In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2757
IN RE:
G ERALD W. D AVIS, JR.
Debtor.
L INDA R EEVES,
Appellant,
v.
G ERALD W. D AVIS, JR.,
Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:10-cv-108-JMS-TAB—Jane Magnus-Stinson, Judge.
A RGUED JANUARY 10, 2011—D ECIDED M ARCH 14, 2011
Before F LAUM and W ILLIAMS, Circuit Judges, and
H ERNDON, District Judge.
The Honorable David R. Herndon, Chief Judge of the
United States District Court for the Southern District of
Illinois, sitting by designation.
2 No. 10-2757
F LAUM, Circuit Judge. In 2007, Linda Reeves obtained
a money judgment against Gerald Davis in Indiana
state court for a violation of the Indiana Home Improve-
ment Contracts Act (“the Act”), Ind. Code (“IC”) §§ 24-5-
11-1 et seq. The Indiana Code provides that a home im-
provement supplier who violates the Act “commits a
deceptive act.” IC § 24-5-11-14.
Davis filed for bankruptcy on October 25, 2007, before
satisfying the Indiana state court judgment. As part of
the bankruptcy proceedings, Reeves filed an adversary
action against Davis, seeking to have the $77,000 judg-
ment declared non-dischargeable pursuant to 11 U.S.C.
§ 523(a)(2)(A). Based on the Indiana court’s finding
that Davis had committed a “deceptive act,” Reeves
alleged that Davis had engaged in fraudulent conduct.
The bankruptcy court determined that the debt was
dischargeable, finding that Davis lacked the requisite
intent to deceive or defraud. On appeal, the district
court affirmed, as do we, for the reasons set forth below.
I. Background
In 2006, Reeves hired Davis, who advertised himself as
a “licensed and insured” contractor, to renovate her
home in Monroe County, Indiana. Despite his advertise-
ments, Davis held no license in Monroe County. Indeed,
the county has no licensing requirement for contractors.
Reeves paid Davis $57,250—most of the agreed-upon
$63,000 price tag—and he began work on her home. In
early October 2006, Davis walked off the job without
completing the renovations.
No. 10-2757 3
Reeves sued Davis in Indiana state court to recover
damages. Following a trial, the state court entered judg-
ment in favor of Reeves, finding that Davis had violated
Indiana Code § 24-5-11-10. That section of the Indiana
Home Improvements Contracts Act requires home im-
provement suppliers to “provide a completed home
improvement contract to the consumer before it
is signed by the consumer.” Davis provided Reeves
with only a very general description of the work to be
done, which did not bear her signature. Pursuant to IC
§ 24-5-11-14, a home improvement supplier who vio-
lates the Act “commits a deceptive act that is action-
able . . . under IC § 24-5-0.5-4(a).” Thus, the court also
found that Davis had committed a “deceptive act.”
The state court made a number of factual findings
on which Reeves now relies. In particular, the state
court found that Davis had agreed to construct a
covered porch. That porch was never built. In reaching
that conclusion, the court acknowledged Davis’s testi-
mony that the contract did not include a porch. How-
ever, in light of the contract’s lack of specificity, the
court elected to resolve any certainty regarding the con-
tract against Davis. The court also found that Davis
stopped working “without justification or excuse,” and
that “much of the work he did complete is defective
and must be replaced.” The state court entered judg-
ment in favor of Reeves for $77,015.98.
Davis filed for bankruptcy before satisfying the state
court judgment against him. Reeves initiated an action
in the bankruptcy court pursuant to § 523(a)(2)(A) of
4 No. 10-2757
the Bankruptcy Code, which precludes a debtor from
receiving a discharge from any debt obtained by “false
pretenses, a false representation, or actual fraud.” 11
U.S.C. § 523(a)(2)(A). Reeves argued that because the
Indiana court found that Davis had committed a “decep-
tive act,” his debt to her was non-dischargeable under
§ 523(a)(2)(A). According to Reeves, principles of col-
lateral estoppel require a finding of non-dischargability.
The bankruptcy court conducted its own trial, at which
Reeves presented a drawing Davis had given her that
included a porch. Davis testified (as he had in the state
court trial) that he did not agree to build a porch, and
that, consequently, he never intended to build one. With
respect to the drawing, Davis testified that the porch
was on Reeves’s “wish list,” but was not included in
the contract price.
The bankruptcy court rejected Reeves’s collateral
estoppel argument, reasoning that a finding of non-
dischargability under § 523(a)(2)(A) requires fraudulent
intent, an element not required for a violation of the
Indiana Home Improvement Contracts Act. The bank-
ruptcy court also found that the state court had made
no finding regarding Davis’s intent. Over Reeves’s ob-
jection, the bankruptcy court made its own findings of
fact. Relevant to this appeal is the bankruptcy court’s
finding that the contract may not have included a
porch. In addition, the bankruptcy court credited Davis’s
testimony that he took the job intending to finish it,
but that he eventually refused to do so because Reeves
was a difficult customer. On December 9, 2009, the bank-
ruptcy court ruled that Davis’s debt was dischargeable.
No. 10-2757 5
On appeal to the district court, Reeves argued that the
bankruptcy court erred in finding that Davis lacked the
intent necessary for the application of § 523(a)(2)(A).
Reeves also argued that Davis acted fraudulently by
misrepresenting himself as a “licensed” contractor,
when in fact he held no license in Monroe County. The
district court declined to address the licensing argu-
ment, on the grounds that it was neither sufficiently
pled in the complaint, nor raised before the bankruptcy
court. The district court went on to affirm. It agreed
with the bankruptcy court that the state court had made
no finding regarding Davis’s state of mind, and con-
cluded that the bankruptcy court’s factual finding as to
Davis’s intent was not clearly erroneous.
II. Discussion
To receive an exception from discharge under 11 U.S.C.
§ 523(a)(2)(A), Reeves was required to show the
following: (1) that Davis made a false representation or
omission, which he either knew was false or made with
reckless disregard for the truth; (2) that Davis pos-
sessed an intent to deceive or defraud; and (3) that
Reeves justifiably relied on the false representation. See
Ojeda v. Goldberg, 599 F.3d 712, 716-17 (7th Cir. 2010);
Matter of Maurice, 21 F.3d 767, 777 (7th Cir. 1994). At
issue here is the second element—Davis’s intent. The
question of Davis’s intent has its origins in the
bankruptcy court. Therefore, our review focuses on the
bankruptcy court’s actions. Ojeda, 599 F.3d at 716. Like
the district court, we review the bankruptcy court’s
6 No. 10-2757
findings of fact for clear error and conclusions of law
de novo. Id. Whether the issue of intent was litigated
and resolved in the state court action, as required for
application of collateral estoppel, is question of law. E.B.
Harper & Co., Inc. v. Nortek, Inc., 104 F.3d 913, 922 (7th
Cir. 1997). Whether Davis possessed the requisite
intent is a question of fact, which is subject to the
highly deferential “clearly erroneous” standard of
review. See Carini v. Matera, 592 F.2d 378, 380 (7th Cir.
1979) (citations omitted).
As noted above, Reeves must demonstrate that
Davis made a false representation or omission. In the
bankruptcy court, she relied on Davis’s failure to fulfill
his alleged promise to construct a porch to satisfy
that element. Now, she relies on four additional
incidents: (1) Davis’s misrepresentation of his status as
a licensed contractor; (2) the fact that the work Davis
did perform was defective; (3) Davis’s failure to
complete the job; and (4) the fact that Davis took pay-
ment from Reeves for work he never performed and
materials he never bought.
We begin with the primary basis for Reeves’s fraud
claim—Davis’s failure to build the porch, which she
maintains was part of the home renovation contract.
According to Reeves, collateral estoppel principles re-
quired the bankruptcy court to credit the state court’s
factual finding that Davis agreed to construct a porch.
Reeves maintains that that finding, together with
Davis’s testimony that he never intended to build the
porch, is sufficient to establish fraudulent intent.
No. 10-2757 7
Reeves is correct that the findings made by the
Indiana state court were entitled to collateral estoppel
effect in the subsequent bankruptcy proceeding. See
In re Catt, 368 F.3d 789, 792 (7th Cir. 2004) (concluding
that finding of fraud made against debtor in Indiana
state court proceeding could not be relitigated in later
bankruptcy proceeding under collateral estoppel princi-
ples). Therefore, the bankruptcy court should have de-
ferred to the state court’s finding that a porch was
included in the contract. However, as explained below,
that fact does not undermine that bankruptcy court’s
conclusion as to Davis’s intent. Consequently, to the
extent that the bankruptcy court disregarded the state
court’s conclusion that the porch was part of the con-
tract, that error was harmless.
The fact that the porch was part of the contract and
that Davis did not build it establishes only breach of
contract, not fraud. See United States ex rel. Main v. Oakland
City University, 426 F.3d 914, 917 (7th Cir. 2005) (“failure to
honor one’s promise is (just) breach of contract, but
making a promise that one intends not to keep is
fraud”). The key question is what Davis intended.
Reeves’s argument that the state court addressed intent
is based on a broad reading of the state court’s factual
findings. Specifically, Reeves reads the state court’s
finding that “Davis agreed to construct a covered porch”
as “Davis [knowingly promised] to construct a covered
porch.” However, other portions of the state court
opinion, particularly the court’s decision to construe
all uncertainty against Davis, indicate that a more
narrow reading is appropriate. In the context of the
entire state court opinion, we read the state court’s
8 No. 10-2757
finding as “Davis [contracted] to construct a covered
porch.” That finding says nothing about Davis’s intent
at the time he entered into the contract. Because the
state court made no determination as to intent, collateral
estoppel did not prevent the litigation of that issue in
the bankruptcy court.
We review the bankruptcy court’s finding that Davis
intended to perform the work he reasonably believed
the contract required for clear error. In an effort to dem-
onstrate error, Reeves points to Davis’s testimony that
he never intended to build the porch. But that testi-
mony is inseparable from his testimony that he did not
believe that the agreement included a porch. The bank-
ruptcy court credited Davis’s testimony regarding his
intentions. We cannot say that it clearly erred in doing
so. See Carnes Co. v. Stone Creek Mech., Inc., 412 F.3d 845,
848 (7th Cir. 2005) (noting that this Court affords “defer-
ence to the trial court’s assessment of witness credibil-
ity,” and recognizing that a trial court’s credibility deter-
mination “can virtually never amount to clear error”)
(citation omitted).
At bottom, this case involves a miscommunication, not
fraud. Reeves and Davis had different understandings
of what was included in the contract. The state court
found Reeves’s understanding to be the correct one. But
only if Davis in fact shared her understanding of the
contract, and intended not to see it through, did Davis
commit fraud. As noted above, we conclude that the
bankruptcy court’s finding that Davis did not share
Reeves’s view that the contract called for a porch was not
clearly erroneous.
No. 10-2757 9
We now turn to the remaining allegations of fraud on
which Reeves relies. With respect to Davis’s status as a
licensed contractor, Reeves’s complaint does not men-
tion the licensure issue. It merely cites the state court
decision, which in turn does not discuss Davis’s quali-
fications or any related misrepresentations. Thus, as the
district court correctly noted, fraud based on Davis’s
claim that he was licensed was not adequately pled to
satisfy Rule 8(a), let alone the more stringent Rule 9(b)
standard that applies here. Moreover, Reeves waived the
issue by failing to raise it in the summary judgment
briefing in the bankruptcy court. See Matter of Weber, 25
F.3d 413, 415 (7th Cir. 1994) (issues not raised in the
bankruptcy court are waived at the district court level).
The last three bases of Reeves’s appeal—the defective
nature of Davis’s work, Davis’s failure to complete the
job, and Davis’s acceptance of payment for unfinished
work and unpurchased materials—are non-starters for
two reasons. First, none of these issues was raised in
either the bankruptcy court or the district court as a
basis for applying § 523(a)(2). Therefore, the arguments
have been waived. Second, Reeves does not even at-
tempt to show fraudulent intent with respect to these
incidents, as is required for the application of § 523(a)(2).
Specifically, she does not contend that Davis promised
good work but intended all along to do defective
work, that Davis took the job planning to abandon
it unfinished, or that Davis intended not to finish the
work or purchase the materials when he took the
money. Thus, there can be no finding of fraudulent
intent, as is required for the application of § 523(a)(2).
10 No. 10-2757
III. Conclusion
For the foregoing reasons, we A FFIRM the judgment of
the district court.
3-14-11