This is an action for exception to discharge for obtaining merchandise under false pretenses. It is a core proceeding under 28 U.S.C. § 157(b)(2)(I). This court has jurisdiction over the complaint in accordance with 28 U.S.C. § 1334(b) and the district court's order of reference. I find for the plaintiff.

Background

The Palmers operated a gift shop in Ketchikan known as the "Alaska Emporium." On occasion they bought sheepskin products from Sickafus to sell in their store. Sickafus and his business are located in Pennsylvania. The Palmers had purchased goods from Sickafus on several occasions in the late 1990's on a C.O.D. basis.

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On March 30, 2000, Jean Palmer called Sickafus employee Sharon Albrecht to place an order. Jean ordered products valued at $4,148.00. ⁽¹⁾ She requested terms on the purchase of the goods rather than C.O.D. Albrecht advised her to discuss the matter with Mr. Sickafus. Jean did. Sickafus requested trade references to see if the Palmers were credit worthy. Jean provided references. Sickafus checked the references and found that the Palmers were delinquent on their payments to trade creditors. He refused to grant the Palmers credit and advised Jean that payment for the order must be C.O.D. On the day the order was shipped to the Palmers, May 8, 2000, a copy of the invoice accompanying the goods was faxed to them. On the invoice, after the printed line "Terms:", Albrecht had written "COD Check." Unfortunately, through an error by either the post office or a Sickafus employee, the goods were shipped priority mail with no C.O.D. designation.

Jean received the goods with another copy of the invoice later in May via priority mail. The invoice again called for payment on delivery, but the postal service did not require it and the Palmers received the goods without paying for them. The Palmers sold the goods during the summer. They ignored calls and e-mails from Sickafus demanding payment.

The Palmers filed for relief under chapter 11 of the Bankruptcy Code on September 7, 2000. The case was converted to chapter 7 on December 13, 2000. Sickafus now seeks to except his debt from discharge.

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Analysis

11 U.S.C. § 523(a)(2)(A) excepts debts obtained by false pretenses from discharge. "'False pretenses' for purposes of Section 523(a)(2)(A) may . . . be defined as conscious deceptive or misleading conduct calculated to obtain, or deprive another of, property. It is the practice of any scam, scheme, subterfuge, artifice, deceit or chicane[ry] in the accomplishment of an unlawful objective." ⁽²⁾ The plaintiff has the burden of proving false pretenses by a preponderance of the evidence. ⁽³⁾

Here, the evidence establishes that Jean had a clear understanding of the terms of purchase from Sickafus. She had purchased products from his business on a C.O.D. basis in the past. She attempted to obtain credit terms from Sickafus by giving trade references in the spring of 2000. These references were unacceptable and Sickafus refused to give her any terms other than C.O.D. She received a fax invoice from Sickafus on May 8, 2000, indicating that the terms for the order were C.O.D. She received another invoice indicating C.O.D. terms when she accepted delivery of the goods on May 11, 2000. Despite her knowledge of the express terms of sale, she took full advantage of a delivery error, and did not pay Sickafus C.O.D. or in any other manner. Jean avoided Sickafus's subsequent calls and e-mails, sold his goods, and paid him nothing. I find that her acceptance of the goods without immediate payment was conscious deceptive or misleading conduct intended to deprive Sickafus of his goods. Her acceptance of the goods under such circumstances was a subterfuge used to obtain an unlawful objective. She knew that the receipt of Sickfus's goods without immediate         7 ABR 126  payment was contrary to the express terms of sale. Mrs. Palmer received Sickafus's property under false pretenses and her debt to him is excepted from discharge.

The plaintiff's debt will be excepted from discharge as to Mr. Palmer, as well. Jean was acting on behalf of her husband's business, the Alaskan Emporium, when she ordered the goods from Sickafus. Her husband benefitted from her conduct, because his store retained all the proceeds from the sale and Sickafus got nothing. Because Mr. Palmer was a beneficiary of Jean's false pretense, he is also liable for the debt and it is excepted from discharge as to him also. ⁽⁴⁾

Conclusion

The debt of the Palmers to Patrick Sickafus, together with any accrued interest and costs, is excepted from discharge. An order and judgment in favor of the plaintiff will be entered consistent with this memorandum.

DATED: June 19, 2001.

BY THE COURT



DONALD MacDONALD IV
United States Bankruptcy Judge

N O T E S:

1.     In addition to the cost of the goods, the defendants were charged $359.20, for a total of $4,507.20. Overdue accounts were subject to a 1.5% monthly delinquent charge, or interest at an annual rate of 18%. See Invoice attached as Ex. A to the plaintiff's complaint.

2.     Gentry v. Kovler (In re Kovler), 249 B.R. 238, 261 (Bankr. S.D.N.Y. 2000).

3.     Grogan v. Garner, 479 U.S. 279 (1991).

4.     Boston Mortgage Corp. v. Ledford (In re Ledford), 970 F.2d 1556, 1561 (6th Cir. 1992).