• Federal Court
  • U.S. Bankruptcy Court
  • 10-50868
  • Sep 06 2012 (Date Decided)
  • Shiff, J.

A contractor who induces a subcontractor to work as a result of "false pretenses, a false representation, or actual fraud" may not be allowed to discharge the debt in Chapter 7.  Allegedly, Aqua Scapes LLC agreed to build a swimming pool for a contractor, Frank Giaccio, in return for $70,100. Giaccio paid $8,000 and, on the first day of work, Giaccio allegedly provided Aqua Scapes' representative a check in the amount of $58,000 and asked that Aqua Scapes wait two days to deposit the check. The check did not clear, and Aqua Scapes stopped working on the pool. Giaccio allegedly asked Aqua Scapes to return to work and provided a $20,000 check. Aqua Scapes returned to work. The $20,000 check did not clear, and Aqua Scapes stopped working. Giaccio allegedly provided a $20,000 bank check that cleared. Aqua Scapes asked the Bankruptcy Court to find that the debt was not dischargeable in Giaccio's Chapter 7 bankruptcy case. To prevail, Aqua Scapes was required to prove that the debtor made a false representation that he knew was false; the defendant made the representation to deceive or to induce the creditor to act to the creditor's detriment; and the creditor relied on the representation to the creditor's detriment. The Bankruptcy Court found that Giaccio falsely represented that the $58,000 check would clear, knowing that the representation was false when he made it, and that Aqua Scapes relied on that representation when it began working on the swimming pool. When Aqua Scapes stopped working, Giaccio induced its agent to believe he would pay the full contract price, and supported the inducement with a $20,000 check. Aqua Scapes proved that the debt was not dischargeable, because it resulted from "false pretenses, a false representation, or actual fraud," pursuant to 11 United States Code §23(a)(2). The Bankruptcy Court subtracted the amount paid ($28,000) and the value of work that was not completed ($11,000) from the $70,100 contract price, and found that Giacco owed $31,100 and that the debt was not dischargeable in Chapter 7.