Islamov v. Ungar (In re Ungar)

8th Circuit Case No. 10-2395
(1) A creditor may be justified in relying on a debtor’s representations even though “[the creditor] made an investigation” but may “not turn a blind eye where a ‘patent’ falsity could be determined by ‘a cursory examination or investigation.’” Further, the question of whether reliance is justified is a subjective question. The circuit court held the bankruptcy properly found justifiable reliance since the debtor held herself out as a successful day trader and shared a common foreign language with the creditor, which caused the creditor to trust the debtor. (2) A bankruptcy court has jurisdiction to liquidate a nondischargeable debt and enter a monetary judgment against the debtor. (3) Language contained in a complaint to the effect of seeking “such other and further relief as the Court deems just and equitable” may bring before the court more than what is stated in the complaint, thus obviating concerns a monetary judgment was not properly before the court. Further, parties who voluntarily seek bankruptcy protection seek a remedy that is equitable in nature and knowingly subject themselves to the broad equitable powers of the bankruptcy court. The circuit court held the debtor, by not testifying, allowed the bankruptcy court to reasonably and permissibly determine whether there was support for the debtor’s claim that $102,000 of the returned funds were payments for credit expenses rather than repayments of principal.
Procedural context:
The bankruptcy court found (1) certain debts were the product of fraud and nondischargeable under 11 U.S.C. § 523(a)(2)(A), and (2) the bankruptcy court had jurisdiction to reduce a nondischargeable debt to judgment. The debtor appealed to the bankruptcy appellate panel, which affirmed. On appeal to the circuit court, affirmed.
The debtor told the creditor that she was a successful day trader and induced the creditor to borrow money on credit cards for the debtor to invest on behalf of the creditor in exchange for a share of the profits. The creditor initially invested $25,000. The debtor immediately incurred losses but did not inform the creditor of this, who continued to invest more. The debtor represented falsely that she had generated profits for the creditor and reported these profits orally and in writing. The debtor invested up to $503,791 with the debtor. The creditor required payouts to cover the interest expenses he was incurring on his credit cards; the debtor paid a total of $377,615 to the creditor to cover the creditor's interest payments. However, once the creditor demanded more payouts than the debtor could pay, the debtor admitted her fraudulent scheme and filed chapter 7. The creditor then filed a complaint seeking a determination of nondischargeability. The bankruptcy court allowed the case to proceed to trial on a theory of fraud, and willful and malicious injury. The debtor did not testify at trial and, thus, did not dispute the figures the creditor represented, namely, that of the $377,615 the debtor paid to him, only $102,000 represented amounts to cover the creditor’s interest expenses. Therefore, only $275,615 of the amount returned by the debtor represented a return of invested principal. This testimony was uncontested and the bankruptcy court accepted it. The bankruptcy court determined the difference in the money obtained from the creditor and the money given back amounted to $228,791 and was nondischargeable.

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