Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caeb-2_18-ap-02154/USCOURTS-caeb-2_18-ap-02154-0/pdf.json

Parties Involved:
Edward Massengale
Plaintiff
Ryan Kendall Murray
Defendant

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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF CALIFORNIA

In re:

RYAN KENDALL MURRAY,

Debtor.

_______________________________

EDWARD MASSENGALE,

Plaintiff,

v.

RYAN KENDALL MURRAY,

____________________D_e_f_e_n_d_a_n_t_.___

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 Case No. 18-23938-C-7

 Adv. Pro. No. 18-2154-C

FINDINGS OF FACT AND CONCLUSIONS OF LAW

CHRISTOPHER M. KLEIN, Bankruptcy Judge:

This adversary proceeding seeks, first, to except from

discharge under 11 U.S.C. § 523(a)(2) a $34,060.43 judgment debt

based on an award by the Labor Commissioner, State of California,

and, second, to deny discharge under 11 U.S.C. § 727(a)(4).

The Plaintiff and the Defendant are each self-represented

and were the only witnesses at the trial held before the

undersigned Bankruptcy Judge.

Jurisdiction

Jurisdiction is founded on 28 U.S.C. § 1334(b). Disputes

regarding dischargeability of particular debts and objections to

discharge are core proceedings. 28 U.S.C. §§ 157(b)(2)(I) & (J). 

To the extent the dispute, or any portion thereof, ever are

deemed not to be core proceedings the parties are nevertheless

agreed that it may be heard and determined by a Bankruptcy Judge. 

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Findings of Fact

The Plaintiff, Edward Massengale, obtained a $34,060.43

money judgment against the Defendant, Ryan Kendall Murray dba All

Star Plumbing, from the Superior Court of the State of

California, County of Sacramento, based on an award made April

24, 2012, by the Labor Commissioner, State of California, in

State Case No. 08-66568-1-WH.

The Labor Commissioner determined that Plaintiff was

employed by Defendant, an individual operating a plumbing

business, to perform services as a lead technician/technician

supervisor from January 14, 2011, to June 17, 2011, in Sacramento

County, California, under the terms of an oral agreement at the

promised rate of 30 percent (30%) of job cost to customer, less

the cost of materials.

Total compensation earned during the claim period was

$34,773.12, but Defendant paid Plaintiff only $16,475.21, leaving

a balance due of $18,297.91. The Labor Commissioner awarded that

sum as wages due, plus $1,549.05 in statutory interest.

In addition, the Labor Commissioner awarded, pursuant to

California Labor Code § 203, a statutory penalty of $8,916.30 for

willful failure to pay final wages. The award decision made

clear that this penalty does not require malice or blamable

conduct; rather, all that is required is intentional failure to

pay.

The basic award of the Labor Commissioner totaled

$28,763.26, to which $4,862.17 was added by the time of the

Superior Court judgment as post-hearing interest pursuant to

Labor Code §§ 98.1(c), 1194.2 and 2802(b), plus $435.00 for

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filing fees pursuant to Labor Code § 101. Hence, the total

judgment was $34,060.43.

The testimony of Plaintiff and Defendant is consistent as to

the basic facts, albeit from their respective perspectives.

From the perspective of the Plaintiff, the Defendant made

inconsistent and incomplete payments in what was supposed to be a

twice monthly payroll. The excuse given by the Plaintiff

routinely during the employment lasting from January 14, 2011, to

June 17, 2011, was that he had to wait for checks from customers

to clear the bank settlement process. Somehow, the funds never

materialized. Finally, the Plaintiff quit in frustration.

At some time after the Plaintiff quit, he was re-employed by

the Defendant on the Defendant’s promise to make full and timely

payments, but the same pattern repeated itself.

The Plaintiff resigned for a second time and pursued a

complaint with the Labor Commissioner. That complaint addressed

only the first period of employment from January 14, 2011, to

June 17, 2011. The Labor Commissioner’s award addressed only

that first period of employment and is the award that is the

subject of this adversary proceeding.

From the Defendant’s perspective, he is a plumber who lacked

the management skills to operate a plumbing company. He did not

understand basic finance and accounting and financial controls. 

The construction environment in 2011 was particularly challenging

because of the Great Recession. He found himself and his company

overextended and never was able to catch up. 

The Defendant points out that his plumbing business

collapsed into insolvency with wage debts, tax debts, and

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contractor’s bond litigation. He adds that he lost his

contractor’s license, that he lost his residence and his

warehouse, and that he is now only able to work as a plumber

employed by others.

The Defendant testified to the effect that the situation was

a simple business failure and that he did not intend to cheat

anyone. 

Conclusions of Law

Two questions are presented: denial of discharge under

§ 727(a)(4); and dischargeability of the judgment debt based on

the Labor Commissioner’s award.

I

The denial of discharge under § 727(a)(4) requires proof by

a preponderance of evidence that the Defendant debtor “knowingly

and fraudulently”: (1) made a false oath; (2) presented or used a

false claim; (3) attempted to gain money, property, or advantage

for acting or forbearing to act; or (4) withheld recorded

information from an officer of the estate. 11 U.S.C.

§ 727(a)(4).

The complaint identifies no facts that purport to support

the allegation of any of the four independent prongs of

§ 727(a)(4).

Nor does the evidence presented at trial support a denial of

discharge under § 727(a)(4). This court, in particular,

conducted a detailed examination of the debtor regarding his

basic bankruptcy schedules and statements. Nothing emerged to

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suggest a basis for concluding that there was a false oath or

claim or an attempt to gain leverage by acting or forbearing to

act or a withholding from an officer of the estate of recorded

information.

Even if one of those alternatives could be discerned from

the evidence and the record, this court believed the Defendant’s

testimony about his business failure and is persuaded that there

is no evidence to support a finding of fraudulent intent. The

Plaintiff has not argued that such evidence exists.

Accordingly, the objection to discharge based on § 727(a)(4)

is overruled. The Defendant is entitled to entry of discharge

under § 727(a) if otherwise eligible for discharge.

II

The question becomes whether the $34,060.43 judgment debt

based on the Labor Commissioner’s award should be excepted from

discharge pursuant to § 523(a)(2) as having been obtained by

false pretenses, a false representation, or actual fraud.

The facts alleged in paragraph 5 of the Complaint focus on

false representations regarding intention to pay, said to have

been made to induce the Plaintiff to delay terminating

employment. 

The standard elements for false representation fraud are the

same as the common-law tort of intentional misrepresentation. A

representation must have been made and must have been false and

must have been known by the Defendant to be false and must have

been made to induce the Plaintiff to act and the Plaintiff must

have relied and the Plaintiff’s reliance must have been

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justifiable and damages must have been proximately caused. Turtle

Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d

1081, 1085 (9th Cir. 2000); Eugene Parks Law Corp. Defined

Benefit Plan v. Kirsh (In re Kirsh), 973 F2d 1454, 1457 (9th Cir.

1992).

Upon considering the testimony, the key element is whether

the Defendant knew his representations about payment were false

at the time he made them.

This court believed the Defendant’s testimony about the

evolution of the failure of his All Star Plumbing business and

his lack of knowledge of basic business procedures. One aspect

of that is that, at the time he said he was waiting for checks to

come in and to be cleared by the drawee banks, he expected that

sufficient funds to pay wages would eventually be realized. 

Hence, it has not been proved by a preponderance of the evidence

that the debt qualifies for exception to discharge as having been

obtained by false representation.

Mindful that actual fraud and false pretenses are, at least

conceptually, distinct alternative encompassed by § 523(a)(2),

this court has examined the record for evidence probative of

false pretenses or actual fraud and found none.

To be sure, the Plaintiff was badly treated by the Defendant

and holds a legitimate debt. Nevertheless, it does not qualify

for an exception to discharge.

Accordingly, the $34,060.43 judgment debt will not be

excepted from discharge under § 523(a)(2).

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Conclusion

Judgment after trial will be entered in a separate judgment

OVERRULING the Plaintiff’s Objection to Discharge pursuant to

§ 727(a)(4) and DISMISSING the count seeking to except

Defendant’s debt to Plaintiff from discharge pursuant to

§ 523(a)(2).

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December 20, 2019

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INSTRUCTIONS TO CLERK OF COURT

SERVICE LIST

The Clerk of Court is instructed to send the attached

document, via the BNC, to the following parties:

Edward Massengale

8631 Monica Ave

Orangevale, CA 95662

Ryan Kendall Murray

3529 Kimberly Road

Cameron Park, CA 95682 

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