# State of Indiana Dept of Workforce Development v. Beckley

> United States Bankruptcy Court, S.D. Indiana · September 30, 2019

URL: https://www.frixlaw.com/law-library/cases/10457709

## Case

- **Court:** United States Bankruptcy Court, S.D. Indiana
- **Decided:** September 30, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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ane ed States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
IN RE: )
)
VANESSA ROCHELLE BECKLEY, ) Case No. 17-04770-JMC-7
)
Debtor. )

)
STATE OF INDIANA on the relation of the )
INDIANA DEPARTMENT OF )
WORKFORCE DEVELOPMENT, )
)
Plaintiff, )
)
v. ) Adversary Proceeding No. 17-50252
)
VANESSA ROCHELLE BECKLEY, )
)
Defendant. )

FINDINGS OF FACT AND CONCLUSIONS OF LAW.
THIS PROCEEDING came before the Court for a bench trial on December 17, 2018 (the
“Trial’). Plaintiff State of Indiana on the relation of the Indiana Department of Workforce
Development (“DWD”’) appeared by counsel Amanda K. Quick. Defendant Vanessa Rochelle
Beckley (“Beckley”) appeared by counsel Thomas Scherer. At the conclusion of the Trial, the

Court took the proceeding under advisement and invited the parties to submit post-trial briefs
specifically addressing the dischargeability of the penalty portion of the Debts (as defined
below), as discussed on the record at the Trial.
The Court, having reviewed the evidence presented at the Trial, Plaintiff’s Pre-Trial Brief

filed by DWD on July 20, 2018 (Docket No. 30) (the “Brief”), Plaintiff’s Post-Trial Brief filed
by DWD on January 16, 2019 (Docket No. 38), Defendant’s Post-Trial Brief filed by Beckley on
January 30, 2019 (Docket No. 39), the Notice of Authority filed by DWD on May 1, 2019
(Docket No. 40), and the other matters of record in this adversary proceeding; having weighed
the credibility of the witnesses; having heard the presentations of counsel at the Trial; and being
otherwise duly advised, now enters the following findings of fact and conclusions of law as
required by Fed. R. Civ. P. 52, made applicable to this adversary proceeding by Fed. R. Bankr. P.
7052.
Findings of Fact
The Court makes the following findings of fact:

1. On June 26, 2017, Beckley filed a voluntary petition under chapter 7 of the United
States Bankruptcy Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”),1 in this Court.
2. On October 13, 2017, DWD filed the Complaint to Determine Dischargeability of
Debt (Docket No. 1), wherein DWD alleges that Beckley owes debts (the “Debts”) to DWD that
are nondischargeable under §§ 523(a)(2)(A) and (a)(7).
3. On October 17, 2017, Beckley received her general bankruptcy discharge.
4. Beckley worked for ADT Security (“ADT”) until she was laid off on or about
December 8, 2009.

1 All statutory references herein are to the Bankruptcy Code unless otherwise noted.
5. Up until the date when Beckley was laid off from ADT, Beckley’s only exposure
to the process of applying for unemployment benefits dated back to 2006. In 2006, an
application for unemployment benefits was submitted to DWD on paper. However, when
Beckley lost her job at ADT in 2009, the process of applying to DWD for unemployment

benefits had become an online process. When Beckley was laid off from ADT, she had neither a
computer nor access to the internet to initiate the online process of applying for unemployment
benefits. Beckley sought the assistance of Angela Smith (“Smith”), who had a computer and
access to the internet. Smith formerly worked for DWD. At the time Beckley sought Smith’s
assistance, Smith was helping others navigate the process of applying for unemployment
benefits. Beckley voluntarily provided to Smith Beckley’s social security number, birth date,
and other personal identifying information needed for Smith to file the initial application for
unemployment benefits and all weekly claims on behalf of Beckley.
6. DWD’s employee-investigator, Holli Clapp (“Clapp”), credibly testified about
DWD’s online application and claim-submission processes. DWD provides various warnings

and certifications as part of its online process for an individual to complete the initial application
for unemployment benefits (see Ex. 2). Those warnings and certifications include (a) warnings
about what earnings must be reported (“all earnings … including … part-time employment [and]
temporary employment”); (b) warnings about an applicant’s responsibility for protecting his/her
password and for the results of another person’s claiming benefits using such applicant’s
password; (c) warnings about the consequences of making false statements or failing to provide
required information; and (d) certifications that the applicant understands s/he is required to read
the Unemployment Insurance Claimant Handbook (the “Handbook”) (see Ex. 3). Beckley
credibly testified that she did not see these warnings or certifications because Smith completed
the initial application on Beckley’s behalf. Beckley also admitted that she did not read the
Handbook.
7. Each weekly claim for unemployment benefits was submitted to DWD by way of
a voucher (a “Voucher”). Various certifications are part of the online process that DWD created

when an individual completes and submits a Voucher (see Ex. 5). Those certifications include
(a) the applicant has “reported any and all work, earnings, and self-employment activity”; (b) “all
answers and information given … are true and accurate”; and (c) the applicant is “aware that if I
knowingly fail to disclose information or give false statements to receive unemployment
benefits, I may lose my unemployment benefits, be required to repay benefits received
improperly with interest and penalty …” . Clapp testified that, as far as DWD knows, Beckley
submitted each Voucher. Beckley credibly testified that every Voucher seeking benefits for
Beckley was submitted by Smith and that Beckley did not see or make these certifications.
8. As part of the online process by which Smith filed each of Beckley’s Vouchers,
the DWD website asked the question “Did you work?”, referring to a week for which benefits

were requested. Smith replied “No” on each of the 51 Vouchers (see Ex. 4) that Smith submitted
on behalf of Beckley that are relevant to this proceeding. At the time each of those 51 Vouchers
was submitted, Beckley was employed on a temporary and/or part-time basis.2
9. Around May 31, 2011, Beckley was able to secure temporary/part-time
employment at Centene Management Company (“Centene”). Beckley advised Smith of her new
employment status. Beckley credibly testified that Smith responded that Beckley was eligible to
receive unemployment benefits as long as the Centene job remained temporary/part-time. In

2 At times, the record is contradictory as among “temporary” employment, “part-time” employment, or
“temporary part-time” employment. The Court could not reconcile this discrepancy in each instance other than to
find that Beckley’s employment during the Relevant Period (as defined below) was not full-time. The Court need
go no further as the distinction between “temporary” and “part-time” is not material to the Court’s decision.
reliance on Smith’s assurance of eligibility, Beckley allowed Smith to continue submitting
Vouchers on her behalf, notwithstanding her temporary/part-time employment at Centene.
10. Beckley credibly testified that, while she was working for Centene, DWD sent her
by mail some unemployment-related forms to complete. Beckley consulted with Smith about the

forms. Smith advised Beckley to complete the forms accurately and that, if Beckley was still
eligible for unemployment benefits, another Voucher would “come available” the following
Sunday. Beckley further testified that she completed and submitted the forms and therein
(1) disclosed to DWD that she was employed by Centene on a temporary/part-time basis; and
(2) provided supporting documentation with respect to the wages that she was earning from
Centene.3 After Beckley made that disclosure, DWD continued to make Vouchers available to
Beckley and Beckley continued to receive unemployment benefits, which reinforced to Beckley
the accuracy of Smith’s representation that temporary/part-time employment did not disqualify
Beckley from receiving unemployment benefits. Smith continued to submit Vouchers on
Beckley’s behalf.

11. On October 15, 2014, DWD sent to Beckley a letter (see Ex. 12) prepared by
Clapp. Clapp’s letter alerted Beckley, apparently for the first time, that DWD had information
that Beckley may have received unemployment benefits to which she was not entitled because
Beckley “may have failed to properly disclose her employment and earnings” for various weeks
ending between August 21, 2010 and September 24, 2011 (the “Relevant Period”) with four
different employers, including Centene, Adecco USA Inc., Kelly Services Inc. and Premier

3 These forms were not presented for admission into evidence at the Trial.
Credit of North America (collectively, the “Employers”).4 In that letter, DWD asked for
Beckley’s response in a sworn statement using the form enclosed with the letter.
12. On or about October 31, 2014, Beckley submitted a responsive sworn statement to
DWD (see Ex. 13). In response to the question, “Why did you fail to properly report your

earnings from CENTENE MANAGEMENT COMPANY LLC when you claimed benefits
during weeks ending 6/4/11-9/24/11?”, Beckley responded “I did. Unemployment sent me some
forms. I advised I was part time & the wages I was earning. When my voucher was still
available, I thought I could still file because I was part time.” (see Ex. 13, Q. 21, p. 5). In
response to the same question regarding the other three Employers, Beckley answered “Because
it was temporary”, “someone filed online for me” and/or “not sure” (see Ex. 13, Qs. 17, 18 and
20, pp. 4-5). Beckley’s written response to DWD in 2014 is consistent with her testimony at the
Trial (see ¶¶ 9-10 above). At all times during the Relevant Period, Beckley’s employment and
earnings were on a temporary/part-time basis.
13. On November 17, 2014, DWD sent to Beckley three “determinations” (see Ex.

14) prepared by Clapp notifying Beckley that DWD had concluded that Beckley “knowingly
failed to disclose, or falsified material facts” in the Vouchers based on Beckley’s failure to
disclose that she was employed by and receiving wages from the Employers during the Relevant
Period. Such determinations also notified Beckley of her right to appeal from that conclusion.5

4 The letter also references employer ADT Security Services Inc., but such employer is not listed in the
“Investigator’s Case History” referenced in and attached to such letter.

5 Beckley did not appeal DWD’s determinations.
14. DWD asserts that the amount of the Debts that Beckley owes to DWD is
$32,246.606 (see Ex. 1), which consists of the amount of the overpayments ($19,023), interest
($2,236.08) plus penalties ($11,119.50), less any payments or offsets ($131.98).
15. DWD presented no evidence to counter Beckley’s testimony that (1) Beckley did

not review DWD’s website prior to the submission of any Voucher; (2) Beckley was unaware of
the precise content of the Vouchers submitted by Smith on her behalf; and (3) Beckley did not
intend to make any false representation to DWD or otherwise defraud DWD with respect to the
submission of any Voucher.
16. Beckley testified that when her employment status changed from temporary/part-
time to full-time status around September-October 2011, she told Smith that she no longer
needed to apply for unemployment benefits. Smith stopped submitting Vouchers on behalf of
Beckley.
17. The Court finds that Beckley’s testimony was credible and worthy of belief.
Conclusions of Law

1. Any finding of fact above will also be a conclusion of law, and any conclusion of
law will also be a finding of fact to support the judgment of the Court.
2. This Court has jurisdiction in this matter pursuant to 28 U.S.C. §§ 1334 and 157.
3. This adversary proceeding is a core proceeding pursuant to 28 U.S.C.
§ 157(b)(2)(I).
4. Venue is proper in this matter pursuant to 28 U.S.C. §§ 1408 and 1409.

6 This amount is inconsistent with the totals listed on Exs. 16 and 17. The Court takes judicial notice of
DWD’s proof of claim filed in Debtor’s bankruptcy case to reconcile the differences and believes, based on the
proof of claim and Clapp’s explanations at the Trial of her handwritten notations on Exs. 16 and 17, that the amount
in the affidavit admitted as Ex. 1, though it omits a precise figure for the interest that has accrued, is the accurate
amount of the Debts.
5. Exceptions to discharge under § 523 “are to be [construed] strictly against a
creditor and liberally in favor of the debtor.” Goldberg Sec., Inc. v. Scarlata (In re Scarlata),
979 F.2d 521, 524 (7th Cir. 1992) (quoting In re Zarzynski, 771 F.2d 304, 306 (7th Cir. 1985)).
“The burden is on the objecting creditor to prove exceptions to discharge.” Id. (citation omitted).

The burden of proof required is a preponderance of the evidence. Grogan v. Garner, 498 U.S.
279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
6. In the Brief, DWD asserts that the issues before the Court are:
1. Whether [DWD’s] claim for the fraudulent overpayment of unemployment
benefits and pre-petition interest is excepted from discharge pursuant to 11
U.S.C. § 523(a)(2)(A)?

2. Whether the civil penalties associated with [DWD’s] claim for
overpayment of unemployment benefits are excepted from discharge
pursuant to 11 U.S.C. § 523(a)(7)?

Issue #1 - § 523(a)(2)(A)
7. Section 523(a) provides, in relevant part:
A discharge under section 727 … of this title does not discharge an
individual debtor from any debt –
…
(2) for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by –
(A) false pretenses, a false representation, or actual fraud … .

8. The Seventh Circuit Court of Appeals distinguishes material differences among
the three possible grounds for nondischargeability under § 523(a)(2)(A) and has formulated two
different tests, one for both “false pretenses” and “false representation” and another for “actual
fraud.” See Rae v. Scarpello (In re Scarpello), 272 B.R. 691, 699-700 (Bankr. N.D. Ill. 2002)
(citing McClellan v. Cantrell, 217 F.3d 890, 894 (7th Cir. 2000)).
9. To prevail on a nondischargeability claim under the “false pretenses” or “false
representation” theory, a creditor must prove all of the following elements: “(1) the debtor made
a false representation or omission, (2) that the debtor (a) knew was false or made with reckless
disregard for the truth and (b) was made with the intent to deceive, (3) upon which the creditor
justifiably relied.” Ojeda v. Goldberg, 599 F.3d 712, 716-17 (7th Cir. 2010).
10. “What constitutes ‘false pretenses’ in the context of § 523(a)(2)(A) has been

defined as ‘implied misrepresentations or conduct intended to create and foster a false
impression.’ ” Mem’l Hosp. v. Sarama (In re Sarama), 192 B.R. 922, 927 (Bankr. N.D. Ill.
1996) (quoting Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 959 (Bankr. N.D. Ill.
1995) (quotations omitted)). “False pretenses do not necessarily require overt
misrepresentations. Instead, omissions or a failure to disclose on the part of the debtor can
constitute misrepresentations where the circumstances are such that omissions or failure to
disclose create a false impression which is known by the debtor.” Id. at 928 (citation omitted).
11. A “false representation” is an express misrepresentation that can be shown by the
debtor’s written statement, spoken statement or conduct. Deady v. Hanson (In re Hanson), 432
B.R. 758, 772 (Bankr. N.D. Ill. 2010) (citing Bletnitsky v. Jairath (In re Jairath), 259 B.R. 308,

314 (Bankr. N.D. Ill. 2001)). “A debtor’s failure to disclose pertinent information may be a false
representation where the circumstances imply a specific set of facts and disclosure is necessary
to correct what would otherwise be a false impression.” Id. (citing Trizna & Lepri v. Malcolm
(In re Malcolm), 145 B.R. 259, 263 (Bankr. N.D. Ill. 1992)). “An intentional falsehood relied on
under § 523(a)(2)(A) must concern a material fact.” Scarpello, 272 B.R. at 700 (citing Jairath,
259 B.R. at 314).
12. Justifiable reliance is an intermediate level of reliance which is less stringent than
“reasonable reliance” but more stringent than “reliance in fact.” See Field v. Mans, 516 U.S. 59,
72-73, 116 S.Ct. 437, 445, 133 L.Ed.2d 351 (1995). Justifiable reliance requires only that the
creditor did not “blindly [rely] upon a misrepresentation the falsity of which would be patent to
him if he had utilized his opportunity to make a cursory examination or investigation” and
imposes no duty on the creditor to investigate unless the falsity of the representation is readily
apparent. Id. at 71 (quotations omitted). Justifiable reliance is not measured from the objective

person standard, but rather from the experiences and characteristics of the particular creditor. Id.
(quotation omitted).
13. “Scienter, or intent to deceive, is … a required element under § 523(a)(2)(A)
whether the claim is for a false representation, false pretenses, or actual fraud.” Gasunas v. Yotis
(In re Yotis), 548 B.R. 485, 495 (Bankr. N.D. Ill. 2016) (citation omitted).
14. A debtor’s intent to deceive for purposes of the false pretenses and false
representation prongs on § 523(a)(2)(A) “is measured by a debtor’s subjective intention at the
time the representation was made.” Scarpello, 272 B.R. at 700 (citing Mercantile Bank v.
Canovas, 237 B.R. 423, 428 (Bankr. N.D. Ill. 1998)). “Because direct proof of fraudulent intent
is often unavailable, fraudulent intent may be inferred from the surrounding circumstances.”

Hanson, 432 B.R. at 773 (internal citations omitted).
15. “[A]ctual fraud is broader than misrepresentation”, McClellan, 217 F.3d at 893, in
that neither a debtor’s misrepresentation nor a creditor’s reliance is necessary to prove
nondischargeability for “actual fraud.” Scarpello, 272 B.R. at 700 (citing McClellan, 217 F.3d at
894). “Actual fraud” is defined as “any deceit, artifice, trick, or design involving direct and
active operation of the mind, used to circumvent and cheat another” which includes “all surprise,
trick, cunning, dissembling, and any unfair way by which another is cheated.” McClellan, 217
F.3d at 893 (quotations omitted). See also Husky Int’l Elec., Inc. v. Ritz, -- U.S. --, 136 S.Ct.
1581, 1586, 194 L.Ed.2d 655 (2016) (“The word ‘actual’ has a simple meaning in the context of
common-law fraud: It denotes any fraud that ‘involv[es] moral turpitude or intentional wrong.’”)
(quotation omitted). In such cases, a creditor must prove “(1) a fraud occurred; (2) the debtor
intended to defraud the creditor; and (3) the fraud created the debt that is the subject of the
discharge dispute.” Hanson, 432 B.R. at 772 (citing McClellan, 217 F.3d at 894).

16. “[T]he focus of an ‘actual fraud’ claim is on the defendant's state of mind at the
time of his purportedly fraudulent conduct.” Merritt v. Wiszniewski (In re Wiszniewski), 2010
WL 3488960 at *5 (Bankr. N.D. Ill. 2010) (citation omitted).
17. The Court concludes that DWD failed to sustain its burden of proof that Beckley
obtained unemployment benefits by “false pretenses, a false representation, or actual fraud” in
connection with the Vouchers submitted to DWD. Instead, as detailed above in the findings of
fact, the Vouchers were submitted not by Beckley but by Smith. Smith provided Beckley with
advice and guidance concerning Beckley’s eligibility for unemployment benefits and the process
of applying for such benefits. Beckley knew and understood Smith to be a former DWD
employee. Beckley accurately described to Smith her temporary/part-time employment status in

connection with the Vouchers. The Vouchers were submitted by Smith on Beckley’s behalf,
based upon Smith’s direction and advice that Beckley’s temporary/part-time employment did not
disqualify Beckley from receiving the unemployment benefits that were subjects of the
Vouchers. Beckley directed Smith to stop submitting Vouchers as soon as her employment
status changed to full-time, and Smith complied. As such, the Court finds as a fact and
concludes as a matter of law that Beckley did not intend to defraud DWD. DWD failed to prove
by a preponderance of the evidence that Beckley acted with the state of mind or scienter required
by § 523(a)(2)(A).
Issue #2 - § 523(a)(7)
18. A debt is not dischargeable pursuant to § 523(a)(7) “to the extent such debt is for
a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not
compensation for actual pecuniary loss”. The Court notes that there is no intent element in

determining whether a penalty is excepted from discharge pursuant to § 523(a)(7).
19. As noted on the record at the end of the Trial, the Court was grappling with
whether it can and/or should go behind DWD’s penalty assessments to determine the propriety
thereof. In past opinions, the Court has refrained from doing so, understanding that the penalties
were imposed within Indiana’s statutory framework (see Ind. Code § 22-4-13-1.1), and that
penalty determinations were to be challenged through the appeal process established by Indiana
statute (see, e.g., Ind. Code §§ 22-4-17-2(f), -3, -5, -11). The Court has taken quite a bit of time
to consider the arguments of counsel made at the Trial and in their respective post-trial briefs and
the case law on this issue. The Court appreciates the parties’ efforts and patience in these
regards.

20. The Court concludes that it will not and should not go behind DWD’s penalty
assessments. The Court agrees with Judge Grant that “the elements Congress established for
non-dischargeability in § 523(a)(7) … focus only upon characteristics of the debt itself. …
They do not involve, ask the bankruptcy court to pass upon, or require the creditor to prove the
underlying misconduct that led to the imposition of the penalty.” Matter of Loy, 584 B.R. 302,
303-04 (Bankr. N.D. Ind. 2018). See also Indiana v. Brown (In re Brown), 2019 WL 1746279 at
*4 (N.D. Ind. April 17, 2019) (“Determining whether a debt meets the elements of § 523(a)(7)
does not require relitigating whether the debt should have been imposed in the first place.”);7

7 In the Brown case, Ms. Brown appealed the investigator’s determination that Ms. Brown knowingly failed
to disclose or falsified material facts; an administrative law judge (“ALJ”) held a hearing and affirmed the
Kelly v. Robinson, 479 U.S. 36, 47, 107 S.Ct. 353, 360, 93 L.Ed.2d 216 (1986) (“The right to
formulate and enforce penal sanctions is an important aspect of the sovereignty retained by the
States.”) (in the context of restitution imposed in state criminal proceedings).
21. Therefore, the fact that the Debts contain penalties payable to and for the benefit
of DWD, a governmental unit, which are not compensation for actual pecuniary loss8 is

sufficient to satisfy § 523(a)(7). The Court concludes that the penalty portion of the Debts is
excepted from discharge pursuant to § 523(a)(7).
Decision
For the reasons set forth above:
(A) The non-penalty portion of the Debts is not excepted from discharge
pursuant to § 523(a)(2)(A) and is therefore dischargeable pursuant to
§ 727(a); and
(B) The penalty portion of the Debts in the amount of $11,119.50 less any
payments or offsets received and allocated to such amount is excepted

from discharge pursuant to § 523(a)(7) and is therefore not dischargeable
pursuant to § 727(a).

investigator’s determination; and, upon further appeal, the Unemployment Insurance Review Board (the “Board”)
affirmed the ALJ’s decision. Ms. Brown had the right to appeal the Board’s decision to the Indiana Court of
Appeals but did not do so. Brown, 2019 WL 1746279 at *1. Even though Ms. Brown appears to have exhausted her
administrative remedies, Judge DeGuilio did not expressly invoke the principles of res judicata or collateral
estoppel in his ruling. This Court will not either. However, Debtor’s counsel pointed out at the Trial the potential
for confusion with regard to Debtor’s appeal rights – the three determinations dated 11/17/2014 (see Ex. 14)
expressly advise Debtor of her right to appeal, but the overpayment notice (see Ex. 15) dated and mailed to Debtor
the following day states “You cannot appeal this document.” The Court agrees that confusion could be created, but
regardless of whether the penalty assessment became final when it was not appealed or as a result of an appeal, the
penalty assessed against Debtor is final under state law, so the Court will not disturb DWD’s penalty assessment.

8 The Court agrees with Judge DeGuilio’s analysis in Brown that the penalty assessed by DWD against
Debtor is in fact a “penalty” and is payable to and for the benefit of DWD. See Brown, 2019 WL 1746279 at *4-6.
The Court will enter judgment consistent with these findings of fact and conclusions of
law contemporaneously herewith.
# # #

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10457709. Public record. Not legal advice.