IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: :

:

DARRELL D. DEFALCO, :

: Bankruptcy No. 05-38198-MBM

 Debtor. :

................................................................:...............................................................

Steven Taylor and Patricia Taylor, : Chapter 7

Plaintiffs, :

:

v. : Adversary No. 06-2183-MBM

:

Darrell D. DeFalco, :

Defendant. :

MEMORANDUM

AND NOW, this 13th day of November, 2006, upon consideration of the

adversary complaint filed by Steven and Patricia Taylor (hereafter “the Taylors”),

wherein they seek (a) to have their $12,500 pre-petition claim against Darrell

DeFalco, the instant debtor (hereafter “the Debtor”), declared nondischargeable

pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4), and (b) an award of

reasonable attorney’s fees for their prosecution of the instant adversary

proceeding;

and after notice and a trial on the matter held on November 8, 2006,

it is hereby determined that the Court shall issue an order to the

effect that (a) the Taylors’ $12,500 claim is nondischargeable pursuant to

§ 523(a)(2)(A), that is such claim is thereby excepted from the Debtor’s Chapter

7 discharge, and (b) the Taylors are also entitled to, and the Debtor shall thus

pay to the Taylors, reasonable attorney’s fees in an amount to be determined

after the Taylors submit a written fee application to the Court. The rationale for

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the Court’s decision is briefly set forth below.

First, the Court holds that the Debtor is not a fiduciary within the meaning

of § 523(a)(4), which holding, in turn, compels a holding that the Taylors’ claim is

not excepted from discharge pursuant to § 523(a)(4).

Second, the Court holds that the Taylors’ claim is nondischargeable

pursuant to § 523(a)(2)(A) on the basis that the Debtor fraudulently

misrepresented to the Taylors, at the time when he obtained a $12,500 deposit

from them for work to be done, that he intended to perform such work. Crucial to

such decision by the Court are the following findings and/or conclusions:

(a) The Debtor is individually liable to the Taylors with respect to their $12,500

claim because (i) the Debtor executed the relevant contracts with the

Taylors in his personal capacity rather than in a corporate capacity on

behalf of his wholly-owned corporation, and (ii) the Debtor is individually

liable in any event for torts that he personally and actively commits on

behalf of a corporation such as, for instance, the fraud which the Court

finds that he committed upon the Taylors, see Donsco, Inc. v. Casper

Corp., 587 F.2d 602, 606 (3rd Cir. 1978) (discussing Pennsylvania law);

and

(b) The Court can base its conclusion that the Debtor committed a fraud upon

the Taylors solely upon the documentary evidence admitted into the

record, as well as the oral testimony of the Debtor and the Taylors. 

However, the Court also found to be compelling – and, thus, supportive of

the instant decision – the trial testimony of the three additional witnesses

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“The Federal Rules of Evidence ... apply in cases under the [Bankruptcy]

Code.” Fed.R.Bankr.P. 9017, 11 U.S.C.A. (West 2005).

3

produced by the Taylors, each of whom testified similarly that they gave

the Debtor money upfront in return for a promise by the Debtor to perform

services, which services were ultimately never performed. Such

testimonial evidence was introduced by the Taylors to establish that the

Debtor possessed an intent to defraud such witnesses and, thus, also

possessed a similar intent subsequently with respect to the Taylors. The

Debtor objected to the introduction of such testimony, which objection the

Court overruled – and it believes properly – pursuant to Federal Rules of

Evidence Rule 404(b). See Fed.R.Evid. 404(b), 28 U.S.C.A. (West 2001)

(“Evidence of other crimes, wrongs, or acts is not admissible to prove the

character of a person in order to show action in conformity therewith. It

may, however, be admissible for other purposes, such as proof of ... intent

....”).1

Finally, the Court’s award of attorney’s fees is allowable pursuant to

Fed.R.Bankr.P. 7008(b) and 7054(b).

BY THE COURT

 /s/ 

M. BRUCE McCULLOUGH,

U.S. Bankruptcy Judge

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: :

:

DARRELL D. DEFALCO, :

: Bankruptcy No. 05-38198-MBM

 Debtor. :

................................................................:...............................................................

Steven Taylor and Patricia Taylor, : Chapter 7

Plaintiffs, :

:

v. : Adversary No. 06-2183-MBM

:

Darrell D. DeFalco, :

Defendant. :

ORDER OF COURT

AND NOW, this 13th day of November, 2006, for the reasons set forth in

the accompanying Memorandum of the same date, it is hereby ORDERED,

ADJUDGED, AND DECREED that (a) the $12,500 claim of plaintiffs Steven and

Patricia Taylor (hereafter “the Taylors”) is NONDISCHARGEABLE pursuant to

§ 523(a)(2)(A), that is such claim is thereby excepted from the Chapter 7

discharge of Darrell DeFalco, the instant debtor (hereafter “the Debtor”), and (b)

the Taylors are entitled to, and the Debtor shall thus pay to the Taylors,

reasonable attorney’s fees in an amount to be determined after the Taylors

submit a written fee application to the Court.

BY THE COURT

 /s/ 

M. BRUCE McCULLOUGH,

U.S. Bankruptcy Judge

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cm: Robert A. Felkay

Suite 820 Grant Building

330 Grant Street

Pittsburgh, PA 15219

John J. Romza, Esq.

Covelli Law Offices

357 Regis Avenue

Pittsburgh, PA 15236

Charles O. Zebley Jr., Esq.

Chapter 7 Trustee

P. O. Box 2121

Uniontown, PA 15401

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