Curran v. Curran (In re Curran), BAP NO. MW 15–051

• Decision Date: 04 August 2016
• Docket Number: Adversary Proceeding No. 15–04024–CJP,BAP NO. MW 15–051,Bankruptcy Case No. 14–42811–CJP
• Citation: 554 B.R. 272
• Parties: Joseph M. Curran, Debtor. Carolyn Privitera, Plaintiff–Appellant, v. Joseph M. Curran, Defendant–Appellee.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

554 B.R. 272

Joseph M. Curran, Debtor.Carolyn Privitera, Plaintiff–Appellant

v.Joseph M. Curran, Defendant–Appellee.

BAP NO. MW 15–051

Bankruptcy Case No. 14–42811–CJP

Adversary Proceeding No. 15–04024–CJP

United States Bankruptcy Appellate Panel of the First Circuit.

August 4, 2016

William C. Parks, Esq., on brief for Plaintiff–Appellant.

Joy D. Hotchkiss, Esq., on brief for Defendant–Appellee.

Before Lamoutte, Deasy, and Cary, United States Bankruptcy Appellate Panel Judges.

Deasy

, U.S. Bankruptcy Appellate Panel Judge.

This appeal arises from an adversary proceeding in which Carolyn Privitera (“Privitera”) sought a determination that a debt owed to her by the debtor, Joseph Curran (“Curran”), was nondischargeable pursuant to § 523(a)(2)(B).¹ Curran filed a motion to dismiss the complaint for failure to state a claim under Rule 12(b)(6) and Bankruptcy Rule 7012. Privitera objected to the motion, and also sought to amend the complaint to add a count under § 523(a)(2)(A). After a hearing, the bankruptcy court denied Privitera's motion to amend, granted the motion to dismiss, and dismissed the complaint. Privitera appealed. For the reasons set forth below, we AFFIRM.

BACKGROUND

I. Factual Allegations Contained in the Complaint

In November 2007, Privitera made a loan in the amount of $30,000.00 to Curran to support his landscaping business. At the time, Privitera and Curran were in a romantic relationship. In connection with the loan, Privitera's attorney drafted and the parties executed a written document entitled “Loan Agreement and Promissory Note” (“Loan Agreement”), which consisted of a Loan Agreement, a Promissory Note attached as Exhibit 1.2, and a List of Collateral attached as Exhibit 2.1. Curran was not represented by counsel in connection with the loan.

In Article 2 of the Loan Agreement, entitled “Security and Guarantee,” the parties agreed Curran would execute and deliver to Privitera a security agreement “covering the property described in Exhibit 2.1 [the List of Collateral], which would be “duly recorded and/or filed.” In Article 4, entitled “Negative Covenants,” Curran agreed he would not “create, incur, assume, or suffer to exist any indebtedness, mortgage, pledge, security interest, encumbrance, lien, or charge of any kind upon the use of any ... property ..., whether owned at the date hereof or hereafter acquired....” Although Privitera alleged her attorney filed a financing statement after the parties executed the Loan Agreement, Curran did not execute a security agreement or other document granting Privitera a security interest.

In drafting the Loan Agreement, either Privitera or her attorney asked Curran to provide a list of property, which Privitera's attorney then incorporated into the List of Collateral. The list of property was “a list of personal property belonging to Curran, either by title or by physical possession.” It included descriptions of the property and the “cost” of each item. The “cost” of each item represented the purchase price Curran paid, not the resale value of the property or any other valuation. The two pieces of equipment with the highest “costs” were two trucks, a Ford F350 and a Ford F250, with “costs” of $29,767.78 and $34,602.50 respectively. The total “cost” of all the other property was $22,137.86.

At the time of the Loan Agreement, one or both trucks were subject to pre-existing security interests, and, Privitera alleged, the Ford F250 was “titled to the lender” rather than to Curran.² The List of Collateral did not mention the pre-existing security interests in the trucks, or that Curran did not have title to one of the trucks. Privitera alleged Curran was aware of the existing loans on the trucks, but did not tell her. At the time he executed the Loan Agreement, Curran intended to use some of the loan proceeds to “catch up on late payments [on] his loans for the trucks” and “used some of the loan proceeds ... for this purpose.” If the full “cost” of the trucks had been available as security, Privitera asserted, the Loan Agreement “would have been fully secured when executed.”

Privitera alleged she “relied on Curran's representations, including his offer of property as security on Exhibit 2.1 [the List of Collateral], in making the loan,” and she would not have made the loan had she known the trucks were not available as security. She also asserted her brother had recently died, and she had no experience with the business of making loans.

After the parties executed the Loan Agreement, Privitera tendered the principal amount of the loan to Curran, using funds she obtained by using her credit card. Curran subsequently defaulted on his repayment obligations under the Loan Agreement, and Privitera had to repay the credit card debt herself. Privitera sued Curran in state court and, in March 2014, she obtained a default judgment against him in the amount of $137,030.78.

II. The Bankruptcy Case

Curran filed a chapter 7 petition in December 2014.

Thereafter, Privitera filed a complaint seeking a determination that Curran's debt to her was nondischargeable under § 523(a)(2)(B).³ In the complaint, Privitera asserted: (1) Curran had made a statement in writing regarding his financial condition, namely, that he “could offer two trucks as security” for the loan; (2) the statement was materially false because it “substantially misrepresented the amount of property that was available to secure” the loan, “failed to disclose pre-existing security interests in one or both trucks” and that “he did not have the title to one of the trucks,” and because the “cost” provided for the trucks had “almost no relationship to his amount of equity in them”; (3) she reasonably relied on Curran's misrepresentation because she had no experience with business loans, had no reason to disbelieve him, had no knowledge of the truck loans, was grieving her brother's death, and was advised by an attorney in the transaction; (4) Curran knew of the pre-existing security interests in the trucks and that one truck was not titled to him, and, therefore, made the statement with the intent to deceive; and (5) she “suffered a detriment due to her reliance, in the loss of the principal amount she loaned to Curran, plus interest, collections costs, and damage to her credit rating.” Curran answered the complaint and asserted a counterclaim against Privitera, alleging, among other things, she had filed the complaint in bad faith and she had failed to perfect any alleged security interest she had in his property.⁴

Thereafter, Curran filed a motion to dismiss the complaint (“Motion to Dismiss”) for failure to state a claim under Rule 12(b)(6) and Bankruptcy Rule 7012(b), arguing, among other things, the List of Collateral did not constitute a statement regarding his financial condition as required under § 523(a)(2)(B)

. Privitera opposed the Motion to Dismiss and moved to amend her complaint to add a count under § 523(a)(2)(A) (“Motion to Amend”).⁵ In his response, Curran argued the complaint failed to meet the required elements under both § 523(a)(2)(A) and § 523(a)(2)(B).

The bankruptcy court held a hearing on the various motions on August 27, 2015. After hearing arguments from the parties, the bankruptcy court ruled as follows:

The failure of the plaintiff to have [ ] properly perfected a security interest in these vehicles is at the heart of this whole situation. I didn't see it when the complaint was filed. I don't see it now. The [ ] standards for nondischargeability under [§] 523(a) include that ... the creditor's reliance was justifiable and the creditor's reliance here was not justifiable because it was her obligation to do her part of the deal, which was to get a security interest in the first place and without having gotten a security interest it doesn't matter what the misrepresentation was because ... even if he did misrepresent to her the status of the liens on the collateral, so what? She didn't have a lien herself. So how could she have been hurt by the misrepresentation?

So I am going to grant the motion to dismiss the complaint. I'm going to deny the motion to amend the complaint to add the other count because it's futile. I don't think it will survive a motion to dismiss as well because as I pointed out earlier, the [ ] representation in the ... new count is that he failed to reveal the prior security interest. It doesn't say that he told her that ... these assets were unencumbered. And that would ... be the misrepresentation that might give rise [to a claim], but I ... would say that the fact that she didn't do her part and get her encumbrance perfected would be fatal, in any case.

So I don't, I just don't see that this is a [§] 523(a) case, ... and I'm going to dismiss it.

After the hearing, the bankruptcy court entered an order denying Privitera's Motion to Amend (“Order Denying Motion to Amend”) and an amended order granting Curran's Motion to Dismiss (“Order Granting Motion to Dismiss”).⁶ This appeal followed.

JURISDICTION

We have jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy court. See 28 U.S.C. § 158(a)(1)

. Generally, an order granting a motion to dismiss an adversary proceeding is a final order. Gonsalves v. Belice (In re Belice), 480 B.R. 199, 203 (1st Cir. BAP 2012) (citation omitted). Although the bankruptcy court indicated dismissal of the adversary proceeding would not occur until after a ruling on Privitera's counsel's fees in connection with dismissal of the counterclaim, that does not prevent the Order Granting Motion to Dismiss from being final. See

Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202, 108 S.Ct. 1717, 100 L.Ed.2d 178 (1988) (“[A]n unresolved issue of attorney's fees for the litigation in question does not prevent judgment on the merits from being final.”); House of Flavors, Inc. v. TFG–Michigan, L.P., 700 F.3d 33, 36 (1st Cir.2012) (“[A] request for statutory attorneys' fees after a judgment is entered does not render the judgment...