Bank of N. Ga. v. McDowell (In re Mcdowell)

• Decision Date: 03 June 2013
• Docket Number: Adversary Proceeding No. 12–01020.,Bankruptcy No. 11–13519.
• Parties: In the Matter of Dennis H. McDOWELL, Debtor. Bank of North Georgia, Plaintiff, v. Dennis H. McDowell, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

497 B.R. 363

In the Matter of Dennis H. McDOWELL, Debtor.

Bank of North Georgia, Plaintiff,

v.Dennis H. McDowell, Defendant.

Bankruptcy No. 11–13519.

Adversary Proceeding No. 12–01020.

United States Bankruptcy Court,

N.D. Georgia,

Newnan Division.

June 3, 2013.

Rachel A. Humphrey, Stokes Lazarus & Carmichael LLP, Atlanta, GA, for Plaintiff.

J. Nevin Smith, Smith Conerly LLP, Carrollton, GA, for Defendant.

ORDER

W. HOMER DRAKE, Bankruptcy Judge.

Before the Court is a Motion for Summary Judgment, filed by Bank of North Georgia (hereinafter the “Plaintiff”). The motion is opposed by Dennis McDowell (hereinafter the “Debtor” or “Defendant”). As this matter arises from a complaint objecting to the Debtor's discharge and to the dischargeability of a particular debt, it constitutes a core proceeding, over which this Court has subject matter jurisdiction. See28 U.S.C. § 157(b)(2)(I)-(J).

Findings of Fact

1. On October 24, 2011, Debtor filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code.¹ (Pl.'s Statement of Material Facts, ¶ 10; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 10.).

2. On June 26, 2007, Secured Realty & Investments, Inc. (hereinafter “Secured Realty”), a Georgia corporation, executed a promissory note, identified as Note 21, in favor of Citizens Bank and Trust of West Georgia (hereinafter “CB & T”) in the principal sum of $3,800.000.00. (Pl.'s Statement of Material Facts, ¶ 13: Ex. A.; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13.). On June 26, 2007, the Debtor executed a personal guaranty in connection with Loan No. 21 in which he personally guaranteed the debt of Secured Realty to CB & T. ( See Pl.'s Statement of Material Facts, ¶ 13; Ex. D.; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13.).

3. On February 19, 2008, Secured Realty executed a promissory note, identified as Note 16, in favor of CB & T in the principal amount of $471,980.33. (Pl.'s Statement of Material Facts, ¶ 13; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13. Ex. B.). On April 8, 2008, the Debtor executed a personal guaranty in which he personally guaranteed the debt of Secured Realty to CB & T. ( See Pl.'s Statement of Material Facts, ¶ 13; Ex. E.; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13.).

4. On January 8, 2009, Secured Realty executed a promissory note, identified as Note 20, in favor of Plaintiff in the principal amount of $911,557.25. (Pl.'s Statement of Material Facts, ¶ 13; Ex. C.; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13.). In connection with Note 20, the Debtor also executed a personal guaranty on January 8, 2009. ( See Pl.'s Statement of Material Facts, ¶ 13; Ex. F.; Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 13.).

5. On October 24, 2008, Plaintiff merged with CB & T. By the terms of the merger, the surviving entity was Bank of North Georgia. On June 1, 2010, Plaintiff again merged with Columbus Bank and Trust Company, which at the same time changed its name to Synovous Bank, and Plaintiff became a division of Synovous Bank. (Pl.'s Statement of Material Facts, ¶ 11, FN 1.).

6. On or before October 8, 2008, Secured Realty and Defendant defaulted on obligations owed to Plaintiff or its predecessor,including Note 20. Subsequently, Secured Realty and Defendant defaulted on other obligations owed to Plaintiff, including Note 21. (Pl.'s Statement of Material Facts, ¶ 15.).

7. On October 23, 2008, CB & T offset funds in the Defendant's deposit accounts on the belief and information that Defendant defaulted on his notes. ( See Pl.'s Statement of Material Facts, ¶ 18.).

8. On October 24, 2008, the Defendant provided to the Plaintiff, or its predecessor, a financial statement, described as the Defendant's balance sheet, as of October 24, 2008, (hereinafter the “Balance Sheet”). The Defendant endorsed the Balance Sheet on October 27, 2008 as an accurate depiction of his financial status. ( See Pl.'s Statement of Material Facts, ¶ 19. Def.'s Resp. to Pl.'s Statement of Material Facts, ¶ 19.).

9. The Plaintiff filed suit in the Superior Court of Carroll County against Secured Realty and the Defendant alleging default on Note 20 and Note 21. ( See Pl.'s Statement of Material Facts, ¶¶ 15–16.). On May 2, 2011, the Superior Court of Carroll County entered summary judgment in favor of the Plaintiff for Note 21. The Superior Court of Carroll County denied Pl.'s Motion for Summary Judgment on Note 20. Both parties then appealed to the Georgia Court of Appeals. On March 7, 2012, the Georgia Court of Appeals affirmed the entry of judgment in favor of Plaintiff on Note 21 and granted Plaintiff a judgment on Note 20.²See Bank of North Georgia v. Secured Realty & Investments, Inc., et al., 314 Ga.App. 628, 725 S.E.2d 336 (2012).

Conclusions of Law

The Plaintiff seeks a declaration that the debts owed by the Debtor to the Plaintiff are nondischargeable pursuant to section 523(a)(2)(B) of the Bankruptcy Code, and nondischargeable pursuant to section 523(a)(2)(A) of the Bankruptcy Code, and alternatively seeks the denial of the Debtor's discharge under section 727(a)(4). The Plaintiff requested summary judgment as to all claims on March 8, 2013, and oral argument on the motion took place on May 10, 2013.

A. Summary Judgment Standard

In accordance with Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure, a party moving for summary judgment is entitled to prevail only if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265;see alsoFed. R. Bankr.P. 7056. The moving party bears the initial burden of establishing that no genuine factual issue exists. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548;Clark v. Coats & Clark, Inc., 929 F.2d 604 (11th Cir.1991). The movant must point to the pleadings, discovery responses or supporting affidavits which tend to show the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548.Moreover, the Court must construe this evidence in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Rollins v. TechSouth, Inc., 833 F.2d 1525 (11th Cir.1987). If the moving party fails to satisfy its burden by showing an absence of any genuine issues of material fact, no burden of going forward arises for the opposing party. Clark, 929 F.2d at 608. However, if the moving party satisfies its burden, the onus shifts to the non-moving party to identify “specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324, 106 S.Ct. 2548.

B. Section 523(a)(2)(B)

The discharge of a pre-existing debt is one of the most primary tenets of bankruptcy policy. Indeed, “a central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.’ ” Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (citations omitted). At the same time, however, equitable policies mandate that such mechanism for unencumbered fresh starts should only redound to the benefit of the honest, yet unfortunate, debtors. Id. at 286–87, 111 S.Ct. 654. In light of these competing policy goals, Congress included the following provision in the Bankruptcy Code:

(a) A discharge under section 722, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor of any debt—

* * * *

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(B) use of a statement in writing ... that is materially false ... respecting the debtor's or an insider's financial condition ... on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied ... [,] and that the debtor caused to be made or published with intent to deceive.

* * * *

11 U.S.C. § 523(a)(2)(B). Thus, through section 523(a)(2)(B), the Code offers a means of denying the benefits of a fresh start to those individuals who do not qualify as “honest but unfortunate debtors”. Id. at 287, 111 S.Ct. 654. Like other exceptions to discharge, however, the provisions of section 523(a)(2)(B) warrant narrow construction. See Gleason v. Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 59 L.Ed. 717 (1915); Schweig v. Hunter (In re Hunter), 780 F.2d 1577, 1579 (11th Cir.1986). The plaintiff bears the burden of establishing non-dischargeability under section 523(a)(2). Hunter, 780 F.2d at 1579.

To succeed under section 523(a)(2)(B), a creditor must establish that: 1) the debtor owes the plaintiff a debt for money, property, or the extension of credit that was obtained by the debtor through the use of a written statement; 2) the written statement was materially false; 3) the written statement concerns the debtor's financial condition; 4) the plaintiff reasonably relied on the statement; and 5) the debtor published the writing with the intent to deceive the plaintiff. See11 U.S.C. § 523(a)(2)(B); Transp. Alliance Bank v. Owens (In re Owens), 2006 WL 6592058, at *2 (Bankr.N.D.Ga. May 22, 2006) (Drake, J.).

The parties dispute each required element in the section 523(a)(2)(B) analysis, with the exception of the third element.Indeed, there appears to be no question that the Defendant's Balance Sheet as of October 24, 2008 was a written statement concerning the Debtor's financial condition.³ However, both parties dispute the following: 1) whether the Debtor obtained a debt or...