860 F.3d 591 (8th Cir. 2017), 16-3111, In re Hernandez

Docket Nº:16-3111
Citation:860 F.3d 591
Opinion Judge:BEAM, Circuit Judge.
Party Name:In re: Michael John Hernandez, Debtor. v. General Mills Federal Credit Union, Appellee Michael John Hernandez, Appellant
Attorney:For Michael John Hernandez, Appellant: Larry E. Reed, LAW OFFICES OF LARRY E. REED, Minneapolis, MN. For General Mills Federal Credit Union, Appellee: Daniel Witt Fram, Meggen Elizabeth Lindsay Berlute, FELHABER & LARSON, Minneapolis, MN.
Judge Panel:Before BENTON, BEAM, and MURPHY, Circuit Judges.
Case Date:June 14, 2017
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

General Mills filed an adversary proceeding to determine the dischargeability of a debt in debtor's Chapter 7 bankruptcy. Applying Minnesota law to its preclusion analysis, the Eighth Circuit affirmed the bankruptcy court's rejection of debtor's claim preclusion defense. In this case, because all claims between codefendants were dismissed without prejudice by stipulation, there was no final... (see full summary)


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860 F.3d 591 (8th Cir. 2017)

In re: Michael John Hernandez, Debtor.

Michael John Hernandez, Appellant


General Mills Federal Credit Union, Appellee

No. 16-3111

United States Court of Appeals, Eighth Circuit

June 14, 2017

Submitted: March 7, 2017.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appeal from United States District Court for the District of Minnesota - Minneapolis.

For Michael John Hernandez, Appellant: Larry E. Reed, LAW OFFICES OF LARRY E. REED, Minneapolis, MN.

For General Mills Federal Credit Union, Appellee: Daniel Witt Fram, Meggen Elizabeth Lindsay Berlute, FELHABER & LARSON, Minneapolis, MN.

Before BENTON, BEAM, and MURPHY, Circuit Judges.


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BEAM, Circuit Judge.

General Mills Federal Credit Union1 filed an adversary proceeding to determine the dischargeability of a debt in Michael Hernandez's Chapter 7 bankruptcy. The bankruptcy court2 found the debt excepted from discharge, the district court3 affirmed, and we now affirm as well.


Hernandez's grandparents, Joseph and Stella Hernandez (whom we will refer to as Joseph and Stella), owned a home in St. Paul, Minnesota. In June 2003, Joseph and Stella executed a quitclaim deed transferring title to Hernandez with a reserved life estate. At that time the home was encumbered with a $144,000 mortgage. In October 2003, Hernandez, Joseph, and Stella executed a mortgage for $185,000, obtained from General Mills, which was used to pay off the earlier mortgage and some of Hernandez's personal debt. In April 2004, Hernandez obtained a home equity loan in his own name from General Mills for $30,000, which he used to consolidate his debt. In May 2004, the three took out another mortgage on the home for $222,300, again for consolidating debt. At closing, Hernandez signed the mortgage

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agreement both in his own name and as the attorney-in-fact for Joseph and Stella under powers of attorney (the 2004 POAs). The 2004 POAs were notarized by an Edward J. Thompson.

In March 2005, the three took out a home equity line of credit (the Loan), secured by a second mortgage subordinate to the May 2004 loan. The bank provided Hernandez new POA forms for Joseph and Stella which were completed and included in the loan documents (the 2005 POAs). The 2005 POAs provided a space for a " specimen" signature of the attorney-in-fact, and these were left blank. The 2005 POAs were notarized by a Cheryl L. Engh. At closing, Hernandez, as he did with the 2004 loan, signed for himself and for his grandparents as their attorney. He also signed an affidavit stating he " is the Attorney-in-Fact (or agent) named in that certain Power of Attorney dated March 8, 2005." " March 8, 2005" was typed into a blank space. Within a short time and over several transactions, Hernandez drew on the line of credit nearly to its limit of $100,000.

In 2007, Joseph and Stella sought the assistance of their niece, Vicki Giller, in dealing with foreclosure notices they received due to defaulted payments on the $30,000 loan. In the course of researching loan documents Giller discovered what she believed to be forged signatures. She testified that the principal signatures on the 2005 POAs were not those of Joseph and Stella, which signatures she was familiar with from having helped her aunt and uncle with bills and other matters. Giller also gave hearsay testimony that Joseph and Stella told her in 2007 that they had not signed either the 2004 or 2005 POAs. Further, she testified that her aunt and uncle no longer drive and that their practice was to walk across the street from their home in Ramsay County to the Cathedral of St. Paul when they needed a notary. The 2004 and 2005 POAs, however, were notarized in Anoka and Hennepin Counties, respectively. Suspecting Hernandez had taken advantage of Joseph and Stella by committing fraud, Giller filed a police report and sought the assistance of Adult Protective Services. In August 2008, Stella signed an affidavit revoking " any and all Power(s) of Attorney Never given to Michael Hernadez, specifically the documents on 5/24/2004 & 3/8/2005."

In March 2009, Joseph and Stella filed a complaint in Ramsay County District Court against Hernandez, General Mills, and another party alleging various acts of fraud. The complaint alleged in part that neither Joseph nor Stella had signed the 2004 or 2005 POAs, that the signatures appearing on those forms are not those of Joseph and Stella, and that Hernandez falsely represented that he had the authority to sign the loan documents for his grandparents. General Mills in its answer stated that it was " without sufficient knowledge or information to form a belief as to the truth or falsity" of those allegations and denied them on that basis. Further, General Mills made a cross-claim against Hernandez for indemnity or contribution should General Mills be ordered to release or rescind the mortgages or to pay damages. In June 2010, the court dismissed the case due to Joseph and Stella's failure to engage in mediation, attend the pretrial conference, and to otherwise comply with the Minnesota Rules of Civil Procedure. The order dismissed Joseph and Stella's claims with prejudice, but it also stated, " Nothing herein shall be construed to affect, modify or prevent any of the Defendants from enforcement of any rights or remedies they may possess with respect to any liens, interest, mortgage, promissory note or otherwise with respect to the relationships between them and/or any interest in the property at issue in this

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case." An August 2010 stipulation dismissed all claims between the codefendants without prejudice.

A summary of these events, along with quotations from Stella and Giller, appeared in an October 2011 edition of the St. Paul Pioneer Press newspaper. Much of this account was disputed by testimony from Regina Griffith, Joseph and Stella's granddaughter and Hernandez's sister. At the time of the adversary proceeding in 2015, Joseph was deceased and Stella was living near Griffith in a nursing home in Ohio. Griffith's testimony painted Giller as the antagonist. Giller had been given power of attorney for Stella in 2013. Stella, apparently unhappy with Giller, revoked her power of attorney and gave it instead to Griffith. Griffith disputed much of the content of the St. Paul Pioneer Press article, and she stated that Giller had stolen jewelry from Stella. In addition, Griffith presented hearsay testimony that Stella told her Hernandez had not forged her and her husband's signatures.

Hernandez lost his job in February 2009 and defaulted on the Loan that April. General Mills charged off the Loan in May 2014. In March 2014, Hernandez filed for Chapter 7 bankruptcy. General Mills filed an adversary proceeding in May to determine the dischargeability of the debt from the Loan, arguing it should be excepted from discharge for fraud under 11 U.S.C. § 523(a)(2)(A). The bankruptcy court rejected Hernandez's res judicata, statute of limitations, and other defenses. In determining whether Hernandez's debt was dischargeable for fraud, the bankruptcy court placed great weight on the testimony of Cheryl Engh, the purported notary on the 2005 POAs. She testified that she does not generally notarize documents, that the signature on the 2005 POAs were not hers, and that she did not know the Hernandezes or recall notarizing the 2005 POAs. The bankruptcy court admitted in evidence the conflicting hearsay testimony of Giller and Griffith under Federal Rule of Evidence 807's residual hearsay exception, and it admitted the newspaper article over Hernandez's counsel's hearsay objection. The bankruptcy court also admitted in evidence Exhibit 2, a copy of the Loan agreement, which had been substituted for Exhibit BB, an earlier, incomplete version of the Loan agreement. Exhibit 2 was a complete version of the agreement that contained Hernandez's signature on his own behalf, his signature on behalf of Joseph and Stella, and his initials. Exhibit BB contained only Hernandez's signature on his own behalf. When Hernandez attempted to introduce Exhibit BB at trial, the bankruptcy court sustained General Mills' objection for lack of foundation, disclosure, and relevance.

The bankruptcy court found by a preponderance of the evidence that General Mills had met the elements necessary under § 523(a)(2)(A) to except the Loan from discharge. Its conclusion was bolstered by the negative inference it drew from Hernandez's...

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