The Samuel J. Temperato Revocable Trust v. Unterreiner (In re Unterreiner)

No. 12-1138 (8th Cir. Nov. 8, 2012)
Affirming the Bankruptcy Appellate Panel’s reversal of the Bankruptcy Court, the Eighth Circuit held that the Samuel J. Temperato Revocable Trust (“the Trust”) was not entitled to summary judgment because it did not meet all the requirements of section 523(a)(2)(B) to except a debt from a discharge. Section 523(a)(2)(B) exempts from discharge a debt “for money, property, or services, or an extension, renewal, or refinancing of credit” obtained by a statement in writing “on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied.” First, Jeffrey and Lisa Unterreiner (together, “the Debtors”) did not receive “money, property, services, or an extension, renewal, or refinancing of credit” from the Trust. The debt arose from a loan made by Cass Bank (“Cass”). Moreover, any misrepresentations in the security agreement securing the loan were made to Cass, not to the Trust. Dairy Queen of Greater St. Louis (“DQSTL”) guaranteed the loan and the court recognized that this guarantee could fall within section 523(a)(2)(B), but DQSTL was not a party to the lawsuit. Second, the Trust could not show that it “reasonably relied” on the Debtors’ misrepresentations in the security agreement when it guaranteed DQSTL’s obligations because the Trust agreed to guaranty DQSTL’s obligations years before Cass made the loan. Because the Trust could not meet these two statutory hurdles, the court declined to address the remaining requirements of section 523(a)(2)(B).
Procedural context:
The Bankruptcy Court found that DQSTL had reasonably relied on the Debtors’ misrepresentation when DQSTL guaranteed the loan. The court held that the Debtors’ obligation to the Trust was nondischargeable and granted summary judgment to the Trust. The Bankruptcy Appellate Panel reversed the Bankruptcy Court and held that the Trust could not fulfill the statutory requirements under section 523(a)(2)(B) to render a debt nondischargeable.
The Debtors were the sole shareholders of King William Management Company ("King William") which operated three Dairy Queen stores. DQSTL was the franchisor of King William’s stores and was owned by the Trust. A trustee of the Trust and arranged for Cass to make a loan to King William. To secure the loan, the Debtors signed personal guarantees and a security agreement. DQSTL also guaranteed the loan and four years earlier the Trust guaranteed all of DQSTL’s obligations to Cass. The Debtors never knew that the Trust existed. Mr. Unterreiner later informed Cass that, contrary to the security agreement, King William did not actually own most of the collateral listed in the security agreement. King William later defaulted on the loan and Cass agreed to release the Debtors from further liability in exchange for repaying part of the loan. Cass then demanded that the Trust pay the outstanding balance of the loan. The Trust then claimed that the Debtors, as co-guarantors of the loan, owed a debt to the Trust that was nondischargeable under section 523.
Melloy and Benton, Circuit Juges, and Kristine G. Baker, United States District Judge for the Eastern District of Arkansas, sitting by designation.

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