Haig v. Shart (In re Shart)

Summarized by Eryk Escobar , Department of Justice
12 years 11 months ago

Citation:

BAP No. CC-12-1495-PaKiTa (Not for Publication)

Tag(s):

Ruling:

The United States Bankruptcy Appellate Panel of the Ninth Circuit (the "BAP") affirmed in part and vacated in part the bankruptcy court's decision, with instructions on remand. The BAP affirmed the bankruptcy court's decision that chapter 7 debtor Elke Gordon-Schardt ("Ms. Schardt") did not engage directly in fraud. The BAP vacated the bankruptcy court's decision not to impute liability to Ms. Schardt for the fraud of her spouse based on inadequate findings by the bankruptcy court to support such a decision. The BAP remanded for findings consistent with Tsurukawa v. Nikon Precision, Inc. (In re Tsurukawa), 287 B.R. 515 (9th Cir. B.A.P. 2002). In Tsurukawa, the BAP ruled that in a section 523(a)(2)(A) action, one spouse's fraud may be imputed to the other spouse under agency principles when they are also business partners. Id. at 527. Marriage alone is not sufficient to impute fraud from one spouse to another. Id. It is not necessary, however, to prove any knowledge on the "innocent" debtor's part of the fraudulent conduct for imputed liability. Id. at 525. In the instant case, the BAP stated that "whether the parties have entered into a partnership relationship, rather than some other form of relationship, is a question of fact to be determined by the trier of fact from the evidence and inferences to be drawn therefrom." 17:20-23 (internal citations omitted). As the bankruptcy court made no findings in support of its oral ruling to not impute fraud upon Ms. Schardt, the BAP was unable to review the matter. Where the findings are so conclusory or incomplete, the appellate court must remand to the trial court to make the missing findings. Summer v. San Diego Urban League, Inc., 681 F.2d 1140, 1142 (9th Cir. 1982). The BAP opined that evidence was presented before the bankruptcy court that the bankruptcy court could review in determining the existence of an agency or partnership between Ms. Schardt and her spouse.

Procedural context:

On May 18, 2010, married couple Ms. Schardt and John Hans Shart ("Shart" and collectively "Debtors") filed a chapter 11 petition. On September 21, 2010, the bankruptcy court converted Debtors' case to one under chapter 7. In the interim, on August 23, 2010, creditors Wendy Haig ("Ms. Haig") and Greg Sadler (collectively "Creditors") filed an adversary proceeding against Debtors. Creditors alleged that Debtors made misrepresentations to Creditors with the intent of deceiving them into paying $1.1 million to construct a barn and purchase certain land, among other things, and that this debt is non-dischargeable under section 523(a)(2)(A). Creditors also alleged claims under sections 523(a)(4) and (a)(6) that are not pertinent to this discussion. After a five-day trial, the bankruptcy court orally announced its decision. As to Creditors 523(a)(2)(A) claims against Ms. Schardt, the bankruptcy court concluded that she had not been actively involved in the fraudulent behavior and representations of Mr. Shart. Thus, the bankruptcy court ruled that Ms. Schardt was neither directly liable for fraud nor could her husband's fraud be imputed against her. Creditors filed an appeal only as to that part of the bankruptcy court's ruling stating that their claims against Ms. Schardt were dischargeable.

Facts:

From 2002 through 2008, Ms. Haig and Mr. Shart developed both a business relationship and friendship. During that same period, Creditors purchased horses from Mr. Shart or from Malibu Equestrian Estates ("MEE"), which Mr. Shart owns. Throughout that period, Ms. Haig and Mr. Shart met socially, with Ms. Haig occasionally staying at Greystone Equestrian Center ("Greystone") (a horse related business operated by Mr. Shart and MEE). From the beginning, there was confusion over Mr. Shart's billing for the purchase and care of Creditors' horses. Later in the relationship, various transactions were made that result in much dispute now. Specifically, on or about January 23, 2007, Ms. Haig allegedly purchased two motor homes. The purchases were negotiated with the dealer by Mr. Shart. Title to one motor home was placed in Ms. Haig's name, but title to the second motor home was placed in Mr. Shart's name. Allegedly, title to both motor homes should have been placed in Ms. Haig's name. Also in 2007, Mr. Shart constructed a barn to house some of Creditors' horses and to provide living quarters for Ms. Haig during her visits. It is disputed whether Mr. Shart or Ms. Haig provided the funds for the construction. More transactions occurred in 2007 resulting in the acquisition of real and personal property over which title is also disputed. Between 2007 and 2009, disputes continued between Debtors and Creditors regarding boarding fees, documentation on invoices and the authority of Mr. Shart to sell horses stabled by Creditors at Greystone. By early 2009, the relationship between the parties broke down; Creditors sued Debtors and MEE in state court. In May 2010, Debtors filed their chapter 11 petition.

Judge(s):

Pappas, Kirscher, and Taylor, Bankruptcy Judges

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