Opinion
CASE NO. 17-22314 ADVERSARY PROCEEDING NO. 18-02032
09-03-2019
IN THE MATTER OF: VERONIQUE DENAE BARNES, Debtor, STATE OF INDIANA on the behalf of the INDIANA FAMILY & SOCIAL SERVICES ADMINISTRATION, Plaintiff, v. VERONIQUE DENAE BARNES, Defendant.
Chapter 7 ORDER DENYING MOTION FOR DEFAULT JUDGMENT
This matter is before the Court on Plaintiff's motion for default judgment (the "Motion'). The Court held a hearing on the motion, at which time Plaintiff appeared by counsel and Defendant/Debtor failed to appear. The Court scheduled Plaintiff's Motion for a hearing because it had concerns regarding the sufficiency of the allegations in Plaintiff's complaint (the "Complaint") and, therefore, invited Plaintiff to explain the basis under which it contends it is entitled to relief. See, Fed. R. Civ. P. Rule 55(b)(2)(C) (the court may hold a hearing before entering a default judgment to "establish the truth of any allegation by evidence").
In its Complaint, Plaintiff alleges that it is owed a debt, in an undetermined amount, arising from the overpayment of "SNAP" and Medicaid benefits to Defendant and that this debt falls within 11 U.S.C. § 523(a)(2)(A) "as a debt for money to the extent obtained by false pretenses, false representation or actual fraud." Plaintiff further contends that it did not have notice or actual knowledge of the underlying bankruptcy case, until after the expiration of the deadline to object to Defendant/Debtor's discharge, and is therefore requesting that the Court declare that this debt be excepted from discharge pursuant to 11 U.S.C. § 523(a)(3)(B).
As the court in In re Jewell (State of Indiana v. Jewell), 554 B.R. 169, 172 (Bankr. N.D. Ind. 2016) observed:
A default judgment is not a matter of right. See e.g., J & J Sports Productions, Inc. v. Kotsopoulos, 2015 WL 5730343 (N.D. Ind. 2015); Sims v. Johnson, 2011 WL 839671 *2 (N.D. Ind. 2011); Abdul-Wadood v. Wright, 1995 WL 905228 (N.D. Ind. 1995). It is a matter committed to the court's discretion. Dundee Cement Co. v. Howard Pipe & Concrete Products, Inc., 722 F.2d 1319, 1322 (7th Cir. 1983); Duling v. Markun, 231 F.2d 833, 836 (7th Cir. 1956). A defendant's failure to respond to a complaint against it does not mean that the plaintiff is entitled to the relief it seeks. Nishimatsu Constr. Co. Ltd. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). Instead, the default is nothing more than an admission of the well pleaded factual allegations contained in the complaint. Id. Those allegations must still state a legitimate claim for relief before the plaintiff is entitled to the entry of judgment in its favor. Id. See also, Black v. Lane, 22 F.3d 1395, 1399 (7th Cir. 1994); United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989); Dundee Cement Co. v. Howard Pipe & Concrete Products, Inc., 722 F.2d 1319, 1323 (7th Cir. 1983); Owens v. Layton, 1995 WL 803822 * 4 (N.D. Ind. 1995).
So, the court's present task is to examine the plaintiff's allegations and determine whether they state a viable claim for fraud so that the entry of judgment based upon them would be appropriate. See, Weft,
Inc. v. G.C. Inv. Associates, 630 F. Supp. 1138, 1141 (E.D. N.C. 1986), aff'd sub nom Weft, Inc. v. Georgaide, 822 F.2d 56 (4th Cir. 1987). See also, Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (affirming trial court's denial of motion for default judgment and sua sponte dismissal due to the complaint's failure to state a claim for relief). Although well pleaded facts are deemed admitted by the defendant's default, the converse is also true: the default does not admit facts that are not well pleaded. Nishimatsu, 515 F.3d at 1206; Directv Inc. v. Hoa Huynh 503 F.3d 847, 854 (9th Cir. 2007); In re Schulmen, 196 B.R. 688, 692 (Bankr. S.D. N.Y. 1996) ("necessary facts not contained in the pleadings and claims which are legally insufficient are not established by default"). Facts not established by the pleadings and claims that are not well pleaded cannot support a default judgment. Danning v. Lavine, 572 F. 2d 1386, 1388 (9th Cir. 1978).
Here, Plaintiff is requesting that its debt be excepted from discharge pursuant to § 523(a)(3)(B) under the theory that its debt was "neither listed nor scheduled" under § 521(a)(1) and was therefore unable to file timely a complaint requesting that the foregoing be excepted from discharge pursuant to § 523(a)(2)(A). Unfortunately for Plaintiff, necessary facts are absent from its Complaint.
The essence of a claim under § 523(a)(2)(A) is the intent to deceive. In re Jewell, 554 B.R. at 171 (citing, Husky Int'l Elec., Inc. v. Ritz, ___ U.S. ___, 136 S.Ct. 1581 (2016); McClellan v. Cantrell, 217 F.3d 890, 893-94 (7th Cir. 2000)). A representation or reliance on the part of the plaintiff is not required, but what is required is an actual intent to defraud on the part of the defendant. Jewell, 554 B.R. at 171. "It is this actual intent that distinguishes the fraud condemned by § 523(a)(2)(A) from negligence, imprudence, stupidity, or some other innocent error." Id. (citations omitted).
Plaintiff's Complaint now before the Court fails to address Defendant's state of mind in any appreciable way. The only conduct Plaintiff alleges, in support of its theory that Defendant's debt is excepted from discharge under § 523(a)(2)(A), is that Defendant applied for benefits while employed and that she "failed to report her wages from the Employers, and as a result an overpayment of benefits occurred." The Complaint is devoid of any allegation that Defendant acted with the intent to deceive. A complaint alleging fraud must sufficiently allege that intent. Graue Mill Dev. Co. v. Colonial Bank & Trust Co., 927 F.2d 988, 992 (7th Cir. 1991); Jewell, 554 B.R. at 174. The bottom line is that nothing pleaded within the Complaint suggests or indicates that Defendant's failure to report her wages was anything more than a simple mistake, negligence or some other type of non-fraudulent error. Therefore, since there are no allegations whatsoever that Defendant acted with the required intent to deceive, Plaintiff's Motion is DENIED.
All of the foregoing is hereby ordered, adjudged, and decreed in Chambers in Hammond, Indiana on September 3, 2019.
/s/ James R. Ahler
James R. Ahler, Judge
United States Bankruptcy Court Distribution:
Attorneys of Record
Defendant