Kapetanakis v. First National Insurance Co. of America (In re Kapetanakis)

Summarized by Aaron Kaufman , Gray Reed LLP
13 years 8 months ago

Citation:

In re Kapetanakis, Case No. 11-20306 (5th Cir. June 12, 2012) (per curiam) (unpublished)

Tag(s):

Ruling:

The Fifth Circuit AFFIRMED the District Court's order, which affirmed Bankruptcy Court's order, and reiterated that "a settlement agreement of a non-dischargeable obligation does not convert the debt to one that is dischargeable." The Court of Appeals rejected the Debtor's argument that First National released its fraud claim when it accepted a consent judgment to settle pre-petition fraud claims, citing the Supreme Court's decision in Archer v. Warner, 538 U.S. 314 (2003). Finding sufficient evidence in the record to support findings that First National reasonably relied on the putative indemnitors' signatures in issuing surety bonds and that the Debtor intentionally forged those signatures, the Court of Appeals found no reversible error in the lower courts' judgments. Accordingly, the determination of non-dischargeability was affirmed.

Procedural context:

Debtor appealed a judgment from the District Court for the Southern District of Texas, which affirmed the Bankruptcy Court's judgment in favor of the indemnitor in an adversary proceeding to determine that was consent judgment entered on First National's fraud claims were not dischargeable under section 523(a)(2)(A) of the Bankruptcy Code.

Facts:

Debtor was the sole owner of a closely held construction business. Before the bankruptcy filing, the Debtor obtained surety bonds from First National Insurance Company of America ("First National"). As a condition for providing surety bonds to the company, First National required the Debtor, his wife, his brother and his brother's wife to execute indemnity agreements to ensure the indemnitors' commitment to the company's success. First National ultimately suffered a loss of $3,050,000 under bonds issued for the Debtor's company and, to recover such loss, First National brought an action in district court to recover from the indemnitors. During such litigation, it was discovered that the Debtor forged the other indemnitors' signatures, going to such great lengths to conceal his forgery by using different colored ink and signing in different styles. The Debtor ultimately entered into a consent judgment, but then filed this bankruptcy case in an effort to discharge his liability under the consent judgment. First National commenced an action to determine that the debt arising from the consent judgment was non-dischargeable as arising from actual fraud. The Bankruptcy Court entered judgment in favor of First National, and the District Court affirmed. The Debtor appealed to the Fifth Circuit.

Judge(s):

Per Curiam (Jones, Wiener and Graves)

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