Caprice Capital, LLC v. Ford (In re Ford)

• Decision Date: 29 October 2021
• Docket Number: Adversary Proceeding 18-02155,18-26080
• Parties: In re: CASEY FORD, Debtor. v. CASEY FORD, Defendant. CAPRICE CAPITAL, LLC and HAWLEY HOCK HOLDINGS, LLC, Plaintiffs,
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah

In re: CASEY FORD, Debtor.

CAPRICE CAPITAL, LLC and HAWLEY HOCK HOLDINGS, LLC, Plaintiffs, v. CASEY FORD, Defendant.

No. 18-26080

Adversary Proceeding No. 18-02155

United States Bankruptcy Court, D. Utah

October 29, 2021

MEMORANDUM DECISION

Hon Kevin R. Anderson, U.S. Bankruptcy Judge

In Great Expectations Charles Dickens wrote: "Take nothing on its looks; take everything on evidence. There's no better rule."^[1] The Court agrees that while the "looks" of this case are troubling, the evidence is wanting.

This proceeding involves a retired widow who was introduced to the debtor through her attorney. After an initial meeting, she agreed to loan $425, 000 to the debtor's used-car dealership in hopes of sufficient profits to fund her retirement years. The terms of the loan and its repayment were ineffectually documented. About a year later, the dealership was defunct the profits were unrealized, and the widow's loan was unpaid. She now seeks a determination from the Bankruptcy Court that her claim against the debtor is nondischargeable. Unfortunately for the plaintiff, and despite the optics of this case, the evidence presented at trial-and particularly the evidence of the debtor's intent to deceive-is insufficient to establish nondischargeability under 11 U.S.C §§ 523(a)(2)(A) or (a)(6).^[2]

I. JURISDICTION, NOTICE, AND VENUE

The Court's jurisdiction over this adversary proceeding is properly invoked under 28 U.S.C. § 1334(b) and § 157(a) and (b)(2).^[3] This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (I) because the complaint objects to the discharge of a debt. Venue is appropriately laid in this District under 28 U.S.C. § 1409.

II. PROCEDURAL BACKGROUND

On August 16, 2018, Casey Ford filed a voluntary Chapter 7 bankruptcy petition (the "Debtor"). The case trustee ultimately filed a Report of No Distribution.^[4] On November 16, 2018, Caprice Capital, LLC and Hawley Hock Holdings, LLC ("Plaintiffs") filed a nondischargeability complaint against the Debtor alleging false pretenses, false representation, or actual fraud under 11 U.S.C. § 523(a)(2)(A) and willful and malicious injury under § 523(a)(6).^[5]

On August 25-26, 2021, the Court held a trial in the adversary proceeding. Kurt W. Laird appeared on behalf of the Plaintiffs. David R. Williams appeared on behalf of the Debtor. At the close of Plaintiffs' case in chief, the Debtor brought an oral motion for judgment on partial findings under Fed.R.Bankr.P. 7052(c). The Court heard argument from both parties on the motion, made findings of fact and conclusions of law on the record, and denied the motion. At the conclusion of the trial on August 26, 2021, the Court took the matter under advisement.

Having carefully considered the parties' oral and written arguments, the evidence and testimony admitted at trial, and having conducted its own independent research of the relevant caselaw, the Court issues the following Memorandum Decision.^[6]

III. FINDINGS OF FACT

The findings of fact set forth herein constitute the Court's findings based on the material, uncontroverted facts set forth in the Pretrial Order, ^[7] and the testimony and exhibits admitted at trial.

A. The Parties

The Plaintiffs, Caprice Capital, LLC and Hawley Hock Holdings, LLC, are limited liability companies. Sherrie Hawley ("Hawley") is an individual residing in Farmington, Utah. Hawley is the sole owner and member of the Plaintiffs.^[8] The Court will hereafter refer to Hawley as the plaintiff in this case. Due to medical issues, Hawley retired in 2009. Prior to the fall of 2015, Hawley received a substantial inheritance and was looking for investment opportunities to fund her retirement. ^[9] Hawley created her Plaintiff business entities as vehicles to invest her inheritance.^[10]

The Debtor, Casey Ford, is an individual who resides in Davis County, Utah.^[11] In the fall of 2015, the Debtor was an owner or member of various businesses, ^[12] including:

a. Car Snobs LLC ("Car Snobs") that operated a used-car lot consisting of five to seven spaces to sell high-end, used cars.

b. Generic Resources LLC ("Generic Resources") that engaged in hard-money construction lending.

c. His and Hers Enterprises, LLC ("His & Hers") that the Debtor used for purchases relating to his various entities using a credit card in its name.

d. Polished Image of Utah, Inc. ("Polished Image") that provided car detailing services.

e. Polished Image of Bountiful, LLC.

f. Tint and Vinyl City of Utah LLC.^[13]

The Debtor purchased Car Snobs in 2010. Car Snobs was a high-end, used-car dealership with a lot in Murray, Utah that could only show five to seven cars at a time.^[14] At some point prior to 2015, Polished Image, one of the Debtor's corporations, became the owner of Car Snobs. The Debtor testified that Car Snobs was profitable from 2010-2015.^[15] In his trial testimony, the Debtor disclosed his financial difficulties at the time he met Hawley. Although there were few specifics, the Debtor stated he had unpaid tax liabilities, debt on a commercial property lease, outstanding student loans, and loans to several individuals.^[16] When the Debtor filed for bankruptcy in August 2018, he listed total debts of around $1 million, including Hawley's claim of $440, 000, tax debt of $370, 240, and mortgage debt of $137, 939.^[17]

B. The Parties' Initial Meeting

The first meeting between Hawley and the Debtor occurred in early September 2015 (the "Initial Meeting"). The meeting was arranged by Hawley's attorney Jonathan Miller ("Attorney Miller"). Attorney Miller knew that Hawley wanted to invest her inheritance in a business.^[18]Attorney Miller also knew the Debtor as they were neighbors and fellow church members. Attorney Miller was familiar with the Debtor's various businesses. Attorney Miller arranged the meeting by contacting the Debtor and communicating Hawley's desire to invest in a business. Attorney Miller, the Debtor, Hawley, and Hawley's son Laith Hawley ("Laith") attended the Initial Meeting. Laith was there to assist his mother in vetting the Debtor.

1. Testimony Regarding the Initial Meeting

The Debtor, Hawley, Laith, and Attorney Miller each testified as to what was said at the Initial Meeting. Their testimony was consistent as to the following facts:

(1) The purpose of the meeting was for Hawley to explore investment opportunities with the Debtor.

(2) Attorney Miller introduced the parties but was not in attendance for the entire meeting.

(3) The participants discussed the Debtor's various businesses, including the Car Snobs used-car dealership and the Generic Resources hard-money lending business.

(4) Because of the risks associated with hard-money lending, Hawley did not want to invest in Generic Resources.

(5) Hawley was, however, interested in the Car Snobs used-car business.

(6)At the conclusion of the Initial Meeting, Hawley said she and Laith would think about lending money to Car Snobs and get back to the Debtor.

The conflicting points of the witnesses' testimony are summarized below.

(1) Hawley's Testimony: Hawley stated that at the Initial Meeting the Debtor understood and agreed that her loans would only be used to buy vehicles for resale, and that it was the Debtor's responsibility to clean and repair the cars for resale: "Buying and selling only, not repairing them."^[19] As a slight variation, Hawley asserted that before she gave the Debtor the first $200, 000 the Debtor agreed that the money would be "only spent on the purchase of cars."^[20] Hawley further stated that during the Initial Meeting, the Debtor talked about having an ATV and a boat and that he lived in a large home in a desirable area of Bountiful, Utah.^[21]

(2)Laith's Testimony: Laith's testimony was less specific. He stated that his mother "wanted to stick to just buying cars and getting paid her dividend when the cars sold."^[22] He also said that the Debtor understood this condition and agreed to not use Hawley's money for his other companies. However, Laith did not testify that the Debtor agreed to limit his use of the loans to only buying cars for resale.

(3) Attorney Miller's Testimony: Attorney Miller said that "the investment was to be used as a flooring line to purchase vehicles at an auction," and that the "money was to be used for that purpose to buy automobiles at auction."^[23] He further stated that the Debtor agreed to these terms. However, Attorney Miller also disclosed that he introduced the parties, showed them around the office, and then "excused [him]self and left and the three of them talked, but I can't remember exactly."^[24] Thus, Attorney Miller was not privy to all that was said during the Initial Meeting. Attorney Miller also disclosed that he knew both parties and had performed legal work for them. This puts Attorney Miller as the initiator of a failed business relationship between the parties that resulted in a significant loss to his client. Further, Attorney Miller acknowledged that he prepared the post-factum documentation for the investment, including a guaranty, two notes, and two security agreements.^[25] Attorney Miller testified that the limitation on the use of Hawley's loans should have been in the note: "It's an oversight if that wasn't specifically included . . . ."^[26]It appears that Attorney Miller was in the ethically precarious position of being Hawley's attorney but also counseling the Debtor, as evidenced by his subsequent testimony about his efforts to facilitate the Debtor's repayment of the loans, including acting as an intermediary between the two parties. Attorney Miller is not the objective, third-party witness the Court initially thought him to be. Thus, the Court gives less weight to his testimony about any agreements reached at the Initial Meeting.

(4) The

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