Memorandum of Decision Re: Dischargeabiltiy

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re MICHAEL and ROXANNE DONOVAN,                                       No. 1-88-00296      Debtors. ____________________________/ LARRY D. TURNER,      Plaintiff,    v.                                                                                                  A.P. No. 1-88-0070 MICHAEL and ROXANNE DONOVAN,      Defendants. _____________________________/
Memorandum of Decision
     In July, 1987, plaintiff Larry Turner was a barn and fence contractor and defendant Michael Donovan was an installer of high tensile fencing. They had done some prior business together, and Turner asked Donovan if he wished to do the fence installation on two of Turner's jobs. Donovan first declined to take the work because distance between the jobs and his home, but later changed his mind because he wanted to do some hunting in the area where the jobs were located.      All of the business dealings between Turner and Donovan were oral, so it is impossible to say with certainty exactly what the terms of their agreements were. It is clear, however, that the nature of their agreement was very fluid, and changed both before the work was started and after commencement, when problems arose with both the location of the fencing and the soil. It is further clear that neither Turner nor Donovan was in good financial shape, with Turner trying to recover after a recent bankruptcy and Donovan on the verge of his.      Although Turner paid Donovan more or less in accordance with the original contract terms, Donovan felt that he was entitled to more because of additional work he was doing. Things became very ugly between Donovan and the local workers he had hired when he could not pay them. On August 17, 1987, he told Turner he desperately needed additional funds to pay the workers. Turner gave him a check for $800, with the notation that it was a loan against the job. At or about the same time, Donovan left some tools and other possessions with Turner. Donovan claims that the items were left with Turner for safekeeping, as he was returning home for the weekend and had nowhere else to store them. Turner claims that they were put up as collateral to secure Donovan's performance and the $800 loan. Because Turner had the opportunity to get the agreement in writing and failed to do so, and because the circumstances and the sparse evidence favors Donovan, the Court is inclined to believe Donovan's version of the facts. However, a formal finding on this issue is not necessary to a resolution of this case.      When Donovan returned, Turner gave him back the tools he needed to perform his work but not his other possessions, which were of some value. Donovan became convinced that Turner was dishonest and did not intend to pay him, a belief apparently fueled by some locals who attributed some sort of dishonesty to Turner as a result of his bankruptcy. For his part, Turner became convinced that Donovan would not or could not complete his work. Relations between the two broke down completely; Donovan left, and Turner hired someone else to complete the work. Donovan telephoned the owners of the property to find out what had happened on the jobs, and when he learned that Turner had been paid in advance on the jobs he became enraged because he felt Turner had told him differently. Donovan told the owners that Turner was dishonest and did not know how to build fences.      Although Donovan scheduled Turner in his bankruptcy papers as a debtor of his, in this action Turner seeks to have his claims declared nondischargeable on three grounds. First, he alleges that Donovan fraudulently represented that he would show up with two fully trained crews, and did not do so. Second, he alleges that Donovan "converted" his collateral by refusing to return his own tools to Turner to be held until the work was done. Third, he alleges that Donovan slandered him to the property owners.      Resolving the fraud issues are not difficult. There is absolutely nothing to establish the alleged misrepresentation except Turner's claim that Donovan said that he would bring two full experienced crews with him. Donovan flatly denies making the statement, and it is clear that Turner continued to deal normally with Donovan even after he knew the full extent of Donovan's crew. Moreover, even if the Court could find by clear and convincing evidence that Donovan did promise to have two full crews with him, his failure to do so would only constitute breach of contract. The elements of fraudulent intent and moral turpitude necessary to establish a case under section 523(a)(2) of the Bankruptcy Code are entirely absent.      The conversion issues are even easier to resolve; had they been brought alone sanctions for frivolousness might have been appropriate. Firstly, the Court does not find that any security interest was created. The circumstances make it more likely that Donovan did not agree to put up his possessions as collateral. Turner had the opportunity to put the alleged security agreement in writing, and his failure to do so is fatal to his case. Secondly, there is no evidence that the "collateral" has been sold, destroyed, or otherwise converted; Donovan merely refuses to return his tools to Turner. This conduct is at most breach of contract, not conversion, even if there was a security agreement.      Without deciding whether Turner had a legal right to refuse to return Donovan's possessions, it is clear that Donovan felt that Turner was acting illegally, and that there was a reasonable basis for this belief. Additionally, in his own mind he felt that he was entitled to further payment for his work which Turner was not going to honor. While the Court does not condone Donovan's conduct in telling Turner's customers that Turner was dishonest, even a reckless disregard for the truth cannot support a claim under section 523(a)(6) of the Code based on slander. Matter of Kasler (9th Cir.1979) 611 F.2d 308, 310-11.      For the foregoing reasons, Turner shall take nothing by his complaint and this matter shall be dismissed with prejudice. Each side shall bear its own costs.      This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052. Counsel for Donovan shall submit an appropriate form of judgment.
Dated: October 20, 1988                                                                              ________________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy