MEMORANDUM OPINION AND ORDER
CALDWELL, Bankruptcy Judge
This Memorandum Opinion and Order serves as the findings of fact and conclusions of law for the adversary proceeding commenced on behalf of Gary Shumaker ("Plaintiff") against Tara L. Roe ("Defendant"). The Plaintiff seeks a determination that a state court judgment obtained against the Defendant is non dischargeable, pursuant to sections 523(a)(2)(A), (a)(4), and (a)(6) of the United States Bankruptcy Code ("Code"). Having considered the evidence and assessing the relative credibility of the witnesses, the Court has determined that the Plaintiff is entitled to a judgment under sections 523(a)(2)(A) and (a)(6) of the Code. A brief summary of the facts illustrates the bases.
The Plaintiff is forty-eight years old, and has received multiple diagnoses for mental retardation. Dr. Susan Frankenfield ("Dr. Frankenfield"), a clinical psychologist who evaluated the Plaintiff in 2003 concluded that the Plaintiff has an I.Q. of 56, well below the average of 100, and that he has the mental capacity of a six-year-old, with some adult life experiences. Dr. Frankenfield testified that the Plaintiff is incapable of perceiving deception, and is overly trusting. According to Dr. Frankenfield's testimony, the Plaintiff cannot determine the change he should receive in a simple purchase transaction, and compared to other adults, the Plaintiff is near the functioning level of those individuals that will require custodial care.
Dr. Frankenfield testified that the Plaintiff is unable to work, read, write, complete financial transactions having any complexity, and understand abstract concepts. The Plaintiff's interests are limited to visiting friends, fishing, and helping with projects, such as stacking wood. The Defendant did not present any credible evidence contrary to Dr. Frankenfield's testimony, and the Court finds and concludes that the Plaintiff was mentally retarded at the time of the transfer at issue.
For many years the Plaintiff received assistance from his mother. They lived together at 620 Stump Hollow Road, Lancaster, Ohio ("Stump Hollow"), until she was admitted into a nursing facility. This unencumbered property was transferred to the Plaintiff by his mother to ensure he had a place to live, and he resided there alone for approximately five years. Because of his limited mental capacity, however, the Plaintiff needed a social security representative payee. This role was assumed by the Defendant in 1997, and for approximately six years she was responsible for helping the Plaintiff manage his social security income benefits.
The Defendant testified she gave the Plaintiff a weekly check in the amount of sixty dollars for food and miscellaneous expenses, and paid his utility bills. She also allowed the Plaintiff to purchase cologne and other items through her "Poplar Club" at-home sales business, a used truck from her cousin, a wood stove from her mother for fifty dollars, as well as other items from members of her family.
The Plaintiff was in an automobile accident in December 2001, and after spending 30 days in a nursing facility he moved to the Defendant's home, 741 Marietta Road, Bremen, Ohio ("Bremen"). He resided there with the Defendant, her husband and children, and was housed rent-free on the lower level. During this period a determination was made that Stump Hollow would be transferred to the Defendant.
According to the Defendant's testimony, it was the Plaintiff's idea to transfer Stump Hollow to her because its maintenance had become overwhelming for him. The Defendant also testified that she did not want the property. At that time Stump Hollow was in livable condition, but required repairs. The Defendant testified that in the alternative she proposed that her name be added to the deed, or that the house be transferred to the Plaintiff's brother or niece. Other options, however, were not discussed, such as selling Stump Hollow and finding a more manageable housing arrangement, or improving its condition so that the Plaintiff could remain in the home.
To complete the transfer, the Defendant engaged the services of an attorney, Michael Christian ("Mr. Christian"). He was not, however, informed of the Plaintiff's limited mental capacity. Had he known, it may have given him reason to question the soundness of the arrangement, or to require that the Plaintiff retain separate counsel. The Defendant, however, did not have Mr. Christian testify on her behalf regarding the transaction, specifically regarding his observation of the Defendant's level of awareness during the transfer.
On March 14, 2002, the Plaintiff signed a deed, transferring ownership of Stump Hollow to the Defendant for "[o]ne dollar and other valuable considerations." Nothing further was exchanged. The Plaintiff also signed a handwritten statement, prepared by Mr. Christian, indicating that the Plaintiff was voluntarily making a gift of Stump Hollow to the Defendant, without the promise of anything in return, and acknowledging that he was informed that the gift was final. At that time, the Defendant signed a Fairfield County Auditor's form, under penalty of perjury, indicating an estimated market value of $70,000 for Stump Hollow. By April 2002, the house was being rented by the Defendant for $500 per month. In June 2002 the Defendant obtained a mortgage for $48,379.36, and also listed Stump Hollow with a realtor at a sale price of $124,900.00.
From the mortgage proceeds in the amount of $48,379.36, the Defendant received $16,289 in cash. According to the Defendant, part of those funds were used to make repairs to the property, and bills were also paid. The asserted repairs to Stump Hollow included well and plumbing work in addition to the installation of a toilet, wood stove, bathroom and kitchen flooring, and hallway carpet. No receipts or other documentation, however, were introduced into evidence by the Defendant. The sum of $3,580.07 in prepaid finance charges, and $2,434.22 in real estate taxes that were owed on Stump Hollow were also paid from the mortgage proceeds. The Defendant was uncertain, but her testimony indicated that the sum of $356.50 expended on an Ohio title insurance examination, and the sum of $290.00 expended on a home appraisal, were also attributable to Stump Hollow.
The Defendant used the remaining funds on miscellaneous obligations not related to Stump Hollow, including: a. $1,479.00 that was paid to a contractor for work on Bremen; b. $12,974.00 that was paid to release a lien on the Defendant's property at 10700 State Route 374, Rockbridge, Ohio ("Rockbridge"); and, c. $10,026 that was paid to the previous owners of Rockbridge. Home and auto security systems were also purchased for the sum of $949.95, but the Defendant could not recall the home or automobile they pertained to.
After residing with the Roes for six months, the Plaintiff left their residence with his brother. No explanation was provided for the departure. Two months later, the Defendant was contacted by an attorney for the Shumakers to recover title to Stump Hollow. The Defendant's testimony indicated that she would have returned Stump Hollow, that was then recently encumbered with a lien in the amount of $48,379.36, only if she was compensated for the undocumented improvements she claims were made.
When the parties could not reach an agreement, a state court action was brought against the Defendant in 2003 that lasted for two years. From the asserted claims, the Plaintiff received a favorable verdict on his unjust enrichment claim for $35,000; a judgment was entered on September 13, 2005. On the other claims, including undue influence, breach of fiduciary duty, and negligent infliction of emotional distress, the jury ruled in the Defendant's favor. Nothing was paid on the judgment. Rather, the Defendant and her husband filed the instant chapter 7 case, on June 24, 2007.
While the Plaintiff's complaint is based on sections 523 (a)(2)(A), (a)(4), and (a)(6) of the Code, at trial, the Plaintiff focused upon sections 523 (a)(2)(A) and (a)(6). An embezzlement claim under section 523(a)(4) of the Code requires proof that the subject property is held in trust. The Defendant, however, was not a fiduciary concerning Stump Hollow, in contrast to her fiduciary role as the representative payee for the Plaintiff's social security benefits.
A larceny claim under section 523(a)(4) of the Code requires proof of an unlawful acquisition of property; however, Stump Hollow was voluntarily deeded to the Defendant. The fact that the Plaintiff lacked the mental capacity to understand the practical and legal significance of this act does not diminish this fact, and this lack of understanding only becomes relevant to the Plaintiff's remaining causes of actions under sections 523(a)(2)(A) and (a)(6) of the Code.
For these reasons, the Court concludes that section 523(a)(4) of the Code is not applicable to the instant case.
Plaintiff's Section 523(a)(2)(A) Claim
Under section 523(a)(2) of the Code, a creditor must prove the following elements by a preponderance of the evidence: "(1) the debtor obtained money through a material misrepresentation, that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) (the creditor's) reliance was the proximate cause of loss." Rembert v. AT&T Universal Card Services, Inc. (In re Rembert), 141 F.3d. 277, 281 (6
Omission or silence regarding a material fact qualifies as a false representation. Lester v. Meadows (In re Meadows), 213 B.R. 699, 702 (Bankr. S.D. Ohio 1997). Intent to deceive may be inferred through the debtor's actions at the time of, and subsequent to the loss. Redmond v. Finch (In re Finch), 289 B.R. 638, 643 (Bankr. S.D. Ohio 2003) . To establish justifiable reliance, the creditor must demonstrate that sufficient warning against relying on the debtor's false representation was not apparent to him. Jeffrey R. Priebe, Field v. Mans and In re Keim: Excepting Debts from Bankruptcy Discharge and the Difference Between "Experienced Horseman" and "Reasonable Men," 54 ARK. L. REV. 99, 109-110 (2001). The justifiable reliance standard takes into account the parties' interactions and experience. Id. Proximate causation is established by showing that reliance upon the false representation was a substantial factor in the loss, or that the loss may be reasonably expected to follow. Liberty Savings Bank, FSB v. McClintic (In re McClintic), 383 B.R. 689, 694 (Bankr. S.D. Ohio 2008).
Regarding the section 523(a)(2)(A) claim, the Court finds and concludes that the Defendant wrongfully omitted and was silent regarding critical information that would have been beneficial to the mentally retarded Plaintiff. The parties knew each other since childhood, and grew up together in the same neighborhood. The Defendant served as the Plaintiff's representative payee for approximately six years, and in this capacity became intimately familiar and involved his daily personal and financial affairs. At the time the Defendant owned other properties, and shortly after the transfer obtained a mortgage on Stump Hollow, and then listed it for sale.
Given this background, the Court finds that the Defendant was fully aware of the Plaintiff's diminished capacity, that the home and the social security benefits were his sole means of support, and that there was at least $70,000.00 in value to be derived from Stump Hollow. Even with this knowledge, the Defendant failed to provide the most important information to the Plaintiff; i.e., that there were other options solely for his benefit, such as selling Stump Hollow for value to a third-party.
The Court concludes that the omission of this critical information was intentional, as demonstrated by events during and subsequent to the transfer. Shortly after the transfer the Defendant mortgaged Stump Hollow in exchange for the sum of $48,379.36, and then listed it for sale. She was also able to rent Stump Hollow for $500 per month after making improvements, none of which were substantiated. Intent to deceive is also established by the fact that the Defendant failed to advise her attorney, Mr. Christian, of the Plaintiff's disability. Instead, the Defendant allowed the Plaintiff to sign statements confirming his intention to gift the property, a concept the Court finds that the Plaintiff could not fully understand. Had Mr. Christian been informed of the Plaintiff's limited capacity, the transfer may not have been completed without some effort to ensure that the interests of the Plaintiff were represented by separate counsel, a member of the Plaintiff's family or from any social service employees familiar with the Plaintiff's condition.
Finally, the Court concludes, considering the Plaintiff's mental retardation and his overly trusting nature, that he justifiably relied upon the Defendant, and that this reliance was the proximate cause of him losing Stump Hollow. This property, along with the social security benefits were the sole sources of support for the rest of the Plaintiff's life. All that was obtained in exchange was an undocumented commitment to house the Plaintiff in the basement of one of the Defendant's homes.
For these reasons, the Court finds and concludes that the state court judgment is non dischargeable, pursuant to section 523(a)(2)(A) of the Code.
Plaintiff's Section 523(a)(2)(6) Claim
Under section 523(a)(6) of the Code obligations based upon willful and malicious injury to another or their property, may be deemed non dischargeable. To prevail under section 523(a)(6) a creditor must prove by a preponderance of the evidence that the debtor desired to cause the injury, or that he believed the injury was substantially certain to occur from his actions. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 463 (6
The Court finds from Dr. Frankenfield's testimony and its observation of the Plaintiff during the trial, that at the time of the transfer he did not comprehend the full impact of transferring ownership. While the Plaintiff may have wanted the burden of Stump Hollow to be transferred to the Defendant, the Court finds that he also believed that the transaction would provide him a place to stay with people having his best interest at heart, rather than their own financial gain.
With this limited understanding, the Plaintiff completed the transfer, but received nothing in return, other than a legally unenforceable commitment to be housed in the basement of one of the Plaintiff's homes. The Defendant was aware of the Plaintiff's mental limitations, and the confidence he placed in her, yet with the intent to extract value for her benefit, the Defendant still proceeded with the transaction. No provisions were made for the Plaintiff's future needs through the mortgage proceeds or any other value to be derived from Stump Hollow. Instead, as detailed above, the mortgage proceeds were utilized to benefit the Plaintiff, leaving the Defendant with nothing from the home in the event the living arrangement came to an end. These factors lead the Court to conclude that the Plaintiff's actions were also intentional, willful and malicious.
For these reasons, the Court finds and concludes that the state court judgment is also non dischargeable, pursuant to section 523(a)(a)(6) of the Code.