Case Title: In re: Bradley Noblit Peggy Brisbane
Noblit Debtors. _____________________________________/ Patricia
Williams, Plaintiff v. Bradley Noblit Peggy Brisbane Noblit Defendants.
_____________________________________/ Type: Chapter 7 Case Number:
04-32030 Adversary Number: 04-03128 Judge: Walter Shapero
Published: 02/15/2007
OPINION REGARDING THE DISCHARGEABILITY OF A
DEBT PURSUANT TO 11 U.S.C. § 523(a)(4) Pending before the Court is
complaint filed by Patricia Williams (“Plaintiff”) against Bradley
Noblit and Peggy Brisbane Noblit (“Debtors”), to determine the
dischargeability of a debt (Adv. No. 04-03128). Pursuant to 28 U.S.C.
§157(b)(2)(I), this is a core proceeding over which this Court has
jurisdiction. 28 U.S.C. § 1334. I.
PROCEDURAL HISTORY The Debtors filed a voluntary petition under Chapter
7 on May 11, 2004 (Case No. 04-32030). The Debtors listed Plaintiff as a
creditor in their schedules. On August 13, 2004, Plaintiff filed a
complaint alleging that pursuant to 11 U.S.C. § 523(a)(4), the debt owed
to her in the amount of $91,245.00, should be held nondischargeable due
to the 2 Debtors’ fraudulent and larcenous conduct. The Debtors filed an
Answer to the complaint arguing that they did not engage in any
misconduct, and thus the debt owed to Plaintiff should be discharged
(Docket #6). A trial was held on June 6, 2006, June 27, 2006, and July
11, 2006; and the parties filed post-trial briefs as ordered by the
Court (Docket ##36, 37). Oral arguments were held on November 7, 2006,
and the Court subsequently took the matter under advisement. II. FACTUAL
BACKGROUND Pursuant to the pleadings filed in the instant case and the
evidence produced at trial, the following facts are undisputed.
Plaintiff and the Debtors entered into a Purchase Agreement, whereby
Plaintiff would sell to the Debtors certain real property located in
the City of Flint (Defendants’ Exhibit C). Pursuant to the Purchase
Agreement signed and executed by the Plaintiff and the Debtors on
February 18, 2000, the parties understood that Plaintiff would have 150
days after the closing date to vacate the home. If Plaintiff failed to
vacate the home within this time, she would have to commence making
rental payments to the Debtors totaling $300.00 per month. Subsequent to
the signing of the Purchase Agreement, Plaintiff went to Canada to begin
building a home. Upon learning that she would be unable to return for
the closing date of March 30, 2000, Plaintiff executed a power of
attorney in favor of Gladyce Saidoo, Plaintiff’s neighbor, to appear on
her absence at the closing (“Power of Attorney”) (Defendants’ Exhibit
A). On March 30, 2000, the closing was held and a warranty deed was
executed conveying the real property from Plaintiff to the Debtors
(Defendants’ Exhibit B). 3 Early in August, 2000, Plaintiff determined
that she would not be able to vacate the home within the 150 days
provided in the purchase agreement, that 150 day period expiring on
August 27, 2000. As a result, Plaintiff through a third party, tendered
rent to the Debtors in the amount of $300.00 prior to August 27, 2000.
The Debtors did not accept the rental income offered to them. Instead,
on or about August 28, 2000, the Debtors filed suit in the 68th
District Court for the City of Flint (“District Court”) (D.C.
00- 5410-LT), for nonpayment of rent in the amount of $300.00, and
claimed damages for moving and storage costs (Plaintiff’s Exhibit 3). On
or about September 13, 2000, the Debtors obtained a judgment from
District Court which stated in relevant part that “an order evicting
[Plaintiff] (writ of restitution) will be issued unless you pay the
Plaintiff or the court the amount due . . . or you move out on or before
Sept. 25, 2000.” The judgment provided that Plaintiff owed the Debtors a
total of $351.00. Prior to obtaining a writ of restitution and prior to
the deadline of September 25, 2000, the Debtors went to the home of
Gladyce Saidoo; served her with a notice to quit; and obtained keys from
Ms. Saidoo to Plaintiff’s residence (Defendants’ Exhibit D, page 5).
Subsequently, the Debtors proceeded to remove Plaintiff’s personal
property from the home (See Docket #32, Joint Final Pretrial
Report, ¶ 4). Soon thereafter, Plaintiff returned and could not gain
entrance to the home because the Debtors had also changed the locks. On
or about September 25, 2000, Plaintiff went to District Court and paid
the amount due in rent and costs totaling $351.00. On September 26,
2000, Plaintiff filed a motion to prevent the issuance of a writ of
restitution and stated that the Debtors had changed the locks on the
doors and removed her personal belongings from the home 1According
to Plaintiff’s testimony, the amount of actual damages was based on a
document she prepared and provided to the Circuit Court of Genessee
County when the default judgment was granted, listing all of the items
that had not been placed in the storage units and were missing (See
Plaintiff’s Exhibit 1). The items were allegedly worth approximately
$30,000. 4 (Defendant’s Exhibit
D). Since the Debtors also happened to be at the 68th
district courthouse on September 26, 2000 when Plaintiff was there
(presumably to obtain a writ of restitution), the parties were asked to
appear before the Honorable Michael D. McAra, District Judge (See
Defendants’ Exhibit D, Transcript of Hearing). At the hearing, Judge McAra
stated in relevant part that the Debtors could not “use self help on a
tenancy situation” and had “no right to retake possession of the
property without a writ of restitution.” “It is a wrongful eviction.”
Id. at pp. 6-7. Therefore, Judge McAra ordered the Debtors to
immediately return any property that was taken from the house and to
give Plaintiff a set of keys. The Debtors did not appeal this order. The
Debtors subsequently provided Plaintiff with keys to the home and keys
to two storage units where Plaintiff’s belongings were allegedly stored
by the Debtors upon removal from the home. In September, 2001, Plaintiff
filed a lawsuit against the Debtors in the Circuit Court for the County
of Genesee for wrongful eviction (“State Court Action”)
(01-071491-CZ). The Debtors did not appear or file a responsive pleading
in the State Court Action and a default judgment was entered against
them on June 17, 2002. See Docket ##14, 16. The amount awarded to
Plaintiff totaling $91,245.00, which was calculated on the basis
of treble damages awarded pursuant to the State of Michigan’s wrongful
eviction statute (Mich. Comp. Laws § 600.2918); with interest to accrue
at the statutory rate.1 On
May 11, 2004, the Debtors filed a voluntary petition under Chapter 7 and
listed 5 the default judgment entered against them. Thereafter,
Plaintiff filed this adversary proceeding alleging that the debt owed to
her by the Debtors should be held nondischargeable pursuant to 11 U.S.C.
§ 523(a)(4). The Court previously denied Plaintiff’s Motion for Summary
Judgment and the matter proceeded to trial. See Williams v. Noblit
(In re Noblit), 327 B.R. 307 (Bankr. E.D. MI. 2005). III.
DISCUSSION A. “Larceny” pursuant to § 523(a)(4) Pursuant to 11 U.S.C. §
523(a)(4), a debt is nondischargeable if it is incurred by “fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or
larceny.” The exceptions to discharge under § 523 are to be strictly
construed in favor of the debtor. Rembert v. AT&T Universal Card
Servs. (In re Rembert), 141 F.3d 277, 281 (6th Cir. 1987);
Manufacturer’s Hanover Trust Co. V. Ward (In re Ward), 857
F.2d 1082, 1083 (6th Cir. 1988). The Plaintiff bears the burden of
proving the requisite elements of the exception to discharge by a
preponderance of the evidence. Grogan v. Garner, 498 U.S. 279
(1991). As a preliminary matter, Plaintiff’s post-trial brief states
that this case falls under either embezzlement or larceny. Embezzlement
contemplates an original taking that was lawful, being defined by the
federal common law as “the fraudulent appropriation of property by a
person to whom such property has been entrusted or into whose hands it
has lawfully come.” Brady v. McAllister (In re Brady), 101
F.3d 1165, 1172-73 (6th Cir. 1996). It was clearly established at trial
that the taking of Plaintiff’s property was unlawful, and therefore an
embezzlement is not involved. 6 The federal common law defines larceny
as “the fraudulent and wrongful taking and carrying away of the property
of another with intent to convert such property to the taker’s use
without the consent of the owner.” Graffice v. Grim (In re
Grim), 293 B.R. 156, 166 (Bankr. N.D. Ohio 2003). The testimony at
trial and pleadings filed by the parties demonstrate that there was a
wrongful taking and carrying away of Plaintiff’s property without her
consent. First, this Court agrees with the District Court’s assessment
that the taking was wrongful. It is uncontested that the Debtors removed
or permitted the removal of Plaintiff’s belongings without first
obtaining a writ of restitution and engaged in self-help which is
clearly prohibited under Michigan law. In sum, the more credible
testimony heard by the Court in this case requires the conclusion that
many of Plaintiff’s belongings were simply removed from the dwelling,
either by the Debtors or by persons whom the Debtors permitted to enter
the building and that some of what was removed was simply left
outside to be taken away by various persons, with the exception of those
items that the Debtors were able to put in the locker, or were otherwise
accounted for, it being an equally credible conclusion that many items
that were in the house were not accounted for and were not put in the
locker. Second, the testimony provided by Plaintiff established that she
did not consent to the changing of the locks or the removal of her
belongings from the residence. Plaintiff not only testified to this
fact, but her actions in offering the Debtors the rent
money demonstrated an intent to remain in the home. As a consequence,
the testimony of the codebtor, Bradley Noblit, that Plaintiff had given
them permission to remove her belongings, is simply not credible.
Furthermore, the fact that they were given the key by which they 2The
Court interprets the term”their own use” to mean the use of someone
other than the owner, i.e. it is the deprivation of the Plaintiff’s
rights at the instance of the Debtors, not that the Debtors themselves
necessarily or personally ended up with the property, that is the
essential ingredient here. See In re McCoy, 189 B.R. 129 (Bankr.
N.D. Ohio 1995). 7 gained access
to the residence does not mean they thereby obtained the right
or permission to remove its contents. Thus, a larceny occurred within
the meaning of § 523(a)(4). The next issue is whether Plaintiff
established that the Debtors had the requisite intent to convert the
property to their use. The intent must exist at the time of the taking. See
In re Scarpello, 272 B.R. 691, 703 (Bankr. N.D. Ill. 2002)
(citations omitted); In re Hoffman, 70 B.R. (Bankr. W. D. Ark.
1986). A determination as to whether the Debtors in the case at bar
acted with the intent required to except a debt from discharge as one
for “false pretenses, false representation or actual fraud,” “for his
embezzlement or larceny,” or for his “willful and malicious injury” is
reduced to the lowest common denominator, a specific intent to harm,
whether it is an intent to defraud/deceive, an intent to misappropriate
another’s property, or an intent to injure another’s person or
property.” In re Knapik, 322 B.R. 311 (Bankr. N.D. Ohio 2004).
Intent may be shown by circumstantial evidence given that the Debtors
are “unlikely to admit the perpetration of a wrongful act.” Id.
at 316; See also Goodmar, Inc. v. Hamilton (In re Hamilton),
306 B.R. 575, 582 (Bankr. W.D. Ky. 2004). An analysis of the facts and
circumstances surrounding the Debtors’ actions, leads the Court to a
determination that the Debtors acted with the intent to convert the
Plaintiff’s property to their own use.2
The Debtors’ intent can be
inferred by their actions after 8 Plaintiff offered them rental income.
The Debtors and Plaintiff agreed to and voluntarily signed a Purchase
Agreement. The agreement included a provision specifically allowing for
Plaintiff to continue to reside at the residence as long as she made the
corresponding monthly rental payments totaling $300.00. However, despite
this agreement, the Debtors declined to accept the rental payments made
by Plaintiff through a third party. Instead, the Debtors proceeded to
file an action in District Court for eviction based on “non-payment of
rent.” The Debtors did not inform the District Court of Plaintiff’s
attempt to pay the rent on a prior occasion; and no testimonial or
documentary evidence was presented at trial to indicate that the Debtors
made any attempt to contact Plaintiff to resolve the matter prior to the
filing of the case in District Court. Moreover, prior to the deadline
set by the District Court to issue the writ of restitution, the Debtors
proceeded to obtain keys to the property from Plaintiff’s attorney in
fact. Under the Laws of the State of Michigan, powers of attorney to
convey real property are strictly construed and may not be expanded so
as to authorize the performance of other acts not mentioned. Ann
Arbor Bank v. Stegeman, 46 Mich. App. 685, 208 N.W.2d 517 (Mich.
App. 1973) (citing Bergman v. Dykhouse, 316 Mich. 315, 319, 25
N.W.2d 210 (1946)). Although Ms. Saidoo had a Power of Attorney to
convey Plaintiff’s property to the Debtors during the closing, there is
no evidence or language in the Power of Attorney (particularly in light
of the agreement deferring the transfer of possession), authorizing her
to turn over the keys to the Debtors; or authorizing the removal of
Plaintiff’s belongings from the home; or authorizing the storage of
Plaintiff’s personal belongings; or authorizing the Debtors to change
the locks on the doors of Plaintiff’s residence; nor 9 would, turning
over the keys necessarily involve a turnover of the contents of the
house. More importantly, as stated by the State Court Judge, Plaintiff’s
right to retain possession of the residence paying the rental income,
was simply not extinguished until after September 25, 2000 (Defendants’
Exhibit D, p. 6). Since she timely paid the rental income to the
District Court, Plaintiff was entitled to continue her right to
possession of the residence and by doing so, maintain her own control
over its contents. It is true that the Debtors in an attempted
compliance with the state court order gave Plaintiff the key(s) to the
premises as well as the storage locker to which the Debtors had removed
Plaintiff’s belongings (though not all of them - most was not accounted
for). Those facts do not fully vitiate or preclude a finding of the
required intent, though they might bear somewhat on it. They bear more
appropriately on the damages issue than on the intent issue, and their
weight in the inquiry is diminished by reason of the fact that (1) what
was done was done pursuant to a court order requiring it, as opposed to
having been voluntarily undertaken; and (2) intent is to be determined
at the time of the wrongful eviction and dispossession. B. The
Dischargeability of Treble Damages Pursuant to the Supreme Court’s
decision in Cohen v. De La Cruz, this Court finds that since the
Debtors’ actions constitute larceny under 11 U.S.C. § 523(a)(4), the
entire debt, including treble damages awarded pursuant to the applicable
state statute, is nondischargeable. Cohen v. De La Cruz, 523 U.S.
213 (1998). The (a)(4) exception, in relevant part, makes
nondischargeable “any debt for fraud or defalcation while acting
in a fiduciary capacity, embezzlement, or larceny.” The Supreme Court in
Cohen interpreted 10 the term “debt” as used in § 523 to include
treble damages, attorney’s fees, and “other relief that may exceed the
value obtained by Debtor.” Cohen v. De La Cruz, 523 U.S. at 223.
Although the Cohen case involved a claim under § 523(a)(2)(a),
the Supreme Court cited to §§ 523(a)(4) and (a)(6) as examples of
instances in which statutory damages, including attorney’s fees, that
exceed actual damages would be nondischargeable. DirectTV v.
Karpinsky (In re Karpinsky) 328 B.R. 516, 528 (Bankr. E.D.
MI. 2005) (citing Cohen v. De La Cruz, 523 U.S. at
219-220)). This result is also consistent with other case law. For
example, in DirectTV v. Karpinsky, supra, the bankruptcy
court held that the Debtors’ conduct constituted larceny under Section
523(a)(4), thus all damages, including statutory damages and
attorney’s fees authorized under the Federal Communications Act (47
U.S.C. § 605), were held to be nondischargeable under § 523(a)(4),
§523(a)(6). Id. at 528. Moreover, in In re Hamama, the
bankruptcy court held that treble damages awarded on the conversion
claim were nondischargeable under § 523(a)(6). In re Hamama, 182
B.R. 757, 759 (Bankr. E.D. MI. 1995) (see also In re Barber, 326
B.R. 463 (B.A.P. 10th Cir. 2005) (where the Court held under §
523(a)(2), that all damages flowing from the fraud were nondischargeable); In
re Simpson, 226 B.R. 284 (B.A.P. 10th Cir. 1998) (where the Panel
held that prior case law holding that punitive damages were
dischargeable, are no longer viable in light of the Supreme Court’s
decision in Cohen v. de la Cruz, 523 U.S. 213). While this might
appear to be a somewhat harsh result in light of all the circumstances,
it does point out the potential severe peril and adverse consequences
attendant to ignoring state court proceedings, even though one is
contemplating filing for bankruptcy. The cited law 11 appears quite
clear and the court has no discretion to ignore it on some vague
equitable grounds. Debtors may have some state court remedies affording
judgment payment relief over time based on their ability to pay (See
e.g. Mich. Comp. Laws § 600.6201 et seq.; M.C.R. § 3.104 or
otherwise). To the extent they still may have any such rights,
the judgment of this Court does not perforce preclude the Debtors from
seeking any such available relief in the state court. IV.
CONCLUSIONS For the reasons stated herein, this Court finds that
Plaintiff has proven that the Debtors’ actions constitute larceny
pursuant to 11 U.S.C. § 523(a)(4); and thus the debt involved is
nondischargeable. . Signed
on February 07, 2007 /s/ Walter Shapero Walter Shapero United States
Bankruptcy Judge
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