Glencove Holdings, LLC v. Bloom (In re Bloom)
| Decision Date | 02 December 2021 |
| Citation | 634 B.R. 559 |
| Docket Number | BAP CO-20-043,Bankr. 17-11650 |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
| Parties | IN RE STEVEN W. BLOOM, Debtor. v. STEVEN W. BLOOM, Defendant - Appellant. GLENCOVE HOLDINGS, LLC, Plaintiff - Appellee, Adv. No. 17-01255-TBM |
David R. Eason of Eason Law, LLC, Denver, Colorado for Defendant - Appellant Steven W. Bloom
Travis C. Armstrong of Sheehy, Ware & Pappas, P.C., Houston, Texas for Plaintiff - Appellee Glencove Holdings, LLC
Before SOMERS, JACOBVITZ, and LOYD, Bankruptcy Judges.
The Debtor is an airplane sales broker who agreed to help a wealthy couple locate and purchase an airplane. The Debtor found a desirable airplane and convinced the couple to make an offer. When the seller's counteroffer came back lower than expected, the Debtor—without disclosing the seller's identity—lied to the couple about the amount of the counteroffer and told them he was negotiating hard to get the purchase price down. Instead, the Debtor secretly purchased the airplane for a good price through his shell limited liability company, then sold the airplane to the couple's wholly owned company for $250,000 more than his limited liability company paid. The Debtor never disclosed the secret back-to-back transaction, never disclosed his relationship to the shell company, and never disclosed that the seller had refused to perform aircraft maintenance items the Debtor said would be fixed by the seller. After the sale closed, the couple caught wind of the scheme, and the parties sued each other in state court, prompting the Debtor to file bankruptcy in the United States Bankruptcy Court for the District of Colorado. The Debtor's bankruptcy led the couple to file, on behalf of their company, a proof of claim and a nondischargeability complaint. The Debtor appeals the Bankruptcy Court's judgment allowing the claim in the amount of $458,470 and determining the debt to be nondischargeable under § 523(a)(2)(A) and (a)(6).1
Because the Bankruptcy Court did not err in any of its findings and conclusions, we affirm.
Jennifer and Huw Pierce own a private daycare and school business in Houston, Texas. Because of their busy schedules, they considered buying a private jet for travel. Knowing nothing about airplanes, the Pierces engaged an airplane sales broker to help find a jet. The Pierces were not satisfied with that broker's experience and service, and the broker agreement eventually expired. A mutual business acquaintance put the Pierces in touch with the Debtor, who had a long career in aviation as a pilot, aircraft sales manager, and private-jet aircraft broker. The Debtor was the sole owner and manager of Bloom Business Jets, LLC ("BBJ"), a company he formed to buy and sell aircraft.
The Debtor sent the Pierces information about a Raytheon Hawker 800XP (the "Airplane") that was on the market. After the Pierces expressed an interest in the Airplane, the parties signed an Agent Agreement2 on August 6, 2015 for BBJ's services related to the Airplane. The Debtor signed the Agent Agreement on behalf of BBJ,3 and Mrs. Pierce signed the Agent Agreement on behalf of an unnamed "assigned corporation." That company turned out to be Glencove Holdings, LLC ("Glencove"), which was formed the next day.4 Under the Agent Agreement, BBJ agreed to act as Glencove's sole agent and to use its best efforts to locate an acceptable aircraft, assist in negotiations with the seller, assist in pre-purchase inspections, and provide professional services consistent with industry standards. In exchange, BBJ would receive a fee of $121,000 or 3.75% of the purchase price, whichever was less (the "Agent's Fee"), upon closing the sale.
On August 7, 2015, the Debtor emailed the Pierces in preparation for the initial purchase offer, recommending a target acquisition price of $3.6 million and an initial offer in the mid-$3.3 million range. Acting for Glencove, the Debtor then made an offer in the low $3 million range to Loretto Aviation, LLC ("Loretto"), the Airplane's owner. Loretto was not a party to the Agent Agreement and had no obligation to pay Glencove's broker, BBJ, any part of the Agent's Fee. On August 11, 2015, the Debtor received a formal counteroffer of $3.4 million from Loretto. The next day, despite having the $3.4 million offer in hand, the Debtor emailed Glencove that "[o]ur offer came back at $3.775M"5 —that is, $375,000 above Loretto's real counteroffer. In the same email, the Debtor said that "[o]ur goal is to buy in that Wholesale range $3.665M" and that he would attempt to "get them down another $75,000 to $90,000" below the fabricated $3.775 million counteroffer.6 The Debtor never revealed Loretto's identity to Glencove.
Mrs. Pierce—unaware of the Loretto $3.4 million counteroffer—asked the Debtor to negotiate the price down to the $3.5 million to $3.55 million range. The Debtor responded later that evening, stating, 7 Based on the Debtor's recommendations, and still being unaware of Loretto's counteroffer, Mrs. Pierce authorized a new offer of $3,550,000.
On August 13, 2015, the Debtor wrote back with another lie, stating that he was "going back and forth" with the seller and was "negotiating hard" but that the pricing had stalled at $3.595 million.8 The Debtor also falsely stated, "We are stuck now at this number Seller's not budging off this $3.595M."9 Eventually, the Debtor told the Pierces that the unnamed seller had accepted Glencove $3.55 million offer.
Meanwhile, on August 14, 2015, the Debtor (who secretly continued to negotiate with Loretto to further reduce the real purchase price) signed a letter of intent with Loretto to buy the Airplane for $3.3 million. The Debtor never told Glencove or the Pierces about any of the lower offers he received from Loretto or the letter of intent.
The Debtor secretly structured the transaction as a "back-to-back" sale, using Big Horn Exploration, LLC ("Big Horn") as the initial purchaser. The Debtor was the sole owner of Big Horn, which he co-managed with Brad Rose, counsel for the Debtor and BBJ. The Debtor's plan was to have Big Horn purchase the airplane from Loretto for $3.3 million, then immediately re-sell the airplane to Glencove for $3.55 million, a markup of $250,000. The Debtor never informed Glencove that the deal would be structured this way.
On August 25, 2015, the Debtor forwarded to Glencove a proposed Aircraft Purchase and Sale Agreement ("PSA") listing Big Horn as the Airplane's seller. Big Horn, however, did not actually own the aircraft at that time. It was not until August 31, 2015 that Big Horn entered into a separate purchase and sale agreement with Loretto for the Airplane. Actual ownership did not transfer to Big Horn until the closing of the back-to-back sales on September 29, 2015. Unaware of Loretto's involvement in the sale and the Debtor's relationship to Big Horn, the Pierces believed that Big Horn was the Airplane's original owner and seller, so Glencove signed the PSA with Big Horn.
Glencove needed financing to close on the Airplane purchase. Even before entering into the Agent Agreement with BBJ, the Pierces had engaged Martin Orman of Aircraft Finance Corporation ("AFC") to assist in arranging financing. After previous proposed lenders declined loans to the Pierces, Orman turned to TruStone Financial Credit Union ("TruStone Financial"), which approved a ten-year, $2,591,500 loan (the "Loan") to Glencove on September 28, 2015. Glencove paid AFC its 1% loan origination fee ($25,915) at closing.
With the Loretto-Big Horn and Big Horn-Glencove purchase agreements executed, Haggan Aviation ("Haggan")—a company the Debtor selected—conducted a pre-purchase inspection of the Airplane. On September 17, 2015, Haggan issued a work order estimate (the "Original Work Order Estimate") that identified twenty-seven "Airworthy Items" to be repaired before the sale closing at an estimated cost of $67,459. The Debtor sent the Original Work Order Estimate to Mrs. Pierce.
On September 21, 2015, Glencove executed a Conditional Acceptance Certificate , agreeing to proceed with the Airplane purchase provided that the seller agreed to make the $67,459 in repairs. Without telling Glencove, and knowing that Loretto was reluctant to make repairs, the Debtor negotiated with Haggan to reduce the amount of airworthy items in its estimate. On September 24, 2015, Haggan issued another work order estimate (the "Revised Work Order Estimate") with fewer repair items, totaling $52,587.19. Glencove did not receive or approve the Revised Work Order Estimate.
On September 25, 2015, Loretto's broker informed the Debtor that Loretto would not perform any repairs to the Airplane and that it was being sold as-is. Rather than disclosing this development to Glencove, the Debtor instead convinced Loretto to pay $22,000 for some of the airworthiness repairs.10 On September 28, 2015, when Glencove asked for the status of repairs on the Original Work Order Estimate, the Debtor responded with another fabrication, telling Glencove that the seller would pay for the repairs and that the repairs were underway. In fact, the Debtor knew that not all the repairs on the Original
Work Order Estimate would be made. Relying on the Debtor's assurances, Glencove proceeded.
On September 29, 2015, the escrow company, Insured Aircraft Title Service ("IATS"), finalized the closing documents between Loretto and Big Horn. Loretto transferred the Airplane's title to Big Horn, and Big Horn then flipped the Airplane to Glencove on the...
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