Temperato v. Unterreiner (In re Unterreiner)

Summarized by Mark Bossi , Thompson Coburn LLP
14 years 3 months ago

Citation:

8th Circuit BAP, No. 11-6039 (November 18, 2011)

Tag(s):

Ruling:

The BAP rules that a co-guarantor’s claim for fraud against the Debtors should not be excepted from discharge under Section 523(a)(2) because the Debtors did not obtain any money or property directly from the co-guarantor at the time of the alleged misrepresentation and because the co-guarantor failed to rely on the Debtors’ alleged misrepresentations in issuing its guaranty, which pre-dated the alleged misrepresentations.

Procedural context:

Appeal from a bankruptcy court order granting summary judgment in favor of plaintiff on its complaint to determine dischargeability pursuant to Section 523(a)(2)(B). The BAP reverses and remands to the bankruptcy court to enter judgement for defendants.

Facts:

Several years prior to filing bankruptcy, the Debtors owned King William Management, Inc. (“King William”). King William operated three Dairy Queen restaurants under a franchise agreement with Dairy Queen of Greater St. Louis, Missouri, Inc. (“DQSTL”). King William obtained a loan from a bank in 2005. As security for the loan, the bank was granted a lien on all the restaurant assets that were supposedly owned by King William. The loan was also guaranteed by the Debtors and by DQSTL. Finally, the loan was indirectly guaranteed by a trust that owned DQSTL (the "Trust") pursuant to the terms of a pre-existing blanket guaranty under which the Trust guaranteed all obligations of DQSTL to the bank. It turned out that the restaurant assets were not owned by King William but rather by another company, so the bank did not have an effective security interest in the assets. When the loan went into default, the bank pursued each of the guarantors. After obtaining a small settlement from the Debtors, the bank obtained a large settlement from the Trust. When the Debtors filed bankruptcy, the Trust brought an adversary proceeding against the Debtors asserting that the Debtors knowingly misrepresented which entity owned the restaurant assets pledged as collateral for the loan. The BAP concludes that the bankruptcy court erred in granting summary judgment in favor of the Trust. Because the Trust’s guaranty pre-dated the alleged misrepresentations and DQSTL was not a party to the adversary proceeding, the Trust failed to establish that the Debtors received any money or property from the Trust concurrently with the alleged misrepresentations or that it relied on the alleged misrepresentations.

Judge(s):

KRESSEL, FEDERMAN, and SALADINO

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!