548 B.R. at 401 (requiring evidence of a debtor's "intent to deceive" to establish "false representation"); Wang, 548 B.R. at 401 (requiring evidence a debtor "knowingly and willingly" promoted a false representation).
Here, Heritage alleged Newman made a false statement in the 11 Lake Drive Agreement because she had received a $500.00 advance from RE/Max Marketplace against her sales commission, and therefore the representation that there were no set-offs to her right to receive the full commission was not true. AP-ECF No. 113, Pl. Ex. 122, Testimony of Newman, AP-ECF No. 102, 00:43:30 — 00:44:30. Newman's claim she did not receive the entire amount stated in the 11 Lake Drive Agreement was undisputed by Moore who testified only that Newman received unspecified "value," so that was not established to be accurate.
Newman's testimony was that she viewed the $500.00 advance and other similar
When Newman's testimony on this point is considered with Moore's candid testimony that the face of the Heritage documentation did not reflect the salient details of the financial transactions by identifying if cash was paid or if the amount identified in an agreement was a "roll over" to "cover" for some other liability, and in the absence of a coherent accounting of the roll over transactions, the court cannot conclude that Newman acted with the requisite "scienter" to defraud or induce Heritage into the 11 Lake Drive transaction. Evans, 469 F.3d at 283. The parties clearly anticipated that there might be — or perhaps likely would be — times when a given real estate transaction did not close, or that Heritage would not be paid as anticipated. See, Pl. Ex. 102, ¶ 2. The parties' Master Security Agreement contemplated that there would be consequences including a forfeit of the holdback amount and increased interest charges imposed after a limited number of days if Newman "wrongfully receives payment of any account receivable" or the settlement agent for a closing changed, or after a certain grace period, including that Newman would remain liable to Heritage. Pl. Ex. 102.
Additionally, Heritage failed to establish by a preponderance of the evidence that its reliance on Newman's statements in the 11 Lake Drive Agreement, and other documents related to this transaction, was justifiable. Moore's testimony regarding the frequent practice of covering losses on one transaction by rolling over a liability to another transactions leads the court to conclude that Heritage's reliance on Newman's statements in the 11 Lake Drive Agreement and other related documents was not justifiable. Field, 516 U.S. at 70-71, 116 S.Ct. 437. Newman said she received only $5,008.00 related to 11 Lake Drive while Moore was only able to state that Heritage gave Newman "value." Moore's testimony begs the question of what other information or consideration was involved in Heritage paying Newman only some of the value identified in the 11 Lake Drive Agreement.
Because the court construes exceptions to discharge narrowly, the court concludes Heritage failed to establish by a preponderance of the evidence that Newman acted with the requisite intent, or that Heritage justifiably relied on Newman's representations, to establish the debt represented by the 11 Lake Drive Agreement was incurred by "false pretenses, a false representation, or actual fraud" as required by § 523(a)(2)(A).
Heritage also failed to establish that its debt for the 11 Lake Drive transaction was incurred by "larceny," as required by § 523(a)(4). Heritage failed to demonstrate by any evidence whatsoever that Newman, at the time of signing the 11 Lake Drive Agreement, acted with the "felonious intent" to "wrongfully" take Heritage's property and so the court cannot conclude that the debt is non-dischargeable under § 523(a)(4). Moore, 160 U.S. at 270, 16 S.Ct. 494; Nofer, 514 B.R. at 357. To the extent Heritage relied on the $500.00 advance from RE/Max Marketplace as evidence of Newman's felonious intent regarding the apparent obligation to pay $6,075.00 ($5,400.00 advance, plus $675.00 fee = $6,075.00 if paid timely)
With regard to a violation of § 523(a)(6), Heritage failed to establish that its debt was incurred by "willful and malicious injury" rather than a knowing breach of contract. 11 U.S.C. § 523(a)(6). Heritage failed to demonstrate by a preponderance of evidence that Newman acted willfully and maliciously within the meaning of § 523(a)(6) by failing to repay such a debt. Marcella, 463 B.R. at 222.
As to Count 2 of the complaint, Heritage did not meet its burden to show that the benefit Newman received from entering into the 1053 Middle Turnpike Agreement with Heritage was obtained through "false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A). First, Newman testified that despite the terms of the 1053 Middle Turnpike Agreement, no money was paid by Heritage to Newman for Newman's commission for the sale of 1053 Middle Turnpike East. Testimony of Newman, AP-ECF No. 101, 01:31:34 — 01:32:30. Moore testified only that Newman received an unspecified amount of "value" for the purported sale of her sales commission to Heritage.
In this instance, the underlying real estate transaction did close and Attorney Pentore testified that he was the settlement agent for the transaction. He also testified that both Moore and Newman authorized him to deliver the commission check Newman had earned for the transaction to RE/Max Marketplace instead of to Heritage as required by the 1053 Middle Turnpike Agreement and Notice of Assignment. Testimony of Pentore, AP-ECF No. 94, 00:38:40 — 00:39:40. Neither Newman nor Moore disputed this account by Attorney Pentore.
In the alternative, if a debt exists, given Moore's testimony that unspecified "value" was provided to Newman for the commission she purportedly sold to Heritage, the court cannot conclude that Heritage established by a preponderance of the evidence that Newman acted with the requisite intent, to establish that Heritage justifiably relied on Newman's representations, or that the debt owed was incurred by "false pretenses, a false representation, or actual fraud," as required by § 523(a)(2)(A).
For substantially the same reasons previously discussed, Heritage failed to demonstrate by any evidence whatsoever, that Newman acted with the "felonious intent" to "wrongfully" take Heritage's property to satisfy § 523(a)(4), or that Newman acted willfully or maliciously to satisfy § 523(a)(6). Moore, 160 U.S. at 270, 16 S.Ct. 294; Nofer, 514 B.R. at 357; Marcella, 463 B.R. at 222. Later events, including the direction from Moore to Attorney Pentore to redirect the real estate commission from Heritage to RE/Max Marketplace, further undermine the larceny claim.
As to Count 3 of the complaint, despite the express terms of the 213 Alling Street Agreement, Newman did not receive any consideration for the sale of her commission for 213 Alling Street. When specifically asked by Newman's counsel "how much money did Commission Express pay to Nancy Newman for 213 Alling Street," Moore replied "zero." Testimony of Moore, AP-ECF No. 101, 00:54:10 — 00:54:30. Moore's admission that Heritage did not pay Newman any money under the 213 Alling Street Agreement, together with a failure to introduce any evidence of whether and to what extent this transaction was a "roll over" transaction, if it was, dooms Heritage's claim that a debt stemming from the 213 Alling Street Agreement remains outstanding. Cohen, 523 U.S. at 218, 118 S.Ct. 1212. Heritage has therefore failed to establish by a preponderance of the evidence that such a debt is non-dischargeable under §§ 523(a)(2)(A), 523(a)(4) or 523(a)(6). Grogan, 498 U.S. at 286-87, 111 S.Ct. 654. The court is therefore unable to afford relief on that count.
To the extent such a debt could be found however, Heritage failed to establish by a preponderance of the evidence that it was incurred by "false pretenses, a false representation, or actual fraud." § 523(a)(2)(A). For the reasons discussed above, the court does not conclude that Newman acted with the requisite scienter, or that Heritage justifiably relied on Newman's statement, to establish such a debt would be non-dischargeable
For substantially the same reasons previously discussed, Heritage failed to demonstrate by any evidence whatsoever, that Newman acted with the "felonious intent" to "wrongfully" take Heritage's property to satisfy § 523(a)(4), or that Newman acted willfully or maliciously to satisfy § 523(a)(6). Moore, 160 U.S. at 270, 16 S.Ct. 294; Nofer, 514 B.R. at 357; Marcella, 463 B.R. at 222.
As to Count 4 of the complaint, despite the express terms of the 37 Sunridge Lane Agreement, Newman did not receive any consideration from Heritage for the sale of her commission for 37 Sunridge Lane. Testimony of Newman, AP-ECF No. 102, 01:15:25 — 01:15:35. Moore testified only that Newman received an unspecified amount of "value" for the purported sale of her commission. Testimony of Moore, AP-ECF No. 95, 02:19:00 — 02:19:20. Moore's testimony on this point was vague, and the court gives it little weight. In contrast, Newman's testimony that she received no payment for this transaction was unambiguous. The court concludes Heritage has not established that Newman owes a debt to Heritage for the sale of her commission for the 37 Sunridge Lane transaction, as alleged in Count 4. Cohen, 523 U.S. at 218, 118 S.Ct. 1212. Heritage has therefore failed to establish by a preponderance of the evidence that such a debt is non-dischargeable under §§ 523(a)(2)(A), 523(a)(4) or 523(a)(6). Grogan, 498 U.S. at 286-87, 111 S.Ct. 654. The court is therefore unable to afford relief under that count.
To the extent such a debt could be found however, Heritage has failed to establish by a preponderance of the evidence that its debt was incurred by "false pretenses, a false representation, or actual fraud." § 523(a)(2)(A). For the reasons discussed above, the court does not conclude that Newman acted with the requisite scienter, or that Heritage justifiably relied on Newman's statement, to establish such a debt would be non-dischargeable under § 523(a)(2)(A). Field, 516 U.S. at 73-75, 116 S.Ct. 437; Evans, 469 F.3d at 283.
For substantially the same reasons discussed previously, Heritage failed to demonstrate by any evidence whatsoever, that Newman acted with the "felonious intent" to "wrongfully" take Heritage's property to satisfy § 523(a)(4), or that Newman acted willfully or maliciously to satisfy § 523(a)(6). Moore, 160 U.S. at 270, 16 S.Ct. 294; Nofer, 514 B.R. at 357; Marcella, 463 B.R. at 222.
As to Count 5 of the complaint, the court finds Newman received $2,000.00 from Heritage regarding the 12 Clubhouse Drive transaction. Testimony of Newman, AP-ECF No. 102, 00:51:20 — 00:52:15. The court makes this finding based on Newman's admission Heritage paid $2,000.00 and despite Moore's vague testimony that Newman received "value" in accordance with the 12 Clubhouse Drive Agreement.
Additionally, as noted previously, to the extent Heritage argued that Newman falsely represented that she was, at the time she signed the 12 Clubhouse Drive Agreement, "entitled" to a commission, the court notes that Newman testified that she was confused about some of the aspects of the transactions and based on the actual documentation submitted during the trial, that confusion was not unjustified. Testimony of Newman, AP-ECF No. 102, 01:53:20 — 01:55:00. The parties' obvious deviation from the written documents illustrates they were both operating on a set of facts different from what they were writing down on paper. In this circumstance, the court concludes Heritage failed to meet its burden to establish the elements of non-dischargeability by a preponderance of the evidence.
Heritage presented no other evidence of any false statement made by Newman as to this count.
For substantially the same reasons discussed previously, Heritage failed to demonstrate by a preponderance of the evidence that Newman acted with the "felonious intent" to "wrongfully" take Heritage's property to satisfy § 523(a)(4), or that Newman acted willfully or maliciously to satisfy § 523(a)(6). Moore, 160 U.S. at 270, 16 S.Ct. 294; Nofer, 514 B.R. at 357; Marcella, 463 B.R. at 222.
As to Count 6 of the complaint, despite the terms of the 19 Lake Drive Agreement,
To the extent such a debt could be found however, Heritage has failed to establish by a preponderance of the evidence that its debt, such that it exists, was incurred by "false pretenses, a false representation, or actual fraud." § 523(a)(2)(A). A common element to each of the three exceptions to discharge is that a creditor must prove the debtor acted with some degree of "scienter." Evans, 469 F.3d at 283 (requiring evidence of "scienter" to establish "actual fraud"); Wang, 548 B.R. at 401 (requiring evidence of a debtor's "intent to deceive" to establish "false representation"); Wang, 548 B.R. at 401 (requiring evidence a debtor "knowingly and willingly" promoted a false representation). Newman's testimony regarding whether she was, at the time she signed the 19 Lake Drive Agreement, "entitled" to a sales commission demonstrates either her confusion regarding her understanding of her transactions with Heritage or is a by-product of the confused course of conduct between the parties. Testimony of Newman, AP-ECF No. 102, 01:53:20 — 01:55:00. Though Newman made a false representation by stating she was "entitled" to a commission before the property closed, the court construes exceptions to discharge "narrowly," and further concludes Heritage failed to establish, by a preponderance of the evidence, that Newman acted with the requisite intent to establish a debt was incurred by "false pretenses, a false representation, or actual fraud" and is non-dischargeable under § 523(a)(2)(A). Grogan, 498 U.S. at 287, 111 S.Ct. 654; Wang, 548 B.R. at 401; Marcella, 463 B.R. at 219.
For substantially the same reasons discussed previously, Heritage failed to demonstrate by any evidence whatsoever, that Newman acted with the "felonious intent" to "wrongfully" take Heritage's property to satisfy § 523(a)(4), or that Newman acted willfully or maliciously to satisfy § 523(a)(6). Moore, 160 U.S. at 270, 16 S.Ct. 294; Nofer, 514 B.R. at 357; Marcella, 463 B.R. at 222.
Heritage did not seek relief for any debt arising out the sale of 6 Helena Drive, Cromwell, Connecticut. However, the court finds that the evidence submitted with respect to this transaction impacts the balance of payments between Newman and Heritage. As previously noted, the evidence supports a conclusion that Newman received a total of $7,008.00 from Heritage; $5,008.00 for Newman's commission for 11 Lake Drive, and $2,000.00 for Newman's commission for 12 Clubhouse Drive. As discussed above, the court concludes Heritage did not establish, by a preponderance of the evidence, that those debts were incurred by "false pretenses, a false representation, or actual fraud," "larceny" or "willful and malicious injury." §§ 523(a)(2)(A), 523(a)(4), 523(a)(6).
Newman's answer asserted a counterclaim against Heritage, which characterized the transactions between the parties as consumer loans by an unauthorized lender. AP-ECF Nos. 28, 112; see, Conn. Gen. Stat. § 36a-556. Because the loans would violate Connecticut's Banking Law, Conn. Gen. Stat. 36a-556, Newman asserted the financial transactions amount to unfair and deceptive business practices, and seeks relief pursuant to CUTPA. AP-ECF Nos. 28, 112. Newman must prove a CUTPA violation by a preponderance of the evidence. Artie's Auto Body, 287 Conn. at 219, 947 A.2d 320.
Newman's counterclaim alleging violations of CUTPA fails for the same reasons Heritage's claim of non-dischargeability failed. Newman has not met her burden of proof to establish an unfair business practice occurred. "A claim under CUTPA must be pleaded with particularity to allow evaluation of the legal theory upon which the claim is based." SMS Textile Mills, Inc. v. Brown, Jacobson, Tillinghast, Lahan & King, 32 Conn.App. 786, 797, 631 A.2d 340 (1993) (citing Sorisio v. Lenox, Inc., 701 F.Supp. 950, 962 (D.Conn.), aff'd, 863 F.2d 195 (2d Cir. 1988)). As previously stated, because the documents, including the Sale and Assignment Agreements, were not representative of the parties' actual course of dealing, there is a lack of evidence regarding what actually occurred between the parties. That Newman did not introduce a complete accounting of her payments to Heritage renders the court unable to determine what practices were unfair or deceptive. Underscoring that point, Conn. Gen. Stat. § 42-110b(g) permits only those "who suffer[] an ascertainable loss," to bring an action for damages pursuant to CUTPA. Here, Newman has not demonstrated, by a preponderance of the evidence, that she has suffered damages or if so, the nature of such damages resulting from Heritage's alleged unfair or deceptive acts. Accordingly, the court denies Newman's counterclaim pursuant to CUTPA.
While there is no doubt the parties here engaged in financial transactions prior to the Petition Date, and there is also no doubt that each party feels cheated by the other, the evidence presented at trial was simply insufficient to determine whether there remained a debt from one to the other, and if so, from whom to who, and how much. Accordingly, the court declines to conclude that any debt exists, declines to determine that any debt (if it did exist) is non-dischargeable, and declines to find that any violation of CUTPA occurred.
This is a final order subject to traditional rights of appeal. A separate judgment will enter as to all counts in favor of the defendant, Nancy Newman. The Clerk is directed to close the adversary proceeding after the entry of the judgment.
Dated this 3rd day of August, 2018, at New Haven, Connecticut.
