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Thelma McCoy v. USA

Summarizing by Craig Geno

Heide v. Juve (In re Juve)

Citation:
Heide v. Juve (Case No. 12-6058)
Tag(s):
Ruling:
The BAP reversed the bankruptcy court's finding that a $300,000 loan made to the debtor under an oral agreement to allow the debtor to purchase vehicles for resale in his business was made in reliance on a fraudulent misrepresentation made concurrently with the debt and, therefore, the debt was dischargeable. The BAP affirmed the bankrutpcy court's holding that a $50,490 loan made to the debtor to purchase specific vehicles for eventual resale was not dischargeable because the debtor did take the money under false pretenses and the creditor's justifiably relied on such pretenses.
Procedural context:
The debtor appealed from the bankruptcy court's judgment awarding David Heide a $350,490 judgment and determining this amount to be non-dischargeable under Section 523(a)(2)(A).
Facts:
David Heide was a commission-only salesperson at an auto sales business called Imports Plus, Inc. The debtor and the owner of Imports Plus owned vehicles on the company's lot. Heide and the debtor entered into an oral agreement under which Heide would lend the debtor or Imports Plus money to purchase vehicles. When one of the vehicles was sold, Heide would be repaid the principal and interest Heide had access to all business records at Imports Plus, except the vehicle titles, which the debtor kept at home. While Heide did not take a security interest in the vehicles purchased with his money, he understood from the debtor that there was sufficient equity in the vehicles on the lot to protect his loans. Heide did not understand or believe that any other person or entity held a security interest in the vehicles purchased with the funds he had loaned. The parties subsequently modified the oral agreement in late 2000 or 2001, such that the deal would no longer be "per vehicle": Heide would receive monthly interest payments on monies loaned. The parties did not specify when Heide would be repaid the principal. Heide continued to believe that the vehicles purchased remained unencumbered. Over time, Heide loaned the debtor a total of $300,000 with the last loan made in 2004. At that time, both Heide and the debtor believed that the car lot inventory was sufficient to cover the total debt. Under both the original and modified agreements, Heide received regular interest payments on agreed terms. Imports Plus issued 1099 federal income statements to Heide for interest payments for tax years 2001 through 2008. Imports Plus began to experience difficulties beginning in 2006 and about that time or later the equity in the vehicle inventory at Imports Plus had eroded to the point it could not longer fully support Heide's $300,000 claim. The debtor did not advise Heide of this change in circumstances. In 2008, the debtor approached Heide with yet another deal. Under this agreement, the debtor would borrow money from Heide to purchase vehicles in Las Vegas, hold the vehicles until their value increased after the first of the new year, and then re-sell them and split the profit evenly with Heide. Heide agreed to the new deal. The debtor purchased six specific vehicles and Heide gave the debtor $50,490 for them, noting the description on the two checks he gave to the debtor. The checks were made payable to Imports Plus and were deposited in Imports Plus' bank account. In entering into the original oral agreement, the modified agreement, and the separate Las Vegas deal, Heide did not request any documentation from the debtor regarding encumbrances on the vehicles on Impors Plus' lot. He did not request his own security interest in Imports Plus assets or in the debtor's personal assets to secure his loans. He did not request a financial report or other business records for Imports Plus or for the debtor personally. Beginning in late 2008 or early 2009, Heide became concerned about the collectibility of his loans. He had received calls from buyers saying they had not received titles to vehicles they purchased. Heide confronted the debtor and demanded repayment of $10,000 of his principal, but the debtor told him he was unable to do so at the time. Heide also demanded the titles to the six vehicles recently purchased in Las Vegas, but the debtor then admitted that he had never actually purchased the vehicles. Imports Plus eventually went out of business. The bankruptcy court had found that each time the debtor used Heide's money, there was a re-extension of credit and an attendant assertion by the debtor that the inventory was sufficient to satisfy the funds owed to Heide. Thd BAP disagreed, noting that the record did not support that finding. The record did show that when the parties made the modified agreement, Heide was longer lending money on a per vehicle basis. He increased his loan and agreed to be paid monthly interest on the principal balance at a stated rate. The parties further agreed that the money would continue to be used to purchase inventory for the car lot. The court further found that when the modified oral agreement was made, to the extent the debtor represented there was sufficient equity in the vehicles to repay the principal amount due, the record did not show that the statement was false. When Heide's loan reached the total amount of $300,000, to the extent the debtor made a similar representation, the record again did not show that statement was false. The court also noted that Heide had failed to establish when or the extent to which the debtor may have used the loans other than for purchasing inventory and also failed to establish how such use constituted more than a breach of contract. In sum, the BAP concluded that the record did not support the bankruptcy court's findings that the debtor made a fraudulent representation to Heide concurrent with Heide's loans under the modified oral agreement, and that it was clear that a mistake had been made. The BAP reached a different conclusion, however, regarding the $50,490 Heide had loaned the debtor under the Las Vegas deal. This deal was separate from the modified oral agreement. Under the Las Vegas deal, the parties agreed that the debtor would purchase vehicles of a specific type, hold them until their prices increased, and resell them. The vehicles were never intended for Imports Plus' lot. The debtor took the money under false pretenses, having knowingly represented to Heide he had already purchased the agreed vehicles, when he had not. Heide, who had basic knowledge of the wholesale auto business, justifiably relied on the debtor's representations, since no red flags were present and nearly all of his prior dealings with the debtor had been fruitful. Finally, the court noted that in light of the other terms of the Las Vegas deal, neither the fact that Heide's checks were made out to Imports Plus nor the fact that those checks were deposited in a corporate account were sufficient to warrant the conclusion that the bankruptcy court erred in finding the Las Vegas deal was between Heide and the debtor, not Heide and Imports Plus. The record amply supported the bankrputcy courts conclusion that the $50,490 debt was a personal debt incurred by the debtor that should be excepted from discharge pursuant to Section 523(a)(2)(A).
Judge(s):
Federman, Schermer, and Nail

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