Now Updating
In re: JERSEY CITY COMMUNITY HOUSING CORP

Summarizing by Amir Shachmurove

Escorihuela v. Faidengold (In re Faidengold)

Citation:
Escorihuela v. Faidengold (In re Faidengold), No. 14-10587 (11th Cir. Aug. 19, 2014)
Tag(s):
Ruling:
The Eleventh Circuit affirmed a District Court’s order which affirmed a Bankruptcy Court’s ruling that certain of a Chapter 7 debtor’s debts were not excepted from discharge under 11 U.S.C. § 523(a)(2)(A), which deals with debts obtained by false pretenses, a false representation, or actual fraud. The Court held that it was not clearly erroneous when the District Court found that the debtor did not mislead or defraud the plaintiff-appellants. The Court agreed that the debt was evidenced by a garden-variety promissory note. The note contemplated a fixed rate of interest, contained no restrictions on the use of funds, and contained no investment-type reporting requirements. Therefore, appellants did not have a reasonable basis for viewing the debt as one with guaranteed investment -type returns and use restrictions. There being no fraud or the like, the debtor’s debt to appellants was not excepted from discharge.
Procedural context:
Escorihuela and Rodriguez (plaintiffs and appellants) filed an adversary proceeding against Faidengold (Chapter 7 debtor and appellee) on account of a loan from plaintiffs to the debtor. Plaintiffs alleged that the debtor’s actions with respect to the loan (i) amounted to false pretenses, false misrepresentations, and/or actual fraud under 11 U.S.C. § 523(a)(2)(A) and (ii) resulted in willful and malicious injury to plaintiffs under 11 U.S.C. § 523(a)(6), such that the debts should be excepted from discharge. The Bankruptcy Court and the District Court ruled against plaintiffs under both counts. The Eleventh Circuit, finding that plaintiffs had failed to challenge the lower courts’ rulings on § 523(a)(6), focused exclusively on the § 523(a)(2)(A) count. The Court held that the burden is on the plaintiff-appellants via a preponderance of the evidence.
Facts:
Pre-petition, Escorihuela and Rodriguez (plaintiffs), loaned Faidengold, a Chapter 7 debtor, around $1.25 million over a period of time. The loan was evidenced by a promissory note, written in English. However, due to alleged language barriers between plaintiffs and the debtor, there was a disconnect between the parties regarding the debtor’s obligations to plaintiffs. Plaintiffs thought that the debtor would invest their money in safe U.S. investments, which investments would generate a fixed, high rate of return for plaintiffs, with zero risk of loss. The debtor thought that he was merely agreeing to repay the loans at a fixed rate of interest, with no restrictions on the use of the funds. There was no reporting requirement. Plaintiffs alleged that (i) the disconnect amounted to false pretenses, false representations, or actual fraud on the part of the debtor and (ii) the debtor’s actions caused willful and malicious injury to plaintiffs.
Judge(s):
Pryor, Martin, and Anderson (Circuit Judges)

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