MARK BARRY v. L&H PROPERTIES L.L.C.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

MARK BARRY and SANDRA BARRY,

Plaintiffs-Respondents,

v.

L&H PROPERTIES, L.L.C., a New Jersey

Limited Liability Company,

Defendant,

and

LLOYD SCHIFFRES

Defendant-Appellant.

___________________________________

December 4, 2014

Submitted August 6, 2014 Decided

Before Judges Waugh and Accurso.

On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket

No. L-0298-12.

Lloyd Schiffres, appellant pro se.

Messina Law Firm, attorneys for respondents (Timothy A.C. May, on the brief).

PER CURIAM

Defendant Lloyd Schiffres appeals from the entry of a default judgment for damages arising out of a violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20. We reverse.

We summarize what little information is available of the essential facts and procedural history. In April 2007, plaintiffs Mark and Sandra Barry claim to have entered into a written contract with defendant L&H Properties, L.L.C. for renovations to their home. In the unsigned contract included in the record, the contract price was $89,000 and work was to commence on or before June 1. The contract provided for an initial deposit of $8900 upon the signing of the agreement. Plaintiffs claim that they provided Schiffres a check in that amount payable to L&H, which he cashed without ever completing the work. The copy of the check included in the record, which is barely legible, is for $8900 and payable to L&H, but does not appear to be drawn on an account in the plaintiffs' names. Instead, the check appears to be drawn on the account of PIDCO, Inc. The signature on the check is illegible.

Plaintiffs sued L&H and Schiffres in January 2012. Plaintiffs filed a three-count complaint alleging breach of contract, unjust enrichment and violation of the CFA. In the count alleging consumer fraud, plaintiffs averred that

defendants failed to begin and complete the work as specified in the Contract and failed to give the plaintiffs a timely written notice stating reasons for the delay and when the work would begin and be completed. As a result of the defendants' unlawful conduct, plaintiffs have suffered an ascertainable loss of money equal to the initial retainer in the amount of $8,900.00 paid to the defendants, for work which they have refused to perform.

In March 2011, Schiffres filed a Chapter 7 bankruptcy petition and was granted a discharge under 11 U.S.C. 727, on August 19, 2011. It is undisputed that plaintiffs' debt was not included in the schedules to Schiffres' petition.

Following service of the complaint on defendants, counsel for Schiffres wrote to plaintiffs' counsel asserting that the debt on which plaintiffs sued had been discharged by virtue of 11 U.S.C. 727(b), even though it was not listed. Counsel for plaintiffs wrote back claiming that the debt was not discharged because it was not scheduled, plaintiffs had no notice of the bankruptcy, and that the complaint encompassed "claims of false pretenses, false representations and actual fraud . . . excepted from discharge pursuant to 11 U.S.C. 523 (a)(3)(B)."

Defendants did not file an answer, and the court entered defaults against both. Sandra Barry testified for plaintiffs at the proof hearing. She stated that she gave Schiffres a check for $8900 and identified it for the record. There is no testimony or any explanation of why the check is not drawn on plaintiffs' account or why plaintiffs may sue for its loss given that the check is drawn on the account of a corporation not named as a plaintiff. Barry admitted that she did not have a signed copy of the contract and that plaintiffs were not ready to begin on June 1, 2007, as specified in the agreement. She admitted that plaintiffs continued to revise the architectural plans for another year, and that when she finally advised Schiffres they were ready to begin, "he told me that my deposit was already spent on other things."

Schiffres did not appear at the proof hearing, but he was represented by counsel who argued that the debt had been discharged. The judge rejected that argument. Although questioning whether "this case ever should have gotten as far as it got, given the bankruptcy filing," the judge found that

defendant did in fact take the money, take the plaintiffs' money and therefore breached the contract and the construction of course never happened.

Now, as a result he's unjustly enriched by the $8900 because he never did anything for purposes of receiving the money. The question then becomes, did he violate the Consumer Fraud Act, N.J.S.A. 56:8-1c et seq. Home improvement contracts are to be in writing, are to be signed and are to be done in an acceptable commercial practice. Plaintiff clearly has an ascertainable loss, $8900. That's what she paid him, that's what she got nothing for. And it's clear that he misrepresented his ability to do the job.

Given the . . . architectural changes, they weren't ready on June 1st, 2007 to start construction. I don't think that's a question. But they had a contract to get the job done that was never completed. And because the money was never returned and used for personal purposes, that's clearly an act of fraud and deception, such that there is a violation of, in my mind, the Consumer Fraud Act.

The damages in the case are the $8900, which would be trebled, to $26,700. And then there are attorney's fees and [counsel] has provided an affidavit of services in the amount of $2,627.50, and $320.22 in [costs and] filing fees. So a total judgment would be $29,627.72

Schiffres appeals.1

We think it plain that the judgment against Schiffres cannot stand. Fundamentally, there is no explanation as to why plaintiffs are proper parties in view of the $8900 check to L&H, which is drawn on the account of a corporation and not the Barrys. Even assuming that plaintiffs are proper parties, it would appear likely that the debt, as to Schiffres, has been discharged in bankruptcy.

There appears no dispute that Schiffres' bankruptcy was a "no-asset" Chapter 7 case. Accordingly, assuming Schiffres' debt to plaintiffs was dischargeable in bankruptcy, his failure to include it in his schedules would not affect its disposition. See Judd v. Wolfe, 78 F.3d 110, 115 (3d Cir. 1996) (holding that, "in a no-asset Chapter 7 case where no bar date has been set," a creditor who received no notice of the bankruptcy "has not been harmed by omission from the bankrupt's schedules and the lack of notice to file a proof of claim" because the creditor "would not have received anything even if he had been [notified]"). In such cases, "the debt in question was either discharged or excepted from discharge based on [11 U.S.C. ] 523 and 727(b)." Id. at 111.

Although plaintiffs may be correct that their State court action did not run afoul of the injunction provided by discharge,11 U.S.C. 524(a)(2); In re Strano, 248 B.R. 493, 501 (Bankr. D.N.J. 2000) (holding that bankruptcy jurisdiction is not exclusive for unscheduled, intentional tort debts), federal law requires the plaintiff to establish all elements of a section 523 exception to discharge, 11 U.S.C. 523(a)(2)(A) and (B)2, by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 287-88, 111 S. Ct. 654, 659-60, 112 L. Ed. 2d 755, 765-66 (1991). Exceptions to discharge are to be construed strictly against creditors and liberally in favor of debtors. In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995).

Plaintiffs, however, offered no proof or even any argument as to why the debt was excepted from discharge in Schiffres' bankruptcy. As plaintiffs' complaint alleged only that "defendants failed to begin and complete the work as specified in the Contract and failed to give the plaintiffs a timely written notice stating reasons for the delay and when the work would begin and be completed," it does not appear that they have even asserted, much less proved, the sort of fraud or misrepresentation required under section 523 to except a claim from discharge. See In re Martin, 963 F.2d 809, 813 (5th Cir. 1992) (holding that debts falling within section 523 are debts obtained by frauds involving moral turpitude or intentional wrong, and that any misrepresentations must be knowingly and fraudulently made).

Because plaintiffs failed to establish that they were proper plaintiffs in this action entitled to judgment or that their claim was not dischargeable, we reverse the entry of default judgment against Schiffres.

Reversed.

1 L&H has not appealed and thus this opinion does not affect plaintiffs' judgment against it.

2 A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt -

. . . .

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by -

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition; [or]

(B) use of a statement in writing -

(i) that is materially false;

(ii) respecting the debtor's or an insider's financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive; . . .

[11 U.S.C. 523(a).]