KEVIN R. ANDERSON, Bankruptcy Judge.
It's a familiar story — a person in financial need approaches an acquaintance with known resources for a loan. The transaction sours, resentments grow, memories fade, litigation ensues, and years later the court must decipher the facts and determine if the debtor is entitled to a discharge of the resultant debt.
Eduardo Valadez ("Valadez" or "Plaintiff") filed a Complaint against the debtor and defendant Guillermina Defendant ("Debtor" or "Defendant") seeking to have his debt determined to be nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) and (a)(6).
On November 16, 2018 at the close of the Plaintiff's case in chief, the Defendant moved for judgment on the pleadings under Fed. R. Civ. P. 12(c), as made applicable to adversary proceedings by Fed. R. Bankr. P. 7012(b). The Court heard argument from counsel before issuing findings of fact and conclusions of law on the record. The Court accepted Plaintiff's withdrawal of the cause of action under § 523(a)(2)(A) regarding misrepresentations as to the value of the 1974 Stax Mobile Home and Defendant's medical status. The Court denied the motion on all other grounds.
After considering the evidence, including facts adduced from testimony or established by exhibits, and after assessing the credibility of the witnesses, considering the arguments of counsel, and conducting an independent review of the law, the Court is prepared to rule and now issues its findings of fact and conclusions of law.
This case centers on alleged personal loans from Plaintiff to Defendant that started with a meeting in Plaintiff's home on October 21, 2014. Other than agreeing that a meeting took place, Plaintiff and Defendant disagree on virtually every other aspect of their dealings. Plaintiff testified that he first met Defendant on October 21, 2014, and that Plaintiff loaned Defendant $14,000 in cash in exchange for her promise that she would either repay the loan within four months or Plaintiff could take ownership of her 1974 Stax mobile home (the "Mobile Home"). In contrast, Defendant testified that she met Plaintiff as early as 2012 but denies receiving any cash from Plaintiff in October 2014. In answering whether the alleged debt should be discharged under §§ 523(a)(2)(A) and/or (a)(6), the Court is left to decide which version of the facts is closest to the truth and apply the law accordingly.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(a)-(b) and 28 U.S.C. § 157(b). Plaintiff's request for a determination as to the dischargeability of a particular debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I), and the Court may enter a final order. Venue is appropriate in this District under 28 U.S.C. §§ 1408 and 1409, and notice of the trial was properly given to all parties in interest.
Defendant Salazar is the sole debtor in this case. Armando Garcia ("Garcia") is her non-filing spouse, and Dulce Rocha ("Rocha") is her daughter.
Plaintiff Valadez was in a car accident, for which he ultimately received $18,000 in cash. Plaintiff kept this cash at home with the intent of eventually building a home. While not a professional lender, Plaintiff made various loans to Defendant and her family.
Defendant purchased the Mobile Home (VIN: S10164X) for $30,000.
The certificate of title to a 1992 Toyota Camry (VIN: 4T1SK12E3NU070685) (the "Camry") issued on July 29, 2013 listed Defendant as the owner with no lienholders.
On October 21, 2014 Defendant met with Plaintiff about a loan. As noted previously, Plaintiff and Defendant agree on little else about the transaction, including whether a loan occurred at all. For frame of reference, the Court will summarize the testimony of both Defendant and Plaintiff.
Defendant testified that she first met Plaintiff in 2012 when she borrowed $3,000 from him. She testified that in 2013, she paid Plaintiff $5,500 in connection with the 2012 loan and that everything "went well." In October 2013, Defendant's husband, Garcia, borrowed $3,000 from Plaintiff's nephew, Cesar, who agreed to give Garcia a year to pay off the loan. Defendant testified that she gave Cesar the title to the Mobile Home in exchange for the $3,000 loan to Garcia, with the title to be returned upon repayment of the loan. Defendant testified that it was Cesar who asked that she go to Plaintiff's house on October 21, 2014 to "transfer" the $3,000 loan to Plaintiff. Defendant said that she agreed to the "transfer" because of Cesar's aggressive collection efforts. Defendant denies receiving any cash from Plaintiff on October 21, 2014, and she denies presenting the Mobile Home title to Plaintiff. She admits to signing a blank piece of paper, which she claims Plaintiff later filled in with loan terms. Defendant asserts that she started making payments to Plaintiff from November 2014 to August 2015 in the amount of $1,300 each, for a total of $11,700.
Plaintiff claims that he first met Defendant on October 21, 2014 at his home. He testified that he gave Defendant $14,000 in cash in exchange for a note to be repaid within four months and possession of title to the Mobile Home. He testified that Defendant also gave him a signed title to the Mobile Home with the understanding that Plaintiff could have the Mobile Home if Defendant did not repay the loan. Plaintiff testified that he never received any funds from Defendant in payment of the loan.
The Court generally found Plaintiff to be more credible than Defendant. Plaintiff produced witnesses who supported his principal version of events. While there were some disagreements among the witnesses, the thrust of all testimony corroborated Plaintiff's version of the facts as testified at trial. These included witnesses Celia Velasquez, Laura Preciado, Cynthia Preciado, Ramiro Velasquez, Benito Juarez, Gabriela Juarez, Enrique Gonzalez, Martinez Francisco Martinez, and Salvador Lara — all of whom Plaintiff called in his case in chief. Some of these were independent witnesses with no bias. Some were family members with a potential for bias but with enough objective credibility and corroborating details to bolster Plaintiff's credibility. And at least one of them, Enrique Gonzalez, turned out to be a hostile witness. Plaintiff also called Defendant and her daughter Dulce Rocha during his case in chief and elicited testimony that confirmed and supported his version of the facts, notwithstanding that they were openly hostile. On cross-examination, Defendant did not raise substantial questions as to the credibility of Plaintiff's witnesses. Furthermore, Plaintiff had documentation — limited, unsophisticated, and incomplete though it was — that tended to support his version of events.
In contrast, Defendant was less credible. She gave testimony that was at odds with itself, with her testimony from her deposition,
Defendant also did not call witnesses to corroborate her version of events, despite their availability. Such potential witnesses include her husband Garcia, her daughter Rocha, her family friend Enrique Gonzalez, and her husband's former co-worker Martinez. Further, as previously noted, she failed to substantially undermine through cross-examination the principal testimony given by Plaintiff's witnesses in his case in chief.
Other than herself, Defendant's only other witness was her attorney Dustin Hardy, whom the Court allowed to testify on the limited issue of a meeting with Defendant. Mr. Hardy testified that he met with Defendant and her husband in the first half of 2015, but he appropriately did not disclose the substance of the meeting.
In contrast, Defendant testified that she met with Hardy on September 3, 2015, which was the day before she transferred the Mobile Home to Gonzalez. Defendant further implied that the purpose of the meeting was to obtain legal advice on how to protect herself from Plaintiff and how to transfer the Mobile Home into Gonzalez's name. Defendant's testimony as to the timing of the meeting is not credible given that she attempted to place the meeting on the day before a key event in this case. Further, there was a lack of any corroborating documentation to support Defendant's version of when she met with Hardy. Lastly, Defendant's story is inconsistent with the fact that she obtained the duplicate title to the Mobile Home months before the meeting with Hardy. Even if Defendant did meet with Hardy, and even if Hardy gave her legal advice in furtherance of her scheme, Defendant cannot rely on an advice-of-counsel defense.
In sum, Defendant's conflicting testimony about the timing of the meeting was inherently biased and objectively unbelievable. Thus, it only further undermines Defendant's credibility, particularly when the she could have called other witness on this point.
In addition to Plaintiff and Defendant's testimony, the Court received testimony from Laura Preciado (Plaintiff's daughter), Cynthia Preciado (Plaintiff's daughter),
The testimony of the Plaintiff's family members supports his version of events on October 21, 2014. The family gathered at Plaintiff's home to make plans for Halloween. The family members — Laura, Cynthia, Ramiro, and Celia were in the kitchen and Plaintiff, Defendant, Garcia, and Cesar were in the living room. There is an opening between the kitchen and living room, so those in the kitchen could see and hear the transaction in the living room.
Laura Preciado testified that she was at her father's house on October 21, 2014. Although she did not know the purpose of the meeting, she saw Plaintiff, Defendant, Garcia, and Cesar at her father's house talking. At her father's request, Laura Preciado held and examined the title to the Mobile Home and showed her father and Defendant where to sign as buyer and seller. She indicated that she did not know the specifics of the transaction and assumed that her father was purchasing the Mobile Home. Therefore, she also told her father where to put the dollar amount for the sales price. Laura Preciado witnessed Defendant and Plaintiff sign the title.
The Court received a proffer from Plaintiff's daughter, Cynthia Preciado, and her husband, Ramiro Velasquez. Both of them were present at the meeting at Plaintiff's house on October 21, 2014 where they saw the meeting take place and the exchange of cash, but they did not know the details of the transaction between Plaintiff and Defendant.
The Court received the deposition of Celia Velasquez into evidence.
Based upon the Court's credibility assessments, and after considering the testimony of Plaintiff's family, the Court makes the following findings of fact as to the October 21, 2014 meeting. Plaintiff's nephew Cesar knew Plaintiff had cash on hand from the 2012 car accident. On October 20, 2014 Cesar called Plaintiff and told him that Defendant needed to borrow money due to an illness. Plaintiff and Defendant then first met on October 21, 2014 at Plaintiff's home in connection with a family gathering. Present in the home at the time of the meeting were Plaintiff, Defendant, Garcia, Cesar, and five of Plaintiff's family members.
Defendant brought to this meeting the original title to the Mobile Home that Defendant showed to Plaintiff. During the meeting, Defendant represented to Plaintiff that the Mobile Home was worth more than $14,000.
At the meeting, Defendant signed the original title to the Mobile Home as "Seller" and Plaintiff signed as "Buyer."
After the parties signed the Mobile Home title, Plaintiff went to his bedroom and returned with $14,000 in cash. Plaintiff handed Defendant the $14,000 in cash in $100 bills separated into packets of $1,000.
The parties then agreed that Defendant would pay back the $14,000 loan within four months of the October 21, 2014 meeting or Plaintiff could transfer title to the Mobile Home into his name. The terms of the agreement are evidenced by a hand-written note prepared by Plaintiff during the meeting (the "Note"). The Note was signed by both parties on October 21, 2014.
As noted above, there was conflicting testimony about the repayment of the $14,000 loan. Other than her testimony, Defendant offered no proof of repayment. Based on the testimony and other evidence, the Court accepts as fact that Plaintiff did not receive any repayment on this loan.
On or before December 15, 2014, Plaintiff advanced sums totaling $1,000 to Defendant's husband Garcia in two separate installments, one of $300 and the other of $700. Before advancing the $700 loan, Plaintiff spoke by telephone to Defendant, who promised that the funds loaned to Garcia would be backed by the Mobile Home. Defendant further promised to secure Garcia's loan by signing and delivering to Plaintiff the original title to the Camry. Plaintiff understood he could transfer the Camry into his name if Garcia did not repay the funds as agreed. Defendant signed the Camry title as "Seller" and Plaintiff signed the title as "Buyer."
In connection with Garcia's loans, Plaintiff wrote the following addition to the Note:
Again, there was conflicting testimony about the repayment of the $1,000 loan. Other than her testimony, Defendant offered no proof of repayment. Garcia did not testify. In January 2018, Plaintiff obtained a small claims judgment against Garcia in the amount of $1,408.36 with 3.760% interest until paid.
Plaintiff testified that he loaned money to Defendant's daughter, Dulce Rocha. The testimony was unclear as to the amount or the date of Plaintiff's loan(s) to Rocha. In January of 2015, Plaintiff made the following hand-written addition to the Note:
Significantly, this addition to the Note is not accompanied by anyone's signature. As explained below, the Court thus finds that Defendant is not legally liable for Rocha's loans, and will not consider them as a debt for purposes of this adversary proceeding.
On April 21, 2015, Defendant went to the Utah Division of Motor Vehicles (the "DMV") and obtained a duplicate title to the Mobile Home. In completing the application, she made the following representation under oath: "I certify that the original certificate of title for this vehicle has been lost, stolen, mutilated, or made illegible, and has not been endorsed and delivered to a transferee, pledged as collateral, or delivered to a lending institution."
On September 4, 2015, Defendant used the duplicate title to transfer the Mobile Home to Enrique Gonzalez ("Gonzalez").
Even though the Note said that the $14,000 loan and the $1,000 loan were to be paid within four months of October 21, 2014, it was not until early September 2015 that Plaintiff went to the DMV with the original title to transfer the Mobile Home into his name. However, the DMV could not issue a title in his name because Defendant had used the duplicate title to transfer the Mobile Home to Gonzalez.
Sometime in early January 2016, Defendant went to Gonzalez's home, and told him that her cancer had improved and asked for a return of the Mobile Home. Gonzalez signed the transfer section and gave it to Defendant.
On January 6, 2016, Defendant went to the DMV, this time to transfer the Mobile Home's title into Rocha's name.
Defendant's husband, Garcia, worked for Juan Martinez ("Martinez"). In October 2015, Garcia and Defendant asked Martinez for money. Martinez entered into three personal loan contracts with Defendant.
Despite the Mobile Home being titled in Rocha's name, Rocha was not involved in the loan transaction with Martinez. Defendant defaulted on all three loans, and Martinez sued Defendant in a Utah state court for breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing.
Neither the application for duplicate title to the Camry nor the title given by Defendant to Martinez was introduced into evidence. However, based on the testimony of Martinez, the fact that Plaintiff possessed the original title to the Camry, and that Defendant obtained a duplicate title to the Mobile Home, the Court can only conclude that Defendant likewise obtained a duplicate title to the Camry by submitting an application to the DMV.
Beginning in September 2015, Plaintiff and Defendant exchanged text messages about repayment of the loans.
On September 3, 2015, Cesar, a relative of Plaintiff, visited Defendant at the Mobile Home, and she called the police.
On October 1, 2015, Defendant filed a request for civil stalking injunction against Plaintiff with the Fourth District Court, State of Utah.
On October 8, 2015 Plaintiff retained an attorney to defend himself in the civil stalking matter.
On October 12, 2016, Defendant filed a Chapter 7 bankruptcy petition.
Schedule D also lists Juan Martinez as holding a secured claim against the Mobile Home in the amount of $2,421.54. The origination date is 01/12/2016, and the lien is identified as a purchase money security.
On January 18, 2017, Plaintiff filed this adversary proceeding.
Plaintiff took Defendant's deposition on March 26, 2018.
Plaintiff asks the Court to rule that his claims against Defendant are nondischargeable under: (1) § 523(a)(2)(A) for false representation; (2) § 523(a)(2)(A) for actual fraud; and/or (3) § 523(a)(6) for willful and malicious injury for conversion and/or abuse of process. "Dischargeability actions require a two-part analysis; first, the bankruptcy court must determine the validity of the debt under applicable law (the claim on the debt); and second, the bankruptcy court must determine the dischargeability of that debt under § 523 (the dischargeability claim)."
Defendant denies owing any money to Plaintiff. The Court looks to applicable non-bankruptcy law to determine the validity of the debt,
Thus, the Court looks to Utah law to determine whether Defendant is liable to Plaintiff pursuant to an enforceable obligation.
Plaintiff asserts that he has an enforceable loan contract with Defendant, and that Defendant has breached its repayment terms. In Utah, a breach of contract action requires proof of four elements: "(1) the existence of a valid contract; (2) performance by the party seeking recovery; (3) breach of contract by the other party; and (4) damages."
The existence of a valid contract requires a meeting of the minds between the parties.
Utah Courts traditionally refer to offer and acceptance as the "tools for determining whether there has been a `meeting of the minds.'"
At the meeting on October 21, 2014, the evidence establishes that Plaintiff agreed to loan Defendant $14,000 to be repaid within four months or Plaintiff could transfer title to the Mobile Home into his name. Later, Plaintiff agreed to loan $1,000 to Defendant's husband, Garcia, on the same terms but with the Camry serving as additional security. Proof of the offer and acceptance to these terms is the testimony of Plaintiff and his corroborating witnesses coupled with the hand-written Note and the titles to the Vehicles signed by Plaintiff and Defendant and held by Plaintiff.
Therefore, the Court finds that pursuant to the Note, Defendant owed Plaintiff the principal sum of $15,000. The Court has found that Defendant did not make any payments on the Note. Thus, Plaintiff has a valid claim against Defendant for a breach of the Note.
As to Plaintiff's loans to Defendant's daughter, Dulce Rocha, the Court has found that there is not a signature accompanying the hand-written addition of these loans to the Note. Further, the Court finds insufficient evidence to establish that Defendant was pledging the Vehicles as security for Rocha's loans. Thus, the Court finds that Defendant is not liable for Rocha's loans and will not include them as a debt for purposes of this adversary proceeding.
Section 523(a)(2)(A) states in relevant part: "(a) [a] discharge under section 727 . . . does not discharge an individual debtor from any debt . . . (2) for money . . . to the extent obtained by— (A) false pretenses, a false representation, or actual fraud. . . ."
To except a debt from discharge for false representation, a "creditor must prove the following elements: (1) [t]he debtor made a false representation; (2) the debtor made the representation with the intent to deceive the creditor; (3) the creditor relied on the representation; (4) the creditor's reliance was justifiable; and (5) the debtor's representation caused the creditor to sustain a loss."
The Court has already found, based on the testimony, the Note, and the title to the Mobile Home, that Defendant represented to Plaintiff that she would repay the $14,000 loan within four months or Plaintiff could transfer title to the Mobile Home into his name. Based on the testimony, the Camry title, and the signed addition to the Note, the Court has also found that Defendant represented that the $1,000 loan to her husband Garcia would likewise be repaid within four months or Plaintiff could transfer title to the Mobile Home and the Camry into his name.
Justifiable reliance is an intermediate, subjective standard positioned between "reasonable" reliance and "mere" reliance.
Turning to the facts, at the meeting in October 2014, Defendant presented Plaintiff with the original title to the Mobile Home showing Defendant as its owner and with no lienholders.
In addition, it was justifiable for Plaintiff to rely on Defendant's representation that he could keep the Camry if she or her husband did not repay the $1,000 loan. As with the Mobile Home, Defendant presented the Camry's original title to Plaintiff showing Defendant as the titled owner with no lienholder.
Having found a representation and justifiable reliance, the dispositive issue is whether at the time of the representations, Defendant did not intend to make good on them. The Tenth Circuit has limited the harsh result of nondischargeability to "frauds involving moral turpitude or intentional wrong."
When analyzing a debtor's subjective intent to deceive, the court may draw inferences "from the totality of the circumstances."
Applying this standard, the Court cannot find that at the time of the loans, Defendant intended to deceive Plaintiff. Plaintiff did not put on testimony or other evidence establishing that at the time of the loans, Defendant did not intend to repay. The Court also finds that because Defendant delivered to Plaintiff the executed titles to the Mobile Home and the Camry, it suggests, at least at that time, that she intended the Vehicles to serve as security for the loans consistent with her representations. It would be a different matter if Defendant promised to deliver the titles and then never did so. For these reasons, Plaintiff's nondischargeability action based on the allegation of Defendant's misrepresentations must fail.
To except a debt from discharge "based on actual fraud, the creditor must show: (a) the debtor committed actual fraud; (b) the debtor obtained money, property, services, or credit by the actual fraud; and (c) the debt arises from the actual fraud."
In a 2016 decision, Husky International Electronics, Inc. v. Ritz,
Plaintiff's claim for nondischargeability based on actual fraud is akin to the fraudulent conveyance described in Husky that was intended to impair a creditor's ability to collect a debt. Specifically, despite Defendant's representations and her signature and delivery of the original titles to Plaintiff, Defendant subsequently obtained duplicate titles and delivered them to third parties as collateral for other loans. In obtaining the duplicate titles, Defendant made false and fraudulent representations to the DMV that the titles to the Vehicles had "been lost, stolen, mutilated, or made illegible, and has not been endorsed and delivered to a transferee, [or] pledged as collateral."
The timing of Defendant's transfer of the Mobile Home to Gonzalez is further evidence of her fraudulent intent. This transfer occurred on September 4, 2015, which is the same time that Plaintiff and Defendant exchanged text messages regarding the repayment of the loans.
The Court does not believe Defendant's explanations as to why she obtained the duplicate titles and delivered them to other persons after giving the titles to Plaintiff. As noted above, Defendant attempted to suggest that her attorney, Mr. Hardy, advised her to obtain the duplicate title and transfer the Mobile Home to a third party to protect it from Plaintiff. Defendant also testified that she obtained the duplicate because Plaintiff wanted a more recent title to the Mobile Home. However, at her deposition, Defendant could recall very little about her request for a duplicate title to the Mobile Home.
The Court thus finds that Defendant fraudulently obtained duplicate titles to the Mobile Home and Camry as part of an intentional "scheme to deprive or cheat [Plaintiff] of property or a legal right."
Plaintiff's complaint seeks a denial of discharge under § 523(a)(6) for willful and malicious conversion of the titles to the Vehicles and for abuse of process regarding the stalking injunction. Section 523(a)(6) excepts from discharge a debt arising from the "willful and malicious injury by the debtor to another entity or to the property of another entity."
It is clear that Defendant intended to obtain the duplicate titles and the stalking injunction, but there was insufficient evidence for the Court to find that she intended these actions to specifically and maliciously harm Plaintiff. Rather, the evidence suggests her intent was to avoid repaying Plaintiff, to get Plaintiff to stop contacting her about repayment of the loans, and to use the vehicle titles to obtain additional loans from other persons. Thus, the Court finds that Defendant did not willfully and maliciously harm Plaintiff for purposes of § 523(a)(6). Nonetheless, the Court will address the specific allegations of conversion and abuse of process.
Plaintiff asserts that Defendant's debt to him should not be discharged because she willfully and maliciously converted the Mobile Home and the Camry. In Utah "[t]o prove conversion, a party must establish `an act of willful interference with property, done without lawful justification, by which the person entitled to property is deprived of its use and possession,' and that the party `is entitled to immediate possession of the property at the time of the alleged conversion.'"
The Court is not persuaded that Defendant's conduct with respect to the Mobile Home and the Camry amounted to conversion. Plaintiff only held the titles, representing an equitable interest in the Vehicles that would not become choate until a new title was issued in his name. Thus, Defendant's actions regarding the duplicate titles did not involve an interference with a tangible, personal property interest of Plaintiff. Certainly, if Defendant had interfered with Plaintiff's use of the Vehicles after title was in his name, the outcome would be different. Thus, the Court finds that Defendant did not commit a conversion for purposes of § 523(a)(6).
As an additional form of willful and malicious injury, Plaintiff cites to his claim against Defendant for abuse of process. Plaintiff claims that Defendant instituted civil stalking injunction proceedings against Plaintiff for an ulterior purpose — to deter him from collecting on the loans to Defendant. Plaintiff claims that Defendant's application for a civil stalking injunction falsely stated that she had been making payments to him and attached Police Report #15PR22934 referring to an individual who had harassed her at her home and threatened her with a gun.
An abuse of process claim under Utah state law requires "`an ulterior purpose' and `a wilful act in the use of the process not proper in the regular conduct of the proceeding.'"
First, Plaintiff did not meet his burden to establish that Defendant sought the civil stalking injunction for an improper purpose. Defendant testified that she filed the request for a civil stalking injunction on October 1, 2015 because she felt threatened by her interactions with Plaintiff and his text messages. There was some basis for Defendant's concern. As noted by Judge Laycock at the July 26, 2016 evidentiary hearing, Plaintiff's text message on September 11, 2015 could be construed as a threat: "[B]ecause you know that in order for me to do something, I just need to move one finger but I do not like to use threats."
For these reasons, the Court cannot find that Plaintiff established an abuse of process sufficient to support a ruling of nondischargeability under § 523(a)(6).
Pursuant to his claim for nondischargeability under § 523(a)(2)(A) Plaintiff requests compensatory damages between $16,500 to $35,700 and punitive damages in an equal amount, together with prejudgment interest of 10% on the compensatory damages from February 21, 2015 to the date of entry of judgment.
"As a general rule, legal damages serve the important purpose of compensating an injured party for actual injury sustained, so that she may be restored, as nearly as possible, to the position she was in prior to the injury."
Plaintiff did not prove that the value of the Mobile Home was in excess of $14,000 at the time of the personal loan contract or that the Mobile Home's fair market value was an integral part of the agreement with Defendant. Plaintiff seemed content with Defendant's representation that the Mobile Home was worth at least $14,000, which is the amount of the personal loan he was extending to Defendant. Similarly, Plaintiff did not prove that the value of the Camry was in excess of $1,000 at the time of the personal loan contract. Therefore, the Court only awards compensatory damages in the principal amount of $15,000.
Plaintiff makes a request for prejudgment interest of 10% on the compensatory damages from February 21, 2015 through the entry of judgment. Section 523 does not specify a rate of prejudgment interest.
Utah Code Ann. § 15-1-1(2) provides that "[u]nless parties to a lawful contract specify a different rate of interest, the legal rate of interest for the loan or forbearance of any money, goods, or chose in action shall be 10% per annum." Utah courts hold that the "statutory legal rate of interest is applied from the date payment is due to the judgment date."
In this case, the Note lists the principal amount of the loans at $14,000 and $1,000 to be repaid within four months of October 21, 2014. However, the Note does not mention a rate of interest, and there was no evidence of an agreed interest rate.
The Court has found that the Note constituted a valid and legally enforceable contract for repayment. The total loan amounts of $15,000 were "[t]o be paid within four months" of October 21, 2014, which results in a due date of February 21, 2015. Because the parties did not state an interest rate in the Note, the Court will apply a prejudgment interest rate of 10% per annum. This results in an interest accrual of $6,369.86 from February 21, 2015 through January 18, 2019.
The Court declines to award punitive damages. Utah Code Ann. § 78B-8-201(1)(a) provides:
The dual purposes of punitive damages under Utah law are:
Punitive damages "should be applied with caution lest, engendered by passion or prejudice because of defendant's wrongdoing, the award becomes unrealistic or unreasonable."
The Court is not persuaded that Defendant's fraudulent conduct regarding the titles caused a "particularly grievous injury" to Plaintiff, or that her conduct was willful and malicious to the extent that compensatory damages are an insufficient remedy. Further, the Court does not believe punitive damages are necessary to deter Defendant's conduct in the future. The award of nondischargeability, coupled with Plaintiff's likely continued collection efforts, should sufficiently deter Defendant from engaging in similar conduct in the future.
The Court finds that Defendant and Plaintiff entered into an enforceable contract for two personal loans: the first on October 21, 2014 for $14,000 secured by title to the Mobile Home title; and the second on or about December 15, 2014 for $1,000 secured by the title to both the Mobile Home and the Camry. The prejudgment interest accrual from the Note's due date of February 21, 2015 through January 18, 2019 at 10% totals $6,369.86. The Court finds that Defendant engaged in actual fraud by obtaining duplicate titles to the Vehicles after she had delivered signed copies of the titles to Plaintiff. Thus, the Court finds that Defendant's debt of $21,369.86 owing to Plaintiff is nondischargeable pursuant to § 523(a)(2)(A) for actual fraud.
The Court denies Plaintiff's claims for nondischargeability under § 523(a)(2)(A) for false representation and under § 523(a)(6) for willful and malicious injury for conversion and abuse of process. The Court will enter an order and judgment consistent with this Memorandum Decision.
