A recent unpublished decision by Bankuptcy Judge Mann of the Southern District of California is a good quick resource for briefing dischargeability actions in her courtroom. In Whited v. Galindo, 2012 WL 345942 (Feb. 1, 2012), S.D. Cal. Adv. No. 10-90473), the end result was a nondischargeable judgment for $1,648.29 in damages against the president of a used car dealer. It is one of those cases that make you happy that a lawyer was found willing to handle the matter, and also proud of a judicial system that can devote this much time and care to a dispute like this one.
The plaintiff Jared Whited was a 20 year old sailor who purchased a Hyundai Sonata from Southbay Preowned, a car dealership which closed shortly thereafter. Defendant Antonio Galindo was the owner and president of Southbay, who was a chapter 7 debtor as the result of having guaranteed financing arrangements for Southbay. Whited contracted to purchase the 2006 Sonata for a total price of $13,600. The Court found that Galindo made several affirmative misrepresentations in connection with the sale of the car, including that financing had been approved when it had not. After the financing fell through and Southbay was obliged to keep the finance contract itself, Galindo caused the car to be repossessed and resold at a small profit. The damages awarded consisted of that profit ($148.29) and Whited’s down payment ($1,500.00).
As it seems must be the case for most judicial acts by bankruptcy courts these days, the decision begins with a discussion of whether a bankruptcy court has jurisdiction to enter a money judgment in a dischargeability action in light of the Supreme Court’s decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2601–02 (2011). The Court raised the jurisdictional issue sua sponte, but noted that the parties had alleged and admitted jurisdiction in their pleadings. The Court also cited pre-Stern authority to the effect that money judgments can be entered in dischargeability matters. This issue is going to come up again in other cases and the ultimate answer is not clear to me. In re Galindo had been long before closed as a no-asset case. Does a bankruptcy court have jurisdiction, even exclusive jurisdiction, to enter a money judgment which will have no effect on a bankruptcy estate? I believe so, because the judgment is a determination of the scope of the discharge, a matter historically within the province of the bankruptcy courts.
The opinion contains a good discussion of the basic authority on the elements of section 523(a)(2) fraud nondischargeablity, including the sometimes unfortunately neglected doctrine of concealment as a species of “actual fraud” within the meaning of the statute. In violation of regulations which apply to used car dealers, Galindo had not disclosed that the Sonata was formerly a rental vehicle. The opinion states that “[n]ondisclosure of information that Galindo has a duty to disclose may also constitute a false representation under § 523(a)(2)(A).” The Court also concluded that “justifiable reliance . . . need not be further proven when a party with a duty to disclose a material fact fails to do so.”
If you are dissatisfied with the $1,648.29 result, remember that attorney fees are yet to be awarded in the Whited case. The opinion states that “an award of attorney’s fees, even if larger than Whited’s personal loss, furthers the public goal of deterring unfair or deceptive business practices. See Hayward v. Ventura Volvo, 108 Cal.App. 4th 509, 511–13 (Cal.App.2d Dist.2003) (affirming a $98,000 attorney’s fee award in auto dealer CLRA violation case where compensatory damages were $14,812).” I’ll post a comment later to report on the anticipated attorney fee award.