Hernandez v. Gen. Mills Fed. Credit Union (In re Hernandez)
| Decision Date | 13 June 2016 |
| Docket Number | Civil Case No. 15–3844 SRN |
| Citation | 552 B.R. 750 |
| Parties | In re Michael John Hernandez, Debtor. Michael John Hernandez, Appellant, v. General Mills Federal Credit Union, Appellee. |
| Court | U.S. District Court — District of Minnesota |
Larry E. Reed, Reed Law Offices, PO Box 43596, Minneapolis, Minnesota 55443, for Appellant
Daniel W. Fram and Meggan E. Lindsay, Felhaber Larson, 220 South Sixth Street, Suite 2200, Minneapolis, Minnesota 55402, for Appellee
SUSAN RICHARD NELSON
Appellant Michael John Hernandez appeals from a September 29, 2015 Order for Judgment and Judgment of the United States Bankruptcy Court for the District of Minnesota (“Bankruptcy Court”) in the matter of In re Michael John Hernandez , Adv. No. 14–BR–4095–MER. (Order for Judgment [Doc. No. 1–5]; Judgment [Doc. No. 1–6].) For the reasons set forth herein, Appellant's appeal is denied and the Bankruptcy Court's Order for Judgment and Judgment are affirmed.
In March 2014, Michael Hernandez filed for Chapter 7 bankruptcy in Bankruptcy Court. (Ch. 7 Pet. [Doc. No. 1], In re Hernandez , No. 14–41335 (Bankr.D.Minn.).) In July 2014, Michael Hernandez received a general discharge of his debts in the Chapter 7 proceeding. (Tr. of 9/28/15 at 6) (reciting procedural history).
Shortly after Hernandez filed his Chapter 7 proceeding, Appellee General Mills Federal Credit Union (“the Credit Union”) filed the underlying adversary proceeding in Bankruptcy Court on May 21, 2014.1 In its adversary complaint, the Credit Union sought a monetary judgment based on Hernandez's default of a loan and a declaration of nondischargeability of debt in the Chapter 7 proceedings. (Compl. at 3–4, Adv. No. 14–41335–MER (D.Minn.Bankr.2014).) The Credit Union alleged that the debt in question was nondischargeable based on actual fraud under 11 U.S.C. § 523(a)(2)(A)
. (Id. ¶ 6.) Specifically, the Credit Union asserted that Hernandez fraudulently prepared and executed powers of attorney for his grandparents, Stella R. Hernandez and Joseph Hernandez (“the Hernandezes”), so that Appellant could obtain a home-equity loan from the Credit Union in 2005. (Id. ¶¶ 6–10.)
The Credit Union's adversary proceeding was tried before United States Bankruptcy Judge Michael E. Ridgway on March 3–4, 2015. The Bankruptcy Court admitted numerous exhibits in evidence and heard testimony from the following witnesses: (1) Michael Hernandez; (2) Harry Charles Ross, III, a Credit Union representative; (3) Cheryl L. Engh, a notary public and court reporter; (4) Vicki Giller, Michael Hernandez's cousin; and (5) Regina Griffith, Michael Hernandez's sister. (See Witness and Ex. Records [Doc. Nos. 6–33 & 6–34].)
After the submission of post-trial briefing and responsive memoranda, the parties reconvened on September 28, 2015, at which time Judge Ridgway orally stated his findings and conclusions on the record. (Tr. of 9/28/15 at 5–34.) On September 29, 2015, Judge Ridgway issued his written Findings of Fact, Conclusions of Law and Order for Judgment, finding that Michael Hernandez's debt to the Credit Union in the amount of $122,115.25 was not subject to discharge from his Chapter 7 bankruptcy debt. (Order for Judgment at 1 [Doc. No. 1–5].) He further dismissed with prejudice a counterclaim filed by Hernandez against the Credit Union and ruled that each party would bear its own attorney's fees and costs. (Id. ) Also on September 29, 2015, the Bankruptcy Court entered Judgment, consistent with Judge Ridgway's ruling. (Judgment [Doc. No. 1–6].)
The Bankruptcy Court maintained jurisdiction over Hernandez's Chapter 7 case and the adversary proceeding pursuant to 28 U.S.C. §§ 157
and 1334. The Bankruptcy Court's Order for Judgment is a final, appealable order. Michael Hernandez filed a timely notice of appeal under 28 U.S.C. § 158(a), which gives the district courts of the United States jurisdiction to hear bankruptcy appeals.
Stella and Joseph Hernandez, grandparents of Appellant Michael Hernandez, owned a residence at 241 Dayton Ave in St. Paul, Minnesota. (Tr. at 194–95 [Doc. No. 7].)2 The residence had three separate living units. (Tr. at 196.) Appellant testified at trial that in 2003, his grandfather was struggling financially and asked Appellant to become the owner of the residence. (Tr. at 194.) Under the proposed arrangement, Appellant would take out a new mortgage, pay off the existing mortgage, and rent out two of the living units to offset the cost of the mortgage payments. (Id. ) On June 19, 2003, Stella and Joseph Hernandez executed a quitclaim deed, transferring title in the property to their grandson, Michael Hernandez, but reserving a life estate in the property for themselves. (Trial Ex. 1.) At the time when the grandparents deeded the property to Appellant, the mortgage on the property was in the amount of $144,000. (Tr. at 269.)
In October 2003, Appellant obtained a $185,000 mortgage on the property from the Credit Union, using the loan to pay off his grandfather's mortgage and to pay off Appellant's own personal debt. (Tr. at 198; 270.) Stella, Joseph, and Michael Hernandez were present at the closing and each individually signed for the mortgage. (Tr. at 19; 200.)
In approximately April 2004, Appellant obtained a $30,000 home equity loan from the Credit Union. (Tr. at 201.) Appellant testified that the additional loan was necessary because Stella Hernandez would not allow him to rent out two of the living units. (Tr. at 202.) Neither Stella nor Joseph Hernandez were present at the closing and the loan was made in the name of Michael Hernandez. (Tr. at 200.) Appellant used this loan to consolidate his personal debt. (Tr. at 271–72.) This loan was satisfied on May 9, 2007. (Trial Ex. F.)
In approximately May 2004, Stella, Joseph, and Michael Hernandez took out a mortgage in the amount of $222,300. (Tr. at 203; Trial Ex. G.) This mortgage was obtained from the Credit Union, which eventually sold the mortgage to PHH Mortgage Corporation (“PHH Mortgage”). (Tr. at 203; Trial Ex. 8 ¶ 19.) Prior to the closing, Appellant obtained power of attorney forms from the Credit Union (the “2004 POAs”). (Tr. at 205.) The power of attorney authorizations gave Appellant the authority to execute real estate transactions on behalf of his grandparents as their attorney in fact. (Tr. at 24.) Appellant testified that he dropped off the two 2004 POA forms for his grandparents to complete. (Tr. at 205–06.) Michael Hernandez signed the two 2004 POA forms himself in a spot marked “Specimen Signature of Attorney(s)-in-Fact,” for which notarization was not required. (Id. ; Trial Exs. 13 & 14.) At the closing, Appellant signed and executed the note and mortgage using the 2004 POAs for Stella and Joseph Hernandez. (Tr. at 273, Trial Exs. 13, 14, G.) After paying off the previous mortgage, Michael Hernandez received $1,970 in cash back. (Tr. at 275, Trial Ex. G.)
On March 11, 2005, Michael, Stella, and Joseph Hernandez obtained a home equity loan in the amount of $100,000 (“the Loan”) that is the subject of the underlying Bankruptcy Court adversary proceeding. (Tr. at 13–14, Trial Ex. 2.) The Loan was secured by a mortgage that was subordinate to the 2004 mortgage. (Trial Ex. 2.) In advance of the closing, property title research revealed to the Credit Union the quitclaim deed with the reserved life estate. (Tr. at 17.) The Credit Union therefore required all three property owners to be signatories on the Loan. (Tr. at 19.) Appellant again obtained power of attorney forms from the Credit Union. (Tr. at 213.) Appellant testified that his grandparents completed the 2005 power of attorney forms (the “2005 POAs”), however, Appellant did not provide a specimen signature as attorney in fact in the space indicated on the 2005 POA forms. (Tr. at 216–17; Trial Exs. 4 & 5.) Appellant signed an affidavit as attorney in fact (“Affidavit by Attorney in Fact”), (Tr. at 214–15), which the Credit Union required. (Tr. at 21–22; Trial Ex. 6.) Appellant alone signed the note for the Loan on his own behalf and on behalf of his grandparents, as their attorney in fact. (Tr. at 207; Trial Ex. 2.)
The Credit Union's trial witness, Harry Charles Ross, III, testified that the Credit Union relied on the authenticity of the 2005 POAs and Michael Hernandez's 2005 Affidavit by Attorney in Fact. (Tr. at 28–29.) Furthermore, Ross stated that the Credit Union had no reason to question the authenticity of the documents at that time. (Tr. at 29.) Absent these documents, the Credit Union would not have issued the Loan. (Id. )
Stella Hernandez, who is 86 years old, was unavailable at trial, having relocated to a nursing home facility in Ohio. (Tr. at 117.) Joseph Hernandez passed away in October 2013. (Tr. at 115–16.) In support of the Credit Union's allegations that Michael Hernandez fraudulently prepared and executed the 2005 POAs, the Credit Union offered the testimony of Vicki Giller. Vicki Giller is the niece of Stella and Joseph Hernandez. (Tr. at 114–16.) Giller testified that her aunt and uncle sought her assistance when they received foreclosure notices resulting from a payment default related to the $30,000 loan. (Tr. at 134.) Ultimately, the overdue amounts were paid and the $30,000 loan did not go into foreclosure. (Tr. at 156–57.) Giller testified that she did some research, however, to try to “find out what was going on” and ultimately “learned that there [were] some forged documents.” (Tr. at 134.) Specifically, Giller testified that she discovered that the signatures on the 2005 POAs were not the actual signatures of Stella and Joseph Hernandez. (Tr. at 137.) Because she had assisted her aunt and uncle with medical documents, bills, and checks, Giller stated that she was familiar with the signatures of Stella and Joseph Hernandez, and could therefore tell that the 2005 POA signatures were forged. (...
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