Harasymiw, Matter of
| Decision Date | 08 March 1990 |
| Docket Number | Nos. 89-1539,89-1590,s. 89-1539 |
| Citation | 895 F.2d 1170 |
| Parties | , Bankr. L. Rep. P 73,275 In the Matter of Roxolana HARASYMIW, Debtor. SELFRELIANCE FEDERAL CREDIT UNION, Plaintiff-Appellee, Cross-Appellant, v. Roxolana HARASYMIW, Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Elenie Huszagh (argued), and Lauren Newman, Boorstein & Huszagh, Chicago, Ill., for Selfreliance Federal Credit Union.
William Getzoff (argued), Getzoff & Getzoff, Chicago, Ill., for Roxolana Harasymiw.
Before WOOD, JR. and POSNER, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
When Roxolana Harasymiw filed bankruptcy, among her creditors was the Selfreliance Federal Credit Union ("Selfreliance"). The bankruptcy court ruled that Harasymiw's obligation was nondischargeable either under 11 U.S.C. Sec. 523(a)(2)(B) as a debt incurred through a written material misrepresentation or under 11 U.S.C. Sec. 523(a)(4) as a debt incurred through fraud or defalcation while acting in a fiduciary capacity. The district court found Harasymiw's debt nondischargeable only under the basis of 11 U.S.C. Sec. 523(a)(2)(B). See Harasymiw v. Selfreliance Fed. Credit Union, 97 B.R. 924 (N.D.Ill.1989). Harasymiw appeals from the final order of the district court, and Selfreliance has cross-appealed. We agree that Harasymiw became indebted to Selfreliance through a written material misrepresentation. Consequently, we do not decide whether Harasymiw abused a fiduciary relationship owed to Selfreliance.
Harasymiw's relationship with Selfreliance began when she worked there on a part-time basis during high school. In April 1977, she became its treasurer, two years after her admittance to the Illinois bar. Harasymiw resigned as treasurer in April 1981 but remained a director of Selfreliance until December 1983. Because of these positions, Selfreliance personnel considered Harasymiw to be credible and a person on whom they could rely for guidance.
In July 1981, Harasymiw approached her successor as treasurer, Bohdan Watral, regarding a possible $150,000 loan for a business venture that she and John Demianczuk wished to pursue. The deal was eventually consummated, with the following properties used as collateral:
(1) Assignment of a trust's beneficial
interest. The trust owned property
located at 917 South Western
Avenue in Chicago, Illinois
(the "Chicago property"). $267,000
Less disclosed encumbrances. ($159,000 )
---------
Total equity as disclosed by Harasymiw. $108,000
(2) Equity in unimproved land in Venice, Florida. $ 20,000
(3) Equity in real estate in Wilmette, Illinois. $ 50,000 --------
Total collateral as represented by Harasymiw. $178,000
--------
--------
In addition, Demianczuk held a contract for sale of the Chicago property for $267,000. Unbeknownst to Selfreliance, the Chicago property was encumbered by a superior purchase money mortgage in the amount of $128,000, making it valueless as a piece of collateral.
Selfreliance's board of directors approved the Harasymiw loan at a meeting which Harasymiw attended but left during the discussion of her application. For the board to approve a loan, it generally needed evidence that the value of the collateral at least exceeded the amount of the loan--$150,000 in this case. At the time of approval, Selfreliance had a loan policy that provided for the evaluation of loans on a case-by-case basis within the regulations of the National Credit Union Administration. After obtaining board approval, Harasymiw prepared the mortgages for the Wilmette and Florida properties, the assignment of the beneficial trust interest to Selfreliance, and the disbursement voucher for her loan.
Selfreliance retained an independent attorney to review the legal aspects of the Harasymiw loan. As part of this review, Harasymiw provided a title commitment for the Chicago property. The title commitment did not disclose the $128,000 purchase money mortgage, which was recorded three days after the title commitment was issued. From the time of her loan application to disbursement of the loan proceeds, Harasymiw never disclosed the existence of the $128,000 mortgage. This prior encumbrance reduced the value of Harasymiw's collateral package below the $150,000 threshold needed for Selfreliance's approval. The bankruptcy court specifically found that had Selfreliance known of this superior mortgage, it would not have allowed the loan.
On these facts, the bankruptcy court held that Harasymiw's debt to Selfreliance was nondischargeable under 11 U.S.C. Sec. 523(a)(2)(B) as a debt incurred through a material misrepresentation. The credit union was found to have reasonably relied upon Harasymiw's representations. Also, Harasymiw's reckless disregard for the accuracy of her representations was enough to establish a knowing intent to deceive. The district court substantially agreed with the reasoning of the bankruptcy court, adding that $267,000 was a reasonable valuation of the Chicago property. The district court disagreed with the bankruptcy court whether Harasymiw's debt was incurred through fraud while acting in a fiduciary capacity, an issue we need not reach today.
Harasymiw attacks the district court's order on three grounds. First, she asserts the district court ignored the value of the contract for sale of the Chicago property. Second, Harasymiw challenges the district court's $267,000 valuation of the Chicago property as clearly erroneous. Third, Harasymiw asserts that the district court should have applied Selfreliance's loan policy to determine the materiality of her misrepresentation.
Arguing that we can find Harasymiw's debt nondischargeable as a debt incurred through fiduciary malfeasance, Selfreliance has also appealed from the district court's order. Selfreliance's cross-appeal only raises alternative grounds for affirming the district court's decision, rendering the cross-appeal unnecessary. Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 439 (7th Cir.1987), cert. dismissed, 485 U.S. 901, 108 S.Ct. 1067, 99 L.Ed.2d 229 (1988). Because we agree that Harasymiw incurred her debt through a material misrepresentation, we do not reach the merits of Selfreliance's cross-appeal. Accordingly, the cross-appeal is dismissed.
The requirements of nondischargeability under 11 U.S.C. Sec. 523(a)(2)(B) can be broken down into six elements:
(1) the debtor must make
(2) with intent to deceive
(3) a materially false
(4) statement in writing
(5) respecting the debtor's or an insider's financial condition
(6) on which the creditor reasonably relied.
The burden is on the creditor, Selfreliance, to establish these six elements by clear and convincing evidence. In re Bogstad, 779 F.2d 370, 372 (7th Cir.1983). In this case, Harasymiw challenges whether her statement was materially false and whether Selfreliance reasonably relied on her misrepresentation.
In her materiality argument, Harasymiw uses a "but for" causation or causa sine qua non analysis: a misrepresentation is material only if the creditor would not have advanced funds but for the debtor's misrepresentation. Previously, we have noted cases defining materiality under section 523(a)(2)(B) as "an important or substantial untruth" and called the causa sine qua non test a "recurring guidepost." Bogstad, 779 F.2d at 375. We need not decide today whether a causa sine qua non analysis is an essential part of section 523(a)(2)(B)'s materiality element. Harasymiw's appeal is fruitless even using the tougher causa sine qua non definition of materiality. We agree with both lower courts that if Selfreliance had known of the undisclosed $128,000 mortgage, it would not have made the loan to Harasymiw.
As her first assigned error, Harasymiw argues we should count the value of the contract for the sale of the Chicago property to a person named Perez. Both lower courts implicitly found that the credit union did not consider the Perez contract as a separate asset when evaluating Harasymiw's loan application. Under Harasymiw's logic, injecting the $133,500 value 1 of the Perez contract into the package of collateral would cover the $128,000 prior mortgage that she failed to disclose. 2 However, adding this amount to the value of Harasymiw's collateral would be an absurd double-counting. While Demianczuk did assign his interest in the Perez contract to Selfreliance and the credit union did consider the Perez contract in its loan decision, these actions were necessary to protect the credit union's interest in the Chicago property. The Perez contract was a contract for sale of the Chicago property, a property that was already part of Harasymiw's collateral. Together, the Perez contract and Demianczuk's equity represent the property's complete value: every payment by Perez reduced Demianczuk's interest. Because any other result would be financially senseless, the bankruptcy and district courts did not err in their implied findings that Selfreliance never treated the value of the Perez contract as a separate piece of collateral.
By attempting to paint the Perez contract as more than just a contract for sale of the Chicago property, Harasymiw acknowledges the flaws in her argument. She asserts that the Perez contract encompassed more than just the sale of land: it also included the repayment of two loans that Perez owed to Demianczuk. We cannot agree with this analysis. The contract itself states that the sales price is $267,000. In addition, Harasymiw fails to explain why Perez would agree to be the purchaser in...
To continue reading
Request your trial
-
Associated Mortg. Corp. v. Weaver (In re Weaver)
...the Court concludes AMC did not have a duty independently verify Wilson's information. See Selfreliance Fed. Credit Union v. Harasymiw (In re Harasymiw) , 895 F.2d 1170, 1173–74 (7th Cir. 1990) (concluding that credit union reasonably relied on and had no duty to independently verify financ......
-
In re Basel-Johnson
...party seeking to establish an exception to the discharge of a debt bears the burden of proof. Selfreliance Fed. Credit Union v. Harasymiw (In re Harasymiw), 895 F.2d 1170, 1172 (7th Cir.1990); Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 961 (Bankr.N.D.Ill.1995). The United States......
-
In re Basel Van Aswegen
...party seeking to establish an exception to the discharge of a debt bears the burden of proof. Selfreliance Fed. Credit Union v. Harasymiw (In re Harasymiw), 895 F.2d 1170, 1172 (7th Cir.1990); Banner Oil Co. v. Bryson (In re Bryson), 187 B.R. 939, 961 (Bankr.N.D.Ill.1995). The United States......
-
Centier Bank v. Ransom (In re Ransom)
...satisfaction of the "but for" test is an essential part of a claim under Section 523(a)(2)(B). Selfreliance Fed. Credit Union v. Harasymiw (In re Harasvmiw), 895 F.2d 1170, 1172 (7th Cir. 1990). Next, 11 U.S.C. §523(a)(4) provides that a debt is excepted from discharge if the debt is "for f......
-
Chapter 5 A Practice Guide to Student Loan Litigation in Bankruptcy Court
...466 B.R. 727 (Bankr. W.D. Pa. 2012).[545] Id. at 729.[546] See, e.g., SelfReliance Fed. Credit Union v. Harasymiw (In re Harasymiw), 895 F.2d 1170, 1172 (7th Cir. 1990); Brown v. CitiBank (In re Brown), 539 B.R. 853 (Bankr. S.D. Cal. 2015); Chicago Patrolmen's Fed. Credit Union v. Daymon (I......